TMI BlogCompanies (Accounting Standards)Amendment Rules, 2016X X X X Extracts X X X X X X X X Extracts X X X X ..... um thereto as specified in rule 3 of these rules; (b) Act means the Companies Act, 1956 (1 of 1956) or the Companies Act, 2013 (18 of 2013) , as the case may be; ; (ii) for clauses (d) and (e), the following clauses shall be substituted, namely:- (d) Financial Statements means financial statements as defined in sub-section (40) of section 2 of the Companies Act, 2013 ; (e) Enterprise means a company as defined in sub-section (20) of section 2 of the Companies Act, 2013 or as defined in section 3 of the Companies Act, 196, as the case may be; . 3. In the principal rules, in rule 4, in sub-rule (2), the words General Purpose shall be omitted. 4. In the principals rules, in the ANNEXURE, under the heading ACCOUNTING STANDARDS , under the subheading A. General Instructions , after paragraph 4, the following paragraph shall be inserted namely:- 5. The reference to Schedule VI or Companies Act, 1956 shall mutatis mutandis mean Schedule III and Companies Act, 2013 , respectively. 5. In the principal rules, in the ANNEXURE , under the heading ACCOUNTING STANDARDS for Accounting Standard (AS) 2 , the following Accounting Standard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business less the estimated costs of completion and the estimated costs necessary to make the sale. 4. Inventories encompass goods purchased and held for resale, for example, merchandise purchased by a retailer and held for resale, computer software held for resale, or land and other property held for resale. Inventories also encompass finished goods produced, or work in progress being produced, by the enterprise and include materials, maintenance supplies, consumables and loose tools awaiting use in the production process. Inventories do not include spare parts, servicing equipment and standby equipment which meet the definition of property, plant and equipment as per AS 10, Property, Plant and Equipment. Such items are accounted for in accordance with Accounting Standard (AS) 10, Property, Plant and Equipment. Measurement of Inventories 5. Inventories should be valued at the lower of cost and net realisable value. Cost of Inventories 6. The cost of inventories should comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. Costs of Purchase 7. The costs of purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re allocated between the products on a rational and consistent basis. The allocation may be based, for example, on the relative sales value of each product either at the stage in the production process when the products become separately identifiable, or at the completion of production. Most by-products as well as scrap or waste materials, by their nature, are immaterial. When this is the case, they are often measured at net realisable value and this value is deducted from the cost of the main product. As a result, the carrying amount of the main product is not materially different from its cost. Other Costs 11. Other costs are included in the cost of inventories only to the extent that they are incurred in bringing the inventories to their present location and condition. For example, it may be appropriate to include overheads other than production overheads or the costs of designing products for specific customers in the cost of inventories. 12. Interest and other borrowing costs are usually considered as not relating to bringing the inventories to their present location and condition and are, therefore, usually not included in the cost of inventories. Exclusions fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e those most recently purchased or produced. Under the weighted average cost formula, the cost of each item is determined from the weighted average of the cost of similar items at the beginning of a period and the cost of similar items purchased or produced during the period. The average may be calculated on a periodic basis, or as each additional shipment is received, depending upon the circumstances of the enterprise. Techniques for the Measurement of Cost 18. Techniques for the measurement of the cost of inventories, such as the standard cost method or the retail method, may be used for convenience if the results approximate the actual cost. Standard costs take into account normal levels of consumption of materials and supplies, labour, efficiency and capacity utilisation. They are regularly reviewed and, if necessary, revised in the light of current conditions. 19. The retail method is often used in the retail trade for measuring inventories of large numbers of rapidly changing items that have similar margins and for which it is impracticable to use other costing methods. The cost of the inventory is determined by reducing from the sales value of the inventory the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the principles enunciated in Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date. 24. Materials and other supplies held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost. However, when there has been a decline in the price of materials and it is estimated that the cost of the finished products will exceed net realisable value, the materials are written down to net realisable value. In such circumstances, the replacement cost of the materials may be the best available measure of their net realisable value. 25. An assessment is made of net realisable value as at each balance sheet date. Disclosure 26. The financial statements should disclose: (a) the accounting policies adopted in measuring inventories, including the cost formula used; and (b) the total carrying amount of inventories and its classification appropriate to the enterprise. 27. Information about the carrying amounts held in different classifications of inventories and the extent of the changes in these assets is useful to financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The term contingencies used in this Standard is restricted to conditions or situations at the balance sheet date, the financial effect of which is to be determined by future events which may or may not occur. 4.2 Estimates are required for determining the amounts to be stated in the financial statements for many on-going and recurring activities of an enterprise. One must, however, distinguish between an event which is certain and one which is uncertain. The fact that an estimate is involved does not, of itself, create the type of uncertainty which characterises a contingency. For example, the fact that estimates of useful life are used to determine depreciation, does not make depreciation a contingency; the eventual expiry of the useful life of the asset is not uncertain. Also, amounts owed for services received are not contingencies as defined in paragraph 3.1, even though the amo unts may have been estimated, as there is nothing uncertain about the fact that these obligations have been incurred. 4.3 The uncertainty relating to future events can be expressed by a range of outcomes. This range may be presented as quantified probabilities, but in most circumstances, this s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion may result in the recognition of revenue which may never be realised. However, when the realisation of a gain is virtually certain, then such gain is not a contingency and accounting for the gain is appropriate. 7. Determination of the Amounts at which Contingencies are included in Financial Statements 7.1 The amount at which a contingency is stated in the financial statements is based on the information which is available at the date on which the financial statements are approved. Events occurring after the balance sheet date that indicate that an asset may have been impaired, or that a liability may have existed, at the balance sheet date are, therefore, taken into account in identifying contingencies and in determining the amounts at which such contingencies are included in financial statements. 7.2 In some cases, each contingency can be separately identified, and the special circumstances of each situation considered in the determination of the amount of the contingency. A substantial legal claim against the enterprise may represent such a contingency. Among the factors taken into account by management in evaluating such a contingency are the progress of the cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sheet date which do not affect the figures stated in the financial statements would not normally require disclosure in the financial statements although they may be of such significance that they may require a disclosure in the report of the approving authority to enable users of financial statements to make proper evaluations and decisions. 8.5 There are events which, although they take place after the balance sheet date, are sometimes reflected in the financial statements because of statutory requirements or because of their special nature. For example, if dividends are declared after the balance sheet date but before the financial statements are approved for issue, the dividends are not recognised as a liability at the balance sheet date because no obligation exists at that time unless a statute requires otherwise. Such dividends are disclosed in the notes. 8.6 Events occurring after the balance sheet date may indicate that the enterprise ceases to be a going concern. A deterioration in operating results and financial position, or unusual changes affecting the existence or substratum of the enterprise after the balance sheet date (e.g., destruction of a major production pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notes. 15. Disclosure should be made in the report of the approving authority of those events occurring after the balance sheet date that represent material changes and commitments affecting the financial position of the enterprise. Disclosure 16. If disclosure of contingencies is required by paragraph 11 of this Standard, the following information should be provided: (a) the nature of the contingency; (b) the uncertainties which may affect the future outcome; (c) an estimate of the financial effect, or a statement that such an estimate cannot be made. 17. If disclosure of events occurring after the balance sheet date in the report of the approving authority is required by paragraph 15 of this Standard, the following information should be provided: (a) the nature of the event; (b) an estimate of the financial effect, or a statement that such an estimate cannot be made . 7. In the principals rules, in the ANNEXURE , under the heading ACCOUNTING STANDARDS , Accounting Standard (AS) 6 shall be omitted. 8. In the principal rules, in the ANNEXURE , under the heading ACCOUNTING STANDARDS , for Accounting Standard (AS) 10, the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used in this Standard with the meanings specified: Agricultural Activity is the management by an enterprise of the biological transformation and harvest of biological assets for sale or for conversion into agricultural produce or into additional biological assets. Agricultural Produce is the harvested product of biological assets of the enterprise. Bearer plan t is a plant that (a) is used in the production or supply of agricultural produce; (b) is expected to bear produce for more than a period of twelve months; and (c) has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales. The following are not bearer plants: (i) plants cultivated to be harvested as agricultural produce (for example, trees grown for use as lumber); (ii) plants cultivated to produce agricultural produce when there is more than a remote likelihood that the entity will also harvest and sell the plant as agricultural produce, other than as incidental scrap sales (for example, trees that are cultivated both for their fruit and their lumber); and (iii) annual crops (for example, maize and wheat). When bearer plants are no long ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable for use by an enterprise ; or (b) the number of production or similar units expected to be obtained from the asset by an enterprise. Recognition 7. The cost of an item of property, plant and equipment should be recognised as an asset if, and only if: (a) it is probable that future economic benefits associated with the item will flow to the enterprise; and (b) the cost of the item can be measured reliably. 8. Items such as spare parts, stand-by equipment and servicing equipment are recognised in accordance with this Standard when they meet the definition of property, plant and equipment. Otherwise, such items are classified as inventory. 9. This Standard does not prescribe the unit of measure for recognition, i.e., what constitutes an item of property, plant and equipment. Thus, judgement is required in applying the recognition criteria to specific circumstances of an enterprise. An example of a unit of measure can be a project of construction of a manufacturing plant rather than individual assets comprising the project in appropriate cases for the purpose of capitalisation of expenditure incurred during construction period. Similarly, it may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y-to-day servicing of the item. Rather, these costs are recognised in the statement of profit and loss as incurred. Costs of day-to-day servicing are primarily the costs of labour and consumables, and may include the cost of small parts. The purpose of such expenditures is often described as for the repairs and maintenance of the item of property, plant and equipment. 13. Parts of some items of property, plant and equipment may require replacement at regular intervals. For example, a furnace may require relining after a specified number of hours of use, or aircraft interiors such as seats and galleys may require replacement several times during the life of the airframe. Similarly, major parts of conveyor system, such as, conveyor belts, wire ropes, etc., may require replacement several times during the life of the conveyor system. Items of property, plant and equipment may also be acquired to make a less frequently recurring replacement, such as replacing the interior walls of a building, or to make a non-recurring replacement. Under the recognition principle in paragraph 7, an enterprise recognises in the carrying amount of an item of property, plant and equipment the cost of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nefits (as defined in AS 15, Employee Benefits) arising directly from the construction or acquisition of the item of property, plant and equipment; (b) costs of site preparation; (c) initial delivery and handling costs; (d) installation and assembly costs; (e) costs of testing whether the asset is functioning properly, after deducting the net proceeds from selling any items produced while bringing the asset to that location and condition (such as samples produced when testing equipment); and (f) professional fees. 19. An enterprise applies AS 2, Valuation of Inventories, to the costs of obligations for dismantling, removing and restoring the site on which an item is located that are incurred during a particular period as a consequence of having used the item to produce inventories during that period. The obligations for costs accounted for in accordance with AS 2 or AS 10 are recognised and measured in accordance with AS 29, Provisions, Contingent Liabilities and Contingent Assets. 20. Examples of costs that are not costs of an item of property, plant and equipment are: (a) costs of opening a new facility or business, such as, inauguration costs; (b) cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urces incurred in selfconstructing an asset is not included in the cost of the asset. AS 16, Borrowing Costs, establishes criteria for the recognition of interest as a component of the carrying amount of a self-constructed item of property, plant and equipment. 24. Bearer plants are accounted for in the same way as self-constructed items of property, plant and equipment before they are in the location and condition necessary to be capable of operating in the manner intended by management. Consequently, references to construction in this Standard should be read as covering activities that are necessary to cultivate the bearer plants before they are in the location and condition necessary to be capable of operating in the manner intended by management. Measurement of Cost 25. The cost of an item of property, plant and equipment is the cash price equivalent at the recognition date. If payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the total payment is recognised as interest over the period of credit unless such interest is capitalised in accordance with AS 16. 26. One or more items of property, plant and equipment m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. 29. Where several items of property, plant and equipment are purchased for a consolidated price, the consideration is apportioned to the various items on the basis of their respective fair values at the date of acquisition. In case the fair values of the items acquired cannot be measured reliably, these values are estimated on a fair basis as determined by competent valuers. 30. The cost of an item of property, plant and equipment held by a lessee under a finance lease is determined in accordance with AS 19, Leases. 31. The carrying amount of an item of property, plant and equipment may be reduced by government grants in accordance with AS 12, Accounting for Government Grants. Measurement after Recognition 32. An enterprise should choose either the cost model in paragraph 33 or the revaluation model in paragraph 34 as its accounting policy and should apply that policy to an entire class of property, plant and equipment. Cost Model 33. After recognition as an asset, an item of property, plant and equipment should be carried at its cost less any accumulated depreciation and any accumulated impairment losses. Revaluation Model 34. After recogn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset after taking into account accumulated impairment losses; or (b) the accumulated depreciation is eliminated against the gross carrying amount of the asset. The amount of the adjustment of accumulated depreciation forms part of the increase or decrease in carrying amount that is accounted for in accordance with paragraphs 42 and 43. 39. If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs should be revalued. 40. A class of property, plant and equipment is a grouping of assets of a similar nature and use in operations of an enterprise. The following are examples of separate classes: (a) land; (b) land and buildings; (c) machinery; (d) ships; (e) aircraft; (f) motor vehicles; (g) furniture and fixtures; (h) office equipment;and (i) bearer plants. 41. The items within a class of property, plant and equipment are revalued simultaneously to avoid selective revaluation of assets and the reporting of amounts in the financial statements that are a mixtur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be grouped in determining the depreciation charge. 48. To the extent that an enterprise depreciates separately some parts of an item of property, plant and equipment, it also depreciates separately the remainder of the item. The remainder consists of the parts of the item that are individually not significant. If an enterprise has varying expectations for these parts, approximation techniques may be necessary to depreciate the remainder in a manner that faithfully represents the consumption pattern and/or useful life of its parts. 49. An enterprise may choose to depreciate separately the parts of an item that do not have a cost that is significant in relation to the total cost of the item. 50. The depreciation charge for each period should be recognised in the statement of profit and loss unless it is included in the carrying amount of another asset. 51. The depreciation charge for a period is usually recognised in the statement of profit and loss. However, sometimes, the future economic benefits embodied in an asset are absorbed in producing other assets. In this case, the depreciation charge constitutes part of the cost of the other asset and is included in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its that might have been obtained from the asset. Consequently, all the following factors are considered in determining the useful life of an asset: (a) expected usage of the asset. Usage is assessed by reference to the expected capacity or physical output of the asset. (b) expected physical wear and tear, which depends on operational factors such as the number of shifts for which the asset is to be used and the repair and maintenance programme, and the care and maintenance of the asset while idle. (c) technical or commercial obsolescence arising from changes or improvements in production, or from a change in the market demand for the product or service output of the asset. Expected future reductions in the selling price of an item that was produced using an asset could indicate the expectation of technical or commercial obsolescence of the asset, which, in turn, might reflect a reduction of the future economic benefits embodied in the asset. (d) legal or similar limits on the use of the asset, such as the expiry dates of related leases. 59. The useful life of an asset is defined in terms of its expected utility to the enterprise. The asset management policy of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thod that most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. That method is applied consistently from period to period unless there is a change in the expected pattern of consumption of those future economic benefits or that the method is changed in accordance with the statute to best reflect the way the asset is consumed. 65. A depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate. The revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits of the asset. For example, revenue is affected by other inputs and processes, selling activities and changes in sales volumes and prices. The price component of revenue may be affected by inflation, which has no bearing upon the way in which an asset is consumed. Changes in Existing Decommissioning, Restoration and Other Liabilities 66. The cost of property, plant and equipment may undergo changes subsequent to its acquisition or construction on account of changes in liabilities, price adjustments, changes i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the balance sheet date. Any such revaluation should be taken into account in determining the amounts to be taken to the statement of profit and loss and the owners interest under (a). If a revaluation is necessary, all assets of that class should be revalued. 69. The adjusted depreciable amount of the asset is depreciated over its useful life. Therefore, once the related asset has reached the end of its useful life, all subsequent changes in the liability should be recognised in the statement of profit and loss as they occur. This applies under both the cost model and the revaluation model. Impairment 70. To determine whether an item of property, plant and equipment is impaired, an enterprise applies AS 28, Impairment of Assets. AS 28 explains how an enterprise reviews the carrying amount of its assets, how it determines the recoverable amount of an asset, and when it recognises, or reverses the recognition of, an impairment loss. Compensation for Impairment 71. Compensation from third parties for items of property, plant and equipment that were impaired, lost or given up should be included in the statement of profit and loss when the compensation becomes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cognising revenue from the sale of goods. AS 19, Leases, applies to disposal by a sale and leaseback. 78. If, under the recognition principle in paragraph 7, an enterprise recognises in the carrying amount of an item of property, plant and equipment the cost of a replacement for part of the item, then it derecognises the carrying amount of the replaced part regardless of whether the replaced part had been depreciated separately. If it is not practicable for an enterprise to determine the carrying amount of the replaced part, it may use the cost of the replacement as an indication of what the cost of the replaced part was at the time it was acquired or constructed. 79. The gain or loss arising from the derecognition of an item of property, plant and equipment should be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item. 80. The consideration receivable on disposal of an item of property, plant and equipment is recognised in accordance with the principles enunciated in AS 9. Disclosure 81. The financial statements should disclose, for each class of property, plant and equipment: (a) the measurement base ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lives or depreciation rates provides users of financial statements with information that allows them to review the policies selected by management and enables comparisons to be made with other enterprises. For similar reasons, it is necessary to disclose: (a) depreciation, whether recognised in the statement of profit and loss or as a part of the cost of other assets, during a period; and (b) accumulated depreciation at the end of the period. 84. In accordance with AS 5, an enterprise discloses the nature and effect of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in subsequent periods. For property, plant and equipment, such disclosure may arise from changes in estimates with respect to: (a) residual values; (b) the estimated costs of dismantling, removing or restoring items of property, plant and equipment; (c) useful lives; and (d) depreciation methods. 85. If items of property, plant and equipment are stated at revalued amounts, the following should be disclosed: (a) the effective date of the revaluation; (b) whether an independent valuer was involved; (c) the methods and sig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraph 32 and paragraphs 34 44 regarding the revaluation model should be applied prospectively. In case, on the date of this Standard becoming mandatory, an enterprise does not adopt the revaluation model as its accounting policy but the carrying amount of item(s) of property, plant and equipment reflects any previous revaluation it should adjust the amount outstanding in the revaluation reserve against the carrying amount of that item. However, the carrying amount of that item should never be less than residual value. Any excess of the amount outstanding as revaluation reserve over the carrying amount of that item should be adjusted in revenue reserves . 9. In the principal rules, in the ANNEXURE , under the heading ACCOUNTING STANDARDS , for Accounting Standard (AS) 13, the following Accounting Standard shall be substituted, namely:- Accounting Standard (AS) 13 Accounting for Investments (This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of the General Instructions contained in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficates or similar documents (e.g., shares) while others exist in a physical form (e.g., buildings). The nature of an investment may be that of a debt, other than a short or long term loan or a trade debt, representing a monetary amount owing to the holder and usually bearing interest; alternatively, it may be a stake in the results and net assets of an enterprise such as an equity share. Most investments represent financial rights, but some are tangible, such as certain investments in land or buildings. 6. For some investments, an active market exists from which a market value can be established. For such investments, market value generally provides the best evidence of fair value. For other investments, an active market does not exist and other means are used to determine fair value. Classification of Investments 7. Enterprises present financial statements that classify fixed assets, investments and current assets into separate categories. Investments are classified as long term investments and current investments. Current investments are in the nature of current assets, although the common practice may be to include them in investments. 3 8. Investments other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents Current Investments 14. The carrying amount for current investments is the lower of cost and fair value. In respect of investments for which an active market exists, market value generally provides the best evidence of fair value. The valuation of current investments at lower of cost and fair value provides a prudent method of determining the carrying amount to be stated in the balance sheet. 15. Valuation of current investments on overall (or global) basis is not considered appropriate. Sometimes, the concern of an enterprise may be with the value of a category of related current investments and not with each individual investment, and accordingly the investments may be carried at the lower of cost and fair value computed categorywise (i.e. equity shares, preference shares, convertible debentures, etc.). However, the more prudent and appropriate method is to carry investments individually at the lower of cost and fair value. 16. For current investments, any reduction to fair value and any reversals of such reductions are included in the profit and loss statement. Long-term Investments 17. Long-term investments are usually carried at cost. However, when th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determination of carrying amount of investments; (b) the amounts included in profit and loss statement for: (i) interest, dividends (showing separately dividends from subsidiary companies*), and rentals on investments showing separately such income from long term and current investments. Gross income should be stated, the amount of income tax deducted at source being included under Advance Taxes Paid; (ii) profits and losses on disposal of current investments and changes in carrying amount of such investments; (iii) profits and losses on disposal of long-term investments and changes in the carrying amount of such investments; (c) significant restrictions on the right of ownership, realisability of investments or the remittance of income and proceeds of disposal; (d) the aggregate amount of quoted and unquoted investments, giving the aggregate market value of quoted investments; (e) other disclosures as specifically required by the relevant statute governing the enterprise. Main Principles Classification of Investments 26. An enterprise should disclose current investments and long-term investments distinctly in its financial statements. 27. Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit and loss statement. Disclosure 35. The following information should be disclosed in the financial statements: (a) the accounting policies for determination of carrying amount of investments; (b) classification of investments as specified in paragraphs 26 and 27 above; (c) the amounts included in profit and loss statement for: (i) interest, dividends (showing separately dividends from subsidiary companies), and rentals on investments showing separately such income from long term and current investments. Gross income should be stated, the amount of income tax deducted at source being included under Advance Taxes Paid; (ii) profits and losses on disposal of current investments and changes in the carrying amount of such investments; and (iii) profits and losses on disposal of long term investments and changes in the carrying amount of such investments; (d) significant restrictions on the right of ownership, realisability of investments or the remittance of income and proceeds of disposal; (e) the aggregate amount of quoted and unquoted investments, giving the aggregate market value of quoted investments; (f) other disclosure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iabilities of the transferor company become, after amalgamation, the assets and liabilities of the transferee company. (ii) Share holders holding not less than 90% of the face value of the equity shares of the transferor company (other than the equity shares already held therein, immediately before the amalgamation, by the transferee company or its subsidiaries* or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation. (iii) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity shares in the transferee company, except that cash may be paid in respect of any fractional shares. (iv) The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company. (v) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transferor company obtain a substantial share in the transferee company even to the extent that it should not be possible to identify any one party as dominant therein. This belief is based in part on the view that the exchange of control of one company for an insignificant share in a larger company does not amount to a mutual sharing of risks and benefits. 6. Others believe that the substance of an amalgamation in the nature of merger is evidenced by meeting certain criteria regarding the relationship of the parties, such as the former independence of the amalgamating companies, the manner of their amalgamation, the absence of planned transactions that would undermine the effect of the amalgamation, and the continuing participation by the management of the transferor company in the management of the transferee company after the amalgamation. Methods of Accounting for Amalgamations 7. There are two main methods of accounting for amalgamations: (a) the pooling of interests method; and (b) the purchase method. 8. The use of the pooling of interests method is confined to circumstances which meet the criteria referred to in paragraph 3(e) for an amalgamation in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may be taken to be the fair value. In case of other assets, the fair value may be determined by reference to the market value of the assets given up. Where the market value of the assets given up cannot be reliably assessed, such assets may be valued at their respective net book values. 15. Many amalgamations recognise that adjustments may have to be made to the consideration in the light of one or more future events. When the additional payment is probable and can reasonably be estimated at the date of amalgamation, it is included in the calculation of the consideration. In all other cases, the adjustment is recognised as soon as the amount is determinable [see Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date]. Treatment of Reserves on Amalgamation 16. If the amalgamation is an amalgamation in the nature of merger , the identity of the reserves is preserved and they appear in the financial statements of the transferee company in the same form in which they appeared in the financial statements of the transferor company. Thus, for example, the General Reserve of the transferor company becomes the General Reserve of the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatutory reserves in the books of the transferee company are complied with. In such cases the statutory reserves are recorded in the financial statements of the transferee company by a corresponding debit to a suitable account head (e.g., Amalgamation Adjustment Reserve ) which is presented as a separate line item. When the identity of the statutory reserves is no longer required to be maintained, both the reserves and the aforesaid account are reversed. Treatment of Goodwill Arising on Amalgamation 19. Goodwill arising on amalgamation represents a payment made in anticipation of future income and it is appropriate to treat it as an asset to be amortised to income on a systematic basis over its useful life. Due to the nature of goodwill, it is frequently difficult to estimate its useful life with reasonable certainty. Such estimation is, therefore, made on a prudent basis. Accordingly, it is considered appropriate to amortise goodwill over a period not exceeding five years unless a somewhat longer period can be justified. 20. Factors which may be considered in estimating the useful life of goodwill arising on amalgamation include: (a) the foreseeable life of the busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of the amalgamating companies; (b) effective date of amalgamation for accounting purposes; (c) the method of accounting used to reflect the amalgamation; and (d) particulars of the scheme sanctioned under a statute. 25. For amalgamations accounted for under the pooling of interests method, the following additional disclosures are considered appropriate in the first financial statements following the amalgamation: (a) description and number of shares issued, together with the percentage of each company s equity shares exchanged to effect the amalgamation; (b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof. 26. For amalgamations accounted for under the purchase method, the following additional disclosures are considered appropriate in the first financial statements following the amalgamation: (a) consideration for the amalgamation and a description of the consideration paid or contingently payable; and (b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof including the period of amor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to be an amalgamation in the nature of merger, it should be accounted for under the pooling of interests method described in paragraphs 33 35. 32. When an amalgamation is considered to be an amalgamation in the nature of purchase, it should be accounted for under the purchase method described in paragraphs 36 39. The Pooling of Interests Method 33. In preparing the transferee company s financial statements, the assets, liabilities and reserves (whether capital or revenue or arising on revaluation) of the transferor company should be recorded at their existing carrying amounts and in the same form as at the date of the amalgamation. The balance of the Profit and Loss Account of the transferor company should be aggregated with the corresponding balance of the transferee company or transferred to the General Reserve, if any. 34. If, at the time of the amalgamation, the transferor and the transferee companies have conflicting accounting policies, a uniform set of accounting policies should be adopted following the amalgamation. The effects on the financial statements of any changes in accounting policies should be reported in accordance with Accounting Standard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets, the fair value may be determined by reference to the market value of the assets given up. Where the market value of the assets given up cannot be reliably assessed, such assets may be valued at their respective net book values. 41. Where the scheme of amalgamation provides for an adjustment to the consideration contingent on one or more future events, the amount of the additional payment should be included in the consideration if payment is probable and a reasonable estimate of the amount can be made. In all other cases, the adjustment should be recognised as soon as the amount is determinable [see Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date]. Treatment of Reserves Specified in A Scheme of Amalgamation 42.* Where the scheme of amalgamation sanctioned under a statute prescribes the treatment to be given to the reserves of the transferor company after amalgamation, the same should be followed. Where the scheme of amalgamation sanctioned under a statute prescribes a different treatment to be given to the reserves of the transferor company after amalgamation as compared to the requirements of this Standard that would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter the Balance Sheet Date , but the amalgamation should not be incorporated in the financial statements. In certain circumstances, the amalgamation may also provide additional information affecting the financial statements themselves, for instance, by allowing the going concern assumption to be maintained . 11. In the principal rules, in the ANNEXURE , under the heading ACCOUNTING STANDARDS , for Accounting Standard (AS) 21, the following Accounting Standard shall be substituted, namely:- Accounting Standard (AS) 21 Consolidated Financial Statements 5 (This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of its objective and the General Instructions contained in part A of the Annexure to the Notification.) Objective The objective of this Standard is to lay down principles and procedures for preparation and presentation of consolidated financial statements. Consolidated financial statements are presented by a parent (also known as holding enterprise) to provide financial informat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through subsidiary(ies), by the parent. 6. Consolidated financial statements normally include consolidated balance sheet, consolidated statement of profit and loss, and notes, other statements and explanatory material that form an integral part thereof. Consolidated cash flow statement is presented in case a parent presents its own cash flow statement. The consolidated financial statements are presented, to the extent possible, in the same format as that adopted by the parent for its separate financial statements. Explanation: All the notes appearing in the separate financial statements of the parent enterprise and its subsidiaries need not be included in the notes to the consolidated financial statements. For preparing consolidated financial statements, the following principles may be observed in respect of notes and other explanatory material that form an integral part thereof: (a) Notes which are necessary for presenting a true and fair view of the consolidated financial statements are included in the consolidated financial statements as an integral part thereof. (b) Only the notes involving items which are material need to be disclosed. Materiality for this purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry(ies), more than one-half of the voting power of an enterprise. Control also exists when an enterprise controls the composition of the board of directors (in the case of a company) or of the corresponding governing body (in case of an enterprise not being a company) so as to obtain economic benefits from its activities. An enterprise may control the composition of the governing bodies of entities such as gratuity trust, provident fund trust etc. Since the objective of control over such entities is not to obtain economic benefits from their activities, these are not considered for the purpose of preparation of consolidated financial statements. For the purpose of this Standard, an enterprise is considered to control the composition of: (i) the board of directors of a company, if it has the power, without the consent or concurrence of any other person, to appoint or remove all or a majority of directors of that company. An enterprise is deemed to have the power to appoint a director, if any of the following conditions is satisfied: (a) a person cannot be appointed as director without the exercise in his favour by that enterprise of such a power as aforesaid; or (b) a perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r by virtue of ownership of the shares of another enterprise and all the shares are held as stock-in-trade and are acquired and held exclusively with a view to their subsequent disposal in the near future, the control by the first mentioned enterprise is considered to be temporary within the meaning of paragraph 11(a). (b) The period of time, which is considered as near future for the purposes of this Standard primarily depends on the facts and circumstances of each case. However, ordinarily, the meaning of the words near future is considered as not more than twelve months from acquisition of relevant investments unless a longer period can be justified on the basis of facts and circumstances of the case. The intention with regard to disposal of the relevant investment is considered at the time of acquisition of the investment. Accordingly, if the relevant investment is acquired without an intention to its subsequent disposal in near future, and subsequently, it is decided to dispose off the investment, such an investment is not excluded from consolidation, until the investment is actually disposed off. Conversely, if the relevant investment is acquired with an intention to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sheet separately from liabilities and the equity of the parent s shareholders. Minority interests in the net assets consist of: (i) the amount of equity attributable to minorities at the date on which investment in a subsidiary is made; and (ii) the minorities share of movements in equity since the date the parent-subsidiary relationship came in existence. Where the carrying amount of the investment in the subsidiary is different from its cost, the carrying amount is considered for the purpose of above computations. Explanation: (a) The tax expense (comprising current tax and deferred tax) to be shown in the consolidated financial statements should be the aggregate of the amounts of tax expense appearing in the separate financial statements of the parent and its subsidiaries. (b) The parent s share in the post-acquisition reserves of a subsidiary, forming part of the corresponding reserves in the consolidated balance sheet, is not required to be disclosed separately in the consolidated balance sheet keeping in view the objective of consolidated financial statements to present financial information of the group as a whole. In view of this, the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me reporting date. If it is not practicable to draw up the financial statements of one or more subsidiaries to such date and, accordingly, those financial statements are drawn up to different reporting dates, adjustments should be made for the effects of significant transactions or other events that occur between those dates and the date of the parent s financial statements. In any case, the difference between reporting dates should not be more than six months. 19. The financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements are usually drawn up to the same date. When the reporting dates are different, the subsidiary often prepares, for consolidation purposes, statements as at the same date as that of the parent. When it is impracticable to do this, financial statements drawn up to different reporting dates may be used provided the difference in reporting dates is not more than six months. The consistency principle requires that the length of the reporting periods and any difference in the reporting dates should be the same from period to period. 20. Consolidated financial statements should be prepared using un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsolidated subsidiary may exceed the minority interest in the equity of the subsidiary. The excess, and any further losses applicable to the minority, are adjusted against the majority interest except to the extent that the minority has a binding obligation to, and is able to, make good the losses. If the subsidiary subsequently reports profits, all such profits are allocated to the majority interest until the minority s share of losses previously absorbed by the majority has been recovered. 27. If a subsidiary has outstanding cumulative preference shares which are held outside the group, the parent computes its share of profits or losses after adjusting for the subsidiary s preference dividends, whether or not dividends have been declared. Accounting for Investments in Subsidiaries in a Parent s Separate Financial Statements 28. In a parent s separate financial statements, investments in subsidiaries should be accounted for in accordance with Accounting Standard (AS) 13, Accounting for Investments. Disclosure 29. In addition to disclosures required by paragraph 11 and 20, following disclosures should be made: (a) in consolidated financial statements a li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance sheet was made out) and the nature and extent of the investment so made in each such body corporate. (v) Quantitative information in respect of sales, raw materials consumed, opening and closing stocks of goods produced/ traded and purchases made, wherever applicable. (vi) A statement showing the computation of net profits in accordance with section 198 of the Companies Act, 2013, with relevant details of the calculation of the commissions payable by way of percentage of such profits to the directors (including managing directors) or manager (if any). (vii) In the case of manufacturing companies, quantitative information in regard to the licensed capacity (where licence is in force); the installed capacity; and the actual production. (viii) Value of imports calculated on C.I.F. basis by the company during the financial year in respect of : (a) raw materials; (b) components and spare parts; (c) capital goods. (ix) Expenditure in foreign currency during the financial year on account of royalty, know-how, professional, consultation fees, interest, and other matters. (x) Value of all imported raw materials, spare parts and components consumed during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom financial instruments 9 that are carried at fair value; (b) those resulting from executory contracts, except where the contract is onerous; Explanation : (i) An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Thus, for a contract to qualify as an onerous contract, the unavoidable costs of meeting the obligation under the contract should exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfill it. (ii) If an enterprise has a contract that is onerous, the present obligation under the contract is recognised and measured as a provision as per this Statement. The application of the above explanation is illustrated in Illustration 10 of Illustration C attached to the Standard. (c) those arising in insurance enterprises from contracts with policy-holders; and (d) those covered by another Accounting Standard. 2. This S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restructuring meets the definition of a discontinuing operation, additional disclosures are required by AS 24, Discontinuing Operations. Definitions 10. The following terms are used in this Standard with the meanings specified: 10.1 A provision is a liability which can be measured only by using a substantial degree of estimation. 10.2 A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. 10.3 An obligating event is an event that creates an obligation that results in an enterprise having no realistic alternative to settling that obligation. 10.4 A contingent liability is: (a) a possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the enterprise; or (b) a present obligation that arises from past events but is not recognised because: (i) it is not probable that an outflow of resources embodying economic benefits will be required to sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s used for liabilities that do not meet the recognition criteria. Recognition Provisions 14. A provision should be recognised when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision should be recognised. Present Obligation 15. In almost all cases it will be clear whether a past event has given rise to a present obligation. In rare cases, for example in a lawsuit, it may be disputed either whether certain events have occurred or whether those events result in a present obligation. In such a case, an enterprise determines whether a present obligation exists at the balance sheet date by taking account of all available evidence, including, for example, the opinion of experts. The evidence considered includes any additional evidence provided by events after the balance sheet date. On the basis of such evidence: (a) where it is more likely than not that a present obligation exists at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the law. For example, when environmental damage is caused there may be no obligation to remedy the consequences. However, the causing of the damage will become an obligating event when a new law requires the existing damage to be rectified. 21. Where details of a proposed new law have yet to be finalised, an obligation arises only when the legislation is virtually certain to be enacted. Differences in circumstances surrounding enactment usually make it impossible to specify a single event that would make the enactment of a law virtually certain. In many cases it will be impossible to be virtually certain of the enactment of a law until it is enacted. Probable Outflow of Resources Embodying Economic Benefits 22. For a liability to qualify for recognition there must be not only a present obligation but also the probability of an outflow of resources embodying economic benefits to settle that obligation. For the purpose of this Standard10 , an outflow of resources or other event is regarded as probable if the event is more likely than not to occur, i.e., the probability that the event will occur is greater than the probability that it will not. Where it is not probable t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m previously dealt with as a contingent liability, a provision is recognised in accordance with paragraph 14 in the financial statements of the period in which the change in probability occurs (except in the extremely rare circumstances where no reliable estimate can be made). Contingent Assets 30. An enterprise should not recognise a contingent asset. 31. Contingent assets usually arise from unplanned or other unexpected events that give rise to the possibility of an inflow of economic benefits to the enterprise. An example is a claim that an enterprise is pursuing through legal processes, where the outcome is uncertain. 32. Contingent assets are not recognised in financial statements since this may result in the recognition of income that may never be realised. However, when the realisation of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate. 33. A contingent asset is not disclosed in the financial statements. It is usually disclosed in the report of the approving authority (Board of Directors in the case of a company, and, the corresponding approving authority in the case of any other enterprise), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licating adjustments for risk and uncertainty with consequent overstatement of a provision. 40. Disclosure of the uncertainties surrounding the amount of the expenditure is made under paragraph 67(b). Future Events 41. Future events that may affect the amount required to settle an obligation should be reflected in the amount of a provision where there is sufficient objective evidence that they will occur. 42. Expected future events may be particularly important in measuring provisions. For example, an enterprise may believe that the cost of cleaning up a site at the end of its life will be reduced by future changes in technology. The amount recognised reflects a reasonable expectation of technically qualified, objective observers, taking account of all available evidence as to the technology that will be available at the time of the clean-up. Thus, it is appropriate to include, for example, expected cost reductions associated with increased experience in applying existing technology or the expected cost of applying existing technology to a larger or more complex clean-up operation than has previously been carried out. However, an enterprise does not anticipate the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he full amount of the liability, and a separate asset for the expected reimbursement is recognised when it is virtually certain that reimbursement will be received if the enterprise settles the liability. 50. In some cases, the enterprise will not be liable for the costs in question if the third party fails to pay. In such a case, the enterprise has no liability for those costs and they are not included in the provision. 51. As noted in paragraph 28, an obligation for which an enterprise is jointly and severally liable is a contingent liability to the extent that it is expected that the obligation will be settled by the other parties. Changes in Provisions 52. Provisions should be reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision should be reversed. Use of Provisions 53. A provision should be used only for expenditures for which the provision was originally recognised. 54. Only expenditures that relate to the original provision are adjusted against it. Adjusting expenditures ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vestment in new systems and distribution networks. These expenditures relate to the future conduct of the business and are not liabilities for restructuring at the balance sheet date. Such expenditures are recognised on the same basis as if they arose independently of a restructuring. 64. Identifiable future operating losses up to the date of a restructuring are not included in a provision. 65. As required by paragraph 44, gains on the expected disposal of assets are not taken into account in measuring a restructuring provision, even if the sale of assets is envisaged as part of the restructuring. Disclosure 66. For each class of provision, an enterprise should disclose: (a) the carrying amount at the beginning and end of the period; (b) additional provisions made in the period, including increases to existing provisions; (c) amounts used (i.e. incurred and charged against the provision) during the period; and (d) unused amounts reversed during the period. Provided that a Small and Medium-sized Company, as defined in the Notification, may not comply with paragraph 66 above. 67. An enterprise should disclose the following for each class of provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed. Transitional Provisions 73. All the existing provisions for decommissioning, restoration and similar liabilities (see paragraph 35) should be discounted prospectively, with the corresponding effect to the related item of property, plant and equipment. Illustration A Tables - Provisions, Contingent Liabilities and Reimbursements The purpose of this illustration is to summarise the main requirements of the Accounting Standard. It does not form part of the Accounting Standard and should be read in the context of the full text of the Accounting Standard. Provisions and Contingent Liabilities Where, as a result of past events, there may be an outflow of resources embodying future economic bene fits in settlement of: (a) a present obligation the one whose existence at the balance sheet date is considered probable; or (b) a possible obligation the existence of which at the balance sheet date is considered not probable. There is a present obligation that probably requires an o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the full text of the Accounting Standard. Note: in rare cases, it is not clear whether there is a present obligation. In these cases, a past event is deemed to give rise to a present obligation if, taking account of all available evidence, it is more likely than not that a present obligation exists at the balance sheet date (paragraph 15 of the Standard). Illustration C Illustration: Recognition This illustration illustrates the application of the Accounting Standard to assist in clarifying its meaning. It does not form part of the Accounting Standard. All the enterprises in the Illustrations have 31 March year ends. In all cases, it is assumed that a reliable estimate can be made of any outflows expected. In some Illustrations the circumstances described may have resulted in impairment of the assets this aspect is not dealt with in the examples. The cross references provided in the Illustrations indicate paragraphs of the Accounting Standard that are particularly relevant. The illustration should be read in the context of the full text of the Accounting Standard. Illustration 1: Warranties A manufacturer gives warranties at the time o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to rectify the damage that will be caused by extraction of the oil. An outflow of resources embodying economic benefits in settlement Probable. Conclusion - A provision is recognised for the best estimate of ninety per cent of the eventual costs that relate to the removal of the oil rig and restoration of damage caused by building it (see paragraph 14). These costs are included as part of the cost of the oil rig. The ten per cent of costs that arise through the extraction of oil are recognised as a liability when the oil is extracted. Illustration 4: Refunds Policy A retail store has a policy of refunding purchases by dissatisfied customers, even though it is under no legal obligation to do so. Its policy of making refunds is generally known. Present obligation as a result of a past obligating event - The obligating event is the sale of the product, which gives rise to an obligation because obligations also arise from normal business practice, custom and a desire to maintain good business relations or act in an equitable manner. An outflow of resources embodying economic benefits in settlement Probable, a proportion of goods are returned for refund ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterprise A gives a guarantee of certain borrowings of Enterprise B, whose financial condition at that time is sound. During 2005-06, the financial condition of Enterprise B deteriorates and at 30 September 2005 Enterprise B goes into liquidation. (a) At 31 March 2005 Present obligation as a result of a past obligating event - The obligating event is the giving of the guarantee, which gives rise to an obligation. An outflow of resources embodying economic benefits in settlement No outflow of benefits is probable at 31 March 2005. Conclusion - No provision is recognised (see paragraphs 14 and 22). The guarantee is disclosed as a contingent liability unless the probability of any outflow is regarded as remote (see paragraph 68). (b) At 31 March 2006 Present obligation as a result of a past obligating event -The obligating event is the giving of the guarantee, which gives rise to a legal obligation. An outflow of resources embodying economic benefits in settlement - At 31 March 2006, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation. Conclusion - A provision is recognised for the best e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to replace the lining exists independently of the company s future actions - even the intention to incur the expenditure depends on the company deciding to continue operating the furnace or to replace the lining. Illustration 9B: Refurbishment Costs -Legislative Requirement An airline is required by law to overhaul its aircraft once every three years. Present obligation as a result of a past obligating event - There is no present obligation. Conclusion - No provision is recognised (see paragraphs 14 and 16-18). The costs of overhauling aircraft are not recognised as a provision for the same reasons as the cost of replacing the lining is not recognised as a provision in illustration 9A. Even a legal requirement to overhaul does not make the costs of overhaul a liability, because no obligation exists to overhaul the aircraft independently of the enterprise s future actions - the enterprise could avoid the future expenditure by its future actions, for example by selling the aircraft. Illustration 10: An onerous contract An enterprise operates profitably from a factory that it has leased under an operating lease. During December 2005 the enterprise reloca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng information is disclosed: Litigation is in process against the company relating to a dispute with a competitor who alleges that the company has infringed patents and is seeking damages of ₹ 1000 lakhs. The information usually required by AS 29, Provisions, Contingent Liabilities and Contingent Assets is not disclosed on the grounds that it can be expected to prejudice the interests of the company. The directors are of the opinion that the claim can be successfully resisted by the company. [F. No. 17/151/2013-CL-V] AMARDEEP SINGH BHATIA, Jt. Secy. NOTE: - Principal rules were published in the gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) dated the 7th December, 2006 vide G.S.R. 734 (E), dated the 7th December, 2006 and last amended vide G.S.R. 914 (E) dated the 29th December, 2011. * All paragraphs of this Standard that deal with contingencies are applicable only to the extent not covered by other Accounting Standards prescribed by the Central Government. For example, the impairment of financial assets such as impairment of receivables (commonly known as provision for bad and doubtful debts) is governed by th ..... 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