Overview of companies (accounting standards) amendment rules, 2016

Editor 21 Jan 2017 7,801 Views 0 comment Print Company Law | Articles

CA Mayank Agarwal

CA Mayank Agarwal

Financial Reporting of Companies for the year ended 31^st March, 2017 is expected to change due to the applicability of Companies (Accounting Standards) Amendment Rules, 2016. Ministry of Corporate Affair has notified the Companies (Accounting Standards) Amendment Rules, 2016 on 30^th March, 2016 and these rules amend the existing Companies (Accounting Standards) Rules, 2006 in order to align them with Indian Accounting Standards (Ind ASs) and key amendments are follows:

1. AS 2, Valuation of Inventories:

Before	Inventories do not include machinery spares which can be used only in connection with an item of fixed asset and whose use is expected to be irregular; such machinery spares are accounted for in accordance with Accounting Standard (AS) 10, Accounting for Fixed Assets.
After	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.

Before	Common classifications of inventories are raw materials and components, work in progress, finished goods, stores and spares, and loose tools.
After	Classifications of inventories: Raw materials and components, Work-in-progress, Finished goods, Stock-in-trade (in respect of goods acquired for trading), Stores and spares, Loose tools, Others (specify nature).

2. AS 4 Contingencies and Events Occurring After the Balance Sheet Date:

Before

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. Such items include the amount of dividend proposed or declared by the enterprise after the balance sheet date in respect of the period covered by the financial statements.

After

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.

3. AS 13 Accounting for Investment:

Before	An enterprise holding investment properties should account for them as long term investments.
After	An enterprise holding investment properties should account for them in accordance with cost model as prescribed in AS 10, Property, Plant and Equipment.

4. AS 14 Accounting for Amalgamation:

Before	Amalgamation means an amalgamation pursuant to the provisions of the Companies Act, 1956 or any other statute which may be applicable to companies.
After	Amalgamation means an amalgamation pursuant to the provisions of the Companies Act, 2013 or any other statute which may be applicable to companies and includes ‘merger’.

5. AS 21 Consolidated Financial Statements:

Before	A parent which presents consolidated financial statements should consolidate all subsidiaries, domestic as well as foreign, other than those referred to in paragraph11
After	A parent which presents consolidated financial statements should consolidate all subsidiaries, domestic as well as foreign, other than those referred to in paragraph 11. Where an enterprise does not have a subsidiary but has an associate and/or a joint venture such an enterprise should also prepare consolidated financial statements in accordance with Accounting Standard (AS) 23, Accounting for Associates in Consolidated Financial Statements, and Accounting Standard (AS) 27, Financial Reporting of Interests in Joint Ventures respectively.

6. AS 29 Provisions, Contingent Liabilities and Contingent Assets:

Before	The amount recognised as a provision should be the best estimate of the expenditure required to settle the present obligation at the balance sheet date. The amount of a provision should not be discounted to its present value.
After	The amount recognised as a provision should be the best estimate of the expenditure required to settle the present obligation at the balance sheet date. The amount of a provision should not be discounted to its present value except in case of decommissioning, restoration and similar liabilities that are recognised as cost of Property, Plant and Equipment. The discountrate (or rates) should be a pre-tax rate (or rates) that reflect(s) current market assessments of the time value of money and the risks specific to the liability. The discount rate(s) should not reflect risks for which future cash flow estimates have been adjusted. Periodic unwinding of discount should be recognised in the statement of profit and loss.

7. AS 10 Property, Plant and Equipment:

Before	Old AS 10 does not have any recognition criteria.
After	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.
Before	Sometimes financial statements that are otherwise prepared on a historical cost basis include part or all of fixed assets at a valuation in substitution for historical costs and depreciation is calculated accordingly.
After	After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably should be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations should be made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date.

Note1: AS 6, Depreciation Accounting requirements for depreciation are now incorporated in revised AS 10.

Note2: MCA vide General Circular No 4/2016 dated 27/04/2016 has clarified that Companies (Accounting Standards) Amendment Rules, 2016 would be applicable for preparation of accounts for accounting periods commencing on or after the date of notification.

(Author can be reached at Cell- +91-7879084121, Email: camayankagarwal1006@gmail.com)