Comparison between Accounting standards and income computation and Disclosure Standards

As CBDT has made mandatory compliance of Income computation & Disclosure standards w.e.f AY 2017-18 for person having income from the business or profession (Except individual or HUF not require to tax Audit). There are only the point of differentiation with AS considered with corresponding provision of relevant accounting standards. The only motive of this compilation to make ourselves ready for upcoming challenge in Direct tax Practice.

1. Notes:- In conflict with AS & ICDS, ICDS will prevail

2. ICDS are in line with provisions of Income tax act 1961 so any conflict Act will prevail

3. Specific disclosures required in point no 13(f) of form 3CD(Tax Audit) with impact of these notified ICDS in clause no.13(d) of form 3CD

Income computation & Disclosure Standards

ICDS-I-‘’Accounting Policies”

ICDS –I ‘’Accounting Policies”

Scope:– Deals with Significant Accounting Policies

Fundamental Accounting Assumption:- same as in Accounting Standard -1

Consideration in Selection of Accounting policies: – True & Fair view in preparation & Presentation of Financial Statement. For this purpose

a) Treatment of transaction by substance not merely by substance legal form

b) Marked to market loss or expected loss shall not be recognized unless provided by other ICDS

c) Market to market or expected profit shall not be recognized unless provided by other ICDS

Change in Accounting policies :- Accounting policies shall not be changed without reasonable cause.

If Accounting policies changed:-Require

a) Any material effect shall be disclosed w.r.t to items in financial statements to the extent ascertainable

b) If the Above Change is not ascertainable the fact should be disclosed

c) If any change is expected to occur in Future due to change the fact should be disclosed in Current FY as well as in FY when first time change occurred

Disclosures:-

a) All the significant Accounting policies

b) Change in Accounting policies

Note:– Any Incorrect & inappropriate treatment of item cannot be remedied by Disclosure

Accounting Standard-1 “disclosure of Accounting policies”

Scope:– In Line with AS

Fundamental Accounting Assumption:-

a) Consistency

b) Accrual

c) Going Concern

Consideration in Selection of Accounting policies: – True & Fair view in preparation & Presentation of Financial Statement. For the purpose

a) Treatment of transaction by substance not merely by substance legal form

b) Expected loss shall be recognized as per prudence concept

c) Expected gain shall be ignored unless specifically provided by other Accounting Standard

Change in Accounting policies :-

Accounting policies shall not be changed unless:-

a) Change require as per statute

b) In compliance of Accounting standard

c) Better presentation of Financial Statement

If Accounting policies changed: -Require

a) Any material effect shall be disclosed w.r.t to items in financial statements to the extent ascertainable

b) If the Above Change is not ascertainable the fact should be disclosed

c) If any change is expected to occur in Future due to change the fact should be disclosed in Current FY as well as in FY when first time change occurred

Disclosures:-

a) All the significant Accounting policies

b) Change in Accounting policies

Note:- Any Incorrect & inappropriate treatment of item cannot be remedied by Disclosure

ICDS-II “Valuation of Inventories”

ICDS-II”Valuation of inventories”

Scope:- Deals With Valuation of inventories

Inventory:- Are Assets

a) Held for sale in ordinary course of Business

b) In process of production of such sale

c) In form of raw material & Supplies to be consumed in process of production & rendering services

Methods to valuation :-

a) Standard cost

b) Weighted average

c) FIFO

d) Retail cost method

Cost of Purchase of:-

a) Includes purchase price

b) All the duties & taxes

c) Freight & other attributable expenses other than borrowing cost(Unless meet recognition criteria under ICDSIX)

Duties & taxes recoverable shall form part of the cost as per section 145A of income tax Act 1961

Applicability of ICDS-II:-Applied for Valuation of inventory except

a) WIP arising under construction contract including directly related service contract

b) WIP dealt with other ICDS

c) Producers inventories of livestock agriculture & Forest products ,mineral oils, ores & Gases to the extent they are measures at NRV

d) Machinery spares, which can be used only in connection with a tangible fixed asset and their use is expected to be irregular ,shall be dealt with in accordance with the income computation and disclosure standard on tangible fixed assets

e) Financial instruments held as stock in trade

Note: – Inventory of service provider is also cover under ICDS-II (Not in AS-2). Cost of services shall include the Labor cost and other cost of personnel directly engaged in providing services including  supervisory personnel & other attributable overhead

Valuation of inventory in case of certain Dissolutions:- Dissolution of Partnership firm, AOP, BOI, notwithstanding  business continues or not inventory shall be valued at Net realizable Value

Disclosures:-

a) Accounting policies adopted & Formula used

b) Actual Carrying amount of inventory

AS-“Valuation of Inventories”

Scope:- Deals With Valuation of inventories

Inventory:- Are Assets

a) Held for sale in ordinary course of Business

b) In process of production of such sale

In form of raw material & Supplies to be consumed in process of production & rendering services

Methods to valuation :-

c) Standard cost

d) Weighted average

e) FIFO

f) Retail cost method

Cost of Purchase of:-

g) Includes purchase price

h) Freight , other attributable expenses which is necessary to bring inventory to existing place

Applicability of AS-2:- Applied for Valuation of inventory except

a) WIP arising under construction contract including directly service contract

b) WIP arising in ordinary course of business for service providers

c) Financial instruments held as  stock in trade

d) Producers inventories of livestock agriculture & Forest products mineral oils, ores & Gases to the extent they are measures at NRV

Valuation of inventory in case of  certain

Dissolutions:- No such provision in AS-2

Disclosures:-

a) Accounting policies adopted & Formula used

b) Actual Carrying amount of  inventory

 

ICDS-III “Construction contracts”

ICDS-III “Construction contracts”

Scope:- This ICDS should be applied in determination of income on  construction contract of a contractors

⇒ A group of contracts whether with a single customer or several customers ,should be treated as a single contract if :-

a) The group of contracts I negotiated for a single package

b) The contracts are closely related that they are in effect part of single project with an overall profit margin;

c) The contracts are performed concurrently or in continuous sequence

Contract Revenue:-

a) Initial amount contracted including retention

b) Variation in contract works, claim, incentive payments

I) To the extent probable that they will result in revenue

II) They are capable of reliably measured

Cost of Contract:-

a) Directly attributable costs

b) Cost attributable to contact activity in general & Can be allocated to contract

c) Other cost specifically chargeable to customer as per agreement

d) Allocated borrowing cost to the  extent in accordance with ICDS-IX

Note:- Those Costs shall be reduced by any incidental income (other than not included in revenue )

Recognition of Contract revenue :-

a) Contract Revenue shall be recognized on the basis of percentage completion method

i.e. % completion=

Cost incurred up to reporting date /Total Estimated cost

Current year revenue= Total revenue*POC – cost incurred up to reporting date

Note:- Early stage of contact shall not be extend beyond the 25% of the stage of completion

Determination of Completion of contract:-

a) The portion of cost incurred on contract up to the reporting date

b) Surveys of work performed

c) Completion of physical portion of the contract

Disclosures:

  • The amount of contract revenue recognized
  • The method used to determine the stage of completion
  • Amount of cost incurred & recognized profit
  • Amount of advance received
  • Amount of retention
AS-7 “Construction contracts”

Scope:- Applied in accounting of construction contract of contractor

⇒ A group of contracts whether with a single customer or several customers, should be treated as a single contract if :-

d) The group of contracts I negotiated for a single package

e) The contracts are closely related that they are in effect part of single project with an overall profit margin;

f) The contracts are performed concurrently or in continuous sequence

Contract revenue :-

a) Initial amount contracted

b) Variation in contract works, claim, incentive payments

I) To the extent probable that they will result in revenue

II) They are capable of reliably measured

Note:- AS 7 do not say anything about the inclusion of retention

Cost of Contract:-

a) Directly attributable costs

b) Cost attributable to contact activity in general & Can be allocated to contract

c) Other cost specifically chargeable to customer as per agreement

d) Allocated borrowing cost to the extent in accordance with ICDS-IX

Recognition of Contract revenue :-

a) Contract Revenue shall be recognized on the basis of percentage completion method

i.e. % completion=

Cost incurred up to reporting date /Total Estimated cost

Current year revenue= Total revenue*POC – cost incurred up to reporting date

According to AS-7:- Any estimated loss on contract shall be recognized immediately as an expense.

If It is probable that total expense will exceed the revenue

Determination of Completion of contract:-

a) The portion of cost incurred on contract up to the reporting date

b) Surveys of work performed

c) Completion of physical portion of the contract

Disclosures:-

  • The amount of contract revenue recognized
  • The method used to determine the stage of completion
  • Amount of cost incurred & recognized profit
  • Amount of advance received

Amount of retention

ICDS-IV “Revenue recognition”

ICDS-IV “Revenue recognition”

Scope:-

This ICDS deals with the bases for revenue recognition arising in ordinary course of activities of a person from

a) The sale of goods

b) Rendering of services

c) The use by the other of person’s resources yielding interest, Royalties or Dividends

Meaning of revenue:- Revenue is gross inflow of cash , receivables & Other consideration arising in ordinary course of business from the sale of goods, rendering services, or form the use by the other person’s resources yielding interest ,royalties& dividends

Note:- In agency relationship commission is revenue not a gross inflow of cash & Receivable or other consideration

Sale of goods:- The revenue from the sales shall be recognized only when the control & Ownership incidental risk & rewards has been transferred with sale

Revenue shall be recognized if :-

There are reasonable certainty of its collection If Reasonable certainty of its collection cannot determined recognition shall be postponed.

Rendering of services: All the requirements of ICDS-III “Construction Contracts”shall be mutatis mutandis Apply to service contract. Revenue under the service contract shall be completed on the basis of percentage completion method.

The revenue under service contract with duration of not more than 90 days  could be recognized when the service completed or substantially completed.

When the services provided by an indeterminate number acts over a  specific period of time revenue may be recognized on the basis of straight line method.

Interest:-

  • Interest shall be accrue on the time basis determined by amount outstanding and the rate applicable
  • Interest on refund of any tax, duty or cess shall be deemed to be income of the previous year in which such interest is received as per section 145A (b) of income tax act 1961
  • Discount on debt securities held is treated as though it is accruing over the period to maturity

Royalties:- Shall Accrue in accordance with the terms of relevant agreement & shall be recognized on that basis unless having regard to the substance of transaction ,it is more appropriate to recognize the revenue on some other systematic basis

Dividends:- Dividends are recognized with the provision of sec. 2(22) of income tax act 1961

Disclosures:- Following disclosures shall be made:-

a) In transaction of sale amount not recognized as revenue along with the nature of uncertainty

b) Amount of revenue from service transactions recognized

c) Method used to determine the stage of completion

d) Service transaction in process at the end of previous year

• Amount of cost incurred & recognized profits up to the end of previous year

• The amount of advances received

• The amount of retention

AS-9 “Revenue Recognition”

Scope:-

This ICDS deals with the bases for revenue recognition arising in ordinary course of activities of a person from

a) The sale of goods

b) Rendering of services

c) The use by the other of person’s resources yielding interest, Royalties or Dividends

Meaning of revenue:- Revenue is gross inflow of cash , receivables & Other consideration arising in ordinary course of business from the sale of goods, rendering services, or form the use by the other person’s resources yielding interest ,royalties& dividends

Note:- In agency relationship commission is revenue not a gross inflow of cash & Receivable or other consideration

Sale of goods:- The revenue from the sales shall be recognized only when the control & Ownership incidental risk & rewards has been transferred with sale

Revenue shall be recognized if :-

There are reasonable certainty of its collection If Reasonable certainty of its collection cannot determined  recognition shall be postponed.

Rendering of Services:-

The revenue under the service contract can be recorded on the basis of proportionate completion method or by the completed service contract method.

Interest: – Interest Accrues in most of the circumstances on the basis of time.

Determined by the amount outstanding  and the rate applicable .Usually the premium & Discount on debt securities held is treated as though it is accruing over the period to maturity.

Royalties:– Shall Accrue in accordance with the terms of relevant agreement & shall be recognized on that basis unless having regard to the substance of transaction ,it is more appropriate to recognize the revenue on some other systematic basis

Dividends: –

Dividends are not recognized in statements of profit & loss unless the right to receive the payments is established.

Disclosures:-

Amount of revenue in course of sale transaction not recognized due to lack  of certainty with nature of uncertainty.

ICDS-V “Tangible Fixed Assets”

ICDS-V “Tangible Fixed Assets”

Scope:- This ICDS deals with the treatment of tangible fixed Assets

Tangible Fixed Assets:- Is assets being Land ,Building ,machinery, plant & furniture

  • Held for the use for the purpose of producing goods or providing services
  • Not held for sale in ordinary course of business

Identification of Tangible Fixed Assets:-

a) The definition of tangible fixed assets given above provides the criteria for determining whether an item is to classify a tangible fixed assets

b) Standby Equipment’s and servicing parts are to be capitalized .machinery spares shall be charged to the revenue as when consumed .When spares can be used only in connection with the item of tangible fixed assets and their use is expected to be irregular, they shall be capitalize

Cost of assets:- It shall comprise of

a) Purchase price

b) Import duties & other taxes (Excluding those subsequently recoverable )

c) Directly attributable expenses making assets ready to use

d) Any trade discount and rebate shall be deductede) Startup & Commissioning costs shall be capitalized

f) Expenses on test run before starting actual production shall be capitalized

Self-Constructed Assets:-

In arriving the cost above principals shall be applied. Any Internal profits if any shall be ignored while arriving at the cost

Disclosures:- Following Disclosures shall be made in respect of tangible Fixed Assets

a) Description of assets or block of assets.

b) Rate of depreciation

c) Actual cost or WDV as the case may be

d) Addition deletion during the year or any adjustment made due to

• Central Value Added tax credit claimed and Allowed under CENVAT Credit rules 2004

• Change in rate of exchange in currency

• Subsidy or grant or reimbursement by what so ever name called

AS-10 “Property Plant & Equipment’s”

Scope:-This standard should be applied in accounting for Property, Plant& Equipment’s except when other AS requires or permits a different Accounting treatments. This standard do not apply to:-

a) Biological Assets related to agricultural activity other than bearer plants but it does not apply to the produce on bearer plants and

b) Wasting assets including of mineral rights, Expenses on Exploration for and extraction of mineral oils, natural gas and similar non regenerative resources.

However this standard apply to property, plant and equipment used to develop or maintain the assets described in (a) and (b) above

Property ,plants and Equipment’s :-Are tangible assets

• Held for use in the production process or supply of goods or services ,for rental to others or for administrative purposes; and

• Are expected to use for period of more than 12 months

Cost of Assets:-It shall comprise of

a) Purchase price including import duties & Purchase taxes (Nonrefundable )

b) Any cost directly attributable to bring assets to the location and necessary condition to bring it to for it to operate

c) Initial estimate of the cost of dismantling, removing the item and the restoring site on which it is located referred as decommissioning, Restoration and similar liabilities.

Self-Constructed Assets:-

In arriving the cost above principals shall be applied. Any Internal profits if any shall be  ignored while arriving at the cost

Disclosures:– An enterprise encouraged to disclose the following

a) The carrying amount of temporarily ide property, Plant & Equipment’s

b) The gross carrying Amount of any fully depreciated property, plant and equipment’s that is still in use

c) For each revalued class of property plant and equipment’s ,the carrying amount that would have been recognized had the assets been carried under the cost model

d) The carrying amount of property, Plant and equipment’s Retired from active use and not held for disposal.

ICDS-VI “Effects of changes in foreign exchange”

ICDS- VI “Effects of changes in foreign exchange”

Scope:- This income computation & Disclosure standard deals with :-

a) Treatment of transactions in foreign currencies

b) Translating the financial statements of foreign operations

c) Treatment of foreign currency transactions in nature of forward contracts.

Foreign Operation:- Foreign operation of person is branch by whatever name called of that person, the activities of which are based or conducted in country other than India.

Forward Exchange Contract: – Forward Exchange contract means an agreement to exchange different currencies at forward rate and includes a foreign currency option contract or another financial instrument of a similar nature.

Note: – Notwithstanding anything contained in AS-11 initial recognition conversion and recognition of exchange difference shall be subject to provision of section 43A of the ACT or the rule 115 of income tax rules 1962. Section 43A deals with the provision of consequential to changes in rate of exchange of currency and rule 115 deals with rate of  exchange for conversion into rupees of income expressed in foreign currency.

Translation of foreign operation:-financial statements of foreign operation shall be translated using the principles and procedures as if transactions of the foreign operation had been those of person himself.

Forward Exchange Contracts :- ICDS has Categorized the forward contracts in three types:-

a) For the trading or speculation purposes

b) Hedge the foreign currency risk commitments of firm

c) Other than these two categories.

Disclosures:- No any Disclosure required

AS-11”Effects of changes in foreign exchange”

Scope:- This income computation &

Disclosure standard deals with :-

a) Treatment of transactions in foreign currencies

b) Translating the financial statements of foreign operations

Treatment of foreign currency transactions in nature of forward contracts.

Foreign Operation:-

Foreign operation is subsidiary, associates, joint ventures or branch of reporting enterprise, The activity of which are based or conducted in country other than country of reporting enterprise.

 Forward exchange contract means an agreement to exchange different currencies at the forward rate.

Translation of foreign Operation:-Accumulate all the resulting exchange difference in foreign currency translation reserve until the disposal of net investments.

Forward Exchange Contracts :- No such categorization

Disclosure:

a) Amount of exchange difference included in profit & Loss

b) Net accumulated difference in foreign translation reserve

ICDS-VII “Government Grants “

ICDS-VII “Government Grants”

Scope:- This income & Computation disclosure Standard deals with the treatment of Government Grants. The government grants ,are sometime called by names such as subsidies, cash incentive duty drawbacks, waiver, concessions,  reimbursements, etc

Recognition in Book of Accounts :-

Recognition of government grant shall not be postponed beyond the actual date of receipt .It means it shall be recognized on actual receipt basis even in case where there is not any reasonable assurance that the enterprise will not comprise with the condition attached to grants

Accounting treatment for Grants for Fixed Assets:-

This ICDS says that where the government grant relates to depreciable fixed assets or the assets of a person, the grant shall be deducted from the cost of assets or the WDV of block of assets to which the concerned assets belongs, Thus this does not take into consideration the second method prescribed by AS-12 to Recognize as deferred revenue & Charge to The Profit & loss on systematic or rational basis.

Note:- No any effect on tax treatment refer sec 43(1) of income tax act 1961(Actual cost of Assets)-Explanation 10

Treatment of grants not relatable to Assets Acquired:-

This ICDS says that if government grant is of such nature that it cannot directly relatable with the assets acquired, so much amount which bears to the total government grant, the same proportion as such assets bears to all the assets in respect of or with reference to which the government grant is received, shall be deducted from the actual cost of assets or shall be reduced from the WDV of assets to class it belong ( In line with explanation 43(1) explanation 10)

Residual Grants(Other than above):- This ICDS says that grants other than covered above shall be recognized as income over the periods necessary to match them to related cost which they are intended to compensate.

Disclosure:- Following Disclosure is required in respect of Government grant, namely

a) Nature & extent of government grants recognized during the previous year by way of deduction from the actual cost of assets or from the WDV of block of Assets during the previous year;

b) Nature & extent of Government grants recognized during the previous year;

c) Nature & Extent of government grants not recognized during the previous year by way of deduction from the actual cost of asset or assets or from the written down value of block of assets and reasons thereof ;and income

d) Nature and extent of government grants not recognized during the previous year as income and reason thereof.

AS-12 “Government Grants”

1. Scope:-This standard deals with accounting for government grants. Government grants are sometime called by other names such as subsidies, cash incentive, Duty drawback etc.

2. This standard deals with:-

• The special problems arising in accounting for government grants in financial statements reflecting the effects of changing prices or in supplementary information of similar nature;

Recognition in Books of Accounts :-

Government grants available to the enterprise shall be recognized in books only if :-

• Where there is reasonable assurance that the enterprise will comply with the condition attached to them and

• Where such benefits have been earned by the enterprise and it is reasonably certain that the ultimate collection will be made.

Note:- Mere receipt of grant is not conclusive evidence that the condition attached will be fulfilled

Recognition in Book of Accounts :-

There are two method of recognition

  • Net assets Method
  • Deferred Revenue Method(not
  • considered in ICDS)

Treatment of grants not relatable to Assets Acquired: – As per AS-12 “government grants”such grants are considered as promoter’s contribution & transferred to capital Reserve. Such grants can neither be distributed as dividend nor considered as deferred income

Revenue Grants:- It is credited in profit & Loss statement & can be used to mitigate the loss incurred or to distribute dividend. There are no condition regarding to use of grant otherwise specifically provided in terms of grants.

Disclosure:- Following Disclosure is required respect of Government grant, namely

a) the accounting policy adopted for the government grants, including the method of presentation in financial statements;

b) The nature and extent of government grants recognized in the financial statements, including grants of nonmonetary assets given at concessional rate or free of cost.

ICDS-VIII “Securities”

ICDS-VIII “Securities”

Scope:- This ICDS deals with securities held as “Stock in trade”

It does not deals with

a) The bases for recognition of interest & dividend on securities which are covered by income computation & Disclosure Standard on revenue recognition;

b) Securities held by person engaged in the business of insurance

c) Securities held by mutual funds, Venture capital fund, banks & Public Financial Institutions formed under the company’s act 2013.

Note:- Meaning of securities shall be meaning assigned to it in sec 2(h) of securities contract (regulation) act,1956 and also include the shares of company in which public are not substantially interested.

This standard deal with securities stock held as stock in trade .so it is utmost important to classify the security held as stock in trade & Investment

Recognition and valuation of Security:

There is concept of two level valuation in ICDS

• Initial Recognition:-

a) A security on acquisition shall be recognized at actual cost

b) The cost of security shall be comprised of acquisition charges such as STT paid, brokerage & fees etc.

c) Where Security is acquired in exchange of another assets fair value of security so acquired shall be cost

d) Where unpaid interest has accrued before acquisition & charged in Purchase price when such interest realized shall be distributed in pre & post acquisition & Pre acquisition shall be adjusted with Cost price.

Subsequent Recognition:-

• At the end of the previous year’s securities held as stock in trade shall be valued at cost initially recognized or net realizable value at the end of that previous year, whichever is lower (In line with ICDS-II)

• For the purpose of preceding para, the Comparison of actual cost initially recognized and the net realizable value shall be done category wise and not for each individual security. For this purpose security shall be classified into following category wise namely:-

a) Shares

b) Debt securities

c) Convertible Securities and

d) Any other securities not covered above.

Note:- Where the actual cost initially recognized cannot be ascertained by reference to specific identification ,the cost of such security shall be determined on the basis of first-in-first out method or weighted Average method.

Disclosure: – No any disclosure required in point no, 13 (f) of form 3CD.

Note:- Not any corresponding Accounting Standard.

ICDS-IX “Borrowing cost”

ICDS-IX “Borrowing costs”

Scope: – This income computation & Disclosure standard deals with treatment of borrowing costs. This income computation & Disclosure doesn’t deal with actual or imputed cost of owners’equity and preference capital.

Meaning of borrowing cost:-

• Commitment charges on borrowing;

• Amortized amount of discounts or premiums relating to borrowings;

• Amortized amount of ancillary costs incurred in connection with the arrangement borrowings.

• Finance charges in respect assets acquired under the finance leases or under other similar arrangements.

Qualifying Assets:- Means

a) Land, building, machinery,plant or furniture being tangible assets;

b) Knowhow,patents,copyrights, Trademarks, or any other business or commercial rights being intangible assets

c) Inventories that require 12 months or more to bring them in saleable condition.

Capitalization of Specific borrowing costs:-

Borrowing cost specifically incurred in acquisition, construction and Production of a qualifying assets shall be capitalized as part of the cost of that assets. The amount borrowing costs eligible for capitalization shall be amount computed under this ICDS other borrowing costs shall be recognized in accordance with the provision of the Act.

ICDS

Capitalisation of general Borrowing costs:-

This ICDS has provided us the formula for finding the capitalization amount.

Borrowing cost=A*B/C

Where A= amount of borrowing cost aggregate

B= Amount incurred in respect of

Qualifying Assets

C= Total Amount of borrowing

Commencement of Capitalization:- The capitalization of borrowing costs shall commence:-

a) In case of specific borrowing the date on which funds were borrowed;

b) In case of general borrowing the date when funds were utilized

Suspension of capitalization:- No such provision in ICDS-IX

Cessation of Capitalization:- Capitalization of borrowing cost ceases if :-

• In case of qualifying assets(other than inventory) when such assets first put to use

• In case of inventory when substantially all the activities necessary to prepare such inventory of its intended use or sale.

Note:- when the construction completes in parts and a completed part is capable of being used while the construction continue for the other parts, Capitalization ceases in respect of such completed part.

Disclosure:- The following disclosure shall be made in respect of borrowing costs namely:-

• The accounting policy adopted for the borrowing costs ; and

• The amount of borrowing costs capitalized during the previous year.

AS-16 “Borrowing Cost”

Scope: – This income computation & Disclosure standard deals with treatment of borrowing costs. This income computation & Disclosure doesn’t deal with actual or imputed cost of owners’ equity and preference capital.

Meaning of borrowing cost:-

• Commitment charges on borrowing;

• Amortized amount of discounts or premiums relating to borrowings;

• Amortized amount of ancillary costs incurred in connection with the arrangement borrowings.

• Finance charges in respect assets acquired under the finance leases or under other similar arrangements.

• Exchange difference arising in foreign exchange borrowing to the extent regarded as adjustment of interest.( Not considered in ICDS)

Qualifying Assets:- Means

Qualifying assets is an assets that necessarily takes a substantial period of time to get ready for its intended use or sale. Further it explains the what constitute substantial period depends upon circumstances of each case

Capitalization of Specific borrowing costs:-

Borrowing cost specifically incurred in acquisition, construction and Production of a qualifying assets shall be capitalized as part of the cost of that assets. The amount borrowing costs eligible for capitalization shall be amount computed under this ICDS other borrowing costs shall be recognized in accordance with the provision of the Act.

Income on temporary investments of borrowing Amount:- Deduct any income from the short term investment of borrowing also form the borrowing cost.

Capitalisation of general Borrowing costs:- To the extent that funds borrowed generally and used for the purpose of obtaining a qualifying assets, the amount of borrowing cost eligible for capitalization should be determined by applying a capitalization rate to the expenditure on that assets. The capitalization rate should be the weighted average of the borrowing costs applicable to the borrowings of the enterprise that, other than borrowings made specifically for the purpose of obtaining a qualifying assets. The amount of borrowing costs capitalized during a period should not exceed the amount of borrowing costs incurred during that period

Commencement of Capitalization:- The capitalization shall commence:-

a) Expenditure for the acquisition, construction or production of qualifying assets is being incurred;

b) Borrowing costs are being incurred

c) Activities that are necessary to prepare the assets for its intended use or sale are in progress.

Suspension of capitalization:-

Capitalization of borrowing cost shall be suspended during the extended period in which active development is interrupted

Disclosure:- The following disclosure shall be made in respect of borrowing costs namely:-

• The accounting policy adopted for the borrowing costs ; and

• The amount of borrowing costs capitalized during the previous year.

ICDS-X “Provisions, Contingent liabilities and Contingent Assets”

ICDS-X “Provisions, Contingent liabilities and Contingent Assets”

Scope:-

This income computation & Disclosure

standard deals with provisions, contingent

Assets, contingent liabilities except those:-

a. Resulting from financial instruments;

b. resulting from executory contracts;

c. Arising in insurance business from the contracts with policy holders

d. Covered by any other ICDS

Recognition of Provision:- A provision should be recognized when

  • When a person has present obligation a result of a past event;
  • It is reasonably certain that outflow of resources embodying economic benefits will be required to settle such obligation
  • A reliable estimate can be made of amount of obligation If these conditions are not met, no provision shall be recognized

Disclosures:- Following disclosures shall be made in respect of each class of provisions ,namely

a. As brief description of the nature of obligation

b. The carrying amount at the beginning and end of the previous year;

c. Additional provisions made during the previous year, including increase to existing provisions

d. Amount used that is incurred and charged against the provisions during the previous year

e. Unused amounts reversed during the previous year and

f. The amount of expected reimbursement stating that amount of any assets that has been recognized for that expected reimbursement.

AS-29 “Provisions, Contingent liabilities and Contingent Assets”

Scope:- same as ICDS

Recognition of Provision:-A provision should be recognized when:

  • An enterprise has present obligation as result of past event
  • It is probable ( means more likely than not) that an outflow of resources embodying economic benefits will be required to settle such obligation
  • A reliable estimate can be made of amount of the obligation

If these conditions are not met no provisions should be recognized

Disclosures:- Following disclosures shall be required to be made

a. The carrying amount at the beginning and end of the period

b. The additional provision made in the

period including increase to existing  provision

c. Amount used

d. Unused amounts reversed during the period.

 

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