Step up to Ind AS – 101 First time adoption of Indian Accounting Standards (IND-AS)

Kushagra Nigam

Road Map/Applicability/ Implementation:

I^st PHASE:

The following Companies have to adopt Ind AS for the Financial Statements from the Accounting Period beginning on or after 1^st April 2016:

• Companies whose debt or equity are listed or are in the process of being listed on any stock exchange in India or Outside India “+” having net worth of Rs. 500 Crores or more.
• Companies which are not listed but are having Net Worth of Rs. 500 Crores or more.
• Holding, Joint Venture, Associates or Subsidiary Companies of the companies covered by above two clauses.

II^nd PHASE:

The following Companies have to adopt Ind AS for the Financial Statements from the Accounting Period beginning on or after 1^st April 2017:

• Listed Companies having net worth of less than Rs. 500 Crores.
• Unlisted Companies whose net worth is more than Rs. 250 Crores but less than Rs. 500 Crores.
• Holding, Joint Venture, Associates or Subsidiary Companies of the companies covered by above two clauses.

♣ The present road map is not applicable to Insurance Companies, Banking Companies and Non-Banking Finance Companies.

♣ This Ind AS would apply to stand alone and consolidated financial Statements.

♣ A company can voluntarily adopt to the Indian Accounting Standards. However, if a company once voluntarily adopt to the Indian Accounting Standards, there it shall follow the same in future years as well i.e. once adopted shall be adhered year after year.

OBJECTIVE:

The objective of Ind AS -101 is to ensure that the entity’s first Ind AS Financial Statements, and its interim financial reports for the period covered by those financial statements, contain high quality information that:

• Is transparent for users and comparable over all periods presented,
• Provide a suitable starting point for accounting in accordance with the Indian Accounting Standards ( Ind- AS), and
• Can be generated at a cost that does not exceeds benefits.

It would assist the companies to adopt the Indian Accounting Standards (Ind-AS) in the initial phase of transformation from Accounting Standards to Indian Accounting Standards (Ind-AS) as mandated by the Road Map of Ind- AS.

SCOPE:

The Indian Accounting Standard- 101 (first time adoption of Indian Accounting Standards) shall be applied by an entity in the following:

a) First Financial Statements after implementing Ind AS.

b) Each Interim Financial Report in accordance with Ind-AS 34 Interim Financial Reporting for the part of the period covered by its first Ind-AS financial Statements.

Steps in transition to Ind AS

• Selection of accounting policy that comply with Ind-AS.
• Preparation of an Opening Ind-AS Balance Sheet at the date of transition to Ind-AS as the starting point of subsequent accounting under Ind-AS.

1. Recognize all assets and liabilities whose recognition is required by Indian Accounting Standards;

2. Not to recognize items as assets or liabilities if Ind-AS do not permit such recognition;

3. Reclassify items that are recognized in accordance with previous Generally Accepted Accounting Principles (GAAP) as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity in accordance with Ind-AS; and

4. Apply Ind-AS in measuring all recognized assets and liabilities.

• Presentation and disclosure in an entity’s first Ind-AS Financial Statements and Interim Financial Reports.
  

(i) Selection of accounting Policies in compliance with Ind-AS

An entity shall use the same accounting policies in its Opening Ind AS Balance Sheet and throughout all periods presented in its first Ind AS Financial Statements. Those accounting policies shall comply with each Ind AS effective at the end of its first Ind AS reporting period, except as specified in Ind AS 101.

The accounting Policies in opening Ind-AS Balance Sheet may differ from those that is used for the same date using previous GAAP. The resulting adjustments arise from events and transactions before the date of transitions to Ind-AS’s shall be recognized directly in retained earnings.

Ind-AS 101 provides two types of exemptions to the principle that an entity opening Ind AS Balance Sheet shall comply with each Ind AS:

• Retrospective Application of some aspects of other Ind AS’s.
• Exemptions from the requirements of other Ind AS.

Retrospective Application of some aspects of other Ind AS’s.

This Accounting Standard forbids retrospective application of some of the aspects of other Ind-AS.

The following exceptions have been given by Ind AS-101:

♠ De- Recognition of Financial Assets and liabilities: First time adopter shall apply de-recognition requirements as per Ind AS -109 prospectively for transactions occurring on or before the date of transition to Ind-AS except for Financial Assets or financial liabilities derecognized under its previous GAAP in a financial year should not be recognized by an entity Except for derivative asset and other Interest retained after De-Recognition.

♠ Hedge Accounting: As per AS -109, on the date of Transition an entity should

a. Measure all derivatives at fair Value, “AND”

b. Eliminate all deferred losses and gains arising on derivatives that were reported in accordance with prior GAAP as if they were asset or Liability.

An entity shall not reflect in the Opening Balance Sheet a Hedging relationship that doesn’t qualify for Hedge Accounting as per Ind AS- 109.

Transactions entered into before the date of transition to Ind-AS shall not be retrospectively designated as Hedges.

♠ Non- Controlling Interest: A first time adopter shall apply the following of the Ind-AS 110 prospectively:

I. Total Comprehensive Income attributable to the owners of the parent and to the non-controlling Interest even if this results in deficit balance of non-controlling interest.

II. Accounting for changes in Parent’s Ownership Interest in a subsidiary that doesn’t result in loss of control.

III. Accounting for loss of Control over a subsidiary as per AS-105, Non-current held for sale and discontinued operations.

However, if a first time adopter elects to apply Ind AS- 103 retrospectively to past business combinations, it shall simultaneously apply Ind AS 110 as well.

♠ Classification and measurement of Financial Asset: Assess whether assets meets the conditions in prescribed in AS 109, on the basis of facts and circumstances that pertain at the date of transition from previous GAAP to Ind AS.

If it is impractical to-

a) Assess time value and Money element as per Ind AS 109, then entity shall assess the contractual cash flow characteristics of the financial assets on the basis of facts that existed on the day of transition without considering the requirements related to changes of the time value money element.

b) Assess fair value of a prepayment feature is insignificant as per Ind AS 109, then entity shall assess the contractual cash flow characteristics of the financial assets on the basis of facts that existed on the day of transition without considering the requirements related to prepayment features.

c) Apply retrospectively the effective interest method as specified in Ind AS 109, the fair value of the financial asset or the financial Liability at the time of transitions shall be the new gross carrying amount of that financial asset or the new amortized cost of that financial liability.

♠ Embedded derivatives: Assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative on the basis of the conditions that existed at a later of a date it first became party to the contract and the date a reassessment is required as per the conditions of Ind AS 109.

♠ Government Loans: A first time adopter shall classify all government loans received as a financial liability or an equity instrument in accordance with Ind AS 32 “Financial Instruments”.

Exception: Loan taken at a rate which is less than a rate in the Market.

The requirements in Ind AS 109, Financial Instruments, and Ind AS 20, Accounting for Government Grants and disclosure of Government assistance, prospectively to government loans exist at the date of transition and shall not recognize the corresponding benefit of the government loan at a below market rate of interest as a government Grant.

Still the entity is not precluded from restating government loan retrospectively provided that the information needed to do so had been obtained at the time of initially accounting for that loan.

♠ Impairment of Financial Asset:

At the time of transition to Ind AS, entity shall determine the credit risk at the date when such instruments were initially recognized.

For determining the loss allowance on financial instruments before the date of initial application, an entity shall consider information that is relevant in determining or approximating the credit risk at initial recognition.

At time of transitions to Ind AS, while determining there has been a significant increase in the credit risk since the initial recognition of a financial instrument would require undue cost or effort, an entity shall recognize a loss allowance at an equal amount to lifetime expected credit losses at each reporting date until that financial instrument is low credit risk at a reporting date.

Exemptions from Other Ind AS:

An entity may elect to use one or more of the following exceptions:

• Business Combination
• Share Based Payment Transactions
• Insurance Contracts
• Fair Value or revaluation at deemed cost
• Leases
• Cumulative translation differences
• Investments in Subsidiaries, associates and Joint Ventures
• Compound Financial Instruments
• Designation of previously recognized financial instruments
• Fair value measurement of financial asset or financial liability at initial recognition
• Financial assets or intangible assets accounted for in accordance with Service Concession Agreements
• Borrowing Cost
• Extinguishing Financial Liabilities with equity Instruments
• Joint Arrangements
• Revenue from contracts with customers
• Non-Current asset held for sale and discontinued operations

An entity shall not apply these exemptions by analog to other Items.

Preparation of Opening Balance Sheet (Ind-AS):

This shall be considered as the starting point for the accounting in accordance with the Indian Accounting Standards (Ind-AS).

An entity is required to make an opening Balance Sheet on the date of transition. Opening balance sheet is to be prepared on the date of transition, i.e., the beginning of the earliest comparative period presented, e.g., if an entity adopts Ind-AS from 2016-17, its date of transition will be April 1, 2015 and, thus, it will be required to prepare its opening Ind-AS balance sheet on April 1, 2015. For this purpose, an entity should, in its opening Ind-AS Balance Sheet:

• Recognize all assets and liabilities whose recognition is required by Indian Accounting Standards;
• Not to recognize items as assets or liabilities if Ind-AS do not permit such recognition;
• Reclassify items that are recognized in accordance with previous Generally Accepted Accounting Principles (GAAP) as one type of asset, liability or component of equity, but are a different type of asset, liability or component of equity in accordance with Ind-AS; and
• Apply Ind-AS in measuring all recognized assets and liabilities.

♠ Recognize:

• Defined Benefit Pension Plan
• Deferred Taxation
• Provision where there is a legal or a construction Obligation
• Derivative Financial Instruments
• Shares Based Payments

♠ De- Recognize:

• Provisions where there is no legal or constructive Obligation
• Internally generated Intangible Assets
• Deferred tax Assets where recovery is not probable.
• Provision for dividend
• Preliminary & Preoperative Expenses

♠ Classify:

• Investments accounted for in accordance with Indian Accounting Standards.
• Certain Financial Instruments previously qualified as equity.
• Any assets & Liabilities that have been offset where the criteria for offsetting in Ind AS are not met.
• Non-Current Assets held for sale as per Ind AS 105.
• Non-Controlling Interest

♠ Measure (Remeasure):

• Receivables
• Inventory ( Ind AS -2)
• Employee benefit Obligations ( Ind AS-19)
• Deferred Taxation ( Ind AS-12)
• Financial Instruments
• Investment Property (Ind AS -40)
• Property Plant & Equipment ( Ind AS -16)

Comparative Information:

First Ind AS adopted Financial Statements shall include at least three Balance Sheets, Two statement of Profit & Loss A/c, two statements of Cash Flows and two statement of changes in equity and related notes, including comparative information.

Presentation & Disclosure:

The Ind AS 101 does not provide any sort of exemption from the presentation and disclosure requirements in other Ind AS’s.

The data has been compiled from various sources over internet, books and reference material.