Introduction: MCA has issued notification dated 16th, February, 2015 in respect of phase-wise roadmap for adoption and applicability of Companies (Indian Accounting Standards) Rules, 2015 other than Banking Companies, Insurance Companies and NBFCs.
Further MCA has issued a press release dated 18th, January, 2016 in which Banking Companies, Insurance Companies and NBFCs are also included.
The Ministry of Corporate Affairs, Government of India, in consultation with the ICAI, decided to converge and not to adopt IFRSs issued by the IASB.
Implementation:
♣ Voluntary for all companies from 1st April, 2015
♣ Mandatory for companies if following conditions are satisfied from 1st April, 2016 (Phase I):
a) Companies whose equity or debt securities are listed or are in the process of being listed on any stock exchange in India or outside India and having net worth of Rs.500Crore or more;
b) Companies other than those covered by (a) and having net worth of Rs.500Crore or more;
c) Holding, subsidiary, joint venture or associate companies of companies of above.
♣ Mandatory for companies if following conditions are satisfied from 1st April, 2017:
a) All listed Companies not covered in Phase I;
b) Unlisted Companies other than those covered in Phase I and having net worth of Rs. 250Crore or more but less than 500Crore ;
c) Holding, subsidiary, joint venture or associate companies of companies of above.
Impact of Implementation:
- Prepare Opening Balance Sheet as per Ind AS on 1st April, 2015
- Taxation Issue like TDS, Excise, TDS, VAT, MAT
- Market price of Shares of the Companies
- Change in Financial ratios of the company
- Remuneration of key management personnel based on profit of the company
New Components of Financial Statements
- Statement of Changes in Equity for the year.
- Other Comprehensive Income’ section in the Statement of Profit and Loss for the year.
Key Paints:
♣ Applicable on
- Standalone financial statements,
- Consolidated financial statements,
- Quarterly financial statements.
♣ Companies not cover under above categories may also adopt Ind AS.
Analysis: existing Private Limited company have a option to present financial statement as per Ind AS rather than existing AS.
♣ Exclude financial elements inbuilt in price if goods sold on terms extending more than normal credit period.
Analysis: Normally sold at Rs.500 per Kg for 4 months credits. If same goods are sold at Rs.550 per Kg for 10 months than Rs. 50 considered as Interest Income.
♣ Financial elements in Fixed Assets and Inventories purchased.
Analysis: Normally machine is sold at Rs.4500 per for 2 months credits. If same machine is sold at Rs.5500 per for 12 months than Rs. 1000 considered as Interest Expenses.
♣ Proposed dividend not recognized until approved by the shareholders.
Analysis: Under the current scenario companies accounted for a provision for proposed final dividend, even if the approval of that dividend by the shareholders took place after the balance date.
♣ Redeemable Preference shares carrying fixed rate of dividend considered a liability
Analysis: It’s increased financial cost of the company and applies TDS provision of Income Tax Act, 1961.
♣ Component approach and concept of useful life of charging depreciation.
Analysis: Part-I of the Machine is Rs.10Lacs and Part-II of the same machine is Rs.20Lacs. Ind AS require depreciation to be charged on Part-I & Part-II where useful lives of the parts and the remaining asset are different.
♣ The Company will account for its investments (like government securities and mutual funds) at fair value.
Analysis: this change impact the valuation of the Investments and difference is routed through Fair Value through the Profit or Loss or Fair Value through the Other Comprehensive Income depending on the nature of investment.
♣ Discounting of Provisions and increase in the provision due to passage of time will be recognized as financial cost.
Analysis: Increased in provision recognized as financial cost and resulting in higher Interest Cost.
♣ Taking of Gross Sales rather than net off.
Analysis: Any sales incentive, discounts or rebates in any form, including cash discounts given to customers will be considered as selling price reductions and accounted as reduction from revenue. Its increase revenue due to inclusion of excise duty, discount etc
♣ Deferred taxes are recognised for future tax consequences of temporary differences between the carrying value of assets and liabilities in books and their respective tax base.
Analysis: no need to compare accounting income and taxable income.
CA Mayank Agarwal
+91-7879084121
camayankagarwal1006@gmail.com
Indore
