CA Vivekanand Pote
CBDT vide its Notification No: 32/2015 dated 31-03-2015 notified 10 Income Computation and Disclosure Standards (ICDS) which is to be followed by all assesses at the time of computation of income chargeable to income tax under the head “Profit and gains of business or profession” or “Income from other sources”. The effective dates of such ICDSs are 1st April, 2015 and shall accordingly apply to the Assessment Year 2016-17 and subsequent assessment years.
MCA has notified Ind AS, which will have a greater impact on preparation and presentation of financial statements. To harmonize the impact of Ind AS, CBDT has introduced Income Computation and Disclosure standards ( ICDS ) to be complied with for computation of income to be chargeable under the head Profit and gains of business or profession or Income from other sources. The list of ICDS and relevant Ind AS & existing AS are as follows :-
| ICDS | Name | Relevant IND AS | Relevant AS |
| I | Accounting Policies | 1 & 8 | 1 |
| II | Valuation of Inventories | 2 | 2 |
| III | Construction Contract | 11 | 7 |
| IV | Revenue Recognition | 18 | 9 |
| V | Tangible Fixed Asset | 16 | 10 |
| VI | Effects of changes in foreign exchange rates | 21 | 11 |
| VII | Government Grants | 20 | 12 |
| VIII | Securities | 32 | 30 |
| IX | Borrowing Costs | 23 | 16 |
| X | provisions, contingent liabilities and contingent assets | 37 | 29 |
Important points in ICDS:
- Effective Date of ICDS is 1st April, 2015 relevant for FY 2015-16 and AY 2016-17 onwards.
- All assesees i.e. corporate as well as non-corporate are required to comply with ICDS. No Net Worth or Turnover criteria has been prescribed..
- Entity need not to maintain Books of accounts for ICDS. ICDS is only for computation of income under the head “Profit and gains of business or profession” or “Income from other sources”.
- ICDS is meant for normal computation of income and not for Minimum Alternate Tax (MAT) computation
- In the case of conflict between the provisions of the Income‐tax Act, 1961 and ICDS the provisions of the Act shall prevail.
Comparison of ICDS with AS and IND AS
| Sr | Particulars | ICDS | AS | IND AS |
| ICDS I – Accounting Policies | ||||
| 1 | Fundamental Accounting Assumptions | • Going Concern • Consistency • Accrual |
No change | • Going Concern
• Accrual |
| 2 | Accounting Policies | Specific accounting principles and the methods of applying those principles | No change | No change |
| 3 | Consideration in the selection of accounting policy |
• Accounting policy shall represent true and fair view • Transactions shall be recognized by their substance rather than legal form • Marked to market loss or expected loss not to recognize unless required by ICDS |
Major considerations • Prudence • Substance over form • Materiality |
Major considerations • Policy shall be determined by applying specific IND AS • In absence, the policy shall be determined as per Management’s judgement |
| 4 | Consideration of change in accounting policy | Accounting policy shall not be changed without reasonable cause | Can change only if required by statue, AS or for more appropriate presentation | Can change only if required by Ind AS or results in providing reliable and more relevant information about the transactions |
| 5 | Disclosure of Accounting Policies |
• Significant accounting policies shall be disclosed • Material impact due to change in accounting policy shall be disclosed • Disclsure can not be remedy for wrong or inappropriate treatment of an item |
No change | No change
|
| 6 | Fundamental accounting assumption not followed | Specific disclosure required | No change | No change |
| ICDS II – Valuation of Inventories | ||||
| 1 | Scope | Excludes Construction WIP, Financial Instruments livestock, forest products , oil and minerals & capital spares | No change
|
No change
|
| 2 | Definition of Inventory | Assets
• Held for sale in the ordinary course • Use in the process of production for sale • Material and supplies for consumption or rendering of services |
No change | No change |
| 3 | Net realizable value | NRV= Selling Price – Estimated cost of completion and necessary to make sale | No change | No change |
| 4 | Measurement | Cost or NRV whichever is less | No change | No change |
| 5 | Cost of Inventories | Cost of Purchase + Cost of services + Cost of conversion + Other cost of bringing inventory to present location and condition | Specifically excludes duties and taxes which are subsequently recoverable by the entity from the taxing authorities | Same as existing AS |
| 6 | Cost of Purchase | Purchase Price + taxes + freight inward + directly attributable expenditure for acquisition – trade discount – rebates | Specifically excludes duties and taxes which are subsequently recoverable by the entity from the taxing authorities | Same as existing AS |
| 7 | Cost of Services | Labor cost + cost of other personnel directly engaged ( other than supervisory personnel + attributable overheads | Not defined | Not defined
|
| 8 | Cost of Conversion | Direct costs + Systematic allocation of fixed ( normal capacity ) and variable ( actual production ) overheads | No change | No change |
| 9 | Interest Costs | Not to include unless required by ICDS on borrowing cost | ||
| 10 | Exclusion from inventory | • Abnormal wastage
• Storage cost • Administrative overheads • Selling costs |
No change | No change |
| 11 | Cost Formulae | • FIFO & Weighted Average
• If impracticable – Retail Method • Written down to NRV on item by item basis |
No change | No change |
| 12 | Change in method of valuation | Shall not change without reasonable cause | ||
| 13 | Valuation of inventory in case of certain dissolutions | In case of dissolution of firm, AOP or BOI inventory shall be valued at NRV | No such provision | No such provision |
| 14 | Transitional Provision | Closing inventory as on 31.03.2015 shall be the opening inventory . | —- | —- |
| 15 | Disclosure | Accounting policy for measurement, cost formulae used , carrying amount of inventory and classificatioo. | No change | No change |
| ICDS IV – revenue Recognition | ||||
| 1 | Scope | Recognition of revenue in the course of ordinary activities from
• Sale of goods • Rendering of services • The use of resources yielding interest, royalties or dividends |
No change |
|
| 2 | Sale of goods | Recognise revenue when
• the property in goods is transferred • risks and rewards of ownership transferred • No effective control on goods by seller • Reasonable certainty of ultimate collection |
No change | Recognise revenue as control of the goods or services underlying a performance obligation is transferred |
| 3 | Rendering of services | Recognise as per percentage completion method | ||
| 4 | Interest, Royalties and Dividend | Interest – as and when accrued
Royalties – as per agreement Dividend – as per ITA |
No change | |
| 5 | Disclosure | • Revenue unrecognized due to uncertainty
• Method used to determine stage of completion iof service transactions • Service transactions in process |
||
| ICDS V – Tangible Fixed Assets | ||||
| 1 | Definition of tangible fixed asset | An asset being land, building, machinery, plant or furniture held with the intention of being used for the purpose of producing or providing goods or services and not for sale in the ordinary course of business | An asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business | Property plant and equipment are tangible items held for use in production or supply of goods or services, rental to others or for administrative purposes and are expected to be used for more than one period
|
| 2 | Definition of fair value | Amount at which the asset could be exchanged between knowledgeable, willing parties in an arm’s length transaction | Price that would be agreed to in an open and unrestricted market between knowledgeable and willing parties dealing at arm’s length who are fully informed and are not under any compulsion to transact. | Price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date |
| 3 | Identification of tangible asset | Stand by equipment, Service equipment and capital spares are to be capitalised | No change | No change |
| 4 | Components of actual cost | Purchase Price + duties and taxes ( excluding subsequently recoverable ) +directly attributable expenditure in making asset ready for intended use – trade discount – rebates + Exchange fluctuation + Start up costs + Preoperative expenses | No change | No change |
| 5 | Self constructed tangible fixed asset | Internal profit shall be eliminated | No change | No change |
| 6 | Non monetary consideration | Fair value of tangible asset acquired in exchange shall be the actual cost | No change | No change |
| 7 | Improvements and Repairs | Capitalise if increase in future economic benefits | No change | No change |
| 8 | Joint ownership | Jointly owned tangible fixed assets shall be indicated separately in fixed asset register | No such provision | No such provision |
| 9 | Consolidated price | Shall be apportioned to various assets on a fair basis | No such provision | No such provision |
| 10 | Depreciation | As per ITA | As per CA | As per CA |
| 11 | Transfers | As per ITA | Fixed asset is eliminated from FS on disposal and gain or loss on disposal is recognized in P&L. | Same as in AS
|
| 12 | Disclosure | • Description of block of asset
• Rate of deprecation, • Actual cost or WDV, • addition and deduction during the year, i • n case of addition adjustment on account of CENVAT, change in exchange rate , subsidy grant or reimbursement, • depreciation allowable , • WDV at the end of the year |
||
| ICDS VI – Effects of changes in foreign exchange rates | ||||
| 1 | Scope | Deals with
• Treatment of transactions in FC • Translating FS of foreign operations • Treatment of FC transactions in the nature of forward exchange contracts |
||
| 2 | FC transaction – Initial recognition | Record the transaction at Spot rate. Average rate for a week may be used when there is no significant fluctuation | Record the transaction at Spot rate. | Same as AS. |
| 3 | Conversion at last day of the PY | Convert monetary items at closing rate and recognize exchange difference in P&L. Convert non monetary items as on date of transaction and the provisions of Section 43A will prevail. | All foreign exchange differences are recognized in P&L. | Same as AS. |
| 4 | Forward Exchange Contracts | Amortize premium over the period of the life of contract. | No change | No change |
| 5 | Measurement of premium or discount | Difference between exchange rate at the inception of the contract and the forward rate specified in the contract | No change | |
| 6 | Exchange difference | Difference in translation of FC at the last date of PY or settlement date and the date of inception of contract or the last day of immediately preceding PY. | No change | |
| ICDS IX – Borrowing costs | ||||
| 1 | Definition of borrowing costs | Interest and others costs. Specifically includes commitment charges, amortised amount of discounts , premium & anciliary costs & finance charges under finance lease | Interest and other costs incurred by an enterprise in connection with borrowing | |
| 2 | Definition of Qualifying Asset | Means Tangible fixed asset, intangible assets & inventories requiring 12 months or more to bring in saleable condition | Asset that necessarily takes a substantial period of time to get ready for its intended use or sale | |
| 3 | Borrowing cost eligible for capitalization | Specific borrowing – Capitalise actual cost
General borrowing – Use formula Ax(B/C)
A= General borrowing cost incurred except specific borrowing B= (i) Average cost of qualifying asset on first and last day of BS (ii) Not appearing in both BS, 50% of cost of qualifying asset (iii) Appearing in first day BS only, average of cost of qualifying asset as on first day of BS and date put to use or completion C= Average of total assets on first day and last day of PY, excluding assets directly funded. |
Specific borrowings – Actual borrowing cost
General borrowing – use capitalization rate for recognizing borrowing cost eligible for capitalisation |
|
| 4 | Commencement of capitalisation | Specific borrowing – date on which funds were borrowed
General borrowing – the date on which funds are utilised |
||
| 5 | Cessation of capitalization ( in case of asset or part of asset ) | In case of tangible fixed asset and intangible asset when first put to use
In case of inventory when substantial activities necessary to prepare such inventory for its intended sale are complete |
||
| 6 | Disclosure | • Accounting policy
• Amount of borrowing cost capitalized during PY |
|
|
| ICDS X – Provisions, contingent liabilities and contingent assets | ||||
| 1 | Scope | Excludes financial instruments, executory contracts, insurance business or provisions covered by other ICDS | ||
| 2 | Specific exclusion | • Does not deal with revenue recognition
• Provision do not include adjustment to carrying amounts of asset |
||
| 3 | Definition of provision | Provision is a liability which can be measured only by using a substantial degree of estimation. | ||
| 4 | Recognition of provision | Recognise when
• Present obligation • Reasonable certainty • Reliable estimate |
No change | No change |
| 5 | Recognition of contingent liability | Not recognised | No change | No change |
| 6 | Recognition of contingent assets | Recognise only when the inflow is reasonably certain | No change | No change |
| 7 | Measurement of provision | • Best estimate at the end of the PY • Do not discount to PV |
No change | |
| 8 | Reimbursements | Recognise when the reimbursement are reasonably certain | No change | No change |
| 9 | Review | Provisions and Asset and related income shall be reviewed at the end of PY and shall be adjusted on best estimate | No change | No change |
| 10 | Use of provision | Shall be used for expenditure for which provision was made originally. | No change | No change |
| 11 | Disclosure in case of provision and contingent asset and related income | Nature of obligation, carrying amount at beginning and end, additional provision made, amounts used, unused amounts and expected reimbursements | ||
| ICDS VII – Govrnment Grants | ||||
| 1 | Scope | Deals with treatment of Government Grants such as subsidies, cash incentives, duty drawbacks, waiver, concessions,
reimbursements, etc. Does not deal with assistance other than government grants and government participation in enterprise. |
No change | Applied in accounting for government grants and disclosure of other forms of government assistance |
| 2 | Definition of Government Grants | • Assistance by Government in cash or kind to a person for past or future compliance with certain conditions.
• Excludes other assistance for value can not be placed and normal trading transactions with the Government |
No change | Government assistance is action by government designed to provide an
economic benefit specific to an entity or range of entities qualifying under certain criteria but does not include indirect benefits.
Government grants are assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. Excludes other assistance for value can not be placed and normal trading transactions with the Government
|
| 3 | Recognition of Government Grants | Recognise only when reasonable assurance of complying conditions and receipt of grant. Recognition can not be postponed beyond actual receipt. | Mere receipt of grant is not conclusive evidence of complying the conditions. | Same as AS |
| 4 | Treatment for Government Grants | • Relates to depreciable asset – deduct from cost of asset
• Relates to non depreciable asset – recognize as income as per matching concept • Not directly related to asset – deduct from COA in proportion of COA to all asset • Compensation for expense or losses incurred in previous FYs or immediate financial support – recognize income in the period when becomes receivable • Non monetary asset at concessional rate – at actual cost |
Nearly same provisions | • Recognise in Profit or Loss account on systematic basis as related expenses are recognized. • Compensation for expense or losses incurred in previous FYs or immediate financial support – recognize income in the period when becomes receivable • Relates to non depreciable asset – recognize asset at fair value and set grant deferred income • |
| 5 | Refund of Government Grants | • Other than depreciable assets -First charged to unamortized deferred credit, if deferred credit is not available charge to P&L
• Depreciable assets – increase the WDV and prospectively charge the depreciation |
No change | |
| 6 | Disclosures | • Nature of grants deducted from actual cost or recognized as income
• Nature of grants not deducted from actual cost or recognized as income • Nature of grants not recognized during PYs and reasons thereof |
Accounting policy and nature of grants |
|
| ICDS VIII – Securities | ||||
| 1 | Scopre | Deals with securities held as stock in trade
Does not deal with recognition of interest or dividend, securities held by insurance companies and mutual debts |
||
| 2 | Definition of securities | As per Sec. 2 of SCRA, securities include shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate | ||
| 3 | Recognition and initial measurement | Recognise at actual cost on acquisition including acquisition charge. If acquired in exchange of other security or other asset, recognize at fair value of security so acquired. Pre acquisition interest is deducted from actual cost. | ||
| 4 | Subsequent measurement of securities | Category wise actual cost or NRV whichever is less |
Author Bio
It seems you have forgotten ICDS III, the most important ICDS whcih effect all Construction/Real Estate sector.