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Introduction
FY 2016-17 is witnessing many changes in the field of accounting. This is the first year of adoption of IND AS for companies whose net worth is more than Rs. 500 Crores. Hence the financials for FY 2016-17 will be prepared as per IND AS and the presentation will be done as per Division II of Schedule III as per Companies Act 013. The computation of book profit under MAT depends on accounting profit. The financial have become complex due to initial impact of IND AS and recurring impact due to adoption of IND AS. Honorable Finance Minister, in his recent budget, proposed the treatment of IND AS adjustments for computation of book profit under MAT. The proposed treatment for MAT computation is summarised below.
| Impact of IND AS Adjustments on book profit computation under MAT | Applicable Section | |||
| CBDT constituted committee in June 15 for suggesting MAT framework under IND AS Scenario. The committee submitted final report in Dec 16. | ||||
| Features of proposed framework | ||||
| A | MAT on Ind AS compliant financial statement | |||
| 1 | No further adjustment to NPBOCI other than 115JB adjustments | |||
| 2 | OCI items permanently recorded in reserves and never classified to P&L – to be included in book profit as below | |||
| Sr | Items | Inclusion Point for MAT book profit | ||
| 1 | PPE & Intangible Asset change in revaluation surplus | To be included in book profits at the time of realisation/ disposal/ retirement or otherwise transferred | Sec. 115JB (2A) read with point (i) of first proviso | |
| 2 | FVTOCI Gains or Losses on Investment in Equity Shares | To be included in book profits at the time of realisation/ disposal/ retirement or otherwise transferred | Sec. 115JB (2A) read with point (ii) of first proviso | |
| 3 | Remeasurements of defined benefit plans | To be included in book profits every year as the remeasurements gains and losses arise | Sec. 115JB (2A) (a) & (b) | |
| 4 | Any other item | To be included in book profits every year as the gains and losses arise | Sec. 115JB (2A) (a) & (b) | |
| B | MAT on first time adoption | |||
| (i) | Adjustment on account of transition to Ind AS required to be recorded in net equity directly on the date of transition. Treatment for MAT purpose is below | |||
| ( I ) | Sr | Items | Inclusion Point for MAT book profit | |
| 1 | Adjustments recorded in OCI would be subsequently reclassified to P&L | To be included in book profit in the year of reclassification to P&L | Sec. 115JB (2C) and point (iii) (A) of Explanation | |
| (II) | Refer below table for impact of adjustment recorded in OCI and never reclassified to P&L | |||
| Sr | Items | Inclusion Point for MAT book profit | ||
| 1 | PPE & Intangible Asset change in revaluation surplus | To be included in book profits at the time of realisation/ disposal/ retirement or otherwise transferred | Sec. 115JB (2C) and point (iii) (B) of Explanation | |
| 2 | FVTOCI Gains or Losses on Investment in Equity Shares | To be included in book profits at the time of realisation/ disposal/ retirement or otherwise transferred | Sec. 115JB (2C) and point (iii) (C) of Explanation | |
| 3 | Remeasurements of defined benefit plans | To be included in book profits equally over a period of five years starting from the year of first time adoption of Ind AS | Sec. 115JB (2C) and point (iii) (A) of Explanation | |
| 4 | Any other item | To be included in book profits equally over a period of five years starting from the year of first time adoption of Ind AS | Sec. 115JB (2C) and point (iii) (A) of Explanation | |
| (III) | Adjustments made to Reserves and Surplus ( other than Capital Reserve and Securities Premium reserve ) and which would otherwise never subsequently be reclassified to P&L shall be included in book profit equally over the period of five years starting from the first time adoption subject to following – | Sec. 115JB (2C) | ||
| (a ) | An entity may use fair value in its opening IND AS balance sheet as deemed cost in case of PPE or Intangibles. In such case treatment for MAT purpose is as under – | |||
| 1 | Impact of revaluation shall be ignored. Also adjustments made to retained earning in case of revaluation shall be ignored | Sec. 115JB (2C) read with first proviso and Explanation | ||
| 2 | Depreciation shall be computed ignoring the impact of revaluation as stated above | Sec. 115JB (2) -(iia) of Explanation 1 | ||
| 3 | Gain/loss on realisation/ disposal/ retirement of such assets shall be computed ignoring the aforesaid retained earnings adjustment | Sec. 115JB (2C) read with first proviso and Explanation | ||
| (b ) | Investments in subsidiaries, joint ventures and associates at fair value as deemed cost | |||
| An entity may use fair value in its opening Ind AS Balance Sheet as deemed cost for investment in a subsidiary, joint venture or associate. Retained earnings adjustment shall be included in the book profit at the time of realisation of such investment. | Sec. 115JB (2C) read with first proviso and Explanation | |||
| (c ) | Cumulative translation differences | |||
| Cumulative translation differences on the date of transition which have been transferred to retained earnings, are taken into account, these shall be included in the book profits at the time of disposal of foreign operations | Sec. 115JB (2C) | |||
| (ii) | All other adjustments to retained earnings at the time of transition ( e.g. decommissioning liability, borrowing cost adjustments etc. ) shall be included in book profits, equally over a period of five years starting from first time adoption of Ind AS. | Sec. 115JB (2C) | ||
| (iii) | deferred tax adjustments recorded in Reserves and Surplus on account of transition to Ind AS shall also be ignored | Sec. 115JB (2) -(h) of Explanation 1 | ||
(Author is Working as Finance Professional in Automobile Industry and can be contacted at vcpote@rediffmail.com )
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