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Compendium of ITFG Clarification Bulletins (including clarifications issued till December 2018)
January, 25th 2019
Compendium of ITFG Clarification Bulletins
(including clarifications issued till December 2018)
        Compendium of
   ITFG Clarification Bulletins
   (including clarifications issued till
            December 2018)




The Institute of Chartered Accountants of India
            (Set up by an Act of Parliament)
                     New Delhi
© THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form, or by any means, electronic
mechanical, photocopying, recording, or otherwise, without prior permission,
in writing, from the publisher.
Clarifications given or views expressed by the Ind AS Technical Facilitation
Group (ITFG) represent the views of the members of the ITFG and are not
necessarily the views of the Ind AS Implementation Group or any
Committee/Board or the Council of the Institute. The clarifications/views are
based on the accounting principles as on the date the Group finalises the
particular clarification. The date of finalisation of each clarification Bulletin is
indicated along with the clarification Bulletin. The clarification must,
therefore, be read in the light of any amendments and/or other developments
subsequent to the issuance of clarifications by the Group.


First Edition               :   January, 2019


Committee/Department :          Ind AS Implementation Group


Email                       :   indas@icai.in


Website                     :   www.icai.org


Price                       :   INR 250/-


ISBN                        :   978-81-8441-920-7


Published by                :   The Publication Department on behalf of the
                                Institute of Chartered Accountants of India,
                                ICAI Bhawan, Post Box No. 7100, Indraprastha
                                Marg, New Delhi - 110 002
Printed by                  :   Sahitya Bhawan Publications, Hospital Road,
                                Agra 282 003/January/2019/1000 Copies
                  Foreword to the second edition
Majorly all large companies in India will be Ind AS-compliant by the end of
the current financial year 2018-19. As implementation of Ind AS began in the
country, a number of issues were raised by the members, preparers and
other stakeholders with regard to applicability/implementation of Ind AS. For
addressing transition related and Ind AS Implementation issues in a timely
and speedy manner, Ind AS Technical Facilitation Group (formely known as,
Ind AS Transition Facilitation Group) (ITFG) is working persistently in
providing timely clarifications to members and others concerned. For this
purpose, the Group issues clarification bulletins addressing implementation
issues from time to time. Till date, the Group has brought out clarifications on
132 issues through its 17 clarification bulletins.
This Second Edition of the publication has been updated to include
compilation of all the 132 issues clarified till date through all these
Clarifications Bulletins.
I sincerely appreciate the determined efforts put in by CA. Nihar Niranjan
Jambusaria, Convenor, CA. Dhinal Ashvinbhai Shah, Deputy Convenor and
all members of the Ind AS Technical Facilitation Group for their valuable
technical contribution and cooperation in bringing out ITFG clarification
bulletins in a timely manner. I also congratulate CA. S.B. Zaware, Chairman
and CA. M.P. Vijay Kumar, Vice-chairman, Accounting Standards Board of
ICAI for their support.
I am confident that this publication would be of great relevance for the
members and other stakeholders in implementing Ind AS.


New Delhi                                             CA. Naveen N.D. Gupta
January 2, 2019                                              President, ICAI
                      Preface to the second edition
The implementation of Indian Accounting Standards (Ind AS) converged
with International Financial Reporting Standards (IFRS) by Indian
Companies is a monumental step in the accounting history of India. ICAI
is committed to play an important role to ensure effective and smooth
implementation of IFRS converged Ind AS in India. For this purpose, the Ind
AS Implementation Group of the ICAI is actively engaged in providing
adequate guidance to members on Ind AS through its various initiatives.
One of the initiatives is to provide timely clarification on the transition related
and Ind AS Implementation related issues. For this purpose, an Ind AS
Transition Facilitation Group (ITFG) was constituted in the year 2016. In the
year 2018, the said Group has been renamed as Ind AS Technical
Facilitation Group (ITFG). The Group comprises of experts from accountancy
firms, industry representatives and other eminent professionals. The group
met 18 times in a span of three years to resolve the queries raised and till
date have issued 17 clarification bulletins comprising 132 issues. The first
edition contained clarifications issued till bulletin 14. This second edition of
the publication has been updated to include the clarifications issued through
bulletin 15, 16 and 17. Thus, this publication contains all the issues clarified
through these 17 ITFG Clarifications Bulletins at one place for ease of
reference of the members and other stakeholders.
We may apprise that the clarifications given or views expressed by the Ind
AS Technical Facilitation Group (ITFG) represent the views of the members
of the ITFG and are not necessarily the views of the Ind AS Implementation
Group or any Committee/Board or the Council of the Institute. The
clarifications/views are based on the accounting principles as on the date the
Group finalises the particular clarification. The date of finalisation of each
clarification Bulletin is indicated along with the clarification Bulletin. The
clarification must, therefore, be read in the light of any amendments and/or
other developments subsequent to the issuance of clarifications by the
Group.
We would like to convey sincere gratitude to our Honorable President, CA.
Naveen N D Gupta and Vice-President, CA. Prafulla Premsukh Chhajed for
providing us the opportunity of bringing out this publication. We also
appreciate the contributions of all the members of the Ind AS Technical
Facilitation Group (ITFG) in bringing out these clarification bulletins.
   We also acknowledge the technical contribution made by CA. Geetanshu
   Bansal, Secretary, Ind AS Implementation Group, CA. Prachi Jain, Executive
   Officer and CA. Geetu Jain, Project Associate in bringing out all the ITFG
   Clarification Bulletins and in bringing this publication. I would also like to
   thank CA. Vidhyadhar Kulkarni, Head, Technical Directorate, ICAI, for his
   technical support and guidance.
   We sincerely believe that this compilation of the ITFG Clarification bulletins
   would help members and other stakeholders in implementing Ind AS.


CA. Nihar Niranjan Jambusaria                    CA. Dhinal Ashvinbhai Shah
Convenor                                                    Deputy convenor
Ind AS Technical Facilitation Group       Ind AS Technical Facilitation Group
                                                             Foreword
ICAI is leading the way in embracing accounting standards of excellence and
playing a pivotal role to ensure effective and smooth implementation of IFRS
converged Ind AS in India. Various initiatives are undertaken for training of
our accounting professionals, creating awareness and providing guidance on
Ind AS. Transition to Ind AS, a comprehensive set of principle based
standards, involves huge efforts. Hence, any transition of this size and nature
comes with its own set of challenges. Recognising the challenges at an early
stage, ICAI is making every possible effort to take these in stride, such as
constitution of Ind AS Implementation Committee, way back in the year 2011.
This Committee, since formation, is actively engaged in providing guidance
to the members and other stakeholders so as to enable them to implement
these Standards in the same spirit in which these have been formulated. For
addressing transition related queries in a timely and speedy manner, an Ind
AS Transition Facilitation Group (ITFG) of the Committee is working hard in
providing timely clarifications to members and others concerned. For this
purpose, the Group issues clarification bulletins addressing implementation
issues from time to time. Till date, the Group has brought out clarifications on
104 issues through its 14 clarification bulletins. For ease of reference of
members it has been considered appropriate that a publication containing
compilation of all the 104 issues clarified till date through these 14 ITFG
Clarifications Bulletins be brought out along with its standard-wise
indexation.
I convey my heartfelt thanks to CA. Dhinal Ashvinbhai Shah, Chairman, CA.
Sanjay Vasudeva, Vice- Chairman, and all members of the Ind AS Transition
Facilitation Group (ITFG) of Ind AS Implementation Committee for their
tremendous contribution in bringing out these clarification bulletins.
I am confident that this publication would be of great relevance for the
members and other stakeholders in implementing Ind AS.


New Delhi                                              CA. Nilesh S.Vikamsey
February 2, 2018                                               President, ICAI
                                                                   Preface
In order to enable the nation with robust high quality globally acceptable
accounting standards, ICAI spearheaded the implementation of IFRS-
converged Indian Accounting Standards (Ind AS). Application of these
standards requires high level of professional competence and skill sets. ICAI
recognised this challenge at an early stage and has taken a number of steps
to satisfactorily address this challenge and ensure smooth trouble free
transition to new accounting standard framework. ICAI efforts have yielded
the positive result and Ind AS has become a reality now as the era of
Implementation of Ind AS has already begun in the country with Phase I
companies who have published their financial statements prepared in
accordance with Ind AS for financial year 2016-17. Phase II companies have
published their half yearly results prepared in accordance with Ind AS.
ICAI is leading the way in embracing accounting standards of excellence and
is committed to play an important role to ensure effective and smooth
implementation of IFRS converged Ind AS in India. For this purpose, the Ind
AS Implementation Committee of the ICAI is actively engaged in providing
adequate guidance to members on Ind AS through its various initiatives. As
the implementation of Ind AS began in the country, a number of issues were
being raised by the members, preparers and other stakeholders with regard
to applicability/implementation of Ind AS. In order to provide timely
clarification on the issues raised, an Ind AS Transition Facilitation Group
(ITFG) was constituted under the aegis of this Committee in the year 2016.
The Group comprised of experts from accountancy firms, industry
representatives and other eminent professionals. The group met 14 times in
a span of two years to resolve the queries raised and till date have issued 14
clarification bulletins comprising 104 issues.
The purpose of this publication is to bring all the issues clarified through
these 14 ITFG Clarifications Bulletins at one place for ease of reference of
the members and other stakeholders.
I may apprise that the clarifications given or views expressed by the Ind AS
Transition Facilitation Group (ITFG) represent the views of the members of
the ITFG and are not necessarily the views of the Ind AS Implementation
Committee or the Council of the Institute. The clarifications/views are based
on the accounting principles as on the date the Group finalises the particular
clarification. The date of finalisation of each clarification Bulletin is indicated
along with the clarification Bulletin. The clarification must, therefore, be read
in the light of any amendments and/or other developments subsequent to the
issuance of clarifications by the Group.
I would like to convey sincere gratitude to our Honorable President, CA.
Nilesh S. Vikamsey and Vice-President, CA. Naveen N D Gupta for providing
us the opportunity of bringing out this publication. I am also thankful to CA.
Sanjay Vasudeva, Vice-Chairman, Ind AS Implementation Committee for his
efforts in all the endeavours of the Committee. I am extremely thankful to all
the members of the Ind AS Transition Facilitation Group (ITFG) for their
valuable contribution in bring out these clarification bulletins in a short span
of time.
I deeply appreciate the technical contribution made by CA. Geetanshu
Bansal, Secretary, Ind AS Implementation Committee and CA. Prachi Jain,
Executive Officer in bringing out all the ITFG Clarification Bulletins. I also
acknowledge CA. Geetu Jain, Project Associate and CA. Vaishali Jaggi,
Project Associate in helping out in bringing this publication. I would also like
to thank CA. Vidhyadhar Kulkarni, Head, Technical Directorate, ICAI, for his
technical support and guidance.
I sincerely believe that this compilation of all the ITFG Clarification bulletins
would help members and other stakeholders in implementing Ind AS.


New Delhi                                        CA. Dhinal Ashvinbhai Shah
February 2, 2018                                                  Chairman,
                                            Ind AS Implementation Committee




                                       x
                                                                             Contents
(i)     Applicability related Issues: Roadmap .......................................... 1-30
(ii)    Applicability related Issues: Net worth criteria ............................. 31-37
(iii)   Issues related to Ind AS 101 ..................................................... 38-77
(iv)    Issues related to Ind AS 103 ..................................................... 78-87
(v)     Issues related to Ind AS 107 ...................................................... 88-91
(vi)    Issues related to Ind AS 108 ...................................................... 92-93
(vii)   Issues related to Ind AS 109 .................................................... 94-122
(viii) Issues related to Ind AS 110 ................................................... 123-130
(ix)    Issues related to Ind AS 7 ....................................................... 131-133
(x)     Issues related to Ind AS 8 ............................................................. 134
(xi)    Issues related to Ind AS 12 ..................................................... 135-152
(xii)   Issues related to Ind AS 16 ..................................................... 153-167
(xiii) Issues related to Ind AS 17 ..................................................... 168-175
(xiv) Issues related to Ind AS 18 ..................................................... 176-180
(xv)    Issues related to Ind AS 20 ..................................................... 181-193
(xvi) Issues related to Ind AS 21 ..................................................... 194-197
(xvii) Issues related to Ind AS 23 ..................................................... 198-201
(xviii) Issues related to Ind AS 24 ..................................................... 202-204
(xix) Issues related to Ind AS 27 ..................................................... 205-207
(xx) Issues related to Ind AS 28 ..................................................... 208-210
(xxi) Issues related to Ind AS 32 ...................................................... 211-226
(xxii) Issues related to Ind AS 33 .................................................... 227-229
(xxiii) Issues related to Ind AS 37 .......................................................... 230
(xxiv) Issues related to Ind AS 38 .................................................... 231-232
(xxv) Schedule III related Issues .................................................... 233-236
(xxii) Appendices .......................................................................... 237-271
        Appendix I ­ FAQs related to Ind AS issued by the Accounting
                     Standards Board (ASB) of ICAI .......................... 239-249
        Appendix II- Extracts of roadmap as amended vide notification
                     dated 30.3.16 .................................................... 250-257
        Appendix III- Indexation of Issues-Standard-wise .................... 258-259
        Appendix IV- Indexation of Issues in order of ITFG Clarification
                     Bulletins ............................................................ 260-271




                                                xii
                           Tabulation of Issues: Topic-wise
Issue     Topic                    Issue addressed                           Bulletin    Issue     Para of   Other Ind    Page
 No.                                                                           No.       No. of    Ind AS      AS/AS       No.
                                                                                        Bulletin     101     Standards
1       Roadmap   Applicability of Ind AS- Subsidiaries of Listed        1              2          NA        NA          1-4
                  Company (different scenario)
2       Roadmap   Applicability of Ind AS to NBFCs in case not           13             4          NA        NA          4
                  registered with RBI
3       Roadmap   Applicability of Ind AS to India branch office of      12             6          NA        NA          5
                  foreign company
4       Roadmap   Applicability of Ind AS to non-corporate entities      11             7          NA        NA          5-6
5       Roadmap   Applicability of Ind AS to holding company(NBFC)       6              3          NA        NA          6-8
                  of the subsidiary which is covered under the
                  criteria of Ind AS roadmap
6       Roadmap   Applicability of Ind AS - Section 8 company            6              2          NA        NA          8-9
7       Roadmap   Applicability of Ind AS- Date of Transition            4              4          NA        NA          9-10
8       Roadmap   Applicability of Ind AS - change in status of listed   3              8          NA        NA          10-11
                  company
                                                                                                                       Compendium of ITFG Clarification Bulletins
      9    Roadmap   Applicability of Ind AS to holding company when          3    7   NA         NA           11-12
                     subsidiary meets the criteria for applicability of Ind
                     AS
      10   Roadmap   Applicability of Ind AS - associate company              3    6   NA         NA           13-14
                     In case of quarterly results
      11   Roadmap   Applicability of Ind AS to Core Investment               3    2   NA         NA           14-15
                     Company (CIC)
      12   Roadmap   Date of Transition in case a company is already          2    3   Appendix   NA           15-16
                     preparing financials as per IFRS                                  A
      13   Roadmap   Applicability of Ind AS to an Indian subsidiary          2    2   NA         NA           16-17
                     of a foreign company
xiv




      14   Roadmap   Applicability of Ind AS - associate company              3    5   NA         Ind AS 28    17-20
                     Consideration of share warrants which are
                     convertible into equity shares
      15   Roadmap   Applicability of Ind AS to holding, subsidiary , joint   3    4   NA         Ind AS 28    20-21
                     venture and associate company through direct or
                     indirect association in case of voluntary adoption
                     by the parent company
      16   Roadmap   Applicability of Ind AS to holding company, if           5    1   NA         Ind AS 110   21-23
                     subsidiary company incorporated for divestment
                     purpose complies with Ind AS.
      17   Roadmap   Applicability of Ind AS in case of change in the         15   4   NA         NA           24-26
                     status of listed company or company in the
                       process of listing or listed debentures issued
                       during the year
     18   Roadmap      Applicability of Ind AS to NBFC - in case of         15   5    NA         NA          26-28
                       termination of membership in process
     19   Roadmap      Applicability of Ind AS ­ in case of Investor        15   10   NA         NA          29-30
                       Company and another fellow subsidiary of a
                       holding company
     20   Net worth    Applicability of Ind AS - Net Worth Criteria         11   1    NA         NA          31
                       Treatment of ESOP Reserve
     21   Net worth    Computation of net worth for Ind AS applicability-   6    4    NA         AS 12       32
                       Government Grant to be considered as capital
                       reserve
xv




     22   Net worth    Applicability of Ind AS - Net worth criteria         6    1    NA         NA          33-34




                                                                                                                     Tabulation of Issues: Topic-wise
     23   Net worth    Applicability of Ind AS - In case of Negative net    4    3    NA         NA          34-36
                       worth
     24   Net worth    Applicability of Ind AS- Net worth Criteria          1    1    NA         NA          36-37
     25   Ind AS 101   Date of Transition to Ind AS                         8    3    Para 6     NA          38
     26   Ind AS 101   Adjustments due to other Ind AS if deemed cost       12   10   Para 10    NA          39-40
                       exemption availed
     27   Ind AS 101   Date for assessment of functional currency           1    5    Para 10    NA          40-41
     28   Ind AS 101   Accounting treatment of the balance outstanding in   8    7    Para 10,   Ind AS 1    41-42
                       the "Revaluation Reserve" and deferred tax on this             11         Ind AS 12
                       transition revaluation reserve
                                                                                                                        Compendium of ITFG Clarification Bulletins
      29   Ind AS 101   Applicability of Ind AS 109, Financial Instruments,   12   9    Para C1    Ind AS 109   42-45
                        if financial instruments have been acquired as part             & C4
                        of the business combinations and the exemption
                        under paragraph C1 of Ind AS 101 availed
      30   Ind AS 101   Accounting Treatment of the Government Grant          12   2    Para D5,                45-46
                        received before the date of transition and                      10         Ind AS 20
                        measurement of property, plant and equipment at
                        the date of transition to Ind AS
      31   Ind AS 101   Reversal of the impairment provision recognised in    8    5    Para D6    Ind AS 16    47-48
                        books as at the date of transition when exemption                          Ind AS 36
                        under paragraph D6 of Ind AS 101 availed
      32   Ind AS 101   Availment of deemed cost exemption for the            10   4    Para       AS 10        48-50
xvi




                        assets classified as `Assets held for sale' but                 D7AA       Ind AS 105
                        which do not fulfil the criteria for classifying as
                        held for sale in accordance with Ind AS 105 on the
                        date of transition
      33   Ind AS 101   Applicability of paragraph D7AA for capital work in   3    11   Para       Ind AS 16    50-51
                        progress                                                        D7AA
      34   Ind AS 101   Deemed cost exemption under paragraph D7AA            12   5    Para       Ind AS 110   51-52
                        (Treatment of intragroup profits)                               D7AA
      35   Ind AS 101   Reversal of impact of paragraph 46A of AS 11          7    3    Para       Para         52-53
                        when exemption as per paragraph D7AA of Ind AS                  D7AA       46/46A of
                        101 availed                                                                AS 11
       36   Ind AS 101   Selective adoption of deemed cost exemption           5   3    Para       NA           53-54
                         under paragraph D7AA                                           D7AA
       37   Ind AS 101   Treatment of Government Grant on the date of          5   5    Para       Ind AS 20    54-56
                         transition-In case of deemed cost exemption                    D7AA
                                                                                        and Para
                                                                                        D10
       38   Ind AS 101   Treatment of unadjusted processing of fees on         5   4    Para       Ind AS 109   56-57
                         loans taken before the date of transition -In case             D7AA
                         of deemed cost exemption                                       and Para
                                                                                        D10
       39   Ind AS 101   Applicability of paragraph D13AA on long term         7   4    Para       Para
                         foreign exchange contracts                                     D13AA      46/46A of    58-59
xvii




                                                                                                   AS 11




                                                                                                                        Tabulation of Issues: Topic-wise
       40   Ind AS 101   Capitalisation of exchange differences arising from   1   4    Para       Para
                         long term foreign currency monetary items (In                  13AA       46/46A of    59-60
                         case of first-time adoption of Ind AS and when                            AS 11
                         change in functional currency)
       41   Ind AS 101   Exemption under paragraph D13AA to foreign            7   1    Para       Para         60-61
                         currency loan drawn after Ind AS applicability to              D13AA      46/46A of
                         the entity                                                                AS 11
       42   Ind AS 101   Applicability of paragraph D13AA on foreign           3   10   Para       Para         61-62
                         currency swaps in case of hedged items                         D13AA      46/46A of
                                                                                                   AS 11
                                                                                                   Ind AS 109
                                                                                                                           Compendium of ITFG Clarification Bulletins
        43   Ind AS 101   Revision of balance of Foreign Currency Monetary        2    6   Para       Ind AS 109   62-65
                          Item Translation Difference Account (FCMITDA) at                 13AA
                          the time of first time adoption of Ind AS on account
                          of finance cost
        44   Ind AS 101   Amortisation of balance of Foreign Currency             2    1   Para       Para         65-66
                          Monetary Item Translation Difference Account                     13AA       46/46A of
                          (FCMITDA)                                                                   AS 11
        45   Ind AS 101   Capitalisation of exchange differences arising from     1    3   Para       Para         66-67
                          long term foreign currency monetary items in case                13AA       46/46A of
                          of fixed assets(In case of first time adoption of Ind                       AS 11
                          AS)
        46   Ind AS 101   Accounting Treatment of interest free loan to           10   1   Para       Ind AS 27    67-68
xviii




                          subsidiary company when exemption under                          D14, D15
                          paragraph D15 of Ind AS 101 availed                              & 10
        47   Ind AS 101   Measurement of Investment in Subsidiary when            11   4   Para       NA           68-70
                          exemption under paragraph D15 of Ind AS 101                      D14,
                          availed                                                          D15, D7
        48   Ind AS 101   Exemption of paragraph D15 on investment in             7    8   Para D15   Ind AS 110   70-72
                          debentures of subsidiary company                                            Ind AS 27
                                                                                                      Ind AS 109
        49   Ind AS 101   Exemption under paragraph D22 of Ind AS 101 in          7    9   Para D22   Ind AS 38    72-73
                          respect of intangible assets arising from service
                          concession arrangements (toll roads)which are in
                          progress.
      50   Ind AS 101   Accounting treatment of non-controlling interest in    8    6   Para B7,   Ind AS 103   73-75
                        case of business combinations in its consolidated               C1
                        financial statements as on the date of transition               Para C4
                                                                                        of
                                                                                        Appendix
                                                                                        C
      51   Ind AS 101   Applicability of Appendix C of Ind AS 103 ­ in case    15   6   Para C1    Ind AS 103   75-77
                        of amalgamation on the date of transition
      52   Ind AS 103   Date of acquisition (i.e. date of obtaining control)   12   8   NA         Ind AS 103   78-80
                        under two scenario in case of court scheme,
                        whether business combination is or is not under
                        common control.
xix




      53   Ind AS 103   Business Combinations of entities under common         9    2   NA         Ind AS 103   80-83
                        control                                                                    Ind AS 110




                                                                                                                         Tabulation of Issues: Topic-wise
      54   Ind AS 103   Incorporation of effect of business combination in     14   4   NA         Ind AS 103   83-84
                        the standalone financial statements in case of
                        scheme of arrangement
      55   Ind AS 103   Account Treatment of Demerger                          16   5   NA         Ind AS 103   84-87
      56   Ind AS 107   Recognition of the dividend income on an               8    9   NA         Ind AS 107   88-90
                        investment in debt instrument in the books of an                           Ind AS 109
                        investor
      57   Ind AS 107   Foreign currency risk disclosure in case of option     13   8   Para       Ind AS 107   90--91
                        taken under paragraph D13AA of Ind AS 101                       D13AA
                                                                                                                   Compendium of ITFG Clarification Bulletins
     58   Ind AS 108   Disclosures by the entity in case it is operating     13   3    NA   Ind AS 108   92-93
                       into one segment
     59   Ind AS 109   Valuation of financial guarantee contract             12   11   NA   Ind AS 109   94-95
     60   Ind AS 109   Accounting Treatment of financial guarantee           13   2    NA   Ind AS 109   95-97
                       received from the Director
     61   Ind AS 109   Recognition of renegotiation gain/loss on Financial   13   6    NA   Ind AS 109   97-98
                       Instruments done in subsequent year but before
                       the approval of financial statements
     62   Ind AS 109   Accounting treatment of processing fees belonging     10   2    NA   Ind AS 109   98-100
                       to undisbursed term loan amount
     63   Ind AS 109   Accounting Treatment of prepayment premium            12   4    NA   Ind AS 109   100-101
xx




                       and processing fees of obtaining new loan to
                       prepay old loan
     64   Ind AS 109   Accounting of Financial Guarantee Contract -          12   3    NA   Ind AS 109   101-102
                       Comfort Letter
     65   Ind AS 109   Accounting treatment of shares held as stock-in       14   5    NA   Ind AS109    102-103
                       trade in accordance with Ind AS                                      Ind AS 32
                                                                                            Ind AS 2
     66   Ind AS 109   Accounting treatment of the incentive receivable      15   3    NA   Ind AS 109   103-104
                       from the Government                                                  Ind AS 32
     67   Ind AS 109   Discounting of Interest free refundable security      15   7    NA   Ind AS 109   104-106
                       deposits                                                             Ind AS 32
      68   Ind AS 109   Accounting treatment of the financial guarantee        16   1   NA   Ind AS 109   107-112
                        given by a subsidiary company                                        Ind AS 27
                                                                                             Ind AS 18
      69   Ind AS 109   Accounting treatment of the modification of the        16   3   NA   Ind AS 109   112-116
                        terms of the loan or assignment of loan to Asset                     Ind AS 32
                        Reconstruction Company (ARC)

      70   Ind AS 109   Accounting treatment of the financial guarantee in     16   7   NA   Ind AS 109   116-118
                        case of repayment of the loan before the tenure                      Ind AS 18
                                                                                             Ind AS 8

      71   Ind AS 109   Accounting treatment of Dividend Distribution Tax      17   2   NA   Ind AS 109   118-120
                        (DDT) in calculating effective interest rate (EIR)                   Ind AS 32
xxi




                        on the preference shares




                                                                                                                    Tabulation of Issues: Topic-wise
      72   Ind AS 109   Recognition of dividend income on an investment        17   4   NA   Ind AS 109   120-122
                        on a debt instrument in the books of the investor                    Ind AS 107
      73   Ind AS 110   Accounting treatment of loss of investment in          13   7   NA   Ind AS 112   123-124
                        subsidiary                                                           Ind AS 110

      74   Ind AS 110   Accounting treatment of dividend distribution tax in   13   9   NA   Ind AS 110   124-127
                        the consolidated financial statements in case of
                        partly-owned subsidiary - different scenarios
      75   Ind AS 110   Treatment of depreciation in consolidated financial    11   6   NA   Ind AS 110   127-129
                        statements when different method of depreciation                     Ind AS 8
                        applied by entities
                                                                                                                       Compendium of ITFG Clarification Bulletins
       76   Ind AS 110   Accounting treatment of the outstanding retired       15   9   NA      Ind AS 32    129-130
                         partners' capital balances                                             Ind AS 110
                                                                                                Ind AS 113
       77   Ind AS 7     Classification of investments made by an entity in    16   4   NA      Ind AS 7     131-133
                         units of money-market mutual funds
       78   Ind AS 8     Disclosure of the new Ind AS which is not yet         8    2   NA      Ind AS 8     134
                         effective (Ind AS 115)
       79   Ind AS 12    Accounting treatment of Tax Holidays under Ind        11   2   NA      Ind AS 12    135-136
                         AS                                                                     AS 22
       80   Ind AS 12    Recognition of deferred tax asset on the tax          10   3   NA      Ind AS 12    136-137
                         deductible goodwill in the consolidated financial
xxii




                         statements
       81   Ind AS 12    Accounting treatment of dividend distribution tax     9    1   NA      Ind AS 12    138-140
                         (DDT) and deferred tax liability (DTL) on the
                         accumulated undistributed profits of the subsidiary
                         company
       82   Ind AS 12    Recognition of deferred tax asset on land sold as     7    7   NA      Ind AS 12    140-142
                         slump sale
       83   Ind AS 12    Recognition of the deferred tax on the differences    8    8   Para    Ind AS 12    143-145
                         that are arising from adjustment of exchange                   D13AA   Ind AS 21
                         difference to the cost of the asset
       84   Ind AS 12    Accounting Treatment of the interest and penalties    16   2   NA      Ind AS 12    145-148
                         related to income taxes                                                Ind AS 1
        85   Ind AS 12   Recognition of Deferred Tax on conversion of           17   7    NA         Ind AS 12   148-152
                         Capital Asset into Stock-in-Trade
        86   Ind AS 16   Accounting Treatment of expenditure on the             11   8    NA         Ind AS 16   153-155
                         construction/development of railway siding, road
                         and bridge to facilitate the construction of a new
                         refinery
        87   Ind AS 16   Selection of valuation model         of immovable      12   1    NA         Ind AS 16   155-157
                         properties                                                                  Ind AS 40
        88   Ind AS 16   Accounting treatment of the wrongly capitalised        8    4    Para       Ind AS 16   157-158
                         asset which does not meet the definition of                      D7AA,
                         tangible asset                                                   10, 24,
                                                                                          26
xxiii




        89   Ind AS 16   Re-computation of Depreciation based on useful         3    14   Para D     Ind AS 16   159-160




                                                                                                                           Tabulation of Issues: Topic-wise
                         life when Ind AS 16 applied retrospectively                      7AA
        90   Ind AS 16   Property, plant and equipment - capitalisation of      3    9    Para       Ind AS 16   160-162
                         capital spares when deemed cost exemption                        D7AA
                         availed for property, plant and equipment on                     and Para
                         transition to Ind AS                                             10
        91   Ind AS 16   Property, Plant and Equipment - Capitalisation of      2    5    NA         Ind AS 16   162
                         expenditure on assets not owned by the company
        92   Ind AS 16   Property Plant and Equipment- Recognition              2    4    NA         Ind AS 16   162-163
                         Criteria of spare part as an item of property, plant
                         and equipment and depreciation thereon
                                                                                                                         Compendium of ITFG Clarification Bulletins
       93    Ind AS 16   Accounting of spare parts which meet the                5    6   Para D   Ind AS 16   163-166
                         definition of property, plant and equipment on the               7AA
                         date of transition
       94    Ind AS 16   Accounting treatment of the Revaluation surplus         14   6   D5       Ind AS 16   166-167
                         as per previous GAAP on transition date and
                         Revaluation gain arising after transition date when
                         Ind AS 16 applied retrospectively
       95    Ind AS 17   Classification of land lease under Ind AS               7    5   NA       Ind AS 17   168-169
       96    Ind AS 17   Straight-lining of lease payments if escalation of      5    7   NA       Ind AS 17   170-171
                         lease payments is different from general inflation.
xxiv




       97    Ind AS 17   Accounting treatment of restoration costs in case       14   2   NA       Ind AS 17   171-172
                         of a leasehold land
       98    Ind AS 17   Recognition of income in respect of lease in case       15   8   NA       Ind AS 17   172-173
                         of nominal lease rent payment                                             Ind AS 18
       99    Ind AS 17   Classification of the the infrastructure usage rights   16   6   NA       Ind AS 17   174-175
                         under the lease
       100   Ind AS 18   Classification of expense of providing free third       10   6            Ind AS 18   176-177
                         party goods under Customer Loyalty Programmes
       101   Ind AS 18   Revenue Recognition - Treatment of Service Tax          4    2   NA       Ind AS 18   177-178
       102   Ind AS 18   Revenue Recognition - presentation of         Excise    4    1   NA       Ind AS 18   178-179
                         Duty (Gross or net of sales)
      103   Ind AS 18   Whether an entity should adjust the consideration      14   3   NA          Ind AS 18    179-180
                        (including advance payments) for the effect of time
                        value of money
      104   Ind AS 20   Accounting of below-market rate interest loan -        12   7   Para B10    Ind AS 20    181-183
                        exemption under para B10 of Ind AS 101                                      Ind AS 32
                                                                                                    Ind AS 109
      105   Ind AS 20   Accounting treatment of exemption of custom duty       11   5   NA          Ind AS 20    183-185
                        under EPCG scheme
      106   Ind AS 20   Accounting treatment of the grants in the nature of    9    3   NA          Ind AS 20    185-187
                        promoters' contribution on the date of transition to
                        Ind AS and post transition to Ind AS
xxv




      107   Ind AS 20   Accounting of grants related to non-depreciable        17   1   Para 3      Ind AS 20    187-192
                        assets considering the amendments made by the                   Para 6, 7   Ind AS 8




                                                                                                                           Tabulation of Issues: Topic-wise
                        notification apply for the annual periods beginning             &8          Ind AS 115
                        on or after April 1, 2018
      108   Ind AS 20   Accounting of benefits received to SEZ/STP unit        17   3   NA          Ind AS 20    192-193
      109   Ind AS 21   Determination of functional currency and               7    2   NA          Ind AS 21    194-196
                        presentation currency for preparation of annual
                        financial statements in case of Group
      110   Ind AS 21   Identification of functional currency of an entity     3    3   NA          Ind AS 21    196-197
      111   Ind AS 23   Capitalisation of Dividend Distribution Tax(DDT)       13   1   NA          Ind AS 109   198-199
                        as borrowing costs of the qualifying asset                                  Ind AS 23
                                                                                                                      Compendium of ITFG Clarification Bulletins
       112   Ind AS 23   Capitalising of the processing fees as borrowing     14   1    NA     Ind AS 109   200-201
                         costs when the loans are specifically borrowed for                    Ind AS 23
                         the purpose of a qualifying asset
       113   Ind AS 24   Whether sitting fees paid to independent director    11   9    NA     Ind AS 24    202-203
                         and Non-executive director is required to be
                         disclosed in the financial statements prepared as
                         per Ind AS
       114   Ind AS 24   Related Party Disclosures in case of holding and     17   6    NA     Ind AS 24    203-204
                         subsidiary company (electricity distribution
                         company)
       115   Ind AS 27   Post Ind AS adoption accounting treatment of         5    8    NA     Ind AS 111   205-206
                         profit share from investment in limited liability                     Ind AS 27
xxvi




                         partnership which is under joint control ( in                         Ind AS 109
                         separate financial statements)
       116   Ind AS 27   Measurement of investment in subsidiaries at cost    3    12   Para   Ind AS 27    206-207
                         if valued at fair value on date of transition                  D15    Ind AS 109
       117   Ind AS 28   Treatment of adjustments arising out of fair         17   5    NA     Ind AS 28    208-210
                         valuation of investment property in the                               Ind AS 40
                         consolidated financial statements of the investor                     Ind AS 110
       118   Ind AS 32   Computation of financial liability in case of        13   10   NA     Ind AS 32    211-212
                         convertible debentures sharing same coupon rate
                         and market rate
       119   Ind AS 32   Treatment of dividend on financial instruments       7    6    NA     Ind AS 32    212-213
                          declared after the end of the reporting period                       Ind AS 10
        120   Ind AS 32   Treatment of optionally convertible preference        14   7    NA   Ind AS 32,   213-215
                          shares in Standalone` financial statements and                       Ind AS 27,
                          consolidated financial statements                                    Ind AS 110
        121   Ind AS 32   Accounting of Foreign Currency Convertible Bonds      15   1    NA   Ind AS 32    215-218
                          (FCCB)
        122   Ind AS 32   Accounting treatment of the preference shares and     15   2    NA   Ind AS 32    218-219
                          dividends
        123   Ind AS 32   Classification of preference shares denominated in    17   9    NA   Ind AS 32    219-222
                          its functional currency and carrying conversion-vs-                  Ind AS 109
                          redemption option                                                    Ind AS 113
xxvii




        124   Ind AS 32   Classification of financial instrument in case of     17   10   NA   Ind AS 32    222-224
                          rights offer




                                                                                                                      Tabulation of Issues: Topic-wise
        125   Ind AS 32   Classification of financial instrument in case of     17   11   NA   Ind AS 32    224-226
                          equity conversion option forming part of terms of
                          issue of preference shares
        126   Ind AS 33   Presentation of earning per share for separate and    11   3    NA   Ind AS 33    227-228
                          consolidated financial statements
        127   Ind AS 33   Treatment of Foreign Currency Monetary Item           10   5         Ind AS 33    228-229
                          Translation Difference Account for the purpose of                    Para
                          calculation of basic earnings per share (EPS)                        46/46A of
                                                                                               AS 11
        128   Ind AS 37   Whether provision for unspent Corporate Social        8    1    NA   Ind AS 37    230
                              Responsibility expenditure is required to be made




                                                                                                                               Compendium of ITFG Clarification Bulletins
                              as per Ind AS
         129   Ind AS 38      Applicability of revenue based amortisation for         3    13   Para D22   Ind AS    231-232
                              intangible assets arising service concession                                 38(Para
                              arrangements in respect of toll roads for new                                7AA)
                              arrangements entered after the date of transition
         130   Schedule III   Disclosure of operating profit on the face of           13   5    NA         NA        233-234
                              Statement of Profit and Loss in accordance with
                              Ind AS based Schedule III
         131   Schedule III   Applicability of Ind AS based Schedule III on           3    1    NA         NA        234-235
                              voluntary adoption of Ind AS
xxviii




         132   Schedule III   Classification of interest leviable on the entity due   17   8    NA         NA        235-236
                              to delay in payment of the taxes in the statement
                              of profit and loss
 Applicability related Issues: Roadmap
Applicability of Ind AS- Subsidiaries of Listed Company (different
scenario)
Issue 1: Company A is a listed company and has three Subsidiaries
Company X, Company Y and Company Z. As on 31st March 2014, the
net worth of Company A is ` 600 Crores, net worth of Company X is `
100 Crores, Company Y is ` 400 Crores and Company Z is ` 210 Crores.
All the three subsidiaries are non-listed public companies.
Case A During the financial year 2014-15, Company A has sold off its entire
investment in Company X on 31st December 2014. Therefore, Company X is
no longer a subsidiary of Company A for the purposes of preparation of
financial statements as on 31st March 2015. Should Company X prepare its
financial statements as per the Companies (Accounting Standards) Rules,
2006 or the Companies (Indian Accounting Standards) Rules, 2015?
Case B During the financial year 2015-16, Company A has sold off its
investment in Company Y on 31st December, 2015. Therefore, Company Y is
no longer a subsidiary of Company A for the purposes of preparation of
financial statements as on 31 March 2016. Should Company Y prepare its
financial statements as per the Companies (Accounting Standards) Rules,
2006 or the Companies (Indian Accounting Standards) Rules, 2015?
Case C During the financial year 2016-17, Company A has sold off its
investment in Company Z on 31st December 2016, therefore company Z is
no longer a subsidiary of Company A for the purposes of preparation of
financial statements as on 31 March 2017. Should Company Z prepare its
financial statements as per the Companies (Accounting Standards) Rules,
2006 or the Companies (Indian Accounting Standards) Rules, 2015?
Response: Rule 4(1)(ii)(c) of the Companies (Indian Accounting Standards)
Rules, 2015, states as under:
     (4) (1) The Companies and their auditors shall comply with the Indian
     Accounting Standards (Ind AS) specified in Annexure to these rules in
     preparation of their financial statements and audit respectively, in the
     following manner, namely:-
     (ii) the following companies shall comply with the Indian Accounting
          Standards (Ind AS) for the accounting periods beginning on or after


                                     1
Compendium of ITFG Clarification Bulletins

          1st April, 2016, with the comparatives for the periods ending on
          31st March, 2016, or thereafter, namely:-
     (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 rupees five hundred crore or more;
     (b) companies other than those covered by sub-clause (a) of clause (ii)
         of sub-rule(1) and having net worth of rupees five hundred crore or
         more;
     (c) holding, subsidiary, joint venture or associate companies of
         companies covered by sub-clause (a) of clause (ii) of sub- rule (1)
         and sub-clause (b) of clause (ii) of sub- rule (1) as the case may
         be;
Rule 4(2) of the Companies (Indian Accounting Standards) Rules, 2015,
states as under:
     2) For the purposes of calculation of net worth of companies under sub-
     rule (1), the following principles shall apply, namely:-
     (a) the net worth shall be calculated in accordance with the stand-
         alone financial statements of the company as on 31st March, 2014
         or the first audited financial statements for accounting period which
         ends after that date;
     (b) for companies which are not in existence on 31st March, 2014 or
         an existing company falling under any of thresholds specified in
         sub-rule (1) for the first time after 31st March, 2014, the net worth
         shall be calculated on the basis of the first audited financial
         statements ending after that date in respect of which it meets the
         thresholds specified in sub-rule (1).
Explanation.- For the purposes of sub-clause (b), the companies meeting the
specified thresholds given in sub-rule (1) for the first time at the end of an
accounting year shall apply Indian Accounting Standards (Ind AS) from the
immediate next accounting year in the manner specified in sub-rule (1).
Rule (9) of the Companies (Indian Accounting Standards) Rules, 2015, states
that:
"Once a company starts following the Indian Accounting Standards (Ind AS)
either voluntarily or mandatorily on the basis of criteria specified in sub-rule
(1), it shall be required to follow the Indian Accounting Standards (Ind AS) for
all the subsequent financial statements even if any of the criteria specified in
this rule does not subsequently apply to it".


                                       2
                                         Applicability related Issues: Roadmap

In view of the above requirements, Company A meets the criteria as
specified in the Rule 4(2) (a) of the Companies (Indian Accounting
Standards) Rules, 2015, on 31st March, 2014. Accordingly, the Companies
(Indian Accounting Standards) Rules, 2015, will become applicable to the
Company on mandatory basis from accounting periods commencing 1st
April, 2016.
As per the Rule 4(1)(ii)(c) of the Companies (Indian Accounting Standards)
Rules, 2015, a holding, subsidiary, joint venture or associate company of a
Company to which the Companies (Indian Accounting Standards) Rules,
2015 applies will be required to follow the Companies (Indian Accounting
Standards) Rules, 2015 for preparing and presenting its financial statements.
In the abovementioned case, Company A has net worth of more than ` 500
crore in the financial year ending 31 March 2014. Therefore, ordinarily
Company A along with its subsidiaries will have to apply Indian Accounting
Standards (Ind ASs) for preparing financial statements for the accounting
periods commencing 1st April, 2016, except in situations covered by Case A
and Case B as discussed below.
Case A
Company A has sold off its entire investment in Company X on 31st
December, 2014; Company X is no longer a subsidiary of Company A as at
the beginning of 1st April, 2016. Therefore, in this case, Company X would
continue to prepare financial statements for the accounting periods
commencing 1st April, 2016, as per the Companies (Accounting Standards)
Rules, 2006.
Case B
Company A has sold its investment in subsidiary Company Y on 31st
December, 2015, in consequence of which Company Y is no longer
subsidiary of Company A as at the beginning of 1st April, 2016. Therefore,
the Companies (Indian Accounting Standards) Rules, 2015 will not be
applicable to Company Y. Therefore, Company Y would continue to prepare
financial statements for accounting periods commencing April 1, 2016 under
the Companies (Accounting Standards) Rules, 2006.
Case C
In the given case, Company A has sold its investment in subsidiary Company
Z on 31st December, 2016; therefore, Company Z was a subsidiary of
Company A as at the beginning of 1st April, 2016. Company Z being

                                     3
Compendium of ITFG Clarification Bulletins

subsidiary of Company A as at the beginning of 1st April, 2016, would have
to prepare financial statements for the accounting periods commencing 1st
April, 2016 as per the Companies (Indian Accounting Standards) Rules,
2015.
                                           (ITFG Clarification Bulletin 1, Issue 2)
                                             (Date of finalisation: January 16, 2016)


Applicability of Ind AS to NBFCs in case not registered with RBI
Issue 2: A Company ABC Ltd. performs role of NBFC and has applied
for the registration as NBFC which is awaited from the Reserve Bank of
India (RBI).
Whether roadmap for the applicability of Ind AS as applicable to NBFCs
also applies to the Company ABC Ltd., which performs role of NBFC
however, it is not registered with the RBI?
Response: Rule 4(1)(iii) of the Companies (Indian Accounting Standards)
(Amendments) Rules, 2016 lays down the roadmap for the applicability of Ind
AS to NBFCs. As per the said rules, "Non-Banking Financial Company"
means a Non-Banking Financial Company as defined in clause (f) of section
45-I of the Reserve Bank of India Act, 1934 and includes Housing Finance
Companies, Merchant Banking companies, Micro Finance Companies,
Mutual Benefit Companies, Venture Capital Fund Companies, Stock Broker
or Sub-Broker Companies, Nidhi Companies, Chit Companies, Securitisation
and Reconstruction Companies, Mortgage Guarantee Companies, Pension
Fund Companies, Asset Management Companies and Core Investment
Companies.
In view of the above, it is pertinent to note that the above definition covers a
company which is carrying on the activity of Non-Banking Financial
Company. The definition of NBFC is given under the RBI Act, 1934. Hence
the company which is carrying on the activity of NBFC but not registered with
RBI will also be subject to the roadmap for the applicability of Ind AS as
applicable to any other NBFC. However, the requirements with regard to
registration, eligibility of a company to operate as NBFC (pending
registration) etc. are governed by the Reserve Bank of India Act, 1934 and
Rules laid down thereon and should be evaluated by the entity based on its
own facts and circumstances separately.
                                       (ITFG Clarification Bulletin 13, Issue 4)
                                       (Date of finalisation: January 16, 2018)


                                       4
                                         Applicability related Issues: Roadmap

Applicability of Ind AS to India branch office of foreign company
Issue 3: ABC & Company incorporated in US with limited liability, has
established a branch office in India, with the permission of the Reserve
Bank of India (RBI), to provide consultancy services in India. The
branch office remits the amounts earned by it to ABC & Co. (i.e. Head
office) net of applicable Indian taxes and subject to RBI guidelines.
As on April 1, 2016, it has more than 500 crore balance as "Head office
account". Whether the India branch office of ABC Co. will be required to
comply with Ind AS?
Response: As per the roadmap issued by the MCA, "company" as defined in
clause (20) of section 2 of the Companies Act, 2013 is required to comply
with Ind AS. Section 2(20) of the Act defines company as follows:
"company" means a company incorporated under this Act or under any
previous company law;
The branch office of a foreign company established in India is not
incorporated under the Act. It is only an establishment of a foreign company
in India. The Branch office is just an extension of the foreign company in
India.
Further, as per Rule 6 of the Companies (Indian Accounting Standards)
Rules, 2015, "Indian company which is a subsidiary, associate, joint venture
and other similar entities of a foreign company shall prepare its financial
statements in accordance with the Indian Accounting Standards (Ind AS) if it
meets the criteria as specified in sub-rule (1)."
In accordance with the above, it may be noted that Branch office of a foreign
company is not covered under rule 6 as mentioned above. Accordingly, in the
given case, the branch office of ABC& Co. is not required to comply with Ind
AS.
                                      (ITFG Clarification Bulletin 12, Issue 6)
                                      (Date of finalisation: October 23, 2017)

Applicability of Ind AS to non-corporate entities
Issue 4: A Ltd. is a first-time adopter of Ind AS. It had incorporated a
partnership firm with B Ltd. namely, M/s A&B Associates. Whether Ind
AS will be applicable to M/s A & B Associates by virtue of the fact that
Ind AS is applicable to A Ltd?


                                     5
Compendium of ITFG Clarification Bulletins

Also clarify, whether Ind AS will be applicable to non-corporate
entities?
Response: The applicability of Ind AS has been specified for classes of
companies specified in Rule 4 of Companies (Indian Accounting Standards)
Rules, 2015. Indian Accounting Standards notified under the Companies
(Indian Accounting Standards) Rules, 2015, are applicable for the corporates
only. Non- corporates are required to follow the accounting standards issued
by the Institute of Chartered Accountants of India. They cannot be applied by
non-corporate entities even voluntarily.
However, in case, a relevant regulator specifically provides for
implementation of Ind AS, the non-corporate entities shall apply Ind AS, for
example, SEBI has mandated implementation of Ind AS for Infrastructure
Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs).
Similarly, if Central Government notifies certain body corporate under clause
(1)(4)(f) of Companies Act, 2013, such entities will be required to apply Ind
AS. For other non-company entities, Accounting Standards issued by the
ICAI shall be applicable and there will be no option to follow Ind AS to such
entities.
Accordingly, in the given case, Ind AS is not applicable to partnership firms.
However, for the purpose of consolidation, the partnership firm will be
required to provide financial statements data prepared as per Ind AS to A Ltd
provided the partnership qualifies as a subsidiary/joint venture/associate of A
Ltd.
                                       (ITFG Clarification Bulletin 11, Issue 7)
                                              (Date of finalisation: July 31, 2017)


Applicability of Ind AS to holding company (NBFC) of the subsidiary
which is covered under the criteria of Ind AS roadmap
Issue 5: Company X is falling under Phase II of MCA roadmap for
companies and hence Ind AS are applicable to it from the financial year
2017-18. Company X is a subsidiary of Company Y. Company Y is an
unlisted NBFC company having net worth of ` 285 crores. What will be
the date of applicability of Ind AS for company X and company Y? If Ind
AS applicability date for parent NBFC is different from the applicability
date of corporate subsidiary, then, how will the consolidated financial
statements of parent NBFC be prepared?
Response: Rule 4(1)(iv)(b) of Companies (Indian Accounting Standards)

                                      6
                                                Applicability related Issues: Roadmap

Rules, 2015 read with Companies (Indian Accounting Standards)
(Amendment) Rules, 2016 states as under:
" ....
(b) The following NBFCs shall comply with the Indian Accounting Standards
(Ind AS) for accounting periods beginning on or after the 1st April, 2019, with
comparatives for the periods ending on 31st March, 2019, or thereafter-
         (A) NBFCs whose equity or debt securities are listed or in the process
         of listing on any stock exchanges in India or outside India and having
         net worth less than rupees five hundred crore;
         (B) NBFCs, that are unlisted companies, having net worth of rupees
         two-hundred and fifty crore or more but less than rupees five hundred
         crore; and
         (C) holding, subsidiary, joint venture or associate companies of
         companies covered under item (A) or item (B) of sub-clause (b), other
         than those already covered in clauses (i), (ii) and (iii) of sub-rule (1) or
         item (B) of sub-clause (a) of clause (iv)."
In accordance with the above, it may be noted that NBFCs having net worth
of less than 500 crore shall apply Ind AS from 1.4.2019 onwards. Further, the
holding, subsidiary, joint venture or associate company of such an NBFC
other than those covered by corporate roadmap shall also apply Ind AS from
1.4.2019.
Further, explanation to clause (iv), states as under:
         "Explanation. ­ For the purposes of clause (iv), if in a group of
         Companies, some entities apply Accounting Standards specified in the
         Annexure to the Companies (Accounting Standards) Rules, 2006 and
         others apply accounting standards as specified in the Annexure to these
         rules, in such cases, for the purpose of individual financial statements,
         the entities should apply respective standards applicable to them. For
         preparation of consolidated financial statements, the following
         conditions are to be followed, namely:-
         (i)   where an NBFC is a parent (at ultimate level or at intermediate
               level), and prepares consolidated financial statements as per
               Accounting Standards specified in the Annexure to the Companies
               (Accounting Standards) Rules, 2006, and its subsidiaries,
               associates and joint ventures, if covered by clause (i), (ii) and (iii)
               of sub-rule (1) has to provide the relevant financial statement data


                                            7
Compendium of ITFG Clarification Bulletins

              in accordance with the accounting policies followed by the parent
              company for consolidation purposes (until the NBFC is covered
              under clause (iv) of sub-rule (1);
       (ii)   where a parent is a company covered under clause (i), (ii) and (iii)
              of sub-rule (1) and has an NBFC subsidiary, associate or a joint
              venture, the parent has to prepare Ind AS- compliant consolidated
              financial statements and the NBFC subsidiary, associate or a joint
              venture has to provide the relevant financial statement data in
              accordance with the accounting policies followed by the parent
              company for consolidation purposes (until the NBFC is covered
              under clause (iv) of sub-rule (1)."
Accordingly, in the given case, Company Y (NBFC) shall apply Ind AS from
1.4.2019. Company X shall apply Ind AS in its individual financial statements
from financial year 2017-18 (as per the corporate roadmap) and for the
financial year 2017-18 and 2018-19, Company X shall also prepare its
individual financial statements as per the Companies (Accounting Standards)
Rules, 2006 to facilitate the preparation of consolidated financial statement
by parent Company Y (NBFC).
                                             (ITFG Clarification Bulletin 6, Issue 3)
                                             (Date of finalisation: November 19, 2016)

Applicability of Ind AS - Section 8 Company
Issue 6: Company X Ltd. is being covered under Phase I of Ind AS and
needs to apply Ind AS from financial year 2016-17. Company Y which is
an associate company of Company X Ltd. is a charitable organisation
and registered under section 8 of the Companies Act, 2013.
Whether Company Y is required to comply with Ind AS from financial
year 2016-17?
Response: Rule 4(1)(ii) of Companies (Indian Accounting Standards) Rules,
2015, states as under:
(ii)     the following companies shall comply with the Indian Accounting
         Standards (Ind AS) for the accounting periods beginning on or after
         1st April, 2016, with the comparatives for the periods ending on 31st
         March, 2016, or thereafter, namely:-
(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 rupees five hundred crore or more;


                                         8
                                          Applicability related Issues: Roadmap

(b)    companies other than those covered by sub-clause (a) of clause (ii) of
       sub-rule (1) and having net worth of rupees five hundred crore or
       more;
(c)    holding, subsidiary, joint venture or associate companies of companies
       covered by sub-clause (a) of clause (ii) of sub-rule (1) and sub-clause
       (b) of clause (ii) of sub- rule (1) as the case may be; and".
In accordance with the above, it may be noted that holding, subsidiary, joint
venture, associate companies of companies falling under any of the
thresholds specified in Rule 4(1)(ii) are required to comply with Ind AS from
financial year 2016-17.
Further, it may be noted that the companies covered under Section 8 are
required to comply the provisions of the Companies Act, 2013, unless and
until any exemption is provided. Section 8 companies are not exempted from
the requirements of section 133 and section 129 of the Companies Act, 2013.
In view of the above, in the given case, Company Y will be required to apply
Ind AS from financial year 2016-17.
                                          (ITFG Clarification Bulletin 6, Issue 2)
                                          (Date of finalisation: November 19, 2016)


Applicability of Ind AS- Date of Transition
Issue 7: A company covered under Phase I, having net worth of ` 600
crores, decides to give comparatives for F.Y. 2015-16 and F.Y. 2014-15.
What should be date of transition in this case?
Response: Appendix A to Ind AS 101, First- time Adoption of Indian
Accounting Standards, defines date of transition as follows:
      "The beginning of the earliest period for which an entity presents full
      comparative information under Ind ASs in first Ind AS financial
      statements"
The definition of the date of transition as stated above therefore permits an
entity to select its date of transition. However, Rule 4(1)(i) and (ii) of the
Companies (Indian Accounting Standards) Rules, 2015, state as under:
      "The Companies and their auditors shall comply with the Indian
      Accounting Standards (Ind AS) specified in Annexure to these rules in
      preparation of their financial statements and audit respectively, in the
      following manner, namely:-


                                      9
Compendium of ITFG Clarification Bulletins

      (i)    any company may comply with the Indian Accounting Standards
             (Ind AS) for financial statements for accounting periods beginning
             on or after 1st April, 2015, with the comparatives for the periods
             ending on 31st March, 2015, or thereafter;
      (ii)   the following companies shall comply with the Indian Accounting
             Standards (Ind AS) for the accounting periods beginning on or
             after 1st April, 2016, with the comparatives for the periods ending
             on 31st March, 2016, or thereafter, namely...".
In the given case, the Company is required to mandatorily adopt Ind AS from
April 1, 2016, i.e., for the period 2016-17, and with comparatives as per Ind
AS for 2015-16. Accordingly, the beginning of the comparative period will be
April 1, 2015, which will be considered as the date of transition as per Ind
AS. Therefore, the date of transition to Ind AS shall be April 1, 2015. The
company cannot have the date of transition at April 1, 2014.
                                           (ITFG Clarification Bulletin 4, Issue 4)
                                              (Date of finalisation: August 19, 2016)


Applicability of Ind AS - change in status of listed company
Issue 8: As on March 31, 2014, Company A is a listed company and has
a net worth of 50 crore. As on March 31, 2015, the company is no more
a listed company. Whether Company A is required to comply with Ind
AS from financial year 2017-18.
Response: Rule 4(1)(iii) of the Companies (Indian Accounting Standards)
Rules, 2015, states as under:
"(iii) the following companies shall comply with the Indian Accounting
Standards (Ind AS) for the accounting periods beginning on or after 1st April,
2017, with the comparatives for the periods ending on 31st March, 2017, or
thereafter, namely:-
(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 less than rupees five hundred crore;
(b)     companies other than those covered in clause (ii) of sub- rule (1) and
        sub clause (a) of clause (iii) of sub-rule (1), that is, unlisted companies
        having net worth of rupees two hundred and fifty crore or more but
        less than rupees five hundred crore.
(c)     holding, subsidiary, joint venture or associate companies of companies

                                        10
                                            Applicability related Issues: Roadmap

      covered under sub-clause (a) of clause (iii) of sub- rule (1) and sub-
      clause (b) of clause (iii) of sub- rule (1), as the case may be".
Further, Rule 4(2) of the Companies (Indian Accounting Standards) Rules,
2015, states as under:
"(2) For the purposes of calculation of net worth of companies under sub-rule
(1), the following principles shall apply, namely:-
(a)   the net worth shall be calculated in accordance with the stand-alone
      financial statements of the company as on 31st March, 2014 or the
      first audited financial statements for accounting period which ends
      after that date;
(b)   for companies which are not in existence on 31st March, 2014 or an
      existing company falling under any of thresholds specified in sub-rule
      (1) for the first time after 31st March, 2014, the net worth shall be
      calculated on the basis of the first audited financial statements ending
      after that date in respect of which it meets the thresholds specified in
      sub-rule (1).
Explanation. - For the purposes of sub-clause (b), the companies meeting
the specified thresholds given in sub-rule (1) for the first time at the end of an
accounting year shall apply Indian Accounting Standards (Ind AS) from the
immediate next accounting year in the manner specified in sub-rule (1)."
In view of the above requirements, it may be noted that immediately before
the mandatory applicability date, if the threshold criteria for a company are
not met, then it shall not be required to comply with Ind AS, irrespective of
the fact that as on March 31, 2014, the criteria was met.
In the given case, before the mandatory applicable date (i.e. 2017-18),
Company A ceases to be a listed company. Accordingly, it will not be
required to apply Ind AS from FY 2017-18.
                                          (ITFG Clarification Bulletin 3, Issue 8)
                                                (Date of finalisation: June 22, 2016)


Applicability of Ind AS to holding company when subsidiary
meets the criteria for applicability of Ind AS
Issue 9: Company X (Listed entity) has a net worth of above ` 500 crore
and hence required to comply with Ind AS from financial year 2016-17.
Company Y (Unlisted entity), on a standalone basis, has net worth
below ` 250 crore and hence it is not required to comply with Ind AS.

                                       11
Compendium of ITFG Clarification Bulletins

Company Y acquires shares of Company X during financial year 2016-
17, whereby Company Y becomes the holding company of Company X.
Whether Company Y will be required to comply with Ind AS from
financial year 2016-17, given that it has now become a holding company
of Company X during FY 2016-17?
Response: Rule 4(1) (ii) of Companies (Indian Accounting Standards) Rules,
2015, states as under:
(ii) the following companies shall comply with the Indian Accounting
Standards (Ind AS) for the accounting periods beginning on or after 1st April,
2016, with the comparatives for the periods ending on 31st March, 2016, or
thereafter, namely:-
(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 rupees five hundred crore or more;
(b)   companies other than those covered by sub-clause (a) of clause (ii) of
      sub-rule (1) and having net worth of rupees five hundred crore or
      more;
(c)   holding, subsidiary, joint venture or associate companies of companies
      covered by sub- clause (a) of clause (ii) of sub-rule (1) and sub-clause
      (b) of clause (ii) of sub- rule (1) as the case may be; and".
In accordance with the above, it may be noted that holding, subsidiary, joint
venture, associate companies of companies falling under any of threshold
specified Rule 4(1)(ii) are required to comply with Ind AS from financial year
2016-17 or 2017-18, as the case may be.
In the given case, Company X is required to adopt Ind AS from financial year
2016-17, since net worth of Company X is more than ` 500 crore. Company Y
has acquired shares of Company X resulting in Company Y becoming
holding company of Company X during the financial year 2016-17.
Accordingly, Company Y will prepare Ind AS financial statements for the year
ending March 31, 2017.
                                       (ITFG Clarification Bulletin 3, Issue 7)
                                             (Date of finalisation: June 22, 2016)




                                     12
                                           Applicability related Issues: Roadmap

Applicability of Ind AS - associate company In case of quarterly
results
Issue 10: Company X, on a standalone basis, has a net worth of above `
500 crore and hence required to comply with Ind AS from financial year
2016-17. Company Y (listed entity), on a standalone basis, has net worth
of above ` 250 crore but below ` 500 crore and therefore required to
comply with Ind AS from financial year 2017-18.
Company X acquires shares of Company Y resulting in Company Y
becoming an associate of Company X on October 31, 2016, but before
approval of the results for the quarter ended September 2016.`
Whether Company Y will be required to comply with Ind AS from
financial year 2016-17 or it will comply from financial year 2017-18? If
the response is that compliance is from the financial year 2016-17,
would the financial results of Company Y for the quarter ended
September 30, 2016 be prepared in accordance with Ind AS?
Response: Rule 4(1) (ii) of Companies (Indian Accounting Standards) Rules,
2015, states as under:
(ii)   the following companies shall comply with the Indian Accounting
       Standards (Ind AS) for the accounting periods beginning on or after
       1st April, 2016, with the comparatives for the periods ending on 31st
       March, 2016, or thereafter, namely:-
       (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 rupees five hundred crore
             or more;
       (b)   companies other than those covered by sub-clause (a) of clause
             (ii) of sub-rule (1) and having net worth of rupees five hundred
             crore or more;
       (c)   holding, subsidiary, joint venture or associate companies of
             companies covered by sub- clause (a) of clause (ii) of sub-rule
             (1) and sub-clause (b) of clause (ii) of sub- rule (1) as the case
             may be;
In accordance with the above, it may be noted that holding, subsidiary, joint
venture, associate companies of companies falling under any of the
thresholds specified in Rule 4(1)(ii) are required to comply with Ind AS from
financial year 2016-17 or 2017-18, as the case may be.


                                      13
Compendium of ITFG Clarification Bulletins

In the given case, Company X is required to adopt Ind AS from financial year
2016-17, since net worth of Company X is more than ` 500 crore. Company X
has acquired shares of Company Y resulting in Company Y becoming an
associate of Company X during the financial year 2016-17. Accordingly,
Company Y will prepare Ind AS financial statements for the year ending
March 31, 2017.
As far as the quarterly results are concerned, since, Company Y has become
an associate as on October 31, 2016, Company Y will prepare Ind AS
financial statements from the quarter ending December 2016 onwards.
                                       (ITFG Clarification Bulletin 3, Issue 6)
                                             (Date of finalisation: June 22, 2016)


Applicability of Ind AS to Core Investment Company (CIC)
Issue 11: Company A is a Core Investment Company (CIC) having net
worth of more than 500 crore as on March 31, 2014. During the year
2014-15, the Reserve Bank of India (RBI) had exempted Company A
from certain regulations/directions governing CIC in India.
Whether Company A (exempted CIC) will be regarded as Non-Banking
Financial Company (NBFC) for the purpose of applicability of Ind AS?
Response: Rule 2(g) of Companies (Indian Accounting Standards) Rules,
2015, read with Companies (Indian Accounting Standards) (Amendment)
Rules, 2016, states as follows:
"(g) "Non-banking Financial Company" means a Non-Banking Financial
Company as defined in clause (f) of section 45-I of the Reserve Bank of India
Act, 1934 and includes Housing Finance Companies, Merchant Banking
Companies, Micro Finance Companies, Mutual Benefit Companies, Venture
Capital Fund Companies, Stock Broker or Sub-broker Companies, Nidhi
Companies and Chit Companies, Securitisation and Reconstruction
Companies, Mortgage Guarantee Companies, Pension Fund Companies,
Asset Management Companies and Core Investment Companies."
It may be noted from above, that core investment companies are specifically
included in the definition of NBFC. Accordingly, exempted CIC will be
regarded as `NBFC' for the purpose of roadmap for implementation of Ind AS
irrespective of the fact that RBI may have given some exemptions to certain
class of core investment companies from its regulations.
Further, as per rule 4 of Companies (Indian Accounting Standards) Rules,

                                     14
                                           Applicability related Issues: Roadmap

2015, read with the Companies (Indian Accounting Standards) (Amendment)
Rules, 2016, NBFCs having net worth of more than 500 crore shall comply
with Ind AS for accounting periods beginning on or after the 1st April, 2018,
with comparatives for the periods ending on 31st March, 2018.
In view of the above, in the given case, Company A will be required to apply
Ind AS from the financial year 2018-19. It may further be noted that it cannot
voluntarily adopt Ind AS before 1st April 2018.
                                         (ITFG Clarification Bulletin 3, Issue 2)
                                               (Date of finalisation: June 22, 2016)


Date of Transition in case a company is already preparing
financials as per IFRS
Issue 12: Company X Ltd. has prepared its financial statements under
IFRS for the first time for year ended March 31, 2016. It had adopted its
date of transition to IFRS as April 1, 2014. As per the Companies (Indian
Accounting Standards) Rules, 2015, Company X Ltd. is mandatorily
required to prepare its financial statements as per Ind AS for the year
ended March 31, 2017 and hence under Ind AS, the date of transition
would be April 1, 2015.
Whether Company X Ltd. can select date of transition under Ind AS as
April 1, 2014 instead of April 1, 2015 since it has already carried out
exercise of transition on April 1, 2014 for the purposes of IFRS.
Response: Appendix A to Ind AS 101, First- time Adoption of Indian
Accounting Standards, defines date of transition as follows:
"The beginning of the earliest period for which an entity presents full
comparative information under Ind ASs in first Ind AS financial statements"
The definition of date of transition as stated above therefore permits an entity
to select its date of transition. However, Rule 4(1) (i) and (ii) of the
Companies (Indian Accounting Standards) Rules, 2015, states as under:
"The Companies and their auditors shall comply with the Indian Accounting
Standards (Ind AS) specified in Annexure to these rules in preparation of
their financial statements and audit respectively, in the following manner,
namely:-
(i)   any company may comply with the Indian Accounting Standards (Ind
      AS) for financial statements for accounting periods beginning on or


                                      15
Compendium of ITFG Clarification Bulletins

       after 1st April, 2015, with the comparatives for the periods ending on
       31st March, 2015, or thereafter;
(ii)   the following companies shall comply with the Indian Accounting
       Standards (Ind AS) for the accounting periods beginning on or after
       1st April, 2016, with the comparatives for the periods ending on 31st
       March, 2016, or thereafter, namely...".
As per the above rule, the date of transition for X Ltd. will be April 1, 2015
being the beginning of the earliest comparative period presented. To explain
it further, X Ltd. is required to mandatorily adopt Ind AS from April 1, 2016,
i.e. for the period 2016-17, and it will give comparatives as per Ind AS for
2015-16. Accordingly, the beginning of the comparative period will be April 1,
2015 which will be considered as the date of transition as per Ind AS.
Although Company X Ltd. has already carried out exercise of transition on
April 1, 2014 for the purposes of IFRS, Company X Ltd. cannot select date of
transition under Ind AS as April 1, 2014.
                                       (ITFG Clarification Bulletin 2, Issue 3)
                                             (Date of finalisation: April 12, 2016)

Applicability of Ind AS to an Indian subsidiary of a foreign
company
Issue 13: Company X Ltd. and Company Y Ltd. registered in India
having net worth of ` 600 crores and 100 crores respectively are
subsidiaries of a Foreign Company viz., ABC Inc., which has net worth
of more than ` 500 crores in financial year 2015-16. Whether Company X
Ltd. and Y Ltd. are required to comply with Ind AS from financial year
2016-17 on the basis of net worth of the parent Foreign Company or on
the basis of their own net worth?
Response: Rule 4(1) (ii) (a) of the Companies (Indian Accounting Standards)
Rules, 2015, states as under:
"The Companies and their auditors shall comply with the Indian Accounting
Standards (Ind AS) specified in Annexure to these rules in preparation of
their financial statements and audit respectively, in the following manner,
namely:-
(i)    any company may comply with the Indian Accounting Standards (Ind
       AS) for financial statements for accounting periods beginning on or
       after 1st April, 2015, with the comparatives for the periods ending on
       31st March, 2015, or thereafter;


                                     16
                                          Applicability related Issues: Roadmap

(ii)   the following companies shall comply with the Indian Accounting
       Standards (Ind AS) for the accounting periods beginning on or after
       1st April, 2016, with the comparatives for the periods ending on 31st
       March, 2016, or thereafter, namely:-
       (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 rupees five hundred crore
             or more;"
As per Rule 4(1)(ii)(a) of the Companies (Indian Accounting Standards)
Rules, 2015, Company X having net worth of ` 600 crores in the year 2015-
16, would be required to prepare its financial statements for the accounting
periods commencing from 1st April, 2016, as per the Companies (Indian
Accounting Standards) Rules, 2015.
Company Y Ltd. having net worth of ` 100 crores in the year 2015-16, would
be required to prepare its financial statements as per the Companies
(Accounting Standards) Rules, 2006.
Since, the Foreign company ABC Inc., is not a company incorporated under
the Companies Act, 2013 or the earlier Companies Act, 1956, it is not
required to prepare its financial statements as per the Companies (Indian
Accounting Standards) Rules, 2015. As the foreign company is not required
to prepare financial statements based on Ind AS, the net worth of foreign
company ABC would not be the basis for deciding whether Indian Subsidiary
Company X Ltd. and Company Y Ltd. are required to prepare financial
statements based on Ind AS.
                                       (ITFG Clarification Bulletin 2, Issue 2)
                                              (Date of finalisation: April 12, 2016)


Applicability of Ind AS - associate company Consideration of
share warrants which are convertible into equity shares
Issue 14: Company A Ltd. has invested 26% in Company B Ltd. and
accounted Company B as an associate under Companies (Accounting
Standards) Rule, 2006. Company A Ltd. is required to comply with Ind
AS from financial year 2016-17.
Company C Ltd. owns share warrants that are convertible into equity
shares of Company B Ltd. that have potential, if exercised, to give
additional voting power to Company C Ltd. over the financial and


                                     17
Compendium of ITFG Clarification Bulletins

operating policies of Company B Ltd. As per the requirements of Ind AS
28, it has been concluded that Company B Ltd. is an associate company
of Company C Ltd.
Company A concluded that it has no more significant influence over
Company B Ltd under Ind AS.
The above assessments have been done as on April 1, 2015.
However, Company A Ltd. reported Company B Ltd. as an associate
company as on March 31, 2016 for statutory reporting requirements
under previous GAAP.
Company B Ltd. and Company C Ltd. as a standalone entity does not
meet any criteria given in Ind AS roadmap. Whether Company B is
required to comply with Ind AS?
Response: Sub-rule (2) of Rule 2 of the Companies (Indian Accounting
Standards) Rules, 2015, provides as follows:
 "Words and expressions used herein and not defined in these rules but
defined in the Act shall have the same meaning respectively assigned to
them in the Act".
The term `associate' has been defined in Ind AS 28 which is notified as the
part of the Companies (Indian Accounting Standards) Rules, 2015.
As per paragraph 3 of Ind AS 28, Investments in Associates and Joint
Ventures, an associate is an entity over which the investor has significant
influence.
Ind AS 28 defines `Significant influence' as the power to participate in the
financial and operating policy decisions of the investee but is not control or
joint control of those policies.
Paragraph 5 of Ind AS 28, states as follows:
"5 If an entity holds, directly or indirectly (e.g. through subsidiaries), 20 per
cent or more of the voting power of the investee, it is presumed that the
entity has significant influence, unless it can be clearly demonstrated that
this is not the case. Conversely, if the entity holds, directly or indirectly (e.g.
through subsidiaries), less than 20 per cent of the voting power of the
investee, it is presumed that the entity does not have significant influence,
unless such influence can be clearly demonstrated. A substantial or majority
ownership by another investor does not necessarily preclude an entity from
having significant influence."


                                        18
                                            Applicability related Issues: Roadmap

Paragraph 7 of Ind AS 28 provide as follows:
      "7 An entity may own share warrants, share call options, debt or equity
      instruments that are convertible into ordinary shares, or other similar
      instruments that have the potential, if exercised or converted, to give
      the entity additional voting power or to reduce another party's voting
      power over the financial and operating policies of another entity (i.e.
      potential voting rights). The existence and effect of potential voting
      rights that are currently exercisable or convertible, including potential
      voting rights held by other entities, are considered when assessing
      whether an entity has significant influence. Potential voting rights are
      not currently exercisable or convertible when, for example, they cannot
      be exercised or converted until a future date or until the occurrence of
      a future event."
As per Notification G.S.R 680(E) dated 4th September 2015, issued by the
Ministry of Corporate Affairs (MCA), after rule 4 of Companies (Accounts)
Rules, 2014, the following rule has been inserted:
      "4A Forms and items contained in financial statements ­ The financial
      statements shall be in the form specified in Schedule III to the Act and
      comply with Accounting Standards or Indian Accounting Standards as
      applicable:
      Provided that the items contained in the financial statements shall be
      prepared in accordance with the definitions and other requirements
      specified in the Accounting Standards or the Indian Accounting
      Standards, as the case may be."
In view of above requirements, consistent approach would be to consider the
definitions given in Ind AS both for the purpose of preparing financial
statements and determining the relationship with another entity (i.e.
subsidiary, associate, joint venture etc.) for the purpose of applicability of Ind
AS.
In the present case, by applying the relevant requirements of Ind AS 28, it
has been concluded that Company B Ltd. is an associate company of
Company C Ltd. since Company C Ltd. has potential voting rights over
Company B Ltd.
In the given scenario, in accordance with Ind AS, Company B Ltd. also
ceases to be an associate of Company A Ltd. Therefore, Company B Ltd.
need not to comply with Ind AS from the financial year 2016-17 though the
company was an associate company of Company A Ltd. under previous
reporting framework.

                                       19
Compendium of ITFG Clarification Bulletins

If Company C Ltd. voluntarily complies with Ind AS or meets any specified
criteria on standalone basis, then Company B Ltd. being its associate
company as per Ind AS 28 shall comply Ind AS from the same financial year
from which Company C Ltd. starts preparing financial statements as per Ind
AS.
                                        (ITFG Clarification Bulletin 3, Issue 5)
                                               (Date of finalisation: June 22, 2016)


Applicability of Ind AS to holding, subsidiary, joint venture and
associate company through direct or indirect association in case
of voluntary adoption by the parent company
Issue 15: Company B Ltd. is an associate company of Company A Ltd.
Company X Ltd. is the holding company of Company A Ltd. Company X
Ltd. has decided to adopt Ind AS voluntarily from 2015-16.
Whether Company A Ltd. and Company B Ltd. are statutorily required to
comply with Ind AS from financial year 2015-16?
Response: As per the Companies (Indian Accounting Standards) Rules,
2015, read with the Companies (Indian Accounting Standards) (Amendment)
Rules, 2016, dated 30th March, 2016, any company and its holding,
subsidiary, joint venture or associate company may comply with the
Indian Accounting Standards (Ind AS) for financial statements for accounting
periods beginning on or after 1st April, 2015, with the comparatives for the
periods ending on 31st March, 2015, or thereafter.
Since, Company X Ltd. has adopted Ind AS voluntarily from financial year
2015-16, Company A Ltd. being subsidiary of Company X Ltd. shall comply
with Ind AS from the financial year 2015-16 as per the roadmap.
As per paragraph 3 of Ind AS 28, Investments in Associates and Joint
Ventures, an associate is an entity over which the investor has significant
influence.
Ind AS 28 defines `Significant influence' as the power to participate in the
financial and operating policy decisions of the investee but is not control or
joint control of those policies.
Paragraph 5 of Ind AS 28, states as follows:
"If an entity holds, directly or indirectly (e.g. through subsidiaries), 20 per
cent or more of the voting power of the investee, it is presumed that the
entity has significant influence, unless it can be clearly demonstrated that

                                      20
                                             Applicability related Issues: Roadmap

this is not the case. Conversely, if the entity holds, directly or indirectly (e.g.
through subsidiaries), less than 20 per cent of the voting power of the
investee, it is presumed that the entity does not have significant influence,
unless such influence can be clearly demonstrated. A substantial or majority
ownership by another investor does not necessarily preclude an entity from
having significant influence."
In the given case, Company B Ltd. is a direct associate company of
Company A Ltd. but not of Company X Ltd. However, Company X Ltd,
through its subsidiary (i.e., Company B Ltd.), has significant influence over
Company B Ltd., indirectly.
In view of the above requirements, Company B Ltd. shall also comply with
Ind AS from the financial year 2015-16.
In other words, if a parent company voluntarily or mandatorily adopts Ind AS
then its holding, subsidiary, joint venture or associate company whether
through direct or indirect association shall comply Ind AS from the financial
year in which the parent company starts complying with Ind AS.
                                          (ITFG Clarification Bulletin 3, Issue 4)
                                                 (Date of finalisation: June 22, 2016)


Applicability of Ind AS to holding company, if subsidiary company
incorporated for divestment purpose complies with Ind AS
Issue 16: ABC Ltd. is a listed company. The net worth of ABC Ltd. as on
31st March, 2014 was ` 200 crores.
ABC Ltd. had a subsidiary, namely, XYZ Ltd. as at 31st March, 2015
whose net worth, consisting only of share capital as at that date, was
` 600 crores. XYZ Ltd. was incorporated in January, 2015. It was
incorporated only for the purposes of its divestment. The financial
statements of XYZ Ltd. were not consolidated with that of ABC Ltd. as
at 31st March, 2015 in view of requirements of paragraph 11 of
Accounting Standard (AS) 21, Consolidated Financial Statements.
ABC Ltd. entered into agreement with a proposed acquirer of the
subsidiary, i.e., PQR Ltd., in September, 2015. The entire ownership of
XYZ Ltd. was finally transferred to the said acquirer in the first fortnight
of April, 2016.
In the given case, whether the ABC Ltd. is required to comply with Ind
AS from the financial year 2016-17?

                                        21
Compendium of ITFG Clarification Bulletins

Response: Rule 4(1)(ii) of the Companies (Indian Accounting Standards)
Rules, 2015, states as under:
     "......
     (ii) the following companies shall comply with the Indian Accounting
     Standards (Ind AS) for the accounting periods beginning on or after 1st
     April, 2016, with the comparatives for the periods ending on 31st March,
     2016, or thereafter, namely:-
     (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 rupees five hundred crore or more;
     (b) companies other than those covered by sub-clause (a) of clause (ii)
     of sub-rule (1) and having net worth of rupees five hundred crore or
     more;
     (c) holding, subsidiary, joint venture or associate companies of
     companies covered by sub- clause (a) of clause (ii) of sub-rule (1) and
     sub-clause (b) of clause (ii) of sub- rule (1) as the case may be; and....".
In accordance with the above, it may be noted that holding, subsidiary, joint
venture, associate companies of companies falling under any of threshold
specified Rule 4(1)(ii) are required to comply with Ind AS from financial year
2016-17.
Further, Rule 4(2) (b) of the Companies (Indian Accounting Standards)
Rules, 2015, states as under:
     "(2) For the purposes of calculation of net worth of companies under
     sub-rule (1), the following principles shall apply, namely:-
     .........
     (b) for companies which are not in existence on 31st March, 2014 or an
     existing company falling under any of thresholds specified in sub-rule
     (1) for the first time after 31st March, 2014, the net worth shall be
     calculated on the basis of the first audited financial statements ending
     after that date in respect of which it meets the thresholds specified in
     sub-rule (1).
Explanation- For the purposes of sub-clause (b), the companies meeting the
specified thresholds given in sub-rule (1) for the first time at the end of an
accounting year shall apply Indian Accounting Standards (Ind AS) from the
immediate next accounting year in the manner specified in sub-rule (1).


                                       22
                                            Applicability related Issues: Roadmap

Illustration - (i) The companies meeting threshold for the first time as on 31st
March, 2017 shall apply Ind AS for the financial year 2017-18 onwards.
(ii) The companies meeting threshold for the first time as on 31st March,
2018 shall apply Ind AS for the financial year 2018-19 onwards and so on."
On a combined reading of Rule 4(1) and (2) of the Companies (Indian
Accounting Standards) Rules, 2015, if an existing company meets the net
worth criteria before mandatory applicability dates laid down in the roadmap,
the company would be required to follow Ind AS as per the dates for
implementation of Ind AS prescribed in the roadmap, i.e., 2016-17 or 2017-
18, as the case may be.
In the given case, Ind AS will be mandatorily applicable to XYZ Ltd. from
financial year, 2016-17, since its net worth as on 31st March, 2015 is more
than ` 500 crores.
As already clarified in ITFG Clarification Bulletin 3 as Issue No. 5, consistent
approach would be followed to consider the definitions given in Ind AS both
for the purpose of preparing financial statements and determining the
relationship with another entity (i.e. subsidiary, associate, joint venture etc.)
for the purpose of applicability of Ind AS. Therefore, the relationship between
ABC Ltd. and XYZ Ltd. should be determined in accordance with Indian
Accounting Standards (Ind AS). Hence, it is irrelevant to consider the fact
that XYZ Ltd. was not a subsidiary company of ABC Ltd. as per the previous
GAAP.
In view of the above ITFG clarification, whether ABC Ltd. is a holding
company of XYZ Ltd. or not shall be determined as per Ind AS 110,
Consolidated Financial Statements, i.e., evaluating whether ABC Ltd.
controls XYZ Ltd. or not.
If ABC Ltd. was a holding company of XYZ Ltd. in accordance with Ind AS
110 as at 31st March, 2015, then ABC Ltd. should comply with Ind AS from
the financial year 2016-17, since Ind AS are applicable to XYZ Ltd. from
financial year 2016-17.
                                            (ITFG Clarification Bulletin 5, Issue 1)
                                        (Date of finalisation: September 19, 2016)




                                       23
Compendium of ITFG Clarification Bulletins

Applicability of Ind AS in case of change in the status of listed
company or company in the process of listing or listed
debentures issued during the year

Issue 17: XYZ Limited is a company having net worth less than INR 250
crores as on 31 March 2017. What is the status of applicability of Ind AS
for the company in the following scenarios:
    (a) the company was in the process of listing as at the beginning of
        the year (i.e. 1st April 2017) and the company ultimately gets listed
        as at the end of the year (March 2018);
    (b) the company is listed at the beginning of the year and during the
        year it gets de-listed;
    (c) the process of listing began during the year, for e.g. in the month
        of May 2017 and the company ultimately gets listed as at the end
        of the year i.e. March 2018. Will there be any difference if the
        company gets listed in April, 2018. i.e. it was in process of listing
        as at the year end.
    (d) the company issued listed debentures in the month of May 2017.
        However, in the month of January 2018, the debentures got de-
        listed.

Response: Rule 4 (1) of the Companies (Indian Accounting Standards)
Rules 2015 read with Companies (Indian Accounting Standards)
(Amendment) Rules, 2016 inter-alia states as follows:
     "(i)...
     (ii) the following companies shall comply with the Indian Accounting
     Standards (Ind AS) for the accounting periods beginning on or after
     1st April, 2016, with the comparatives for the periods ending on 31st
     March, 2016, or thereafter, namely:-
           (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 rupees five
               hundred crore or more;
           (b) companies other than those covered by sub-clause (a) of
               clause (ii) of subrule (1) and having net worth of rupees five
               hundred crore or more;


                                       24
                                        Applicability related Issues: Roadmap

      (c) holding, subsidiary, joint venture or associate companies of
          companies covered by sub-clause (a) of clause (ii) of sub-
          rule (1) and sub-clause (b) of clause (ii) of sub- rule (1) as
          the case may be; and
(iii) the following companies shall comply with the Indian Accounting
Standards (Ind AS) for the accounting periods beginning on or after
1st April, 2017, with the comparatives for the periods ending on 31st
March, 2017, or thereafter, namely:-
      (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 less than
          rupees five hundred crore;
      (b) companies other than those covered in clause (ii) of sub-
          rule (1) and sub-clause (a) of clause (iii) of sub-rule (1), that
          is, unlisted companies having net worth of rupees two
          hundred and fifty crore or more but less than rupees five
          hundred crore.
      (c) holding, subsidiary, joint venture or associate companies of
          companies covered under sub-clause (a) of clause (iii) of
          sub- rule (1) and sub-clause (b) of clause (iii) of sub- rule
          (1), as the case may be:"
(a) In the given case, since the company began the process of listing
    as at the beginning of the year but had net worth less than INR
    250 crores, it shall be required to comply with Ind AS from the
    financial year 2017-18. Accordingly, XYZ Limited shall prepare Ind
    AS financial statements for the financial year 2017-18.
(b) In the given case, since the company is listed at the beginning of
    the year it shall be required to comply with Ind AS from the same
    year irrespective of the fact that the company gets de-listed as at
    the end of the year. Accordingly, XYZ Limited shall prepare Ind AS
    financial statements for the financial year 2017-18.
(c)    In the given case, although the company was neither listed as at
       the beginning of the period nor it began the process of listing as at
       the beginning of the year, but it began the process of listing during
       the year and ultimately got listed as at the end of the year then it
       shall be required to comply with Ind AS from the same year in


                                   25
Compendium of ITFG Clarification Bulletins

          which it began the process of listing. Furthermore, in case the
          company gets listed during the year say from November 2017,
          then it will be required to provide Ind AS financial statements for
          the quarter ending December 2017 and consequently for the year
          ending March 2018.
          Moreover, in the given fact pattern, if the company was in the
          process as at the year-end, then also it will be required to comply
          with Ind AS and provide financial statements as per Ind AS for the
          year ending March 2018.
     (d) In the given case, as at the beginning of the reporting period, the
         company was not listed. However, it issued listed debentures
         during the year, i.e., in the month of May 2017 which got de-listed
         in the month of January 2018. Accordingly, the company has
         neither the status of a listed entity/or in the process of listing at the
         beginning of the year as well nor at the end of the year. Hence, it
         will not be required to comply with Ind AS.
                                            (ITFG Clarification Bulletin 15, Issue 4)
                                                (Date of finalisation: April 04, 2018)

Applicability of Ind AS to NBFC - in case of termination of
membership in process
Issue 18: The Company is a registered stock-broker recognised by the
Securities and Exchange Board of India (SEBI). The net worth of the
Company as on 31st March 2015 is INR 500 crores. As per the Ind AS
Rules, it falls under the definition of NBFC roadmap and accordingly, is
required to apply Ind AS from 1st April 2018 onwards.
In the month of July 2016, the company applied for terminating its
membership to the exchange. It was awaiting clearance from SEBI as of
June 2017. It received clearance from the Board in the month of August
2017 accepting their termination. The company also have debt listed
securities.
Whether the company should have prepared Ind AS financial
statements as a Phase 1 non-NBFC corporate entity as of 31 March 2017
given it has applied for termination of membership with the exchange in
the month of July 2016?




                                       26
                                           Applicability related Issues: Roadmap

Response: Companies (Indian Accounting Standards) (Amendments) Rules,
2016, defines NBFC as follows:
"Non-Banking Financial Company" means a Non-Banking Financial Company
as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934
and includes Housing Finance Companies, Merchant Banking companies,
Micro Finance Companies, Mutual Benefit Companies, Venture Capital Fund
Companies, Stock Broker or Sub-Broker Companies, Nidhi Companies, Chit
Companies, Securitisation and Reconstruction Companies, Mortgage
Guarantee Companies, Pension Fund Companies, Asset Management
Companies and Core Investment Companies."
Further Rule 4(1) (iv) of the said rules lays down the roadmap for applicability
of Ind AS as follows:
"Notwithstanding the requirement of clause (i) to (iii), Non-Banking Financial
Companies (NBFCs) shall comply with the Indian Accounting Standards (Ind
AS) in preparation of their financial statements and audit respectively, in the
following manner, namely :-
     (a) The following NBFCs shall company with the Indian Accounting
     Standards (Ind AS) for accounting periods beginning on or after the 1st
     April, 2018, with comparatives for the periods ending on 31st March,
     2018, or thereafter-
     (A) NBFCs having net worth of rupees five hundred crores or more;
     (B) holding, subsidiary, joint venture or associate companies of
         companies covered under item (A), other than those already
         covered under clauses (i), (ii) and (iii) of sub-rule (1) of rule 4.
     (b) The following NBFCs shall comply with the Indian Accounting
     Standards (Ind AS) for accounting periods beginning on or after the 1st
     April, 2019, with comparatives for the periods ending on 31st march,
     2019, or thereafter-
     (A) NBFCs whose equity or debt securities are listed or in the
         process of listing on any stock exchanges in India or outside India
         and having net worth less than rupees five hundred crore;
     (B) NBFCs, that are unlisted companies, having net worth of rupees
         two-hundred and fifty crore or more but less than rupees five
         hundred crore; and


                                      27
Compendium of ITFG Clarification Bulletins

     (C) holding, subsidiary, joint venture or associate companies of
         companies covered under item (A) or item (B) of sub-clause (b),
         other than those already covered in clauses (i), (ii) and (iii) of sub-
         rule (1) or item (B) of sub-clause (a) of clause (iv)."
In the given case, the company being a stock-broker was falling under the
definition of NBFC as per the above rules and hence as per its net worth was
required to comply with Ind AS from 1st April, 2018 onwards.
However, in the given case, in July 2016 the company had applied for
termination of its membership as a stock-broker. Accordingly, it needs to be
evaluated that whether the company is carrying on the activities of an NBFC
or not.
It is also pertinent to note the following clarification issued by ITFG
Clarification Bulletin 13 (Issue 4):
In view of the above, it is pertinent to note that the above definition covers a
company which is carrying on the activity of Non-Banking Financial
Company. The definition of NBFC is given under the RBI Act, 1934. Hence
the company which is carrying on the activity of NBFC but not
registered with RBI will also be subject to the roadmap for the
applicability of Ind AS as applicable to any other NBFC. However, the
requirements with regard to registration, eligibility of a company to operate as
NBFC (pending registration) etc. are governed by the Reserve Bank of India
Act, 1934 and Rules laid down thereon and should be evaluated by the
entity based on its own facts and circumstances separately.
In accordance with the above, if the company was carrying on the activities
of an NBFC during the period it was awaiting approval from RBI, then it shall
be required to comply with Ind AS as per the roadmap applicable to NBFC.
However, if it ceases to carry on the activities of NBFC then the roadmap as
applicable to non- NBFC companies should have been followed based on its
net worth.
In the given case, assuming that the company was not carrying on the
activities of NBFC from July 16 onwards as it has applied for termination of
its membership in July 2016, then as per its net worth it should have
complied with Ind AS from July 2016 onwards.
                                           (ITFG Clarification Bulletin 15, Issue 5)
                                               (Date of finalisation: April 04, 2018)


                                      28
                                          Applicability related Issues: Roadmap

Applicability of Ind AS ­ in case of Investor Company and another
fellow subsidiary of a holding company
Issue 19: Company B is a listed entity covered in phase II of Ind AS
roadmap. Company A is an unlisted entity having net worth less than
INR 250 crores and holding Company of Company B. Company D is an
unlisted entity and holds 25% in company B (i.e, Company D is an
investor company of Company B)and has net worth less than INR 250
crores. Company C is a fellow subsidiary of company B i.e. subsidiary
of the holding company A. Whether Ind AS is applicable to Company C
and Company D?
Response: As per the roadmap for applicability of Ind AS, holding,
subsidiary, joint venture or associate companies of companies which meet
the specified criteria are required to comply with the Indian Accounting
Standards (Ind AS).
In the given case, since Company B meets the criteria for Ind AS adoption,
its holding company would also be required to adopt Ind AS from the same
date. Accordingly, Ind AS will be applicable to Company A by virtue of Ind AS
being applicable to its subsidiary i.e. Company B in the given case.
With regard to Ind AS applicability for company C, it may be noted that Ind
AS applies to holding, subsidiary, joint venture and associate companies of
the companies which meet the net worth/listing criteria. This requirement
does not extend to another fellow subsidiary of a holding company which is
required to adopt Ind AS because of its holding company relationship with a
subsidiary meeting the net worth/listing criteria. Holding company will be
required to prepare separate and consolidated financial statements
mandatorily under Ind AS, if one of its subsidiaries meets the specified
criteria and therefore, such subsidiaries may be required by the holding
company to furnish financial statements as per Ind AS for the purpose of
preparing Holding company's consolidated Ind AS financial statements. Such
fellow subsidiaries may, however, voluntarily opt to prepare their financial
statements as per Ind AS.
Hence, in the given case, Company C is not mandatorily required to adopt
Ind AS for its statutory reporting. Further, company C may apply Ind AS
voluntarily for its statutory reporting.
With regard to Ind AS applicability for Company D, it may be noted that
Company D is just an investor company and does not qualify as a holding
company of Company B. Company D is not required to comply with Ind AS

                                     29
Compendium of ITFG Clarification Bulletins

by virtue of Company B falling under the threshold of Ind AS applicability
(unless it otherwise falls under the road map for applicability of Ind AS, as a
consequence of other conditions specified therein). Furthermore, for
consolidation purposes, Company B will be required to provide financial
statement data prepared in accordance with Companies (Accounting
Standards) Rules, 2006 for the purpose of preparation of consolidated
financial statements of Company D as per these rules.
                                           (ITFG Clarification Bulletin 15, Issue 10)
                                               (Date of finalisation: April 04, 2018)




                                      30
                                           Net Worth Criteria
Applicability of Ind AS - Net worth Criteria Treatment of ESOP
Reserve
Issue 20: Whether ESOP reserve is required to be included while
computing net worth of a company to assess applicability of Ind AS on
the company?
Response: As per Rule 2(1) (f) of Companies (Indian Accounting Standards)
Rules, 2015, "net worth" shall have the meaning assigned to it as in clause
(57) of section 2 of the Act.
Further, as per Section 2(57) of the Companies Act, 2013, "net worth means
the aggregate value of the paid-up share capital and all reserves created out
of the profits and securities premium account, after deducting the aggregate
value of the accumulated losses, deferred expenditure and miscellaneous
expenditure not written off, as per the audited balance sheet, but does not
include reserves created out of revaluation of assets, write-back of
depreciation and amalgamation."
It may be noted that the Guidance Note on Accounting for Employee Share-
based Payments, inter alia, provides that an enterprise should recognise as
an expense (except where service received qualifies to be included as a part
of the cost of an asset) the services received in an equity-settled employee
share-based payment plan when it receives the services, with a
corresponding credit to an appropriate equity account, say, `Stock Options
Outstanding Account'. This account is transitional in nature as it gets
ultimately transferred to another equity account such as share capital,
securities premium account and/or general reserve as recommended in the
subsequent paragraphs of this Guidance Note.
In accordance with the above, ESOP reserve is required to be included while
calculating the net worth of a company.
However, this clarification is only for the purpose of Ind AS applicability and
should not be applied by analogy for determining net worth under other
provisions of the Companies Act, 2013.
                                       (ITFG Clarification Bulletin 11, Issue 1)
                                              (Date of finalisation: July 31, 2017)


                                      31
Compendium of ITFG Clarification Bulletins

Computation of net worth for Ind AS applicability- Government
Grant to be considered as capital reserve
Issue 21: A company received grant from government which is in the
nature of promoter's contribution and the same was included in capital
reserve. This grant has been accounted as per AS 12, Accounting for
Government Grants. Is such capital reserve required to be included for
computation of net worth to assess Ind AS applicability?
Response: As per Rule 2(1) (f) of Companies (Indian Accounting Standards)
Rules, 2015 "net worth" shall have the meaning assigned to it in clause (57)
of section 2 of the Act. Section 2(57) of Companies Act, 2013, defines `net
worth' as follows:
     "net worth" means the aggregate value of the paid-up share capital and
     all reserves created out of the profits and securities premium account,
     after deducting the aggregate value of the accumulated losses, deferred
     expenditure and miscellaneous expenditure not written off, as per the
     audited balance sheet, but does not include reserves created out of
     revaluation of assets, write-back of depreciation and amalgamation;
From the definition of Section 2(57), it may be noted that all reserves created
out of the profits are included in calculation of `net worth'.
In the given case, the capital reserve has arisen pursuant to grant received
from government, which is in the nature of promoter's contribution. On a
literal interpretation of the definition, it may be concluded that capital reserve
in the nature of promoter's contribution should not be included to calculate
net worth as the same is not explicitly mentioned in the definition of net
worth. However, in substance, the capital reserve in the nature of promoter's
contribution is a capital contribution by promoters and should be included in
the calculation of net worth. Further, Accounting Standard (AS) 12 also
states that government grants in the nature of promoter's contribution are
recognised in shareholders' funds. Therefore, such a capital reserve should
be included for computation of `net worth'.
However, it may be noted that capital reserve in the nature of promoter's
contribution should be included in the net worth only for the purpose of Ind
AS applicability. This definition should not be applied by analogy for
determining net worth under other provisions of the Companies Act, 2013.
                                          (ITFG Clarification Bulletin 6, Issue 4)
                                          (Date of finalisation: November 29, 2016)



                                       32
                                                             Net Worth Criteria

Applicability of Ind AS - Net worth criteria
Issue 22: A debt-listed company has net worth for the last 3 years as
follows:
(i)     Net worth as on 31.03.2014 is ` 1260.83 crores
(ii)    Net worth as on 31.03.2015 is ` 1411.43 crores
(iii)   Net worth as on 31.03.2016 is ` 485.22 crores
Whether Company A is required to comply with Ind AS from financial
year 2017-18?
Response: Rule 4(1) (ii) of Companies (Indian Accounting Standards) Rules,
2015, states as under:
"(ii) the following companies shall comply with the Indian Accounting
Standards (Ind AS) for the accounting periods beginning on or after 1st April,
2016, with the comparatives for the periods ending on 31st March, 2016, or
thereafter, namely:-
(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 rupees five hundred crore or more;
(b)     companies other than those covered by sub-clause (a) of clause (ii) of
        sub-rule (1) and having net worth of rupees five hundred crore or
        more;
(c)     holding, subsidiary, joint venture or associate companies of companies
        covered by sub-clause (a) of clause (ii) of sub-rule (1) and sub-clause
        (b) of clause (ii) of sub- rule (1) as the case may be; and".
Further, Rule 4(2) of the Companies (Indian Accounting Standards) Rules,
2015, states as under:
"(2) For the purposes of calculation of net worth of companies under sub-rule
(1), the following principles shall apply, namely:-
(a)     the net worth shall be calculated in accordance with the stand-alone
        financial statements of the company as on 31st March, 2014 or the
        first audited financial statements for accounting period which ends
        after that date;
(b)     for companies which are not in existence on 31st March, 2014 or an
        existing company falling under any of thresholds specified in sub-rule
        (1) for the first time after 31st March, 2014, the net worth shall be


                                       33
Compendium of ITFG Clarification Bulletins

       calculated on the basis of the first audited financial statements ending
       after that date in respect of which it meets the thresholds specified in
       sub-rule (1).
Explanation - For the purposes of sub-clause (b), the companies meeting the
specified thresholds given in sub-rule (1) for the first time at the end of an
accounting year shall apply Indian Accounting Standards (Ind AS) from the
immediate next accounting year in the manner specified in sub-rule (1)."
In view of the above requirements, it may be noted that the net worth shall be
calculated in accordance with the stand-alone financial statements of the
company as on 31st March, 2014. Accordingly, if the net worth threshold
criteria for a company are once met, then it shall be required to comply with
Ind AS, irrespective of the fact that as on later date its net worth falls below
the criteria specified.
In view of the above, the Company A will be required to follow Ind AS from
financial year 2016-17.
It may be noted that Issue 8 of ITFG Clarification Bulletin 3 addressed an
issue wherein as on March 31, 2014 an entity was listed, however
subsequently the entity got delisted before the mandatory applicability date.
In the said issue, it was clarified that immediately before the mandatory
applicability date, if the threshold criteria for a company are not met, then it
shall not be required to comply with Ind AS, irrespective of the fact that as on
March 31, 2014, the criteria was met. In this regard, it may be clarified the
above guidance was related to only listing criteria and the same is not related
to net worth criteria.
                                         (ITFG Clarification Bulletin 6, Issue 1)
                                         (Date of finalisation: November 29, 2016)


Applicability of Ind AS - In Case of Negative net worth
Issue 23: Will the following companies with negative net worth need to
comply with Ind AS?
(a) Company A (listed) having negative net worth of ` 600 crore.
(b) Company B (unlisted) having negative net worth of ` 300 crore.
Response: Rule 4(1) (ii) and Rule 4(1) (iii) of Companies (Indian Accounting
Standards) Rules, 2015, state as follows:
(ii)   the following companies shall comply with the Indian Accounting


                                      34
                                                                Net Worth Criteria

         Standards (Ind AS) for the accounting periods beginning on or after
         1st April, 2016, with the comparatives for the periods ending on 31st
         March, 2016, or thereafter, namely:-
         (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 rupees five hundred crore
               or more;
         (b)   companies other than those covered by sub-clause (a) of clause
               (ii) of sub- rule (1) and having net worth of rupees five hundred
               crore or more;
         (c)   holding, subsidiary, joint venture or associate companies of
               companies covered by sub-clause (a) of clause (ii) of sub-rule
               (1) and sub-clause (b) of clause (ii) of sub- rule (1) as the case
               may be; and
(iii)    the following companies shall comply with the Indian Accounting
         Standards (Ind AS) for the accounting periods beginning on or after
         1st April, 2017, with the comparatives for the periods ending on 31st
         March, 2017, or thereafter, namely:-
         (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 less than rupees five
               hundred crore;
         (b)   companies other than those covered in clause (ii) of sub- rule
               (1) and sub- clause (a) of clause (iii) of sub-rule (1), that is,
               unlisted companies having net worth of rupees two hundred and
               fifty crore or more but less than rupees five hundred crore.
         (c)   holding, subsidiary, joint venture or associate companies of
               companies covered under sub-clause (a) of clause (iii) of sub-
               rule (1) and sub-clause (b) of clause (iii) of sub- rule (1), as the
               case may be:
As per Rule 2(1) (f) of Companies (Indian Accounting Standards) Rules,
2015, "net worth" shall have the meaning assigned to it in clause (57) of
section 2 of the Act.
Section 2(57) of Companies Act, 2013, defines `net worth' as follows:
        "net worth" means the aggregate value of the paid-up share capital and
        all reserves created out of the profits and securities premium account,

                                         35
Compendium of ITFG Clarification Bulletins

     after deducting the aggregate value of the accumulated losses, deferred
     expenditure and miscellaneous expenditure not written off, as per the
     audited balance sheet, but does not include reserves created out of
     revaluation of assets, write-back of depreciation and amalgamation;
In accordance with above provisions, it is clear that Ind AS will be applicable
to companies (both listed and unlisted) from financial year 2016-17, if net
worth is ` 500 crore or more. Therefore, if the net worth of the listed or
unlisted company is negative, then Ind AS will not be applicable from F.Y.
2016-17. Accordingly, Ind AS will not be applicable to Company A (listed)
and Company B (unlisted) from F.Y. 2016-17.
However, as per the roadmap, Ind AS will be applicable from financial year
2017-18 to all listed companies having net worth less ` 500 crore and
unlisted companies having net worth ` 250 crore or more but less than
rupees 500 crore. Accordingly, Ind AS will be applicable to Company A
(listed) from F.Y. 2017-18, whereas Ind AS will not be applicable to Company
B (unlisted) unless net worth criteria being met by Company B subsequently
or Ind AS becoming applicable as part of the Group (e.g. holding of Company
B is covered under Ind AS) or Company B voluntarily decides to apply Ind
AS.
                                        (ITFG Clarification Bulletin 4, Issue 3)
                                             (Date of finalisation: August 19, 2016)


Applicability of Ind AS- Net worth Criteria
Issue 24: Company X, on standalone basis, had a net worth of above `
250 crore but below ` 500 crore in financial year 2013-14 as well as
financial year 2014-15 and is expected to exceed ` 500 crore in financial
year 2015-16.
Whether the Company X be required to comply with Ind AS from
financial year 2017-18 i.e. under Phase II, given that the net worth as on
31st March 2014 was below ` 500 Crore and the Company X was a
company existing as on 31st March 2014 and was already falling under
the threshold as on 31st March 2014 itself irrespective of the fact that
the net-worth as on 31st March 2016 might be above ` 500 crore.
Response: Rule 4(2) of the Companies (Indian Accounting Standards)
Rules, 2015, states as under:


                                      36
                                                               Net Worth Criteria

"For the purposes of calculation of net worth of companies under sub-rule
(1), the following principles shall apply, namely:-
(a)   the net worth shall be calculated in accordance with the stand-alone
      financial statements of the company as on 31st March, 2014 or the
      first audited financial statements for accounting period which ends
      after that date;
(b)   for companies which are not in existence on 31st March, 2014 or an
      existing company falling under any of thresholds specified in sub-rule
      (1) for the first time after 31st March, 2014, the net worth shall be
      calculated on the basis of the first audited financial statements ending
      after that date in respect of which it meets the thresholds specified in
      sub-rule (1).
Explanation. For the purposes of sub-clause (b), the companies meeting the
specified thresholds given in sub-rule (1) for the first time at the end of an
accounting year shall apply Indian Accounting Standards (Ind AS) from the
immediate next accounting year in the manner specified in sub-rule (1)".
In view of the requirement at (b) above, any company that meets the
thresholds as specified in the Rules in a particular financial year, The
Companies (Indian Accounting Standards) Rules, 2015, will become
applicable to such company in immediately next financial year.
Therefore, in the given case, company X which had net worth of above ` 250
crore but below ` 500 crore in financial year 2013-14 as well as financial year
2014-15 and is expected to exceed ` 500 crore in financial year 2015-16, will
have to prepare financial statements on the basis of Indian Accounting
Standards (Ind AS), from the financial year beginning on April 1, 2016.
                                        (ITFG Clarification Bulletin 1, Issue 1)
                                           (Date of finalisation: January 16, 2016)




                                      37
           Ind AS 101, First-time Adoption of
                Indian Accounting Standards
Date of Transition to Ind AS
Issue 25: Ind AS 101, First-time Adoption of Indian Accounting
Standards, requires presentation of balance sheet at the date of
transition to Ind AS. For a company, the date of transition is April 1,
2016. Normally, a balance sheet represents the end of day position. Is
the balance sheet required to be prepared on the date of transition at
the end of the day or the start of the day? (e.g. if the transition date is
April 1, 2016, then balance sheet to be prepared will be close of day of
April 1 or start of day of April 1 (i.e. closing of March 31).
Response: As per paragraph 6 of Ind AS 101, An entity shall prepare and
present an opening Ind AS Balance Sheet at the date of transition to Ind
ASs. This is the starting point for its accounting in accordance with Ind ASs
subject to the requirements of paragraphs D13AA and D22. Further an
example is provided under paragraph 8 of Ind AS 101 which provides as
follows:
The end of entity A's first Ind AS reporting period is 31 March 2017. Entity A
decides to present comparative information in those financial statements for
one year only (see paragraph 21). Therefore, its date of transition to Ind
ASs is the beginning of business on 1 April 2015 (or, equivalently, close
of business on 31 March 2015). Entity A presented financial statements in
accordance with its previous GAAP annually to 31 March each year up to,
and including, 31 March 2016.
As per the relevant paragraph and example given in Ind AS 101, balance
sheet will be prepared as on date of transition to Ind AS, i.e. the beginning of
business on 1 April 2016 (or, equivalently, close of business on 31 March
2016).
                                            (ITFG Clarification Bulletin 8, Issue 3)
                                               (Date of finalisation: May 05, 2017)




                                      38
               Ind AS 101, First-time Adoption of Indian Accounting Standards

Adjustments due to other Ind AS if deemed cost exemption
availed
Issue 26: On the date of transition, an entity has elected to measure its
assets and liabilities at its deemed cost in accordance with previous
GAAP carrying value as permitted under Ind AS 101 First-time Adoption
of Indian Accounting Standards in the opening Ind AS Financial
Statements.
Whether any adjustments arising due to application of other Ind AS is
to be made to the previous GAAP carrying amount on the date of
transition, if this exemption is availed?
Response: Ind AS 101 defines `Deemed Cost' as an amount used as a
surrogate for cost or depreciated cost at a given date. Subsequent
depreciation or amortisation assumes that the entity had initially recognised
the asset or liability at the given date and that its cost was equal to the
deemed cost.
Further, paragraph 10 of Ind AS 101, provides as follows:
     "Except as described in paragraphs 13­19 and Appendices B­D, an
     entity shall, in its opening Ind AS Balance Sheet:
     (a) recognise all assets and liabilities whose recognition is required
         by Ind ASs;
     (b) not recognise items as assets or liabilities if Ind ASs do not permit
         such recognition;
      (c) reclassify items that it recognised in accordance with previous
          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 ASs; and
     (d) apply Ind ASs in measuring all recognised assets and liabilities.
In view of the above, except any specific exemption /exception as laid out in
Ind AS 101, all the assets and liabilities are required to be recognised in
accordance with the principles of Ind AS 101.
There may be certain situations where no exemption /exception has been
provided in respect of an item of asset and/or liability; however, application of
Ind AS principles has a corresponding impact on another item of asset and/or
liability in respect of which Ind AS 101 permits carry forward of previous
GAAP amounts as at the transition date. In such situations, since the


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Compendium of ITFG Clarification Bulletins

adjustment to assets /liabilities is only consequential and arising because of
application of the transition requirements of Ind AS 101, the previous GAAP
carrying amount needs to be adjusted only to this extent. It may be noted
that except such situations, no further adjustment should be made due to
application of other Ind AS, if an entity measure its assets and liabilities at its
deemed cost in accordance with previous GAAP carrying value as permitted
under Ind AS 101 on the date of transition. Please also refer Issue No. 4 and
Issue No. 5 of ITFG Clarification Bulletin 5 and Issue no. 1 of ITFG
Clarification Bulletin 10.
                                             (ITFG Clarification Bulletin 12, Issue 10)
                                               (Date of finalisation: October 23, 2017)
Date for assessment of functional currency
Issue 27: ABC Ltd. having net worth of ` 500 crores as on March 31,
2014 wants to assess its functional currency. From which date should
company ABC Ltd. assess its functional currency, i.e. whether from
date of transition or retrospectively as per paragraph 10 of Ind AS 101,
First-time Adoption of Indian Accounting Standards?
Response: Paragraphs 13-19 of Ind AS 101 First-time Adoption of Indian
Accounting Standards provide `Exceptions to the retrospective application of
other Ind ASs' and Appendices B-C of Ind AS 101 First-time Adoption of
Indian Accounting Standards, provide certain `Exceptions to retrospective
application of other Ind ASs' and `Exemptions for Business Combination'
respectively.
Paragraphs 13-19 and Appendices B-C are silent on the assessment of
functional currency by an entity, i.e., from date of transition or retrospectively.
Since neither any exception nor any exemption has been specified for
assessment of functional currency, an entity will have to assess its functional
currency retrospectively as per paragraph 10 of Ind AS 101 stated as below.
Paragraph 10 of Ind AS 101, First-time Adoption of Indian Accounting
Standards, states as follows:
     "Except as described in paragraphs 13­19 and Appendices B­D, an
     entity shall, in its opening Ind AS Balance Sheet:
     (a)     recognise all assets and liabilities whose recognition is required
            by Ind ASs;
     (b)    not recognise items as assets or liabilities if Ind ASs do not
            permit such recognition;

                                        40
                Ind AS 101, First-time Adoption of Indian Accounting Standards

       (c)   reclassify items that it recognised in accordance with previous
             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 ASs; and
       (d)   apply Ind ASs in measuring all recognised assets and liabilities".
                                             (ITFG Clarification Bulletin 1, Issue 5)
                                            (Date of finalisation: January 16, 2016)


Accounting treatment of the balance outstanding in the
"Revaluation Reserve" and deferred tax on this transition
revaluation reserve
Issue 28: A company is a first-time adopter of Ind AS. It has opted for
exemption under paragraph D7AA of Ind AS 101, First-time Adoption of
Indian Accounting Standards and also elected the cost model under Ind
AS 16, Property, Plant and Equipment for subsequent measurement. On
the date of transition to Ind AS:
(i)     What will be the accounting treatment of the balance outstanding
        in the "Revaluation Reserve" created as per previous GAAP?
(ii)    What will be the treatment of deferred tax on this transition
        revaluation reserve?
Response: Paragraph 10 of Ind AS 101, First-time Adoption of Indian
Accounting Standards provides as follows:
       "Except as described in paragraphs 13­19 and Appendices B­D, an
       entity shall, in its opening Ind AS Balance Sheet:
       (a) recognise all assets and liabilities whose recognition is required
           by Ind ASs;
       (b) not recognise items as assets or liabilities if Ind ASs do not permit
           such recognition;
        (c) reclassify items that it recognised in accordance with previous
            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 ASs; and
       (d) apply Ind ASs in measuring all recognised assets and liabilities.
Further paragraph11 of Ind AS 101 provides that, the accounting policies that

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Compendium of ITFG Clarification Bulletins

an entity uses in its opening Ind AS Balance Sheet may differ from those that
it used for the same date using its previous GAAP. The resulting adjustments
arise from events and transactions before the date of transition to Ind ASs.
Therefore, an entity shall recognise those adjustments directly in retained
earnings (or, if appropriate, another category of equity ) at the date of
transition to Ind ASs.
Accordingly, as per the above requirements in the given case balance
outstanding in the revaluation reserve should be transferred to retained
earnings or if appropriate, another category of equity disclosing the
description of the nature and purpose of such amount in accordance with the
requirements of paragraph 79(b), Ind AS 1, Presentation of Financial
Statements. This is because after transition, the Company is no longer
applying the revaluation model of Ind AS 16, instead it has elected to apply
the cost model approach.
It may be noted that the requirements of Companies Act, 2013 for declaration
of dividend will be required to be evaluated separately.
Further, it may also be noted that in accordance with Ind AS 12, Income
Taxes, deferred tax would need to be recognised on any difference between
the carrying amount and tax base of assets and liabilities. No deferred tax is
created on equity components. However, since the asset has been revalued,
there will be difference for the amount between carrying value and tax base.
Hence, deferred tax will have to be recognised on such asset.
                                             (ITFG Clarification Bulletin 8, Issue 7)
                                                (Date of finalisation: May 05, 2017)

Applicability of Ind AS 109, Financial Instruments, if financial
instruments have been acquired as part of the business
combinations and the exemption under paragraph C1 of Ind AS
101 availed
Issue 29: Company A is covered under Phase II of Ind AS roadmap and
is required to apply Ind AS from financial Year 2017-18. Company A
acquired Company B as per the scheme of amalgamation sanctioned
under the provisions of the Companies Act, 2013. The amalgamation
was effective from 1st April, 2015 and was accounted for in the financial
year 2015-16 under Indian GAAP.
As per the Scheme, the entire undertaking of Company B including all
its assets, liabilities and reserves and surplus stood transferred in


                                     42
               Ind AS 101, First-time Adoption of Indian Accounting Standards

Company A. As a result, Company A has taken over assets /liabilities
including certain financial instruments.
Under Ind AS, Company A has opted for option under paragraph C1 of
Ind AS 101, First-time Adoption of Indian Accounting Standards, not to
apply Ind AS 103 retrospectively to past business combinations
(business combinations that occurred before the date of transition to
Ind AS).
Whether Company A would be required to apply Ind AS 109, Financial
Instruments retrospectively (i.e. from the date of origination of the
financial instrument by Company B) to such financial instruments
acquired as part of the business combination?
Response: Paragraphs C1 and C4 of Ind AS 101, First-time Adoption of
Indian Accounting Standards, state as follows:
"C1 - A first-time adopter may elect not to apply Ind AS 103 retrospectively to
past business combinations (business combinations that occurred before the
date of transition to Ind ASs). However, if a first-time adopter restates any
business combination to comply with Ind AS 103, it shall restate all later
business combinations and shall also apply Ind AS 110 from that same date.
C4 - If a first-time adopter does not apply Ind AS 103 retrospectively to a
past business combination, this has the following consequences for that
business combination:
(a)   The first-time adopter shall keep the same classification (as an
      acquisition by the legal acquirer, a reverse acquisition by the legal
      acquiree, or a uniting of interests) as in its previous GAAP financial
      statements.
(b)   The first-time adopter shall recognise all its assets and liabilities at the
      date of transition to Ind ASs that were acquired or assumed in a past
      business combination, other than:
      (i)    some financial assets and financial liabilities derecognised in
             accordance with previous GAAP (see paragraph B2); and
      (ii)   assets, including goodwill, and liabilities that were not
             recognised in the acquirer's consolidated Balance Sheet in
             accordance with previous GAAP and also would not qualify for
             recognition in accordance with Ind ASs in the separate Balance
             Sheet of the acquiree (see (f)­(i) below).
      The first-time adopter shall recognise any resulting change by

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Compendium of ITFG Clarification Bulletins

       adjusting retained earnings (or, if appropriate, another category of
       equity), unless the change results from the recognition of an intangible
       asset that was previously subsumed within goodwill (see (g) (i) below).
(c)    The first-time adopter shall exclude from its opening Ind AS Balance
       Sheet any item recognised in accordance with previous GAAP that
       does not qualify for recognition as an asset or liability under Ind ASs.
       .........."
In accordance with the above, it may be noted that Ind AS 101 provides an
optional exemption not to apply Ind AS retrospectively to business
combinations that occurred before the date of transition to Ind AS. If previous
business combinations are not restated, the previous acquisition accounting
remains unchanged. Carrying amount under previous GAAP of assets
acquired and liabilities assumed in an un-restated business combination
immediately after the business combination becomes their deemed cost at
that date.
Paragraph C4(e)of Ind AS 101, states that, "Immediately after the business
combination, the carrying amount in accordance with previous GAAP of
assets acquired and liabilities assumed in that business combination shall be
their deemed cost in accordance with Ind ASs at that date. If Ind ASs require
a cost-based measurement of those assets and liabilities at a later date that
deemed cost shall be the basis for cost-based depreciation or amortisation
from the date of the business combination."
In preparing its opening Ind AS Balance sheet, an entity applies the criteria in
Ind AS 109 to classify financial instruments on the basis of the facts and
circumstances that exist at the date of transition to Ind AS. The resulting
classifications are applied retrospectively.
For those financial assets and financial liabilities measured at amortised cost
in the opening Ind AS balance sheet, an entity determines the cost of the
financial assets and the financial liabilities on the basis of circumstances
existing when the assets and liabilities first satisfied the recognition criteria in
Ind AS 109. However, if the entity acquired those financial assets and
financial liabilities in a past business combination, their carrying
amount in accordance with previous GAAP immediately following the
business combination is their deemed cost in accordance with Ind AS
at that date.
In accordance with the above, unless there is a transitional relief under Ind
AS 101 for financial instruments, the requirements of Ind AS 109 need to be


                                        44
               Ind AS 101, First-time Adoption of Indian Accounting Standards

applied retrospectively. it is pertinent to note that although Ind AS 101 does
not provide for any transitional relief for financial instruments and requires
applying requirements of Ind AS 109 retrospectively. However, Ind AS 101
specifically provides guidance with regard to treatment to be done if entity
elects to opt not to restate past business combinations. Accordingly, if
financial instruments have been acquired as part of the business
combinations, then requirements of Appendix C to Ind AS 101 shall apply.
In the given case, for the financial instruments acquired as part of the
business combination carrying amount as per the previous GAAP shall be
their deemed cost at the date of business combination. Fair value or
amortised cost (as required by Ind AS 109) shall be determined from the date
of business combination and not from the date of origination of such financial
instrument by Company B. If financial instruments are classified as
FVTPL/FVOCI, then these should be measured at fair value at the date of
transition to Ind AS. If these instruments are classified at amortised cost,
then the entity determine the carrying amount on the transition date by taking
the carrying amount of the loan at the date of business combination under
previous GAAP and apply the effective interest rate which is determined after
considering the amount and timing of expected settlement of such financial
instrument.
                                          (ITFG Clarification Bulletin 12, Issue 9)
                                          (Date of finalisation: October 23, 2017)


Accounting Treatment of the government grant received before
the date of transition and measurement of property, plant and
equipment at the date of transition to Ind AS
Issue 30: ABC Ltd. is a first-time adopter of Ind AS from the financial
year 2016-17. It had received the government grant from the Central
Government during the financial year 2012-13 to purchase a fixed asset.
The grant received from the Government was deducted from the
carrying amount of fixed asset as permitted under previous GAAP, i.e.
AS 12, Accounting for Government Grants . ABC Ltd. has opted for the
option under paragraph D5 of Ind AS 101, First-time Adoption of Indian
Accounting Standards and chosen to measure the item of PPE at its fair
value and use that as its deemed cost on the date of transition to Ind
AS. As per Ind AS 20, Accounting for Government Grants and
Disclosure of Government Assistance, such a grant is required to be
accounted by setting up the grant as deferred income on the date of

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Compendium of ITFG Clarification Bulletins

transition and deducting the grant in arriving at the carrying amount of
the asset is not allowed.
In this situation, whether ABC Ltd. is required to adjust the carrying
amount of fixed assets as per previous GAAP to reflect accounting
treatment of the government grant as per Ind AS 20?
Response: Paragraph D5 of Ind AS 101 states that, "An entity may elect to
measure an item of property, plant and equipment at the date of transition to
Ind ASs at its fair value and use that fair value as its deemed cost at that
date."
Further, as per paragraph 24 of Ind AS 113, Fair Value Measurement, "Fair
value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction in the principal (or most advantageous)
market at the measurement date under current market conditions (i.e. an exit
price) regardless of whether that price is directly observable or estimated
using another valuation technique."
In accordance with the above, it is pertinent to note that the fair value of the
asset that will be derived as per Ind AS 113 will be the exit price that would
be received to sell an asset in an orderly transaction and which is a market-
based measurement, not an entity-specific measurement.
Accordingly, in the given case, fair value of the asset is independent of the
government grant received on the asset and no adjustment with regard to the
government grant should be made to the fair value of the property, plant and
equipment taken as deemed cost on the date of transition to Ind AS.
Further, Ind AS 101 provides certain mandatory exceptions and voluntary
exemptions from retrospective application of some aspects/requirements of
Ind AS.
In absence of any mandatory exception applicable in this case, the company
shall recognise the asset-related government grants outstanding on the
transition date as deferred income in accordance with the requirements of
Ind AS 20, Accounting for Government Grants and Disclosure of Government
Assistance and the resultant adjustment will be made in retained earnings or,
if appropriate, another category of equity at the date of transition to Ind AS.
                                           (ITFG Clarification Bulletin 12, Issue 2)
                                           (Date of finalisation: October 23, 2017)




                                      46
               Ind AS 101, First-time Adoption of Indian Accounting Standards

Reversal of the impairment provision recognised in books as at
the date of transition when exemption under paragraph D6 of Ind
AS 101 availed
Issue 31: MNC Ltd. is a first-time adopter of Ind AS. It has elected to
measure its property, plant and equipment at deemed cost measured as
per paragraph D6 of Ind AS 101, i.e. at its previous GAAP revaluation
amount measured before the date of transition (assuming the
revaluation is broadly comparable to cost in accordance with Ind AS).
Whether it can reverse the impairment provision recognised in books as
at the date of transition.
Would the answer be different if the company has not opted for the
deemed cost exemption given under Ind AS 101 and has elected to
apply Ind AS 16 retrospectively?
Response: Ind AS 101, First-time Adoption of Indian Accounting Standards
defines deemed cost as, "An amount used as a surrogate for cost or
depreciated cost at a given date. Subsequent depreciation or amortisation
assumes that the entity had initially recognised the asset or liability at the
given date and that its cost was equal to the deemed cost."
As per paragraph D6 of Ind AS 101, "A first-time adopter may elect to use a
previous GAAP revaluation of an item of property, plant and equipment at, or
before, the date of transition to Ind ASs as deemed cost at the date of the
revaluation, if the revaluation was, at the date of the revaluation, broadly
comparable to:
(a)   fair value; or
(b)   cost or depreciated cost in accordance with Ind ASs, adjusted to
      reflect, for example, changes in a general or specific price index."
In accordance with the above, an entity may elect to measure its property,
plant and equipment at its deemed cost measured as per previous GAAP
revaluation on or before the date of transition, if the revaluation was broadly
comparable to fair value or cost or depreciated cost in accordance with Ind
AS. The amount so elected as deemed cost is the cost and any accumulated
depreciation and provision for impairment under previous GAAP have no
relevance. Accordingly, provision for impairment provided before the date of
such measurement as per previous GAAP cannot be reversed in later years.



                                      47
Compendium of ITFG Clarification Bulletins

It may be noted that FAQ on deemed cost of property, plant and equipment
under Ind AS 101, First-time Adoption of Indian Accounting Standards issued
by the Accounting Standards Board of ICAI also, inter alia, provides that from
the date of transition, the deemed cost, i.e., carrying values of PPE as per
the previous GAAP is the cost and any accumulated depreciation and
provision for impairment under previous GAAP have no relevance as would
be the case if fair value were to be taken as deemed cost as per paragraph
D5.
Accordingly, provision for impairment provided before the date of transition
as per previous GAAP cannot be reversed in later years.
However, from the deemed cost determination date to the date of transition,
the entity shall apply appropriate Ind AS accounting policies and depreciation
policies to that asset. The depreciation policy applied during the intervening
period from the deemed cost determination date to the date of transition
would have to be in accordance with the requirements of applicable Ind AS.
Accordingly, the impairment loss for the period between the deemed cost
determination date to the date of transition can be reversed, if permitted as
per the provisions of Ind AS 36, Impairment of Assets.
However, if it follows that if Ind AS 16 was applied retrospectively in
accordance with paragraphs 7 and 10 of Ind AS 101, then impairment loss
can be reversed, if permitted as per the provisions of Ind AS 36, Impairment
of Assets.
                                             (ITFG Clarification Bulletin 8, Issue 5)
                                                (Date of finalisation: May 05, 2017)


Availment of deemed cost exemption for the assets classified as
`Assets held for sale' but which do not fulfill the criteria for
classifying as held for sale in accordance with Ind AS 105 on the
date of transition
Issue 32: Company X is a first-time adopter of Ind AS from the financial
year 2017-18 with the transition date being 1 April 2016. On 1 January
2016, Company X has classified a group of assets as `Assets held for
sale' in accordance with AS 10, Property, Plant and Equipment and
stated it at lower of their net book value and net realisable value under
previous GAAP. Company X has presented these assets separately
from other fixed assets in the previous GAAP financial statements for


                                     48
               Ind AS 101, First-time Adoption of Indian Accounting Standards

the year ended 31 March 2016 and did not provide depreciation
subsequently on the same.
On transition to Ind AS, these assets could not fulfill the criteria for
classifying as held for sale in accordance with Ind AS 105, Non-current
Assets Held for Sale and Discontinued Operations and accordingly,
would be reclassified as `Property, plant and equipment'.
Whether deemed cost exemption under paragraph D7AA of Ind AS 101
will be available for these assets?
Response: Under previous GAAP, i.e., AS 10, Property, Plant and
Equipment, the Company X presented items of fixed assets retired from
active use and held for sale separately. In this regard, paragraphs 73 and 74
of AS 10 may be noted:
"73   Items of property, plant and equipment retired from active use and
      held for disposal should be stated at the lower of their carrying amount
      and net realisable value. Any write-down in this regard should be
      recognised immediately in the statement of profit and loss.
74    The carrying amount of an item of property, plant and equipment
      should be derecognised
      (a)    on disposal; or
      (b)    when no future economic benefits are expected from its use or
             disposal."
In accordance with the above, it may be noted that such fixed assets are
shown separately and are not derecognised from financial statements; these
are eliminated from the financial statements only if they are disposed off or
no future economic benefits are expected from its use or disposal.
Paragraph D7AA of Ind AS 101, First-time Adoption of Indian Accounting
Standards, provides that, "Where there is no change in its functional currency
on the date of transition to Ind ASs, a first-time adopter to Ind ASs may elect
to continue with the carrying value for all of its property, plant and equipment
as recognised in the financial statements as at the date of transition to Ind
ASs, measured as per the previous GAAP and use that as its deemed cost
as at the date of transition after making necessary adjustments in
accordance with paragraph D21 and D21A, of Ind AS 101."
In accordance with above, the exemption as per paragraph D7AA is available
to all property, plant and equipment as recognised in the financial statements
as at the date of transition to Ind AS irrespective of whether these were

                                      49
Compendium of ITFG Clarification Bulletins

disclosed separately. Under the previous GAAP, Company X has only
presented the assets as held for sale separately. Accordingly, the Company
X can avail the deemed cost exemption for such type of assets which were
presented separately as held for sale as per previous GAAP but on transition
did not meet the criteria of assets held for sale given under Ind AS 105, Non-
current Assets Held for Sale and Discontinued Operations.
                                           (ITFG Clarification Bulletin 10, Issue 4)
                                               (Date of finalisation: July 05, 2017)


Applicability of paragraph D7AA for capital work in progress
Issue 33: Can a company elect the option available under Para D7AA of
Ind AS 101 for capital work in progress items?
Response: Para D7AA of Ind AS 101, First-time Adoption of Indian
Accounting Standards, states as under:
"Where there is no change in its functional currency on the date of transition
to Ind ASs, a first-time adopter to Ind ASs may elect to continue with the
carrying value for all of its property, plant and equipment as recognised in the
financial statements as at the date of transition to Ind ASs, measured as per
the previous GAAP and use that as its deemed cost as at the date of
transition after making necessary adjustments in accordance with paragraph
D21 and D21A, of this Ind AS. For this purpose, if the financial statements
are consolidated financial statements, the previous GAAP amount of the
subsidiary shall be that amount used in preparing and presenting
consolidated financial statements. Where a subsidiary was not consolidated
under previous GAAP, the amount required to be reported by the subsidiary
as per previous GAAP in its individual financial statements shall be the
previous GAAP amount. If an entity avails the option under this paragraph,
no further adjustments to the deemed cost of the property, plant and
equipment so determined in the opening balance sheet shall be made for
transition adjustments that might arise from the application of other Ind ASs.
This option can also be availed for intangible assets covered by Ind AS 38,
Intangible Assets and investment property covered by Ind AS 40, Investment
Property."
In accordance with the above, it may be noted that a company may elect to
choose previous GAAP carrying value for all the items of PPE as its deemed
cost when there is no change in its functional currency on the date of
transition to Ind AS.


                                      50
               Ind AS 101, First-time Adoption of Indian Accounting Standards

Capital work in progress is in the nature of property, plant and equipment
under construction and accordingly, provisions of Ind AS 16, Property, Plant
and Equipment apply to it.
Accordingly, in the given case, option under paragraph D7AA of Ind AS 101
is available with regard to capital work in progress also.
                                           (ITFG Clarification Bulletin 3, Issue 11)
                                              (Date of finalisation: June 22, 2016)


Deemed cost exemption under paragraph D7AA (Treatment of
intragroup profits)
Issue 34: XYZ Ltd. is a first-time adopter of Ind AS from financial year
2016-17. ABC Ltd. was an associate company of XYZ Ltd. under the
previous GAAP and the same was accounted under equity method in
the consolidated financial statements of XYZ Ltd. ABC Ltd. became its
subsidiary considering the principles of de-facto control as per the
requirements of Ind AS 110, Consolidated Financial Statements .
Before transition to Ind AS, XYZ Ltd. had sold goods to ABC Ltd. at
profit margin of 10%, which is being used by ABC Ltd for its operation,
i.e., represents property, plant and equipment for ABC Limited. XYZ Ltd.
has chosen to avail deemed cost exemption provided in paragraph
D7AA of Ind AS 101, First-time Adoption of Indian Accounting
Standards, i.e., to continue with carrying value of property, plant and
equipment as per the previous GAAP which requires the values
appearing in the subsidiary's financial statements to be taken without
any adjustment.
Will such unrealised profits existing in the property, plant and
equipment at consolidated level require elimination?
Response: Paragraph D7AA of Ind AS 101 states that, "where there is no
change in its functional currency on the date of transition to Ind ASs, a first-
time adopter to Ind ASs may elect to continue with the carrying value for all
of its property, plant and equipment as recognised in the financial statements
as at the date of transition to Ind ASs, measured as per the previous GAAP
and use that as its deemed cost as at the date of transition after making
necessary adjustments in accordance with paragraph D21 and D21A, of this
Ind AS. For this purpose, if the financial statements are consolidated
financial statements, the previous GAAP amount of the subsidiary shall be
that amount used in preparing and presenting consolidated financial

                                      51
Compendium of ITFG Clarification Bulletins

statements. Where a subsidiary was not consolidated under previous GAAP,
the amount required to be reported by the subsidiary as per previous GAAP
in its individual financial statements shall be the previous GAAP amount. If
an entity avails the option under this paragraph, no further adjustments to the
deemed cost of the property, plant and equipment so determined in the
opening balance sheet shall be made for transition adjustments that might
arise from the application of other Ind ASs."
Further, paragraph B86 of Ind AS 110, Consolidated Financial Statements,
inter alia, states that:
(c) eliminate in full intra group assets and liabilities, equity, income,
expenses and cash flows relating to transactions between entities of the
group (profits or losses resulting from intra group transactions that are
recognised in assets, such as inventory and fixed assets, are eliminated
in full). Intra group losses may indicate an impairment that requires
recognition in the consolidated financial statements. Ind AS 12, Income
Taxes, applies to temporary differences that arise from the elimination of
profits and losses resulting from intra group transactions.
Accordingly, in the given case XYZ Ltd. in its consolidated financial
statements will first eliminate the intra group profit of 10% recognised in
separate financial statements of ABC Ltd. and then will apply the deemed
cost exemption under paragraph D7AA of Ind AS 101.
                                           (ITFG Clarification Bulletin 12, Issue 5)
                                           (Date of finalisation: October 23, 2017)


Reversal of impact of paragraph 46A of AS 11 when exemption as
per paragraph D7AA of Ind AS 101 availed
Issue 35: Company X had opted the option available under paragraph
46/46A of AS 11, The Effects of Changes in Foreign Exchange Rates
notified under the Companies (Accounting Standards) Rules, 2006.
Accordingly, exchange gain/loss on foreign currency borrowings had
been added to or deducted from the cost of property, plant and
equipment (PPE).
Company X is a first-time adopter of Ind AS and has availed the
exemption given under paragraph D7AA of Ind AS 101 First-time
Adoption of Indian Accounting Standards, however, it wishes to
retrospectively reverse the effect of paragraph 46/46A from its PPE.
Whether Company X is allowed to do so?

                                      52
               Ind AS 101, First-time Adoption of Indian Accounting Standards

Response: Paragraph D7AA of Ind AS 101 states as follows:
"Where there is no change in its functional currency on the date of transition
to Ind ASs, a first-time adopter to Ind ASs may elect to continue with the
carrying value for all of its property, plant and equipment as recognised in the
financial statements as at the date of transition to Ind ASs, measured as per
the previous GAAP and use that as its deemed cost as at the date of
transition after making necessary adjustments in accordance with paragraph
D21 and D21A, of this Ind AS. For this purpose, if the financial statements
are consolidated financial statements, the previous GAAP amount of the
subsidiary shall be that amount used in preparing and presenting
consolidated financial statements. Where a subsidiary was not consolidated
under previous GAAP, the amount required to be reported by the subsidiary
as per previous GAAP in its individual financial statements shall be the
previous GAAP amount. If an entity avails the option under this paragraph,
no further adjustments to the deemed cost of the property, plant and
equipment so determined in the opening balance sheet shall be made for
transition adjustments that might arise from the application of other Ind ASs.
This option can also be availed for intangible assets covered by Ind AS 38,
Intangible Assets and investment property covered by Ind AS 40, Investment
Property."
In accordance with the above, it may be noted that when an entity opts for
deemed cost exemption under paragraph D7AA of Ind AS 101 then it cannot
make any adjustments to the carrying amount of PPE. Thus, once the entity
avails the exemption provided in paragraph D7AA, it will be carrying forward
the previous GAAP carrying amount for all of its property, plant and
equipment.
Accordingly, in the given case, Company X cannot reverse the impact of
paragraph 46A of AS 11 from its PPE as it has opted for the deemed cost
exemption provided under D7AA.
                                            (ITFG Clarification Bulletin 7, Issue 3)
                                             (Date of finalisation: March 30, 2017)


Selective adoption of deemed cost exemption under paragraph
D7AA
Issue 36: Ind AS has given the option to consider previous GAAP
carrying value of property, plant and equipment (PPE) as deemed cost
for assets acquired before the transition date. Whether an entity has the
option of fair valuing few items of PPE and taking carrying amounts of


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Compendium of ITFG Clarification Bulletins

the remaining items of PPE as the deemed cost on the date of
transition?
Response: No. In accordance with paragraph D7AA of Ind AS 101, The
First-time Adoption of Indian Accounting Standards, where there is no
change in its functional currency on the date of transition to Ind AS, a first-
time adopter of Ind AS has the option to elect to continue with the carrying
value of all of its property, plant and equipment as at the date of transition
measured as per the previous GAAP and use that as its deemed cost at the
date of transition after making necessary adjustments in accordance with
paragraph D21 and D21A of Ind AS 101. If a first time adopter chooses this
option, then the option of applying this on selective basis to some of the
items of property, plant and equipment and using fair value for others is not
available.

                                           (ITFG Clarification Bulletin 5, Issue 3)
                                       (Date of finalisation: September 19, 2016)


Treatment of Government Grant on the date of transition- In case
of deemed cost exemption
Issue 37: ABC Ltd. is a first-time adopter of Ind AS from the financial
year 2016-17. It had received government grant from the Central
Government during the financial year 2012-13 to purchase a fixed asset.
The grant received from the Government was deducted from the
carrying amount of fixed asset as permitted under previous GAAP, i.e.
AS 12, Accounting for Government Grants. ABC Ltd. has chosen to
continue with carrying value of property, plant and equipment as per
the previous GAAP as provided in paragraph D7AA of Ind AS 101. As
per Ind AS 20, Accounting for Government Grants and Disclosure of
Government Assistance, such a grant is required to be accounted by
setting up the grant as deferred income on the date of transition and
deducting the grant in arriving at the carrying amount of the asset is
not allowed.
In this situation, whether ABC Ltd. is required to adjust the carrying
amount of fixed assets as per previous GAAP to reflect accounting
treatment of the government grant as per Ind AS 20?
Response: Paragraph D7AA of Ind AS 101, First-time Adoption of Indian
Accounting Standards, states as under:


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               Ind AS 101, First-time Adoption of Indian Accounting Standards

"Where there is no change in its functional currency on the date of transition
to Ind ASs, a first-time adopter to Ind ASs may elect to continue with the
carrying value for all of its property, plant and equipment as recognised in the
financial statements as at the date of transition to Ind ASs, measured as per
the previous GAAP and use that as its deemed cost as at the date of
transition after making necessary adjustments in accordance with paragraph
D21 and D21A, of this Ind AS. For this purpose, if the financial statements
are consolidated financial statements, the previous GAAP amount of the
subsidiary shall be that amount used in preparing and presenting
consolidated financial statements. Where a subsidiary was not consolidated
under previous GAAP, the amount required to be reported by the subsidiary
as per previous GAAP in its individual financial statements shall be the
previous GAAP amount. If an entity avails the option under this
paragraph, no further adjustments to the deemed cost of the property,
plant and equipment so determined in the opening balance sheet shall
be made for transition adjustments that might arise from the application
of other Ind ASs. This option can also be availed for intangible assets
covered by Ind AS 38, Intangible Assets and investment property covered by
Ind AS 40, Investment Property."
In accordance with the above, when the option of deemed cost exemption is
availed for property, plant and equipment under paragraph D7AA of Ind AS
101, no further adjustments to the deemed cost of the property, plant and
equipment shall be made for transition adjustments that might arise from the
application of other Ind AS.
However paragraph 10 of Ind AS 101, inter alia, provides that Ind AS will be
applied in measuring all recognised assets and liabilities except for
mandatory exceptions and voluntary exemptions from other Ind AS as
prescribed under Ind AS 101.
In absence of any other mandatory exception or voluntary exemption
applicable in this case, the company shall recognise the asset related
government grants outstanding on the transition date as deferred income in
accordance with the requirements of Ind AS 20, Accounting for Government
Grants and Disclosure of Government Assistance. In the current case, the
company has already deducted the amount of grant from the cost of the fixed
assets. As a consequence, to recognise the amount of unamortised deferred
income as at the date of the transition in accordance with paragraph 10 of
Ind AS 101, the corresponding adjustment should be made to the carrying
amount of property, plant and equipment (net of cumulative depreciation


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Compendium of ITFG Clarification Bulletins

impact) and retained earnings, respectively, as the grant is directly linked to
the property, plant and equipment. This treatment would reflect the correct
economic reality and result in faithful representation of the effects of these
transactions on transition in accordance with the requirements of Ind AS.
Since the adjustment to the property, plant and equipment is only
consequential and arising because of applying the transition requirements of
Ind AS 101, it would not be construed as an adjustment to the deemed cost
of property, plant and equipment as envisaged under paragraph D7AA of Ind
AS.
                                             (ITFG Clarification Bulletin 5, Issue 5)
                                                (Date of finalisation: April 08, 2017)


Treatment of unadjusted processing of fees on loans taken before
the date of transition -In case of deemed cost exemption
Issue 38: PQR Ltd. had obtained a loan prior to April 1, 2015. The
processing fees on the loan were capitalised as part of the relevant
fixed assets as per the previous GAAP. PQR Ltd. is required to adopt
Ind AS from financial year 2016-17. It has chosen to avail deemed cost
exemption provided in paragraph D7AA of Ind AS 101, i.e., to continue
with carrying value of property, plant and equipment as per the
previous GAAP. The loan needs to be accounted for as per amortised
cost method in accordance with Ind AS 109, Financial Instruments.
Whether PQR Ltd. is required to adjust the carrying amount of fixed
assets as per the previous GAAP to reflect accounting treatment of
processing fees as per Ind AS 109?
Response: Paragraph D7AA of Ind AS 101, First-time Adoption of Indian
Accounting Standards, states as under:
"Where there is no change in its functional currency on the date of transition
to Ind ASs, a first-time adopter to Ind ASs may elect to continue with the
carrying value for all of its property, plant and equipment as recognised in the
financial statements as at the date of transition to Ind ASs, measured as per
the previous GAAP and use that as its deemed cost as at the date of
transition after making necessary adjustments in accordance with paragraph
D21 and D21A, of this Ind AS. For this purpose, if the financial statements
are consolidated financial statements, the previous GAAP amount of the
subsidiary shall be that amount used in preparing and presenting
consolidated financial statements. Where a subsidiary was not consolidated
under previous GAAP, the amount required to be reported by the subsidiary

                                      56
               Ind AS 101, First-time Adoption of Indian Accounting Standards

as per previous GAAP in its individual financial statements shall be the
previous GAAP amount. If an entity avails the option under this
paragraph, no further adjustments to the deemed cost of the property,
plant and equipment so determined in the opening balance sheet shall
be made for transition adjustments that might arise from the application
of other Ind ASs. This option can also be availed for intangible assets
covered by Ind AS 38, Intangible Assets and investment property covered by
Ind AS 40, Investment Property."
In accordance with the above, when the option of deemed cost exemption is
availed for property, plant and equipment under paragraph D7AA of Ind AS
101, no further adjustments to the deemed cost of the property, plant and
equipment shall be made for transition adjustments that might arise from the
application of other Ind AS.
However paragraph 10 of Ind AS 101, inter alia, provides that Ind AS will be
applied in measuring all recognised assets and liabilities except for
mandatory exceptions and voluntary exemptions from other Ind AS as
prescribed under Ind AS 101.
In absence of any other mandatory exception or voluntary exemption
applicable in this case, the carrying amount of loan is required to be restated
to its amortised cost in accordance with the requirements of Ind AS 109 as at
the date of the transition. Accordingly, the unamortised amount of processing
cost as at the date of the transition should be adjusted from the carrying
amount of loan to arrive at its amortised cost. In the current case, the
Company has already capitalised the processing cost as a part of the cost of
the fixed assets. As a consequence, to restate the carrying amount of loan in
accordance with paragraph 10 of Ind AS 101, the carrying amount of fixed
assets as at the date of the transition should also be reduced by the amount
of processing cost (net of cumulative depreciation impact). The difference
between the adjustments to the carrying amount of loan and to fixed assets,
respectively should be recognised in the retained earnings as at the date of
the transition. This treatment would reflect the correct economic reality and
result in faithful representation of the effects of these transactions on
transition in accordance with the requirements of Ind AS. Since the
adjustment to fixed assets is only consequential and arising because of
applying the transition requirements of Ind AS 101, it would not be construed
as an adjustment to the deemed cost of property, plant and equipment as
envisaged under paragraph D7AA of Ind AS.
                                           (ITFG Clarification Bulletin 5, Issue 4)
                                              (Date of finalisation: April 08, 2017)


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Compendium of ITFG Clarification Bulletins

Applicability of paragraph D13AA on long term foreign exchange
contracts
Issue 39: ABC Ltd. is a first time adopter of Ind AS. It has been
exercising the option provided in paragraph 46/46A of AS 11, The
Effects of Changes in Foreign Exchange Rates notified under the
Companies (Accounting Standards) Rules, 2006 and intends to continue
the same accounting policy in accordance with paragraph D13AA of Ind
AS 101, First-time Adoption of Indian Accounting Standards . The entity
used to apply the provisions of paragraph of 46/46A of AS 11 to long-
term forward exchange contracts as such contracts were also covered
by paragraph 36 of AS 11. Whether ABC Ltd. can continue the
accounting policy for exchanges differences to long term forward
exchange contracts?
Response: Paragraph D13AA of Ind AS 101 states as follows:
"A first-time adopter may continue the policy adopted for accounting for
exchange differences arising from translation of long-term foreign currency
monetary items recognised in the financial statements for the period ending
immediately before the beginning of the first Ind AS financial reporting period
as per the previous GAAP."
The exemption in D13AA relates to accounting for foreign exchange
differences on long term foreign currency monetary items recognised in the
financial statement only, and it does not relate to the accounting for long term
forward exchange contracts (as these contracts are not within scope of Ind
AS 21 and are treated in accordance with Ind AS 109). Therefore, an entity
cannot continue to apply the provisions of paragraph 46/46A of AS 11 to
long-term forward exchange contracts by virtue of availing exemption given
in paragraph D13AA of Ind AS 101.
Further, following paragraphs of Ind AS 21 would be relevant when
accounting for long term forward exchange contracts:
Paragraph 3 of Ind AS 21, inter alia, states that Ind AS 21 shall be applied in
accounting for transactions and balances in foreign currencies, except for
those derivative transactions and balances that are within the scope of Ind
AS 109, Financial Instruments.
Paragraph 4 of Ind AS 21 states as follows:
"Ind AS 109 applies to many foreign currency derivatives and, accordingly,
these are - excluded from the scope of this Standard. However, those foreign


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               Ind AS 101, First-time Adoption of Indian Accounting Standards

currency derivatives that are not within the scope of Ind AS 109 (e.g. some
foreign currency derivatives that are embedded in other contracts) are within
the scope of this Standard. In addition, this Standard applies when an entity
translates amounts relating to derivatives from its functional currency to its
presentation currency."
Long term forward exchange contracts generally meet the definition of
`Derivatives' which are within the scope of Ind AS 109, Financial Instruments.
Therefore, ABC Ltd has to follow the accounting requirements of Ind AS 109
for accounting long term forward exchange contracts.
                                           (ITFG Clarification Bulletin 7, Issue 4)
                                            (Date of finalisation: March 30, 2017)


Capitalisation of exchange differences arising from long term
foreign currency monetary items (In case of first-time adoption of
Ind AS and when change in functional currency)
Issue 40: Company ZED Ltd., having net worth of ` 600 crores as on
March 31, 2014, has assessed that its functional currency as per the
requirements of Ind AS 21, The Effects of Changes in Foreign Exchange
Rates, is USD. The Company has taken loans in USD as well as in ` for
importing fixed assets before 1st March 2014. The Company follows the
policy of recognising the exchange differences arising from long term
foreign currency monetary items in the cost of fixed assets where such
monetary item has arisen for purchase of fixed assets. Considering the
requirements of paragraph D13AA of Ind AS 101, First-time Adoption of
Indian Accounting Standards, whether the company can continue to
recognise the exchange differences arising from the above said loans
in the cost of Property, Plant and Equipment, when adopting Ind AS for
the first time?
Response: Paragraph D13AA of Ind AS 101, First-time Adoption of Indian
Accounting Standards states as follows :
"A first-time adopter may continue the policy adopted for accounting for
exchange differences arising from translation of long-term foreign currency
monetary items recognised in the financial statements for the period ending
immediately before the beginning of the first Ind AS financial reporting period
as per the previous GAAP."
Paragraph D13AA as stated above provides an option to continue the policy
of recognising the exchange differences on long term foreign currency

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Compendium of ITFG Clarification Bulletins

monetary items as per paragraph 46/46A of AS 11, The Effects of Changes
in Foreign Exchange Rates, only for those long term foreign currency
monetary items which were recognised in the financial statements before the
beginning of first Ind AS reporting period. Therefore, the option given in
paragraph D13AA of Ind AS 101, will be available in case of those long term
foreign currency monetary items which were recognised in the financial
statements ending on or before 31st March, 2016 and are regarded as
foreign currency monetary items under Ind AS 21.
In the given case, the functional currency of Company ZED has changed
from ` to USD. Therefore, the USD loans will no longer be regarded as
foreign currency monetary items under Ind AS. Hence, such a company
cannot continue the policy of recognising the exchange differences, arising
from USD loans, in the cost of fixed assets.
                                           (ITFG Clarification Bulletin 1, Issue 4)
                                          (Date of finalisation: January 16, 2016)


Exemption under paragraph D13AA to foreign currency loan
drawn after Ind AS applicability to the entity
Issue 41: Company ABC Ltd. is required to mandatorily comply with Ind
AS from financial year 2016-17. It had entered into a foreign currency
loan agreement for USD 100 million on March 31, 2010 for construction
of its property, plant and equipment (PPE). It had drawn USD 70 million
upto March 31, 2016. The company had availed the option given under
paragraph 46/46A of AS 11, The Effects of Changes in Foreign
Exchange Rates notified under the Companies (Accounting Standards)
Rules, 2006. Accordingly, exchange gain/loss on such foreign currency
loan had been added to or deducted from the cost of PPE. The
Company has opted for the exemption given under paragraph D13AA of
Ind AS 101, First-time Adoption of Indian Accounting Standards.
The balance amount of USD 30 million will be drawn after 1st April,
2016. Whether the exemption under paragraph D13AA is also available
for the balance loan amount of USD 30 million to be drawn after 1st
April, 2016?
Response: Paragraph D13AA of Ind AS 101 states as follows:
"A first-time adopter may continue the policy adopted for accounting for
exchange differences arising from translation of long-term foreign currency


                                     60
               Ind AS 101, First-time Adoption of Indian Accounting Standards

monetary items recognised in the financial statements for the period ending
immediately before the beginning of the first Ind AS financial reporting period
as per the previous GAAP."
As stated above, it may be noted that the exemption under paragraph D13AA
is available only for the exchange differences arising from translation of long-
term foreign currency monetary items recognised in the financial statements
immediately before the beginning of the first Ind AS financial reporting
period.
Accordingly, in the given case, the exemption under paragraph D13AA for
the exchange gain/loss on foreign currency loan amount of USD 70 million is
available to ABC Ltd. However, it cannot avail the exemption under
paragraph D13AA for the exchange gain/loss on balance amount of loan, i.e.,
USD 30 million, as the same will be drawn after 1st April, 2016.
                                            (ITFG Clarification Bulletin 7, Issue 1)
                                             (Date of finalisation: March 30, 2017)


Applicability of paragraph D13AA on foreign currency swaps in
case of hedged items
Issue 42: XYZ Ltd. had obtained a long term foreign currency loan and
had availed option given in paragraph 46/46A of AS 11, The Effects of
Changes in Foreign Exchange Rates under previous GAAP.
Accordingly, exchange gain/loss on such foreign currency loan had
been added to or deducted from the cost of fixed assets.
XYZ Ltd. is a first time adopter of Ind AS from April 1, 2016. The
Company wants to avail the option available under paragraph D13AA of
Ind AS 101, i.e., to continue the policy adopted for accounting for
exchange difference arising from translation of long-term foreign
currency monetary items recognised in the previous GAAP financial
statements.
The entity has also entered into foreign currency swap transaction for
such long term foreign currency items. The swaps fall within the
definition of cash flow hedge. As per Ind AS 109, Financial Instruments,
in case of cash flows hedge, portion of gain or loss on the hedging
instrument that is determined to be an effective hedge shall be
recognized in the Other Comprehensive Income (OCI) and
ineffectiveness gain or loss shall be recognized in the profit or loss.


                                      61
Compendium of ITFG Clarification Bulletins

How to give the effect of swaps in the financial statements, as gain/loss
on hedged item is considered in the fixed assets whereas gain/loss on
hedging instrument as per Ind AS 109 is either recognised in OCI or in
profit and loss?
Response: Paragraph D13AA of Ind AS 101 provides that a first-time
adopter may continue the policy adopted for accounting for exchange
differences arising from translation of long-term foreign currency monetary
items recognised in the financial statements for the period ending
immediately before the beginning of the first Ind AS financial reporting period
as per the previous GAAP.
Paragraph 6.1.1 of Ind AS 109 states as under:
"The objective of hedge accounting is to represent, in the financial
statements, the effect of an entity's risk management activities that use
financial instruments to manage exposures arising from particular risks that
could affect profit or loss (or other comprehensive income, in the case of
investments in equity instruments for which an entity has elected to present
changes in fair value in other comprehensive income in accordance with
paragraph 5.7.5)."
In the present case, the entity has decided to avail the option available under
paragraph D13AA of Ind AS 101. It may be noted that if an entity avails the
exemption specified in paragraph D13AA then it has no corresponding
foreign currency exposure that affects profit or loss as it capitalizes the
exchange differences to the cost of the asset.
In view of the above, hedge accounting under Ind AS 109 will not be
applicable for foreign currency swaps against an item, if for that item, the
entity avails the option available under paragraph D13AA of Ind AS 101.
Hence, such derivatives will be considered as held for trading and any
change in fair value will be recognised in profit or loss.
                                           (ITFG Clarification Bulletin 3, Issue 10)
                                              (Date of finalisation: June 22, 2016)


Revision of balance of Foreign Currency Monetary Item
Translation Difference Account (FCMITDA) at the time of first time
adoption of Ind AS on account of finance cost
Issue 43: A Company has opted for the accounting treatment under
paragraph 46A of AS 11, The Effects of Changes in Foreign Exchange


                                      62
               Ind AS 101, First-time Adoption of Indian Accounting Standards

Rates, under the Companies (Accounting Standards) Rules, 2006, in
respect of purchase of other than depreciable assets and accordingly,
exchange difference on account of long term foreign currency loans is
accumulated and amortised over the balance period of such loan. The
company has taken a long term loan of ` 1000 crores and incurred
upfront / processing fee of ` 40 crores. Under the Companies
(Accounting Standards) Rules, 2006, ` 40 crores had been charged off
as finance cost in the statement of profit and loss in the year of loan
and ` 1000 crores is carried as long term loan. The loan which is
outstanding on the balance sheet date (for simplicity it is assumed that
repayment of loan has not yet started) is translated at the rate of
exchange prevailing at the date of balance sheet and the exchange
difference is parked in Foreign Currency Monetary Item Translation
Difference Account (FCMITDA), which is being amortised over the term
of loan.
Under the Companies (Indian Accounting Standards) Rules, 2015, on
the date of transition, the effective rate of interest will be worked out
based on the net inflow of loan amount i.e. ` 960 crores in this case.
Whether the balance of FCMITDA based on loan inflow of ` 960 crores or
` 1000 crores be continued as per Ind AS on date of transition as per the
Paragraph D13AA of Ind AS 101, First time Adoption of Indian
Accounting Standards .
Response: As per paragraph D13AA of Ind AS 101, First time Adoption of
Indian Accounting Standards, "A first-time adopter may continue the policy
adopted for accounting for exchange differences arising from translation of
long-term foreign currency monetary items recognised in the financial
statements for the period ending immediately before the beginning of the first
Ind AS financial reporting period as per the previous GAAP".
Long term loan taken by Company is a financial liability under Ind AS 109,
Financial Instruments. Paragraphs 4.2.1 and 4.2.2 of Ind AS 109 provide for
classification and subsequent measurement of financial liability as follows:
"4.2.1 An entity shall classify all financial liabilities as subsequently
measured at amortised cost, except for:
(a)   financial liabilities at fair value through profit or loss. Such liabilities,
      including derivatives that are liabilities, shall be subsequently
      measured at fair value.







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Compendium of ITFG Clarification Bulletins

(b)    financial liabilities that arise when a transfer of a financial asset does
       not qualify for derecognition or when the continuing involvement
       approach applies. Paragraphs 3.2.15 and 3.2.17 apply to the
       measurement of such financial liabilities.
(c)    financial guarantee contracts. After initial recognition, an issuer of
       such a contract shall (unless paragraph 4.2.1(a) or (b) applies)
       subsequently measure it at the higher of:
       (i)    the amount of the loss allowance determined in accordance with
              section 5.5 and
       (ii)   the amount initially recognised (see paragraph 5.1.1) less, when
              appropriate, the cumulative amount of income recognised in
              accordance with the principles of Ind AS 18.
(d)    commitments to provide a loan at a below-market interest rate. An
       issuer of such a commitment shall (unless paragraph 4.2.1(a) applies)
       subsequently measure it at the higher of:
       (i)    the amount of the loss allowance determined in accordance with
              Section 5.5 and
       (ii)   the amount initially recognised (see paragraph 5.1.1) less, when
              appropriate, the cumulative amount of income recognised in
              accordance with the principles of Ind AS 18.
(e)    contingent consideration recognised by an acquirer in a business
       combination to which Ind AS 103 applies. Such contingent
       consideration shall subsequently be measured at fair value with
       changes recognised in profit or loss.
Option to designate a financial liability at fair value through profit or loss
4.2.2 An entity may, at initial recognition, irrevocably designate a financial
liability as measured at fair value through profit or loss when permitted by
paragraph 4.3.5, or when doing so results in more relevant information,
because either:
(a)    it eliminates or significantly reduces a measurement or recognition
       inconsistency (sometimes referred to as `an accounting mismatch')
       that would otherwise arise from measuring assets or liabilities or
       recognising the gains and losses on them on different bases (see
       paragraphs B4.1.29­ B4.1.32); or
(b)    a group of financial liabilities or financial assets and financial liabilities
       is managed and its performance is evaluated on a fair value basis, in
       accordance with a documented risk management or investment

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               Ind AS 101, First-time Adoption of Indian Accounting Standards

      strategy, and information about the group is provided internally on that
      basis to the entity's key management personnel (as defined in Ind AS
      24 Related Party Disclosures), for example, the entity's board of
      directors and chief executive officer (see paragraphs B4.1.33­
      B4.1.36)".
In view of the above, the first time adopter needs to revise the balance of
FCMITDA based on the loan at amortised cost of ` 960 crores retrospectively
if the loan is not designated as at fair value through profit or loss (FVTPL).
                                           (ITFG Clarification Bulletin 2, Issue 6)
                                              (Date of finalisation: April 12, 2016)


Amortisation of balance of Foreign Currency Monetary Item
Translation Difference Account (FCMITDA)
Issue 44: Y Ltd. is a first time adopter of Ind AS. The date of transition
is April 1, 2015. On April 1, 2010, it obtained a 7 year US$ 1,00,000 loan.
It has been exercising the option provided in Paragraph 46/46A of AS 11
and has been amortising the exchange differences in respect of this
loan over the balance period of such loan. On the date of transition, the
company intends to continue the same accounting policy with regard to
amortising of exchange differences. Whether the Company is permitted
to do so? Whether amortisation of balance of Foreign Currency
Monetary Item Translation Difference Account (FCMITDA) be routed
through profit or loss or through Other Comprehensive Income (OCI).
Response: Ind AS 101 includes an optional exemption to continue the
existing policy as per the previous GAAP, i.e., existing AS 11 in respect of
the long-term foreign currency monetary items recognised in the financial
statements for the period ending immediately before the beginning of the first
Ind AS financial reporting period.
Paragraph D13AA of Ind AS 101 provides that a first-time adopter may
continue the policy adopted for accounting for exchange differences arising
from translation of long-term foreign currency monetary items recognised in
the financial statements for the period ending immediately before the
beginning of the first Ind AS financial reporting period as per the previous
GAAP. Therefore, if an entity opts to follow the aforesaid paragraph of Ind
AS 101, it has to continue to apply the accounting policy followed for such
long-term foreign currency monetary item.
In view of the above, Company Y can continue to follow the existing

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Compendium of ITFG Clarification Bulletins

accounting policy of amortising the exchange differences in respect of this
loan over the balance period of such long term liability.
Since the amortisation of exchange differences under the existing policy as
per the previous GAAP would be to recognise periodic amortised amount in
the statement of profit and loss affecting the profit or loss for the period,
amortisation of balance of Foreign Currency Monetary Item Translation
Difference Account (FCMITDA) shall be routed through profit or loss and not
through Other Comprehensive Income (OCI).
                                             (ITFG Clarification Bulletin 2, Issue 1)
                                                (Date of finalisation: April 12, 2016)


Capitalisation of exchange differences arising from long term
foreign currency monetary items in case of fixed assets (In case
of first time adoption of Ind AS)
Issue 45: Company XYZ ltd. having net worth of ` 600 crores as on
March 31, 2014 has taken a loan having term of 5 years for importing
fixed assets as on July 1, 2014, February 1, 2016 and May 3, 2016. The
Company has followed the policy of recognising the exchange
differences arising from long term foreign currency monetary items in
the cost of fixed assets where such monetary item has arisen for
purchase of fixed assets pursuant to paragraph 46/46 A of AS 11, The
Effects of Changes in Foreign Exchange Rates, notified under the
Companies (Accounting Standards) Rules, 2006. Considering the
requirements of paragraph D13AA of Ind AS 101, First-time adoption of
Indian Accounting Standards, whether the company can continue to
recognise the exchange differences arising from the above-said loans
in the cost of Property, Plant and Equipment, when adopting Ind AS for
the first time?
Response: Paragraph D13AA of Ind AS 101, First-time Adoption of Indian
Accounting Standards states as follows :
"A first-time adopter may continue the policy adopted for accounting for
exchange differences arising from translation of long-term foreign currency
monetary items recognised in the financial statements for the period ending
immediately before the beginning of the first Ind AS financial reporting period
as per the previous GAAP."


Paragraph D13AA of Ind AS 101, First-time adoption of Indian Accounting


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               Ind AS 101, First-time Adoption of Indian Accounting Standards

Standards, provides an option to continue the policy of recognising the
exchange differences on long term foreign currency monetary items as per
paragraph 46/46A of AS 11, The Effects of Changes in Foreign exchange
Rates, only for those long term foreign currency monetary items which were
recognised in the financial statements before the beginning of first Ind AS
reporting period.
In the above case, the beginning of the first Ind AS reporting period for
company XYZ is April 1, 2016. Therefore, the option given in paragraph
D13AA of Ind AS 101 will be available for loans taken as on July 1, 2014 and
February 1, 2016 and will not be available for the loan taken after March 31,
2016.
                                           (ITFG Clarification Bulletin 1, Issue 3)
                                          (Date of finalisation: January 16, 2016)

Accounting Treatment of interest free loan to subsidiary company
when exemption under paragraph D15 of Ind AS 101 availed
Issue 46: A Ltd. has given an interest free loan to its subsidiary
company B Ltd. Both companies are covered under Phase I of Ind AS
roadmap. B Ltd. has recognised the differential of present value of loan
amount and its carrying amount as per previous GAAP as `Equity' in its
standalone financial statements prepared as per Ind AS. A Ltd. has
elected to measure the investment in subsidiary at its previous GAAP
carrying amount at that date in accordance with paragraph D15 of Ind
AS 101, First-time Adoption of Indian Accounting Standards.
What will be the accounting treatment of the differential in the carrying
value of loan under previous GAAP and its present value in the
standalone financial statements of A Ltd. prepared as per Ind AS?
Response: Paragraphs D14 and D15 of Ind AS 101 state as follows:
"D14 When an entity prepares separate financial statements, Ind AS 27
requires it to account for its investments in subsidiaries, joint ventures and
associates either:
(a)   at cost; or
(b)   in accordance with Ind AS 109."
D15 If a first-time adopter measures such an investment at cost in
accordance with Ind AS 27, it shall measure that investment at one of the

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Compendium of ITFG Clarification Bulletins

following amounts in its separate opening Ind AS Balance Sheet:
(a)   cost determined in accordance with Ind AS 27; or
(b)   deemed cost. The deemed cost of such an investment shall be its:
      (i)    fair value at the entity's date of transition to Ind ASs in its
             separate financial statements; or
      (ii)   previous GAAP carrying amount at that date.
A first-time adopter may choose either (i) or (ii) above to measure its
investment in each subsidiary, joint venture or associate that it elects to
measure using a deemed cost."
Paragraph 10 of Ind AS 101 states as follows:
Except as described in paragraphs 13­19 and Appendices B­D, an entity
shall, in its opening Ind AS Balance Sheet:
(a)   recognise all assets and liabilities whose recognition is required by Ind
      ASs;
(b)   not recognise items as assets or liabilities if Ind ASs do not permit
      such recognition;
(c)   reclassify items that it recognised in accordance with previous 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 ASs; and
(d)   apply Ind ASs in measuring all recognised assets and liabilities.
In accordance with the above, it may be noted that if the entity exercises the
option under D15 (b) (ii) to measure the investment in subsidiary at previous
GAAP carrying amount, then the differential in the carrying value of the loan
under previous GAAP and present value shall be added to the investment in
subsidiary measured at cost as required by paragraph 10 of Ind AS 101.
                                           (ITFG Clarification Bulletin 10, Issue 1)
                                               (Date of finalisation: July 05, 2017)


Measurement of Investment in subsidiary when exemption under
paragraph D15 of Ind AS 101 availed
Issue 47: MNC Ltd is a first-time adopter of Ind AS. At the date of
transition to Ind AS, it has opted to measure its investment in
subsidiary at deemed cost as per paragraph D15 of Ind AS 101, First-
time Adoption of Indian Accounting Standards. Whether in its first Ind
AS financial statements prepared as at the end of the reporting period,

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               Ind AS 101, First-time Adoption of Indian Accounting Standards

MNC Ltd. is required to measure its investment in subsidiary at cost
only or it has the option to measure the investment as per Ind AS 109 in
accordance with paragraph 10 of Ind AS 27?
Response: Paragraph D14 and D 15 of Ind AS 101 states as follows:
 "D14 When an entity prepares separate financial statements, Ind AS 27
requires it to account for its investments in subsidiaries, joint ventures and
associates either:
(a)   at cost; or
(b)   in accordance with Ind AS 109.
D15 If a first-time adopter measures such an investment at cost in
accordance with Ind AS 27, it shall measure that investment at one of the
following amounts in its separate opening Ind AS Balance Sheet:
(a)   cost determined in accordance with Ind AS 27; or
(b)   deemed cost. The deemed cost of such an investment shall be its:
      (i)    fair value at the entity's date of transition to Ind ASs in its
             separate financial statements; or
      (ii)   previous GAAP carrying amount at that date.
A first-time adopter may choose either (i) or (ii) above to measure its
investment in each subsidiary, joint venture or associate that it elects to
measure using a deemed cost."
In accordance with the above, it may be noted that deemed cost exemption
under paragraph D15 is available to an entity when it chooses to measure
the investment at cost in accordance with Ind AS 27. Accordingly, an entity
may in its opening Ind AS balance sheet measure its investment in
subsidiaries as at the date of transition at its deemed cost measured in
accordance with paragraph D15 provided it adopts to measure its investment
in subsidiaries at cost in accordance with Ind AS 27.
Further, paragraph 7 of Ind AS 101 states that, "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 paragraphs 13­19 and
Appendices B­D."
Accordingly, if an entity has opted to measure its investments in subsidiaries
at cost for its opening Ind AS balance sheet, then the same accounting policy

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Compendium of ITFG Clarification Bulletins

will be applied for its closing Ind AS balance sheet as well. Accordingly, if a
company chooses to measure its investment in subsidiary at the date of
transition at deemed cost measured as per paragraph D15, then it shall carry
such investment at that amount (i.e. deemed cost as per paragraph D15) in
its first Ind AS financial statements prepared as at the end of the reporting
period.
The requirements in D14 and D15 applies to investments held in subsidiaries
as at the date of transition. However, for all investment in subsidiaries, joint
ventures and associates made subsequent to the date of transition, the
requirements of paragraph 10 of Ind AS 27 as stated below shall apply:
"When an entity prepares separate financial statements, it shall account for
investments in subsidiaries, joint ventures and associates either:
(a)   at cost, or
(b)   in accordance with Ind AS 109."
The entity shall apply the same accounting for each category of investments.
Investments accounted for at cost shall be accounted for in accordance with
Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations,
when they are classified as held for sale (or included in a disposal group that
is classified as held for sale). The measurement of investments accounted
for in accordance with Ind AS 109 is not changed in such circumstances."
In accordance with the above, if the entity has opted to measure the
investments at deemed cost on the date of transition to Ind AS in its opening
Ind AS balance sheet, then all subsequent investments made in that category
should be measured at cost in accordance with Ind AS 27 in its financial
statements prepared as at the end of the reporting period. However, for the
investment made in different category (e.g. associate or joint venture), the
entity has an option to account for those investments at cost or in
accordance with Ind AS 109.
                                           (ITFG Clarification Bulletin 11, Issue 4)
                                               (Date of finalisation: July 31, 2017)


Exemption of paragraph D15 on investment in debentures of
subsidiary company
Issue 48: XYZ Ltd. is a holding company of ABC Ltd. and owns 60%
voting share of ABC Ltd. Apart of equity investments, XYZ Ltd. has
investment in debentures of subsidiary company. Whether such an
investment in debenture of subsidiary company would be covered

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               Ind AS 101, First-time Adoption of Indian Accounting Standards

under the scope of paragraph 10 of Ind AS 27, Separate Financial
Statements and exemptions provided under D15 of Ind AS 101, First-
time Adoption of Indian Accounting Standards.
Response: According to paragraph 2.1(a) of Ind AS 109, the standard is not
applicable to those interests in subsidiaries, associates and joint ventures
that are accounted for in accordance with Ind AS 110, Consolidated Financial
Statements, Ind AS 27, Separate Financial Statements or Ind AS 28,
Investments in Associates and Joint Ventures.
However, in some cases, Ind AS 110, Ind AS 27 or Ind AS 28 require or
permit an entity to account for an interest in a subsidiary, associate or joint
venture in accordance with some or all of the requirements of this Standard
i.e. Ind AS 109.
Paragraph 10 of Ind AS 27, Separate Financial Statements, inter alia, states
as follows:
"10   When an entity prepares separate financial statements, it shall
      account for investments in subsidiaries, joint ventures and associates
      either:
      (a)    at cost, or
      (b)    in accordance with Ind AS 109."
Further, paragraph D15 of Ind AS 101 provides exemption with regard to
investments in subsidiaries, joint ventures and associates.
Paragraph D15 of Ind AS states as follows:
      "If a first-time adopter measures such an investment at cost in
      accordance with Ind AS 27, it shall measure that investment at one of
      the following amounts in its separate opening Ind AS Balance Sheet:
      (a)    cost determined in accordance with Ind AS 27; or
      (b)    deemed cost. The deemed cost of such an investment shall be
             its:
             (i) fair value at the entity's date of transition to Ind ASs in its
                 separate financial statements; or
             (ii) previous GAAP carrying amount at that date.
      A first-time adopter may choose either (i) or (ii) above to measure its
      investment in each subsidiary, joint venture or associate that it elects

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Compendium of ITFG Clarification Bulletins

      to measure using a deemed cost."
The Company needs to assess the terms of the debentures to determine
whether the instrument can be considered as an investment in subsidiary as
per Ind AS 27 or a financial asset as per Ind AS 109. If the debentures meet
the definition of equity as per Ind AS 32 from the issuer's perspective (i.e.
subsidiary), then it can be considered to be part of parent's investment in
subsidiary and hence accounted for under Ind AS 27. However, where the
instrument fails to meet the definition of equity from issuer's perspective (i.e.
a liability of the subsidiary), it shall be classified as a financial asset and
accounted for under Ind AS 109.
Investments covered by Ind AS 110 are those interests that give an entity
right to control over the other entity, which are normally in the form of equity
investments. An entity may have other investments commonly referred as
long term investments which are not excluded from the scope of Ind AS 109.
Accordingly, in the given case, presuming that investment in debentures is
not within the scope of Ind AS 110, it will not be covered under Ind AS 27
and therefore, should be accounted as financial asset under Ind AS 109.
                                             (ITFG Clarification Bulletin 7, Issue 8)
                                              (Date of finalisation: March 30, 2017)


Exemption under paragraph D22 of Ind AS 101 in respect of
intangible assets arising from service concession arrangements
(toll roads) which are in progress.
Issue 49: A Ltd. is a first-time adopter of Ind AS from financial year
2016-17. It had entered into a service concession arrangement with
government in respect of toll roads in the year 2014. Paragraph 7AA of
Ind AS 38, Intangible Assets read with paragraph D22 of Ind AS 101,
First-time Adoption of Indian Accounting Standards permits revenue
based amortisation for the intangible assets arising from service
concession arrangements in respect of toll roads recognised in the
financial statements for the period ending immediately before the
beginning of the first Ind AS reporting period. As on 1st April 2016, the
construction of toll road is in progress. Can A Ltd. avail the above
exemption in respect of toll roads under construction/development as
on 1st April, 2016?
Response: Paragraph D22 of Ind AS 101, inter alia, states as follows:


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                Ind AS 101, First-time Adoption of Indian Accounting Standards

"D22 A first-time adopter may apply the following provisions while applying
the Appendix A to Ind AS 11:
(i)    Subject to paragraph (ii), changes in accounting policies are
       accounted for in accordance with Ind AS 8, i.e. retrospectively, except
       for the policy adopted for amortisation of intangible assets arising from
       service concession arrangements related to toll roads recognised in
       the financial statements for the period ending immediately before the
       beginning of the first Ind AS financial reporting period as per the
       previous GAAP................"
Further, paragraph 7AA of Ind AS 38, Intangible Assets, states as follows:
      "7AA The amortisation method specified in this Standard does not apply
      to an entity that opts to amortise the intangible assets arising from
      service concession arrangements in respect of toll roads recognised in
      the financial statements for the period ending immediately before the
      beginning of the first Ind AS reporting period as per the exception given
      in paragraph D22 of Appendix D to Ind AS 101."
In accordance with the above, it may be noted that the exemption can be
availed in respect of intangible assets arising from service concession
arrangements in respect of toll roads recognised in the financial statements
before the beginning of first Ind AS reporting period. In the given case, A Ltd.
cannot avail the exemption because the intangible asset is in progress and
the same have has not been recognised before 1st April, 2016 and
amortisation has not begun.
                                            (ITFG Clarification Bulletin 7, Issue 9)
                                             (Date of finalisation: March 30, 2017)

Accounting treatment of non-controlling interest in case of
business combinations in its consolidated financial statements as
on the date of transition
Issue 50: Company A has multiple subsidiaries. All subsidiary
companies have a negative net worth as at 31st March 2015. Company A
is required to apply Ind AS from 1st April, 2016. How will the company
account for accumulated losses as at 31st March 2015 pertaining (under
the earlier GAAP) to the non-controlling interest in its consolidated
financial statements as on the date of transition-
(i)    If Company A decides to avail the exemption for all business
       combination before the date of transition as per Appendix C of

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Compendium of ITFG Clarification Bulletins

        Ind AS 101, First-time Adoption of Indian Accounting Standards?
(ii)    If Company A elects to apply Ind AS 103, Business Combinations,
        retrospectively to past business combinations i.e., restating the
        business combinations that occurred before the date of transition
        to Ind AS from the date of its choice ?
Response: Paragraph B7 of Ind AS 101, First-time Adoption of Indian
Accounting Standards on transition states:
 "A first-time adopter shall apply the following requirements of Ind AS 110
prospectively from the date of transition to Ind ASs:
(a)     the requirement in paragraph B94 that total comprehensive income is
        attributed to the owners of the parent and to the non-controlling
        interests even if this results in the non-controlling interests having a
        deficit balance;
(b)     .....
(c)     .......
However, if a first-time adopter elects to apply Ind AS 103 retrospectively to
past business combinations, it shall also apply Ind AS 110 in accordance
with paragraph C1 of this Ind AS."
Paragraph C1 of Ind AS 101 further states:
       "A first-time adopter may elect not to apply Ind AS 103 retrospectively to
       past business combinations (business combinations that occurred
       before the date of transition to Ind ASs). However, if a first-time adopter
       restates any business combination to comply with Ind AS 103, it shall
       restate all later business combinations and shall also apply Ind AS 110
       from that same date."
       For example, if a first-time adopter elects to restate a business
       combination that occurred on 30 June 2010, it shall restate all business
       combinations that occurred between 30 June 2010 and the date of
       transition to Ind ASs, and it shall also apply Ind AS 110 from 30 June
       2010.
Further paragraph C4 of Appendix C of Ind AS 101, states as follows:
       C4 If a first-time adopter does not apply Ind AS 103 retrospectively to a
       past business combination, this has the following consequences for that
       business combination:
       .......
       (c) The first-time adopter shall exclude from its opening Ind AS Balance

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                    Ind AS 101, First-time Adoption of Indian Accounting Standards

     Sheet any item recognised in accordance with previous GAAP that does
     not qualify for recognition as an asset or liability under Ind ASs. The
     first-time adopter shall account for the resulting change as follows:
     (ii) the first-time adopter shall recognise all other resulting changes in
     retained earnings.
     ............
     (k) The measurement of non-controlling interests and deferred tax
     follows from the measurement of other assets and liabilities. Therefore,
     the above adjustments to recognised assets and liabilities affect non-
     controlling interests and deferred tax."
In accordance with above, if a company elects to apply a date prior to the
transition date for the purpose of applying Ind AS 103, non-controlling
interests should be calculated after all assets acquired, liabilities assumed
and deferred taxes have been adjusted under Ind AS 103, Business
Combinations.
So, as per above paragraph, in the given case (i), if Company A decides to
avail the exemption for business combination as per Appendix C of Ind AS
101, in respect of all business combinations that occurred before the date of
transition, then the company shall apply the requirement in paragraph B94 of
Ind AS 110 of attributing the total comprehensive income to the owners of the
parent and to the non-controlling interests prospectively.
However, if Company A elects to apply Ind AS 103, Business Combinations
retrospectively to past business combinations i.e., restating the business
combinations that occurred before the date of transition to Ind AS from the
date of its choice, then the company should account for attribution of losses
to the non-controlling interest in accordance with paragraph B94 of Ind AS
110, retrospectively from the date of application of Ind AS 103, in its
consolidated financial statements as on the date of transition.
                                               (ITFG Clarification Bulletin 8, Issue 6)
                                                  (Date of finalisation: May 05, 2017)


Applicability of Appendix C of Ind AS 103 ­ in case of
amalgamation on the date of transition
Issue 51: Company X is the wholly-owned subsidiary of Company Y and
|Promoters' hold 49.95% in Company Y as on 31st March 2015. Company
Y merges with Company X on 1st April 2015 and amalgamation was in

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Compendium of ITFG Clarification Bulletins

the nature of purchase as per AS 14, Accounting for Amalgamations.
Company X is required to adopt Ind AS from financial year 2017-18. The
date of transition to Ind AS is April 1, 2016. Under Ind AS, Company X
has not opted for the exemption under paragraph C1 of Ind AS 101,
First-time Adoption of Indian Accounting Standards, of not applying Ind
AS 103 retrospectively to past business combinations (business
combinations that occurred before the date of transition to Ind AS).
Whether on the date of transition to Ind AS the company is required to
apply requirements of Appendix C to Ind AS 103, Business
combinations of entities under common control in the given case?
Response: Paragraph C1 of Ind AS 101 states that, "A first-time adopter
may elect not to apply Ind AS 103 retrospectively to past business
combinations (business combinations that occurred before the date of
transition to Ind ASs). However, if a first-time adopter restates any business
combination to comply with Ind AS 103, it shall restate all later business
combinations and shall also apply Ind AS 110 from that same date."
For example, if a first-time adopter elects to restate a business combination
that occurred on 30 June 2010, it shall restate all business combinations that
occurred between 30 June 2010 and the date of transition to Ind ASs, and it
shall also apply Ind AS 110 from 30 June 2010.
In the given case, since the company has not taken exemption under
paragraph C1 of not restating past business combinations accordingly, the
company will be required to retrospectively apply the requirements of Ind AS
103.
Appendix C to Ind AS 103 deals with accounting for business combinations
of entities or businesses under common control. Common control business
combination means a business combination involving entities or businesses
in which all the combining entities or businesses are ultimately controlled by
the same party or parties both before and after the business combination,
and that control is not transitory.
It is also pertinent to note that an investor with less than majority voting rights
can also have control over the investee under Ind AS 110 (eg. through
contractual arrangements, de facto control, potential voting rights etc.
Accordingly, the company needs to evaluate whether they are under common
control.
In the given case, assuming that the entities are under common control


                                        76
              Ind AS 101, First-time Adoption of Indian Accounting Standards

before and after the amalgamation and the company has not opted
exemption under Ind AS 101 then the requirements of Appendix C to Ind AS
103 shall be applied retrospectively.
                                         (ITFG Clarification Bulletin 15, Issue 6)
                                             (Date of finalisation: April 04, 2018)




                                    77
       Ind AS 103, Business Combinations

Date of acquisition (i.e. date of obtaining control) under two
scenario in case of court scheme, whether business combination
is or is not under common control.
Issue 52: Company A holds 100% shareholding of Company B.
Company B holds 100% shareholding of Company C since 1 April 2000.
Pursuant to a court scheme, to be filed in February 2018, Entity C will
merge with Entity B during the financial year 2018-19 (i.e. the scheme is
expected to be approved during the financial year 2018-2019). All
companies (A, B and C) are covered under Phase II of Ind AS and will
prepare financial statements for year ending 31 March 2018 as per Ind
AS.
In case the appointed date in the scheme is 1 April 2016, would it have
any impact on the certificate to be issued by the auditors on
compliance of the scheme with Ind AS 103?
Would the response be different in case the transferor and transferee
entities are not under common control?
Response: Paragraph 8 and 9 of Ind AS 103, Business Combinations states
as follows:
"Determining the acquisition date
8 The acquirer shall identify the acquisition date, which is the date on
which it obtains control of the acquiree.
The date on which the acquirer obtains control of the acquiree is generally
the date on which the acquirer legally transfers the consideration, acquires
the assets and assumes the liabilities of the acquiree--the closing date.
However, the acquirer might obtain control on a date that is either earlier or
later than the closing date. For example, the acquisition date precedes the
closing date if a written agreement provides that the acquirer obtains control
of the acquiree on a date before the closing date. An acquirer shall consider
all pertinent facts and circumstances in identifying the acquisition date."
Ind AS 103, Business Combinations, prescribes significantly different
accounting for business combinations which are not under common control
and those under common control. Hence, it is pertinent to note that entity is

                                     78
                                              Ind AS 103, Business Combinations

required to assess whether the business combination is under common
control or not.
Business Combination is under common control
Paragraph 8 and 9 of Appendix C to Ind AS 103, Business Combinations
states as follows:
"8 Business combinations involving entities or businesses under common
control shall be accounted for using the pooling of interests method.
9 The pooling of interest method is considered to involve the following:
(i)     The assets and liabilities of the combining entities are reflected at their
        carrying amounts.
(ii)    No adjustments are made to reflect fair values, or recognise any new
        assets or liabilities. The only adjustments that are made are to
        harmonise accounting policies.
(iii)   The financial information in the financial statements in respect of
        prior periods should be restated as if the business combination
        had occurred from the beginning of the preceding period in the
        financial statements, irrespective of the actual date of the combination.
        However, if business combination had occurred after that date, the
        prior period information shall be restated only from that date.
        (Emphasis added)"
In accordance with paragraph 9(iii) above, the entity will be required to
restate its financial statements as if the business combination had occurred
from the beginning of the preceding period in the financial statements.
In cases, where the auditor is of the view that as per the proposed
accounting treatment, the date from which the amalgamation is effected in
the books of accounts of the amalgamated company is different from the
acquisition date as per the Standard i.e. the date on which control has been
actually transferred, then the auditor shall state the same in the certificate as
required to be issued as per the proviso to Section 232 (3) of the Companies
Act, 2013. If the NCLT approves the scheme with a different appointed date
as compared to the acquisition date as per Ind AS 103, the appointed date
as approved by the NCLT under the scheme will be the acquisition date. In
this situation, the company should provide appropriate disclosures and the
auditor should consider the requirements of relevant auditing standards.




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Compendium of ITFG Clarification Bulletins

Business Combination is not under common control
For business combinations other than under common control, the date of
acquisition is the date from which the acquirer obtains control of the
acquiree.
In cases where the auditor is of the view that as per the proposed accounting
treatment, the date from which the amalgamation is effected in the books of
accounts of the amalgamated company is different from the acquisition date
as per the standard i.e., the date on which control has been actually
transferred, then the auditor shall state the same in the certificate as required
to be issued as per the proviso to Section 232 (3) of the Companies Act,
2013. However, if the NCLT approves the scheme with a different appointed
date as compared to the acquisition date as per Ind AS 103, the appointed
date as approved by NCLT under the scheme will be the acquisition date. In
this situation, the company should provide appropriate disclosures and the
auditor should consider the requirements of relevant auditing standards.
                                            (ITFG Clarification Bulletin 12, Issue 8)
                                            (Date of finalisation: October 23, 2017)


Business Combinations of entities under common control
Issue 53: As per Appendix C, Business Combinations of Entities under
Common Control of Ind AS 103, Business Combinations , in case of
common control business combinations, the assets and liabilities of the
combining entities are reflected at their carrying amounts.
(A)   For this purpose, should the carrying amount of assets and
      liabilities of the combining entities be reflected as per the books
      of the entities transferred or the ultimate parent in the following
      situations:
      Situation 1: A Ltd. has two subsidiaries B Ltd. and C Ltd. B Ltd.
      merges with C Ltd.
      Situation 2: B Ltd. is the subsidiary of A Ltd. B Ltd. merges with A
      Ltd.
(B)   Further, also state whether the effect of the above business
      combination is required to be eliminated in the consolidated
      financial statements of A Ltd.
Response: (A) Situation 1: Paragraph 9 of Appendix C of Ind AS 103,
states as follows:

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                                            Ind AS 103, Business Combinations

"9    The pooling of interest method is considered to involve the following:
      (i)     The assets and liabilities of the combining entities are reflected
              at their carrying amounts.
      (ii)    No adjustments are made to reflect fair values, or recognise any
              new assets or liabilities. The only adjustments that are made are
              to harmonise accounting policies.
      (iii)   The financial information in the financial statements in respect
              of prior periods should be restated as if the business
              combination had occurred from the beginning of the preceding
              period in the financial statements, irrespective of the actual date
              of the combination. However, if business combination had
              occurred after that date, the prior period information shall be
              restated only from that date."
Further paragraphs 11 and 12 of Appendix C of Ind AS 103 state as follows:
"11 The balance of the retained earnings appearing in the financial
statements of the transferor is aggregated with the corresponding balance
appearing in the financial statements of the transferee. Alternatively, it is
transferred to General Reserve, if any.
12 The identity of the reserves shall be preserved and shall appear in the
financial statements of the transferee in the same form in which they
appeared in the financial statements of the transferor. Thus, for example, the
General Reserve of the transferor entity becomes the General Reserve of the
transferee, the Capital Reserve of the transferor becomes the Capital
Reserve of the transferee and the Revaluation Reserve of the transferor
becomes the Revaluation Reserve of the transferee. As a result of preserving
the identity, reserves which are available for distribution as dividend before
the business combination would also be available for distribution as dividend
after the business combination. The difference, if any, between the amounts
recorded as share capital issued plus any additional consideration in the
form of cash or other assets and the amount of share capital of the transferor
shall be transferred to capital reserve and should be presented separately
from other capital reserves with disclosure of its nature and purpose in the
notes."
In accordance with the above, it may be noted that the assets and liabilities
of the combining entities are reflected at their carrying amounts. Accordingly,
in accordance with paragraph 9 (a) (i) of Appendix C of Ind AS 103, in the
separate financial statements of C Ltd., the carrying values of the assets and

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Compendium of ITFG Clarification Bulletins

liabilities as appearing in the standalone financial statements of the entities
being combined i.e. B Ltd. & C Ltd. in this case shall be recognised.
Situation 2:
In this case, since B Ltd. is merging with A Ltd. (i.e. parent) nothing has
changed and the transaction only means that the assets, liabilities and
reserves of B Ltd. which were appearing in the consolidated financial
statements of Group A immediately before the merger would now be a part of
the separate financial statements of A Ltd. Accordingly, it would be
appropriate to recognise the carrying value of the assets, liabilities and
reserves pertaining to B Ltd as appearing in the consolidated financial
statements of A Ltd. Separate financial statements to the extent of this
common control transaction shall be considered as a continuation of the
consolidated group.
(B) Paragraph B86 of Ind AS 110, Consolidated Financial Statements, states
as follows:
"Consolidation procedures
B86 Consolidated financial statements:
(a)   combine like items of assets, liabilities, equity, income, expenses and
      cash flows of the parent with those of its subsidiaries.
(b)   offset (eliminate) the carrying amount of the parent's investment in
      each subsidiary and the parent's portion of equity of each subsidiary
      (Ind AS 103 explains how to account for any related goodwill).
(c)   eliminate in full intragroup assets and liabilities, equity, income,
      expenses and cash flows relating to transactions between entities of
      the group (profits or losses resulting from intragroup transactions that
      are recognised in assets, such as inventory and fixed assets, are
      eliminated in full). Intragroup losses may indicate an impairment that
      requires recognition in the consolidated financial statements. Ind AS
      12, Income Taxes, applies to temporary differences that arise from the
      elimination of profits and losses resulting from intragroup
      transactions."
In accordance with the above, all intra-group transactions should be
eliminated in preparing consolidated financial statement in accordance with
Ind AS 110. The legal merger of a subsidiary with the parent or legal merger
of fellow subsidiaries is an intra-group transaction and accordingly, will have
to be eliminated in the Consolidated Financial Statements of the Parent.


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                                           Ind AS 103, Business Combinations

Accordingly, in both the given situations, the effect of legal merger should be
eliminated while preparing consolidated financial statements of A Ltd.
                                           (ITFG Clarification Bulletin 9, Issue 2)
                                              (Date of finalisation: May 15, 2017)


Incorporation of effect of business combination in the standalone
financial statements in case of scheme of arrangement
Issue 54: Entity A and B are fellow subsidiaries (entities under common
control) and filed a scheme of arrangement in April 2017 for merger of
Entity B into Entity A. Both the entities are covered under phase I of Ind
AS. Entity B filed auditor's certificate with NCLT pursuant to Section 230(7)
of Companies Act, 2013 which states that the accounting treatment
proposed in the scheme of compromise or arrangement is in conformity
with the Ind AS.
Entity B gets approval from NCLT in April 2018, which is after the year-
end 31st March, 2018 but before the approval (by the Board of Directors)
of the financial statements for the year ended 31st March 2018. As per
the scheme, the appointed date is 1st April 2017.
Whether the business combination of Entity B shall be incorporated in
the Entity A's standalone financial statements for the year ended 31st
March 2018?
Response: Paragraph 3 of Ind AS 10, Events After the Reporting Period
states as follows:
"Events after the reporting period are those events, favourable and
unfavourable, that occur between the end of the reporting period and the
date when the financial statements are approved by the Board of Directors in
case of a company, and, by the corresponding approving authority in case of
any other entity for issue. Two types of events can be identified:
(a)   those that provide evidence of conditions that existed at the end of the
      reporting period (adjusting events after the reporting period); and
(b)   those that are indicative of conditions that arose after the reporting
      period (non-adjusting events after the reporting period)."
It may be noted that although paragraph 22(a) of Ind AS 10 states that a
major business combination after the reporting period is a non-adjusting
event. However, where the court order approves a scheme with retrospective
effect subsequent to the balance sheet date but before the approval of
financial statements, the effective date for accounting is prior to the balance

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sheet date, wherein the courts' approval is an event that provide additional
evidence to assist the estimation of amounts of assets and liabilities that
existed at the balance sheet date. As such, an adjusting event has occurred
which requires adjustment to the assets and liabilities of the transferor
company which are being transferred.
In the given case, since the company has applied for the scheme of
amalgamation and only the order of the court is pending then this indicates
that conditions existed at the end of the reporting period and hence this shall
be treated as an adjusting event. Accordingly, the effect of business
combination of Entity B in Entity A shall be incorporated in the standalone
financial statements of Entity A for the year ending 31st March 2018.
                                            (ITFG Clarification Bulletin 14, Issue 4)
                                           (Date of finalisation: February 01, 2018)


Account Treatment of Demerger
Issue 55: Company A is a subsidiary of Company B. Both are under
Phase II of Ind AS implementation. During the year 2016-17, Company B
demerged one of its businesses under the order of the High Court and
sold the same to Company A. Under IGAAP, the assets and liabilities of
the demerged business of Company B was taken by Company A at their
fair value and issued its shares as consideration (calculated on the
basis of the fair value of the business of Company B) accordingly.
Under Ind AS 103, Business Combinations , acquisition of a business
within the companies under Common Control has to be accounted by
the acquirer at book value as appearing in the books of the acquiree. In
facts of case the acquisition of business by subsidiary (Company A)
from parent (Company B) qualifies as common control business
combination within Appendix C of Ind AS 103.
Whether Company A is required to apply Ind AS 103 on the acquisition
of the business from Company B?
Response: It is noted that the demerger (of one of the businesses of
Company B into Company A) occurred during the financial year 2016-17. It is
further noted that in their financial statements for the financial year 2016-17,
the transferee company (Company A or the company) as well as the
transferor company (Company B) were not required to, and did not apply,
Indian Accounting Standards (Ind ASs) notified under the Companies (Indian
Accounting Standards) Rules, 2015.


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                                            Ind AS 103, Business Combinations

The Accounting Standards notified under the Companies (Accounting
Standards) Rules, 2006 do not specifically deal with accounting for
demerger. It has been mentioned in the query that "under IGAAP, the assets
and liabilities of the demerged business of Company B were taken by
Company A at their fair value and Company A issued its shares as
consideration (calculated on the basis of the fair value of the business of
Company B) accordingly." We interpret this to mean that in its financial
statements for the year 2016-17, Company A accounted for the assets and
liabilities acquired under the scheme of demerger at their respective fair
values as at the date of demerger.
It is noted that in the case of Company A, the first Ind AS financial
statements would be those for the financial year 2017-18. In those financial
statements, the comparative amounts to be presented as per Ind ASs would
be those for the year 2016-17. It is also noted that the demerger occurred
during the financial year 2016-17, i.e., after the `date of transition to Ind ASs'
by Company A (i.e., April 1, 2016) within the meaning of the said term under
Ind AS 101, First-time Adoption of Indian Accounting Standards.
Scenario A: Accounting treatment of demerger not prescribed in the
court-approved scheme
An entity can choose not to restate any business combination that occurred
prior to its transition to Ind AS, and it can apply Ind AS 103 prospectively
from the date of transition. In case the court-approved scheme of demerger
did not prescribe the accounting treatment for the demerger in the books of
Company A, the demerger is then no different from any other transaction
occurring on or after the date of transition to Ind ASs. A transaction occurring
on or after the date of transition to Ind ASs is required to be accounted for as
per relevant requirements under Ind ASs, irrespective of how it was
accounted for under previous GAAP. In case the accounting treatment of a
transaction (occurring on or after the date of transition to Ind ASs) under the
previous GAAP was different from the treatment thereof required under Ind
ASs, the comparative amounts to be presented in the first Ind AS financial
statements also need to be restated as to conform to accounting required
under Ind ASs.
As the demerger occurred after the date of Company A's transition to Ind
ASs, it should be accounted for as per the relevant requirements of Ind ASs.
As per the query, from the perspective of Company A, the demerger qualifies
as a common control business combination within the meaning of this term
under Appendix C of Ind AS 103. Accordingly, in the financial statements of

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Company A for the comparative year 2016-17, the demerger would need to
be accounted for as per the `pooling of interest method' laid down in
Appendix C of Ind AS 103. This would involve, inter alia, recognition of
assets and liabilities of the acquired business at their respective book values
as appearing in the books of Company B. This implies that the figures at
which the assets and liabilities of the demerged business were recognised by
Company A in its financial statements for the year 2016-17 prepared as per
previous GAAP demerger would need to be restated as per the `pooling of
interests method' when presenting the comparative amounts in the Ind AS
financial statements of Company A for the financial year 2017-18. The
financial information in the financial statements in respect of prior periods
should be restated as if the business combination had occurred from the
beginning of the preceding period (1 April 2016) in the financial statements,
irrespective of the actual date of the combination. This is on the basis of
assumption that the acquirer and acquiree both were under common control
on 1 April 2016.
Scenario B: Accounting treatment of demerger prescribed in the court-
approved scheme
An announcement of the Council of the institute of Chartered Accountants of
India, "Disclosures in cases where a Court/Tribunal makes an order
sanctioning an accounting treatment which is different from that
prescribed by an Accounting Standard1, states that-
"............... if an item in the financial statements of a Company is treated
differently pursuant to an Order made by the Court/Tribunal, as compared to
the treatment required by an Accounting Standard, following disclosures
should be made in the financial statements of the year in which different
treatment has been given:
1.       A description of the accounting treatment made along with the reason
         that the same has been adopted because of the Court/ Tribunal
         Order.
2.       Description of the difference between the accounting treatment
         prescribed in the Accounting Standard and that followed by the
         Company.
3.           The financial impact, if any, arising due to such a difference.
........."

1Published    in `The Chartered Accountant', December 2004 (pp. 825)

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                                           Ind AS 103, Business Combinations

Thus, as per the above announcement, accounting treatment of a transaction
as required under an order of a court or tribunal (or other similar authority)
overrides the accounting treatment that would otherwise be required to be
followed in respect of the transaction and it is mandatory for the company
concerned to follow the treatment as per the order of the court/tribunal.
In the context of the above requirement, if the court-approved scheme of
demerger prescribed the accounting treatment for the demerger in the books
of Company A (e.g., recognition of assets and liabilities acquired at their
respective fair values as at the date of demerger) then Company A will follow
the treatment prescribed in the scheme in its financial statements for the year
2016-17 and if the effect of such treatment is to be carried over in
subsequent years also then the same treatment of court approved scheme
will be followed in the subsequent years subject to compliance of auditing
standards. It is to be noted that the Company A is required to follow the
accounting requirements of Ind AS which are not in conflict with provisions of
the court scheme.
                                         (ITFG Clarification Bulletin 16, Issue 5)
                                       (Date of finalisation: September 04, 2018)




                                      87
          Ind AS 107, Financial Instruments:
                                 Disclosures
Recognition of the dividend income on an investment in debt
instrument in the books of an investor
Issue 56: How should the dividend income on an investment in debt
instrument be recognised in the books of an investor?
Response: The dividend income on an investment in debt instrument shall
be recognised in the form of interest. The recognition of income will depend
on the category of investment in debt instrument (e.g. amortised cost, fair
value through other comprehensive income or fair value through profit or
loss) determined as per the requirements of Ind AS 109.
Recognition of interest income in case of investment in debt instrument
measured at amortised cost
If the financial asset is measured at amortised cost, then interest revenue on
the same shall be calculated using effective interest rate method in
accordance with the following paragraph of Ind AS 109:
"5.4.1 Interest revenue shall be calculated by using the effective interest
method (see Appendix A and paragraphs B5.4.1­B5.4.7). This shall be
calculated by applying the effective interest rate to the gross carrying amount
of a financial asset except for:
(a)   purchased or originated credit-impaired financial assets. For those
      financial assets, the entity shall apply the credit adjusted effective
      interest rate to the amortised cost of the financial asset from initial
      recognition.
(b)   financial assets that are not purchased or originated credit impaired
      financial assets but subsequently have become credit-impaired
      financial assets. For those financial assets, the entity shall apply the
      effective interest rate to the amortised cost of the financial asset in
      subsequent reporting periods.
5.4.2 An entity that, in a reporting period, calculates interest revenue by
applying the effective interest method to the amortised cost of a financial
asset in accordance with paragraph 5.4.1(b), shall, in subsequent reporting


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                                 Ind AS 107, Financial Instruments: Disclosures

periods, calculate the interest revenue by applying the effective interest rate
to the gross carrying amount if the credit risk on the financial instrument
improves so that the financial asset is no longer credit-impaired and the
improvement can be related objectively to an event occurring after the
requirements in paragraph 5.4.1(b) were applied (such as an improvement in
the borrower's credit rating)."
Recognition of interest income in case of investment in debt instrument
measured at fair value through Other Comprehensive Income
Paragraph 5.7.10 and 5.7.11 of Ind AS 109 states as follows:
5.7.10 A gain or loss on a financial asset measured at fair value through
other comprehensive income in accordance with paragraph 4.1.2A shall be
recognised in other comprehensive income, except for impairment gains or
losses (see Section 5.5) and foreign exchange gains and losses (see
paragraphs B5.7.2­B5.7.2A), until the financial asset is derecognised or
reclassified. When the financial asset is derecognised the cumulative gain or
loss previously recognised in other comprehensive income is reclassified
from equity to profit or loss as a reclassification adjustment (see Ind AS 1). If
the financial asset is reclassified out of the fair value through other
comprehensive income measurement category, the entity shall account for
the cumulative gain or loss that was previously recognised in other
comprehensive income in accordance with paragraphs 5.6.5 and 5.6.7.
Interest calculated using the effective interest method is recognised in profit
or loss.
5.7.11 As described in paragraph 5.7.10, if a financial asset is measured at
fair value through other comprehensive income in accordance with paragraph
4.1.2A, the amounts that are recognised in profit or loss are the same as the
amounts that would have been recognised in profit or loss if the financial
asset had been measured at amortised cost.
Accordingly, if a financial asset is measured at fair value through Other
Comprehensive income (FVOCI) as per paragraph 4.1.2A of Ind AS 109,
then interest revenue on such an asset calculated using effective interest
rate method is recognised in profit or loss.
Recognition of interest income in case of investment in debt instrument
measured at fair value through profit or loss
Paragraph B5 (e) of Ind AS 107, Financial Instruments: Disclosures, inter
alia, provides as follows:

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Compendium of ITFG Clarification Bulletins

"B5 Paragraph 21 requires disclosure of the measurement basis (or bases)
used in preparing the financial statements and the other accounting policies
used that are relevant to an understanding of the financial statements. For
financial instruments, such disclosure may include:
(a)   .....
(e) how net gains or net losses on each category of financial instrument are
determined (see paragraph 20(a)), for example, whether the net gains or net
losses on items at fair value through profit or loss include interest or dividend
income."
Accordingly, the interest income in case of investment in debt instrument can
either form part of fair value gains or losses arising from changes in fair
value of the instrument or can be separately presented. In accordance with
paragraph B5(e) of Ind AS 107, the entity shall disclose its accounting policy.
It may also be noted that in case any statute/ regulatory authority governing
the entity specifically prescribes one of the above mentioned manner of the
presentation, the entity should follow the same.
                                             (ITFG Clarification Bulletin 8, Issue 9)
                                                (Date of finalisation: May 05, 2017)


Foreign currency risk disclosure in case of option taken under
paragraph D13AA of Ind AS 101
Issue 57: If a company has availed the option available under paragraph
D13AA of Ind AS 101, i.e., to continue the policy adopted for accounting
for exchange difference arising from translation of long-term foreign
currency monetary items recognised in the previous GAAP financial
statements, then will the foreign currency risk disclosure of Ind AS 107,
Financial Instruments: Disclosures apply to such exchange differences
so capitalised?
Response: As per paragraph 40(a) of Ind AS 107, Financial Instruments:
Disclosures, amongst other disclosures, an entity is required to disclose a
sensitivity analysis for each type of market risk, (which includes foreign
exchange risk) as to which the entity is exposed at the end of the reporting
period, showing how profit or loss and equity would have been affected by
changes in the relevant risk variable that were reasonably possible at that
date. If the company capitalises the exchange differences in the cost of


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                              Ind AS 107, Financial Instruments: Disclosures

asset, then too the company is exposed to foreign currency risk exposure
and there could be an indirect impact in the profit and loss or equity, for
example through depreciation. Accordingly, the company should provide
appropriate disclosures where applicable under Ind AS 107 even though the
company has availed the option under paragraph D13AA of Ind AS 101.
                                         (ITFG Clarification Bulletin 13, Issue 8)
                                         (Date of finalisation: January 16, 2018)




                                    91
             Ind AS 108, Operating Segments
Disclosures by the entity in case it is operating into one segment
Issue 58: Paragraph 34 of Ind AS 108, Operating Segments requires
entities to disclose information about its major customers i.e. those
contributing 10% or more of its total amount of revenue. Whether such
disclosure is required even in case where the company operates into
only one segment?
Response: The scope paragraph of Ind AS 108, Operating Segments, inter
alia, states that this Accounting Standard shall apply to companies to which
Indian Accounting Standards (Ind ASs) notified under the Companies Act
apply.
Further, paragraphs 32-35 of Ind AS 108 provide the entity-wide disclosures
that an entity is required to disclose.
Paragraph 31 of Ind AS 108 states as follows:
"Paragraphs 32­34 apply to all entities subject to this Ind AS including
those entities that have a single reportable segment. Some entities'
business activities are not organised on the basis of differences in related
products and services or differences in geographical areas of operations.
Such an entity's reportable segments may report revenues from a broad
range of essentially different products and services, or more than one of its
reportable segments may provide essentially the same products and
services. Similarly, an entity's reportable segments may hold assets in
different geographical areas and report revenues from customers in different
geographical areas, or more than one of its reportable segments may
operate in the same geographical area. Information required by paragraphs
32­34 shall be provided only if it is not provided as part of the reportable
segment information required by this Ind AS."
In accordance with the above, it may be noted that disclosure requirements
as specified in paragraphs 32-34 of Ind AS 108 apply to all entities to which
Ind AS applies including entities that have a single reportable segment.
Paragraph 34 of Ind AS 108 states as follows:
"Information about major customers
34 An entity shall provide information about the extent of its reliance on
its major customers. If revenues from transactions with a single

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                                                Ind AS 108, Operating Segments

external customer amount to 10 per cent or more of an entity's
revenues, the entity shall disclose that fact, the total amount of
revenues from each such customer, and the identity of the segment or
segments reporting the revenues. The entity need not disclose the identity
of a major customer or the amount of revenues that each segment reports
from that customer. For the purposes of this Ind AS, a group of entities
known to a reporting entity to be under common control shall be considered a
single customer. However, judgement is required to assess whether a
government (including government agencies and similar bodies whether
local, national or international) and entities known to the reporting entity to be
under the control of that government are considered a single customer. In
assessing this, the reporting entity shall consider the extent of economic
integration between those entities."
Accordingly, in the given case information regarding customers contributing
to more than 10% of total revenue will be required to be disclosed by the
company even though it is operating into a single operating segment. The
entity need not disclose the identity of a major customer or customers, or the
amount of revenues that each segment reports from that customer or those
customers.
                                            (ITFG Clarification Bulletin 13, Issue 3)
                                            (Date of finalisation: January 16, 2018)




                                       93
            Ind AS 109, Financial Instruments
Valuation of financial guarantee contract
Issue 59: V Ltd. is covered under Phase II of Ind AS roadmap and is
required to apply Ind AS from financial year 2017-18. It has given
financial guarantee for five years against the loan taken by its associate
company, S Ltd. since 1.4.2014 and charging 1% guarantee
commission.
(a)   At what value will the financial guarantee contract be accounted
      for in the opening Ind AS balance sheet of V Ltd.
(b)   Further, if on 31.3.2016, the guarantee is invoked but V Ltd. has
      shown it under contingent liability in financial statement of 2015
      and also 2016 contesting that it is confident that liability shall not
      devolve on it.
Whether on transition date i.e. 1.4.2016 the impairment need to be
calculated and accordingly fair value of financial guarantee need to be
calculated.
Response: : (a) Presuming that the financial guarantee given by V Ltd.
meets the definition of financial guarantee contracts under Ind AS 109, if the
associate company S Ltd. pays the parent company V Ltd. a guarantee
commission, company V Ltd. is required to determine if this commission
represents the fair value of the financial guarantee contract. If the premium is
equivalent to an amount that company S Ltd. would have paid to obtain a
similar guarantee in a standalone arm's length transaction, then at the initial
recognition the fair value of the financial guarantee contract is likely to equal
the commission received.
(b) Paragraph 4.2.1 of Ind AS 109, Financial Instruments states as follows:
"4.2.1 An entity shall classify all financial liabilities as subsequently
measured at amortised cost, except for:
(c) financial guarantee contracts. After initial recognition, an issuer of such a
contract shall (unless paragraph 4.2.1(a) or (b) applies) subsequently
measure it at the higher of:
(i) the amount of the loss allowance determined in accordance with Section
5.5 and


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                                              Ind AS 109, Financial Instruments

(ii) the amount initially recognised (see paragraph 5.1.1) less, when
appropriate, the cumulative amount of income recognised in accordance with
the principles of Ind AS 18"
5.5.1 An entity shall recognise a loss allowance for expected credit losses
on a financial asset that is measured in accordance with paragraphs 4.1.2 or
4.1.2A, a lease receivable, a loan commitment and a financial guarantee
contract to which the impairment requirements apply in accordance with
paragraphs 2.1(g), 4.2.1(c) or 4.2.1(d).
Company V Ltd. should recognise a liability for the amount of premium
received and subsequently measure the financial guarantee contract at the
higher of the amount of loss allowance determined in accordance with Ind AS
109 and the amount initially recognised less cumulative amount of income
recognised in accordance with Ind AS 18, Revenue.
In accordance with the above, at the end of each reporting period the entity
shall estimate and recognise the expected loss in accordance with the
provisions prescribed in the standard.
Accordingly, in the given case V Ltd. shall estimate and recognise the same
in accordance with Ind AS 109.
                                          (ITFG Clarification Bulletin 12, Issue 11)
                                            (Date of finalisation: October 23, 2017)


Accounting Treatment of financial guarantee received from the
Director
Issue 60: Company A Ltd., applied for a term loan from Bank B for
business purposes. As per the loan agreement, the loan required a
personal guarantee of one of the directors of A Ltd. to be executed. In
case of default by A Ltd, the director will be required to compensate for
the loss that Bank B incurs. Mr. P, one of the director had given
guarantee to the bank pursuant to which the loan was sanctioned to
Company A. Company A does not pay premium or fees to its director
for providing this financial guarantee.
Whether Company A is required to account for the financial guarantee
received from its director?
Response: Ind AS 109 Financial Instruments, defines a financial guarantee
contract as `a contract that requires the issuer to make specified payments to

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Compendium of ITFG Clarification Bulletins

reimburse the holder for a loss it incurs because a specified debtor fails to
make payment when due in accordance with the original or modified terms of
a debt instrument.'
Based on this definition, an evaluation is required to be done to ascertain
whether the contract between director and Bank B qualifies as a financial
guarantee contract as defined in Appendix A to Ind AS 109. In the given
case, it does qualify as a financial guarantee contract as:
      the reference obligation is a debt instrument (term loan);
      the holder i.e. Bank B is compensated only for a loss that it incurs
      (arising on account of non-repayment); and
      the holder is not compensated for more than the actual loss incurred.
Ind AS 109 provides principles for accounting by the issuer of the guarantee.
However, it does not specifically address the accounting for financial
guarantees by the beneficiary. In an arm's length transaction between
unrelated parties, the beneficiary of the financial guarantee would recognise
the guarantee fee or premium paid as an expense.
It is also pertinent to note that the entity needs to exercise judgment in
assessing the substance of the transaction taking into consideration relevant
facts and circumstances, for example, whether the director is being
compensated otherwise for providing guarantee. Based on such an
assessment, an appropriate accounting treatment based on the principles of
Ind AS should be followed.
In the given case, Company A Ltd, is the beneficiary of the financial
guarantee and it does not pay a premium or fees to its director for providing
this financial guarantee (subject to discussion above). Accordingly, Company
A will not be required to account for such financial guarantee in its financial
statements considering the unit of account as being the guaranteed loan, in
which case the fair value would be expected to be the face value of the loan
proceeds that the Company A received. Nonetheless, the above transaction
needs to be evaluated for disclosure under paragraph 18 of Ind AS 24,
Related Party Disclosures, which states as follows:
"If an entity has had related party transactions during the periods covered by
the financial statements, it shall disclose the nature of the related party
relationship as well as information about those transactions and outstanding
balances, including commitments, necessary for users to understand the
potential effect of the relationship on the financial statements. These
disclosure requirements are in addition to those in paragraph 17. At a

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                                                Ind AS 109, Financial Instruments

minimum, disclosures shall include:
(a)   the amount of the transactions;
(b)   the amount of outstanding balances, including commitments, and:
      (i)    their terms and conditions, including whether they are secured,
             and the nature of the consideration to be provided in settlement;
             and
      (ii)   details of any guarantees given or received;
(c)   provisions for doubtful debts related to the amount of outstanding
      balances; and
(d)   the expense recognised during the period in respect of bad or doubtful
      debts due from related parties."
In the given case based on the limited facts provided, Company A will be
required to make necessary disclosures of such financial guarantee in
accordance with Ind AS 24.
                                             (ITFG Clarification Bulletin 13, Issue 2)
                                             (Date of finalisation: January 16, 2018)


Recognition of renegotiation gain/loss on Financial Instruments
done in subsequent year but before the approval of financial
statements
Issue 61: Ind AS 109, Financial Instruments requires recognition of
renegotiation gain/loss subject to fulfillment of certain conditions as
mentioned in the standard. If there has been a renegotiation of terms of
(defaulted) borrowings subsequent to the year end, but before the date
of approval of financial statements, then should such modification
gain/loss be recognised in the current year financial statements itself or
in the next year when the terms of (defaulted) borrowings have been
renegotiated in accordance with Ind AS 109?
Response: As per paragraph 5.4.3 of Ind AS 109, Financial Instruments,
whenever contractual cash flows of a financial instrument are renegotiated or
otherwise modified and the renegotiation or modification does not result in
the derecognition of that financial asset in accordance with this Standard, an
entity shall recalculate the gross carrying amount of the financial asset and
shall recognise a modification gain or loss in profit or loss.


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Compendium of ITFG Clarification Bulletins

In accordance with the above, modification gain or loss should be recognised
in profit or loss in the period in which the renegotiation has contractually
taken place. Accordingly, in the given case, if the terms of the (defaulted)
borrowings have been renegotiated in the next year, then the related
gain/loss should also be recognised in the next year.
                                            (ITFG Clarification Bulletin 13, Issue 6)
                                            (Date of finalisation: January 16, 2018)

Accounting treatment of processing                      fees     belonging        to
undisbursed term loan amount
Issue 62: X Ltd. is a first-time adopter of Ind AS from financial year
2016-17. It had taken 6 year term loan in April 2010 from bank and paid
processing fees at the time of sanction of loan. The term loan is
disbursed in different tranches from April 2010 to April 2016. On the
date of transition to Ind AS, i.e. 1.4.2015, it has calculated the net
present value of term loan disbursed upto 31.03.2015 by using effective
interest rate and proportionate processing fees has been adjusted in
disbursed amount while calculating net present value. What will be the
accounting treatment of processing fees belonging to undisbursed term
loan amount?
Response: Assuming that the undisbursed loan amount will be disbursed in
future, the accounting treatment of the processing fees will be as follows:
Appendix A of Ind AS 109, Financial Instruments, defines `Effective interest
method' as follows:
"The rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial asset or financial liability to the
gross carrying amount of a financial asset or to the amortised cost of a
financial liability. When calculating the effective interest rate, an entity shall
estimate the expected cash flows by considering all the contractual terms of
the financial instrument (for example, prepayment, extension, call and similar
options) but shall not consider the expected credit losses. The calculation
includes all fees and points paid or received between parties to the contract
that are an integral part of the effective interest rate (see paragraphs B5.4.1­
B5.4.3), transaction costs, and all other premiums or discounts. There is a
presumption that the cash flows and the expected life of a group of similar
financial instruments can be estimated reliably. However, in those rare cases
when it is not possible to reliably estimate the cash flows or the expected life
of a financial instrument (or group of financial instruments), the entity shall

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                                               Ind AS 109, Financial Instruments

use the contractual cash flows over the full contractual term of the financial
instrument (or group of financial instruments)."
Paragraph B5.4.1 of Ind AS 109, Financial Instruments, states as follows:
"In applying the effective interest method, an entity identifies fees that are an
integral part of the effective interest rate of a financial instrument. The
description of fees for financial services may not be indicative of the nature
and substance of the services provided. Fees that are an integral part of the
effective interest rate of a financial instrument are treated as an adjustment
to the effective interest rate, unless the financial instrument is measured at
fair value, with the change in fair value being recognised in profit or loss. In
those cases, the fees are recognised as revenue or expense when the
instrument is initially recognised."
Further, Paragraph B5.4.2 of Ind AS 109, inter-alia states that, "fees that are
an integral part of the effective interest rate of a financial instrument include:
(a) origination fees received by the entity relating to the creation or
acquisition of a financial asset. Such fees may include compensation for
activities such as evaluating the borrower's financial condition, evaluating
and recording guarantees, collateral and other security arrangements,
negotiating the terms of the instrument, preparing and processing documents
and closing the transaction. These fees are an integral part of generating an
involvement with the resulting financial instrument."
In accordance with the above, the processing fee is an integral part of the
effective interest rate of a financial instrument and shall be included while
calculating the effective interest rate.
It may be noted that to the extent there is evidence that it is probable that the
undisbursed term loan will be drawn down in the future the processing fee is
accounted for as a transaction cost under Ind AS 109, i.e., the fee is deferred
and deducted from the carrying value of the financial liabilities when the draw
down occurs and considered in the effective interest rate calculations.
However, if it is not probable that the undisbursed term loan will be drawn
down in the future then the fees is recognised as an expense on a straight-
line basis over the term of the loan.
Accordingly, in the given case, assuming that the undisbursed loan amount
will be disbursed in future, the entire processing fees, i.e. processing fee
pertaining to the disbursed as well as to the undisbursed loan amount will be


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Compendium of ITFG Clarification Bulletins

included, while calculating the effective interest rate of the loan at the date of
transition to Ind AS and is recognised as an expense over the term of the
loan.
                                             (ITFG Clarification Bulletin 10, Issue 2)
                                                 (Date of finalisation: July 05, 2017)


Accounting Treatment of prepayment premium and processing
fees of obtaining new loan to prepay old loan
Issue 63: PQR Ltd. is covered under phase II of Ind AS Implementation
and is required to adopt Ind AS from financial year 2017-18. It had
obtained term loan from Bank A in 2013-14 and paid loan processing
fees and commitment charges. In May 2017, PQR Ltd. has availed fresh
loan from Bank B as take-over of facility i.e. the new loan is sanctioned
to pay off the old loan taken from Bank A. The company paid
prepayment premium to Bank A to clear the old term loan and paid
processing fees to Bank B for the new term loan.
Whether the prepayment premium and the processing fees both will be
treated as transaction cost (as per Ind AS 109, Financial Instruments) of
obtaining the new loan, in the financial statements of PQR Ltd. prepared
in accordance with Ind AS for the financial year 2017-18.
Response: As per Appendix A of Ind AS 109, Financial Instruments,
transaction costs are "Incremental costs that are directly attributable to the
acquisition, issue or disposal of a financial asset or financial liability (see
paragraph B5.4.8). An incremental cost is one that would not have been
incurred if the entity had not acquired, issued or disposed of the financial
instrument."
Further paragraph B5.4.8 of Ind AS 109 provides that the Transaction costs
include fees and commission paid to agents (including employees acting as
selling agents), advisers, brokers and dealers, levies by regulatory agencies
and security exchanges, and transfer taxes and duties. Transaction costs do
not include debt premiums or discounts, financing costs or internal
administrative or holding costs.
Paragraph B5.4.2 of Ind AS 109, inter alia, provides that fees that are an
integral part of the effective interest rate of a financial instrument include
origination fees paid on issuing financial liabilities measured at amortised
cost. These fees are an integral part of generating an involvement with a
financial liability.

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It is assumed that the loan processing fees solely relates to the origination of
the new loan (i.e. does not represent loan modification/renegotiation fees). In
accordance with the above, the processing fees paid to avail fresh loan from
Bank B will be considered as transaction cost in the nature of origination fees
of the new loan and will be included while calculating effective interest rate
as per Ind AS 109.
Further, as per paragraph 3.3.3 of Ind AS 109, the difference between the
carrying amount of a financial liability (or part of a financial liability)
extinguished or transferred to another party and the consideration paid,
including any non-cash assets transferred or liabilities assumed, shall be
recognised in profit or loss.
Paragraph B3.3.6 of Ind AS 109, provides that if an exchange of debt
instruments or modification of terms is accounted for as an extinguishment,
any costs or fees incurred are recognised as part of the gain or loss on the
extinguishment.
Since the original loan was prepaid, the prepayment would result in
extinguishment of the original loan. As per paragraph 3.3.3 of Ind AS 109 as
stated above, the difference between the carrying amount of the financial
liability extinguished and the consideration paid shall be recognised in profit
or loss. Further, paragraph B3.3.6 of Ind AS 109 states that where
modification of terms is accounted for as an extinguishment, any costs or
fees incurred are recognised as part of the gain or loss on the
extinguishment. Accordingly, the prepayment premium shall be recognised
as part of the gain or loss on extinguishment of the old loan. Further, the
unamortised processing fee related to the old loan will also be required to be
charged to the statement of profit and loss.
                                            (ITFG Clarification Bulletin 12, Issue 4)
                                            (Date of finalisation: October 23, 2017)

Accounting of Financial Guarantee Contract - Comfort Letter
Issue 64: P Ltd. (parent company) has issued a comfort letter to its
subsidiary company, S ltd. S Ltd. was able to obtain funds from the
banker on the basis of comfort letter issued by P Ltd.
Whether the same will be accounted for as a financial guarantee
contract in accordance with Ind AS 109, Financial Instruments ?
Response: As per Ind AS 109, financial guarantee contract is, "A contract
that requires the issuer to make specified payments to reimburse the holder


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for a loss it incurs because a specified debtor fails to make payment when
due in accordance with the original or modified terms of a debt instrument."
Paragraph B2.5 of Ind AS 109 inter-alia states that, "Financial guarantee
contracts may have various legal forms, such as a guarantee, some types of
letter of credit, a credit default contract or an insurance contract. Their
accounting treatment does not depend on their legal form."
In accordance with the above, it may be noted that a significant feature of a
financial guarantee contract is the contractual obligation to make specified
payment in case of default by the credit holder. As such, the contract may
not necessarily be called as financial guarantee contract and it may take any
name or legal form, however the treatment will be same as that of a financial
guarantee contract. If a contract legally meets these requirements, then it
would be accounted for as the financial guarantee contract as per Ind AS
109.
Accordingly, in the given case, P Ltd. will be required to evaluate as to
whether it is contractually obliged to make good the loss in case S Ltd. fails
to make the payment. If yes, then such comfort letter would be considered to
be a financial guarantee contract and will be accounted for in accordance
with Ind AS 109.
                                            (ITFG Clarification Bulletin 12, Issue 3)
                                            (Date of finalisation: October 23, 2017)

Accounting treatment of shares held as stock-in trade in accordance
with Ind AS
Issue 65: A share broking company is dealing in sale/purchase of shares
for its own account and therefore is having inventory of shares purchased
by it for trading. The company is covered under Phase II of Ind AS
roadmap. What will be the accounting treatment of such shares held as
stock-in trade in accordance with Ind AS?
Response: Paragraph 2 of Ind AS 2, Inventories, inter-alia, states that this
Standard applies to all inventories, except financial instruments (Ind AS 32,
Financial Instruments: Presentation and Ind AS 109, Financial Instruments).
A financial instrument is any contract that gives rise to a financial asset of
one entity and a financial liability or equity instrument of another entity. Ind
AS 109 applies to all types of financial instruments with certain exceptions as
envisaged in paragraph 2 of Ind AS 109.


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                                                    Ind AS 109, Financial Instruments

Accordingly, the principles of recognising and measuring financial
instruments are governed by Ind AS 109, its presentation is governed by Ind
AS 32 and disclosures about them are in Ind AS 107, Financial Instruments:
Disclosures, even if these instruments are held as stock-in trade by a
company.
Further Ind AS 101, First-time Adoption of Indian Accounting Standards does
not provide any transitional relief from the application of the above standards.
Accordingly, in the given case, the relevant requirements of Ind AS 109, Ind
AS 32 and Ind AS 107 shall be applied retrospectively unless otherwise
exempted under Ind AS 101.
                                                 (ITFG Clarification Bulletin 14, Issue 5)
                                                (Date of finalisation: February 01, 2018)

Accounting treatment of the Incentive Receivable from the
Government
Issue 66: MNO Ltd. has an incentive receivable in the form of sales tax
refundable from the government, under a scheme of government on
complying with the certain stipulated conditions. Whether such
incentives receivable from government will fall under the definition of
financial instruments under Ind AS 109 considering that there is no
formal one to one contractual agreement between government and the
company?
Response: As per Ind AS 32 Financial Instruments, Presentation, A financial
instrument is any contract that gives rise to a financial asset of one entity and
a financial liability or equity instrument of another entity.
A financial asset is any asset that is:
         (a)  cash;
         (b)  an equity instrument of another entity;
         (c)  a contractual right:
              (i)     to receive cash or another financial asset from another
                      entity; or
             (ii) ...
       (d) ....
Paragraph 3.1.1 of Ind AS 109, Financial Instruments, states as follows:
An entity shall recognise a financial asset or a financial liability in its balance
sheet when, and only when, the entity becomes party to the contractual


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provisions of the instrument (see paragraphs B3.1.1 and B3.1.2). When an
entity first recognises a financial asset, it shall classify it in accordance with
paragraphs 4.1.1­4.1.5 and measure it in accordance with paragraphs 5.1.1­
5.1.3. When an entity first recognises a financial liability, it shall classify it in
accordance with paragraphs 4.2.1 and 4.2.2 and measure it in accordance
with paragraph 5.1.1."
As per the above, a financial instrument arises as a result of contractual
obligation between the parties.
Paragraph 13 of Ind AS 32 states that, "In this Standard, `contract' and
`contractual' refer to an agreement between two or more parties that has
clear economic consequences that the parties have little, if any, discretion to
avoid, usually because the agreement is enforceable by law. Contracts, and
thus financial instruments, may take a variety of forms and need not be in
writing."
The above paragraph clarifies that contract need not be in writing only and
may take various forms. In India, government does give incentives in the
form of taxation benefits etc. to promote industry or for some other reasons
as the case may be. Although under such schemes, there may not be a one
to one agreement between the entity and the government as to the rights and
obligations but there is an understanding between the government and the
potential applicant/company that on complying the stipulated conditions
attached to the scheme, the entity will be granted benefits of the scheme.
If in the given case, the entity has complied with the conditions attached to
the scheme then it rightfully becomes entitled to the incentives attached to
the scheme. Accordingly, such incentive receivable will fall under the
definition of financial instruments and will be accounted for as a financial
asset per Ind AS 109.
                                              (ITFG Clarification Bulletin 15, Issue 3)
                                                 (Date of finalisation: April 04, 2018)

Discounting of Interest free refundable security deposits
Issue 67: Whether Interest free refundable security deposits (such as
rent deposits paid to lessor etc.) given by an entity are required to be
discounted as per the principles of Ind AS? If yes, at what rate should
these be discounted?


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                                                Ind AS 109, Financial Instruments

Response: As per Ind AS 32 Financial Instruments: Presentation, "A
financial asset is any asset that is:
(a) cash;
(b) an equity instrument of another entity;
(c)   a contractual right:
      (i)    to receive cash or another financial asset from another entity; or
      (ii)   to exchange financial assets or financial liabilities with another
             entity under conditions that are potentially favourable to the
             entity; or
(d) ........"
In accordance with the above, refundable security deposits given by an entity
is a financial instrument and should be classified as a financial asset in
accordance with Ind AS 109.
As per paragraph 5.1.1 of Ind AS 109 Financial Instruments, At initial
recognition, an entity shall measure a financial asset or financial liability at its
fair value plus or minus, in the case of a financial asset or financial liability
not at fair value through profit or loss, transaction costs that are directly
attributable to the acquisition or issue of the financial asset or financial
liability.
Paragraph B5.1.1 further states that, "The fair value of a financial instrument
at initial recognition is normally the transaction price (i.e. the fair value of the
consideration given or received, see also paragraph B5.1.2A and Ind
AS113). However, if part of the consideration given or received is for
something other than the financial instrument, an entity shall measure the fair
value of the financial instrument. For example, the fair value of a long-term
loan or receivable that carries no interest can be measured as the present
value of all future cash receipts discounted using the prevailing market
rate(s) of interest for a similar instrument (similar as to currency, term, type
of interest rate and other factors) with a similar credit rating. Any additional
amount lent is an expense or a reduction of income unless it qualifies for
recognition as some other type of asset."
B5.1.2A The best evidence of the fair value of a financial instrument at initial
recognition is normally the transaction price (ie the fair value of the
consideration given or received, see also Ind AS 113). If an entity determines
that the fair value at initial recognition differs from the transaction price as

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mentioned in paragraph 5.1.1A, the entity shall account for that instrument at
that date as follows:
(a) at the measurement required by paragraph 5.1.1 if that fair value is
    evidenced by a quoted price in an active market for an identical asset or
    liability (ie a Level 1 input) or based on a valuation technique that uses
    only data from observable markets. An entity shall recognise the
    difference between the fair value at initial recognition and the
    transaction price as a gain or loss.
(b) in all other cases, at the measurement required by paragraph 5.1.1,
    adjusted to defer the difference between the fair value at initial
    recognition and the transaction price. After initial recognition, the entity
    shall recognise that deferred difference as a gain or loss only to the
    extent that it arises from a change in a factor (including time) that
    market participants would take into account when pricing the asset or
    liability.
In accordance with the above, where the effect of time value of money is
material, refundable security deposits should be discounted and should be
shown at their present value at the time of its initial recognition. With regard
to the rate at which these should be discounted then entity needs to evaluate
based on its own facts and circumstances taking into account the above
guidance. Further, whether the effect of the time value of money is material
or not should be determined on an overall consideration of total cash flows,
etc. The difference between the transaction price and fair value as
determined above should be accounted in accordance with Paragraphs B
5.1.1 and B 5.1.2A. For example, in case of an interest free rent deposit paid
to a lessor in respect of a non-cancellable operating lease arrangement, the
above difference may be deferred as prepaid rent to be recognised as an
expense over the underlying lease term in accordance with Ind AS 17.
The deposits which are contractually repayable on demand will be
recognised at the transaction price on initial recognition similar to the initial
recognition of demand deposit liabilities given under Ind AS 113 paragraph
47.
                                            (ITFG Clarification Bulletin 15, Issue 7)
                                               (Date of finalisation: April 04, 2018)




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                                              Ind AS 109, Financial Instruments

Accounting treatment of the financial guarantee given by a
subsidiary company


Issue 68: A 100% subsidiary (S Ltd.) gives a financial guarantee to a
bank in respect of a loan obtained by its parent (P Ltd.) from the said
bank. No guarantee fee/commission is charged by S Ltd. from P Ltd. P
Ltd. accounts for the loan in its stand-alone as well as consolidated
financial statements on amortised cost basis. The following accounting
issues arise in the context of application of Ind AS by S Ltd. and P Ltd.:
(i)    How will the financial guarantee be accounted for in the separate
       financial statements of S Ltd.? S Ltd. has accumulated losses and
       has not paid any dividend in the past.
(ii) How would financial guarantee be subsequently measured in the
     separate financial statements of S Ltd.?
(iii) How should the financial guarantee be accounted for in the
      separate financial statements of P Ltd.?
Response:
(i) The following analysis is based on the presumption that the financial
guarantee given by S Ltd. (subsidiary) meets the definition of a `financial
guarantee contract' under Ind AS 109, Financial Instruments.
Paragraph B2.5 of Ind AS 109, inter-alia, states that, "If this Standard
applies, paragraph 5.1.1 requires the issuer to recognise a financial
guarantee contract initially at fair value. If the financial guarantee contract
was issued to an unrelated party in a stand-alone arm's length transaction,
its fair value at inception is likely to equal the premium received, unless there
is evidence to the contrary. Subsequently, unless the financial guarantee
contract was designated at inception as at fair value through profit or loss or
unless paragraphs 3.2.15­3.2.23 and B3.2.12­B3.2.17 apply (when a
transfer of a financial asset does not qualify for derecognition or the
continuing involvement approach applies), the issuer measures it at the
higher of:
(i)    the amount determined in accordance with Section 5.5; and
(ii)   the amount initially recognised less, when appropriate, the cumulative
       amount of income recognised in accordance with the principles of Ind



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       AS 182."
As per the above paragraph, issuer of a financial guarantee is required to
recognise the financial guarantee contract initially at its fair value. This
requirement will also apply if the guarantee is issued by a subsidiary in
respect of a loan obtained by its parent and no fee/commission is charged by
the subsidiary for issuing the guarantee. Accordingly, in the given case, S
Ltd. is required to initially recognise a liability (a deferred income such as
`unearned financial guarantee commission') in its separate financial
statements.
As regards to determination of the fair value of the financial guarantee, in the
absence of any specific guidance on the issue in Ind AS 109 or in any other
Ind AS and considering the broad principles of Ind AS 113, Fair Value
Measurement, the following approaches may be considered:
       One possible measure of the fair value of the financial guarantee (at
       initial recognition) may be the amount that an unrelated, independent
       third party would have charged for issuing the financial guarantee.
       Another possible approach may be to estimate the fair value of the
       financial guarantee as the present value of the amount by which the
       interest (or other similar) cash flows in respect of the loan are lower
       than what they would have been if the loan were an unguaranteed loan.
       Yet another possible approach may be to estimate the fair value of the
       financial guarantee as the present value of the probability-weighted
       cash flows that may arise under the guarantee (i.e. the expected value
       of the liability).
If applied properly, the results of the three approaches described above are
generally unlikely to differ widely.
It is noted that S Ltd. has provided the financial guarantee in respect of the
loan taken by P Ltd. without charging any guarantee commission (or fee or
premium).The economic substance of the arrangement is that by not
charging P Ltd. the fair value of the guarantee (which S Ltd. may have
charged for issuing a similar guarantee in respect of a loan taken by an
unrelated third party), S Ltd. has effectively made a distribution to P Ltd. In

2IndAS 115, Revenue from Contracts with Customers is notified on March 31, 2018.
The reference as per Ind AS 115 is as follows:
B2.5(a) (ii) the amount initially recognised less, when appropriate, the cumulative
amount of income recognised in accordance with Ind AS 115

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                                                Ind AS 109, Financial Instruments

order to reflect the substance of the transaction, the debit should be made to
an appropriate head under `equity'. It would not be appropriate to debit the
fair value of the guarantee to profit or loss (as if it were a non-reciprocal
distribution to a third party) as it would fail to properly reflect the existence of
the parent-subsidiary relationship that may have caused S Ltd. not to charge
the guarantee commission. Further, S Ltd. may not have issued a similar
guarantee for a loan taken by an unrelated third party without charging a fair
compensation.
(ii) As per Ind AS 109, after initial recognition of a financial guarantee
contract by the issuer under the Standard, the issuer shall (unless paragraph
4.2.1(a) or (b) of the standard applies- which is not the case in the situation
under discussion) subsequently measure it at the higher of:
(i)    the amount of the loss allowance determined in accordance with
       Section 5.5 and
(ii)   the amount initially recognised (see paragraph 5.1.1) less, when
       appropriate, the cumulative amount of income recognised in
       accordance with the principles of Ind AS 183.
In general, the application of Ind AS 18 would result in the amount of
unearned financial guarantee commission recognised initially being
amortised over the period of the guarantee as income and consequently, the
balance of the unearned financial guarantee commission would decline
progressively over the period of the guarantee. However, in addition to
amortising the unearned financial guarantee commission to income, at each
reporting date, S Ltd. is required to compare the unamortised amount of the
deferred income with the amount of loss allowance determined in respect of
the guarantee as at that date in accordance with the requirements of section
5.5 of Ind AS 109. As long as the amount of loss allowance so determined is
lower than the unamortised amount of the deferred income, the liability of S
Ltd. in respect of the guarantee will be represented by the unamortised
amount of the financial guarantee commission. However, if at a reporting
date, the amount of the loss allowance determined in accordance with
section 5.5 is higher than the unamortised amount of the financial guarantee

3IndAS 115, Revenue from Contracts with Customers is notified on March 31, 2018.
The reference as per Ind AS 115 is as follows:
the amount initially recognised (see paragraph 5.1.1) less, when appropriate, the
cumulative amount of income recognised in accordance with the principles of Ind AS
115, Revenue from Contracts with Customers

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Compendium of ITFG Clarification Bulletins

commission as at that date, the liability in respect of the financial guarantee
will have to be measured at an amount equal to the amount of the loss
allowance. Accordingly, in such a case, S Ltd. will be required to recognise a
further liability equal to the excess of the amount of the loss allowance over
the amount of the unamortised unearned financial guarantee commission.
(iii) Ind AS 109 states that-
     "B5.4.1 In applying the effective interest method, an entity identifies
     fees that are an integral part of the effective interest rate of a financial
     instrument. The description of fees for financial services may not be
     indicative of the nature and substance of the services provided. Fees
     that are an integral part of the effective interest rate of a financial
     instrument are treated as an adjustment to the effective interest rate,
     unless the financial instrument is measured at fair value, with the
     change in fair value being recognised in profit or loss. In those cases,
     the fees are recognised as revenue or expense when the instrument is
     initially recognised.
     B5.4.2 Fees that are an integral part of the effective interest rate of a
     financial instrument include:
     (a) origination fees received by the entity relating to the creation or
     acquisition of a financial asset. Such fees may include compensation for
     activities such as evaluating the borrower's financial condition,
     evaluating and recording guarantees, collateral and other security
     arrangements, negotiating the terms of the instrument, preparing and
     processing documents and closing the transaction. These fees are an
     integral part of generating an involvement with the resulting financial
     instrument.
     .....
    (c) origination fees paid on issuing financial liabilities measured at
    amortised cost. These fees are an integral part of generating an
    involvement with a financial liability. An entity distinguishes fees and
    costs that are an integral part of the effective interest rate for the
    financial liability from origination fees and transaction costs relating to
    the right to provide services, such as investment management services."
In the present case, financial guarantee provided by S Ltd. is an integral part
of the arrangement for the loan taken by P Ltd. from the bank. As per Ind AS
109, fees associated with evaluating and recording guarantees that are an
integral part of generating an involvement with a financial asset or a financial

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                                               Ind AS 109, Financial Instruments

liability are taken into account in determining the effective interest rate for the
financial asset/financial liability. In the given case, since the financial
guarantee is an integral part of the loan taken by the P Ltd. and is not
separately provided for, so in accordance with the principles of Ind AS 109,
the same is required to be taken into account for calculation of the effective
interest rate.
Ind AS 109 provides principles for accounting by the issuer of the guarantee.
However, it does not specifically address the accounting for financial
guarantees by the beneficiary. In an arm's length transaction between
unrelated parties, the beneficiary of the financial guarantee would recognise
the guarantee fee or premium paid as an expense.
As already clarified in ITFG Clarification Bulletin 13, Issue 2, an entity needs
to exercise judgment in assessing the substance of the transaction taking
into consideration relevant facts and circumstances, for example, whether
any benefits are being otherwise obtained for providing guarantee. Based on
such an assessment, an appropriate accounting treatment based on the
principles of Ind AS should be followed.
It may be noted that in the Issue 2 of ITFG Clarification Bulletin 13, the
guarantee was given by the director. The principle of attribution acquires
significance in a parent ­ subsidiary relationship and in the given case the
beneficiary should recognise the guarantee. In the case of a guarantee
provided by a subsidiary in respect of the liability of a parent, even if no
consideration is received by the subsidiary, it should recognise a liability in
its separate financial statements for the fair value of the guarantee. Even if
no payments from the parent to the subsidiary are agreed for such a
guarantee, the subsidiary has provided the guarantee in its capacity as a
investee and should account for the issuance of the guarantee as a
distribution to the parent. Consequentially, the transaction should also be
recognised by parent.
Based on the above, in the given case, P Ltd. has not paid any guarantee
commission to S Ltd. As discussed earlier in the context of accounting for the
financial guarantee by S Ltd. in terms of economic substance, the
provision of guarantee by S Ltd. without charging guarantee commission is
analogous to a distribution by S Ltd. to P Ltd. To reflect this substance, P
Ltd. should debit the fair value of the guarantee to the carrying amount of the
loan (which would have the effect of such fair value being included in
determination of effective interest rate on the loan) and credit the same as
discussed below:

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Compendium of ITFG Clarification Bulletins

As per Ind AS 27, Separate Financial Statements, in the separate financial
statements of the parent, investment in the subsidiary should be accounted
for at cost or in accordance with Ind AS 109. (Certain other measurement
requirements under particular circumstances are not relevant for the extant
case).
(i)   If the investment in the subsidiary is accounted for at cost then,
      distribution received should be credited to profit or loss. Impairment
      loss, if any, will be separately considered.
(ii) If the investment in the subsidiary is accounted for in accordance
     with Ind AS 109,
      -    if measured at fair value through other comprehensive income-
          then in accordance with B5.7.1 of Ind AS 109, distribution are
          recognised in profit or loss in accordance with paragraph 5.7.6
          unless the distribution clearly represents a recovery of part of the
          cost of the investment
      -   if measured at fair value through profit or loss, distribution received
          will be credited to profit or loss.
The above transaction also needs to be evaluated for disclosure under
paragraph 18 of Ind AS 24, Related Party Disclosures.
As per the facts of the case, S Ltd. is in losses and has not paid any dividend
to P Ltd. in the past. These limited facts do not per se impact the accounting
treatment of financial guarantee given by S Ltd.
The above clarification is given only for the accounting purposes. The
commercial substance of the transaction and other legal and regulatory
aspects have not been considered by ITFG which may have to be evaluated
on case to case basis.
                                           (ITFG Clarification Bulletin 16, Issue 1)
                                        (Date of finalisation: September 07, 2018)

Accounting treatment of the modification of the terms of the loan or
assignment of loan to Asset Reconstruction Company (ARC)
Issue 69: DG Ltd. had taken foreign letter of credit from a scheduled
bank in financial year 2011-12 at a rate linked to LIBOR (which was
4.50% at that time). DG Ltd. was unable to meet its repayment obligation
on the due date and the bank crystallised the liability into INR. As the
loan was not serviced by DG Ltd. it became NPA for the bank.

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                                             Ind AS 109, Financial Instruments

Thereafter, the bank assigned the loan to an Asset Reconstruction
Company (ARC). The loan which was taken over by ARC was
subsequently negotiated between the ARC and DG Ltd. to arrive at a
settlement as part of the above assignment.
The above arrangement was agreed upon between the parties in the
form of hair cut by the ARC for some balance of the loan, partial
settlement of the loan by issue of fully paid up equity shares at traded
market price and the balance loan amount to be paid in installments
over 7 years. The revised interest agreed upon by the ARC is linked to
the marginal cost of funds based lending rate (MCLR) and with certain
additional discount of some basis points which is lesser than the
normal bank funding rates. This arrangement between the parties was
entered into post implementation date of Ind AS for the Company.
Whether the above is a modification of debt from the perspective of DG
Ltd. If so, how such modification will be accounted for?
Response: In the given case, the above arrangement between ARC and DG
Ltd. towards the outstanding loan has been entered during the year when Ind
AS is applicable to DG Ltd. The loan taken by DG Ltd. is a `financial liability'
as defined in Ind AS 32. The timing as well as the manner of recognition of
effects of the above arrangement between ARC and DG Ltd. will be governed
by Ind AS 109, Financial Instruments.
The response in the following paragraphs is based on the assumption that
the carrying amount of the loan as on to the date of transition to Ind AS and
the original effective interest rate referred to in paragraph B3.3.6 of Ind AS
109 have been correctly determined by the entity in accordance with the
requirements of Ind AS 109, read with Ind AS 101, First-time Adoption of
Indian Accounting Standards.
Paragraphs 3.3.1 ­ 3.3.3 of Ind AS 109 provide the following guidance in this
regard:
"3.3.1   An entity shall remove a financial liability (or a part of a financial
         liability) from its balance sheet when, and only when, it is
         extinguished--ie when the obligation specified in the contract is
         discharged or cancelled or expires.
3.3.2    An exchange between an existing borrower and lender of debt
         instruments with substantially different terms shall be accounted for
         as an extinguishment of the original financial liability and the
         recognition of a new financial liability. Similarly, a substantial

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Compendium of ITFG Clarification Bulletins

         modification of the terms of an existing financial liability or a part of it
         (whether or not attributable to the financial difficulty of the debtor)
         shall be accounted for as an extinguishment of the original financial
         liability and the recognition of a new financial liability.
3.3.3 The difference between the carrying amount of a financial liability (or
       part of a financial liability) extinguished or transferred to another
       party and the consideration paid, including any non-cash assets
       transferred or liabilities assumed, shall be recognised in profit or
       loss."
Paragraphs B3.3.1 of Ind AS 109 Appendix B states as under:
B3.3.1 A financial liability (or part of it) is extinguished when the debtor
either:
(a) discharges the liability (or part of it) by paying the creditor, normally
    with cash, other financial assets, goods or services; or
(b) is legally released from primary responsibility for the liability (or part of
    it) either by process of law or by the creditor. (If the debtor has given a
    guarantee this condition may still be met.)
[It is assumed in the following discussion that no costs or fees have been
incurred in connection with modification of the terms of the loan.]
As per paragraphs 3.3.1 and B3.3.1, DG Ltd. is required to assess that
whether change of the lender (assignment of loan) from bank to the ARC is a
legal release from the primary liability to the bank. If it is so concluded, then
the entire amount of the existing loan will be derecognised and new
arrangement with ARC shall be accounted for as a new loan and the
difference shall be recognised in profit or loss.
If it is concluded that change of the lender (assignment of loan) does not
result in legal release from primary liability to the bank then DG Ltd. needs to
consider the requirements of paragraph 3.3.2 of Ind AS 109. As per
paragraph 3.3.2, a substantial modification of the terms of an existing
financial liability or a part of it (whether or not attributable to the financial
difficulty of the debtor) is accounted for as an extinguishment of the original
financial liability (or part of the financial liability) and the recognition of a new
financial liability. For determining whether a modification of the terms of an
existing financial liability (or a part of it) is substantial, paragraph B3.3.6 of
Ind AS 109 Appendix B lays down a quantitative test. As per paragraph


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                                               Ind AS 109, Financial Instruments

B3.3.6, the terms are substantially different if the discounted present value of
the cash flows under the new terms, including any fees paid net of any fees
received and discounted using the original effective interest rate, is at least
10 per cent different from the discounted present value of the remaining cash
flows of the original financial liability.
In case a modification of the terms of a financial liability fails to meet the 10%
quantitative threshold laid down in paragraph B3.3.6, an issue arises whether
it can be concluded without carrying any further analysis that the modification
is not substantial. While Ind AS 109 does not provide any specific guidance
on this issue, the quantitative test alone may not be sufficient to reach the
above conclusion in all cases. This is because some or all of modification to
the terms of a financial liability may be of such nature that their effect is not
captured by the quantitative test.
Determining whether the terms are substantially different, from a qualitative
perspective, is judgemental and will depend on the specific facts and
circumstances of each case. Where a modification of the terms of a financial
liability does not meet the quantitative threshold of 10%, a qualitative
analysis may be required to be carried out to determine whether
modifications of the terms that are not captured by the quantitative analysis
are substantial. There may be situations where the modification of the debt is
so fundamental that derecognition is appropriate whether or not the 10% test
is satisfied.
It is noted that as per the terms of settlement with ARC, DG Ltd. was
required to settle a part of the loan immediately by way of issue of its own
equity shares at fair value. The partial settlement of the existing loan by
issuing equity will be accounted for in accordance with Appendix D of Ind AS
109, Extinguishing Financial Liabilities with Equity Instruments and
paragraph 3.3.4 of Ind AS 109.
The balance should be tested by DG Ltd. for de-recognition i.e. whether
there is a substantial modification of the terms of an existing financial liability
or a part of it. In the present case, as per the facts of the case, the
modifications relate to terms that are captured by the quantitative test
(viz.the `haircut', rescheduling of repayment, and change in interest rate);
there are no additional factors requiring a qualitative analysis in the given
case. Hence, if the quantitative threshold of 10% is met, the modification
should be considered to be substantial (and vice versa).


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Compendium of ITFG Clarification Bulletins

If the modification of balance loan is considered to be substantial, then DG
Ltd. should de-recognises the balance loan and recognises the new modified
loan and any difference between the carrying amount of the original balance
loan and new modified loan is recognised in profit or loss.
                                          (ITFG Clarification Bulletin 16, Issue 3)
                                       (Date of finalisation: September 04, 2018)

Accounting treatment of the financial guarantee in case of
repayment of the Loan before the tenure
Issue 70: S Ltd. has availed loan in financial year 2012 (no concession
in rate of interest is given by bank by virtue of guarantee from parent)
from banks. The said loan has been guaranteed by its Parent P Ltd).
Parent is in phase -2 of implementation of Ind AS where transition date
is 1st April 2016. S Ltd. is 61.5% subsidiary of P Ltd. Initial
estimate/tenure of the borrowing was 10 years. However, the S Ltd.
repaid the whole loan amount within the period of 6 years in financial
year2018. On transition date, P Ltd. recognised the financial liability
obligation in its separate financial statements and presented resultant
`Investment in subsidiary' to that extent.
What shall be the accounting treatment of the `financial guarantee'
provided by the P Ltd. in respect of loan/borrowing availed by S Ltd., in
case the underlying loan is repaid earlier than estimated initially?
Response: As per the requirements of Ind AS 109 Financial Instruments, on
the date of transition, P Ltd. recognised the `Financial guarantee obligation'
in its separate financial statement with the corresponding impact in the
`Investment in subsidiary' on initial recognition after considering the terms of
the guarantee.
With regard to subsequent measurement, as stated in Issue 1, financial
guarantee contract is subsequently measured at the higher of: (i) the amount
of the loss allowance and (ii) the amount initially recognised less, when
appropriate, the cumulative amount of income recognised in accordance with
the principles of Ind AS 184.

4IndAS 115,Revenue from Contracts with Customers is notified on March 31, 2018
and superseded Ind AS 11 and Ind AS 18.



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                                               Ind AS 109, Financial Instruments

As per the facts in the given case, the parent company initially recognised
the financial guarantee obligation at its fair value, based on the estimated
term of the loan/borrowing as 10 years but, S Ltd. repaid the entire amount of
loan after the expiry of 6 years.
There is a change in the expected tenure in terms of contractual life which
was earlier estimated for 10 years while the actual tenure came out to be 6
year. With regard to change in estimate with respect to the tenure of the
instrument, guidance given under Ind AS 8, Accounting Policies, Changes in
Accounting Estimates and Errors may be considered.
Paragraph 36 and 37 of Ind AS 8 states as follows:
"36 The effect of change in an accounting estimate, other than a change to
    which paragraph 37 applies, shall be recognised prospectively by
    including it in profit or loss in:
     (a) the period of the change, if the change affects that period only; or
     (b) the period of the change and future periods, if the change affects
         both.
37   To the extent that a change in an accounting estimate gives rise to
     changes in assets and liabilities, or relates to an item of equity, it shall be
     recognised by adjusting the carrying amount of the related asset, liability or
     equity item in the period of the change."
In accordance with the above, it may be noted that where change in the
accounting estimate gives rise to changes in assets, liabilities and equity,
then the same shall be adjusted in the carrying amount of the related asset,
liability or equity item in the period of the change. As per the facts mentioned
above, there is change in the estimate of expected life of the instrument (i.e.
loan is repaid in 6 year rather than repaying it after 10 years) and since no
obligation exists for parent in respect of the financial guarantee provided by
the parent, the parent may reverse the amount of obligation.
The attribution debited to investment upon providing guarantee is in
substance the consideration that the parent would have collected for
providing similar guarantee to an unrelated third party.      In case of
prepayment of loan by an unrelated third party, the parent would generally
not have refunded the consideration and would have recognised the entire
unrecognised commission in profit & loss. Similar approach should be
followed for guarantee given to the subsidiary.
Accordingly, in the given case, on initial recognition P Ltd. recognised a

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Compendium of ITFG Clarification Bulletins

financial guarantee obligation of ` 1000. As required by paragraph 4.2.1(c)(ii)
of Ind AS 109, this amount initially recognised is amortised as income in
each accounting period. By the end of the year 6, ` 400 is standing as
carrying value of financial guarantee in the financial statement of P Ltd. But
since S Ltd. has repaid the loan, there is no obligation existing for P Ltd.
Accordingly, P Ltd. should reverse the balance outstanding as guarantee
obligation with corresponding recognition of revenue of ` 400 in profit and
loss account.
                                          (ITFG Clarification Bulletin 16, Issue 7)
                                       (Date of finalisation: September 04, 2018)

Accounting Treatment of Dividend Distribution Tax (DDT) in
calculating effective interest rate (EIR) on the preference shares
Issue 71: During its current financial year, ABC Ltd. has issued
cumulative redeemable preference shares which carry a dividend of
10% per annum. The preference shares are redeemable at a specified
premium at the end of 8 years from the date of their issue. On a
consideration of the substance of the terms and conditions of issue of
the preference shares, including the stipulations as to dividends and
premium payable on redemption, ABC Ltd has determined that the
preference shares qualify for classification as a financial liability in
their entirety under Ind AS 32, Financial Instruments: Presentation .
ABC Ltd is a `domestic company' within the meaning of this term under
the Income-tax Act 1961 (`the Act'). Accordingly, dividend on the
preference shares (within the meaning of the term `dividend' under
section 2(22) of the Act) is subject to provisions relating to Dividend
Distribution Tax (DDT) contained in section 115-O of the Act.
In accounting for the preference shares in accordance with Ind AS 109,
would DDT be included in calculating effective interest rate (EIR) on the
preference shares?
Response: With regard to the treatment of `dividend' on a financial instrument,
paragraphs 35 and 36 of Ind AS 32, Financial Instruments Presentation
reproduced hereunder may be noted:

``35 Interest, dividends, losses and gains relating to a financial instrument or
     a component that is a financial liability shall be recognised as income or
     expense in profit or loss. Distributions to holders of an equity instrument


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                                                Ind AS 109, Financial Instruments

     shall be recognised by the entity directly in equity. Transaction costs of
     an equity transaction shall be accounted for as a deduction from equity.
36   The classification of a financial instrument as a financial liability or an
     equity instrument determines whether interest, dividends, losses and
     gains relating to that instrument are recognised as income or expense
     in profit or loss. Thus, dividend payments on shares wholly recognised
     as liabilities are recognised as expenses in the same way as interest on
     a bond. Similarly, gains and losses associated with redemptions or
     refinancings of financial liabilities are recognised in profit or loss,
     whereas redemptions or refinancings of equity instruments are
     recognised as changes in equity. Changes in the fair value of an equity
     instrument are not recognised in the financial statements.''
In view of the above, if a financial instrument is classified as financial liability
in its entirety (as is the position in the case under discussion), the `dividend'
thereon is in the nature of interest and is accordingly charged to profit or
loss.
Further, paragraphs B5.4.4 and B5.4.8 of Ind AS 109, Financial Instruments,
state as follows:
     "B5.4.4 When applying the effective interest method, an entity generally
     amortises any fees, points paid or received, transaction costs and other
     premiums or discounts that are included in the calculation of the
     effective interest rate over the expected life of the financial
     instrument....."
The Guidance Note on Division II - Ind AS Schedule III to the Companies
Act, 2013 issued by of the Institute of Chartered Accountants of India
provides the following guidance in respect of dividend on preference shares:
     "Dividend on preferences shares, whether redeemable or convertible, is
     of the nature of `Interest expense', only where there is no discretion of
     the issuer over the payment of such dividends. In such case, the portion
     of dividend as determined by applying the effective interest method
     should be presented as `Interest expense' under `Finance cost'.
     Accordingly, the corresponding Dividend Distribution Tax on such
     portion of non-discretionary dividends should also be presented in the
     Statement of Profit and Loss under `Interest expense'.
Furthermore, FAQ regarding DDT issued by the Accounting Standards Board
of the Institute of Chartered Accountants of India inter-alia states that,
"presentation of DDT paid on the dividends should be consistent with the

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presentation of the transaction that creates those income tax consequences.
Therefore, DDT should be charged to profit or loss, if the dividend itself is
charged to profit or loss. If the dividend is recognised in equity, the
presentation of DDT should be consistent with the presentation of the
dividend, i.e., to be recognised in equity."
In the given case, the preference shares are classified as a liability in their
entirety and `dividend' thereon is therefore considered to be in the nature of
interest. Accordingly, the related dividend distribution tax should be regarded
as part of interest cost and should therefore form part of EIR calculation.
                                             (ITFG Clarification Bulletin 17, Issue 2)
                                           (Date of finalisation: December 19, 2018)

Recognition of dividend income on an investment on a debt
instrument in the books of the investor
Issue 72: How should `dividend income' on an investment on a debt
instrument be recognised in the books of the investor?
Response: Issue 9 in ITFG Clarification Bulletin 8 deals with a situation
where the legal form of income received by an investor on an investment in a
financial instrument is that of `dividend':
In the said clarification it is stated that the recognition of income will depend
on the classification of the instrument as FVTPL (at fair value through profit
or loss), amortised cost or FVOCI (at fair value through other comprehensive
income) as determined in accordance with the requirements of Ind AS 109,
Financial Instruments.
The following further clarification on the issue may be noted.
Under Ind AS 109, a financial asset cannot be classified under `amortised
cost' or `FVOCI (debt)' category if it does not meet the following conditions:
(i)    Business Model Test; and
(ii)   Contractual Cash flow Characteristic test (SPPI test).
If the SPPI test is met, the issue whether the financial asset would be
classified under `amortised cost' category or under `FVOCI (debt)' category is
also determined by considering the business model within which the financial
asset is held.
Paragraph B4.1.7A of Ind AS 109 provides guidance on the SPPI test and
states as below:

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                                              Ind AS 109, Financial Instruments

"Contractual cash flows that are solely payments of principal and interest on
the principal amount outstanding are consistent with a basic lending
arrangement. In a basic lending arrangement, consideration for the time
value of money (see paragraphs B4.1.9A­B4.1.9E) and credit risk are
typically the most significant elements of interest. However, in such an
arrangement, interest can also include consideration for other basic lending
risks (for example, liquidity risk) and costs (for example, administrative costs)
associated with holding the financial asset for a particular period of time. In
addition, interest can include a profit margin that is consistent with a basic
lending arrangement. In extreme economic circumstances, interest can be
negative if, for example, the holder of a financial asset either explicitly or
implicitly pays for the deposit of its money for a particular period of time (and
that fee exceeds the consideration that the holder receives for the time value
of money, credit risk and other basic lending risks and costs). However,
contractual terms that introduce exposure to risks or volatility in the
contractual cash flows that is unrelated to a basic lending arrangement, such
as exposure to changes in equity prices or commodity prices, do not
give rise to contractual cash flows that are solely payments of principal
and interest on the principal amount outstanding. An originated or a
purchased financial asset can be a basic lending arrangement irrespective of
whether it is a loan in its legal form."
An example of a debt instrument having legal form of income as dividend is
redeemable preference share. In the case of a redeemable preference share,
the issue whether the SPPI test is met or not requires consideration of
whether payment of dividend on the preference share is non-discretionary
(i.e., obligatory) or at the discretion of the issuer, Where payment of
dividend is not at the discretion of the issuer, the contractual cash flows
(dividends and redemption proceeds) associated with the preference share
would be akin to those associated with a plain-vanilla loan or other plain-
vanilla debt instrument unless the cash flows do not meet the SPPI test
mentioned in previous paragraphs. On the other hand, where the payment of
dividend on the preference share, whether cumulative or non-cumulative, is
at the discretion of the issuer, the contractual cash flows characteristics in
such cases differ from those of a basic lending arrangement inasmuch as
interest is also a contractual flow in a basic lending arrangement.
Accordingly, a preference share with a discretionary dividend feature cannot
be said to represent a basic lending arrangement. Hence, such a preference
shares fails the SPPI test and cannot therefore be classified as at amortised
cost or FVOCI. The appropriate classification of such preference share is

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Compendium of ITFG Clarification Bulletins

therefore as at FVTPL.
Determining whether or not the payment of dividend on a preference share is
at the discretion of the issuer requires consideration of applicable legal
provisions in the relevant jurisdiction and also the specific terms and
conditions associated with the preference share.
If the preference shares meet the SPPI test and business model test then the
dividend income will be accounted for using effective interest rate method
provided the instrument is classified under either at amortised cost or FVOCI.
If it does not meet above tests or the entity has chosen the fair value option,
the instrument will be classified at FVTPL and the entity will give disclosures
for its accounting policy in accordance with paragraph B5 (e) of Ind AS 107,
Financial Instruments: Disclosures.
                                          (ITFG Clarification Bulletin 17, Issue 4)
                                       (Date of finalisation: December 19, 2018)




                                     122
         Ind AS 110, Consolidated Financial
                                Statements
Accounting Treatment of loss of investment in subsidiary
Issue 73: Parent had 70% stake in subsidiary. The other investor
invested additional funds in the subsidiary reducing the parent's stake
to 60%. However, there was no loss of control by the Parent. How this
partial deemed disposal should be accounted in the separate financial
statements of the parent assuming that investment in subsidiary is
measured at cost. Also, state the accounting treatment in the
consolidated financial statements?
Response: Treatment in Separate Financial Statements of the Parent
entity
In the given case, in the separate financial statements of the parent entity
there will not be any impact and investment in the subsidiary will continue to
be recognised at its carrying amount. However, the fact that its shareholding
has been reduced from 70% to 60% should be disclosed appropriately in the
financial statements.
Treatment in Consolidated Financial Statements
As per paragraph 23 of Ind AS 110 Consolidated Financial Statements,
changes in a parent's ownership interest in a subsidiary that do not result in
the parent losing control of the subsidiary are equity transactions (i.e.
transactions with owners in their capacity as owners).
Thus, such transactions have no impact on goodwill or the statement of profit
and loss.
Paragraph B96 of Appendix B to Ind AS 110 further provides that, when the
proportion of the equity held by non-controlling interests changes, an entity
shall adjust the carrying amounts of the controlling and non-controlling
interests to reflect the changes in their relative interests in the subsidiary.
The entity shall recognise directly in equity any difference between the
amount by which the non-controlling interests are adjusted and the fair value
of the consideration paid or received, and attribute it to the owners of the
parent.
Non-controlling interests (NCI) are recorded at fair value (or proportionate
share in the recognised amounts of the acquiree's identifiable net assets, if

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Compendium of ITFG Clarification Bulletins

chosen) only at the date of the business combination. Subsequent purchases
or sales of ownership interests when control is maintained are recorded at
the non-controlling interest's proportionate share of the net assets.
As per paragraph 18 of Ind AS 112, Disclosure of Interests in Other Entities,
an entity is required to present a schedule that shows the effects on the
equity attributable to owners of the parent of any changes in its ownership
interest in a subsidiary that do not result in a loss of control.
                                           (ITFG Clarification Bulletin 13, Issue 7)
                                           (Date of finalisation: January 16, 2018)


Accounting treatment of dividend distribution tax in the
consolidated financial statements in case of partly-owned
subsidiary - different scenarios
Issue 74: What will be the accounting treatment of dividend distribution
tax in the consolidated financial statements in case of partly-owned
subsidiary in the following scenarios:
Scenario 1: H Limited (holding company) holds 12,000 equity shares in
S Limited (Subsidiary of H Limited) with 60% holding. Accordingly, S
Limited is a partly-owned subsidiary of H Limited. During the year 2017,
S Limited paid a dividend @ ` 10 per share, amounting to ` 200,000 and
DDT @ 20% amounting to ` 40,000.
Should the share of H Limited in DDT paid by S Limited amounting to `
24,000 (60% ` 40,000) be charged as expense in the consolidated profit
and loss of H Limited?
Response: Since H Limited is holding 12,000 shares it has got ` 1,20,000 as
dividend from S Limited. In the consolidated financial statements of H Ltd.,
dividend income earned by H Ltd. and dividend recorded by S Ltd. in its
equity will both get eliminated as a result of consolidation adjustments.
Dividend paid by S Ltd. to the 40% non-controlling interest (NCI)
shareholders will be recorded in the Statement of Changes in Equity as
reduction of NCI balance (as shares are classified as equity as per Ind AS
32).
DDT of ` 40,000 paid to tax authorities has two components- One ` 24,000
(related to H Limited's shareholding and other ` 16,000 belong to non-
controlling interest (NCI) shareholders of S Limited). DDT of ` 16,000
(pertaining to non-controlling interest (NCI) shareholders) will be recorded in
the Statement of Changes in Equity along with dividend. DDT of ` 24,000


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                                Ind AS 110, Consolidated Financial Statements

paid outside the consolidated Group shall be charged as tax expense in the
consolidated statement of profit and loss of H Ltd.
It may be noted that Issue 1 of ITFG Clarification Bulletin 9 provides that-
     "In the consolidated financial statements of P Ltd., the dividend income
     earned by P Ltd. from S Ltd. and dividend recorded by S Ltd. in its
     equity will both get eliminated as a result of consolidation adjustments.
     DDT of ` 20,000 paid outside the consolidated Group i.e. to the tax
     authorities should be charged as expense in the consolidated statement
     of Profit and Loss of P Ltd."
The similar accounting treatment would be done in case of the partly-owned
subsidiary:
In accordance with the above, in the given case, CFS of H limited will be as
under:
      Transactions          H Ltd.      S Ltd.      Consol         CFS H Ltd
                                                  Adjustments
Dividend Income (P&L) 120,000      -               (120,000)            -
Dividend (in Statement
of Changes in Equity by  -    (200,000)              120,000        (80,000)
way of reduction of
NCI)
DDT (in Statement of
Changes in Equity by     -     (40,000)              24,000         (16,000)
way of reduction of
NCI)
DDT (in Statement of     -         -                 (24,000)       (24,000)
P&L)
Scenario 2 (A): Extending the situation given in scenario 1, H Limited
also pays dividend of ` 300,000 to its shareholders and DDT liability @
20% thereon amounts to ` 60,000. As per the tax laws, DDT paid by S
Ltd. of ` 24,000 is allowed as set off against the DDT liability of H Ltd.,
resulting in H Ltd. paying ` 36,000 (` 60,000 ­ ` 24,000) as DDT to tax
authorities.
Response: If DDT paid by the subsidiary S Ltd. is allowed as a set off
against the DDT liability of its parent H Ltd. (as per the tax laws), then the
amount of such DDT should be recognised in the consolidated statement of
changes in equity of parent H Ltd.

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Compendium of ITFG Clarification Bulletins

In the given case, share of H Limited in DDT paid by S Limited is ` 24,000
and entire ` 24,000 was utilised by H Limited while paying dividend to its own
shareholders.
Accordingly, DDT of ` 76,000 (` 40,000 of DDT paid by S Ltd. (of which `
16,000 is attributable to NCI) and ` 36,000 of DDT paid by H Ltd.) should be
recognised in the consolidated statement of changes in equity of parent H
Ltd. No amount will be charged to consolidated statement of profit and loss.
The basis for such accounting would be that due to Parent H Ltd's
transaction of distributing dividend to its shareholders (a transaction recorded
in Parent H Ltd's equity) and the related DDT set-off, this DDT paid by the
subsidiary is effectively a tax on distribution of dividend to the shareholders
of the parent company.
In accordance with the above, in the given case, CFS of H limited will be as
under:

Transactions                H Ltd            S Ltd       Consol        CFS H
                                                       Adjustments      Ltd
Dividend        Income     120,000             -        (120,000)         -
(P&L)
Dividend (in Statement    (300,000)      (200,000)       120,000     (380,000)*
of Changes in Equity)
DDT (in Statement          (36,000)         (40,000)        -        (76,000)*
Changes in Equity)

*Dividend of ` 80,000 and DDT of ` 16,000 will be reflected as reduction from
non-controlling interest.
(B) If in (A) above, H Limited pays dividend amounting to ` 100,000 with
DDT liability @ 20% amounting to ` 20,000.
Response: In the given case, share of H Limited in DDT paid by S Limited is
` 24,000 out of which only ` 20,000 was utilised by H Limited while paying
dividend by its own. Therefore, balance ` 4,000 should be charged in the
consolidated statement of profit and loss.
In accordance with the above, in the given case, CFS of H limited will be as
under:




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                                  Ind AS 110, Consolidated Financial Statements

Transactions               H Ltd         S Ltd         Consol    CFS H Ltd
                                                     Adjustments
Dividend        Income    120,000            -          (120,000)             -
(P&L)
Dividend          (in (100,000)        (200,000)        120,000         (180,000)*
Statement of Changes
in Equity)
DDT (in Statement             -        (40,000)           4,000          (36,000)*
of Changes in Equity)
DDT( in Statement of          -              -           (4000)           (4000)
P&L)

*Dividend of ` 80,000 and DDT of ` 16,000 will be reflected as reduction from
non- controlling interest.
Scenario (3): Will the answer be different for the treatment of dividend
distribution tax paid by associate in the consolidated financial
statement of investor, if as per tax laws the DDT paid by associate is
not allowed set-off against the DDT liability of the investor?
Response: Considering that as per tax laws, DDT paid by associate is not
allowed set off against the DDT liability of the investor, the investor's share of
DDT would be accounted by the investor company by crediting its investment
account in the associate and recording a corresponding debit adjustment
towards its share of profit or loss of the associate.
                                             (ITFG Clarification Bulletin 13, Issue 9)
                                             (Date of finalisation: January 16, 2018)

Treatment of depreciation in consolidated financial statements
when different method of depreciation applied by entities
Issue 75: PQR Ltd. is the subsidiary company of MNC Ltd. In the stand-
alone financial statements prepared in accordance with Ind AS, PQR
Ltd. has adopted Straight-line method (SLM) of depreciation and MNC
Ltd. has adopted Written-down value method (WDV) for depreciating its
property, plant and equipment. As per Ind AS 110, Consolidated
Financial Statements , a parent shall prepare consolidated financial
statements using uniform accounting policies for like transactions and
other events in similar circumstances.


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Compendium of ITFG Clarification Bulletins

How will these property, plant and equipment be depreciated in the
consolidated financial statements of MNC Ltd. prepared as per Ind AS?
Response: Paragraph 19 and paragraph B87 of Ind AS 110, Consolidated
Financial Statements, states as follows:
 "19 A parent shall prepare consolidated financial statements using uniform
accounting policies for like transactions and other events in similar
circumstances.
B87 If a member of the group uses accounting policies other than those
adopted in the consolidated financial statements for like transactions and
events in similar circumstances, appropriate adjustments are made to that
group member's financial statements in preparing the consolidated financial
statements to ensure conformity with the group's accounting policies."
It may be noted that the above mentioned paragraphs require an entity to
apply uniform accounting policies for like transactions and events in similar
circumstances. It does not apply to accounting estimates made while
preparing financial statements.
Further, paragraphs 60 & 61 of Ind AS 8, Accounting Policies, Changes in
Accounting Estimates and Errors, state as follows:
"60 The depreciation method used shall reflect the pattern in which the
asset's future economic benefits are expected to be consumed by the entity.
61 The depreciation method applied to an asset shall be reviewed at least at
each financial year-end and, if there has been a significant change in the
expected pattern of consumption of the future economic benefits embodied in
the asset, the method shall be changed to reflect the changed pattern. Such
a change shall be accounted for as a change in an accounting estimate
in accordance with Ind AS 8."(Emphasis added)
In accordance with the above, it may be noted that the selection of the
method of depreciation is an accounting estimate and not an accounting
policy.
Accordingly, the entity should select the method that most closely reflects the
expected pattern of consumption of the future economic benefits embodied in
the asset. That method should be applied consistently from period to period
unless there is a change in the expected pattern of consumption of those
future economic benefits in separate financial statements as well as
consolidated financial statements.

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                                 Ind AS 110, Consolidated Financial Statements

Therefore, there can be different methods of estimating depreciation for
property, plant and equipment, if their expected pattern of consumption is
different. The method once selected in the stand-alone financial statements
of the subsidiary should not be changed while preparing the consolidated
financial statements.
Accordingly, in the given case, the property, plant and equipment of PQR
Ltd. (subsidiary company) may be depreciated using straight line method and
property, plant and equipment of parent company (MNC Ltd.) may be
depreciated using written down value method, if such method closely reflects
the expected pattern of consumption of future economic benefits embodied in
the respective assets.
                                            (ITFG Clarification Bulletin 11, Issue 6)
                                                (Date of finalisation: July 31, 2017)

Accounting treatment of the outstanding retired partners' capital
balances
Issue 76: A Company has investment in a partnership firm and it has
established that it has control over the firm as per the requirements of
Ind AS 110, Consolidated Financial Statements . Accordingly, as per Ind
AS, the company is required to consolidate the firm as its subsidiary
and its financial statement is required to be in compliance with Ind AS.
There are amounts outstanding towards retired partners' capitals,
which are repayable by the partnership firm on demand. What would be
the accounting treatment of these outstanding retired partners' capital
balances? Whether these are required to be discounted?
Response: In the given case, since the company has assessed and
established control over the partnership firm as per Ind AS 110, accordingly,
it will be required to consolidate the partnership firm as per the requirements
of Ind AS. Though Ind AS would not be applicable to the partnership firm
nevertheless its financial statements to be consolidated by the company is
required to be in compliance with Ind AS.
In the given case, since the amounts outstanding towards retired partners'
capitals can be demanded by those retired partners anytime and it meets the
definition of a financial liability under Ind AS 32(i.e. it is firm's contractual
obligation to deliver cash or another financial asset), accordingly, the same
shall be measured at its fair value.
Paragraph 47 of Ind AS 113 states that `the fair value of a financial liability

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with a demand feature is not less than the amount payable on demand,
discounted from the first date that the amount could be required to be paid.'
Accordingly, in the given case based on the facts provided these amounts
are considered as repayable on demand at any time, and therefore, no
discounting would be required on initial recognition and subsequent
measurement.
                                      (ITFG Clarification Bulletin 15, Issue 9)
                                             (Date of finalisation: April; 04, 2018)




                                    130
         Ind AS 7, Statement of Cash Flows
Classification of investments made by an entity in units of money-
market mutual funds
Issue 77 : Whether investments made by an entity in units of money-
market mutual funds (i.e., those investing in money-market instruments
such as treasury bills, certificates of deposit and commercial paper)
that are traded in an active market or are puttable by the holder to the
fund at net asset value (NAV) at any time can be classified as cash
equivalents as per Ind AS?
Response: Paragraph 6 of Ind AS7, Statement of Cash Flows , defines the
term "cash equivalents" as follows:
Cash equivalents are short-term, highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an
insignificant risk of changes in value.
Further paragraph 7 of Ind AS 7, inter-alia states that, "Cash equivalents are
held for the purpose of meeting short-term cash commitments rather than for
investment or other purposes. For an investment to qualify as a cash
equivalent it must be readily convertible to a known amount of cash and be
subject to an insignificant risk of changes in value."
As per the above, Ind AS 7 prescribes the following three cumulative
conditions to be met for an investment to be classified as a `cash equivalent'
under the standard:
    (a) The investment must be for meeting short-term cash commitments.
    (b) It must be highly liquid, i.e. readily convertible to cash.
    (c) The amount that would be realised from the investment must be known,
        with no more than an insignificant risk of change in value of the
        investment.

The investment must be for meeting short-term cash commitments
Whether an investment is for meeting short-term cash commitments or not is
essentially a matter of management intent which can generally be inferred

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from such documentary sources as investment policy, investment manuals,
minutes of relevant committee meetings, etc. and can be corroborated by the
actual experience of buying and selling those investments. However, it is to
be noted that such investments are to be held only as a means of settling
liabilities, and not as an investment or for any other purposes. Therefore,
whether this condition is met or not requires an assessment of the particular
facts and circumstances of a case.
Investment must be highly liquid, i.e. readily convertible to cash.
Units of a money market mutual fund that are traded in an active market or
that can be put back by the holder at any time to the fund at their net asset
value may meet the condition of the investment being highly liquid.
The amount that would be realised from the investment must be known, with
no more than an insignificant risk of change in value of the investment.
It is pertinent to note that the amount of cash that will be received must be
known at the time of the initial investment. Accordingly, the investments in
units of money market funds cannot be considered cash equivalents simply
because they can be converted to cash at any time at the then market price
in an active market. Further, the entity would have to satisfy itself that the
investment is subject to an insignificant risk of changes in value for it to be
classified as a cash equivalent. Hence, the purpose of holding the instrument
and the satisfaction of the criteria should both be clear from its terms and
conditions.
Accordingly, it requires careful assessment of each of the investments of the
entity considering the definition given under Ind AS 7 as well as the purpose
of holding the investments. An entity should satisfy itself and able to
demonstrate that the investment is subject to an insignificant risk of change
in value for it to be classified as a cash equivalent.
As a general proposition, the third condition, viz. that the investment must be
convertible into a known amount of cash and the risk of change in the value
of the investment should not be more than insignificant is usually not
expected to be met by units of a money-market (or other) mutual fund which
can be put back by the holder to the fund at any time for redemption at net
asset value (or can be sold in an active market). It is well-known that even
though the money market instruments have a relatively short life, their value
keeps changing primarily due to changes in interest rates. Consequently, the
amount of cash that will be received from redemption or sale of the units may
not be known at the time of the initial investment and the value of such units

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                                           Ind AS 7, Statement of Cash Flows

may be subject to a more than insignificant risk of change during the period
of their holding. However, there may be cases wherein this condition is met
e.g. where such units are acquired only for a very brief period before the end
of tenure of a mutual fund and the maturity amounts of the fund's
investments are pre-determined and known ­ in such a case, it might be
possible to argue that the redemption amount of the units is known and
subject only to an insignificant change in value.
                                          (ITFG Clarification Bulletin 16, Issue 4)
                                        (Date of finalisation: September 04, 2018)




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        Ind AS 8, Accounting Policies,
  Changes in Accounting Estimates and
                               Errors
Disclosure of the new Ind AS which is not yet effective (Ind AS
115)
Issue 78: Whether an entity is required to disclose the impact of Ind AS
115, Revenue from Contracts with Customers (as required by paragraph
30 of Ind AS 8) in its financial statements as prepared as per Ind AS?
Response: Paragraph 30 of Ind AS 8 Accounting Policies, Changes in
Accounting Estimates and Errors, states as follows:
"When an entity has not applied a new Ind AS that has been issued but is not
yet effective, the entity shall disclose:
(a)   this fact; and
(b)   known or reasonably estimable information relevant to assessing the
      possible impact that application of the new Ind AS will have on the
      entity's financial statements in the period of initial application."
In accordance with the above, it may be noted that an entity is required to
disclose the impact of Ind AS which has been issued but is not yet effective.
However, it may be noted that Ind AS 115, which was earlier notified under
Companies (Indian Accounting Standards) Rules, 2015, vide MCA
notification dated February 16, 2015 stands withdrawn under Companies
(Indian Accounting Standards) (Amendments) Rules, 2016 vide MCA
notification dated March 30, 2016. Accordingly, an entity is not required to
disclose the impact of Ind AS 115 for the financial year ending March 31,
2017 as Ind AS 115 has been omitted from the Rules.
                                          (ITFG Clarification Bulletin 8, Issue 2)
                                             (Date of finalisation: May 05, 2017)




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                              Ind AS 12, Income Taxes
Accounting treatment of Tax Holidays under Ind AS
Issue 79: Under the previous GAAP, ASI 3, Accounting for Taxes on
Income in the situations of Tax Holiday under Sections 80-IA and 80-IB
of the Income-tax Act, 1961 and ASI 6 Accounting for Taxes on Income
in the context of Section 115JB of the Income-tax Act, 1961 provides
guidance on how AS 22, Accounting for Taxes on Income is to be
applied in the situations of tax holiday under section 80-IA and 80-IB of
the Act.
Whether the same treatment can be applied under Ind AS?
Response: The consensus portion of ASI 3, Accounting for Taxes on Income
in the situations of Tax Holiday under Sections 80-IA and 80-IB of the
Income-tax Act, 1961, was included as `Explanation' to the paragraph 13 of
Accounting Standard (AS) 22, Accounting for Taxes on Income, notified
under the Companies (Accounting Standards) Rules, 2006. Accordingly, it
became the part of notified Accounting Standards. The ASIs are also not
effective in context of Indian Accounting Standards notified under Companies
(Indian Accounting Standards) Rules, 2015.
However, under Ind AS, the principles enunciated in Ind AS 12, Income
Taxes are required to be applied. The treatment as per AS 22 may be
applied where such treatment is consistent with the principles of Ind AS 12.
Paragraphs 26-29 of Ind AS 12 can be referred for the recognition of
deferred tax as they provide sufficient guidance in this regard. Ind AS 12
provides that a deferred tax asset can result from unused tax losses and tax
credits as well as from temporary differences. Deferred tax assets can only
be recognised if it is probable that there will be taxable profit available
against which the deductible temporary differences can be utilised/future
taxable profit will be available against which the unused tax losses and
unused tax credits can be utilised. Further, paragraph 47 of Ind AS 12 states
that deferred tax assets and liabilities shall be measured at the tax rates that
are expected to apply to the period when the asset is realised or the liability
is settled, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period.
Accordingly, the deferred tax in respect of temporary differences which
reverse during the tax holiday period is not recognised to the extent the
entity's gross total income is subject to the deduction during the tax holiday


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Compendium of ITFG Clarification Bulletins

period as per the requirements of section 80-IA/80-IB of the Income Tax Act,
1961.
                                            (ITFG Clarification Bulletin 11, Issue 2)
                                                (Date of finalisation: July 31, 2017)


Recognition of deferred tax asset on the tax deductible goodwill
in the consolidated financial statements
Issue 80: A Ltd. has two subsidiaries B Ltd. and C Ltd. and is required
to comply with Ind AS from 1st April, 2017. In August 2015, B Ltd. and C
Ltd. got amalgamated and as a result of the amalgamation, goodwill has
been created in the separate financial statements of the amalgamated
entity. The entity has decided to not restate its past business
combinations in accordance with the exemption available under Ind AS
101, First-time Adoption of Indian Accounting Standards. This goodwill
is allowed as deduction under Income tax laws in the books of the
amalgamated entity. In the consolidated financial statements of A Ltd.,
such accounting goodwill gets eliminated as a result of consolidation
adjustment. However, there is an increase in the tax base of assets in
the consolidated financial statements of A Ltd. resulting from such tax
deductible goodwill.
Whether deferred tax asset on the tax deductible goodwill should be
recognised in the consolidated financial statements of A Ltd. prepared
as per Ind AS when there is no corresponding accounting goodwill in
the consolidated financial statements of A Ltd.?
Response: Paragraph 5 of Ind AS 12, Income Taxes, states that, the tax
base of an asset or liability is the amount attributed to that asset or liability
for tax purposes.
Further, paragraph 7 of Ind AS 12 states that, "The tax base of an asset is
the amount that will be deductible for tax purposes against any taxable
economic benefits that will flow to an entity when it recovers the carrying
amount of the asset. If those economic benefits will not be taxable, the tax
base of the asset is equal to its carrying amount."
Further, paragraph 11 of Ind AS 12, inter alia, states that, the tax base is
determined by reference to the tax returns of each entity in the group.
Accordingly, in the given case, the tax base of the goodwill will be the
amount that will be allowed as deduction in future in accordance with the
Income Tax Act, 1961.

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                                                         Ind AS 12, Income Taxes

Paragraph 9 of Ind AS 12, states as follows:
      "Some items have a tax base but are not recognised as assets and
      liabilities in the balance sheet. For example, preliminary expenses are
      recognised as an expense in determining accounting profit in the
      period in which they are incurred but may not be permitted as a
      deduction in determining taxable profit (tax loss) until a later period(s).
      The difference between the tax base of the preliminary expenses,
      being the amount permitted as a deduction in future periods under
      taxation laws, and the carrying amount of nil is a deductible temporary
      difference that results in a deferred tax asset."
In accordance with the above, a deferred tax asset may be created for assets
or liabilities having a tax base but nil carrying amount in the financial
statements.
As per paragraph 24 of Ind AS 12, "A deferred tax asset shall be recognised
for all deductible temporary differences to the extent that it is probable that
taxable profit will be available against which the deductible temporary
difference can be utilised, unless the deferred tax asset arises from the initial
recognition of an asset or liability in a transaction that:
(a)   is not a business combination; and
(b)   at the time of the transaction, affects neither accounting profit nor
      taxable profit (tax loss).
However, for deductible temporary differences associated with investments
in subsidiaries, branches and associates, and interests in joint arrangements,
a deferred tax asset shall be recognised in accordance with paragraph 44."
Accordingly, in the given case, deferred tax asset on the tax base of goodwill
should be recognised in accordance with Ind AS 12 by crediting the
consolidated statement of profit and loss, to the extent that it is probable that
taxable profit will be available against which the deductible temporary
difference can be utilised, in the consolidated financial statements of A Ltd.
Additionally, this will not qualify for the initial recognition exemption under
paragraph 24 of Ind AS 12 as there is no initial recognition of an asset or
liability arising from the amalgamation of subsidiaries in the consolidated
financial statements of A Ltd (the impact of amalgamation of subsidiaries is
eliminated in the consolidated financial statements of A Ltd).
                                            (ITFG Clarification Bulletin 10, Issue 3)
                                                (Date of finalisation: July 05, 2017)


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Accounting treatment of dividend distribution tax (DDT) and
deferred tax liability (DTL) on the accumulated undistributed
profits of the subsidiary company
Issue 81: (i)    P Ltd. holds 100% equity shares of S Ltd., i.e. S Ltd. is
the wholly-owned subsidiary of P Ltd. During the year 2016, S Ltd. paid
dividend of ` 100,000 to P Ltd. and paid Dividend Distribution Tax (DDT)
of ` 20,000 (as per tax laws) to the taxation authorities.
       (a)   What would be the accounting treatment of the DDT in the
             consolidated financial statement of P Ltd?
       (b)   Would the answer be different, if P Ltd. in turn pays dividend
             of ` 150,000 to its shareholders and DDT liability thereon is
             determined to be ` 30,000. As per the tax laws, DDT paid by S
             Ltd. of ` 20,000 is allowed as set off against the DDT liability
             of P Ltd., resulting in P Ltd. paying ` 10,000 (` 30,000 ­ `
             20,000) as DDT to tax authorities.
(ii)    Whether deferred tax liability (DTL) on the accumulated
        undistributed profits of the Subsidiary company which may be
        distributed in the foreseeable future is required to be recognised
        in the consolidated financial statements of the Parent company,
        i.e. P Ltd.
Response: It may be noted that the treatment of Dividend Distribution Tax
(DDT) in the standalone financial statements of the parent entity and its
subsidiary has been dealt with in the FAQ issued by the Accounting
Standards Board (ASB) of ICAI on the treatment of Dividend distribution tax.
(i)
(a)     In the consolidated financial statements of P Ltd., the dividend income
        earned by P Ltd. from S Ltd. and dividend recorded by S Ltd. in its
        equity will both get eliminated as a result of consolidation adjustments.
        DDT of ` 20,000 paid outside the consolidated Group i.e. to the tax
        authorities should be charged as expense in the consolidated
        statement of profit and loss of P Ltd.
(b)     If DDT paid by the subsidiary S Ltd. is allowed as a set off against the
        DDT liability of its parent P Ltd. (as per the tax laws), then the amount
        of such DDT should be recognised in the consolidated statement of
        changes in equity of parent P Ltd. Accordingly, in the given situation,
        DDT of ` 30,000 (` 20,000 of DDT paid by S Ltd. and ` 10,000 of DDT


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                                                       Ind AS 12, Income Taxes

       paid by P Ltd.) should be recognised in the consolidated statement of
       changes in equity of parent P Ltd. The basis for such accounting would
       be that due to Parent P Ltd's transaction of distributing dividend to its
       shareholders (a transaction recorded in Parent P Ltd's equity) and the
       related DDT set-off, this DDT paid by the subsidiary is effectively a tax
       on distribution of dividend to the shareholders of the Parent company.
(ii)   Paragraphs 39 & 40 of Ind AS 12, Income Taxes, state as follows:
       39 An entity shall recognise a deferred tax liability for all taxable
       temporary differences associated with investments in subsidiaries,
       branches and associates, and interests in joint arrangements, except
       to the extent that both of the following conditions are satisfied:
       (a)   the parent, investor, joint venturer or joint operator is able to
             control the timing of the reversal of the temporary difference;
             and
       (b)   it is probable that the temporary difference will not reverse in the
             foreseeable future.
       40 As a parent controls the dividend policy of its subsidiary, it is able
       to control the timing of the reversal of temporary differences
       associated with that investment (including the temporary differences
       arising not only from undistributed profits but also from any foreign
       exchange translation differences). Furthermore, it would often be
       impracticable to determine the amount of income taxes that would be
       payable when the temporary difference reverses. Therefore, when the
       parent has determined that those profits will not be distributed in the
       foreseeable future the parent does not recognise a deferred tax
       liability. The same considerations apply to investments in branches.
In accordance with the above, it may be noted that the deferred tax liability
(DTL) is not recognised on the accumulated undistributed profits of the
subsidiary company in the consolidated financial statements of the parent
entity, if it is determined that such accumulated undistributed profits will not
be distributed in the foreseeable future.
However, if based on evaluation of facts and circumstances, it is concluded
that it is probable that the accumulated undistributed profits will be
distributed in the foreseeable future, then DTL on accumulated undistributed
profits of the subsidiary company should be recognised in the consolidated
statement of profit and loss of the parent company. Where DDT paid by the
subsidiary on distribution of its accumulated undistributed profits is allowed

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as a set off against the parent's own DDT liability, then the amount of such
DDT can be recognised in the consolidated statement of changes in equity of
parent by crediting an equivalent amount to deferred tax expense in the
consolidated statement of profit and loss of P Ltd in the period in which the
set-off is availed.
In this regard, it may also be noted that the tax credit is not recognised until
the conditions required to receive the tax credit are met. The tax credit on
account of DDT paid by the subsidiary is recognised in the year in which they
are claimed against parent's DDT liability. This is important because the
payment of dividend by Parent P is decided by its shareholders and,
therefore, not to recognise a DTL or to recognise any tax credit prior to such
shareholder actions may not be appropriate. For example, shareholders of
Parent P Ltd may decide not to distribute or even reduce the amount of
dividends proposed by the Board of Directors of P Ltd.
                                             (ITFG Clarification Bulletin 9, Issue 1)
                                                (Date of finalisation: May 15, 2017)


Recognition of deferred tax asset on land sold as slump sale
Issue 82: A freehold land is held by PQR Ltd. which it expects to sell on
a slump-sale basis and not individually. Whether PQR Ltd. is not
required to recognise deferred tax asset on such land on the basis that
the same will be sold on a slump sale basis and hence a temporary
difference would not exist. PQR Ltd. has entered into similar slump sale
arrangements in the past.
Response: As per paragraph 5 of Ind AS 12, "Temporary differences are
differences between the carrying amount of an asset or liability in the
balance sheet and its tax base. Temporary differences may be either:
(a)   taxable temporary differences, which are temporary differences that
      will result in taxable amounts in determining taxable profit (tax loss) of
      future periods when the carrying amount of the asset or liability is
      recovered or settled; or
(b)   deductible temporary differences, which are temporary differences that
      will result in amounts that are deductible in determining taxable profit
      (tax loss) of future periods when the carrying amount of the asset or
      liability is recovered or settled.


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                                                         Ind AS 12, Income Taxes

The tax base of an asset or liability is the amount attributed to that asset or
liability for tax purposes."
Further paragraphs 15 and 24 of Ind AS 12, state as follows:
15    A deferred tax liability shall be recognised for all taxable temporary
      differences, except to the extent that the deferred tax liability arises
      from:
      (a)   the initial recognition of goodwill; or
      (b) the initial recognition of an asset or liability in a transaction which:
            (i)   is not a business combination; and
            (ii) at the time of the transaction, affects neither accounting
                 profit nor taxable profit (tax loss).
      However, for taxable temporary differences associated with
      investments in subsidiaries, branches and associates, and interests in
      joint arrangements, a deferred tax liability shall be recognised in
      accordance with paragraph 39.
24    A deferred tax asset shall be recognised for all deductible temporary
      differences to the extent that it is probable that taxable profit will be
      available against which the deductible temporary difference can be
      utilised, unless the deferred tax asset arises from the initial recognition
      of an asset or liability in a transaction that:
      (a)     is not a business combination; and
      (b)     at the time of the transaction, affects neither accounting profit
              nor taxable profit (tax loss).
      However, for deductible temporary differences associated with
      investments in subsidiaries, branches and associates, and interests in
      joint arrangements, a deferred tax asset shall be recognised in
      accordance with paragraph 44.
In view of the above provisions of Ind AS 12, it may be noted that deferred
tax asset/liability is to be created for all deductible/taxable temporary
differences, except in specified situations e.g. if it arises from a transaction
that affects neither accounting profit nor taxable profit (tax loss) at the time of
the transaction (known as initial recognition exemption).
Paragraph 51 of Ind AS 12 further states that, "The measurement of deferred
tax liabilities and deferred tax assets shall reflect the tax consequences that
would follow from the manner in which the entity expects, at the end of the


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Compendium of ITFG Clarification Bulletins

reporting period, to recover or settle the carrying amount of its assets and
liabilities."
In accordance with the above, it may be noted that creation of deferred tax is
dependent upon the tax consequences that will follow on the basis of the
expected manner of recovery or settlement of the asset/liability by the entity.
The expectation of the entity at the end of the reporting period with regard to
the manner of recovery or settlement of its assets and liabilities will require
exercise of judgement based on evaluation of facts and circumstances in
each case. It may be relevant to consider that there is substance to
management's expectation of the entity being able to recover the asset
through slump sale or otherwise.
However, it is also important to note the following principle of Ind AS 12:
Paragraph 51B of Ind AS 12 states that, "If a deferred tax liability or deferred
tax asset arises from a non-depreciable asset measured using the
revaluation model in Ind AS 16, the measurement of the deferred tax liability
or deferred tax asset shall reflect the tax consequences of recovering the
carrying amount of the non-depreciable asset through sale, regardless of the
basis of measuring the carrying amount of that asset. Accordingly, if the tax
law specifies a tax rate applicable to the taxable amount derived from the
sale of an asset that differs from the tax rate applicable to the taxable
amount derived from using an asset, the former rate is applied in measuring
the deferred tax liability or asset related to a non-depreciable asset."
In accordance with the above, it may be noted that if a non-depreciable asset
is measured using the revaluation model, then an entity is required to
measure the DTA/DTL considering the tax consequences of recovering the
carrying amount through sale.
In the given case, PQR Ltd. will be required to evaluate facts and
circumstances to assess whether the freehold land will be sold through
slump sale. If it is concluded based on evaluation of facts that the land will be
sold through slump sale, then the tax base of the land will be the same as
the carrying amount of the land, as indexation benefit is not available in case
of slump sale (as per Income Tax Act, 1961) and hence, there will not be any
temporary difference.
                                             (ITFG Clarification Bulletin 7, Issue 7)
                                              (Date of finalisation: March 30, 2017)




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                                                      Ind AS 12, Income Taxes

Recognition of the deferred tax on the differences that are arising
from adjustment of exchange difference to the cost of the asset
Issue 83: MNC Ltd. is a first-time adopter of Ind AS. It had taken a
foreign currency loan for USD 100 million on March 31, 2013 for
construction of its property, plant and equipment (PPE). The company
had availed the option given under paragraph 46/46A of AS 11, The
Effects of Changes in Foreign Exchange Rates notified under the
Companies (Accounting Standards) Rules, 2006 and accordingly,
exchange gain/loss on such foreign currency loan had been added to or
deducted from the cost of PPE. On the date of transition to Ind AS, the
Company has opted for the exemption given under paragraph D13AA of
Ind AS 101, First-time Adoption of Indian Accounting Standards.
As per section 43A of Income Tax Act, 1961 such exchange differences
capitalised are not allowed deduction under the Income Tax.
Whether deferred tax is to be recognised on such differences that are
arising from adjustment of exchange difference to the cost of the asset
or can it be said that these meet the initial recognition exemption under
paragraph 15(b) of Ind AS 12, Income Taxes, and hence no deferred tax
is required to be created on the same?
Response: Paragraph D13AA of Ind AS 101 states as follows:
"A first-time adopter may continue the policy adopted for accounting for
exchange differences arising from translation of long-term foreign currency
monetary items recognised in the financial statements for the period ending
immediately before the beginning of the first Ind AS financial reporting period
as per the previous GAAP."
Further, paragraph 7AA of Ind AS 21 states as follows:
"7AA This Standard does not also apply to long-term foreign currency
monetary items for which an entity has opted for the exemption given in
paragraph D13AA of Appendix D to Ind AS 101. Such an entity may continue
to apply the accounting policy so opted for such long- term foreign currency
monetary items."
As stated above, it may be noted that the exemption under paragraph D13AA
of Ind AS 101 is available only for the exchange differences arising from
translation of long-term foreign currency monetary items recognised in the
financial statements immediately before the beginning of the first Ind AS
financial reporting period.


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Compendium of ITFG Clarification Bulletins

As per paragraph 5 of Ind AS 12, "Temporary differences are differences
between the carrying amount of an asset or liability in the balance sheet and
its tax base. Temporary differences may be either:
(a)   taxable temporary differences, which are temporary differences that
      will result in taxable amounts in determining taxable profit (tax loss) of
      future periods when the carrying amount of the asset or liability is
      recovered or settled; or
(b)   deductible temporary differences, which are temporary differences that
      will result in amounts that are deductible in determining taxable profit
      (tax loss) of future periods when the carrying amount of the asset or
      liability is recovered or settled.
The tax base of an asset or liability is the amount attributed to that asset or
liability for tax purposes."
It may result in deferred tax depending on treatment of such differences
under Income Tax Act, 1961 including Income Computation and Disclosure
Standards (ICDS). Paragraph 15 of Ind AS 12, states as follows:
15    A deferred tax liability shall be recognised for all taxable temporary
      differences, except to the extent that the deferred tax liability arises
      from:
      (a)    the initial recognition of goodwill; or
      (b)    the initial recognition of an asset or liability in a transaction
             which:
             (i)     is not a business combination; and
             (ii)    at the time of the transaction, affects neither accounting
                     profit nor taxable profit (tax loss).
However, for taxable temporary differences associated with investments in
subsidiaries, branches and associates, and interests in joint arrangements, a
deferred tax liability shall be recognised in accordance with paragraph 39.
Similarly, paragraph 24 of Ind AS 12 states as follows:
A deferred tax asset shall be recognised for all deductible temporary
differences to the extent that it is probable that taxable profit will be available
against which the deductible temporary difference can be utilised, unless the
deferred tax asset arises from the initial recognition of an asset or liability in
a transaction that:
(a)   is not a business combination; and

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                                                          Ind AS 12, Income Taxes

(b)    at the time of the transaction, affects neither accounting profit nor
       taxable profit (tax loss).
However, for deductible temporary differences associated with investments
in subsidiaries, branches and associates, and interests in joint arrangements,
a deferred tax asset shall be recognised in accordance with paragraph 44.
In accordance with the above, it may be noted that deferred taxes is required
to be recognised for all taxable and deductible temporary differences except
in specified situations, e.g. if it arises from initial recognition of an asset or a
liability. However, adjustment to the cost of the asset due to exchange
difference is a subsequent transaction and does not arise on `the initial
recognition of an asset or liability'. In other words, capitalisation of the
exchange differences (including the exchange differences prior to the date of
transition) represents subsequent measurement of the liability which has
been adjusted to the cost of the asset. Accordingly, in the given case, initial
recognition exemption will not be available and deferred tax is required to be
recognised on temporary difference arising from capitalised exchange
differences.
                                              (ITFG Clarification Bulletin 8, Issue 8)
                                                 (Date of finalisation: May 05, 2017)

Accounting treatment of the interest and penalties related to
income taxes
Issue 84: How should an entity account for the interest and penalties
related to income taxes, in accordance with the principles of Ind AS?Is
there any conflict between the treatment as per Ind AS vis-a-vis IFRS?
Response: Paragraph 9.7.1 of `Guidance Note on Division II- Ind AS
Schedule III to the Companies Act, 2013' issued by the ICAI states as
follows:
`Any interest on shortfall in payment of advance income-tax is in the nature of
finance cost and hence should not be clubbed with the Current tax. The
same should be classified as Interest expense under finance costs. However,
such amount should be separately disclosed.
Any penalties levied under Income tax laws should not be classified as
Current tax. Penalties which are compensatory in nature should be treated
as interest and disclosed in the manner explained above. Other tax penalties
should be classified under `Other Expenses'.'


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The above recommendations of the Guidance Note are based on the
difference between the nature of current tax on the one hand and that of
interest or penalties levied on an entity under the income-tax law on the
other. As per Ind AS 12, "current tax is the amount of income taxes payable
(recoverable) in respect of the taxable profit (tax loss) for a period." Thus, an
entity's obligation for current tax arises because it earns taxable profit during
a period. An entity's obligation for interest or penalties, on the other hand,
arises because of its failure to comply with one or more of the requirements
of income-tax law (e.g. failure to deposit income-tax). Thus, obligations for
current tax and those for interest or penalties arise due to reasons that are
fundamentally different in nature. Paragraph 29 of Ind AS 1, Presentation of
Financial Statements, requires, inter alia, that "an entity shall present
separately items of a dissimilar nature or function unless they are immaterial
except when required by law." It is with a view to properly reflect the
difference in the nature of current tax and interest/penalties imposed under
income-tax law that the Guidance Note requires interest or penalties to be
not clubbed with current tax and to treat penalties that are compensatory in
nature and interest as part of finance cost and to treat other penalties as part
of other expenses.
It may also be mentioned where an entity is in compliance of all of the
applicable requirements of income-tax law, it incurs no obligation to pay any
interest or penalties, regardless of the amount of its taxable profit for the
period. The amount of the entity's taxable profit for a period, on the other
hand, generally has a direct correlation with the amount of its current tax
obligation for the period. However, even if the amount of interest or penalties
for non-compliance with requirements of applicable income-tax law in a
particular jurisdiction were linked directly to the amount of taxable profit, the
differences in nature of current tax and interest/penalties would still warrant
that current tax and interest/penalties not be clubbed together. In other
words, similarity in a particular jurisdiction in the bases of computation of
amount of current tax and interest/penalties for non-compliance is not a
sufficient ground for clubbing these items, which are different in terms of their
nature.
It is also pertinent to mention that as per a recent IFRIC5 agenda decision (in

5The    IFRS Interpretations Committee (Interpretations Committee) is the
interpretative body of the International Accounting Standards Board (Board). The
Interpretations Committee works with the Board in supporting the application of
IFRS Standards.

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                                                           Ind AS 12, Income Taxes

the meeting held on 12 September 2017)6; entities do not have an accounting
policy choice between applying IAS 12 and applying IAS 37 Provisions,
Contingent Liabilities and Contingent Assets to interest and penalties.
Instead, if an entity considers a particular amount payable or receivable for
interest and penalties to be an income tax, then the entity applies IAS 12 to
that amount. If an entity does not apply IAS 12 to a particular amount
payable or receivable for interest and penalties, it applies IAS 37 to that
amount. An entity discloses its judgement in this respect applying paragraph
122 of IAS 1 Presentation of Financial Statements, if it is part of the entity's
judgements that had the most significant effect on the amounts recognised in
the financial statements.
It is noted that as per the IFRIC agenda decision, there might be situations
where an amount payable (or receivable) for interest or penalties may be in
the nature of income-taxes and thus will be within the scope of IAS 12. In
considering whether an amount of interest or a penalty is in the scope of IAS
12, an entity considers whether the interest or penalty is a tax and whether
that tax is based on taxable profits.
In some situations it might be difficult to identify whether an amount payable
to (or receivable from) a tax authority includes interest or penalties. For
example, this might be the case when the total amount payable to a tax
authority is negotiated as a single amount and the tax authority often issues
a single demand for unpaid taxes, which might also include interest and
penalties. In such situations, since it may not be possible to segregate
interest and penalty component, entire amount would qualify within meaning
of IAS 12.
It is noted that the applicability of IFRSs is across a large number of
jurisdictions, each with its own income-tax law, therefore, an entity should
determine whether a particular amount payable or receivable for interest and
penalties is in the scope of IAS 12 (or Ind AS 12) considering the tax laws
applicable in its individual jurisdiction. For this purpose, an entity should
consider whether tax laws in the jurisdiction and other facts and
circumstances indicate that this amount is based on a taxable profit ­ i.e. a
`net' amount. For example, in India, interest and penalty payable under
section 234A/B/C will not qualify as income-taxes within the meaning of IAS

6Source:   https://www.ifrs.org/news-and-events/updates/ifric-updates/september-
2017/#8



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12 (or Ind AS 12). Thus, the related amount will be recognised as interest
(similar to the approach under the guidance note).Other interest and
penalties under the Indian income tax act are also generally not expected to
qualify as income-taxes.
                                           (ITFG Clarification Bulletin 16, Issue 2)
                                         (Date of finalisation: September 04, 2018)

Recognition of deferred tax on conversion of capital asset into
stock-in-trade
Issue 85: Z Ltd. had purchased land as capital asset as on 1.1.2007. On
1.1.2016, Z Ltd. converted the land into stock-in-trade. It is required to
adopt Ind AS from 1.4.2018 being the transition date on 01.04.2017. On
the date of transition, Z Limited continues to recognise land at
historical cost, i.e., there is no change in its carrying amount. Whether,
on the date of transition, the company is required to create deferred tax
on the differential land value on 01.01.2016, the date on which capital
asset (Land) was converted into stock in trade. Further, in case, the
company needs to create deferred tax based on the fair value as on
01.1.2016 then again there will be difference in book base and tax base
of inventory (Land) on the date of transition. Whether Z Ltd is also
required to create deferred tax on the Stock-in-trade?
Response: As per paragraph 5 of Ind AS 12, Income Taxes, "Temporary
differences are differences between the carrying amount of an asset or liability in
the balance sheet and its tax base. Temporary differences may be either:
(a) taxable temporary differences, which are temporary differences that
       will result in taxable amounts in determining taxable profit (tax loss) of
       future periods when the carrying amount of the asset or liability is
       recovered or settled; or
(b)   deductible temporary differences, which are temporary differences that
      will result in amounts that are deductible in determining taxable profit
      (tax loss) of future periods when the carrying amount of the asset or
      liability is recovered or settled.
The tax base of an asset or liability is the amount attributed to that asset or
liability for tax purposes."
Further paragraphs 15 and 24 of Ind AS 12, state as follows:
15    A deferred tax liability shall be recognised for all taxable temporary
      differences, except to the extent that the deferred tax liability arises

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      from:
      (a)     the initial recognition of goodwill; or
      (b) the initial recognition of an asset or liability in a transaction which:
            (i) is not a business combination; and
            (ii) at the time of the transaction, affects neither accounting profit
                nor taxable profit (tax loss).
      However, for taxable temporary differences associated with
      investments in subsidiaries, branches and associates, and interests in
      joint arrangements, a deferred tax liability shall be recognised in
      accordance with paragraph 39.
24    A deferred tax asset shall be recognised for all deductible temporary
      differences to the extent that it is probable that taxable profit will be
      available against which the deductible temporary difference can be
      utilised, unless the deferred tax asset arises from the initial recognition
      of an asset or liability in a transaction that:
      (a)      is not a business combination; and
      (b)      at the time of the transaction, affects neither accounting profit
               nor taxable profit (tax loss).
      However, for deductible temporary differences associated with
      investments in subsidiaries, branches and associates, and interests in
      joint arrangements, a deferred tax asset shall be recognised in
      accordance with paragraph 44.
In view of the above provisions of Ind AS 12, it may be noted that deferred
tax asset/liability is to be created for all deductible/taxable temporary
differences between the carrying amount of an asset or liability in the
balance sheet and its tax base,, except in specified situations e.g. if it arises
from a transaction that affects neither accounting profit nor taxable profit (tax
loss) at the time of the transaction (known as initial recognition exemption).
In addition, recognition of deferred tax asset will be subject to consideration
of prudence.
Paragraph 51 of Ind AS 12 further states that, "The measurement of deferred
tax liabilities and deferred tax assets shall reflect the tax consequences that
would follow from the manner in which the entity expects, at the end of the
reporting period, to recover or settle the carrying amount of its assets and
liabilities."


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In accordance with the above, it may be noted that deferred tax arises may
arise only if a difference exists between the carrying amount of an asset or
liability in the balance sheet and its tax base. Also, the creation of deferred
tax is dependent upon the tax consequences that will follow from the
expected manner of recovery or settlement of the asset/liability by the entity.
The expectation of the entity at the end of the reporting period with regard to
the manner of recovery or settlement of its assets and liabilities will require
exercise of judgement based on evaluation of facts and circumstances in
each case.
In the given case, based on the facts provided, Z Ltd. had converted its
capital asset into stock-in-trade which will then be sold as inventory.
It is pertinent to note that as per Income tax laws on conversion of a capital
asset into stock-in-trade, and thereafter, sale of the stock-in-trade, the tax
treatment will be as follows:
(i)    There will be capital gains liability in respect of the conversion of capital
       asset into stock-in-trade, at market value thereof on the date of
       conversion. Thus, the capital gains will be computed as the difference
       between the indexed cost of capital asset to the assessee and the fair
       market value of such capital asset on the date of its conversion into
       stock-in-trade.
       However, the tax will be computed using the capital gains tax rate
       applicable in the year of actual sale and not in the year of conversion.
       Also, the capital gains tax will be required to be paid only at the time of
       sale of the stock-in-trade.
(ii)   As regard the sale of the stock-in-trade, any profit realised or loss
       incurred (i.e., difference between the sale proceeds and fair value on
       the date of conversion) will be liable to tax as business income. Such
       profit/loss would accrue and be liable to tax at the time of sale of the
       stock-in-trade.
(iii) If there is a business loss in the year of sale of stock-in-trade, the Income-
      tax Act allows the loss to be offset against capital gains arising on
      conversion. Thus, the liability for capital gain tax on conversion is not
      sacrosanct and can vary depending on outcome from sale of stock-in-trade.
Considering the above, conversion of capital asset into stock-in-trade does
not require the company to recognise any current tax liability. Under the
Income-tax Act, the current tax liability will arise only on the sale of stock-in-
trade. However, the company needs to consider deferred tax implications

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                                                      Ind AS 12, Income Taxes

under Ind AS 12. The deferred tax implications arise from the fact that while
computing long-term capital gains, assesse will be entitled to avail capital
indexation benefits provided under the Income Tax Act, 1961. Therefore, on
the date of transition to Ind AS (i.e. on 1.4.2017), a deductible temporary
difference exists for Z Ltd. arising out of the carrying amount of asset (as on
1.1.2016) and its tax base (calculated as on 1.1.2016, considering indexation
benefit). Z Limited should recognise a deferred tax asset for the same if it
satisfies deferred tax asset recognition criteria under Ind AS 12. The
difference between the indexed cost of land on the date of conversion and its
fair value does not meet definition of temporary difference under Ind AS 12.
Also, the business income will be computed as a difference between the sale
price of the stock-in-trade and market value of the capital asset on the date
of its conversion into stock-in-trade. Therefore, no deferred tax at this stage
arises for these two aspects of the transaction. This is explained by way of
an example as follows:
Cost of land as on 1.1.2007 was ` 100. The land will continue to be
recognised at the same amount post the date of transition to Ind AS also.
As on 1.1.2016, the fair value of the land was ` 1000. Indexed cost of land as
on 1.1.2016 was ` 150.
Land is sold in the year 2020 for ` 1200.
Now, as per tax laws there will be gain of ` 1050 (` 1200-` 150) which will be
apportioned as follows:
Tax on Gain of ` 850/- (` 1000-` 150) will be charged as Capital gains tax.
Tax on Gain of ` 200/- (` 1200-` 1000) will be charged as Profits & Gains of
Business & Profession (PGBP).
There are differing tax rates for income from capital gains and income from
PGBP.
Considering the above, as per Ind AS 12, deferred tax on the date of
transition to Ind AS will be computed as below:
Tax base (Indexed cost of land as on 1 January 2016)      ` 150
Carrying amount                                           ` 100
Deductible temporary difference                            ` 50
Deferred tax asset (DTA) should be created for the above deductible
difference of ` 50 assuming that Ind AS 12 criteria for deferred tax asset
recognition are met. Furthermore, the tax base of the land (which has been

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classified as inventory) for subsequent period would remain the same as
indexed cost of the land on the date of such classification (i.e. 1.1.2016).
Hence, there will be no change in deductible temporary difference till the
year of sale, i.e., year 2020. In any case, Z Ltd. will continue to evaluate
recognition and measurement of deferred tax asset based on Ind AS 12
principles.
In the year of sale, current tax as mentioned above will be payable and
recognised as such. Also, it will result into reversal/ realisation of deferred
tax asset, if any, recognised for land in the earlier periods.
The example above is only for illustrative purposes and should not be
considered as an advice for income tax purpose.
                                          (ITFG Clarification Bulletin 17, Issue 7)
                                        (Date of finalisation: December 19, 2018)




                                     152
                   Ind AS 16, Property, Plant and
                                      Equipment
Accounting Treatment of expenditure on the construction/
development of railway siding, road and bridge to facilitate the
construction of a new refinery
Issue 86: ABC Ltd is setting up a new refinery outside the city limits. In
order to facilitate the construction of the refinery and its operations,
ABC Ltd. is required to incur expenditure on the construction/
development of railway siding, road and bridge. Though ABC Ltd.
incurs (or contributes to) the expenditure on the construction/
development, it will not have ownership rights on these items and they
are also available for use to other entities and public at large. Whether
ABC Ltd. can capitalise expenditure incurred on these items as
property, plant and equipment (PPE)? If yes, how should these items be
depreciated and presented in the financial statements of ABC Ltd.?
Response: Paragraph 7 of Ind AS 16 states that "the cost of an item of
property, plant and equipment shall be recognised as an asset if, and only if:
a)    it is probable that future economic benefits associated with the item
      will flow to the entity; and
b)    the cost of the item can be measured reliably."
Further, paragraph 9 of Ind AS 16 provides that, "This Standard does not
prescribe the unit of measure for recognition, i.e., what constitutes an item of
property, plant and equipment. Thus, judgement is required in applying the
recognition criteria to an entity's specific circumstances. It may be
appropriate to aggregate individually insignificant items, such as moulds,
tools and dies, and to apply the criteria to the aggregate value."
Paragraph 16 of Ind AS 16, inter alia, states that the cost of an item of
property, plant and equipment comprise any costs directly attributable to
bringing the asset to the location and condition necessary for it to be capable
of operating in the manner intended by management.
In the given case, railway siding, road and bridge are required to facilitate the
construction of the refinery and for its operations. Expenditure on these items
is required to be incurred in order to get future economic benefits from the


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Compendium of ITFG Clarification Bulletins

project as a whole which can be considered as the unit of measure for the
purpose of capitalisation of the said expenditure even though the company
cannot restrict the access of others for using the assets individually. It is
apparent that the aforesaid expenditure is directly attributable to bringing the
asset to the location and condition necessary for it to be capable of operating
in the manner intended by management.
In view of this, even though ABC Ltd. may not be able to recognise
expenditure incurred on these assets as an individual item of property, plant
and equipment in many cases (where it cannot restrict others from using the
asset), expenditure incurred may be capitalised as a part of overall cost of
the project. From this, it can be concluded that, in the extant case the
expenditure incurred on these assets, i.e., railway siding, road and bridge,
should be considered as the cost of constructing the refinery and
accordingly, expenditure incurred on these items should be allocated and
capitalised as part of the items of property, plant and equipment of the
refinery.
Depreciation
As per paragraph 43 of Ind AS 16, each part of an item of property, plant and
equipment with a cost that is significant in relation to the total cost of the item
shall be depreciated separately.
Further, paragraph 45 of Ind AS 16 provides that, a significant part of an item
of property, plant and equipment may have a useful life and a depreciation
method that are the same as the useful life and the depreciation method of
another significant part of that same item. Such parts may be grouped in
determining the depreciation charge.
In view of the above, if these assets have a useful life which is different from
the useful life of the item of property, plant and equipment to which they
relate, it should be depreciated separately. However, if these assets have a
useful life and the depreciation method that are the same as the useful life
and the depreciation method of the item of property, plant and equipment to
which they relate, these assets may be grouped in determining the
depreciation charge. Nevertheless, if it has been included in the cost of
property, plant and equipment as a directly attributable cost, it will be
depreciated over the useful lives of the said property, plant and equipment.
The useful lives of these assets should not exceed that of the asset to which
it relates.


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                                      Ind AS 16, Property, Plant and Equipment

Presentation
These assets should be presented within the class of asset to which they
relate.
                                            (ITFG Clarification Bulletin 11, Issue 8)
                                                (Date of finalisation: July 31, 2017)


Selection of valuation model of immovable properties
Issue 87: (i) ABC Ltd. is covered under Phase II of Ind AS roadmap and
is required to apply Ind AS from financial year 2017-18. It has certain
immovable properties such as land or building. Whether ABC Ltd. is
allowed to use revaluation model under Ind AS 16, Property, Plant and
Equipment for such immovable properties instead of cost model in its
first Ind AS financial statements prepared for the period ending 31st
March 2018.
(ii) Whether ABC Ltd. can opt for cost model for some class of property,
plant and equipment and apply revaluation model for other class of
property, plant and equipment in its first Ind AS financial statements
prepared for the period ending 31st March 2018.
Response: (i) An entity will first be required to evaluate that whether the land
and building that it holds is an investment property or its property, plant and
equipment (PPE).
Ind AS 40, Investment Property provides that Investment property is property
(land or a building--or part of a building--or both) held (by the owner or by
the lessee under a finance lease) to earn rentals or for capital appreciation or
both, rather than for:
(a)   use in the production or supply of goods or services or for
      administrative purposes; or
(b)   sale in the ordinary course of business.
Further Ind AS 16, Property, Plant and Equipment, states that- Property,
plant and equipment are tangible items that:
(a)   are held for use in the production or supply of goods or services, for
      rental to others, or for administrative purposes; and
(b)   are expected to be used during more than one period.
In accordance with the above, if land or building is classified as PPE, then
the same shall be initially measured at cost and for subsequent

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Compendium of ITFG Clarification Bulletins

measurement the entity has the option to choose cost model or revaluation
model as per paragraph 29 of Ind AS 16 as stated below:
 "An entity shall choose either the cost model in paragraph 30 or the
revaluation model in paragraph 31 as its accounting policy and shall apply
that policy to an entire class of property, plant and equipment."
However, if land or building has been held to earn rentals or for capital
appreciation or both then the same shall be classified as investment property
and only cost model as per paragraph 30 of Ind AS 40 can be used.
As per paragraph 20 of Ind AS 40, "An investment property shall be
measured initially at its cost." Further paragraph 30 requires that, "An entity
shall adopt as its accounting policy the cost model prescribed in
paragraph 56 to all of its investment property."
Further, paragraph 56 of Ind AS 40 states as follows:
Cost model
56 After initial recognition, an entity shall measure all of its investment
properties in accordance with Ind AS 16's requirements for cost model,
other than those that meet the criteria to be classified as held for sale (or are
included in a disposal group that is classified as held for sale) in accordance
with Ind AS 105, Non-current Assets Held for Sale and Discontinued
Operations. Investment properties that meet the criteria to be classified as
held for sale (or are included in a disposal group that is classified as held for
sale) shall be measured in accordance with Ind AS 105.
(ii) As per paragraph 31 of Ind AS 16,"After recognition as an asset, an item
of property, plant and equipment whose fair value can be measured reliably
shall be carried at a revalued amount, being its fair value at the date of the
revaluation less any subsequent accumulated depreciation and subsequent
accumulated impairment losses. Revaluations shall be made with sufficient
regularity to ensure that the carrying amount does not differ materially from
that which would be determined using fair value at the end of the reporting
period."
Further, paragraphs 36 and 37 of Ind AS 16, inter alia, state:
"36 If an item of property, plant and equipment is revalued, the entire class of
property, plant and equipment to which that asset belongs shall be revalued."
37 A class of property, plant and equipment is a grouping of assets of a
similar nature and use in an entity's operations...... ."

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                                     Ind AS 16, Property, Plant and Equipment

In accordance with the above, it may be noted that the standard requires that
if revaluation model is chosen then that should be applied to the entire class
and not to an individual item of property, plant and equipment. Accordingly,
in the given case, the entity may elect to opt for revaluation model for a
particular class of assets and cost model for another class of assets which
are classified as property, plant and equipment.
                                           (ITFG Clarification Bulletin 12, Issue 1)
                                           (Date of finalisation: October 23, 2017)


Accounting treatment of the wrongly capitalised asset which does
not meet the definition of tangible asset
Issue 88: ABC Ltd. is a first-time adopter of Ind AS and has opted for
deemed cost exemption as per paragraph D7AA of Ind AS 101, First-
time Adoption of Indian Accounting Standards. It had capitalised an
item of property, plant and equipment under previous GAAP even
though it did not meet the definition of an asset. Whether this asset
cost can also be continued to be capitalised under deemed cost
exemption/
Response: Paragraph D7AA of Ind AS 101, provides that, "Where there is
no change in its functional currency on the date of transition to Ind ASs, a
first-time adopter to Ind ASs may elect to continue with the carrying value for
all of its property, plant and equipment as recognised in the financial
statements as at the date of transition to Ind ASs, measured as per the
previous GAAP and use that as its deemed cost as at the date of transition
after making necessary adjustments in accordance with paragraph D21 and
D21A, of Ind AS 101."
In accordance with the above, the option of deemed cost exemption can be
availed for property, plant and equipment measured as per previous GAAP.
The incorrect capitalisation of the item of property, plant and equipment did
not meet the definition of asset as per previous GAAP and the definition of
`Property, plant and equipment' as per Ind AS 16, accordingly the deemed
cost exemption under paragraph D7AA of Ind AS 101 cannot be availed for
those assets.
Further, it is important to note the provisions of paragraph 10 of Ind AS 101,
which states that, "Except as described in paragraphs 13­19 and Appendices
B­D, an entity shall, in its opening Ind AS Balance Sheet:


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Compendium of ITFG Clarification Bulletins

(a)   recognise all assets and liabilities whose recognition is required by Ind
      ASs;
(b)   not recognise items as assets or liabilities if Ind ASs do not permit
      such recognition;
(c)   reclassify items that it recognised in accordance with previous 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 ASs; and
(d)   apply Ind ASs in measuring all recognised assets and liabilities."
Paragraph 26 of Ind AS 101 provides that, `If an entity becomes aware of
errors made under previous GAAP, the reconciliations required by paragraph
24(a) and (b) shall distinguish the correction of those errors from changes in
accounting policies.'
Further, paragraph 24 of Ind AS 101 provides that, "To comply with
paragraph 23, an entity's first Ind AS financial statements shall include:
(a)   reconciliations of its equity reported in accordance with previous
      GAAP to its equity in accordance with Ind ASs for both of the following
      dates:
      (i)    the date of transition to Ind ASs; and
      (ii)   the end of the latest period presented in the entity's most recent
             annual financial statements in accordance with previous GAAP.
(b)   a reconciliation to its total comprehensive income in accordance with
      Ind ASs for the latest period in the entity's most recent annual financial
      statements. The starting point for that reconciliation shall be total
      comprehensive income in accordance with previous GAAP for the
      same period or, if an entity did not report such a total, profit or loss
      under previous GAAP."
In view of the above, the incorrect capitalisation of asset which does not
meet the definition of tangible asset will be covered under paragraph 26 of
Ind AS 101 being an error, and the disclosure of the same should be done as
per paragraph 24 of Ind AS 101 as mentioned above.
                                             (ITFG Clarification Bulletin 8, Issue 4)
                                                (Date of finalisation: May 05, 2017)



                                     158
                                      Ind AS 16, Property, Plant and Equipment

Re-computation of Depreciation based on useful life when Ind AS 16
applied retrospectively
Issue 89: A Ltd. (first-time adopter to Ind AS) chooses to measure its
property, plant and equipment by applying Ind AS 16, Property, Plant
and Equipment retrospectively. Under previous GAAP, A Ltd. had been
applying depreciation rates specified in Schedule XIV to the Companies
Act, 1956. Whether A Ltd. is required to recompute depreciation based
on useful lives from the date of initial capitalisation of property, plant
and equipment or it will have to apply depreciation rates applied under
previous GAAP till the date of opening balance sheet?
Response:
Ind AS 101 requires retrospective application of Ind AS effective at the end of
a first-time adopter's first Ind AS reporting period. However, as an exception
to this rule, Ind AS 101, inter alia, provides deemed cost exemption, wherein
as at the date of transition to Ind AS, a first time adopter may elect to
measure all of its items of property, plant and equipment (PPE) at the
carrying amounts as per its previous GAAP.
In case the first-time adopter does not elect to choose deemed cost
exemption, then the requirements of Ind AS 16 would have to be applied as if
the first-time adopter had always applied the Standard. Accordingly, PPE will
be measured based on historical cost determined in accordance with Ind AS
16.
Paragraph 50 of Ind AS 16, Property, Plant & Equipment states as under:
"The depreciable amount of an asset shall be allocated on a systematic basis
over its useful life."
Further, paragraph 57 of Ind AS 16, states as follows:
"The useful life of an asset is defined in terms of the asset's expected utility
to the entity. The asset management policy of the entity may involve the
disposal of assets after a specified time or after consumption of a specified
proportion of the future economic benefits embodied in the asset. Therefore,
the useful life of an asset may be shorter than its economic life. The
estimation of the useful life of the asset is a matter of judgement based on
the experience of the entity with similar assets."
As per the above requirements, it may be noted that as per Ind AS 16, a
company is required to compute depreciation based on an assessment of
useful lives of an asset.

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Compendium of ITFG Clarification Bulletins

Further, paragraphs 13 & 14 of Ind AS 101, First-time Adoption of Indian
Accounting Standards state as follows:
"13 This Ind AS prohibits retrospective application of some aspects of other
Ind ASs. These exceptions are set out in paragraphs 14­17 and Appendix B.
14 An entity's estimates in accordance with Ind ASs at the date of transition
to Ind ASs shall be consistent with estimates made for the same date in
accordance with previous GAAP (after adjustments to reflect any difference
in accounting policies), unless there is objective evidence that those
estimates were in error."
In accordance with the above paragraphs, it may be noted while transitioning
to Ind AS, a first-time adopter's estimate of depreciation under previous
GAAP can only be changed if those estimates were in error. However, when
a company has been computing depreciation as per rates prescribed under
Schedule XIV of Companies Act, 1956, then it has not estimated the useful
life of an asset but has depreciated its assets as per the minimum
requirements of law.
Accordingly, when a first-time adopter chooses to measure its PPE by
retrospective application of Ind AS 16, then it will be required to re-compute
depreciation by assessing the useful life of an asset in accordance with Ind
AS 16 which is consistent with Schedule II to the Companies Act, 2013.
                                           (ITFG Clarification Bulletin 3, Issue 14)
                                              (Date of finalisation: June 22, 2016)


Property, plant and equipment - capitalisation of capital spares
when deemed cost exemption availed for property, plant and
equipment on transition to Ind AS.
Issue 90: ABC Ltd. is covered under Ind AS roadmap and required to
prepare its financial statements as per Ind AS from financial year 2016-
17 with comparatives for financial year 2015-16. The date of transition
to Ind AS is April 1, 2015. The Company has chosen to continue with the
carrying value for all of its property, plant and equipment as recognised
in the financial statements as at the date of transition to Ind AS,
measured as per the previous GAAP. The Company has recorded
capital spares in its previous GAAP financial statements as a part of
inventory.


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                                       Ind AS 16, Property, Plant and Equipment

How should the capital spares be accounted under Ind AS on the date
of transition to Ind AS, if the Company chooses to apply the previous
GAAP as deemed cost exemption?
Response: As per paragraph 8 of Ind AS 16, Property, Plant and Equipment,
items such as spare parts are to be recognised in accordance with Ind AS
16, when they meet the definition of `property, plant and equipment'.
Otherwise such items are classified as inventory.
As per Ind AS 16, `property, plant and equipment', are tangible items that:
(a) are held for use in the production or supply of goods or services, for rental to
    others, or for administrative purposes; and
(b) are expected to be used during more than one period.
Paragraph 7 of Ind AS 16, Property, Plant and Equipment, states as under:
"The cost of an item of property, plant and equipment shall be recognised as
an asset if, and only if:
(a)   it is probable that future economic benefits associated with the item
      will flow to the entity; and
(b)   the cost of the item can be measured reliably."
Therefore, if an item of spare part meets the definition of `property, plant and
equipment' as mentioned above and satisfies the recognition criteria as per
paragraph 7 of Ind AS 16, such an item of spare has to be recognised as
property, plant and equipment. If that spare part does not meet the definition
and recognition criteria as cited above, that spare is to be recognised as
inventory.
Paragraph 10 of Ind AS 101, First-time Adoption of Indian Accounting
Standards, inter alia, states that an entity, shall in its opening Ind AS Balance
Sheet, recognise all assets and liabilities whose recognition is required by
Ind AS.
As per paragraph D7AA, once the company chooses previous GAAP as
deemed cost as provided in paragraph D7AA of Ind AS 101, it is not allowed
to adjust the carrying value of property, plant and equipment for any
adjustments other than those in accordance with paragraph D21 and D21A of
Ind AS 101. In this case, a question arises whether the company may
capitalise spares as a part of property, plant and equipment on the date of
transition to Ind AS. It may be noted deemed cost exemption as the previous
GAAP is in respect of carrying value of property, plant and equipment


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capitalised under previous GAAP on the date of transition to Ind AS. This
condition does not prevent a company to recognise an asset whose
recognition is required by Ind AS on the date of transition.
In the given case, the capital spares were recognised as inventory under
previous GAAP and they were not appearing under carrying amount of PPE.
In view of the above, it is clear that ABC Ltd. should recognise `capital
spares' if they meet definition of PPE as on the date of transition, in addition
to continuing carrying value of PPE as per paragraph D7AA of Ind AS 101.
                                             (ITFG Clarification Bulletin 3, Issue 9)
                                               (Date of finalisation: June 22, 2016)

Property, Plant and Equipment - Capitalisation of expenditure on
assets not owned by the company
Issue 91: Company X has incurred expenditure on construction of a
road on the land which is not owned by the Company. Whether the
expenditure incurred on construction of such a road by the Company
has to be capitalised or expensed out under Ind AS?
Response: The capitalisation of expenditure incurred on construction of
assets on land not owned by a company would depend on facts and
circumstances of each case, particularly, considering paragraph 16(b) of Ind
AS 16, Property, Plant and Equipment (PPE), which states that such an
expenditure should be necessary for making the item of PPE capable of
operating in the manner intended by the management.
                                             (ITFG Clarification Bulletin 2, Issue 5)
                                                (Date of finalisation: April 12, 2016)


Property Plant and Equipment- Recognition Criteria of spare part
as an item of property, plant and equipment and depreciation
thereon
Issue 92: A Company has a spare part, which it terms as `insurance
spare', is required to be used along with equipment. Whether the spare
part is required to be recognised as part of that equipment? Whether
depreciation is required to be calculated separately for that spare part
or along with the equipment for which it has been used?
Response: As per paragraph 8 of Ind AS 16, Property, Plant and Equipment,
items such as spare parts are to be recognised in accordance with Ind AS
16, when they meet the definition of `property, plant and equipment'.

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                                      Ind AS 16, Property, Plant and Equipment

Otherwise such items are classified as inventory.
As per Ind AS 16, `property, plant and equipment', are tangible items that:
(a)   are held for use in the production or supply of goods or services, for
      rental to others, or for administrative purposes; and
(b)   are expected to be used during more than one period.
Paragraph 7 of Ind AS 16, Property, Plant and Equipment, states as under:
The cost of an item of property, plant and equipment shall be recognised as
an asset if, and only if:
(a)   it is probable that future economic benefits associated with the item
      will flow to the entity; and
(b)   the cost of the item can be measured reliably.
Therefore, if an item of spare part meets the definition of `property, plant and
equipment' as mentioned above and satisfies the recognition criteria as per
paragraph 7 of Ind AS 16, such an item of spare part has to be recognised as
property, plant and equipment separately from the equipment. If that spare
part does not meet the definition and recognition criteria as cited above that
spare part is to be recognised as inventory.
The depreciation on such an item of spare part will begin when the asset is
available for use i.e. when it is in the location and condition necessary for it
to be capable of operating in the manner intended by management. In case
of a spare part, as it may be readily available for use, it may be depreciated
from the date of purchase of the spare part. In determination of the useful life
of the spare part, the life of the machine in respect of which it can be used
can be one of the determining factors.
                                            (ITFG Clarification Bulletin 2, Issue 4)
                                               (Date of finalisation: April 12, 2016)


Accounting of spare parts which meet the definition of property,
plant and equipment on the date of transition
Issue 93: XYZ Ltd. is covered under Ind AS roadmap and needs to
comply Ind AS from financial year 2016-17. It has recorded certain spare
parts in its previous GAAP financial statements as a part of inventory.
As per paragraph 8 of Ind AS 16, these items meet the definition of
`property, plant and equipment' and required to be capitalised as PPE
on the date of transition to Ind AS. In this regard, clarify the issues
given below:


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(i)    At what amount such spare parts should be recognised in the
       first Ind AS financial statements? Whether depreciation should be
       charged from the date when the same became available for use or
       date of actual use?
(ii)   Explain the words `more than one period' used in definition of
       property, plant and equipment.
Response: (i) As per Ind AS 16, Property, Plant and Equipment, `property,
plant and equipment', are tangible items that:
(a)    are held for use in the production or supply of goods or services, for
       rental to others, or for administrative purposes; and
(b)    are expected to be used during more than one period.
Further paragraph 7 of Ind AS 16, states as under:
"The cost of an item of property, plant and equipment shall be recognised as
an asset if, and only if:
(a)    it is probable that future economic benefits associated with the item
       will flow to the entity; and
(b)    the cost of the item can be measured reliably."
As per paragraph 8 of Ind AS 16, Property, Plant and Equipment, items such
as spare parts are to be recognised as property, plant and equipment in
accordance with Ind AS 16, when they meet the definition of `property, plant
and equipment'. Otherwise such items are classified as inventory.
Therefore, if an item of spare part meets the definition of `property, plant and
equipment' as mentioned above and satisfies the recognition criteria as per
paragraph 7 of Ind AS 16, such an item of spare has to be recognised as
property, plant and equipment. If that spare part does not meet the definition
and recognition criteria as cited above that spare is to be recognised as
inventory [Refer - Issue 9 of ITFG Clarification Bulletin 3].
As per paragraph 10 of Ind AS 101, except for the mandatory exceptions and
voluntary exemptions provided in Ind AS 101, an entity shall, in its opening
Ind AS Balance Sheet:
(b)    not recognise items as assets or liabilities if Ind ASs do not permit
       such recognition;
(c)    reclassify items that it recognised in accordance with previous 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 ASs; and

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                                       Ind AS 16, Property, Plant and Equipment

(d)    apply Ind ASs in measuring all recognised assets and liabilities.
Paragraphs D5 to D8B provide various deemed cost exemptions that an
entity may elect to use on the date of transition. In this regard, it is pertinent
to note that paragraph D7AA of Ind AS 101 provides an option to continue
the carrying values for all of its property, plant and equipment as recognised
in the financial statements as at the date of transition to Ind ASs, measured
as per the previous GAAP and use that as its deemed cost as at the date of
transition if there is no change in its functional currency. However, the above
exemption cannot be used for such spare parts in the given case since the
same were not recognised as fixed assets, i.e., PPE, in the previous GAAP.
Moreover, paragraph D7AA does not prevent a company to recognise an
asset as PPE whose recognition is required by Ind AS on the date of
transition [Refer Issue 9 of ITFG Clarification Bulletin 3].
In view of the above, the entity should apply applicable Ind AS i.e. Ind AS 16
retrospectively to measure the amount that will be recognised for such spare
parts on the date of transition to Ind AS.
With regard to deprecation, paragraph 50 of Ind AS 16 provides that the
depreciable amount of an asset shall be allocated on a systematic basis over
its useful life.
As per paragraph 6 of Ind AS 16, Useful life is:
(a)    the period over which an asset is expected to be available for use by
       an entity; or
(b)    the number of production or similar units expected to be obtained from
       the asset by an entity.
Paragraph 55 of Ind AS 16, inter alia, provides that depreciation of an asset
begins when it is available for use, i.e., when it is in the location and
condition necessary for it to be capable of operating in the manner intended
by management.
Spare parts are generally available for use from the date of its purchase.
Accordingly, spare parts recognised as property, plant and equipment shall
be depreciated when the same are available for use.
(ii)   As per Ind AS 16, `property, plant and equipment', are tangible items
       that:
       (a)   are held for use in the production or supply of goods or services,
             for rental to others, or for administrative purposes; and
       (b)   are expected to be used during more than one period.


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Accounting policies are the specific principles, bases, conventions, rules and
practices applied by an entity in preparing and presenting financial
statements.
The term `more than one period' is not defined in Ind AS. Ordinarily, the
accounting policies are determined for preparing and presenting financial
statements on annual basis.
Accordingly, the term `period', should ordinarily be construed to be the
annual period.
                                            (ITFG Clarification Bulletin 5, Issue 6)
                                        (Date of finalisation: September 19, 2016)

Accounting treatment of the Revaluation surplus as per previous GAAP
on transition date and Revaluation gain arising after transition date
when Ind AS 16 applied retrospectively
Issue 94: PQR Ltd. is under Phase II of Ind AS roadmap. On the date of
transition i.e. 1.4.2016, it has elected not to use deemed cost exemption
given under Ind AS 101, First-time Adoption of Indian Accounting
Standards for measuring its property, plant and equipment. It has opted
to retrospectively apply the requirements of Ind AS 16, Property, Plant
and Equipment to all items of property, plant and equipment and has
opted for revaluation model of Ind AS 16 for subsequent measurement.
PQR Ltd. has been applying revaluation model under previous Indian
GAAP.
What will be the accounting treatment of the following revaluation
surplus in the Ind AS financial statements of PQR Ltd:
a)    Revaluation surplus as per previous GAAP on transition date;
b)    Revaluation gain arising after transition date.
Would the answer be different if the company would have opted for
deemed cost exemption under paragraph D5 of Ind AS 101.
Response: Paragraph 39 of Ind AS 16, Property, Plant and Equipment
states as follows:
39 If an asset's carrying amount is increased as a result of a revaluation,
the increase shall be recognised in other comprehensive income and
accumulated in equity under the heading of revaluation surplus. However,
the increase shall be recognised in profit or loss to the extent that it reverses
a revaluation decrease of the same asset previously recognised in profit or
loss.


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                                      Ind AS 16, Property, Plant and Equipment

Further, as per Ind AS 1, Presentation of Financial Statements, other
comprehensive income comprises items of income and expense (including
reclassification adjustments) that are not recognised in profit or loss as
required or permitted by other Ind ASs. The components of other
comprehensive income includes changes in revaluation surplus (see Ind AS
16, Property, Plant and Equipment and Ind AS 38, Intangible Assets);
In accordance with the above, as per Ind AS 16, revaluation increase should
be recognised in other comprehensive income.
(a) In the given case, the company has not elected deemed cost
       exemption given under Ind AS 101 and has chosen to apply the
       requirements of Ind AS 16 retrospectively. Assuming the other
       requirements of Ind AS 16 are met, the company would apply
       revaluation model of Ind AS 16 to its PPE and the revaluation reserve
       on transition date determined in accordance with the requirements of
       Ind AS 16 (carried from previous GAAP) will be recognised as
       revaluation surplus in equity. The opening balance of revaluation
       surplus as per previous GAAP should be transferred to retained
       earnings or if appropriate, another category of equity.
(b) Any revaluation gains arising on subsequent recognition, i.e. after the
       date of transition, will be recognised in the Other Comprehensive
       Income.
If the company would have opted exemption under paragraph D5 of Ind AS
101 at the date of transition then the opening balance of revaluation surplus
as per previous GAAP should be transferred to retained earnings or if
appropriate, another category of equity disclosing the description of the
nature and purpose of such amount in accordance with the requirements of
paragraph 79(b) of Ind AS 1, Presentation of Financial Statements.
This aspect has also been clarified in ITFG Clarification Bulletin 8 (Issue 7).
Accordingly, at the date of transition if a company opts for deemed costs
under Ind AS 101, then all revaluations under the previous GAAP up to the
date of transition, i.e. opening balance of revaluation reserve will be
transferred to retained earnings (or, if appropriate another category of equity)
and changes in revaluations after the date of transition (i.e. subsequent
recognition) will be recognised through OCI. It may be noted that if the
company has chosen to use revaluation model for subsequent measurement
then it has to apply the same policy for all the periods (including transition
date) presented in the first Ind AS financial statements.
                                             (ITFG Clarification Bulletin 14, Issue 6)
                                            (Date of finalisation: February 01, 2018)


                                      167
                                            Ind AS 17, Leases
Classification of land lease under Ind AS
Issue 95: XYZ Ltd. has obtained a land from the government on a long-
term lease basis which spans 99 years and above. At the end of the
lease term, the lease could be extended for another term or the land
could be returned to the government authority. Whether such land
leases should be classified as finance lease or operating lease in the
financial statements of XYZ Ltd. prepared in accordance with Ind AS?
Response: Paragraph 4 of Ind AS 17, Leases, inter alia, provides as follows:
"A finance lease is a lease that transfers substantially all the risks and
rewards incidental to ownership of an asset. Title may or may not be
eventually be transferred.
An operating lease is a lease other than a finance lease."
Further, paragraph 15A of Ind AS 17, states as follows:
"15A When a lease includes both land and buildings elements, an entity
assesses the classification of each element as a finance or an operating
lease separately in accordance with paragraphs 7­13. In determining
whether the land element is an operating or a finance lease, an important
consideration is that land normally has an indefinite economic life."
Therefore, one important consideration for evaluating lease of land is that
land has an indefinite economic life and it is expected that the value of land
generally appreciates.
Paragraphs 10 & 11 of Ind AS 17, Leases state as follows:
"10 Whether a lease is a finance lease or an operating lease depends on the
substance of the transaction rather than the form of the contract. Examples
of situations that individually or in combination would normally lead to a lease
being classified as a finance lease are:
(a)   the lease transfers ownership of the asset to the lessee by the end of
      the lease term;
(b)   the lessee has the option to purchase the asset at a price that is
      expected to be sufficiently lower than the fair value at the date the
      option becomes exercisable for it to be reasonably certain, at the
      inception of the lease, that the option will be exercised;


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                                                               Ind AS 17, Leases

(c)   the lease term is for the major part of the economic life of the asset
      even if title is not transferred;
(d)   at the inception of the lease the present value of the minimum lease
      payments amounts to at least substantially all of the fair value of the
      leased asset; and
(e)   the leased assets are of such a specialised nature that only the lessee
      can use them without major modifications.
11 Indicators of situations that individually or in combination could also lead
to a lease being classified as a finance lease are:
(a)   if the lessee can cancel the lease, the lessor's losses associated with
      the cancellation are borne by the lessee;
(b)   gains or losses from the fluctuation in the fair value of the residual
      accrue to the lessee (for example, in the form of a rent rebate
      equalling most of the sales proceeds at the end of the lease); and
(c)   the lessee has the ability to continue the lease for a secondary period
      at a rent that is substantially lower than market rent."
In case of lease of land for 99 years and above, if it is likely that such leases
meet the criteria that at the inception of the lease the present value of the
minimum lease payments amounts to at least substantially all of the fair
value of the leased asset then in this case, such lease will be classified as
`finance lease'.
However, it may also be noted that land normally has an indefinite economic
life. Where in substance there is no transfer of risks and rewards, it should
be considered as an operating lease. Some of the indicators to consider in
the overall context of whether there is transfer of risks and rewards incidental
to ownership include the lessee's ability to renew lease for another term at
substantially below market rent, lessee's option to purchase at price
significantly below fair value etc.
Accordingly, classification as operating or finance lease requires exercise of
judgement based on evaluation of facts and circumstances in each case,
while considering the indicators envisaged as above.
                                            (ITFG Clarification Bulletin 7, Issue 5)
                                             (Date of finalisation: March 30, 2017)




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Straight-lining of lease payments if escalation of lease payments
is different from general inflation.
Issue 96: ABC Ltd. has entered into an operating lease agreement for
taking a building on lease. The rent agreement is for 5 years with
escalation of lease rent at the rate of 15% p.a. The general inflation in
the country expected for the aforesaid period is around 6%.
Shall the lease payments be straight-lined or not as per Ind AS 17? If
yes, should the entire 15% p.a. escalation in lease rent be straight-lined
over a period of 5 years or only the difference which exceeds the
expected inflation rate will be straight-lined?
Response: Paragraph 33 of Ind AS 17, Leases, states as follows:
"Lease payments under an operating lease shall be recognised as an
expense on a straight-line basis over the lease term unless either:
(a) another systematic benefit is more representative of the time pattern
       of the user's benefit even if the payments to the lessors are not on that
       basis; or
(b) the payments to the lessor are structured to increase in line with
       expected general inflation to compensate for the lessor's expected
       inflationary cost increases. If payments to the lessor vary because of
       factors other than general inflation, then this condition is not met."
As per paragraph 33 of Ind AS 17, lease payments shall be straight-lined
over the period of lease unless, inter alia, the payments to the lessor are
structured to increase in line with expected general inflation to compensate
for the lessor's expected inflationary cost increases. If payments to the lessor
vary because of factors other than general inflation, then lease payments
shall be straight-lined.
Judgement would be required to be made as per the facts and circumstances
of each case to determine whether the payments to the lessor are structured
to increase in line with expected general inflation. Therefore, it is required to
evaluate the lease agreement to ascertain the real intention and attributes of
escalation in lease payments, i.e., whether the intention of such escalation is
to compensate for expected general inflation or any other factors.
It is not necessary that the rate of the escalation of lease payments should
exactly be equal to the expected general inflation. If the actual increase or
decrease in the rate of inflation is not materially different as compared to the
expected rate of inflation under the lease agreement, it is not required to
straight-line the lease payments. However, the purpose of such escalation
should only be to compensate the expected general inflation rate.


                                      170
                                                              Ind AS 17, Leases

In the given case, the increase of 15% p.a. in lease rentals does not appear
to have any link with general inflation which is expected to be 6%.
Accordingly, the entire lease payments should be straight-lined since the
increase is not a compensation for inflation.
                                           (ITFG Clarification Bulletin 5, Issue 7)
                                       (Date of finalisation: September 19, 2016)


Accounting treatment of restoration costs in case of a leasehold land
Issue 97: A company is using a leasehold land for its business purposes.
As per the lease terms, the company is under an obligation to restore the
land to its original condition at the end of the lease tenure. What should be
the accounting treatment of restoration costs in case of a leasehold land?
Response: The Company will be required to first evaluate whether the lease
is a finance lease or an operating lease, in accordance with the principles of
Ind AS 17, Leases.
If it is determined that the lease is a finance lease, then as per paragraph
16(c) of Ind AS 16, Property, Plant and Equipment, the cost of an item of
property, plant and equipment comprises the initial estimate of the costs of
dismantling and removing the item and restoring the site on which it is
located, the obligation for which an entity incurs either when the item is
acquired or as a consequence of having used the item during a particular
period for purposes other than to produce inventories during that period.
Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets contains
requirements on how to measure decommissioning, restoration and similar
liabilities. Further, Appendix A to Ind AS 16 also provides guidance on how to
account for the effect of changes in the measurement of existing
decommissioning, restoration and similar liabilities.
Paragraph 8 of Appendix A of Ind AS 16 states that the periodic unwinding of
the discount shall be recognised in profit or loss as a finance cost as it
occurs. Capitalisation under Ind AS 23 is not permitted.
In accordance with the above, all site restoration costs need to be estimated
and capitalised at initial recognition, in order that such costs can be
recovered over the life of the item of property, plant and equipment, even if
the expenditure will only be incurred at the end of the item's life. Where an
obligation exists to restore a site to its former condition at the end of its
useful life, the present value of the related future payments is capitalised


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Compendium of ITFG Clarification Bulletins

along with the cost of acquisition or construction upon completion and a
corresponding liability is recognised.
Thereafter, the asset comprising the decommissioning cost is depreciated
over its useful life, while the discounted provision is progressively unwound,
with the unwinding charge shown as finance cost in accordance with
paragraph 8 of Appendix A of Ind AS 16 as stated above.
Alternatively, if it is determined that the lease is an operating lease and the
entity incurs amount to construct the asset/ structure on land which it is required
to remove those on expiration of the lease, it should account for the removal
obligation as it has a present obligation under the lease to remove the
improvements at the end of the lease term. In such situations, the entity will
capitalise leasehold building/improvements and amortise them over the term of
the lease. The removal obligation arises when the entity completes the
construction, which is the past event. The present value of expected outflow
should be recognised as a liability when the construction is completed. An asset
of the same amount should be recognised and amortised over the remaining
lease term.
                                              (ITFG Clarification Bulletin 14, Issue 2)
                                             (Date of finalisation: February 01, 2018)
Recognition of income in respect of lease in case of nominal lease
rent payment
Issue 98: XYZ Limited is a government company and is required to
comply with Ind AS. It is in the business of development of smart city.
For development of smart city, XYZ Ltd. allots its land to customer on
99 years of lease. The customer is required to pay lease premium at the
time of execution of lease deed and lease rent on annual basis over a
period of 99 years. The lease premium amount is the market value of
land and lease rent is nominal amount say Re. 1 per square meter per
year. The lease premium is non-refundable.
As per the lease terms, on completion of 99 years, the lease is
renewable at mutual consent of lessor and lessee.
How would income in respect of lease premium collected by the XYZ
Limited (which is the market value of land and is not refundable) at the
time of execution of lease deed be recognised as per Ind AS. For
subsequent years, only nominal lease rent is collected.
Response: Paragraph 6 of Ind AS 18, Revenue scopes out revenue arising
from lease agreements. Principles enunciated under Ind AS 17, Leases
would be applicable for revenue arising from leasing agreements.

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                                                                  Ind AS 17, Leases

Recognition of income in respect of lease would depend on its classification
as per Ind AS 17, Leases.
It may be noted that ITFG Clarification Bulletin 7 (Issue 5) deals with the
broad principles to be kept in mind while classifying lease as operating or
finance lease. It also states that it requires exercise of judgement based on
evaluation of facts and circumstances in each case, while considering the
indicators given in Ind AS 17.
If it is concluded that lease is an operating lease, then it will be accounted for
in accordance with paragraphs 49 and 50 of Ind AS 17, Leases, as given
below:
     49 Lessors shall present assets subject to operating leases in their
     balance sheet according to the nature of the asset.
     50 Lease income from operating leases (excluding amounts for services
     such as insurance and maintenance) shall be recognised in income on
     a straight-line basis over the lease term, unless either:
     (a) another systematic basis is more representative of the time
         pattern in which use benefit derived from the leased asset is
         diminished, even if the payments to the lessors are not on that
         basis; or
     (b)   the payments to the lessor are structured to increase in line with
           expected general inflation to compensate for the lessor's expected
           inflationary cost increases. If payments to the lessor vary according to
           factors other than inflation, then this condition is not met.
If it is concluded that lease is a finance lease then in accordance with
paragraphs 36 and 39 of Ind AS 17, lessors shall recognise assets held
under a finance lease in their balance sheets and present them as a
receivable at an amount equal to the net investment in the lease. `The
recognition of finance income shall be based on a pattern reflecting a
constant periodic rate of return on the lessor's net investment in the finance
lease.
In the given case, the long lease term may be an indication that the lease is
classified as a finance lease subject to the consideration of other relevant
facts and circumstances. If it is so classified, the lessor should carry out the
accounting for finance lease as explained above and there will be no
receivable, since the entire amount is received upfront.
                                             (ITFG Clarification Bulletin 15, Issue 8)
                                                 (Date of finalisation: April 04, 2018)


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Compendium of ITFG Clarification Bulletins

Classification of the the infrastructure usage rights under the
lease
Issue 99: A Ltd. has entered into a long term lease of 99 years for a land
in a textile park. As per the lease agreement, A Ltd.is required to pay
nominal annual rent at the rate of Re. 1/ sq.mtr. without any upfront
payment. Further A Ltd. has made a payment of a material amount (say
150 crores) as the lumpsum payment towards using the common
infrastructure facilities of the park for the period of 99 years.
Whether the above lease transaction should be classified as an
operating lease or finance lease as per Ind AS, provided the following
terms:
     No initial amount has been paid towards such lease.
     A Ltd. has no option to purchase the land at a price that is
     sufficiently lower than fair value at the date option is exercisable.
     The renewal of the lease is based on the mutual acceptance at the
     end of lease term.
     Lessor has not agreed to renew lease on expiry of lease term
Further, whether the infrastructure usage rights should be classified
under intangible assets or should be considered as part of land lease?
Response: It is noted that as per the terms of agreement between A Ltd and
the owner of the textile park, A Ltd. is required to pay annual lease rent at
the rate of Re. 1/ sq.mtr. during the entire lease term of 99 years.
Additionally, A Ltd. has made a large lump sum payment upfront which is
stated to be towards using the common infrastructure facilities of the park for
the said period of 99 years. In the given case the stated lease rental for land
is no more than nominal, the lump sum amount paid upfront also includes an
element towards land lease rentals, notwithstanding that the agreement
states that the lump sum payment is (only) towards use of common
infrastructure facilities of the park.
The entity is required to evaluate whether the lease of land is a finance lease
or an operating lease based on the definitions of `finance lease' and
`operating lease' and indicators for classification of lease given under Ind AS
17, Leases. Reference may also be made in this regard to ITFG Clarification
Bulletin 7 (Issue 5) which emphasises that the classification of a lease under
Ind AS 17 requires exercise of judgement in the context of facts and
circumstances of each case.


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                                                                Ind AS 17, Leases

The agreement provides A Ltd. the right of use of both land and common
infrastructure facilities even though the right of use of land is exclusive
whereas the right of use of common infrastructure facilities is non-exclusive.
It may also be argued that common infrastructure facilities such as access
roads are essential for A Ltd to be able to utilise its rights in relation to land.
Accordingly, while applying Ind AS 17, the right of use of both land and
common infrastructure facilities may be viewed as a single set of rights
unless the terms of the agreement such as tenure, renewal option, etc. in
respect of the two are different (which does not seem to be the case). If the
two rights are accounted for as a single item, the relevant line item in the
balance sheet may bring out clearly that it relates to right of use of both land
and common infrastructure facilities. If on the other hand the two rights are
accounted for separately (because of differences in the terms and underlying
benefits relating to the two), accounting for each right should be based on
the particular terms and underlying benefits associated with it.
It also needs to be assessed that whether the textile park is providing
services in the form of common infrastructure facilities. As per Ind AS 17,
costs for services are excluded from minimum lease rentals. Where it is
concluded that textile part is providing services for tenure of the land then in
such case the upfront payment has to be split between minimum lease
payment towards lease of land and prepayment for future services. The
amount allocated to MLPs towards lease of land has to be considered for the
purpose of determining classification of lease between operating or finance
lease.
                                           (ITFG Clarification Bulletin 16, Issue 6)
                                         (Date of finalisation: September 04, 2018)




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                                          Ind AS 18, Revenue
Classification of expense of providing free third party goods
under Customer Loyalty Programmes
Issue 100: Company X participated in a customer loyalty programme
operated by a third party. Under the programme, members earn points
for purchases made in X's stores. The members can redeem the
accumulated award points for goods supplied by the third party. X has
fulfilled its obligation to programme members once the members have
been granted points when making purchases in its stores. The
obligation to supply the redeemed goods lies with the third party. At the
end of 31 March 2017, X has granted award points with an estimated fair
value of ` 20,000 and owes the third party ` 17,000.
In the above situation, what should be the classification of the expense
of providing free third party goods i.e. in the above example, should `
17,000 be:
      classified as changes in inventories of finished goods, stock in
      trade and WIP or
      classified as marketing expense or
      reduced from revenue?
Response: Paragraph 8 of Appendix B, Customer Loyalty Programmes of
Ind AS 18, Revenue states as follows:
"8 If a third party supplies the awards, the entity shall assess whether it is
collecting the consideration allocated to the award credits on its own account
(i.e. as the principal in the transaction) or on behalf of the third party (i.e. as
an agent for the third party).
(a)   If the entity is collecting the consideration on behalf of the third party, it
      shall:
      (i)    measure its revenue as the net amount retained on its own
             account, i.e. the difference between the consideration allocated
             to the award credits and the amount payable to the third party
             for supplying the awards; and
      (ii)   recognise this net amount as revenue when the third party


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                                                              Ind AS 18, Revenue

             becomes obliged to supply the awards and entitled to receive
             consideration for doing so. These events may occur as soon as
             the award credits are granted. Alternatively, if the customer can
             choose to claim awards from either the entity or a third party,
             these events may occur only when the customer chooses to
             claim awards from the third party.
(b)   If the entity is collecting the consideration on its own account, it shall
      measure its revenue as the gross consideration allocated to the award
      credits and recognise the revenue when it fulfills its obligations in
      respect of the awards."
In accordance with the above, if the entity is acting as a principal then it shall
recognise the revenue at gross amount and the expense of providing free
third party goods will be included in the cost of goods sold.
If the entity is acting as an agent, then in accordance with paragraph 8(a) (i),
it shall measure its revenue at the net amount, i.e. the difference between
the consideration allocated to the award credits and the amount payable to
the third party.
Accordingly, in the given case the entity will assess based on facts and
circumstances as to whether it is acting as an agent or principal. If it is
determined that Company X is acting as an agent, then entity will recognise
commission income of ` 3,000. If it is determined that Company X is acting as
a principal, then company X shall recognise revenue of ` 20,000 and ` 17,000
shall be charged to the Statement of Profit & Loss as cost of goods sold
                                        (ITFG Clarification Bulletin 10, Issue 6)
                                                 (Date of finalisation: July 5, 2017)


Revenue Recognition - Treatment of Service Tax
Issue 101: How revenue should be recognised in case Service Tax is
collected from customer for rendering of services?
Response: Paragraph 8 of Ind AS 18, inter alia, provides that revenue
includes only the gross inflows of economic benefits received and receivable
by the entity on its own account. Amounts collected on behalf of third parties
such as sales taxes, goods and services taxes and value added taxes are
not economic benefits which flow to the entity and do not result in increases
in equity. Therefore, they are excluded from revenue.


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Compendium of ITFG Clarification Bulletins

In view of the above, since service tax collected represents the amount
collected on behalf of a third party, viz., the government, revenue should be
net of service tax collected.
                                       (ITFG Clarification Bulletin 4, Issue 2)
                                             (Date of finalisation: August 19, 2016)


Revenue Recognition - presentation of Excise Duty (Gross or net
of sales)
Issue 102: ABC Ltd., which is a manufacturer of TV sets, sells a TV at `
50,000 which includes excise duty of ` 5,000. What is the amount to be
recognised as revenue? How excise duty should be presented in
financial statements? Is there any change in the presentation of excise
duty as compared to presentation prescribed in AS 9?
Response: Paragraph 8 of Ind AS 18, inter alia, provides that revenue
includes only the gross inflows of economic benefits received and receivable
by the entity on its own account. Amounts collected on behalf of third parties
such as sales taxes, goods and services taxes and value added taxes are
not economic benefits which flow to the entity and do not result in increases
in equity. Therefore, they are excluded from revenue.
Excise duty is a liability of the manufacturer which forms part of the cost of
production, irrespective whether the goods are sold or not. Therefore,
recovery of excise duty flows to the entity on its own account and the same
should be included in the amount of revenue. Accordingly, in the present
case, revenue should be recognised at ` 50,000/-
With regard to disclosure of Excise Duty, explanation to paragraph 10 of AS
9, Revenue Recognition, specifically provides that the excise duty included in
the turnover should be shown as reduction from the gross turnover on the
face of the statement of profit and loss.
Ind AS 18, Revenue, does not specifically prescribe any guidance for
presentation of excise duty. However, under Ind AS reporting framework,
revenue from sale of products is presented by including the Excise Duty as
discussed above. As per Division - II of Schedule III to the Companies Act,
2013 (i.e. Ind AS based Schedule III) ­ Note 3 of General Instructions for
Preparation of Statement of Profit and Loss, provides that revenue from
operations shall disclose separately in the notes:
(a)     sale of products (including Excise Duty);


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                                                              Ind AS 18, Revenue

(b)      sale of services; and
(c)      other operating revenues.
In view of above, since the revenue is the gross amount including excise
duty, in the statement of profit and loss prepared under Ind AS, the excise
duty should be reflected as an expense.
                                          (ITFG Clarification Bulletin 4, Issue 1)
                                             (Date of finalisation: August 19, 2016)


Whether an entity should adjust the consideration (including
advance payments) for the effect of time value of money
Issue 103: On entering into contracts to supply goods and services, an
entity requires advance payments from its customers. The period and
effective interest rate between the date of receipt of the advance payment
and the date that the entity transfers the risks and rewards of the goods
and services to the customer are considered significant.
Whether the entity is required to adjust such advance payments received
from a customer for goods or services to be provided over a long term for
the effect of time value of money in accordance with Ind AS?
Response: Assuming that the contract established between the customer and
the supplier does not contain a lease under Appendix C Determining Whether an
Arrangement contains a Lease to Ind AS 17, and is not within the scope
of Appendix C Transfers of Assets from Customers to Ind AS 18. Furthermore,
the contract does not meet the definition of a derivative under Ind AS 109,
Financial Instruments.
Paragraph 9 of Ind AS 18, Revenue requires entities to measure revenue `at
the fair value of the consideration received or receivable'.
Further, paragraph 11 of Ind AS 18, inter-alia provides that, `In most cases, the
consideration is in the form of cash or cash equivalents and the amount of
revenue is the amount of cash or cash equivalents received or receivable.
However, when the inflow of cash or cash equivalents is deferred, the fair value
of the consideration may be less than the nominal amount of cash received or
receivable. For example, an entity may provide interest-free credit to the buyer or
accept a note receivable bearing a below-market interest rate from the buyer as
consideration for the sale of goods. When the arrangement effectively constitutes
a financing transaction, the fair value of the consideration is determined by
discounting all future receipts using an imputed rate of interest.'

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Compendium of ITFG Clarification Bulletins

An analogy must be drawn from the above paragraph and accordingly, when
the entity has received advance payments from the customer for providing
promised goods or services, then it must evaluate whether the payment
terms provide it with a significant benefit of financing. While making such an
evaluation judgement is to be exercised and consideration be given to factors
such as whether, the arrangement has been entered in the normal course of
business, the advance payment is per typical payment terms within industry
and having a primary purpose other than financing, it is a security for a future
supply of limited goods or services or other relevant factors depending on
facts and circumstances of each case [emphasis added]. If it is concluded
that the arrangement does effectively constitute a significant financing
component, i.e., a loan provided by the customer to the supplier for providing
the promised goods, then the entity should adjust the consideration
(including advance payments) for the effect of time value of money.
                                       (ITFG Clarification Bulletin 14, Issue 3)
                                            (Date of finalisation: February 1, 2018)




                                      180
  Ind AS 20, Accounting for Government
   Grants and Disclosure of Government
                             Assistance
Accounting of below-market rate interest loan - exemption under
para B10 of Ind AS 101
Issue 104 :(i) P Ltd., had obtained a below-market rate of interest loan of
` 10,00,000 from Government as on April 1, 2014 for 5 years. The date of
transition to Ind AS for Entity P is April 1, 2016. Paragraph B10 of Ind
AS 101, First-time Adoption of Indian Accounting Standards, requires a
first-time adopter to use its previous GAAP carrying amount of
government loans existing at the date of transition to Ind AS as the Ind
AS carrying amount of such loans at that date.
Under previous GAAP, the carrying amount was ` 10,00,000 at the date
of transition to Ind AS. The amount repayable will be ` 10,05,000 at April
1, 2019. No other payment is required under the terms of the loan and
there are no future performance conditions attached to the loan.
Whether the exemption under paragraph B10 is only for the date of
transition to Ind AS or all the subsequent period till the existing loan is
presented i.e. 31.3.2019.
(ii) Further P Ltd., also has deferment of liability payable to government
based on agreement i.e. liability similar to sales tax deferment for 10
years, can the P Ltd take exemption under B10 stating it is similar to
government loan?
Response: (i) Paragraph B10 of Ind AS 101, First-time Adoption of Indian
Accounting Standards states as follows:
"B10 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: Presentation. Except as permitted by paragraph B11,
a first-time adopter shall apply 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
existing at the date of transition to Ind ASs and shall not recognise the
corresponding benefit of the government loan at a below-market rate of
interest as a government grant. Consequently, if a first-time adopter did not,

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Compendium of ITFG Clarification Bulletins

under its previous GAAP, recognise and measure a government loan at a
below-market rate of interest on a basis consistent with Ind AS requirements,
it shall use its previous GAAP carrying amount of the loan at the date of
transition to Ind ASs as the carrying amount of the loan in the opening Ind
AS Balance Sheet. An entity shall apply Ind AS 109 to the measurement of
such loans after the date of transition to Ind ASs ."
Paragraph 10A of Ind AS 20 states that, "The benefit of a government loan at
a below-market rate of interest is treated as a government grant. The loan
shall be recognised and measured in accordance with Ind AS 109, Financial
Instruments. The benefit of the below market rate of interest shall be
measured as the difference between the initial carrying value of the loan
determined in accordance with Ind AS 109, and the proceeds received. The
benefit is accounted for in accordance with this Standard. The entity shall
consider the conditions and obligations that have been, or must be, met
when identifying the costs for which the benefit of the loan is intended to
compensate."
In accordance with the above, a first-time adopter is required to use its
previous GAAP carrying amount of government loans existing at the date of
transition to Ind AS as the Ind AS carrying amount of such loans at that date.
A first-time adopter applies Ind AS 32, Financial Instruments: Presentation to
classify such a loan as a financial liability or an equity instrument. It shall
apply the requirements of Ind AS 20 and Ind AS 109 prospectively to
government loans existing at the date of transition to Ind AS, unless the
necessary information needed to apply the requirements of Ind AS 109
and Ind AS 20, retrospectively was obtained at the time of initially
accounting for that loan. As a result of not applying Ind AS 20 and Ind AS
109 retrospectively to government loans at the date of transition, the
corresponding benefit of the government loan at a below-market rate of
interest is not recognised as a government grant.
It is pertinent to note that subsequently, the first-time adopter applies Ind AS
109 to such a loan. To do so, the entity calculates the effective interest rate
by comparing the carrying amount of the loan at the date of transition to Ind
AS with the amount and timing of expected repayments to the government.
In the given case, as per Ind AS 32, the loan meets the definition of a
financial liability. P Ltd. uses the previous GAAP carrying amount of the loan
at the date of transition to Ind AS as the carrying amount of the loan in the
opening Ind AS balance sheet. Further, in order to measure the loan after the
date of transition to Ind AS, the effective interest rate starting from April 1,

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             Ind AS 20, Accounting for Government Grants and Disclosure of...

2016 shall be calculated.
(ii) As per Ind AS 20, "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. They exclude those forms of government assistance which cannot
reasonably have a value placed upon them and transactions with
government which cannot be distinguished from the normal trading
transactions of the entity."
Further, paragraphs 9 and 10 of Ind AS 20 state as follows:
9 The manner in which a grant is received does not affect the accounting
method to be adopted in regard to the grant. Thus a grant is accounted for in
the same manner whether it is received in cash or as a reduction of a liability
to the government.
In a scheme of deferral of sales tax, the amount of sales tax collected by the
company from its customers is retained by the company and is required to be
repaid after specified years (10 years in the example above). This makes
such an arrangement similar in nature to an interest free loan and hence the
treatment as mentioned in part (i) above shall also be applied to such
balances outstanding at the date of transition.
                                        (ITFG Clarification Bulletin 12, Issue 7)
                                            (Date of finalisation: October 23, 2017)


Accounting treatment of exemption of custom duty under EPCG
scheme
Issue 105: MNC Ltd. has received grant in the nature of exemption of
custom duty on capital goods with certain conditions related to export
of goods under Export Promotion Capital Goods (EPCG) scheme of
Government of India. Whether the same is a government grant under
Ind AS 20, Government Grants and Disclosure of Government
Assistance? If yes, then whether it is a Grant related to asset or Grant
related to income and how the same is to be accounted for?
Response: Paragraph 3 of Ind AS 20, Government Grants and Disclosure of
Government Assistance, states as follows:
"3 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. They exclude those

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Compendium of ITFG Clarification Bulletins

forms of government assistance which cannot reasonably have a value
placed upon them and transactions with government which cannot be
distinguished from the normal trading transactions of the entity."
In accordance with the above, in the given case exemption of custom duty
under EPCG scheme is a government grant and should be accounted for as
per the provisions of Ind AS 20.
Ind AS 20 defines grant related to assets and grants related to income as
follows:
"Grants related to asset are government grants whose primary condition is
that an entity qualifying for them should purchase, construct or otherwise
acquire long-term assets. Subsidiary conditions may also be attached
restricting the type or location of the assets or the periods during which they
are to be acquired or held.
Grants related to income are government grants other than those related to
assets."
It is pertinent to note that the classification of the grant as related to asset or
income will require exercise of judgement and careful examination of the
facts, objective and conditions attached to the scheme of the government.
Care is also required to ascertain the purpose of the grant and the costs for
which the grant is intended to compensate.
Based on the evaluation of facts, if it is ascertained that the grant is an asset
related grant then the same shall be presented as per paragraph 24 & 26 of
Ind AS 20 which has been stated below:
Presentation of grants related to assets
24 Government grants related to assets, including non-monetary grants at
fair value, shall be presented in the balance sheet by setting up the grant as
deferred income.
26 The grant set up as deferred income is recognised in profit or loss on a
systematic basis over the useful life of the asset."
If it is determined that the grant is related to income then the same shall be
presented as follows:
Presentation of grants related to income
29 Grants related to income are presented as part of profit or loss, either
separately or under a general heading such as `Other income'; alternatively,
they are deducted in reporting the related expense.

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            Ind AS 20, Accounting for Government Grants and Disclosure of...

It may be further noted that as per paragraph 12 of Ind AS 20, government
grants shall be accounted as follows:
"12 Government grants shall be recognised in profit or loss on a systematic
basis over the periods in which the entity recognises as expenses the related
costs for which the grants are intended to compensate
In the given case, if based on the terms and conditions of the scheme, the
grant received is to compensate the import cost of assets subject to an
export obligation as prescribed in the EPCG Scheme; recognition of grant in
the statement of profit and loss should be linked to fulfilment of associated
export obligations.
However, if the grant received is to compensate the import cost of the asset
and based on the examination of the terms and conditions of the grant, if it
can be reasonably concluded that conditions relating to export of goods are
subsidiary conditions, then it is appropriate to recognise such grant in profit
or loss over the life of the underlying asset.
                                       (ITFG Clarification Bulletin 11, Issue 5)
                                              (Date of finalisation: July 31, 2017)


Accounting treatment of the grants in the nature of promoters'
contribution on the date of transition to Ind AS and post transition
to Ind AS
Issue 106: ABC Co. is a government company and is a first-time adopter
of Ind AS. As per the previous GAAP, the contributions received by
ABC Co. from the government (which holds 100% shareholding in ABC
Co.) which is in the nature of promoters' contribution have been
recognised in capital reserve and treated as part of shareholders' funds
in accordance with the provisions of AS 12, Accounting for Government
Grants .
1)    Whether the accounting treatment of the grants in the nature of
      promoters' contribution as per AS 12 is also permitted under Ind
      AS 20 Accounting for Government Grants and Disclosure of
      Government Assistance. If not, then what will be the accounting
      treatment of such grants recognised in capital reserve as per
      previous GAAP on the date of transition to Ind AS.
2)    What will be the accounting treatment of the grants in the nature
      of promoters' contribution which ABC Co. receives post
      transition to Ind AS?


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Compendium of ITFG Clarification Bulletins

Response: 1) Paragraph 2 of Ind AS 20, Accounting for Government Grants
and Disclosure of Government Assistance, inter-alia, states as follows:
"2 This Standard does not deal with:
(a) ...
(c)   government participation in the ownership of the entity."
In accordance with the above, it may be noted that Ind AS 20 specifically
scopes out the participation by the government in the ownership of an entity.
In this fact pattern, Government has 100% shareholding in the entity.
Accordingly, the entity needs to determine whether the payment is provided
as a shareholder contribution or as a government. Equity contributions will be
recorded in equity while grants will affect the statement of profit and loss.
Where it is concluded that the contributions are in the nature of government
grant, the entity shall apply the principles of Ind AS 20 retrospectively as
specified in Ind AS 101. Ind AS 20 requires all grants to be recognised as
income on a systematic basis over the periods in which the entity recognises
as expenses the related costs for which the grants are intended to
compensate. Unlike AS 12, Ind AS 20 requires the grant to be classified as
either a capital or an income grant and does not permit recognition of
government grants in the nature of promoter's contribution directly to
shareholders' funds.
Where it is concluded that the contributions are in the nature of shareholder
contributions are recognised in capital reserve under previous GAAP, it is
important to note the provisions of paragraph 10 of Ind AS 101, which states
that:
"10 Except as described in paragraphs 13­19 and Appendices B­D, an entity
shall, in its opening Ind AS Balance Sheet:
(a)    recognise all assets and liabilities whose recognition is required by Ind
       ASs;
(b)    not recognise items as assets or liabilities if Ind ASs do not permit
       such recognition;
(c)    reclassify items that it recognised in accordance with previous 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 ASs; and
(d)    apply Ind ASs in measuring all recognised assets and liabilities."
Accordingly, as per the above requirements of paragraph 10(c) in the given

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             Ind AS 20, Accounting for Government Grants and Disclosure of...

case, contributions recognised in the Capital Reserve should be transferred
to appropriate category under `Other Equity' at the date of transition to Ind
AS.
(2) The entity shall apply the same principles as mentioned above for
accounting the contributions received by the entity subsequent to the
transition date.
                                        (ITFG Clarification Bulletin 9, Issue 3)
                                             (Date of finalisation: May 15, 2017)

Accounting of grants related to non-depreciable assets
considering the amendments made by the notification apply for
the annual periods beginning on or after April 1, 2018
Issue 107: Ind AS 20, Accounting for Government Grants and Disclosure of
Government Assistance, has recently been amended in certain respects
and consequential amendments have been made to certain other Ind ASs
vide notification dated 20th September, 2018 (`the notification') issued by
the Ministry of Corporate Affairs, Government of India.
One of the amendments made to Ind AS 20 has the effect of allowing an
entity to initially recognise a government grant in the form of a non-
monetary asset either at a at fair value or at a nominal amount. As per the
pre-amended (or original) standard, such a grant was necessarily required
to be initially recognised at fair value.
The amendments made by the notification apply for the annual periods
beginning on or after April 1, 2018.
X Ltd., a government company having 100% of its paid-up capital held by
the Government of India received land in the year 2008 from the
government to construct and operate a mass rapid transit system (MRTS)
in a metropolitan city. The land was received free of cost subject to
compliance with specified terms and conditions. In accordance with AS
12, Accounting for Government Grants, the land was recorded at a nominal
value of Re.1-.
In the following scenarios, at what amount will the aforesaid land be
included in financial statements of X Ltd. in accordance with Ind AS 20?
(i)   X Ltd. is a first-time adopter of Ind ASs and its first Ind AS reporting
      period is financial year 2018-19.



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Compendium of ITFG Clarification Bulletins

(ii)   X Ltd. is not a first time adopter of Ind ASs and financial year 2018-19
       is its second (or third) reporting period under Ind ASs.
Response: [It may be noted that Ind AS 20 specifically scopes out the
participation by the government in the ownership of an entity. In this fact pattern,
Government of India has 100% shareholding in the entity, but it has been
assumed that the land provided has been evaluated as not being in the nature of
owners' contribution and hence, it is in the nature of a government grant as per
Ind AS 20.
Further, it has been assumed that the above arrangement has been
evaluated as not being within the scope of Appendix D, Service Concession
Arrangements of Ind AS 115, Revenue from Contracts with Customers or
scope of Appendix A, Service Concession Arrangements of Ind AS 18,
Revenue, as the case may be.]
Paragraph 18 of Ind AS 20 states that, "Grants related to non-depreciable assets
may also require the fulfilment of certain obligations and would then be
recognised in profit or loss over the periods that bear the cost of meeting
the obligations. As an example, a grant of land may be conditional upon the
erection of a building on the site and it may be appropriate to recognise the grant
in profit or loss over the life of the building."
Further, paragraph 23 of Ind AS 20 relating to non-monetary government grants
states the following:
"A government grant may take the form of a transfer of a non-monetary asset,
such as land or other resources, for the use of the entity. In these circumstances,
it is usual to assess the fair value of the non-monetary asset and to
account for both grant and asset at that fair value. An alternative course that
is sometimes followed is to record both asset and grant at a nominal
amount."
(i)    If X Ltd. is a first-time adopter of Ind AS for the reporting period 2018-
       19
Ind AS 101, First-time Adoption of Indian Accounting Standards, contains
requirements applicable to first Ind AS financial statements of an entity and
the relevant provisions in the above context are as follows:.
Paragraph 3 of Ind AS 101states the following:
        "An entity's first Ind AS financial statements are the first annual
       financial statements in which the entity adopts Ind ASs, in accordance
       with Ind ASs notified under the Companies Act, 2013 and makes an


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              Ind AS 20, Accounting for Government Grants and Disclosure of...

      explicit and unreserved statement in those financial statements of
      compliance with Ind ASs ."
In accordance with the above, the financial statements of X Ltd for the
financial year 2018-19 are its first Ind AS financial statements.
Ind AS 101 further states the following-:
"Opening Ind AS Balance Sheet
6     An entity shall prepare and present an opening Ind AS Balance Sheet at
      the date of transition to Ind ASs. This is the starting point for its accounting
      in accordance with Ind ASs subject to the requirements of paragraphs
      D13AA and D22.
7     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 paragraphs 13­19 and Appendices B­D.
8     An entity shall not apply different versions of Ind ASs that were effective at
      earlier dates. An entity may apply a new Ind AS that is not yet mandatory if
      that Ind AS permits early application."
Accordingly, X Ltd is required to apply the amended Ind AS 20 for all periods
presented in its financial statements for 2018-19, including in preparing its
opening Ind AS balance sheet as at April 1, 2017.
Further, as can be seen from above requirements of Ind AS 101, the general
requirement in Ind AS 101 is that accounting policies followed in the opening Ind
AS balance sheet and in reporting other periods included in first Ind AS financial
statements should comply with all Ind ASs that are effective at the end of the first
Ind AS reporting period. Generally, those accounting policies are applied on a
retrospective basis However, as a departure from this general requirement, Ind
AS 101 provides certain mandatory exceptions and voluntary exemptions from
retrospective application of some aspects/requirements of other Ind ASs. Ind AS
101 does not contain any mandatory exceptions or voluntary exemptions from
retrospective application of Ind AS 20. Consequently, X Ltd is required to apply
the requirements of Ind AS 20, retrospectively at the date of transition to Ind ASs
(and consequently in subsequent accounting periods).
It is pertinent to note that under the amended Ind AS 20, X Ltd has a choice of
recognising the grant and the asset (i.e., land in the given case), initially either at
fair value or at a nominal amount.


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Compendium of ITFG Clarification Bulletins

(ii)   If X Ltd. is not a first-time adopter of Ind AS and financial year 2018-19
       is its second (or third) Ind AS reporting period
Financial year 2018-19 is the second (or third) Ind AS reporting period of X Ltd.
Consequently, Ind AS 101 does not apply in preparing the financial statements
for the financial year 2018-19.
In the previous financial year, in accordance with the pre-amended standard, X
Ltd followed the accounting policy of recognising the land and the government
grant initially at fair value by setting up the grant as deferred income to be
recognised in profit or loss on a systematic basis over the periods in which the
entity recognises as expenses the related costs for which the grant is intended to
compensate. Hence, the financial statements of X Ltd for the financial year 2017-
18 already include the land and the grant, both measured in accordance with the
accounting policy as stated above.
It is to be noted that the amended Ind AS 20 provides a choice to entities to
recognise the grant and related asset initially either at fair value or at a nominal
amount. The issue is whether, in view of the amended Ind AS 20 being
applicable for the financial year 2018-19, X Ltd is required or permitted to change
its aforesaid accounting policy in preparing the financial statements for the year
2018-19.
The requirements relating to changes in accounting policies are primarily
contained in Ind AS 8, Accounting Policies, Changes in Accounting Estimates
and Errors.
Paragraph 19 of Ind AS 8 states as follows:
Applying changes in accounting policies
19     Subject to paragraph 23:
       (a)    an entity shall account for a change in accounting policy resulting
             from the initial application of an Ind AS in accordance with the
             specific transitional provisions, if any, in that Ind AS; and
       (b) when an entity changes an accounting policy upon initial
           application of an Ind AS that does not include specific transitional
           provisions applying to that change, or changes an accounting
           policy voluntarily, it shall apply the change retrospectively.
  The amended Ind AS 20 does not contain any specific transitional
  provisions. Accordingly, X Ltd. has to apply the change retrospectively, if it
  is permitted by Ind AS 8, and decides to voluntarily change its accounting
  policy (from fair value to nominal amount).






                                        190
             Ind AS 20, Accounting for Government Grants and Disclosure of...

As regards circumstances in which an accounting policy should, or can, be
changed, paragraphs 14-15 of Ind AS 8 state the following:
"14 An entity shall change an accounting policy only if the change:
     (a) is required by an Ind AS; or
     (b) results in the financial statements providing reliable and more
         relevant information about the effects of transactions, other events
         or conditions on the entity's financial position, financial
         performance or cash flows.
15   Users of financial statements need to be able to compare the financial
     statements of an entity over time to identify trends in its financial
     position, financial performance and cash flows. Therefore, the same
     accounting policies are applied within each period and from one period
     to the next unless a change in accounting policy meets one of the
     criteria in paragraph 14."
It may be noted that the amended Ind AS 20 provides an entity a choice
between recognising the grant and the asset initially either at fair value or at
a nominal amount. Thus, X Ltd is not required to change the accounting
policy relating to the grant as applied by it in preparing its financial
statements for the previous financial year. The issue then is whether X Ltd.
can change its accounting policy voluntarily.
A change in accounting policy other than a change required by an Ind AS can
be made by an entity only it is permitted to do so under paragraph 14(b) of
Ind AS 20. According to paragraph 14(b), a voluntary change in an
accounting policy can be made only if the change "results in the financial
statements providing reliable and more relevant information about the effects
of transactions, other events or conditions on the entity's financial position,
financial performance or cash flows." Thus, paragraph 14 lays down two
requirements that must be complied with in order to make a voluntary change
in an accounting policy. First, the information resulting from application of the
changed (i.e., the new) accounting policy must be reliable. Second, the
changed accounting policy must result in "more relevant" information being
presented in the financial statements.
Whether a changed accounting policy results in reliable and more relevant
financial information is a matter of assessment in the particular facts and
circumstances of each case. In order to ensure that such an assessment is
made judiciously (such that a voluntary change in an accounting policy does


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not effectively become a matter of free choice), paragraph 29 of the standard
requires an entity making a voluntary change in an accounting policy to
disclose, inter alia, "the reasons why applying the new accounting policy
provides reliable and more relevant information".
In accordance with the above, a voluntary change in accounting policy by X
Ltd can be made only if the change results in the financial statements
providing reliable and more relevant information about the effects of
transactions, other events or conditions on its financial position, financial
performance or cash flows.
                                         (ITFG Clarification Bulletin 17, Issue 1)
                                           (Date of finalisation: December 19, 2018)

Accounting of benefits received to SEZ/STP unit
Issue 108: MNC Ltd. is a registered SEZ/STP unit which receives
benefits in the form of exemption from payment of taxes and duties on
import/export of goods upon fulfilment of certain conditions under a
scheme of Government of India. Whether the benefit being received by
MNC Ltd. is a government grant or a government assistance other than
government grant under Ind AS 20, Government Grants and Disclosure
of Government Assistance? If it is a government grant, whether it is a
grant related to asset or grant related to income and how is the same to
be accounted for.
Response: Paragraph 3 of Ind AS 20, Government Grants and Disclosure of
Government Assistance, states as follows:
     "3 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. They
     exclude those forms of government assistance which cannot reasonably
     have a value placed upon them and transactions with government which
     cannot be distinguished from the normal trading transactions of the entity."
Further paragraph 9 of Ind AS 20 states that, "the manner in which a grant is
received does not affect the accounting method to be adopted in regard to the
grant. Thus a grant is accounted for in the same manner whether it is received in
cash or as a reduction of a liability to the government."
In accordance with the above, in the given case, the benefit of exemption from
payment of taxes and duties levied by the government is a government grant and
should be accounted for as per the provisions of Ind AS 20.

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              Ind AS 20, Accounting for Government Grants and Disclosure of...

It is pertinent to note that the classification of the grant as related to an asset or
to income will require exercise of judgement and careful examination of the facts,
objective and conditions attached to the scheme. The purpose of the grant and
the costs for which the grant is intended to compensate would also be required to
be ascertained carefully.
The guidance given under ITFG Clarification Bulletin 11 (Issue 5) may also be
referred in making this assessment.
                                          (ITFG Clarification Bulletin 17, Issue 3)
                                            (Date of finalisation: December 19, 2018)




                                         193
     Ind AS 21, The Effects of Changes in
                 Foreign Exchange Rates
Determination of functional currency and presentation currency
for preparation of annual financial statements in case of Group
Issue 109: Company X, which is incorporated in India is the wholly-
owned subsidiary of Company Y. In accordance with the principles of
Ind AS 21 The Effects of Changes in Foreign Exchange Rates, Company
X has ascertained its functional currency to be USD. Company X has
subsidiaries and joint ventures outside India and prepares both
standalone as well as consolidated financial statements. The functional
currency of the parent company, i.e. Company Y continues to be `.
Company Y will require Company X to provide its annual consolidated
financial statements presented in ` for consolidation and reporting at
ultimate parent level.
Whether Company X would present its annual financial statements as
per Ind AS in its functional currency (i.e. USD) or in the functional
currency of the parent company (`)? Further, whether statutory auditors
of Company X will provide their audit report on financial statements
prepared in ` or financial statements prepared in USD?
Response:
As per paragraph 17 of Ind AS 21, "In preparing financial statements, each
entity--whether a stand-alone entity, an entity with foreign operations (such
as a parent) or a foreign operation (such as a subsidiary or branch)--
determines its functional currency in accordance with paragraphs 9­14. The
entity translates foreign currency items into its functional currency and
reports the effects of such translation in accordance with paragraphs 20­37
and 50."
Paragraph 21 of Ind AS 21 states that, "A foreign currency transaction shall
be recorded, on initial recognition in the functional currency, by applying to
the foreign currency amount the spot exchange rate between the functional
currency and the foreign currency at the date of the transaction."
In accordance with the above, it may be noted that each entity is required to
determine its functional currency in accordance with Ind AS 21 and is
required to translate foreign currency items into functional currency.

                                     194
                 Ind AS 21, The Effects of Changes in Foreign Exchange Rates

Further, Paragraph 18 of Ind AS 21 states as follows:
      "Many reporting entities comprise a number of individual entities (e.g.
      a group is made up of a parent and one or more subsidiaries). Various
      types of entities, whether members of a group or otherwise, may have
      investments in associates or joint arrangements. They may also have
      branches. It is necessary for the results and financial position of each
      individual entity included in the reporting entity to be translated into the
      currency in which the reporting entity presents its financial statements.
      This Standard permits the presentation currency of a reporting entity to
      be any currency (or currencies). The results and financial position of
      any individual entity within the reporting entity whose functional
      currency differs from the presentation currency are translated in
      accordance with paragraphs 38­50."
Paragraphs 38 & 39 of Ind AS 21 are stated below:
"38 An entity may present its financial statements in any currency (or
    currencies). If the presentation currency differs from the entity's
    functional currency, it translates its results and financial position into
    the presentation currency. For example, when a group contains
    individual entities with different functional currencies, the results and
    financial position of each entity are expressed in a common currency
    so that consolidated financial statements may be presented.
39    The results and financial position of an entity whose functional
      currency is not the currency of a hyperinflationary economy shall be
      translated into a different presentation currency using the following
      procedures:
      (a)   assets and liabilities for each balance sheet presented (i.e.
            including comparatives) shall be translated at the closing rate at
            the date of that balance sheet;
      (b)   income and expenses for each statement of profit and loss
            presented (i.e. including comparatives) shall be translated at
            exchange rates at the dates of the transactions; and
      (c)   all resulting exchange differences shall be recognised in other
            comprehensive income."
In accordance with the above paragraphs, it may be noted that entities within
a group may have different functional currencies. Further, as Ind AS does not
prohibit the use of any currency as presentation currency, an entity may

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present its financial statements in any currency by applying the translation
procedures from functional to presentation currency as stated above.
Accordingly, in the given case, if Company X is statutorily required to present
its financial statements in `, which is different from its functional currency, i.e.
USD, then it may do so by choosing the ` as presentation currency and
prepare and present its financial statements by applying the provisions of
paragraphs 38 and 39 of Ind AS 21.
As Company X is statutorily required to present its financial statements in `,
the auditor of Company X will be required to give audit report on financial
statements prepared in `.
                                           (ITFG Clarification Bulletin 7, Issue 2)
                                               (Date of finalisation: March 30, 2017)


Identification of functional currency of an entity
Issue 110: XY Ltd. is being covered under Phase I of Ind AS and needs
to apply Ind AS from the financial year 2016-17. It has two businesses,
Business X and Business Y. As per Accounting Standards, the financial
statements of the Company are prepared in Indian Rupee ("`"), as
required by the Companies Act 2013 and thereby, all transactions of
both business X as well as business Y are recorded and measured in `.
Under Ind AS, the functional currency of the Business X is concluded to
be US Dollar ("USD") while the functional currency of the Business Y is
concluded to be `. In which currency, Company XY will prepare its
financial statements as per Ind AS?
Response: As per paragraph 8 of Ind AS 21, The Effects of Changes in
Foreign Exchange Rates, functional currency is the currency of the primary
economic environment in which the entity operates.
Further, paragraph 17 of Ind AS 21 states that:
 "In preparing financial statements, each entity - whether a stand-alone
entity, an entity with foreign operations (such as a parent) or a foreign
operation (such as a subsidiary or branch)--determines its functional
currency in accordance with paragraphs 9­14 of Ind AS 21."
Paragraphs 9-14 of Ind AS 21, elaborate the factors that need to be
considered by an entity while determining its functional currency.


                                        196
                 Ind AS 21, The Effects of Changes in Foreign Exchange Rates

In view of the above, it is concluded that functional currency needs to be
identified at the entity level, considering the economic environment in which
the entity operates, and not at the level of a business or a division.
Accordingly, in the given case, if XY Ltd. after applying paragraphs 9-14 of
Ind AS 21, concludes that its functional currency is USD at the entity level,
then it shall prepare its financial statements as per USD.
                                       (ITFG Clarification Bulletin 3, Issue 3)
                                            (Date of finalisation: June 22, 2016)




                                    197
                       Ind AS 23, Borrowing Costs
Capitalisation of Dividend Distribution Tax (DDT) as borrowing
costs of the qualifying asset
Issue 111: Can Dividend Distribution Tax (DDT) paid on distribution of
dividend to preference shareholders (that are classified as liability as
per Ind AS 32, Financial Instruments: Presentation), be capitalised as
borrowing costs with the qualifying asset in accordance with the
principles of Ind AS 23, Borrowing Costs ?
Response: Paragraphs 5 and 6 of Ind AS 23, Borrowing Costs, state as
follows:
      "5 Borrowing costs are interest and other costs that an entity incurs in
      connection with the borrowing of funds.
      6 Borrowing costs may include:
      (a) interest expense calculated using the effective interest method as
      described in Ind AS 109, Financial Instruments; (b) ...."
With regard to the recognition of dividend declared on financial instruments,
paragraphs 35 and 36 of Ind AS 32 reproduced hereunder may be noted:
      ``35 Interest, dividends, losses and gains relating to a financial
      instrument or a component that is a financial liability shall be
      recognised as income or expense in profit or loss. Distributions to
      holders of an equity instrument shall be recognised by the entity
      directly in equity. Transaction costs of an equity transaction shall be
      accounted for as a deduction from equity.
      36 The classification of a financial instrument as a financial liability or
      an equity instrument determines whether interest, dividends, losses
      and gains relating to that instrument are recognised as income or
      expense in profit or loss. Thus, dividend payments on shares wholly
      recognised as liabilities are recognised as expenses in the same way
      as interest on a bond. Similarly, gains and losses associated with
      redemptions or refinancings of financial liabilities are recognised in
      profit or loss, whereas redemptions or refinancings of equity
      instruments are recognised as changes in equity. Changes in the fair
      value of an equity instrument are not recognised in the financial
      statements.''
In view of the above, if a financial instrument is classified as debt, the

                                      198
                                                     Ind AS 23, Borrowing Costs

dividend or interest thereon is in the nature of interest which is charged to
profit or loss.
Further, paragraph 8 of Ind AS 23 states that, "An entity shall capitalise
borrowing costs that are directly attributable to the acquisition, construction
or production of a qualifying asset as part of the cost of that asset. An entity
shall recognise other borrowing costs as an expense in the period in which it
incurs them."
Paragraphs B5.4.4 and B5.4.8 of Ind AS 109, Financial Instruments, state as
follows:
      "B5.4.4 When applying the effective interest method, an entity
      generally amortises any fees, points paid or received, transaction
      costs and other premiums or discounts that are included in the
      calculation of the effective interest rate over the expected life of the
      financial instrument....."
The Guidance Note on Ind AS Schedule III provides following guidance in
respect of dividend on redeemable preference shares:
      Dividend on preferences shares, whether redeemable or convertible, is
      of the nature of `Interest expense', only where there is no discretion of
      the issuer over the payment of such dividends. In such case, the
      portion of dividend as determined by applying the effective interest
      method should be presented as `Interest expense' under `Finance
      cost'. Accordingly, the corresponding Dividend Distribution Tax on
      such portion of non-discretionary dividends should also be presented
      in the Statement of Profit and Loss under `Interest expense'.
In the given case, assuming that the requirements of paragraph 8 of Ind AS
23 for capitalisation are met then the dividend on the preference shares that
are classified as a liability, in accordance with the principles of Ind AS 32,
Financial Instruments: Presentation would be treated as interest and DDT
paid thereon will be treated as cost eligible for capitalisation. Thus, in the
given case, DDT is in the nature of incremental cost that an entity incurs in
connection with obtaining the funds for qualifying asset. Hence DDT should
be capitalised along with interest. Further, dividend distribution tax paid on
such dividend will form part of the effective interest rate calculation (EIR) to
compute the effective interest expense to be capitalised with the qualifying
asset.
                                       (ITFG Clarification Bulletin 13, Issue 1)
                                            (Date of finalisation: January 16, 2018)



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Compendium of ITFG Clarification Bulletins

Capitalising of the processing fees as borrowing costs when the
loans are specifically borrowed for the purpose of a qualifying asset
Issue 112: As per Ind AS 23, Borrowing Costs, an entity shall capitalise
borrowing costs that are directly attributable to the acquisition,
construction or production of a qualifying asset as part of the cost of that
asset. An entity shall recognise other borrowing costs as an expense in the
period in which it incurs them.
When the loans are specifically borrowed for the purpose of a qualifying
asset and the processing charges incurred thereon have been incurred by
the company, then whether the entire processing charges needs to be
capitalised to the cost of the qualifying asset or the processing charges to
the extent amortised up to the period of capitalisation needs to be
capitalised?
Response: As per paragraph 6 of Ind AS 23, Borrowing Costs, borrowing costs
includes interest expense calculated using the effective interest method as
described in Ind AS 109, Financial Instruments.
Appendix A of Ind AS 109, Financial Instruments, defines `Effective interest
method' as, the rate that exactly discounts estimated future cash payments or
receipts through the expected life of the financial asset or financial liability to the
gross carrying amount of a financial asset or to the amortised cost of a financial
liability. When calculating the effective interest rate, an entity shall estimate the
expected cash flows by considering all the contractual terms of the financial
instrument (for example, prepayment, extension, call and similar options) but
shall not consider the expected credit losses. The calculation includes all fees
and points paid or received between parties to the contract that are an integral
part of the effective interest rate (see paragraphs B5.4.1­B5.4.3), transaction
costs, and all other premiums or discounts. There is a presumption that the cash
flows and the expected life of a group of similar financial instruments can be
estimated reliably. However, in those rare cases when it is not possible to reliably
estimate the cash flows or the expected life of a financial instrument (or group of
financial instruments), the entity shall use the contractual cash flows over the full
contractual term of the financial instrument (or group of financial instruments).
Paragraph B5.4.1 of Ind AS 109, Financial Instruments, states as follows:
       "In applying the effective interest method, an entity identifies fees that are
       an integral part of the effective interest rate of a financial instrument. The
       description of fees for financial services may not be indicative of the
       nature and substance of the services provided. Fees that are an integral


                                         200
                                                       Ind AS 23, Borrowing Costs

      part of the effective interest rate of a financial instrument are treated as an
      adjustment to the effective interest rate, unless the financial instrument is
      measured at fair value, with the change in fair value being recognised in
      profit or loss. In those cases, the fees are recognised as revenue or
      expense when the instrument is initially recognised."
Further, paragraph B5.4.2 of Ind AS 109, inter-alia, states that, "fees that are an
integral part of the effective interest rate of a financial instrument include:
      (c) origination fees paid on issuing financial liabilities measured at
      amortised cost. These fees are an integral part of generating an
      involvement with a financial liability. An entity distinguishes fees and costs
      that are an integral part of the effective interest rate for the financial
      liability from origination fees and transaction costs relating to the right to
      provide services, such as investment management services."
In accordance with the above, the processing fee is an integral part of the
effective interest rate of a financial instrument and shall be included while
calculating the effective interest rate. Accordingly, the processing charges to the
extent amortised only up to the period of capitalisation of the qualifying asset can
be capitalised.
                                         (ITFG Clarification Bulletin 14, Issue 1)
                                              (Date of finalisation: February 1, 2018)




                                        201
      Ind AS 24, Related Party Disclosures
Whether sitting fees paid to independent director and Non-
executive director is required to be disclosed in the financial
statements prepared as per Ind AS
Issue 113: Whether sitting fees paid to independent director and Non-
executive director is required to be disclosed in the financial
statements prepared as per Ind AS?
Response: As per paragraph 9 of Ind AS 24, Related Party Disclosures,
"Key management personnel are those persons having authority and
responsibility for planning, directing and controlling the activities of the entity,
directly or indirectly, including any director (whether executive or otherwise)
of that entity."
In accordance with the above definition, key management personnel (KMP)
includes any director of the entity who are having authority and responsibility
for planning, directing and controlling the activities of the entity. Accordingly,
independent and non-executive directors are also covered under the
definition of KMP in accordance with Ind AS.
Paragraph 17 of Ind AS 24 requires the following disclosures about employee
benefits for key management personnel:
"An entity shall disclose key management personnel compensation in total
and for each of the following categories:
(a)    short-term employee benefits;
(b)    post-employment benefits;
(c)    other long-term benefits;
(d)    termination benefits; and
(e)    share-based payment."
Further, paragraph 7 and 9 of Ind AS 19, Employee Benefits, states that-
"7      An employee may provide services to an entity on a full-time, part-
time, permanent, casual or temporary basis. For the purpose of this
Standard, employees include directors and other management
personnel."
"9 Short-term employee benefits include items such as the following, if


                                        202
                                             Ind AS 24, Related Party Disclosures

expected to be settled wholly before twelve months after the end of the
annual reporting period in which the employees render the related
services:
(a)   wages, salaries and social security contributions;
(b)   paid annual leave and paid sick leave;
(c)   profit-sharing and bonuses; and
(d)   non-monetary benefits (such as medical care, housing, cars and free
      or subsidised goods or services) for current employees."
In accordance with the above provisions, non- executive directors meeting
this criteria are covered under the definition of key management personnel.
The sitting fees paid to directors will fall under the definition of "Short-term
employee benefits" as per Ind AS 19 and is required to be disclosed in
accordance with the paragraph 17 of Ind AS 24.
                                        (ITFG Clarification Bulletin 11, Issue 9)
                                                 (Date of finalisation: July 31, 2017)

Related Party Disclosures in case of holding and subsidiary
company (electricity distribution company)
Issue 114: S Ltd., a wholly owned subsidiary of P Ltd is the sole
distributor of electricity to consumers in a specified geographical area.
A manufacturing facility of P Ltd is located in the said geographical
area and, accordingly, P Ltd is also a consumer of electricity supplied
by S Ltd. The electricity tariffs for the geographical area are determined
by an independent rate-setting authority and are applicable to all
consumers of S Ltd, including P Ltd.
Whether the above transaction is required to be disclosed as a related
party transaction as per Ind AS 24, Related Party Disclosures in the
financial statements of S Ltd.?
Response: As per paragraph 9(b)(i) of Ind AS 24, each parent, subsidiary
and fellow subsidiary in a `group' is related to the other members of the
group. Thus, in the case under discussion, P Ltd is a related party of S Ltd
from the perspective of financial statements of S Ltd.
Paragraph 11 of Ind AS 24 states as follows:
"In the context of this Standard, the following are not related parties:
(a) two entities simply because they have a director or other member of

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Compendium of ITFG Clarification Bulletins

      key management personnel in common or because a member of key
      management personnel of one entity has significant influence over the
      other entity.
(b) two joint venturers simply because they share joint control of a joint
    venture.
(c)   (i)    providers of finance,
      (ii)   trade unions,
      (iii) public utilities, and
      (iv) departments and agencies of a government that does not control,
           jointly control or significantly influence the reporting entity,
      simply by virtue of their normal dealings with an entity (even
      though they may affect the freedom of action of an entity or participate
      in its decision-making process). [Emphasis added]
(d) a customer, supplier, franchisor, distributor or general agent with whom
    an entity transacts a significant volume of business, simply by virtue of
    the resulting economic dependence."
Being engaged in distribution of electricity, S Ltd is a public utility. Had the
only relationship between S Ltd and P Ltd been that of a supplier and a
consumer of electricity, P Ltd would not have been regarded as a related
party of S Ltd. However, as per the facts of the given case, this is not the
only relationship between S Ltd and P Ltd. Apart from being a supplier of
electricity to P Ltd., S Ltd is also a subsidiary of P Ltd; this is a relationship
that is covered within the related party relationships to which the disclosure
requirements of the standard apply.
In view of the above, the supply of electricity by S Ltd to P Ltd is a related
party transaction that attracts the disclosure requirements contained in
paragraph 18 and other relevant requirements of the standard. This is
notwithstanding the fact that P Ltd is charged the electricity tariffs determined
by an independent rate-setting authority (i.e., the terms of supply to P Ltd are
at par with those applicable to other consumers) ­ Ind AS 24 does not
exempt an entity from disclosing related party transactions merely because
they have been carried out on an arm's length basis.
                                        (ITFG Clarification Bulletin 17, Issue 6)
                                          (Date of finalisation: December 19, 2018)



                                       204
                    Ind AS 27, Separate Financial
                                     Statements
Post Ind AS adoption accounting treatment of profit share from
investment in limited liability partnership which is under joint
control (in separate financial statements)
Issue 115: Company A Ltd. has equity investment in a Limited Liability
Partnership (LLP). Company A Ltd. has joint control over the LLP and
assessed that investment in LLP is a joint venture. How investment in
LLP be accounted for in the separate financial statements of Company
A Ltd? Whether profit share from LLP will be adjusted to the carrying
amount of the investment in LLP in the separate financial statements of
Company A Ltd.?
Response: Paragraph 26 of Ind AS 111, Joint Arrangements, prescribes the
accounting treatment for investment in joint arrangements in separate
financial statement of joint operator or joint venture as follows:
"26 In its separate financial statements, a joint operator or joint
venturer shall account for its interest in:
(a)   a joint operation in accordance with paragraph 20-22;
(b)   a joint venture in accordance with paragraph 10 of Ind AS 27,
      Separate Financial Statements."
Paragraph 10 of Ind AS 27, Separate Financial Statements, inter alia,
provides that when an entity prepares separate financial statements, it shall
account for investments in subsidiaries, joint ventures and associates either:
(a)   at cost, or
(b)   in accordance with Ind AS 109.
In the given case, Company A Ltd. has joint control over the LLP and has
assessed that investment in LLP is a joint venture. Accordingly, the entity
shall account for its investment in the joint venture in its separate financial
statements as per paragraph 10 of Ind AS 27, i.e. at cost or in accordance
with Ind AS 109. Therefore, adjustment of profit share from LLP to the
carrying amount of the investment in LLP in its separate financial statements
is not permitted.

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Compendium of ITFG Clarification Bulletins

The accounting of return on investment (i.e. profit share from LLP) will
depend on the terms of contract between Company A Ltd. and LLP. The
share in profit in LLP shall be recognised as income in the statement of profit
and loss as and when the right to receive its profit share is established.
                                         (ITFG Clarification Bulletin 5, Issue 8)
                                         (Date of finalisation: September 19, 2016)


Measurement of investment in subsidiaries at cost if valued at fair
value on date of transition
Issue 116: Company A has made investment in subsidiary S Ltd.
Company A elects to measure the investment in S Ltd. at fair value on
the date of transition as per Ind AS 101. Can Company A opt to carry
the investment in S Ltd. at cost after the date of transition as per Ind AS
27?
Response: Paragraph D15 of Ind AS 101, First-time Adoption of Indian
Accounting Standards states as under:
"If a first-time adopter measures such an investment at cost in accordance
with Ind AS 27, it shall measure that investment at one of the following
amounts in its separate opening Ind AS Balance Sheet:
(a)   cost determined in accordance with Ind AS 27; or
(b)   deemed cost. The deemed cost of such an investment shall be its:
      (i) fair value at the entity's date of transition to Ind ASs in its separate
          financial statements; or
      (ii) previous GAAP carrying amount at that date.
A first-time adopter may choose either (i) or (ii) above to measure its
investment in each subsidiary, joint venture or associate that it elects to
measure using a deemed cost."
Further, paragraph 10 of Ind AS 27, Separate Financial Statements, inter-alia
states as under:
"When an entity prepares separate financial statements, it shall account for
investments in subsidiaries, joint ventures and associates either:
(a)   at cost, or
(b)   in accordance with Ind AS 109."

                                      206
                                       Ind AS 27, Separate Financial Statements

In accordance with the above, it may be noted that for a first-time adopter
cost of investment in a subsidiary shall be one of the following amounts:
      cost determined in accordance with Ind AS 27 (i.e. retrospective
      application of Ind AS 27)
      fair value at the entity's date of transition to Ind AS
      previous GAAP carrying amount
Accordingly, if a company chooses to measure its investment at fair value at
the date of transition then that is deemed to be cost of such investment for
the company and, therefore, it shall carry its investment at that amount (i.e.
fair value at the date of transition) after the date of transition.
Accordingly, in the given case, Company A can carry investment in S Ltd. at
transition date fair value which is deemed to be its cost as per paragraph 10
of Ind AS 27.
                                        (ITFG Clarification Bulletin 3, Issue 12)
                                               (Date of finalisation: June 22, 2016)




                                       207
       Ind AS 28, Investment in Associates
                        and Joint Ventures
Treatment of adjustments arising out of fair valuation of
investment property in the consolidated financial statements of
the investor
Issue 117: Company B, a subsidiary of Company A (parent) owns an
investment property that is measured at cost in accordance with Ind AS
40, Investment Property . Company A sells a portion of its equity
shareholding in Company B, as a result of which Company B becomes a
joint venture between Company A and Company Z. As per the
requirements of Ind AS 28, equity method is required to be applied in
the consolidated financial statements of Company A to account for its
investment in the joint venture (i.e., Company B).
Ind AS 40, Investment Property , does not allow an investment property
to be measured at fair value. On the other hand, in applying the equity
method in consolidated financial statements of the investor, as per Ind
AS 28, identifiable assets and liabilities of the investee are required to
be fair valued and appropriate adjustments are required to be made to
entity's share of investee's profit or loss, such as those for
depreciation/ amortisation based on aforesaid fair values at acquisition
date.
(i)   Whether there is any contradiction between Ind AS 40 and Ind AS
      28?
(ii) Also, whether the adjustments arising out of fair valuation of
     investment property as required under Ind AS 28 should be made
     in the consolidated financial statements of the investor?
Response:
(i) While the above issue has been raised in the context of a situation
where a former subsidiary becomes a joint venture and the investee owns an
investment property that is measured at cost in accordance with Ind AS 40, it
has a wider applicability, e.g., a similar issue also arises when an investor


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                        Ind AS 28, Investment in Associates and Joint Ventures

makes an investment that gives rise to a parent-subsidiary or an investor-
joint venture or an investor-associate relationship between the investor and
the investee.
Ind ASs require the application of a mixed measurement model in preparing
the balance sheet of an entity ­ some assets and liabilities are measured at
fair value while other assets and liabilities are measured on a different basis
(or bases) such as historical cost. Besides, Ind ASs prohibit the recognition
of certain assets such as internally-generated goodwill and brands.
From the perspective of an investor who acquires, say, a controlling interest
in an entity (or an interest giving the investor joint control or significant
influence over the investee), Ind ASs require the investor to identify whether
it has made a bargain purchase gain or whether the consideration includes
an element of payment for goodwill. The amount of any bargain purchase
gain or of any payment for goodwill can be appropriately determined only
with reference to the fair values of the identifiable assets and liabilities of the
investee as at the acquisition date and not with reference to their book
values as at that date. Accordingly, the relevant standard (e.g., Ind AS 28 in
the case of a joint venture or an associate) requires determination of fair
values of identifiable assets and liabilities of the investee for this purpose.
This does not per se indicate a contradiction between 28 (or Ind AS 110 in
case of acquisition of a controlling interest) on the one hand and the
standards that require a cost-based measurement in the balance sheet of the
investee on the other.
Therefore, there does not seem any contradiction between Ind AS 40 and Ind
AS 28.
(ii) As per paragraph 25 of Ind AS 110, Consolidated Financial Statements,
if a parent loses control of a subsidiary, it recognises any investment retained
in the former subsidiary at its fair value when control is lost. Such fair value is
regarded as the cost on initial recognition of an investment in a joint venture
(or an associate).
Paragraph 32 of Ind AS 28, Investments in Associates and Joint Ventures
states as under:
"An investment is accounted for using the equity method from the date on
which it becomes an associate or a joint venture. On acquisition of the
investment, any difference between the cost of the investment and the
entity's share of the net fair value of the investee's identifiable assets and
liabilities is accounted for as follows:

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(a) Goodwill relating to an associate or a joint venture is included in the
    carrying amount of the investment. Amortisation of that goodwill is not
    permitted.
(b) Any excess of the entity's share of the net fair value of the investee's
    identifiable assets and liabilities over the cost of the investment is
    recognised directly in equity as capital reserve in the period in which
    the investment is acquired.
Appropriate adjustments to the entity's share of the associate's or joint
venture's profit or loss after acquisition are made in order to account, for
example, for depreciation of the depreciable assets based on their fair
values at the acquisition date . Similarly, appropriate adjustments to the
entity's share of the associate's or joint venture's profit or loss after
acquisition are made for impairment losses such as for goodwill or property,
plant and equipment."(Emphasis added)
In accordance with the above, on acquisition of the investment, any
difference between the cost of the investment and the entity's share of the
net fair value of the investee's identifiable assets and liabilities is
recognised in the manner stated above. The fair value of identifiable assets
and liabilities are considered to be the cost of the assets and liabilities for the
investor to the extent of its share in the investee. Accordingly, appropriate
adjustments arising out of fair valuation of assets/liabilities impacting profit or
loss should be made in the consolidated financial statements of Company A.

                                         (ITFG Clarification Bulletin 17, Issue 5)
                                         (Date of finalisation: December 19, 2018)




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            Ind AS 32, Financial Instruments:
                                 Presentation
Computation of financial liability in case of convertible
debentures sharing same coupon rate and market rate
Issue 118: A company ABC Limited has issued compulsorily convertible
debentures at 14.5 % coupon rate which will be converted at the end of
10 years. The unsecured loan market rate of interest is 14.5%
(Assuming this rate can be considered as the appropriate market rate
for the given purpose). Coupon rate on debentures is same as that of
the market rate of interest although coupon rate on instruments with
conversion feature is generally lower than market rate of interest on
unsecured loans. How the financial liability (debt portion) would be
computed in such situation. (It is assumed that the equity conversion
option requires the company to deliver a fixed number of its own shares
for a fixed amount of another financial asset indicating that it meets the
`fixed for fixed' criterion under Ind AS 32).
Response: As per Ind AS 32, Financial Instruments: Presentation, in case of
compound financial instruments, it is required to separate it into two
components, i.e., financial liability (debt) and equity component. When
allocating the initial carrying amount of the compound instrument to the
underlying financial liability and equity component, an entity first determine
the fair value of the liability component (assuming there is no embedded
derivative). The fair value of the liability component is determined with
reference to the fair value of a similar stand-alone debt instrument. The
amount allocated to the equity component is residual amount after deducting
the fair value of the financial liability component from the fair value of the
entire compound instrument.
The application guidance of Ind AS 32 provides additional guidance on
compound financial instruments from issuers' point of view.
AG31 A common form of compound financial instrument is a debt instrument
with an embedded conversion option, such as a bond convertible into
ordinary shares of the issuer, and without any other embedded derivative
features. Paragraph 28 requires the issuer of such a financial instrument to
present the liability component and the equity component separately in the
balance sheet, as follows:

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Compendium of ITFG Clarification Bulletins

(a)   The issuer's obligation to make scheduled payments of interest and
      principal is a financial liability that exists as long as the instrument is
      not converted. On initial recognition, the fair value of the liability
      component is the present value of the contractually determined stream
      of future cash flows discounted at the rate of interest applied at that
      time by the market to instruments of comparable credit status and
      providing substantially the same cash flows, on the same terms, but
      without the conversion option.
(b)   The equity instrument is an embedded option to convert the liability
      into equity of the issuer. This option has value on initial recognition
      even when it is out of the money.
Basis above guidance, the fair value of the liability shall be the present value
of the contractually determined stream of future cash flows discounted at the
rate of interest applied at that time by the market to instruments of
comparable credit status and providing substantially the same cash flows, on
the same terms, but without the conversion option. The amount allocated to
the equity component will be the residual amount after deducting the fair
value of the financial liability component as determined above from the fair
value of the entire compound instrument (for purpose of this issue,
transaction costs have been ignored).
                                      (ITFG Clarification Bulletin 13, Issue 10)
                                            (Date of finalisation: January 16, 2018)


Treatment of dividend on financial instruments declared after the
end of the reporting period
Issue 119: ABC Ltd. has declared dividend on a financial instrument
(which has been classified as a liability in accordance with Ind AS 32,
Financial Instruments: Presentation), after the end of the reporting
period. Whether ABC Ltd. is required to accrue such dividends in the
financial statements for the year even if it is declared after the end of
the reporting period?
Response:
Assuming ABC Ltd. has correctly classified the financial instrument as
financial liability as per Ind AS 32, then it shall account for dividend in
accordance with the following provisions of paragraph 35 of Ind AS 32:
 "35 Interest, dividends, losses and gains relating to a financial instrument


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                                 Ind AS 32, Financial Instruments: Presentation

or a component that is a financial liability shall be recognised as income or
expense in profit or loss. Distributions to holders of an equity instrument shall
be recognised by the entity directly in equity. Transaction costs of an equity
transaction shall be accounted for as a deduction from equity."
Further, paragraph 12 of Ind AS 10 states that, `If an entity declares
dividends to holders of equity instruments after the reporting period, the
entity shall not recognise those dividends as a liability at the end of the
reporting period.'
It may also be noted that the above paragraph of Ind AS 10 applies only to
those financial instruments which are classified as equity instruments. The
payment of dividend/interest to financial instruments classified as liability
accrues at the end of the reporting period even if it is paid or declared after
the end of the reporting period. Accordingly, in the given case, ABC Ltd. is
required to account for the dividend, even if it is declared after the end of the
reporting period.
Further, accounting for dividend on financial instrument which is classified as
financial liability is governed by classification of such instrument under Ind
AS 109. If it is classified as subsequently measured at Amortised Cost,
dividend will be accrued as part of interest expense recognised based on
effective interest method.
                                         (ITFG Clarification Bulletin 7, Issue 6)
                                             (Date of finalisation: March 30, 2017)


Treatment of optionally convertible preference shares in
Standalone financial statements and consolidated financial
statements
Issue 120: A holding company H Ltd., which is covered under phase II
of Ind AS has a subsidiary S Ltd. H Ltd. is holding 57% of equity in S
Ltd. The subsidiary S Ltd., has issued 1.5% optionally convertible
preference shares to its holding company, which are non-cumulative.
All preference shares are issued to holding company. The subsidiary
company has the option to convert or redeem the stated preference
shares. H Limited does not have any right for the redemption of such
preference shares. How will these instruments be accounted for in the
following financial statements:
(i)    Stand-alone financial statements of S Ltd;


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Compendium of ITFG Clarification Bulletins

(ii)    Stand-alone financial statements of H Ltd; and
(iii)   Consolidated financial statements of the Group.
Response: It has been assumed that S Ltd. has an option to convert the
instrument into a fixed number of its own shares and dividend payment is
discretionary.
Paragraph 16 of Ind AS 32, Financial Instruments: Presentation, inter alia,
states that, "when an issuer applies the definitions in paragraph 11 to
determine whether a financial instrument is an equity instrument rather than
a financial liability, the instrument is an equity instrument if, and only if, both
conditions (a) and (b) below are met.
(a)     The instrument includes no contractual obligation:
        (i)    to deliver cash or another financial asset to another entity; or
        (ii)   to exchange financial assets or financial liabilities with another
               entity under conditions that are potentially unfavourable to the
               issuer.
(b)     If the instrument will or may be settled in the issuer's own equity
        instruments, it is:
        (i)     a non-derivative that includes no contractual obligation for the
               issuer to deliver a variable number of its own equity instruments;
               or
        (ii)    a derivative that will be settled only by the issuer exchanging a
               fixed amount of cash or another financial asset for a fixed
               number of its own equity instruments. For this purpose, rights,
               options or warrants to acquire a fixed number of the entity's own
               equity instruments for a fixed amount of any currency are equity
               instruments if the entity offers the rights, options or warrants
               pro-rata to all of its existing owners of the same class of its own
               non-derivative equity instruments. Apart from the aforesaid, the
               equity conversion option embedded in a convertible bond
               denominated in foreign currency to acquire a fixed number of
               the entity's own equity instruments is an equity instrument if the
               exercise price is fixed in any currency. Also, for these purposes
               the issuer's own equity instruments do not include instruments
               that have all the features and meet the conditions described in
               paragraphs 16A and 16B or paragraphs 16C and 16D, or

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                                 Ind AS 32, Financial Instruments: Presentation

             instruments that are contracts for the future receipt or delivery of
             the issuer's own equity instruments."
(i)    Provided the conversion feature is considered substantive, the instrument
can be viewed as an equity instrument, because the issuer has the ability to
convert the instrument into a fixed number of its own shares at any time. The
issuer, therefore, has the ability to avoid making a cash payment or settling the
instrument in a variable number of its own shares. Any feature that might have
been considered to be an embedded derivative would not meet the definition of a
derivative on a stand-alone basis, given the ability to avoid payment. Hence, the
issuer's conversion and redemption options would not be separated, and the
entire instrument would be classified as equity in the separate financial
statements of S Ltd.
(ii)   In the separate financial statements of H Limited, the investment should
be considered to be an investment in subsidiary and therefore would be excluded
from the scope of Ind AS 109 unless H Ltd has elected otherwise.
Paragraph 10 of Ind AS 27, Separate Financial Statements, states that when
an entity prepares separate financial statements, it shall account for
investments in subsidiaries, joint ventures and associates either:
(a)   at cost, or
(b)   in accordance with Ind AS 109.
In view of the above assuming that the company H Ltd. has not elected to
account for its investment in accordance with Ind AS 109, it would account
for it at cost.
(iii)    In the consolidated financial statements of the Group, these
transactions will be eliminated, being intra-group transactions in accordance
with Ind AS 110.
                                        (ITFG Clarification Bulletin 14, Issue 7)
                                            (Date of finalisation: February 01, 2018)

Accounting of Foreign Currency Convertible Bonds (FCCB)
Issue 121: Company PQR Ltd is required to comply with Ind AS from
financial year 2017-18. It had issued Foreign Currency Convertible
Bonds (FCCB) at the rate of 6% interest rate on April 26, 2013 to a
foreign Investor (bondholder). The tenure of the FCCB is five years and
one day. As per the terms and conditions, the FCCB would be
converted into equity on April 26, 2018 at the option of the holder On

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the settlement day, the Company will issue the fixed number of shares,
e.g. 100,000 shares. Interest on the FCCB is payable on a half yearly
basis, which has been paid on regular basis.
To comply with the relevant RBI norms, the FCCB issued by the
company were at the maximum permissible interest rate on the date of
issuance, say, 6%. However, based on the guidance under Ind AS
company has assessed that the applicable rate after considering,
currency, time period, credit status and without conversion option for
borrowing would have been, assuming 7.5%.
What should be the rate of interest at which the liability portion of the
FCCB be discounted to determine the present value of financial liability
at initial recognition?
Response: As per paragraph 28 of Ind AS 32, Financial Instruments,
Presentation, "The issuer of a non-derivative financial instrument shall
evaluate the terms of the financial instrument to determine whether it
contains both a liability and an equity component. Such components shall be
classified separately as financial liabilities, financial assets or equity
instruments in accordance with paragraph 15."
Paragraph 29 inter-alia states that, An entity recognises separately the
components of a financial instrument that (a) creates a financial liability of
the entity and (b) grants an option to the holder of the instrument to convert it
into an equity instrument of the entity. For example, a bond or similar
instrument convertible by the holder into a fixed number of ordinary shares of
the entity is a compound financial instrument. From the perspective of the
entity, such an instrument comprises two components: a financial liability (a
contractual arrangement to deliver cash or another financial asset) and an
equity instrument (a call option granting the holder the right, for a specified
period of time, to convert it into a fixed number of ordinary shares of the
entity).
As per the requirements of Ind AS 32, FCCB is a compound financial
instrument (fixed for fixed met as per Ind AS requirement) and the issuer of
the compound financial instruments is required to split the instrument into
two components i.e. one as liability and other as equity component on initial
recognition. It may be noted that in accordance with paragraph 11(b) (ii) of
Ind AS 32, the equity conversion option embedded in a convertible bond
denominated in foreign currency to acquire a fixed number of the entity's own
equity instruments is an equity instrument with the exercise price is fixed in
any currency.

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                                Ind AS 32, Financial Instruments: Presentation

Paragraph AG31 of Ind AS 32 states as follows:
AG31 A common form of compound financial instrument is a debt instrument
with an embedded conversion option, such as a bond convertible into
ordinary shares of the issuer, and without any other embedded derivative
features. Paragraph 28 requires the issuer of such a financial instrument to
present the liability component and the equity component separately in the
balance sheet, as follows:
(a) The issuer's obligation to make scheduled payments of interest and
principal is a financial liability that exists as long as the instrument is not
converted. On initial recognition, the fair value of the liability component is
the present value of the contractually determined stream of future cash flows
discounted at the rate of interest applied at that time by the market to
instruments of comparable credit status and providing substantially the same
cash flows, on the same terms, but without the conversion option.
(b) The equity instrument is an embedded option to convert the liability into
equity of the issuer. This option has value on initial recognition even when it
is out of the money.
In accordance with the above, the recognition and measurement
requirements of Ind AS 32 require the issuer to account the compound
financial instruments in the following manner:
      The liability portion of the FCCB would be measured at the fair value
      by determining the net present value of all contractually determined
      future cash flows under the instrument, discounted at the market rate
      of interest prevailing at the time of issue. The discount rate for this
      should be comparable to the instrument for aspects, such as,
      currency, time period, credit status and cash flows, but without the
      conversion option.
      The equity component is the residual amount after deducting the
      liability component from the fair value of the compound instrument.
Accordingly, in the given case, the company should discount the future cash
flows at 7.5% to determine the financial liability for initial recognition.
Difference between fair value of financial liability and transaction value would
be accounted as equity as per the guidance under Ind AS.
It may be noted that the response is based on the limited facts and
circumstances and is only for accounting purpose. The commercial
substance of the transaction and other regulatory aspects such as the


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Compendium of ITFG Clarification Bulletins

requirements of Companies Act, 2013 for declaration of dividend will be
required to be evaluated separately.
                                       (ITFG Clarification Bulletin 15, Issue 1)
                                             (Date of finalisation: April; 04, 2018)

Accounting treatment of the preference shares and dividends
Issue 122 : ABC Limited has issued non-cumulative compulsorily
redeemable preference shares. Redemption is in cash after 10 years,
dividend @ 6%. The market rate of interest is @ 4%. Preference shares
have been issued to an unrelated party. During the term of the instrument,
dividends are payable at the discretion of ABC Ltd. The instrument is a
compound financial instrument as per the requirements of Ind AS 32
Financial Instruments, Presentation.

What will be the accounting treatment of the preference shares and
dividends which are at the discretion of ABC Ltd. and the same have
not yet been declared by ABC Ltd.
Response: Paragraphs 31 and AG 37 of Ind AS 32 state as follows:
 31 Ind AS 109 deals with the measurement of financial assets and financial
liabilities. Equity instruments are instruments that evidence a residual
interest in the assets of an entity after deducting all of its liabilities.
Therefore, when the initial carrying amount of a compound financial
instrument is allocated to its equity and liability components, the equity
component is assigned the residual amount after deducting from the
fair value of the instrument as a whole the amount separately
determined for the liability component . The value of any derivative
features (such as a call option) embedded in the compound financial
instrument other than the equity component (such as an equity conversion
option) is included in the liability component. The sum of the carrying
amounts assigned to the liability and equity components on initial recognition
is always equal to the fair value that would be ascribed to the instrument as a
whole. No gain or loss arises from initially recognising the components of the
instrument separately.
AG37 The following example illustrates the application of paragraph 35 to a
compound financial instrument. Assume that a non-cumulative preference
share is mandatorily redeemable for cash in five years, but that dividends are
payable at the discretion of the entity before the redemption date. Such an
instrument is a compound financial instrument, with the liability

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                                Ind AS 32, Financial Instruments: Presentation

component being the present value of the redemption amount. The
unwinding of the discount on this component is recognised in profit or
loss and classified as interest expense. Any dividends paid relate to the
equity component and, accordingly, are recognised as a distribution of
profit or loss. A similar treatment would apply if the redemption was not
mandatory but at the option of the holder, or if the share was mandatorily
convertible into a variable number of ordinary shares calculated to equal a
fixed amount or an amount based on changes in an underlying variable (eg
commodity). However, if any unpaid dividends are added to the redemption
amount, the entire instrument is a liability. In such a case, any dividends are
classified as interest expense."
In accordance with the above, the non-cumulative redeemable preference
shares are compound financial instruments since the payment of dividend to
preference shareholders is with the discretion of the issuer, i.e. ABC Ltd.
Accordingly, on initial recognition, the fair value of the instrument will be
bifurcated into liability and equity component. The fair value of the liability
component on initial recognition is determined as the present value of the
eventual redemption amount discounted at the market rate of return. The
equity component is the residual amount, i.e. the difference between the
present value of the liability component and fair value of the instrument as a
whole.
Furthermore, any discretionary dividends will be recognised when they are
actually declared and paid and will relate to the equity component and
accordingly, are recognised as a distribution of profit or loss
It may be noted that the response is based on the limited facts and
circumstances and is only for accounting purpose. The commercial
substance of the transaction and other regulatory aspects such as the
requirements of Companies Act, 2013 for declaration of dividend will be
required to be evaluated separately.
                                       (ITFG Clarification Bulletin 15, Issue 2)
                                             (Date of finalisation: April; 04, 2018)

Classification of preference shares denominated in its functional
currency and carrying conversion-vs-redemption option
Issue 123: Entity K issues at par preference shares denominated in its
functional currency and carrying discretionary non-cumulative dividend
of 12% per annum. As per terms of the issue, a holder of preference


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Compendium of ITFG Clarification Bulletins

shares has an option to convert each preference share into a fixed
number of equity shares of the entity at the end of 5 year from the date
of issue, failing which the preference shares will be redeemed at their
par amount. The conversion-vs-redemption option is available
independently for each preference share held by a holder. Additionally,
throughout the five-year period, a holder of a preference share can put
the same back to the entity for its par amount at any time. Issuance of
preference shares on these terms is permissible in the relevant
jurisdiction. Transaction costs are negligible.
How would the above preference shares be classified (i.e., whether as a
liability or as equity) in the financial statements of Entity K?
Response: Ind AS 32, Financial Instruments: Presentation lays down the
principles for classification of financial instruments, from the perspective of
the issuer.
Paragraph 15 of Ind AS 32 states the following:
     "The issuer of a financial instrument shall classify the instrument, or its
     component parts, on initial recognition as a financial liability, a financial
     asset or an equity instrument in accordance with the substance of the
     contractual arrangement and the definitions of a financial liability, a
     financial asset and an equity instrument."
Paragraphs 28 to 32 of Ind AS 32 deal with the classification of compound
financial instruments, i.e., instruments that contain both liability and equity
components and state the following:
"28 The issuer of a non-derivative financial instrument shall evaluate the
     terms of the financial instrument to determine whether it contains both a
     liability and an equity component. Such components shall be classified
     separately as financial liabilities, financial assets or equity instruments
     in accordance with paragraph 15.
29   An entity recognises separately the components of a financial
     instrument that (a) creates a financial liability of the entity and (b) grants
     an option to the holder of the instrument to convert it into an equity
     instrument of the entity. For example, a bond or similar instrument
     convertible by the holder into a fixed number of ordinary shares of the
     entity is a compound financial instrument. From the perspective of the
     entity, such an instrument comprises two components: a financial
     liability (a contractual arrangement to deliver cash or another financial
     asset) and an equity instrument (a call option granting the holder the

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                                Ind AS 32, Financial Instruments: Presentation

     right, for a specified period of time, to convert it into a fixed number of
     ordinary shares of the entity). The economic effect of issuing such an
     instrument is substantially the same as issuing simultaneously a debt
     instrument with an early settlement provision and warrants to purchase
     ordinary shares, or issuing a debt instrument with detachable share
     purchase warrants. Accordingly, in all cases, the entity presents the
     liability and equity components separately in its balance sheet.
30   Classification of the liability and equity components of a convertible
     instrument is not revised as a result of a change in the likelihood that a
     conversion option will be exercised, even when exercise of the option
     may appear to have become economically advantageous to some
     holders. Holders may not always act in the way that might be expected
     because, for example, the tax consequences resulting from conversion
     may differ among holders. Furthermore, the likelihood of conversion will
     change from time to time. The entity's contractual obligation to make
     future payments remains outstanding until it is extinguished through
     conversion, maturity of the instrument or some other transaction.
31   Ind AS 109 deals with the measurement of financial assets and
     financial liabilities. Equity instruments are instruments that evidence a
     residual interest in the assets of an entity after deducting all of its
     liabilities. Therefore, when the initial carrying amount of a compound
     financial instrument is allocated to its equity and liability components,
     the equity component is assigned the residual amount after deducting
     from the fair value of the instrument as a whole the amount separately
     determined for the liability component. The value of any derivative
     features (such as a call option) embedded in the compound financial
     instrument other than the equity component (such as an equity
     conversion option) is included in the liability component. The sum of the
     carrying amounts assigned to the liability and equity components on
     initial recognition is always equal to the fair value that would be
     ascribed to the instrument as a whole. No gain or loss arises from
     initially recognising the components of the instrument separately.
32   Under the approach described in paragraph 31, the issuer of a bond
     convertible into ordinary shares first determines the carrying amount of
     the liability component by measuring the fair value of a similar liability
     (including any embedded non-equity derivative features) that does not
     have an associated equity component. The carrying amount of the
     equity instrument represented by the option to convert the instrument


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Compendium of ITFG Clarification Bulletins

     into ordinary shares is then determined by deducting the fair value of
     the financial liability from the fair value of the compound financial
     instrument as a whole."
In accordance with the above, Entity K would first determine the carrying
amount of the liability component by measuring the fair value of a similar
liability (including any embedded non-equity derivative features) that does
not have an associated equity component. The carrying amount of the equity
component ((i.e., the holder's option to convert the instrument into affixed
number of equity shares and the holder's right to receive any dividends
declared on the preference shares would then be determined by deducting
the fair value of the financial liability from the fair value of the compound
financial instrument as a whole.
As regards the fair value of the liabilities with a demand feature, paragraph
47 of Ind AS 113, Fair Value Measurement, states the following:
"The fair value of a financial liability with a demand feature (eg a demand
deposit) is not less than the amount payable on demand, discounted from the
first date that the amount could be required to be paid."
In the given case, as per the terms and conditions of issue of the preference
shares , Entity K has a contractual obligation to pay the par amount to the
holder of a preference share at any point of time (i.e., the instrument
contains a financial liability with a demand feature.
Therefore, in accordance with the above, the whole of the issue price of
preference shares is allocated to the liability component and no amount is
assigned to the equity component.
                                         (ITFG Clarification Bulletin 17, Issue 9)
                                       (Date of finalisation: December 19, 2018)


Classification of financial instrument in case of rights offer
Issue 124: Entity X, whose functional currency is INR, has two classes
of (non-puttable) equity shares, Class A and Class B. On May 1, 2018,
the entity makes a rights offer to all holders of Class B equity shares.
As per the rights offer, for each one equity share of Class B held by a
shareholder, the shareholder is entitled to subscribe to 100 equity
shares of Class A. The rights offer price is fixed at INR 60 per Class A
share for Indian shareholders, and USD 1 per Class A share for
overseas shareholders, holding Class B equity shares. The rights offer
is valid for 6 months.

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                                  Ind AS 32, Financial Instruments: Presentation

Whether the rights offer to Class B shareholders to acquire Class A
shares, as referred to in the above paragraph, is an equity instrument or
a (derivative) financial liability from the perspective of Entity X?
Response: Ind AS 32, Financial Instruments: Presentation lays down the
principles for the classification of financial instruments as financial assets,
financial liabilities or equity instruments from the issuer's perspective.
As per paragraph 11 of Ind AS 32, "A financial liability is any liability that is:
(a) a contractual obligation :
     (i)    to deliver cash or another financial asset to another entity; or
     (ii)   to exchange financial assets or financial liabilities with another
            entity under conditions that are potentially unfavourable to the
            entity; or
(b) a contract that will or may be settled in the entity's own equity
    instruments and is:
     (i)    a non-derivative for which the entity is or may be obliged to
            deliver a variable number of the entity's own equity
            instruments; or
     (ii)   a derivative that will or may be settled other than by the
            exchange of a fixed amount of cash or another financial asset
            for a fixed number of the entity's own equity instruments. For
            this purpose, rights, options or warrants to acquire a fixed
            number of the entity's own equity instruments for a fixed
            amount of any currency are equity instruments if the entity
            offers the rights, options or warrants pro rata to all of its
            existing owners of the same class of its own non-derivative
            equity instruments. Apart from the aforesaid, the equity
            conversion option embedded in a convertible bond
            denominated in foreign currency to acquire a fixed number of
            the entity's own equity instruments is an equity instrument if the
            exercise price is fixed in any currency. Also, for these purposes
            the entity's own equity instruments do not include puttable
            financial instruments that are classified as equity instruments in
            accordance with paragraphs 16A and 16B, instruments that
            impose on the entity an obligation to deliver to another party a
            pro rata share of the net assets of the entity only on liquidation
            and are classified as equity instruments in accordance with
            paragraphs 16C and 16D, or instruments that are contracts for

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            the future receipt or delivery of the entity's own equity
            instruments. As an exception, an instrument that meets the
            definition of a financial liability is classified as an equity
            instrument if it has all the features and meets the conditions in
            paragraphs 16A and 16B or paragraphs 16C and 16D.
            [Emphasis added]"
In the given case, the position regarding compliance with the aforementioned
conditions laid down in Ind AS 32 for equity classification of a rights offer is
as follows -
(i)    Is the rights offer for acquiring a fixed number of the entity's own equity
       instruments?
       Yes, the rights offer is for acquiring a fixed number of the entity's own
       equity instruments, i.e., for each one equity share of Class B held by a
       shareholder, the shareholder is entitled to subscribe to 100 equity
       shares of Class A.
(ii)   Is the rights exercise price a fixed amount of any currency?
       Yes, the rights exercise price is fixed at INR 60 per share for Indian
       shareholders and USD 1 per share for overseas shareholders.
(iii) Has the entity offered the rights pro rata to all of its existing owners of
      the same class of its own non-derivative equity instruments?
       Yes, Entity X has made the rights offer to all of the existing holders of
       its Class B equity shares (non-derivative equity instruments) pro-rata to
       their holding of Class B equity shares.
As all the conditions for equity classification are met, the rights offer to Class
B shareholders to acquire Class A shares is classified by Entity X as an
equity instrument.
                                           (ITFG Clarification Bulletin 17, Issue 10)
                                          (Date of finalisation: December 19, 2018)


Classification of financial instrument in case of equity conversion
option forming part of terms of issue of preference shares
Issue 125: Entity Y, whose functional currency is INR, has issued a
certain number of preference shares to an overseas investor. According
to the terms of issue of the preference shares, at the end of three years
from the date of issue, the holder has the option to either redeem each


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                                  Ind AS 32, Financial Instruments: Presentation

preference share for cash payment of USD 10 or to get 3 equity shares
of Entity Y in lieu of each preference share.
Whether the equity conversion option forming part of terms of issue of
preference shares represents an equity instrument or a (derivative)
financial liability of Entity Y?
Response: Ind AS 32, Financial Instruments: Presentation lays down the
principles for the classification of financial instruments as financial assets,
financial liabilities or equity instruments from the issuer's perspective.
As per paragraph 11 of Ind AS 32, "A financial liability is any liability that is:
(a) a contractual obligation :
     (i)    to deliver cash or another financial asset to another entity; or
     (ii)   to exchange financial assets or financial liabilities with another
            entity under conditions that are potentially unfavourable to the
            entity; or
(b) a contract that will or may be settled in the entity's own equity
    instruments and is:
     (i)    a non-derivative for which the entity is or may be obliged to
            deliver a variable number of the entity's own equity
            instruments; or
     (ii)   a derivative that will or may be settled other than by the
            exchange of a fixed amount of cash or another financial asset
            for a fixed number of the entity's own equity instruments. For
            this purpose, rights, options or warrants to acquire a fixed
            number of the entity's own equity instruments for a fixed
            amount of any currency are equity instruments if the entity
            offers the rights, options or warrants pro rata to all of its
            existing owners of the same class of its own non-derivative
            equity instruments. Apart from the aforesaid, the equity
            conversion option embedded in a convertible bond
            denominated in foreign currency to acquire a fixed number
            of the entity's own equity instruments is an equity
            instrument if the exercise price is fixed in any currency.
            Also, for these purposes the entity's own equity instruments do
            not include puttable financial instruments that are classified as
            equity instruments in accordance with paragraphs 16A and
            16B, instruments that impose on the entity an obligation to


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Compendium of ITFG Clarification Bulletins

           deliver to another party a pro rata share of the net assets of the
           entity only on liquidation and are classified as equity
           instruments in accordance with paragraphs 16C and 16D, or
           instruments that are contracts for the future receipt or delivery
           of the entity's own equity instruments. As an exception, an
           instrument that meets the definition of a financial liability is
           classified as an equity instrument if it has all the features and
           meets the conditions in paragraphs 16A and 16B or paragraphs
           16C and 16D. [Emphasis added]"
As per the above definition, as a general principle, a derivative is a financial
liability if it will or may be settled other than by the exchange of a fixed
amount of cash or another financial asset for a fixed number of the entity's
own equity instruments. The term `fixed amount of cash' refers to an amount
of cash fixed in functional currency of the reporting entity. Since, an amount
fixed in a foreign currency has the potential to vary in terms of functional
currency of the reporting entity due to exchange rate fluctuations, it does not
represent "a fixed amount of cash" However, as an exception to the above
general principle, Ind AS 32 regards the equity conversion option
embedded in a convertible bond denominated in a foreign currency to
acquire a fixed number of entity's own equity instruments to be an equity
instrument if the exercise price is fixed in any currency, i.e., whether fixed in
functional currency of the reporting entity or in a foreign currency. [It may be
noted that the corresponding standard under IFRSs (viz., IAS 32) does not
contain this exception].
Ind AS 32 makes the above exception only in the case of an equity
conversion option embedded in a convertible bond denominated in a foreign
currency, even though it explicitly recognises at several places that other
instruments can also contain equity conversion options. Given this position, it
does not seem that the above exception can be extended by analogy to
equity conversion options embedded in other types of financial instruments
denominated in a foreign currency such as preference shares.
In view of the above, the equity conversion option forming part of terms of
issue of preference shares under discussion would be a (derivative) financial
liability of Entity Y.
                                          (ITFG Clarification Bulletin 17, Issue 11)
                                         (Date of finalisation: December 19, 2018)




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                   Ind AS 33, Earnings per Share
Presentation of earning per share for separate and consolidated
financial statements
Issue 126: Paragraph 9 of Ind AS 33, Earnings per Share states that,
"An entity shall calculate basic earnings per share amounts for profit or
loss attributable to ordinary equity holders of the parent entity and, if
presented, profit or loss from continuing operations attributable to
those equity holders."
Does this mean that a subsidiary company, not wholly owned, should
present EPS only for the portion of the profit which is attributable to the
parent entity?
Response: Paragraph 4 of Ind AS 33 states as follows:
 "4 When an entity presents both consolidated financial statements and
separate financial statements prepared in accordance with Ind AS 110,
Consolidated Financial Statements, and Ind AS 27, Separate Financial
Statements, respectively, the disclosures required by this Standard shall be
presented both in the consolidated financial statements and separate
financial statements. In consolidated financial statements such disclosures
shall be based on consolidated information and in separate financial
statements such disclosures shall be based on information given in separate
financial statements. An entity shall not present in consolidated financial
statements, earnings per share based on the information given in separate
financial statements and shall not present in separate financial statements,
earnings per share based on the information given in consolidated financial
statements."
In accordance with the above an entity is required to disclose EPS in both its
Stand-alone Financial Statements (SFS) and in Consolidated Financial
Statements (CFS) (if presented by the entity).
Paragraph 9 states that an entity shall calculate basic earnings per share
amounts for profit or loss attributable to ordinary equity holders of the parent
entity and, if presented, profit or loss from continuing operations attributable
to those equity holders.
Further, paragraph A1 of Appendix A of Ind AS 33 also states that, "For the
purpose of calculating earnings per share based on the consolidated


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financial statements, profit or loss attributable to the parent entity refers to
profit or loss of the consolidated entity after adjusting for non- controlling
interests."
It is pertinent to note that the requirements of paragraph 9 of Ind AS 33 have
been provided in the context of calculating EPS in the consolidated financial
statements of an entity.
However, analogy may be drawn from paragraph 9 of Ind AS 33 that in case
of separate financial statements, the parent entity mentioned in paragraph 9
will imply the legal entity of which separate financial statements are being
prepared and accordingly, when an entity presents EPS in its separate
financial statements, then the same shall be calculated based on the profit or
loss attributable to its equity shareholders.
                                       (ITFG Clarification Bulletin 11, Issue 3)
                                               (Date of finalisation: July 31 2017)

Treatment of Foreign Currency Monetary Item Translation
Difference Account for the purpose of calculation of basic
earnings per share (EPS)
Issue 127: MNC Ltd. is a first-time adopter of Ind AS. It had availed the
option given under paragraph 46/46A of AS 11, The Effects of Changes
in Foreign Exchange Rates notified under the Companies (Accounting
Standards) Rules, 2006. MNC Ltd. has opted for the exemption given
under paragraph D13AA of Ind AS 101, First-time Adoption of Indian
Accounting Standards and accordingly, debited exchange differences
arising from translation of long term foreign currency monetary items to
Foreign Currency Monetary Item Translation Difference Account.
Whether the amount debited to Foreign Currency Monetary Item
Translation Difference Account is required to be reduced from profit or
loss from continuing operations for the purpose of calculating basic
earnings per share (EPS) as per paragraph 12 of Ind AS 33, Earnings
per Share?
Response: Paragraph 12 of Ind AS 33 states as follows:
"For the purpose of calculating basic earnings per share, the amounts
attributable to ordinary equity holders of the parent entity in respect of:
(a)   profit or loss from continuing operations attributable to the parent
      entity; and


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                                                   Ind AS 33, Earnings per Share

(b)   profit or loss attributable to the parent entity
shall be the amounts in (a) and (b) adjusted for the after-tax amounts of
preference dividends, differences arising on the settlement of preference
shares, and other similar effects of preference shares classified as equity.
Where any item of income or expense which is otherwise required to be
recognised in profit or loss in accordance with Indian Accounting Standards
is debited or credited to securities premium account/other reserves, the
amount in respect thereof shall be deducted from profit or loss from
continuing operations for the purpose of calculating basic earnings per
share."
In accordance with the above, it is pertinent to note that the above paragraph
refers to those items of income or expense which as per Ind AS would have
been required to be recognised in profit or loss but are recognised in
securities premium account/other reserves.
Accordingly, the exchange differences arising from translation of long term
foreign currency monetary items that are debited to Foreign Currency
Monetary Translation Reserve Account as per paragraph 46/46A of AS 11 is
an option available under Ind AS.
Accordingly, exchange differences that are being debited to Foreign
Currency Monetary Item Translation Difference Account is in accordance with
Ind AS and therefore, the same is not required to be reduced from profit or
loss from continuing operations for the purpose of calculating basic earnings
per share.
                                         (ITFG Clarification Bulletin 10, Issue 5)
                                                (Date of finalisation: July 05, 2017)




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           Ind AS 37, Provisions, Contingent
            Liabilities and Contingent Assets
Whether provision for unspent Corporate Social Responsibility
expenditure is required to be made as per Ind AS
Issue 128: Whether provision for unspent Corporate Social
Responsibility expenditure is required to be made as per Ind AS?
Response: Paragraph 14 of Ind AS 37, Provisions, Contingent Liabilities and
Contingent Assets states:
"A provision shall be recognised when:
(a)   an entity has a present obligation (legal or constructive) as a result of
      a past event;
(b)   it is probable that an outflow of resources embodying economic
      benefits will be required to settle the obligation; and
(c)   a reliable estimate can be made of the amount of the obligation.
If these conditions are not met, no provision shall be recognised."
Section 135 (5) of the Companies Act, 2013 (the Act) requires a company to
spend a certain amount as expenditure towards Corporate Social
Responsibility (CSR). The proviso to section 135 (5) of the Act provides that
if the specified amount is not spent by the company during the year, the
Directors' Report should disclose the reasons for not spending the amount.
In accordance with the above, it may be noted that provision for the amount
which is not spent, i.e., any shortfall in the amount that was expected to be
spent as per the provisions of the Act on CSR activities and the amount
actually spent at the end of a reporting period, may not be required in the
financial statements.
However, if a company has already undertaken certain CSR activity for which
an obligation has been created, for example, by entering into a contractual
obligation, or either a constructive obligation has arisen during the year, then
in accordance with Ind AS 37, a provision for the amount of such CSR
obligation, needs to be recognised in the financial statements.
                                            (ITFG Clarification Bulletin 8, Issue 1)
                                                (Date of finalisation: May 5, 2017)


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                      Ind AS 38, Intangible Assets
Applicability of revenue based amortisation for intangible assets
arising service concession arrangements in respect of toll roads
for new arrangements entered after the date of transition
Issue 129: Paragraph 7AA of Ind 38, Intangible Assets read with
paragraph D22 of Ind AS 101, First-time Adoption of Indian Accounting
Standards permits revenue based amortisation for the intangible assets
arising from service concession arrangements in respect of toll roads
recognised in the financial statements for the period ending
immediately before the beginning of the first Ind AS reporting period.
However, Schedule II to the Companies Act, 2013, permits revenue
based amortisation for such intangible asset without any reference to
any financial year. Whether a company is permitted to follow revenue
based amortisation even for such new arrangements entered into after
Ind AS become applicable?
Response: Paragraph D22 of Ind AS 101, inter alia, states as follows:
"D22 A first-time adopter may apply the following provisions while applying
     the Appendix A to Ind AS 11:
(i)   Subject to paragraph (ii), changes in accounting policies are
      accounted for in accordance with Ind AS 8, i.e. retrospectively, except
      for the policy adopted for amortisation of intangible assets arising from
      service concession arrangements related to toll roads recognised in
      the financial statements for the period ending immediately before the
      beginning of the first Ind AS financial reporting period as per the
      previous GAAP................"
Paragraph D7AA of Ind AS 38, Intangible Assets, states as follows:
      "7AA The amortisation method specified in this Standard does not
      apply to an entity that opts to amortise the intangible assets arising
      from service concession arrangements in respect of toll roads
      recognised in the financial statements for the period ending
      immediately before the beginning of the first Ind AS reporting period as
      per the exception given in paragraph D22 of Appendix D to Ind AS
      101."
Schedule II to the Companies Act, 2013, provides that for intangible assets,


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Compendium of ITFG Clarification Bulletins

the provisions of the accounting standards applicable for the time being in
force shall apply, except in case of intangible assets (Toll Roads) created
under `Build, Operate and Transfer', `Build, Own, Operate and Transfer' or
any other form of public private partnership route in case of road projects.
Amortisation in such cases may be done on the basis of revenue as specified
Schedule II.
Paragraph 7AA of Ind 38 read with paragraph D22 of Ind AS 101, specifically
provides exemption for service concession arrangements in respect of toll
roads recognised in the financial statements for the period ending
immediately before the beginning of the first Ind AS reporting period as per
the previous GAAP, i.e., as per Schedule II to the Companies Act, 2013,
considering the requirements contained in that Schedule. Companies
(Accounts) Rules, 2014 prescribes to follow Ind AS in preparation of financial
statements.
Hence, in harmonisation of Rules and Ind AS 38 read with Ind AS 101,
principles of Ind AS 38 should be followed for all service concession
arrangements including roll roads once Ind AS is applicable to an entity.
                                      (ITFG Clarification Bulletin 3, Issue 13)
                                             (Date of finalisation: June 22, 2016)




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                                                        Schedule III
Disclosure of operating profit on the face of Statement of Profit and
Loss in accordance with Ind AS based Schedule III
Issue 130: Can a company disclose operating profit on the face of
Statement of Profit and Loss in accordance with Ind AS based Schedule
III?
Response: As per Ind AS based Schedule III, aggregate of `Revenue from
operations' and `Other income' is to be disclosed on face of the Statement of
Profit and Loss. Revenue from operations is to be separately disclosed in the
notes, showing revenue from:
(a)   Sale of products (including Excise Duty);
(b)   Sale of services; and
(c)   Other operating revenues
The aggregate of `Other income' is to be disclosed on face of the Statement
of Profit and Loss. As per Note 5 of General Instructions for the Preparation
of Statement of Profit and Loss `Other Income' shall be classified as:
(a)   interest Income;
(b)   dividend Income; and
(c)   other non-operating income (net of expenses directly attributable to
      such income).
Paragraph 9.1.8 of the Guidance Note on Ind AS based Schedule III, states
that, "The term "other operating revenue" is not defined. This would include
Revenue arising from a company's operating activities, i.e., either its
principal or ancillary revenue-generating activities, but which is not revenue
arising from sale of products or rendering of services. Whether a particular
income constitutes "other operating revenue" or "other income" is to be
decided based on the facts of each case and detailed understanding of the
company's activities."
Accordingly, disclosure of income shall be governed as stated above. Further
it is also pertinent to note that Ind AS Schedule III sets out the minimum
requirements for disclosure in the financial statements including notes. It
states that line items, sub-line items and sub- totals shall be presented as an
addition or substitution on the face of the financial statements when such

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Compendium of ITFG Clarification Bulletins

presentation is relevant to the understanding of the company's financial
position or performance or to cater to industry/sector-specific disclosure
requirements, apart from, when required for compliance with amendments to
the Act or Ind AS.
As per the Guidance Note on Ind AS based Schedule III, the application of
the above requirement is a matter of professional judgement. The following
examples illustrate this requirement. Earnings before Interest, Tax,
Depreciation and Amortisation is often an important measure of financial
performance of the company relevant to the various users of financial
statements and stakeholders of the company. Hence, a company may
choose to present the same as an additional line item on the face of the
Statement of Profit and Loss. The method of computation adopted by
companies for presenting such measures should be followed consistently
over the years. Further, companies should also disclose the policy followed
in the measurement of such line items.
In respect of operating profit disclosure, certain items which are credited to
profit and loss account may not form part of operating profit measure and
therefore giving a separate line item for disclosure of the operating profit may
not be appropriate and would result in change in the format of Statement of
Profit and Loss as prescribed by Schedule III applicable to Ind AS
companies. It is also to be noted that Ind AS Schedule III and Ind AS
requires classification of expense by nature and not function. The operating
profit measure sub-total would result in a more appropriate presentation of
performance for entities classifying expenses by function. Since classification
of expenses by function is not permitted under Ind AS and Ind AS Schedule
III, it may not be appropriate to present an operating profit measure sub-total
as part of the statement of profit and loss. However, the entity may provide
such additional information in the financial statements.
                                            (ITFG Clarification Bulletin 13, Issue 5)
                                            (Date of finalisation: January 16, 2018)


Applicability of Ind AS based Schedule III on voluntary adoption of Ind
AS
Issue 131: Companies which have chosen for voluntary adoption of Ind
AS from the financial year 2015-16 do not have clear format that should
be used for the preparation of financial statements. In the absence of
any specific format, whether a company may apply Ind AS based
Schedule III (i.e. the Division II of Schedule III notified by MCA)?


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                                                                     Schedule III

Response: The Ministry of Corporate Affairs, by notification dated April 6,
2016, amended Schedule III by incorporating Division-II for preparation of
financial statements as per Ind AS with effect from the date of publication in
the Official Gazette i.e. April 6, 2016. It may be noted that as on March 31,
2016, there was no specific Schedule prescribed under the Companies Act,
2013, for companies voluntarily adopting Ind AS from financial year 2015-16.
However, it may further be noted that there is no prohibition in amended
Schedule III incorporating Division II for its early or voluntary adoption.
In view of the above, a company voluntarily adopting Ind AS from financial
year 2015-16 may use the format specified in Division-II of Revised Schedule
III (which is in compliance with Ind AS notified as Companies (Indian
Accounting Standards) Rules, 2015) for the preparation of financial
statements as per Ind AS for financial year 2015-16, as going forward also
the same format shall be applied.
                                           (ITFG Clarification Bulletin 3, Issue 1)
                                             (Date of finalisation: June 22, 2016)


Classification of interest leviable on the entity due to delay in payment
of the taxes in the statement of profit and loss
Issue 132: ABC Ltd. is required to pay certain taxes levied by a local
authority. In case of delay in payment of taxes, interest is leviable at
the rate of 1%, 2%, 3%, per month on the amount in default, depending
upon the length of period of delay. Whether interest leviable on the
entity due to delay in payment of the taxes would form part of finance
cost or whether it would be classified as part of `other expenses', in the
statement of profit and loss as per the requirements of relevant Ind ASs
and/or those of Division II of Schedule III to the Companies Act 2013?
Response: As per Schedule III, Division II, Note 4 of the General
Instructions for the Preparation of the Statement of Profit and Loss, the
finance costs shall be classified as-
(a) Interest
(b) Dividend on redeemable preference shares
(c)   Exchange differences regarded as an adjustment to borrowing costs
(d) Other borrowing costs (specify nature)
In the given case, local taxes not paid by due date represent interest bearing
liabilities. The entity would need to evaluate whether the interest payable for

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Compendium of ITFG Clarification Bulletins

delay in payment of taxes is compensatory in nature for time value of money
or penal in nature. This requires exercise of judgment based on evaluation of
facts of the case.
Based on such evaluation, if it is concluded that interest is compensatory in
nature then it shall be included in finance cost, if it is penal in nature, then it
shall be classified under `other expenses'.
                                            (ITFG Clarification Bulletin 17, Issue 8)
                                          (Date of finalisation: December 19, 2018)




                                       236
APPENDICES
                             APPENDIX I
       Frequently Asked Questions (FAQs)
      issued by the Accounting Standards
                            Board of ICAI

FAQ on accounting treatment of increase in liability due to
enhancement of the gratuity ceiling
This FAQ on accounting treatment of increase in liability on account of
enhancement of the gratuity ceiling from ` 10 lakhs to ` 20 Lakhs due to
Payment of Gratuity (Amendment) Act 2018 (vide notification no. S.O. 1420
(E) dated March 29, 2018) has been issued by the Accounting Standards
Board (ASB) of the Institute of Chartered Accountants of India (ICAI). The
purpose of this FAQ is to clarify the accounting treatment of increase in
liability due to enhancement of the gratuity ceiling.
Question: ABC Ltd. is covered by the Payment of Gratuity Act, 1972 which is
required to pay gratuity to its employees. Due to the recent amendment in
the aforesaid Act there is substantial increase in the liability of the company.
Whether there is any exemption or relief available to the company under
Accounting Standards with regard to the accounting treatment of such
increase in the liability.
Response: The Gratuity benefit is an employee benefit and accordingly any
increase in company's liability due to enhancement of the gratuity ceiling from `
10 Lakhs to ` 20 Lakhs would be accounted for as per the principles of AS 15,
Employee Benefits or Ind AS 19, Employee Benefits, as the case may be.
In this regard, it may be noted that effect of above type of amendments need to
be dealt with reference to accounting treatment of past service costs.The `past
service cost' is defined as below in AS 15 and Ind AS 19:
As per AS 15, "Past service cost is the change in the present value of the
defined benefit obligation for employee service in prior periods, resulting
in the current period from the introduction of, or changes to, post-
employment benefits or other long-term employee benefits. Past service
cost may be either positive (where benefits are introduced or improved) or
negative (where existing benefits are reduced)".

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Compendium of ITFG Clarification Bulletins

As per Ind AS 19 "past service cost, which is the change in the present
value of the defined benefit obligation for employee service in prior
periods, resulting from a plan amendment (the introduction or withdrawal
of, or changes to, a defined benefit plan) or a curtailment (a significant
reduction by the entity in the number of employees covered by a plan)".
As per the above, the increase in liability arising due to enhancement of gratuity
ceiling from 10 to 20 Lakhs is a past service cost.
It may also be noted that the aforementioned accounting standards do not
provide any exemption/one time relief with regard to the accounting treatment of
increase in liability arising on account of past service cost. Accordingly, ABC
Ltd. is required to account for any increase in the liability on account of increase
in gratuity ceiling as expense as per the requirements of the relevant applicable
Standard.
FAQ on utilisation of Securities Premium Account
Question: Company7 ABC Ltd. had issued non-convertible debentures
redeemable at premium, which were outstanding as on March 31, 2015.
The Company has measured this financial liability at amortised cost in
accordance with Ind AS 109, Financial Instruments. In the past, the
Company had utilised the Securities Premium Account for providing
for the debenture redemption premium payable and writing off
debenture issue expenses in view of the requirements of Section 78 of
the Companies Act, 1956 and Section 52 of the Companies Act 2013
(such utilisation is not allowed once Ind AS becomes applicable).
As the amount of Securities Premium Account had been utilised to
provide for debenture redemption premium payable and to write off
debenture issue expenses, what retrospective accounting adjustments
in this regard are required to be done in the books under Ind AS on
transition date.
Response: Non-convertible debentures (financial liability) in the given case
are classified as subsequently measured at amortised cost under Ind AS
109. Accordingly, Company ABC Ltd. will have to arrive at the amortised
cost at the date of transition by applying the effective interest method (EIM)
with retrospective effect from the date of issue of debentures. In view of
requirements of Ind AS 109, amortised cost computation using EIM includes

7This FAQ replaces the earlier Issue no. 7 of the Ind AS Transition Facilitation
Group (ITFG) Clarification Bulletin 2 issued by the Accounting Standards Board.

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                                               Appendix I: FAQs issued by ASB

all transaction costs that are directly attributable to the acquisition or issue
of debentures, such as, expenses incurred on issue of debentures and
premiums and discounts, if any.
In the above background, the Securities Premium Account utilised in past as
described above, may result into higher carrying amount of non-convertible
debentures as per Indian GAAP compared to amortised cost carrying
amount required as per Ind AS 109 as on transition date and the excess
amount needs to be reversed into an appropriate component of equity.
In this regard, the following requirement of Ind AS 101, First-time Adoption
of Indian Accounting Standards, may be noted:
"11. The accounting policies that an entity uses in its opening Ind AS
Balance Sheet may differ from those that it used for the same date using its
previous GAAP. The resulting adjustments arise from events and
transactions before the date of transition to Ind ASs. Therefore, an entity
shall recognise those adjustments directly in retained earnings (or, if
appropriate, another category of equity) at the date of transition to Ind ASs."
In view of the above-mentioned requirement of Ind AS 101, it may be
mentioned that the appropriate category of equity for reversal of the excess
carrying amount of non-convertible debentures in this case is the Securities
Premium Account. Accordingly, the excess of carrying value of financial
liability as per Indian GAAP over the amortised cost amount arrived at by
using EIM as per Ind AS 109 as on transition date should be reversed by
crediting the Securities Premium Account with corresponding debit to the
relevant account which was credited earlier.
FAQ on Dividend Distribution Tax
This FAQ on Dividend Distribution Tax has been issued by the Accounting
Standards Board (ASB) of the Institute of Chartered Accountants of India
(ICAI). The purpose of this FAQ is to illustrate and to assist in clarifying the
requirements regarding treatment of Dividend Distribution Tax
Question: What are the presentation requirements as per Ind AS for
dividend and dividend distribution tax thereon, if an entity has issued certain
financial instruments that are classified as debt as per the provisions of Ind
AS 32, Financial Instruments: Presentation? What would be the presentation
requirements in this regard, if the financial instruments issued are classified
as equity or if these are compound financial instruments and bifurcated into
debt and equity?


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Compendium of ITFG Clarification Bulletins

Response: With regard to the recognition of dividend declared on financial
instruments, paragraphs 35 and 36 of Ind AS 32 reproduced hereunder may
be noted:
`'35 Interest, dividends, losses and gains relating to a financial
instrument or a component that is a financial liability shall be
recognised as income or expense in profit or loss. Distributions to
holders of an equity instrument shall be recognised by the entity
directly in equity. Transaction costs of an equity transaction shall be
accounted for as a deduction from equity.
36 The classification of a financial instrument as a financial liability or an
equity instrument determines whether interest, dividends, losses and gains
relating to that instrument are recognised as income or expense in profit or
loss. Thus, dividend payments on shares wholly recognised as liabilities are
recognised as expenses in the same way as interest on a bond. Similarly,
gains and losses associated with redemptions or refinancings of financial
liabilities are recognised in profit or loss, whereas redemptions or
refinancings of equity instruments are recognised as changes in equity.
Changes in the fair value of an equity instrument are not recognised in the
financial statements.''
In view of the above, if a financial instrument is classified as debt, the
dividend or interest paid thereon is in the nature of interest which is charged
to profit or loss. Dividend or interest paid on a financial instrument which is
classified as equity, should be recognised in the Statement of Changes in
Equity. In case of a compound financial instrument, the dividend or interest
allocated to debt portion shall be charged to profit or loss and the portion of
dividend or interest pertaining to equity shall be recognised in Statement of
Changes in Equity.
With regard to the income tax consequences of dividend, paragraphs 52A
and 52B of Ind AS 12, Income Taxes, provide as under:
52A In some jurisdictions, income taxes are payable at a higher or lower
rate if part or all of the net profit or retained earnings is paid out as a
dividend to shareholders of the entity. In some other jurisdictions, income
taxes may be refundable or payable if part or all of the net profit or retained
earnings is paid out as a dividend to shareholders of the entity. In these
circumstances, current and deferred tax assets and liabilities are measured
at the tax rate applicable to undistributed profits.


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52B In the circumstances described in paragraph 52A, the income tax
consequences of dividends are recognised when a liability to pay the
dividend is recognised. The income tax consequences of dividends are more
directly linked to past transactions or events than to distributions to owners.
Therefore, the income tax consequences of dividends are recognised in
profit or loss for the period as required by paragraph 58 except to the extent
that the income tax consequences of dividends arise from the circumstances
described in paragraph 58(a) and (b).
Paragraph 52A deals with the aspect where income taxes are payable at a
higher or lower rate if part or all of the net profit or retained earnings is paid
out as a dividend to shareholders. However, as per paragraph 52B, income
tax consequences of dividends are to be presented in profit or loss where it
is linked to past transactions and events recognised. The ASB is of the view
that in India the rate of income tax for company on taxable income does not
change if a company distributes dividend. In India, the dividend distribution
tax is a tax that is computed on the basis of the amount of dividend
distributed to shareholders rather than based on the amount of profits
earned and it arises at the point of time when the profits are distributed.
Therefore, Indian scenario is different from the income tax consequences in
other jurisdictions, which are covered by paragraph 52A of Ind AS 12.
In this context, following paragraph 65A of Ind AS 12, Income Taxes, as
reproduced below may also be noted:
"65A When an entity pays dividends to its shareholders, it may be required
to pay a portion of the dividends to taxation authorities on behalf of
shareholders. In many jurisdictions, this amount is referred to as a
withholding tax. Such an amount paid or payable to taxation authorities is
charged to equity as a part of the dividends."
In India, dividends are not taxable in the hands of shareholders considering
that DDT is paid by the company that paid the dividend. Had there been no
DDT mechanism, dividend would have been taxable in the hands of
recipients, though recently it has been made taxable if the amount of
dividend exceeds a specified limit. Therefore, in view of paragraph 65A,
DDT is, in substance, of the nature of withholding tax. Therefore, the Board
is of the view that the nature of payment of DDT in India is not similar to the
scenario covered under the current paragraph 52A. Accordingly, the
following paragraph of Ind AS 12, Income Taxes is relevant with regard to
the presentation of dividend distribution tax paid:
``61A Current tax and deferred tax shall be recognised outside profit or loss

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if the tax relates to items that are recognised, in the same or a different
period, outside profit or loss. Therefore, current tax and deferred tax that
relates to items that are recognised, in the same or a different period:
(a) in other comprehensive income, shall be recognised in other
    comprehensive income.
(b) directly in equity, shall be recognised directly in equity.''
In view of the above, presentation of on the dividends should be consistent
with the presentation of the transaction that creates those income tax
consequences. Therefore, DDT should be charged to profit or loss if the
dividend itself is charged to profit or loss. If the dividend is recognised in
equity, the presentation of DDT should be consistent with the presentation of
the dividend, i.e., to be recognised in equity. Accordingly, in case of
combined financial instruments, bifurcated into debt and equity, the portion
of DDT related to dividend/interest to the debt component should be
recognised in profit or loss and that related to equity component should be
recognised in equity.
FAQ on Elaboration of terms `infrequent number of sales' or
`insignificant in value' used in Ind AS 109
Question: Ind AS 109, Financial Instruments, requires an entity to classify
financial assets on the basis of the entity's business model for managing the
financial assets. In this regard, under a business model whose objective is
to hold assets in order to collect contractual cash flows, the Standard
provides that for this purpose, it is necessary to consider the frequency,
value and timing of sales in prior periods. Ind AS 109 appears to envisage
sale of assets held under the amortised cost category before maturity, the
application guidance of Ind AS 109 states that such sales may be consistent
with a business model whose objective is to hold financial assets in order to
collect contractual cash flows if those sales are infrequent (even if significant
in value) or insignificant in value both individually and in aggregate (even if
frequent).
In view of the above, the following may be clarified:
(a) How should the terms `infrequent number of sales' or `insignificant in
    value' be interpreted and determined. Can indicative rebuttable
    thresholds be prescribed for sales that are more than insignificant in
    value?
(b) What is the relation between the terms `immaterial' and `insignificant'?


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Response: Ind AS 109 does not define the terms `infrequent number of
sales' or `insignificant in value'. However, these terms have been used in the
Standard in the context of determination of business model. Under Ind AS
109, generally, sales which are `infrequent in number' or `insignificant in
value' are considered to be consistent with a business model whose
objective is to hold financial assets in order to collect contractual cash flows.
The Standard does not lay down any thresholds for value or number in this
regard.
However, the Standard provides detailed guidance on the hold to collect
business model. In 2012, IASB had made limited amendments in IFRS 9 to
clarify the objective of the hold to collect business model by providing
additional application guidance. Ind AS 109 discusses various situations
including credit risk where business model may be to hold assets to collect
contractual cash flows even if the entity sells financial assets before
maturity. Ind AS 109 provides that frequency and value of sales due to an
increase in the assets' credit risk may not be inconsistent with a business
model whose objective is to hold financial assets to collect contractual cash
flows. Accordingly, while determining the business model, management may
decide the situations in which sales of financial assets occurring before the
maturity date may not be considered inconsistent with the entity's business
model whose objective is to hold assets in order to collect contractual cash
flows, e.g., an entity may lay down some criteria such as, if an entity sells a
security which is initially rated as AAA security and subsequently, it is rated
as BB, it will not be inconsistent with the entity's business model whose
objective is to hold assets in order to collect contractual cash flows because
the management may want to rebalance its portfolio by selling it rather than
waiting till the maturity date. There can be other situations also depending
upon the facts and circumstances which need to be judged by the
management.
In this regard, apart from the guidance contained in the Standard, the Basis
of Conclusions to IFRS 9 contains an additional instance in which sales of
financial assets occurring before the maturity date may not be considered
inconsistent with the entity's business model whose objective is to hold
assets in order to collect contractual cash flows. The instance relates to
change in the regulatory treatment of a particular type of financial asset
which may cause an entity to undertake a significant rebalancing of its
portfolio in a particular period.


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In view of the above, following may be concluded:
(a) On the reading of Ind AS 109 along with the Basis of Conclusions to
    IFRS 9, it can be concluded that it is a matter of judgement which
    should be assessed keeping in view the facts and circumstances
    pertaining to each case. Therefore, no rule of thumb in terms of even
    indicative percentage can be laid down to determine `infrequent
    number of sales' or
      `insignificant in value', since it may not be applicable in all cases
      considering the differing quantum, configuration and nature of financial
      assets in different entities. Hence, no indicative rebuttable thresholds
      can be prescribed for sales that are more than insignificant in value.
(b) With regard to relation between terms `immaterial' and `insignificant', it
    may be noted that guidance on the term `materiality' is already there in
    Ind AS which also does not lay down any criteria based on indicative
    fixed percentages. However, the term `insignificant' has not been
    defined and can be interpreted to mean `less than material' or almost
    `negligible'.
FAQ on deemed cost of Property, Plant and Equipment under Ind
AS 101, First-time Adoption of Indian Accounting Standards
Issue: Ind AS 101 provides that the net carrying amounts of all of its
Property, Plant and Equipment as per previous GAAP can be used as
deemed cost on the date of transition to Ind AS. In that case, whether the
accumulated depreciation and provision for impairment under previous
GAAP would be treated as nil on the date of transition. In case the response
is in the affirmative, then how the provision for impairment provided before
the date of transition as per previous GAAP would be reversed in later years
if there is a change in the estimates used to determine the asset's
recoverable amount since the last impairment loss was recognized?
Response:
In the context of the issue, the following paragraphs of Ind AS 101, First-
time Adoption of Indian Accounting Standards, and the definition of `deemed
cost' contained in the Standard may be noted:
"D5      An entity may elect to measure an item of property, plant and
         equipment at the date of transition to Ind ASs at its fair value and
         use that fair value as its deemed cost at that date."
"D7AA Where there is no change in its functional currency on the date of
      transition to Ind ASs, a first-time adopter to Ind ASs may elect to


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        continue with the carrying value for all of its property, plant and
        equipment as recognised in the financial statements as at the date
        of transition to Ind ASs, measured as per the previous GAAP and
        use that as its deemed cost as at the date of transition after making
        necessary adjustments in accordance with paragraph D21 and
        D21A, of this Ind AS
Definition of Deemed Cost
"An amount used as a surrogate for cost or depreciated cost at a given date.
Subsequent depreciation or amortisation assumes that the entity had initially
recognised the asset or liability at the given date and that its cost was equal
to the deemed cost."
In view of the above, with regard to deemed cost, Ind AS 101, inter alia,
provides an option to continue with the carrying value for all of its property,
plant and equipment measured as per previous GAAP and use that as
deemed cost on the date of transition. As per the definition of deemed cost,
it is the amount used as a surrogate for the cost or depreciated cost and for
the purpose of subsequent depreciation or amortisation, deemed cost
becomes the cost as the starting point. Accordingly, from the date of
transition, the deemed cost, i.e., carrying values of PPE as per the previous
GAAP in the given case, is the cost and any accumulated depreciation and
provision for impairment under previous GAAP have no relevance as would
be the case if fair value were to be taken as deemed cost as per paragraph
D5 above. Accordingly, provision for impairment provided before the date of
transition as per previous GAAP cannot be reversed in later years.
However, information regarding gross block of assets, accumulated
depreciation and provision for impairment under previous GAAP can be
disclosed by way of note forming part of the financial statements. This
information can be disclosed only as additional disclosures and the same
cannot be considered for subsequent recognition and/or measurement
purposes.
FAQs on requirements to prepare Consolidated Financial
Statements
These FAQs on Consolidated Financial Statements have been issued by the
Accounting Standards Board (ASB) of the Institute of Chartered Accountants
of India (ICAI). The purpose of these FAQs is to illustrate and to assist in
clarifying the requirements regarding preparation of Consolidated Financial
Statements.

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Compendium of ITFG Clarification Bulletins

1.(i) Whether a company H ltd is required to consolidate its subsidiary
      which is a Limited Liability Partnership (LLP) or a partnership
      firm?
(ii) Would the answer be different if LLP is an associate or joint
     venture of H Ltd?
(i) As per rule 6 of Companies (Accounts) Rules, 2014, under the heading
`Manner of consolidation of accounts' it is provided that consolidation of
financial statements of a company shall be done in accordance with the
provisions of Schedule III to the Companies Act, 2013 and the applicable
Accounting Standards.
It is noted that relevant Indian Accounting Standard i.e., Ind AS 110,
Consolidated Financial Statements provides that where an entity has control
on one or more other entities, the controlling entity is required to consolidate
all the controlled entities. Since, the word `entity' includes a company as well
as any other form of entity, therefore, LLPs and partnership firms are
required to be consolidated. Similarly, under Accounting Standard (AS) 21,
as per the definition of subsidiary, an enterprise controlled by the parent is
required to be consolidated. The term `enterprise' includes a company and
any enterprise other than a company. Therefore, under AS also, LLPs and
partnership firms are required to be consolidated.
Accordingly, in the given case, H ltd is required to consolidate its subsidiary
which is an LLP or a partnership firm.
(ii) If LLP or a partnership firm is an associate or joint venture of H ltd,
even then the LLP and the partnership firm need to be consolidated in
accordance with the requirements of applicable Accounting Standards.
2. A Company H ltd has no subsidiaries, but has investment in an
associate and a joint venture. Whether H Ltd. is required to prepare
consolidated financial statements for the year ending March 31, 2016,
in the context of Companies (Accounting Standards) Rules, 2006.
Section 129 (3) of the Companies Act, 2013 provides that where a company
has one or more subsidiaries, it shall prepare a consolidated financial
statement of the company and of all the subsidiaries. Further, an
Explanation to this sub section provides that the word "subsidiary" shall
include associate company and joint venture.
In view of the above, in the given case, though H ltd does not have any
subsidiary, it is required to prepare consolidated financial statements for its

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associate and joint venture in accordance with the applicable Accounting
Standards, viz, AS 23, Accounting for Investments in Associates in
Consolidated Financial Statements and AS 27, Financial Reporting of
Interests in Joint Ventures, respectively.




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                             APPENDIX II
           Extracts of Companies (Indian
        Accounting Standards) Rules 2015
             read with Companies (Indian
      Accounting Standards) (Amendment)
                              Rules, 2016

2.    Definitions. - (1) In these rules, unless the context otherwise requires,-
(a)   "Accounting Standards" means the standards of accounting, or any
      addendum thereto for companies or class of companies as specified in
      rule 3;
(b)   "Act" means the Companies Act, 2013 (18 of 2013);
(c)   "Annexure" in relation to these rules means the Annexure containing
      the Indian Accounting Standards (Ind AS) appended to these rules;
(d)   "entity" means a company as defined in clause (20) of section 2 of the
      Act;
(e)   "financial statements" means financial statements as defined in clause
      (40) of section 2 of the Act;
(f)   "net worth" shall have the meaning assigned to it in clause (57) of
      section 2 of the Act.
(g)   "Non-Banking Financial Company" means a Non-Banking Financial
      Company as defined in clause (f) of section 45-I of the Reserve Bank
      of India Act, 1934 and includes Housing Finance Companies,
      merchant Banking companies, Micro Finance Companies, Mutual
      Benefit Companies, Venture Capital Fund Companies, Stock Broker or
      Sub-Broker Companies, Nidhi Companies, Chit Companies,
      Securitisation and Reconstruction Companies, Mortgage Guarantee
      Companies, Pensions Fund Companies, Asset Management
      Companies and Core Investment Companies.
(2)   Words and expressions used herein and not defined in these rules but

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defined in the Act shall have the same meaning respectively assigned to
them in the Act.
3.    Applicability of Accounting Standards. - (1) The accounting standards
as specified in the Annexure to these rules to be called the Indian Accounting
Standards (Ind AS) shall be the accounting standards applicable to classes
of companies specified in rule 4.
(2) The Accounting standards as specified in Annexure to the Companies
(Accounting Standards) Rules, 2006 shall be the Accounting Standards
applicable to the companies other than the classes of companies specified in
rule 4.
(3) A company which follows the Indian Accounting Standards (Ind AS)
specified in Annexure to these rules in accordance with the provisions of rule
4 shall follow such standards only.
(4) A company which follows the accounting standards specified in
Annexure to the Companies (Accounting Standards) Rules, 2006 shall
comply with such standards only and not the Standards specified in
Annexure to these rules.
4.     Obligation to comply with Indian Accounting Standards (Ind AS). -
(1) The Companies and their auditors shall comply with the Indian
Accounting Standards (Ind AS) specified in Annexure to these rules in
preparation of their financial statements and audit respectively, in the
following manner, namely:-
(i)    any company and its holding, subsidiary, joint venture or associate
       company may comply with the Indian Accounting Standards (Ind AS)
       for financial statements for accounting periods beginning on or after
       1stApril, 2015, with the comparatives for the periods ending on 31st
       March, 2015, or thereafter;
(ii)   the following companies shall comply with the Indian Accounting
       Standards (Ind AS) for the accounting periods beginning on or after
       1st April, 2016, with the comparatives for the periods ending on 31st
       March, 2016, or thereafter, namely:-
       (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 rupees five hundred crore
             or more;



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Compendium of ITFG Clarification Bulletins

        (b)   companies other than those covered by sub-clause (a) of clause
              (ii) of sub rule (1) and having net worth of rupees five hundred
              crore or more;
        (c)   holding, subsidiary, joint venture or associate companies of
              companies covered by sub-clause (a) of clause (ii) of sub- rule
              (1) and sub-clause (b) of clause (ii) of sub- rule (1) as the case
              may be; and
(iii)   the following companies shall comply with the Indian Accounting
        Standards (Ind AS) for the accounting periods beginning on or after
        1st April, 2017, with the comparatives for the periods ending on 31st
        March, 2017, or thereafter, namely:-
        (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 less than rupees five
              hundred crore;
        (b)   companies other than those covered in clause (ii) of sub- rule
              (1) and sub-clause (a) of clause (iii) of sub-rule (1), that is,
              unlisted companies having net worth of rupees two hundred and
              fifty crore or more but less than rupees five hundred crore.
        (c)   holding, subsidiary, joint venture or associate companies of
              companies covered under sub-clause (a) of clause (iii) of sub-
              rule (1) and sub-clause (b) of clause (iii) of sub- rule (1), as the
              case may be:
(iv)    Notwithstanding the requirement of clause (i) to (iii), Non-Banking
        Financial Companies (NBFCs) shall comply with the Indian Accounting
        Standards (Ind AS) in preparation of their financial statements and
        audit respectively, in the following manner, namely :-
        (a)   The following NBFCs shall company with the Indian Accounting
              Standards (Ind AS) for accounting periods beginning on or after
              the 1st April, 2018, with comparatives for the periods ending on
              31st March, 2018, or thereafter-
              (A)   NBFCs having net worth of rupees five hundred crores or
                    more;
              (B)   holding, subsidiary, joint venture or associate companies


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                     Appendix II: Extracts of Companies (Ind AS) Rules

            of companies covered under item (A), other than those
            already covered under clauses (i), (ii) and (iii) of sub-rule
            (1) of rule 4.
(b)   The following NBFCs shall comply with the Indian Accounting
      Standards (Ind AS) for accounting periods beginning on or after
      the 1st April, 2019, with comparatives for the periods ending on
      31st march, 2019, or thereafter-
      (A)   NBFCs whose equity or debt securities are listed or in the
            process of listing on any stock exchanges in India or
            outside India and having net worth less than rupees five
            hundred crore;
      (B)   NBFCs, that are unlisted companies, having net worth of
            rupees two-hundred and fifty crore or more but less than
            rupees five hundred crore; and
      (C)   holding, subsidiary, joint venture or associate companies
            of companies covered under item (A) or item (B) of sub-
            clause (b), other than those already covered in clauses
            (i), (ii) and (iii) of sub-rule (1) or item (B) of sub-clause (a)
            of clause (iv).
Explanation. ­ For the purposes of clause (iv), if in a group of
Companies, some entities apply Accounting Standards specified in the
Annexure to the Companies (Accounting Standards) Rules, 2006 and
others apply accounting standards as specified in the Annexure to
these rules, in such cases, for the purpose of individual financial
statements, the entities should apply respective standards applicable
to them. For preparation of consolidated financial statements, the
following conditions are to be followed, namely:-
(i)   Where an NBFC is a parent (at ultimate level or at intermediate
      level), and prepares consolidated financial statements as per
      Accounting Standards specified in the Annexure to the
      Companies (Accounting Standards) Rules, 2006, and its
      subsidiaries, associates and joint ventures, if covered by clause
      (i), (ii) and (iii) of sub-rule (1) has to provide the relevant
      financial statement data in accordance with the accounting
      policies followed by the parent company for consolidation
      purposes (until the NBFC is covered under clause (iv) of sub-
      rule (1);

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Compendium of ITFG Clarification Bulletins

      (ii)   where a parent is a company covered under clause (i), (ii) and
             (iii) of sub-rule (1) and has an NBFC subsidiary, associate or a
             joint venture, the parent has to prepare Ind AS- compliant
             consolidated financial statements and the NBFC subsidiary,
             associate or a joint venture has to provide the relevant financial
             statement data in accordance with the accounting policies
             followed by the parent company for consolidation purposes
             (until the NBFC is covered under clause (iv) of sub-rule (1).
(v)   Notwithstanding clauses (i) to (iv), the holding, subsidiary, joint venture
      or associates companies of Scheduled commercial banks (excluding
      RRBs) would be required to prepare Ind AS based financial statements
      for accounting periods beginning from 1st April, 2018 onwards, with
      comparatives for the periods ending 31st March, 2018 or thereafter.
      Provided that nothing in this sub-rule, except clause (i), shall apply to
      companies whose securities are listed or are in the process of being
      listed on SME exchange as referred to in Chapter XB or on the
      Institutional Trading Platform without initial public offering in
      accordance with the provisions of Chapter XC of the Securities and
      Exchange Board of India (Issue of Capital and Disclosure
      Requirements) Regulations, 2009.
Explanation 1. - SME Exchange shall have the same meaning as assigned to
it in Chapter XB of the Securities and Exchange Board of India (Issue of
Capital and Disclosure Requirements) Regulations, 2009.
Explanation 2. - "Comparatives" shall mean comparative figures for the
preceding accounting period.
(2) For the purposes of calculation of net worth of companies under
clause (i), (ii) and (iii) of sub-rule (1), the following principles shall apply,
namely:-
(a)   the net worth shall be calculated in accordance with the stand-alone
      financial statements of the company as on 31st March, 2014 or the
      first audited financial statements for accounting period which ends
      after that date;
(b)   for companies which are not in existence on 31st March, 2014 or an
      existing company falling under any of thresholds specified in sub-rule
      (1) for the first time after 31st March, 2014, the net worth shall be


                                      254
                             Appendix II: Extracts of Companies (Ind AS) Rules

      calculated on the basis of the first audited financial statements ending
      after that date in respect of which it meets the thresholds specified in
      sub-rule (1).
Explanation. - For the purposes of sub-clause (b), the companies meeting
the specified thresholds given in sub-rule (1) for the first time at the end of an
accounting year shall apply Indian Accounting Standards (Ind AS) from the
immediate next accounting year in the manner specified in sub-rule (1).
Illustration .- (i) The companies meeting threshold for the first time as on 31st
March, 2017 shall apply Ind AS for the financial year 2017-18 onwards.
(ii) The companies meeting threshold for the first time as on 31st March,
2018 shall apply Ind AS for the financial year 2018-19 onwards and so on.
(2A)     For the purposes of calculation of net worth of Non-Banking
Financial Companies covered under clause (iv) of sub-rule (1), the following
principles shall apply, namely :-
(a)   the net worth shall be calculated in accordance with the stand-alone
      financial statements of the NBFCs as on 31st March, 2016 or the first
      audited financial statements for accounting period which ends after
      that date;
(b)   for NBFCs which are not in existence on 31st March, 2016 or an
      existing NBFC falling first time, after 31st March, 2016, the net worth
      shall be calculated on the basis of the first audited stand-alone
      financial statements ending after that date, in respect of which it meets
      the thresholds.
Explanation. ­ For the purposes of sub-clause (b), the NBFCs meeting the
specified thresholds given in sub-clause (b) of clause (iv) of sub-rule (1) for
the first time at the end of an accounting year shall apply Indian Accounting
Standards (Ind ASs) from the immediate next accounting year in the manner
specified in sub-clause (b) of clause (iv) of sub-rule (1).
Illustration ­ (i) The NBFCs meeting threshold for the time as on 31st March,
2019 shall apply Ind AS for the financial year 2019-20 onwards.
(ii) The NBFCs meeting threshold for the time as on 31st March, 2020 shall
apply Ind AS for the financial year 2020-21 onwards and so on.
(3) Standards in Annexure to these rules once required to be complied
with in accordance with these rules, shall apply to both stand-alone financial
statements and consolidated financial statements.

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Compendium of ITFG Clarification Bulletins

(4) Companies to which Indian Accounting Standards (Ind AS) are
applicable as specified in these rules shall prepare their first set of financial
statements in accordance with the Indian Accounting Standards (Ind AS)
effective at the end of its first Indian Accounting Standards (Ind AS) reporting
period.
Explanation.- For the removal of doubts, it is hereby clarified that the
companies preparing financial statements applying the Indian Accounting
Standards (Ind AS) for the accounting period beginning on 1st April, 2016 or
1st April, 2018, as the case may be shall apply the Indian Accounting
Standards (Ind AS) effective for the financial year ending on 31st March,
2017 or 31st March, 2019, as the case may be.
(5) Overseas subsidiary, associate, joint venture and other similar entities
of an Indian company may prepare its standalone financial statements in
accordance with the requirements of the specific jurisdiction:
Provided that such Indian company shall prepare its consolidated financial
statements in accordance with the Indian Accounting Standards (Ind AS) if it
meets the criteria as specified in sub-rule (1).
(6) Indian company which is a subsidiary, associate, joint venture and
other similar entities of a foreign company shall prepare its financial
statements in accordance with the Indian Accounting Standards (Ind AS) if it
meets the criteria as specified in sub-rule (1).
(7) Any company opting to apply the Indian Accounting Standards (Ind
AS) voluntarily as specified in sub-rule (1) for its financial statements shall
prepare its financial statements as per the Indian Accounting Standards (Ind
AS) consistently.
(8) Once the Indian Accounting Standards (Ind AS) are applied voluntarily,
it shall be irrevocable and such companies shall not be required to prepare
another set of financial statements in accordance with Accounting Standards
specified in Annexure to Companies (Accounting Standards) Rules, 2006.
(9) Once a company starts following the Indian Accounting Standards (Ind
AS) on the basis of criteria specified in sub-rule (1), it shall be required to
follow the Indian Accounting Standards (Ind AS) for all the subsequent
financial statements even if any of the criteria specified in this rule does not
subsequently apply to it.



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                             Appendix II: Extracts of Companies (Ind AS) Rules

5. The Banking Companies and Insurance Companies shall apply the Ind
ASs as notified by the Reserve Bank of India (RBI) and Insurance Regulatory
Development Authority (IRDA) respectively. An insurer or insurance company
shall however, provide Ind AS compliant financial statement data for the
purposes of preparation of consolidated financial statements by its parent or
investor or venturer, as required by the parent or investor or venturer to
comply with the requirements of these rules.
Note:
Insurers/ Insurance companies
        IRDAI vide press release dated June 28, 2017 has deferred the
        implementation of Ind AS for the Insurance Sector in India for a period
        of two years and the same shall now be implemented effective from
        1st April 2020.
However, the requirement of submitting Proforma Ind AS financial statements
on a quarterly basis shall continue to be governed as directed by IRDAI.
Scheduled Commercial banks (excluding Regional Rural Banks)
        RBI vide press release dated April 05, 2018 has deferred the
        implementation of Ind AS for the Scheduled Commercial Banks
        (excluding Regional Rural Banks) for a period of one year and the
        same shall now be implemented effective from 1st April 2019.




                                      257
                            APPENDIX III
     Indexation of Issues- Standard-wise
Ind AS      Issues directly dealing     Other Issues which makes
            with the Standard           reference to the Standard


Ind AS 1                 -              Issue 28 & 84
Ind AS 2                 -              Issue 65
Ind AS 7    Issue 77
Ind AS 8    Issue 78                    Issue 70, 75 & 107
Ind AS 10                -              Issue 119
Ind AS 12   Issue 79, 80, 81, 82, 83,   Issue 28
            84 & 85
Ind AS 16   Issue 86, 87, 88, 89, 90,   Issue 31 & 33
            91, 92, 93 & 94
Ind AS 17   Issue 95, 96, 97, 98 & 99                   -
Ind AS 18   Issue 100, 101, 102 & 103   Issue 68, 70 & 98
Ind AS 20   Issue 104, 105, 106, 107    Issue 30 & 37
            & 108
Ind AS 21   Issue 109 & 110             Issue 83
Ind AS 23   Issue 111 & 112                             -
Ind AS 24   Issue 113 & 114                             -
Ind AS 27   Issue 115 & 116             Issue 46, 48, 68 & 120
Ind AS 28   Issue 117                   Issue 14 & 15
Ind AS 32   Issue 118, 119, 120, 121,   Issue 65, 66, 67, 69, 71, 76
            122, 123, 124 & 125         & 104
Ind AS 33   Issue 126 &127                              -
Ind AS 36                -              Issue 31


                               258
                         Appendix III: Indexation of Issues - Standard-wise


Ind AS 37    Issue 128                                      -
Ind AS 38    Issue 129                      Issue 49
Ind AS 40                  -                Issue 87 & 117
Ind AS 101   Issue 25 to Issue 51           Issue 12, 57, 83, 88, 89, 90,
                                            93, 94, 104, 107, 116 & 129
Ind AS 103   Issue 52, 53, 54 &55           Issue 50 & 51
Ind AS 107   Issue 56 & 57                  Issue 72
Ind AS 105                 -                Issue 32
Ind AS 108   Issue 58                                       -
Ind AS 109   Issue 59 to 72                 Issue 29, 38, 42, 43, 48,
                                            56, 104, 111, 112, 115, 116
                                            & 123
Ind AS 110   Issue 73, 74, 75 & 76          Issue 16, 34, 48, 53, 117 &
                                            120
Ind AS 111                 -                Issue 115
Ind AS 112                 -                Issue 73
Ind AS 113                 -                Issue 76 & 123

Ind AS 115                 -                Issue 107




                                 259
                                                          APPENDIX IV
           Indexation of Issues in order of ITFG Clarification Bulletins
Bulletin   Issue       Topic     Issue addressed                                                          Issue no. in   Page No.
  No.      No. of                                                                                             this
            ITFG                                                                                         Compendium
   1         1      Roadmap      Applicability of Ind AS- Net worth Criteria                                  24          36-37
   1         2      Roadmap      Applicability of Ind AS- Subsidiaries of Listed Company (different           1            1-4
                                 scenario)
   1         3      Ind AS 101   Capitalisation of exchange differences arising from long term foreign        45          66-67
                                 currency monetary items in case of fixed assets(In case of first time
                                 adoption of Ind AS)
   1         4      Ind AS 101   Capitalisation of exchange differences arising from long term foreign        40          59--60
                                 currency monetary items (In case of first-time adoption of Ind AS and
                                 when change in functional currency)
   1         5      Ind AS 101   Date for assessment of functional currency                                   27          40-41
   2         1      Ind AS 101   Amortisation of balance of Foreign Currency Monetary Item                    44          65-66
                                 Translation Difference Account (FCMITDA)
   2         2      Roadmap      Applicability of Ind AS to an Indian subsidiary of a foreign company         13          16-17
   2         3      Roadmap      Date of Transition in case a company is already preparing financials         12          15-16
                                 as per IFRS
      2   4   Ind AS 16      Property Plant and Equipment- Recognition Criteria of spare part as       92    162-163
                             an item of property, plant and equipment and depreciation thereon
      2   5   Ind AS 16      Property, Plant and Equipment - Capitalisation of expenditure on          91     162
                             assets not owned by the company
      2   6   Ind AS 101     Revision of balance of Foreign Currency Monetary Item Translation         43     62-65
                             Difference Account (FCMITDA) at the time of first time adoption of Ind
                             AS on account of finance cost
      3   1   Schedule III   Applicability of Ind AS based Schedule III on voluntary adoption of Ind   131   234-235




                                                                                                                       Appendix IV: Indexation of Issues ­ Bulletin-wise
                             AS
      3   2   Roadmap        Applicability of Ind AS to Core Investment Company (CIC)                  11     14-15
      3   3   Ind AS 21      Identification of functional currency of an entity                        110   196-197
261




      3   4   Roadmap        Applicability of Ind AS to holding, subsidiary , joint venture and        15     20-21
                             associate company through direct or indirect association in case of
                             voluntary adoption by the parent company
      3   5   Roadmap        Applicability of Ind AS - associate company Consideration of share        14     17-20
                             warrants which are convertible into equity shares
      3   6   Roadmap        Applicability of Ind AS - associate company. In case of quarterly         10     13-14
                             results
      3   7   Roadmap        Applicability of Ind AS to holding company when subsidiary meets the      9      11-12
                             criteria for applicability of Ind AS
      3   8   Roadmap        Applicability of Ind AS - change in status of listed company              8      10-11
                                                                                                                    Compendium of ITFG Clarification Bulletins
      3   9    Ind AS 16    Property, plant and equipment - capitalisation of capital spares when   90    160-162
                            deemed cost exemption availed for property, plant and equipment on
                            transition to Ind AS
      3   10   Ind AS 101   Applicability of paragraph D13AA on foreign currency swaps in case      42     61-62
                            of hedged items
      3   11   Ind AS 101   Applicability of paragraph D7AA for capital work in progress            33     50-51
      3   12   Ind AS 27    Measurement of investment in subsidiaries at cost if valued at fair     116   206-207
                            value on date of transition
      3   13   Ind AS 38    Applicability of revenue based amortisation for intangible assets       129   231-232
                            arising service concession arrangements in respect of toll roads for
                            new arrangements entered after the date of transition
262




      3   14   Ind AS 16    Re-computation of Depreciation based on useful life when Ind AS 16      89    159-160
                            applied retrospectively
      4   1    Ind AS 18    Revenue Recognition - presentation of Excise Duty (Gross or net of      102   178-179
                            sales)
      4   2    Ind AS 18    Revenue Recognition - Treatment of Service Tax                          101   177-178
      4   3    Roadmap      Applicability of Ind AS - In Case of Negative net worth                 23     34-36
      4   4    Roadmap      Applicability of Ind AS- Date of Transition                             7      9-10
      5   1    Roadmap      Applicability of Ind AS to holding company, if subsidiary company       16     21-23
                            incorporated for divestment purpose complies with Ind AS.
      5   3    Ind AS 101   Selective adoption of deemed cost exemption under paragraph D7AA        36     53-54
      5   4   Ind AS 101   Treatment of unadjusted processing of fees on loans taken before the       38     56-57
                           date of transition -In case of deemed cost exemption
      5   5   Ind AS 101   Treatment of Government Grant on the date of transition-In case of         37     54-56
                           deemed cost exemption
      5   6   Ind AS 16    Accounting of spare parts which meet the definition of property, plant     93    163-166
                           and equipment on the date of transition
      5   7   Ind AS 17    Straight-lining of lease payments if escalation of lease payments is       96    170-171
                           different from general inflation.
      5   8   Ind AS 27    Post Ind AS adoption accounting treatment of profit share from             114   203-204




                                                                                                                      Appendix IV: Indexation of Issues ­ Bulletin-wise
                           investment in limited liability partnership which is under joint control
                           ( in separate financial statements)
      6   1   Roadmap      Applicability of Ind AS - Net worth criteria                               22     33-34
263




      6   2   Roadmap      Applicability of Ind AS - Section 8 company                                6       8-9
      6   3   Roadmap      Applicability of Ind AS to holding company(NBFC) of the subsidiary         5       6-8
                           which is covered under the criteria of Ind AS roadmap
      6   4   Roadmap      Computation of net worth for Ind AS applicability- Government Grant        21      32
                           to be considered as capital reserve
      7   1   Ind AS 101   Exemption under paragraph D13AA to foreign currency loan drawn             41     60-61
                           after Ind AS applicability to the entity
      7   2   Ind AS 21    Determination of functional currency and presentation currency for         109   194-196
                           preparation of annual financial statements in case of Group
      7   3   Ind AS 101   Reversal of impact of paragraph 46A of AS 11 when exemption as per         35     52-53
                           paragraph D7AA of Ind AS 101 availed
                                                                                                                     Compendium of ITFG Clarification Bulletins
      7   4   Ind AS 101   Applicability of paragraph D13AA on long term foreign exchange            39     58-59
                           contracts
      7   5   Ind AS 17    Classification of land lease under Ind AS                                 95    168-169
      7   6   Ind AS 32    Treatment of dividend on financial instruments declared after the end     119   212-213
                           of the reporting period
      7   7   Ind AS 12    Recognition of deferred tax asset on land sold as slump sale              82    140-142
      7   8   Ind AS 101   Exemption of paragraph D15 on investment in debentures of                 48     70-72
                           subsidiary company
      7   9   Ind AS 101   Exemption under paragraph D22 of Ind AS 101 in respect of                 49     72-73
                           intangible assets arising from service concession arrangements (toll
                           roads)which are in progress.
264




      8   1   Ind AS 37    Whether provision for unspent Corporate Social Responsibility             128    230
                           expenditure is required to be made as per Ind AS
      8   2   Ind AS 8     Disclosure of the new Ind AS which is not yet effective (Ind AS 115)      78     134
      8   3   Ind AS 101   Date of Transition to Ind AS                                              25      38
      8   4   Ind AS 16    Accounting treatment of the wrongly capitalised asset which does not      88    159-160
                           meet the definition of tangible asset
      8   5   Ind AS 101   Reversal of the impairment provision recognised in books as at the        31     47-48
                           date of transition when exemption under paragraph D6 of Ind AS 101
                           availed
      8   6   Ind AS 101   Accounting treatment of non-controlling interest in case of business      50     73-75
                           combinations in its consolidated financial statements as on the date of
                           transition
      8    7   Ind AS 101   Accounting treatment of the balance outstanding in the "Revaluation           28     41-42
                            Reserve" and deferred tax on this transition revaluation reserve
      8    8   Ind AS 12    Recognition of the deferred tax on the differences that are arising           83    143-145
                            from adjustment of exchange difference to the cost of the asset
      8    9   Ind AS 107   Recognition of the dividend income on an investment in debt                   56     88-90
                            instrument in the books of an investor
      9    1   Ind AS 12    Accounting treatment of dividend distribution tax (DDT) and deferred          81    138-140
                            tax liability (DTL) on the accumulated undistributed profits of the
                            subsidiary company




                                                                                                                          Appendix IV: Indexation of Issues ­ Bulletin-wise
      9    2   Ind AS 103   Business Combinations of entities under common control                        53     80-83
      9    3   Ind AS 20    Accounting treatment of the grants in the nature of promoters'                106   185-187
265




                            contribution on the date of transition to Ind AS and post transition to
                            Ind AS
      10   1   Ind AS 101   Accounting Treatment of interest free loan to subsidiary company              46     67-68
                            when exemption under paragraph D15 of Ind AS 101 availed
      10   2   Ind AS 109   Accounting treatment of processing fees belonging to undisbursed              62    98-100
                            term loan amount
      10   3   Ind AS 12    Recognition of deferred tax asset on the tax deductible goodwill in the       80    136-137
                            consolidated financial statements
      10   4   Ind AS 101   Availment of deemed cost exemption for the assets classified as               32     48-50
                            `Assets held for sale' but which do not fulfil the criteria for classifying
                            as held for sale in accordance with Ind AS 105 on the date of
                            transition
                                                                                                                         Compendium of ITFG Clarification Bulletins
      10   5   Ind AS 33    Treatment of Foreign Currency Monetary Item Translation Difference           127   228-229
                            Account for the purpose of calculation of basic earnings per share
                            (EPS)
      10   6   Ind AS 18    Classification of expense of providing free third party goods under          100   176-177
                            Customer Loyalty Programmes
      11   1   Roadmap      Applicability of Ind AS - Net Worth Criteria Treatment of ESOP               20      31
                            Reserve
      11   2   Ind AS 12    Accounting treatment of Tax Holidays under Ind AS                            79    135-136
      11   3   Ind AS 33    Presentation of earning per share for separate and consolidated              126   227-228
                            financial statements
      11   4   Ind AS 101   Measurement of Investment in Subsidiary when exemption under                 47     68-70
                            paragraph D15 of Ind AS 101 availed
266




      11   5   Ind AS 20    Accounting treatment of exemption of custom duty under EPCG                  105   183-185
                            scheme
      11   6   Ind AS 110   Treatment of depreciation in consolidated financial statements when          75    127-129
                            different method of depreciation applied by entities
      11   7   Roadmap      Applicability of Ind AS to non-corporate entities                            4       5-6
      11   8   Ind AS 16    Accounting Treatment of expenditure on the construction/development          86    153-155
                            of railway siding, road and bridge to facilitate the construction of a new
                            refinery
      11   9   Ind AS 24    Whether sitting fees paid to independent director and Non-executive          113   202-203
                            director is required to be disclosed in the financial statements
                            prepared as per Ind AS
      12   1    Ind AS 16    Selection of valuation model of immovable properties                      87    155-157
      12   2    Ind AS 101   Accounting Treatment of the Government Grant received before the          30     45-46
                             date of transition and measurement of property, plant and equipment
                             at the date of transition to Ind AS
      12   3    Ind AS 109   Accounting of Financial Guarantee Contract - Comfort Letter               64    101-102
      12   4    Ind AS 109   Accounting Treatment of prepayment premium and processing fees of         63    100-101
                             obtaining new loan to prepay old loan
      12   5    Ind AS 101   Deemed cost exemption under paragraph D7AA (Treatment of                  34     51-52




                                                                                                                       Appendix IV: Indexation of Issues ­ Bulletin-wise
                             intragroup profit)
      12   6    Roadmap      Applicability of Ind AS to India branch office of foreign company         3       5
      12   7    Ind AS 20    Accounting of below-market rate interest loan - exemption under para      104   181-183
267




                             B10 of Ind AS 101
      12   8    Ind AS 103   Date of acquisition (i.e. date of obtaining control) under two scenario   52     78-80
                             in case of court scheme, whether business combination is or is not
                             under common control.
      12   9    Ind AS 101   Applicability of Ind AS 109, Financial Instruments, if financial          29     42-45
                             instruments have been acquired as part of the business combinations
                             and the exemption under paragraph C1 of Ind AS 101 availed
      12   10   Ind AS 101   Adjustments due to other Ind AS if deemed cost exemption availed          26     39-40
      12   11   Ind AS 109   Valuation of financial guarantee contract                                 59     94-95
      13   1    Ind AS 23    Capitalisation of Dividend Distribution Tax(DDT) as borrowing costs of    111   198-199
                             the qualifying asset
                                                                                                                       Compendium of ITFG Clarification Bulletins
      13   2    Ind AS 109     Accounting Treatment of financial guarantee received from the           60     95-97
                               Director
      13   3    Ind AS 108     Disclosures by the entity in case it is operating into one segment      58     92-93
      13   4    Roadmap        Applicability of Ind AS to NBFCs in case not registered with RBI        2       4
      13   5    Schedule III   Disclosure of operating profit on the face of Statement of Profit and   130   233-234
                               Loss in accordance with Ind AS based Schedule III
      13   6    Ind AS 109     Recognition of renegotiation gain/loss on Financial Instruments done    61     97-98
                               in subsequent year but before the approval of financial statements
      13   7    Ind AS 110     Accounting Treatment of loss of investment in subsidiary                73    123-124
      13   8    Ind AS 107     Foreign currency risk disclosure in case of option taken under          57     90-91
                               paragraph D13AA of Ind AS 101
268




      13   9    Ind AS 110     Accounting treatment of dividend distribution tax in the consolidated   74    124-127
                               financial statements in case of partly-owned subsidiary - different
                               scenarios
      13   10   Ind AS 32      Computation of financial liability in case of convertible debentures    118   211-212
                               sharing same coupon rate and market rate
      14   1    Ind AS 23      Capitalising of the processing fees as borrowing costs when the loans   112   200-201
                               are specifically borrowed for the purpose of a qualifying asset
      14   2    Ind AS 17      Accounting treatment of restoration costs in case of a leasehold land   97    171-172
      14   3    Ind AS 18      Whether an entity should adjust the consideration (including advance    103   179-180
                               payments) for the effect of time value of money
      14   4    Ind AS 103     Incorporation of effect of business combination in the standalone       54     83-84
                               financial statements in case of scheme of arrangement
      14   5   Ind AS 109   Accounting treatment of shares held as stock-in trade in accordance      65    102-103
                            with Ind AS
      14   6   Ind AS 16    Accounting treatment of the Revaluation surplus as per previous          94    166-167
                            GAAP on transition date and Revaluation gain arising after transition
                            date when Ind AS 16 applied retrospectively
      14   7   Ind AS 32    Treatment of optionally convertible preference shares in Standalone      120   213-215
                            financial statements and consolidated financial statements
      15   1   Ind AS 32    Accounting of Foreign Currency Convertible Bonds (FCCB)                  121   215-218




                                                                                                                     Appendix IV: Indexation of Issues ­ Bulletin-wise
      15   2   Ind AS 32    Accounting treatment of the preference shares and dividends              122   218-219
269




      15   3   Ind AS 109   Accounting treatment of the incentive receivable from the Government     66    103-104

      15   4   Roadmap      Applicability of Ind AS in case of change in the status of listed        17     24-26
                            company or company in the process of listing or listed debentures
                            issued during the year
      15   5   Roadmap      Applicability of Ind AS to NBFC - in case of termination of membership   18     26-28
                            in-process
      15   6   Ind AS 101   Applicability of Appendix C of Ind AS 103 ­ in case of amalgamation      51     75-77
                            on the date of transition
      15   7   Ind AS 109   Discounting of Interest free refundable security deposits                67    104-106
                                                                                                                       Compendium of ITFG Clarification Bulletins
      15   8    Ind AS 17    Recognition of income in respect of lease in case of nominal lease        98    172-173
                             rent payment
      15   9    Ind AS 110   Accounting treatment of the       outstanding retired partners' capital   76    129-130
                             balances
      15   10   Roadmap      Applicability of Ind AS ­ in case of s Company and another fellow         19     29-30
                             subsidiary of a holding company
      16   1    Ind AS 109   Accounting treatment of the financial guarantee given by a subsidiary     68    107-112
                             company
      16   2    Ind AS 12    Accounting treatment of the interest and penalties related to income      84    145-148
                             taxes
      16   3    Ind AS 109   Accounting Treatment of the modification of the terms of the loan or      69    112-116
270




                             assignment of loan to Asset Reconstruction Company (ARC)
      16   4    Ind AS 7     Classification of investments made by an entity in units of money-        77    131-133
                             market mutual funds
      16   5    Ind AS 103   Account treatment of Demerger                                             55     84-87
      16   6    Ind AS 17    Classification of the the infrastructure usage rights under the lease     99    174-175
      16   7    Ind AS 109   Accounting treatment of the financial guarantee in case of repayment      70    116-118
                             of the loan before the tenure
      17   1    Ind AS 20    Accounting of grants related to non-depreciable assets considering the    107   187-192
                             amendments made by the notification apply for the annual periods
                             beginning on or after April 1, 2018
      17   2    Ind AS 109     Accounting treatment of Dividend Distribution Tax (DDT)                in   71    118-120
                               calculating effective interest rate (EIR) on the preference shares
      17   3    Ind AS 20      Accounting of benefits received to SEZ/STP unit                             108   192-193
      17   4    Ind AS 109     Recognition of dividend income on an investment on a debt instrument        72    120-122
                               in the books of the investor
      17   5    Ind AS 28      Treatment of adjustments arising out of fair valuation of investment        117   208-210
                               property in the consolidated financial statements of the investor
      17   6    Ind AS 24      Related Party Disclosures in case of holding and subsidiary                 114   203-204




                                                                                                                           Appendix IV: Indexation of Issues ­ Bulletin-wise
                               companies (electricity distribution company)
      17   7    Ind AS 12      Recognition of deferred tax on conversion of capital asset into stock-      85    148-152
                               in-trade
271




      17   8    Schedule III   Classification of interest leviable on the entity due to delay in payment   132   235-236
                               of the taxes in the statement of profit and loss
      17   9    Ind AS 32      Classification of preference shares denominated in its functional           123   219-222
                               currency and carrying conversion-vs-redemption option
      17   10   Ind AS 32      Classification of financial instrument in case of rights offer              124   222-224
      17   11   Ind AS 32      Classification of financial instrument in case of equity conversion         125   224-226
                               option forming part of terms of issue of preference shares

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