Investment Valuation in India

Business Combination The term ‘business combination’ in Ind AS 103 is a broader term than ‘amalgamation’. It is defined as a transaction in which an acquirer obtains control of one or more businesses. An acquirer may obtain control in a number of ways including, for example, by transferring cash or other assets, incurring liabilities, issuing equity instruments or without transferring consideration. There is a presumption of control if an entity owns more than 50% of the equity shareholding in another entity, though this may not always be the case. Business Ind AS 103 defines a business as an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants. A business generally consists of inputs, processes applied to those inputs and the ability to create outputs. For Example, R Ltd....

Finally India is all set to adapt to IFRS through its revised set of Accounting Standards (Ind AS) which are the converged accounting standards with IFRS starting next year. The Ministry of Corporate Affairs (MCA) has issued a notification dated 16 February 2015 announcing the Companies (Indian Accounting Standards) Rules, 2015 for the applicability of the IndAS in a phase wise manner. The applicability has been liked to the Net Worth and listing status of the companies. Starting 1-Apr-2016 all companies having a Net Worth of Rs 500 crore or more will be required to present the Financial Statements under Ind AS. This will also require comparative Ind AS information for the period of 1-Apr-15 to 31-Mar-16. [Net Worth: Net Worth will be determined based on the standalone accounts of the company as on 31-Mar-14 or the first audited period ending after that date. Net Worth calculation would be as per Sec 2(57) of Companies Act 2013 which means: Paid Share Capital...

A brief overview of Cash Flow Statement under IFRS along with implications for Indian entities under Ind AS. Courtesy: The Institute of Computer Accountants

Here's a brief overview of IAS 1 - Presentation of Financial Statements Courtesy: The Institute of Computer Accountants.

In this series of videos I introduce how Revenue is recognised under International Financial Reporting Standards (IFRS). Courtesy: The Institute of Computer Accountants (www.icajobguarantee.com)

In this series of videos I introduce how Revenue is recognised under International Financial Reporting Standards (IFRS).  Courtesy: The Institute of Computer Accountants (www.icajobguarantee.com)

In this series of videos I introduce how Revenue is recognised under International Financial Reporting Standards (IFRS). Courtesy:  The Institute of Computer Accountants (www.icajobguarantee.com)

In this series of videos I introduce how Revenue is recognised under International Financial Reporting Standards (IFRS). Courtesy: The Institute of Computer Accountants (www.icajobguarantee.com)

FOREIGN EXCHANGE FORWARD CONTRACTS An enterprise having exposure to multiple currencies by virtue receivable and payables (e.g. import and export) is likely to be worried about the exchange rate fluctuations that may result in gains and losses in the future. In order to hedge its position and to avoid the losses due to foreign exchange rate changes, the enterprise may enter into a forward exchange contract to manage the amount of the reporting currency required or available at the settlement date of transaction. Generally Accepted Accounting Principles (GAAP) and International Financial reporting Standards (IFRS) provides that the difference between the forward rate and the exchange rate at the date of the transaction should be recognised as income or expense over the life of the contract. Further the profit or loss arising on cancellation or renewal of a forward exchange contract should be recognised as income or as expense for the period. Example: Suppose MSD Ltd needs USD 500,0...

IAS 20 Accounting for Government Grants and Disclosure of Government Assistance This Standard shall be applied in accounting for, and in the disclosure of, government grants and in the disclosure of other forms of government assistance. 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. Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. Government assistance for the purpose of this Standard does not include benefits provided only indirectly through action affecting general trading conditions, suc...

IAS 19 Employee Benefits Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees. The objective of this Standard is to prescribe the accounting and disclosure for employee benefits. The Standard requires an entity to recognise: (a) a liability when an employee has provided service in exchange for employee benefits to be paid in the future; and (b) an expense when the entity consumes the economic benefit arising from service provided by an employee in exchange for employee benefits. This Standard shall be applied by an employer in accounting for all employee benefits, except those to which IFRS 2 Share-based Payment applies. Short-term employee benefits Short-term employee benefits are employee benefits (other than termination benefits) which fall due wholly within twelve months after the end of the period in which the employees render the related service. When an employee has rendered service to an entity during an account...

IAS 18 Revenue The primary issue in accounting for revenue is determining when to recognise revenue. Revenue is recognised when it is probable that future economic benefits will flow to the entity and these benefits can be measured reliably. This Standard identifies the circumstances in which these criteria will be met and, therefore, revenue will be recognised. It also provides practical guidance on the application of these criteria. Revenue is the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants. This Standard shall be applied in accounting for revenue arising from the following transactions and events: (a) the sale of goods; (b) the rendering of services; and (c) the use by others of entity assets yielding interest, royalties and dividends. The recognition criteria in this Standard are usua...

IAS 17 Leases The objective of this Standard is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosure to apply in relation to leases. The classification of leases adopted in this Standard is based on the extent to which risks and rewards incidental to ownership of a leased asset lie with the lessor or the lessee. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. Leases in the financial statements of lessees Operating Leases Lease payments under an operating lease shall be recognised as an expense on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern of the user’s benefit. Finance Leases At the commencement of the lease term, lessees shall recognise finance leases as assets and liab...

IAS 16 Property, Plant and Equipment The objective of this Standard is to prescribe the accounting treatment for property, plant and equipment so that users of the financial statements can discern information about an entity’s investment in its property, plant and equipment and the changes in such investment. The principal issues in accounting for property, plant and equipment are the recognition of the assets, the determination of their carrying amounts and the depreciation charges and impairment losses to be recognised in relation to them. 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. 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 ...

IAS 12 Income Taxes The objective of this Standard is to prescribe the accounting treatment for income taxes. For the purposes of this Standard, income taxes include all domestic and foreign taxes which are based on taxable profits. Income taxes also include taxes, such as withholding taxes, which are payable by a subsidiary, associate or joint venture on distributions to the reporting entity. The principal issue in accounting for income taxes is how to account for the current and future tax consequences of: (a) the future recovery (settlement) of the carrying amount of assets (liabilities) that are recognised in an entity’s balance sheet; and (b) transactions and other events of the current period that are recognised in an entity’s financial statements. Recognition Current tax for current and prior periods shall, to the extent unpaid, be recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the exce...

IAS 11 Construction Contracts The objective of this Standard is to prescribe the accounting treatment of revenue and costs associated with construction contracts. Because of the nature of the activity undertaken in construction contracts, the date at which the contract activity is entered into and the date when the activity is completed usually fall into different accounting periods. Therefore, the primary issue in accounting for construction contracts is the allocation of contract revenue and contract costs to the accounting periods in which construction work is performed. This Standard shall be applied in accounting for construction contracts in the financial statements of contractors. A construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their ultimate purpose or use. The requirements of this Standard are usually a...

IAS 10 Events after the Reporting Period The objective of this Standard is to prescribe: (a) when an entity should adjust its financial statements for events after the reporting period; and (b) the disclosures that an entity should give about the date when the financial statements were authorised for issue and about events after the reporting period. The Standard also requires that an entity should not prepare its financial statements on a going concern basis if events after the reporting period indicate that the going concern assumption is not appropriate. 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 authorised 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 ...

IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors The objective of this Standard is to prescribe the criteria for selecting and changing accounting policies, together with the accounting treatment and disclosure of changes in accounting policies, changes in accounting estimates and corrections of errors. The Standard is intended to enhance the relevance and reliability of an entity’s financial statements, and the comparability of those financial statements over time and with the financial statements of other entities. ACCOUNTING POLICIES Accounting policies are the specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements. When an IFRS specifically applies to a transaction, other event or condition, the accounting policy or policies applied to that item shall be determined by applying the IFRS and considering any relevant Implementation Guidance issued by the IASB for the IFRS. In the absence ...

IAS 7 Statement of Cash Flows The objective of this Standard is to require the provision of information about the historical changes in cash and cash equivalents of an entity by means of a statement of cash flows which classifies cash flows during the period from operating, investing and financing activities. Cash flows are inflows and outflows of cash and cash equivalents. Cash comprises cash on hand and demand deposits. 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. Information about the cash flows of an entity is useful in providing users of financial statements with a basis to assess the ability of the entity to generate cash and cash equivalents and the needs of the entity to utilise those cash flows. The economic decisions that are taken by users require an evaluation of the ability of an entity to generate cash and cash equivalents and the timin...

IAS 2 Inventories The objective of this Standard is to prescribe the accounting treatment for inventories. A primary issue in accounting for inventories is the amount of cost to be recognised as an asset and carried forward until the related revenues are recognised. This Standard provides guidance on the determination of cost and its subsequent recognition as an expense, including any write-down to net realisable value. It also provides guidance on the cost formulas that are used to assign costs to inventories. INVENTORIES SHALL BE MEASURED AT THE LOWER OF COST AND NET REALISABLE VALUE. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The cost of inventories shall be assigned by using...