Ind AS Transition Facilitation Group (ITFG) Clarification Bulletins | Analysis

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The Ind AS Transition Facilitation Group (ITFG) has issued several Clarification Bulletins, a synopsis of these bulletins are given below for ready reference 



ITFG Bulletin 1 clarifications  

  1. A company having a net worth between 250–500 crore INR as on 31 March 2014 and therefore falling in phase II but has net worth exceeding 500 crore INR during 2015–16 would need to comply with Ind AS from 1 April 2016 i.e. from the immediately next financial year.
  2. Subsidiaries of Phase I company also transition to Ind AS from 1 April 2016. However, the parent-subsidiary relationship for this purpose is evaluated as at 1 April 2016.
  3. A company cannot avail the exemption in para D13AA (option to continue to follow the previous GAAP accounting policy for capitalising exchange differences arising on long term foreign currency monetary item as per para 46A of AS 11 The Effects of Changes in Foreign Exchange Rates.) for loans taken and recognised after the beginning of the first Ind AS reporting period.
  4. When there is a change in functional currency from INR to another functional currency (e.g. USD), a company cannot avail the exemption in para D13AA for loans denominated in that currency (e.g. USD), since such loans will no longer be treated as a foreign currency monetary item.
  5. An entity should do the assessment of functional currency retrospectively as per para 10 of Ind AS 101.

Click here for ITFG Bulletin 1 >>> http://resource.cdn.icai.org/41254asb31060.pdf

ITFG Bulletin 2 clarifications

  1. When the exemption in para D13AA is availed, the company has to continue applying the accounting policy followed for such long-term foreign currency monetary item under the previous GAAP. Accordingly, the company shall amortise the exchange differences accumulated in FCMITDA at the date of transition to Ind AS through profit or loss and not through other comprehensive income.
  2. A company which is a subsidiary of a foreign company shall determine net worth for the purpose of determining Ind AS applicability based on its won financial statements, and shall not take into consideration the net worth of the foreign parent.
  3. The date of transition to Ind AS for a Phase I company will continue to be 1 April 2015, irrespective of the fact that it has transitioned to IFRS (as issued by IASB) at an earlier date.
  4. Insurance spares classified as inventory under the previous GAAP should be capitalised as part of PPE and depreciated over their useful life if it meets the definition of PPE as per Ind AS 16 Property, plant and equipment.
  5. Capitalisation of expenditure incurred on constructing roads on land not owned by the company depends on the facts and circumstances of the case. Capitalisation is permitted if the recognition criteria in Ind AS 16 are met.
  6. A company shall compute the amortised cost of a foreign currency loan retrospectively in accordance with Ind AS 109. In such a case, if the company has elected to apply the exemption in para D13AA, it shall revise the balance in FCMITDA account based on the revised carrying amount of the loan at amortised cost retrospectively.
  7. A company shall adjust the amortised cost of debentures retrospectively and apply the effective interest rate so computed. This adjustment on transition date should be adjusted against securities premium, since the premium on issue of such debentures was written off by utilising securities premium account under the previous GAAP.

Click here for ITFG Bulletin 2 >>> http://resource.cdn.icai.org/42170asb31830.pdf

ITFG Bulletin 3 clarifications

  1. Companies voluntarily adopting Ind AS for financial year 2015–16 may use the Schedule III (Ind AS) format in the absence of specific guidance.
  2. An exempted core investment company meets the definition of a NBFC, and is required to follow the roadmap for NBFCs.
  3. A company needs to assess functional currency at the entity level, considering the economic environment in which the entity operates, and not at the level of a business or a division.
  4. 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 with Ind AS from the financial year in which the parent company starts complying with Ind AS.
  5. Assessment of significant influence for determining Ind AS applicability for an associate should be based on Ind AS 28 and not as per previous GAAP.
  6. A listed company falling in phase II of the Ind AS roadmap, but becoming an associate of a phase I company before 31 March 2017 should adopt Ind AS from 1 April 2016.
  7. A company falling in phase II of the Ind AS roadmap, but becoming a holding company of a phase I company before 31 March 2017 should adopt Ind AS from 1 April 2016.
  8. A listed company falling in phase II of the Ind AS roadmap, and therefore having a mandatory adoption date of 1 April 2017, but gets delisted before the mandatory adoption date of 1 April 2017, need not to comply with Ind AS.
  9. Even when a company avails the deemed cost exemption for PPE, it shall make necessary adjustments to PPE for recognition of capital spares which were classified as inventory under the previous GAAP (assuming it meets the definition of PPE under Ind AS 16 on transition).
  10. Hedge accounting under Ind AS 109 will not be applicable for foreign currency swap against loans for which an entity avails the option in para D13AA of Ind AS 101.
  11. A company can avail the deemed cost exemption for capital work-in-progress as at the date of transition.
  12. A company can carry its investment in subsidiary at cost as per Ind AS 27 Separate Financial Statements by considering the fair value as deemed cost on the date of transition.
  13. Entities shall apply the principles of Ind AS 38 for amortisation of toll road intangible assets(which does not permit revenue-based amortisation except under limited circumstances).
  14. Further, Ind AS 101 provides an optional exemption to continue the amortisation policy as per previous GAAP for service concession intangible assets recognised before the beginning of the first Ind AS reporting period.
  15. When a company chooses to measure PPE by retrospective application of Ind AS 16, then it will be required to re-compute depreciation by assessing the useful life of the assets in accordance with Ind AS 16 which is consistent with Schedule II to the Companies Act, 2013.
Click here for ITFG Bulletin 3 >>> http://resource.cdn.icai.org/42564indas32343.pdf
  
ITFG Bulletin 4 clarifications

  1. Revenue from sale of goods should be presented gross of excise duty.
  2. Since service tax collected represents the amount collected on behalf of a third party i.e. the government, revenue should be presented net of service tax collected.
  3. Ind AS will not be applicable for unlisted companies having negative net worth.
  4. The transition date to Ind AS shall continue to be the beginning date of the preceding comparative period during the first year of adoption, even if the company decides to give an additional comparative period financial information of one more year.  


Click here for ITFG Bulletin 4 >>>http://resource.cdn.icai.org/43101indas32829.pdf


ITFG Bulletin 5 clarifications
  1. A holding company falling in phase II of the Ind AS roadmap, but acquires a subsidiary falling in phase I shall start complying with Ind AS from FY 1 April 2016.
  2. Security deposits repayable on demand should be classified as a current liability, since the entity does not have an unconditional right to defer the settlement of the liability for at least 12 months after the reporting period.
  3. A first-time adopter has the option to elect to continue with the previous GAAP carrying value of all of its PPE on transition and use that as deemed cost (para D7AA of Ind AS 101).
  4. In such a case, the option of applying previous GAAP carrying values as deemed cost on selective basis to only some items of PPE and using fair value for other items is not available.
  5. If an entity elects the option under para D7AA of Ind AS 101 for PPE on transition, no further adjustments shall be made to the carrying value of PPE for transition adjustments arising on the application of other Ind ASs. Accordingly, even if loan processing costs were capitalised as part of PPE under previous GAAP, the adjustments relating to such outstanding loans on transition as per Ind AS 109 shall be recognised in retained earnings.
  6. Similar to issue 4 above, if government grants were deducted from the cost of the PPE under previous GAAP, the transition adjustment relating to government grants should be recognised retrospectively as deferred income with corresponding adjustments to retained earnings.
  7. Even when an entity elects the option under para D7AA of Ind AS 101 for PPE on transition, it shall recognise spare parts (previously recognised in inventory) as part of PPE, if it meets the definition of PPE under Ind AS 16. However, the above deemed cost exemption cannot be used for spare parts since they were never recognised as PPE under previous GAAP. Accordingly, such spare parts will be measured retrospectively as per Ind AS 16.
  8. Judgement is required when determining whether lease escalations are linked to general inflation. When lease escalations are not linked to general inflation, the entire lease payments should be recognised on a straight-line basis since the increase is not a compensation for inflation.
  9. A company shall recognise in the statement of profit or loss, its share of profits in an LLP as and when its right to receive the profit share is established.
 Click here for ITFG Bulletin 5>>> http://resource.cdn.icai.org/43453asb-itfg-cb5.pdf


ITFG Bulletin 6 clarifications

  1. If a company meets the net worth criteria once, it shall comply with Ind AS notwithstanding the fact that net worth has subsequently fallen below the specified threshold.
  2. Companies registered under Section 8 of the Companies Act, 2013, are not exempted from compliance with Ind AS, if Ind AS applicability criteria are met.
  3. If a subsidiary falls under phase II of the corporate roadmap (FY 17–18) and the parent NBFC falls under phase II of NBFC roadmap (FY 19–20), the subsidiary shall prepare Ind AS financial statements for its statutory reporting purposes for FY 17–18 and FY 18–19 and also prepare financial statements as per existing accounting standards for the same periods for the purpose of parent’s consolidated financial statements.
  4. Grants in the nature of promoter contribution accounted for as capital reserve under previous GAAP shall be included in net worth for determining Ind AS applicability. However, such analogy should not be applied to other provisions of the Companies Act, 2013.

Click here for ITFG Bulletin 6 >> http://resource.cdn.icai.org/44024indas33794.pdf

 
ITFG Bulletin 7 clarifications

  1. If a foreign currency loan is partially drawn down before the beginning of the first Ind AS financial reporting period and the remaining amount is drawn down during the first Ind AS reporting period, then Para D13AA option is available only for foreign currency loans drawn and recognised in the financial statements immediately before the beginning of the first Ind AS financial reporting period.
  2. Where a company is statutorily required to present its financial statements in INR, which is different from its functional currency, i.e. USD, then it may do so by choosing the INR as presentation currency and prepare and present its financial statements by applying the provisions of paragraphs 38 and 39 of Ind AS 21. Further, the auditor of such company will be required to give audit report on those financial statements prepared in INR.
  3. When an entity opts for Para D7AA exemption by considering the previous GAAP carrying value of PPE as its deemed cost at the date of transition, it cannot make any adjustments to the carrying amount of PPE. Accordingly, in such cases, the entity cannot reverse the impact of exchange differences capitalised to PPE under paragraph 46A of AS 11.
  4. Para D13AA option cannot be availed for long-term forward exchange contracts, as these contracts are not within scope of Ind AS 21, and are to be accounted in accordance with Ind AS 109.
  5. Classification of lease of land having a lease term of 99 years, at the end of which the lease can be either renewed or land returned back to the lessor, requires exercise of judgement based on evaluation of facts and circumstances in each case.
  6. If an entity declares dividend on a financial instrument classified as a liability and measured at amortised cost (in accordance with Ind AS 109) after the end of the reporting period, the payment of dividend/interest on such liability accrues at the end of the reporting period.
  7. As per Ind AS 12, the recognition 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. This will require exercise of judgement based on evaluation of facts and circumstances, including consideration of substance to management’s expectation. Basis above, if in respect of freehold land carried at cost, management expects to sell such land on slump sale, then the tax base of such 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 therefore there will not be any temporary difference.
  8. If parent company invests in debentures issued by a subsidiary and such debentures meet the definition of equity as per Ind AS 32 Financial Instruments: Presentation from the issuer's perspective (i.e. subsidiary), then such investment can be considered to be part of parent's investment in subsidiary and can be accounted under Ind AS 27 Separate Financial Statements, else it will be accounted under Ind AS 109.
  9. Para D22 of Ind AS 101 provides an exemption from retrospective change in accounting policy for amortisation 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. Such exemption cannot be availed in case where the intangible asset is in progress, not recognised before start of the first Ind AS reporting period and for which amortisation has not begun.
 
Click here for ITFG Bulletin 7 >> http://resource.cdn.icai.org/45043indas34980.pdf