IFRS in India Its Status Overview of Concepts and Impact in India 23 January 2011

8/10/2019 IFRS in India Its Status Overview of Concepts and Impact in India 23 January 2011

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IFRS in India Its Status, Overview of

Concepts and Impact in India

Rakesh Agarwal

Associate Director, PricewaterhouseCoopers

E-mail : [email protected] : +91 9820273458 January 2011


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ContentsApplicability of IFRS in India

Mapping IFRS and CIAS

Broad understanding of IFRS impact on India Inc.

Common Experiences (adjustments) from Indian GAAP toIFRS (refer annexure 2)

Essential of IFRS conversion approach

Managing change

Phased approach Transition IFRS methodology

Project management framework

Project structure

Centralised approach v/s decentralised approach

Detailed Training program

Key challenges - mitigation steps / managementcalls

Preparation of IFRS Financial Statements

Carve Outs in CIAS from IFRSImpact Indian Experience

Annexures

1 : Accounting concepts relatively new in India

2 : Common adjustments from Indian GAAP to IFRS

3 : Select IFRS tools & publications


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IFRS across the world

Top 10 Global Capital Markets

US Converging to IFRS

Japan Converging to IFRS

UK IFRS

France IFRS

Canada Converging to IFRS

Germany IFRS

Transitioning to IFRS

Slide 3Rakesh Agarwal

Hong Kong IFRS

Spain IFRS

Switzerland IFRS or US GAAP

Australia IFRS


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IASC Constitution The Current International FinancialReporting Structure

Slide 4


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The Preface and The Framework

Preface to IFRS

1. Objectives

A single set of high quality, enforceable global accounting standards

Work with various national standard Setters for convergence

2. Scope and Authority of IFRS

Designed for profit oriented enterprises


General purpose financial statements Bold and plain type, have equal authority

3. Due Process

4. English Language

Framework for Preparation and Presentation of Financial Statements

1. Objectives of Financial Statements; includes cash flows

2. Underlying assumption

3. Qualitative characteristics of financial statements

4. Elements of financial statements, recognition and measurement


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International Financial Reporting

Standards (IFRS) and

International AccountingStandards (IAS)

International Financial Re ortin

STANDARDS

Almost 3,000

pages and

increasing !!!

The different levels of IFRS


Interpretations Committee (IFRIC)And Standing Interpretation

committee (SIC)

Exposure Drafts and

Draft Interpretation

Type Number

IFRS 9 (9)

IAS 41 (27)

IFRIC 19 (16)

SIC 33 (7)

Exposure drafts

and

Interpretation

Around 15

www.iasb.orgwww.cfodirect.

com


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2011 2012 2013 2014E 50 ,

BE 30

,

C

A C ,

.500 .1000

1

.500 1

Applicability of IFRS in IndiaOpening balance sheet as at April 1* using IFRS-converged accounting standards

IFRS in India Its Status, Overview of Concepts and Impact in India

;

C ,

. 1,000

1

. 200 . 300

. 300

BFC ( )

BFC ( )

. 500 . 1000 BFC 50

30BFC ,

> .1,000

1: C

F .

Slide 7


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Std. No. Name of the standard

Corresponding to standards issued by

IASBWhether

significant

differences

between CIAS and

IFRSIAS/IFRS IFRIC SIC

CIAS 01 Presentation of financial statements IAS 1 No

CIAS 02 Inventories IAS 2 No

CIAS 03 Statement of Cash Flows IAS 7 No

CIAS 04 Events after the Reporting Period IAS 10 IFRIC 17 No

CIAS 05Accounting Policies, Changes in Accounting Estimates and

ErrorsIAS 8 No

CIAS 07 Construction Contracts IAS 11 IFRIC 12 No

CIAS 09 Revenue IAS 18IFRIC 13, 15,

18No

Mapping IFRS and CIAS (Converged Indian Accounting Standards)


Slide 8

CIAS 10 Property, Plant and Equipment IAS 16 IFRIC 1 No

CIAS 11 The effects of changes in Foreign Exchange Rates IAS 21 No

CIAS 12Accounting for Government Grants and Disclosure of

Government AssistanceIAS 20 No

CIAS 14 Business Combinations IFRS 3 No

CIAS 15 Employee Benefits IAS 19 IFRIC 14 No

CIAS 16 Borrowing Costs IAS 23 No

CIAS 17 Operating Segments IFRS 8 No

CIAS 18 Related Party Disclosure IAS 24 No

CIAS 19 Leases IAS 17 IFRIC 4 SIC 15, 27 No

CIAS 20 Earnings Per Share IAS 33 No

CIAS 21 Consolidated and Separate Financial Statements IAS 27 No

CIAS 22 Income Taxes IAS 12 No


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Std. No. Name of the Standard

Corresponding to standards issued by

IASBWhether

significant

differences

between CIAS and

IFRSIAS/IFRS IFRIC SIC

CIAS 23 Investments in Associates IAS 28 No

CIAS 24Non-Current Assets Held-For-Sale and DiscontinuedOperations

IFRS 5 No

CIAS 25 Interim Financial Reporting IAS 34 IFRIC 10 No

CIAS 26 Intangible Assets IAS 38 SIC 32 No

CIAS 27 Interest in Joint Ventures IAS 31 SIC 13 No

CIAS 28 Impairment of Assets IAS 36 No


Mapping IFRS and CIAS (Converged Indian Accounting Standards)

Slide 9

CIAS 29 Provisions, Contingent Liabilities and Contingent Assets IAS 37 IFRIC 5,6 No

CIAS 30 Financial Instruments: Recognition and Measurement IAS 39 IFRIC 9,16,19 No

CIAS 31 Financial Instruments: Presentation IAS 32 IFRIC 2 No

CIAS 32 Financial Instruments: Disclosures IFRS 7 No

CIAS 33 Share-based payment IFRS 2 No

CIAS 34 Financial Reporting in Hyperinflationary economies IAS 29 IFRIC 7 No

CIAS 35 Exploration for and Evaluation of Mineral Resources IFRS 6 NoCIAS 36 Accounting and Reporting by Retirement Benefit Plans IAS 26 No

CIAS 37 Investment Property IAS 40 No

CIAS 38 Agriculture IAS 41 No

CIAS 39 Insurance Contracts IFRS 4 No

CIAS 40 Financial Instruments IFRS 9 No

CIAS 41 First time adoption of Indian Accounting Standards IFRS 1 No


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Broad understanding ofIFRS impact on IndiaInc.


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Areas Impact

A Select Components of Financial Statements Net worth Net Income Disclosures Efforts

1Consolidation

(SIC 12, DT on outside basis)Medium High Medium - High Low Medium

2

Business Combinations

(common control transactions, Fair value vs. Book value, Merger Scope

exemption presumed)

Nil - Low Low Nil Low

Potential Impact of IFRS on consolidated financial statements ofABC Limited for the Y.E. March 31, 2010

Rakesh Agarwal Slide 11

3Property, Plant and Equipment

Medium - High Medium - High Low High

4Share based payments

e.g. Fair value accounting vs. Book value.Nil-Low Low-Medium Nil High

5Financial Instruments

e.g. Forward contracts, IFRS 7 disclosure

Low-Medium Medium High High

6Employee Benefits

e.g. Policy of actuarial gains and losses. VRS.Low Low Low Low

7Revenue Recognition

IFRIC 13, Multiple Elements, etc.Low Low Low Medium

(See sample list of applicable GAAP differences)


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Areas Impact

A Select Components of Financial Statements Net worth Net Income Disclosures Efforts

8Taxes on Income

(B/S Approach, IFRS Adjustments, Defferred Tax on Outside basis etc.)Medium High Medium High Medium Medium

9Foreign Currency Transactions

(Functional Currency determination of foreign branches, Cost plus contracts)Low Low Low Medium




10

rs me op on

(Selecting exemptions and exceptions, 1) FV of Fixed Assets, 2) Business

Combinations and Mergers, 3) Actuarial Gains and Losses)

Medium High Medium - High High High

11 Restructuring and Discontinued Operations Low-Medium Low-Medium Low Low

12EPS

(Impact of IFRS adjustments, Dilution option in subsidiary, if any.)Nil Nil Low Low

13Operating Segment

(MIS data vs.Audited Segmental information)Nil Nil High Low

14Presentation of Financial Statements

(Making policy choices of format and benchmarking, Fixed deposits)Nil Nil High High

15New Businesses/Transactions/ Others

(New Acquisitions, Dividend)Future Future Future Future


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Property, Plant and Equipment ( PP & E)

Impact Other Notes

Net worth P&L Disclosures Effort Work Stream

A Significant areas

1 IFRS 1 - Deemed Fair Value, Event Driven Organisation High High Low High Policy Decision

2 Revaluation Model High High Medium High Policy Decision

3 Fair Value at time of Business Combinations Low Low Low Low Polic Decision




4 Exchange of Assets Low Low Low LowIdentifying +

Valuation

B Differences in Indian Accounting Standards for earlier periods

5 Asset Retirement Obligation Nil Low Nil - Low Low LowValuation +

Data capturing

6 Capitalisation of Borrowing Costs Low Low Low Low Data Capturing

7 Indirect expenditure during trial run Low Low Low Low Data Capturing

8IFRIC - 4; Capital leasing arrangement within Service

ContractsLow-High Low-High Low High

Renewal of

Contracts

9 Leased Assets acquired before April 1, 2000 Nil Nil Nil Low N.A.

10 Capitalization of Exchange Fluctuation Low Low Nil High Data capturing


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Property, Plant and Equipment ( PP & E)

Impact Other Notes

Net worth P&L Disclosures Effort Work Stream

C Other matters resulting in differences in capitalization

11 Assets Supplied on Deferred Credit Low Low Low Medium Data capturing

12 Less than Rs.5000 assets Low Low Low Low Data capturing

D Year on Year Impact - Recomputed since capitalization date for each asset




13 Component Approach for Capitalization of Fixed Assets Low Low Low High Data capturing

14 Depreciation Rates (Useful Life) Low Low Low LowManagement

Assessment

15 Residual Value - Revisited at each reporting date Low Low Low High Do

16 Residual Life - Revisited at each reporting date Low Low Low High Do

17 Recoup of Depreciation on Revalued Assets Nil-Low Nil-Low Low Low Data capturing

18 Profit or loss on Sale of Assets None Low Low High Data capturing


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Consolidation

Additional entities to be consolidated Functional currency

Deferred tax on consolidation

Fair value measurement in jointly


Investments

Change in the fair value of tradedinvestments

Change in the fair value of

investments classified as available

for sale

Common Experiences (adjustments) from Indian GAAP to IFRS


control entities

Transitional provision

Property plant and equipment

Change in residual value

Capitalisation of exchange losses

Amortisation of goodwill and other

intangible assets

Interest income shall be recognisedusing effective interest rate method

for investments classified as Held till

maturity

Loans and advances - Interest free loansshall be fair valued.


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Essentials of IFRSConversion Approach


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Essentials of IFRS Conversion Approach




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Essentials of IFRS Conversion ApproachPhased approach - TransitionIFRS methodology



IndianIndian


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Essentials of IFRS Conversion ApproachPhased approach - TransitionIFRS methodology

IndianIndian



Objectives Assess impact of IFRS on F/S

Assess how IFRS is currently

impacting the organization

Assess the financial reporting,

business process and systems impact

Deploy Measurement and Disclosure

Checklist

Develop informed business case and

strategy

Establish proper governance and project management

Complete Component EvaluationSM

- Establish IFRS policies and determine adjustments

- Assess impact at business unit level

- Evaluate parent company policies and decisions

Develop IFRS shell F/S

Design, build and test IFRS reporting process (dual

reporting period)

Prepare initial IFRS financial statements and recon(dual reporting period)

Develop roadmap to embed IFRS as

primary reporting language

Embed IFRS into financial reporting

processes and systems (corporate and

business units)

Embed IFRS into other financial and

operational processes and systems

Assess whether relevant contractual

agreements and financial covenants reflect

a different basis of accounting

Go live and close project

Outputs High-level assessment of IFRS impactto F/S including financial reporting,

business process and systems impact

Options for next steps including

strategy with timeline

IFRS Workshop

Operationalized Project Management Office (PMO)

Documented IFRS policies

IFRS adjustments

Data gaps inventory

Shell annual and quarterly IFRS F/S

IFRS reporting process and system

IFRS financial results for dual reporting period

Prioritized project plan

Data and business requirements

System and configuration requirements

SOX and procedural documentation

Global Chart of Accounts (COA)

Pre- and post-implementation testing

documentation


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Project Management Framework

Steering Committee

TRC

Decision Maker

Auditor

Technical Review

Committee INVITEES

A well thought out project structure on lines below ensures that an entity is able to get

appropriate management focus on project and on technical front get it right the first time which

is very essential for a successful project.



Work Streams

Issue

Originators Expert

WS1 WS2 WS3 WS4

o Loans

o Investments

o Consolidatio

n

o Financial

Reporting

o Employee

benefits

o Income

Recognition

o Deferred

Taxes

o Derivatives

o IFRS 1

o Cash Flows

Technical support material

Roles & Responsibilities

Timelines

Nodal offices

Technical

Champions

Needs


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Project Management Framework




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Project structureCentralised vs Decentralised Approach

Levels in IFRS implementation

assistance

Service

ProvidedCentralised

AdditionalTotal

Location 1-0

A. Base Scenario (Advisory services)

Training Yes

Rs 1x N.A. Rs 1x

Implementation workshop Yes

IFRS financial sketch for ABC

Limited (in word file)Yes

IFRS issue log for ABC Limited Yes

tionservices

Advisory

services



Ongoing IFRS issue resolution

and memos Yes

B. Additional services (Blend of advisory services and reasonable involvement in actual conversion)

Excel template (Broad level)

prepared by managementYes

Rs 1x

Rs 2x X 1 = 2x

Rs 2x X 0.5 = 0.5x

Rs 2x X 0.2 = 0.4x

Rs 3.9xAssisting management in project

planYes

Guidance by Advisor duringexecution by management

Yes

Actual implementation - Full

fledge conversion from ledger or

trail balance

No N.A. N.A. N.A.

Total Rs 2x Rs 2.9x Rs 4.9x

Advisors

IFRSimplement


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Key challenges - mitigation steps / management calls


Key Challenges Mitigation steps / management calls

Volatility due to fair valuation SEC study states only 25% are total assets are fair

valued out of which for over 90% of the assets

reference price is readily available.

Change in IT systems Most IT packages are capable to respond to dual

reporting.

Change in MIS systems The impact with respect to IFRS 8 is manageable


Taxes Some implication on MAT.

Managing market, investors and analysts Early communication Europe experience

Regulatory uncertainty Worst case scenario, additional cost for early doing

Management to take decision based on corporate

philosophy


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Preparation ofIFRS financialstatement

Rakesh Agarwal


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tionservices

IFRS Desk Top for Discussion

31, 2010

. . . . . .

(//)

.0 11.1

A A GAA F C

1 F ,

G (25.00) (25.00) A 5%

2 D G (70.00) (70.00) A

3 F ,

D 50.00 50.00



Advisors

IFRSimplement

4 D ( ) A D 200809

200708 5 D D (5.00) (5.00)

6 D E (17.00) (17.00)

B F 1 (1 15 )

7 B D

C /G

8 G D

(.00) (.00)

41.0 4.1


29/96


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IFRS Converged Indian Accounting Standard

ED AS 1(R) Presentation of Financials Statements

Required that the components of profit or loss and

statement of other comprehensive income shall be

presented in a two statement.

Required that the components of profit or loss and

statement of other comprehensive income shall be

presented in a single statement of profit or loss.ED AS 3(R) Statement of Cash Flows

Provide an option to other than financial entities to

classify the interest paid and interest and dividends

received as an item of operating cash flows also.

Have to classify the interest paid and interest and

dividends received as an item of financing and investing

cash flows activity.

Carve Outs in CIAS from IFRS


Slide 30

Provide an option to classify the dividend paid as an

item of operating cash flows also.

Have to classify the dividend paid as an item of

financing activity.

ED AS 15(R) Employee Benefits

Permits various options for treatment of actuarial gains

and losses

Requires immediate recognition of actuarial gain and

loss in profit or loss

Does not provide guidance about the interval for

actuarial valuation of defined benefit obligation

Provide guidance about the actuarial valuation of

defined benefit obligation may be made at interval notexceeding three years

Rate of government bond can be used as a discount

rate only where there is no deep market of high quality

corporate bonds.

Rate of government bond shall be used to discount post

employment benefits obligation.


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Comparison between CIAS and

IFRS issued by IASB

Publication


Carve Outs in CIAS from IFRS, Contd.

Slide 32Slide 32

Source: PwC Publication Moving Towards Future........

Indian GAAP.

Exposure Draft issued by ICAI


33/96


Transitional experience by India Inc. - Common IFRS Adjustments

1Infosys Technologies Limited

5Dabur India Limited

5Wipro Limited

10Tata Motors Limited

StatisticsNo. of

IFRS adj.

High adjustment

(>20% impact on net-worth / net income)1

Medium adjustment

(5% - 20% impact on net-worth / net

income)

8

Low adjustment

Name of the entitiesNo. of

IFRS adj.

Impact Indian Experience

Slide 33

5Noida Toll Bridge Co Ltd

- -

income)

Total 36

High impact adjustments Medium impact adjustments Low impact adjustments Foreign Exchange Gain or loss of

FCCB liability long term foreign

currency monetary items

Deferred tax

Gain on repurchase of FCCB

Imputed Interest on FCCB

Reversal of Amortised Goodwill

and intangibles

Share Based Payment

Difference in revenue recognition

norms

Nature of adjustment identified by India Inc. in their Financial Statement (Publicly

available)

36Total


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Presentation of financial statement

Consolidation Business combination

Leases

Annexure 1: Concepts relatively

new in Indian GAAP

Rakesh Agarwal

Functional currency Deferred taxes

Employee benefits (including

ESOP)

Financial instruments

First time adoption of IFRS

Slide 34


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Presentation of financial statement

Free form presentation

A complete set of financial statements

comprises:(a) a statement of financial position as at the end of

the period;

(b) a statement of comprehensive income for the

eriod;

Annexure 1: Concepts relatively new in Indian GAAP


(c) a statement of changes in equity for the period;(d) a statement of cash flows for the period;

(e) notes, comprising a summary of significant

accounting policies and other explanatory

information; and

An entity may use titles for the statements

other than those prescribed in IAS 1R,

however the titles used shall not be

misleading.

S S O f C


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Consolidation - Special Purpose Entities SIC 12

CIRCUMSTANCES

Activities of the SPE are being

conducted on behalf of the entityaccording to its own specific

business needs

Ri hts to obtain Ma orit of the

Activities




INDICATING THAT AN ENTITY

CONTROLS AN SPE

AN SPE SHOULD BE

TREATED AS A SUBSIDIARY

Decision-making powers to obtain

the majority of the benefits of the

activities of the SPE are controlled

by the enterprise directly or

through an autopilot mechanism

the majority of

the benefits ofthe SPE and

therefore the

risks incident to

the activities of

the SPE;

residual or

ownership risksrelated to the

SPE or its assets

retained by the

controlling entity

Benefits Risks

Decision -making

IFRS i I di It St t O i f C t d I t i I di


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Consolidation

Key GAAP differences

Uniform accounting policy

More entities are required to be consolidated under IFRS




IFRS in India Its Status Overview of Concepts and Impact in India


38/96

Consolidation

Our experience

Companies need to develop group accounting manual and reporting packages for

preparation of consolidated financial statement with uniform accounting policy and

IFRS compliant figures




nsur ng un orm accoun ng po cy or a e conso a ng en y s cu

Determination of functional currency is complex under certain situation



39/96

Business combination

What is a business?

IFRS 3 (R) defines it as:

Asset or business acquisition?




providing.return to investor or economic benefit to stakeholders.generally consistsof inputs and processes applied to those inputs , and resulting in outputs that are, or

will be used to generate revenues.

If goodwill is present in a transferred set of activities and assets, the transferred set

shall be presumed to be a business.



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Asset or business acquisition?

Is it a

business?

YESNO




Relevant specific

standard e.g. IAS 16.

IFRS 3R (and

other standards!)

Do we have

control?

YES

NORelevant specific

standard e.g. IAS

28, IAS 31



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Purchase Price Allocation

almostOnce we have determined

the cost of a business




Areas to watch out for!Consequences of fair valuing

allocate the cost to theidentifiable assets,

liabilities and contingent

liabilities acquired.



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Assets and liabilities are recognised based on fair value

Amortisation of Goodwill is prohibited

Additional Intangible assets to be recognised on business combinations




Date of acquisition - Transfer on control vs high court ordersBusiness combination are accounted using purchase method only

Contingent liabilities to be recognised to Income statement

Contingent consideration

Reverse acquisitions



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Our experience

IFRS 1 - Optional exemption for Business combination has been applied by most of

the companies

Valuation experts with IFRS experience are necessary for purchase price allocation


, p p


Issues like reverse merger, merger of entities under common control are very

common under Indian scenario



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Leases

Application Of IFRIC - 4


p p


IFRIC 4 impact is generally observed where there are Job work arrangements, outsourcing

contracts, power purchase agreements, etc



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Functional currency

Functional currency - Primary indicators

The currency that mainly influencessales prices for goods and services

(generally in which sales prices are

denominated and settled)

The currency of the country whosecompetitive forces and regulations

determines the sales price of its

goods and services


The currency that mainly

influences labour, material and

other costs of providing goods

and services

Functional Currency


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Deferred taxes

Sufficient DTL available

relating to same tax authority

and same entity

in same period

yes

Deferred Tax Asset Recognition


Probable sufficient taxable profit

to same tax authority

and same entity

in period of DTA reversal

no

yes

Recognise DTA

no

Tax planning opportunities

available to create taxable profits?No recognition of DTAyes

no



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Deferred taxes

Deferred Tax journal entries

Situation Where deferred tax is recorded

General rule Income statement


Transaction or event recognised in equity Equity



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Deferred taxes


Balance sheet approach Vs Income statement approach

Deferred tax shall be recognised on following temporary differences


Foreign currency translation Consolidation adjustments

Unrealised gains/ losses of subsidiaries, associates or joint venture

Deferred tax assets shall be recognised based on probability criteria



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Employee benefits


Option for recognition of actuarial gain or losses to income statement or Other

comprehensive income or corridor approach

Fair value method shall be applied for ESOP accounting




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Classification - Financial assets

Financial Asset


At fair value through

profit or loss

Originated Loans

and receivablesHeld to maturity Available for sale

Held for

trading

Designated

at inception



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Classification Financial Liabilities (Two categories)

1. At fair value through profit or loss


Held for trading

inception

Intention of short term profit;

Derivatives unless if hedges

Voluntary designation subject

to Certain conditions;Irrevocable cannot be moved

2. Other financial liabilities



53/96



Subsequent measurementAssets/Liabilities at fair value through profit

or loss

Loans and receivables

At FV through profitor loss


Held to maturity

Available for sale

Other liabilities

At amortised cost

At FV through equity



54/96



Financial assetsInitial

measurement

Transaction

costs

Subsequent

measurement

Recognition

of gain / loss

At fair value through profit or loss Fair value

Charge to

Income

Statement

Fair valueIncome

statement

Held to maturitFair value

Ca italise Amortised cost Not a licable


Loans and receivables Fair value Capitalise Amortised cost Not applicable

Available for sale financial assetsFair value Capitalise Fair value

Other

comprehensive

income

statement



55/96



Use of experts required to handle complex areas

Involvement of treasury professionals is crucial

Volatility in Income statement due to accounting of embedded derivative

Our experience


Documentation for hedge accounting



56/96



Optional Exemptions

Business combinations

Property, plant and equipment,

investment properties, intangibles

Compound instruments

Fair value measurement of financial

Instruments on initial recognition


Designation of financial assets and

Financial liabilities

Insurance contracts*

Employee benefits Standards

in force at

reporting dateCumulative translation differences

Transition date for subsidiaries,

associates and joint ventures

Share-based payments

Decommissioning liabilities

Leases

Borrowing cost Service concessions arrangements

Investments in subsidiaries,

associates and joint control entities.



57/96



Mandatory Exceptions

Estimates Non controlling interest*


Hedge accounting

Standards

in force at

reporting date

*applicable on or after 1st July 2009,

can be early adopted

A 2


58/96

Annexure 2

Common adjustments

from Indian GAAP toIFRS



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a. Entities to be consolidated ESOP

Q The ESOP trust has XX shares aggregating to USD 50 MQ The interest on loan given for financing stocks amounted to USD 3 M

Consolidated Financial Statement

Annexure 2: Common adjustments from Indian GAAP to IFRS


Answer

A Dr NW 53, Dr NI 3



60/96

b. Functional Currency

Q The amount are recorded In Indian Rupees. Exchange loss alreadybooked on transaction from USD to INR is (say)10 USD. Had the

transactions been recorded in USD (being its functional currency) the

gains on transaction would have been 15 USD.




Answer

A Cr NI 25, Cr NW - 25


A 2 C dj t t f I di GAAP t IFRS


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c. Deferred Tax on Consolidation

Q Company intends to realize the undistributed profits of the Joint venture byway of liquidation through cash dividends in foreseeable future. In previous

year company estimated a notional liability of 30 which increased to 35 at

year end.




Answer

A Dr NW 35, Dr NI 5




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d. Fair Value measurement in Jointly Control Entities

Q Company has recorded its investment in JCE at Book value. The net fairvalue of all adjustments (excluding goodwill of 100) has the impact of

increase by 50. The depreciation on such increase in FV is 5




Answer

A Dr NW 5, Dr NI 5.




63/96

e. Transitional Provisions

Q The impact of transitional provisions under Indian GAAP is Dr NW 20




Answer

A. Cr NW 20, NI 0




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a. Residual Value

Given,

1. Method adopted SLM

2. Life 10 years3. Salvage value zero unless stated otherwise

Property Plant and Equipment



Q The residual value taken under Indian GAAP is 5 for an asset, the original

cost of which is 105. At the beginning of the sixth year, the residual value is

re-estimated and the same asset is expected to have 45 at the end of its

life. The depreciation of 10 was provided during the sixth year under Indian

GAAP. What shall be impact under IFRS for the sixth year

Answer

A Cr NW 8, Cr NI 8




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b. Exchange gains and losses


Given,

1. Method adopted SLM

2. Life 10 years3. Salvage value zero unless stated otherwise

Property Plant and Equipment


Q Exchange loss capitalized 20 as at the beginning of the year

Answer

A Dr NW 18, Dr NI 18




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a. Amortisation

Q Amortisation of Brands 10Q Amortisation of goodwill 15

Intangible Assets



Answer

A Cr NW 25, Cr NI 25




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a. Trading Category

Q The fair market value was higher than it books value by 20 and 35 as at

the beginning and as at the end of the year respectively.

Investments



Answer

A. Cr NW 35, Cr NI 15




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b. Available for Sales

Q The fair market value was higher than it books value by 5 and 10 as at thebeginning and as at the end of the year respectively.


Investments


Answer

A. Cr NW 10, Cr NI 0




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c. Held till Maturity

Q Company has fully realized the investment at year end by way of

redemption. The interest in effective yield has been 12 where as per

coupon rate is 11

Investments



Answer

A. Cr NW 0, Cr NI 1




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a. Present Values

Q Fair value of interest free loan aggregating to 100 was 70 at the beginning

of the year which increased to 80 during the year

Loans and Advances



Answer

A. Dr NW 20, Dr NI 10


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b. The Initial Cost on account of issuance of additional Equity Shares

Q The initial cost of equity issued during the year is 20. As the same was not

allowed to be carried forward under Indian GAAP (AS 26, intangible asset),

it was expensed off.

Share Capital

j


Answer

A. Dr NW 0, Cr NI 20


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a. Dividend - New

Q Proposed dividend at year end is 20

Current Liabilities

j


Answer

A Cr NW 20, Dr NI 0


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c. Leave

Q The Company provides for leave accruals on basis of its Basic Pay + DA

which constitutes 50 % of the CTC. The leave accruals increased from 20

to 25 during the period. Presume that company follows FIFO method of

leave

Current Liabilities


Answer

A Dr NW 25, Dr NI 5




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d. Termination benefits

Q The expected cost of VRS (not accepted) by employee is 40

Current Liabilities


Answer

A Dr NW 40, Dr NI 40




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e. Accounting of Forward Cover New

Q The company has entered into forward contracts having its gross premium

20 for a period of 6 months. As on the year end 3 months has expired, the

company amortized Rs.10 under Indian GAAP, it also obtained Mark to

Market on the said forward cover for the remaining term of maturity where

Current Liabilities


the Market Value is Rs.16.

Answer

A Cr NW 6, Cr NI 6




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a. Entitlement basis

Q Oil Extracted but another venturer at MV 100. The company shall lift the

extra quantities in subsequent month. Presume impact of depletion and

other operating cost as 20

Revenue


Answer

A Cr NW 80, Cr NI 80




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b. Production Testing Revenue Oil and Gas

Q Production testing revenue taken to income 10. Net margin is 80 %

Revenue


Answer

A Cr NW 0, Dr NI 8




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a. ESOP Scheme from Parent

Q The value of stock options granted and vested during the period by parent

co. to employees of the co is 80

Expenses


Answer

A Cr NW 0, Dr NI 80




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b. Leave As above

Done in current liabilities

Expenses





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c. Gratuity Actuarial Gains and Losses

Done in current liabilities

Expenses





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d. Correction of Errors

Q Included in Income statement are errors of prior period charged to P& L

aggregating to 8

Expenses


Answer

A Cr NW 0, Cr NI 8




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e. Changes in Accounting Policy

Q The cumulative catch up adjustments for a change in accounting policy

(depreciation) is reduction in depreciation by 16

Expenses


Answer

A Cr NW 0, Dr NI 16




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a. GAAP Adjustments from Indian GAAPQ How do you work out the DT impact of US GAAP ADJUSTMENTS

Deferred Tax

Given - The tax rate is 30 %


Answer

A Balance Sheet Approach


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c. ConsolidationQ List of inter-company profits getting eliminated on consolidation 20

Deferred Tax



Answer

A Cr NW 6, Cr NI 6


f



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d. Outside Basis

Done in Consolidation

Deferred Tax




D f d T



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e. Probable v/s Virtually certainQ The unabsorbed losses c/f from earlier period reduced from 200 to 150.

The was not recognized under Indian GAAP as the Company was not

Deferred Tax



virtually certain though it was probable

Answer

A Cr NW 45, Dr NI 15

Annexure 3


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Select IFRS tools and

publications

Annexure 3: Select IFRS tools and publications

PricewaterhouseCoopers has a range of tools and publications to help companies apply IFRS



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Similarities and Differences:

A Comparison of IFRS, US GAAP and Indian GAAP.

This new edition has been completely redesigned to

make it user-friendly and the key features of the new

publication are:



1) Provides insight as to the impact of key differences

between IFRS, US GAAP and Indian GAAP,

2) Provides context of how the conversion to IFRS has

ramifications far beyond the accounting department, and

3) Encourages early consideration of what IFRS means to

your organisation.

This publication is available on www.pwc.com/india





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A practical guide to share-based payments

Answers the questions we have been asked by entities

and includes practical examples to help management

draw similarities between the requirements in the

standard and their own share-based payment

arrangements. November 2008.

IFRS 3R: Impact on earnings the crucial Q&A for

decision-makers

Guide aimed at finance directors, financial controllers

and deal-makers, providing background to the

standard, impact on the financial statements and

controls, and summary differences with US GAAP.

A practical guide to new IFRSs for 2009

40-page guide providing high-level outline of the key

requirements of new IFRSs effective in 2009, in

IFRS disclosure checklist 2009

Outlines the disclosures required by all IFRSs

published up to October 2009.



ques on an answer orma .

A practical guide to capitalisation of borrowing

costs

Guidance in question and answer format addressing the

challenges of applying IAS 23R, including how to treat

specific versus general borrowings, when to start

capitalisation and whether the scope exemptions are

mandatory or optional.

IFRS pocket guide 2009

Provides a summary of the IFRS recognition and

measurement requirements. Including currencies,

assets, liabilities, equity, income, expenses, business

combinations and interim financial statements.

IAS 39 Derecognition of financial assets in

practice

Explains the requirements of IAS 39, providing answers

to frequently asked questions and detailed illustrations

of how to apply the requirements to traditional and

innovative structures.

IFRS news

Monthly newsletter focusing on the business

implications of the IASBs proposals and new

standards. Subscribe by emailing

[email protected].





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A practical guide to segment reporting

Provides an overview of the key requirements of IFRS

8, Operating Segments and some points to consider

as entities prepare for the application of this standard

for the first time. Includes a question and answer

section. Also available: Eight-page flyer on high level

management issues.

Illustrative consolidated financial statements

Banking, 2009

Insurance, 2009

Investment property, 2009

Private equity, 2009

Investment funds, 2009

Realistic sets of financial statements for existingIFRS preparers in the above sectors illustrating the

required disclosure and presentation.

Adopting IFRS A step-by-step illustration of theUnderstanding financial instruments



transition to IFRS

Illustrates the steps involved in preparing the first IFRS

financial statements. It takes into account the effect on

IFRS 1 of the standards issued up to and includingMarch 2004.

,

Comprehensive guidance on all aspects of the

requirements for financial instruments accounting.

Detailed explanations illustrated through workedexamples and extracts from company reports.

Financial instruments under IFRS

High-level summary of the revised financial instruments

standards issued in December 2003, updated to reflect

IFRS 7 in September 2006. For existing IFRS preparers

and first-time adopters.

SIC-12 and FIN 46R The substance of control

Helps those working with special purpose entities to

identify the differences between US GAAP and IFRS

in this area, including examples of transactions and

structures that may be impacted by the guidance.

IAS 39 Achieving hedge accounting in practice

Covers in detail the practical issues in achieving hedge

accounting under IAS 39. It provides answers to

frequently asked questions and step-by-step

illustrations of how to apply common hedging

strategies.

Acquisitions Accounting and transparency

under IFRS 3Rd

Assesses the impact of the standard, highlighting the

key issues for management and raising questions for

the Board

IFRS manual of accounting 2010





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IFRS manual of accounting 2010

Global guide to IFRS providing comprehensive practical

guidance on how to prepare financial statements in

accordance with IFRS. Includes hundreds of worked

examples and extracts from company reports. The

Manual is a three-volume set comprising:

Manual of accounting IFRS 2010

Manual of accounting Financial instruments 2010

Illustrative IFRS corporate consolidated financialstatements for 2010 year ends

Comperio Your path to knowledge

p g p p p pp y


.

IPSAS. Also contains PwCs IFRS and corporate publications, and Applying IFRS. For more information, visit www.pwc.com/comperio

Making the change to IFRS

This 12-page brochure provides a high-level overview of the key issues that companies need to consider in making the change to IFRS

IFRS for SMEs Is it relevant for your business?

It outlines why some unlisted SMEs have already made the change to IFRS and illustrates what might be involved in a conversion process.

Thank You


96/96

Rakesh Agarwal

Associste Director, PricewaterhouseCoopers

E-mail : [email protected]

Mobile : +91 9820273458

Documents

IFRS in India Its Status Overview of Concepts and Impact in India 23 January 2011