INCOME COMPUTATION AND DISCLOSURE STANDARDS by CA ANKIT N. ANJARIA Rajkot Branch of WIRC of ICAI October 10, 2015

CA ANKIT N. ANJARIA Income Computation & Disclosure Standards 10/10/2015 Rajkot Branch of WIRC of ICAI Basics Empowered under section 145(2) of the Income Tax Act, 1961 Empowered under section 145(2) of the Income Tax Act, Draft standards were issued in August 2012 and public comments were invited 14 Draft standards were issued in August 2012 and public comments were invited 10 ICDS issued by CBDT to be made effective from Financial Year and Asst. Year ICDS issued by CBDT to be made effective from Financial Year and Asst. Year These apply only for the computation of Income from Business and Profession and Income from Other Sources These apply only for the computation of Income from Business and Profession and Income from Other Sources Applies to all assessees irrespective of whether corporate or non corporate Applies to all assessees irrespective of whether corporate or non corporate These have already been notified and are effective vide Notification dated March 31, 2015 These have already been notified and are effective vide Notification dated March 31, 2015 Till now there were only 2 standards on Accouting Policies and Prior Period Items Till now there were only 2 standards on Accouting Policies and Prior Period Items Applies only to those following the mercantile system of accounting Applies only to those following the mercantile system of accounting

CA ANKIT N. ANJARIA Income Computation & Disclosure Standards 10/10/2015 Rajkot Branch of WIRC of ICAI

ICDS 9 – Borrowing Costs Deals with borrowing costs and not with equity and Preference Capital Borrowing Costs are interest and other costs incurred in connection with the borrowing of funds and includes: commitment charges ; amortised amount of discounts/premium ; amortised amount of ancillary costs ; finance charges under finance lease Term interest is not defined under the ICDS. Under Income Tax Act, it means interest on money borrowed as well as debt incurred.

CA ANKIT N. ANJARIA Income Computation & Disclosure Standards 10/10/2015 Rajkot Branch of WIRC of ICAI ICDS 9 – Borrowing Costs Qualifying asset means land, building, plant and machinery, know-how, patents or any similar commercial assets Also includes inventories that require a period of 12 months or more to bring them into saleable condition Borrowing Costs relating to the acquisition and construction of the qualifying asset is to be added to the cost of the asset Borrowing Costs to be recognised on the on the cost of the asset. If funds are borrowed for general purpose and proportion is to be recognised on a pro-rata basis as per formula given in the ICDS

CA ANKIT N. ANJARIA Income Computation & Disclosure Standards 10/10/2015 Rajkot Branch of WIRC of ICAI ICDS 9 – Borrowing Costs Incase of the specific borrowing, the capitalisation should commence from the date of the borrowing Incase of the general purpose borrowing, the capitalisation should commence from the date of the utilisation The capitalisation should cease on the date the asset is out to use or substantial activities to bring the into saleable condition are completed The term substantial activities has not been defined

CA ANKIT N. ANJARIA Income Computation & Disclosure Standards 10/10/2015 Rajkot Branch of WIRC of ICAI ICDS 9 – Borrowing Costs TRANSITIONAL PROVISIONS Borrowing costs to be capitalised after adjusting the capitalisation already accounted for prior to 31 March 2015 DISCLOSURES Accounting policy adopted ; capitalisation in previous year Disclosures in Form 3CD

CA ANKIT N. ANJARIA Income Computation & Disclosure Standards 10/10/2015 Rajkot Branch of WIRC of ICAI ICDS 9 – Borrowing Costs Applies only to the amortised portion of the costs. What about the unamortised portion such as upfront fees Does not make a mention of the effects of foreign exchange fluctuations Is goodwill a commercial right? What about the income received from temporary investment of the borrowed funds? Can the same be reduced from the capitalisation? Mix of specific and general funds used Land is a qualifying asset under the ICDS, but ICDS applies only to Income from Business and Profession and Other Sources, but the profit on sale of land is taxed under Capital Gains Changes in the carrying amount of the Asset – How to disclose in Form 3CD

CA ANKIT N. ANJARIA Income Computation & Disclosure Standards 10/10/2015 Rajkot Branch of WIRC of ICAI ICDS 10 – Provisions, Contingent Liabilities and Contingent Assets Does not deal with Contingent Assets and Liabilities arising from financial instruments ; executory contracts in insurance business and others if covered by another ICDS (Construction Contracts ; Forex Transactions ; Securities) Provision is a liability which can be measured with a substantial degree of estimation Contingent Liability is a possible obligation arising out of a past event. The obligation is confirmed by a future uncertain event Contingent Asset is a possible asset arising out of a past event. The obligation is confirmed by a future uncertain event

CA ANKIT N. ANJARIA Income Computation & Disclosure Standards 10/10/2015 Rajkot Branch of WIRC of ICAI ICDS 10 – Provisions, Contingent Liabilities and Contingent Assets Provision shall be recognised only when there is a reliable estimate that there will be an outflow of economic resources. Provision on account of new law, to be made only when it is actually enacted. No provision to be made for the operating expenses in future Contingent liabilities shall not be recognised Contingent Assets not to be recognised. All such provisions shall be reviewed at the end of the year and to be adjusted to reflect the best possible estimate. The same should be reviewed at each year end

CA ANKIT N. ANJARIA Income Computation & Disclosure Standards 10/10/2015 Rajkot Branch of WIRC of ICAI ICDS 10 – Provisions, Contingent Liabilities and Contingent Assets TRANSITIONAL PROVISIONS Provisions to be recognised after adjusting the capitalisation already accounted for prior to 31 March 2015 DISCLOSURES Opening Balance, Additions, Deletions and Closing Balance Disclosures in Form 3CD

CA ANKIT N. ANJARIA Income Computation & Disclosure Standards 10/10/2015 Rajkot Branch of WIRC of ICAI ICDS 10 – Provisions, Contingent Liabilities and Contingent Assets What about warranties? Reimbursement to be received in future Provisions for contingencies required by law – Eg. RBI

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