1. CA Yagnesh Desai 30 th April, 2016 WIRC of ICAI Session on Changes in Accounting Standards

2. Introduction The following Accounting Standards have been amended by Ministry of Corporate Affairs vide notification dated 30 th March,2016 : AS 2 : Valuation of Inventories, AS 4 : Contingencies and Events Occurring after the Balance Sheet AS 10: Property, Plant and Equipments AS 13: Accounting for Investments AS 14: Accounting for Amalgamations AS 21: Consolidated Financial Statements AS 29: Provisions, Contingent Liabilities and Contingent Assets These amended Standards shall apply from Financial Year 2016-17 as clarified by ……

3. Accounting Standard 2: Valuation of Inventories Existing provisionChange Para 4: Inventories do not include machinery spares which can be used only in connection with an item of fixed asset and whose use is expected to be irregular; such machinery spares are accounted for in accordance with Accounting Standard (AS) 10, Para 4: Inventories do not include spare parts, servicing equipment and standby equipment which meet the definition of property, plant and equipment as per AS 10 Property, Plant and equipment

4. Impact of Change Servicing equipment & Standby equipment have been listed in addition to Spares As per the existing clause, the classification criteria of Machinery spares were linked to two factors: a. Use of the spares with a particular asset, and b. The frequency of the use i.e. Regular/ irregular. The clause has now been modified to classify the Spares, Servicing equipment & Standby Equipment as Plant, property and Equipment (PPE) if it meets the definition of the PPE

5. Accounting Standard 2: Valuation of Inventories Existing provisionChange Para 27: The list of Common classification of inventories are as below: a. Raw Material b. Work in progress c. Finished Goods d. Stores and Spares e. Loose Tools Para 27: The list of Common classification of inventories are as below: a. Raw Material b. Work in progress c. Finished Goods d. Stock in Trade e. Stores and Spares f. Loose Tools g. Others (please specify)

6. Impact of Change Two more additions to the list of items classification : 1. Stock in Trade & 2. Others (to be specified)

7. Accounting Standard 4: Contingencies and Events occurring after Balance Sheet date Existing provisionChange Para 8.5: There are events, which although they take place after the B/S date, are sometimes are reflected in the F.S. because of Statutory requirements or because of special nature. such items include the amount of dividend proposed or declared by the enterprise after the balance sheet date in respect of the period covered by the financial statements. Para 8.5 There are events, which although they take place after the B/S date, are sometimes are reflected in the F.S. because of Statutory requirements or because of special nature. For example, if dividends are declared after the balance sheet date but before the financial statements are approved for issue, the dividends are not recognised as a liability at the balance sheet date because no obligation exists at that time unless a statute requires otherwise. Such dividends are disclosed in the notes.

8. Impact of the Change Dividends declared after the Balance sheet date, but before the Financials are approved, will now be treated as a Non-adjusting event. It will be treated as a contingent event and will be disclosed in notes

9. Accounting Standard 13: Accounting for Investments Existing provisionChange Para 20 Does not prescribe any accounting method for Investment properties Para 30 An enterprise holding investment properties should account for them as long term investments Para 20 Now provides for the accounting of Investment properties as per the cost model prescribed in para 33 of AS 10 PPE Para 30: An enterprise holding investment properties should account for them in accordance with cost model as prescribed in AS 10, Property, Plant and Equipment.

10. Impact of Change The carrying value of the Investment property shall now be determined as follows: ParticularsAmount Cost of Investment PropertyXXXX Less: a. Accumulated DepreciationX b. Accumulated Impairment LossesX(XX) Carrying ValueXX

11. Accounting Standard 14: Accounting for Amalgamations Existing provisionChange Para 42 : Applies when the scheme of amalgamation is sanctioned under a statute and the treatment to be given to the reserves of transferor is different then following disclosures are to be made: (a) A description of the accounting treatment given to the reserves and the reasons for following the treatment different from that prescribed in this Standard. (b) Deviations in the accounting treatment given to the reserves as prescribed by the scheme of amalgamation sanctioned under the statute as compared to the requirements of this Standard that would have been followed had no treatment been prescribed by the scheme. (c) The financial effect, if any, arising due to such deviation. Para 42: This requirement is not applicable to the scheme of amalgamation approved under the Companies Act, 2013

12. Impact of change As per sec 232(3) of the Companies Act 2013, a certificate by the company’s auditor has to be filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under section 133. Due to this, the scheme of amalgamation as per Companies Act,2013 will always be in conformity with the notified Accounting Standards. Hence, the disclosure requirements have been done away with as there is no scope for deviation

13. Accounting Standard 21: Consolidation of Financial Statements Existing provisionChange Para 9 : A parent which presents consolidated financial statements should consolidate all subsidiaries, domestic as well as foreign, other than those referred to in paragraph 11 Para 9: A parent which presents consolidated financial statements should consolidate all subsidiaries, domestic as well as foreign, other than those referred to in paragraph 11. Where an enterprise does not have a subsidiary but has an associate and/or a joint venture such an enterprise should also prepare consolidated financial statements in accordance with Accounting Standard (AS) 23, Accounting for Associates in Consolidated Financial Statements, and Accounting Standard (AS) 27, Financial Reporting of Interests in Joint Ventures respectively.

14. Accounting Standard 29: Provisions, Contingent Liabilities and Contingent Assets Existing provisionChange Para 35: The amount recognised as a provision should be the best estimate of the expenditure required to settle the present obligation at the balance sheet date. The amount of a provision should not be discounted to its present value. Para 35: The amount recognised as a provision should be the best estimate of the expenditure required to settle the present obligation at the balance sheet date. The amount of a provision should not be discounted to its present value except in case of decommissioning, restoration and similar liabilities that are recognised as cost of Property, Plant and Equipment. The discount rate (or rates) should be a pre-tax rate (or rates) that reflect(s) current market assessments of the time value of money and the risks specific to the liability. The discount rate(s) should not reflect risks for which future cash flow estimates have been adjusted. Periodic unwinding of discount should be recognised in the statement of profit and loss

15. Accounting Standard 29: Provisions, Contingent Liabilities and Contingent Assets Transitional provisionChange Para 73: No Transitional provision for Decommissioning, Restoration, or similar liabilities Para 73: All the existing provisions for decommissioning, restoration and similar liabilities (see paragraph 35) should be discounted prospectively, with the corresponding effect to the related item of property, plant and equipment.

16. Impact of Change Only provision for decommissioning, restoration and similar liabilities have to be recognized at present value by using a pre-tax discounting factor which reflect the market expectations for time value of money and the risk associated with the liability The discount amount should be recognized periodically in the Statement of Profit and Loss.

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