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Deliberation on IFRS IAS-16, IAS-17, IAS-20 by CA. D.S. … · Deliberation on IFRS IAS-16, IAS-17,...

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Deliberation on IFRS IAS-16, IAS-17, IAS-20 by CA. D.S. Rawat Partner, Bansal & Co.
Transcript

Deliberation on IFRSIAS-16, IAS-17,

IAS-20by

CA. D.S. RawatPartner, Bansal & Co.

Property Plant & Equipment [PPE]

IAS-16

PPE are tangible assets that –are held for use

expected to be used more than one period

What it covers

Recognition of asset

carrying amount

Depreciation

Impairment

Measurement at recognition

Measure and items of PPE at initial recognition

at itsCost

Elements of cost

Purchase priceCosts directly attributable to bringing the asset to the location & conditionInitial estimate of the costs dismantling & removing the items & restoring the site on which it is located.

Measurement of cost

Cash price equivalent at the recognition dateif acquired in exchange for non-monetary asset – at fair valuePPE held by a lessee under finance lease – as per IAS-17Carrying cost of PPE may be reduced as per IAS-20

Measurement after initial recognition – Accounting policy election

Cost model

Revaluation model

Cost Model

At cost less

Any accumulated depreciation less

Any accumulated impairment losses

Revaluation Model

Fair value less

Subsequent accumulated depreciation

less Subsequent accumulated

impairment losses

Revaluation Model

If an items of PPE is revalued, the entire class of PPE to which that asset belongs shall be revalued

Revaluation increase/ decrease

Increase shall be recognised directly to equity under the heading of revaluation surplus

Decrease shall be recognised to profit or loss

Subsequent cost

Cost of day-to-day servicing are primarily repairs & maintenance and recognise in profit & loss as incurred.

Added in carrying amount of PPE if recognition criteria is met

Impairment

Whether an item of PPE is impaired, an entity applied IAS-36, “Impairment of Assets”

Compensation forImpairment

An entity shall include in profit or loss compensation from third parties for items of PPE that were impaired, lost or given up only when the compensation becomes receivable.

De-recognition

An entity shall derecognise of an PPEon disposalwhen no future economic

benefits are expected from its use or disposal

Gain & loss on therecognition

The gain or loss arising from the de-recognition of an item of PPE shall be included in profit or loss

Gain shall not be classified as revenue unless IAS-17 requires so.

Depreciation

Each part of an item PPE with a cost that is significant in relation to the total cost of the item shall be depreciated separately

Depreciable amount

Allocate the depreciable amount of an asset on a systematic basis over its useful life

Review the residual value and the useful life of an asset at lest at each annual reporting date

Depreciation Method

The depreciation method used shall reflect the pattern in which the asset’s future economic benefits are expected to be consumed by the entity

The depreciation method applied to an asset shall be reviewed at least at each financial year end

Depreciation MethodChange shall be accounted for as a change in an accounting estimate in accordance with IAS-8

Methods includes the straight-line method, the diminishing balance method and Units of Production method

Disclosure

Measurement basis for the gross carrying amountReconciliation of carrying amountUseful life, depreciation, depreciation rateAccumulated depreciation and impairmentDisclosure of revaluationOther number of disclosures

IAS-17

Lease is an arrangement by which the lessor gives the right to use an asset for given period of time to the lessee on rent

LEASES

Substance

• Lease can be structured to transfer ownership of the leased asset

• Substance of transactions dictates the accounting treatment.

Types of lease

• Finance lease

• Operating lease

Classification of lease is made at the inception of the lease.

Finance lease

Which transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee by the lessor

Operating lease

Which does not transfer substantially all the risk and rewards incidental to ownership.

Applicability

IAS is not applicable to:-

• Lease agreement to explore natural resources such as oil, gas. Timber, metal & other mineral rights

Applicability

IAS is not applicable to:-

• Licensing agreements for motion picture film, video recording, Plays, manuscripts, patents & other rights

Accounting for finance lease – In books of lessee

Leased asset as well as liability for lease should be recognised at the lower of :-

• Fair value of the leased asset

• Present value of minimum lease payment from the lessee point of view

Apportionment of lease payment

Apportionment between finance charge and principal amount

Accounting for finance lease – In the books of lessor

Recognise asset given under finance lease as receivable at an amount equal to net investment in the lease and corresponding credit to sale of asset.

Recognition of finance income

Interest/finance income will be recognised in proportion to outstanding balance receivable from lease over leased period

Accounting for Operating Lease

In the books of lessor:-• Record leased out asset as

the fixed asset in the balance sheet

• Charge depreciation as per IAS-16

• Recognise lease income on straight-line basis over the lease term

Accounting for Operating Lease

In the books of lessee:-

• Lease payments should be recognised as an expense on the straight-line basis.

Sale & lease back

• Results in finance leaseExcess of sale proceeds over the carrying amount not be immediately recognise as income Instead it shall be deferred or amortise in lease period

Sale & lease back

• Results in operating leaseIf sale price below fair valueProfit- recognise immediately Loss- recognise immediately if not compensated by future lease paymentAmortise if loss is compensated

Sale & lease back

• Results in operating leaseIf sale price above fair valueProfit- amortise over lease period Loss- equal to carrying amount less fair value –recognised immediately, profit equal to selling price less fair value - amortised

Disclosure

Disclosure in operating lease by lessor General description Accounting policyFuture lease payment

Disclosure in operating lease by lesseeGeneral description Total of future minimum lease payments

Disclosure in finance lease by the lessor

General description Accounting policyReconciliation of total gross investment in lease

Disclosure in finance lease by the lessor

Minimum lease payment (MLP)Not later than one yearsLater than one year & not later than five yearsLater than five years

Disclosure in finance lease by the lessee

Asset under finance lease segregated from the asset owned

Reconciliation of total MLP with its present value

Disclosure in finance lease by the lessee

MLP in following categories on balance sheet date

Not later than one yearlater than one year & not later

than five yearsLater than five years

IAS-20Accounting for Govt. Grants & Disclosure of Govt. Assistance

Scope

This standard shall be applied in accounting for, andIn the disclosure of government grants andIn the disclosure of other forms of government assistance

Definitions

Government refers to Government agencies and similar bodies whether local, national or international.

Definitions

Government grants are assistance by government in the form of transfers of resources to an entity in return for past or future compliance .

Definitions

Government assistance is action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria.

Definitions

Grant related assets are government grants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire long-term assets.

Definitions

Grant related income are government grants other than those related to assets

Definitions

Forgivable loans are loan which the lender undertakes to waive repayment of under certain prescribed conditions.

Government Grants

Government grants, including non-monetary grants at fair value, shall not be recognised until there is reasonable assurance that-

The entity will comply with the conditions attaching to them andThe grants will be received

Government Grants

A forgivable loan from government is treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan

Government Grants

Government grants shall be recognised as income over the period necessary to match them with related costIt should not to credited directly to shareholders interest

Government Grants

Two broad approaches Capital approachIncome approach

Capital approach is not generally followed

Government Grants

Grant that becomes receivable as compensation for expenses already incurred-Recognised as income for the period in which it becomes receivable

Not at extra-ordinary item as per AS-12

Non- Monetary Grants

Non- monetary grant at fair value for both grant & asset

Alternatively at nominal amount both assets & grant

Presentation of Grantsrelated to asset

Grant as a deferred income or,By deduction from the asset

Presentation of Grantsrelated to income

Credit in the income statement OrDeducted from related expenses

Repayment of Govt. grants

Treated as revision of accounting estimate

Not treated as an extra-ordinary items as per AS-12

Govt. Assistance

Example of assistance that cannot reasonably have a value placed upon them are free technical or marketing advice and the provision of guarantees.Loan at NIL or low interest rates. benefit is not quantified by notional interest rate

Disclosure

Accounting policy adoptedNature & amount of Govt. grant recognisedUnfulfilled conditions & other contingencies attaching to the grant no recognises

IAS-19Employee Benefits

Employee Benefits

Short-term employee benefitsPost-employment benefitsOther long-term employee benefitsTermination benefits

As an expense in income statementAs a liability for unpaid amount

Recognition Principle

Wages, SalariesShort-term compensated absencesProfit sharing bonusesNon-monetary benefits –Medical, Housing, Car or subsidies goods

Short-term Employee Benefits

PensionsMedical care

Post-employment Benefits

Defined contribution plansDefined benefits plans

Post-employment Benefits

As an expenseAs a liability for unpaid contribution

Defined Contribution Plans

As an expense – Net change in the liability during the periodAs a liability for its obligation

Defined Benefit Plans

Actuarial valuationPresent value obligationDiscounting

Measurement of the Defined Benefit

Current service costInterest paidExpected return on any plan assets Actuarial gains and lossesPast service costCurtailment re-settlementsOver funding

Cost of Defined Benefit Plans

Compensated absencesSabbatical leaveJubilee benefitsLong-term disability benefitsDeferred compensation paid 12 months or more

Other Long-term Employee Benefits

By legislationBy contractualOther agreementBy a constrictive obligation

Termination Benefits

As an expense in profit or loss immediately

When demonstrably committed

Termination Benefits -Recognition

Short-term employee benefits – does not requireDefined contribution plan -Expense in profit or loss and included in the cost of assetsDefined benefit plans – lot of disclosuresTermination benefits

Disclosure

THANK YOU

CA, D.S.RAWATPartner, BANSAL & Co.


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