Ind AS 1- First time adoption of Ind AS

• Objectives and Application of Ind AS 1

• General Requirements • Exemptions • Disclosures • Issues in Practical

application

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OBJECTIVE AND APPLICATION OF INDAS 1

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Objectives

• An Entity’s first Ind AS financial statements and its interim financial reports, contain high quality information that: is transparent for users and comparable over all periods

presented; Provides a suitable starting point for accounting in

accordance with Indian Accounting Standards (Ind AS); and

Can be generated at a cost that does not exceed the benefits.

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When to apply Ind AS 1

• Only when an entity prepares Ind AS financials for the first time. “first Ind AS financial statements” is defined as the first annual financial statements in which entity adopts IndAS by an explicit and unreserved statement of compliance with IndAS notified under Companies Act, 2013.

• In any interim financial statements for a period covered by

those financial statements that are prepared under Ind AS.

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Transition date (Dates are illustrative only)

• The beginning of the earliest period for which an entity presents full comparative information under Ind AS

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31st March 2016

1st April 2015 Date of transition

31st March 2017 Reporting Date

Comparative period First Ind AS financial statement

General Requirements

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General Requirements

• Step 1- Select Ind AS accounting policies Latest version of Ind AS only, uniformly applied to all

accounting period presented • Step 2- Recognise/ derecognise assets and liabilities as

necessary, for example Liabilities (e.g., decommissioning obligations, proposed

dividend) Jointly controlled entities under equity method

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General Requirements

• Step 3- Re measure, for example Basis same, but measured differently Basis changed (e.g., from cost to fair value) Discounting is required/ prohibited (e.g., provisions,

impairments)

• Step 4- Reclassify, for example Between captions (e.g., debt/ equity) Current/ non current

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Adjustments as a result of applying Ind AS for the first time

Retained Earning Another Equity category Exemption

Goodwill

Exemptions

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Exemptions from retrospective application of Ind AS

• Mandatory Exemptions

• Optional Exemptions

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Mandatory Exemptions

• De recognition of financial assets and financial. • Hedge Accounting • Estimates • Non- Controlling Interest • Classification and measurement of financial assets • Impairment of financial assets • Embedded derivatives • Government Loans

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Overview of Optional Exemptions

• Deemed Cost

• Compound financial instruments

• Cumulative translation differences

• Business Combination

• Employee Benefits

• Investment in subsidiaries, JV and associates

• Assets and liabilities of subsidiaries, associates and JV

• Decommissioning liabilities

• Non current assets held for sale and discontinued operation

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• Share-based payments

• Arrangements containing a lease and lease classification

• FV measurement of FA/FL on initial recognition

• Extinguishment of FL with equity

• Insurance Contracts

• Service concession arrangements

• Designation of contract to buy sell non financial items

• Revenue from Contract

Mandatory Exemptions

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Derecognition of financial assets and financial liabilities

First Time Adopter must apply: • The derecognition requirements in Ind AS 109 Financial

instruments prospectively for transactions occurring on or after the date of transition. For. eg bill discounted is derecognised as per previous Gaap, same will not be reinstated in opening balance sheet.

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Hedge Accounting • On date of transition measure all derivatives at fair value and

remove all deferred gains and losses arising on derivatives recognised under previous GAAP

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Under previous

GAAP

Designated as a hedge and is hedge effective Yes No

Fair Value hedge: •Gain/ loss on hedging instrument should be recognised in retained earnings by recognising derivative asset/ liability •Gain/loss on hedging item should be recognised in retained earning by adjusting carrying amount of hedged item Cash Flow hedge •The portion of gain/ loss on hedging instrument that is determined to be an effective hedge should be recognised in OCI

Don’t reflect hedging relationship in opening Ind AS statement of financial position- recognise effects in retained earning

Estimates

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No Estimates under previous GAAP

Use Information available at the date of transition to Ind AS

(i.e., no hindsight)

Conditions arising after the date of transition should be ignored

Estimates

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Previous GAAP estimate

Apply Ind AS methodology to estimate made

Adjust, but do not use hindsight

“Error”

“No Error”

Non- controlling interest

A first- time adopter shall apply the following requirements of Ind AS 110 prospectively from the date of transition to Ind AS”

• The requirement in para B94 that total comprehensive income is attributed to the owners of the parent and to the non controlling interests even if this results in the non controlling interests having a deficit balance

• The requirements in para 23 and B93 for accounting for changes in the parent’s ownership interest in a subsidiary that do not result in a loss of control; and

• The requirements in para B97-B99 for accounting for a loss of control over a subsidiary, and the related requirements of para 8A of Ind AS 5 Non current Assets Held for Sale and Discontinued Operations.

However, if a first time adopter elects to apply Ind AS 103 retrospectively to past business combination, it shall also apply Ind AS 110

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Classification and measurement of financial assets/liabilities

• Financial asset which is a debt instrument is measured at amortised cost if it meets two test i.e. business model and SPPI on basis of facts and circumstances existing at date of transition to IndAS as against date of recognition.

• Entity may designate financial liability at FVTPL, if meets IndAS criterea of IndAS 109 at date of transition.

• Effective Interest rate: Generally financial assets / liabilities measured at amortised cost are computed retrospectively. In rare circumstances where it is impractical to apply requirement retrospectively (as per IndAS 8), the fair value of FA/FL on date of transition is considered as new gross carrying amount of FA or new amortised cost of FL.

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Impairment of financial assets

• Concept of expected credit loss for impairment of financial asset is applied retrospectively. If entity is unable determine whether there is significant increase in credit risk on date of tranistion since initial recognition without undue cost, then entity must recognised impairment based on life time expected loss at each reporting period untill the financial asset is derecognised.

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Embedded Derivatives

• IndAS 101 requires to assess whether an embedded derivates should be separated from host contract based on condition that existed at the latter of date it first became party to the contract and the date of reassessment as required by IndAS 109 (significant change in terms)

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Government Loans

• A first time adopter shall classify all government loans received as a financial liability or an equity in accordance with Ind AS 32 Financial Instruments: Presentation.

• It shall also apply the requirements in Ind AS 109 & Ind AS 20 prospectively to government loans existing at the date of transition to Ind AS and shall not recognise the corresponding benefit of the government loan at a below market rate of interest as a government grant.

• An entity may apply the requirements in Ind AS 109 and Ind AS 20 retrospectively to any government loan originated before the date of transition to Ind AS, provided that the information needed to do so had been obtained at the time of initially accounting for that loan.

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Optional Exemption

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Deemed Cost

Property, plant and equipment: • Fair value at transaction date or a previous revaluation may be

used as ‘deemed cost’ • Exemption available for individual items of property, plant and

equipment • Previous revaluation must have been either: Broadly comparable to fair value or cost or depreciation cost under Ind AS' A one off event driven fair value

• Use of Indian Gaap amounts as deemed cost, where there is no change in functional currency and should be applied to all items of PPE adjusted for decommissioning liabilities.

• Exemption also available for investment property and intangible assets (if meets criteria of IndAS 38 – Active market).

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Financial Instruments

• Compound financial instruments are spilt at inception into separate liability and equity components.

The ‘split accounting’ provisions of Ind AS 32 need not be applied where the liability component of a compound financial instrument is no longer outstanding at the transition date.

• Designation of FA as measured at FVTPL: May classify FA which is debt instrument and meets amortised cost criteria as FVTPL if it meets the conditions (accounting mismatch) as on date of transition as against date of inception required by IndAS 109

• Designation of equity investment at FVOCI: May classify equity investment at FVOCI based on facts and circumstances on date of transition as against date of inception required by IndAS 109

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Financial Instruments

• Fair value of FA/FL on initial recognition: If FV differs from transaction price, IndAS 109 requires to account differences as gain/loss. IndAS 101 provides transitional relief from this requirement.

• Designation of contract to buy/sell non financial item as derivative: IndAS 109 allows to designate certain contracts to buy/sell non financial item as derivative if it meets certain criteria on date of inception of contract. IndAS 101 allows to evaluate these critera on date of transition

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Foreign Exchange translation difference

• Cumulative translation differences: At the date of transaction to

Ind AS, option available not to recognise any CTD in the opening Ind AS statement of financial position for foreign operations (i.e. any translation reserve included in equity under previous GAAP can be reset to zero)

• Entity which has opted to amortise/defer exchange gain/loss on long term monetary items as per AS 11, may continue to do so in respect of such items appearing in latest balance sheet prepared under previous gaap.

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Leases

• May apply requirement of Appedix C to IndAS 17 for

determining whether arrangement contains lease based on circumstances existing on date of transition.

• Where lease contains both land and building, entity may assess the classification based on circumstances on the date of transition.

• Where any land lease is classified as finance lease, asset and liabiltiy may be recognised based on fair value on the date of transition and difference in retained earnings.

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Investments in subsidiaries, JV, associates

As per IndAS 27, such investments classified at : Cost IndAS 109. IndAS 101 give option to recognise: • Cost determined as per IndAS 27, or • Deemed cost which shall be its:

• Fair value on date of transition • Previous GAAP carrying amount

May be applied separately to each subsidiary.

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Investments in subsidiaries, JV, associates • Groups, subsidiaries, associates and joint ventures:

Transition to IFRSs- Parent’s transition in its consolidated financial statement occurs before subsidiary:

o Subsidiary has choice to measure its assets and liabilities at

either: o Amounts in consolidated financial statements of parent (except

for consolidation and business combination adjustment) o Carrying amounts under Ind AS at own transition date o Same choice available to associates and joint ventures

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Joint arrangements • For change from Proportionate consolidation to equity method,

entity shall follow:

Initial investment shall be measured as aggregate of carrying amount of assets and liabilities entity had previously consolidated including goodwill. This shall become deemed cost.

If goodwill previously belong to larger group of CGU, same shall be allocated based on relative carrying amounts.

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Decommissioning liabilities • Appendix A to IndAS 16 requires the changes in

decommissioning and similar liability to be added/deducted from cost of asset and depreciate prospectively.

• IndAS 101 give practical expedient as under:

• Measure liability on date of transition as per IndAS 37 • Estimate the amount that would had been included when liability

arose using best estimate of historical risk adjusted discount rates • Calculate accumulated depreciation on that amount on the basis of

current estimate of useful life

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Business Combination

• Applying IndAS 103 retrospectively may not be practical due to difficulty in determining fair value of assets and liabilities acquired. Hence IndAS 101, give exemption from applying IndAS 103. However, if one business combination is restated, all those occurring after that date must be restated

• Applies also to associate and joint ventures also. • In applying this exemption, the entity recognise all assets and

liabilities assumed in past business combination as per prevous GAAP CFS except:

• Certain financial assets and liabilities that were derecognised under derecogniton critera

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Business Combination

• Assets (including goodwill) and liabilities not recognised in CFS under previous GAAP and that would not qualify for recognition in the acquiree individual financial statement shall not be recognised.

• Entity has recognised assets and liabilities which donot qualify for recognition as per IndAS should be derecognised which related deferred tax and NCI against the goodwill or Capital reserve.

• IndAS requires equity investment/derivatives to be stated at fair value. Entity should measure such assets at fair value with resulting change in retained earnings/equity and NCI.

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Disclosures

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Disclosures- First Ind AS financial statements

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1 Apr2015 31 Mar 16 31 Mar 17

Previous GAAP restated to Ind AS

Ind AS

Ind AS opening statement of financial position

First Ind AS reporting date

Equity reconciliation as on 1.4.15 Profit reconciliation for period 1.4.15 to 31.3.16

• Impact of finacial assets and liabilites stated at fair value, PPE stated at fair value as deemed cost etc.

• Reconciliation

Carve Outs retained in Ind AS

• Allowing the use of carrying cost of Property, Plant and Equipment on the date of transition of First time adoption of Ind AS.

• Permission to continue the accounting policy adopted for

accounting for exchange differences arising from translation of long term foreign currency monetary items as at last reporting period.

• Permission to continue with the accounting policy adopted for amortisation of intangible assets arising from service concession arrangements related to toll roads.

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Practical Applications

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Practical application

• Follow two way approach. Review each GL and tag impact on IndAS on recognition, measurement and disclosure. Also, review each IndAS to see if any applicable adjustment is not left out.

• Finalise the accounting policies • Finalise the optional exemption of IndAS 101 entity intends to

avail • Study impact on accounting software • Study impact on taxation (direct and indirect) • Map adjustment and freeze opening balance sheet and

quarterly financials of 2015-16 as per IndAS. • Preparation of full fledge financials with notes, disclosures.

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THANK YOU

FOR YOUR ATTETION