Deliberation on IFRS IAS-16, IAS-17, IAS-20 by CA. D.S. … · Deliberation on IFRS IAS-16, IAS-17,...
Transcript of Deliberation on IFRS IAS-16, IAS-17, IAS-20 by CA. D.S. … · Deliberation on IFRS IAS-16, IAS-17,...
Property Plant & Equipment [PPE]
IAS-16
PPE are tangible assets that –are held for use
expected to be used more than one period
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
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
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
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 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
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
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 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
Employee Benefits
Short-term employee benefitsPost-employment benefitsOther long-term employee benefitsTermination benefits
Wages, SalariesShort-term compensated absencesProfit sharing bonusesNon-monetary benefits –Medical, Housing, Car or subsidies goods
Short-term Employee Benefits
As an expense – Net change in the liability during the periodAs a liability for its obligation
Defined Benefit Plans
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
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