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Nov 2017

May 2017 Students – Accounting Standards Amendments

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ICAI on its website on 28th September 2016 announced Accounting Standards amendments which is notified by Ministry of Corporate Affairs (MCA) on mca.gov.in website. ICAI already have such announcement on its website dated 28th septembere 2016. See this

Further recently on  20th January 2017  ICAI issued detailed amendments related to those accounting standards which is notified by MCA previously. ICAI have uploaded a pdf file containing such amendments. The heading of the amendments are stated as “IPCC amendments” but the same amendments will also be applicable for CA Final students.

Amendments which shall be applicable for May 2017 Examinations  as under:

Please note : The below amendments are crux of the whole amendments. If you wish to read entire Accounting standard with respective amendments then click the link next to this paragraph. The link is PDF File (67 Pages) http://resource.cdn.icai.org/43440asb33184a.pdf

The Ministry of Corporate Affairs (MCA) has notified Companies (Accounting Standards) Amendment Rules, 2016 (G.S.R. 364(E) dated 30.03.2016)1. MCA has omitted AS 6, Depreciation Accounting and amended the following Accounting Standards issued under Companies (Accounting Standards) Rules, 2006:

  • AS 2, Valuation of Inventories
  • AS 4, Contingencies and Events Occurring After the Balance Sheet Date
  • AS 10, Property, Plant and Equipment
  • AS 13, Accounting for Investments
  • AS 14, Accounting for Amalgamations
  • AS 21, Consolidated Financial Statements
  • AS 29, Provisions, Contingent Liabilities and Contingent Assets

AS 21 is not applicable for IPCCE Students.

AS 2, Valuation of Inventories

As per the Companies (Accounting Standards) Rules, 2006 (OLD)

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, Accounting for Fixed Assets.

Para 27 – Common classifications of inventories are raw materials and components, work in progress, finished goods, stores and spares, and loose tools.

As per the Companies (Accounting Standards) Amendment Rules, 2016 (NEW)

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. Such items are accounted for in accordance with Accounting Standard (AS) 10, Property, Plant and Equipment.

Para 27 – Common classifications of inventories are:
(a) Raw materials and components
(b) Work-in-progress
(c) Finished goods
(d) Stock-in-trade (in respect of goods acquired for trading)
(e) Stores and spares
(f) Loose tools
(g) Others (specify nature)”.

Implications (EFFECT)

Para 4 – Now, inventories also do not include servicing equipment and standby equipment other than spare parts if they meet the definition of property, plant and equipment as per AS 10, Property, Plant and Equipment.

Para 27 – Para 27 of AS 2 requires disclosure of inventories under different classifications. One residual category has been added to the said paragraph i.e. ‘Others’.

AS 4, Contingencies and Events Occurring After the Balance Sheet Date

As per the Companies (Accounting Standards) Rules, 2006 (OLD)

Footnote to AS 4 – Pursuant to AS 29, Provisions, Contingent Liabilities and Contingent Assets, becoming mandatory in respect of accounting periods commencing on or after 1-4-2004, all paragraphs of this Standard that deal with contingencies (viz. paragraphs 1(a), 2, 3.1, 4 (4.1 to 4.4), 5 (5.1 to 5.6), 6, 7 (7.1 to 7.3), 9.1 (relevant portion), 9.2, 10, 11, 12 and 16) stand withdrawn except to the extent they deal with impairment of assets not covered by other Indian Accounting Standards. For example, impairment of receivables (commonly referred to as the provision for bad and doubtful debts), would continue to be covered by AS 4.

Para 8.5 – There are events which, although they take place after the balance sheet date, are sometimes reflected in the financial statements because of statutory requirements or because of their 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 14 – Dividends stated to be in respect of the period covered by the financial statements, which are proposed or declared by the enterprise after the balance sheet date but before approval of the financial statements, should be adjusted.

As per the Companies (Accounting Standards) Amendment Rules, 2016 (NEW)

Footnote to AS 4 – All paragraphs of this Standard that deal with contingencies are applicable only to the extent not covered by other Accounting Standards prescribed by the Central Government. For example, the impairment of financial assets such as impairment of receivables (commonly known as provision for bad and doubtful debts) is governed by this Standard.

Para 8.5 – There are events which, although they take place after the balance sheet date, are sometimes reflected in the financial statements because of statutory requirements or because of their 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.

Para 14 – If an enterprise declares dividends to shareholders after the balance sheet date, the enterprise should not recognise those dividends as a liability at the balance sheet date unless a statute requires otherwise. Such dividends should be disclosed in notes.

Implications (EFFECT)

Footnote to AS 4 – Footnote has been modified.

Para 8.5 – No liability for proposed dividends has to be created now. Such proposed dividends are to be disclosed in the notes.

Para 14 – No liability for proposed dividends has to be created now. Such proposed dividends are to be disclosed in the notes.

AS 10, Property, Plant and Equipment

As per the Companies (Accounting Standards) Rules, 2006 (OLD)

Name : Fixed Assets

As per the Companies (Accounting Standards) Amendment Rules, 2016 (NEW)

Name : Property, Plant and Equipment

Implications (EFFECT)

Entire standard has been revised with the title AS 10: ‘Property, Plant and Equipment’.

Changed Accounting Standard: http://resource.cdn.icai.org/44440bos34351.pdf

AS 13, Accounting for Investments

As per the Companies (Accounting Standards) Rules, 2006 (OLD)

Para 20 – The cost of any shares in a co-operative society or a company, the holding of which is directly related to the right to hold the investment property, is added to the carrying amount of the investment property.

Para 30 – An enterprise holding investment properties should account for them as long term investments.

As per the Companies (Accounting Standards) Amendment Rules, 2016 (NEW)

Para 20 – An investment property is accounted for in accordance with cost model as prescribed in Accounting Standard (AS) 10, Property, Plant and Equipment.The cost of any shares in a co-operative society or a company, the holding of which is directly related to the right to hold the investment property, is added to the carrying amount of the investment property.

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.

Implications (EFFECT)

Para 20 – Accounting of investment property was not stated in this para but now incorporated i.e. at cost model.

Para 30 – Accounting of investment property shall now be in accordance with AS 10 i.e. at cost model.

AS 14, Accounting for Amalgamations

As per the Companies (Accounting Standards) Rules, 2006 (OLD)

Para 3(a) – Amalgamation means an amalgamation pursuant to theprovisions of the Companies Act, 1956 or any other statutewhich may be applicable to companies.

Para 18 and 39 – In such cases the statutory reserves are recorded in the financialstatements of the transferee company by a corresponding debit to a suitableaccount head (e.g., ‘Amalgamation Adjustment Account’) which isdisclosed as a part of ‘miscellaneous expenditure’ or other similar categoryin the balance sheet. When the identity of the statutory reserves is no longerrequired to be maintained, both the reserves and the aforesaid account arereversed.

As per the Companies (Accounting Standards) Amendment Rules, 2016 (NEW)

Para 3(a) – Amalgamation means an amalgamation pursuant to the provisions of the Companies Act, 2013 or anyother statute which may be applicable to companies and includes ‘merger’.

Para 18 and 39 – In such cases the statutory reserves are recorded in the financial statements of the transferee companyby a corresponding debit to a suitable account head (e.g., ‘Amalgamation Adjustment Reserve’) which ispresented as a separate line item. When the identity of the statutory reserves is no longer required to bemaintained, both the reserves and the aforesaid account are reversed.

Implications (EFFECT)

Para 3(a) – Definition of Amalgamation has been made broader by specifically including ‘merger’.

Para 18 and 39 – Corresponding debit on account of statutory reserve in case of amalgamation in the nature of purchase is termed as ‘Amalgamation Adjustment Reserve’ and is now to be presented as a separate line item since there is not sub-heading like ‘miscellaneous expenditure’ in Schedule III to the Companies Act, 2013.

AS 29, Provisions, Contingent Liabilities and Contingent Assets

As per the Companies (Accounting Standards) Rules, 2006 (OLD)

Para 35 (extract) – The amount of a provision should not be discounted to itspresent value.

Para 73 – nil

As per the Companies (Accounting Standards) Amendment Rules, 2016 (NEW)

Para 35 (extract) – The amount of a provision should not be discounted to itspresent value except in case of decommissioning, restoration and similar liabilities that are recognised ascost of Property, Plant and Equipment. The discount rate (or rates) should be a pre-tax rate (or rates) thatreflect(s) current market assessments of the time value of money and the risks specific to the liability. Thediscount rate(s) should not reflect risks for which future cash flow estimates have been adjusted. Periodicunwinding of discount should be recognised in the statement of profit and loss.

Para 73 –  Transitional Provisions – 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.

Implications (EFFECT)

Para 35 (extract) – Now discounting of provision for decommissioning, restoration and similar liabilities has to be done as per the pre-tax discount rate as mentioned therein.

Para 73 –  Discounting of above existing provisions and similar liabilities should be prospectively, with the corresponding effect to the related item of property, plant and equipment.

Considerations for IPCC Students:

Paper 1 Accounting at Intermediate Level

The revisions in AS 2, AS 10, AS 13 and AS 14 are relevant for Students appearing for Paper 1 “Accounting” in May, 2017 Examinations. Those students who have July 2015 Edition of Paper 1 “Accounting” are advised to ignore Para 2.4.4 on Deprecation Accounting and Para 2.4.7 on Accounting for Fixed Assets because AS 6 ‘Deprecation Accounting’ And AS 10 ‘Accounting for Fixed Assets’ have been withdrawn after issuance of AS 10 ‘Property, Plant and Equipment’. The students are also advised to ignore the questions numbered 21 to 33 (based on AS 6) and 46 to 55 ( based on AS 10) given in April, 2016 Edition of Practice Manual. They are also suggested to refer the Supplementary material on AS 10, Property, Plant and Equipment uploaded on the link http://resource.cdn.icai.org/44440bos34351.PDF along with the RTP for May, 2017 Examination.

Paper 5 Advanced Accounting at Intermediate level

The revisions in AS 4, AS 14 and AS 29 are applicable for Students appearing for Paper 5 “Advanced Accounting” in May, 2017 Examinations. Those students who have July 2015 Edition of Paper 5 Advanced Accounting are advised to refer the RTP for May, 2017 Examination.

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