GAAP Advisors - Enabling Excellence in Financial Reporting in India | Twenty Fifth Edition
CA Manish C. Iyer
Financial Reporting Advisor | Ind AS, IFRS and Indian GAAP | Author | Independent Director
Welcome to Twenty Fifth Edition of?GAAP Advisors?TASK?Weekly newsletter
It gives me immense pleasure welcoming you to the Twenty Fifth edition of?GAAP Advisors?TASK?Weekly newsletter.?Hope you have installed GAAP Advisors Android App and took TASK (Test Accounting Standards Knowledge). If not, request you to?Download and Install GAAP Advisors App and Start TASK.?Readers who do not use android mobile can login / register on?https://gaapadvisors.com?and Start?TASK. This edition of newsletter has the following sections:
+ Why register on?GAAP Advisors
+ From?Issue Repository?– Measurement of Investment in Subsidiary that was an Associate measured at Fair Value through Other Comprehensive Income
+ Standards Applied for Responding to Issues This Week
+ From?Review Repository?– Policy on Depreciation
+ From?Accounting Policy Repository
+ From?Key Audit Matters Repository
+ From?Term Repository?- Unbundle
+ Features of?TASK
+?TASK?Statistics at the time of writing this section of newsletter
+?TASK?Ranker no. 1 since morning of 30th May 2022
+ Daily winners for this Week
+ Note of Thanks
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From?Issue Repository?- Measurement of Investment in Subsidiary that was an Associate measured at Fair Value through Other Comprehensive Income -?Issue Id:?4351?- Framework: Indian Accounting Standards (Ind AS):
Facts of the Case
A Ltd subscribed to 25000 shares of B Ltd on 21st Sept, 2011 as subscribers to the memorandum. At Rs.172 (72 Rs. Premium) (50% Stake)
A invested in another 30000 shares at Face Value of Rs. 100 in the year 2013-14. Stake at 50% (As all shareholders invested in the same ratio).
IN standalone financials of A ltd, above investment was shown as FVTOCI and in consolidated accounts, it was treated as associate and equity method of accounting was used.
In the year 2021-22, A ltd acquired balance 50% stake of B ltd at a total consideration of Rs 9 Crs, thus B ltd became wholly owned subsidiary of A ltd.
Addition to above facts:
Business as a whole was valued using Discounted Cash Flow Method. Individual Asset fair value is no available.
Issue/Query
Business as a whole was valued using Discounted Cash Flow Method. Individual Asset fair value is no available. In such situation, how to account for business combination in Separate Financial Statements
GAAP Advisors?Response:
1. Investment in subsidiary, associate and joint ventures are measured either at cost or at fair value in accordance with Ind AS 109, Financial Instruments.
2. A Ltd. measured investment in associate B Ltd. at fair value through other comprehensive income. The querist has not stated the policy followed by A Ltd. for measurement of investment in subsidiary. It could be that A Ltd. measures the investments in subsidiaries either at cost or at fair value in accordance with Ind AS 109.
3. Therefore, A Ltd. may measure investment in B Ltd. either at Fair value or at cost. If A Ltd. decides to measure investment in subsidiary at cost, the fair value as on the date of acquisition of control shall be the deemed cost of the investment as on that date to which the amount of Rs.9 crores shall be added.
Standards Applied while Responding to Issues This Week:
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From?Review Repository?- Policy on Depreciation
What has the company reported? :
The company has reported the following in its policy on Depreciation method, estimated useful life and residual value of Property, Plant and Equipment:
The useful lives have been determined to be equal to those prescribed in Schedule II to the Companies Act; 2013.
GAAP Advisors Observations:
Paragraph 7 of Ind AS 1, Presentation of Financial Statements, explains what could be considered as obscuring as under:
Information is obscured if it is communicated in a way that would have a similar effect for primary users of financial statements to omitting or misstating that information. The following are examples of circumstances that may result in material information being obscured:-
a. information regarding a material item, transaction or other event is disclosed in the financial statements but the language used is vague or unclear;
b. information regarding a material item, transaction or other event is scattered throughout the financial statements;
c. dissimilar items, transactions or other events are inappropriately aggregated;
d. similar items, transactions or other events are inappropriately disaggregated; and
e. the understandability of the financial statements is reduced as a result of material information being hidden by immaterial information to the extent that a primary user is unable to determine what information is material.
Schedule II to the Companies Act, 2013 does not prescribe useful lives of items of property, plant and equipment. The Schedule provides an indicative list of useful lives. Therefore, the statement of the company that useful lives have been determined to be equal to those prescribed in Schedule II to the Companies Act, 2013 gives a message to the reader that the company follows the useful lives indicated in Schedule II as if they have been prescribed by law. This has a similar effect as if the company has not complied with the requirements of Ind AS 16, Property, Plant and Equipment on determination of useful lives. Therefore, the policy is obscuring.
Impacted components due to non-compliance:
Notes
From?Accounting Policy Repository?- Borrowing Costs -?Policy Id:?7276 - Applicable Standards:?Ind AS 23 - Borrowing Costs
General and specific borrowing costs directly attributable to acquisition or construction of qualifying assets (i.e. those Property, Plant & Equipments which necessarily take a substantial period of time to get ready for their intended use) are capitalised. Other borrowing costs are recognised as an expense in the period in which they are incurred.
From?Key Audit Matters Repository?- Key Audit Id: 2222 - Customer Balances: Trade Receivables, Claims Receivable, and Advances Received - Applicable Standards: Ind AS 109 - Financial Instruments and Ind AS 115 - Revenue from Contracts with Customers
Key Audit Matter:
The company's major customer is Government. Receivables and Advances form a major portion of both sides of Balance Sheet. The sale contracts have long gestation periods. This time lapse could create varied interpretations of contract terms on either side, affect appropriate recognition of revenue and presentation of receivable/payables. The company cannot obtain third party confirmation to validate its balance. The process of validating the balances, identifying different categories of claims and appropriate adjustment and retention of advances therefore is considered a key audit matter.
How was the matter addressed by auditor?:
Principal Audit procedures performed include:
a. We validated the sale, service contracts and other claims recognized during the year with appropriate underlying documents.
b. The adjustment of advances to the revenues recognized and claims made were validated with records.
c. The company does not recognize impairment of any receivable based on its past experience. The long pending receivables and claims were confirmed with reference to related communications and management' s reasonable assessment of no impairment.
d. The classification of receivables and advances received into Short Term and Long Term were validated with reference to reasonable management assumptions and past performance
From?Term Repository?- Unbundle:
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TASK?Statistics at the time of writing this section of newsletter
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Note of Thanks
GAAP Advisors?thanks all subscribers and readers of newsletter for taking their time out in knowing how?GAAP Advisors?enables?Excellence in Financial Reporting in India.?GAAP Advisors?thanks all subscribers of repositories for contributing to support the mission of spreading the knowledge and awareness of financial reporting standards in?Collaborative Manner Creating Value For All.?GAAP Advisors?thanks all participants of?TASK?for spending time in learning financial reporting in India.?GAAP Advisors?also thanks all?2300+?registrants?for their faith on the repository services rendered by?GAAP Advisors.
Financial Reporting Advisor | Ind AS, IFRS and Indian GAAP | Author | Independent Director
2 年Pradip Sagar Rokaya Thank you so much for spreading the word on #GAAPAdvisors #TASK. Also have a look and share latest edition: It gives me immense pleasure welcoming you to the Twenty Sixth edition of?#GAAPAdvisors #TASK?Weekly newsletter which also marks the first half year since launch of the newsletter.?This edition of newsletter among other things features the following: 1. From #IssueRepository – Share Application Money for EPS Disclosure 2. From #ReviewRepository – Policy on Trade and Other Payables https://www.dhirubhai.net/pulse/gaap-advisors-enabling-excellence-financial-reporting-iyer-8f/ #GAAPAdvisors - #EnablingExcellenceInFinancialReporting
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Financial Reporting Advisor | Ind AS, IFRS and Indian GAAP | Author | Independent Director
2 年Prakash Saraswat Thank you so much for spreading the word on #GAAPAdvisors #TASK