GAAP Advisors TASK Weekly Newsletter | 152nd Edition

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Welcome to 152nd Edition of?GAAP Advisors?TASK?Weekly newsletter

It gives me immense pleasure welcoming you to the 152nd edition of?GAAP Advisors?TASK?Weekly newsletter.?I thank all 15900+ subscribers on LinkedIn. A link to the PDF of this edition of the newsletter will be shared. Please add your comments and viewpoint in the PDF for readers to have wider perspective.

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EBOOKS PUBLISHED (Click here to Order All eBooks)

1.?????? 25 Issues and Non-compliance Examples on Ind AS Application

a. ?Volume 1

b. ?Volume 2

c. ?Volume 3

d. Volume 4

e. Volume 5

f.? ?Volume 6

g. Volume 7

2.?????? 51 Issues of Financial Instruments Standards (Ind AS 32, 107 and 109)

a. Volume 1

3.?????? Practical Guide on Material Accounting Policy Information containing analysis of 400+ accounting policies from 18 listed companies’ financial statements

a. Volume 1

Package of all Seven Volumes of 25 Issues and Non-compliance Examples on Ind AS at a discount of 27% | Original price: ?4130 | Discounted price: ?3000. To order this package, click the following link:

https://topmate.io/ca_manish_c_iyer10/706587

Package of all Nine eBooks on Ind AS authored and published by CA Manish C. Iyer at a discount of 27% | Original price: ?6897 | Discounted price: ?5000. To order this package, click the following link:

https://topmate.io/ca_manish_c_iyer10/702101

The views expressed herein are the personal views of the author and are not binding on the reader. The reader is requested to seek the help of an expert before taking any action or refraining from any action based on the views expressed herein.

This edition of newsletter has the following sections:

+? Compensation for Cancellation of Agreement to Sell Land

+ Observation relating to Ind AS 24

+ About Volume 1 of Practical Guide on Material Accounting Policy Information

+ From Practical Guide on Material Accounting Policy Information eBook – Segment Reporting

+ Note of Thanks

Compensation for Cancellation of Agreement to Sell Land - Framework: Indian Accounting Standards:

Facts of the case:

Company X is a listed company which has adopted Ind AS w.e.f. 01.04.2017 with transition date 01.04.2016.

The fixed asset of the company consists of land which was purchased in 5 years ago.

The company had entered into an agreement for sale of this land and received advance of ?5.00 crores.

Now the company has cancelled the agreement and paid ?7.00 crores as out of court settlement including ?2 crores as additional compensation paid.

The company has capitalized this ?2 crore by adding to the carrying amount of the respective land.?

Issue/Query:

What is the accounting treatment for ?2 crores paid as compensation in addition to return of original advance of ?5.00 Cr.

Can it be capitalized to the land or is it to be charged to P&L?

Response:

Paragraph 7 of Ind AS 16?Property, Plant and Equipment?states as under:

“7???????? The cost of an item of property, plant and equipment shall be recognised as an asset if, and only if:

1. It is probable that future economic benefits associated with the item will flow to the entity; and
2. The cost of the item can be measured reliably.”

Paragraph 16 of Ind AS 16 states the elements of cost of an item of property, plant and equipment as under:

“16?????? The cost of an item of property, plant and equipment comprises:

1. Its purchase price, including import duties and non-refundable purchase taxes, after deducting trade discounts and rebates.
2. Any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by the management.
3. The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period.”

The cost incurred by the company as an additional compensation to cancel the agreement for sale is not a cost necessary for making the land capable of operating in the manner intended by the management. The additional compensation paid by the company of Rs.2 crores is for cancelling the agreement to sell. Therefore, the payment of additional compensation for cancelling the agreement to sell shall be recognised as legal expenses in profit or loss and cross referenced to a note in the notes to financial statements explaining the facts and circumstances for incurrence of such an expense.

Click here to Order a copy of all 9 eBooks on Ind AS Original price: ?6897 | Discounted price ?5000

and / or

Book 60-minute online meeting slot for one-on-one consultation with CA Manish C. Iyer on Indian GAAP, Ind AS and IFRS

Observation relating to Ind AS 24:

What has the Company Reported:

A company has disclosed the following in the note on Related Party Disclosures:

Observations:

Paragraph 9 of Ind AS 24, Related Party Disclosures, defines ‘related party’ as follows:

“A related party?is a person or entity that is related to the entity that is preparing its financial statements (in this Standard referred to as the ‘reporting entity’).

(a) A person or a?close member?of that person’s family is related to a reporting entity if that person:

(i) has control or joint control of the reporting entity;

(ii) has significant influence over the reporting entity; or

(iii) is a member of the?key management personnel?of the reporting entity or of a parent of the reporting entity.

(b) An entity is related to a reporting entity if any of the following conditions applies:

(i) The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others).

(ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member).

(iii) Both entities are joint ventures of the same third party.

(iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity.

(v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity.

(vi) The entity is controlled or jointly controlled by a person identified in (a).

(vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

(viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the reporting entity or to the parent of the reporting entity.”

Ind AS 24 does not identify relatives as related party. Ind AS 24 identifies and defines close members of the family of a person as related party. Therefore, the company has not disclosed the related parties in accordance with Ind AS 24.

About Volume 1 of Practical Guide on Material Accounting Policy Information:

Companies following Ind AS will have to publish material accounting policy information in their financial statements for the year ended 31 March 2024. The change is not just a change of heading but requires thorough review of all significant accounting policies published in previous financial statements. If applied in true spirit, material accounting policy information could reduce the accounting policy disclosures by more than one half.

Volume 1 of Practical Guide on Material Accounting Policy Information contains analysis of 400+ accounting policies from published financial statements of 18 listed companies. The book also contains the following annexures:

1.???Clarification from Accounting Standards Board (ASB) of?The Institute of Chartered Accountants of India?on accrual of interest on credit impaired financial assets.

2.????Guideline by Reserve Bank of India on Implementation of Indian Accounting Standards in NBFCs dated 13 March 2020.

3.????National Financial Reporting Authority (NFRA) Circular dated 20 October 2022 on Non-accrual of interest on borrowings by the companies in violation of Indian Accounting Standards

4.????NFRA Circular date 29 March 2023 on Incorrect accounting policies on Revenue and Trade Receivables published by large listed companies.

THE EBOOK CAN BE BOUGHT FROM THE FOLLOWING LINK:

https://topmate.io/ca_manish_c_iyer10/744043

From Practical Guide on Material Accounting Policy Information eBook?– Segment Reporting:

As reported by Company:

Segment Reporting

In accordance with Ind AS 108, Segment Reporting, the Group’s chief operating decision maker (“CODM”) has been identified as the board of directors.

During the previous year, the Company has reorganised its pharmacy distribution business including the online technology platform Apollo 24/7 and the Company’s shareholding in Apollo Medicals Private limited (AMPL) (an associate) to Apollo Healthco Limited, a wholly owned subsidiary of the Company, which was effected on March 16, 2022.

Consequent to the above reorganisation, the company is engaged only in Healthcare business and therefore the Company’s CODM (Chief Operating Decision Maker; which is the Board of Directors of the company) decided to have only one reportable segment as at the March 31, 2023, in accordance with IND AS 108 “Operating Segments”.

(Apollo Hospitals Enterprise Limited Financial Year Ended 31 March 2023)

Analysis for Material Accounting Policy Information:

Primary condition – Accounting policy relates to material transaction, other event or condition:

The company made changes to its segments in the previous year and therefore, segment reporting could influence the economic decisions of users. Accordingly, the primary condition is met.

Secondary conditions – Any one of these need to be met:

• The company changed its accounting policy during the reporting period and this change resulted in a material change to the information in the financial statements – Yes. The company has changed its segments during the previous year.
• The company chose the accounting policy from one or more options permitted by Ind AS – No. Ind AS 108 does not permit choices.
• Accounting policy was developed in accordance with Ind AS 8, Accounting Policies, Changes in Accounting Estimates and Errors – No. Ind AS 108 specifically applies to segment reporting. Therefore, in accordance with paragraph 7 of Ind AS 8, the company shall apply the requirements of Ind AS 108.
• The accounting policy relates to an area for which an entity is required to make significant judgements or assumptions in applying an accounting policy, and the company discloses those judgements or assumptions in accordance with paragraph 122 and 125 of Ind AS 1. – No. The company has not disclosed segment reporting in its note on critical accounting judgements and key sources of estimation uncertainty.
• The accounting is complex such that the company applies more than one Ind AS to a class of material transactions – No. Segment reporting requires the application of only Ind AS 108.
• The disclosure of accounting policy is required by a standard. – Ind AS 108 does not require disclosure of accounting policy on segment reporting.

Conclusion:

As both the primary condition and secondary conditions are met, the company shall disclose the policy on segment reporting. However, the change was made in the financial year ended on 31 March 2022. Therefore, for the year ended 31 March 2024 in which material accounting policy information is to be disclosed, neither the primary nor the secondary condition will be met unless there are further changes. Accordingly, in such a case, the policy on segment reporting shall not be disclosed in material accounting policy information in the financial statements for the year ended 31 March 2024. ?

Note of Thanks

GAAP Advisors?thanks all 15900+ subscribers on LinkedIn and other readers of newsletter for taking their time out in knowing how?GAAP Advisors?enables?Excellence in Financial Reporting in India. I request all readers to kindly add their comments to the PDF of this edition of the newsletter. A link of the PDF of this edition of the newsletter will be shared in the post announcing the publishing of this edition of the newsletter.?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?2900+?registrants?for their faith in the repository services rendered by?GAAP Advisors.

Click here to Order a copy of all 9 eBooks on Ind AS Original price: ?6897 | Discounted price ?5000

and / or

Book 60-minute online meeting slot for one-on-one consultation with CA Manish C. Iyer on Indian GAAP, Ind AS and IFRS