GAAP Advisors TASK Weekly Newsletter | 153rd Edition
CA Manish C. Iyer
Financial Reporting Advisor | Ind AS, IFRS and Indian GAAP | Author | Independent Director
Welcome to 153rd Edition of?GAAP Advisors?TASK?Weekly newsletter
It gives me immense pleasure welcoming you to the 153rd 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:
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:
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:
+ Comments on Equity Method Exposure Draft issued by IASB
+ Discounting of Rent Deposit on Extension of Lease Agreement
+ Standards Applied for Responding to Issues This Week
+ Observation relating to Ind AS 1 and Schedule III to the Companies Act, 2013
+ About Volume 1 of Practical Guide on Material Accounting Policy Information
+ From Practical Guide on Material Accounting Policy Information eBook – Investment Property
+ Note of Thanks
Comments on Equity Method Exposure Draft issued by IASB
Our comments on the Equity Method Exposure Draft issued by IASB can be downloaded from the following link:
Discounting of Rent Deposit on Extension of Lease Agreement - Framework: Indian Accounting Standards:
Issue/Query:
In case of rent deposit, whether discounting is required for the extension of lease agreement for 1 year after completion of 3-year lease?
Response:
A rent deposit is a financial asset measured at amortised cost in accordance with paragraph 4.1.2 of Ind AS 109. The concern of the querist is how to account for the extension of the lease agreement from 3 years to 4 years. The extension is done after the end of 3 years. The extension of the lease term results in modification of cash flows. The entity was to receive the rent deposit at the end of three years which is now extended to 4 years.
Paragraph 5.4.3 of Ind AS 109 states as under:
“When the contractual cash flows of a financial asset are renegotiated or otherwise modified and the renegotiation or modification does not result in the derecognition of that financial asset in accordance with this Standard, an entity shall recalculate the gross carrying amount of the financial asset and shall recognise a modification gain or loss in profit or loss. The gross carrying amount of the financial asset shall be recalculated as the present value of the renegotiated or modified contractual cash flows that are discounted at the financial asset’s original effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impaired financial assets) or, when applicable, the revised effective interest rate calculated in accordance with paragraph 6.5.10. Any costs or fees incurred adjust the carrying amount of the modified financial asset and are amortised over the remaining term of the modified financial asset.”
Therefore, the gross carrying value of the rent deposit shall be recalculated as the present value of the modified cash flow discounted at the rent deposit’s original effective interest rate. Accordingly, discounting of rent deposit is required for the extension of lease agreement for 1 year after the completion of 3 years. However, the concept of materiality is pervasive to the entire financial statements.
Paragraph 8 of Ind AS 8?Accounting Policies, Changes in Accounting Estimates and Errors?states as under:
“Ind ASs set out accounting policies that result in financial statements containing relevant and reliable information about the transactions, events and conditions to which they apply. These policies need not be applied when the effect of applying them is immaterial. However, it is inappropriate to make, or leave uncorrected, immaterial departures from Ind ASs to achieve a particular presentation of an entity’s financial position, financial performance or cash flows.”
Therefore, the company must consider the materiality aspect while applying the requirements of paragraph 5.4.3 of Ind AS 109 stated above. In the given case, it is likely that the present value of the rent deposit is not materially different from the undiscounted amount of rent deposit being the extension is only for 1 year.
Standards Applied for Responding to Issues Submitted on https://gaapadvisors.com This Week:
·?????? Ind AS 27 – Separate Financial Statements
o?? Total No. of Issues in Issue Repository: 85
·?????? Ind AS 103 – Business Combinations
o?? Total No. of Issues in Issue Repository: 189
·?????? Ind AS 110 – Consolidated Financial Statements
o?? Total no. of Issues in Issue Repository: 138
and / or
Observation relating to Ind AS 1 and Schedule III to the Companies Act, 2013:
What has the Company Reported:
A company has disclosed the following in the Other Comprehensive Income section of the Statement of Profit and Loss:
Observations:
Paragraph 90 of Ind AS 1, Presentation of Financial Statements, states as follows:
“An entity shall disclose the amount of income tax relating to each item of other comprehensive income, including reclassification adjustments, either in the statement of profit and loss or in the notes.”
The company has not presented the income tax relating to each item of other comprehensive income in the statement of profit and loss. Therefore, the company would have disclosed the same in notes.
Paragraph 113 of Ind AS 1 states as follows:
“An entity shall present notes in a systematic manner. In determining a systematic manner, the entity shall consider the effect on the understandability and comparability of its financial statements. An entity shall cross-reference each item in the balance sheet and in the statement of profit and loss, and in the statements of changes in equity and of cash flows to any related information in the notes.”
Sub-clause ii of Clause 4 of General Instructions for Preparation of Financial Statements of a Company required to comply with Ind AS of Division II of Schedule III to the Companies Act, 2013 states as follows:
“(ii) Each item on the face of the Balance Sheet, Statement of Changes in Equity and Statement of Profit and Loss shall be cross-referenced to any related information in the Notes. In preparing the Financial Statements including the Notes, a balance shall be maintained between providing excessive detail that may not assist users of Financial Statements and not providing important information as a result of too much aggregation.”
The company has not cross-referenced the other comprehensive income section of the Statement of Profit and Loss and the note disclosing the details required by paragraph 90 of Ind AS 1. Therefore, the company has not complied with the requirements of Ind AS 1 and Schedule III to the Companies Act, 2013.
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:
From Practical Guide on Material Accounting Policy Information eBook?– Investment Property:
As reported by Company:
Investment Property
Property which is held for long-term rental yields or for capital appreciation or both, and that is not occupied by the Company, is classified as investment property. Investment property is measured initially at its cost, including related transaction costs. Subsequent expenditure is capitalised to the asset’s carrying amount only when it is probable that future economic benefits associated with the expenditure will flow to the Company and the cost of the item can be measured reliably. Repairs and maintenance costs are expensed when incurred.
Depreciation on investment property is provided on a pro rata basis on straight line method over the estimated useful lives. Useful life of assets, as assessed by the Management, corresponds to those prescribed by Schedule II- Part ‘C’ of the Companies Act, 2013.
(Bajaj Auto 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 has disclosed investment property in Balance Sheet and therefore, the primary condition is met.
Secondary conditions – Any one of these need to be met:
Conclusion:
As both primary and secondary conditions are met, the company shall disclose the policy on investment property in material accounting policy information. For this purpose, the company may remove the following:
·?????? Properties classified as investment property
·?????? Capitalisation of subsequent expenditures
·?????? Accounting for repairs and maintenance expenses
The company has specified that the useful life is prescribed by Schedule II. This is not true. Schedule II provides an indicative list of useful life. The company may correct its policy in this regard.
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.
and / or
Financial Reporting Advisor | Ind AS, IFRS and Indian GAAP | Author | Independent Director
1 周CA Anurag Gupta Thank you so much for spreading the word
Financial Reporting Advisor | Ind AS, IFRS and Indian GAAP | Author | Independent Director
1 周Vikram Prajapati Thank you so much for spreading the word
Financial Reporting Advisor | Ind AS, IFRS and Indian GAAP | Author | Independent Director
1 周Nilanjan Paul Thank you so much for spreading the word
Financial Reporting Advisor | Ind AS, IFRS and Indian GAAP | Author | Independent Director
1 周vidhyadhar kulkarni, Dr. Ashok Kumar Dubey, SAI GOWTHAM SHRAVAN ...P, Moses Mudavanhu Paradza and Avinash Singh Enrolled Agent Pursuing Thank you so much for spreading the word