income computation and disclosure standards by ca ankit n. anjaria rajkot branch of wirc of icai...
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INCOME COMPUTATION INCOME COMPUTATION AND DISCLOSURE AND DISCLOSURE
STANDARDSSTANDARDS
bybyCA ANKIT N. ANJARIACA ANKIT N. ANJARIA
Rajkot Branch of WIRC of ICAIRajkot Branch of WIRC of ICAIOctober 10, 2015October 10, 2015
CA ANKIT N. ANJARIA CA ANKIT N. ANJARIA Income Computation & Disclosure Standards Income Computation & Disclosure Standards
10/10/2015 Rajkot Branch of WIRC of ICAI10/10/2015 Rajkot Branch of WIRC of ICAI
BasicsBasics Empowered under section 145(2) of the Income Tax Act, Empowered under section 145(2) of the Income Tax Act,
19611961 14 Draft standards were issued in August 2012 and public 14 Draft standards were issued in August 2012 and public
comments were invitedcomments were invited 10 ICDS issued by CBDT to be made effective from 10 ICDS issued by CBDT to be made effective from
Financial Year 2015-2016 and Asst. Year 2016-2017Financial Year 2015-2016 and Asst. Year 2016-2017 These apply only for the computation of Income from These apply only for the computation of Income from
Business and Profession and Income from Other SourcesBusiness and Profession and Income from Other Sources Applies to all assessees irrespective of whether corporate Applies to all assessees irrespective of whether corporate
or non corporateor non corporate These have already been notified and are effective vide These have already been notified and are effective vide
Notification dated March 31, 2015Notification dated March 31, 2015 Till now there were only 2 standards on Accouting Policies Till now there were only 2 standards on Accouting Policies
and Prior Period Itemsand Prior Period Items Applies only to those following the mercantile system of Applies only to those following the mercantile system of
accountingaccounting
CA ANKIT N. ANJARIA CA ANKIT N. ANJARIA Income Computation & Disclosure Standards Income Computation & Disclosure Standards
10/10/2015 Rajkot Branch of WIRC of ICAI10/10/2015 Rajkot Branch of WIRC of ICAI
ICDS No Name of the Standard
Equivalent Ind AS Equivalent AS
I Accounting Policies 1 & 8 1 II Valuation of
Inventories 2 2
III Construction Contract
11 7
IV Revenue Recognition
18 9
V Tangible Fixed Asset
16 10
VI Effects of changes in foreign exchange rates
21 11
VII Government Grants 20 12 VIII Securities 32 30 IX Borrowing Costs 23 16 X provisions,
contingent liabilities and contingent assets
37 29
CA ANKIT N. ANJARIA CA ANKIT N. ANJARIA Income Computation & Disclosure Standards Income Computation & Disclosure Standards
10/10/2015 Rajkot Branch of WIRC of ICAI10/10/2015 Rajkot Branch of WIRC of ICAI
ICDS 9 – Borrowing Costs
Deals with borrowing costs and not with equity and Preference Capital
Borrowing Costs are interest and other costs incurred in connection with the borrowing of funds and includes: commitment charges ; amortised amount of discounts/premium ; amortised amount of ancillary costs ; finance charges under finance lease
Term interest is not defined under the ICDS. Under Income Tax Act, it means interest on money borrowed as well as debt incurred.
CA ANKIT N. ANJARIA CA ANKIT N. ANJARIA Income Computation & Disclosure Standards Income Computation & Disclosure Standards
10/10/2015 Rajkot Branch of WIRC of ICAI10/10/2015 Rajkot Branch of WIRC of ICAI
ICDS 9 – Borrowing Costs
Qualifying asset means land, building, plant and machinery, know-how, patents or any similar commercial assets
Also includes inventories that require a period of 12 months or more to bring them into saleable condition
Borrowing Costs relating to the acquisition and construction of the qualifying asset is to be added to the cost of the asset
Borrowing Costs to be recognised on the on the cost of the asset.
If funds are borrowed for general purpose and proportion is to be recognised on a pro-rata basis as per formula given in the ICDS
CA ANKIT N. ANJARIA CA ANKIT N. ANJARIA Income Computation & Disclosure Standards Income Computation & Disclosure Standards
10/10/2015 Rajkot Branch of WIRC of ICAI10/10/2015 Rajkot Branch of WIRC of ICAI
ICDS 9 – Borrowing Costs
Incase of the specific borrowing, the capitalisation should commence from the date of the borrowing
Incase of the general purpose borrowing, the capitalisation should commence from the date of the utilisation
The capitalisation should cease on the date the asset is out to use or substantial activities to bring the into saleable condition are completed
The term substantial activities has not been defined
CA ANKIT N. ANJARIA CA ANKIT N. ANJARIA Income Computation & Disclosure Standards Income Computation & Disclosure Standards
10/10/2015 Rajkot Branch of WIRC of ICAI10/10/2015 Rajkot Branch of WIRC of ICAI
ICDS 9 – Borrowing Costs
TRANSITIONAL PROVISIONS
Borrowing costs to be capitalised after adjusting the capitalisation already accounted for prior to 31 March 2015
DISCLOSURESAccounting policy adopted ; capitalisation in previous yearDisclosures in Form 3CD
CA ANKIT N. ANJARIA CA ANKIT N. ANJARIA Income Computation & Disclosure Standards Income Computation & Disclosure Standards
10/10/2015 Rajkot Branch of WIRC of ICAI10/10/2015 Rajkot Branch of WIRC of ICAI
ICDS 9 – Borrowing Costs
Applies only to the amortised portion of the costs. What about the unamortised portion such as upfront fees
Does not make a mention of the effects of foreign exchange fluctuations
Is goodwill a commercial right?
What about the income received from temporary investment of the borrowed funds? Can the same be reduced from the capitalisation?
Mix of specific and general funds used
Land is a qualifying asset under the ICDS, but ICDS applies only to Income from Business and Profession and Other Sources, but the profit on sale of land is taxed under Capital Gains
Changes in the carrying amount of the Asset – How to disclose in Form 3CD
CA ANKIT N. ANJARIA CA ANKIT N. ANJARIA Income Computation & Disclosure Standards Income Computation & Disclosure Standards
10/10/2015 Rajkot Branch of WIRC of ICAI10/10/2015 Rajkot Branch of WIRC of ICAI
ICDS 10 – Provisions, Contingent Liabilities and Contingent Assets
Does not deal with Contingent Assets and Liabilities arising from financial instruments ; executory contracts in insurance business and others if covered by another ICDS (Construction Contracts ; Forex Transactions ; Securities)
Provision is a liability which can be measured with a substantial degree of estimation
Contingent Liability is a possible obligation arising out of a past event. The obligation is confirmed by a future uncertain event
Contingent Asset is a possible asset arising out of a past event. The obligation is confirmed by a future uncertain event
CA ANKIT N. ANJARIA CA ANKIT N. ANJARIA Income Computation & Disclosure Standards Income Computation & Disclosure Standards
10/10/2015 Rajkot Branch of WIRC of ICAI10/10/2015 Rajkot Branch of WIRC of ICAI
ICDS 10 – Provisions, Contingent Liabilities and Contingent Assets
Provision shall be recognised only when there is a reliable estimate that there will be an outflow of economic resources. Provision on account of new law, to be made only when it is actually enacted.
No provision to be made for the operating expenses in future
Contingent liabilities shall not be recognised
Contingent Assets not to be recognised.
All such provisions shall be reviewed at the end of the year and to be adjusted to reflect the best possible estimate.
The same should be reviewed at each year end
CA ANKIT N. ANJARIA CA ANKIT N. ANJARIA Income Computation & Disclosure Standards Income Computation & Disclosure Standards
10/10/2015 Rajkot Branch of WIRC of ICAI10/10/2015 Rajkot Branch of WIRC of ICAI
ICDS 10 – Provisions, Contingent Liabilities and Contingent Assets
TRANSITIONAL PROVISIONS
Provisions to be recognised after adjusting the capitalisation already accounted for prior to 31 March 2015
DISCLOSURESOpening Balance, Additions, Deletions and Closing BalanceDisclosures in Form 3CD
CA ANKIT N. ANJARIA CA ANKIT N. ANJARIA Income Computation & Disclosure Standards Income Computation & Disclosure Standards
10/10/2015 Rajkot Branch of WIRC of ICAI10/10/2015 Rajkot Branch of WIRC of ICAI
ICDS 10 – Provisions, Contingent Liabilities and Contingent Assets
What about warranties?
Reimbursement to be received in future
Provisions for contingencies required by law – Eg. RBI
THANK YOU
CA ANKIT N. ANJARIA CA ANKIT N. ANJARIA Income Computation & Disclosure Standards Income Computation & Disclosure Standards
10/10/2015 Rajkot Branch of WIRC of ICAI10/10/2015 Rajkot Branch of WIRC of ICAI