SBS-Digest-EJournal-Dec-2019

Volume -46 December -2019 Pages 1-18 SBS Interns’ For Private circulation only Digest An attempt to share knowledge By Interns of SBS and Company LLP

SBS Interns' Digest www.sbsandco.com/interns-digest CONTENTS IDT.....................................................................................................................................................1 CANCELLATION OF REGISTRATION UNDER GST........................................................................................................1 DT & ASSURANCE (TAX) ......................................................................................................................5 OVERVIEW ON TAXATION ORDINANCE ................................................................................................................5 DT & ASSURANCE (AUDIT) ................................................................................................................12 AS 1- DISCLOSURE OF ACCOUNTING POLICIES.......................................................................................................12

IDT Contributed by Supriya & Vetted by CA Manindar CANCELLATION OF REGISTRATION UNDER GST Introduction: GST was brought into action on 1st July 2017 which helped to bring several indirect taxes and service charges under one bracket. Every person who is engaged in the supply of Taxable goods or services or both is required to obtain the GST registration as per section 25 in the state where the supply is initiated if the aggregate turnover exceeds 20 lakhs and some persons are compulsorily liable for he GST registration according to section 24 of CGST Act,2017. The registration granted under GST can be cancelled for the specified reasons. The cancellation can either be initiated by the department in its own motion or the registered person can apply for the cancellation on their own. Some times cancellation is initiated by the legal heir in case of death of the taxpayer. However, the option for revocation of cancellation is also provided where the registration is cancelled by the department. This article presents an overview of the procedure for cancellation of the registration to overcome the difficulties, as the cancellation of the registration is not common parlance. Section 29 of Central Goods and Service Tax Act, 2017 conveys the rules and procedure for cancellation of the registration under GST. Cancellation of registration Sub Section Overview (1) Voluntary Cancellation of Registration (2) Suo Moto Cancellation of Registration (3) Prior Period Liability is unaffected (4) Uniformity in the Acts (5) Reversal of ITC 1 |Page

Voluntary Cancellation of Registration: Cancellation of registration under GST The Registered person or legal heir in case of death of such person shall apply for cancellation of registration in the following situations: • Business is discontinued; • Transfer of Business; • Amalgamation or Demerger; • Change in Constitution of the business; or • A person registered isno longer liable to be registered under section 22 or section 241 . Procedure for cancellation of voluntary registration: 1. The Registered person shall electronically apply for cancellation of registration in Form GST REG - 16to the Proper officer within30 days from the occurrence of such event and 2. Shall also furnish the following details such as: • The stock of inputs, semi-finished goods, Finished goods, and capital goods. • Any liability to be discharged and payment made against the same. The Proper Officer shall reply electronically in FORM GST REG-19 within 30 days from the application submitted for the order of cancellation of registration. NOTE: As per rule 20 persons with UIN cannot apply for cancellation of registration under section 29(1). Suo Moto Cancellation of Registration: The Proper Officer may cancel the registration from such date including retrospective effect in the following situations – 1. If the registered person contravened the provisions of the Act such as, • If the registered person does not conduct any business through Principal Place of Business as declared; or • Issuing of invoice or Bill of supply without the supply of goods and services; or • Violates the Anti-Profiteering measures • Violates the provisions of rule 10A2 2. Non-furnishing of returns • The person registered under Section 103 has not furnished the returns for 3 Consecutive tax periods. • A registered person other than Composition dealer had not furnished the returns for 6 months. 3. A Voluntarily registered person had not commenced the business within 6 months from the date of registration. 4. If the registration had been obtained by way of fraud, wilful misstatement or suppression of facts. 1Section 22 - Persons liable for Registration and Section 24 - Compulsory Registration 2Furnishing the Bank Account details and the same is Inserted by Central Goods and Service Tax (Fourth Amendment) Rules 2019 w.e.f 28-06-2019 3Composition Taxpayer 2 |Page

The proper officer shall not cancel the registration without giving the person an opportunity of being Cancellation of registration under GST heard. Procedure for cancellation of Suo Moto Registration: 1. The proper officer shall issue show cause notice to such person in FORM GST REG-17with an Opportunity of being heard. 2. The registered person shall submit the reply to the show-cause notice within 7 days of receipt of such notice in FORM GST REG-18. 3. Situation: 1 The reply furnished to the show cause notice is satisfactory, the proper officer shall drop the proceedings and pass an order in FORM GST REG-20. Situation: 2 If the registered person instead of replying to the SCN’ • Furnishes all the pending returns • Makes full payment of Tax with respective penalty Interest and late fees. The proper officer shall drop the proceedings and pass an order in FORM GST REG-20 Liability before the cancellation of registration: The Cancellation of registration does not effect to pay tax or discharge any obligation under the Act, before the date of cancellation of the registration. Uniformity in the Acts: The Cancellation of registration under any Act4 shall be deemed to be the cancellation of registration under GST. Reversal of ITC: The registered person shall reverse the ITC on Inputs held in stock, and inputs contained in semi-finished or Finished goods held in stock or capital goods/plant and machinery on the day immediately preceding the date of cancellation of registration or the output tax payable on such goods whichever is higher. ITC for inputs held in stock and inputs contained in semi-finished goods and finished goods held in stock shall be calculated proportionately based on corresponding invoices on which credit has been availed by the registered person on such inputs. ITC in case of Capital goods/ Plant and machinery shall be calculated as under; ITC of remaining useful life (assumed life of an asset is 5 years) or Tax on the total value of Capital goods as per section 15 of the CGST Act,2017. Whichever is higher. 4State or union territory Act 3 |Page

Revocation of Cancellation of registration: GCaSnTceolnlaHtioenalothf rceagrisetrsaetriovniceunsder GST The person who received the notice from the department to cancel the registration can apply for revocation of cancellaion of registration to validate the cancelled registration. Revocation of cancellation of registration is applicable only for the persons covered under section 29(2)5 1. The registered person shall apply for revocation of cancellation of registration in FORM GST REG- 21within 30 days from the date of order of cancellation of notice is received. 2. If the cancellation was made for the reason of not filing the returns then he may apply for revocation only once he made all the defaults as good. Reply to the proper officer: If the proper officer satisfied by the submissions, within 30 days the proper officer shall revoke the cancelation of the registration in FORM GST REG-22 and shall communicate the same to the applicant. If the proper officer was not satisfied, he shall issue an SCN for the opportunity of being heard in FORM GST REG-23and the registered person shall submit the reply within 7 working days in FORM GST REG-24. The proper officer shall take the following actions based on the reply: a) If satisfied with the above reply the Proper officer should revoke the cancellation of registration in FORM GST REG-22and b) If the reply provided by the applicant is not satisfactory then the proper officer should reject the revocation of cancellation of registration in FORM GST REG-05. Final return: The person whose registration has been cancelled has to file FORM GSTR-10 within 3 months from the date of cancellation or the order of cancellation whichever is later. 5Suo Moto Cancellation of registration This article is contributed by Supriya, Intern of SBS and Company LLP. The author can be reached at [email protected] 4 |Page

DT & ASSURANCE (TAX) Contributed by Raviraju & Vetted by CA Madhu Sudhan OVERVIEW ON TAXATION ORDINANCE Introduction: • Taxation laws (Amendment) Ordinance was introduced on 20thSeptember 2019 by the Government of India and same was passed in parliament on 2nd December 2019, in order to revive the economy’s GDP and stabilize the growth of the economy • The major focus was on providing tax relief for Domestic companies, Domestic manufacturing companies and Investments in Capital Markets Taxation of Domestic companies: For the Financial year 2018-19, Domestic companies are charged to tax @ 25% and applicable surcharge and Cess if the turnover of the company does not exceed Rs. 250 crores in the financial year 2016-17 and companies having turnover more than Rs. 250 crores are charged to tax @ 30% and applicable surcharge and cess. Tax rates for the FY 2018-19: Particulars Turnover Turnover lessthan Morethan Basic Tax 250 crores* 250 crores* Surcharge Turnover from Rs. 1 crore to Rs. 10 crores 25% 30% Turnover exceeds Rs.10 crores 7% 7% Cess 12% 12% 4% 4% *Base year for turnover criteria is FY 2016-17 From Financial year 2019-20, the turnover limit from Rs. 250crores were increased to Rs. 400 crores Hence companies having turnover less than 400 crores for the financial year 2017-18 will enjoy the benefit of lower taxation as mentioned below 5 |Page

Tax rates for the FY 2019-20: Overview on Taxation Ordinance Particulars Turnover Turnover lessthan Morethan Basic Tax 400 crores* 400 crores* Surcharge Turnover from Rs. 1 crore to Rs. 10 crores 25% 30% Turnover exceeds Rs.10 crores 7% 7% 12% 12% Cess 4% 4% *Base year for turnover criteria is FY 2017-18 Section 115BAA:Taxation on Income of certain Domestic Companies: The Ordinance has inserted a new section –115BAA in the IT Act. As per provisions of Section 115BAA, all domestic companies shall have an option to be taxed at the rate of 22 % (plus applicable surcharge and cess), from the financial year 2019-20,provided such companies should fulfil the conditions. The Effective Tax Rate is 25.17% including surcharge @ 10% irrespective of the turnover and Education Cess and Secondary higher Education Cess of 4% on Income Tax Payable and Surcharge. Conditions to be fulfilled under section 115BAA: 1. Companies should calculate total income without availing following exemptions/incentives: • Deductions available to SEZ units under section 10AA • Additional depreciation under section 32 and investment allowance under section 32AD towards new plant and machinery made in notified backward areas in the states of Andhra Pradesh, Bihar, Telangana, and West Bengal • Deduction under section 33AB for tea, coffee and rubber manufacturing companies • Deposits made in relation to site restoration fund by companies engaged in extraction or production of, petroleum or natural gas or both in India under section 33ABA • Deductions under section 35 relating to scientific research • Capital expenditure incurred under section 35AD • Deductions under section 35CCC and 35CCD related to agriculture extension project and skill development project respectively 2. Provisions of chapter VI-A deductions under heading “C-Deductions in respect of certain incomes” except section 80JJA 3. Without setoff or carry forward of losses which are attributable to the above referred deductions 4. The option must be selected before due date under section 139(1) for the previous year relevant to assessment year 2020-21 5. Option once exercised cannot be withdrawn for the subsequent years or any other previous year 6 |Page

Example based on carry forward of losses: Overview on Taxation Ordinance XYZ ltd is having a loss on account of additional depreciation u/s. 32(1)(ii)(a) and depreciation u/s. 32 of Rs. 6,00,000 and Rs. 2,00,000 respectively. For the FY 2019-20, the company opted for section 115BAA. Now company’s gross total income is Rs. 6,50,000. Answer: The company can set off loss amounting to Rs. 2,00,000 but company is ineligible to claim amount of Rs. 6,00,000 as it resulted from additional depreciation Effective tax rates: Particulars Section Turnover Turnover 115BAA lessthan Morethan Surcharge Basic Tax 400 crores* 400 crores* T.O from 1 crore to 10 crores 22% Effective 10% 25% 30% tax T.O exceeds 10 crores 10% Cess 7% 7% 4% T.O from 1 crore to 10 crores 25.17% 12% 12% T.O exceeds 10 crores 25.17% 4% 4% 27.82% 33.38% 29.12% 35% Example on comparison of section 115BAA and normal provisions:(Turnover < Rs. 400 Cr) Case-1 – available for setoff of carried forward of losses. Particulars Sec. 115BAA Under normal 1,60,00,000 provisions Income from Business 1,60,00,000 Deductions available under section 32, 35AD and brought - forward losses 25,60,000 Taxable Income 1,60,00,000 Tax payable^ 35,20,000 1,34,40,000 Surcharge* 3,52,000 33,60,000 Tax payable after surcharge 38,72,000 2,35,200 Education Cess & Secondary Higher Education @ 4% 1,54,880 35,95,200 Total Tax liability 40,26,880 1,43,808 37,39,008 7 |Page

^Tax rate @ 22% under section 115BAA & 25% under normal tax rates Overview on Taxation Ordinance *10% under section 115BAA & 7% under normal tax rates The total Tax liability under normal tax rates is Rs. 37.39 lakhs which is less than Rs.40.26 lakhs as per the rates prescribed in Section 115BAA, the benefit of Rs. 2.87 lakhs due to set off carryforward losses of previous years available. Case-2- if there are no carried forward losses: Opts for Doesn’t opt for Sec. 115BAA 115BAA Particulars 1,60,00,000 1,60,00,000 Income from Business - Deductions available under section 32, 35AD and brought - forward losses 1,60,00,000 Taxable Income 1,60,00,000 40,00,000 Tax payable^ 35,20,000 2,80,000 Surcharge* 3,52,000 42,80,000 Tax payable after surcharge 38,72,000 1,71,200 Education Cess& Secondary Higher Education @ 4% 1,54,880 44,51,200 Total Tax liability 40,26,880 2,50,000 MAT credit available - 40,62,100 Tax payable 39,01,040 ^Tax rate @ 22% under section 115BAA & 25% under normal tax rates *10% under section 115BAA & 7% under normal tax rates The total Tax liability under normal tax rates is Rs. 40.62 lakhs which is greater than Rs. 39.01 lakhs as per the rates prescribed in Section 115BAA, there will be benefit of Rs. 1.61 lakhs if they opt for section 115BAA as there are no carry forward losses of previous years available From the above example, companies must consider all the deduction/incentives available for the company before opting for section 115AA as once opted cannot be subsequently withdrawn Section 115BAB:Taxation on domestic manufacturing companies In addition to section 115BAA it had introduced section 115BAB in the IT Act for domestic manufacturing companies. As per this section, from the financial year 2019-20, all domestic manufacturing companies shall have an option to be taxed at the rate of 15 percent (plus applicable surcharge and cess), provided such companies do not avail specified exemptions 8 |Page

Tax rates are as follows: Overview on Taxation Ordinance Particulars Basic Tax Surcharge Cess Effective tax Section 115BAB 15% 10% 4% 17.16% Conditions to be fulfilled under section 115BAB: 1. Company which is engaged in manufacture or production of article or thing or research in relation to or distribution of such article or thing and does NOT include following companies: • Development of computer software in any form or media • Mining • Conversion of marble blocks or similar items into slabs • Bottling of gas into cylinder • Printing of books or production of cinematograph film • Any other business as may be notified by the Central Government in this behalf 2. Company Is not formed as result of splitting or reconstruction of business already in existence 3. Company must be incorporated on or after 1st October 2019, and commences production on or before 31st March 2023 4. The plant & machinery used by company must not be used previously for any purpose except: • Where such plant or machinery used outside India • Such machinery or plant is imported into India from any country outside India and no deduction on account of depreciation has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of machinery or plant by the company. • If such plant and machinery was used by any person for any purpose, If the total value of such machinery or plant or part thereof does not exceed twenty per cent of the total value of the machinery or plant used by the company 5. Does not use a building previously used as a hotel or a convention centrein respect of which deduction under Section 80ID of the IT Act is claimed and allowed should not be used by the company. “Hotel” means a hotel of two-star, three-star or four-star category as classified by the Central Government. ‘Convention centre’ means a building of a prescribed area comprising of convention halls to be used for the purpose of holding conferences and seminars, being of such size and number and having such other facilities and amenities, as may be prescribed 6. Companies should calculate total income without below mentioned exemptions/incentives: • Deductions available to SEZ units under section 10AA • Additional depreciation under section 32 and investment allowance under section 32AD towards new plant and machinery made in notified backward areas in the states of Andhra Pradesh, Bihar, Telangana, and West Bengal 9 |Page

• Deduction under section 33AB for tea, coffee and rubber manufacturing companies Overview on Taxation Ordinance • Deposits made in relation to site restoration fund by companies engaged in extraction or production of, petroleum or natural gas or both in India under section 33ABA • Deductions under section 35 relating to scientific research • Capital expenditure incurred under section 35AD • Deductions under section 35CCC and 35CCD related to agriculture extension project and skill development project respectively 7. Provisions of chapter VI-A deductions under heading “C-Deductions in respect of certain incomes” except section 80JJA 8. Without setoff or carry forward of losses which are attributable to the above referred deductions 9. The option must be selected before due date under section 139(1) for the previous year relevant to assessment year 2020-21 10. Option once selected cannot be withdrawn for the subsequent years Specified Domestic transactions: 1. In a case where due to a close connection between the company and any other person, or for any other reason, the business between them is so arranged such that the company earns more than ordinary profits, the assessing officer may ignore the excess profits. The Assessing Officer will take only the amount of profits reasonably deemed to be derived from the business. 2. In a case where the business transaction involves a specified domestic transaction referred to in section 92BA, the profits of the transaction will be determined having regard to the arm’s length price. Clarification by CBDT regarding MAT and allow ability of brought forward losses in case of additional Depreciation: • These sections provide that income should be computed without claiming additional depreciation and without setting of losses carry forwarded attributable to additional depreciation • Section 115JB is not applicable to both 115BAA and 115BAB • MAT credit is also not available for the subsequent years It clarifies that there is no time limit within which the option of 115BAA and 115BAB can be exercised So, the companies can exercise this option after complete utilization of MAT credit and brought forward losses. Section 115JB:The rate of MAT has reduced from 18.5% to 15% 10 | P a g e

Section 115QA: Taxation on buy-back of shares for listed companies: Overview on Taxation Ordinance In Union budget 2019, buy-back of shares by listed companies are bought into ambit of tax under section 115QA of Income Tax Act, 1961. Companies which have announced buy-back of shares after 5th July 2019 are only liable to tax but companies which have announced before 5th July 2019 but approved after 5th July 2019 are not liable to tax. Surcharge on Capital Gain: ?Rate of surcharge was increased from 15% to 25%, If income exceeds 2 crores and 37%, if total income exceeds 5 crores Surcharge on Capital Gain U/s. 111A & U/s. 112A: • Surcharge on capital gains on sale of equity shares and equity-oriented funds were introduced in Union budget 2019 • Later they have withdrawn enhanced surcharge on capital gain on sale of equity shares and Equity oriented funds on which are liable to ST Surcharge rates are as follows: Nature of Up to 5 lakhs From 50 lakhs From 1 crore From 2 cores More than Income to 1 crore to 2 crores to 5 crores 5 crores 15% STCG U/s.111A - 10% 15% 15% 15% LTCG U/s. 112A - 10% 15% 15% 15% - 10% 15% 15% 37% STCG/LTCG U/s. 115AD(1)(b) Other Income - 10% 15% 25% This article is contributed by Raviraju, Intern of SBS and Company LLP. The author can be reached at [email protected] 11 | P a g e

DT & ASSURANCE (AUDIT) Contributed by Vishnu vardhan & Vetted by CA Bhyrav AS 1- DISCLOSURE OF ACCOUNTING POLICIES Accounting Standards Objective for introduction of Accounting Standards: TPrior to Accounting standards, the financial statements (“F/S”) of no two entities are prepared in a similar manner because of no standard procedure for the process of preparation and presentation of financial statements. TAccounting Standards have been introduced with an objective to standardise the accounting practices as this will help in meaningful comparison of financial statements of the entities. TAccounting standards benefits both the entities and users in such a way that entities will be able to raise more funds from investors and users can properly invest their funds because of the comparable financial statements. Applicability of accounting standards: Accounting standards Corporate Non-Corporate entities entities. SMC NON-SMC LEVEL-1 LEVEL-2 LEVEL -3 Based on their amount of turnover & borrowings and their share trading position in the stock exchange market, corporate and non-corporate entities are classified as SMC, Non-SMC, Level-1, Level-2 and Level- 3 categories. Based on their classification, certain accounting standards are exempted for certain entities. • So, it means even though some standards are not applicable to some entities, Accounting standards are applicable to every entity doing business. • So, no entity can escape to follow the compliance of Accounting Standards in the preparation and presentation if Financial statements. 12| P a g e

AS-1: DISCLOSURE OF ACCOUNTING POLICIES AS 1- Disclosure of Accounting Policies Objective: Even though the accounting standards are introduced and made mandatory for each entity, the confusion among users for understanding the financial statements continuedas, TAccounting Standards do not cover all aspects of accounting and TEven in the areas covered by the Accounting Standards, it proposes the use of more than one accounting practice. So, as there are two or more methods of accounting in some areas of accounting, it is better to disclose the accounting methods followed by the entities to facilitate the users to have a meaningful comparison. ULTIMATE OBJECTIVE: To remove confusion among users regarding understanding of the Financial statements. Benefits of disclosure of Accounting Policies. Disclosure helps in TProper understanding of Financial Statements and THave a meaningful comparison of Financial statements among other entities in the same industry. Nature of accounting policies TAccounting policies are the accounting principles and methods adopted by the entity in the preparation and presentation of Financial Statements. Accounting Principle Accounting Method A set of guidelines to prepare the books of A procedure that tells how to prepare the books of accounts accounts Example: Example: Depreciation is to be charged for every SLM method (or) WDV method to calculate such depreciable asset is an accounting principle. depreciation are accounting methods. Both the accounting principle and accounting method used collectively to prepare books are known as accounting policies. 13 | P a g e

TAS 1 deal with disclosure of accounting policies followed in preparation and presentation of Financial AS 1- Disclosure of Accounting Policies Statements. Preparation Presentation Process of aggregating the accounting The prepared financials are presented in such a information into a standardized set of financials. way that they represent true and fair view of the Financial position of the entity Example for accounting policies used in preparation of F/S Example for accounting policies used in Use of FIFO method for valuation of inventories. presentation of F/S Presentation of EPS as basic and diluted EPS as per AS-22 Areas where we can find usage of accounting policies. Valuation of inventories FIFO, Weighted average method, standard cost method Valuation of property, plant and Historical cost method, market value method equipment Revaluation of property, plant and Market value method, Discounted cash flows method equipment Construction contract revenue Completed service contract method, Percentage Treatment of Government grants completion method Treat it as an income (or) Reduce the amount from the cost of asset. CONSIDERATION OF SELECTION OF ACCOUNTING POLICIES 1. Primary considerations 2. Secondary considerations 1. Primary considerations üPolicies selected should give true and fair view to the Financial statements. 2. Secondary considerations üPrudence üSubstance over form üMateriality. 1. Prudence Prudence means being cautious. Business itself includes risk. So, in the event of uncertainty of future events, profits are not anticipated but provision is made for all known liabilities even though the amount cannot be determined with certainty and represents only a better estimate. 14 | P a g e

Instances of usage of Prudence concept in the preparation of Financial statements: AS 1- Disclosure of Accounting Policies • Inventory is valued at lower of cost or NRV by basing on Prudence concept. • Disclosure of Contingent Liability as a foot note to the Balance sheet is based on prudence concept. • As per AS-10, when the asset is relieved from active usage and set for disposal, if market value is less than its book value then the difference between its book value and market value should be immediately debited to P&La/c. This treatment is based on prudence concept. 2. Substance over form The accounting treatment and presentation of transactions and events in the financial statements Substance > Form Example: In lease accounting, choosing of either of the treatments i.e., treating the lease as Finance lease or Operating lease is based on Substance over form concept. Based on the economic reality, if the risks and rewards of such asset are borne by lessee, it is treated as finance lease and depreciation is claimed by lessee even though the asset does not belong to lessee as per the legal agreement. 3. Materiality Financial statements should disclose all material items, i.e., items, the knowledge of which might influence the decisions of the users of financial statements. FUNDAMENTAL ACCOUNTING ASSUMPTIONS 1. Going concern The organisation is normally viewed as a going concern, i.e., it will be in continuing operations for the foreseeable future. It is assumed that the organisation has neither the intention, nor the necessity of shutting down or reducing the scale of operations. • Going concern assumption decides the basis of preparation of books of accounts. Assumption by the entity Basis of preparation Going concern Historical cost basis Not a going concern Liquidation (NRV) basis 15 | P a g e

What is foreseeable future? AS 1- Disclosure of Accounting Policies At least 12 months from the end of the balance sheet period should be taken for assessing whether going concern assumption for the entity is appropriate or not. Example 1: A ltd on 31st march,2019 assessed the entity’s capacity to continue as a going concern and concluded that after 15 months, the entity cannot run its business and it might be get liquidated. So as on 31st march,2019 the assets of F.Y.18-19 shall be valued on historical basis of accounting because the company remains as a going concern for the next 12 months but it has to value its assets at NRV basis for the next financial year because it cannot continue as a going concern after 3 months. Example 2: The Small company is unable to make payments to its creditors due to a very weak liquidity position. The court grants the order of liquidating the company upon the request of one of the company’s creditors. The company is no longer a going concern because sufficient evidence is available to believe that the company cannot continue its operations in future. 2. Consistency It is assumed that accounting policies are consistently followed from one period to another. No frequent changes are expected. Change in accounting policies Accounting policies can be changed only in 2 circumstances i.e., when • A change in accounting policy is required by a statute or for the compliance of an accounting standard (or) • If it is considered that the change would result in a more appropriate presentation of the financial statements. If there is any change in accounting policy followed in the current year with that of the previous year, the following should be disclosed: • The accounting policy changed • The item affected due to such change • The amount affected due to such change • If it is not possible to quantify, then the same should be disclosed • If the change of an accounting policy has no material effect on the financial statements in the current year but materially affect the F/S in the following years, then the fact of such change should be disclosed. 3. Accrual Revenues and costs are recorded when they are earned or incurred (and not as money is received or paid) in the periods to which they relate. 16 | P a g e

Sec 128 of the Companies Act,2013 requires that accrual basis of accounting should be followed for a AS 1- Disclosure of Accounting Policies true and fair view of Financial Statements. Example: XYZ LLP has followed cash basis of accounting and disclosed the same in the Financial statements. The treatment is correct since compulsion to follow accrual basis of accounting is applicable only to companies. As the name itself says that these are fundamental assumptions, it is not necessary to disclose by the entities when they follow these assumptions. They should disclose only when they do not follow these assumptions in the preparation and presentation of F/S. DISCLOSURE OF ACCOUNTING POLICIES TDisclosure should form part of financial statements. TDisclosures should not be spread among the Financial statements. They should be located at one place i.e., Notes to accounts. TDisclosure is not a remedy for wrong or inappropriate accounting. Example 1:A ltd valued its assets based on historical basis even though it is aware that it cannot continue as a going concern in the foreseeable future and disclosed its inappropriate accounting in its financial statements. Explanation: The treatment is not correct since “Disclosure is not a remedy for wrong or inappropriate accounting”. CONCLUSION: Thus AS-1by mandating the entities to disclose all its Significant Accounting Policies, achieve its ultimate objective of removing confusion among the users regarding the better understanding of the Financial Statements. AS-1 doesn’t propose any specific disclosure to be made, but the concepts and the fundamental assumptions prescribed by this standard are applied in all the remaining Accounting Standards and are used for the preparation and presentation of Financial Statements in a true and fair manner. This article is contributed by Vishnu vardhan, Intern of SBS and Company LLP. The author can be reached at [email protected] 17 | P a g e

SBS Interns' Digest www.sbsandco.com/digest SATURDAY SESSIONS S.No. Event Date Speaker Venue 07/12/2019 Gnaneshwar SBS - Hyd 1 Cancellation of Registration under GST SBS - Hyd 14/12/2019 Kanakraj SBS - Hyd 2 ICDS-3 Construction Contract 21/12/2019 Pavani SBS - Hyd 28/12/2019 Monika SBS - Hyd 3 194M- TDS on Payment to Resident Ramya SBS - Hyd Contractors and Professionals Ravi Raju SBS - Hyd Abhinay 4 An overview on PF 5 Special Provisions related to CTP & NRTP 6 Recent amendments in Income Tax Act, 2019 7 Classification of current and Non current Liabilities SESSION TIMINGS: 2:30 to 4:30 PM 194N - TDS on cash withdrawl - Pavani An overview of PF - Monika Cancellation of registration under GST - Gnaneswar Classification of current and Non current liabilities - Abhinay ICDS 3 construction contracts - Kanakraju Recent amendements in Income Tax Act - Raviraju 18 | P a g e

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