CU-MCOM-SEM-III-International Financial Reporting Standards

INTERNATIONAL FINANCIAL REPORTING STANDARDS MCM501 INTERNATIONAL FINANCIAL REPORTING STANDARDS MCM501

CHANDIGARH UNIVERSITY Institute of Distance and Online Learning Course Development Committee Prof. (Dr.) R.S.Bawa Pro Chancellor, Chandigarh University, Gharuan, Punjab Advisors Prof. (Dr.) Bharat Bhushan, Director – IGNOU Prof. (Dr.) Majulika Srivastava, Director – CIQA, IGNOU Programme Coordinators & Editing Team Master of Business Administration (MBA) Bachelor of Business Administration (BBA) Coordinator – Dr. Rupali Arora Coordinator – Dr. Simran Jewandah Master of Computer Applications (MCA) Bachelor of Computer Applications (BCA) Coordinator – Dr. Raju Kumar Coordinator – Dr. Manisha Malhotra Master of Commerce (M.Com.) Bachelor of Commerce (B.Com.) Coordinator – Dr. Aman Jindal Coordinator – Dr. Minakshi Garg Master of Arts (Psychology) Bachelor of Science (Travel &Tourism Management) Coordinator – Dr. Samerjeet Kaur Coordinator – Dr. Shikha Sharma Master of Arts (English) Bachelor of Arts (General) Coordinator – Dr. Ashita Chadha Coordinator – Ms. Neeraj Gohlan Academic and Administrative Management Prof. (Dr.) R. M. Bhagat Prof. (Dr.) S.S. Sehgal Executive Director – Sciences Registrar Prof. (Dr.) Manaswini Acharya Prof. (Dr.) Gurpreet Singh Executive Director – Liberal Arts Director – IDOL © No part of this publication should be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording and/or otherwise without the prior written permission of the authors and the publisher. SLM SPECIALLY PREPARED FOR CU IDOL STUDENTS Printed and Published by: TeamLease Edtech Limited www.teamleaseedtech.com CONTACT NO:01133002345 For: CHANDIGARH UNIVERSITY Institute of Distance and Online Learning 2 CU IDOL SELF LEARNING MATERIAL (SLM)

First Published in 2021 All rights reserved. No Part of this book may be reproduced or transmitted, in any form or by any means, without permission in writing from Chandigarh University. Any person who does any unauthorized act in relation to this book may be liable to criminal prosecution and civil claims for damages. This book is meant for educational and learning purpose. The authors of the book has/have taken all reasonable care to ensure that the contents of the book do not violate any existing copyright or other intellectual property rights of any person in any manner whatsoever. In the event the Authors has/ have been unable to track any source and if any copyright has been inadvertently infringed, please notify the publisher in writing for corrective action. CONTENT 3 CU IDOL SELF LEARNING MATERIAL (SLM)

Unit – 1 Introduction To International Accounting........................................................... 5 Unit – 2 International Sources Of Authority ................................................................... 11 Unit – 3 Accounting Standards......................................................................................... 19 Unit – 4 Reporting And Presentation ............................................................................... 31 Unit – 5 Ias Relating To Income ....................................................................................... 37 Unit – 6 Ias Relating To Assets - I .................................................................................... 50 Unit – 7 Ias Relating To Assets-Ii ..................................................................................... 68 Unit – 8 Ias Relating To Assets-Ii ..................................................................................... 84 Unit – 9 Ias Relating To Liabilities................................................................................... 98 Unit – 10 Ias Relating To Group Accounts .................................................................... 137 Unit – 11 Ias Relating To Disclosure And Analysis I ..................................................... 145 Unit – 12- Ias Relating To Disclosure And Analysis Ii................................................... 152 4 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT – 1 INTRODUCTION TO INTERNATIONAL ACCOUNTING Structure 1.0. LearningObjectives 1.1. Introduction 1.2. Worldwide accounting diversity 1.3. Importance of Accounting Standards 1.4. International convergence to IFRS 1.5. Summary 1.6. Keywords 1.7. Learning Activity 1.8. Unit End Questions 1.9. References 1.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Explain Worldwide accounting diversity.  State Financial Reporting.  Evaluate the significance of Accounting Standards.  Analyze brief idea on History of IFRS.  Evaluate International convergence to IFRS. 1.1 INTRODUCTION A Standard is an established norm or requirement for a repeatable task. It is usually a formal document that establishes uniform criteria, methods, processes, and practices. Accounting Standards are extension to the basic rules for accounting. Anyone, who starting accounting courses will first study the Golden Rules and Fundamental Accounting Assumptions & Principles. These principles are at grassroot level and provide basic skeleton for field of accountancy. Accounting Standard is a set of Rules and Guideline that regulates and standardizes Accounting Systems. Accounting Standards provide a uniform framework to ensure that the Financial Statements of businesses are meaningful and standardized to bring in comparability so that interpreting and understanding them would be easy. 5 CU IDOL SELF LEARNING MATERIAL (SLM)

1.2 WORLDWIDE ACCOUNTING DIVERSITY Accounting Diversity implies to the variations in recording and preparation of financial statements and usage of such information. While many corporates do business with the inconsistencies without reducing the scale business operations, the problems affect major business dealings, including assessing a company’s net worth and the way managers make business decisions under the Generally Accepted Accounting Principles (GAAP) and Standards. The fact that there are major international differences in accounting practices is not obvious to all accountants, let alone to non-accountants. The latter may see accounting as synonymous with double entry, which is indeed similar universally. Much of this unit investigates the major differences in accounting. Some examples are given. As a prelude to this, we try to identify the likely causes of the differences. It is not possible to be sure that the factors discussed below cause them, but a relationship can be established, and reasonable deductions made. Financial Reporting: Financial reporting refers to standard practices to give stakeholders a precise description of a company’s finances, involving their revenues, expenses, profits, capital, and cash flow, as formal records that provide in-depth insights into financial information. Financial reporting provides insight into company’s performance. This information is beneficial in 2 ways: 1. Compliance with regulatory requirements 2. Internally assess performance to plan and adjust the forecast. IFRS financial statements consist of:  a statement of financial position (balance sheet)  a statement of comprehensive income. This may be presented as a single statement or with a separate statement of profit and loss and a statement of other comprehensive income.  a statement of changes in equity  a statement of cash flows  notes, including a summary of the significant accounting policies. Comparative information is required for the prior reporting period. 6 CU IDOL SELF LEARNING MATERIAL (SLM)

1.3 IMPORTANCE OF ACCOUNTING STANDARDS Accounting Standards plays a highly effective role in the whole accounting system. Various crucial roles of Accounting Standards are discussed below: 1. Brings Uniformity in Accounting System 2. Easy Comparability of Financial Statements 3. Assists Auditors 4. Makes Accounting Informative Easy & Simple 5. Avoids Frauds & Manipulations 6. Provides Reliability to Financial Statements. 7. Measures Management Performance 1.4 INTERNATIONAL CONVERGENCE TO IFRS Convergence of IFRS is important for the industry as well. The concept of convergence can be understood with the following example. Consider a scenario where a Global Conglomerate must follow different reporting standards in different countries. This will be a tedious process. To have a harmonized system and to have easier reporting and comparability it is important that these accounting systems in different countries are in same line. For a scenario where Inventories are valued using FIFO method in country X and LIFO method in Country Y, the overall group financial statements cannot reflect true and fair view of the financial performance. There is a common phrase “one cannot measure the ability of fish by testing its running skill.” True to this statement wherein a scenario of different accounting approach mentioned above, globalization will be of great trouble. Highly developed nations will not consider towards moving to developing countries due to new accounting environment. This will impact global trade and market expansion. To achieve this standardized accounting norms, the countries which has accepted to the convergence need to re-align the country specific Accounting standards with IFRS. This will allow the industry to lower the cost of foreign capital. If companies are not burned by adopting two different sets of standards it will allow them easier entry into the market. Convergence will benefit the users of the financial statements as well. The comparability is highly increased. 1.5 SUMMARY The path towards IFRS convergence with the Country Specific Accounting standards is undoubtedly a complicated task. All stakeholders should concur & convince themselves of 7 CU IDOL SELF LEARNING MATERIAL (SLM)

the benefits that would amass once the standards are converged. Most significantly, this will increase credibility of the local businesses in the International financial market & they will reap significant benefit out of it. Local businesses cannot afford to be complacent any further as developing nations have already been lagging behind. The process of convergence & transition has been slow as of now and if required Local businesses may seek help and advice from counterparts in advanced countries who were successful. The Government of these countries should set up a task force, which will recommend changes in existing laws facilitate regulatory compliance and monitor implementation to ensure completion by the agreed timelines. In India to go in line with IFRS Convergence, the Ind AS – a set of accounting standards notified by Ministry of Corporate Affairs (MCA), converged with International Financial Reporting Standards (IFRS) have been issued. These accounting standards are formulated by Accounting Standard Board (ASB) of Institute of Chartered Accountants of India (ICAI). Indian Accounting Standards are almost similar to IFRS but with few carve outs so as to make them suitable for Indian Environment. Till now, MCA has notified 35 Ind AS and step by step convergence from 1st April 2017 has been initiated. 1.6 KEY WORDS  IFRS – International Financial Report Standards  GAAP – Generally Accepted Accounting Principles.  IAS – International Accounting Standards.  FIFO – First in First Out.  LIFO – Last in First Out.  Convergence - Moving toward union or uniformity. 1.7 LEARNING ACTIVITY 1. Understand the impact of Convergence of IFRS in context of Developing Nation. ___________________________________________________________________________ _______________________________________________________________ 2. Lean about Ind AS ___________________________________________________________________________ _______________________________________________________________ 1.8 UNIT END QUESTIONS A. Descriptive Questions Short Questions 8 CU IDOL SELF LEARNING MATERIAL (SLM)

1. IFRS Financial Statements comprises of? 2. What is Financial Reporting? 3. IFRS is baby step towards globalization. Discuss 4. In context of India, what is the role of government towards IFRS Convergence? 5. Explain in brief the world-wide accounting environment prior to introduction of IFRS. Long Questions 1. Explain the diversity present in world-wide accounting. 2. Discuss the Convergence of IFRS, Pros and Cons 3. What is the importance of having uniform reporting framework? 4. Comparability, a criterion for convergence. Critically analyse. 5. In context of uniform reporting framework, interpret the role of government and various stakeholders. B. Multiple ChoiceQuestions 9 1. IFRS Means? a. International Framework for Reporting Software b. Interglobal Financial Reporting Section c. International Functional Reporting Standards d. International Financial Reporting Standards. 2. Comparative information is to be provided for a. Current and Previous Reporting Period b. Current Year and Next Year c. Current Year and Previous Year d. Actual Data and Budgeted Data 3. After convergence with IFRS, what is the role of Country Specific Standards? a. Ceases to exist. b. Co-Exist c. Need to be Re-Aligned with IFRS CU IDOL SELF LEARNING MATERIAL (SLM)

d. Entities’ Choice can use either of the two. 4. Financial Reporting provides insight into company’s _________ a. Performance b. Revenue Projection c. Sales Forecasting d. Profitability Ratios 5. Boogle an American Tech Giant wants to setup Branches in India. Which accounting standards applies to them? a. IFRS b. Ind-AS c. IGAAP d. None of these Answers 1 – d, 2 – a, 3 – c, 4 – a, 5 – b 1.9 REFERENCES Textbooks:  Doupnik, T. and Perera, H., International Accounting, McGraw-Hill.  International Financial Reporting Standards, Vol. I & II, Taxman Publications. Reference Books:  Nobes, C. and Parker, R., Comparative International Accounting, Prentice Hall.  Rathore, S., International Accounting, Prentice Hall India.  Saudagaran, S. M. International Accounting: A User Perspective, CCH, Inc. Website:  www.ifrs.org  www.mca.gov.in  www.icai.org 10 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT – 2 INTERNATIONAL SOURCES OF AUTHORITY Structure 2.0. LearningObjectives 2.1. Introduction 2.2. International sources of authority 2.3. The standard setting processes. 2.4. International harmonization 2.5. Summary 2.6. Key words 2.7. Learning Activity 2.8. Unit End Questions 2.9. References 2.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Identify International Accounting Bodies and their scope of work.  Explain Standard Setting Process  Evaluate the significance of IFRS Convergence.  Evaluate the scope of Accounting Standards in India.  Remember timeline for convergence of IFRS with Indian AS. 2.1 INTRODUCTION International Financial Reporting Standards, generally referred as IFRS, are accounting standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB). They create a standardized way of reporting the company’s financial performance and position so that company financial statements are understandable and comparable across nations. They are particularly relevant for companies with shares or securities listed on a public stock exchange. IFRS have replaced many different national accounting standards around the world but have not replaced the separate accounting standards in the United States where US GAAP

is applied. 2.2 INTERNATIONAL SOURCES OF AUTHORITY The International Accounting Standards Committee (IASC) was founded in June 1973 by accountancy bodies on behalf of ten countries. It developed and issued International Accounting Standards (IAS), explanations and a conceptual framework. These were looked to by many national accounting standard-setters in creating country specific Accounting standards. In 2001 the International Accounting Standards Board (IASB) replaced the IASC with a responsibility to bring about convergence between Country Specific Accounting Standards through the development of Global Accounting Standards. During its first meeting the new Board adopted existing IAS and Standing Interpretations Committee standards (SICs). The IASB has continued to issue new standards calling the new standards \"International Financial Reporting Standards\" (IFRS). In 2002 the European Union (EU) announced that, from 1 January 2005, International Financial Reporting Standards would apply for the consolidated accounts of the EU listed companies, making the initiation of IFRS applicability to many large entities. Other countries have since followed the lead of the EU. US GAAP remains separate from IFRS. The Securities Exchange Committee (SEC) requires the use of US GAAP by domestic companies with listed securities and does not permit them to use IFRS; US GAAP is also used by some companies in Japan and the rest of the world. In 2002 IASB and the Financial Accounting Standards Board (FASB), the body supporting US GAAP, announced a program known as the Norwalk Agreement that aimed at eliminating differences between IFRS and US GAAP.[10] In 2012 the SEC announced that it expected separate US GAAP to continue for the foreseeable future but sought to encourage further work to align the two standards. IFRS is sometimes described as principles-based, as opposed to a rules-based approach in US GAAP; so, in US GAAP there is more instruction in the application of standards to specific examples and industries. 2.3 THE STANDARD SETTING PROCESSES Accounting Standards plays a highly effective role in the whole accounting system. the objective of Standard setting Process is to develop or amend a Standard. The IFRS Foundation and IASB conducts Research project Discussion Paper and feedback gathering and based on sufficient evidence and in consultation with ASAF, Advisory Council and national standard setters, the foundation issues Standards. The Board has various ways of obtaining input on technical and other issues including: (a) Discussion Papers. 12 CU IDOL SELF LEARNING MATERIAL (SLM)

(b) Exposure Drafts. (c) Requests for Views and Requests for Information. (d) discussion forums and roundtables; and (e) outreach meetings. The IFRS foundation and IASB follows the following process to issue a standard: 1. Setting the Agenda 2. Planning the project 3. Developing and Publishing the discussion paper 4. Developing and Publishing the Exposure Draft 5. Developing and publishing the standard 6. Hold regular meeting with stakeholders for fine tuning and subsequent revisions. Setting the Agenda: The IASB identifies a subject (mainly by reference to the needs of the investors). For instance, the IASB issued IAS 18 and IAS 11 were issued for recognition of revenue and Construction Contracts, respectively. As there was variation and difference of accounting treatment in different standards. The IFRS Foundation issued IFRS 15, Recognition of Revenue from contracts with customers. The new standard encompassed the requirement of the previous standards and provided exhaustive recognition and measurement guidelines. Discussion Paper: A Discussion Paper typically includes a comprehensive overview of the issue, possible approaches to addressing the issue, the preliminary views of its author or the Board and an invitation to comment. The Discussion should reflect and convey differences in views of the Board members. Exposure Draft: An Exposure draft typically includes the proposed requirements or amendments, The Basis for Conclusions for the proposal and Any dissenting views to the proposal. The Board seeks formal feedback for determining whether a discussion paper or an exposure draft is appropriate on new Standards and amendments to Standards. As noted above, the Board also considers whether to seek public feedback on the evidence gathered in a research project. The nature of the information being sought should determine the approach used. Projects evolve over time; the thinking of interested parties and those affected by a project also evolves. A solid understanding and agreement on core topics, before a project is too far advanced, can help create consensus and ultimate acceptability of a new Standard or major amendment. As the project progresses, the Board develops requirements based on underlying concepts and approaches established earlier in the project. Any change to those underlying 13 CU IDOL SELF LEARNING MATERIAL (SLM)

concepts and approaches requires the implications to be considered for the later decisions and the effect of the changes on the interrelationships between decisions to be re-evaluated. Thus, the impact of new ideas becomes progressively more significant. Accordingly, it can be useful to accept wide- ranging discussions and ideas in early stages to ensure there is sufficient evidence to support the approach the Board chooses to take. Typically, a project would have 3 number of phases:  Idea generation  Idea implementation  Refinement 2.4 INTERNATIONAL HARMONIZATION International Harmonization of Accountancy means enhancing the degree of agreement in accounting standards and practices between participating nations. IFRS Standards are adopted in more than 140 jurisdictions and permitted in many parts of the world, including South Korea, Brazil, the European Union, India, Hong Kong, Australia, Malaysia, Pakistan, GCC countries, Russia, Chile, Philippines, Kenya, South Africa, Singapore, and Turkey. In a simplest way harmonization means not only creating uniformity by lessening alternatives and differences in techniques by setting specific bounds but to embrace a blending and merging the elements of accounting practices of various countries into an orderly structure. The financial analysts are of the belief that international multiplicity in accounting Principles and Practices has enough potentiality to obliterate the international flow of capital. The Investors are also laying stress for harmonization as they wish that financial information should not only be comprehensible but comparable also. The IFRS Foundation also develops and maintains the IFRS Taxonomy. The IFRS Taxonomy contains of elements that can be used to tag disclosures in financial statements prepared using IFRS Standards. Tagging makes information computer-readable and, therefore, more accessible to investors and other users of electronic company financial reports. The eXtensible Business Reporting Language (The IFRS Foundation also develops and maintains the IFRS Taxonomy. The IFRS Taxonomy consists of elements that can be used to tag disclosures in financial statements prepared using IFRS Standards. Tagging makes information computer-readable and, therefore, more accessible to investors and other users of electronic company financial reports. The eXtensible Business Reporting Language (XBRL) is used to represent and deliver IFRS Taxonomy content.) is used to represent and deliver IFRS Taxonomy content. National standard setting authority and timetable for convergence with IFRS The International Forum of Independent Audit Regulators (IFIAR) is a globally constituted 14 CU IDOL SELF LEARNING MATERIAL (SLM)

organization comprising independent audit regulators from 54 Countries. The increasing frauds and corporate scandals and the impact it has on investors, who tend to lose their life savings have led to constitution of such Global Regulatory Authorities. IFIAR's objective is to serve the public interest and boost stakeholder’s safety by improving accounting and auditing efficiency globally. IFIAR was established in Paris in 2006. Its members are audit regulators and supervisors from the continents of Africa, Asia, Europe, North and South America and Oceania. National Financial Reporting Authority (NFRA) is an independent regulator to supervise the Accounting Profession and Accounting Standards in India under Companies Act 2013. It was formed in October 2018. As per Section 132 of Companies Act 2013, \"NFRA is responsible for recommending accounting and auditing policies and standards in the country, undertaking investigations, and imposing sanctions against defaulting auditors and audit firms in the form of monetary penalties and debarment from practice for up to 10 years.\" The Standing Committee on Finance proposed the concept of the National Financial Reporting Authority (NFRA) for the first time in its 21st report. Companies Act, 2013 then gave the regulatory framework for its composition and constitution. The Union Cabinet approved the proposal for its establishment on 1st March 2018. It was constituted on 1st October 2018 by the Government of India. The establishment of NFRA as an independent regulator for the auditing profession will improve the transparency and reliability of financial statements and information presented by listed companies and large unlisted companies in India. The NFRA has the power to investigate and conduct quality reviews for a certain prescribed class of companies. They would include the following class of companies: 1. Companies listed in India. 2. Unlisted Companies whose: a. Net worth ≥ Rs. 500 crores; or b. Paid up Capital ≥ Rs. 500 crores; or c. Annual turnover ≥ Rs. 1000 crore (As on 31st March of the preceding financial year); OR d. Companies whose securities are listed outside India. 2.5 SUMMARY  International Financial Reporting Standards, commonly called IFRS, are accounting standards issued by the IFRS Foundation and the International Accounting Standards Board (IASB)  The Accounting Standards are issued for brings a standardized way of reporting the 15 CU IDOL SELF LEARNING MATERIAL (SLM)

company’s financial performance and position.  International Harmonization of Accountancy means enhancing the degree of agreement in accounting standards and practices between participating nations in IFRS Convergence.  The International Forum of Independent Audit Regulators (IFIAR) is a globally constituted organization comprising independent audit regulators from 54 Countries.  National Financial Reporting Authority (NFRA) is an independent regulator to supervise the Accounting Profession and Accounting Standards in India under Companies Act 2013 2.6 KEY WORDS  IFRIC – International Financial Reporting Interpretations Committee  SIC – Standing Interpretations Committee.  NFRA – National Financial Reporting Authority.  IFIAR – International Forum of Independent Audit Regulators.  IASB – International Accounting Standards Board.  XBRL – eXtensible Business Reporting Language. 2.7 LEARNING ACTIVITY 1. Learn more about NFRA and record your observation, for implementation of NFRA in full scale. ___________________________________________________________________________ _______________________________________________________________ 2. Lean about XBRL reporting in context of Indian companies. ___________________________________________________________________________ _______________________________________________________________ 2.8 UNIT END QUESTIONS A. Descriptive Questions Short Question 1. What is Exposure Draft? 2. What is Discussion Paper? 3. Examine the applicability of IFRS in United States of America. 16 CU IDOL SELF LEARNING MATERIAL (SLM)

4. What are the advantages of Taxonomies? 5. Which class of companies is NFRA applicable? Long Questions 1. Explain in detail the standard setting process. 2. Discuss the need for NFRA. 3. Having uniform reporting framework increases comparability. Critically Analyse. 4. Explain International Harmonization. 5. Distinguish between Exposure Draft and Discussion Paper. B. Multiple ChoiceQuestions 17 1. XBRL Means? a. Xtensible Business Result List b. Xtra Business Report List c. eXtensible Business Reporting Language d. eXtraordinary Business Reporting Language 2. Section 132 of Companies Act, 2013 speaks about a. Accounting Standards b. National Financial Reporting Authority c. Annual Auditing Requirements d. Accounting Principles and Double entry System 3. ________ is an international independent audit regulator. a. IFIAR. b. IASB c. FASB d. IFRS Foundation. 4. _________ makes information computer readable. a. XBRL CU IDOL SELF LEARNING MATERIAL (SLM)

b. IFRS c. Taxonomy d. Tagging 5. Standard setting process has _________ number of phases? a. Three b. Two c. Four d. Six Answers 1 – c, 2 – b, 3 – a, 4 – d, 5 – a 2.9 REFERENCES Textbooks:  Doupnik, T. and Perera, H., International Accounting, McGraw-Hill.  International Financial Reporting Standards, Vol. I & II, Taxman Publications. Reference Books:  Nobes, C. and Parker, R., Comparative International Accounting, Prentice Hall.  Rathore, S., International Accounting, Prentice Hall India.  Saudagaran, S. M. International Accounting: A User Perspective, CCH, Inc. Website:  www.ifrs.org  www.mca.gov.in  www.icai.org 18 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT – 3 ACCOUNTING STANDARDS Structure 3.0. LearningObjectives 3.1. Introduction 3.2. Accounting Standards 3.3. Interpretation & Guidance Notes issued by ICAI. 3.4. Application of Accounting Aspects 3.5. Summary 3.6. Keywords 3.7. Learning Activity 3.8. Unit End Questions 3.9. References 3.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  State the Accounting Standards  Remember list of Accounting Standards.  Introduction to IND AS  Examine Interpretations and guidance notes issued by ICAI.  Apply various accounting aspects of Accounting. 3.1 INTRODUCTION Accounting standards are authoritative standards for financial reporting and are the primary source of generally accepted accounting principles (GAAP). Accounting standards specify how transactions and other events are to be recognized, measured, presented, and disclosed in financial statements. Publicly traded companies typically are subject to the most rigorous standards. Small and midsized businesses often follow more simplified standards, plus any specific disclosures required by their specific lenders and shareholders. 3.2 ACCOUNTING STANDARDS 19 CU IDOL SELF LEARNING MATERIAL (SLM)

Indian Accounting Standard (abbreviated as Ind-AS) is the Accounting standard adopted by companies in India and issued under the supervision of Accounting Standards Board (ASB) which was constituted as a body in the year 1977. ASB is a committee under Institute of Chartered Accountants of India (ICAI) which consists of representatives from government department, academicians, other professional bodies viz. ICAI, representatives from ASSOCHAM, CII, FICCI, etc. ICAI is an independent body formed under an act of parliament. The Ind AS are named and numbered in the same way as the International Financial Reporting Standards (IFRS). National Financial Reporting Authority (NFRA) recommend these standards to the Ministry of Corporate Affairs (MCA). MCA has to spell out the accounting standards applicable for companies in India. As on date MCA has notified 41 Ind AS. This shall be applied to the companies of financial year 2015-16 voluntarily and from 2016-17 on a mandatory basis. Based on the international consensus, the regulators will separately notify the date of implementation of Ind-AS for the banks, insurance companies etc. Standards for the computation of Tax has been notified as ICDS in February 2015. India followed accounting standards from Indian Generally Acceptable Accounting Principle (IGAAP) prior to adoption of the Ind-AS. Ind As No. Name of Indian Accounting Standard Ind AS 101 First time adoption of Ind AS Ind AS 102 Share Based Payment Ind AS 103 Business Combination Ind AS 104 Insurance Contracts Ind AS 105 Non-Current Assets Held for Sale and Discontinued Operations Ind AS 106 Exploration for and Evaluation of Mineral Resources 20 CU IDOL SELF LEARNING MATERIAL (SLM)

Ind As No. Name of Indian Accounting Standard Ind AS 107 Financial Instruments: Disclosures Ind AS 108 Operating Segments Ind AS 109 Financial Instruments Ind AS 110 Consolidated Financial Statements Ind AS 111 Joint Arrangements Ind AS 112 Disclosure of Interests in Other Entities Ind AS 113 Fair Value Measurement Ind AS 114 Regulatory Deferral Accounts Ind AS 115 Revenue from Contracts with Customers (Applicable from April 2018) Ind AS 116 Leases (Applicable from April 2019) Ind AS 1 Presentation of Financial Statements Ind AS 2 Inventories Ind AS 7 Statement of Cash Flows 21 CU IDOL SELF LEARNING MATERIAL (SLM)

Ind As No. Name of Indian Accounting Standard Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors Ind AS 10 Events occurring after Reporting Period Ind AS 11 Construction Contracts (Omitted by the Companies (Indian Accounting Standards) Amendment Rules, 2018) Ind AS 12 Income Taxes Ind AS 16 Property, Plant and Equipment Ind AS 17 Leases (Omitted by the Companies (Indian Accounting Standards) Amendment Rules,2019) Ind AS 18 Revenue (Omitted by the Companies (Indian Accounting Standards) Amendment Rules, 2018) Ind AS 19 Employee Benefits Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance Ind AS 21 The Effects of Changes in Foreign Exchange Rates Ind AS 23 Borrowing Costs Ind AS 24 Related Party Disclosures 22 CU IDOL SELF LEARNING MATERIAL (SLM)

Ind As No. Name of Indian Accounting Standard Ind AS 27 Separate Financial Statements Ind AS 28 Investments in Associates and Joint Ventures Ind AS 29 Financial Reporting in Hyper inflationary Economies Ind AS 32 Financial Instruments: Presentation Ind AS 33 Earnings per Share Ind AS 34 Interim Financial Reporting Ind AS 36 Impairment of Assets Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets Ind AS 38 Intangible Assets Ind AS 40 Investment Property Ind AS 41 Agriculture The first series of Ind AS was issued in line with IAS issued by IASB. As and when the IAS are replaced with IFRS, Ind AS is issued in series of 100. 3.3. INTERPRETATION & GUIDANCE NOTES ISSUED BY ICAI. ICAI, Institute of Chartered Accountants of India has issued interpretation and guidance notes on Accounting Standards as ASI – Accounting Standard Interpretation. The accounting 23 CU IDOL SELF LEARNING MATERIAL (SLM)

standard interpretation and guidance note provides explanation on specific issues in an accounting standard. Accounting Standard Interpretation:  ASI 1, Substantial Period of Time (AS 16)  Revised ASI 3, Accounting for Taxes on Income in the situations of Tax Holiday under sections 80-IA and 80-IB of the Income-tax Act, 1961 (Re.: AS 22)  ASI 4, Losses under the head Capital Gains (Re.: AS 22)  ASI 5, Accounting for Taxes on Income in the situation of Tax Holiday under Sections 10A and 10B of the Income-tax Act, 1961 (Re.: AS 22)  ASI 6, Accounting for Taxes on Income in the context of Section 115JB of the Income- tax Act, 1961 (Re.: AS 22)  ASI 7, Disclosure of deferred tax assets and deferred tax liabilities in the balance sheet of a company (Re.: AS 22)  ASI 8, Interpretation of the term ‘Near Future’ (Re.: AS 21, AS 23 and AS 27)  ASI 9, Virtual certainty supported by convincing evidence (Re.: AS 22)  ASI 10, Interpretation of paragraph 4(e) of AS 16 (Re.: AS 16)  ASI 12, Applicability of AS 20 (Re.: AS 20)  ASI 13, Interpretation of paragraphs 26 and 27 of AS 18 (Re.: AS 18)  ASI 14, Disclosure of Revenue from Sales Transactions (Re.: AS 9)  ASI 15, Notes to the Consolidated Financial Statements (Re.: AS 21)  ASI 16, Treatment of Proposed Dividend under AS 23 (Re.: AS 23)  ASI 17, Adjustments to the Carrying Amount of Investment arising from Changes in Equity not Included in the Statement of Profit and Loss of the Associate (Re.: AS 23)  ASI 18, Consideration of Potential Equity Shares for Determining whether an Investee is an Associate under AS 23 (Re.: AS 23)  ASI 19, Interpretation of the term ‘intermediaries’ (Re.: AS 18)  Revised ASI 20, Disclosure of Segment Information (Re.: AS 17)  ASI 21, Non-Executive Directors on the Board - whether related parties (Re.: AS 18)  ASI 22, Treatment of Interest for determining Segment Expense (Re.: AS 17)  ASI 23, Remuneration paid to key management personnel - whether a related party transaction (Re.: AS 18) 24 CU IDOL SELF LEARNING MATERIAL (SLM)

 ASI 24, Definition of ‘Control’ (Re.: AS 21)  ASI 25, Exclusion of a subsidiary from consolidation (Re.: AS 21)  ASI 26, Accounting for taxes on income in the consolidated financial statements (Re.: AS 21)  ASI 27, Applicability of AS 25 to Interim Financial Results (Re.: AS 25)  ASI 28, Disclosure of parent’s/venturer’s shares in post-acquisition reserves of a subsidiary/jointly controlled entity (Re.: AS 21 and AS 27)  ASI 29, Turnover in case of Contractors’ (Re.: AS 7 (revised 2002) Guidance Notes:  Guidance Note on Accrual Basis of Accounting  Guidance Note on Accounting by E-commerce Entities  Guidance Note on Applicability of AS 25 and Measurement of Income Tax Expense for Interim Financial Reporting (Revised 2020)  Guidance Note on Accounting for Share-based Payments (Revised 2020)  Guidance Note on Accounting for Oil and Gas Producing Activities (Ind AS)  Guidance Note on Combined and Carve–Out Financial Statements (September 2016)  Guidance Note on Accounting for Depreciation in companies in the context of Schedule II to the Companies Act, 2013  Guidance Note on Accounting for Derivative contracts (Issued 2015)  Guidance Note on Accounting for Expenditure on Corporate Social Responsibility Activities (Issued May 15, 2015)  Guidance Note on Accounting for Oil and Gas Producing Activities (revised 2013)  Guidance Note on Accounting for Corporate Dividend Tax  Guidance Note on Accounting Treatment for Excise Duty  Guidance Note on Accounting for State-level Value Added Tax  Guidance Note on Accounting by Schools  Guidance Note on Accounting for Credit Available in Respect of Minimum Alternative Tax under the Income-tax Act, 1961  Guidance Note on Accounting for Real Estate Transactions (Revised 2012)  Guidance Note on Accounting Treatment for MODVAT/CENVAT 25 CU IDOL SELF LEARNING MATERIAL (SLM)

 Guidance Note on Turnover in case of Contractors  Guidance Note on Accounting for Rate Regulated Activities  Guidance Note on Accounting for Self-generated Certified Emission Reductions (CERs) (Issued 2012)  Guidance Note on Accounting and Auditing of Political Parties 3.4. APPLICATION OF ACCOUNTING ASPECTS Accounting standards ensure the financial statements from multiple companies are comparable. Because all entities follow the same rules, accounting standards make the financial statements credible and allow for more economic decisions based on accurate and consistent information. The Ministry of Corporate Affairs (MCA), in 2015, had notified the Companies (Indian Accounting Standards (IND AS)) Rules 2015, which stipulated the adoption and applicability of IND AS in a phased manner beginning from the Accounting period 2016-17. The MCA has since issued three Amendment Rules, one each in year 2016, 2017, and 2018 to amend the 2015 rules. The IND AS are basically standards that have been harmonized with the IFRS to make reporting by Indian companies more globally accessible. Since Indian companies have a far wider global reach now as compared to earlier, the need to converge reporting standards with international standards was felt, which has led to the introduction of IND AS. Phases of adoption MCA has notified a phase-wise convergence to IND AS from current accounting standards. IND AS shall be adopted by specific classes of companies based on their Net worth and listing status. Let’s see the each of the phases in detail below: Phase I Mandatory applicability of IND AS to all companies from 1st April 2016, provided: It is a listed or unlisted company. Its Net worth is greater than or equal to Rs. 500 crores* *Net worth shall be checked for the previous three Financial Years (2013-14, 2014-15, and 2015-16). Phase II Mandatory applicability of IND AS to all companies from 1st April 2017, provided: It is a listed company or is in the process of being listed (as on 31.03.2016) Its Net worth is greater than or equal to Rs. 250 crores but less than Rs. 500 crores (for any of 26 CU IDOL SELF LEARNING MATERIAL (SLM)

the below mentioned periods). Net worth shall be checked for the previous four Financial Years (2014-14, 2014-15, 2015- 16, and 2016-17) Phase III Mandatory applicability of IND AS to all Banks, NBFCs, and Insurance companies from 1st April 2018, whose: Net worth is more than or equal to INR 500 crore with effect from 1st April 2018. IRDA (Insurance Regulatory and Development Authority) of India shall notify the separate set of IND AS for Banks & Insurance Companies with effect from 1st April 2018. NBFCs include core investment companies, stockbrokers, venture capitalists, etc. Net Worth shall be checked for the past 3 financial years (2015-16, 2016-17, and 2017-18) Phase IV All NBFCs whose Net worth is more than or equal to INR 250 crore but less than INR 500 crore shall have IND AS mandatorily applicable to them with effect from 1st April 2019. If IND AS become applicable to any company, then IND AS shall automatically be made applicable to all the subsidiaries, holding companies, associated companies, and joint ventures of that company, irrespective of individual qualification of such companies. In case of foreign operations of an Indian Company, the preparation of stand-alone financial statements may continue with its jurisdictional requirements and need not be prepared as per the IND AS. However, these entities will still have to report their IND AS adjusted numbers for their Indian parent company to prepare consolidated IND AS accounts. 3.5 SUMMARY  Accounting standards are authoritative standards for financial reporting and are the primary source of generally accepted accounting principles (GAAP).  Indian Accounting Standard (abbreviated as Ind-AS) is the Accounting standard adopted by companies in India.  The Ind AS are named and numbered in the same way as the International Financial Reporting Standards (IFRS).  ICAI, Institute of Chartered Accountants of India has issued interpretation and guidance notes on Accounting Standards.  The Ministry of Corporate Affairs (MCA), in 2015, had notified the Companies (Indian Accounting Standards (IND AS)) Rules 2015, which stipulated the adoption and applicability of IND AS in a phased manner beginning from the Accounting 27 CU IDOL SELF LEARNING MATERIAL (SLM)

period 2016-17. 3.6 KEY WORDS  ICAI – Institute of Chartered Accountants of India  ASB – Accounting Standards Board  ASI – Accounting Standards Interpretation  MCA – Ministry of Corporate Affairs  Ind AS – Indian Accounting Standards  XBRL – eXtensible Business Reporting Language. 3.7 LEARNING ACTIVITY 1. Learn more about NFRA and record your observation, for implementation of NFRA in full scale. ___________________________________________________________________________ _______________________________________________________________ 2. Lean about XBRL reporting in context of Indian companies. ___________________________________________________________________________ _______________________________________________________________ 3.8 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is Exposure Draft? 2. What is Discussion Paper? 3. Examine the applicability of IFRS in United States of America. 4. What are the advantages of Taxonomies? 5. Which class of companies is NFRA applicable? Long Question 1. Explain in detail the standard setting process. 2. Discuss the need for NFRA. 3. Having uniform reporting framework increases comparability. Critically Analyse. 4. Explain International Harmonization. 28 CU IDOL SELF LEARNING MATERIAL (SLM)

5. Distinguish between Exposure Draft and Discussion Paper. 29 B. Multiple ChoiceQuestions 1. XBRL Means? a. Xtensible Business Result List b. Xtra Business Report List c. eXtensible Business Reporting Language d. eXtraordinary Business Reporting Language 2. Section 132 of Companies Act, 2013 speaks about a. Accounting Standards b. National Financial Reporting Authority c. Annual Auditing Requirements d. Accounting Principles and Double entry System 3. ________ is an international independent audit regulator. a. IFIAR. b. IASB c. FASB d. IFRS Foundation. 4. _________ makes information computer readable. a. XBRL b. IFRS c. Taxonomy d. Tagging 5. Standard setting process has _________ number of phases? a. Three b. Two c. Four CU IDOL SELF LEARNING MATERIAL (SLM)

d. Six Answers 1 – c, 2 – b, 3 – a, 4 – d, 5 – a 3.9 REFERENCES Textbooks:  Doupnik, T. and Perera, H., International Accounting, McGraw-Hill.  International Financial Reporting Standards, Vol. I & II, Taxman Publications. Reference Books:  Nobes, C. and Parker, R., Comparative International Accounting, Prentice Hall.  Rathore, S., International Accounting, Prentice Hall India.  Saudagaran, S. M. International Accounting: A User Perspective, CCH, Inc. Website:  www.ifrs.org  www.mca.gov.in  www.icai.org 30 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT – 4 REPORTING AND PRESENTATION Structure 4.0. LearningObjectives 4.1. Introduction 4.2. Preparation and presentation of financial statements-according to IFRS 4.3. Accounting policies as per IFRS 4.4. Changes in accounting estimates and errors as per IFRS 4.5. Summary 4.6. Learning Activity 4.7. Unit End Questions 4.8. References 4.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Remember reporting framework under IFRS.  Explain reporting requirements in IFRS.  Evaluate the changes in accounting estimates as per IFRS.  Evaluate the framework of Accounting Standards.  Understand the accounting estimates as per IFRS. 4.1 INTRODUCTION The Framework is concerned with general purpose financial reports including consolidated financial statements. Such financial reports are prepared and presented at least annually and are directed toward the common information needs of a wide range of users. 4.2. PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS-ACCORDING TO IFRS The Framework's purpose is to assist the IASB in developing and revising IFRSs that are based on consistent concepts, to help preparers to develop consistent accounting policies for areas that are not covered by a standard or where there is choice of accounting policy, and to assist all parties to understand and interpret IFRS. In the absence of a Standard or an Interpretation that specifically applies to a transaction, 31 CU IDOL SELF LEARNING MATERIAL (SLM)

management must use its judgement in developing and applying an accounting policy that results in information that is relevant and reliable. In making that judgement, IAS 8.11 requires management to consider the definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses in the Framework. This elevation of the importance of the Framework was added in the 2003 revisions to IAS 8. The Framework is not a Standard and does not override any specific IFRS. If the IASB decides to issue a new or revised pronouncement that is in conflict with the Framework, the IASB must highlight the fact and explain the reasons for the departure in the basis for conclusions. The Framework addresses:  the objective of general-purpose financial reporting  qualitative characteristics of useful financial information  financial statements and the reporting entity  the elements of financial statements  recognition and derecognition  measurement presentation  disclosure concepts of capital and capital maintenance 4.3 ACCOUNTING POLICIES AS PER IFRS Accounting policies are the specific principles and procedures implemented by a company's management team that are used to prepare its financial statements. These include any accounting methods, measurement systems, and procedures for presenting disclosures. Accounting policies differ from accounting principles in that the principles are the accounting rules, and the policies are a company's way of adhering to those rules. Accounting policies are a set of standards that govern how a company prepares its financial statements. These policies are used to deal specifically with complicated accounting practices such as depreciation methods, recognition of goodwill, preparation of research and development (R&D) costs, inventory valuation, and the consolidation of financial accounts. These policies may differ from company to company, but all accounting policies are required to conform to generally accepted accounting principles (GAAP) and/or international financial reporting standards (IFRS). Accounting principles can be thought of as a framework in which a company is expected to operate. However, the framework is somewhat flexible, and a company's management team can choose specific accounting policies that are advantageous to the financial reporting of the company. Because accounting principles are lenient at times, the specific policies of a 32 CU IDOL SELF LEARNING MATERIAL (SLM)

company are particularly important. Looking into a company's accounting policies can signal whether management is conservative or aggressive when reporting earnings. This should be considered by investors when reviewing earnings reports to assess the quality of earnings. Also, external auditors who are hired to review a company's financial statements should review the company's policies to ensure they conform to GAAP. 4.4 CHANGES IN ACCOUNTING ESTIMATES AND ERRORS AS PER IFRS Accounting Policies, Changes in Accounting Estimates and Errors is applied in selecting and applying accounting policies, accounting for changes in estimates and reflecting corrections of prior period errors. When accounting for business transactions, there will be times when an estimate must be used. In some cases, those estimates prove to be incorrect, in which case a change in accounting estimate is warranted. A change in estimate is needed when there is a change that:  Affects the carrying amount of an existing asset or liability, or  Alters the subsequent accounting for existing or future assets or liabilities. Changes in estimate are a normal and expected part of the ongoing process of reviewing the status and future benefits and obligations related to assets and liabilities. A change in estimate arises from the appearance of new information that alters the existing situation. Conversely, there can be no change in estimate in the absence of new information. The following are situations where there is likely to be a change in accounting estimate:  Allowance for doubtful accounts  Reserve for obsolete inventory  Changes in the useful life of depreciable assets  Changes in the salvage values of depreciable assets  Changes in the amount of expected warranty obligations When there is a change in estimate, account for it in the period of change. If the change affects future periods, then the change will likely have an accounting impact in those periods, as well. A change in accounting estimate does not require the restatement of earlier financial statements, nor the retrospective adjustment of account balances. If the effect of a change in estimate is immaterial (as is usually the case for changes in reserves and allowances), do not disclose the alteration. However, disclose the change in estimate if the amount is material. Also, if the change affects several future periods, note the effect on income from continuing operations, net income, and per share amounts. 33 CU IDOL SELF LEARNING MATERIAL (SLM)

4.5 SUMMARY  The Framework is concerned with general purpose financial reports including consolidated financial statements.  The Framework's purpose is to assist the IASB in developing and revising IFRSs that are based on consistent concepts, to help preparers to develop consistent accounting policies for areas that are not covered by a standard or where there is choice of accounting policy, and to assist all parties to understand and interpret IFRS.  If the IASB decides to issue a new or revised pronouncement that is in conflict with the Framework, the IASB must highlight the fact and explain the reasons for the departure in the basis for conclusions.  Accounting policies are the specific principles and procedures implemented by a company's management team that are used to prepare its financial statements.  Accounting Policies, Changes in Accounting Estimates and Errors is applied in selecting and applying accounting policies, accounting for changes in estimates and reflecting corrections of prior period errors. 4.6 LEARNING ACTIVITY 1. Learn more about NFRA and record your observation, for implementation of NFRA in full scale. ___________________________________________________________________________ _______________________________________________________________ 2. Lean about XBRL reporting in context of Indian companies. ___________________________________________________________________________ _______________________________________________________________ 4.7 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. What is Exposure Draft? 2. What is Discussion Paper? 3. Examine the applicability of IFRS in United States of America. 4. What are the advantages of Taxonomies? 5. Which class of companies is NFRA applicable? 34 CU IDOL SELF LEARNING MATERIAL (SLM)

Long Questions 1. Explain in detail the standard setting process. 2. Discuss the need for NFRA. 3. Having uniform reporting framework increases comparability. Critically Analyse. 4. Explain International Harmonization. 5. Distinguish between Exposure Draft and Discussion Paper. B. Multiple ChoiceQuestions 35 1. XBRL Means? a. Xtensible Business Result List b. Xtra Business Report List c. eXtensible Business Reporting Language d. eXtraordinary Business Reporting Language 2. Section 132 of Companies Act, 2013 speaks about a. Accounting Standards b. National Financial Reporting Authority c. Annual Auditing Requirements d. Accounting Principles and Double entry System 3. ________ is an international independent audit regulator. a. IFIAR. b. IASB c. FASB d. IFRS Foundation. 4. _________ makes information computer readable. a. XBRL b. IFRS c. Taxonomy CU IDOL SELF LEARNING MATERIAL (SLM)

d. Tagging 5. Standard setting process has _________ number of phases? a. Three b. Two c. Four d. Six Answers 1 – c, 2 – b, 3 – a, 4 – d, 5 – a 4. REFERENCES Textbooks:  Doupnik, T. and Perera, H., International Accounting, McGraw-Hill.  International Financial Reporting Standards, Vol. I & II, Taxman Publications. Reference Books:  Nobes, C. and Parker, R., Comparative International Accounting, Prentice Hall.  Rathore, S., International Accounting, Prentice Hall India.  Saudagaran, S. M. International Accounting: A User Perspective, CCH, Inc. Website:  www.ifrs.org  www.mca.gov.in  www.icai.org 36 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT –5 IAS RELATING TO INCOME Structure 5.0. LearningObjectives 5.1. Introduction 5.2. Scope& Objectives of IFRS 15 5.2.1 Scope of IFRS 15 5.2.2 Objectives of IFRS 15 5.3. Five Step Model for recognition of Revenue 5.4. Appendix 5.5. Adoption of IFRS 15 5.6. Summary 5.7. Learning Activity 5.8. Unit End Questions 5.9. References 5.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Identify the accounting treatment for Revenue arising from sale of goods & rendering services to a customer. 5.1 INTRODUCTION IFRS 15(herein after referred as ‘the Standard’) is an International Financial Reporting Standard (IFRS) decreed by the International Accounting Standards Board (IASB) for providing guiding principles on accounting for revenue from contracts with customers. It was initially adopted in 2014 and became effective from 1st January 2018. It was the subject of a joint project with the Financial Accounting Standards Board (FASB), which issues accounting guidance in the United States, and the guidance is substantially similar between the two boards. The Standard establishes a complete framework for recognition of revenue from contracts with customers based on a central principle that an entity should recognize revenue representing the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. 37 CU IDOL SELF LEARNING MATERIAL (SLM)

The Standard also necessitates the accounting for the incremental costs of obtaining a contract with a customer and the costs incurred to fulfill a contract with a customer. The Standard introduces a five-step model for revenue recognition that Shifts the Light on the “transfer of control” rather than the “transfer of risks and rewards”. 5.2 SCOPE& OBJECTIVES OF IFRS 15 The Standard specifies how and when an entity will recognise revenue as well as requiring such entities to offer users of financial statements with more informative, relevant disclosures. The first choice an entity needs to make is to determine whether the particular arrangement /contract / transaction is within the scope of the Standard. Objectives of the Standard:  Revenue is a key metric for many entities.  IFRS 15 introduces a new five step model for the timing and amount of revenue.  Your stakeholders/investors will want to understand the impact on your business. The standard brings in a single, principles based five-step model to be applied to all contracts with customers. 5.2.1 Scope of the Standard: All contracts with customers are within the scope of the Standard, subject to these specific exceptions:  Lease contracts as referred in IAS 17 - Leases.  Insurance contracts as referred in IFRS 4 - Insurance Contracts.  Financial instruments and other contractual rights or obligations within the as per IFRS 9 Financial Instruments (IAS 39 Financial Instruments: Recognition and Measurement), IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IAS 27 Separate Financial Statements and IAS 28 Investments in Associates and Joint Ventures  Non-Monetary trades amongst Companies in the similar line of business to enable expansion of Trade to customers or prospective customers. 5.2.2 Objectives of the Standards A main purpose of the project to develop IFRS 15 was that, although revenue is a critical metric for financial statement users, there were important differences between the IASB and FASB definitions of revenue, and there were different definitions of revenue even within each board's guidance for similar transactions accounting for under different standards. The IASB also believed that its guidance for revenue was not sufficiently detailed. 38 CU IDOL SELF LEARNING MATERIAL (SLM)

The IASB began working on its revenue project in 2002. The boards released their first discussion paper describing their views on accounting for revenue in 2008, and they released exposure drafts of a proposed standard in 2010 and 2011. The final standard was issued on 28 May 2014. The Standard replaces the following standards and interpretations: 1. IAS 18 Revenue 2. IAS 11 Construction contracts 2. IFRIC 13 Customer Loyalty Programs 3. IFRIC 15 Agreements for the Construction of Real Estate 4. IFRIC 18 Transfers of Assets from Customers 5. SIC-31 Revenue - Barter Transactions Involving Advertising Services In today’s global scenario, the human resource has been a very effective tool for the company’s growth and success. Thus, to make the best possible utilisation of the employee’s talent and skills, talent management is essential. 5.3 FIVE STEP MODEL FOR RECOGNITION OF REVENUE Five Step Model Identify the contract Identify the Determine the with performance transaction a customer obligations in the price. contract. Allocate the Recognize revenue transaction price to the when the entity performance satisfies a performance obligations in the obligation. contract. Fig 5.1 Five Step Revenue Recognition Model 1. STEP1 - Identify the contract with a customer: 39 CU IDOL SELF LEARNING MATERIAL (SLM)

The first step in Five Step Model is to Identify the customer. In this context, we need to understand two important terms: - Who is a customer and what is a contract. Who is a customer? Customer is defined in the Standard as “…a party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in exchange for consideration”. Although establishing whether the contract is, in fact, with a customer may seem simple theoretically, in actual application of the Standard, it may be difficult for various types of contracts (e.g., collaborative arrangements, production-sharing contracts, concession agreements and other similar risk-sharing contracts). Put simply, a customer is the party that purchases an entity’s goods or services. In many transactions, a customer is easily identifiable. However, where transactions involve multiple parties, it may be less clear which counterparties are customers of the selling company. For some arrangements, multiple parties could all be considered customers of the seller. However, for other arrangements, only some of the parties involved are considered as customers. Identification of performance obligations in a contract can also have a significant effect on the determination of which party is the entity’s customer. What is a Contract? A Contract is an agreement between two or more parties creating enforceable right and obligation. The following attributes are provided for what qualifies as a contract. A. Parties have approved the contract and are committed to perform. B. Each party’s rights to goods/services can be identified. C. The payment terms for goods or services can be identified. D. The contract has commercial substance. E. It is probable that the entity will collect the consideration. 2. STEP2 - Identify the performance obligation: Promise in a Contract with a customer to transfer to the customer either:  Goods or Services (or a bundle) that are distinct. E.g., M. X enters into a Contract with M/s. ABC & Co for supply of 300 Quintals of Rice and 700 Quintals of Wheat on 15th March 20XX. They enter into another Contract for supply of 200 Quintals of Brown sugar on 4th august 20XX. Here the two contracts are distinct. Hence, they both will have different performance obligation. The time for performance of the first contract is on 15th March 20XX and the time for performance of the second contract is on 4th of August 20XX. Revenue for each contact shall be recognized after the performance of the respective obligations. 40 CU IDOL SELF LEARNING MATERIAL (SLM)

 Services of distinct Goods or Services that are substantially the same and have the same pattern. E.g., M/s ST Systems GmbH & Co. KG approaches M/s PQR Maschinenbau GmbH for providing Annual maintenance contract for their Lifts. The contract period is 3 years and M/s PQR Maschinenbau GmbH shall send their engineer on 25th of each month for carrying out maintenance activity. Here, the contract period is 3 years. However, they are substantially the same and have the same pattern. Hence, revenue is recognized after the maintenance activity is performed by the engineer. 3. STEP3 - Determine the transaction price: What is Transaction price? The Transaction Price is the amount of consideration to which the entity expects to be entitled in exchange for the transfer of goods or services to the customer excluding amounts collected on behalf of Third Parties. E.g., Taxes and Reimbursements. How to Determine Transaction Price? The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, the entity needs to consider the effects of all of the following:  Variable consideration  The existence of a significant financing component in the contract  Non-cash consideration  Consideration payable to a customer. What is Variable Consideration? Variable consideration encompasses any amount that is variable under a con-tract, including, for example, performance bonuses, penalties, discounts, rebates, price concessions, incentives, and the customer’s right to return products. 4. STEP4 - Allocate the transaction price: The Standard opines to allocate the transaction price to each performance obligation in an amount depicts the amount of consideration for transferring promised goods or service. How to Allocate Transaction price to Purchase obligation? The Transaction Price is allocated based on relative Standalone Selling Price except for allocating discounts and allocating consideration with variable amounts. Standalone Selling Price is the price at which the entity would sell promised goods or services separately to customers at contract inception. 5. STEP5 - Recognize revenue: 41 CU IDOL SELF LEARNING MATERIAL (SLM)

Recognize revenue when (or as) an entity satisfies a Performance Obligation. The Standard also guides on what are the parameters which decides the satisfaction of Performance Obligation. This is the core principle of this Standard. The Standard prescribes that Performance Obligation is satisfied when a Promised goods or services are transferred to a customer when control of such goods are transferred. The Standard emphasis recognition based on transfer of control rather than Transfer of Significant risks and Rewards. Control Means right to usage of Goods or Services for the rest of its economic life. The Standard lists 3 situations when an entity needs to recognize revenue over time: 1. The Customer simultaneously receives or consumes as entity performs. 2. The entity creates or enhances an Asset and Customer controls it during this period. 3. The created asset has no alternative use to the entity and the entity has enforceable right to payments for performance up to date. If all the above conditions are satisfied, then revenue is recognised Over Time. Else, the revenue is recognized at the Point of time. i.e., when control is transferred. When there is multiplicity of processes and long-term contracts. The main challenges are: 1. Identification of the individual performance obligations (e.g., sale of license + customization + post-delivery support) and allocating transaction price to them 2. Assessment of the progress towards meeting the contract. 3. Assessment of the licenses for the products sold by software vendors or developers. IFRS 15 identifies 2 types of licenses: license to use and license to access. The accounting treatment is distinct for both of them and you should be able to recognize which license is in question. 5.4 APPENDIX The Standard mainly replaces erstwhile IAS 18 and IAS 11 What is IAS 18? Introduced by IASC (International Accounting Standards Council) IAS 18 states that revenue should be valued at fair value of the amounts of funds received or receivable. This means:  The future economic benefit is associated with the inflow of funds.  The amount of revenue can be measured with reliability. IAS 18 provides accounting guidelines to record revenue generated from the following activities. 42 CU IDOL SELF LEARNING MATERIAL (SLM)

1. Sale of Goods: Revenue arising from selling goods is considered here; thus, this type of revenue is recognized by manufacturing organizations. In addition to the economic benefit and fair value criteria, all the risks and rewards of the goods must be transferred to the buyer where the seller exerts no further control over the goods sold. 2. Performing a Service: A service contract can be a lengthy one where it may be delivered within a few years. Thus, the stage of completion should be able to be valued reliably and the proportion of costs incurred for that specific accounting period must be recognized. 3. Interest, Royalties and Dividends: In addition to the principal recognition criteria, the following should be considered foreach type of revenue. A. Interest - using the effective interest method as set out in IAS 39 (Financial Instruments: Recognition and Measurement) B. Royalties - on an accrual basis in accordance with the substance of the relevant agreement C. Dividends - when the shareholder’s right to receive payment is established. IAS 18 contains principles for revenue recognition, but they are quite broad and as a result, many companies use their judgment to apply them to their specific situation. This is one of the main reasons for IAS 18 to be replaced by IFRS 15. What is IAS 11? IAS 11 Construction Contracts prescribes the accounting treatment of revenue and costs associated with construction contracts. Revised December 1993. Effective 1 January 1995. Withdrawn for periods starting on or after 1 January 2018 when IAS 11 is superseded by IFRS 15 Revenue from Contracts with Customers. As per IAS 11, Revenue can be recognized if outcome is reliably measurable. If such outcome is a profit Recognize costs and Revenue on basis of Stage of Completion method. If such outcome is a loss Recognize Entire loss should be booked to the current period Income Statement. If such outcome is uncertain Costs should be recognized as and when it is incurred and revenue to be recognized to the extent of cost considered recoverable. Practical Illustrations: 43 CU IDOL SELF LEARNING MATERIAL (SLM)

Illustration 1: Recognition of Revenue in Real Estate M/s GRF Builders, develops 2 Multistorey Commercial Complex consisting of 20 Shops each. Shops have similar size and proportions – however, they can be customized to clients’ needs. M/s GRF Builders enters contracts with 2 different clients AG Electronic Limited and CJ Foundations for sale of units at € 1.000.000 per building. The payment schedule is as follows: 1. Upon the signature of a contract, clients pay deposit of € 10.000 each. 2. Milestone: 1-year prior planned completion, GRF Builders will deliver progress reports to clients and clients need to pay € 500.000 each. 3. Completion: Upon the completion of the construction, the legal ownership to building is transferred to clients and they pay the remaining amount of € 490.000 each. Assumed period of construction is 2 years from the date of contract. GRF Builders has the right to retain the payments from any client in the situation when that client defaults on the contract before its completion. The contracts with clients are NOT identical. AG Electronics Limited is acquiring the whole building for developing the same to its Global Headquarters hence it is completely customized for this purpose. However, CJ Foundations are Real Estate Tycoons who will Acquire the Building from GRF Builders and sell each shop with a mark-up as individual units. Further contractual terms with client CJ Foundations specifies that GRF Builders cannot transfer or direct the apartment to another client and in return, the client CJ Foundation cannot terminate the contract.If the client CJ Foundation defaults on the contract before its completion (in other words, does not make payments in line with the schedule), GRF Builders has the right for all contractual price if GRF Builders decides to complete the contract. Analytical Approach: As pre IFRS 15, 3 conditions need to be satisfied for recognition of revenue. 1. The Customer simultaneously receives or consumes as entity performs. 2. The entity creates or enhances an Asset and Customer controls it during this period. 3. The created asset has no alternative use to the entity and the entity has enforceable right to payments for performance up to date. In the illustration GRF builders develops an asset so specific for the customer AG Electronics Limited that it would be very costly or impracticable to transfer to other customer (e.g., building with highly customized specification). At the same time, customer is obliged to pay for work completed to date in the reasonable amount. 44 CU IDOL SELF LEARNING MATERIAL (SLM)

Alternatively, “no alternative use” can be achieved contractually, meaning that the contract prevents directing the asset to another customer. Therefore, the contract with CJ Foundations also clearly satisfies all the three conditions. Hence revenue from both contracts will be recognized over time. Illustration 2 Recognition of Revenue in Technology Sector SU Tech Private Limited (STPL) is a software company who entered contract with a client Sun Hotels and Resorts Private limited (SHRPL) on 1stJuly 20XX. Under the contract, STPL is obliged to: Provide professional services consisting of implementation, customization and testing of SAP HANA ERP System. Client SHRPL has bought software license from the SAP GmbH third party. Provide post-implementation support for 1 year after the customized software is delivered. Total contract price is € 1.10.000. STPL assessed its total cost for fulfilling the contract as follows: 1. Cost of developers and consultants for implementing and testing the existing software: € 86.000. 2. Cost of consultants for post-delivery support: € 4.000. Total estimated cost of fulfilling the contract: €90 000. As of 31st December, 20XX, STPL incurred the following costs of fulfilling the contract: Cost of developers and consultants for development, implementation and testing the customized modules: € 26.000. Analyze how to recognize revenue. Analytical Approach: IFRS 15 states very precise and detailed guidance on whether the goods or services promised under the contract are distinct and whether they can be considered separate performance obligations or not. Software customization services and post-delivery support meet the definition of distinct performance obligations and as a result, they need to be treated separately. Now Let’s assume that STPL Normal charge for the support services is 10% of the package price, no matter what the “package” is – whether some ready-made license or customized software. That would imply that the relative split between customization service and post-delivery service is 100:10, which is: € 100.000 (€ 110.000/ (100+10) *100) for software development or customization service, and 45 CU IDOL SELF LEARNING MATERIAL (SLM)

€ 10.000 (€ 110.000/ (100+10) *10) for post-delivery support. Now Let us measure the progress towards the completion of both individual performance obligations as of 31 December 20XX: Software development services: € 26.000 (incurred cost)/ € 86.000 (total estimated cost) = 30% Post-delivery services: € 0 (incurred cost)/ € 2.000 (total estimated cost) = 0% As a result, revenue recognized from this contract in the year 20X1 is: 1. Software development services: 30% (progress %) * € 100.000 (revenue allocated to software development) = € 30.000 2. Post-delivery services: 0% (progress %) * € 10.000 (revenue allocated to post- delivery service) = € 0. Total revenue from the same contract under IFRS 15: € 30.000. 5.5ADOPTION OF IFRS 15 IFRS 15 offers a choice of transition options. Using the full retrospectivemethod, an entity can choose to apply the new standard to all itscontracts and retrospectively adjust each comparative period presentedin its financial statements. Alternatively, an entity can apply the modifiedretrospective method by recognizing the cumulative effect of applyingIFRS 15 at the date of initial application and making no adjustments toits comparative information. 5.6 SUMMARY FRS 15 replaces both IAS 11 and IAS 18 as well as SIC 31, IFRIC 13, IFRIC 15 and IFRIC 18 and establishes a single, comprehensive framework for revenue recognition. Its core principle is that revenue is recognised to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. A five-step approach to revenue recognition is required: 1. Identify the contract(s) with a customer. 2. Identify the performance obligations in the contract. 3. Determine the transaction price. 4. Allocate the transaction price to the performance obligations in the contract. 5. Recognise revenue when (or as) performance obligations are satisfied. IFRS 15 also includes requirements for accounting for costs related to a contract with a customer. These are recognised as an asset if certain criteria are met. 46 CU IDOL SELF LEARNING MATERIAL (SLM)

The standard requires qualitative and quantitative disclosures in respect of revenue, contract balances, performance obligations, significant judgements and assets recognised from costs to obtain or fulfil a contract. 5.7 LEARNING ACTIVITY 1. Understand the impact of IFRS 15 in Telecommunication, manufacture, Real Estate and Software Industries. ___________________________________________________________________________ _____________________________________________________________________ 2. Understand the impact of Retrospective Adoption and compare the results under two methods for the above industries. ___________________________________________________________________________ ____________________________________________________________________ 5.8 UNIT END QUESTIONS A. Descriptive Questions Short Questions: 1. Why is Standalone Selling Price? 2. What are the Methods of Adoption of IFRS 15? 3. What is performance Obligation? Long Questions 1. What are ethe Standards replaced by IFRS 15? 2. To which Standards IFRS 15 will not apply? 3. What is the key difference between IFRS 15 and IAS 18? 4. What are the objectives of IFRS 15? 5. What is Variable Consideration? B. Multiple ChoiceQuestions 1. IFRS 15 is mandatorily applicable from a. 1St January 2018 b. 1st January 2016 c. 1st April 2018 d. None of these 47 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Transfer of _________________ constitute core of IFRS 15. a. Risk b. Money c. Control d. Significant Risks and Rewards 3. Which of the following method is recommended for adoption of IFRS 15 a. Full retrospective method. b. Modified retrospective method. c. A or B d. A and B 4. IAS 18 ceases to exist from 1st January 2016. a. True b. False 5. Government of France approaches NASA for designing and launch of a satellite. Time period is 2 years. How will the revenue be recognized? a. Over time b. Point of time. c. Actual Launch of satellite d. None of the above Answers 1 – a, 2 – c, 3 – c, 4 – a, 5 – a 5.9 REFERENCES Textbooks:  Doupnik, T. and Perera, H., International Accounting, McGraw-Hill.  International Financial Reporting Standards, Vol. I & II, Taxman Publications. Reference Books: 48 CU IDOL SELF LEARNING MATERIAL (SLM)

 Nobes, C. and Parker, R., Comparative International Accounting, Prentice Hall.  Rathore, S., International Accounting, Prentice Hall India.  Saudagaran, S. M. International Accounting: A User Perspective, CCH, Inc. Website:  www.ifrs.org  www.mca.gov.in  www.icai.org 49 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT – 6 IAS RELATING TO ASSETS - I Structure 6.0. LearningObjectives 6.1. Introduction 6.2. IAS 2 Accounting for Inventories 6.3. IAS 16 Property Plant and Equipment 6.4. IAS 20 Accounting for Government Grant 6.5. Summary 6.6. Keywords 6.7. Learning Activity 6.8. Unit End Questions 6.9. References 6.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Explain the reporting requirements of Inventories.  State the reporting requirements of Property Plant and Equipment.  Describe Depreciation and Amortization for Assets  Outline the Accounting for Government Grants.  Outline disclosure requirements of Government Assistance. 6.1 INTRODUCTION In Accountancy, “an Asset is any resource owned or controlled by a business or an economic entity. It is anything that can be utilized to produce value and that is held by an economic entity and that could produce positive economic value.” In this unit, the IFRS relating to Assets – Inventories, Property Plant and Equipment and Government Grants and disclosures of government assistance. 6.2 IAS 2 ACCOUNTING FOR INVENTORIES Objective of IAS 2 is to prescribe the accounting treatment for inventories. The standard provides guidance on Cost determination, Subsequent recognition as an expense, Cost formulas used to assign costs to inventories. 50 CU IDOL SELF LEARNING MATERIAL (SLM)