CA R. Venkata Subramani

Separately accounting for an embedded derivative

Separately accounting for an embedded derivative Should an embedded derivative contained in a financial liability be separated and accounted for? When a hybrid contract contains a host contract and it is not a financial asset, the embedded derivatives portion should be separated from the host and accounted for as a derivative if and only if the following conditions are met: The economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the hostA separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; andThe hybrid contract is …
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What is an embedded derivative?

What is an embedded derivative? What is an embedded derivative? An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable. However, in the case of a non-financial variable that variable should not be specific to a party to the contract. A derivative that is attached to a financial instrument but is contractually transferable independently of that instrument, or has a different counterparty, is not …
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What is a hybrid contract?

What is a hybrid contract? What is meant by a hybrid contract? A hybrid contact is one that includes a non-derivative host and an embedded portion. An embedded derivative is a component of a hybrid contract. The cash flows of the hybrid instrument that is combined instrument vary in a way similar to a standalone derivative.
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Consequence of not de-recognising an asset after the sale

Consequence of not de-recognising an asset after the sale What is the consequence of not de-recognising an asset even after the sale of such asset? When an entity continues to recognise an asset to the extent of its continuing involvement, the entity also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the entity has retained. The associated liability is measured in such a way that the net carrying amount of the transferred asset and the associated liability is the amortised cost of the rights and obligations retained …
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Derecognition of a financial asset

Derecognition of a financial asset When should a financial asset be derecognised? An entity shall derecognise financial assets when and only when the contractual rights to the cash flows from the financial assets expire or it transfers the financial asset which eventually qualifies for derecognition as per the standard. An entity transfers a financial asset if, and only if, it either transfers the contractual rights to receive the cash flows of the financial asset, or retains the contractual rights to receive the cash flows of the financial asset, but assumes a contractual obligation to pay the cash flows to one or more recipients. …
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Contractual cash flows & effective interest rate

Contractual cash flows & effective interest rate When contractual cash flows are modified to change in the terms of contract, does the effective interest rate change? When the contractual cash flows of a financial asset are renegotiated or otherwise modified and the renegotiation or modification does not result in the de-recognition of that financial asset an entity shall recalculate the gross carrying amount of the financial asset and shall recognise a modification gain or loss in profit or loss. The gross carrying amount of the financial asset is recalculated as the present value of the renegotiated or modified contractual cash flows …
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What is the concept of effective interest method?

What is the concept of effective interest method? Explain the concept of effective interest method? Effective interest method is a new concept that is introduced through the Ind AS standards. Effective interest rate is relevant not merely for financial instruments, but as a concept running through the entire gamut of the Accounting Standards as per Ind AS. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortised cost of a financial …
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Treatment of transaction costs

Treatment of transaction costs How are the transaction costs treated? Transaction costs incurred while acquiring a financial asset or incurring a financial liability is treated differently depending upon the classification of such financial asset or financial liability. Transaction costs include fees and commission paid to agents (including employees acting as selling agents), advisers, brokers and dealers, levies by regulatory agencies and security exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs. For financial assets not measured at fair value through profit or loss, transaction costs are added to the fair …
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Transaction not representing the fair value

Transaction not representing the fair value A financial asset or financial liability should be measured at fair value on initial recognition. What if the transaction does not represent the fair value of the financial asset or financial liability? If at initial recognition the transaction value is different from the fair value, then the difference between the fair value at initial recognition and the transaction price is recognised as gain or loss immediately. This is so in the case where the transaction occurs in an active market for an identical asset or liability or based on valuation technique derived from observable market data. In …
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Can a corporate entity still follow settlement date accounting?

Can a corporate entity still follow settlement date accounting? Since cash method of accounting is not allowed for a corporate entity in India, can a corporate entity following Ind AS still follow settlement date accounting? Is there any conflict here? As per Ind AS 109, a regular way purchase or sale of financial assets shall be recognised, as applicable, using trade date accounting or settlement date accounting. However, the entity should apply the same method consistently for all purchases and sales of financial assets that are classified in the same way as per the accounting standard. Assets that are mandatorily measured at a …
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Long-term financial liability classified as FVTPL

Long-term financial liability classified as FVTPL Can a long-term financial liability be classified as subsequent measured at fair value through profit or loss? Yes. An entity may, on initial recognition, designate a financial liability as measured at fair value through profit or loss. If an entity exercises this option, then it cannot be revoked at any point of time. Also, the fair value option to designate a financial liability on initial recognition will be permitted only when doing so results in presenting more relevant information. This can be on account of two situations: Where it eliminates or significantly reduces a measurement or recognition …
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Change in contractual cash flows

Change in contractual cash flows When change in the terms is altering the contractual cash flows, should the SPPI test be carried out afresh? A proper assessment should be made afresh whenever there could be contractual term potentially changing the timing or amount of the contractual cash flows. A typical example is where a financial asset can be prepaid before the date of maturity or whether its term can be extended. For the purpose of this assessment, the contractual cash flows that could arise after the change in the contractual cash flows should be compared with the contractual cash flows before such …
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Difference between time value of money and modified time value of money

Time value & modified time value What is the difference between time value of money and modified time value of money? Time value of money is the element of interest that provides consideration for only the passage of time. That is, the time value of money element does not provide consideration for other risks or costs associated with holding the financial asset. In order to assess whether the element provides consideration for only the passage of time, an entity applies judgement and considers relevant factors such as the currency in which the financial asset is denominated and the period for which the …
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What does Interest represent?

What does Interest represent? Interest represents only the consideration for the passage of time. Do you agree? While interest is predominantly the consideration for time value of money, it also includes consideration for the credit risk associated with the principal amount outstanding during a particular period of time. It also includes consideration for other basic lending risks and costs as well as a profit margin. Contractual cash flows representing solely payment of principal and the interest (SPPI) on the principal amount outstanding are consistent with a basic lending arrangement. The two significant elements of interest are: Consideration for the time of value of …
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SPPI test & business model objective test

SPPI test & business model objective test Which criteria should be applied first – SPPI test or business model test? SPPI test refers to the evaluation of contractual cash flows that analyses if such cash flows represent solely payments of principal and interest on the principal amount outstanding. Business model is in fact not a test. An entity should examine its business model to arrive at whether the financial assets are held with the sole purpose of generating contractual cash flows or buying and selling of such financial assets or both. There is no specific order in which the two above-mentioned criteria are to …
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FVOCI (equity instruments) and FVOCI (debt instruments)

FVOCI (equity instruments) and FVOCI (debt instruments) What is the difference FVOCI (equity instruments) and FVOCI (debt instruments) Debt instruments are classified as FVOCI if and only if both the following conditions are satisfied, viz, (a) financial asset is held within the business model whose objective is achieved by both collecting directly cash flows and selling of financial assets, and (b) the contractual terms of the financial assets represents solely payments of principal and interest. However, in the case of equity shares, the entity has irrevocable election choice that can be exercised on an instrument by instrument basis to classify such instruments …
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Classification of derivative instruments

Classification of derivative instruments How are derivative instruments classified? Derivative instruments are a subset of financial instruments. In the definition of financial asset, we have the following phrase, viz, “to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity” and in the definition of financial liability “to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity”. This means that depending upon the net present value (fair value) of the derivative instrument it will either be shown as a financial asset or as a financial …
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Is there a choice to designate as FVTPL?

Is there a choice to designate as FVTPL? An entity has choice to designate a financial asset as measured at fair value through profit or loss. Explain. The option to designate a financial asset at fair value through profit or loss (FVTPL) is not without restrictions. There are certain conditions to be satisfied and above all, the option should be exercised at the inception of the financial asset. An entity may, at initial recognition irrevocably, designate a financial asset as measured at fair value through profit or loss if doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to …
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Financial asset categorised as FVOCI

Financial asset categorised as FVOCI When will a financial asset be categorised as fair value through other comprehensive income? A financial asset shall be measured at fair value through other comprehensive income if both of the following conditions are met: the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; andthe contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Here, the term principal refers to the fair value of the financial asset …
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Difference between amortised cost & held-to-maturity

Difference between amortised cost & held-to-maturity What is the difference between amortised cost classification as per Ind AS 109 and held-to-maturity classification as per IAS 39? A financial asset shall be measured at amortised cost if both of the following conditions are met: the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; andthe contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Amortised cost classification as per Ind AS 109 has similarities …
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Measurement categories for financial assets

Measurement categories for financial assets What are the principal measurement categories for financial assets?  Principal measurement categories for financial assets are amortised cost, fair value through other comprehensive income – FVOCI and fair value through profit or loss – FVTPL.  As per the previous version, viz, IAS 39, the financial assets were classified as one of the following, viz, (a) fair value through profit or loss –FVTPL; (b) available for sale; (c) held to maturity; and (d) loans and receivables. Out of all these, the last category, viz, loans and receivables are now not a measurement category. Held to maturity is now known …
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What are treasury shares and how are these presented

What are treasury shares and how are these presented What are treasury shares and how are these presented in the financial statements? If an entity acquires its own equity instruments, these instruments are known as ‘treasury shares’ and are deducted from equity. No gain or loss shall be recognised in profit or loss on the purchase, sale, issue or cancellation of an entity’s own equity instruments. Such treasury shares may be acquired and held by the entity or by other members of the consolidated group. Consideration paid or received shall be recognised directly in equity. The amount of treasury shares held …
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Bifurcation of compound financial instruments

Bifurcation of compound financial instruments Should the entity monitor a compound financial instrument in bifurcating such instrument into liability and equity component constantly and account for the same on every reporting period? A compound financial instrument should be evaluated for the terms of the financial instrument to determine whether it contains both a liability and an equity component. Each component should be classified separately as financial liabilities, financial assets or equity instruments. An entity should recognise separately the components of a financial instrument that: creates a financial liability of the entity; andgrants an option to the holder of the instrument to convert it into …
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Classification of Foreign Currency Convertible Bond (FCCB)

Classification of Foreign Currency Convertible Bond (FCCB) An entity has issued a foreign currency convertible bond (FCCB). The Bond is denominated in foreign currency and would be converted into a fixed number of equity shares. Will this be treated as equity instrument or as a financial liability? Contracts that will be settled by an entity delivering a fixed number of its own equity instruments in exchange for a fixed amount of foreign currency are treated as a liability as per IFRS 9. Accordingly, contracts which include a conversion option in a foreign currency denominated convertible bond are liabilities. A derivative contract which …
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Consequences of treating equity vs liability

Consequences of treating equity vs liability What are the consequences of treating a contract as equity and how its treatment is different if treated as liability? The consequences of treating particular contract as equity are as follows: Treatment when the financial instrument is equity: Any consideration received (such as the premium received for a written option or warrant on the entity’s own shares) is added directly to equity.Any consideration paid (such as the premium paid for a purchased option) is deducted directly from equity.Changes in the fair value of an equity instrument are not recognised in the financial statements.Income and expenses on instruments classified …
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Contract is settled through the entity’s own equity instrument

Contract is settled through the entity’s own equity instrument When a contract is settled through the entity’s own equity instrument, can it be regarded as equity? A contract that will be settled by the entity receiving or delivering a fixed number of its own shares for no future consideration or exchanging a fixed number of its own shares for a fixed amount of cash or another financial asset, is an equity instrument. If such a contract can be settled by the entity by receiving or delivering a variable number of its own shares for an amount that is not yet determined (variable), then …
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Criteria for classifying as either financial liability or equity

Criteria for classifying as either financial liability or equity What is the core criteria while classifying a financial instrument as either financial liability or equity? The core criteria while classifying a financial instrument is to examine whether there exists a future obligation on the part of the entity to part with either cash or any other financial asset of the company while settling a particular contract. The substance of a financial instrument, rather than its legal form, governs its classification in the entity’s balance sheet. Substance and legal form are commonly consistent, but not always. Some financial instruments take the legal form of …
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Own use exemption as per the Accounting Standard

Own use exemption as per the Accounting Standard What is meant by own use exemption as per the Accounting Standard? Contracts that are entered into for the purpose of the receipt or delivery of a non-financial item for the entity’s own use is excluded from the scope of Accounting Standards for financial instruments. However, contracts that an entity designates as measured at fair value through profit or loss are not excluded even when such contracts are meant for own use. A contract to buy or sell a non-financial item that is settled net in cash or by exchanging another financial instrument is within …
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Difference between futures contract & options contract

Difference between futures contract & options contract What is the basic difference between a futures contract and an options contract? Both futures contract and options contract are known as derivative contracts. In a futures contract, there is an underlying, the notional amount and an expiry date. In the case of an options contract, apart from the above, there is also a strike price. The fair value of a futures contract is determined by the cost of carry and corporate actions of the underlying, if any. However, the fair value of an options contract is determined based on the implied volatility of the …
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Difference between forward contract & futures contract

Difference between forward contract & futures contract What is the difference between a forward contract and a futures contract? A forward contract is a derivative instrument between two parties to buy or to sell an asset at a specified future time at a price agreed upon today. A forward contract is non-standardised. The party agreeing to buy the underlying asset in the future at the delivery price assumes a long position, and the party agreeing to sell the asset in the future assumes a short position. On the other hand, a futures contract is a derivative contract which is a standardised forward …
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Contract meant for own use

Contract meant for own use Can a written option that results in the delivery of a non-financial item be treated as a financial instrument, as the non-financial item is meant for own use? If the derivative contract is a purchased call option or a future contract to buy a non-financial item, this may be covered under the own use exemption, as a result of which such contracts may be outside the scope of the financial instruments standards. Some written options like written put option may also result in the physical delivery of a non-financial item. For example, a written put option contract to …
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Contract to deal in non-financial item

Contract to deal in non-financial item Is a contract to buy or sell a non-financial item, a financial instrument? A contract to deal with a non-financial item is not a financial instrument. However, there are certain contracts to buy or sell a non-financial item that may be required to be accounted for as a derivative as per the financial accounting standards, eg, where the contacts to buy or sell a non-financial item that can be settled net in cash or another financial instruments or by exchanging financial instruments, as if the contracts were financial instruments. In other words, even though these contracts …
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Scopes of the three standards for financial instruments

Scopes of the three standards for financial instruments Are the scopes of all the three standards viz., Ind AS 32, Ind AS 109 and Ind AS 107 similar? Ind AS 32 is the converged standard of IAS 32. Ind AS 109 is the converged Ind AS of IFRS 9. Ind AS 107 is the converged Ind AS of IFRS 7. While the scope of all the three standards is more or less similar, it should be noted that these are not identical as each one of these standards are subject to different exclusions. The entity, therefore, should be cautious to the extent …
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Ind AS for financial instruments replica of IFRS?

Ind AS for financial instruments replica of IFRS? Are the Ind AS relating to financial instruments an exact replica of its counterpart, viz, IFRS? Ind AS 32 is the converged standard of IAS 32. Ind AS 109 is the converged Ind AS of IFRS 9. Ind AS 107 is the converged Ind AS of IFRS 7. As on date, it may be correct to state that the Ind ASs relating to financial instruments are more or less a replica of its IFRS counterpart, even though there is one major carve out in Ind AS 32 and one major exception provided in Ind …
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What is the significance of Ind AS 32?

What is the significance of Ind AS 32 Ind AS 32 is the converged Accounting Standard of IAS 32 Ind AS 32 deals with financial instruments from the perspective of an issuer and provides guidance as to how an entity should present a financial instrument either as a financial asset or financial liability or as equity instrument. Ind AS 32 also provides guidance about the bifurcation of compound instruments into liability and equity components. The classification is extremely important because this has a wider import regarding the way the instruments are presented in the balance sheet as well as the manner in which …
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Ind ASs relating to financial instruments

Ind ASs relating to financial instruments What are the Ind ASs relating to financial instruments? Financial instruments are primarily governed by three standards as per Ind AS, viz, Ind AS 32, Ind AS 109 and Ind AS 107. Ind AS 32 defines financial instruments, financial assets, financial liabilities and equity instruments. Ind AS 32 deals with financial instruments from the perspective of an issuer. It primarily addresses the presentation-related issues and provides guidance whether a financial instrument should be considered as a financial asset, a financial liability or an equity instrument. Ind AS 32 also addresses compound instruments that contain both liability and …
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Roadmap for implementing Ind AS?

Roadmap for implementing Ind AS? The roadmap for implementing Ind AS in a phased manner is given below. All non-financial companies For companies other than banks, NBFC and Insurance companies: Voluntary Phase 1st April 2015 or thereafter: Voluntary Basis for all companies (with comparatives) Phase I 1st April 2016: Mandatory Basis All listed on Stock Exchange in India or outside having net worth equal to or more than Rs 500 croreUnlisted companies having net worth equal to more than Rs 500 croreParent, Subsidiary, Associate and Joint Venture of above Companies can voluntarily apply Ind AS for accounting periods beginning on or after 1st April 2015. If an entity applies …
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What are Ind AS accounting standards?

What are Ind AS accounting standards? The Ministry of Corporate Affairs (MCA) on 16th February 2015 notified the Companies (Indian Accounting Standards) Rules, 2015 containing 39 Indian Accounting Standards (Ind ASs). Ind ASs are based on International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB). The roadmap for applicability of Ind AS mentions that Ind AS will be applicable in a phased manner depending upon the listing status as well as the net worth of the company. The roadmap is applicable to non-financial companies, i.e., companies other than banking, insurance and NBFCs. During these phases, the financial companies, …
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CA Sunitha Suri

CA Sunitha Suri Sunitha is a Chartered Accountant with over 10 years’ experience in international taxation She is also a Cost and Management Accountant (India) and Cost Management Accountant (UK) She has co-authored the chapter ’Dispute Resolution’ in the book ‘Transfer Pricing Law and Practice in India’ by Deloitte Prepared a paper on ‘Transfer pricing implications on Group Employee Stock Option Plan’ Handled responses to tax queries for to the column ‘Your taxes’ in the newspaper ‘Hindu Business Line’ for over a year She has conducted seminar and training sessions on ‘International tax’ and ‘Transfer Pricing’
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Secondary Adjustment – transfer pricing

Secondary Adjustment – transfer pricing Introduction As per the OECD’s TP guidelines for Multinational Enterprises and Tax Administrations (OECD TP Guidelines), secondary adjustment may take the form of constructive dividends, constructive equity, or constructive loans.The provisions of secondary adjustment are internationally recognized and are already part of the TP rules of many leading economies in the world., though the approach by various countries vary.India’s secondary adjustment provisions are enshrined in section 94CE of the Act. India had initially taken a position to treat secondary adjustment as constructive loan and thereby imputing interest on the outstanding amount.However, budget 2019 has relaxed the norms …
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Limitation of interest deductions – transfer pricing

Limitation of interest deductions – transfer pricing Introduction Popularly known as ‘Thin Capitalization Rules’, this provision intends to cap the interest that can be paid to the AEs in case of borrowings.Generally, debt is a preferred instrument to provide funds to the subsidiary or group company rather than equity due to the fact that interest on debt is a deductible expenditure for tax and there would be regular cash flow to the lender as well.The DTAAs also provide a favourable tax rate for the interest earned by the non-residentsHigh leverage and excess interest deductions erodes the profitability of the payee. Normally such …
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Penalties for non-compliance – Transfer Pricing

Penalties for non-compliance – Transfer Pricing The Act has prescribed strict penalties for non-compliance in terms of non-disclosure or incorrect disclosure Question International group shall maintain information and documents in Master file when Consolidated group revenue of the International group is (as reflected in Consolidated Financial Statements of the International Group) is More than Rs.500 croresMore than 5500 croresMore than Rs 50 crores Answer a. International group shall maintain information and documents in Master file when Consolidated group revenue of the International group is (as reflected in Consolidated Financial Statements of the International Group) is Rs 500 crores. The form contains Part A and Part B. …
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Additional reporting by Multinational companies – Transfer pricing

Additional reporting by Multinational companies – Transfer pricing The OECD had devised many action plans to combat BEPS. OECD also recommended a three-tier documentation approach for transfer pricing under Action Plan 13. Three tier documentation Advantages of three tier reporting Elements of CbC and Master File reporting requirement and related matters have been incorporated in the Section 286 of the Act.This reporting shall be applicable in respect of an international group for an accounting year if the total consolidated revenue as reflected in the CFS for the accounting year preceding year is above the threshold limit. Key terms to understand There are certain terms which are …
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Fundamentals of Base Erosion and Profit Shifting – Transfer Pricing

Fundamentals of Base Erosion and Profit Shifting – Transfer Pricing Introduction In the past few decades, the world has seen large movement of capital and investment from developed and developing countries.This has resulted in huge economic development, boosted trade and increases foreign direct investment in various countries.Many developing countries (low – cost locations) saw boon in their manufacturing activity and become operation hub for many MNEs.This also accelerated growth, innovation and created jobs.Taxes are the main revenues for the economy. Once cross border activities increased, there were many instances of double-taxation and need to eliminate the same was noticed.Progressively, Governments entered bilateral …
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Mutual Agreement Procedure

Mutual Agreement Procedure Mutual Agreement Procedure (‘MAP’) is a procedure set out in most treaties which permit designated Government representatives to work together to resolve international tax disputes including issues involving double taxation, questions regarding residential status, tax recovery etc. MAP is used to eliminate double taxation that can arise from transfer pricing adjustments. Eligibility for MAP MAP application can be filed by a person when he considers that he has not been taxed in accordance with the Treaty.Even if such person has other remedies such as appeal process under the domestic laws, MAP can be initiated. MAP can be applied in the country …
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Advance Pricing Agreements (APA)

Advance Pricing Agreements (APA) APA objective APA is an agreement between the taxpayer and the taxing authority on an appropriate transfer pricing methodology for a set of transactions over a fixed period of time in future. Section 92CC empowers the Board to enter into APA with any person undertaking an international transaction.Purpose of APA: the APA shall relate to an international transaction to be entered into by such person. The APA shall be entered into for the purpose of determination of ALP or specifying the manner in which ALP shall be determined.The budget 2020 has extended the scope of APA to include …
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Dispute Mitigation strategies in transfer pricing

Dispute Mitigation strategies in transfer pricing Determining ALP is not an exact science and often may lead to different answer depending on many factors.This has resulted in huge litigation leaving the assessee and the income tax authorities often in the loggerheads.The data available at the time of concluding the agreement / work order, the data at the time of preparing documentation and filing return of income, and the data available at the time when the issue is taken up during the assessment would be widely varying.This has resulted in disputes running into crores and uncertainty in the minds of overseas investors.The …
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Transfer pricing adjustment and consequence

Transfer pricing adjustment and consequence Transfer pricing adjustment If the transaction price is not within the ALP range or the tolerance band and if adopting ALP would not reduce the profit or increase losses etc, then the difference between the ALP and the transaction price is added to the income of the assessee.The AO would make the adjustment in the assessment order.The effect of this adjustment would be as under: Penalty for transfer pricing compliance Question Once the TPO passes the order, which of the following is correct The AO has the discretion of incorporating the order of the TPOThe AO has to mandatorily incorporate the …
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Transfer pricing audit cycle

Transfer pricing audit cycle Reference to Transfer Pricing Officer Section 92CA provides for procedure for reference to a Transfer Pricing Officer (‘TPO’) of any issue relating to computation of ALP in an international transaction. The procedure is as under:The option to make reference to TPO is given to the Assessing Officer. He may do it if he considers it necessary or expedient to do so.As per CBDT instruction in 2016, the AO has to make mandatory reference to TPO only under following TP risk parameters assisted by CASS and compulsory manual selection on the basis of earlier non-compliance etc.The AO has to …
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Returns, Audit and other miscellaneous provisions – Transfer pricing

Returns, Audit and other miscellaneous provisions – Transfer pricing Records to be maintained Each person who has entered into international transaction has to maintain certain information and documents in respect thereof as may be prescribed by Central Board of Direct Taxes (‘CBDT’).Apart from that, if the person belongs to an International Group and if the group meets certain monetary threshold, then the person is required to additionally maintain and submit prescribed information and document regarding the international group.Each person undertaking an international transaction has to maintain the following documents in accordance with Rule 10D of the Income Tax Rules, 1962.Ownership structureProfile of …
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Determination of ALP – Transfer Pricing

Determination of ALP – Transfer Pricing Rule 10C deals with the determination of most appropriate method. Under this Rule, the method is best suited to the facts and circumstances, and which provides the most reliable measure of ALP in relation to the international transaction will be considered to be the MAM. Factors that needs to be considered are:Nature or class of transactionThe class or classes of AEs and FARAvailability and reliability of dataDegree of comparability between the transactionsExtent to which reliable and accurate adjustment can be made to account for the differenceThe nature, extent and reliability of assumptions required to be …
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FAR Analysis – Transfer Pricing

FAR Analysis – Transfer Pricing Functional, asset and risk analysis is often referred to as FAR analysis.When transactions between the AEs are examined for the purpose of determining the ALP, one has to analyse the three components closely, namely Functions performed Functions performed by different parties are examined to ascertain which party performs the most significant activities and which one performs the routine activities.Suppose A Inc (US Company) is a manufacturer of a product and B Ltd (Indian Company) is a distributor while A Inc identifies undertakes the manufacturing process, employs intangibles, conducts quality checks etc. and B Ltd is engaged in identifying …
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Economic analysis – Transfer Pricing

Economic analysis – Transfer Pricing Characterization of the transacting parties For applying the above methods, following factors needs to be analyzed with respect to the transactionsSpecific characteristic of the property transferred or services renderedThe functions performed taking into account assets employed and risks assumed by the respective parties.Characterization of entities based on functions performed by each associate enterprise, assets employed by them to carry out the functions and risks assumed by each enterprise in carrying out the functions.Conditions prevailing in the market in which the respective parties operate, laws of the territory, labour and capital markets level of competition etc. are to …
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Arm’s Length Principle – Transfer Pricing

Arm’s Length Principle – Transfer Pricing Why Arm’s length price? The cornerstone of the Transfer Pricing Provision is determining an Arm’s Length Price (‘ALP’) of a transaction between Associated Enterprises.  This course will provide you the methods to be adopted for determining the ALP and factors which needs to be considered in order to identify comparable uncontrolled transactions.ALP is defined in section 92F(ii) to mean price which is applied or proposed to be applied in a transaction between persons other than associated enterprises in uncontrolled conditions.Section 92C deals with the method for determining arm’s length price and the factors which are to …
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Specified Domestic Transactions – Transfer Pricing

Specified Domestic Transactions – Transfer Pricing Introduction The concept of Specified Domestic Transactions (SDT) was introduced in Finance Act 2012. Prior to that the AO were empowered to disallow payments made to related parties which were unreasonable or excessive under section 40A(2)(b) of the Act. Further, TPPs were applicable only for international transactions.SC in the case of Re Glaxo Smithkline Asia P Ltd recognised the complications of arriving at the Fair Market value (FMV) in case of transactions involving related parties and suggested why transfer pricing provisions could not be extended to domestic transactions as wellThis led to introduction of section 92BA …
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International Transaction [Section 92B] – Transfer Pricing

International Transaction [Section 92B] – Transfer Pricing Transfer pricing provisions are applicable to determine the arm’s length price of international transaction and specified domestic transaction. Though, specified domestic transactions are also part of the transfer pricing provisions, it predominantly deals with international transaction. Therefore, it is essential to understand the term which is provided in Section 92B (1) Transaction between two or more AEs either or both are NRs. Summary Question                Which of the following is an international transaction? Nippon USA purchases goods from Nippon Japan amounting to $1 millionInterest of Rs 10 crores paid by K Ltd (India) to Singapore branch of HSBC BankK India …
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Income from transaction with Non-Residents – Transfer Pricing

Income from transaction with Non-Residents – Transfer Pricing Applicability Section 92 is the charging section for Chapter X of the Act. Sec 92 provides that any income arising from an ‘International transaction’ shall be computed having regard to ALP.For this purpose, the allowance for any expense or interest shall be determined on the basis of ALP.Further, where two or more enterprises enter into mutual agreement or arrangement for cost allocation or cost contribution, they would also be covered within sec 92 and would be subject to ALP. This provision will not be applicable – While determining ALP under the provisions of TPR, if the …
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Suspension of capitalization – Ind AS 23

Suspension of capitalization – Ind AS 23 An entity shall suspend capitalization of borrowing costs during extended periods in which it suspends active development of a qualifying assetAn entity may incur borrowing costs during an extended period in which it suspends the activities necessary to prepare an asset for its intended use or saleSuch costs are costs of holding partially completed assets and do not qualify for capitalizationHowever, an entity does not normally suspend capitalizing borrowing costs during a period when it carries out substantial technical and administrative workAn entity also does not suspend capitalizing borrowing costs when a temporary delay …
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Commencement of capitalization – Ind AS 23

Commencement of capitalization – Ind AS 23   When to begin capitalization An entity shall start capitalizing borrowing costs as part of the cost of a qualifying asset on the commencement dateThe commencement date for capitalization is the date when the entity first meets all of the following conditionsit incurs expenditures for the assetit incurs borrowing costs; andit undertakes activities that are necessary to prepare the asset for its intended use or sale Example: Borrowing cost to be capitalized On April 1, 2019, Compassionate Inc. began construction of homes for those families that were hit by the Typhoon and were homeless. The construction is expected …
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Recognition – Ind AS 23

Recognition as per Ind AS 23 An entity shall capitalize borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that assetSuch borrowing costs are capitalized as part of the cost of the asset when it is probable that they will result in future economic benefits to the entity and the costs can be measured reliablyAn entity shall recognize other borrowing costs as an expense in the period in which it incurs them Borrowing costs eligible for capitalization: The borrowing costs that are directly attributable to the acquisition, construction or production …
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Objective and Scope – Ind AS 23

Objective and Scope – Ind AS 23 Objective Ind AS 23 “Borrowing Costs” prescribes the accounting treatment of borrowing costs (which are interest and other costs that an entity incurs in connection with the borrowing of funds), the circumstance in which the borrowing cost will be capitalized and when it will be recognized as expense Scope An entity shall apply this Standard in accounting for borrowing costsAn entity is not required to apply the Standard to borrowing costs directly attributable to the acquisition, construction or production ofa qualifying asset measured at fair value, for example, a biological asset within the scope of Ind AS …
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Introduction to Transfer Pricing

Introduction to Transfer Pricing Transfer Price “Transfer Price” is the price at which an enterprise charges for its transaction within its group entitiesInternational transaction involves more than one tax jurisdiction, and due to disparity in tax rates and method of computing income, the parties may try to adjust the transfer pricesSince the parties are related there is a possibility that the price at which the transactions are carried out can be fixed in such a way that profits can be parked in the country which has less tax and entity in high tax country earns less or no profitsThis would allow the …
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Impact of COVID 19 on Ind AS 37

Impact of COVID 19 on Ind AS 37 Onerous Contract Onerous contracts are those contracts for which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Unavoidable costs under a contract are the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it. As a result of COVID -19, some contracts may become onerous for reasons such as increase in cost of material / labour, etc. Management should consider whether any of its …
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Appendix to Ind AS 37

Appendix to Ind AS 37 Appendix A Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds The purpose of decommissioning, restoration and environmental rehabilitation funds, hereafter referred to as ‘decommissioning funds’ or ‘funds’, is to segregate assets to fund some or all of the costs of decommissioning plant (such as a nuclear plant) or certain equipment (such as cars), or in undertaking environmental rehabilitation (such as rectifying pollution of water or restoring mined land), together referred to as ‘decommissioning’ Contributions to these funds may be voluntary or required by regulation or law It provides guidance onhow a contributor accounts for its interest in …
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Disclosures – Ind AS 37

Disclosures as per Ind AS 37 For Provisions For each class of provision, an entity shall disclosethe carrying amount at the beginning and end of the periodadditional provisions made in the period, including increases to existing provisionsamounts used (ie incurred and charged against the provision) during the periodunused amounts reversed during the period; andthe increase during the period in the discounted amount arising from the passage of time and the effect of any change in the discount rate An entity shall disclose the following for each class of provisiona brief description of the nature of the obligation and the expected timing of any …
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Change in Provisions and Use of Provisions – Ind AS 37

Change in Provisions and Use of Provisions – Ind AS 37 Change in Provisions Provisions shall be reviewed at the end of each reporting period and adjusted to reflect the current best estimateIf it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision shall be reversed Where discounting is used, the carrying amount of a provision increases in each period to reflect the passage of time. This increase is recognized as borrowing cost Use of Provisions A provision shall be used only for expenditures for which the provision was originally recognized Only expenditures that …
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Measurement of Provision – Ind AS 37

Measurement of Provision – Ind AS 37 The amount of the provision should be measured at the best estimate of the expenditures required to satisfy the obligation at the end of the reporting periodAs you can see, here’s some judgment and estimates involved. Management should really incorporate all available information in their estimates, and they must not forget about:Risks and uncertainties (like inflation)Time value of money (discounting when the settlement is expected in the long-term future)Some probable future events, etcThere are 2 basic methods of measuring a provisionExpected value method: You would use this method when you have a range of possible outcomes …
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Contingent Liability & Contingent Asset – Ind AS 37

Contingent Liability & Contingent Asset – Ind AS 37 What is a contingent liability? A contingent liability isa possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity; ora present obligation that arises from past events but is not recognized becauseit is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation; orthe amount of the obligation cannot be measured with sufficient reliability How to deal in books / Financial Statement? A contingent …
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Provisions – Ind AS 37

Provisions as per Ind AS 37 What is a Provision? Provision is a liability of uncertain timing or amount The word “uncertain” is very important here, because if timing and amount are certain or almost certain, then you don’t deal with the provision but with a payable or an accrual To understand provisions better, let’s break down the definition of a liability in Ind AS 37A liability is a present obligation arising from past event that is expected to be settled by an outflow of economic benefits from an entityIn other words, if there is no past event, then there is no liability and no provision should be recognized. Past event can create two types of obligation: Legal obligation that …
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Objectives and Scope – Ind AS 37

Objectives and Scope – Ind AS 37  Introduction to Ind AS 37 Ind AS 37 Provisions, contingent liabilities and contingent assets outlines the accounting for provisions (liabilities of uncertain timing or amount), together with contingent assets (possible assets) and contingent liabilities (possible obligations)Provisions are measured at the best estimate (including risks and uncertainties) of the expenditure required to settle the present obligation and reflect the present value of expenditures required to settle the obligation when the time value of money is material Objectives of IND AS 37: The objectives of this Standard are to ensure that appropriate recognition criteria is applied to provisions, contingent liabilities …
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Disclosures – Ind AS 40

Disclosures as per Ind AS 40 Disclosure – 1 its accounting policy for measurement of investment propertywhen classification is difficult, the criteria it uses to distinguish investment property from owner-occupied property and from property held for sale in the ordinary course of businessthe extent to which the fair value of investment property (as measured or disclosed in the financial statements) is based on a valuation by an independent valuer who holds a recognized and relevant professional qualification and has recent experience in the location and category of the investment property being valued. If there has been no such valuation, that fact shall …
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Measurement after Recognition – Ind AS 40

Measurement after Recognition – Ind AS 40 Accounting Policy An entity shall adopt as its accounting policy the cost model per Ind AS 16to all of its investment property This Standard requires all entities to measure the fair value of investment property, for the purpose of disclosure even though they are required to follow the cost model An entity is encouraged, but not required, to measure the fair value of investment property on the basis of a valuation by an independent valuer who holds a recognized and relevant professional qualification and has recent experience in the location and category of the investment property being …
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Recognition and measurement – Ind AS 40

Recognition and measurement – Ind AS 40 An owned investment property shall be recognized as an asset when, and only when:it is probable that the future economic benefits that are associated with the investment property will flow to the entity; andthe cost of the investment property can be measured reliably An entity evaluates under this recognition principle all its investment property costs at the time they are incurredThese costs include costs incurred initially to acquire an investment property and costs incurred subsequently (if the recognition criteria are met )to add to, replace part of, or service a property Under the recognition principle, an …
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Objective, Scope and Key terms – Ind AS 40

Objective, Scope and Key terms – Ind AS 40  Objective The prime two objectives of the Ind AS 40 are as follows: to prescribe the accounting treatment for investment property andto prescribe the related disclosure requirements Scope This Standard shall be applied in the recognition, measurement and disclosure of investment propertyThis Standard does not apply to:biological assets related to agricultural activity (Refer Ind AS 41and Ind AS 16); andmineral rights and mineral reserves such as oil, natural gas and similar non-regenerative resources. Key terms Fair value The price that would be received to sell an asset orpaid to transfer a liabilityin an orderly transactionbetween market participantsat the measurement …
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Miscellaneous items – Ind AS 21

Miscellaneous items – Ind AS 21 Intra-group transactions While following the normal consolidation process, intra-group balances and intra-group transactions of a subsidiary are eliminated, thereby incorporating the results and the financial position of the foreign operation with that of the reporting entity. However, when an intra-group monetary item is eliminated against the corresponding intra-group asset or liability, an exchange difference would emerge in the consolidated financial statements.  The entity is exposed to a foreign exchange gain or loss arising on account of converting the monetary items.   All the exchange differences arising on account of consolidation are reported in the profit and loss account only …
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Translation to presentation currency- Ind AS 21

Translation to presentation currency- Ind AS 21 Executive summary of translation to presentation currency Let us see how the financial statements are translated to presentation currency Financial statements should be translated to presentation currency if the currency is different from the functional currency.  The assets and liabilities are translated based on the closing rate at which the balance sheet is prepared.  Income and expenses are translated at the exchange rate at the respective transaction dates.  Sometimes, this could also be based on the average rate for a period where the exchange rates do not fluctuate significantly.  The exchange differences arising on account of translation of the financial …
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Treatment of exchange differences – Ind AS 21

Treatment of exchange differences – Ind AS 21 Executive  summary of treatment of exchange differences Let us examine the treatment of exchange differences in the books of accounts with a practical example. Let us analyse the treatment of foreign exchange differences arising on account of translating the foreign currency balances to the presentation currency in respect of monetary items. The exchange differences arise either on settlement or on remeasurement at the reporting date. In both these cases, the exchange differences are recognised in the profit and loss account.  Let us briefly understand the difference between the FX revaluation entry and the FX translation entry.  The FX revaluation …
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Recognition and measurement – Ind AS 21

Recognition and measurement – Ind AS 21 Executive summary of recognition and measurement Let us see the recognition and measurement of foreign currency transactions in the books of accounts. First we need to understand what is meant by a foreign currency transaction.  Foreign currency transaction is a transaction in a currency other than the functional currency of the entity.  A foreign currency transaction is the one that is denominated in foreign currency that requires settlement in such foreign currency.  Let us look at the requirements for recognising a foreign currency transaction initially.  First, the foreign currency transaction is entered in separate books of accounts.  Then, the same is …
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Presentation Currency – Ind AS 21

Presentation Currency – Ind AS 21 Executive summary of Presentation currency Let us understand what is a presentation currency and how it is different from the functional currency. Presentation currency is the currency in which the financial statements are prepared.  This can be in a currency chosen by the entity as the entity is free to choose its own currency.  This is mainly for the purpose of presenting the financial statements to the stake holders who are located in another geographical area having a different local currency.  The main difference between a functional currency and the presentation currency should be understood very clearly.  Functional currency is determined …
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Foreign operations – Ind AS 21

Foreign operations – Ind AS 21 Executive summary of Foreign Operations Let us see how the functional currency is determined for a foreign operation.  So what are the factors to be considered in determining the functional currency of a foreign operation?  Basically, there are four factors to be considered. Let us see those factors one by one. The first factor to be considered is the degree of autonomy.  The question that needs to be asked is whether the foreign operation is conducted as an extension of the reporting entity. Are the activities in such foreign operation carried out without significant autonomy? If the answer …
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Functional Currency – Ind AS 21

Functional Currency – Ind AS 21 Executive summary of Functional Currency Functional currency is determined based on the primary economic environment in which it operates.  The primary economic environment is determined based on two primary factors as specified in the Standard viz., the currency in which cash is generated and the currency in which major expenses are incurred by the entity.  When there is a conflict between the two primary factors, then the entity should look for further indicators viz., the currency in which funds are generated which could be either equity or debt instruments and the currency in which the receipts from the …
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Uncertainty over Income Tax Treatments – Ind AS 12

Uncertainty over Income Tax Treatments – Ind AS 12 Issue It may be unclear how tax law applies to a particular transaction or circumstance. The acceptability of a particular tax treatment under tax law may not be known until the relevant taxation authority or a court takes a decision in the future. Consequently, a dispute or examination of a particular tax treatment by the taxation authority may affect an entity’s accounting for a current or deferred tax asset or liability. When there is uncertainty over income tax treatments, this Appendix addresses:whether an entity considers uncertain tax treatments separately;the assumptions an entity makes about …
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Changes in the Tax Status of an Entity or its Shareholders – Ind AS 12

Changes in the Tax Status of an Entity or its Shareholders – Ind AS 12 Issue A change in the tax status of an entity or of its shareholders may have consequences for an entity by increasing or decreasing its tax liabilities or assets.This may, for example, occur upon the public listing of an entity’s equity instruments or upon the restructuring of an entity’s equity.It may also occur upon a controlling shareholder’s move to a foreign country. As a result of such an event, an entity may be taxed differently; it may for example gain or lose tax incentives or become subject …
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Presentation and Disclosure – Ind AS 12

Presentation & Disclosure – Ind AS 12 Presentation Tax assets and tax liabilities Offset An entity shall offset current tax assets and current tax liabilities if, and only if, the entity:has a legally enforceable right to set off the recognised amounts; andintends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. An entity shall offset deferred tax assets and deferred tax liabilities if, and only if:the entity has a legally enforceable right to set off current tax assets against current tax liabilities; andthe deferred tax assets and the deferred tax liabilities relate to income taxes levied by …
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Measurement of deferred tax assets and liabilities – Ind AS 12

Measurement of deferred tax assets and liabilities – Ind AS 12 General Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities shall not be discounted. When different tax rates apply to different levels/ slabs of taxable income, deferred tax assets and liabilities are measured using the average rates that are expected to apply to the taxable profit …
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Initial recognition of an asset or liability – Ind AS 12

Initial recognition of an asset or liability – Ind AS 12 General A temporary difference may arise on initial recognition of an asset or liability, for example if part or all of the cost of an asset will not be deductible for tax purposes. The method of accounting for such a temporary difference depends on the nature of the transaction that led to the initial recognition of the asset or liability: in a business combination, an entity recognises any deferred tax liability or asset and this affects the amount of goodwill or bargain purchase gain it recognises (see above)if the transaction affects either …
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Business Combination – Context of Ind AS 12

Business Combination – Context of Ind AS 12 General Generally, the identifiable assets acquired, and liabilities assumed in a business combination are recognised at their fair values at the acquisition date.Temporary differences arise when the tax bases of the identifiable assets acquired, and liabilities assumed are not affected by the business combination or are affected differently.For example, when the carrying amount of an asset is increased to fair value but the tax base of the asset remains at cost to the previous owner, a taxable temporary difference arises which results in a deferred tax liability.In accordance with Ind AS 103, an entity …
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Current Tax & Deferred Tax – Ind AS 12

Current Tax & Deferred Tax – Ind AS 12 Current Tax Current tax, to the extent unpaid, should be recognised as a liability. If the amount already paid exceeds the amount due to be paid, the excess shall be recognised as an asset.In some jurisdictions, tax losses can be carried back to recover taxes paid in previous periods. The benefit relating to a tax loss that can be carried back to recover current tax of a previous period shall be recognised as an asset.An entity recognises the benefit as an asset in the period in which the tax loss occurs because it …
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Ind AS 12 – Income Taxes – Introduction

Ind AS 12 – Income Taxes – Introduction  Balance sheet approach Ind AS 12, as the name suggests, prescribes the accounting treatment for income taxes. Under the accounting standards, the relevant corresponding standard is AS 22 Taxes on Income.AS 22 required entities to account for deferred taxes using the income statement approach. Ind AS 12, on the other hand, requires the balance sheet approach to be followed for accounting for income taxes.The income statement approach focuses on timing differences, whereas the balance sheet approach focuses on temporary differences.Timing differences are differences between taxable profit and accounting profit that originate in one period …
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Objectives, Scope & Benefits Ind AS 21

Objectives, Scope & Benefits – Ind AS  21 Introduction to Ind AS 21 The importance of international trade in any business entity cannot be over-emphasisedWith globalisation, several entities have started to operate in more than one countryEven those entities that do not operate in other countries either buy or sell goods and/or services from their overseas parties or customersSeveral entities have their own overseas branches which could either be in the form subsidiary or an associateThe result of this is that the entities deal with multiple currencies all the timeThere are also requirements for an entity to present its financial statements in …
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Modification of contractual cash flows

Modification of contractual cash flows Modification due to renegotiation When the contractual cash flows of a financial asset are renegotiated or otherwise modified and the renegotiation or modification does not result in the de-recognition of that financial asset, an entity shall recalculate the gross carrying amount of the financial asset and shall recognise a modification gain or loss in profit or loss. The gross carrying amount of the financial asset is recalculated as the present value of the renegotiated or modified contractual cash flows that are discounted at the financial asset’s original effective interest rate (or credit-adjusted effective interest rate for POCI …
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Effective interest Rate

Effective interest Rate Effective interest rate – definition The rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset or to the amortised cost of a financial liability. When calculating the effective interest rate, an entity shall estimate the expected cash flows by considering all the contractual terms of the financial instrument (for example, prepayment, extension, call and similar options) but shall not consider the expected credit losses. The calculation includes all fees and points paid or received between parties to the …
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Message / Review from CA P. R. Ramesh

Message / Review from CA P. R. Ramesh Financial Instruments is by far the most complex and difficult subject in the field of accounting. The varied nature of such instruments with a wide range of derivatives and associated risk makes the task of measuring and reporting extremely challenging even for experts in the subject. A number of books have been written on IFRS and more recently on Ind AS but very few books have dwelt at length on the subject of financial instruments. This book by CA R. Venkata Subramani demystifies the subject of accounting for Financial Instruments and is extremely useful for …
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Main Features of Ind AS 102

Main Features of Ind AS 102 Share based payment transactions Indian Accounting Standard Ind AS 102 deals with Share based payment trans-actions. This is one of the standards announced by MCA IFRS 2 is the corresponding Accounting Standard issued by International Ac-counting Standards Board (IASB).Mandatory requirements – no exceptions:An entity has to recognise share-based payment transactions in its financial statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity. There are no exceptions to Ind AS 102, other than for transactions to which other Ind ASs apply. Measurement principles: There are specific requirements for …
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Accounting treatment for FVOCI Instruments

Accounting treatment for FVOCI Instruments Is there any difference between the accounting treatment for equity instruments and debt instruments classified as Fair Value Through Other Comprehensive Income (FVOCI)?  The answer is ‘yes’. Frequently participants in my class ask me the underlying reason for such a difference in the accounting treatment when both these types of financial assets are classified as FVOCI. Equity instruments The classification criteria for equity instruments and debt instruments are entirely different. Equity instruments can be classified as either Fair Value Through Profit or Loss (FVTPL) or FVOCI. The investor can exercise the choice without undue delay, provided the equity …
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Foreword by Shri T N Manoharan

Foreword by Shri T N Manoharan Mr R. Venkata Subramani, known for his expertise in the field of Financial Instruments accounting, has come up with a new series of books on Financial Instruments as per Ind AS, incorporating all the relevant aspects of accounting for financial instruments. Each book in the series lucidly deals with the various dimensions of presentation, classification, recognition, measurement and derecognition of Financial instruments. The introductory book deals with the nuances of financial instruments which would empower any reader with a conceptual understanding of the subject matter to pursue the study of other books in the series. The …
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Introduction by Shri M P Vijayakumar

Introduction by Shri M P Vijayakumar Almost all business transactions culminate in financial instruments in some form. In the present era of money, money and money, we witness an increasing trend of businesses being done through contractual arrangements which are structured to such an extent that after some time the contracting parties themselves struggle to understand the arrangement – intent vs agreement, substance vs form. Further, with commerce becoming global and developments in any part of the globe affecting us, the movement of financial instruments is the first indicator of direction of impact. The derivatives market is growing, has matured to a …
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Message from Shri Yagnesh Mohanlal Desai

Message from Shri Yagnesh Mohanlal Desai I have gone through the manuscript of Book – 1 viz., ‘Financial Instruments – An Introduction as per Ind AS 109’ in the series ‘Financial Instruments as per Ind AS’. CA R Venkata Subramani (Venkat), has rich and varied experience spanning across the entire gamut of Financial Instruments. He has helped implementation of IFRS / Ind AS especially hedge accounting for several international banks in Europe/APAC region. He is also known for his expertise in computing Expected Credit Loss (ECL) for non-banking financial companies. His hands-on experience has helped him understand the nuances of the subject …
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Financial Instruments Book Series as per Ind AS 109 (indas109)

Financial Instruments Book Series as per Ind AS 109 (indas109) Preface to the Book Financial instruments are probably the most complex topic in the entire literature of accounting standards. Accounting for financial instruments in the Indian context was earlier covered by AS 30, AS 31, and AS 32 issued by the Institute of Chartered Accountants of India (ICAI) in the year 2007/2008. These standards were supposed to become mandatory from April 1, 2011, but did not see the light of the day as these were withdrawn by ICAI, mainly due to the fact that the corresponding accounting standards of International Accounting Standards …
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Debt instrument measured at FVOCI

Debt instrument measured at FVOCI For financial assets that are debt instruments measured at FVOCI, both the amortised cost and the fair value of the instrument are relevant. The reason for this is the objective of categorising a debt instrument as FVOCI is that both the contractual cash flows characteristic and the fair value of the instrument are relevant as the asset is held to receive contractual cash flows as well as to buy or sell such assets. For the contractual cash flow characteristic, amortised cost is relevant as the interest revenue would be based on the effective rate calculated at …
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