Carve Outs provided in Ind AS

Posted on    01 July 2011


The Ind As have been prepared by NACAS and with its recommendation submitted to MCA.NACAS adopted due consultative proposed of hosting the draft Ind As insisting comments/suggestions and therefore after deliberated with industries representative in NACAS. The finally recommended Ind AS have the following carve outs. These carve outs have been made to fill up the gap/differences in application of Accounting Principles Practices and economic conditions prevailing in India.


1. Ind AS 21-The Effects of Changes in Foreign Exchange Rates

It requires recognition of exchange differences arising on translation of monetary items from foreign currency to functional currency directly in profit or loss.


Carve out

Ind AS 21 permits an option to recognise exchange differences arising on translation of certain long-term monetary items from foreign currency to functional currency directly in equity. In this situation, Ind AS 21 requires the accumulated exchange differences to be amortised to profit or loss in an appropriate manner. 


2. Ind AS 28- Investment in Associates

1. Paragraph 25 require that difference between the reporting period of an associate and   that of the investor should not be more than three months, in any case. 


Carve out

The phrase ‘unless it is impracticable’ has been added in the relevant requirement i.e., paragraph 25 of Ind AS 28.


2.    IAS 28 requires that for the purpose of applying equity method of accounting in the preparation of investor’s financial statements, uniform accounting policies should be used. In other  words, if the associate’s accounting policies are different from those of the investor, the investor should change the financial statements of the associate by using same accounting policies. 


Carve out

The phrase, ‘unless impracticable to do so’ has been added in the relevant requirements i.e., paragraph 26 of Ind AS 28. 


3.  Ind AS 32- Financial Instruments in Presentation Part,

A Carve out is an exception has been included to the definition of ‘financial liability’ in paragraph 11 (b) (ii), Ind AS 32 to consider the equity conversion option embedded in a convertible bond denominated in foreign currency to acquire a fixed number of entity’s own equity instruments as an equity instrument if the exercise price is fixed in any currency. This exception is not provided in IAS 32.


4. Ind AS 39- Financial Instruments: Recognition and Measurement

IAS 39 requires all changes in fair values in case of financial liabilities designated at fair value through Profit and Loss at initial recognition  shall be recognised in profit or loss. IFRS 9 which will replace IAS 39 requires these to be recognised in ‘other comprehensive income’


Carve out

A proviso has been added to  paragraph 48 of Ind AS 39 that in determining the fair value of the financial liabilities which upon initial recognition are designated at fair value through profit or loss, any change in fair value consequent to changes in the entity’s own credit risk shall be ignored.


5. Ind AS 103, Business Combinations

IFRS 3 requires bargain purchase gain arising on business combination to be recognised in profit or loss. 


Carve out

Ind AS 103 requires the same  to be recognised in other comprehensive income and accumulated in equity as capital reserve, unless there is no clear evidence for the underlying reason for classification of the business combination as a bargain purchase, in which case, it shall be recognised directly in equity as capital reserve.


6. Ind AS 101,  First-time Adoption of Indian Accounting Standards

(i) Presentation of comparatives in the  First-time Adoption of Indian   Accounting Standards (Ind AS) 101(corresponding to IFRS 1)

IFRS 1 defines transitional date as beginning of the earliest period for which an entity   presents full comparative information under IFRS.  It is this date which is the starting point for IFRS and it is on this date the cumulative impact of transition is recorded based on assessment of conditions at that date by applying the standards retrospectively except to the extent specifically provided  in this standard as optional exemptions and mandatory exceptions. Accordingly, the comparatives, i.e., the previous year figures are also presented in the first financial statements prepared under IFRS on the basis of IFRS.  


Carve out

Ind AS  101,  requires an entity  to provide comparatives as per the existing notified Accounting Standards. It is provided that, in addition to aforesaid comparatives, an entity may also provide comparatives as per Ind AS on a memorandum basis.


(ii)    Presentation of reconciliation

IFRS 1 requires reconciliations for opening equity, total comprehensive income, cash flow statement and closing equity for the comparative period to explain the transition to IFRS from previous GAAP. 


Carve out

 Ind AS 101 provides an option to provide a comparative period financial statements on memorandum basis. Where the entities do not exercise this option and, therefore, do not provide comparatives, they need not provide reconciliation for total comprehensive income, cash flow statement and closing equity in the first year of transition but are expected to disclose significant differences pertaining to total comprehensive income. Entities that provide comparatives would have to provide reconciliations which are similar to IFRS.


(iii) Cost of Non-current  Assets Held for Sale and Discontinued Operations on the date of transition on First-time Adoption of Indian Accounting Standards (Ind AS)

Carve out

Ind AS 101 provides transitional relief that while applying Ind AS 105 - Non-current Assets Held for Sale and Discontinued Operations, an entity may use the transitional date circumstances to measure such assets or operations at the lower of carrying value and fair value less cost to sell. 


(iv) Foreign currency gains/losses on translation of long term monetary   items.

 Carve out

Ind AS 101 provides that on the date of transition, if there are long-term monetary assets or long-term monetary liabilities mentioned in paragraph 29A of Ind AS 21, an entity may exercise the option mentioned in that paragraph regarding spreading over the unrealised  Gains/Losses over the life of Assets/Liabilities either retrospectively or prospectively. If this option is exercised prospectively, the accumulated exchange differences in respect of those items are deemed to be zero on the date of transition.   


(v)  Financial instruments existing on transition date

Carve out

Ind AS 101 provides that  the financial instruments carried at amortised cost should be measured in accordance with Ind AS 39 from the date of recognition of financial instruments unless it is impracticable (as  defined in Ind AS 8) for an entity to apply retrospectively the effective interest method or the impairment requirements of Ind AS 39. If it is impracticable to do so then the fair value of the financial asset at the date of transition to Ind-ASs shall be the new amortised cost of that financial asset at the date of transition to Ind ASs. Ind AS 101 provides another exemption that financial instruments measured at fair value shall be measured at fair value as on the date of transition to Ind AS.


(vi) Definition of previous GAAP under Ind AS 101 Firsttime Adoption of Indian Accounting Standards 

IFRS 1 defines previous GAAP as the basis of accounting that a first-time adopter used immediately before adopting IFRS.  


Carve out

Ind AS 101 defines previous GAAP as the basis of accounting that a  first-time adopter used immediately before adopting Ind ASs for its reporting requirements in India. For instance, for companies preparing their financial statements in accordance with the existing Accounting Standards notified under the Companies (Accounting Standards) Rules, 2006 shall consider those financial statements as previous GAAP financial statements.


(vii) Cost of Property, Plant and Equipment (PPE), Intangible Assets, Investment Property, on the date of transition of First-time Adoption of Indian Accounting Standards. 

Ind AS 101 provides an entity an option to use carrying values of all assets as on  the date of transition in accordance with previous GAAP as an acceptable starting point under Ind AS. 


B.Carve-outs for specific industries

7.  Ind AS 18-Revenue

On the basis of principles of the IAS 18, IFRIC 15 on Agreement for Construction of Real Estate, prescribes that construction of real estate should be treated as sale of goods and revenue should be recognised when the entity has transferred significant risks and rewards of ownership and has retained neither continuing managerial involvement nor effective control.


Carve out

IFRIC 15 has not been included in Ind AS 18, Revenue. Such agreements have been scoped out from Ind AS 18 and have been included in Ind AS 11, Construction Contracts.  


8.     Ind AS 18- Revenue

Carve out

A footnote has been added in paragraph 1 to Ind AS 18, Revenue, that for rate regulated entities, this standard shall stand modified, where and to the extent the recognition and measurement of revenue of such entities is affected by recognition and measurement of regulatory assets/liabilities as per the Guidance Note on the subject being issued by the Institute of Chartered Accountants of India.


9.  Indian Accounting Standard on Agriculture (Corresponding   to IAS 41)

IAS 41, Agriculture, requires measurement of biological assets, viz ,living animals and plants at fair value and recognizing gains and losses arising on such measurement in profit or loss, unless ascertainment of fair value is unreliable.. 


Carve out

It has been decided to revise the Standard and not to issue the standard as it is.


 10.     Ind As -19 Employee Benefits vis-à-vis IFRSs/IASs restricting options.

According to Ind AS 19 the rate to be used to discount post-employment benefit obligation shall be determined by reference to the market yields on government bonds, whereas under IAS 19, the government bonds can be used only where there is no deep market of high quality corporate bonds. To illustrate treatment of gratuity subject to ceiling under Indian Gratuity Rules, an example has been added in Ind AS 19.IAS 19 permits various options for treatment of actuarial gains and losses for post- employment defined benefit plans whereas Ind AS 19 requires recognition of the same in other comprehensive income, both for post-employment defined benefit plans and other long-term employment benefit plans. The actuarial gains recognised in other comprehensive income should be recognised immediately in retained earnings and should not be reclassified to profit or loss in a subsequent period.  

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