INDIAN ACCOUNTING STANDARD 101 6.

13

 An entity is not required to undertake an exhaustive search for information when

determining, at the date of transition to Ind AS, whether there have been significant
increases in credit risk since initial recognition.
 If, at the date of transition to Ind ASs, determining whether there has been a
significant increase in credit risk since the initial recognition of a financial instrument
would require undue cost or effort, an entity shall recognise a loss allowance at an
amount equal to lifetime expected credit losses at each reporting date until that
financial instrument is derecognised, unless that financial instrument is low credit risk
at a reporting date.
7. Embedded derivatives
A first-time adopter shall assess whether an embedded derivative is required to be
separated from the host contract and accounted for as a derivative on the basis of the
conditions that existed at the later of (a) the date it first became a party to the contract and
(b) the date a reassessment is required by Ind AS 109 i.e. when there is a change in the
terms of the contract that significantly modifies the cash flows that otherwise would be
required under the contract.
8. Government loans
A first-time adopter shall classify all government loans received as a financial liability or an
equity instrument in accordance with Ind AS 32, Financial Instruments: Presentation.
A first-time adopter shall apply the requirements in Ind AS 109, Financial Instruments, and
Ind AS 20, Accounting for Government Grants and Disclosure of Government Assistance,
prospectively to government loans existing at the date of transition to Ind AS and shall
not recognise the corresponding benefit of the government loan at a below-market rate
of interest as a government grant.
Example 4
Government of India provides loans to MSMEs at a below-market rate of interest to fund the
set-up of a new manufacturing facility.
Company A‟s date of transition to Ind AS is 1 April 20X5.
In 20X2, Company A had received a loan of ` 1 crore at a below-market rate of interest from
the government. Under Indian GAAP, Company A accounted for the loan as equity and the
carrying amount was ` 1 crore at the date of transition. The amount repayable at 31 March
20X9 will be ` 1.25 crore.
The loan meets the definition of a financial liability in accordance with I nd AS 32. Company
A therefore reclassifies it from equity to liability. It also uses the previous GAAP carrying
amount of the loan at the date of transition as the carrying amount of the loan in the opening

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 6.14 FINANCIAL REPORTING

Ind AS balance sheet. It calculates the annual effective interest rate (EIR) starting 1 April
20X5 as below:
EIR = Amount / Principal (1/t) i.e. 1.25/1 (1/4) i.e. 5.74%. approx.
At this rate, ` 1 crore will accrete to ` 1.25 crore as at 31 March 20X9.
During the next 4 years, the interest expense charged to statement of profit and loss shall be :

Year ended Opening amortised Interest expense Closing amortised

cost (`) for the year (`) @ cost (`)
5.74% p.a. approx.
31 March 20X6 1,00,00,000 5,73,713 1,05,73,713
31 March 20X7 1,05,73,713 6,06,627 1,11,80,340
31 March 20X8 1,11,80,340 6,41,430 1,18,21,770
31 March 20X9 1,18,21,770 6,78,230 1,25,00,000
Calculations have been done on full scale calculator. However, in case calculations are done
taking EIR as exact 5.74%, then there will be difference of a few ` due to rounding off.
An entity may apply the requirements in Ind AS 109 and Ind AS 20 retrospectively to any
government loan originated before the date of transition to Ind AS, provided that the
information needed to do so had been obtained at the time of initially accounting for that loan.
6.2 Optional exemptions from retrospective application of other Ind AS
1. Business combination
Ind AS 103 need not be applied to business combinations before date of transition. But, if
one business combination is restated to comply with Ind AS 103, all subsequent business
combinations are restated.
When the exemption is used:
 There won‟t be any change in classification from previous GAAP.
For example, if the “pooling of interests” method is applied as per AS 14, the
balances of assets and liabilities arising therefrom shall be carried forward.

Another example is regarding the identification of the acquirer – irrespective of the

fact that a business combination could have been a reverse acquisition as per Ind AS
103, the accounting adopted in previous GAAP shall be continued.

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 6.36 FINANCIAL REPORTING

Inventory 8,00,000 8,00,000

Financial assets:
Investment in S Ltd. 2 48,00,000 20,00,000 68,00,000
Trade Receivables 2,00,000 2,00,000
Cash 49,000 49,000
Other current asset –
(Advances for purchase
of inventory) 50,00,000 50,00,000
Total assets 2,42,99,000 20,00,000 2,62,99,000
Share capital 1,30,00,000 1,30,00,000
Other Equity:
Cumulative translation 5
difference 1,00,000 (1,00,000) 0
ESOP reserve 4 20,000 1,000 21,000
Retained earnings 6 1,79,000 20,99,000 22,78,000
Total equity 1,32,99,000 20,00,000 1,52,99,000
Non-current Liabilities
Financial liability:
VAT deferral loan 3 60,00,000 (22,74,472) 37,25,528
Deferred government grant 3 0 22,74,472 22,74,472
Current Liabilities
Financial Liabilities
Trade payables 30,00,000 30,00,000
Short term borrowings 8,00,000 8,00,000
Provisions 12,00,000 12,00,000
Total liabilities 1,10,00,000 1,10,00,000
Total equity and liabilities 2,42,99,000 20,00,000 2,62,99,000
*****
Illustration 17
Shaurya Limited is the company having its registered and corporate office at New Delhi.
60% of Shaurya Limited’s shares are held by the Government of India and rest by other
investors.
This is the first time that Shaurya limited would be applying Ind AS for the preparation of its
financials for the current financial year 2019-2020. Following balance sheet is prepared as
per earlier GAAP as at the beginning of the preceding period along with the additional
information:

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 INDIAN ACCOUNTING STANDARD 101 6.37

Balance Sheet as at 31 March 2018

(All figures are in ’000, unless otherwise specified)
Particulars Amount
EQUITY AND LIABILITIES
(1) Shareholders’ Funds
(a) Share Capital 10,00,000
(b) Reserves & Surplus 25,00,000
(2) Non-Current Liabilities
(a) Long Term Borrowings 4,50,000
(b) Long Term Provisions 3,50,000
(c) Deferred tax liabilities 3,50,000
(3) Current Liabilities
(a) Trade Payables 22,00,000
(b) Other Current Liabilities 4,50,000
(c) Short Term Provisions 12,00,000
TOTAL 85,00,000
ASSETS
(1) Non-Current Assets
(a) Property, Plant & Equipment (net) 20,00,000
(b) Intangible assets 2,00,000
(c) Goodwill 1,00,000
(d) Non-current Investments 5,00,000
(e) Long Term Loans and Advances 1,50,000
(f) Other Non-Current Assets 2,00,000
(2) Current Assets
(a) Current Investments 18,00,000
(b) Inventories 12,50,000
(c) Trade Receivables 9,00,000
(d) Cash and Bank Balances 10,00,000
(e) Other Current Assets 4,00,000
TOTAL 85,00,000

Additional Information (All figures are in ’000) :

1. Other current liabilities include ` 3,90,000 liabilities to be paid in cash such as
expense payable, salary payable etc. and ` 60,000 are statutory government dues.

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 6.38 FINANCIAL REPORTING

2. Long term loans and advances include ` 40,000 loan and the remaining amount
consists Advance to staff of ` 1,10,000.
3. Other non-current assets of ` 2,00,000 consists Capital advances to suppliers.
4. Other current assets include ` 3,50,000 current assets receivable in cash and Prepaid
expenses of ` 50,000.
5. Short term provisions include Dividend payable of ` 2,00,000. The dividend payable
had been as a result of board meeting wherein the declaration of dividend for financial
year 2017-2018 was made. However, it is subject to approval of shareholders in the
annual general meeting.
Chief financial officer of Shaurya Limited has also presented the following information
against corresponding relevant items in the balance sheet:
a) Property, Plant & Equipment consists a class of assets as office buildings whose
carrying amount is ` 10,00,000. However, the fair value of said office building as on
the date of transition is estimated to be ` 15,00,000. Company wants to follow
revaluation model as its accounting policy in respect of its property, plant and
equipment for the first annual Ind AS financial statements.
b) The fair value of Intangible assets as on the date of transition is estimated to be
` 2,50,000. However, the management is reluctant to incorporate the fair value
changes in books of account.
c) Shaurya Ltd. had acquired 80% shares in a company, Excel private limited few years
ago thereby acquiring the control upon it at that time. Shaurya Ltd. recognised
goodwill as per erstwhile accounting standards by accounting the excess of
consideration paid over the net assets acquired at the date of acquisition. Fair value
exercise was not done at the time of acquisition.
d) Trade receivables include an amount of ` 20,000 as provision for doubtful debts
measured in accordance with previous GAAP. Now as per latest estimates using
hindsights, the provision needs to be revised to ` 25,000.
e) Company had given a loan of ` 1,00,000 to an entity for the term of 10 years six years
ago. Transaction costs were incurred separately for this loan. The loan carries an
interest rate of 7%. The principal amount is to be repaid in equal installments over the
period of ten years at the year end. Interest is also payable at each year end. The
fair value of loan as on the date of transition is ` 50,000 as against the carrying
amount of loan which at present amounts to ` 40,000. However, Ind AS 109
mandates to recognise the interest income as per effective interest method after the
adjustment of transaction costs. Management says it is tedious task in the given case
to apply the effective interest rate changes with retrospective effect and hence is
reluctant to apply the same retrospectively in its first time adoption.

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 INDIAN ACCOUNTING STANDARD 101 6.39

f) In the long-term borrowings, ` 4,50,000 of component is due towards the State

Government. Interest is payable on the government loan at 4%, however the
prevailing rate in the market at present is 8%. The fair market value of loan stands at
` 4,20,000 as on the relevant date.
g) Under Previous GAAP, the mutual funds were measured at cost or market value,
whichever is lower. Under Ind AS, the Company has designated these investments at
fair value through profit or loss. The value of mutual funds as per previous GAAP is
` 2,00,000 as included in ‘current investment’. However, the fair value of mutual
funds as on the date of transition is ` 2,30,000.
h) Ignore separate calculation of deferred tax on above adjustments. Assume the net
deferred tax income to be ` 50,000 on account of Ind AS transition adjustments.
Requirements:
- Prepare transition date balance sheet of Shaurya Limited as per Indian Accounting
Standards
- Show necessary explanation for each of the items presented by chief financial officer
in the form of notes, which may or may not require the adjustment as on the date of
transition.
Solution
Transition date (opening) IND-AS BALANCE SHEET of SHAURYA LIMITED
As at 1 April 2018
(All figures are in ‟000, unless otherwise specified)
Particulars Previous Transitional Opening Ind
GAAP Ind AS AS Balance
adjustments Sheet
ASSETS
Non-current assets
Property, plant and equipment (Note 1) 20,00,000 5,00,000 25,00,000
Goodwill (Note 2) 1,00,000 - 1,00,000
Other Intangible assets (Note 3) 2,00,000 - 2,00,000
Financial assets:
Investment 5,00,000 - 5,00,000
Loans (Note 4) 40,000 10,000 50,000
Other financial assets 1,10,000 - 1,10,000
Other non-current assets 2,00,000 - 2,00,000
Current assets
Inventories 12,50,000 - 12,50,000

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 6.40 FINANCIAL REPORTING

Financial assets
Investment (Note 5) 18,00,000 30,000 18,30,000
Trade receivables (Note 6) 9,00,000 - 9,00,000
Cash and cash 10,00,000 - 10,00,000
equivalents/Bank
Other financial assets 3,50,000 - 3,50,000
Other current assets 50,000 - 50,000
TOTAL ASSETS 85,00,000 5,40,000 90,40,000
EQUITY AND LIABILITIES
Equity
Equity share capital 10,00,000 - 10,00,000
Other equity 25,00,000 7,90,000 32,90,000
Non-current liabilities
Financial liabilities
Borrowings (Note-7) 4,50,000 - 4,50,000
Provisions 3,50,000 - 3,50,000
Deferred tax liabilities (Net) 3,50,000 (50,000) 3,00,000
Current liabilities
Financial liabilities
Trade payables 22,00,000 - 22,00,000
Other financial liabilities 3,90,000 - 3,90,000
Other current liabilities 60,000 - 60,000
Provisions (Note-8) 12,00,000 (2,00,000) 10,00,000
TOTAL EQUITY AND LIABILITIES 85,00,000 5,40,000 90,40,000

OTHER EQUITY
Retained Earnings (`) Fair value reserve Total
As at 31 March, 2018 27,90,000 (W.N.1) 5,00,000 32,90,000
Working Note 1:
Retained earnings balance:
Balance as per Earlier GAAP 25,00,000
Transitional adjustment due to loan‟s fair value 10,000

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 INDIAN ACCOUNTING STANDARD 101 6.41

Transitional adjustment due to increase in mutual fund‟s fair value 30,000

Transitional adjustment due to decrease in deferred tax liability 50,000
Transitional adjustment due to decrease in provisions (dividend) 2,00,000
Total 27,90,000

Disclosure forming part of financial statements:

Proposed dividend on equity shares is subject to the approval of the shareholders of the
company at the annual general meeting and should not recognized as liability as at the Balance
Sheet date.
Note 1: Property, plant & Equipment:
As per para D5 of Ind AS 101, an entity may elect to measure an item of property, plant and
equipment at the date of transition to Ind AS at its fair value and use that fair value as its
deemed cost at that date.
Para D7AA has to be applied for all items of property, plant and equipment. So, if D5 exemp tion
is taken for buildings, Ind AS will have to be applied retrospectively for other assets as well.
Since, an entity elect to measure an item of property, plant and equipment at the date of
transition to Ind AS at its fair value and use that fair value as its deemed cost at that date, it is
assumed that the carrying amount of other assets based on retrospective application of Ind AS
is equal to their fair value of ` 10 lakhs.
Note 2: Goodwill:
Ind AS 103 mandatorily requires measuring the assets and liabilities of the acquiree at its fair
value as on the date of acquisition. However, a first time adopter may elect to not apply the
provisions of Ind AS 103 with retrospective effect that occurred prior to the date of transition to
Ind AS.
Hence company can continue to carry the goodwill in its books of account as per the previous
GAAP.
Note 3: Intangible assets:
Para D7 read with D6 of Ind AS 101 states that a first-time adopter may elect to use a previous
GAAP revaluation at, or before, the date of transition to Ind AS as deemed cost at the date of
the revaluation, if the revaluation was, at the date of the revaluation, broadly comparable to:
(a) Fair value; or
(b) Cost or depreciated cost in accordance with Ind AS, adjusted to reflect, f or example,
changes in a general or specific price index.
However, there is a requirement that Intangible assets must meet the definition and recognition

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 6.42 FINANCIAL REPORTING

criteria as per Ind AS 38.

Hence, company can avail the exemption given in Ind AS 101 as on the date of transition to use
the carrying value as per previous GAAP.
Note 4: Loan:
Para B8C of Ind AS 101 states that if it is impracticable (as defined in Ind AS 8) for an entity to
apply retrospectively the effective interest method in Ind AS 109, the fair value of the financial
asset or the financial liability at the date of transition to Ind ASs shall be the new gross carrying
amount of that financial asset or the new amortised cost of that financial liability at the date of
transition to Ind AS.
Accordingly, ` 50,000 would be the gross carrying amount of loan and difference of ` 10,000 (`
50,000 – ` 40,000) would be adjusted to retained earnings.
Note 5: Mutual Funds:
Para 29 of Ind AS 101 states that an entity is permitted to designate a previously recognised
financial asset as a financial asset measured at fair value through profit or loss in accordance
with paragraph D19A. The entity shall disclose the fair value of financial assets so designated
at the date of designation and their classification and carrying amount in the previous financial
statements.
D19A states that an entity may designate a financial asset as measured at fair value through
profit or loss in accordance with Ind AS 109 on the basis of the facts and circumstances that
exist at the date of transition to Ind AS.
Note 6: Trade receivables:
Para 14 of Ind AS 101 states that an entity‟s estimates in accordance with Ind AS at the date of
transition to Ind AS shall be consistent with estimates made for the same date in accordance
with previous GAAP (after adjustments to reflect any difference in accounting policies), unless
there is objective evidence that those estimates were in error.
Para 15 of Ind AS 101 further states that an entity may receive information after the date of
transition to Ind AS about estimates that it had made under previous GAAP. In accordance with
paragraph 14, an entity shall treat the receipt of that information in the same way as non -
adjusting events after the reporting period in accordance with Ind AS 10, Events after the
Reporting Period.
The entity shall not reflect that new information in its opening Ind AS Balance Sheet (unless the
estimates need adjustment for any differences in accounting policies or there is objective
evidence that the estimates were in error). Instead, the entity shall reflect that new information in
profit or loss (or, if appropriate, other comprehensive income) for the year ended 31 March
2019.

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 INDIAN ACCOUNTING STANDARD 101 6.43

Note 7: Government Grant:

Para 10A of Ind AS 20 states that the benefit of a government loan at a below-market rate of
interest is treated as a government grant. The loan shall be recognised and measured in
accordance with Ind AS 109, Financial Instruments. The benefit of the below -market rate of
interest shall be measured as the difference between the initial carrying value of the loan
determined in accordance with Ind AS 109, and the proceeds received. The benefit is
accounted for in accordance with this Standard.
However, Para B10 of Ind AS 101 states, a first-time adopter shall classify all government loans
received as a financial liability or an equity instrument in accordance with Ind AS 32, Financial
Instruments: Presentation. Except as permitted by paragraph B11, a first -time adopter shall
apply the requirements in Ind AS 109, Financial Instruments, and Ind AS 20, Accounting for
Government Grants and Disclosure of Government Assistance, prospectively to government
loans existing at the date of transition to Ind ASs and shall not recognise the corresponding
benefit of the government loan at a below-market rate of interest as a government grant.
Consequently, if a first-time adopter did not, under its previous GAAP, recognise and measure a
government loan at a below-market rate of interest on a basis consistent with Ind AS
requirements, it shall use its previous GAAP carrying amount of the loan at the date of transition
to Ind AS as the carrying amount of the loan in the opening Ind AS Balance Sheet. An entity
shall apply Ind AS 109 to the measurement of such loans after the date of transition to Ind AS.
Note 8: Dividend
Dividend should be deducted from retained earnings during the year when it has been declared
and approved. Accordingly, the provision declared for preceding year should be reversed (to
rectify the wrong entry). Retained earnings would increase proportionately due to such
adjustment.
*****

8. CARVE OUTS IN IND AS 101 FROM IFRS 1

(i) Definition of previous GAAP under Ind AS 101
As per IFRS
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
for its reporting requirement in India immediately before adopting Ind AS. The change
made it mandatory for Indian entities to consider the financial statements prepared in

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 INDIAN ACCOUNTING STANDARD 101 6.47

TEST YOUR KNOWLEDGE

Questions
1. Company A intends to restate its past business combinations with effect from 30 June 20X0
(being a date prior to the transition date). If business combinations are restated, whether
certain other exemptions, such as the deemed cost exemption for property, plant and
equipment (PPE), can be adopted?
2. X Ltd. was using cost model for its property, plant and equipment till March 31, 20 X2 under
previous GAAP. The Ind AS become applicable to the company for financial year
beginning April 1, 20X2. On April 1, 20X1, i.e., the date of its transition to Ind AS, it used
fair value as the deemed cost in respect of its property, plant and equipment. X Ltd. wants
to follow revaluation model as its accounting policy in respect of its property, plant and
equipment for the first annual Ind AS financial statements. Whether use of fair values as
deemed cost on the date of transition and use of revaluation model in the first annual Ind
AS financial statements would amount to a change in accounting policy?
3. Y Ltd. is a first time adopter of Ind AS. The date of transition is April 1, 20X5. On April 1,
20X0, it obtained a 7 year US $ 1,00,000 loan. It has been exercising the option provided
in Paragraph 46/46A of AS 11 and has been amortising the exchange differences in
respect of this loan over the balance period of such loan. On the date of transition to Ind
AS, Y Ltd. wants to discontinue the accounting policy as per the previous GAAP and follo w
the requirements of Ind AS 21 with respect to recognition of foreign exchange differences.
Whether the Company is permitted to do so?
4. A company has chosen to elect the deemed cost exemption in accordance with Ind AS 101.
However, it does not wish to continue with its existing policy of capitalising exchange
fluctuation on long term foreign currency monetary items to property, plant and equipment
i.e. it does not want to elect the exemption available as per Ind AS 101. In such a case,
how would the company be required to adjust the foreign exchange fluctuation already
capitalised to the cost of property, plant and equipment under previous GAAP?
5. XYZ Pvt. Ltd. is a company registered under the Companies Act, 2013 following Accounting
Standards notified under Companies (Accounting Standards) Rules, 2006. The Company
has decided to voluntarily adopt Ind AS w.e.f 1 st April, 20X2 with a transition date of
1 st April, 20X1.
The Company has one Wholly Owned Subsidiary and one Joint Venture which are into
manufacturing of automobile spare parts.

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 6.48 FINANCIAL REPORTING

The consolidated financial statements of the Company under Indian GAAP are as under:
Consolidated Financial Statements
(` in Lakhs)
Particulars 31.03.20X2 31.03.20X1
Shareholder's Funds
Share Capital 7,953 7,953
Reserves & Surplus 16,547 16,597
Non-Current Liabilities
Long Term Borrowings 1,000 1,000
Long Term Provisions 1,101 691
Other Long-Term Liabilities 5,202 5,904
Current Liabilities
Trade Payables 9,905 8,455
Short Term Provisions 500 475
Total 42,208 41,075
Non-Current Assets
Property Plant & Equipment 21,488 22,288
Goodwill on Consolidation of subsidiary and JV 1,507 1,507
Investment Property 5,245 5,245
Long Term Loans & Advances 6,350 6,350
Current Assets
Trade Receivables 4,801 1,818
Investments · 1,263 3,763
Other Current Assets 1,554 104
Total 42,208 41,075
Additional Information:
The Company has entered into a joint arrangement by acquiring 50% of the equity shares
of ABC Pvt. Ltd. Presently, the same has been accounted as per the proportionate
consolidated method. The proportionate share of assets and liabilities of ABC Pvt. Ltd.
included in the consolidated financial statement of XYZ Pvt. Ltd. is as under:
Particulars ` in Lakhs
Property, Plant & Equipment 1,200
Long Term Loans & Advances 405
Trade Receivables 280
Other Current Assets 50

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 INDIAN ACCOUNTING STANDARD 101 6.49

Trade Payables 75
Short Term Provisions 35

The Investment is in the nature of Joint Venture as per Ind AS 111.

The Company has approached you to advice and suggest the accounting adjustments
which are required to be made in the opening Balance Sheet as on 1st April, 20X1.
6. Mathur India Private Limited has to present its first financials under Ind AS for the year ended
31st March, 20X3. The transition date is 1 st April, 20X1.
The following adjustments were made upon transition to Ind AS:
(a) The Company opted to fair value its land as on the date on transition.
The fair value of the land as on 1 st April, 20X1 was ` 10 crores. The carrying amount as on
1 st April, 20X1 under the existing GAAP was ` 4.5 crores.
(b) The Company has recognised a provision for proposed dividend of ` 60 lacs and
related dividend distribution tax of ` 18 lacs during the year ended 31 st March, 20X1.
It was written back as on opening balance sheet date.
(c) The Company fair values its investments in equity shares on the date of transition.
The increase on account of fair valuation of shares is ` 75 lacs.
(d) The Company has an Equity Share Capital of ` 80 crores and Redeemable
Preference Share Capital of ` 25 crores.
(e) The reserves and surplus as on 1 st April, 20X1 before transition to Ind AS was
` 95 crores representing ` 40 crores of general reserve and ` 5 crores of capital
reserve acquired out of business combination and balance is surplus in the Retained
Earnings.
(f) The company identified that the preference shares were in nature of financial
liabilities.
What is the balance of total equity (Equity and other equity) as on 1 st April, 20X1 after transition
to Ind AS? Show reconciliation between total equity as per AS (Accounting Standards) and as
per Ind AS to be presented in the opening balance sheet as on 1 st April, 20X1.
Ignore deferred tax impact.
7. ABC Ltd is a government company and is a first-time adopter of Ind AS. As per the
previous GAAP, the contributions received by ABC Ltd. from the government (which holds
100% shareholding in ABC Ltd.) which is in the nature of promoters‟ contribution have been
recognised in capital reserve and treated as part of shareholders‟ funds in accordance with
the provisions of AS 12, Accounting for Government Grants.

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 6.50 FINANCIAL REPORTING

State whether the accounting treatment of the grants in the nature of promoters‟
contribution as per AS 12 is also permitted under Ind AS 20 Accounting for Government
Grants and Disclosure of Government Assistance. If not, then what will be the accounting
treatment of such grants recognised in capital reserve as per previous GAAP on the date of
transition to Ind AS.
Answers
1. Ind-AS 101 prescribes that an entity may elect to use one or more of the exemptions of the
Standard. As such, an entity may choose to adopt a combination of optional exemptions in
relation to the underlying account balances.
When the past business combinations after a particular date (30 June 20X0 in the given
case) are restated, it requires retrospective adjustments to the carrying amounts of
acquiree‟s assets and liabilities on account of initial acquisition accounting of the acquiree‟s
net assets, the effects of subsequent measurement of those net assets (including
amortisation of non-current assets that were recognised at its fair value), goodwill on
consolidation and the consolidation adjustments. Therefore, the goodwill and equity
(including non-controlling interest (NCI)) cannot be computed by considering the deemed
cost exemption for PPE. However, the entity may adopt the deemed cost exemption for its
property, plant and equipment other than those acquired through business combinations.
2. In the instant case, X Ltd. is using revaluation model for property, plant and equipment for
the first annual Ind AS financial statements and using fair value of property, plant and
equipment on the date of the transition, as deemed cost. Since the entity is using fair value
at the transition date as well as in the first Ind AS financial statements, there is no change
in accounting policy and mere use of the term „deemed cost‟ would not mean that there is a
change in accounting policy.
3. Ind AS 101 provides that a first-time adopter may continue the policy adopted for
accounting for exchange differences arising from translation of long-term foreign currency
monetary items recognised in the financial statements for the period ending immediately
before the beginning of the first Ind AS financial reporting period as per the previous
GAAP. Ind AS 101 gives an option to continue the existing accounting policy. Hence, Y
Ltd. may opt for discontinuation of accounting policy as per previous GAAP and follow the
requirements of Ind AS 21. The cumulative amount lying in the Foreign Currency Monetary
Item Translation Difference Account (FCMITDA) as per AS 11 should be derecognised by
an adjustment against retained earnings on the date of transition.
4. Ind AS 101 permits to continue with the carrying value for all of its property, plant and
equipment as per the previous GAAP and use that as deemed cost for the purposes of first
time adoption of Ind AS. Accordingly, the carrying value of property, plant and equipment
as per previous GAAP as at the date of transition need not be adjusted for the exchange
fluctuations capitalized to property, plant and equipment. Separately, it allows a company

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 INDIAN ACCOUNTING STANDARD 101 6.51

to continue with its existing policy for accounting for exchange differences arising from
translation of long term foreign currency monetary items recognised in the financial
statements for the period ending immediately before the beginning of the first Ind AS
financial reporting period as per the previous GAAP. Accordingly, given that Ind AS 101
provides these two choices independent of each other, it may be possible for an entity to
choose the deemed cost exemption for all of its property, plant and equipment and not
elect the exemption of continuing the previous GAAP policy of capitalising exchange
fluctuation to property, plant and equipment. In such a case, in the given case, a
harmonious interpretation of the two exemptions would require the company to recognise
the property, plant and equipment at the transition date at the previous GAAP carrying
value (without any adjustment for the exchanges differences capitalized under previou s
GAAP) but for the purposes of the first (and all subsequent) Ind AS financial statements,
foreign exchange fluctuation on all long term foreign currency borrowings that arose after
the transition date would be recognised in the statement of profit and loss.
5. As per paras D31AA and D31AB of Ind AS 101, when changing from proportionate
consolidation to the equity method, an entity shall recognise its investment in the joint
venture at transition date to Ind AS.
That initial investment shall be measured as the aggregate of the carrying amounts of the
assets and liabilities that the entity had previously proportionately consolidated, including
any goodwill arising from acquisition. If the goodwill previously belonged to a larger cash-
generating unit, or to a group of cash-generating units, the entity shall allocate goodwill to
the joint venture on the basis of the relative carrying amounts of the joint venture and the
cash-generating unit or group of cash-generating units to which it belonged. The balance
of the investment in joint venture at the date of transition to Ind AS, determined in
accordance with paragraph D31AA above is regarded as the deemed cost of the
investment at initial recognition.
Accordingly, the deemed cost of the investment will be
Property, Plant & Equipment 1,200
Goodwill (Refer Note below) 119
Long Term Loans & Advances 405
Trade Receivables 280
Other Current Assets 50
Total Assets 2,054
Less: Trade Payables 75
Short Term Provisions 35
Deemed cost of the investment in JV 1,944

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 6.52 FINANCIAL REPORTING

Calculation of proportionate goodwill share of Joint Venture ie ABC Pvt. Ltd.

Property, Plant & Equipment 22,288
Goodwill 1,507
Long Term Loans & Advances 6,350
Trade Receivables 1,818
Other Current Assets 104
Total Assets 32,067
Less: Trade Payables 8,455
Short Term Provisions 475
23,137
Note: Only those assets and liabilities have been taken into account for calculation of
„proportionate goodwill share of Joint Venture‟, which were given in the question as
„proportionate share of assts and liabilities of ABC Ltd. added to XYZ Ltd.‟
Proportionate Goodwill of Joint Venture
= [(Goodwill on consolidation of subsidiary and JV/Total relative net asset) x Net asset
of JV]
= (1507 / 23,137) x 1825 = 119 (approx.)
Accordingly, the proportional share of assets and liabilities of Joint Venture will be removed
from the respective values assets and liabilities appearing in the balance sheet on
31.3.20X1 and Investment in JV will appear under non-current asset in the transition date
balance sheet as on 1.4.20X1.
Adjustments made in previous GAAP balance sheet to arrive at Transition date Ind AS
Balance Sheet
Transition Date Ind AS Balance Sheet of XYZ Pvt. Ltd. as at 1st April, 20X1
Particulars Previous Ind AS Ind AS GAAP
GAAP Adjustment
Non-Current Assets
Property, Plant & Equipment 22,288 (1,200) 21,088
Investment Property 5,245 - 5,245
Intangible assets - Goodwill on 1,507 (119) 1,388
Consolidation
Financial Assets
Long Term Loans & Advances 6,350 (405) 5,945
Non- current investment in JV - 1,944 1,944

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 INDIAN ACCOUNTING STANDARD 101 6.53

Current Assets -
Financial Assets
Investments · 3,763 - 3,763
Trade Receivables 1,818 (280) 1,538
Other Current Assets 104 (50) 54
Total 41,075 (110) 40,965
Equity and liabilities
Equity
Share Capital 7,953 - 7,953
Other equity 16,597 - 16,597
Non-Current Liabilities
Financial Liabilities
Borrowings 1,000 1,000
Long Term Provisions 691 691
Other Long-Term Liabilities 5,904 5,904
Current Liabilities
Financial Liabilities
Trade Payables 8,455 (75) 8,380
Short Term Provisions 475 (35) 440
Total 41,075 (110) 40,965

6. Computation of balance total equity as on 1 st April, 20X1 after transition to Ind AS

` in crore
Share capital- Equity share Capital 80
Other Equity
General Reserve 40
Capital Reserve 5
Retained Earnings (95-5-40) 50
Add: Increase in value of land (10-4.5) 5.5
Add: De recognition of proposed dividend (0.6 + 0.18) 0.78
Add: Increase in value of Investment 0.75 57.03 102.03
Balance total equity as on 1 st April, 20X1 after transition
to Ind AS 182.03

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 6.54 FINANCIAL REPORTING

Reconciliation between Total Equity as per AS and Ind AS to be presented in the

opening balance sheet as on 1 st April, 20X1
` in crore
Equity share capital 80
Redeemable Preference share capital 25
105
Reserves and Surplus 95
Total Equity as per AS 200
Adjustment due to reclassification
Preference share capital classified as financial liability (25)
Adjustment due to derecognition
Proposed Dividend not considered as liability as on 1st April 20X1 0.78
Adjustment due to remeasurement
Increase in the value of Land due to remeasurement at fair value 5.5
Increase in the value of investment due to remeasurement at fair value 0.75 6.25
Equity as on 1 st April, 20X1 after transition to Ind AS 182.03

7. Paragraph 2 of Ind AS 20, “Accounting for Government Grants and Disclosure of

Government Assistance” inter alia states that the Standard does not deal with government
participation in the ownership of the entity.
Since ABC Ltd. is a Government company, it implies that government has 100%
shareholding in the entity. Accordingly, the entity needs to determine whether the payment
is provided as a shareholder contribution or as a government. Equity contributions will be
recorded in equity while grants will be shown in the Statement of Profit and Loss.
Where it is concluded that the contributions are in the nature of government grant, the
entity shall apply the principles of Ind AS 20 retrospectively as specified in Ind AS 101
„First Time Adoption of Ind AS‟. Ind AS 20 requires all grants to be recognised as income
on a systematic basis over the periods in which the entity recognises as expenses the
related costs for which the grants are intended to compensate. Unlike AS 12, Ind AS 20
requires the grant to be classified as either a capital or an income grant and does not
permit recognition of government grants in the nature of promoter‟s contribution directly to
shareholders‟ funds.
Where it is concluded that the contributions are in the nature of s hareholder contributions
and are recognised in capital reserve under previous GAAP, the provisions of paragraph 10
of Ind AS 101 would be applied which states that except in certain cases, an entity shall in
its opening Ind AS Balance Sheet:

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 INDIAN ACCOUNTING STANDARD 101 6.55

(a) recognise all assets and liabilities whose recognition is required by Ind AS;
(b) not recognise items as assets or liabilities if Ind AS do not permit such recognition;
(c) reclassify items that it recognised in accordance with previous GAAP as one type of
asset, liability or component of equity, but are a different type of asset, liability or
component of equity in accordance with Ind AS; and
(d) apply Ind AS in measuring all recognised assets and liabilities.
Accordingly, as per the above requirements of paragraph 10(c) in the given case,
contributions recognised in the Capital Reserve should be transferred to appropriate
category under „Other Equity‟ at the date of transition to Ind AS.

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