NORTHERN INDIA REGIONAL COUNCIL

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1 VOL. XLVI, NO. 1 February - March 2018 NORTHERN INDIA REGIONAL COUNCIL OF THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA e-newsletter Team NIRC

2 EDITORIAL BOARD CA. Pankaj Periwal, Chairman CA. Nitin Kanwar, Vice-Chairman CA. Pooja Bansal, Member CA. Rajender Arora, Member CA. Sumit Garg, Member CA. Rakesh Makkar, Member CA. Deepak Garg, Member From the Desk of the Chairman... Editor : CA. Pankaj Periwal Dear Professional Colleagues, nircchairman@icai.org ; nirc@icai.in CA. Naveen N.D. Gupta CA. Sanjay Agarwal CA. Vijay Kumar Gupta CA. Sanjiv Kumar Chaudhary CA. Atul Kumar Gupta CA. Sanjay Vasudeva CA. Rajesh Sharma CA. Pankaj Periwal,Chairman CA. Nitin Kanwar,Vice-Chairman CA. Pooja Bansal, Secretary CA. Rajender Arora,Treasurer CA. Sumit Garg, NICASA, Chairman CA. Rakesh Makkar, NICASA, Member CA. Deepak Garg, NICASA, Member CA. Alok jain, Member CA. Rajesh Kr. Agrawal, Member CA. Rajinder Narang, Member CA. Swadesh Gupta, Member CA. Vivek Khurana, Member CA. Yogita Anand, Member As I embark my new role as the 66th Chairman of NIRC of ICAI effective from 27th February 2018, I carry with me the feeling of gratitude and humility. I owe this position to my father Late CA. S.S. Periwal, without his divine blessings it would not have been possible for me to achieve this milestone. I am grateful to the Almighty, my seniors in Council, my colleagues in the Regional Council and members at large for posing this overwhelming confidence and belief in me. I am deeply honored by the trust bestowed upon me by the members of this noble fraternity. At the same time I am aware of the magnitude of responsibility which this position brings along. It is undoubtedly a great honor for me to be blessed with an opportunity of serving the Northern India Regional Council having more than Chartered Accountants as members. As I carry the baton of Chairmanship, I express my deep regard and appreciation for the various initiatives taken by the Past Chairman and ensure you all that we shall carry forward this legacy with greater zeal and keeping intact high values of our noble profession. My heartiest congratulations to our newly elected President CA. Naveen N.D. Gupta and Vice-President CA Prafulla Premsukh Chhajed. I am sure that their rich knowledge, experience and understanding about the industry and profession will prove to be an asset for ICAI and we ll work in a cohesive manner towards the betterment of the profession. My focus during the year would be on timely & proper implementation of the Vision & Strategic Action Plan, 2018 as laid down by our worthy President of ICAI. I congratulate, CA Nitin Kanwar, CA. Pooja Bansal, CA. Rajender Arora, CA. Sumit Garg on being elected as Vice Chairman, Secretary, Treasurer & NICASA Chairman of NIRC respectively. Vision for 2018 For Members

3 Today is not just another day; it s a new opportunity, another chance, a new beginning. We are in an era of rapidly changing economic and financial environment. So as professionals it is extremely important to stay updated for discharge of our professional obligations in most effective and efficient manner. Keeping these thoughts in mind, efforts will be made to emphasize more on interactive seminars and conferences from time to time. I request all the members to share their ideas and thoughts about topics which they feel are quintessential and need to be discussed through seminars and conferences. I shall try my level best to encourage new expertise and at the same time seek enlightened knowledge of the seasoned experts of respective fields. We shall have major concentration towards improvement of the existing infrastructure to enable smooth administrative functioning with the use of latest technology. In this technology driven era it is very important to ensure that the updated information is passed on to the members of the fraternity through online portal of ICAI with just a single click. For Students Education is a passport to enter unbelievable potential of the future. Tomorrow belongs to the people who prepare for it today and these people are our students who are the pillars of ICAI. The future of quality of the profession lies on the shoulders of the students. An attempt is being made to provide them with the best study material, affordable coaching, experienced faculties and other supportive infrastructure so as to make their journey of becoming a Qualified Chartered Accountant easier. It s our Endeavour not to just ensure academic development of our students but to also equip students with the zeal, confidence and ability to face the challenges present in the real professional world. The ICAI has been making perseverant efforts in this regard and my team intends to take these efforts on new echelon. Some vital student activities like Advanced computer training, Advanced MCS classes, student conferences, cultural programs, elocution contest, sports tournaments are amongst few of the events that we intend to focus upon during next one year. Region are a vital segment of our functioning. The election of office bearers in the most of the Branches are over by now. I would like to congratulate the office bearers and I am sure that they will work very hard to ensure that the flag of ICAI continues to soar high. The participation of Branches is very important to implement the policies of Central and Regional Councils at the ground level.it is of extreme importance that they contribute in a more stronger and inclusive manner. I invite the Office Bearers of all Branches of NIRC to share their ideas and thoughts with us. Let us respect the integrity of the profession In the times of turbulence where the profession of Chartered Accountants has been brought under questioning lets, continue with dignity and remember: Keep integrity and your work ethics intact. So what if that means working a little harder; An honorable character is your best calling card, and that s something we all need to have. Changes are inevitable and not always controllable. What can be controlled is how we manage, react to the events and proactively move through the changed process while still maintaining our work ethics. With combined and co-operative efforts we can continue to maintain the rich heritage of the profession and we can take the profession to new milestones. Therefore, I look forward towards all of you for your continuous support to the profession. The feedback and suggestions of the members on any aspect of profession will help us to grow and we ll try to improvise the needful. So please share your opinions and suggestions. I will like to end this message with an assurance that I will try my level best to put my heart and soul towards the betterment of the profession and to maintain the integrity and respect that the word Chartered Accountant holds in our country. Let s look for something Positive in each day, even if on some days we have to look a bit harder for it, Let us face the challenges together and emerge successful in every given situation. New Office Bearers of the Branches NIRC doesn t work in isolation and all Branches of the Date: 16th March, 2018 Place: Ludhiana CA. Pankaj Periwal, Chairman, NIRC of ICAI

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5 Is the New Insolvency & Bankruptcy code ( IBC) a LADOO? CA. Sangeeta Gulati Massive expansion and investments, primarily funded through bank loans (despite a weak promoters' equity base), has given rise to companies which have over leveraged their balance sheets. Coupled with the economic slow-down, industry conditions and global financial crisis in the past, this led to these companies becoming financially stressed. While, certain companies were able to sustain themselves through swapping loans, many have already reached a point where they have financially broken down. Bhushan Steel, Lanco, Essar Steel, Kingfisher, Monnet Ispat and Alok Industries, are just a few reported examples of such broken down stories. The rise in the number of non-performing assets ( NPAs ) was therefore an inevitable consequence. The past decades have seen various leg islations and schemes being introduced from time to time to deal with the issue of debt recovery from corporates such as the Recovery of Debts Due to Banks and Financial Institutions Act, 1993; the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ( SARFAESI ); the Sick Industrial Companies (Special Provisions) Act, 1985 ( SICA ), the insolvency/winding up process provided under the Companies Act, 1956 and later Companies Act, 2013; and the Corporate Debt Restructuring Scheme and the Strategic Debt Restructuring Scheme introduced by RBI. The Insolvency and Bankruptcy Code, 2016 ( Insolvency Code ), enacted to consolidate the laws in India relating to reorganization and insolvency resolution process for all forms of corporate entities including individuals, in a time bound manner, has now become the latest game changer. With the amendments introduced by Banking Regulation (Amendment) Ordinance, 2017, followed by the subsequent Central Government's order dated May 5, 2017, the Reserve Bank of Indian ( RBI ) was authorized to issue directions to banks to initiate insolvency resolution process in respect of defaults, under the Insolvency Code, and to issue directions with respect to stressed assets. This led to the formulation of an Internal Advisory Committee ( IAC ) by RBI to advise it on cases that may be considered for reference for resolution under the Insolvency Code. Focusing on large stressed accounts at this stage, the IAC has recommended resolution of all accounts with fund and non-fund based outstanding amount greater than Rs crores with 60% or more classified as NPAs by banks as of March 31, 2016, and noted that 12 accounts (aggregating about 25% of the current gross NPAs) would qualify for immediate reference under the Insolvency Code. For other NPAs, the IAC has recommended that banks should finalize a resolution plan within 6 months and if a viable resolution plan is not agreed upon within such period, banks should be required to file for insolvency proceedings under the Insolvency Code. Based on IAC's recommendations, RBI issued directions to certain banks for referring the 12 accounts to initiate the insolvency process under the Code and thereafter followed by a second list of 28 defaulters. The legislative intent of the Insolvency Code was to streamline the insolvency resolution and liquidation process by providing a consolidated mechanism and platform to ensure smooth and easy debt recovery, which appeared to be a useful tool to address the issue of NPAs. However, an issue which recently came into the limelight was the ability of promoters to bid for their own defaulting companies. This invited criticism on the ground of possible misuse of the insolvency resolution process by defaulting promoters. Under the Insolvency Code, the insolvency resolution professional is required to invite prospective lenders, investors, and any other persons to put forward resolution plans. In view thereof, promoters were also able to bid for their debtor companies 'as any other person'. Take for instance the case where the National Company Law Tribunal admitted the insolvency application filed by the debtor company (Synergies-Dooray Automotive The views expressed herein are personal views of the author and do not necessarily represent the views of the NIRCs 5

6 Limited) and vide its order dated August 2, 2017, approved the resolution plan of Synergies Castings Limited where the cost of the scheme (i.e. the proposed payments to creditors and insolvency process cost) was Rs. 54 crores while the company owed Rs. 972 crores to the lenders. This has been challenged by its financial creditor, Edelweiss Asset Reconstruction Co. Ltd., before the National Company Law Appellate Tribunal, for alleged fraud by the debtor company as per media reports and is currently pending final adjudication. Another example is that of Essar Steel Limited's insolvency resolution, where reportedly one of its own promoters has also submitted its expression of interest and intends to file its resolution plan. With bidding for major companies like Essar Steel, Bhushan Steel, Bhushan Steel and Power, Alok Industries Ltd., Monnet Ispat and Energy Limited to apparently start soon as part of insolvency proceedings, the above instances led to big industry players (often those intending to bid for such stressed assets) questioning the credibility of the insolvency process if the existing promoters were able to reacquire their own defaulting companies with a major haircut. What followed was the passing of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017 by the Government on November 23, 2017 ( Ordinance ). This Ordinance primarily disqualifies a person from submitting a resolution plan if such person, or any other person acting jointly with such person, or any person who is a promoter or in the management or control of such person: is an undischarged insolvent; has been identified as a wilful defaulter in accordance with RBI guidelines; whose account is classified as an NPA and a period of 1 year or more has lapsed from the date of such classification and who has failed to make payment of all overdue amounts with interest thereon; has been convicted for any offence punishable with imprisonment for 2 years or more; has been disqualified to act as a director under the Companies Act, 2013; has been prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities market; has indulged in preferential transaction, undervalued transaction or fraudulent transaction in respect of which NCLT has passed an order under the Insolvency Code; has executed an enforceable guarantee in favour of a creditor, in respect of a corporate debtor under the insolvency resolution process or liquidation under the Insolvency Code; where any connected person in respect of such person meets any of the criteria specified in the above categories.1 has been subject to any disability corresponding to the aforesaid categories under any law in a jurisdiction outside India. This Ordinance is being touted by the Government as means to curb instances of fraud being perpetuated through abuse of the process under the Insolvency Code. However, this move is also being criticized by many as reducing the competitiveness of the bids (since promoters who could have upped the bidding have been taken out of the equation, which would ultimately result in lower proceeds for the lenders). In fact, as per certain analysts, this may even lead to a consolidation of power in the hands of few players (especially in the steel sector where various steel companies are being put under the auction hammer soon). So, has the Government, in a knee-jerk reaction to prevent further controversies, oversimplified this issue by introducing blanket disqualifications as opposed to following a process of case to case determination by NCLT on credibility of resolution plans/bids submitted by the promoters? The actual ramifications of this Ordinance would become clearer once the bidding results are out and the insolvency resolution plans are implemented. However, in the meanwhile, it is pertinent to note that the prohibition under the Ordinance is not limited to promoters who are wilful defaulters, but also includes within its purview, persons who have executed enforceable guarantees in favour of creditors in respect of the debtor company under the insolvency resolution process, and all of their connected persons. Therefore, even promoters who are not classified as wilful defaulters may be disqualified from submitting a resolution, and lose out on the opportunity of restructuring their company which may have been just a victim of adverse industry conditions. Debt resolution of small and medium enterprises may also become more challenging as there may not be many bidders, besides promoters, who would be interested in such companies. Valuations may in fact be lower as other bidders would tend to place lower bids and purchase the assets at the cheapest cost possible (as opposed to promoters who may have driven up the bid numbers given their personal attachment to the companies). The views expressed herein are personal views of the author and do not necessarily represent the views of the NIRCs 6

7 In addition to the recent developments under the Insolvency Code, the Government has also recently, announcing its approval of a recapitalization plan for infusing capital into public sector banks to the extent of Rs. 2,11,000 crores over the next 2 years through a mix of bonds and cash Infusion, inter alia with the objective of cleaning up of NPAs. However, while this recapitalization may be a welcome move for the banks, one cannot resort to recapitalization alone to resolve the issue of NPAs.. Infusion of cash will partially improve the balance sheets of Public sector banks which would pave the way for them to be sold and also will help banks to write off some of their 10 lakh crore bad loans currently on their books Infusion will be done in 3 parts, Government will directly pay banks Rs Crores by buying their shares and will encourage banks to buy Rs Crores from market. Bulk of Rs 1.35 Lakh Crores is expected to come from recapitalisation bonds somewhere in The impact of such bond on Economy needs to be carefully watched. Recapitalisation of banks is definitely a welcome step, but are we saying that 2.00 lakh Crores of capitalisation is good enough for the entire cleaning of NPA and no further NPA will be reported. Are we sure of current NPA number, the numbers as depicted by banks & RBI are also different. Will the Government continuously keeps recapitalising the Public banks as & when the NPA keeps swelling? There are so many bottle necks which needs to be carefully blocked as of now otherwise the entire process will again take a clean swipe as earlier reforms have taken and net result will be ----that public sector banks have swollen NPA on their balance sheet with clear dent in Economy The reason why corporate debt restructuring and strategic debt restructuring failed to a certain extent earlier, was because companies wanted capital infusion to run while banks, who were already suffering, refused to further lend money to such companies which led to these companies being unable to come out of the self-sustaining / revival packages earlier provided by the Government. Are there any options to loom out this issue. Some resolutions which can therefore be examined are: Introduction/Reinforcement of self-sustaining/revival package by the Promoters: One such example can be schemes such as the 5/25 refinancing scheme, which provided for longer gestation periods for repayment loans with promoters being at the helm of the company's affairs. In these schemes, promoters can be given the chance to seek for maximum amortisation period say up to years, depending upon the nature of industry and viable business model. Although such schemes do not require intervention of the NCLT, however, routing the scheme through the NCLT as part of the insolvency resolution mechanism, may render such schemes more viable and enforceable as both promoters and banks / lenders would be required to adhere to certain haircuts, funded interest, moratorium period, new funding, etc. which may be agreed to before the NCLT and any non-compliance would be strictly dealt with. Waiving off / changing management might also be helpful for certain companies but the same cannot be uniformly applied to all companies. Promoters' personal guarantee: The above can be coupled with promoters' personal guarantee wherein all the assets of promoters, whether in India, abroad, in trust, with family including children, shall be applied if the promoters are still defaulters. Involvement of Asset Reconstruction Companies: Extending/allowing asset reconstruction companies to control sick companies and banks to involve/sell distressed assets, can be another viable option. By appropriately implementing the aforesaid measures, the Government may be able to improve the conditions of debt ridden companies and the overall economy by adequately dealing with the issue of NPAs. While, it remains to be seen whether the Government's attempt to implement these measures is going to be successful in adequately addressing the growing problem of NPAs, however, a positive and firm start has definitely been made in the right direction. All these are required not to make our Reform s a SWEET PALATBLE IRRESTIBLE LADOO TO EAT. Sangeeta Gulati ( Author is a working member and views are expressed are her own ) K G Somani & Co, Chartered Accountants requires the following: Articles for Statutory Audit, Internal Audit, Financial Advisory and Taxation. Should have cleared both groups of IPCC. 7 Chartered accountants for- A. Statutory Audit - 2 B. Internal Audit - 2 C. Insolvency and bankruptcy practice - 3 Contact: at office@kgsomani.com The views expressed herein are personal views of the author and do not necessarily represent the views of the NIRCs 7

8 Tax net has expanded. The country's market has been integrated. Inspector raj is over. The tax burden on the masses has gone down. It is a win-win situation for all Hon'ble Finance Minister, Sh. Arun Jaitley Goods & Service Tax (GST) is a milestone in the India's indirect system, which came into force at a historic midnight session on 1st July 2017 in the Central Hall of the Parliament. GST is seen as the biggest tax reform since independence as it is a destination based tax system unlike earlier VAT, Service Tax laws etc. It is levied at multiple stages of production and distribution of goods & services with GST Credit available of taxes paid on the inputs & input services & the same can be adjusted against the GST to be paid on the outward supplies. The seamless flow of input tax credit is the beauty of Goods & Service Tax regime. So, whatever input goods, input services and/or capital goods are being utilised for the business purpose, shall be allowed as input tax credit to the registered buyer who in turn is making taxable supplies. In other words, we can say that, any person procuring input goods, input services & capital goods and utilising the same for purpose other than business or for making exempted supplies shall not be eligible to claim the credit of taxes paid by them on the inward supplies. Where the goods or services or both are used by the registered person: Partly for effecting taxable supplies including Zero rated supplies under this Act or Integrated Goods & Service Tax Act, and Partly for affecting exempt supplies under the said Acts, The amount shall be restricted to so much of the input tax credit as is attributable to the said taxable including zero-rated supplies. Further, section 17(5) of CGST Act 2017 specifies various input goods, input services and capital goods whose credit shall not be allowed. The taxpayer must take care that he doesn't book the credit of such ineligible items because if undue or excess credit is booked by the taxpayer, then as per section 50(3) of the CGST Act 2017, he is required to reverse such undue or excess credit booked along with the 24% p.a. These ineligible items are: (A) Motor vehicles and other conveyances except when they are used (i) For making the following taxable supplies, namely: further supply of such vehicles or conveyances ; or transportation of passengers; or imparting training on driving, flying, navigating such vehicles or conveyances; (ii) For transportation of goods; (B) The following supply of goods or services or both Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply; CA. Divya Bansal Membership of a club, health and fitness centre; Rent-a-cab, life insurance and health insurance except where the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or Such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply; and Travel benefits extended to employees on vacation such as leave or home travel concession; (C) Works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service; (D) Goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. Explanation. For the purposes of clauses (c) and (d), the expression construction includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property; (E) Goods or services or both on which tax has been paid under section 10 (composition scheme); (F) Goods or services or both received by a non-resident taxable person except on goods imported by him; (G) Goods or services or both used for personal consumption; (H) Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and (I) Any tax paid in accordance with the provisions of sections 74, 129 and 130. The entire concept of Input Tax Credit i.e. the cases where you are eligible to claim the credit and the details about ineligible credit are creatively presented in form of infographics attached below. Kindly refer the same for more clarity & to get summarised version of the concept. The views expressed herein are personal views of the author and do not necessarily represent the views of the NIRCs 8

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10 IND AS 20 / IAS 20: ACCOUNTING FOR GOVERNMENT GRANTS AND DISCLOSURE OF GOVERNMENT ASSISTANCE CA. Chandan Narang Ind AS 20 It covers Government assistance. Such Government assistance should be disclosed. Government grants: It should be recognized as income, on a systematic and rational basis, over the periods necessary to match them with the related costs. As a corollary, and by way of abundant precaution, the Standard reiterates that government grants should not be credited directly to shareholders interests This means crediting to Capital Reserve or reduction from asset is not allowed. Promoters Contribution: Grants should be recognized as income, on a systematic and rational basis, over the periods necessary to match them with the related costs. Such grants shall not be treated as capital receipt. Non Monetary Grants: NMG are recorded at Full Fair Value only. Covers Forgiven loans as a grant. Concessional loans are treated at par with Ind AS-109 Financial Instruments by effective interest method. Giving back the grant is known as Repayment of Government Grant. Repayment of Government Grant as per Ind AS-20 is known as change in Accounting estimates. Grants for the compensation of past losses or grants for immediate financial support should be transferred to P/L a/c or even deferred if conditions are yet to be complied. AS-12 It does not cover Government assistance For Depreciable Assets: Both Capital approach (less from asset) and Deferred approach is allowed. Non - Depreciable Assets: Its Capital Reserve if conditions complied. Deferred if conditions are not complied. Promoters Contribution: Equity. Promoters Contribution: Credited to Capital Reserve under the head shareholders funds Non Monetary Grants: NMG are recorded at concessional price (acquisition cost) or nominal value. AS-12 has forgone Forgiven loans No guidance on concessional loans as per AS-12. Giving back the grant is known as Refund of Government Grant. Refund of Government Grant as per AS-12 as well as by AS-5 is known as Extra ordinary activity. Grants for the compensation of past losses or grants for immediate financial support should be transferred to Extra ordinary activity. Ind as-20 deals with accounting of disclosures for government grants and disclosures for other forms of government assistance. Some important points on Ind as-20 Government assistance, according to the Standard, is action by the government aimed at providing economic benefits to some constituency by subsidizing entities that will provide them with jobs, services, or goods that might not otherwise be either available or available at a desired cost. Depending on the nature of the assistance given and the associated conditions, government assistance can be of many types, including The views expressed herein are personal views of the author and do not necessarily represent the views of the NIRCs 10

11 IND AS 20 / IAS 20: ACCOUNTING FOR GOVERNMENT GRANTS AND DISCLOSURE OF GOVERNMENT ASSISTANCE 45 grants, forgivable loans, and indirect or nonmonetary forms of assistance, such as technical advice, free legal advice, guarantee. Government assistance may not be recorded but requires disclosure. IAS 41: Ind AS-20 does not covers the Government grants related to IAS 41. Grants received for Biological assets are covered specifically by Ind AS-41 itself. But grants related to agriculture produce is to be covered by Ind AS 20. General Grants: Government grants to all : like LPG Subsidy to all companies is not covered by IAS 20. This is because Ind AS 20 is applicable to entity specific grants. Fair value: The amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm s-length transaction. Forgivable loans: Those loans that the lender undertakes to waive repayment of under certain prescribed conditions. Do you know Government grant is not revenue but other income. P r o b l e m s a n d s o l u t i o n s Problem 1:Zallosh Limited received a grant of 60,00,000 to compensate it for costs it incurred in planting trees over a period of five years. Zallosh Ltd. will incur such costs in this manner: Year Costs 1 20,00, ,00, ,00, ,00, ,00,000 Total costs thus incurred will aggregate to 300 lakhs, whereas the grant received is 60,00,000. Required: Based on the provisions of IAS 20, how would Brilliant Inc. treat the grant in its books? Solution: Applying the principle outlined in the Standard for recognition of the grant, that is, recognizing the grant as income over the period which matches the costs using a systematic and rational basis. Year Grant recognized as deferred 1 60,00,000 x (20/300) = 4,00, ,00,000 x (40/300) = 8,00, ,00,000 x (60/300) = 12,00, ,00,000 x (80/300) = 16,00, ,00,000 x (100/300) = 20,00,000 The views expressed herein are personal views of the author and do not necessarily represent the views of the NIRCs 11

12 Problem 2:Xellon Ltd received a land by paying 6,00,000 to the government for construction a factory run by a group of minority. The FV of the land at present is 50,00,000. The life of the factory is estimated to be 25 years. Pass journal entries as per Ind AS-20 for acquisition of land. Solution: Land Account Dr `50,00,000 (as per Ind AS-20 NM grant To Ca sh `6,00,000 To De ferred Grant `44,00,000 (The grant will be deferred over 25 years to P/L p.a.) Problem 3:Forgivable loans: Natushara Bevan Cosmo is an export company has received the attention of the State government of Gujarat. A loan outstanding 700 lakhs payable to ICICI Bank was waived by the government by 10%. Account as per Ind AS-20. Solution: Loan from ICICI Account Dr 70 lakhs To Income 70 lakhs P roblem 4:Concessional loans: Manusumti Watkar Ltd is dealing in organic farming as one of the business activities. The company had taken a loan of 200 lakhs from Canara Bank under the instruction of government. Manusumti is required to pay just 6% as interest. The market rate is 8%. Account as per Ind AS-20. Even the repayment of 10% of the loan will be additionally waived if the loan is repaid within 4 years. The company decides to repay the loan at the end of 4 years. Solution: Calculation of PV of Loan: (same as Ind AS-109 amortized cost) lakhs Year Cash flows PVF 8% PVCF Opn. balance Effective Int Cash Flows Amort (12) (12) (12) (192) PV = The difference between 200 and will be deferred in the ratio of interest and principal benefit. The benefit for 4 years = : : 2.06 : { principal) = : : 2.06 : Journal for yr 1: ( lakhs) Cash A/C Dr To Loan from Canara Bank To Deferred grant Finance cost A/C Dr (trf to P/L) To Cash 12 To Loan from Canara Bank Deferred grant A/C. Dr To Profit / Loss Account Bal. The views expressed herein are personal views of the author and do not necessarily represent the views of the NIRCs 12

13 IND AS 20 / IAS 20: ACCOUNTING FOR GOVERNMENT GRANTS AND DISCLOSURE OF GOVERNMENT ASSISTANCE Problem 5:On 1 October 2016 Epsilon opened a new factory in an area designated by the government as an economic development area. On that day the government provided Epsilon with a grant of $20 million to assist them in the development of the factory. This grant was in two parts: (i) $12 million of the grant related to the construction of a large factory at a cost of $60 million. The land was leased so the whole of the $60 million is depreciable over the estimated 30 year useful life of the factory. (ii) The remaining $8 million was received subject to keeping at least 200 employees working at the factory for a period of at least five years. If the number drops below 200 at any time in any financial year in this five year period then 20% of the grant is repayable in that year. From 1 October 2016 : 250 workers were employed at the factory and estimates are that this number is likely to increase over the next four years. Your assistant has recognised the $12 million received in respect of the factory as a credit to the income statement in the current year, on the basis that the factory has been constructed and brought into use. He has not recognized any of the $8 million employment grant on the basis that this is potentially repayable. He has charged $2 million in depreciation to the income statement. Comment. Solution: Accounting for government grants is dealt with by Ind AS 20 accounting for government grants and disclosure of government assistance. The basic principle of Ind AS 20 is that grants should be recognised as income over the periods necessary to match them with the related costs which they are intended to compensate, on a systematic basis. Where the grant relates to an asset Ind AS 20 allows deferred method of presentation in the balance sheet. In this case this would mean recognising $400,000 ($12 million x 1/30) as a credit to the income statement in the current year with the balance of $11 6 million ($12 million $400,000) shown in the balance sheet as a liability. $400,000 of this amount would be shown as a current liability with the balance of $11 2 million shown as a non-current liability. The same principle applies to the grant related to the employment of staff. The grant is probably not going to be repaid so delaying recognition is inappropriate. Unless the likelihood of repayment is remote then it would be appropriate to disclose the possible repayment as a contingent liability. $1 6 million ($8 million x 1/5) of the employment grant should be recognised in the income statement for the current year. Ind AS 20 allows this amount either to be shown as other income or as a reduction in the relevant expense. The unrecognised balance of $6 4 million ($8 million $1 6 million) would be shown as deferred income, with $1 6 million shown as a current liability and $4 8 million as a non-current liability. But has the company followed AS-12 or IAS 20 the grant related to the asset would have even be reduced from the asset. The views expressed herein are personal views of the author and do not necessarily represent the views of the NIRCs OBITUARY NIRC deeply mourns the sad demise of CA. S.K Gupta Past President ( ) of The Institute of Chartered Accountants of India who passed away on 6th March, NIRC deeply mourns the sad demise of CA. P.N Mehta Past Chairman ( ) of Northern India Regional Council of The Institute of Chartered Accountants of India who passed away on 6th March,

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16 A View at the Elections of New Office bearers of NIRC of ICAI 16

17 A View at the Seminar on Bank Audit held on 11nd March, 2018 A View at the Seminar on International taxation held on 23rd February, 2018 A View at the Annual Award Function of NIRC of ICAI held on A View at the Cricket Tournament for members (NPL ) (Final Match) 17

18 February 2018-March 2018 *ClassCenter-Shakarpur,VishwasNagar,EastAzadNagar&PrashantVihar 18