Fixed Assets and Borrowing Costs under Ind-As

Transcription

1 Fixed Assets and Borrowing Costs under Ind-As 1

2 Applicable Pronouncements Ind-AS 16 : Property Plant & Equipment Appendix A (IFRIC 1) : Changes in Existing Decommissioning, Restoration and Similar Liabilities 2

3 How it Differs from I GAAP Rates of Depreciation method & useful life Revaluation - regularity & treatment Replacement cost & major inspection cost Component Accounting Decommissioning Cost Compensation on Impairment. 3

4 MEASUREMENT AFTER RECOGNITION INITIAL & SUBSEQUENT COSTS MEASUREMENT AT RECOGNITION DEPRECIATION, DERCOGNITION,IMPAIRMENTS & DISCLOSURES RECOGNITION 4

5 SCOPE Ind-AS 16 YES Applied to accounting for all property, plant, and equipment unless another Standard permits otherwise,.e.g., IndAS 17 Lease NO Property, plant, and equipment classified as held for sale in accordance with Ind-As 105 NO Bilogical Assets INDAS 41 5

6 PPE Tangible Items Held for Use in : - the Production or Supply of Goods - for Rental to others - for administrative purposes AND Are Expected to be used during more than one Period Please note the key word is period and NOT Year. 6

7 Useful Life Cost Residual Value Definitions Fair Value Depreciable Amount Depreciation 7

8 Recognise Initial Recognition As per Framework Its Probable that FEB will Flow into Entity & The Cost of Item Can be Measured Reliably 8

9 Measure Elements of Cost Same as per I GAAP Purchase price + import duties + non-refundable purchase taxes, Minus trade discounts and rebates. Directly Attributable Costs + Interest Ind AS 23 Initial Estimate of Cost of Dismantling and Removing. 9

10 Initial Costs Subsequent Costs To Acquire or construct Cost of Major inspection overhauling is also capitalised To add to, replace part of or service it. 10

11 Stop Capitalisation Cut Off Start Depreciating Cost Interest are Capitalised Cost- Interest NOT Capitalised Construction Development Acquisition Stage Directly Attributable Cost Employee Benefit Costs Costs of site preparation; Initial delivery and handling costs; Installation and assembly costs; Cost of Testing, Professional Fees De-commissioning Cost Asset in location condition necessary for it to be capable of operated in the manner as intended by the Management Opening a new facility; Introducing a new product or service Conducting business in a new location or with a new class of customer Administration and other general overheads. 11

12 Spare parts and Servicing Equipment Whether to Capitalise? Expensed Out Capitalised Usually carried as Inventory and expensed out as consumed Major Spares and Standby equipment are also capitalised Spares which can be exclusively used only in connection with particular equipment are capitalised 12

13 Treatment of Incidental Operations! Before -or - During Yes If required Construction or Development Should be Capitalised or Not? No If Not Required 13

14 Decommissioning Cost Appendix A (IFRIC 1) Includes Estimated Cost of Dismantling & Removing assets & restoring Sites Provided Only when there is a corresponding obligation recognised as a provisions under Ind-AS 37, provisions contingent liabilities and contingent assets. 14

15 De-Commissioning Cost - Estimate Period Amount Discount Rate To Arrive at Present Value For Initial Capitalisation 15

16 Initial Measurement - Cost Normally Cash Equivalent Price If Payment is Deferred Interest is capitalised IAS 23 Total Price Cash Equivalent = Interest Unless Exception to initial recognition At cost 16

17 Finance Lease Government Grant Exchange for Nonmonetary Assets 17

18 FV of Asset of Asset Given up or Received Measure Reliably Yes FV of Assets Given up Exchange with Non Monetary Assets No Carrying Amount of Assets Given up Unless FV of Assets Received is more clearly Evident Same as per I GAAP 18

19 Subsequent Measurements Carrying Amount of Replaced parts are Derecognised Recognise De- recognise Provided recognition Criteria is met 19

20 Measurement After Recognition Entire Class Cost Model Revaluation Model Less Less Accumulated Depreciation Any Accumulated Impairment Accumulated Depreciation Any Subsequent Accumulated Impairment 20

21 How to determine Fair Value? Land & Building:- From market based evidence by Appraisal by professionally Qualified valuers. Plant & Equipment By Appraisal. If No Market based evidence - need to estimate Fair value based on depreciated - replacement cost approach 21

22 Treatment of Accumulated Depreciation on Revaluation Restated Proportionately so that the carrying amount Of Assets after revaluation equals Its revalued amount. IndAS16.35a Eliminated Against the gross carrying amount of the asset Net amount is restated to the revalued amount of an assets. IndAS 16.35b Same as per I GAAP 22

23 Revaluation -Increase in Carrying Value Ind-AS16.39 Assets Accounts Dr. TAX Increase Earlier Decrease in Revaluation Reserve Yes Profit Or Loss To Revaluation Reserve Cr No Revaluation Reserve Assets Accounts Dr. To Statement of Profit & Loss Cr If Early decrease in Valuation Instead of Crediting RR credit goes to Statement of Profit & Loss 23

24 Revaluation -Decrease in Carrying Decrease Value.IndAS Dr Statement of Profit Or Loss Earlier Increase in Revaluation Reserve Yes Adjust against Revaluation Reserve Cr Assets Account No Profit or Loss Accounts Dr. Revaluation Reserve A/c Cr. Assets Recognised in Revaluation Reserve Account to the tune of credit Balance in RR Else in Statement of Profit & Loss 24

25 Treatment of Revaluation Reserve 1.Yearly from Revaluation Reserve directly to Retained earnings or 2. When the asset is derecognised If an entity make such transfers, it should be net of tax. Not treated as Reclassification adjustment. Such transfer is NOT routed through profit & loss account. 25

26 Systematic Basis Components Depreciation Begins Assets ready to Use Ceases earlier of IndAS 105 or De-recognition 26

27 Cost or Revalued Amount Residual Value Depreciable Amount Depreciable Amount Useful Life (Years ) Amount of Depreciation Standard mandates yearly review of useful life, residual value and method of depreciation. Changes wherein are regarded as changes in estimate, hence applied prospectively. 27

28 Depreciation Allocated on a systematic basis over its useful life. Year-end review of Method Ind-AS16.61 Residual value Ind AS16.51 Useful Life Treated as Change in Estimate 28

29 Depreciation Methods Not Exhaustive List Straight Line Method. Written Down Value Method. Units of Production Method. Land & Building are separable assets and there to be accounted for separately even though they are acquired together. 29

30 Depreciation not to be charged to Profit and Loss account. 30

31 Depreciation not to P & L When it is included in the carrying amount of another assets (e.g. conversion of inventory) PPE used for development may be included in the cost of Intangible assets as per Ind-AS

32 When Residual Value => CA Depreciation Zero No production When Unit of Production Method followed Ind-AS

33 When Asset is Disposed off Or When no Future Economic Benefits are Expected Asset is De-Recognised Gain or Losses Included in SOCI & Revaluation Surplus transferred to Retained earnings 33

34 Disposal can take place in many ways :- Sale - Ind AS 18 Revenue will be Applicable Lease Ind AS 17 Sale & Leaseback Applicable Consideration on Disposal to be Recognized initially at Fair value. 34

35 Impact Analysis on First Time Adoption Cherry Pick Model Permitted. Component Accounting must voluntary exemption in Appendix D-5 is specifically only for replacing cost by revalued amount. 35

36 Class Land Bldg Plant Items Post IFRS Revaluation Cost Cost On Transition Can be Cherry Pick

37 Challenges Land & Building Accounted for Separately even though acquired together Componentization Year end review of Useful life, residual value and method of depreciation. 37

38 Thank You & All the Best 38

39 By Ca Yagnesh Desai