Z:\TAXMANN MAGAZINES\CPT\CPT2017\CPT V40 P05\CPT V40 P05-[Contents i-iv] [MK] AMIT Volume 40 I Issue 5 I September 30 To October 6, 2017

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1 Z:\TAXMANN MAGAZINES\CPT\CPT2017\CPT V40 P05\CPT V40 P05-[Contents i-iv] [MK] AMIT II FOUNDER EDITOR : U.K. BHARGAVA EDITOR : RAKESH BHARGAVA HON. EDITORS : VINOD K. SINGHANIA (DR.) V.S. DATEY COORDINATING EDITOR : NAVEEN WADHWA Contents Volume 40 I Issue 5 I September 30 To October 6, 2017 Annual subscription from January - December 2017 is ` Single copy ` 100 only. Corporate Professionals Today is published on every Saturday. Non-receipt of part must be notified within 60 days of the due date. Address your editorial and subscription correspondence to : TAXMANN ALLIED SERVICES (P.) LTD., 59/32, New Rohtak Road, New Delhi Phones : Fax : PRINTED AND PUBLISHED BY : AMIT BHARGAVA on behalf of Taxmann Allied Services (P.) Ltd. and Printed at Tan Prints (India) Pvt. Ltd., 44 Km. Mile Stone, National Highway, Rohtak Road, Village Rohad, Distt. Jhajjar, Haryana (India) and Published at 59/32, New Rohtak Road, New Delhi (India). EDITOR : RAKESH BHARGAVA Material published in this part is the exclusive copyrighted property of Taxmann Allied Services (P.) Ltd. and cannot be reproduced or copied in any form or by any means without written permission of the Publisher. Editors do not necessarily agree with the views expressed by authors of articles/features. Views so expressed are the personal views of author(s). This publication is sold with the understanding that authors/editors and publishers are not responsible for the result of any action taken on the basis of this work nor for any error or omission to any person, whether a purchaser of this publication or not. All disputes are subject to jurisdiction of the Delhi High Court. sales@taxmann.com Website : http// MODE OF CITATION : [2017] 40 CPT... TOTAL PAGES 60 direct tax Laws MAt Credit - Whether inclusive of surcharge and education cess? - M.R.SAHU When is disallowance under section 14A triggered? - KAMLESH CHAinAni, PinKESH JAin, AnKit MALOO GSt 235 GST liability of liaison & branch office in india and outside india - V. S. datey 247 Can balance of Education Cess be carried forward to e-credit ledger? - L.S. KARtHiKEYAn Corporate Laws An insight into Guidance note on division ii - ind AS Schedule iii to the Companies Act, MAYAnK CHHABRA ideal Corporate Governance postulates freedom in decision-making for Boards and Senior Executives - t.n. PAndEY ii September 30 To October 6, 2017 u Taxmann s Corporate Professionals Today u Vol. 40 u 4

2 Z:\TAXMANN MAGAZINES\CPT\CPT2017\CPT V40 P05\CPT V40 P05-[Contents i-iv] [MK] AMIT III 258 Legal position of a shell company after striking-off its name from register - Anita Baid Accounts & Audit Ind AS: FAQs on Disclosures in Ind AS Financial Statements Ind AS Implementation (Ind AS Transition Facilitation Group Clarification Bulletin 11) Weekly Review Income-tax 278 Corporate Laws Goods and Services Tax September 30 To October 6, 2017 u Taxmann s Corporate Professionals Today u Vol. 40 u 5 iii

3 Z:\TAXMANN MAGAZINES\CPT\CPT2017\CPT V40 P05\CPTV40P05-01 [MK] JITu /C.d.> / / / An insight into Guidance Note on Division II - Ind As schedule III to the companies Act, 2013 Introduction 1. The Ministry of Corporate Affairs ( MCA ) vide its notification dated August 29, 2013 notified that every Company registered in India under Companies Act, 2013 ( Act ) has to prepare its Financial Statements under Schedule-III of the Act. Subsequently, the MCA vide notification dated February 16, 2015 notified that the companies required to prepared their accounts in accordance with Ind-AS will follow a separate format as stated in the notification. Due to the above, changes we now have 2 sets of Schedule-III as under: u The existing Schedule-III which is now renamed as Division I to Schedule III ( Non-Ind AS Schedule III ) - giving the format of Financial Statements for non-ind AS companies. u Division II - Ind AS Schedule III inserted to give a format of Financial Statements for companies that are required to comply with the Companies (Indian Accounting Standards) Rules, 2015, i.e., Ind-AS. Due to this change in the Schedule-III, Industry and professionals are facing a lot of issues in respect of preparing and presenting the Financial Statements in accordance with Division II of the Financial statements. To facilitate preparation of financial statements, the ICAI released a Guidance note - Guidance Note on Division II-Ind As Schedule-III to The Companies Act 2013 ( GN ) on May 24, MayanK ChhaBRa Manager - audit and assurance at international Business advisors Key Objective and Scope of the GN 2. The GN is issued by the ICAI with the following objective and scope: u The objective of the GN is to provide guidance in the preparation and presentation of Financial Statements in accordance with various aspects of Ind AS Schedule III. September 30 To October 6, 2017 u Taxmann s Corporate Professionals Today u Vol. 40 u

4 Z:\TAXMANN MAGAZINES\CPT\CPT2017\CPT V40 P05\CPTV40P05-01 [MK] JItu /C.d.> / / / u The guidance in the GN is recommendatory in nature. It also suggests that a member should ordinarily follow recommendations in a GN, except where he is satisfied that in the circumstances of the case, it may not be necessary to do so. Applicability of the GN 3. As per the MCA notification dated March 26, 2014, the Schedule-III (Division II) is applicable for the financial statements prepared for the financial year commencing on or after April 1, Further, as per the MCA notification dated April 06, 2016, Schedule-III is amended to include a format of financial statements for a company preparing Financial Statements in compliance with the Companies Ind AS Rules. All companies that prepare either voluntarily or mandatorily Financial Statements in compliance with the Companies Ind AS Rules, should consider Ind AS Schedule III as well as this GN. Further, according to an Explanation provided in the GN, it is not only applicable to the Financial statement prepared at the end of the year but is also applicable to the Interim Financial statements prepared by the Company. In Brief about the GN 4. The GN issued by the ICAI is further divided into the following sections: u Structure of Ind AS Schedule III u General Instructions for Preparation of Financial Statements: Notes 1 to 9 u Part I Notes - General Instructions for Preparation of Balance Sheet: Notes 1 to 5 u Part I - Form of Balance Sheet and Notes - General Instructions for Preparation of Balance Sheet: Notes 6 to 11. u Part II - Statement of Profit and Loss and Notes - General Instructions for Preparation of Statement of Profit and Loss: Notes 1 to 6 u Other Comprehensive Income u Additional information to be disclosed by way of Notes to Statement of Profit and Loss u Part III - General Instructions for Preparation of Consolidated Financial Statements. u Annexures. The brief about each of the section of the GN is as follows: 4.1 Structure of Ind AS Schedule III - The Structure as provided by Division II Schedule III is as under: (i) General Instructions for Preparation of Financial Statements of a Company. (ii) Form of Balance Sheet and Statement of Changes in Equity. (iii) General Instructions for Preparation of Balance Sheet. (iv) Form of Statement of Profit and Loss. (v) General Instructions for Preparation of Statement of Profit and Loss. (vi) General Instructions for the Preparation of Consolidated Financial Statements. 4.2 General Instructions for Preparation of Financial Statements: Notes 1 to 9 - This section of the GN provides the general instruction which is required to be followed while preparing the financial statements under Ind - As regime. Some of the major takeaways are: u The Ind - AS Financial Statements are prepared in such a manner that they are in conformity with the applicable law. However, if any law is amended and due to such amendment there is a conflict between law and the Ind - AS then the law will prevail over Ind - AS. 240 September 30 To October 6, 2017 u Taxmann s Corporate Professionals Today u Vol. 40 u 18

5 Z:\TAXMANN MAGAZINES\CPT\CPT2017\CPT V40 P05\CPTV40P05-01 [MK] JItu /C.d.> / / / u If compliance with the requirements of the Act including applicable Ind - AS require any change in the presentation or disclosure in the Financial Statements, the same shall be made and the requirements of Ind - AS Schedule III shall stand modified accordingly. u The disclosure requirements of the Ind - As Schedule III are in addition to and not in substitution of the disclosure requirements specified in Ind - AS. It is also clarified that the disclosures specified in Ind - As shall be made in the Notes or by way of additional statement(s), unless required to be disclosed on the face of the Financial Statements. u The round off requirement of division-ii Financial statements are : Turnover < ` 100 Crores - Round off to the nearest hundreds, thousands, lakhs or millions or decimal thereof. Turnover >= ` 100 Crores - Round off to the nearest lakhs, millions or crores, or decimal thereof. 4.3 Part I Notes: General Instructions for Preparation of Balance Sheet - Notes 1 to 5 - This section of GN provides guidance on the preparation of the Financial statements. Some of the major takeaways of this section of the GN are as follows Classification of the assets/liabilities of the Company u An asset or liability shall be classified as Current when: it expects to realise the asset, or intends to sell or consume it, in its normal operating cycle; it holds the asset primarily for the purpose of trading; it expects to realise the asset within twelve months after the reporting period; the asset is cash or a cash equivalent unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. An entity shall classify all other assets/ liabilities as non-current Settlement of a liability by issue of equity instruments - Both, Ind - AS 1 and Schedule III clarify that the terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. A consequence of this is that if the conversion option in convertible debt is exercisable by the holder at any time, the liability cannot be classified as current if the maturity for cash settlement is greater than one year. Hence, the treatment of the liabilities to be discharged through issuance of equity shall be done in accordance with the above stated paragraph Treatment of deferred tax asset/liability - The Deferred tax asset/liability of the Company shall always be classified as Non-Current. 4.4 Part I - Form of Balance Sheet and Notes - General Instructions for Preparation of Balance Sheet: Notes 6 to 11 - Under this head the GN explains how one has to classify heads under various heads of the Balance Sheet as provided under Division II schedule III under Current and Non-Current and then subsequently into financial and Non - Financial heads. The GN also provides the treatment of various specific issued which arise while preparing the balance sheet like treatment of assets and liabilities in case of business Combinations, treatment and disclosure of goodwill arising due to business Combinations and treatment of various transactions which arise while preparing the financial statements. 4.5 Part II - Statement of Profit and Loss and Notes - General Instructions for Preparation of Statement of Profit and Loss: Notes 1 to 6 - This segment of the GN deals with September 30 To October 6, 2017 u Taxmann s Corporate Professionals Today u Vol. 40 u

6 Z:\TAXMANN MAGAZINES\CPT\CPT2017\CPT V40 P05\CPTV40P05-01 [MK] JItu /C.d.> / / / disclosures relating to the Statement of Profit and Loss. The format prescribed is the vertical form wherein disclosure for revenues and expenses has been given in various line items. Part II contains items I to XVIII which lists items of Revenue, Expenses, Profit/(Loss) and Other Comprehensive Income. Since there is a major change in the Division II Schedule III as compared to the Division I Schedule III in respect of classification of the heads; earlier the statement of profit and loss was only bifurcated under the head Income, Expenses, tax expenses, exceptional or extraordinary item but now there is an new concept of other Comprehensive income ( OCI ). The GN provides disclosures on account of when an income shall be stated under OCI and what will be its treatment in the statement of profit and loss. Further, the GN also helps in preparing and presenting the various disclosures as are required under Division II Schedule III. 4.6 Other Comprehensive Income - In part II the GN helps us in the classification of the item of the statement of profit and loss under various heads. Under this head of GN it helps us in assisting the treatment of various entries of OCI. The section of the GN also provides help to the preparer of the Financial statement when a particular item of the OCI shall be reclassified under profit and loss and when not. The GN also provides specific examples of the transactions which shall never be classified to the profit and loss, hence, helping the user to understand the nature and effects of the transaction. 4.7 Additional information to be disclosed by way of Notes to Statement of Profit and Loss - This section of the GN helps the reviewer of the financial statements on how to check the various disclosures as are required by the Schedule III. Some of the disclosures which are required by Schedule III are employee benefit expenses, net gain or loss on sale of investments, net gain or loss on foreign currency translation (other than considered as finance cost), Payments to the auditor and various others. With the help of the GN one is able to understand what are steps to be taken in order to check the disclosures provided. 4.8 Part III - General Instructions for Preparation of Consolidated Financial Statements ( CFS ) - The GN under this section provides guidance on how to prepare CFS of the Company. The GN also provides difference in the requirement of the Ind-As on CFS and on standalone Financial statements of the Company. The GN suggests the following disclosures in the CFS; u It is adequate to present paid up capital and any calls in arrears. u Separate disclosure should be given for share application due outside the group in respect of entities which are consolidated. 4.9 Annexures - This section of the GN only provides the following informations; u Bare Division II Schedule III of the Companies Act, u Key Differences in Division I and Ind - AS Schedule III to the Companies Act, u Illustrative list of disclosures required under the Companies Act u List of Indian Accounting Standards. u Circular related to Clarification on matters relating to Consolidated Financial Statements. u Illustrative Standalone Financial Statements. Conclusion 5. With the introduction of the Ind-AS framework, the professionals now have to gear up and modify their approach for reviewing and preparing the Financial Statements. In order to ensure the compliance with Schedule III, there was always a need of the guidance 242 September 30 To October 6, 2017 u Taxmann s Corporate Professionals Today u Vol. 40 u 20

7 Z:\TAXMANN MAGAZINES\CPT\CPT2017\CPT V40 P05\CPTV40P05-01 [MK] JItu /C.d.> / / / for preparation and review of the Financial Statements. A Guidance Note was required to be issued as a lot of queries were raised for preparation of the Financial Statements and correct classification of all heads of accounts. The approach towards the classification of the heads of financial statements has also been changed, as now one will have to additionally ensure that a particular head is financial or non-financial, apart from its current and non-current classification. The GN has now emerged as one of the best technical guides to help someone in preparing and reviewing the Financial statements under Ind-AS regime. September 30 To October 6, 2017 u Taxmann s Corporate Professionals Today u Vol. 40 u