Issued in accordance of Section 145 (2) of the Income-tax Act,1961
Category Relevant AS to be followed for Accounting Purpose Proprietorship AS issued by ICAI ICDS Relevant AS to be followed for Income Computation Partnership Firm AS issued by ICAI ICDS Company Company having Higher Net Worth AS issued under Companies (Accounting Standards) Rules Ind AS issued under Companies (Accounting Standards) Rules, 2015 ICDS ICDS
Sub- Section 1 Method of Accounting For PGBP & IOS Cash Basis or Mercantile Basis Sub- Section 2 Central Government may Notify Income Computation and Disclosure Standards Sub- Section 3 If Sub-Section 1 and 2 not followed Assessment u/s 144 (Self Assessment Section)
Income Computation Not for Accounts Only for Computation of PGBP & IOS incomes Disclosure Standards Form 3 CD
ICDS Act
Issued on 29.09.2016 vide Notification No. 87/2016 Applicable from 01.04.2016 Applicable from Asst. Year 2017-18 Will first be applied in Advance Tax Calculation for the First Quarter
Corresponding Accounting Standard 1 on Disclosure of Accounting Policies Fundamental Accounting Assumption Going Concern Consistency Accrual
ICDS I :: Accounting Policies Factors Governing Selection of Accounting Policy 1. Substance over Form 2. Prudence (Mark to Market loss not to be recorded unless permitted) 3. True and Fair
ICDS I :: Accounting Policies Marked to market loss or an expected loss shall not be recognised unless the recognition of such loss is permitted by any other ICDS
ICDS I :: Accounting Policies No Change in Accounting Policy without REASONABLE CAUSE (Reasonable Clause not defined)
Question 9: ICDS 1 provides that an accounting policy shall not be changed without reasonable cause. The term reasonable cause is not defined. What shall constitute reasonable cause? Answer: Under the Act, reasonable cause is an existing concept and evolved well over a period of time conferring desired flexibility to the tax payer in deserving cases.
All contracts or transactions existing on the 1 st April, 2016 or entered after the date shall follow the ICDS after taking note of the adjustments already made earlier, if any.
ICDS I :: Accounting Policies Disclosure of Accounting Policies All significant accounting policies must be disclosed. Any significant change in accounting policy must be disclosed. (Two times) Disclosure of accounting policies cannot remedy a wrong treatment.
Corresponding Accounting Standard 2 on Valuation of Inventories Valuation Principal similar to AS 2 Lower of Cost or NRV
ICDS II :: Valuation of Inventories Cost shall include: All costs incurred to bring the goods to its present location and condition Cost of manufacturing will include all costs including systematic allocation of Fixed Cost. All duties and taxes paid
ICDS II :: Valuation of Inventories Cost shall NOT include: Storage Cost Administrative Costs Selling Costs Abnormal Loss Trade Discount (i.e. Valuation at Purchase less Trade Discount)
ICDS II :: Valuation of Inventories Cost Formula When Specific Identification of Inventories is Possible viz a viz its Purchase Lot Valued at Respective Purchase Price lot to which the Inventories belong to When Inventories present cannot be identified with the respective Purchase Invoice Either valued at FIFO Basis or valued at Weighted Average Basis Or Valued under Retail Price Method (Only applicable for retail traders) Standard Cost
ICDS II :: Valuation of Inventories Raw Material Valuation Primarily at Cost (If Finished Goods are sold at Profit)
ICDS II :: Valuation of Inventories Dissolution of Partnership Firm, whether business is continued or not Valuation of Inventory to be done compulsorily at Net Realisable Value.
For a continuing Firm Closing Stock of Preceding Year For a New Firm Cost of Inventory available on the day of commencement of business
Accounting Policies adopted in measuring inventories including cost formula used. Details of Inventories for which Standard Costing has been used (A confirmation of the fact that Standard Cost approximates the actual cost) Total Carrying Amount of Inventories
Corresponding Accounting Standard 7 on Accounting of Construction Contracts Scope: Applicable for the computation of Income of Contractor of Construction Contract Provisions of this ICDS shall be applied to each Construction Contract Separately.
ICDS III :: Construction Contracts Revenue and Cost Recognition Percentage of Completion Method (POCM)
ICDS III :: Construction Contracts Percentage of Completion is assessed under either of three ways: Cost Incurred till date to Total Estimated Cost Physical Completion Method Survey Method Progress payments and advances received from customers are not determinative of the stage of completion of a contract.
ICDS III :: Construction Contracts Profit & Loss Account To Contract Cost XXXXX By Contract Revenue XXXXXX (Total Est. Cost * % of Completion) (Total Est. Revenue * % of Completion) To Profit XXXXX Note: Contract Revenue should be recognised when there is reasonable certainty of its ultimate collection.
ICDS III :: Construction Contracts When Percentage of Completion is below 25% Contract Revenue = Contract Cost (i.e. Contract Revenue is not recognised as per POCM) No Profit and No Loss
AS - 7 ICDS - 3 ICDS III :: Construction Contracts Major Deviation from Existing AS 7 100% Loss to be provided in P&L at the moment it is realised that the loss will be suffered whether or not Project has begun. Recognize Loss on the Basis of Percentage of Completion Method. (This is illogical and against the concept of Provision for Onerous Contract which is globally Accepted)
Question 11: Whether the recognition of retention money, receipt of which is contingent on the satisfaction of certain performance is yet to be recognised as revenue on billing? Answer: Yes, subject to reasonable certainty of its ultimate collection.
Disclosure Amount of Contract Revenue recognised as Revenue Method used to determine stage of completion Costs + Recognised Profit Recognised losses Advances Received Retentions
Corresponding Accounting Standard 9 on Revenue Recognition Revenue on sale of Goods to be recognised when Transfer of Property takes place or Transfer of Risks and Rewards of ownership takes place And, Reasonable certainty of its ultimate realization exists.
Revenue on sale of services to be recognised On Percentage of Completion Basis. (The provisions of ICDS on Construction Contracts shall apply Mutatis Mutandis for sales of services.)
Duration of Service Contract is 90 days or less Service comprise of number of acts to be performed; then revenue may be recognised on SLM basis
Treatment of Other Revenue Items Interest On Time Basis Premium or Discount to be amortised over the period of maturity Royality As per Agreement On some systematic and rational basis Dividend As per provisions of Act
Total amount of sale not recognised due to lack of reasonable certainty of its collection Amount of revenue from Service Transaction recognised as revenue Method used to determine Percentage of Completion For Service Transaction in progress at end - Costs + Recognised Profits Losses - Amount of Advance Received - Amount of Retentions
Corresponding Accounting Standard 10 & 6 on Fixed Assets & Depreciation Tangible Fixed Assets : Cost Includes Purchase Price Duties & Taxes (Excluding those which are recoverable) Other Directly Attributable Expenses Price Adjustment Start up and Commissioning Expenses Test Run Expenses (Till Commercial Production)
Tangible Fixed Assets: Cost excludes/ is deducted Trade Discount & Rebates Price Adjustment General Overheads
Accounting for Improvements and repairs are similar to normal accounting norms. Depreciation as per provisions of Act Income from sale / transfer of Tangible Fixed Assets as per the provisions of Act
Description of Asset or block of Assets Rate of Depreciation Actual cost or WDV Additions and deductions with dates Depreciation Allowable Closing WDV (Generally mentioned in Clause 18 of Form 3 CD)
Corresponding Accounting Standard 11 on Foreign Exchange Rates Initial Recognition of a Transaction made in Foreign Currency is recorded at the rate existing on the date of transaction. Monthly /weekly average exchange rates can be taken for all transactions of the month / weeek if these rates are approximately similar to the actual rates on the transaction date.
Conversion on Closing Dates Monetary Items (Cash, Debtors etc) At the Closing Rate Difference is treated as income or expense Non-Monetary Items (Stock, Plant & Machine etc) Continued at the rate of date of transaction Inventory valued at NRV; date of determination of NRV Subject to Section 43A of the Act
Corresponding Accounting Standard 12 on Accounting of Government Grants It requires recognition of Government Grants only when there is a reasonable assurance that the person shall: - Comply with the conditions attached to them; - Receive the Grant. Condition of receipt of Grant are not to be seen once the Grant is received.
Treatment of Government Grant Grant Related to Dep Fixed Assets Deducted from the Fixed Assets Grant Related to Expenses Recognised as Income in the matching period of Incurred Expenses Misc. Other Grant Treated as Income (Deviation from Supreme Court Judgement of Ponni Sugal Mills (2008)
Recorded at the price at which it has been recevied (i.e. Concessional Price)
Nature & Extent of Government Grants recognised by way of Deduction from Actual Cost Nature & Extent of Government Grants recognised as Income Nature & Extent of Government Grants not recognised as Income and reason thereof
Corresponding Accounting Standard 13 on Investments It deals with Securities held as Stock in Trade only.
Valuation of Securities Lower of Cost or Net Realisable Value
Comparison of Cost or NRV is to be done on the basis of Category Wise not Individual basis. (Deviation from Supreme Court Judgment in case of UCO Bank Limited (240 ITR 355)
Corresponding Accounting Standard 16 on Borrowing Costs Borrowing Cost includes: Commitment Charges on Borrowing Amortised amount of Discount & premium Amortised amount of ancillary cost Finance Charge under Finance Lease
Qualifying Assets Land, building, machinery, plant or furniture being tangible assets Know how, patent, copyrights etc being intangible assets Inventories that require more than one year in its coming into saleable condition
Treatment of Borrowing Cost Borrowing Cost incurred on Qualifying Asset acquisition Capitalised till put to Use Section 36 (1) iii amended Other Borrowing Cost Charged to revenue
Accounting Policy adopted for borrowing cost Amount capitalised during the year
Corresponding Accounting Standard 29 A Provision is recognised when: There is present obligation Arising out of Past Event Of which reliable estimate can be made Reasonable certainty (Not Probable) of outflow of resources
Contingent Liability and Contingent Assets are not to be recognised.
All. You Thank CA. Aditya Kumar Maheshwari Siliguri aditya.cafirm@gmail.com 97330 44550