15 May 2019 Ankit Chadha

What is new about the changes to the Indian Accounting Standards?

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The Ministry of Corporate Affairs has notified changes to a few IAS or Indian Accounting standards to bring about parity with changes in IFRS or International Financial Reporting Standards. These amendments were suggested on 30th March 2019 and were to be implemented for financial year 2019-2020 with effect from 1st of April 2019.

Introduction of IAS 116: Lease:

IAS 116 comes into the picture with the omission of IAS 17 with effect from 1st April 2019. This deals with the treatment of lease in the books of accounts of the lessor and the lessee. The provisions of the standard applicable to lessors continues to be substantially the same, there are however a lot of changes to the way in which lessee would account for leases in his books of accounts.

The provision says that all leases shall be treated as financial leases expect for those concerning lease of low value assets and those which are for a short-term period. Whenever an asset is taken on lease, the company would have to recognise the lease liability and the right to use the asset. The lease liability should be valued as the current value of due lease payments. The right of use asset on the other hand shall be valued as a summation of lease liability’s initial value, relevant payments made at the time of or before lease commencement, initial costs if any bourn by the company and the cost incurred for dismantling the asset and restoration of the site where it would be located. Present values shall be arrived at after considering the interest component. For balance sheet purposes, right of use of asset shall be valued net of depreciation and value of lease shall be calculated by adding the interest component and deducting the amount paid if any.

Amendments to IAS 109: Financial Instruments:

The notification of amendment to IAS 109 introduces guidelines on classification of financial instruments with features of pre-payment and negative compensation. Terms of a contract of a financial instrument permitting repayment by the holder or permitting the issuer or the lender to allow the borrower to repay prior to maturity at an amount lesser than the aggregate principal and interest amount attract negative compensation.

The amendment specifies that subject to satisfaction of the conditions mentioned in IAS 109, these financial instruments may be measured at fair value or amortised cost.

Amendments to IAS 12: Income taxes:

Amendments related to IAS 12 are with regard to Dividend distribution taxes and tax consequence in case when tax treatment of any item is uncertain.

Whenever a company is liable to pay dividend, there arises a liability to create a liability for payment of DDT or dividend distribution tax. This element should be recorded in the Statement for Profit and loss. Tax treatment is considered to be uncertain if there exists an uncertainty regarding acceptance of assigned tax treatment by Income tax authority.

Amendments to IAS 19: Employee Benefits:

The amendments in this accounting standard relate to accounting of defined benefit on amendment, settlement and curtailment of plan. At the time of computation of the cost of past service at the time of plan curtailment or amendment, the amount of defined benefit asset or liability shall be re measured on basis of actuarial assumptions and current value of assets. There should be a clear reflection of the benefits offered prior and post plan curtailment, amendment or settlement.

Amendments to IAS 28: Investment in Associates and Joint Ventures:

This amendment has been bought in for bringing about clarity regarding share of losses of a joint venture or associate post reduction of equity interest to nil. Interest in joint ventures and associates which are accounted for in accordance of IAS 28 have been excluded as per IAS 109.

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