CHAPTER

73

IND AS ON PRESENTATION
OF GENERAL PURPOSE
FINANCIAL STATEMENTS
UNIT 1 :
INDIAN ACCOUNTING STANDARD 1 :
PRESENTATION OF FINANCIAL STATEMENTS

LEARNING OUTCOMES
After studying this unit, you will be able to:
 List the scope and objective of Ind AS 1
 Define the relevant terms used in Ind AS 1
 Explain the purpose of financial statements
 Illustrate the complete set of financial statements
 Describe the general features of the financial statements
 Follow the structure and content of the financial statements
 Identify the various components of financial statements
 Prepare the disclosures to be made in the financial statements
 Discuss the significant differences in Ind AS 1 vis-à-vis AS 1
 Reconcile the carve out in Ind AS 1 from IAS 1.

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UNIT OVERVIEW

• Objective
• Scope
• Definitions
Ind AS 1

• Purpose of financial statements

• Complete set of financial statements
Financial • General features
Statements

• Identification of the financial statements

• Components of financial statements
Structure and
Content

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1.1 IND AS 1 ‘PRESENTATION OF FINANCIAL

STATEMENTS’ - INTRODUCTION
Ind AS 1 is a basic standard, which prescribes the overall requirements for the presentation of
general-purpose financial statements and guidelines for their structure, i.e., components of
financial statements, viz., balance sheet, statement of profit and loss (including other
comprehensive income), statement of cash flows and notes comprising significant accounting
policies, etc. Further, the standard prescribes the minimum disclosures that are to be made in
the financial statements and explains the general features of the financial statements. The
presentation requirements prescribed in the standard are supplemented by the recognition,
measurement and disclosure requirements set out in other Ind AS for specific transactions and
other events.

1.2 OBJECTIVE
This standard prescribes the basis for presentation of general-purpose financial statements to
ensure comparability:
a) with the entity’s financial statements of previous periods and
b) with the financial statements of other entities.
It sets out overall requirements for the presentation of financial statements, guidelines for their
structure and minimum requirements for their content.

1.3 SCOPE
 This standard applies to all types of entities including those that present:
(a) consolidated financial statements in accordance with Ind AS 110 ‘Consolidated
Financial Statements’; and
(b) separate financial statements in accordance with Ind AS 27 ‘Separate Financial
Statements’.
 This standard does not apply to structure and content of condensed interim financial
statements prepared in accordance with Ind AS 34 except for para 15 to 35 of Ind AS 1.
 This Standard uses terminology that is suitable for profit-oriented entities, including public
sector business entities.

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 If entities with not for-profit activities in the private sector or the public sector apply this
Standard, they may need to amend the descriptions used for line items in the financial
statements and for the financial statements themselves.
 Similarly, entities that do not have equity as defined in Ind AS 32 Financial Instruments:
Presentation (e.g. some mutual funds) and entities whose share capital is not equity (e.g.
some co-operative entities) may need to adapt the financial statement presentation of
members’ or unit holders’ interests.

1.4 DEFINITIONS
1. Accounting policies are defined in paragraph 5 of Ind AS 8 Accounting Policies, Changes
in Accounting Estimates and Errors, and the term is used in this Standard with the same
meaning.
2. General purpose financial statements (referred to as ‘financial statements’) are those
intended to meet the needs of users who are not in a position to require an entity to prepare
reports tailored to their particular information needs.
3. Impracticable: Applying a requirement is impracticable when the entity cannot apply it after
making every reasonable effort to do so.
4. Indian Accounting Standards (Ind AS) are Standards prescribed under Section 133 of the
Companies Act, 2013.
5. Material
Information is material if omitting, misstating or obscuring it could reasonably be expected to
influence decisions that the primary users of general-purpose financial statements make on
the basis of those financial statements, which provide financial information about a specific
reporting entity.
Materiality depends on the nature or magnitude of information, or both. An entity assesses
whether information, either individually or in combination with other information, is material
in the context of its financial statements taken as a whole.
Information is obscured if it is communicated in a way that would have a similar effect for
primary users of financial statements to omitting or misstating that information.
Examples of circumstances that may result in material information being obscured:
(a) information regarding a material item, transaction or other event is disclosed in the
financial statements but the language used is vague or unclear;

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(b) information regarding a material item, transaction or other event is scattered throughout
the financial statements;
(c) dissimilar items, transactions or other events are inappropriately aggregated;
(d) similar items, transactions or other events are inappropriately disaggregated; and
(e) the understandability of the financial statements is reduced as a result of material
information being hidden by immaterial information to the extent that a primary user is
unable to determine what information is material.
Assessing whether information could reasonably be expected to influence decisions made
by the primary users of a specific reporting entity’s general purpose financial statements
requires an entity to consider the characteristics of those users while also considering the
entity’s own circumstances.
Many existing and potential investors, lenders and other creditors cannot require reporting
entities to provide information directly to them and must rely on general purpose financial
statements for much of the financial information they need. Consequently, they are the
primary users to whom general purpose financial statements are directed. Financial
statements are prepared for users who have a reasonable knowledge of business and
economic activities and who review and analyse the information diligently. At times, even
well-informed and diligent users may need to seek the aid of an adviser to understand
information about complex economic phenomena.
6. Notes contain information in addition to that presented in the balance sheet, statement of
profit and loss, other comprehensive income, statement of changes in equity and statement
of cash flows. Notes provide narrative descriptions or disaggregation of items presented in
those statements and information about items that do not qualify for recognition in those
statements.
7. Owners are holders of instruments classified as equity.
8. Profit or loss is the total of income less expenses, excluding the components of other
comprehensive income.
9. Reclassification adjustments are amounts reclassified to profit or loss in the current period
that were recognised in other comprehensive income in the current or previous periods.
10. Total comprehensive income is the change in equity during a period resulting from
transactions and other events, other than those changes resulting from transactions with
owners in their capacity as owners.

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Total comprehensive income comprises all components of ‘profit or loss’ and ‘other
comprehensive income’.

11. Other comprehensive income comprises items of income and expense (including
reclassification adjustments) that are not recognised in profit or loss as required or permitted
by other Ind AS.
The components of Other Comprehensive Income include the following:

S.No. Components Reference

1. Changes in revaluation surplus Ind AS 16 ‘Property, Plant and
Equipment’ and Ind AS 38
‘Intangible Assets’
2. Re-measurements of defined benefit plans Ind AS 19, Employee Benefits
3. Gains and losses arising from translating the Ind AS 21 ‘The Effects of Changes
financial statements of a foreign operation in Foreign Exchange Rates’
4. Gains and losses from investments in equity Paragraph 5.7.5 of Ind AS 109,
instruments designated at fair value through Financial Instruments
other comprehensive income
5. Gains and losses on financial assets Paragraph 4.1.2A of Ind AS 109
measured at fair value through other
comprehensive income
6. The effective portion of gains and losses on Paragraph 5.7.5 of Ind AS 109
hedging instruments in a cash flow hedge and
the gains and losses on hedging instruments
that hedge investments in equity instruments
measured at fair value through other
comprehensive income
7. For liabilities designated as at fair value Paragraph 5.7.7 of Ind AS 109
through profit or loss, the amount of the
change in fair value that is attributable to
changes in the liability’s credit risk
8. Changes in the value of the time value of Ind AS 109
options when separating the intrinsic value
and time value of an option contract and

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designating as the hedging instrument only the

changes in the intrinsic value
9. Changes in the value of the forward elements Ind AS 109
of forward contracts when separating the
forward element and spot element of a forward
contract and designating as the hedging
instrument only the changes in the spot
element, and changes in the value of the
foreign currency basis spread of a financial
instrument when excluding it from the
designation of that financial instrument as the
hedging instrument

1.5 PURPOSE OF FINANCIAL STATEMENTS

The objective of financial statements is to provide information about the financial position, financial
performance, and cash flows of an entity that is useful to a wide range of users in making economic
decisions. To meet the objective, financial statements provide information about an entity’s:
 assets;
 liabilities;
 equity;
 income and expenses, including gains and losses;
 contributions by and distributions to owners in their capacity as owners; and
 cash flows.
These information, along with other information in the notes, assists users of financial statements
in predicting the entity’s future cash flows and, in particular, their timing and certainty.

1.6 COMPLETE SET OF FINANCIAL STATEMENTS

A complete set of financial statements comprises:
 a balance sheet as at the end of the period;
 a statement of profit and loss for the period;
 statement of changes in equity for the period;

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 a statement of cash flows for the period;
 notes, comprising material accounting policy information and other explanatory information;
 comparative information in respect of the preceding period;
 a balance sheet as at the beginning of the preceding period when an entity applies an
accounting policy retrospectively or makes a retrospective restatements of items in its
financial statements, or when it reclassifies items in its financial statements.
An entity shall present a single statement of profit and loss, with profit or loss and other
comprehensive income presented in two sections. The sections shall be presented together, with
the profit or loss section presented first followed directly by the other comprehensive income
section.
An entity shall present with equal prominence all of the financial statements in a complete set of
financial statements.
Many entities also present reports and statements (generally in annual reports) such as financial
reviews by management, environmental reports, and value added statements that are outside the
financial statements. Such reports and statements that are presented outside the financial
statements are outside the scope of Ind AS.

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Complete set of financial statements

includes

A balance A statement A s tatement A statement Notes, comprising significant

sheet of profit and of changes of cash accounting policies and other
loss in equity flows explanatory information

Comparative information for

As at the end narrative and descriptive
of the period For the period Of the preceding information shall be given if it
period (comparative is relevant for understanding
information for all the current period’s financial
Of the preceding period amounts reported in statements
(comparative information for the current period’s
all amounts reported in the financial
current period’s financial statements)
statements)

At the beginning of the preceding period when

 an entity applies an accounting policy retrospectively; or
 makes a retrospective restatement of items in its financial statements; or
 it reclassifies items in its financial statements.

Note:
1. An entity shall present a single statement of profit and loss, with profit or loss and other
comprehensive income (OCI) presented in two sections. The sections shall be presented
together, with the profit or loss section presented first followed directly by the other
comprehensive income section.
2. Reports and statements presented outside financial statements are outside the scope of
Ind AS.
3. An entity is not required to present the related notes to the opening balance sheet as at
the beginning of the preceding period.

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1.7 GENERAL FEATURES OF FINANCIAL STATEMENTS

General Features

Presentatio Going Accrual Materiality Offsetting Frequency

n of True concern basis of and of reporting
and Fair accounting aggregation
View and
compliance
Consistency of Comparative
with Ind AS
presentation information

Change in accounting policy, Additional Minimum

retrospective restatement or comparative comparative
reclassification information information

1.7.1 Presentation of True and Fair View and compliance with Ind AS
Financial statements shall present a true and fair view of the financial position, financial
performance and cash flows of an entity. Presentation of true and fair view requires the faithful
representation of the effects of transactions, other events and conditions in accordance with the
definitions and recognition criteria for assets, liabilities, income and expenses set out in the
Conceptual Framework. The application of Ind AS, with additional disclosure when necessary, is
presumed to result in financial statements that present a true and fair view.
1.7.1.1 An explicit and unreserved statement
An entity whose financial statements comply with Ind AS shall make an explicit and unreserved
statement of such compliance in the notes.
An entity shall not describe financial statements as complying with Ind AS unless they comply with
all the requirements of Ind AS. There may be disagreement between the Company and its auditor
on the applicability of any Ind AS or any particular requirement of any Ind AS and accordingly
auditor may qualify the audit report. Even in such a situation, the financial statements shall be
assumed to be Ind AS compliant.

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In virtually all circumstances, presentation of a true and fair view is achieved by compliance with
applicable Ind AS. Presentation of a true and fair view also requires an entity:
(a) to select and apply accounting policies in accordance with Ind AS 8 ‘Accounting Policies,
Changes in Accounting Estimates and Errors’. Ind AS 8 sets out a hierarchy of authoritative
guidance that management considers in the absence of an Ind AS that specifically applies
to an item.
(b) to present information, including accounting policies, in a manner that provides relevant,
reliable, comparable and understandable information.
(c) to provide additional disclosures when compliance with the specific requirements in Ind AS
is insufficient to enable users to understand the impact of particular transactions, other
events and conditions on the entity’s financial position and financial performance.

An extract from the annual report of Tata Consultancy Services Limited for the
year ended 31 st March, 2022:
Notes forming part of Standalone Financial Statements
2) Statement of compliance
These standalone financial statements have been prepared in accordance with
the Indian Accounting Standards (referred to as “Ind AS”) as prescribed under
section 133 of the Companies Act, 2013 read with the Companies (Indian
Accounting Standards) Rules as amended from time to time.

1.7.1.2 Inappropriate Accounting Policies

An entity cannot rectify inappropriate accounting policies either by disclosure of the accounting
policies used or by notes or explanatory material.
1.7.1.3 Departure from the Requirements of an Ind AS — Whether Permissible?
In the extremely rare circumstances in which management concludes that compliance with a
requirement in an Ind AS would be so misleading that it would conflict with the objective of financial
statements set out in the Conceptual Framework, the entity shall depart from that requirement if
the relevant regulatory framework requires, or otherwise does not prohibit, such a departure.
When an entity departs from a requirement of an Ind AS, it shall disclose:
(a) that management has concluded that the financial statements present a true and fair view of
the entity’s financial position, financial performance and cash flows;
(b) that it has complied with applicable Ind AS, except that it has departed from a particular
requirement to present a true and fair view;

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(c) the title of the Ind AS from which the entity has departed, the nature of the departure,
including the treatment that the Ind AS would require, the reason why that treatment would
be so misleading in the circumstances that it would conflict with the objective of financial
statements set out in the Conceptual Framework, and the treatment adopted; and
(d) for each period presented, the financial effect of the departure on each item in the financial
statements that would have been reported in complying with the requirement.
When an entity has departed from a requirement of an Ind AS in a prior period, and that departure
affects the amounts recognised in the financial statements for the current period, it shall make the
disclosures given above. For example, when an entity departed in a prior period from a
requirement in an Ind AS for the measurement of assets or liabilities and that departure affects
the measurement of changes in assets and liabilities recognised in the current period’s financial
statements.
In the extremely rare circumstances in which management concludes that compliance with a
requirement in an Ind AS would be so misleading that it would conflict with the objective of financial
statements set out in the Conceptual Framework, but the relevant regulatory framework prohibits
departure from the requirement, the entity shall to the maximum extent possible, reduce the
perceived misleading aspects of compliance by disclosing:
(a) the title of the Ind AS in question, the nature of the requirement, and the reason why
management has concluded that complying with that requirement is so misleading in the
circumstances that it conflicts with the objective of financial statements set out in the
Conceptual Framework; and
(b) for each period presented, the adjustments to each item in the financial statements that
management has concluded would be necessary to present a true and fair view.
An item of information would conflict with the objective of financial statements when it does not
represent faithfully the transactions, other events and conditions that it either purports to represent
or could reasonably be expected to represent and, consequently, it would be likely to influence
economic decisions made by users of financial statements. When assessing whether complying
with a specific requirement in an Ind AS would be so misleading that it would conflict with the
objective of financial statements set out in the Framework, management considers:
(a) why the objective of financial statements is not achieved in the particular circumstances; and
(b) how the entity’s circumstances differ from those of other entities that comply with the
requirement. If other entities in similar circumstances comply with the requirement, there is
a rebuttable presumption that the entity’s compliance with the requirement would not be so
misleading that it would conflict with the objective of financial statements set out in the
Framework.

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Presentation of True and Fair View and compliance with Ind AS

Of the financial position Of the financial performance Of the cash flows of an entity

Presentation of a true and fair view requires an entity to

To select and To present information, in a To provide additional

apply accounting manner that provides relevant, disclosures, if required, to
policies as per reliable, comparable and enable users to understand
Ind AS 8 understandable information the impact of particular item

When an entity departs from a requirement of an Ind AS (in extremely rare

circumstances), it shall disclose

Management’s Management’s  The title of the Ind AS For each

conclusion that compliance departed period
the financial with applicable  The nature of the departure presented, the
statements Ind AS, except  The treatment that the Ind financial effect
present a true departure from AS would require of the
and fair view a particular departure on
 The reason why that
requirement to each item in
treatment would be so
present a true the financial
misleading ; and
and fair view statements
 The treatment adopted

Note: An entity cannot rectify inappropriate accounting policies either by disclosure of

the accounting policies used or by notes or explanatory material.

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Illustration 1
An entity prepares its financial statements that contain an explicit and unreserved statement of
compliance with Ind AS. However, the auditor’s report on those financial statements contains a
qualification because of disagreement on application of one Accounting Standard. In such case,
is it acceptable for the entity to make an explicit and unreserved statement of compliance with
Ind AS?
Solution
Yes, it is possible for an entity to make an unreserved and explicit statement of compliance with
Ind AS, even though the auditor’s report contains a qualification because of disagreement on
application of Accounting Standard(s), as the preparation of financial statements is the
responsibility of the entity’s management and not the auditors. In case the management has a
bona fide reason to believe that it has complied with all Ind AS, it can make an explicit and
unreserved statement of compliance with Ind AS.
*****
1.7.2 Going concern
Financial statements prepared under Ind AS should be prepared on a going concern basis unless
management either intends to liquidate the entity or to cease trading or has no realistic alternative
but to do so. Management is required to assess, at the time of preparing the financial statements,
the entity's ability to continue as a going concern, and this assessment should cover the entity's
prospects for at least 12 months from the end of the reporting period. The 12-month period for
considering the entity's future is a minimum requirement; an entity cannot, for example, prepare
its financial statements on a going concern basis if it intends to cease operations 18 months from
the end of the reporting period.
The assessment of the entity's status as a going concern will often be straight forward. A profitable
entity with no financing problems will generally be a going concern. In other cases, management
might need to consider very carefully the entity's ability to meet its liabilities as they fall due.
Detailed cash flow and profit forecasts might be required to satisfy management that the entity is
a going concern.
The following are examples of events or conditions that, individually or collectively, may cast
significant doubt on the entity’s ability to continue as a going concern. This listing is neither all-
inclusive nor does the existence of one or more of the items always signify that a material
uncertainty exists:
 Net liability or net current liability position;

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 Fixed-term borrowings approaching maturity without realistic prospects of renewal or

repayment; or excessive reliance on short-term borrowings to finance long-term assets;
 Indications of withdrawal of financial support by creditors;
 Negative operating cash flows indicated by historical or prospective financial statements;
 Adverse key financial ratios;
 Substantial operating losses or significant deterioration in the value of assets used to
generate cash flows;
 Arrears or discontinuance of dividends;
 Inability to pay creditors on due dates;
 Inability to comply with the terms of loan agreements;
 Change from credit to cash-on-delivery transactions with suppliers;
 Inability to obtain financing for essential new product development or other essential
investments;
 Loss of key management without replacement;
 Loss of a major market, key customer(s), franchise, license, or principal supplier(s);
 Emergence of a highly successful competitor;
 Changes in law or regulation or government policy expected to adversely affect the entity.
If management has significant doubt of the entity’s ability to continue as a going concern, the
uncertainties should be disclosed.
In case the financial statements are not prepared on a going concern basis, the entity should
disclose the basis of preparation of financial statements and also the reason why the entity is not
regarded as a going concern.
Events that occur after the reporting period might indicate that the entity is no longer a going
concern. An entity does not prepare its financial statements on a going concern basis if
management’s post-year end assessment indicates that it is not a going concern. Any financial
statements that are prepared after that assessment (including the financial statements in respect
of which management are making the assessment) are not prepared on a going concern basis.
This is consistent with Ind AS 10, which requires a fundamental change to the basis of accounting
when the going concern assumption is no longer appropriate.

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Illustration 2
Entity XYZ is a large manufacturer of plastic products for the local market. On 1 st April, 20X6 the
newly elected government unexpectedly abolished all import tariffs, including the 40 per cent tariff
on all imported plastic products. Many other economic reforms implemented by the new
government contributed to the value of the country’s currency appreciating significantly against
most other currencies. The currency appreciation severely reduced the competitiveness of the
entity’s products.
Before 20X6 entity XYZ was profitable. However, because it was unable to compete with low
priced imports, entity XYZ went into losses. As at 31 st March, 20X7, entity XYZ’s equity was
1,000. During the second quarter of financial year ended 31 st March 20X7, the management
restructured entity’s operations. That restructuring helped reduce losses for the third and fourth
quarters to 400 and 380, respectively. During the year ended 31 st March, 20X7, entity XYZ
reported a loss of 4,000. In January 20X7, the local plastic industry and labour union lobbied
government to reinstate tariffs on plastic. On 15 th March, 20X7, the government announced that
it would reintroduce limited plastic import tariffs at 10 percent in 20X8. However, it emphasised
that those tariffs would not be as protective as the tariffs enacted by the previous government. In
its latest economic forecast, the government predicts a stable currency exchange rate in the short
term with a gradual weakening of the jurisdiction’s currency in the longer term.
Management of the entity XYZ undertook a going concern assessment at 31 st March, 20X7.
Management projects / forecasts that imposition of a 10 per cent tariff on the import of plastic
products would, at current exchange rates, result in entity XYZ returning to profitability. How
should the management of entity XYZ disclose the information about the going concern
assessment in entity XYZ’s 31 st March, 20X7 annual financial statements?
Solution
Going concern is a general feature to be considered while preparing the financial statements. As
per Ind AS 1, when preparing financial statements, management shall make an assessment of an
entity’s ability to continue as a going concern. An entity shall prepare financial statements on a
going concern basis unless management either intends to liquidate the entity or to cease trading
or has no realistic alternative but to do so. When management is aware, in making its assessment,
of material uncertainties related to events or conditions that may cast significant doubt upon the
entity’s ability to continue as a going concern, the entity shall disclose those uncertainties. An
entity is required to disclose the facts, if the financial statements are not prepared on a going
concern basis. Along with the reason, as to why the financial statements are not prepared on a
going concern basis.
While assessing the going concern assumption, an entity is required to take into consideration all
factors covering atleast but not limited to 12 months from the end of reporting period.

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On the basis of Ind AS 1 and the facts and circumstances of this case, the following disclosure is
appropriate:
Extracts from the notes to entity XYZ’s 31 st March, 20X7 financial statements
Note 1: Basis of preparation
On the basis of management’s assessment at 31 st March 20X7, the financial statements have
been prepared on the going concern basis. However, management’s assessment assumes that
the government will reintroduce limited plastic import tariffs and that the currency exchange
rate will remain constant. On 15 th March 20X7, the government announced that limited import
tariffs will be imposed in 20X8. However, the government emphasised that the tariff would not
be as protective as the 40 percent tariff in effect before 20X7.
Provided that does not strengthen, management projects / forecasts that a 10 percent tariff
on all plastic products would result in entity XYZ returning to profitability. As at
31 st March, 20X7 entity XYZ had net assets of 1,000. If import tariffs are not imposed and
currency exchange rates remain unchanged, entity XYZ’s liabilities could exceed its assets by
the end of financial year 20X7-20X8. On the basis of their assessment of these factors,
management believes that entity XYZ is a going concern.

*****
1.7.3 Accrual basis of accounting
 An entity shall prepare its financial statements, except for cash flow information, using the
accrual basis of accounting.
 When the accrual basis of accounting is used, an entity recognises items as assets, liabilities,
equity, income and expenses (the elements of financial statements) when they satisfy the
definitions and recognition criteria for those elements in the Conceptual Framework.
1.7.4 Materiality and aggregation
 An entity shall present separately each material class of similar items. An entity shall present
separately items of a dissimilar nature or function unless they are immaterial except when
required by law.
 Financial statements result from processing large numbers of transactions or other events
that are aggregated into classes according to their nature or function. The final stage in the
process of aggregation and classification is the presentation of condensed and classified
data, which form line items in the financial statements. If a line item is not individually
material, it is aggregated with other items either in those statements or in the notes. An item

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that is not sufficiently material to warrant separate presentation in those statements may
warrant separate presentation in the notes.
 An entity shall not reduce the understandability of its financial statements by obscuring
material information with immaterial information or by aggregating material items that have
different natures or functions.
 An entity need not provide a specific disclosure required by an Ind AS if the information is
not material except when required by law.
Examples 1 - 3
1. Entity A has made a wrong classification of assets between 2 categories of plant and
machinery. Such a classification would not be material in amount if it affected two
categories of plant or machinery, however, it might be material if it changes the
classification between a non-current and a current asset category.
2. Losses from bad debts or pilferage that could be shrugged off as routine by a large
business may threaten the continued existence of a small business.
3. An error in inventory valuation may be material in a small enterprise for which it may cut
earnings by half but could be immaterial in an enterprise for which it might make a barely
perceptible ripple in the earnings.

*****
1.7.5 Offsetting
 An entity shall not offset assets and liabilities or income and expenses, unless required or
permitted by an Ind AS.
 An entity reports separately both assets and liabilities, and income and expenses. Measuring
assets net of valuation allowances — for example, obsolescence allowances on inventories
and doubtful debts allowances on receivables—is not offsetting.
 Ind AS 115, ‘Revenue from Contracts with Customers’, requires an entity to measure revenue
from contracts with customers at the amount of consideration to which the entity expects to
be entitled in exchange for transferring promised goods or services. For example, the
amount of revenue recognized reflects any trade discounts and volume rebates the entity
allows. An entity undertakes, in the course of its ordinary activities, other transactions that
do not generate revenue but are incidental to the main revenue-generating activities. An
entity presents the results of such transactions, when this presentation reflects the substance
of the transaction or other event, by netting any income with related expenses arising on the
same transaction.

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Examples 4 and 5
4. An entity presents gains and losses on the disposal of non-current assets, including
investments and operating assets, by deducting from the amount of consideration on
disposal the carrying amount of the asset and related selling expenses; and
5. An entity may net expenditure related to a provision that is recognised in accordance
with Ind AS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’, and
reimbursed under a contractual arrangement with a third party (for example, a supplier’s
warranty agreement) against the related reimbursement.

 In addition, an entity presents on a net basis gains and losses arising from a group of similar
transactions, for example, foreign exchange gains and losses or gains and losses arising on
financial instruments held for trading. However, an entity presents such gains and losses
separately if they are material.
Illustration 3
Is offsetting of revenue against expenses, permissible in case of a company acting as an agent
and having sub-agents, where commission is paid to sub-agents from the commission received
as an agent?
Solution
On the basis of the guidance regarding offsetting, net presentation in the given case would not be
appropriate, as it would not reflect substance of the transaction and would detract from the ability
of users to understand the transaction.
Accordingly, the commission received by the company as an agent is the gross revenue of the
company. The amount of commission paid by it to the sub-agent should be considered as an
expense and should not be offset against commission earned by it.
*****
1.7.6 Frequency of reporting
 An entity shall present a complete set of financial statements (including comparative
information) at least annually.
 When an entity changes the end of its reporting period and presents financial statements for
a period longer or shorter than one year, an entity shall disclose, in addition to the period
covered by the financial statements:
 the reason for using a longer or shorter period, and
 the fact that amounts presented in the financial statements are not entirely comparable.

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Example 6
In 20X8 entity ‘Superb’ was acquired by entity ‘Happy Go Luck’. To align its reporting date with
that of its parent, Superb changed the end of its annual reporting period from 31 st January to
31 st March. Consequently, entity Superb’s reporting period for the year ended 31 st March, 20X8
is 14 months. On the basis of these facts, the following disclosure would be appropriate:
Extract from the notes to entity Superb’s 31 st March, 20X8 financial statements:
Note 1
Basis of preparation and accounting policies
Reporting period
To align the entity’s reporting period with that of its parent (Happy Go Luck), the entity changed
the end of its reporting period from 31 st January to 31 st March. Amounts presented for the period
ended 31 st March, 20X8 are for 14 months. Comparative figures are for a 12 months period.
Consequently, comparative amounts for the statement of comprehensive income, statement of
changes in equity, statement of cash flows and related notes are not entirely comparable.

1.7.7 Comparative information

1.7.7.1 Minimum comparative information
 An entity should present comparative information in respect of the preceding period for all
amounts reported in the current period’s financial statements except when Ind AS permit or
require otherwise.
 Comparative information for narrative and descriptive information should be included if it is
relevant to understand the current period’s financial statements.

For example, in the current period an entity discloses details of a legal dispute whose
outcome was uncertain at the end of the immediately preceding reporting period and that is
yet to be resolved.

 An entity shall present, as a minimum:

 2 Balance Sheets
 2 Statement of Profit and Loss
 2 Statement of Cash Flows
 2 Statement of Changes in Equity and
 Related Notes.

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1.7.7.2 Additional comparative information

An entity may present comparative information in addition to the minimum comparative financial
statements required by Ind AS, as long as that information is prepared in accordance with Ind AS.
This comparative information may consist of one or more statements referred to in ‘Complete set
of financial statements’ but need not comprise a complete set of financial statements. When this
is the case, the entity shall present related note information for those additional statements.

Example 7
An entity may present a third statement of profit or loss (thereby presenting the current period,
the preceding period and one additional comparative period). However, the entity is not required
to present a third balance sheet, a third statement of cash flows or a third statement of changes
in equity (ie an additional financial statement comparative). The entity is required to present, in
the notes to the financial statements, the comparative information related to that additional
statement of profit or loss and other comprehensive income.

Illustration 4
A retail chain acquired a competitor in March, 20X1 and accounted for the business combination
under Ind AS 103 on a provisional basis in its 31 st March, 20X1 annual financial statements. The
business combination accounting was finalised in 20X1-20X2 and the provisional fair values were
updated. As a result, the 20X0-20X1 comparatives were adjusted in the 20X1-20X2 annual
financial statements. Does the restatement require an opening statement of financial position
(that is, an additional statement of financial position) as of 1 st April, 20X0?
Solution
An additional statement of financial position is not required, because the acquisition had no impact
on the entity’s financial position at 1 st April, 20X0.
*****
1.7.7.3 Change in accounting policy, retrospective restatement or reclassification
 When an entity applies an accounting policy retrospectively or makes a retrospective
restatement of items in its financial statements or reclassifies items in its financial statements
and the retrospective application, retrospective restatement or the reclassification has a
material effect on the information in the balance sheet at the beginning of the preceding
period, it shall present, as a minimum, three balance sheets, two of each of the other
statements, and related notes. An entity presents balance sheets as at
 the end of the current period,

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 the end of the preceding period, and
 the beginning of the preceding period.
 When an entity is required to present an additional balance sheet as at the beginning of the
preceding period, it must disclose the information as required by Ind AS 8 and also the
information as explained in subsequent points. However, it need not present the related
notes to the opening balance sheet as at the beginning of the preceding period.
 When the entity changes the presentation or classification of items in its financial statements,
the entity shall reclassify comparative amounts unless reclassification is impracticable.
 When the entity reclassifies comparative amounts, the entity shall disclose:
 the nature of the reclassification;
 the amount of each item or class of items that is reclassified; and
 the reason for the reclassification.
 When it is impracticable to reclassify comparative amounts, an entity shall disclose:
 the reason for not reclassifying the amounts, and
 the nature of the adjustments that would have been made if the amounts had been
reclassified.
1.7.8 Consistency of presentation
An entity shall retain the presentation and classification of items in the financial statements from
one period to the next unless:
 it is apparent, following a significant change in the nature of the entity’s operations or a
review of its financial statements, that another presentation or classification would be more
appropriate having regard to the criteria for the selection and application of accounting
policies in Ind AS 8; or
 an Ind AS requires a change in presentation.

Example 8
A significant acquisition or disposal, or a review of the presentation of the financial statements,
might suggest that the financial statements need to be presented differently. An entity changes
the presentation of its financial statements only if the changed presentation provides information
that is reliable and more relevant to users of the financial statements and the revised structure is
likely to continue, so that comparability is not impaired. When making such changes in
presentation, an entity reclassifies its comparative information.

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1.8 STRUCTURE AND CONTENT

Ind AS 1 requires particular disclosures in the balance sheet or in the statement of profit and loss,
or in the statement of changes in equity and requires disclosure of other line items either in those
statements or in the notes. Ind AS 7, Statement of Cash Flows, sets out requirements for the
presentation of cash flow information.
1.8.1 Identification of Financial Statements
 An entity shall clearly identify the financial statements and distinguish them from other
information in the same published document. Ind AS apply only to financial statements, and
not necessarily to other information presented in an annual report, a regulatory filing, or
another document though they may be useful to users.
 An entity shall display the following information prominently:
 the name of the reporting entity or other means of identification, and any change in that
information from the end of the preceding reporting period
 whether the financial statements are of an individual entity or a group of entities;
 the date of end of reporting date or the period covered by the financial statements or notes
 the presentation currency
 the level of rounding used in presenting amounts in the financial statements.
 An entity meets above requirements by presenting appropriate headings for pages,
statements, notes, columns and the like. Judgement is required in determining the best
way of presenting such information.
For example, when an entity presents the financial statements electronically separate
pages are not always used; an entity then presents the above items to ensure that the
information included in the financial statements can be understood.
 An entity often makes financial statements more understandable by presenting
information in thousands or millions of units of the presentation currency. This is
acceptable as long as the entity discloses the level of rounding and does not omit
material information.

As per Schedule III of the Companies Act 2013, depending upon the total income of the
company, the figures appearing in the financial statements shall be rounded off as
below:

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 Less than one hundred crore rupees - To the nearest hundreds, thousands, lakhs
or millions, or decimals thereof.
 One hundred crore rupees or more- To the nearest, lakhs, millions or crores, or
decimals thereof.
Once a unit of measurement is used, it should be used uniformly in the Financial
Statements.

1.8.2 Balance Sheet

At a minimum, the balance sheet shall include following line items:

a Property, plant and equipment

b Investment property

c Intangible assets

d Financial assets (excluding amounts shown under (e, h &i)

e Investments accounted for using the equity method

f Biological assets

g Inventories

h Trade and other receivables

i Cash and cash equivalents

j The total of assets classified as held for sale and assets included in disposal groups
classified as held for sale in accordance with Ind AS 105 ‘Non-current Assets Held for Sale
and Discontinued Operations’

k Trade and other payables

l Provisions

m Financial liabilities (excluding amounts shown under k and l)

n Liabilities and assets for current tax, as defined in Ind AS 12 ‘Income Taxes’

o Deferred tax liabilities and deferred tax assets, as defined in Ind AS 12

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p Liabilities included in disposal groups classified as held for sale in accordance with
Ind AS 105

q Non-controlling interests, presented within equity

r Issued capital and reserves attributable to owners of the parent

Additional line items, headings and subtotals in the balance sheet should be presented when such
presentation is relevant to an understanding of the entity’s financial position.
The descriptions of the line items, and the order in which they are shown, can be adapted
according to the entity's nature and its transactions.

Example 9
Financial institutions would amend the descriptions of line items to provide information that is
relevant to the operations of financial institutions.

1.8.2.1 Distinction between Current / Non-current

Entities preparing Ind AS financial statements are required to present the face of the balance
sheet, differentiating between current and non-current assets and between current and non-
current liabilities.
When an entity presents current and non-current assets, and current and non-current liabilities, as
separate classifications in its balance sheet, it shall not classify deferred tax assets (liabilities) as
current assets (liabilities).
An entity shall present current and non-current assets, and current and non-current liabilities, as
separate classifications in its balance sheet except when a presentation based on liquidity
provides information that is reliable and more relevant. When that exception applies, an entity
shall present all assets and liabilities in order of liquidity.
Whichever method of presentation is adopted, an entity shall disclose the amount expected to be
recovered or settled after more than twelve months for each asset and liability line item that
combines amounts expected to be recovered or settled:
a) no more than twelve months after the reporting period, and
b) more than twelve months after the reporting period.
When an entity supplies goods or services within a clearly identifiable operating cycle, separate
classification of current and non-current assets and liabilities in the balance sheet provides useful
information by distinguishing the net assets that are continuously circulating as working capital
from those used in the entity’s long-term operations. It also highlights assets that are expected

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to be realised within the current operating cycle, and liabilities that are due for settlement within
the same period.
When an entity presents current and non-current assets, and current and non-current liabilities,
as separate classifications in its balance sheet, it shall not classify deferred tax assets (liabilities)
as current assets (liabilities).

Note:
1. Financial institutions may present assets and liabilities in increasing or decreasing order of
liquidity if the presentation is reliable and more relevant than a current / non-current
presentation. This is because such entity does not supply goods or services within a clearly
identifiable operating cycle.
2. An entity is permitted to present some of its assets and liabilities using a current / non-current
classification and others in order of liquidity. The need for a mixed basis of presentation
might arise when an entity has diverse operations.
1.8.2.2 Current Assets
An entity shall classify an asset as current when:
(a) it expects to realise the asset, or intends to sell or consume it, in its normal operating cycle;
(b) it holds the asset primarily for the purpose of trading;
(c) it expects to realise the asset within twelve months after the reporting period; or
(d) the asset is cash or a cash equivalent (as defined in Ind AS 7) 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 as non-current.
This Standard uses the term ‘non-current’ to include tangible, intangible and financial assets of a
long-term nature. It does not prohibit the use of alternative descriptions as long as the meaning
is clear.

An extract from the annual report of Reliance Industries Limited for the year ended
31 st March, 2022:
Notes to the Standalone Financial Statements for the year ended 31 st March, 2022
B.2 Summary of Significant Accounting Policies
(a) Current and Non-current Classification
The Company presents assets and liabilities in the Balance Sheet based on
Current/ Non-Current classification.

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An asset is treated as current when it is –

- Expected to be realised or intended to be sold or consumed in normal
operating cycle;
- Held primarily for the purpose of trading;
- Expected to be realised within twelve months after the reporting period, or
- Cash or cash equivalent unless restricted from being exchanged or used to
settle a liability for at least twelve months after the reporting period.
All other assets are classified as non-current.
Deferred tax assets and liabilities are classified as non-current assets and
liabilities.

1.8.2.3 Operating Cycle

The operating cycle of an entity is the time between the acquisition of assets for processing and
their realisation in cash or cash equivalents. When the entity’s normal operating cycle is not
clearly identifiable, it is assumed to be twelve months. Current assets include assets (such as
inventories and trade receivables) that are sold, consumed or realised as part of the normal
operating cycle even when they are not expected to be realised within twelve months after the
reporting period. Current assets also include assets held primarily for the purpose of trading.
For example
 Some financial assets classified as held for trading in accordance with Ind AS 109
 Current portion of non-current financial assets.

Examples 10 -13
10. An entity produces whisky from barley, water and yeast in a 24-month distillation
process. At the end of the reporting period the entity has one month’s supply of barley
and yeast raw materials, 800 barrels of partly distilled whisky and 200 barrels of
distilled whisky.
All raw materials (barley and yeast) work in process (partly distilled whisky) and finished
goods (distilled whisky) are inventories. The raw materials are expected to be realised (ie
turned into cash after being processed into whisky) in the entity’s normal operating cycle.
Therefore, even though the realisation is expected to take place more than twelve months
after the end of the reporting period, the raw materials, work in progress and finished goods
are current assets.

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11. An entity owns a machine with which it manufactures goods for sale. It also owns the
building in which it carries out its commercial activities.
The machine and the building are non-current assets because:
 they are not cash or cash equivalents;
 they are not expected to be realised or consumed in the entity’s normal operating cycle;
 they are not held for the purpose of trading; and
 they are not expected to be realised within twelve months of the end of the reporting
period.
12. On 31 st December 20X2, an entity replaced a machine in its production line. The
replaced machine was sold to a competitor for 3,00,000. Payment is due 15 months
after the end of the reporting period.
The receivable is a non-current asset because:
 it is not cash or a cash equivalent;
 it is not expected to be realised or consumed in the entity’s normal operating cycle;
 it is not held for the purpose of trading; and
 it is not expected to be realised within twelve months of the end of the reporting period.
Note: If payment was due in less than twelve months from the end of the reporting period, it
would have been classified as a current asset.
13. On 1 st April, 20X2, XYZ Ltd invested 15,00,000 surplus funds in corporate bonds that
bear interest at 8 percent per year. Interest is payable on the corporate bonds on
1 st April, of each year. The principal is repayable in three annual instalments of
5,00,000 starting from 1 st April, 20X3.
In its statement of financial position at 31 st March, 20X3, the entity must present the
1,20,000 accrued interest and 5,00,000 current portion of the non-current loan (i.e. the
portion repayable on 31 st March, 20X3) as current assets because they are expected to be
realised within twelve months of the end of the reporting period.
The instalments of 10,00,000 due later than twelve months after the end of the reporting
period is presented as a non-current asset because it is not cash or a cash equivalent as it
is not expected to be realised or consumed in the entity’s normal operating cycle, it is not
held for the purpose of trading and it is not expected to be realised within twelve months of
the end of the reporting period.

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Illustration 5
X Ltd. provides you the following information:
Raw material stock holding period : 3 months
Work-in-progress holding period : 1 month
Finished goods holding period : 5 months
Debtors collection period : 5 months
You are requested to compute the operating cycle of X Ltd.
Solution
The operating cycle of X Ltd. will be computed as under:
Raw material stock holding period + Work-in-progress holding period + Finished goods holding
period + Debtors collection period = 3 + 1 + 5 + 5 = 14 months.
*****
Illustration 6
Inventory or trade receivables of X Ltd. are normally realised in 15 months. How should X Ltd.
classify such inventory / trade receivables: current or non-current if these are expected to be
realised within 15 months?
Solution
These should be classified as current.
*****
Illustration 7
B Ltd. produces aircrafts. The length of time between first purchasing raw materials to make the
aircrafts and the date the company completes the production and delivery is 9 months. The
company receives payment for the aircrafts 7 months after the delivery.
(a) What is the length of operating cycle?
(b) How should it treat its inventory and debtors?
Solution
(a) The length of the operating cycle will be 16 months.
(b) Assuming the inventory and debtors will be realised within normal operating cycle, i.e.,
16 months, both the inventory as well as debtors should be classified as current.
*****

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1.8.2.4 Current Liabilities
 An entity shall classify a liability as current when:
(a) it expects to settle the liability in its normal operating cycle;
(b) it holds the liability primarily for the purpose of trading;
(c) the liability is due to be settled within twelve months after the reporting period; or
(d) it does not have an unconditional right to defer settlement of the liability for at least
twelve months after the reporting period. 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.

An extract from the annual report of Reliance Industries Limited for the year
ended 31 st March, 2022:
Notes to the Standalone Financial Statements for the year ended
31 st March, 2022
B.2 Summary of Significant Accounting Policies
(a) Current and Non-Current Classification
The Company presents assets and liabilities in the Balance Sheet based on
Current/ Non-Current classification.
A liability is current when:
- It is expected to be settled in normal operating cycle;
- It is held primarily for the purpose of trading;
- It is due to be settled within twelve months after the reporting period,
or
- There is no unconditional right to defer the settlement of the liability
for at least twelve months after the reporting period.
The Company classifies all other liabilities as non-current.
Deferred tax assets and liabilities are classified as non-current assets and
liabilities.

 An entity shall classify all other liabilities as non-current.

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 Some current liabilities, such as trade payables and some accruals for employee and other
operating costs, are part of the working capital used in the entity’s normal operating cycle.
 An entity classifies such operating items as current liabilities even if they are due to be settled
more than twelve months after the reporting period.
 The same normal operating cycle applies to the classification of an entity’s assets and
liabilities.
 When the entity’s normal operating cycle is not clearly identifiable, it is assumed to be twelve
months.
 Other current liabilities which are not settled as part of the normal operating cycle, but are
due for settlement within twelve months after the reporting period or held primarily for the
purpose of trading.

Examples are some financial liabilities classified as held for trading in accordance with
Ind AS 109, bank overdrafts, and the current portion of non-current financial liabilities,
dividends payable, income taxes and other non-trade payables.

 Financial liabilities that provide financing on a long-term basis (i.e. are not part of the working
capital used in the entity’s normal operating cycle) and are not due for settlement within
twelve months after the reporting period are non-current liabilities.
 An entity classifies its financial liabilities as current when they are due to be settled within
twelve months after the reporting period, even if:
 the original term was for a period longer than twelve months, and
 an agreement to refinance, or to reschedule payments, on a long-term basis is
completed after the reporting period and before the financial statements are approved
for issue.
 If an entity expects, and has the discretion, to refinance or roll over an obligation for at least
twelve months after the reporting period under an existing loan facility, it classifies the
obligation as non-current, even if it would otherwise be due within a shorter period. However,
when refinancing or rolling over the obligation is not at the discretion of the entity (for
example, there is no arrangement for refinancing), the entity does not consider the potential
to refinance the obligation and classifies the obligation as current.
 When an entity breaches a provision of a long-term loan arrangement on or before the end
of the reporting period with the effect that the liability becomes payable on demand, the entity
does not classify the liability as current, even if the lender agreed, after the reporting period

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and before the approval of the financial statements for issue, not to demand payment as a
consequence of the breach.
 However, an entity classifies the liability as non-current if the lender agreed by the end of
the reporting period to provide a period of grace ending at least twelve months after the
reporting period, within which the entity can rectify the breach and during which the lender
cannot demand immediate repayment.
Illustration 8
On 1 st April, 20X3, Charming Ltd issued 1,00,000 10 bonds for 10,00,000. On 1 st April, each
year interest at the fixed rate of 8 percent per year is payable on outstanding capital amount of
the bonds (ie the first payment will be made on 1 st April, 20X4). On 1 st April each year (i.e from
1 st April, 20X4), Charming Ltd has a contractual obligation to redeem 10,000 of the bonds at 10
per bond. In its statement of financial position at 31 st March, 20X4. How should this be presented
in the financial statements?
Solution
Charming Ltd must present 80,000 accrued interest and 1,00,000 current portion of the non-
current bond (i.e. the portion repayable on 1 st April, 20X4) as current liabilities. The 9,00,000
due later than 12 months after the end of the reporting period is presented as a non-current
liability.
*****
Illustration 9
X Ltd provides you the following information:
Raw material stock holding period : 3 months
Work-in-progress holding period : 1 month
Finished goods holding period : 5 months
Debtors collection period : 5 months
The trade payables of the Company are paid in 12.5 months. Should these be classified as current
or non-current?
Solution
In this case, the operating cycle of X Ltd. is 14 months. Since the trade payables are expected to
be settled within the operating cycle i.e. 12.5 months, they should be classified as a current.
*****

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Illustration 10
Entity A has two different businesses, real estate and manufacturing of passenger vehicles. With
respect to the real estate business, the entity constructs residential apartments for customers and
the normal operating cycle is three to four years. With respect to the business of manufacture of
passenger vehicles, normal operating cycle is 15 months. Under such circumstance where an
entity has different operating cycles for different types of businesses, how classification into
current and non-current be made?
Solution
As per paragraph 66(a) of Ind AS 1, an asset should be classified as current if an entity expects
to realise the same, or intends to sell or consume it in its normal operating cycle. Similarly, as
per paragraph 69(a) of Ind AS 1, a liability should be classified as current if an entity expects to
settle the liability in its normal operating cycle. In this situation, where businesses have different
operating cycles, classification of asset/liability as current/non- current would be in relation to the
normal operating cycle that is relevant to that particular asset / liability. It is advisable to disclose
the normal operating cycles relevant to different types of businesses for better understanding.
*****
Illustration 11
An entity has placed certain deposits with various parties. How the following deposits should be
classified, i.e., current or non-current?
(a) Electricity Deposit
(b) Tender Deposit/Earnest Money Deposit [EMD]
(c) GST Deposit paid under dispute or GST payment under dispute.
Solution
(a) Electricity Deposit - At all points of time, the deposit is recoverable on demand, when the
connection is not required. However, practically, such electric connection is required as long
as the entity exists. Hence, from a commercial reality perspective, an entity does not expect
to realise the asset within twelve months from the end of the reporting period. Hence,
electricity deposit should be classified as a non-current asset.
(b) Tender Deposit/Earnest Money Deposit [EMD] -Generally, tender deposit / EMD are paid
for participation in various bids. They normally become recoverable if the entity does not win
the bid. Bid dates are known at the time of tendering the deposit. But until the date of the
actual bid, one is not in a position to know if the entity is winning the bid or otherwise.

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Accordingly, depending on the terms of the deposit if entity expects to realise the deposit
within a period of twelve months, it should be classified as current otherwise non-current.
(c) GST Deposit paid under dispute or GST payment under dispute -Classification of GST
deposit paid to the Government authorities in the event of any legal dispute, which is under
protest would depend on the facts of the case and the expectation of the entity to realise the
same within a period of twelve months. In the case the entity expects these to be realised
within 12 months, it should classify such amounts paid as current otherwise these should be
classified as non-current.
*****
Illustration 12
Paragraph 69(a) of Ind AS 1 states “An entity shall classify a liability as current when it expects
to settle the liability in its normal operating cycle”. An entity develops tools for customers and this
normally takes a period of around 2 years for completion. The material is supplied by the customer
and hence the entity only renders a service. For this, the entity receives payment upfront and
credits the amount so received to “Income Received in Advance”. How should this “Income
Received in Advance” be classified, i.e., current or non-current?
Solution
Ind AS 1 provides “Some current liabilities, such as trade payables and some accruals for
employee and other operating costs, are part of the working capital used in the entity’s normal
operating cycle. An entity classifies such operating items as current liabilities even if they are due
to be settled more than twelve months after the reporting period.”
In accordance with the above, income received in advance would be classified as current liability
since it is a part of the working capital, which the entity expects to earn within its normal operating
cycle.
*****
Illustration 13
An entity has taken a loan facility from a bank that is to be repaid within a period of 9 months from
the end of the reporting period. Prior to the end of the reporting period, the entity and the bank
enter into an arrangement, whereby the existing outstanding loan will, unconditionally, roll into the
new facility which expires after a period of 5 years.
(a) How should such loan be classified in the balance sheet of the entity?
(b) Will the answer be different if the new facility is agreed upon after the end of the reporting
period?

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(c) Will the answer to (a) be different if the existing facility is from one bank and the new facility
is from another bank?
(d) Will the answer to (a) be different if the new facility is not yet tied up with the existing bank,
but the entity has the potential to refinance the obligation?
Solution
(a) The loan is not due for payment at the end of the reporting period. The entity and the bank
have agreed for the said roll over prior to the end of the reporting period for a period of 5
years. Since the entity has an unconditional right to defer the settlement of the liability for at
least twelve months after the reporting period, the loan should be classified as non-current.
(b) Yes, the answer will be different if the arrangement for roll over is agreed upon after the end
of the reporting period, since assessment is required to be made based on terms of the
existing loan facility. As at the end of the reporting period, the entity does not have an
unconditional right to defer settlement of the liability for at least twelve months after the
reporting period. Hence the loan is to be classified as current.
(c) Yes, loan facility arranged with new bank cannot be treated as refinancing, as the loan with
the earlier bank would have to be settled which may coincide with loan facility arranged with
a new bank. In this case, loan has to be repaid within a period of 9 months from the end of
the reporting period, therefore, it will be classified as current liability.
(d) Yes, the answer will be different and the loan should be classified as current. This is
because, as per paragraph 73 of Ind AS 1, when refinancing or rolling over the obligation is
not at the discretion of the entity (for example, there is no arrangement for refinancing), the
entity does not consider the potential to refinance the obligation and classifies the obligation
as current.
*****
Illustration 14
In December 20X1 an entity entered into a loan agreement with a bank. The loan is repayable in
three equal annual instalments starting from December 20X5. One of the loan covenants is that
an amount equivalent to the loan amount should be contributed by promoters by 24 th March 20X2,
failing which the loan becomes payable on demand. As on 24 th March 20X2, the entity has not
been able to get the promoter’s contribution. On 25 th March, 20X2, the entity approached the
bank and obtained a grace period up to 30 th June, 20X2 to get the promoter’s contribution.
The bank cannot demand immediate repayment during the grace period. The annual reporting
period of the entity ends on 31 st March, 20X2.
(a) As on 31 st March, 20X2, how should the entity classify the loan?

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(b) Assume that in anticipation that it may not be able to get the promoter’s contribution by due
date, in February 20X2, the entity approached the bank and got the compliance date
extended up to 30 th June, 20X2 for getting promoter’s contribution. In this case will the loan
classification as on 31 st March, 20X2 be different from (a) above?
Solution
(a) Paragraph 75 of Ind AS 1, inter alia, provides, “An entity classifies the liability as non-current
if the lender agreed by the end of the reporting period to provide a period of grace ending at
least twelve months after the reporting period, within which the entity can rectify the breach
and during which the lender cannot demand immediate repayment.” In the present case,
following the default, grace period within which an entity can rectify the breach is less than
twelve months after the reporting period. Hence as on 31 st March 20X2, the loan will be
classified as current.
(b) Ind AS 1 deals with classification of liability as current or non-current in case of breach of a
loan covenant and does not deal with the classification in case of expectation of breach. In
this case, whether actual breach has taken place or not is to be assessed on 30 th June 20X2,
i.e., after the reporting date. Consequently, in the absence of actual breach of the loan
covenant as on 31 st March 20X2, the loan will retain its classification as non-current.
*****
Illustration 15
OMN Ltd has a subsidiary MN Ltd. OMN Ltd provides a loan to MN Ltd at 8% interest to be paid
annually. The loan is required to be paid whenever demanded back by OMN Ltd.
How should the loan be classified in the financial statements of OMN Ltd? Will it be any different
for MN Ltd?
Solution
The demand feature might be primarily a form of protection or a tax-driven feature of the loan.
Both parties might expect and intend that the loan will remain outstanding for the foreseeable
future. If so, the instrument is, in substance, long-term in nature, and accordingly, OMN Ltd would
classify the loan as a non-current asset.
However, OMN Ltd would classify the loan as a current asset if both the parties intend that it will
be repaid within 12 months of the reporting period.
MN Ltd would classify the loan as current because it does not have the right to defer repayment
for more than 12 months, regardless of the intentions of both the parties.

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The classification of the instrument could affect initial recognition and subsequent measurement.
This might require the entity’s management to exercise judgement, which could require disclosure
under judgements and estimates.
*****
1.8.2.5 Information to be provided in the Balance Sheet or in the notes
 An entity shall disclose, either in the balance sheet or in the notes, further sub-classifications
of the line items presented, classified in a manner appropriate to the entity’s operations.

 The detail provided in sub-classifications depends on the requirements of Ind AS and on the
size, nature and function of the amounts involved. The disclosures vary for each item, for
example:

(i) items of property, plant and equipment are disaggregated into classes in accordance
with Ind AS 16;

(ii) receivables are disaggregated into amounts receivable from trade customers,
receivables from related parties, prepayments and other amounts;

(iii) inventories are disaggregated, in accordance with Ind AS 2, Inventories, into

classifications such as merchandise, production supplies, materials, work in progress
and finished goods;

(iv) provisions are disaggregated into provisions for employee benefits and other items; and

(v) equity capital and reserves are disaggregated into various classes, such as paid-in
capital, share premium and reserves.

 An entity shall disclose the following, either in the balance sheet or in the statement of
changes in equity which is part of the balance sheet, or in the notes:

(i) for each class of share capital:

(a) the number of shares authorised;

(b) the number of shares issued and fully paid, and issued but not fully paid;

(c) par value per share, or that the shares have no par value;

(d) a reconciliation of the number of shares

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(e) the rights, preferences and restrictions attaching to that class including restrictions
on the distribution of dividends and the repayment of capital;

(f) shares in the entity held by the entity or by its subsidiaries or associates; and

(g) shares reserved for issue under options and contracts for the sale of shares,
including terms and amounts; and

(ii) a description of the nature and purpose of each reserve within equity.

 An entity whose capital is not limited by shares e.g., a company limited by guarantee, shall
disclose information, showing changes during the period in each category of equity interest,
and the rights, preferences and restrictions attaching to each category of equity interest.

Illustrated format of Balance Sheet

Balance Sheet (with hypothetical figures given for ease in understanding) '000

As at As at
31 st March 31 st March
20X6 20X5
Assets
Non-current Assets
Property, plant and equipment 1,37,048 97,023
Capital work in progress 17,450 3,100
Investment property 7,419 7,179
Goodwill 8,670 4,530
Other Intangible Assets 12,033 10,895
Intangible assets under development 2,365 1,965
Financial assets
Investments 38,576 32,416
Loans 1,033 850
Trade Receivables 3,238 2,376
Deferred tax assets (net) 4,598 2,774
Other non-current assets 21,586 10,565
Total Non-Current Assets (A) 2,54,016 1,73,673

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Current Assets
Inventories 67,878 61,062
Financial assets
Loans 623 546
Trade receivables 30,712 30,078
Derivative instruments
Cash and cash equivalents 25,031 7,035
Investments 10,695 9,170
Other financial assets 2,856 2,093
Prepayments 459 543
1,38,254 1,10,527
Assets classified as held for sale 220 19,310
Total Current Assets (B) 1,38,474 1,29,837
Total Assets (A+B) 3,92,490 3,03,510

As at As at
31 st March 31 st March
20X6 20X5
Equity and liabilities
Equity
Equity share capital 22,400 12,600
Other equity
Equity component of compound financial instruments 372
Reserves and surplus 2,16,092 1,60,796
Other reserves 4,233 3,215
Equity attributable to equity holders of the parent 2,43,097 1,76,611
Non-Controlling interest 24,742 16,248
Total equity (C) 2,67,839 1,92,859

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Non-current liabilities
Financial liabilities
Borrowings 41,455 35,565
Other financial liabilities 1,670 199
Long term provision 241 91
Deferred Income - Government grants 2,352 2,550
Net employee defined benefit liabilities 7,296 5,076
Deferred tax liabilities (net) 12,085 9,864
Other non-current liabilities
Total non-current liabilities (D) 65,099 53,345
Current Liabilities
Financial liabilities
Borrowings 2,807 2,685
Trade payables (Other than micro enterprises and 38,011 28,977
small enterprises)
Other current financial liabilities 8,909 8,837
Deferred income - Government grants 938 1,017
Employee benefit obligations 430 378
Deferred revenue 4,152 3,986
Liabilities for current tax (net) 2,803 1,905
Provisions 1,502 531
Liabilities directly associated with the assets classified as
held for distribution 8,990
Total current liabilities (E) 59,552 57,306
Total liabilities (F=D+E) 1,24,651 1,10,651
Total equity and liabilities (C+F) 3,92,490 3,03,510

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1.8.3 Statement of Profit and Loss

 The statement of profit and loss shall present, in addition to the profit or loss and other
comprehensive income sections:
(a) profit or loss;
(b) total other comprehensive income;
(c) comprehensive income for the period, being the total of profit or loss and other
comprehensive income.
 An entity shall present (in case of consolidated statement of profit and loss) the following
items as allocation of profit or loss and other comprehensive income for the period:
(a) profit or loss for the period attributable to:
(i) non-controlling interests, and
(ii) owners of the parent.
(b) comprehensive income for the period attributable to:
(i) non-controlling interests, and
(ii) owners of the parent.
1.8.3.1 Information to be presented in the profit or loss section of the Statement of
Profit and Loss
In addition to items required by other Ind AS, the profit or loss section of the statement of profit
and loss should include line items that present the following amounts for the period:
(a) revenue, presenting separately interest revenue calculated using the effective interest
method;
(b) gains and losses arising from the derecognition of financial assets measured at amortised
cost
(c) finance costs;
(d) impairment losses (including reversals of impairment losses or impairment gains) determined
in accordance with Section 5.5 of Ind AS 109
(e) share of the profit or loss of associates and joint ventures accounted for using the equity
method;
(f) if financial asset is reclassified out of the amortised cost measurement category so that it is
measured at fair value through profit or loss, any gain or loss arising from a difference

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between the previous amortised cost of the financial asset and its fair value at the
reclassification date;
(g) if a financial asset is reclassified out of the fair value through other comprehensive income
measurement category so that it is measured at fair value through profit or loss, any
cumulative gain or loss previously recognized in other comprehensive income that is
reclassified to profit or loss
(h) tax expense;
(i) a single amount for the total discontinued operations
1.8.3.2 Information to be presented in the Other Comprehensive Income section
 The other comprehensive income section should present line items for the amounts of other
comprehensive income classified by nature and grouped into those that, in accordance with
other Ind AS:
(i) will not be reclassified subsequently to profit or loss; and
(ii) will be reclassified subsequently to profit or loss when specific conditions are met.
 An entity shall present additional line items, headings and subtotals in the statement of profit
and loss, when such presentation is relevant to an understanding of the entity’s financial
performance.
 When an entity presents subtotals, those subtotals shall:
(a) be comprised of line items made up of amounts recognised and measured in
accordance with Ind AS;
(b) be presented and labelled in a manner that makes the line items that constitute the sub
total clear and understandable;
(c) be consistent from period to period; and
(d) not be displayed with more prominence than the subtotals and totals required in Ind AS
for the statement of profit and loss.
 An entity shall present the line items in the statement of profit and loss that reconcile any
sub totals presented with the subtotals or totals required in Ind AS for such statement.
 An entity shall not present any items of income or expense as extraordinary items, in the
statement of profit and loss or in the notes.

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1.8.3.3 Profit or loss for the period

With regard to profit or loss for the period, the Standard requires the recognition of all items of
income and expense in a period in profit or loss unless an Ind AS requires or permits otherwise.
Illustrative format of Statement of Profit and Loss (only profit or loss section of statement of
profit and loss)
Statement of Profit and Loss for the year ended 31 st March 20X6

31 st March 31 st March
20X6 20X5

'000 '000

Revenue from operations 6,33,124 4,86,316

Other Income 6,704 6,676

Total Income 6,39,828 4,92,992

Expenses

Cost of raw material consumed 2,43,929 2,34,262

Purchase of stock-in-trade 56,300 51,700

(Increase)/decrease in inventories of finished goods,

Stock-in-Trade and work-in-progress 2,895 (2,587)

Employee benefits expenses 80,998 69,962

Finance costs 3,085 2,963

Depreciation and amortisation expense 10,147 8,534

Impairment of non-current assets 480 790

Other expenses 15,308 9,065

Total Expense 4,13,142 3,74,689

Profit/(loss) before exceptional items and tax 2,26,686 1,18,303

Exceptional items (2,856)

Profit / (loss) before tax from operations 2,23,830 1,18,303

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a) Current tax 5,388 4,474

b) Deferred tax 427 (746)

Income tax expense 5,815 3,728

Profit / (loss) for the year 2,18,015 1,14,575

Profit for the year attributable to *

Equity holders of the parent 2,11,475 1,11,138

Non-controlling interest 6,540 3,437

* To be given in case of consolidated statement of profit and loss.

1.8.3.4 Other comprehensive income for the period

 With regard to other comprehensive income for the period, the Standard requires to disclose
the amount of income tax relating to each item of other comprehensive income, including
reclassification adjustments, either in the statement of profit and loss or in the notes.
 An entity may present items of other comprehensive income either:
(a) net of related tax effects, or
(b) before related tax effects with one amount shown for the aggregate amount of income
tax relating to those items.
 The Standard further prescribes that an entity should disclose reclassification adjustments
relating to components of other comprehensive income.
 Other Ind AS specify whether and when amounts previously recognised in other
comprehensive income are reclassified to profit or loss. Such reclassifications are referred
to in this Standard as reclassification adjustments.
 A reclassification adjustment is included with the related component of other comprehensive
income in the period that the adjustment is reclassified to profit or loss.

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changes in revaluation surplus

reameasurements of defined benefit plans

Components of Other Comprehensive Income (OCI)

gains and losses arising from translating the financial statements of a foreign

gains and losses from investments in equity instruments designated at fair value through
OCI

gains and losses on financial assets measured at fair value through OCI

the effective portion of gains and losses on hedging instruments in a cash flow hedge and
the gains and losses on hedging instruments that hedge investments in equity instruments
measured at fair value through OCI

for particular liabilities designated as at FVTPL, the amount of the change in fair value that
is attributable to changes in the liability’s credit risk

changes in the value of the time value of options when separating the intrinsic value and
time value of an option contract and designating as the hedging instrument only the
changes in the intrinsic value

changes in the value of the forward elements of forward contracts when separating the
forward element and spot element of a forward contract and designating as the hedging
instrument only the changes in the spot element, and changes in the value of the foreign
currency basis spread of a financial instrument when excluding it from the designation of
that financial instrument as the hedging instrument

Example 14
Gains realised on the disposal of financial assets are included in profit or loss of the current
period. These amounts may have been recognised in other comprehensive income as
unrealised gains in the current or previous periods. Those unrealised gains must be
deducted from other comprehensive income in the period in which the realised gains are
reclassified to profit or loss to avoid including them in total comprehensive income twice.

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The following table depicts some of the items which are taken to OCI (numbers are illustrative
only): in lakhs

Cash flow FVTOCI Foreign Revaluation Retained Total

Hedge reserve currency reserve earnings
reserve translation
reserve

Net Investment 2,340 2,340

hedge

Foreign Exchange (2,950) (2,950)

translation reserve

Currency Forward (7,680) (7,680)

contracts

Reclassified to 3,385 3,385

statement of profit or
loss

Commodity forward (1,850) (1,850)

contract

Gain / (loss) on (480) (480)

FVTOCI financial
assets

Re-measurement 3,085 3,085

gains (losses) on
defined benefit plans

Revaluation of land
and buildings 7,100 7,100

(6,145) (480) (610) 7,100 3,085 2,950

 An entity may present reclassification adjustments in the statement of profit and loss or in
the notes. An entity presenting reclassification adjustments in the notes presents the items
of other comprehensive income after any related reclassification adjustments.

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 Reclassification adjustments arise, for example, on disposal of a foreign operation (see

Ind AS 21), and when some hedged forecast cash flows affect profit or loss (see paragraph
6.5.11(d) of Ind AS 109 in relation to cash flow hedges).
 Reclassification adjustments do not arise on changes in revaluation surplus recognised in
accordance with Ind AS 16 or Ind AS 38 or on re-measurements of defined benefit plans
recognised in accordance with Ind AS 19. These components are recognised in other
comprehensive income and are not reclassified to profit or loss in subsequent periods.
Changes in revaluation surplus may be transferred to retained earnings in subsequent
periods as the asset is used or when it is derecognised (see Ind AS 16 and Ind AS 38). In
accordance with Ind AS 109, reclassification adjustments do not arise if a cash flow hedge
or the accounting for the time value of an option (or the forward element of a forward contract
or the foreign currency basis spread of a financial instrument) result in amounts that are
removed from the cash flow hedge reserve or a separate component of equity, respectively,
and included directly in the initial cost or other carrying amount of an asset or a liability.
These amounts are directly transferred to assets or liabilities.
Illustrative format of other Comprehensive Income

31.3.20X6 31.3.20X5
'000 '000

Other comprehensive income to be reclassified to profit

and loss in subsequent periods

Net gain on hedge of a net investment 467 300

Income tax effect (156) (100)

311 200

Exchange differences on translation of foreign operations (590) (281)

Income tax effect 0 0

(590) (281)

Net movement on cash flow hedges (1757) 80

Income tax effect 528 (22)

(1229) 58

Net gain / (loss) through FVTOCI debt securities (115) 7

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Income tax effect 36 (2)

(79) 5

Net other comprehensive income to be reclassified to

profit or loss in subsequent periods (1587) (18)

Other comprehensive income not to be reclassified to

profit or loss in subsequent periods

Re-measurement gains /(losses) on defined benefit plans 886 (933)

Income tax effect (269) 278

617 (655)

Revaluation of land and building 2030

Income tax effect (610)

1420 0

Net loss / (gain) through FVTOCI equity securities (24)

Income tax effect 7

(17)

Net other comprehensive income not to be classified to profit

or loss in subsequent periods 2020 (655)

Other comprehensive income for the year, net of tax 433 (673)

Total comprehensive income for the year attributable to *

Equity holders of the parent 2,11,908 1,10,465

Non-controlling interest 6,540 3,437

*To be given in case of consolidated statement of profit and loss.

1.8.3.5 Information to be presented in the Statement of Profit and Loss or in the
Notes
 When items of income or expense are material, an entity shall disclose their nature and
amount separately.

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 Circumstances that would give rise to the separate disclosure of items of income and
expense include:
(a) write-downs of inventories to net realisable value or of property, plant and equipment to
recoverable amount, as well as reversals of such write-downs;
(b) restructurings of the activities of an entity and reversals of any provisions for the costs
of restructuring;
(c) disposals of items of property, plant and equipment;
(d) disposals of investments;
(e) discontinued operations;
(f) litigation settlements; and
(g) other reversals of provisions.
 An entity shall present an analysis of expenses recognised in profit or loss using a
classification based on the nature of expense method.

Revenue X

Other income X

Changes in inventories of finished goods and work in progress X

Raw materials and consumables used X

Employee benefits expense X

Depreciation and amortisation expense X

Other expenses X

Total expenses (X)

Profit before tax X

1.8.4 Statement of Changes in Equity

An entity shall present a statement of changes in equity which includes all changes in equity. It
includes both - relating to performance and owner changes in equity (from transactions and events
that increase or decrease equity but are not part of performance). The statement of changes in
equity includes the following information:

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a. total comprehensive income for the period, showing separately the total amounts attributable
to owners of the parent and to non-controlling interests;
b. for each component of equity, the effects of retrospective application or retrospective
restatement recognised in accordance with Ind AS 8;
c. for each component of equity, a reconciliation between the carrying amount at the beginning
and the end of the period, separately disclosing each change resulting from:
 profit or loss;
 each item of other comprehensive income;
 transactions with owners in their capacity as owners, showing separately contributions
by and distributions to owners and changes in ownership interests in subsidiaries that
do not result in a loss of control; and
 any item recognised directly in equity such as amount recognised directly in equity as
capital reserve with Ind AS 103.
1.8.4.1 Information to be presented in the statement of changes in equity or in the
notes.
 An entity shall present, either in the statement of changes in equity or in the notes, an
analysis of other comprehensive income by item.
 An entity shall present, either in the statement of changes in equity or in the notes, the
amount of dividends recognised as distributions to owners during the period, and the related
amount of dividends per share.
 Ind AS 8 requires retrospective adjustments to effect changes in accounting policies, to the
extent practicable, except when the transition provisions in another Ind AS require otherwise.
Ind AS 8 also requires restatements to correct errors to be made retrospectively, to the extent
practicable. Retrospective adjustments and retrospective restatements are not changes in
equity but they are adjustments to the opening balance of retained earnings, except when
an Ind AS requires retrospective adjustment of another component of equity.
 Para 106(b) requires disclosure in the statement of changes in equity of the total adjustment
to each component of equity resulting from changes in accounting policies and, separately,
from corrections of errors. These adjustments are disclosed for each prior period and the
beginning of the period.

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Format of Statement of changes in equity for the year ended 31 st March 20X6 *

Share capital

Translation

earnings
Retained
reserve

Total
Equity as at 31 st March 20X5 (A) 1,041 (47,382) 2,65,266 2,18,925

Profit for the year 28,461 28,461

Other comprehensive income for the year (3,399) (5,535) (8,934)

Total comprehensive income for the year

(3,399) 22,926 19,527
(B)

Dividend paid to shareholders of the parent (17,817) (17,817)

Equity compensation plans 15 15

Reduction in share capital (51) (26,427) (26,478)

Total transactions (C) (51) (44,229) (44,280)

Equity as at 31 st March, 20X6 (A+B+C) 990 (50,781) 2,43,963 1,94,172

*For the purpose of convenience, the movement has been given only for one year. However as
per the requirement, the similar reconciliation is also required from 31 st March, 20X4 to
31 st March, 20X5 as comparatives in the Statement of changes in equity.
1.8.5 Statement of Cash Flows
 Cash flow information provides users of financial statements with a basis to assess the ability
of the entity to generate cash and cash equivalents and the needs of the entity to utilise those
cash flows.
 An entity should present a statement of cash flows in accordance with Ind AS 7, Statement
of Cash Flows.

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1.8.6 Notes
1.8.6.1 Structure
The notes shall:
a. present information about the basis of preparation of the financial statements and the specific
accounting policies used;
b. disclose the information required by Ind AS that is not presented elsewhere in the financial
statements; and
c. provide information that is not presented elsewhere in the financial statements but is relevant
to an understanding of any of them.
An entity shall present notes in a systematic manner. In determining a systematic manner, the
entity shall consider the effect on the understandability and comparability of its financial
statements.
An entity shall cross-reference each item in the balance sheet, in the statement of changes in
equity, in the statement of profit and loss, and statement of cash flows to any related information
in the notes.
Examples of systematic ordering or grouping of the notes include:
(a) giving prominence to the areas of its activities that the entity considers to be most relevant
to an understanding of its financial performance and financial position, such as grouping
together information about particular operating activities;
(b) grouping together information about items measured similarly such as assets measured at
fair value; or
(c) Notes may be in the following order:
(i) statement of compliance with Ind AS;
(ii) material accounting policy information;
(iii) supporting information for items presented in the balance sheet and in the statement of
profit and loss, and in the statements of changes in equity and of cash flows, in the
order in which each statement and each line item is presented; and
(iv) other disclosures, including:
(1) contingent liabilities (see Ind AS 37) and unrecognised contractual commitments;
and

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(2) non-financial disclosures, eg the entity’s financial risk management objectives and
policies (see Ind AS 107).
An entity may present notes providing information about the basis of preparation of the financial
statements and specific accounting policies as a separate section of the financial statements.
1.8.6.2 Disclosure of accounting policies
An entity shall disclose material accounting policy information. Accounting policy information is
material if, when considered together with other information included in an entity’s financial
statements, it can reasonably be expected to influence decisions that the primary users of general
purpose financial statements make on the basis of those financial statements.
Accounting policy information that relates to immaterial transactions, other events or conditions is
immaterial and need not be disclosed. Not all accounting policy information relating to material
transactions, other events or conditions is itself material.
An entity is likely to consider accounting policy information material to its financial statements if
that information relates to material transactions, other events or conditions and:
(a) the entity changed its accounting policy during the reporting period and this change resulted
in a material change to the information in the financial statements;
(b) the entity chose the accounting policy from one or more options permitted by Ind AS
(c) the accounting policy was developed in accordance with Ind AS 8 in the absence of an
Ind AS that specifically applies;
(d) the accounting policy relates to an area for which an entity is required to make significant
judgements or assumptions in applying an accounting policy, and the entity discloses those
judgements or assumptions; or
(e) the accounting required for them is complex and users of the entity’s financial statements
would otherwise not understand those material transactions, other events or conditions—
such a situation could arise if an entity applies more than one Ind AS to a class of material
transactions.
Accounting policy information that focuses on how an entity has applied the requirements of the
Ind AS to its own circumstances provides entity-specific information that is more useful to users
of financial statements than standardised information, or information that only duplicates or
summarises the requirements of the Ind AS.
If an entity discloses immaterial accounting policy information, such information shall not obscure
material accounting policy information.

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An entity’s conclusion that accounting policy information is immaterial does not affect the related
disclosure requirements set out in other Ind AS.
An entity shall disclose, along with material accounting policy information or other notes, the
judgements, apart from those involving estimations, that management has made in the process of
applying the entity’s accounting policies and that have the most significant effect on the amounts
recognised in the financial statements.
1.8.6.3 Sources of estimation uncertainty
An entity must disclose, in the notes, information about the assumptions made concerning the
future, and other important sources of estimation uncertainty at the end of the reporting period,
that have a significant risk of resulting in a material adjustment to the carrying amounts of assets
and liabilities within the next financial year. Disclosures about nature of such assets and their
carrying amount as at the end of the reporting period should also be made.
1.8.6.4 Capital
An entity shall disclose information that enables users of its financial statements to evaluate the
entity’s objectives, policies and processes for managing capital.
Examples 15 -17
15. For the purpose of the Group’s capital management, capital includes issued equity capital,
convertible preference shares, share premium and all other equity reserves attributable to
the equity holders of the parent. The primary objective of the Group’s capital management is
to maximise the shareholder value.
The Group manages its capital structure and makes adjustments in light of changes in
economic conditions and the requirements of the financial covenants. To maintain or adjust
the capital structure, the Group may adjust the dividend payment to shareholders, return
capital to shareholders or issue new shares. The Group monitors capital using a gearing
ratio, which is net debt divided by total capital plus net debt. The Group’s policy is to keep
the gearing ratio between 20% and 40%. The Group includes within net debt, interest bearing
loans and borrowings, trade and other payables, less cash and cash equivalents, excluding
discontinued operations.

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31.3.20X6 31.3.20X5
Borrowings other than convertible preference shares 1,44,201 1,57,506

Trade payables 1,26,489 1,36,563

Other payables 13,506 12,693

Less : Cash and cash equivalents (1,18,362) (1,05,615)

Net debt 1,65,834 2,01,147

Convertible preference shares 20,001 19,038

Equity 4,29,600 3,37,000

Total Capital 4,49,601 3,56,038

Capital and net debt 6,15,435 5,57,185

Gearing ratio 27 36

In order to achieve this overall objective, the Group’s capital management, amongst other things,
aims to ensure that it meets financial covenants attached to the interest-bearing loans and
borrowings that define capital structure requirements. Breaches in meeting the financial
covenants would permit the bank to immediately call loans and borrowings. There have been no
breaches in the financial covenants of any interest-bearing loans and borrowing in the current
period. No changes were made in the objectives, policies or processes for managing capital
during the years ended 31 st March 20X6 and 31 st March 20X5.
16. Capital Allocation Policy: The Board reviewed and approved a revised Capital Allocation
Policy of the Company after taking into consideration the strategic and operational cash
requirements of the Company in the medium term.
The key aspects of the Capital Allocation Policy are:
1. The Company’s current policy is to pay dividends of up to 50% of post-tax profits of the
Financial Year. Effective from Financial Year 20X1, the Company expects to payout up
to 70% of the free cash flow* of the corresponding Financial Year in such manner
(including by way of dividend and/or share buyback) as may be decided by the Board
from time to time, subject to applicable laws and requisite approvals, if any.

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2. In addition to the above, the Board has identified an amount of upto 13,000 crore
($2 billion)** to be paid out to shareholders during Financial Year 20X1, in such manner
(including by way of dividend and/ or share buyback), to be decided by the Board, subject
to applicable laws and requisite approvals, if any. Further announcements in this regard
will be made, as appropriate, in due course
*Free cash flow is defined as net cash provided by operating activities less capital
expenditure as per the consolidated statement of cash flows prepared under Ind AS.
**USD/Rupee exchange rate as on 31 st March, 20X0 was 65.
17. The groups’ objective when managing capital are to:
 Safeguard their ability to continue as a going concern, so that they can continue to
provide returns to shareholders and benefits for other stakeholders, and
 Maintain an optimum capital structure to reduce the cost of capital
In order to maintain or adjust the capital structure, the group may adjust the amounts of
dividends paid to shareholders, return capital to shareholders, issue new shares or sell
assets to reduce debt. Consistent with others in the industry, the group monitors capital on
the basis of the following gearing ratio: Net debt divided by the Total equity (as shown in
balance sheet including Non-Controlling Interest)
During 20X5, the group’s strategy which was unchanged from 20X4 was to maintain a gearing
ratio within 20% to 30% and credit rating of A. The credit rating was unchanged and the
gearing ratio was within the limits as follows:

31 st March 20X5 31 st March 20X4

Net debt 3,384 3,447

Total equity 16,035 11,762

Net debt to equity 21% 29%

1.8.6.5 Puttable financial instruments classified as equity

For puttable financial instruments classified as equity instruments, an entity shall disclose (to the
extent not disclosed elsewhere):
a. summary quantitative data about the amount classified as equity;

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b. its objectives, policies and processes for managing its obligation to repurchase or redeem
the instruments when required to do so by the instrument holders, including any changes
from the previous period;
c. the expected cash outflow on redemption or repurchase of that class of financial instruments;
and
d. information about how the expected cash outflow on redemption or repurchase was
determined.
1.8.6.6 Other disclosures
An entity must disclose the amount of dividends proposed or declared before the financial
statements were approved for issue but not recognised as a distribution to owners during the
period, and the related amount per share and the amount of any cumulative preference dividends
not recognised.
Ind AS 1 requires certain other disclosures, if not disclosed elsewhere in information published
with the financial statements:
a) the domicile and legal form of the entity, its country of incorporation and the address of its
registered office (or principal place of business, if different from the registered office);
b) a description of the nature of the entity’s operations and its principal activities;
c) the name of the parent and the ultimate parent of the group; and
d) if it is a limited life entity, information regarding the length of its life.

(a) An extract from the annual report of Tata Consultancy Services Limited
for the year ended 31 st March, 2022:
Notes forming part of Standalone Financial Statements
1) Corporate information
Tata Consultancy Services Limited (referred to as “TCS Limited” or “the
Company”) provides IT services, consulting and business solutions and has been
partnering with many of the world’s largest businesses in their transformation
journeys. The Company offers a consulting-led, cognitive powered, integrated
portfolio of IT, business and engineering services and solutions. This is delivered
through its unique Location-Independent Agile delivery model, recognised as a
benchmark of excellence in software development.

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The Company is a public limited company incorporated and domiciled in India.
The address of its corporate office is TCS House, Raveline Street, Fort, Mumbai -
400001. As at 31 st March, 2022, Tata Sons Private Limited, the holding company
owned 72.27% of the Company’s equity share capital.
The Board of Directors approved the standalone financial statements for the year
ended 31 st March, 2022 and authorised for issue on 11 th April, 2022.
(b) An extract from the annual report of Tata Consultancy Services
Limited for the year ended 31 st March, 2022:
Overview and notes to the standalone financial statements
1. Overview
1.1 Company overview
Infosys Limited ("the Company" or Infosys) provides consulting, technology,
outsourcing and next-generation digital services, to enable clients to execute
strategies for their digital transformation. Infosys strategic objective is to build
a sustainable organization that remains relevant to the agenda of clients, while
creating growth opportunities for employees and generating profitable returns
for investors. Infosys strategy is to be a navigator for our clients as they ideate,
plan and execute on their journey to a digital future.
The Company is a public limited company incorporated and domiciled in India
and has its registered office at Electronic city, Hosur Road, Bengaluru 560100,
Karnataka, India. The Company has its primary listings on the BSE Ltd. and
National Stock Exchange of India Limited. The Company’s American Depositary
Shares (ADS) representing equity shares are listed on the New York Stock
Exchange (NYSE).
The Standalone financial statements are approved for issue by the Company’s
Board of Directors on 13th April 2022.

Illustration 16
A Limited has prepared the following draft balance sheet as on 31 st March 20X1: ( in crores)
Particulars 31 st March, 31 st March,
20X1 20X0
ASSETS
Cash 250 170

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 INDIAN ACCOUNTING STANDARD 1 3.59

Cash equivalents 70 30
Non-controlling interest’s share of profit for the year 160 150
Dividend declared and paid by A Limited 90 70
Accounts receivable 2,300 1,800
Inventory at cost 1,500 1,650
Inventory at fair value less cost to complete and sell 180 130
Investment property 3,100 3,100
Property, plant and equipment (PPE) at cost 5,200 4,700
Total 12,850 11,800

CLAIMS AGAINST ASSET S

Long term debt ( 500 crores due on 1 st January each year) 3,300 3,885
Interest accrued on long term debt (due in less than 12 months) 260 290
Share Capital 1,130 1,050
Retained earnings at the beginning of the year 1,875 1,740
Profit for the year 1,200 830
Non-controlling interest 830 540
Accumulated depreciation on PPE 1,610 1,240
Provision for doubtful receivables 200 65
Trade payables 880 790
Accrued expenses 15 30
Warranty provision (for 12 months from the date of sale) 600 445
Environmental restoration provision (restoration expected in 765 640
20X6) 35 25
Provision for accrued leave (due within 12 months) 150 230
Dividend payable
Total 12,850 11,800

Prepare a consolidated balance sheet using current and non-current classification in

accordance with Ind AS 1. Assume operating cycle is 12 months

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Solution
A Limited
Consolidated Balance Sheet as at 31 st March 20X1
( in crores)

Particulars Note 31.3.20X1 31.3.20X0

ASSETS
Non-current assets
(a) Property, plant and equipment 1 3,590 3,460
(b) Investment property 3,100 3,100
Total non-current assets 6,690 6,560
Current assets
(a) Inventory 2 1,680 1,780
(b) Financial assets
(i) Trade and other receivables 3 2,100 1,735
(ii) Cash and cash equivalents 4 320 200
Total current assets 4,100 3,715

Total assets 10,790 10,275

EQUITY & LIABILITIES

Equity attributable to owners of the parent
Share capital 1,130 1,050
Other Equity 5 2,825 2,350
Non-controlling interests 830 540

Total equity 4,785 3,940

LIABILITIES
Non-current liabilities
(a) Financial Liabilities
Borrowings - Long-term debt 6 2,800 3,385

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(b) Provisions
Long-term provisions (environmental
restoration) 765 640

Total non-current liabilities 3,565 4,025

Current liabilities
(a) Financial Liabilities
(i) Trade and other payables (Other than 7 895 820
micro enterprises and small
enterprises)
8 500 500
(ii) Current portion of long-term debt
260 290
(iii) Interest accrued on long-term debt
150 230
(iv) Dividend payable
(b) Provisions
600 445
(i) Warranty provision
35 25
(ii) Other short-term provisions
2,440 2,310
Total current liabilities
6,005 6,335
Total liabilities

Total equity and liabilities 10,790 10,275

Working Notes:

Notes Particulars Basis Calculation Amount

crores crores

1 Property, plant Property, plant and 5,200 – 1,610 3,590 (3,460)

and equipment equipment (PPE) at cost less
(4,700 –
Accumulated (depreciation
1,240)
on PPE

2 Inventory Inventory at cost add 1,500 + 180 1,680 (1,780)

Inventory at fair value less
(1,650 + 130)
cost to complete and sell

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3 Trade and other Accounts receivable less 2,300 – 200 2,100 (1,735)
receivables Provision for doubtful
(1,800 – 65)
receivables

4 Cash and cash Cash and Cash equivalents 250 + 70 320

equivalents
(170 + 30) (200)

5 Other Equity Retained earnings at the 1,875 + 2,825

beginning of the year add 1,200– 160 –
Profit for the year less Non- 90
controlling interest’s share of
(1,740 + 830 –
profit for the year less (2,350)
150 – 70)
Dividend declared by A
Limited

6 Long-term debt Long-term debt less Due on 3,300 – 500 2,800

1 stJanuary each year
(3,885 – 500) (3,385)

7 Trade & other Trade payables add Accrued 880 + 15 895

payables expenses
(790 + 30) (820)

8 Current portion Due on 1 stJanuary each year - 500

of long- term
- (500)
debt

Note: Figures in brackets represent the figures for comparative year.

*****

1.9 SIGNIFICANT DIFFERENCES IN IND AS 1 VIS-À-VIS

AS 1
Ind AS 1 deal with presentation of financial statements, whereas AS 1 deal only with the disclosure
of accounting policies. The scope of Ind AS 1 is thus much wider and some of its requirements
are contained in other AS e.g. AS 5 and, therefore, line by line comparison of the differences
between Ind AS 1 and AS 1 is not possible. Therefore, the differences between Ind AS 1 and
Indian GAAP are divided into following parts and summarised below.

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S.No. Particulars Ind AS 1 AS 1

I. Part 1 Ind AS 1 requirement not covered in any AS

1. Complete set of Ind AS 1 prescribes what comprises a Not covered in any

Financial complete set of financial statements such AS
Statements as balance sheet, statement of profit and
loss, statement of changes in equity,
statement of cash flows, notes,
comprising significant accounting
policies, and comparative information in
respect of preceding period.

2. Purpose and Ind AS 1 lays down purpose of financial Not covered in any
General Features statements and general feature of AS
of Financial financial statements such as True and
Statements Fair view and compliance with Ind AS. An
enterprise shall make an explicit
statement in the financial statements of
compliance with all the Indian Accounting
Standards. Further, Ind AS 1 allows
deviation from a requirement of an
accounting standard in case the
management concludes that compliance
with Ind AS will be misleading and if the
regulatory framework requires or does
not prohibit such a departure.

3. Off-setting Ind AS 1 state that an entity shall not Not covered in any
offset assets and liabilities or income and AS
expenses, unless required or permitted
by an Ind AS.

4. Frequency of Ind AS 1 requires an entity to present a Not covered in any

reporting complete set of financial statements AS
(including comparative information) at
least annually.

5. Structure and Ind AS 1 requires an entity Not covered in any

Contents AS

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S.No. Particulars Ind AS 1 AS 1
 to clearly identify the financial
statements and distinguish them from
other information in the same
published document.
 To give information about the name of
the entity, whether financial
statements are of individual entity of
group of entities, presentation
currency and level of rounding off.

6. Balance sheet  Prescribes certain line items to be Not covered in any

presented in the balance sheet and AS
permits presentation of additional line
items.
 Ind AS 1 requires presentation and
provides criteria for classification of
Current / Non- Current assets /
liabilities.
 Ind AS 1 requires presentation of
balance sheet as at the beginning of
the earliest period when an entity
applies an accounting policy
retrospectively or makes a
retrospective restatement of items in
the financial statements, or when it
reclassifies items in its financial
statements.

7. Statement of profit  Ind AS 1 requires that an entity shall Not covered in any
and loss present a single statement of profit AS
and loss, with profit or loss and other
comprehensive income presented in
two sections. The sections shall be
presented together, with the profit or
loss section presented first followed

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S.No. Particulars Ind AS 1 AS 1

directly by the other comprehensive
income section.
 Ind AS 1 prohibits presentation of any
item as ‘Extraordinary Item’ in the
statement of profit and loss or in the
notes.
 Ind AS 1 requires classification of
expenses to be presented based on
nature of expenses.

8. Reclassification of Ind AS 1 requires disclosure of nature, Not covered in any

items amount and reason for reclassification in AS
the notes to financial statements.

9. Statement of Ind AS 1 requires the financial statements Not covered in any

Changes in Equity to include a ‘Statement of Changes in AS
Equity’ to be shown as a separate
statement, which, inter alia, includes
reconciliation between opening and
closing balance for each component of
equity.

10. Comparative As per Ind AS 1, an entity shall include Not covered in any
information certain comparative information for AS
understanding the current period’s
financial statements.

11. Classification of Ind AS 1 clarifies that long-term loan Not covered in any
long-term loan arrangement need not be classified as AS
arrangement current on account of breach of a material
provision, for which the lender has
agreed to waive before the approval of
financial statements for issue.
(Paragraph 74 of Ind AS 1)

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S.No. Particulars Ind AS 1 AS 1
II. Part 2 Ind AS 1 requirements vis-a-vis AS 1

1. Fundamental Ind AS 1 requires adherence to accrual AS 1 only requires

accounting basis of accounting. disclosure if this
assumptions fundamental
accounting
assumption, among
others like going
concerns and
consistency, is not
followed by the entity.

2. Rectification of Ind AS 1 explicitly states that an entity

accounting cannot rectify inappropriate accounting
policies policies either by disclosure of the
accounting policies used or by notes or
explanatory material.

3. Sources of Ind AS 1 requires to disclose information

estimation about the assumptions it makes about the
uncertainty future, and other major sources of
estimation uncertainty at the end of the
reporting period, that have a significant
risk of resulting in a material adjustment
to the carrying amounts of assets and
liabilities within the next financial year.

1.10 CARVE OUT IN IND AS 1 FROM IAS 1

As per IFRS
IAS 1 requires that in case of a non-current loan liability, if any condition of the loan agreement is
breached on or before the reporting date, such loan liability should be classified as current, even
if the breach is rectified after the balance sheet date.
Carve Out
Ind AS 1 clarifies that where there is a breach of a material provision of a long-term loan
arrangement on or before the end of the reporting period with the effect that the liability becomes

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payable on demand on the reporting date, the entity does not classify the liability as current, if the
lender agreed, after the reporting period and before the approval of the financial statements for
issue, not to demand payment as a consequence of the breach. Consequent to this, requirements
of paragraph 76 of IAS 1 to treat such events as non-adjusting events are also deleted.
Reason
Under Indian banking system, a long-term loan agreement generally contains a large number of
conditions. Some of these conditions are substantive, such as, recalling the loan in case interest
is not paid, and some conditions are procedural and not substantive, such as, submission of
insurance details where the entity has taken the insurance but not submitted the details to the
lender at the end of the reporting period. Generally, in case of any procedural breach, a loan is
generally not recalled. Also, in many cases, a breach is rectified after the balance sheet date and
before the approval of financial statements. Carve out has been made as it is felt that if the breach
is rectified after the balance sheet date but before the approval of the financial statements, it
would be appropriate that the users are informed about the true nature of liabilities being non-
current liabilities instead of current liabilities.

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FOR SHORTCUT TO IND AS WISDOM: SCAN ME!

TEST YOUR KNOWLEDGE

Questions
1. An entity manufactures passenger vehicles. The time between purchasing of underlying raw
materials to manufacture the passenger vehicles and the date the entity completes the
production and delivers to its customers is 11 months. Customers settle the dues after a
period of 8 months from the date of sale.
(a) Will the inventory and the trade receivables be current in nature?
(b) Assuming that the production time was say 15 months and the time lag between the
date of sale and collection from customers is 13 months, will the answer be different?
2. In December 20X1 an entity entered into a loan agreement with a bank. The loan is repayable
in three equal annual instalments starting from December 20X5. One of the loan covenants
is that an amount equivalent to the loan amount should be contributed by promoters by
24 th March, 20X2, failing which the loan becomes payable on demand. As on
24 th March, 20X2, the entity has not been able to get the promoter’s contribution. On
25 th March, 20X2, the entity approached the bank and obtained a grace period upto
30 th June, 20X2 to get the promoter’s contribution.
The bank cannot demand immediate repayment during the grace period. The annual
reporting period of the entity ends on 31 st March.
(a) As on 31 st March, 20X2, how should the entity classify the loan?
(b) Assume that in anticipation that it may not be able to get the promoter’s contribution by
due date, in February 20X2, the entity approached the bank and got the compliance

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date extended upto 30 th June, 20X2 for getting promoter’s contribution. In this case will
the loan classification as on 31 st March, 20X2 be different from (a) above?
3. Company A has taken a long-term loan from Company B. In the month of December 20X1,
there was a breach of material provision of the arrangement. As a consequence of which
the loan becomes payable on demand on 31 st March, 20X2. In the month of May 20X2, the
company started negotiation with company B for not to demand payment as a consequence
of the breach. The financial statements were approved for the issue in the month of June
20X2. In the month of July 20X2, both the companies agreed that the payment will not be
demanded immediately as a consequence of breach of material provision.
Advise on the classification of the liability as current / non-current.
4. Entity A has undertaken various transactions in the financial year ended 31 st March, 20X1.
Identify and present the transactions in the financial statements as per Ind AS 1.

Remeasurement of defined benefit plans 2,57,000

Current service cost 1,75,000
Changes in revaluation surplus 1,25,000
Gains and losses arising from translating the monetary assets in foreign 75,000
currency
Gains and losses arising from translating the financial statements of a 65,000
foreign operation
Gains and losses from investments in equity instruments designated at fair 1,00,000
value through other comprehensive income
Income tax expense 35,000
Share based payments cost 3,35,000

5. XYZ Limited (the ‘Company’) is into the manufacturing of tractor parts and mainly supplying
components to the Original Equipment Manufacturers (OEMs). The Company does not have
any subsidiary, joint venture or associate company. During the preparation of financial
statements for the year ended 31 st March, 20X1, the accounts department is not sure about
the treatment / presentation of below mentioned matters. Accounts department approached
you to advice on the following matters.

S. No. Matters
(i) There are qualifications in the audit report of the Company with reference to two
Ind AS.

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(ii) Is it mandatory to add the word “standalone” before each of the components of
financial statements?
(iii) The Company is Indian Company and preparing and presenting its financial
statements in . Is it necessary to write in the financial statements that the
financial statements have been presented in .
(iv) The Company had sales transactions with 10 related party parties during
previous year. However, during current year, there are no transactions with 4
related parties out of aforesaid 10 related parties. Hence, Company is of the
view that it need not disclose sales transactions with these 4 parties in related
party disclosures because with these parties there are no transactions during
current year.

Evaluate the above matters with respect to preparation and presentation of a general-
purpose financial statement.
6. A Company presents financial results for three years (i.e., one for current year and two
comparative years) internally for the purpose of management information every year in
addition to the general-purpose financial statements. The aforesaid financial results are
presented without furnishing the related notes because these are not required by the
management for internal purposes. During the current year, management thought why not
they should present third year statement of profit and loss also in the general-purpose
financial statements. It will save time and will be available easily whenever management
needs this in future.
With reference to above background, answer the following:
(i) Can management present the third statement of profit and loss as an additional
comparative in the general-purpose financial statements?
(ii) If management present third statement of profit and loss in the general-purpose financial
statement as comparative, is it necessary that this statement should- be compliant of
Ind AS?
(iii) Can management present third statement of profit and loss only as additional
comparative in the general-purpose financial statements without furnishing other
components (like balance sheet, statement of cash flows, statement of change in equity)
of financial statements?
7. A company, while preparing the financial statements for financial year 20X1-20X2,
erroneously booked excess revenue of 10 crore. The total revenue reported in financial
year 20X1-20X2 was 80 crore. However, while preparing the financial statements for
20X2-20X3, it discovered that excess revenue was booked in financial year 20X1-20X2 which

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it now wants to correct in the financial statements. However, the management of the
company is not sure whether it need to present the third balance sheet as additional
comparative.
With regard to the above background, answer the following:
(i) Is it necessary to provide the third balance sheet at the beginning of the preceding
period in this case?
(ii) The company wants to correct the errors during financial year 20X2-20X3 by giving
impact in the figures of current year only. Is the contention of the management, correct?
8. XYZ Limited (the ‘Company’) is into construction of turnkey projects and has assessed its
operating cycle to be 18 months. The Company has certain trade receivables and payables
which are receivable and payable within a period of twelve months from the reporting date,
i.e., 31 st March, 20X2.
In addition to above there are following items/transactions which took place during financial
year 20X1-20X2:

S. No. Items/transactions

(1) The company has some trade receivables which are due after 15 months from
the date of the balance sheet. So, the company expects that the payment will
be received within the period of operating cycle.

(2) The company has some trade payables which are due for payment after
14 months from the date of balance sheet. These payables fall due within the
period of operating cycle. Though the company does not expect that it will be
able to pay these payables within the operating cycle because the nature of
business is such that generally projects get delayed and payments from
customers also get delayed.

(3) The company was awarded a contract of 100 crore on 31 st March, 20X2. As
per the terms of the contract, the company made a security deposit of 5% of
the contract value with the customer, of 5 crore on 31 st March, 20X2. The
contract is expected to be completed in 18 months’ time. The aforesaid deposit
will be refunded back after 6 months from the date of the completion of the
contract.

(4) The company has also given certain contracts to third parties and have received
security deposits from them of 2 crore on 31 st March, 20X2 which are
repayable on completion of the contract but if contract is cancelled before the

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contract term of 18 months, then it becomes payable immediately. However,
the Company does not expect the cancellation of the contract.

Considering the above items/transactions answer the following:

(i) The company wants to present the trade receivable as current despite the fact that these
are receivables in 15 months’ time. Does the decision of presenting the same as current
is correct?

(ii) The company wants to present the trade payables as non-current despite the fact that
these are due within the operating cycle of the company. Does the decision of
presenting the same as non-current is correct?

(iii) Can the security deposit of 5 crore made by the company with the customers be
presented as current?

(iv) Can the security deposit of 2 crore taken by the company from contractors be
presented as non-current?

9. Is offsetting permitted under the following circumstances?

(a) Expenses incurred by a holding company on behalf of subsidiary, which is reimbursed

by the subsidiary - whether in the separate books of the holding company, the
expenditure and related reimbursement of expenses can be offset?

(b) Whether profit on sale of an asset against loss on sale of another asset can be offset?

(c) When services are rendered in a transaction with an entity and services are received
from the same entity in two different arrangements, can the receivable and payable be
offset?

Answers
1. Inventory and debtors need to be classified in accordance with the requirement of Ind AS 1,
which provides that an asset shall be classified as current if an entity expects to realise the
same or intends to sell or consume it in its normal operating cycle.
(a) In this case, time lag between the purchase of inventory and its realisation into cash is
19 months [11 months + 8 months]. Both inventory and the debtors would be classified
as current if the entity expects to realise these assets in its normal operating cycle.

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(b) No, the answer will be the same as the classification of debtors and inventory depends
on the expectation of the entity to realise the same in the normal operating cycle. In
this case, time lag between the purchase of inventory and its realisation into cash is
28 months [15 months + 13 months]. Both inventory and debtors would be classified as
current if the entity expects to realise these assets in the normal operating cycle.
2. (a) Ind AS 1, inter alia, provides, “An entity classifies the liability as non-current if the lender
agreed by the end of the reporting period to provide a period of grace ending at least
twelve months after the reporting period, within which the entity can rectify the breach
and during which the lender cannot demand immediate repayment.” In the present
case, following the default, grace period within which an entity can rectify the breach is
less than twelve months after the reporting period. Hence as on 31 st March, 20X2, the
loan will be classified as current.
(b) Ind AS 1 deals with classification of liability as current or non-current in case of breach
of a loan covenant and does not deal with the classification in case of expectation of
breach. In this case, whether actual breach has taken place or not is to be assessed on
30 th June, 20X2, i.e., after the reporting date. Consequently, in the absence of actual
breach of the loan covenant as on 31 st March, 20X2, the loan will retain its classification
as non-current.
3. As per para 74 of Ind AS 1 “Presentation of Financial Statements”, where there is a breach
of a material provision of a long-term loan arrangement on or before the end of the reporting
period with the effect that the liability becomes payable on demand on the reporting date, the
entity does not classify the liability as current, if the lender agreed, after the reporting period
and before the approval of the financial statements for issue, not to demand payment as a
consequence of the breach.
An entity classifies the liability as non-current if the lender agreed by the end of the reporting
period to provide a period of grace ending at least twelve months after the reporting period,
within which the entity can rectify the breach and during which the lender cannot demand
immediate repayment.
In the given case, Company B (the lender) agreed for not to demand payment but only after
the reporting date and the financial statements were approved for issuance. The financial
statements were approved for issuance in the month of June 20X2 and both companies
agreed for not to demand payment in the month of July 20X2 although negotiation started in
the month of May 20X2 but could not agree before June 20X2 when financial statements
were approved for issuance.

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Hence, the liability should be classified as current in the financial statement as at
31 st March, 20X2.
4. Items impacting the Statement of Profit and Loss for the year ended 31 st March, 20X1 ( )

Current service cost 1,75,000

Gains and losses arising from translating the monetary assets in foreign 75,000
currency

Income tax expense 35,000

Share based payments cost 3,35,000

Items impacting the other comprehensive income for the year ended 31 st March, 20X1 ( )

Remeasurement of defined benefit plans 2,57,000

Changes in revaluation surplus 1,25,000

Gains and losses arising from translating the financial statements of a foreign
operation 65,000

Gains and losses from investments in equity instruments designated at fair

value through other comprehensive income 1,00,000

5. (i) Yes, an entity whose financial statements comply with Ind AS shall make an explicit
and unreserved statement of such compliance in the notes. An entity shall not describe
financial statements as complying with Ind AS unless they comply with all the
requirements of Ind AS. (Refer Para 16 of Ind AS 1)
(ii) No, but need to disclose in the financial statement that these are individual financial
statements of the Company. (Refer Para 51(b) of Ind AS 1)
(iii) Yes, Para 51(d) of Ind AS 1 inter alia states that an entity shall display the presentation
currency, as defined in Ind AS 21 prominently, and repeat it when necessary for the
information presented to be understandable.
(iv) No, as per Para 38 of Ind AS 1, except when Ind AS permit or require otherwise, an
entity shall present comparative information in respect of the preceding period for all
amounts reported in the current period’s financial statements. An entity shall include
comparative information for narrative and descriptive information if it is relevant to
understanding the current period’s financial statements.

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 INDIAN ACCOUNTING STANDARD 1 3.75

6. (i) Yes, as per Para 38C of Ind AS 1, an entity may present comparative information in
addition to the minimum comparative financial statements required by Ind AS, as long
as that information is prepared in accordance with Ind AS. This comparative
information may consist of one or more statements referred to in paragraph 10 but need
not comprise a complete set of financial statements. When this is the case, the entity
shall present related note information for those additional statements.
(ii) Yes, as per Para 38C of Ind AS 1, an entity may present comparative information in
addition to the minimum comparative financial statements required by Ind AS, as long
as that information is prepared in accordance with Ind AS.
(iii) Yes, as per Para 38C of Ind AS 1, an entity may present comparative information in
addition to the minimum comparative financial statements required by Ind AS, as long
as that information is prepared in accordance with Ind AS. This comparative
information may consist of one or more statements referred to in paragraph 10 but need
not comprise a complete set of financial statements. When this is the case, the entity
shall present related note information for those additional statements.
7. (i) No, as per Para 40A of Ind AS 1, an entity shall present a third balance sheet as at the
beginning of the preceding period in addition to the minimum comparative financial
statements required in paragraph 38A if:
(a) it applies an accounting policy retrospectively, makes a retrospective restatement
of items in its financial statements or reclassifies items in its financial statements;
and
(b) the retrospective application, retrospective restatement or the reclassification has
a material effect on the information in the balance sheet at the beginning of the
preceding period.
(ii) No, management need to correct the previous year figures to correct the error but need
not to furnish third balance sheet at the beginning of preceding period. (Refer Para 40A
of Ind AS 1)
8. (i) Yes, but additionally the Company also need to disclose amounts that are receivable
within a period of 12 months and after 12 months from the reporting date. (Refer Para
60 and 61 of Ind AS 1)
(ii) No, the Company cannot disclose these payables as non-current and the Company also
need to disclose amounts that are payable within a period of 12 months and after
12 months from the reporting date. (Refer Para 60 and 61 of Ind AS 1)

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(iii) No, because the amount will be received after the operating cycle of the Company.
(Refer Para 66 of Ind AS 1)
(iv) No, because the amount may be required to be paid before completion of the contract
in case the contract is cancelled. (Refer Para 69 of Ind AS 1).
9. (a) As per paragraph 33 of Ind AS 1, offsetting is permitted only when the offsetting reflects
the substance of the transaction.
In this case, the agreement/arrangement, if any, between the holding and subsidiary
company needs to be considered. If the arrangement is to reimburse the cost incurred
by the holding company on behalf of the subsidiary company, the same may be
presented net. It should be ensured that the substance of the arrangement is that the
payments are actually in the nature of reimbursement.
(b) Paragraph 35 of Ind AS 1 requires an entity to present on a net basis gains and losses
arising from a group of similar transactions. Accordingly, gains or losses arising on
disposal of various items of property, plant and equipment shall be presented on net
basis. However, gains or losses should be presented separately if they are material.
(c) Ind AS 1 prescribes that assets and liabilities, and income and expenses should be
reported separately, unless offsetting reflects the substance of the transaction. In
addition to this, as per paragraph 42 of Ind AS 32, a financial asset and a financial
liability should be offset if the entity has legally enforceable right to set off and the entity
intends either to settle on net basis or to realise the asset and settle the liability
simultaneously.
In accordance with the above, the receivable and payable should be offset against each
other and net amount is presented in the balance sheet if the entity has a legal right to
set off and the entity intends to do so. Otherwise, the receivable and payable should
be reported separately.

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