Module 2: Measurement Based on Accounting policies

1. What is Indian Accounting standard 8?

This standard prescribes the guidelines for selecting and modifying accounting policies,
together with the accounting treatment and disclosure of changes in accounting policies,
changes in accounting estimates and corrections of error.

To understand the standard, we must first understand the following terms:

• Accounting principles are the specific principles, rules, bases, conventions and
practices followed by an organization in preparing and presenting financial statements.

Example of accounting principle is the accrual and matching concept which requires the
entity to record the expenses and income in the period in which it is incurred. Accounting
principles form the very basis of accounting for transactions and presenting them.

• A change in accounting estimate is a modification of the carrying amount of a

liability or an asset or the life of the asset, that results from the evaluation of the current
status of, and expected future advantages and obligations linked with, assets and liabilities.
Changes in accounting estimates arise due to new findings or new developments and,
hence, are not corrections of errors.

Example of a change in accounting estimate is the change in depreciation owing to change

in the estimation of the useful life of the asset.

• Prior period errors are omissions from, and misstatements in, the entity’s financial
statements for one or more prior period refers to such errors that have occurred due to
failure to use or misuse relevant information that was available when the statements were
approved for the issue and could have been taken into account then.

Such errors include the outcomes of mathematical mistakes, errors in applying accounting
policies, oversights or misinterpretations of facts, and fraud.

2. How are accounting policies selected and applied?

First of all the entity must assess if an Ind AS specifically applies to a transaction, other
event or condition if it applies then, the accounting policy or policies to be applied shall be
determined by applying Ind AS If the Ind AS does not apply then the management shall use
its judgement in formulating and applying an accounting policy that results in information
that is relevant to the economic decision-making needs of users; and reliable, in that the
financial statements:

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 Represent accurately the financial position, financial performance and cash flows of the
entity;

 Reflect the economic substance of transactions, other events and conditions, and not
merely the legal form;

 Are neutral, ie free from bias;

 Are prudent; and

 Are complete in all material respects.

 An entity must apply the accounting policies consistently for similar transactions, other
events and conditions unless otherwise mentioned in Ind AS.

3. When can an entity change its accounting policies?

An organization shall change an accounting policy only if the change:

(a) is ordained by an Ind AS; or

(b) results in the financial statements providing accurate and more relevant information
about the effects of transactions, other events or conditions on the entity’s financial
performance, financial position or cash flows.

4. How are errors to be treated?

Errors can arise in respect of the identification, measurement, presentation or disclosure of

elements of financial statements. An entity shall rectify material prior period errors
retrospectively unless impracticable, after the finding of errors in the first set of financial
statements:

(a) for the prior period(s) presented in which the error occurred by restating the
comparative amounts; or

(b) if the error occurred before the earliest prior period presented, restating the opening
balances of assets, liabilities and equity for the earliest prior period presented. The
standard also prescribes disclosure requirements in the case of changes in accounting
policy, estimates and prior period errors.

5. How are changes in accounting estimates to be treated?

There are many components in the accounting statements that are estimated because they
cannot be measured with precision.

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One of the items is bad debts. When such estimates are made there will be circumstances
when they would have to be modified owing to new information. Such changes are not
errors and are referred to as changes in accounting estimates.

The effect of change in an accounting estimate, which does not give rise to a change in
assets and liabilities, shall be recognised prospectively by including it in profit or loss in the
following manner :

1. Change affects only that period- To be recognised in that period only

2. Change affects that period and future-To be recognised in both periods

To the extent that a change in an accounting estimate gives rise to changes in assets and
liabilities, or relates to an item of equity, it shall be recognised by adjusting the carrying
amount of the related asset, liability or equity item in the period of the change.

Indian Accounting Standard (Ind AS) 10

Events after the Reporting Period

1. The objective of this Standard is to prescribe: (2mks)

(a) When an entity should adjust its financial statements for events after the reporting
period; and

(b) the disclosures that an entity should give about the date when the financial statements
were approved for issue and about events after the reporting period. The Standard also
requires that an entity should not prepare its financial statements on a going concern basis
if events after the reporting period indicate that the going concern assumption is not
appropriate

2. Meaning (2mks) –

(a) Event occurring after the reporting period are defined as ‘events which occur between
the end of the reporting date and the date when the financial statements are approved by
the Board of Directors in case of a company’ and ‘by the corresponding authority in case of
any other entity’.

(b) These events may be Adjusting and Un-adjusting.

Adjusting events – Those that provide evidence of conditions that existed at the end of the
reporting period.

Non-Adjusting events – Those that are indicative of conditions that arose after the
reporting period.

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(c) Events after the reporting period include all events up to the date when the financial
statements are authorized for issue, even if those events occur after the public
announcement of profit or of other selected financial information.

3. General points-

(a) The process involved in authorizing the financial statements for issue will vary
depending upon the management structure, statutory requirements and procedures
followed in preparing and finalizing the financial statements.

(b) In some cases, an entity is required to submit its financial statements to its
shareholders for approval after the financial statements have been issued. In such cases,
the financial statements are authorized for issue on the date of issue, not the date when
shareholders approve the financial statements.

c) In some cases, the management of an entity is required to issue its financial statements
to a supervisory board (made up solely of non-executives) for approval. In such cases, the
financial statements are authorized for issue when the management authorizes them for
issue to the supervisory board.

4. Adjusting events (2mks)

(a) An entity should adjust its financial statements for events after the reporting date that
provide further evidence of conditions that existed at the reporting date.

(b) Notwithstanding anything about adjusting or non-adjusting events, 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 agreement by lender before the approval of the financial statements for
issue, to not demand payment as a consequence of such breach, shall be considered as an
adjusting event.

5. Adjusting events examples(2mks)-

(a) Settlement of a court case that confirms that an entity has a present obligation at the
end of the reporting period

(b) Receipt of an information that an asset was impaired or that previous impairment
requires reversal e.g. bankruptcy and inventory valuation

(c) Profit sharing or bonus, if an entity has legal or constructive obligations

(d) Discovery of fraud or errors which shows that FS are incorrect (e) In certain cases, cost
of assets purchased or proceeds from assets sold

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(f) Ind AS 33 – if an entity issue of bonus shares during subsequent period, it has to
consider these shares for working EPS for current period as well as comparative period.
Same treatment for share split or reverse split.

6. Non-Adjusting events(2mks) – (a) An enterprise should not adjust its financial

statements for events after the reporting date that are indicative of conditions that arose
after the reporting date.

(b) It shall disclose the following for each material category of non-adjusting event after the
reporting period: 1. the nature of the event; and 2. an estimate of its financial effect, or a
statement that such an estimate can not be

(c) Example –

1. a major business combination after the reporting period Ind AS 103, ‘Business
Combination’ ;

2. announcing a plan to discontinue an operation;

3. entering into significant commitments or contingent liabilities, for example – by issuing

significant guarantees; 4. major purchases of assets, classification of assets as held for sale
in accordance with Ind AS 105, ‘Non Current Asset Held for Sale and Discontinued
Operations’ or exploration of major assets by government;

5. the destruction of a major production plant by a fire after the reporting period;

6. announcing or commencing the implementation of, a major restructuring;

7. major ordinary share transactions and potential ordinary share transaction after the
reporting period;

8. abnormally large changes after the reporting period in asset prices or foreign exchange
rates;

9. changes in tax rates or tax laws enacted or announced after the reporting period that
have a significant effect on current and deferred tax assets and liabilities;

7. Dividends(2mks) –

(a) If dividend to holders of equity instruments are proposed or declared after the
reporting date, an entity should not recognize those dividends as liability. There is no
obligation as on the reporting date.

(b) The entity would disclose if any dividend is declared or proposed after the reporting
date but before the date of approval of financial statements

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(c) An enterprise may give the disclosure of proposed dividends either on the face of the
balance sheet as an appropriation within equity or in the notes in accordance with Ind AS 1
‘Presentation of Financial Statements’.

8. Going concern-

(a) An entity should not prepare its financial statements on a going concern basis if
management determines after the reporting date either that it intends to liquidate the
entity or to cease trading, or that it has no realistic alternatives but to do so.

(b) However, there should no longer be a requirement to adjust the financial statements
where an event after the reporting date indicates that going concern assumption is not
appropriate. In that case there is need for fundamental change in the basis of accounting
rather than adjustment.

c) Ind-AS 1 specifies required disclosure if:

1. The financial statements are not prepared on a going concern basis;

2. Management is aware 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 events or
conditions requiring disclosure may arise after the reporting period

10. Disclosure –

(a) Date of authorization for issue – An entity shall disclose the date when the financial
statements were authorized for issue and who gave that authorization. If the entity’s
owners or others have the power to amend the financial statements after issue, the entity
shall disclose that fact.

(b) Updating disclosure about conditions at the end of the reporting period: If an entity
receives information after the reporting period about conditions that existed at the end of
the reporting period, it shall update disclosures that relate to those conditions, in the light
of the new information.

IND AS 20 Accounting for Government Grants and Disclosure of

Government Assistance
1. Ind AS 20, or the Indian Accounting Standard 20, provides guidelines for the accounting
treatment of government grants received by entities. Government grants are financial
assistance or incentives given by the government or government entities to support some
activities, like- research and development, infrastructure development, and
environmental protection.

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This standard aims to ensure that government grants are recognized in a systematic and
appropriate manner, reflecting their nature and conditions. In this article, we will explore
the key aspects of Ind AS 20 and its implications for financial reporting.

2(a).Recognition of Government Grants:

Government grants are recognized in the financial statements only when if the entity is
reasonably assured that it will comply with the conditions attached to the grants and that
the grants will be received. The recognition of government grants depends on whether they
are of an income or capital nature.

 Income Grants: Income grants, which are intended to cover specific expenses or
compensate for costs, are recognized in the statement of profit and loss over the
periods necessary to match them with the related costs. They are presented as other
income or deducted from the related expense.

Income grants are recognized in the statement of profit and loss over the periods necessary
to match them with the related costs.

Capital grants are recognized as deferred income and amortized over the useful life of the
related asset.

 Capital Grants:Capital grants, which are provided for the acquisition or construction of
qualifying assets, are recognized as deferred income and amortized over the useful life
of the related asset. The grant is typically recognized in the statement of profit and loss
as a credit over the expected useful life of the asset.

 Subsidized loan: Some times grants are provided in the form of low-interest rate loans,
offering financial assistance to entities while promoting their self-sustainability.

When an entity receives a low-interest rate loan from the government, it should recognize
the loan as a liability in its financial statements at its fair value.
The fair value is determined by discounting the future cash flows of the loan at an
appropriate market rate.
The difference between the fair value of the loan and the amount received represents a
government grant, which is recognized separately in the financial statements as deferred
income.

3(b).Treatment of Repayable Grants:

If a government grant is repayable, it is recognized as a liability and measured at the

amount received. The liability is reduced as the entity fulfills its obligations under the grant
agreement. Any repayment or forgiveness of the grant is recognized as a reduction in
liability.

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Changes in Government Grants:

 If there is a change in the conditions attached to a government grant, it may impact the
accounting treatment. If the change increases the recognition of the grant, it is
recognized as income over the remaining periods.
 Conversely, if the change reduces the recognition of the grant, it is recognized as an
expense immediately or over a shorter period.

Repayment of Government Grants::- If an entity has a liability to repay a government

grant, it is treated as an expense in the period when the repayment becomes due. The
repayment is recognized as a separate line item in the statement of profit and loss.

Disclosure Requirements:

Ind AS 20 requires entities to disclose the nature and extent of government grants
recognized in the financial statements.
This includes the accounting policies adopted for government grants, any conditions
attached to the grants, and the unfulfilled conditions that could result in the repayment of
the grants.
The disclosure provides transparency and enables users of financial statements to assess
the impact of government grants on the entity’s financial position and performance.

Ind As 102: Share Based Payments

1.The relevant Accounting Standards relating to Share Based Payments are the following:-
a. INDAS 102
b. IFRS 2
c. Guidance Note issued by ICAI

There is no major difference between INDAS 102 and IFRS 2.Therefore, the following
descriptions relate to both INDAS 102 and IFRS 2.

Statements of Profit and loss and other Comprehensive income, Statement of changes in
Equity and Statement of Financial position are the new names of Financial Statements as
per IND AS and IAS.

1. Objective.
2. To guide the entity when it undertakes a share-based payment transaction.
3. To help the entity to show share-based payment transactions in financial
statements.

2.Scope.
It applies to all share-based transactions in respect of goods or receives received by the
entity. Goods may be— a. inventories
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b. consumables
c. PPE d. Intangible Assets
e. Other non-financial assets

4. The standard does not apply to—

i. Share issued as consideration in a business combination
ii. ii. Certain contract transactions within IndAS-32 or INDAS-109

4. Type of Share Based Transactions.

a. Equity –settled share-based payment transactions
b. Cash –settled share-based payment transactions
c. Share –based payment transactions with cash alternatives

5. Recognition and measurement in the case of Equity –settled share-based payment

transactions.
 Recognition when the goods or services received. – Recognize the increase in equity
in SOFP.
 For goods or services received – Recognize as expense in SOPL (e.g. employee cost)
or– Recognize as asset in SOFP if goods qualify to be recognized so. Other- wise as
Expenses Measurement.

A. Transaction with employees

Measure at the fair value of the equity instruments granted at grant date.
Fair value —- It is the exchangeable value.
Grant Date — The date at which two parties agreed about the contents of theagreement
Vest —The counter Party’s right to receive shares.

B. Transaction with Non- employees

Measure at the fair value of or the goods or services received at the date on which
Goods or services received by the entity.
If fair value of or the goods or services received cannot measured, then the fair value
of the equity instruments granted .

5. Cash –settled share-based payment transactions

Features
a. Entity receives goods or services
b. Becomes liable to transfer cash or other assets based on share price of entity or
another group entity.
– Recognize the liability in SOFP over the vesting period. At last year liability will be
zero
– Recognize the expenses in SOPL over the vesting period.

6. Accounting treatment
Best example is share appreciation rights .the following procedure related to this
type of transaction.

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 1. Calculate the liability at fair value at grant date as follows. – No. of employees
estimated at year end to been titled to rights on vesting date x no. rights per
employee x FV of each right at year end x cumulative proportion of vesting period
expired.
2. Treat as expenses in step 1
3. Re measure the fair value of liability at each reporting date
4. Changes in liability measured as per step 2 is treated as Expenses. — Recognize
the expenses in SOPL over the vesting period.
5. At exercising years- Expenses will be changes in the liability plus amount
relating to exercised.

7. Share –based payment transactions with cash alternatives.

a. Entity has the right to choose -Accounting treatment is as per Cash –settled
share-based payment transactions if there is a present obligation

b. Counter party has the right to choose

Ind AS-113 fair value Measurement Provision

1. IFRS 13 defines fair value, sets out a framework for measuring fair value, and requires
disclosures about fair value measurements.

IND AS 113 is a part of the IND AS that provides guidance on how to measure fair value
when preparing financial statements.
Fair value is defined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the
measurement date. The standard also emphasizes that fair value is market-based
and not entity-specific, and that it reflects the assumptions that market participants
would make when pricing the asset or liability.

2. IND AS 113 lays down a framework for measuring fair value, which involves the
following steps:

 Identify the asset or liability that needs to be measured at fair value.

 Determine the appropriate valuation technique(s) to use.

 Obtain the necessary data inputs and make necessary adjustments.

 Apply the valuation technique(s) and arrive at a fair value estimate.

 Review and validate the estimate for reasonableness.

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3. IND AS 113 requires entities to disclose the following information about fair value
measurements:

 The fair value measurement hierarchy (Level 1, 2 or 3) for each asset or liability
measured at fair value.

 The valuation techniques and inputs used to arrive at the fair value estimates.

 The quantitative information about the significant unobservable inputs used in the fair
value measurement.

4. The purpose of IND AS 113 is to provide guidance on how to measure fair value when
preparing financial statements. It ensures consistency and transparency in fair value
measurement and reporting, enabling stakeholders to make informed decisions based on
reliable information.

Note:IND AS 113 applies to all entities that prepare financial statements in

accordance with the Indian Accounting Standards (IND AS).

5. The fair value hierarchy under IND AS 113 categorizes fair value measurements
into three levels: Level 1, Level 2, and Level 3.

 Level 1 measurements are based on quoted prices in active markets for identical assets
or liabilities.

 Level 2 measurements are based on observable inputs other than quoted prices in
active markets, such as quoted prices for similar assets or liabilities or inputs based on
market data.

 Level 3 measurements are based on unobservable inputs that are significant to the fair
value measurement.

Note:- IND AS 113 requires entities to disclose information about fair value
measurements, including the fair value measurement hierarchy (Level 1, 2, or 3) for
each asset or liability measured at fair value, the valuation techniques and inputs used
to arrive at the fair value estimates, and quantitative information about the significant
unobservable inputs used in the fair value measurement.

6. Some of the challenges of applying IND AS 113 include

 determining the appropriate valuation techniques and inputs for each asset or liability,

 ensuring the reliability of inputs and assumptions used in the fair value measurement,

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 dealing with the complexity of measuring fair value for certain assets or liabilities, such
as financial instruments or intangible assets.

 Additionally, the application of IND AS 113 requires judgment, which can result in
variability in fair value measurements between entities.

Other Questions related to 113 Fair value

1. Can fair value be negative under IND AS 113?

Ans: Yes, fair value can be negative under IND AS 113 if the market price for the asset or
liability being measured is lower than its carrying value on the balance sheet. This may
occur if market conditions have deteriorated or if the asset or liability is considered to be
impaired.

2. Does IND AS 113 require fair value measurement for all assets and liabilities?

Ans: No, IND AS 113 does not require fair value measurement for all assets and liabilities. It
only requires fair value measurement for those assets and liabilities that are required to be
measured at fair value under other accounting standards or if the entity chooses to
measure them at fair value for its own purposes.

3. Can entities use their own internal models to measure fair value under IND AS 113?

Ans: Yes, entities can use their own internal models to measure fair value under IND AS
113 if those models are appropriate for the asset or liability being measured and are
consistent with the principles of the standard. However, entities are required to disclose
the models used and the key assumptions and inputs used in the fair value measurement.

4.How often are fair values required to be updated under IND AS 113?

Ans: Fair values are required to be updated regularly under IND AS 113 to reflect changes
in market conditions or other factors that affect the fair value of the asset or liability being
measured. The frequency of updates will depend on the nature and volatility of the asset or
liability and the reliability of the inputs and assumptions used in the fair value
measurement.

5.How does IND AS 113 address the issue of illiquid assets or liabilities?
Ans: IND AS 113 requires entities to use judgment in determining the fair value of illiquid
assets or liabilities and to consider the availability of relevant market data and the impact
of liquidity constraints on the fair value measurement. The standard also allows entities to
use valuation techniques that rely on unobservable inputs in certain circumstances, such as
when observable market data is not available.

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6.Does IND AS 113 require fair value measurement for all financial instruments?

No, IND AS 113 does not require fair value measurement for all financial instruments. The
standard requires fair value measurement for some financial instruments, such as
derivatives and certain investments, but other financial instruments may be measured at
amortized cost or at cost.

7.Can entities use broker quotes as a basis for fair value measurement under IND AS 113?

Ans: Yes, entities can use broker quotes as a basis for fair value measurement under IND AS
113 if they are based on an active market and the quote represents the fair value of the
asset or liability being measured. However, entities should also consider other factors, such
as the quality of the broker quote and the reliability of the market data used.

8.What are the implications of using fair value measurement for an asset or liability under
IND AS 113?

Ans: The implications of using fair value measurement for an asset or liability under IND AS
113 include the recognition of unrealized gains or losses in the income statement, which
can result in increased volatility in reported earnings. Additionally, fair value measurement
requires the use of estimates and judgment, which can impact the reliability of financial
statements and the comparability of financial information between entities.

9. How does IND AS 113 affect impairment testing?

Ans: IND AS 113 requires entities to consider fair value as part of impairment testing for
assets, including non-financial assets such as property, plant, and equipment, and
intangible assets. If the fair value of an asset is less than its carrying value, an impairment
loss may be recognized.

10. How does IND AS 113 affect the recognition of contingent liabilities?

Ans: IND AS 113 requires entities to measure contingent liabilities at fair value if it is
probable that the liability will be incurred and the amount of the liability can be estimated
reliably. This may result in the recognition of a liability and corresponding expense even if
the outcome of the contingent event is uncertain.

11. How does IND AS 113 impact the valuation of inventory?

Ans: IND AS 113 does not require fair value measurement for inventory. Inventory is
typically measured at cost or net realizable value, whichever is lower. However, if an entity
chooses to measure inventory at fair value for its own purposes, it would need to comply
with the requirements of IND AS 113.

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12.Can an entity change the fair value measurement method used for an asset or liability?
Ans: Yes, an entity can change the fair value measurement method used for an asset or
liability, but it must do so only if it can demonstrate that the new method is more
appropriate and results in a more reliable measurement. The change in measurement
method should be applied prospectively and disclosed in the financial statements.

13.How does IND AS 113 impact the recognition and measurement of contingent assets?
Ans: IND AS 113 does not provide specific guidance on the recognition and measurement of
contingent assets. However, contingent assets should be recognized when it is probable
that they will result in an inflow of economic benefits and the amount can be measured
reliably.

14. How does IND AS 113 apply to non-financial assets and liabilities?

Ans: IND AS 113 applies to the measurement of fair value for both financial and non-
financial assets and liabilities. However, the fair value measurement for non-financial
assets and liabilities may require different valuation techniques and inputs compared to
financial instruments.

15.How does IND AS 113 apply to business combinations?

Ans: IND AS 113 applies to the measurement of fair value for assets and liabilities acquired
in a business combination. Fair value measurement is used to determine the purchase price
allocation and the recognition of goodwill or a bargain purchase gain.

16.Can an entity use its own internal models to estimate fair value under IND AS 113?

Ans: Yes, an entity can use its own internal models to estimate fair value under IND AS 113
if the model is appropriate and reliable. The model should consider all available market
data and other relevant information, and should be consistently applied and properly
documented.

17. How does IND AS 113 impact the recognition and measurement of non-controlling
interests?

Ans: IND AS 113 does not specifically address the recognition and measurement of non-
controlling interests. However, the fair value of non-controlling interests should be based
on the price that would be received to sell the interest in an orderly transaction between
market participants.

18. Can an entity use the cost approach to estimate fair value under IND AS 113?

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Ans: Yes, an entity can use the cost approach to estimate fair value under IND AS 113 if the
approach is appropriate and reliable. The cost approach involves estimating the current
cost of replacing the asset or liability, adjusted for depreciation or amortization.

19. How does IND AS 113 impact the recognition and measurement of financial
guarantees?

Ans: IND AS 113 requires entities to measure financial guarantees at fair value if the
guarantee is a financial instrument. Fair value measurement may require the use of
valuation techniques such as option pricing models, and may result in the recognition of a
liability and corresponding expense.

20.How does IND AS 113 apply to the measurement of derivative instruments?

Ans: IND AS 113 requires derivative instruments to be measured at fair value, regardless of
whether the instrument is designated as a hedging instrument or not. The fair value of a
derivative instrument is based on the market price of a similar instrument or estimated
using valuation techniques such as option pricing models.

21. How does IND AS 113 apply to the measurement of intangible assets?

Ans: IND AS 113 applies to the measurement of fair value for intangible assets. The
valuation techniques used to estimate fair value may vary depending on the nature of the
intangible asset, but may include methods such as the relief from royalty method, multi-
period excess earnings method, or the cost approach.

22. How does IND AS 113 impact the recognition and measurement of non-current assets
held for sale?

23. Ans: IND AS 113 does not specifically address the recognition and measurement of non-
current assets held for sale. However, the fair value of these assets should be based on the
price that would be received to sell the assets in an orderly transaction between market
participants.

24. How does IND AS 113 apply to the measurement of goodwill?

Ans: IND AS 113 applies to the measurement of fair value for goodwill. The fair value of
goodwill is determined based on the excess of the consideration transferred over the fair
value of the identifiable assets and liabilities acquired in a business combination. The fair
value measurement may require the use of valuation techniques such as the income
approach or market approach.

25. How does IND AS 113 impact the recognition and measurement of investment
properties?

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Ans: IND AS 113 requires investment properties to be measured at fair value. Fair value
may be determined based on market prices or by using valuation techniques such as the
income approach or market approach.

26. How does IND AS 113 apply to the measurement of liabilities?

Ans: IND AS 113 applies to the measurement of fair value for liabilities. The fair value of a
liability is based on the amount that would be required to settle the liability in an orderly
transaction between market participants. The fair value measurement may require the use
of valuation techniques such as the income approach or market approach.

27. How does IND AS 113 impact the recognition and measurement of biological assets?
Ans: IND AS 41 provides guidance on the accounting for biological assets, including the
measurement of fair value. Under IND AS 41, biological assets are measured at fair value
less costs to sell, which is consistent with the measurement principles in IND AS 113.

28. Can an entity measure fair value using quoted prices in an active market for identical
assets or liabilities if the market is no longer active?

Ans: If the market for an asset or liability is no longer active, an entity may not be able to
use quoted prices in an active market for identical assets or liabilities to measure fair value.
In this case, the entity may need to use other valuation techniques, such as the income
approach or market approach, to estimate fair value.

29. How does IND AS 113 impact the recognition and measurement of inventory?

Ans:IND AS 2 provides guidance on the accounting for inventory, including the

measurement of cost and net realizable value. Fair value measurement is not typically used
for inventory, as the value of inventory is usually based on its cost or net realizable value.

30. Can an entity use the fair value measurement exemption for lease liabilities under IND
AS 116?

Ans:IND AS 116 provides guidance on the accounting for leases, including the
measurement of lease liabilities. Under IND AS 116, a lessee may use the fair value
measurement exemption for short-term leases and leases of low-value assets. In these
cases, the lessee can measure the lease liability at the amount of the lease payments

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 Indian AS 101 – First time adoption of Indian Accounting standard

1.What is the purpose of this standard?

The purpose of this standard is to ensure that the company’s first Ind AS financial
statements and interim statements contain information that is transparent and
comparable, the cost does not exceed the benefits and the statements provide a suitable
starting point for accounting in accordance with Indian Accounting Standard.

2. Which statement does this standard apply to?

This standard applies to the first Ind AS financial statements and each interim financial
report if any. But this standard does not apply to changes in accounting policies for an
organisation that already applies Ind AS, such changes are subject of requirements of Ind
AS 8 or specific transitional requirements of other Ind AS.

 Implementation of Ind AS

 Selection of Accounting Policies

 Preparation of Opening Ind AS Balance sheet

 Presentation and disclosure in an entity’s in Ind AS Financial Statements and Interim

Financial Reports

Selection of Accounting Policies

Accounting policies must comply with all the Ind AS effective during the reporting period of
first Ind AS except as stated in Ind AS 101.

The accounting policies that are used in the preparation of the opening Ind AS Balance
sheet may differ from the ones used by the entity while using previous GAAP on the same
date. The resulting adjustments arise from events and transactions prior to the date of the
Opening Ind AS Balance sheet and hence must be adjusted in retained earnings.

Preparation of Opening Ind AS Balance Sheet

On the date of transition to Ind AS, an entity shall prepare and present an opening Ind AS
Balance Sheet. This is the starting point for it’s accounting according to Ind AS subject to
requirements of Ind AS.

Except for restrictions spelt out in the AS, an entity must in its Opening Ind AS Balance
sheet:

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 recognise all assets and liabilities for which recognition is required by Ind AS

 derecognise items as assets and liabilities if Ind AS does not permit such recognition.

 if the Ind AS requires a particular asset, liability or component of equity to be

recognised differently from its previous recognition under GAAP, then reclassify it.

 apply Ind AS in measuring all recognised assets and liabilities.

Presentation and Disclosure

This Ind AS does not provide exceptions from the presentation and disclosure
requirements in other Ind AS.

The Ind AS established two types of exemptions from the requirement that an entity must
apply each Ind AS in preparation of Opening Ind AS Balance sheet.

 Prohibit retrospective application of some aspects of Ind ASs

 Grant exemptions from some requirements of Ind ASs

The exemptions to the retrospective application of other Ind AS are: –

 Derecognise financial assets and liabilities

 Hedge Accounting

 Non–controlling interests

Classification and measurement of financial asset

An entity shall assess whether a financial asset meets the conditions specified in Ind AS
109, on the date of transition from previous GAAP to Ind AS.

If it is impracticable to assess the time value of money element in accordance with Ind AS
109 and/or whether the fair value of prepayment feature is insignificant as per Ind AS 109
on the basis of the facts and circumstances that exist on the date of the transition to Ind AS
then the entity shall assess the contractual cash flow characteristics of that financial asset
on the basis of the facts and circumstances that existed on the date of transition and
accordingly disclose it without taking into consideration the requirements of Ind AS 109.

If it is impracticable* for an entity to apply retrospectively the effective interest method in

Ind AS 109, the fair value of the financial asset or the financial liability at the time of
transition shall be the new gross carrying amount of that financial asset or the new
amortised cost of that financial liability.

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Impairment of financial assets

At the time of transition, the entity shall determine the credit risk, at the date when such
instruments were initially recognised. For determining if there has been a significant
increase in credit risk, if an entity has to incur undue cost or effort then an entity shall
recognize a loss allowance at an equal amount to lifetime expected credit losses at each
reporting date until that financial instrument is low credit risk at a reporting date.

For determining the loss allowance on financial instruments prior to the date of initial
application, an entity shall consider information that is relevant in determining or
approximating the credit risk at initial recognition.

Embedded Derivatives

Assess if an embedded derivative needs to be separated from the host contract and
accounted for as a derivative on the basis of the conditions at later of the date that existed
first became a party to the contract and the date a reassessment as required by Ind AS 109.

Government Loans

A first-time adopter shall classify all government loans received as a financial liability or
equity instrument as per Ind AS 32. The exception being a loan taken at a rate lower than
the market rate. Also, apply the requirements the of Ind AS 109 and Ind AS 20
prospectively to the government loans existing at the date of transition.

However, an entity is not precluded from applying the requirements retrospectively

provided the information required to do so is available at the time of accounting. The
standard also defines other exemptions available and in detail disclosure requirements.

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