Ministry of Corporate Affairs has notified four phases for
convergence to IND AS from current accounting standards.
Phase I: Applicability w.e.f. 1st
April 2016
A company shall be mandatorily required to apply IND AS from 1st
April 2016 provided :
I. Its Net worth is greater than or equal to INR 500 Crores.
Note
a) Net worth shall be checked for previous 3 Financial Years
i.e. as on 31.03.2014, 31.03.2015 &
31.03.2016.
b) Phase I shall be applicable if Net worth of company is more than
equal to INR 500 Crores on any of the above dates.
c) Net
Worth means: [Paid up share Capital+ all
reserves created From out of profit* & securities premium account - accumulated losses, deferred expenditure
and miscellaneous expenditure not written off]
*
Capital Reserve shall not be included in calculation of Net Worth - (exception:
Capital Reserve arising out of Promoters Contribution and Govt Grant Recieved
shall be included in calculation of net worth).
Phase II: Applicability
w.e.f. 1st April 2017
A company shall be mandatorily required to apply IND AS from 1st
April 2016 provided :
I. It is a listed company. No conditions for net worth or,
II. Its Net Worth greater than or equal to INR 250 crores but
less than INR 500 crores.
Note:
Listing status shall be checked as on 31.03.16.
Net worth shall be checked for previous
4 Financial Years i.e. as on
31.03.2014, 31.03.2015 & 31.03.2016 & as on 31.03.2017. Phase II shall be applicable if Net worth of company is more than equal
to INR 250 Crores but less than INR 500 crores
on any of the above dates.
Phase III: Applicability w.e.f. 1st April 2018
Banks, NBFC, Insurance companies shall apply IND as from 1st April
2018
I. NBFC: NBFC whose net
worth is more than or equal to INR 500 crores shall apply IND AS w.e.f. 1st April 2018.
II. Banks & Insurance companies shall apply IND AS
w.e.f. 1st April 2018. However, for
banking & insurance companies a separate set of IND AS shall be notified by
IRDA.
Note:
a) NBFC includes Core investment companies, stock brokers , venture
capitalists etc.
b) Net worth to be checked for 3 years i.e. 31.03.2016, 31.03.2017 & 31.03.2018
Phase IV: Applicability w.e.f. 1st April 2019
I. NBFC: NBFC whose net worth is more than or equal to
INR 250 crores but less than 500 crores shall apply IND AS w.e.f. 1st April
2019.
General Note
If IND AS becomes applicable to a company then, IND AS shall be
automatically applicable to all Subsidiaries, Holding companies, Joint Ventures
irrespective of individual qualification of such companies.
(Ind AS will apply to both
consolidated as well as standalone financial statements of a company. While
overseas subsidiary, associate or joint venture companies are not required to
prepare standalone financial statements under Ind AS, they will need to prepare
Ind AS adjusted financial information to enable consolidation by the Indian
parent.)
MAT on Financial Statements of Companies Adopting Indian
Accounting Standards.
1. MAT to be
calculated on Net Profit Before Other Comprehensive Income(OCI):
Statement of Profit & Loss of Ind AS
compliant companies also consists of a Section called "Other Comprehensive
Incomes". As per Finance Act, 2017, MAT liability shall be calculated on
Net Profits Before OCI & no
adjustments shall be made to such profits other than already specified u/s 115JB
of Income Tax Act,1961.
2. MAT
Liability in case of First time adoption of Ind AS.
Transition Requirements to Ind AS as per Ind
AS 10:As per Ind AS-101 " First Time Adoption of Indian Accounting
Standards", in the first year of adoption of Ind AS, companies are
required to prepare:
i.
Comparative
Financial statements for Immediately preceding financial year relevant to the
year of application of Ind AS.
ii.
Balance
sheet as on the opening date** of comparative financial year as stated in point
(i) above restated as per Ind AS.
** such balance
sheet shall be deemed to be prepared as on the beginning of the opening date.
As per Ind AS 101, " First Time Adoption
of Indian Accounting Standards" all adjustments resulting from transition
to Ind AS shall be made to opening Reserves i.e. Other Equity as on the Date of Transition.
Finance Act 2017 on calculation of MAT:As per
Finance Act, 2017 adjustments arising out of transition to Ind AS as on the
date of application shall be considered while computing "Book
Profits" for the purpose of MAT.
For Example: A company on
which is mandatorily required to apply Ind AS from 1.04.2017 shall be required
to prepare its comparative Financial Statements as per Ind AS for FY 2015-16
& a Balance sheet as on 31.03.2015 restated as per Ind AS. In such as
scenario, all the adjustments arising out of transition to Ind AS as on
31.03.2017 shall be considered for computation of MAT liability for Previous
Year 2017-18 (Asst Year 2018-19).
3. Timing at
which MAT liability shall arise for Adjustments arising out of Transition to
Ind AS.
(a) Items of Other Comprehensive Incomes Which
will be subsequently classified to Statement of
P&L which can be reclassified to P&L shall be added to Book
Profits only when such items have been reclassified to P&L account.
(b) The adjustments arising out of transition to
Ind AS shall included in book profits for purpose of MAT Calculation at the
following intervals:
|
S. No.
|
Items of Adjustment
|
Point of time when such item will be included in MAT
|
|
1.
|
Effect of Revaluation surplus of (PPE) & Intangible
assets.(Ind AS 16 & Ind AS 38)
|
To be included in book profits at the time of Realization
|
|
2.
|
Gains & losses on Equity instruments recognized at fair
value & recorded in Other Comprehensive Income (Ind AS-109)
|
|
|
3.
|
Remeasurements of defined benefit Plans
|
To be included in book profits equally over a period of 5 yrs
starting from the date of Adoption of Ind AS.
|
|
4.
|
Other Items
|
When a company is mandatorily required to
apply Ind AS from 1st April 2017 the
period of five years over which above
mentioned adjustments shall be added to "Book Profits"
proposed above shall be FY 2017-18,
2018-19, 2019-20, 2020-21 and 2021-22.
4. Impact on
Companies which have Proposed Dividend
during FY 2016-17 & required to Comply with Ind AS from 1st April 2017.
(a) Effect of Ind AS -10 "Events
Occuring after the date of Reporting Period" on proposed dividend.
Proposed
Dividend not to be recognized as liability at end of a reporting Period: As per
para no. 12 of Ind AS -10, if an entity declares dividend to holders of
Equity instrument (As defined in Ind AS -32 "Financial Instruments:
Presentation") after the reporting period , the entity shall not recognize
those dividends as a liability at the end of reporting period since obligation
to pay dividend arises only when it has been finally declared by the
shareholders. Thus, under Ind AS, dividend shall be recognized in the books
only when it has been declared & finally paid to the shareholders.
5. Impact on
Companies which have Debt Restructured during FY 2016-17 & required to
Comply with Ind AS from 1st April 2017.
(a) Effect
of Ind AS -"Financial Instruments"
Debt
Restructured-Reduction in amount of debtor or extinguishment of liability : As per Ind AS -109, an entity ceases to
recognize (derecognize) a financial liability when it is extinguished i.e. when
it is discharged, obligation cancels, expires or when debtor is legally
released from liability legally through creditor agreeing to such a release.
Mutual
Agreement Between Debtor & Lender: In case of
debt restructuring the there is a mutual settlement between the debtor &
creditor for the reduction of amount of liability. Thus, the reduction in
amount of liability due to debt restructuring shall no longer be appearing in the liabilities of the
company. This will lead to profit on reconstruction.
Both Dividend Proposed & Debt
Restructured shall be added equally to
book profits over a period of 5years for
calculation of MAT liability being an
item which will never be reclassified to
P&L Account.
6. Conclusion
(a) Those companies which have proposed
dividend during FY 2016-17, will have to record a reversal of the proposed
dividend liability on transition to Ind AS & such amount of reversal shall
be added back to Book profits for computation
of MAT Liability.
(b) For companies which have debt
restructured in the previous FY 2016-17, MAT liability would arise. The amount
by which debt is reduced after restructuring would be treated as income,
increasing a company's book profit over a period of 5years for computation of
MAT liability.
(c) MAT shall be levied @18.5% on book
profits of the company. In view of above uncertainties regarding effect of
proposed dividend & Debt restructuring on MAT liability, introduction of
rationalization measures by Ministry of Finance have been a welcome step. Many
companies have already made provisions in respect of MAT Liability on Proposed
dividend & Debt restructured.
Contributed by Tanveer Alam at sandeep Ahuja & Co
