Basis

AS 2 i.e. “Valuation of Inventories

IND AS 2 i.e. “Inventories”

Definition

A primary issue in accounting for inventories is the determination of the value at which inventories are carried in the financial statements until the related revenues are recognised. This Standard deals with the determination of such value, including the ascertainment of cost of inventories and any write-down thereof to net realisable value

A primary issue in accounting for inventories is the amount of cost to be recognised as an asset and carried forward until the related revenues are recognised. This Standard deals with the determination of cost and its subsequent recognition as an expense, including any write-down to net realisable value. It also provides guidance on the cost formulas that are used to assign costs to inventories.

 

Treatment of spare parts

Para 4 of existing AS 2 states Inventories do not include machinery spares which can be used only in connection with an item of fixed asset and whose use is expected to be irregular; such machinery spares are accounted for in accordance with Accounting Standard (AS) 10, Accounting for Fixed Assets..

Para 8 of IND AS 16 states that, "Major spare parts, stand-by equipment and servicing equipment qualify as property, plant and equipment when an entity expects to use them during more than one period."



 

Commodity broker- trader

The existing AS 2 does not contain any such aspect.

IND AS 2 excludes commodity broker-traders who measure their inventories at fair value less costs to sell. Para 3 (b) states that, when such inventories are measured at fair value less costs to sell, changes in fair value less costs to sell are recognised in profit or loss in the period of the change.

 

Explanation of NRV and Fair Value

No such explanation is available

Net realisable value refers to the net amount that an entity expects to realise from the sale of inventory in the ordinary course of business. . Fair value reflects the price at which an orderly transaction to sell the same inventory in the principal (or most advantageous) market for that inventory would take place between market participants at the measurement date. The former is an entity-specific value; the latter is not. Net realisable value for inventories may not equal fair value less costs to sell.

Service Providers

existing AS 2 does not contain such an explanation.

Ind AS 2 provides explanation with regard to inventories of service providers

Para 8 states that In the case of a service provider, inventories include the costs of the service for which the entity has not yet recognised the related revenue. Cost of inventories of service providers are measured at the cost of their production. Cost primarily consists of labour and other costs of personnel directly engaged in providing the service, including supervisory personnel, and attributable overheads. Labour and other costs relating to sales and general administrative personnel are not included but are recognised as expenses in the period in which they are incurred.

The cost of inventories of a service provider does not include profit margins or non-attributable overheads that are often factored into prices charged by service providers.
 

Treatment of livestock & other agricultural produce

Existing AS 2 excludes from its scope producers’ inventories of livestock, agricultural and forest products, and mineral oils, ores and gases to the extent that they are measured at net realisable value in accordance with well established practices in those industries.

Ind AS 2 excludes only the measurement of inventories held by producers of agricultural and forest products, agricultural produce after harvest, and minerals and mineral products from its scope but provides guidance on measurement of such inventories. Para 4 of IND AS 2 states that such inventories are measured at  certain stages of production and explains the same by giving an example i.e. when agricultural crops have been harvested or minerals have been extracted and sale is assured under a forward contract or a government guarantee, or when an active market exists and there is a negligible risk of failure to sell. These inventories are excluded from only the measurement requirements of this Standard.
 

In accordance with Ind AS 41, Agriculture, inventories comprising agricultural produce that an entity has harvested from its biological assets are measured on initial recognition at their fair value less costs to sell at the point of harvest.
 

Reversal of NRV

Para 25 of existing AS 2 requires assessment of net realisable value at to be each balance sheet date and does not deal with such reversal
 

Ind AS 2 provides details on reversal of NRV

As per Para 33 of IND AS 2 requires a new assessment to be made of net realisable value in each subsequent period and states that when the circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net realisable value because of changed economic circumstances, the amount of the write-down should be reversed (i.e. the reversal is limited to the amount of the original write down) so that the new carrying amount is the lower of the cost and the revised net realisable value. This occurs, for example, when an item of inventory that is carried at net realisable value because of decline in selling price has declined, is still on hand in a subsequent period and its selling price has increased.
 

Methods of inventory valuation

The existing AS 2 specifically provides that the formula used in determining the cost of an item of inventory should reflect the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition. Para 15 of existing AS requires the cost of inventories of items which are not ordinarily interchangeable and goods or services produced and segregated for specific projects should be assigned by specific identification of their individual costs. The cost of inventories, other than those dealt with in paragraph 14, should be assigned by using the first-in, first-out (FIFO), or weighted average cost formula and formula used should reflect the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition.

 

Ind AS 2 however does not specifically state so and requires the use of consistent cost formulas for all inventories having a similar nature and use to the entity. Cost of inventories of items that are. the cost of inventories, other than those which are not ordinarily interchangeable and goods or services produced and segregated for specific projects ( which is required to be assigned by using specific identification of their individual costs as per Para 23), shall be assigned by using the first-in, first-out (FIFO) or weighted average cost formula. It also requires entities to use the same cost formula for all inventories having a similar nature and use to the entity. However, for inventories with a different nature or use, different cost formulas may be justified.

 

Basis

AS 6, AS 10

Ind AS 16

Depreciation on assets  retired from active use

Depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated.

Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale (or included in a disposal group that is classified as held for sale) in accordance with Ind AS 105 and the date that the asset is derecognised.

Treatment of Stripping costs

No such explanation is there

1. In surface mining operations, entities may find it necessary to remove mine waste materials (‘overburden’) to gain access to mineral ore deposits. This waste removal activity is known as ‘stripping’.

2. During the development phase of the mine (before production begins), stripping costs are usually capitalised as part of the depreciable cost of building, developing and constructing the mine. Those capitalised costs are depreciated or amortised on a systematic basis, usually by using the units of production method, once production begins.

Basis

Revenue

The Standard is concerned with the recognition of revenue arising in the course of the ordinary activities of the enterprise from

 — the sale of goods,

— the rendering of services, and

— the use by others of enterprise resources yielding interest, royalties and dividends.

This Standard shall be applied in accounting for revenue arising from the following transactions and events :

(a) the sale of goods;

 (b) the rendering of services; and

(c) the use by others of entity assets yielding interest, royalties and dividends

 Revenue means:

economic benefits that arise in the ordinary course of activities of an entity which result in increases in equity, other than increases relating to contributions from equity participants.

Revenue arising from agreements of real estate

No such provision is applied

 Revenue arising from these contracts is not dealt with in this Standard but is dealt with in accordance with the requirements for construction contracts as specified in Ind AS 11 Construction Contracts.

Nominal vs fair value

AS 9 requires the revenue to be recognised at nominal value of consideration received or receivable.

Ind AS 18 requires the revenue to be recognised at fair value of the consideration received or receivable

Dissimilar services

No treatment of dissimilar services in AS 9

A Seller that provides advertising services in the course of its ordinary activities recognises revenue under Ind AS 18 from a barter transaction involving advertising when, amongst other criteria, the services exchanged are dissimilar (paragraph 12 of Ind AS 18 ) and the amount of revenue can be measured reliably (paragraph 20(a) of Ind AS 18. This Appendix only applies to an exchange of dissimilar advertising services. An exchange of similar advertising services is not a transaction that generates revenue under Ind AS 18.

Methods used in recognition

For recognition of revenue in case of rendering of services, AS 9 gives an option to follow either:

• completed service contract method or
• percentage completion method

For recognition of revenue in case of rendering of services, Ind AS 18 permits percentage of completion method only.

Recognition of interest

Requires the recognition of interest income on time proportion basis

Requires interest income to be recognised using effective interest rate method.

Treatment of excise duty

The amount of excise duty to be deducted from the turnover should be the total excise duty for the year except the excise duty related to the difference between the closing stock and opening stock. The excise duty related to the difference between the closing stock and opening stock should be recognised separately in the statement of profit and loss, with an explanatory note in the notes to accounts to explain the nature of the two amounts of excise duty

No such treatment is specified

Treatment of customer credits

No such treatment specified

This Appendix applies to customer loyalty award credits that:

 (a) an entity grants to its customers as part of a sales transaction, ie a sale of goods, rendering of services or use by a customer of entity assets; and (b) subject to meeting any further qualifying conditions, the customers can redeem in the future for free or discounted goods or services. The Appendix addresses accounting by the entity that grants award credits to its customers.

The consideration allocated to the award credits shall be measured by reference to their fair value, ie the amount for which the award credits could be sold separately.

Basis

AS 11

IND AS 21

Forward exchange contracts

No such exclusion is there

Ind AS 21 excludes  the forward exchange contracts and similar other financial instruments from its scope which are treated as per Ind AS 39

Presentation currency vs local currency

No such explanation is there

As per Ind AS 21, presentation currency can be different from local currency and it gives detailed guidance in this regard.

Concept of foreign currency

Under AS 11, there is no concept of functional currency. There are only  two types of currencies:

• Reporting currency: The currency in which the financial statements are presented
• Foreign Currency: It is the currency other than reporting currency.

Functional currency is the currency of the primary economic environment in which the entity operates.

Foreign currency is a currency other than the functional currency of the entity.

Presentation currency is the currency in which the financial statements are presented.

Integral & non- integral operations vs functional currency

For this purpose, foreign operations are classified as either “integral foreign operations” or “non-integral foreign.

Functional currency 9 The primary economic environment in which an entity operates is normally the one in which it primarily generates and expends cash. An entity considers the following factors in determining its functional currency: (a) the currency: (i) that mainly influences sales prices for goods and services (this will often be the currency in which sales prices for its goods and services are denominated and settled); and (ii) of the country whose competitive forces and regulations mainly determine the sales prices of its goods and services. (b) the currency that mainly influences labour, material and other costs of providing goods or services (this will often be the currency in which such costs are denominated and settled).

Long term assets

AS 11 contains an option for capitalization/deferral of exchange differences arising on reporting of long-term foreign currency monetary items.

• If the exchange difference relate to acquisition of depreciable capital asset, they can be adjusted in the cost of the asset and thereby depreciated over the balance life of asset.
• If the exchange difference relate to the acquisition of a non-depreciable capital asset, then it can be accumulated in a “Foreign Currency Monetary Item Translation Difference Account” in the enterprise’s financial statements and amortized over the balance period of such long-term asset/ liability, by recognition as income or expense in each of such periods, but not beyond 31st March, 2020.

Ind AS 21 does not permit such optional alternative treatment. Accordingly, the entire exchange difference, arising on reporting of long term foreign currency monetary items has to be debited to P&L Account (Statement of Other Comprehensive Income) only.

Particulars

AS 13

Ind AS 40

Terminology

Accounting for investments

Investment property

Definition

Defines only investments

Defines both owner & invested property

 Owner-occupied property is property held (by the owner or by the lessee under a finance lease) for use in the production or supply of goods or services or for administrative purposes.

Investment property is property (land or a building—or part of a building—or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for: (a) use in the production or supply of goods or services or for administrative purposes; or (b) sale in the ordinary course of business.

Particulars

AS 13

Ind AS 40

Guidance on Investment property

AS 13 provides limited guidance over investment property

Ind AS 40 provides a complete and separate guidance in this regard

Inclusion of leased property

AS 13 is silent with respect to property held by the lessee under a finance lease

Ind AS 40 covers property that is held by the lessee under a finance lease

Definition of Investment property

AS 13 defines an investment property

Ind AS 40 explicitly distinguishes between owner occupied-property and investment property

Recognition criteria

AS 13 is silent with respect to any such treatments

Ind AS 40 covers the recognition criteria under various scenario