INCOME COMPUTATION & DISCLOSURE STANDARDS (ICDS)

APPLICABILITY  Applicable for computation of income under the heads PGBP and Income from Other Sources  From financial year for all assesses  Following mercantile system of accounting Taxable profits would now be determined after making adjustments to the financial Statements (prepared under Ind AS or Existing AS) to bring in conformity with ICDS.

BOOKS OF ACCOUNTS  No Separate books of accounts to be maintained by the assessee for compliance with ICDS  Entities following AS issued by ICAI shall maintain additional records, reconciliation and computations for differences with AS and ICDS  Non Compliance of ICDS can be ground for an assessing officer to complete assessment under Section 144 of Income Tax Act.

ICDS 1 ACCOUNTING POLICIES  Scope: Deals with disclosure of significant accounting policies.  It recognizes fundamental accounting assumptions of going concern, consistency and accrual, does not recognize materiality and prudence.  Marked to market loss or an expected loss is not be recognized unless recognition is in accordance with another ICDS.

ICDS VS AS  Non consideration of prudence and materiality in selection and application of accounting policies ( AS 1)  AS 5 (changes in accounting policies), permits change in accounting policy if required by Statute, complying with AS, change results in more appropriate presentation of Financial Statements ICDS states that accounting policy should not be changed with out a reasonable cause however reasonable cause is not defined in ICDS I

ICDS II Valuation of Inventories  Deals with Valuation of Inventory  Definition of Inventory, Rawmaterial, WIP and Finished goods are same as AS 2.  Inventory to be valued at Cost or NRV which ever is lower  Cost of inventories other than those specified in the standard should be assigned by using FIFO or weighted average cost formula.  ICDS requires disclosure of accounting policies adopted including cost formulae used and total carrying amount of inventories and its classification.

ICDS VS ACCOUNTING STANDARDS  AS 2 permits standard cost method as one of its techniques for measurement of the cost of the inventories, there is no such clause or para in ICDS II is permitting adoption of Standard cost Method  Valuation of Inventory on date of dissolution if business continued by partners, inventory should be valued at Net realizable value  This above requirement is deviation from Supreme court ruling in Shakti Trading Co V/s CIT where it was held that firm can adopt either NRV or cost, which ever is lower.

ICDS III: CONSTRUCTION CONTRACTS  Determination of Income in respect of construction contracts  Recognizes Percentage of Completion Method for recognizing contract income and costs associated with construction contract  Disclosure requirements such as amount of contract revenue recognized, methods used to determine the stage of completion of contracts in progress etc.

ICDS VS ACCOUNTING STANDARD  An expected loss on the construction contract should not be recognized as an expense immediately and can be allowed only on actual loss.  Penalties arising from delays caused by contractor shall not be treated as expense  Retention money should form part of Contract revenue and should be recognized using Percentage of Completion Method

ICDS IV: REVENUE RECOGNITION  Deals with revenue from i. Sale of goods/ services ii. Use of other persons resources yielding interest or dividend  This ICDS contains a provision that revenue from sale of goods to be recognized only when there is reasonable certainty of its collection, reasonable certainty is not a criterion for recognition of revenue  Disclosure requirements: a. Revenue from service transactions recognized during the previous year b. Method used to determine stage of completion for service transactions in progress c. Information relating to service transactions in progress

ICDS VS ACCOUNTING STANDARD  AS 9 requires recognition of revenue only if no significant uncertainty exists regarding collection, ICDS does not provide for reasonable uncertainty for service contracts. So Revenue recognition cannot be postponed for service contracts  Recognition of revenue from service contracts AS 9 permits Percentage of Completion Method or by the completed service contract method; ICDS requires revenue to be recognized only on the basis of percentage of completion method.

ICDS V : TANGIBLE FIXED ASSETS  Deals with treatment of tangible fixed assets  Tangible Fixed Assets : being land, building, machinery, plant or furniture held with an intention of being used for the business or production and is not held for sale in normal course of business  Revaluation is not permitted under ICDS V  Disclosure : i. Description of asset or block of asset ii. Rate of Depreciation or depreciation allowable iii. Actual cost or Written down value of asset iv. Addition or deduction during the year with dates v. WDV at the end of the year.

ICDS VI: THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES  Deals with Treatment of transaction in foreign currencies  ICDS provides that the exchange differences on transactions of non-integral foreign operations to be charged to P&L  All gains or losses on forward exchange entered into for trading shall be recognized only on settlement.

ICDS VS AS 11  Treatment of exchange differences in translation of financial statements of non integral foreign operations AS 11 requires such differences to be accumulated in foreign currency translation reserve until the disposal of that investment ICDS requires it to be charged as income or expense in that year itself.

ICDS VII: GOVERNMENT GRANTS  Deals with treatment of government grants  Grant to be recognized only when there is reasonable assurance that terms of grant shall be complied, recognition shall not be postponed beyond the actual date of receipt GRANT RECEIVED FOR Depreciable asset Reduce from the cost of the asset Non-depreciable asset Cost of meeting such obligation charged to income Cannot be directly relatable to an asset Pro rata allocation – deducted from cost of asset As compensation for expenses/ losses Income in the year in which grant is receivable

ICDS VS AS 12  Initial recognition cannot be postponed beyond the date of actual receipt even in a case where conditions in accordance with AS 12 are met.  Grant in nature of promoters contribution cant be treated as Capital Receipt, it should be treated as Income

ICDS VIII: SECURITIES  Deals with securities held as “ Stock in Trade”  Recognized on Actual cost on acquisition  At end of the previous year securities shall be valued at lower cost or Net realizable value.  Further the assets are to be valued after classifying them category wise.  Unlisted securities shall be valued at actual cost

ICDS IX: BORROWING COSTS  Deals with the treatment of borrowing costs which are required for the purpose of qualifying asset.  Borrowing cost which are directly attributable to acquisition, construction or production of a qualifying asset to be capitalized as part of the cost of that asset  Disclosure of accounting policy adopted for borrowing cost and the amount of borrowing cost capitalized during the year.

ICDS VS AS 16  Minimum period for classification of an asset as qualifying asset  Income earned on temporary investments to be treated as income, and not to deduct from the borrowing cost.  Suspension of Capitalization is not allowed- during extended periods in which active development is interrupted.

ICDS X- PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS  Deals with provisions, contingent liabilities, contingent assets except those:-  Provisions shall be recognized if it is reasonably certain that out flow of resources will be required  A person has a present obligation as a result of a past event  A reliable estimate can be made of the amount of the obligation.

ICDS VS AS 29  Condition for Recognition AS-29 requires recognition of a provision when it is probable that outflow of economic resources are required; ICDS X – Reasonably Certain

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