CMA S.A.Murali Prasad Cost Accountant in Practice Amendments to CRAR CMA S.A.Murali Prasad Cost Accountant in Practice

The Timeline Feb 16 2015 Ind AS rules notified by MCA July 2016 Ind AS implemented for Q! financial results by Cos. March 2017 Limited Revision to CAS based on Ind AS by CASB April 2017 Annual financial Statements issued by Cos under IFRS August 2017 Draft Amendments to CRAR issued by MCA December 2017 Amendment Rules issued

Reason for the Amendment The proposed amendments have been made on account of amendments made in the Companies ( Indian Accounting Standards) Rules 2015. Para 1 has a question on whether Indian Accounting StandARDS ARE APPLICABLE TO THE COMPANY UNDER AUDIT. S.A.Murali Prasad CRAR Amendment 16-12-2017

Retrospective Amendment Effective for FY 2016-17!!! Explanatory Memorandum: certified no person is being adversely affected by giving retrospective effect to this notification. S.A.Murali Prasad CRAR Amendment 16-12-2017

Spares- inventory or PPE? Spare parts when they meet the definition to be recognised as PPE and depreciated accordingly. Else classified as inventory. Spare parts specifically relating to an item of plant Standby equipment Servicing equipment Held for production or supply of goods and services S.A.Murali Prasad CRAR Amendment 16-12-2017

Spares- inventory or PPE? Expected to be used for more than one year Test of materiality Group of items- moulds, tools, dies capital spares/ insurance spares to be amortised over a period, not exceeding the useful life of the equipment. S.A.Murali Prasad CRAR Amendment 16-12-2017

Subsidy, or grant or incentive Deducted from cost of material in the year in which it is recognised as income. Under Ind AS, Government grants related to assets, … shall be presented in the balance sheet by setting up the grant as deferred income. (20.24) The grant set up as deferred income is recognised in profit or loss on a systematic basis over the useful life of the asset. (20.26) S.A.Murali Prasad CRAR Amendment 16-12-2017

Subsidy, or grant or incentive Grants related to income presented as ‘Other income’ or deducted in reporting the related expense. (20.29). Under CRA 1, grants have to be only deducted from cost. grants as compensation for expenses or losses already incurred with no future related costs shall be recognised in profit or loss of the period in which it becomes receivable. (20.20) Position under CRA 1 not clarified. S.A.Murali Prasad CRAR Amendment 16-12-2017

Non monetary grants will be accounted at fair value (20.23) Not clarified under CRA 1. Fair value to be offset against cost!!! S.A.Murali Prasad CRAR Amendment 16-12-2017

Changes relating to grants Materials Employee Cost Utilities Direct Expenses Repairs and Maintenance Overheads Administration overheads 8. Royalty and technical Knowhow costs 9. R & D expenses 10. Quality Control Expenses Pollution Control Expensess Service Department Expenses Packing Costs Finance costs S.A.Murali Prasad CRAR Amendment 16-12-2017

Valuation of Issues Not on FIFO, average etc. But using an appropriate method as per applicable accounting standards. No place for application of mind by Cost and Accountant. S.A.Murali Prasad CRAR Amendment 16-12-2017

Employee Cost Includes benefits including cost of retirement benefits charged in the financial statements in an accounting period in the case of Ind AS companies Such cost Includes (a) service cost (b) net interest on the net defined benefit liability (asset) Not to include any re-measurement of such costs recognised in other comprehensive income S.A.Murali Prasad CRAR Amendment 16-12-2017

Employee cost Excludes i)actuarial gains and losses; (ii) return on plan assets in cost S.A.Murali Prasad CRAR Amendment 16-12-2017

Repairs and Maintenance Special treatment of High Value spares omitted. S.A.Murali Prasad CRAR Amendment 16-12-2017

Depreciation Amortisation clubbed with depreciation. amount limited to that recognised as an expense for the year in the financial statements, as per Schedule 11 of CA 2013 and the accounting standards. Other amounts treated as non cost. Depreciation on asset temporarily retired considered as abnormal cost for the period when not in use. S.A.Murali Prasad CRAR Amendment 16-12-2017

Depreciation Impairment loss to be excluded from cost. Treatment of Spare parts, stand-by equipment and servicing equipment repeated. Assignment paras retained. All other paras under depreciation deleted. S.A.Murali Prasad CRAR Amendment 16-12-2017

Finance Costs Substituted for Interest and Financing Charges. Are costs incurred by an entity in connection with the financing arrangements. shall be measured in accordance with applicable accounting standards S.A.Murali Prasad CRAR Amendment 16-12-2017

General Reference to “ compliance with requirements of a Cost Accounting Standard” omitted from justification for change in Cost Accounting principles applied. Reference to paragraph 9 on transportation cost included in the sections on Material and Packing Material. S.A.Murali Prasad CRAR Amendment 16-12-2017

Changes to CRA 3 Inclusion of Exceptional, Extra Ordinary and Other Comprehensive Income, if any in place of extra ordinary income in Product/Service details for the company as a whole. Revenue to be net of taxes and duties for Ind As companies Profit as per financial accounts in Recon to exclude OCI ( what about extra ordinary, exceptional items?). PBT in ratio analysis to exclude OCI. Value Added to include extraordinary, exceptional and other comprehensive income and extra ordinary and exceptional expenses S.A.Murali Prasad CRAR Amendment 16-12-2017

What is Extra ordinary and exceptional Extra ordinary items are those not relating to ordinary activities of the entity and are not expected to recur. Exceptional items relate to ordinary activities of the entity but are exceptional in terms of size or incidence. Pray, which of them correspond to “abnormal”? S.A.Murali Prasad CRAR Amendment 16-12-2017

Clarifications required Are fair value changes cost? Clarification needed that all OCI items will be treated as non cost. In first time adoption, treatment of “deemed cost” of PPE. To clarify on treatment of depreciation on revalued fixed assets Depreciation/amortisation on fair value of assets acquired under Business Combinations. Loss on replacement of individual parts of PPE treated as cost? S.A.Murali Prasad CRAR Amendment 16-12-2017

Clarifications required To clarify on treatment of FVTPL items.Implicit interest removed from material cost? Changes in fair value of stock options to employees Omission of words “for use of non equity funds in definition of interest costs- treatment of share issue and equity raising costs. Implicit interest removal in Revenues. Treatment of expected credit losses S.A.Murali Prasad CRAR Amendment 16-12-2017

Corrections required in old rules not made Self manufactured items- reference to portion of overheads relating to production and others obsolete. In Ratios, PBT ratios technically faulted. Indirect tax reconciliation does not reflect GST change.( another amendment in the offing?) S.A.Murali Prasad CRAR Amendment 16-12-2017

CRA 3 Changes Product/ Service Details: Total Revenue to include extraordinary, exceptional items and other Comprehensive income. In Profit Reconciliation, Profit or Loss as per financial accounts to exclude other comprehensive income ( what about extra ordinary, exceptional items. S.A.Murali Prasad CRAR Amendment 16-12-2017

The End S.A.Murali Prasad CRAR Amendment 16-12-2017