1. CA Shashank AGRAWAL mail@shashankagrawal.com www.dda-co.com
Income Computation And Disclosure Standards (ICDS)
CA Shashank AGRAWAL

2. ICDS

3. Contents Background General principles
ICDS I: Accounting Policies – No revision
ICDS II: Valuation of Inventories
ICDS III: Construction Contracts
ICDS IV: Revenue Recognition
ICDS V: Tangible Fixed Assets
ICDS VI: The effects of changes in foreign exchange rates {No disclosures}
ICDS VII: Government Grants – No revision
ICDS VIII: Securities {No Disclosures}
ICDS IX: Borrowing Costs
ICDS X: Provisions, Contingent liabilities and Contingent assets – No revision

4. Method of accounting in certain cases 145A
Method of accounting in certain cases 145A. Notwithstanding anything to the contrary contained in section 145,— (a) the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be— (i) in accordance with the method of accounting regularly employed by the assessee; and (ii) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation. Explanation.—For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment.

5. Background
Section 145
Income from PGBP/other sources – cash or mercantile (exception 1) subject to SS (2)
Powers of CG for notify AS (2014 ICDS) for any class of assessee or income.
AO not satisfied with (1) or (2), may make assessment u/s 144.
Notified on January 25, 1996 (AY )
Disclosure of accounting policies
Disclosure of prior period and extraordinary items and changes in accounting policies – no equivalent ICDS

6. Background The CBDT constituted ASC in 2010
14 TAS (Draft) in August 2012
Finance Act, Section 145(2) “Accounting Standards” – ICDS
12 draft ICDS in January 2015 –Events after BS & Prior period
10 ICDS Leases & I/Assets
Not. 86/87/88 dt. 29/09/2016 (Ind/HUF -44AB)

7. Background Section 145 - (2x2) AS/IND AS Vs. ICDS-Q5
Assessee V. Income
Valuation of purchase/sale of goods & inventory -145A V Net method
Cash or Mercantile
Capital Vs. Revenue Q15
Books of Accounts V. Computation of Income
Should V. Shall
Framework V. ??

8. FAQ
Section 145/115 JB
What is the treatment for interest received on compensation – 145 A(b)?
What is the treatment of Book profit u/s 115JB? Q6 N?
What is the treatment of adjusted total income u/s 115JC? Q6 Y?
Whether provisions shall apply to banks, NBFC, power sector etc? Q 7
Whether ICDSs are applicable on presumptive taxation? Q3-Revenue/Cons contract
What is fate of ICDS if inconsistent with the specific rules of the Act? Q4
What is the fate of ICDS if inconsistent with judicial precedents? Q2.
Whether ICDS are applicable for Real Estate Developers or BOT? Q12

9. Assessee/class of assessee Exception –Ind/HUF -44AB All -Mercantile
Basis
ICDS (New)
Old AY
Assessee/class of assessee
Exception –Ind/HUF -44AB
All -Mercantile
Place of disclosures
ITR /3CD -13 (d) (e) (f) N
Inventory – Standard cost Y
Service Provider -%tage method
Exceptions
Straight line basis –indeterminate
On completion if 90 days
Mandatory for ALL services
Foreign operations
No such classification
Integral V non integral
Closely held company share as stock
Yes (Citadell (2007) nullified
Instruction02/05/16- capital
Securities held by banks/Fis
Yes (measure /classify per RBI)
Borrowings costs
threshold period- general -12M

10. IT ACT 1961
IT RULES 1962
ICDS AS

11. RELATING TO ACCOUNTING POLICIES DISCLOSURE OF ACCOUNTING POLICIES
ICDS -1
RELATING TO ACCOUNTING POLICIES
Vs.
DISCLOSURE OF ACCOUNTING POLICIES

12. Prudence Materiality reasonable cause
AP, change in accounting estimates & errors
ICDS -1 AP
AS- 1-Disclosure of AP
AS-5 Net profit/loss for the period, PPI, change in AP
IndAs-1, Presentation of FSs
8- AP, change in estimates & errors
Basis of selection in AP
T&F view of State of Affairs and income of business/profession
Substance over form
Mark to market /expect loss X X
T&F of FSs
Prudence
Materiality
Same
Fundamental Accounting Assumptions
Going Concern
Consistency
Accrual
Change in AP
Shall not be changed without
reasonable cause
Required by statute
Compliance of AS
More appropriate - presentation
Compliance of INDAS
Reliable and more relevant information

13. Changes in Accounting Estimates &
AP, change in accounting estimates & errors
ICDS -1 AP
AS- 1-Disclosure of AP
AS-5 Net profit/loss for the period, PPI, change in AP
IndAs-1, Presentation of FSs
8- AP, change in estimates & errors
Changes in Accounting Estimates &
Errors (Prior period) ?
Revision
Principles laid down
Disclose separately
Correct retrospectively
Periodicity
Previous year
Period
Transitional provisions
Paragraph -10 for contracts & transaction existing on 01/04/2016 No
Ind AS 101 GC
Fact must be disclosed
Along with Fact basis of FSs and reason to be disclosed
Similar

14. Valuation of Inventories

15. Relating to valuation of Inventories Valuation of Inventories
ICD II
Relating to valuation of Inventories
AS 2
Valuation of Inventories
Ind AS 2
Scope – Inclusions/Exclusions
WIP – dealt by other ICDS
Machinery Spares –ICDS
No specific clarification
No such category
Not specific to capital asset having >12m,asset
Service provided excluded
More detailed exclusions with regard to classification and measurement
Cost of purchase
Including duties and taxes even if recoverable (per 145A)
excluded
Similar to AS
Change in AP
Reasonable cause
Statute AS
More appropriate present.. X
Ind AS
Same
Reversal of write down
Not dealt with
No specific guidance in AS 2 but permitted as per AS 5
Specifically covered in Ind AS 2

16. Builders developing properties on their own account?XXIII.98
ISSUES
Builders developing properties on their own account?XXIII.98
Empties – Whether inventories? IV.8.RNV
Physician samples? VIII.13 no, cost
Materials given on loan? XII.44 L&A
Surplus material & supplies (in excess of production requirement)
General principle of cost V NRV
When NRV is negative? VIII.3 export order

17. RELATING TO CONSTRUCTION CONTRACTS
ICDS -3
RELATING TO CONSTRUCTION CONTRACTS
(SCOPE: INCOME FOR CONSTRUCTION CONTRACT OF A CONTRACTOR)

18. Construction Contracts
ICD III
AS 7
Ind AS 11
Retention (s)
Shall be included in Revenue sub to reasonable certainty of collection
Silent
Percentage completion method- early stage
Shall not extend beyond 25%
No such percentage
Specified the criteria for outcome of contracts
Netting of incidental income
Interest, dividend and capital gains cannot be netted off
Incidental income except:
Costs attributable to contract
Costs specifically chargeable
Similar
Expected losses
Proportionately
Fully recognized
Contract costs relating to future activity
Always treated as an asset
An asset, if it is probable that costs are recoverable

19. Construction Contracts
ICD III
AS 7
Ind AS 11
Service Concessionaire agreements
Not covered
Covered
Contract revenue
Condition removed
Recognized if possible to reliably measure the outcome of contract
Similar
Costs not allocable to contracts
Covered like general admin, selling costs, R & D, depreciation on idle PM

20. Revenue Recognition

21. Revenue Recognition ICD IV AS 9 Ind AS 18
In case of rendering of services
% completion excepts:
Indeterminate no. of acts over specified period
Not more than 90 days contracts
Completed contract method may be followed
Similar
Dividend
As per provisions of the Act
Right to receive is established
Interest
Interest on refund of taxes to be recognized on receipt basis
On accrual basis
Illustrations
Dropped
6 Illustrations No

22. Revenue Recognition ICD IV AS 9 Ind AS 18
Dropped
No significant uncertainty exists for amount of consideration
Similar
Barter Transactions
Not covered
Covered
Interest Rate
Documented rate
Effective interest method
Customer loyalty programs
Not covered except AS 29
Taxes
Silent. !45A(1)(a) –applicable for sale of goods not services
Exclude
Excise duty is included not other taxes collected on behalf of third parties

23. RELATING TO TANGIBLE FIXED ASSETS
ICDS – 5
RELATING TO TANGIBLE FIXED ASSETS
(SCOPE: TREATMENT OF TANGIBLE FIXED ASSETS)

24. Tangible Fixed Assets (TFA)
ICD V
AS 10
Ind AS 16
Definition
Land, building, machinery, plant or furniture ….
PPE are tangible items …..
Similar
Exchange with another assets
FV of the TFA so acquired – Actual cost
FV or net book value given
FV may be determined for asset given or acquired –more clear evidence
Exchange for shares or other securities
FV of TFA or securities issued –more clear evidence
Revaluation of TFA
Silent
Deals
Cost of major inspections
Depreciation
Per Income tax rules
Per Schedule II to CA 2013
Per useful life

25. Tangible Fixed Assets (TFA)
ICD V
AS 10
Ind AS 16
Cost of dismantling and removing and restoring
Silent
Deals
Similar
Purchase for consolidated price
FV to be ascertained and apportioned
FV to be ascertained and apportioned by competent valuer
Threshold for expense off
NIL
Permitted (10.9)
Machinery spares
Used for TFA irregularly to be capitalized
Revenue costs to be capitalized
Expenses during ready to commence and actually commencement of plant
Expensed off
May not be capitalized

26. Tangible Fixed Assets (TFA)
ICD V
AS 10
Ind AS 16
Compensation for impairment
Silent
Compensation is offset towards replaced PPE
Similar
Residual Value
Reviewed at year end
Re-assessment of useful life and depreciation
Annual Assessment
Depreciation Method
WDV/SLM
WDV/SLM/unit of production
Change in method
Unless there is reasonable cause
Change in accounting estimate and prospective

27. Tangible Fixed Assets (TFA)
ICD V
AS 10
Ind AS 16
Actual cost
Per Sec 43(1) with 15 explanations
Payment > 10 K -April 17
Accounting Principles
Similar
Exclusions/Inclusions
(E & I) No
E-Biological assets
E-Wasting assets
I- AS 19 & 13
Similar + 105

28. ICDS-VI: The Effects of Changes in Foreign Exchange Rates

29. ICD VI AS 11 Ind AS 21 Foreign Operation
A branch by whatever name called
Subsidiary, associates, joint ventures or branch
Similar
Translation of foreign operations
Without classification into Integral V. Non-integral
Integral V. Non integral
No classification
Forward exchange contract
On settlement
Mark to market
Covered under Ind AS 39
Exchange difference on long term monetary items
Silent
P & L
Irrevocable option directly to equity and amortize
FCTR for non integral operations
Accumulated in FCTR until disposal of investment

30. ICD VI AS 11 Ind AS 21 Period end non monetary foreign currency items
Transaction date rates except inventory NRV (valuation date)
Transaction date rate or
FV –the valuation date rate
Similar
Monetary items
Closing rates
P & L
Section 43A & R 115
Functional currency
Not covered
Not dealt with though reason is required
Covered with reason, fact and date
Capital Monetary items
Through P & L subject to Sec 43A
P & L or
Capitalization 46 or 46A
Capital Monetary items not related to assets
P & L subject to Sec 43A
Accumulated in FCMITDA

31. ICDS-VII: Government Grants

32. Not expressly dealt with
Govt. Grants/
Assistance
ICD VII
AS 12
Ind AS 20
Recognition
Reasonable assurance:
The person shall comply with the conditions and
Grant shall be received
But not beyond receipt
Both the conditions must be satisfied.
Not linked with receipt
Similar
Related to depreciable FA
Deduct from the assets or block of assets
Deduct form the asset OR
Treat as deferred income over the useful life
Related to non depreciable FA
Over the period costs are incurred
Promoter Contribution
Not expressly dealt with
capital reserve
Capital reserve
Non Monetary assets
Acquisition cost
Acquisition cost/nominal value (free of cost) FV

33. ICDS-VIII – Relating to Securities

34. Securities ICD VIII AS 13 Ind AS 109
Scope
Securities held as stock in trade
Securities held as stock in trade are outside the scope except principles apply to current investments
Deals with FI. Scope is broader.
Exchange
Security is acquired in exchange of other security or asset, FV of the acquired security
FV of the acquired security or asset given up which is more clearly evident
Similar
Pre-acquisition interest
Pre-acquisition interest is deducted from actual cost
Such income is deducted from cost (same)
Subsequent measurement
Lower of cost or NRV (category wise, not individual)
Current Investment to be valued at lower of cost or FV
Initial and subsequent at amortized cost or FV as per BM & CCFC

35. ICDS-IX: Borrowing Cost

36. Borrowing costs (BC) ICD IX AS 16 Ind AS 23
Exchange difference to the extent reg. as borrowing costs
Not treated as BC
Treated as BC
Similar
Intangible Assets
Also covered
Not covered
Covered
Qualifying assets
Inventories & others
≥ 12 M
Unless specific BC
It can be lesser than 12 months also
Investment properties No
Qualifying
Temporary investments of borrowed funds
No netting off from cost of asset. taxable
Netting off from BC

37. Borrowing costs (BC) ICD IX AS 16 Ind AS 23
Commencement of capitalization
Specific – date of loan
Others – use of funds
More detailed conditions:
Incurrence of capex, BC and preparatory activities
Similar
Suspension of capitalization
Not allowed
Suspended during extended period of interruption
Cessation of capitalization
Assets is first put to use
When assets is ready to use

38. ICDS-X: Provisions, Contingent Liabilities and Contingent Assets

39. Outflow of resources to settle the obligation is reasonable certain
Provisions, Cont. L&A
ICD X
AS 29
Ind AS 37
Provision
Outflow of resources to settle the obligation is reasonable certain
Outflow of resources is probable.
Similar
Contingent assets - Recognition
Reasonably certain
Virtually certain
Re-imbursement in respect of provision
--Do--
Onerous contracts
Excluded
Included
Restructuring provisions
Not covered
Covered

40. Impacts - Material
Power of AO u/s 144 if income not computed in accordance with ICDS -General
Increasing impact of Section 145A –Inventory, Revenue
Service providers to follow percentage completion method - Revenue+ Inventory
Materiality and Prudence dropping might increase litigation – General
Retentions are almost includible –III.9
Incidental income in the form of interest, dividend & capital gain taxable III.12 –netting X
Expected losses cannot be accounted for fully –III
Revenue has to be recognized at 25% stage -costs incurred or survey or physical proportion
Widening the GAP between depreciation/amortization V
Immaterial capital expenses have to be adjusted if expensed off for PPE
Distorting the concept of Revenue V. Capital –capitalization/BC delayed
Mark to market losses not allowed
Capital grants likely be treated as income

41. Thank You