Foreign currency denominated financial statements should be expressed in a single currency so as to enable the users of such financial statements to under-stand and analyse the financial results of the entity. The entity may also have been incorporated / registered as per the country where it operates and may be statutorily required to prepare the financial statements in such currency. Hence, foreign currency denominated transactions should be translated into the currency of the country where the entity is registered as per the requirements of the entity’s GAAP.
Ind AS 21 deals primarily with the question as to how to include foreign currency transaction and report the foreign operations in its financial statements and in order to compare with which exchange rate or rates should be used and how to report the effects of such changes in the financial statements.
Main benefit achieved by Ind AS 21 is that it reduces the risk of foreign activities being incorrectly accounted for and the functional currency being determined incorrectly. If the functional currency is not determined as per the requirements of the standard, it would result in a major impact on the financial statements of the entity. The standard also clearly specifies the methodology by which the financial statements should be translated into the presentation currency and how the exchange difference on such translation should be accounted for.
The book is available as a free download on 28th September, 2016 for a period of 24 hours. All professional colleagues are requested to download the book The link for downloading the book is given below:
Share based payment transactions
Indian Accounting Standard Ind AS 102 deals with Share based payment trans-actions. This is one of the standards announced by MCA
IFRS 2 is the corresponding Accounting Standard issued by International Ac-counting Standards Board (IASB).
Mandatory requirements – no exceptions:
An entity has to recognise share-based payment transactions in its financial statements, including transactions with employees or other parties to be settled in cash, other assets, or equity instruments of the entity. There are no exceptions to Ind AS 102, other than for transactions to which other Ind ASs apply.
There are specific requirements for three types of transactions as given below:
1. Equity-settled share-based payment transactions: Here the entity receives goods or services as consideration for equity instruments of the entity. This includes equity shares and/or share options.
The goods or services received is measured based on the fair value of such goods or services unless the fair value cannot be estimated reliably. The corresponding value should be increased in the equity. If the fair value of the goods or services cannot be estimated reliably, then the value is ascertained based on the fair value of the equity instruments granted. If the transaction is with the employees or others providing similar services, the fair value of the equity instruments granted is measured as it is not possible to estimate the fair value of the services rendered by the employees. The fair value measurement of the equity instrument granted is always done at the grant date. For transactions with non-employees including those providing such similar services, there is a rebuttable presumption that the fair value of the goods or services received can be measured reliably. Such fair value is measured at the date on which the goods are received or the services rendered by the counter party. Where the presumption is rebutted, the fair value is determined based on the fair value of the equity instruments granted as measured at the date the goods are received by the entity or the services are rendered by the counter party.
Where the fair value is measured based on the fair value of the equity instruments granted, Ind AS 102 specifies the methodology by which such fair value should be determined. All non-vesting conditions are taken into account to estimate the fair value of the equity instruments other than the vesting conditions that are not market conditions. Vesting conditions are taken into account by adjusting the number of equity instruments in such a way that the amount recognized for goods or services rendered is based on the number of equity instruments that eventually vest. In other words, if the equity instruments granted do not vest due to the inability to satisfy the vesting conditions, no amount is recognized on a cumulative basis for such goods or services received.
Fair value to be based on market prices:
Ind AS 102 mandates that the fair value of equity instruments granted to be based on market price if available including the terms and conditions upon which those equity instruments were granted. However, where the market prices are not available, even the fair value is estimated using a prescribed valuation technique so as to determine the value of the equity instruments on the measurement date. Where the terms and conditions on an option or share grant are modified, Ind AS 102 requires that the entity should recognize as a minimum, the services received measured at the grant date of fair value of the equity instruments granted. Any modifications, cancellations or settlement of a grant of an equity instruments to modify would be recognized in the books of accounts if and only if it is beneficial to the employee which ultimately results in recognizing the expense of the employer.
- Cash-settled share-based payment transactions: Here the entity acquires goods or services by incurring liabilities to the supplier of those goods or services for amounts that are based on the price or value of the entity’s shares or other equity instruments of the entity.
The goods or services acquired is measured based on the fair value of the liability incurred. Only the liability is settled, the fair value of such liability should be remeasured at the end of each reporting period by recognizing the fair value changes in the profit and loss account. The fair value should also be recognized and accounted for at the date of settlement.
- Choice of settlement: This covers transactions in which the entity receives or acquires goods or services and the terms of the arrangement provide either the entity or the supplier of those goods or services with a choice of whether the entity settles the transaction in cash or by issuing equity instruments.
In this case, the entity is required to account for such transaction as a cash settled share based payment transaction to the extent that the entity has incurred a liability to settle in cash. The same will be accounted for as an equity settled share based payment transaction to the extent that no such liability has been incurred.
Ind AS 102 prescribes various disclosure requirements to enable users of financial statements to understand:
- the nature and extent of share-based payment arrangements that existed during the period;
- how the fair value of the goods or services received, or the fair value of the equity instruments granted, during the period was determined;
the effect of share-based payment transactions on the entity’s profit or loss for the period and on its financial position.
You can get the complete Kindle ebook here:
Kindle e-book on share based payment transactions as per Ind AS 102 (IFRS 2) is just published. The ebook is available at Amazon Kindle Store for a price of Rs.399/-.
However, the book will be available as a free download only on 16th September, 2016 for a period of 24 hours. All professional colleagues are requested to download the book and are also requested to give your esteemed feedback on the same by way of writing a review in the Amazon Kindle e-book store. The link for downloading the book is given below:
Ind AS 102 is the converged version of IFRS 2 that deals with share based payment transactions. This is one of the standards that is required to be adopted mandatorily along with a set of other Ind AS Standards as per the notification by the Ministry of Corporate Affairs.
It is customary to compensate employees either through stock options or equity instruments, especially for start up entities. Also an entity may also settle a liability while purchasing goods or services through its own equity instruments. If an entity enters into a share based payment transaction then such an entity has to recognise the share based payment transactions in its financial statements including transactions with employees or other parties to be settled in cash, other assets or equity instruments of the entity. There are no exceptions to this requirement other than for transactions to which other Ind ASs apply. Ind AS 102 mainly covers equity settled share based payment transactions and transactions that contain a choice of settlement either in cash or by issue of equity instruments.
This publication covers the key features of share based payment transactions, the accounting treatment for all types of share based payment transactions and disclosures that are mandatorily required to be given. The book includes extracts from published annual reports of several listed companies following IFRS 2 which can be used as very valuable precedence for accounting and reporting as per Ind AS 102.
This book includes several illustrations and worked out examples including practical case studies. At the end of the book, several objective type questions and problems/case studies are given, the answers of which are provided in the website http://learnaccountingstandards.com/
- The exemption arises because many first-time adopters may not have all the information necessary to apply Ind AS 103 to past business combinations
- A first-time adopter has the following options:
- apply Ind AS 103 retrospectively to all past business combinations.
- apply Ind AS 103 to restate a past business combination and any later business combinations.
- not apply Ind AS 103 to any past business combinations.
Exemption only for ‘business combinations’
- Exemption applicable only to transactions that meet Ind AS 103’s definition of a business combination.
- The exemption is not applicable to acquisitions of assets including entities holding one or more assets that do not constitute a business
- Business: An integrated set of activities and assets that generally consists of a) inputs, b) processes and c) the ability to create outputs; rebuttable presumption that a group of assets in which goodwill is present is a business [Ind AS 103]
Asset purchase that is not a business
- Prior to its transition date, a first-time adopter ABC acquired a group of assets.
- Under previous GAAP, this transaction was treated as a business combination.
- However as per Ind ASs this transaction should be treated as an asset purchase and not a business combination.
- Therefore, the exemption is not available to ABC in relation to this asset purchase.
ABC restates the asset purchase, and any goodwill recognised under previous GAAP is removed in the opening statement of financial position.
However, there may be other exemptions available to ABC in relation to the asset purchase, such as treating fair value as deemed cost.
Approach when exemption is availed
These requirements deal with the following:
- classification of the business combination as an acquisition by the legal acquirer, a reverse acquisition by the legal acquiree, or uniting of interests.
- the assets and liabilities acquired or assumed in the past business combination that are included in/excluded from the opening balance sheet.
- measurement in the opening balance sheet of assets and liabilities acquired or assumed in the past business combination.
- goodwill recognised in the past business combination.
Classification of business combination
- Same classification of the business combination as per previous GAAP is retained.
- The first time adopter does not restate the accounting using the purchase method.
- The requirements for recognising and measuring assets and liabilities are still applicable for assets acquired in business combination.
Recognition in the opening balance sheet
Effect of availing the exemption does not mean all assets and liabilities as per previous GAAP are included in the balance sheet as it is. Some items recognised under previous GAAP is derecognised under Ind ASs and some items not recognised under previous GAAP is recognised under Ind ASs.
Items recognised under previous GAAP
The first-time adopter continues to recognise assets such as PPE and receivables that would typically have been recognised under previous GAAP and also qualify for recognition under Ind ASs.
The first-time adopter should derecognise from its opening balance sheet any item that was recognised under previous GAAP that does not qualify for recognition under Ind ASs.