INCOME COMPUTATION AND DISCLOSURE STANDARDS

1. INCOME COMPUTATION AND DISCLOSURE STANDARDS CA. Jayaprakesh. M.C

2. Background of ICDS - Notification No.32/2015 Dt.31/03/2015 • AS to ICDS Issue 1 : Whether ICDS should be applied for maintenance of Books of accounts? • DRAFT to FINAL • APPLICABILITY Issue 2 : Whether ICDS applicable to assessee carrying cash system of accounting? Issue 3:Whether ICDS applicable to all assessees? Issue 4: Whether ICDS applicable to all head of income?

3. ICDS……Applicability Issue 5: Whether ICDS is in supersession of old accounting standards, AS-1 and AS-2 notified U/s 145(2)? Issue 6: Whether ICDS should be applied for computation of income for the AY 2016-17 onwards or for earlier years? Issue 7: Whether ICDS should be considered for the purpose of calculation of advance tax for the AY: 2016-17? Issue 8: Whether the ICDS can Override Income tax Act? Issue 9: After the implementation of ICDS whether all assessees should follow mercantile system?

4. Accounting Standards Vs ICDS

5. ICDS I Vs AS-1 • Against Prudence –Expected loss should not be recognized. • Materiality - silent • Change in Accounting policy – only by reasonable cause. • Disclosure of Accounting policy – Where? – not clear • Transitional provision – relating to contract or transaction

6. ICDS II Vs AS-2 ( Valuation of Inventories) • Cost of purchase – includes tax duties which are refundable • Standard cost method – Not allowed • Value of Opening inventory – for existing business & new business • Change in method – not allowed without RC • Valuation in the case of dissolution • Transitional provision – interest cost not meeting BC criteria

7. ICDS II Vs AS-2 …… Issue 1: Under ICDS Whether cost of inventories includes tax, duty, cess etc which are refundable? Issue 2: If the stock register is not maintained how to convince the compliance of ICDS ? Issue 3: In the case of dissolution of firm if the business is not discontinued whether the NRV can be allowed as the cost to the successor of the business?

8. ICDS III Vs AS-7 (Construction contracts) • Contract revenue includes retentions • Contract cost shall be reduced by incidental income not in the nature of interest, dividends or CG. • Contract cost includes allocated BC as per ICDS • Contract revenue and cost should be based on stage of completion • During the early stage if the outcome of contract cannot be estimated reliably recognize revenue to the extent of cost incurred – early state should not be beyond 25% of stage of completion. • Transitional provisions- contract prior to 01/04/2015 not yet completed

9. ICDS III Vs As-7…… • Recognition of expected/probable loss Issue 1: Whether income should be recognized on % of completion method in the early stage of contract? Issue 2:Whether Retention should be treated as contract revenue as per AS-7 and ICDS-III Issue 3: whether advance to subcontractor can be treated as cost incurred as on date for calculation of % of completion? Issue 4:Whether the assessee following Cash system should convert into % of completion method? Issue 5: If expected loss has already recognised in the previous year income, is there any adjustment should be made during the current year?

10. ICDS IV Vs AS-9 ( Revenue Recognition) • Revenue recognition only if reasonable certainty • Revenue from service shall be based on Percentage of completion method. • For revenue No detailed explanation compared to AS-9 • Transitional provision – in line with construction contracts

11. ICDS V Vs AS-10 ( Tangible Fixed Assets) • Component of Actual cost – undergo changes on account of price adjustment, changes in duties etc. or - exchange fluctuation as per ICDS • No revaluation provision • Cost of Fixed asset acquired in exchange of securities/another asset. • Jointly owned TFA and TFA register. • Transitional provisions – Acquisition/construction on or before 31/03/2015

12. ICDS VI Vs AS-11 ( Effect of changes in foreign exchange rates) • Conversion of monitory and Non monitory item as on the last date of the previous year. • Recognition of ED • Initial recognition, conversion and recognition of ED should be as per 43A of IT Act and Rule 115. • Translation of FS of Integral and Non integral foreign operation. • Transitional Provision – All foreign currency transaction and ED carried pertains to on or before 31/03/2015

13. ICDS VII Vs AS-12 ( Government Grants) • Recognition of Government Grant – Shall not be postponed beyond the actual date of receipt • GG relating to depreciable FA – no option of DI • GG relating to Non-DFA – Should be treated as Income ( No capital Reserve) • No classification as extraordinary item • GG not directly relatable to Asset Acquired- Proportionately • Revenue Related GG – Deferred Income • Refund of GG – Revenue related & Capital related • Transitional Provision

14. ICDS VIII Vs AS 13 • Changed the title as Securities • Applicable only in the case of securities held as Stock in trade • No classification • Recognition and initial measurement • Securities acquired by exchange of other securities/asset • Pre and post acquisition interest • Valuations on B/s date – Cost or NRV whichever is lower • NRV should be done category wise not individual – Anticipate unrealized income

15. ICDS VIII Vs AS 13………. • Opening value of securities • Securities not listed, listed but not quoted should be valued only at COST • FIFO method if Specific Identification not possible • No disclosure

16. ICDS IX Vs AS-16 ( Borrowing costs) • Definition of Qualifying Asset – period of 12 months only for inventories ( QA includes Land) • For capitalization - no condition that Activities are in progress. • Deduction of incidental income from BC – no provision • BC eligible for capitalization – specific and General Borrowing • Commencement of capitalization – General and specific borrowing • Suspension of capitalization – no provision • Transitional Provision

17. ICDS X Vs AS-29 ( Provisions, contingent Liabilities and Contingent Assets) • Recognition of Provision Only when the outflow is reasonably certain ( Probable in the case of AS) • Contingent liability should not be recognized. • Contingent Asset are recognized when it becomes reasonable certain ( Virtually certain as per AS). • Transitional provision

18. CONCERN • Conflict between Existing Judicial Pronouncement of various courts • Maintenance of separate records/books warranted even though not required • Reconciliation between book profit and Taxable income may result in open litigation • MAT may provide double taxation. • Accelerates income as against Prudence. Whether deduction can be allowed subsequent W/off? • No detailed explanation to various provisions as against AS may lead to unhealthy interpretation • May attestation by CA • Require changes in ITR , 3CD etc

19. POSITIVES……. • Recognition to Various thoughts of ICAI and members

20. Thank You