Subject ACCOUNTANCY AND FINANCIAL MANAGEMENT I

Ind AS -1 Presentation of Financial Statement

Introduction to Indian accounting standards

Indian Accounting Standard (abbreviated as Ind-AS) is the Accounting
standard adopted by companies in India and issued under the supervision and control
of Accounting Standards Board (ASB), which was constituted as a body in the year
1977. ASB is a committee under Institute of Chartered Accountants of India (ICAI)
which consists of representatives from government department, academicians, other
professional bodies’ viz. ICAI, representatives from ASSOCHAM, CII, FICCI, etc.

The Ind AS are named and numbered in the same way as the
corresponding International Financial Reporting Standards (IFRS). National Advisory
Committee on Accounting Standards (NACAS) recommend these standards to
the Ministry of Corporate Affairs (MCA). MCA has to spell out the accounting
standards applicable for companies in India. As on date MCA has notified 39 Ind AS.
This shall be applied to the companies of financial year 2015-16 voluntarily and from
2016-17 on a mandatory basis.
Ind AS the new set of accounting standards was notified by the Ministry of Corporate
Affairs (MCA) on February 19, 2015.  As of date, there are 39 Ind AS notified by the
MCA. The Ind AS are named and numbered in the same way as the corresponding
IFRS.  The application of Ind AS is based on the listing status and net worth of a
company.

Ind AS-1 PRESENTATION OF FINANCIAL STATEMENTS

Ind AS 1 is a basic standard, which prescribes the overall requirements for the
presentation of general purpose financial statements, i.e. components of financial
statements, like, balance sheet, statement of profit and loss, statement of cash flows and
notes comprising significant accounting policies, etc. Further, the standard prescribes

the minimum disclosures that are to be made in the financial statements and explains
the general features of the financial information. The presentation requirements
specified in the standard are supplemented by the recognition, measurement and
disclosure requirements set out in other Ind AS for specific transactions and other
events

 Objective
This standard determines the basis for the presentation of general purpose
financial statements to ensure equivalence:

 With the entity’s financial statements of preceding periods

 Financial statements of other entities.

It sets out general requirements for the presentation of financial statements,

guidelines for their structure and minimum requirements of their content.
 Scope 

 This standard claims to all types of entities, including those that present:

i. Consolidated financial statements underInd AS 110 consolidated

financial statements; and

ii. Financial statements that are separated underInd AS 27.

 This standard does not apply to the structure and content of compressed
interim financial statements prepared underInd AS 35 except for para 15 to 35 of
Ind AS 1.

 This standard uses expressions that are suitable for profit-oriented

entities, including public sector business entities.

 Suppose entities with not for profit activities in the private sector or the
public sector apply this standard. In that case, they may need to amend the
descriptions used for particular line items in the financial statements and the
financial statements themselves.

 Similarly, the institution that does not have equity as defined in Ind AS 32
financial instruments

 Presentation and entities whose share capital is not equity may need to
adapt the financial statement presentations of members’ and unit holders’
interests.

Components of financial statements

The financial statements shall comprise:

 The balance sheet at the end of the period

 Statement of profit and loss for the period

 Statement of changes in equity for the period

 Statement of cash flows for the period

 Notes including a summary of significant accounting policies and other

explanatory information

Relative information in respect of the preceding period as specified in

paragraphs 38 and 38A

 The balance sheet as at the beginning of the preceding period when an

entity applies an accounting policy retrospectively.
 Key Principles
 True and Fair View
 Compliance With IND AS
 Going Concern
 Accrual Basis of Accounting
 Materiality and Aggregation
 Offsetting
 Frequency of Reporting
 Comparative Information
 Consistency of Presentation

Purpose of financial statements

The objective of financial statements is to provide information about the

financial position, financial performance and cash flows of an entity that is useful
to a wide range of users in making economic decisions. Financial statements also
show the results of the management’s stewardship of the resources entrusted to
it. To meet this objective, financial statements provide information about an
entity’s:
(a) assets; (b) liabilities; (c) equity; (d) income and expenses, including
gains and losses; (e)contributions by and distributions to owners in their capacity
as owners; and (f) cash flows.
This information, along with other information in the notes, assists users
of financial statements in predicting the entity’s future cash flows and, in
particular, their timing and certainty.
 A complete set of financial statements comprises:
(a) a balance sheet as at the end of the period ;
(b) a statement of profit and loss for the period;
(c) statement of changes in equity for the period;
(d) a statement of cash flows for the period;
(e) notes, comprising a summary of significant accounting policies and
other explanatory information; and
(f) comparative information in respect of the preceding period;
(g) a balance sheet as at the beginning of the preceding period when an
entity applies an accounting policy retrospectively or makes a retrospective
restatement of items in its financial statements, or when it reclassifies items in its
financial statements
(h) An entity shall present a single statement of profit and loss, with profit
or loss and other comprehensive income presented in two sections. The sections
shall be presented together, with the profit or loss section presented first
followed directly by the other comprehensive income section.

General features
 Financial statements shall present a true and fair view of the financial
position, financial performance and cash flows of an entity. Presentation of true
and fair view requires the faithful representation of the effects of transactions,
other events and conditions in accordance with the definitions and recognition
criteria for assets, liabilities, income and expenses set out in the Framework. The
application of

IndAS, with additional disclosure when necessary, is presumed to result

in financial statements that present a true and fair view.
 An entity whose financial statements comply with Ind AS shall make
an explicit and unreserved statement of such compliance in the notes.
 An entity shall not describe financial statements as complying with
Ind AS unless they comply with all the requirements of Ind ASs.
 An entity cannot rectify inappropriate accounting policies either by
disclosure of the accounting policies used or by notes or explanatory material.
 In the extremely rare circumstances in which management concludes
that compliance with a requirement in an Ind AS would be so misleading that it
would conflict with the objective of financial statements set out in the
Framework, the entity shall depart from that if the relevant regulatory
framework requires, or otherwise does not prohibit, such a departure.
When an entity departs from a requirement of an Ind AS, it should be a
part of its disclosure. It should disclose:
(a) that management has concluded that the financial statements present
a true and fair view ;
 (b) that it has complied with applicable Ind ASs, except that it has
departed from a particular requirement to present a true and fair view;
(c) the title of the Ind AS from which the entity has departed, the nature
of the departure, including the treatment that the Ind AS would require, the
reason why that treatment would be so misleading in the circumstances that it
would conflict with the objective of financial statements set out in the
Framework, and the treatment adopted; and
(d) for each period presented, the financial effect of the departure on each
item in the financial statements that would have been reported in complying with
the requirement.
(e) When an entity has departed from a requirement of an Ind AS in a
prior period, and that departure affects the amounts recognised in the financial
statements for the current period, it shall make the disclosures.
In the extremely rare circumstances in which management concludes
that compliance with a requirement in an Ind AS would be so misleading that it
would conflict with the objective of financial statements set out in the
Framework, but the relevant regulatory framework prohibits departure from
the requirement, the entity shall, to the maximum extent possible, reduce the
perceived misleading aspects of compliance by disclosing:
(a) the title of the Ind AS in question, the nature of the requirement, and
the reason why management has concluded that complying with that
requirement is so misleading in the circumstances that it conflicts with the
objective of financial statements set out in the Framework; and
(b) for each period presented, the adjustments to each item in the
financial statements that management has concluded would be necessary to
present a true and fair view.

Going concern
An entity shall prepare financial statements on a going concern basis
unless management either intends to liquidate the entity or to cease trading, or
has no realistic alternative but to do so.
When management is aware, of material uncertainties related to events or
conditions that may cast significant doubt upon the entity’s ability to continue as
a going concern, the entity shall disclose those uncertainties. When an entity does
not prepare financial statements on a going concern basis, it shall disclose that
fact, together with the basis on which it prepared the financial statements and
the reason why the entity is not regarded as a going concern.

Example : 1
Is there any specific disclosure requirement as per Ind AS-1 for a
Company in Liquidation?
Answer:
For a Company in liquidation, the fundamental accounting assumption of
Going Concern is apparently not valid.
The Carrying Amounts of assets and liabilities would reflect the
Realisable Value.
As per Ind AS-1, when an Entity does not prepare Financial Statements
on a going concern basis, it shall disclose –
(a) that fact,
(b) the basis on which it prepared the Financial Statements, and
(c) the reason why the Entity is not regarded as a going concern
.
Accrual basis of accounting
An entity shall prepare its financial statements, except for cash flow
information, using the accrual basis of accounting.
When the accrual basis of accounting is used, an entity recognises items as
assets, liabilities, equity, income and expenses, when they satisfy the definitions
and recognition criteria for those elements in the Framework.

Materiality and aggregation

An entity shall present separately each material class of similar items. An
entity shall present separately items of a dissimilar nature or function unless
they are immaterial except when required by law.
Financial statements result from processing large numbers of transactions
or other events that are aggregated into classes according to their nature or
function. The final stage in the process of aggregation and classification is the
presentation of condensed and classified data, which form line items in the
financial statements. If a line item is not individually material, it is aggregated
with other items either in those statements or in the notes. An item that is not
sufficiently material to warrant separate presentation in those statements may
warrant separate presentation in the notes.
An entity need not provide a specific disclosure required by an Ind AS if
the information is not material except when required by law.
 Offsetting
An entity shall not offset assets and liabilities or income and expenses,
unless required or permitted by an Ind AS.
An entity reports separately both assets and liabilities, and income and
expenses. Measuring assets net of valuation allowances — for example,
obsolescence allowances on inventories and doubtful debts allowances on
receivables — is not offsetting.
In addition, an entity presents on a net basis gains and losses arising from
a group of similar transactions, for example, foreign exchange gains and losses
or gains and losses arising on financial instruments held for trading. However,
an entity presents such gains and losses separately if they are material.
Example: 2

Om Ltd has a vacant land measuring 10,000 sq. meters. which it had no
intention to use in the future. The Board of Directors decided to sell the land to
tide over its liquidity problems. The Company made a profit of ` 10 Lakhs by
selling the said Land. There was a fire in the factory and a part of the unused
factory valued at ` 8 Lakhs was destroyed. The Loss was setoff against the Profit
from Sale of Land and a Profit of ` 2 Lakh was disclosed as Net Profit from Sale
of Assets. Analyse.
Answer:
An Entity shall not offset Assets and Liabilities or Income and Expenses,
unless required or permitted by an Ind AS.
When items of Income or Expense are material, an Entity shall disclose
their nature and amount separately. Disposal of items of Property, Plant and
Equipment is one example of such material item.
Disclosing Net Profits by setting off Fire Losses against Profit from Sale of
Land is not correct. As per Ind AS-1, Profit on Sale of Land, and Loss due to
Fire should be disclosed separately.

Frequency of reporting
An entity shall present a complete set of financial statements (including
comparative information) at least annually.
 When an entity changes the end of its reporting period and presents
financial statements for a period longer or shorter than one year, an entity shall
disclose, in addition to the period covered by the financial statements:
(a) the reason for using a longer or shorter period, and
(b) the fact that amounts presented in the financial statements are not
entirely
comparable.

Comparative information
Except when Ind AS permit or require otherwise, an entity shall present
comparative information in respect of the preceding period for all amounts
reported in the current period’s financial statements.
An entity shall present, as a minimum, two balance sheets , two
statements of profit and loss, two statements of cash flows and two statements of
changes in equity, and related notes.

Additional comparative information

An entity may present comparative information in addition to the
minimum comparative financial statements required by IndAS, as long as that
information is prepared in accordance with Ind ASs.
For example, an entity may present a third statement of profit and loss
(thereby presenting the current period, the preceding period and one additional
comparative period). However, the entity is not required to present a third
balance sheet, a third statement of cash flows or a third statement of changes in
equity (ie an additional financial statement comparative). The entity is required
to present, in the notes to the financial statements, the comparative information
related to that additional statement of profit and loss.
Any narrative or descriptive information should be included if it is
relevant to under standard the financial statements.

Change in accounting policy, retrospective restatement or

reclassification
 An entity shall present a third balance sheet as at the beginning of the
preceding period in addition to the minimum comparative financial statements
if:
(a) it applies an accounting policy retrospectively, makes a retrospective
restatement of items in its financial statements or reclassifies items in its
financial statements; and
(b) the retrospective application, retrospective restatement or the
reclassification has a material effect on the information in the balance sheet at
the beginning of the preceding period.
In the circumstances described in paragraph 40A, an entity shall present
three balance sheets as at:
(a) the end of the current period;
(b) the end of the preceding period; and (c) the beginning of the preceding
period.
If an entity changes the presentation or classification of items in its
financial statements, it shall reclassify comparative amounts unless
reclassification is impracticable. When an entity reclassifies comparative
amounts, it shall disclose (including as at the beginning of the preceding period):
(a) the nature of the reclassification;
(b) the amount of each item or class of items that is reclassified; and (c)
the reason for the reclassification.
When it is impracticable to reclassify comparative amounts, an entity
shall disclose:
(a) the reason for not reclassifying the amounts, and
(b) the nature of the adjustments that would have been made if the
amounts had been
reclassified.
 it is apparent, following a significant change in the nature of the
entity’s operations or a review of its financial statements, that another
presentation or classification would be more appropriate having regard to the
criteria for the selection and application of accounting policies in Ind AS 8; or
 an Ind AS requires a change in presentation.

Consistency of presentation
An entity shall retain the presentation and classification of items in the financial
statements from one period to the next unless:
Structure and content
Identification of the financial statements
 An entity shall clearly identify the financial statements and distinguish them
from other information in the same published document. Ind AS apply only to financial
statements, and not necessarily to other information presented in an annual report, a
regulatory filing, or another document. Therefore, it is important that users can
distinguish information that is prepared using Ind AS from other information that may
be useful to users but is not the subject of those requirements.