IND AS 1 Revision - Alongwith with Ques| CA Final FR Revision | CA Aakash Kandoi

Summary

In this revision session on Ind AS 1, the speaker provides a concise yet comprehensive overview of the presentation of financial statements. Key concepts such as the complete set of financial statements, the classification of current and non-current assets and liabilities, and the preparation of profit and loss statements are discussed. The speaker emphasizes understanding classification criteria, explains breach scenarios for loans, and clarifies tricky questions on current vs non-current classifications. The session aims to save time while ensuring a strong grasp of essential financial reporting concepts, with practical tips on how to approach exam questions.

Takeaways

• 😀 Ind AS 1 applies to Standalone and Consolidated Financial Statements (SFS and CFS), but not interim financial statements (covered under Ind AS 34).
• 😀 A complete set of financial statements includes Balance Sheet, Profit & Loss Statement, Statement of Changes in Equity, Cash Flow Statement, and Notes to Accounts.
• 😀 The Balance Sheet should classify assets and liabilities as either current or non-current based on specific conditions like expected realization or settlement within 12 months or operating cycle.
• 😀 Current assets include items like cash, cash equivalents, inventories, and receivables expected to be realized within 12 months.
• 😀 Non-current assets are those that do not meet the criteria for current assets and are expected to be realized after 12 months.
• 😀 Current liabilities include those expected to be settled within 12 months or in the normal operating cycle. Non-current liabilities do not meet this condition.
• 😀 Financial statements must present a true and fair view, with explicit compliance with Ind AS. Deviation from Ind AS is only allowed if the regulatory framework permits it.
• 😀 Going concern assumption should be valid; if not, financial statements should be prepared on a liquidation or realization basis, with a clear explanation of the reasons.
• 😀 Financial statements should be consistent in their presentation and classification of items. However, exceptions can be made in specific circumstances.
• 😀 Comparative information is required for at least one year, and additional comparative years can be provided voluntarily.
• 😀 In tricky loan scenarios, if an unconditional deferment is granted for a loan, it may classify as non-current, and loans with grace periods or rollover facilities after the reporting period need careful classification.

Q & A

What is the scope of Ind AS 1?

Ind AS 1 applies to standalone financial statements (SFS) and consolidated financial statements (CFS). It does not apply to interim financial statements, which are covered under Ind AS 34.

What does a complete set of financial statements include according to Ind AS 1?

A complete set of financial statements includes seven items: Balance Sheet, Profit and Loss Statement, Statement of Changes in Equity, Cash Flow Statement, Notes to Accounts, one-year comparatives, and an opening balance sheet (in case of retrospective changes).

When do you need to prepare an opening balance sheet as per Ind AS 1?

An opening balance sheet is prepared when there are retrospective changes in accounting policies, error rectification, or classification changes. This balance sheet is prepared on the first day of the previous year.

What are the key conditions for classifying an asset as current?

An asset is classified as current if it meets any of the following conditions: expected to be realized within the normal operating cycle, expected to be realized within 12 months from the end of the reporting period, held for trading (e.g., inventories, derivatives), or cash and cash equivalents.

How are cash and cash equivalents classified under Ind AS 1?

Cash and cash equivalents are classified as current assets. Cash includes physical cash, and cash equivalents include bank balances with a maturity of less than 3 months. Fixed deposits with a maturity of more than 3 months are not classified as cash equivalents, but they may still be considered current assets if they meet other conditions.

What happens if there is a restriction on cash and cash equivalents?

If cash and cash equivalents are restricted for more than 12 months, they are classified as non-current assets. For example, a savings account that is frozen for three years would be considered non-current.

What are the four conditions for classifying a liability as current?

A liability is classified as current if it meets any of these conditions: it is settled in the normal operating cycle, due to be settled within 12 months from the end of the reporting period, held for trading (e.g., derivatives), or has no unconditional right to defer settlement for more than 12 months.

What is the impact of a breach in long-term loan arrangements on classification?

If a long-term loan is breached, it becomes a current liability. However, if a grace period of less than 12 months is obtained, it remains a current liability. If the grace period extends beyond 12 months, it remains non-current. If the grace period is obtained before the breach, the loan remains non-current.

How should operating cycle and deposit receipts be classified?

Receivables and deposits expected to be received within the operating cycle (or within 12 months) are classified as current assets. Receivables and deposits due after 12 months are classified as non-current assets.

How should a capital advance for purchasing machinery be classified under Ind AS 1?

A capital advance for purchasing machinery is always classified as non-current, regardless of when the machinery is delivered.