Page 38 - Banking Finance November 2019

ARTICLE

As indicated above, IND AS are 41 standards and IFRS are instrument is to be classified as per substance rather than
17 standards out of which two standards are not mandatory its legal form. Hence instruments such as prepaid expense,
(hence IFRS are 15). Wherever an Ind AS needs pre-received income, and advance tax paid would not be
improvement or replacement, it would get replaced by an classified as financial instrument. Further w.r.t to
IFRS and get numbered further as IFRS 15 is converged as classification of financial instruments into assets and liabilities
IND AS 115. following basis have to be taken care of:-

The key statements to be prepared in the Financial Assets Financial Liabilities
Corporate Annual Report under IND AS would A contractual right to A contractual obligation to
be:- o Receive cash or another Deliver cash or another
financial asset from financial asset to another
Y Balance Sheet
another entity. OR. entity. OR.
Y Statement of Profit & Loss account o To exchange financial To exchange financial
O Profit and Loss account assets/liabilities with assets/liabilities with other
O Other Comprehensive Income (similar to P&L other another entity another entity under
Appropriation account) (#) under conditions are conditions are potentially
potentially favorable for unfavorable for the entity.
Y Statement of changes in Equity
the entity.
Y Cash Flow Statement
A contract that will or may A contract that will or may
Y Notes to Accounts be settled in the entity's be settled in the entity's
own equity instruments own equity instruments
Other Comprehensive Income (OCI) would under certain circumstances. under certain
include the following:- circumstances
Y Foreign currency Translation Reserve Cash
An equity instrument of
Y Re-measurement of defined benefits plans (eg Gratuity,
employee benefits) other another entity
Y Revaluation Reserves / Surplus
The new accounting standards recognize substance over
Y Effective potion of Cash Flow Hedge form and importance of the fair value to compute financial

Y Gains or losses on account of equity investments/ statements" This implies that just complying with legal
financial assets /financial liabilities designated at Fair provisions will not suffice as accurate reporting will gain
Value importance over it which should reflect the most current
picture of financials.
Now let's take an overview how INDAS is going to affect
"Financial Instruments". Definition of Equity as per IND AS is as under:-
Y Any contract ,that evidences a residual interest in the
How is financial instrument defined? assets of an entity after deducting all of its liabilities". .
Any instrument has to satisfy two criterions to be classified An instrument is an equity instrument if, and only if, Both
financial instrument:- of the conditions below are met:
a) Existence of contractual relation within two A. Instrument includes no Contractual Obligation (for the
counterparties. Issuer):-
Y To deliver cash or another financial assets to
b) The instrument to be classified as financial asset in books
of counterparty and financial liability in books of other another entity;
counterparty & vice-versa. Y To exchange financial assets/ Liabilities with
another equity under potentially unfavorable
Further as against Indian GAAP, IND AS every financial conditions.

38 | 2019 | NOVEMBER | BANKING FINANCE