Key Ind AS standards explained

Commerce (General / Accounting and Finance / Banking and Insurance) (B.Com) · Financial accounting · free study notes for exams, placements and interviews

In short

Ind AS are the Indian Accounting Standards notified under the Companies (Indian Accounting Standards) Rules, 2015, converged with IFRS and issued by MCA on ICAI's recommendation. They replace the older AS for listed and large companies and change how revenue, leases, financial instruments, fair value and impairment are measured and disclosed. Each standard has a scope, recognition and measurement rules, presentation and disclosure requirements, and a numbering that follows IFRS (Ind AS 101-116) or IAS (Ind AS 1-41). The topic is examined in B.Com financial accounting and corporate reporting papers, in CA/CMA/CS Inter and Final, and tested heavily in interviews for audit firms, shared-service centres, banks and finance roles, where candidates are asked to apply the standard to a fact pattern rather than recite it.

Explained

The Ind AS framework and who applies it

Two sets of standards in India: Ind AS (converged with IFRS, under the 2015 Rules) and AS (the older standards, now under the Companies (Accounting Standards) Rules, 2021) for companies not covered by Ind AS.
Phased applicability (roadmap): FY 2016-17 - listed and unlisted companies with net worth ₹500 crore or more; FY 2017-18 - all other listed companies and unlisted companies with net worth ₹250 crore or more; NBFCs from FY 2018-19 (net worth ₹500 crore or more) and FY 2019-20 for the next tier. Banks and insurance companies were deferred by RBI and IRDAI; implementation dates have shifted repeatedly, so quote the latest RBI/IRDAI position rather than a fixed year.
Once in, always in: a company that applies Ind AS cannot revert even if net worth falls. Holding, subsidiary, associate and JV companies of a covered company also apply Ind AS.
"Carve-outs": Ind AS differs from IFRS in a few places to suit Indian law - for example the option on foreign-exchange differences on long-term monetary items (Ind AS 21/101) and the equity classification of the conversion option in foreign-currency convertible bonds (Ind AS 32). Hence "converged", not "adopted".
Ind AS 101 First-time Adoption: opening Ind AS balance sheet at the date of transition, retrospective application with specified mandatory exceptions and optional exemptions (for example deemed cost for PPE), and reconciliation of equity and profit from previous GAAP.
Presentation: Ind AS 1 prescribes a complete set - balance sheet, statement of profit and loss (profit or loss plus other comprehensive income), statement of changes in equity, cash flow statement (Ind AS 7), notes; the format follows Division II of Schedule III to the Companies Act, 2013.

Ind AS 115 Revenue from Contracts with Customers

Replaced Ind AS 18 (revenue) and Ind AS 11 (construction contracts) with one control-based model.
Five steps: (1) identify the contract; (2) identify performance obligations (distinct goods or services); (3) determine the transaction price; (4) allocate the price to obligations on stand-alone selling price ratios; (5) recognise revenue when (or as) each obligation is satisfied.
Over time vs at a point in time: recognise over time if the customer simultaneously receives and consumes, or the asset is customer-controlled as it is built, or there is no alternative use plus an enforceable right to payment; measure progress by output or input methods (cost-to-cost is common in construction).
Transaction price adjustments: variable consideration (estimated by expected value or most-likely-amount, included only to the extent it is highly probable that no significant revenue reversal will occur - the constraint), significant financing component, non-cash consideration, consideration payable to a customer.
Contract assets (unbilled, conditional on performance) differ from receivables (unconditional right); contract liability = advance received.
Principal vs agent: a principal controls the good before transfer and reports gross revenue; an agent reports only commission - the key test for e-commerce and travel platforms.
Contract costs: incremental costs of obtaining a contract are capitalised and amortised if recoverable.

Ind AS 116 Leases

Single lessee model: at commencement a lessee recognises a right-of-use (ROU) asset and a lease liability for almost all leases; the old operating-lease off-balance-sheet treatment is gone.
Lease liability = present value of unpaid lease payments discounted at the interest rate implicit in the lease, or the lessee's incremental borrowing rate if that is not readily determinable. ROU asset = liability + prepaid lease payments + initial direct costs + restoration cost − lease incentives.
Subsequent measurement: ROU asset depreciated (usually straight line over the shorter of lease term and useful life); liability unwound using the effective interest method - so profit and loss shows depreciation + finance cost, not rent, and EBITDA rises while early-year total expense is front-loaded.
Recognition exemptions: short-term leases (12 months or less, no purchase option) and leases of low-value assets may be expensed straight line.
Lease term includes optional renewal periods the lessee is reasonably certain to exercise; reassessed on significant events.
Lessor accounting is unchanged in substance: classify as finance lease (recognise net investment in lease, derecognise the asset) or operating lease (keep the asset, recognise lease income, usually straight line).
Identifying a lease: an identified asset plus the right to obtain substantially all economic benefits and to direct its use - otherwise it is a service contract.

Asset standards: Ind AS 2, 16, 38, 36, 40, 105

Ind AS 2 Inventories: lower of cost and net realisable value; cost by FIFO or weighted average (LIFO is prohibited); cost includes purchase, conversion and other costs to bring inventory to its present location and condition; abnormal waste, storage, admin and selling costs are excluded.
Ind AS 16 Property, Plant and Equipment: initial cost includes purchase price, directly attributable costs, dismantling/restoration obligation and borrowing costs capitalised under Ind AS 23; component accounting is mandatory (significant parts depreciated separately); choice of cost model or revaluation model; depreciation based on useful life and residual value, reviewed annually; Schedule II of the Companies Act, 2013 gives indicative useful lives.
Ind AS 38 Intangible Assets: recognise if identifiable, controlled and expected to give future benefits; research cost is always expensed, development cost is capitalised only if all six PIRATE-type conditions (technical feasibility, intention, ability to use or sell, probable benefits, resources, reliable measurement) are met; internally generated goodwill, brands and mastheads cannot be recognised; finite-life intangibles are amortised, indefinite-life intangibles are not amortised but tested for impairment annually.
Ind AS 36 Impairment of Assets: carrying amount must not exceed recoverable amount = higher of fair value less costs of disposal and value in use (discounted future cash flows); test annually for goodwill, indefinite-life intangibles and intangibles not yet available for use, otherwise when indicators exist; impairment of a cash-generating unit is allocated first to goodwill, then pro rata; goodwill impairment is never reversed.
Ind AS 40 Investment Property: property held to earn rentals or for capital appreciation; measured at cost after recognition (fair value disclosed) - a carve-out from IFRS, which permits a fair value model.
Ind AS 105 Non-current Assets Held for Sale: measured at lower of carrying amount and fair value less costs to sell; depreciation stops; discontinued operations presented separately.

Financial instruments: Ind AS 32, 109, 107 and fair value (113)

Ind AS 32 Presentation: classify an instrument as liability or equity by substance - a contractual obligation to deliver cash means liability; preference shares with mandatory redemption and fixed dividend are liabilities and their "dividend" is interest expense.
Ind AS 109 classification of financial assets by business model and cash-flow characteristics: amortised cost (hold to collect, SPPI cash flows), FVOCI (hold to collect and sell; equity instruments may be irrevocably elected at FVOCI), FVTPL (everything else, and the default for derivatives).
Expected credit loss (ECL) model: loss allowance recognised from day one - 12-month ECL at Stage 1, lifetime ECL when credit risk increases significantly (Stage 2) or on credit-impaired assets (Stage 3); trade receivables usually use the simplified lifetime-ECL provision matrix. This replaced the incurred-loss approach and is the basis of NBFC provisioning under Ind AS.
Hedge accounting (fair value, cash flow and net investment hedges) requires documentation and an economic relationship; financial liabilities are generally at amortised cost using the effective interest rate.
Ind AS 107 prescribes disclosures - credit, liquidity and market risk, sensitivity analysis, maturity analysis.
Ind AS 113 Fair Value Measurement: fair value is the price to sell an asset in an orderly transaction between market participants at the measurement date (an exit price); hierarchy - Level 1 quoted prices in active markets, Level 2 other observable inputs, Level 3 unobservable inputs.

Liability, tax and disclosure standards: Ind AS 37, 19, 12, 21, 33, 108, 24, 10, 8, 20

Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets: provide when there is a present obligation from a past event, an outflow is probable and the amount can be estimated reliably; measure at the best estimate, discounted if material. A possible obligation is a contingent liability - disclose only; a contingent asset is disclosed only when probable and recognised only when virtually certain. No provision for future operating losses; onerous contracts and restructuring have specific rules.
Ind AS 10 Events after the Reporting Period: adjusting events give evidence of conditions existing at the balance sheet date (court decision on a pending suit, customer insolvency, sale confirming NRV); non-adjusting events are disclosed only. Dividends declared after the year end are not a liability - a key change from pre-Ind AS practice.
Ind AS 19 Employee Benefits: short-term benefits at undiscounted cost; defined contribution plans expense the contribution; defined benefit plans use the projected unit credit method with a net defined benefit liability, service cost and net interest in profit or loss, and remeasurements (actuarial gains/losses) in OCI, never reclassified to profit or loss - this is how gratuity is accounted for in Indian companies.
Ind AS 12 Income Taxes: balance-sheet (temporary difference) approach; deferred tax on the difference between carrying amount and tax base; deferred tax assets recognised only to the extent future taxable profit is probable; no discounting; current and deferred tax follow the item - OCI items carry their tax to OCI.
Ind AS 21 Foreign Currency: record at the spot rate; at year end restate monetary items at closing rate (differences to profit or loss) and keep non-monetary items at historical rate (or the rate at the fair value date).
Ind AS 33 Earnings per Share: basic EPS on weighted average shares; diluted EPS adjusts for potential equity shares; bonus issues and splits are applied retrospectively to all periods.
Ind AS 108 Operating Segments: the management approach - segments as reviewed by the chief operating decision maker, with quantitative thresholds (10% of revenue, result or assets) and a 75% external-revenue test.
Ind AS 24 Related Party Disclosures: disclose relationships, transactions, outstanding balances and key management personnel compensation; Ind AS 8 covers accounting policies (retrospective change), estimates (prospective) and correction of errors (retrospective restatement); Ind AS 20 deals with government grants, presented as deferred income or deducted from the asset.

Key points

Ind AS - IFRS-converged standards notified by MCA under the Companies (Indian Accounting Standards) Rules, 2015, mandatory for listed and large companies.
Numbering - Ind AS 101-116 mirror IFRS 1-16; Ind AS 1-41 mirror the IAS series; there is no Ind AS corresponding to numbers IFRS/IAS never used.
Once-in-always-in - applicability does not reverse if net worth later falls below the threshold.
Ind AS 101 - first-time adoption: retrospective restatement with stated exemptions, plus equity and profit reconciliations.
Ind AS 115 - five-step, control-transfer revenue model; replaced Ind AS 18 and 11.
Contract liability vs contract asset - advance received vs unbilled revenue earned but conditional.
Ind AS 116 - lessees recognise an ROU asset and lease liability; rent expense becomes depreciation plus interest.
Short-term and low-value lease exemption - 12 months or less, or low-value assets, can stay off the balance sheet.
Ind AS 2 - inventory at lower of cost and NRV; FIFO or weighted average only, LIFO prohibited.
Ind AS 16 - component accounting mandatory; Schedule II useful lives; revaluation model permitted.
Ind AS 38 - research expensed, development capitalised only on meeting all conditions; no internally generated goodwill or brands.
Ind AS 36 - recoverable amount = higher of fair value less disposal costs and value in use; goodwill impairment is irreversible.
Ind AS 109 - amortised cost / FVOCI / FVTPL classification plus the forward-looking expected credit loss model.
Ind AS 32 - substance over form: redeemable preference shares are liabilities, their dividend is finance cost.
Ind AS 113 - fair value is an exit price, with a three-level input hierarchy.
Ind AS 37 - provide when probable and measurable; disclose when only possible.
Ind AS 10 - proposed dividend is a non-adjusting event, disclosed not provided.
Ind AS 19 - actuarial gains and losses go to OCI and are never recycled to profit or loss.

Formulas and examples

Lease liability at commencement = Σ [ Lease payment_t ÷ (1 + r)^t ] — r = interest rate implicit in the lease, else incremental borrowing rate; t in years
ROU asset = Lease liability + prepaid lease payments + initial direct costs + restoration cost − lease incentives received
Recoverable amount (Ind AS 36) = higher of (Fair value − costs of disposal) and Value in use; Impairment loss = Carrying amount − Recoverable amount
Revenue allocated to an obligation = Transaction price × (Stand-alone selling price of that obligation ÷ Σ stand-alone selling prices)
Percentage of completion (input method) = Costs incurred to date ÷ Total estimated costs; Revenue to date = % × Transaction price
Inventory value (Ind AS 2) = lower of Cost and NRV, where NRV = Estimated selling price − estimated costs of completion − estimated selling costs
Deferred tax (Ind AS 12) = Temporary difference × Enacted (or substantively enacted) tax rate; Temporary difference = Carrying amount − Tax base
Expected credit loss (simplified matrix) = Σ (Receivable balance in an ageing bucket × Default rate for that bucket)
Basic EPS (Ind AS 33) = Profit attributable to equity holders ÷ Weighted average number of equity shares outstanding

Example 1 - Ind AS 116 lease (3-year lease, payments in arrear). A company leases a warehouse for 3 years at ₹10,00,000 per year payable at each year end; incremental borrowing rate 10%.

Discount factors at 10%: 0.9091, 0.8264, 0.7513 → sum 2.4868.
Lease liability = 10,00,000 × 2.4868 = ₹24,86,800; ROU asset = ₹24,86,800 (no other costs).
Year 1: depreciation = 24,86,800 ÷ 3 = ₹8,28,933; interest = 10% × 24,86,800 = ₹2,48,680; total expense ₹10,77,613 against rent of ₹10,00,000 under the old operating-lease method - early-year charge is higher.
Closing liability year 1 = 24,86,800 + 2,48,680 − 10,00,000 = ₹17,35,480.
Year 2 interest = ₹1,73,548; closing liability = 17,35,480 + 1,73,548 − 10,00,000 = ₹9,09,028. Year 3 interest = ₹90,903 (rounding) → liability ≈ 9,09,028 + 90,903 − 10,00,000 ≈ ₹0.

Example 2 - Ind AS 115 allocation of transaction price. A software firm sells a licence plus 2 years of support for a bundled ₹9,00,000. Stand-alone selling prices: licence ₹7,50,000, support ₹2,50,000 (total ₹10,00,000).

Licence = 9,00,000 × 7,50,000/10,00,000 = ₹6,75,000, recognised when the licence is transferred.
Support = 9,00,000 × 2,50,000/10,00,000 = ₹2,25,000, recognised over 24 months = ₹9,375 per month.
If the contract starts 1 October, revenue for the year ended 31 March = 6,75,000 + (9,375 × 6) = ₹7,31,250; contract liability at year end = 2,25,000 − 56,250 = ₹1,68,750.

Example 3 - Ind AS 36 impairment of a CGU. A unit has goodwill ₹20 lakh, building ₹50 lakh, plant ₹30 lakh (carrying amount ₹100 lakh). Recoverable amount is ₹76 lakh.

Impairment loss = 100 − 76 = ₹24 lakh.
Allocate ₹20 lakh to goodwill first (goodwill becomes nil); balance ₹4 lakh pro rata to other assets on carrying amounts 50:30 → building ₹2.5 lakh, plant ₹1.5 lakh.
Revised carrying amounts: building ₹47.5 lakh, plant ₹28.5 lakh, total ₹76 lakh. A later recovery may reverse the ₹4 lakh (subject to the original carrying amount less depreciation) but never the ₹20 lakh goodwill.

Example 4 - Ind AS 12 deferred tax on depreciation difference. Plant cost ₹10,00,000; books charge 10% straight line, tax law allows 15% written-down value. Tax rate 25%.

Year 1: carrying amount = 9,00,000; tax base = 8,50,000 → taxable temporary difference ₹50,000 → deferred tax liability ₹12,500 (expense in profit or loss).
Year 2: carrying amount = 8,00,000; tax base = 8,50,000 × 0.85 = 7,22,500 → difference ₹77,500 → DTL required ₹19,375 → charge for the year ₹6,875.

Example 5 - Ind AS 2 inventory and Ind AS 109 ECL.

Inventory: 1,000 units, cost ₹500 each; selling price ₹540 but ₹60 per unit of selling cost → NRV = ₹480 → value at lower of cost and NRV = 1,000 × 480 = ₹4,80,000, so a write-down of ₹20,000.
Receivables provision matrix: ₹20,00,000 not due at 0.5%, ₹8,00,000 overdue 1-90 days at 3%, ₹2,00,000 overdue above 90 days at 20% → 10,000 + 24,000 + 40,000 = ₹74,000 loss allowance.

Issue	Older AS treatment	Ind AS treatment
Revenue	AS 9 - risks and rewards transfer	Ind AS 115 - five-step transfer of control
Operating lease	AS 19 - rent expense, off balance sheet	Ind AS 116 - ROU asset and lease liability
Proposed dividend	Provided as a liability	Ind AS 10 - non-adjusting, disclosed only
Investment valuation	Cost less permanent diminution	Ind AS 109 - fair value (FVTPL/FVOCI)
Loan loss provisioning	Incurred loss	Ind AS 109 - expected credit loss, 3 stages
Deferred tax	AS 22 - income statement approach	Ind AS 12 - balance sheet (temporary difference)
Actuarial gains/losses	Profit and loss	Ind AS 19 - other comprehensive income
Redeemable preference shares	Shown under share capital	Ind AS 32 - financial liability

Where it is used

Statutory audit and assurance: Big Four and Indian firms (Deloitte, PwC, EY, KPMG, Grant Thornton, BSR, SRBC, Walker Chandiok) test Ind AS 115/116/109 application in every listed-company audit.
Listed-company reporting teams: quarterly results under SEBI (LODR) Regulations, 2015 and annual accounts in Division II of Schedule III format, with consolidation under Ind AS 110.
Banks and NBFCs: Ind AS 109 ECL models drive provisioning and capital planning in NBFCs (Bajaj Finance, Shriram, Muthoot); RBI has deferred Ind AS for scheduled commercial banks, so check the current RBI position.
Shared service and GCC finance roles: Ind AS/IFRS reporting, lease accounting tools and revenue-recognition reviews at Infosys BPM, Genpact, WNS, TCS and captive centres of multinationals.
Infrastructure, real estate and telecom: Ind AS 115 for long-duration contracts, Ind AS 116 for tower, store and office leases, Ind AS 23 for borrowing-cost capitalisation.
Valuation, equity research and credit rating: restating EBITDA, debt and ratios for ROU assets and lease liabilities when comparing companies across reporting frameworks.

Interview questions

Q: What is the difference between Ind AS and IFRS? A: Ind AS are converged with IFRS but carry a few Indian carve-outs (for example the Ind AS 21 option on long-term foreign-currency monetary items and Ind AS 40's cost-only model), and they are notified by MCA under the Companies Act, 2013.
Q: Which companies must apply Ind AS? A: Listed companies and unlisted companies crossing the net-worth thresholds (₹500 crore, then ₹250 crore) under the 2015 Rules, their holding, subsidiary, associate and JV companies, and specified NBFCs; banks and insurers are governed by RBI/IRDAI timelines.
Q: State the five steps of Ind AS 115. A: Identify the contract, identify performance obligations, determine the transaction price, allocate it to the obligations on stand-alone selling prices, and recognise revenue as each obligation is satisfied.
Q: How does Ind AS 116 change the financial statements of a retailer with many store leases? A: Assets and debt rise through ROU assets and lease liabilities, rent is replaced by depreciation and interest so EBITDA improves, early-year profit falls and gearing and interest cover ratios worsen.
Q: What are the three classification categories for financial assets under Ind AS 109? A: Amortised cost, fair value through OCI and fair value through profit or loss, decided by the business model and whether cash flows are solely payments of principal and interest.
Q: What is the expected credit loss model? A: A forward-looking allowance recognised from initial recognition - 12-month ECL normally, lifetime ECL once credit risk has increased significantly or the asset is credit-impaired.
Q: How is recoverable amount computed under Ind AS 36? A: It is the higher of fair value less costs of disposal and value in use, where value in use is the present value of the asset's or CGU's future cash flows.
Q: Can an impairment loss on goodwill be reversed? A: No - Ind AS 36 prohibits reversal of goodwill impairment, though impairment on other assets may be reversed up to what the carrying amount would have been without impairment.
Q: Why are redeemable preference shares a liability under Ind AS? A: Ind AS 32 looks at substance - a mandatory obligation to redeem and pay a fixed return is a contractual obligation to deliver cash, so the instrument is debt and the dividend is finance cost.
Q: How is a proposed dividend treated? A: Under Ind AS 10 a dividend declared after the reporting date is a non-adjusting event, disclosed in the notes and recognised only when approved by shareholders.
Q: Where do actuarial gains and losses on gratuity go? A: To other comprehensive income under Ind AS 19, and they are never reclassified to profit or loss.
Q: Give an example of an adjusting and a non-adjusting event. A: Adjusting - a court decision after year end confirming a liability that existed at the balance sheet date; non-adjusting - a fire destroying a plant after year end, which is disclosed only.

Common mistakes

Quoting old standards - AS 9 or AS 19 treatment - when the question is set under Ind AS 115 or Ind AS 116.
Recognising revenue on "risks and rewards" instead of transfer of control, and recognising the whole bundled price upfront without allocating to performance obligations.
Discounting lease payments at the company's lending or deposit rate instead of the implicit rate or the incremental borrowing rate, and forgetting that first-year expense exceeds the old rent charge.
Confusing a provision with a contingent liability, or providing for a merely possible obligation while ignoring an onerous contract.
Comparing carrying amount with only value in use, or allocating CGU impairment pro rata before writing off goodwill.
Capitalising research cost, or recognising internally generated brands and goodwill under Ind AS 38.
Computing deferred tax on the income-statement timing-difference approach of AS 22 instead of the balance-sheet temporary-difference approach, and discounting deferred tax (not permitted).