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Thread: 23 Accounting Standard 23 Accounting for Investments in Associates in Consolidated Financial Statements - AS 23

  1. #11
    Accounting Standards
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    Default Interpretation of the term Near Future of Accounting Standard (AS) 23 Accounting for Investments - AS 23

    Interpretation of the term Near Future of Accounting Standard (AS) 23 Accounting for Investments - AS 23

    Accounting Standard (AS) 21,Consolidated Financial Statements, AS 23, Accounting for Investments in Associates in Consolidated Financial Statements and AS 27, Financial Reporting of Interests in Joint Ventures


    ISSUE

    1. Paragraph 11 of AS 21, paragraph 7 of AS 23 and paragraph 29 of AS 27 use thewords ‘near future’ in the context of exclusions fromconsolidation, application of the equity method and application of the proportionate consolidation method, respectively.


    2. The issue is what period of time should be considered as ‘near future’ for the above purposes.

    CONSENSUS

    3. The issue as to what period of time should be considered as near future for the purposes of AS 21, AS 23 and AS 27 primarily depends on the facts and circumstances of each case. However, ordinarily, the meaning of the words ‘near future’ should be considered as not more than twelve months fromacquisition of relevant investments unless a longer period can be justified on the basis of facts and circumstances of the case. The intention with regard to disposal of the relevant investment should be considered at the time of acquisition of the investment. Accordingly, if the relevant investment is acquired without an intention to its subsequent disposal in near future, and
    subsequently, it is decided to dispose off the investment, such an investment is not excluded from consolidation, application of the equity method or application of the proportionate consolidation method, as the case may be, until the investment is actually disposed off. Conversely, if the relevant
    investment is acquired with an intention to its subsequent disposal in near future, however, due to some valid reasons, it could not be disposed off within that period, the samewill continue to be excluded fromconsolidation, application of the equity method or application of the proportionate
    consolidation method, as the casemay be, provided there is no change in the intention.


    BASIS FOR CONCLUSIONS

    4. A period ofmore than twelvemonths would not normally signify ‘near future’.Accordingly, it is considered appropriate that the near future should normally be considered as a period not exceeding twelve months.

    5. Paragraph 11 of AS 21, paragraph 7 of AS 23 and paragraph 29 of AS 27, also use the words, ‘acquired and held’. Accordingly, for exclusion from consolidation, application of the equity method or application of the proportionate consolidation, as the casemay be, consideration of the intention at the time of acquisition of the relevant investment is essential.

  2. #12
    Accounting Standards
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    Default Accounting Standards Interpretation (ASI) 16 Treatment of Proposed Dividend underAS 23 , AS 23

    Accounting Standards Interpretation (ASI) 16


    Treatment of Proposed Dividend underAS 23
    Accounting Standard (AS) 23,Accounting for Investments inAssociates in
    Consolidated Financial Statements
    [Pursuant to the issuance of this Accounting Standards Interpretation, General Clarification (GC)
    – 6/2002, issued in June 2002, stands withdrawn.]



    ISSUE

    1. In case an associate has made a provision for proposed dividend in its financial statements, whether the investor should consider the same while computing its share of the results of operations of the associate.

    CONSENSUS

    2. In case an associate has made a provision for proposed dividend in its financial statements, the investor
    ’s share of the results of operations of the associate should be computedwithout taking into consideration the proposed dividend

  3. #13
    Accounting Standards
    Guest

    Default Treatment of Proposed Dividend under AS 23

    Accounting Standards Interpretation (ASI) 16[1]

    Treatment of Proposed Dividend underAS 23 Accounting Standard (AS) 23,Accounting for
    Investments inAssociates inConsolidated Financial Statements


    [Pursuant to the issuance of this Accounting Standards Interpretation, General Clarification (GC) – 6/2002, issued in June 2002, stands withdrawn.]


    ISSUE

    1. In case an associate has made a provision for proposed dividend in its financial statements, whether the investor should consider the same while computing its share of the results of operations of the associate.

    CONSENSUS

    2. In case an associate has made a provision for proposed dividend in its financial statements, the investor’s share of the results of operations of the associate should be computedwithout taking into consideration the proposed dividend.


    BASIS FOR CONCLUSIONS

    3. Pursuant to the requirements of Schedule VI to the Companies Act, 1956, the provision for dividend is shown under the head ‘CurrentLiabilities and Provisions’, and in the statement of profit and loss, it is included after determination of the net profit or loss for the period (below the line).
    Although provision for dividend is disclosed by companies which are governed by the Companies Act, 1956, under the head ‘Current Liabilities and Provisions’, from accounting point of view, it is strictly not a liability. In this context, the Compendium of Accounting Standards definition of the term ‘liability’ can be noted from the ‘Framework for the Preparation and Presentation of Financial Statements’, which is as follows: “A liability is a present obligation of the enterprise arising from past
    events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.” Proposed dividend, pending the approval of the shareholders in General Meeting, does not fulfill the above definition since it is not a present obligation at the balance sheet date.

    4. AS 23 defines ‘the equity method’ as under:

    “The equity method is a method of accounting whereby the investment is initially recorded at cost, identifying any goodwill/ capital reserve arising at the time of acquisition. The carrying amount of the investment is adjusted thereafter for the post acquisition change in the investor ’s share of net assets of the investee. The consolidated statement of profit and loss reflects the investor’s share of the results of operations of the investee.”

    Paragraph 6 of AS 23 states that:

    “….Distributions received froman investee reduce the carrying amount of the investment…..”
    In view of paragraph 3 above, it is appropriate thatwhile applying the equity method, proposed dividend provided by the associate in its separate financial statements is not considered by the investor.







    1 Published in‘The Chartered Accountant’, March 2004, pp. 958. The authority of this ASI is the same as that of the Accounting Standard to which it relates. The contents of this ASI are intended for the limited purpose of the Accounting Standard to which it relates. ASI is intended to apply only to material items.

  4. #14
    Accounting Standards
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    Default Accounting Standard (AS) 23 Accounting for Investments in Associates in Consolidated Financial Statements - AS 23

    Accounting Standards Interpretation (ASI) 17 Adjustments to the Carrying Amount of Investment arising from Changes in Equity


    Accounting Standards Interpretation (ASI) 17


    Adjustments to the Carrying Amount of Investment arising from Changes in Equity not Included in the Statement of Profit and Loss of the Associate Accounting Standard (AS) 23,Accounting for Investments inAssociates in Consolidated Financial Statements

    [Pursuant to the issuance of this Accounting Standards Interpretation, General Clarification (GC)
    – 7/2002, issued in June 2002, stands withdrawn.]


    ISSUE

    1. The issue is as to how the adjustments to the carrying amount of investment in an associate arising fromchanges in the associate ’s equity that have not been included in the statement of profit and loss of the associate, should be made.


    CONSENSUS

    2. Adjustments to the carrying amount of investment in an associate arising from changes in the associate ’s equity that have not been included in the statement of profit and loss of the associate should be directly made in the carrying amount of investment without routing it through the consolidated statement of profit and loss. The corresponding debit/credit should bemade in the relevant head of the equity interest in the consolidated balance sheet. For example, in case the adjustment arises because of revaluation of fixed assets by the associate, apart from adjusting the carrying amount of investment

  5. #15
    Accounting Standards
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    Default Disclosure of deferred tax assets and deferred tax liabilities in the balance sheet Accounting Standard (AS) 23 Accounting for Investments - AS 23

    Accounting Standards Interpretation (ASI) 71

    Disclosure of deferred tax assets and deferred tax liabilities in the balance sheet of a company Accounting Standard (AS) 22,Accounting for Taxes on Income ISSUE



    1. The issue is how should deferred tax assets and deferred tax liabilities be disclosed in the balance sheet of a company.

    CONSENSUS

    2. In case of a company, deferred tax assets should be disclosed on the face of the balance sheet separately after the head ‘Investments’ and deferred tax liabilities should be disclosed on the face of the balance sheet separately after the head ‘Unsecured Loans’.

    BASIS FOR CONCLUSIONS

    3. Paragraph 30 of Accounting Standard (AS) 22, Accounting for Taxes on Income, provides as follows:

    “30. Deferred tax assets and liabilities should be distinguished from assets and liabilities representing current tax for the period. Deferred tax assets and liabilities should be disclosed under a separate heading in the balance sheet of the enterprise, separately from current assets and current liabilities.”
    From the above, it may be noted that the deferred tax assets and deferred tax liabilities should be disclosed separately from current assets and current liabilities.


    4. Part I of Schedule VI to the Companies Act, 1956, does not contain a specific head for disclosure of deferred tax assets/liabilities. Section 211(1) of the CompaniesAct, 1956, provides that every balance sheet of a company shall be prepared in the form set out in Part I of Schedule VI, or as near
    thereto as circumstances admit. It is, therefore, clear that format of balance sheet as set out in Part I of Schedule VI to the Companies Act, 1956, has inbuilt flexibility to accommodate necessary modifications. A deferred tax asset is normally more liquid (realisable) as compared to fixed assets and investments and less liquid as compared to current assets. Therefore, in case of a company, it is appropriate to present the amount of the deferred tax assets after the head ‘Investments’. Similarly, keeping in viewthe nature of a ‘deferred tax liability’, it is appropriate that the same is presented in the balance sheet of a company after the head ‘Unsecured Loans’.

  6. #16
    Accounting Standards
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    Default Accounting Standards Interpretation (ASI) 18 of Accounting Standard (AS) 23 Accounting for Investments - AS 23

    Accounting Standards Interpretation (ASI) 18 of Accounting Standard (AS) 23 Accounting for Investments - AS 23


    Consideration of Potential Equity Shares for Determining whether an Investee is an Associate under AS 23 Accounting Standard (AS) 23,Accounting for Investments inAssociates in
    Consolidated Financial Statements

    [Pursuant to the issuance of this Accounting Standards Interpretation, General Clarification (GC)
    – 8/2002, issued in June 2002, stands withdrawn.]



    ISSUE

    1. For applying the definition of an ‘associate’,whether the potential equity shares of the investee held by the investor should be taken into account for determining the voting power of the investor.



    CONSENSUS

    2. The potential equity shares of the investee held by the investor should not be taken into account for determining the voting power of the investor.

  7. #17
    Accounting Standards
    Guest

    Default Consideration of Potential Equity Shares for Determining whether an Investee is an Associate under AS 23

    Accounting Standards Interpretation (ASI) 18[1]


    Consideration of Potential Equity Shares for Determining whether an Investee is an Associate under AS 23 Accounting Standard (AS) 23,Accounting for Investments inAssociates inConsolidated Financial
    Statements


    [Pursuant to the issuance of this Accounting Standards Interpretation, General Clarification (GC) – 8/2002, issued in June 2002, stands withdrawn.]


    ISSUE


    1. For applying the definition of an ‘associate’,whether the potential equity shares of the investee held by the investor should be taken into account for determining the voting power of the investor.

    CONSENSUS

    2. The potential equity shares of the investee held by the investor should not be taken into account for determining the voting power of the investor.

    BASIS FOR CONCLUSIONS

    3. AS 23 defines ‘associate’ as “an enterprise in which the investor has significant influence and which is neither a subsidiary nor a joint venture of the investor”. ‘Significant influence’ is defined in AS 23 as “the power to participate in the financial and/or operating policy decisions of the investee but not control over those policies”. AS 23 further explains in paragraph 4 that as regards share ownership, if an investor holds, directly or indirectly through subsidiary(ies), 20%ormore of the voting power of the investee, it is presumed that the investor has significant influence, unless it
    can be clearly demonstrated that this is not the case. Conversely, if the investor holds, directly or indirectlythrough subsidiary(ies), less than 20%of the voting power of the investee, it is presumed that the investor does not have significant influence, unless such influence can be clearly
    demonstrated.

    4. For the above purpose, it is appropriate that the voting power is determined on the basis of the current outstanding securities with voting rights since potential equity shares do not have the voting power from the point of viewof participating in the financial and/or operating policy decisions
    of the investee.

  8. #18
    Accounting Standards
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    Default Elimination of unrealised profits and losses under AS 21, AS 23 and AS 27

    Elimination of unrealised profits and losses under AS 21, AS 23 and AS 27


    Accounting Standard (AS) 21, Consolidated Financial Statements, came into effect in respect of accounting periods commencing on or after 1-4-2001 and is mandatory from that date if an enterprise presents consolidated financial statements. Paragraph 16 of AS 21 requires that intragroup balances and intragroup transactions and resulting unrealised profits should be eliminated in full. It further provides that unrealised losses resulting from intragroup transactions should also be eliminated unless cost cannot be recovered.

    There may be transactions between a parent and its subsidiary(ies) entered into during accounting periods commencing on or before 31-3-2001. While preparing consolidated financial statements, in respect of some of the transactions entered into during accounting periods commencing on or before 31-3-2001, it may not be practicable to eliminate resulting unrealised profits and losses. It has, therefore, been decided that elimination of unrealised profits and losses in respect of transactions entered into during accounting periods commencing on or before 31-3-2001, is encouraged, but not required on practical grounds.

    The above position also applies in respect of AS 23, Accounting for Investments in Associates in Consolidated Financial Statements and AS 27, Financial Reporting of Interests in Joint Ventures while applying the 'equity method' and 'proportionate consolidation method' respectively

  9. #19
    Accounting Standards
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    Default Exposure Draft Accounting Standard (AS) 23 (Revised 20XX) Investments in Associates

    Exposure Draft
    Accounting Standard (AS) 23 (Revised 20XX)
    (Corresponding to IAS 28)
    Investments in Associates


    Following is the Exposure Draft of the Accounting Standard (AS) 23 (Revised 20XX), Investments in Associates, issued by the Accounting Standards Board of the Institute of Chartered Accountants of India, for comments.


    This Exposure Draft of the revised Accounting Standard includes paragraphs set in

    bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles. This Exposure Draft of the revised Accounting Standard should be read in the context of its objective and the Preface to the Statements of Accounting Standards.

  10. #20
    Accounting Standards
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    Default Scope of Accounting Standard (AS) 23 Accounting for Investments

    Scope of Accounting Standard (AS) 23 Accounting for Investments


    1 This Standard shall be applied in accounting for investments in associates. However, it does not apply to investments in associates held by:

    a. venture capital organisations, or

    b. mutual funds, unit trusts and similar entities including investment-linked that upon initial recognition are designated as at fair value through profit or loss or are classified as held for trading and accounted for in accordance with AS 30 (Revised 20XX) Financial Instruments: Recognition and Measurement. Such investments shall be measured at fair value in accordance with AS 30 (Revised 20XX), with changes in fair value recognised in profit or loss in the period of the change. An entity holding such an investment shall make the disclosures required by paragraph 37(f).

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