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Thread: 24 - Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29) -Provisions, Contingent Liabilities and Contingent Assets

  1. #21
    IND-AS
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    Thumbs up Use of provisions of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29)

    Use of provisions of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29)

    Provisions, Contingent Liabilities and Contingent Assets


    Use of provisions

    61. A provision shall be used only for expenditures for which the provision was originally recognised.

    62. Only expenditures that relate to the original provision are set against it. Setting expenditures against a provision that was originally recognised for another purpose would conceal the impact of two different events.


  2. #22
    IND-AS
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    Thumbs up Application of the recognition and measurement rules of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29)

    Application of the recognition and measurement rules of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29)

    Provisions, Contingent Liabilities and Contingent Assets



    Application of the recognition and measurement rules

    Future operating losses

    63. Provisions shall not be recognised for future operating losses.

    64. Future operating losses do not meet the definition of a liability in paragraph 10 and the general recognition criteria set out for provisions in paragraph 14.

    65. An expectation of future operating losses is an indication that certain assets of the operation may be impaired. An entity tests these assets for impairment under Ind AS 36 Impairment of Assets.



  3. #23
    IND-AS
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    Thumbs up Onerous contracts of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29)

    Onerous contracts of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29)

    Provisions, Contingent Liabilities and Contingent Assets


    Onerous contracts

    66. If an entity has a contract that is onerous, the present obligation under the contract shall be recognised and measured as a provision.

    67. Many contracts (for example, some routine purchase orders) can be cancelled without paying compensation to the other party, and therefore there is no obligation. Other contracts establish both rights and obligations for each of the contracting parties. Where events make such a contract onerous, the contract falls within the scope of this Standard and a liability exists which is recognised. Executory contracts that are not onerous fall outside the scope of this Standard.

    68. This Standard defines an onerous contract as a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. The unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is t he lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it.

    69. Before a separate provision for an onerous contract is established, an entity recognises any impairment loss that has occurred on assets dedicated to that contract (see Ind AS 36).


  4. #24
    IND-AS
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    Thumbs up Restructuring of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29) - Provisions,Contingent Liabilities and Contingent Assets

    Restructuring of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29)

    Provisions, Contingent Liabilities and Contingent Assets


    Restructuring

    70. The following are examples of events that may fall under the definition of restructuring:

    (a) sale or termination of a line of business;
    (b) the closure of business locations in a country or region or the relocation of business activities from one country or region to another;
    (c) changes in management structure, for example, eliminating a layer of management; and
    (d) fundamental reorganisations that have a material effect on the nature and focus of the entity’s operations.

    71. A provision for restructuring costs is recognised only when the general recognition criteria for provisions set out in paragraph 14 are met. Paragraphs 72 – 83 set out how the general recognition criteria apply to restructurings.

    72. A constructive obligation to restructure arises only when an entity:

    (a) has a detailed formal plan for the restructuring identifying at least:

    (i) the business or part of a business concerned;
    (ii) the principal locations affected;
    (iii) the location, function, and approximate number of employees who will be compensated for terminating their services;
    (iv) the expenditures that will be undertaken; and
    (v) when the plan will be implemented; and

    (b) has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it.

    73. Evidence that an entity has started to implement a restructuring plan would be provided, for example, by dismantling plant or selling assets or by the public announcement of the main features of the plan. A public announcement of a detailed plan to restructure constitutes a constructive obligation to restructure only if it is made in such a way and in sufficient detail (ie setting out the main features of the plan) that it gives rise to valid expectations in other parties such as customers, suppliers and employees (or their representatives) that the entity will carry out the restructuring.

    74. For a plan to be sufficient to give rise to a constructive obligation when communicated to those affected by it, its implementation needs to be planned to begin as soon as possible and to be completed in a timeframe that makes significant changes to the plan unlikely. If it is expected that there will be a long delay before the restructuring begins or that the restructuring will take an unreasonably long time, it is unlikely that the plan will raise a valid expectation on the part of others that the entity is at present committed to restructuring, because the timeframe allows opportunities for the entity to change its plans.

    75. A management or board decision to restructure taken before the end of the reporting period does not give rise to a constructive obligation at the end of the reporting period unless the entity has, before the end of the reporting period:

    (a) started to implement the restructuring plan; or
    (b) announced the main features of the restructuring plan to those affected by it in a sufficiently specific manner to raise a valid expectation in them that the entity will carry out the restructuring.

    If an entity starts to implement a restructuring plan, or announces its main features to those affected, only after the reporting period, disclosure is required under, Ind AS 10 Events after the Reporting Period , if the restructuring is material and nondisclosure could influence the economic decisions that users make on the basis of the financial statements.

    76. Although a constructive obligation is not created solely by a management decision, an obligation may result from other earlier events together with such a decision. For example, negotiations with employee representatives for termination payments, or with purchasers for the sale of an operation, may have been concluded subject only to board approval. Once that approval has been obtained and communicated to the other parties, the entity has a constructive obligation to restructure, if the conditions of paragraph 72 are met.

    77. In some countries, the ultimate authority is vested in a board whose membership includes representatives of interests other than those of management (eg employees) or notification to such representatives may be necessary before the board decision is taken. Because a decision by such a board involves communication to these representatives, it may result in a constructive obligation to restructure.

    78. No obligation arises for the sale of an operation until the entity is committed to the sale, ie there is a binding sale agreement.

    79. Even when an entity has taken a decision to sell an operation and announced that decision publicly, it cannot be committed to the sale until a purchaser has been identified and there is a binding sale agreement. Until there is a binding sale agreement, the entity will be able to change its mind and indeed will have to take another course of action if a purchaser cannot be found on acceptable terms. When the sale of an operation is envisaged as part of a restructuring, the assets of the operation are reviewed for impairment, under Ind AS 36. When a sale is only part of a restructuring, a constructive obligation can arise for the other parts of the restructuring before a binding sale agreement exists.

    80. A restructuring provision shall include only the direct expenditures arising from the restructuring, which are those that are both:

    (a) necessarily entailed by the restructuring; and
    (b) not associated with the ongoing activities of the entity.

    81. A restructuring provision does not include such costs as:

    (a) retraining or relocating continuing staff;
    (b) marketing; or
    (c) investment in new systems and distribution networks.

    These expenditures relate to the future conduct of the business and are not liabilities for restructuring at the end of the reporting period. Such expenditures are recognised on the same basis as if they arose independently of a restructuring.

    82. Identifiable future operating losses up to the date of a restructuring are not included in a provision, unless they relate to an onerous contract as defined in paragraph 10.

    83. As required by paragraph 51, gains on th e expected disposal of assets are not taken into account in measuring a restructuring provision, even if the sale of assets is envisaged as part of the restructuring.


  5. #25
    IND-AS
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    Thumbs up Disclosure of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29) - Provisions, Contingent Liabilities and Contingent Assets

    Disclosure of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29)

    Provisions, Contingent Liabilities and Contingent Assets



    Disclosure

    84. For each class of provision, an entity shall disclose:

    (a) the carrying amount at the beginning and end of the period;
    (b) additional provisions made in the period, including increases to existing provisions;
    (c) amounts used (ie incurred and charged against the provision) during the period ;
    (d) unused amounts reversed during the period ; and
    (e) the increase during the period in the discounted amount arising from the passage of time and the effect of any change in the discount rate.

    Comparative information is not required.

    85. An entity shall disclose the following for each class of provision:

    (a) a brief description of the nature of the obligation and the expected timing of any resulting outflows of economic benefits;
    (b) an indication of the uncertainties about the amount or timing of those outflows. Where necessary to provide adequate information, an entity shall disclose the major assumptions made concerning future events, as addressed in paragraph 48;and
    (c) the amount of any expected reimbursement, stating the amount of any asset that has been recognised for that expected reimbursement.

    86. Unless the possibility of any outflow in settlement is remote, an entity shall disclose for each class of contingent liability at the end of the reporting period a brief description of the nature of the contingent liability and, where practicable:

    (a) an estimate of its financial effect, measured under paragraphs 36 –52;
    (b) an indication of the uncertainties relating to the amount or timing of any outflow; and
    (c) the possibility of any reimbursement.

    87. In determining which provisions or contingent liabilities may be aggregated to form a class, it is necessary to consider whether the nature of the items is sufficiently similar for a single statement about them to fulfil the requirements of paragraphs 85(a) and (b) and 86(a) and (b). Thus, it may be appropriate to treat as a single class of provision amounts relating to warranties of different products, but it would not be appropriate to treat as a single class amounts relating to normal warranties and amounts that are subject to legal proceedings.

    88. Where a provision and a contingent liability arise from the same set of circumstances, an entity makes the disclosures required by paragraphs 84 –86 in a way that shows the link between the provision and the contingent liability.

    89. Where an inflow of economic benefits is probable, an entity shall disclose a brief description of the nature of the contingent assets at the end of the reporting period, and, where practicable, an estimate of their financial effect, measured using the principles set out for provisions in paragraphs 36–52.

    90. It is important that disclosures for contingent assets avoid giving misleading indications of the likelihood of income arising.

    91. Where any of the information required by paragraphs 86 and 89 is not disclosed because it is not practicable to do so, that fact shall be stated.

    92. In extremely rare cases, disclosure of some or all of the information required by paragraphs 84–89 can be expected to prejudice seriously the position of the entity in a dispute with other parties on the subject matter of the provision, contingent liability or contingent asset. In such cases, an entity need not disclose the information, but shall disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed.


  6. #26
    IND-AS
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    Thumbs up Appendix - A of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29) - Provisions, Contingent Liabilities and Contingent Assets

    Appendix - A of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29)

    Provisions, Contingent Liabilities and Contingent Assets


    Appendix - A


    This Appendix is an integral part of the Indian Accounting Standard (Ind AS) 37.

    Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds

    Background

    1. The purpose of decommissioning, restoration and environmental rehabilitation funds, hereafter referred to as ‘decommissioning funds’ or ‘funds’, is to segregate assets to fund some or all of the costs of decommissioning plant (such as a nuclear plant) or certain equipment (such as cars), or in undertaking environmental rehabilitation (such as rectifying pollution of water or restoring mined land), together referred to as ‘decommissioning’.

    2. Contributions to these funds may be voluntary or required by regulation or law. The funds may have one of the following structures:

    (a) funds that are established by a single contributor to fund its own decommissioning obligations, whether for a particular site, or for a number of geographically dispersed sites.

    (b) funds that are established with multiple contributors to fund their individual or joint decommissioning obligations, when contributors are entitled to reimbursement for decommissioning expenses to the extent of their contributions plus any actual earnings on those contributions less their share of the costs of administering the fund. Contributors may have an obligation to make additional contributions, for example, in the event of the bankruptcy of another contributor.

    (c) funds that are established with multiple contributors to fund their individual or joint decommissioning obligations when the required level of contributions is based on the current activity of a contributor and the benefit obtained by that contributor is based on its past activity. In such cases there is a potential mismatch in the amount of contributions made by a contributor (based on current activity) and the value realisable from the fund (based on past activity).

    3. Such funds generally have the following features:

    (a) the fund is separately administered by independent trustees.
    (b) entities (contributors) make contributions to the fund, which are invested in a range of assets that may include both debt and equity investments, and are available to help pay the contributors’ decommissioning costs. The trustees determine how contributions are invested, within the constraints set by the fund’s governing documents and any applicable legislation or other regulations.

    (c) the contributors retain the obligation to pay decommissioning costs.
    However, contributors are able to obtain reimbursement of decommissioning costs from the fund up to the lower of the decommissioning costs incurred and the contributor’s share of assets of the fund.

    (d) the contributors may have restricted access or no access to any surplus of assets of the fund over those used to meet eligible decommissioning costs.

    Scope

    4. This Appendix applies to accounting in the financial statements of a contributor
    for interests arising from decommissioning funds that have both of the following
    features:

    (a) the assets are administered separately (either by being held in a separate legal
    entity or as segregated assets within another entity); and
    (b) a contributor’s right to access the assets is restricted.

    5. A residual interest in a fund that extends beyond a right to reimbursement, such as a contractual right to distributions once all the decommissioning has been completed or on winding up the fund, may be an equity instrument within the scope of Ind AS 39 and is not within the scope of this Appendix.

    Issues
    6. The issues addressed in this Appendix are:

    (a) how should a contributor account for its interest in a fund?
    (b) when a contributor has an obligation to make additional contributions, for example, in the event of the bankruptcy of another contributor, how should that obligation be accounted for?

    Principles

    Accounting for an interest in a fund
    7. The contributor shall recognise its obligation to pay decommissioning costs as a liability and recognise its interest in the fund separately unless the contributor is not liable to pay decommissioning costs even if the fund fails to pay.

    8. The contributor shall determine whether it has control, joint control or significant influence over the fund by reference to Ind AS 27 Consolidated and Separate Financial Statements, Ind AS 28 Investments in Associates , and Ind AS 31 Interests in Joint Ventures . If it does, the contributor shall account for its interest in the fund in accordance with those Standards.

    9. If a contributor does not have control, joint control or significant influence over the fund, the contributor shall recognise the right to receive reimbursement from the fund as a reimbursement in accordance with Ind AS 37. This reimbursement shall be measured at the lower of:

    (a) the amount of the decommissioning obligation recognised; and
    (b) the contributor’s share of the fair value of the net assets of the fund attributable to contributors.

    Changes in the carrying value of the right to receive reimbursement other than contributions to and payments from the fund shall be reco gnised in profit or loss in the period in which these changes occur.

    Accounting for obligations to make additional contributions
    10. When a contributor has an obligation to make potential additional contributions, for example, in the event of the bankrupt cy of another contributor or if the value of the investment assets held by the fund decreases to an extent that they are insufficient to fulfil the fund’s reimbursement obligations, this obligation is a contingent liability that is within the scope of Ind AS 37. The contributor shall recognise a liability only if it is probable that additional contributions will be made.

    Disclosure
    11. A contributor shall disclose the nature of its interest in a fund and any restrictions on access to the assets in the fund.

    12. When a contributor has an obligation to make potential additional contributions that is not recognised as a liability (see paragraph 10), it shall make the disclosures required by paragraph 86 of Ind AS 37.
    13. When a contributor accounts for its interest in the fund in accordance with paragraph 9, it shall make the disclosures required by paragraph 85(c) of Ind AS 37 .


  7. #27
    IND-AS
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    Thumbs up Appendix - B of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29) - Provisions, Contingent Liabilities and Contingent Assets

    Appendix - B of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29)

    Provisions, Contingent Liabilities and Contingent Assets


    Appendix - B

    Liabilities arising from Participating in a Specific Market— Waste Electrical and Electronic Equipment1

    This Appendix is an integral part of the Indian Accounting Standard 37.

    Background

    1. Paragraph 17 of Ind AS 37 specifies that an obligating event is a past event that leads to a present obligation that an entity has no realistic alternative to settling.

    2. Paragraph 19 of Ind AS 37 states that provisions are recognised only for ‘obligations arising from past events existing independently of an entity’s future actions’.

    3. The European Union’s Directive on Waste Electrical and Electronic Equipment (WE&EE), which regulates the collection, treatment, recovery and environmentally sound disposal of waste equipment, has given rise to questions about when the liability for the decommissioning of WE&EE should be recognised. The Directive distinguishes between ‘new’ and ‘historical’ waste and between waste from private households and waste from sources other than private households. New waste relates to products sold after 13 August 2005. All household equipment sold before that date is deemed to give rise to historical waste for the purposes of the Directive.

    4. The Directive states that the cost of waste management for historical household equipment should be borne by producers of that type of equipment that are in the market during a period to be specified in the applicable legislation of each Member State (the measurement period). The Directive states that each Member State shall establish a mechanism to have producers contribute to costs
    proportionately ‘e.g. in proportion to their respective share of the market by type of equipment.’

    5. Several terms used in this Appendix such as ‘market share’ and ‘measurement period’ may be defined very differently in the applicable legislation of individual Member States. For example, the length of the measurement period might be a year or only one month. Similarly, the measurement of market share and the formulae for computing the obligation may differ in the various national legislations. However, all of these examples affect only the measurement of the liability, which is not within the scope of this Appendix.

    Scope

    6. This Appendix provides guidance on the recognition, in the financial statements of producers, of liabilities for waste management under the EU Directive on WE&EE in respect of sales of historical household equipment.

    7. This Appendix addresses neither new waste nor historical waste from sources other than private households. The liability for such waste management is adequately covered in Ind AS 37. However, if, in national legislation, new waste from private households is treated in a similar manner to historical waste from private households, the principles of this Appendix apply by reference to the hierarchy in paragraphs 10-12 of Ind AS 8. The Ind AS 8 hierarchy is also relevant for other regulations that impose obligations in a way that is similar to the cost attribution model specified in the EU Directive.

    Issue

    8. This Appendix determines in the context of the decommissioning of WE&EE what constitutes the obligating event in accordance with paragraph 14(a) of Ind AS 37 for the recognition of a provision for waste management costs:


    • the manufacture or sale of the historical household equipment?


    • participation in the market during the measurement period?


    • the incurrence of costs in the performance of waste management activities?


    Principles

    9. Participation in the market during the measurement period is the obligating event in accordance with paragraph 14(a) of Ind AS 37. As a consequence, a liability for waste management costs for historical household equipment do es not arise as the products are manufactured or sold. Because the obligation for historical household equipment is linked to participation in the market during the measurement period, rather than to production or sale of the items to be disposed of, there is no obligation unless and until a market share exists during the measurement period. The timing of the obligating event may also be independent of the particular period in which the activities to perform the waste management are undertaken and the related costs incurred.

    Note-


    1 This Appendix is in the context of European Union. However, if similar regulations exist in other
    countries including India the principles as enunciated in this Appendix shall apply.


  8. #28
    IND-AS
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    Thumbs up Appendix - C of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29) - Provisions, Contingent Liabilities and Contingent Assets

    Appendix - C of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29)

    Provisions, Contingent Liabilities and Contingent Assets


    Appendix - C

    References to matters contained in other Indian Accounting Standards

    This Appendix is an integral part of Indian Accounting Standard (Ind AS) 37).

    This appendix lists the appendices which are part of other Indian Accounting Standards and makes references to Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets.

    (i) Appendix A (Service Concession Arrangements ) and Appendix B (Service Concession Arrangements: Disclosures ) contained in Ind AS 11, Construction Contracts.

    (ii) Appendix A (Changes in Existing Decommissioning, Restoration and Similar Liabilities) contained in Ind AS 16, Property, Plant and Equipment.

    (iii) Appendix B (Evaluating the Substance of Transactions involving the Legal Form of a Lease) contained in Ind AS 17, Leases.

    (iv) Appendix B (Customer Loyalty Programmes ) contained in Ind AS 18, Revenue.


  9. #29
    IND-AS
    Guest

    Thumbs up Appendix - D of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29) - Provisions, Contingent Liabilities and Contingent Assets

    Appendix - D of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29)

    Provisions, Contingent Liabilities and Contingent Assets


    Appendix - D

    Tables – Provisions, contingent liabilities, contingent assets and reimbursements

    This Appendix accompanies, but is not part of, Ind AS 37. Its purpose is to summarise the main requirements of the Standard.


    For Full Detail You can download this from PDF Format


    Attached Files Attached Files

  10. #30
    IND-AS
    Guest

    Thumbs up Appendix - E of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29) - Provisions, Contingent Liabilities and Contingent Assets

    Appendix - E of Indian Accounting Standard (Ind AS) 37 - Earlier Accounting standard - (29)

    Provisions, Contingent Liabilities and Contingent Assets


    Appendix - E


    Decision tree

    This Appendix accompanies, but is not part of, Ind AS 37. Its purpose is to summarise the main recognition requirements of the Standard for provisions and contingent liabilities.

    For Full Detail You can download this from PDF Format

    Attached Files Attached Files

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