IND AS 19- Indian Accounting standard 19, Study notes of Computer science

Download IND AS 19- Indian Accounting standard 19 and more Study notes Computer science in PDF only on Docsity! CMA -FINAL Ind AS-38 CA/CMA Santosh kumsr IND AS 38 ( Intangible assets) Objective This Standard requires an entity to recognise an intangible asset if, and only if, specified criteria are met. This standard specifies the requirement of recognition, measurement and disclosures of Intangible Assets. Meaning:- An intangible asset is an identifiable non-monetary asset without physical substance. Note 1. Meaning of Identifiable-- separable and transferable individually or arises from a contract. Note 2. An asset is a resource: (a) controlled by an entity as a result of past events; and (b) from which future economic benefits are expected to flow to the entity. Note 3: Controlled by an entity means power to obtain those benefits and ability to restrict others to access those benefits. Example of Intangible asset: trade mark, patents, copyrights, customer lists, franchises, computer software, technical know-how, licences, goodwill, masthead etc. Following are not considered as intangible assets: (i) Market share – because it is not identifiable. (ii) Marketing and advertisement campaign (i.e. promotional activity)- future economic benefit are not certain. (iii) Staff training programme – since entity has no control over the staff as they can resign anytime. But if there is some restriction for period of working then it may be treated as intangible asset. Scope:- It excludes: (i) Financial assets. (ii) The recognition and measurement of exploration f o r and evaluation o f M i n e r a l resources (Ind AS 106), (iii) Expenditure on the development and extraction of minerals, oil, natural gas and similar non-regenerative resources; and (iv) intangible assets that are within scope of another standard — for example. (a) Ind AS 2 : Inventory (b) Ind AS 12 : Income Taxes (c) Ind AS 116 : Leases (d) Ind AS 19 : Employee Benefits (e) Financial assets (Ind AS 32, Ind AS 107, Ind AS 109) (f) Ind As 103 : Business combination (g) Ind AS 104 : Insurance contracts (h) Ind AS 105 : Non-current Assets held for sale and discontinued operations. (i) Ind As 115 : Revenue from contracts with customers. Intangible assets contained in or on a physical substance: Some intangible assets may be contained in or on a physical substance such as a compact disc (in the case of computer software), legal documentation (in the case of a licence or patent) or film. In determining whether an asset that incorporates both tangible and intangible elements should be treated under Ind AS 16, Property, Plant and Equipment, or as an intangible asset under this Standard, an entity uses judgement to assess which element is more significant. CMA -FINAL Ind AS-38 CA/CMA Santosh kumsr For example, computer software for a computer-controlled machine tool that cannot operate without that specific software is an integral part of the related hardware and it is treated as property, plant and equipment. The same applies to the operating system of a computer. When the software is not an integral part of the related hardware, computer software is treated as an intangible asset. Recognition criteria: An intangible asset is initially recognized at cost if all of the following criteria are met: (a) The asset is identifiable and controlled by the entity, (b) Future economic benefits will flow to the entity, (c) Cost can be measured reliably. Cost includes any directly attributable cost necessary to bring intangible asset to the condition intended by the management. Computation of cost of Intangible asset purchased or internally generated (called constructed in case of PPE): Purchase price xxxx Less: trade discount/rebate Add: any import duty, purchase taxes (e.g. excise tax,GST only if non-refundable) Add: legal charges Add: professional/ consultant/advisor fees. Add: customization cost/charges ( generally in case of software) Add: testing/trial run cost Add: employment costs (e.g. salary /charges paid for software coding etc) Add: any other development phase expense.( in case of internally generated intangible asset) Add: any other directly attributable cost Following costs are not included in the cost of intangible assets: (i) Staff training cost, (ii) cost of introducing or launching intangible assets, (iii) advertisement/promotional cost, (iv) preliminary expenses, (v) administrative, general, selling and distribution expenses, (vi) allocated overheads, (vii) operating losses, (viii) purchase of maintenance contract for intangible assets, (ix) subsequent cost of intangible assets (e.g. annual fees, royalty as % of sales/production etc), (x) cash discount, (xi) interest on loan to purchase or internally generated asset (unless allowed by Ind AS 23) (xii) Research phase expenses ( in case of internally generated intangible asset). CMA -FINAL Ind AS-38 CA/CMA Santosh kumsr Solution: The intangible assets may be internally generated (or not fulfill up the conditions of being recognized as intangible asset) and hence they were not recognized as intangible asset by the subsidiary company. But under Ind AS 103 such intangible assets are identifiable and arising based on contractual right and recognized at fair value in the consolidated balance sheet of parent. Question 2. Venus India Private Ltd acquired a software for its internal use costing ₹10,00,000. The amount payable for the software was ₹600,000 immediately and ₹400,000 in one year time. The other expenditure incurred were:- Purchase tax : ₹1,00,000 Entry Tax : 10% ( recoverable later from tax department) Legal fees: ₹87,000 Consultancy fees for implementation : ₹1,20,000 Cost of capital of the company is 10%. Calculate the cost of the software on initial recognition using the principles of Ind AS 38 Intangible Assets. Solution: Particulars Amount in ₹ Cash paid 600,000 Deferred consideration (₹400,000/1.1) 3,63,636 Purchase Tax 1,00,000 Entry tax (not to be considered as it is a refundable tax) - Legal fees 87,000 Consultancy fees for implementation 1,20,000 Total cost to be capitalised 12,70,636 Question 3. On 31st March, 2024, Earth India Ltd. paid ₹50,00,000 for a 100% interest in Sun India Ltd. At that date Sun Ltd.’s net assets had a fair value of ₹30,00,000. In addition, Sun Ltd. also held the following rights: • Trade Mark named “GRAND” – valued at ₹180,000 using a discounted cash flow technique. • Sole distribution rights to an electronic product; future cash flows from which are estimated to be ₹150,000 per annum for the next 6 years. 10% is considered an appropriate discount rate. The 6 year, 10% annuity factor is 4.36. Calculate goodwill and other Intangible assets arising on acquisition. Solution: Particulars Amount Amount Purchase Consideration 50,00,000 Net Asset acquired 30,00,000 Trade Mark 1,80,000 Distribution Rights (1,50,000 x 4.36) 6,54,000 Total (38,34,000) Goodwill on Acquisition 11,66,000 CMA -FINAL Ind AS-38 CA/CMA Santosh kumsr Question 4. Expenditure on a new production process in 2023-2024: ` 1st April to 31st December 2,700 1st January to 31st March 900 3,600 The production process met the intangible asset recognition criteria for development on 1st January, 2024. The amount estimated to be recoverable from the process is ₹1,000 on 31st March 2024. Expenditure incurred for development of the process in FY 2024-2025 is ₹6,000. Asset was brought into use on 31st March, 2025 and is expected to be useful for 6 years. What is the carrying amount of the intangible asset at 31st March, 2024 and 31st March, 2025. Also determine the charge to profit or loss for 2023-2024? At 31st March, 2026, the amount estimated to be recoverable from the process is ₹5,000. What is the carrying amount of the intangible asset at 31st March, 2026 and the charge to profit or loss for 2025-2026 on account of impairment loss? Solution: 1) Expenditure to be transferred to profit or loss in 2023-2024 Total Expenditure 3,600 Less: Expenditure during development phase (900) Expenditure to be transferred to profit or loss 2,700 2) Carrying amount of intangible asset on 31st March, 2024 Expenditure during Development Phase will be capitalized 900 (Recoverable amount is higher being ₹1,000, hence no impairment) 3) Carrying amount of intangible asset on 31st March, 2025 Carrying amount of intangible asset on 31st March, 2024 900 Add: Further expenditure during development phase 6,000 Total capital expenditure on development phase 6,900 4) Expenditure to be charged to profit or loss in 2025-2026 Opening balance of Intangible Asset 6,900 Less: Amortisation for the year (6,900 / 6) (1,150) Carrying amount of intangible asset 5,750 Less: Recoverable Amount (5,000) Amount charged to profit or loss (Impairment Loss) 750 5) Carrying Amount of Intangible Asset on 31st March, 2026 Value of Intangible Asset will be recoverable amount i.e. ₹5,000 CMA -FINAL Ind AS-38 CA/CMA Santosh kumsr Question 5. 1. Saturn Ltd. acquired an intangible asset on 31st March, 2022 for ₹1,00,000. The asset was revalued at ₹1,20,000 on 31st March, 2023 and ₹85,000 on 31st March, 2024. 2. Jupiter Ltd. acquired an intangible asset on 31st March, 2022 for ₹1,00,000. The asset was revalued at ₹ 85,000 on 31st March, 2023 and at ₹1,05,000 on 31st March, 2024. Assuming that the year-end for both companies is 31st March, and that they both use the revaluation model, show how each of these transactions should be dealt with in the financial statements. Explain the treatment for revaluation of intangible asset. Ignore computation of amortization on them. Solution: Saturn Ltd. On 31st March, 2023, ₹20,000 revaluation increase should be credited to the revaluation reserve and recognised in other comprehensive income(OCI). On 31st March, 2024, ₹20,000 of the revaluation decrease should be debited to revaluation reserve and remaining ₹15,000 should be recognised as an expense. Jupiter Ltd. On 31st March, 2023, ₹15,000 revaluation decrease should be recognised as an expense in the Statement of Profit and loss. On 31st March, 2024, ₹15,000 out of the ₹20,000 increase should be recognised as income. The remaining ₹5,000 should be credited to revaluation reserve and recognised in other comprehensive income(OCI). Question 6. X Limited engaged in the business of manufacturing fertilisers entered into a technical collaboration agreement with a foreign company Y Limited. As a result, Y Limited would provide the technical know-how enabling X Limited to manufacture fertiliser in a more efficient way. X Limited paid ₹10,00,00,000 for the use of know-how for a period of 5 years. X Limited estimates the production of fertiliser as follows: Year (In metric tons) 1 50,000 2 70,000 3 1,00,000 4 1,20,000 5 1,10,000 At the end of the 1st year, it achieved its targeted production. At the end of 2nd year, 65,000 metric tons of fertiliser was being manufactured, and X Limited considered to revise the estimates for the next 3 years. The revised figures are 85,000, 1,05,000 and 1,15,000 metric tons for year 3, 4 & 5 respectively. How will X Limited amortise the technical know-how fees as per Ind AS 38? Solution: Based on the above data, it may be suitable for X Ltd. to use unit of production method for amortisation of technical know-how. The total estimated unit to be produced 4,50,00 MT. The technical know-how will be amortised on the basis of the ratio of yearly production to total production. The first year charge should be a proportion of 50,000/4,50,000 on ₹10,00,00,000 = ₹1,11,11,111. At the end of 2nd year, as per revised estimate the total number of units to be produced in future are 3,70,000 MT (ie 65,000 + 85,000 + 1,05,000 + 1,15,000). The amortisation for second year will be 65,000 / 3,70,000 on (10,00,00,000 – 1,11,11,111) ie ₹1,56,15,615. Amortisation for remaining years (unless the estimates are again revised) :