IND AS 102: ‘Share-based payments’ in its actual text is considerably lengthy and very detailed. The objective of my answer is to provide a basic understanding of what IND AS 102 is all about. Further reading of the actual text is suggested for a more detailed understanding. IND AS 102 is the IndiaRead more
IND AS 102: ‘Share-based payments’ in its actual text is considerably lengthy and very detailed.
The objective of my answer is to provide a basic understanding of what IND AS 102 is all about. Further reading of the actual text is suggested for a more detailed understanding.
IND AS 102 is the India specific version of IFRS 2 which deals with the accounting of Share-based payments. IND AS 102 and IFRS are almost similar.
It deals with the financial reporting of the share-based payment transactions entered into by an enterprise in the following cases:
Transactions with suppliers of goods or services that are settled by share-based payments.
Transactions with employees of the enterprise in nature of Employee Stock Option Plan.
Share-based payments are of three types:
Equity settled share-based payment: It is a transaction in which an entity receives goods or services from the supplier of those goods and services (including an employee) and settles it by issuing equity instruments of the entity or its parent entity.
Example: A business acquires an asset for Rs. 1,00,000 and makes payment by the issue of its equity shares.
Cash settled share-based payment: It is a transaction in which an entity incurs a liability and settles the transaction by paying cash or other assets based on the price of the equity instruments of the entity or group’s entity.
Example: A business acquires an asset for Rs. 1,00,000 and makes payment in amounts of case based upon its share price.
Share-based payment transaction with cash alternatives:- In this case, either the entity or the counterparty has the option of settling the transaction either through with issue of equity or payment of cash by incurring liability.
Things that are not under the scope of IND AS-102
Transactions with parties who are acting in the capacity of shareholders.
Where a business acquires net assets of a business in case of amalgamation, joint venture etc and issues shares as consideration.
Recognition
In a share-based transaction,
goods and services are to be recognised when the goods or services are received by the entity.
Also, the corresponding increase in equity in equity-settled transactions or liability in the cash-settled transactions is to be recognised.
Measurement
The amount at a share-based transaction is to be recorded depending upon the type of counterparty:
Non-employee counter-party: The transaction will be measured based on the fair value of the goods or services received on the date when the goods or services are received.
Employee counter-party: The transaction is to be recorded at the fair value of the equity instruments as on the grant date because the services rendered by the employee cannot be recorded reliably.
I hope this is enough for a basic understanding of the IND AS 102.
Fictitious assets are the expenses and losses which are yet to be written off, so they appear in the Asset side of the balance sheet of the relevant financial year because expenses and losses have a debit balance. They are not assets in substance. Examples: Business loss ( debit balance of Profit anRead more
Fictitious assets are the expenses and losses which are yet to be written off, so they appear in the Asset side of the balance sheet of the relevant financial year because expenses and losses have a debit balance. They are not assets in substance.
Examples:
Business loss ( debit balance of Profit and loss A/c )*
Prepaid expenses
Discount on the issue of debentures.
Huge promotional expenditure.
*business loss is shown as a negative figure under the head Reserve and Surplus, when the balance sheet is prepared as per Schedule III of The Companies Act, 2013.
Deferred revenue expenditures are the expenses incurred for which the benefits are expected to flow to the enterprise beyond the current year. Such expenses are huge and are not written off completely in a financial year. The part of the expenditure which is not written off is shown on the assets side of the balance sheet.
Examples:
Huge advertisement expense.
As you can see, there is some similarity between the two. Deferred revenue expenditure can be called a type of fictitious asset as it is shown in the asset side of the balance sheet but it isn’t an asset.
The term ‘fictitious asset’ has a broader meaning than deferred revenue expenditure and also includes the losses such as discounts on the issue of debenture and business loss.
The difference between fictitious assets and deferred revenue expenditure are as follows:
Fictitious Assets
Deferred Revenue Expenditure
1
These are no real assets but expenses and losses that are not completely written off in an F.Y.
These are expenses incurred from which benefits are expected to flow for more than one accounting period.
2
It has a broader meaning.
It has a narrower meaning.
3
Examples:- business loss, discount on issue of debentures, prepaid expenses etc.
AS-11: The effects of changes in foreign exchange rates deal with the issues in the translation of foreign currency transactions and foreign operations. Foreign operations of a reporting enterprise mean its subsidiary, associate, joint venture or branch which is based or conducted in a country otherRead more
AS-11: The effects of changes in foreign exchange rates deal with the issues in the translation of foreign currency transactions and foreign operations.
Foreign operations of a reporting enterprise mean its subsidiary, associate, joint venture or branch which is based or conducted in a country other than the country of the reporting entity
For simple understanding let’s consider foreign operation as a branch of a business that is based in a foreign country.
Foreign Integral operations
So, integral foreign operations will be a dependent branch that works on the directions of the head office and it is like an extension of the business. The head office consigns goods to it and it sells them and remits cash and reports to the head office.
It is dependent on head office for receiving goods to sell and to cover its expenses.
Further, the difference in foreign exchange rate affects the present and future cash flows to the head office.
Foreign Non-Integral operations
A non-integral foreign operation will be like an independent branch that can operate without the aid of the head office. Apart from selling goods of the head office, it also buys goods from the local market and sells them.
Also, it covers its expenses on its own. It doesn’t remit the cash from sales regularly like a dependent branch. It is like acts an investment of the main business.
The difference in the foreign exchange rate has little or no effect on the present or future cash flows of the head office
As per AS-10 ( Revised ): Property, Plant and Equipment, depreciation on an asset should begin when the asset is in the location and condition necessary for it to be capable of operating in the manner as intended by the management. This means a firm should start charging depreciation when the assetRead more
As per AS-10 ( Revised ): Property, Plant and Equipment, depreciation on an asset should begin when the asset is in the location and condition necessary for it to be capable of operating in the manner as intended by the management.
This means a firm should start charging depreciation when the asset is ready to be used as per the management’s desire.
Let’s take an example to understand this clearly:
A business bought a drinking water cooler for its office use on 1st April 2021. Now, this water cooler needs to be installed and wiped with Isopropyl Alcohol before it can be put to use.
The business completed all the required procedures by 1st May 2021, but it opened the machine for office use from 1st August 2021.
So the question arises, from when to start charging depreciation?
1st April 2021 – The date of Purchase
1st May 2021- The date when the machine was ready to use.
1st August 2021 –The date from which the machine was put to use.
The answer is 1st May 2021– The date when the machine was ready to use.
It doesn’t matter whether the company started the use of an asset or not. Once an asset is in
Fictitious assets On seeing or hearing ‘fictitious’, the words which come to our mind are ‘not true, ‘fake’ or ‘fantasy’. So, fictitious assets are those items that appear on the assets side of the balance sheet but are actually not assets. In substance, fictitious assets are the expenses and lossesRead more
Fictitious assets
On seeing or hearing ‘fictitious’, the words which come to our mind are ‘not true, ‘fake’ or ‘fantasy’. So, fictitious assets are those items that appear on the assets side of the balance sheet but are actually not assets.
In substance, fictitious assets are the expenses and losses that are not completely written off in a financial year and are required to be carried forward to the next financial year.
The examples of fictitious assets are as follows:
Deferred Advertisement expense
Loss on the issue of debentures.
Debit balance of Profit and Loss account ( Net loss )*
Preliminary expenses.
Fictitious assets appear on the asset side of the balance sheet as expenses and losses have a debit balance.
*when the balance sheet is prepared as per Schedule III of Companies Act, the Net loss is shown as a negative figure under the head Reserve and Surplus.
Intangible Assets
Intangible assets mean the assets which don’t have any physical existence. They cannot be seen or touched but are assets because they do provide future economic benefits to the business. Like tangible assets (like machinery and building), they can be also created, purchased or sold.
Like tangible assets are depreciated, intangible assets are gradually written over by amortization over their useful lifespan to account for the economic benefits provided by them.
Following are the examples of intangible assets:
Goodwill
Brand name
Trademark
Patents
Copyrights
Intangible assets which are created by the business-like goodwill or brand recognition do not appear in the balance sheet.
Only acquired intangible assets can be shown in the balance sheet. Like purchased goodwill, patents, trademarks etc.
Intangible assets also face impairment if their fair value is less than their carrying value after deducting amortization expense. The difference between carrying value and fair value is shown in the Profit and loss A/c as impairment charge and the asset is valued at fair value in the balance sheet.
Before answering your question directly, let’s first understand the two terms, ‘Rent Outstanding’ and ‘Accounting Equation’. Accounting Equation Accounting Equation depicts the relationship between the following items of a business: Assets, Liabilities and Owner’s Equity ( Capital ) It is a simple fRead more
Before answering your question directly, let’s first understand the two terms, ‘Rent Outstanding’ and ‘Accounting Equation’.
Accounting Equation
Accounting Equation depicts the relationship between the following items of a business:
Assets,
Liabilities and
Owner’s Equity ( Capital )
It is a simple formula that implies that the total assets of a business are always equal to the sum of its liabilities and Owner’s Equity (Capital).
ASSETS = LIABILITIES + CAPITAL OR A = L + E
It is also known as the balance sheet equation.
This equation always holds good due to the double-entry system of accounting i.e. every event has a dual effect on items of the balance sheet.
Outstanding Rent
We know rent is an expense for a business and rent outstanding means that rent is due, not paid which implies it is a liability which the business has to settle.
Hence Rent Outstanding is subtracted from the capital balance and added to liabilities.
Let’s take an example to see how rent outstanding affects the accounting equation. Suppose a business has the following figures:
Assets – Rs: 3,00,000
Capital – Rs: 2,00,000
Liabilities – Rs: 1,00,000
Assets = Liabilities + Capital
3,00,000 = 1,00,000 + 2,00,000
Now if Rent outstanding of Rs: 20,000 arises, this will happen:-
Assets – Rs: 3,00,000
Capital – Rs: 2,00,000 – Rs: 20,000 = Rs: 2,80,000
Hence, when rent outstanding arises, it increases the liability and decreases the Capital by the same amount. Therefore both the sides tally and the accounting equations holds good.
Rent Outstanding is shown on the liabilities side of the balance sheet. Also, the rent outstanding of the current year is shown in the debit side profit and loss account and we know the balance of the P/L account if profit, is added to Capital and in case of loss it is subtracted from Capital. Hence, the rent outstanding is subtracted from the capital.
In the books of Rural Literacy Society Income & Expenditure A/c for the year ended 31 March 2019 Expenditure Amt Amt Income Amt Amt To General Expenses 32,000 By Subscription (W.N.1) 2,72,000 To Newspapers 18,500 By Legacy 12,500 To Electricity 30,000 By Government Grant 1,20,000 To Rent 65,000Read more
In the books of Rural Literacy Society
Income & Expenditure A/c for the year ended 31 March 2019
Expenditure
Amt
Amt
Income
Amt
Amt
To General Expenses
32,000
By Subscription (W.N.1)
2,72,000
To Newspapers
18,500
By Legacy
12,500
To Electricity
30,000
By Government Grant
1,20,000
To Rent
65,000
By Interest Received on Fixed Deposit
9,000
Less: Prepaid Rent (65,000/13)
-5,000
60,000
(1,80,000*10%*6/12)
To Salary
36,000
Add: Outstanding Salary
6,000
42,000
To Postage Charges
3,000
To Loss on Sale of Furniture (W.N.2)
13,000
To Surplus (excess of income over expenditure)
2,15,000
4,13,500
4,13,500
Balance Sheet as on 31 March 2019
Liabilities
Amt
Amt
Assets
Amt
Amt
Capital Fund (W.N.3)
3,85,500
Fixed Deposit
1,80,000
Add: Surplus
2,15,000
Advance Subscription
5,000
Books
50,000
Outstanding Salaries
6,000
Add: Purchased
70,000
1,20,000
Furniture
1,20,000
Add: Purchased
1,05,000
Less: Sold
-50,000
1,75,000
Outstanding Subscription
15,000
Prepaid Rent
5,000
Cash in Hand
30,000
Cash at Bank
82,000
Accrued Interest (W.N.4)
4,500
6,11,500
6,11,500
Working Notes:
W.N.1: Calculation of Subscription
Subscription for 2018-19
2,65,000
Add: Outstanding Subscription (31 March 2019)
15,000
Less: Outstanding Subscription (2017-18)
-8,000
Total Subscription
2,72,000
In the above calculation, for the year 2017-18 subscription amount was 12,000, and in the adjustment at the end of the year subscription was 20,000 so the difference of 8,000 is the amount of subscription that was outstanding.
What is Ind as 102?
IND AS 102: ‘Share-based payments’ in its actual text is considerably lengthy and very detailed. The objective of my answer is to provide a basic understanding of what IND AS 102 is all about. Further reading of the actual text is suggested for a more detailed understanding. IND AS 102 is the IndiaRead more
IND AS 102: ‘Share-based payments’ in its actual text is considerably lengthy and very detailed.
The objective of my answer is to provide a basic understanding of what IND AS 102 is all about. Further reading of the actual text is suggested for a more detailed understanding.
IND AS 102 is the India specific version of IFRS 2 which deals with the accounting of Share-based payments. IND AS 102 and IFRS are almost similar.
It deals with the financial reporting of the share-based payment transactions entered into by an enterprise in the following cases:
Share-based payments are of three types:
Example: A business acquires an asset for Rs. 1,00,000 and makes payment by the issue of its equity shares.
Example: A business acquires an asset for Rs. 1,00,000 and makes payment in amounts of case based upon its share price.
Things that are not under the scope of IND AS-102
Recognition
In a share-based transaction,
Measurement
The amount at a share-based transaction is to be recorded depending upon the type of counterparty:
I hope this is enough for a basic understanding of the IND AS 102.
See lessWhat is the difference between fictitious assets and deferred revenue expenditure?
Fictitious assets are the expenses and losses which are yet to be written off, so they appear in the Asset side of the balance sheet of the relevant financial year because expenses and losses have a debit balance. They are not assets in substance. Examples: Business loss ( debit balance of Profit anRead more
Fictitious assets are the expenses and losses which are yet to be written off, so they appear in the Asset side of the balance sheet of the relevant financial year because expenses and losses have a debit balance. They are not assets in substance.
Examples:
*business loss is shown as a negative figure under the head Reserve and Surplus, when the balance sheet is prepared as per Schedule III of The Companies Act, 2013.
Deferred revenue expenditures are the expenses incurred for which the benefits are expected to flow to the enterprise beyond the current year. Such expenses are huge and are not written off completely in a financial year. The part of the expenditure which is not written off is shown on the assets side of the balance sheet.
Examples:
As you can see, there is some similarity between the two. Deferred revenue expenditure can be called a type of fictitious asset as it is shown in the asset side of the balance sheet but it isn’t an asset.
The term ‘fictitious asset’ has a broader meaning than deferred revenue expenditure and also includes the losses such as discounts on the issue of debenture and business loss.
The difference between fictitious assets and deferred revenue expenditure are as follows:
What is the difference integral foreign operations and non-integral foreign operations as per AS-11?
AS-11: The effects of changes in foreign exchange rates deal with the issues in the translation of foreign currency transactions and foreign operations. Foreign operations of a reporting enterprise mean its subsidiary, associate, joint venture or branch which is based or conducted in a country otherRead more
AS-11: The effects of changes in foreign exchange rates deal with the issues in the translation of foreign currency transactions and foreign operations.
Foreign operations of a reporting enterprise mean its subsidiary, associate, joint venture or branch which is based or conducted in a country other than the country of the reporting entity
For simple understanding let’s consider foreign operation as a branch of a business that is based in a foreign country.
Foreign Integral operations
So, integral foreign operations will be a dependent branch that works on the directions of the head office and it is like an extension of the business. The head office consigns goods to it and it sells them and remits cash and reports to the head office.
It is dependent on head office for receiving goods to sell and to cover its expenses.
Further, the difference in foreign exchange rate affects the present and future cash flows to the head office.
Foreign Non-Integral operations
A non-integral foreign operation will be like an independent branch that can operate without the aid of the head office. Apart from selling goods of the head office, it also buys goods from the local market and sells them.
Also, it covers its expenses on its own. It doesn’t remit the cash from sales regularly like a dependent branch. It is like acts an investment of the main business.
The difference in the foreign exchange rate has little or no effect on the present or future cash flows of the head office
See lessWhen to start charging depreciation on an asset as per AS 10?
As per AS-10 ( Revised ): Property, Plant and Equipment, depreciation on an asset should begin when the asset is in the location and condition necessary for it to be capable of operating in the manner as intended by the management. This means a firm should start charging depreciation when the assetRead more
As per AS-10 ( Revised ): Property, Plant and Equipment, depreciation on an asset should begin when the asset is in the location and condition necessary for it to be capable of operating in the manner as intended by the management.
This means a firm should start charging depreciation when the asset is ready to be used as per the management’s desire.
Let’s take an example to understand this clearly:
A business bought a drinking water cooler for its office use on 1st April 2021. Now, this water cooler needs to be installed and wiped with Isopropyl Alcohol before it can be put to use.
The business completed all the required procedures by 1st May 2021, but it opened the machine for office use from 1st August 2021.
So the question arises, from when to start charging depreciation?
The answer is 1st May 2021– The date when the machine was ready to use.
It doesn’t matter whether the company started the use of an asset or not. Once an asset is in
the depreciation should begin.
See lessWhat are fictitious assets and intangible assets?
Fictitious assets On seeing or hearing ‘fictitious’, the words which come to our mind are ‘not true, ‘fake’ or ‘fantasy’. So, fictitious assets are those items that appear on the assets side of the balance sheet but are actually not assets. In substance, fictitious assets are the expenses and lossesRead more
Fictitious assets
On seeing or hearing ‘fictitious’, the words which come to our mind are ‘not true, ‘fake’ or ‘fantasy’. So, fictitious assets are those items that appear on the assets side of the balance sheet but are actually not assets.
In substance, fictitious assets are the expenses and losses that are not completely written off in a financial year and are required to be carried forward to the next financial year.
The examples of fictitious assets are as follows:
Fictitious assets appear on the asset side of the balance sheet as expenses and losses have a debit balance.
*when the balance sheet is prepared as per Schedule III of Companies Act, the Net loss is shown as a negative figure under the head Reserve and Surplus.
Intangible Assets
Intangible assets mean the assets which don’t have any physical existence. They cannot be seen or touched but are assets because they do provide future economic benefits to the business. Like tangible assets (like machinery and building), they can be also created, purchased or sold.
Like tangible assets are depreciated, intangible assets are gradually written over by amortization over their useful lifespan to account for the economic benefits provided by them.
Following are the examples of intangible assets:
Intangible assets which are created by the business-like goodwill or brand recognition do not appear in the balance sheet.
Only acquired intangible assets can be shown in the balance sheet. Like purchased goodwill, patents, trademarks etc.
Intangible assets also face impairment if their fair value is less than their carrying value after deducting amortization expense. The difference between carrying value and fair value is shown in the Profit and loss A/c as impairment charge and the asset is valued at fair value in the balance sheet.
See lessCan you explain rent outstanding in accounting equation?
Before answering your question directly, let’s first understand the two terms, ‘Rent Outstanding’ and ‘Accounting Equation’. Accounting Equation Accounting Equation depicts the relationship between the following items of a business: Assets, Liabilities and Owner’s Equity ( Capital ) It is a simple fRead more
Before answering your question directly, let’s first understand the two terms, ‘Rent Outstanding’ and ‘Accounting Equation’.
Accounting Equation
Accounting Equation depicts the relationship between the following items of a business:
It is a simple formula that implies that the total assets of a business are always equal to the sum of its liabilities and Owner’s Equity (Capital).
ASSETS = LIABILITIES + CAPITAL OR A = L + E
It is also known as the balance sheet equation.
This equation always holds good due to the double-entry system of accounting i.e. every event has a dual effect on items of the balance sheet.
Outstanding Rent
We know rent is an expense for a business and rent outstanding means that rent is due, not paid which implies it is a liability which the business has to settle.
Hence Rent Outstanding is subtracted from the capital balance and added to liabilities.
Let’s take an example to see how rent outstanding affects the accounting equation. Suppose a business has the following figures:
Assets – Rs: 3,00,000
Capital – Rs: 2,00,000
Liabilities – Rs: 1,00,000
Assets = Liabilities + Capital
3,00,000 = 1,00,000 + 2,00,000
Now if Rent outstanding of Rs: 20,000 arises, this will happen:-
Assets – Rs: 3,00,000
Capital – Rs: 2,00,000 – Rs: 20,000 = Rs: 2,80,000
Liabilities – Rs: 1,00,000 + Rs: 20,000 = Rs: 1,20,000
Assets = Liabilities + Capital
3,00,000 = 1,20,000 + 2,80,000.
Hence, when rent outstanding arises, it increases the liability and decreases the Capital by the same amount. Therefore both the sides tally and the accounting equations holds good.
Rent Outstanding is shown on the liabilities side of the balance sheet. Also, the rent outstanding of the current year is shown in the debit side profit and loss account and we know the balance of the P/L account if profit, is added to Capital and in case of loss it is subtracted from Capital. Hence, the rent outstanding is subtracted from the capital.
I hope my answer was useful to you.
See lessFrom the following receipts and payments account and additional information given below prepare income and expenditure account and balance sheet of rural literacy society as on 31st March 2019?
In the books of Rural Literacy Society Income & Expenditure A/c for the year ended 31 March 2019 Expenditure Amt Amt Income Amt Amt To General Expenses 32,000 By Subscription (W.N.1) 2,72,000 To Newspapers 18,500 By Legacy 12,500 To Electricity 30,000 By Government Grant 1,20,000 To Rent 65,000Read more
In the books of Rural Literacy Society
Income & Expenditure A/c for the year ended 31 March 2019
Balance Sheet as on 31 March 2019
Working Notes:
W.N.1: Calculation of Subscription
In the above calculation, for the year 2017-18 subscription amount was 12,000, and in the adjustment at the end of the year subscription was 20,000 so the difference of 8,000 is the amount of subscription that was outstanding.
W.N.2: Calculation of loss on sale of furniture
W.N.3: Calculation of Capital Fund
Balance Sheet as on 31 March 2018
W.N.4: Calculation of Accrued Interest