Comments and Suggestions by Bcas to Accounting Standards Board of ICAI on Exposure Drafts

Calculation of EPS : Weighted average number of treasury shares
held.

In India, publishing of standalone financial statements is
required. At present, publishing of consolidated financial statements is
required only for listed companies. In this context clarification is required
that treasury shares held by subsidiaries are not required to be adjusted in
working of weighted average number of shares for standalone financial
statements.

Para 26 and 27(b) — example 4, calculation of basic EPS for
the year 2001.

Regarding rights issue, clarification is required on the
treatment to be given to the effects of the rights issue in working out diluted
EPS.

Para 45, 46, 47 and 63.

Clarification is required to calculate Average Market Price
(AMP) based on simple or weighted average.

Appendix B : Example 1.

In India, dividend on preference shares is liable to
dividend distribution tax. In our view, for calculation of profit available
for equity shareholders, such distribution tax also needs to be deducted in
addition to dividend on pReference : shares. The same needs to be incorporated
in the illustration.

Appendix B : Example 7.

Appendix B : Example 7 Note (e) of Diluted EPS.

Contingently issuable shares : Example explains that in
the working of basic EPS, earnings contingency for which shares are to be issued
at the year-end need not be considered in working out basic EPS for each quarter
of that year. The question arises whether the same treatment is required even if
there is substantial certainty of achieving the required earnings. Similarly, in
case of diluted EPS sum of EPS for all the quarters do not total to the EPS of
full year. An explanation for the same is required.

Note (e) mentions that anti-dilution rules do not apply
because the loss during the third quarter is attributable to a loss from
discontinued operations. It is not clear as to why anti-dilution rule is not
applicable in such circumstances. We believe that even if the rule is made
applicable, diluted EPS for quarter 3 will remain the same.

Appendix B : Example 8.

In the example, convertible bonds carry interest rate of 6%
against prevailing market rate of 9%. It seems that the issuing entity has
option to settle principal amount in cash. In such circumstances, question may
arise as to why lower rate for bond will be acceptable to the investors ?
Clarification is required in the context of breaking up components of liability
and equity in convertible bond. (as per related provisions of AS 31).

Appendix D dealing with difference between the revised draft
and existing AS 20.

The Appendix does not specify the following
additional differences :

‘In addition, basic and diluted earnings per share of all
periods presented shall be adjusted for the effects of errors and adjustments
resulting from changes in accounting policies accounted for retrospectively.’

Example in Para 8.

Para 8 requires an entity not to apply different versions of
Ind-ASs which were effective at earlier dates. However, it (entity) can apply
new Ind-AS that is not mandatory if early application is permitted.
Concession on similar lines is also provided under IFRS. This requirement of
Para 8 is also indicated in the example to the said Para, under the heading
‘Application of requirements’, which reads as under :

This requirement as specified in the example is restricted
only to an entity which applies Ind-ASs effective for financial year/periods
ending on March 31, 2012, but does not present
comparative information. However, the said requirement should also apply to an
entity which decides to present comparative information in those financial
statements for one year. Not considering the aforesaid requirement for the other
entities seems inadvertent.

In view of the foregoing, it is necessary that the aforesaid
Para (given in bold herein) either should be moved at the end of the example or
a new para with the same wordings be added at the end of the example.

Appendix D — Para D5 and D6 on Deemed Cost.

Para D5, allows an entity to measure an item of property,
plant and equipment (PPE) at the date of transition to Ind-ASs at its fair value
and use the same as its deemed cost.

Para D6 allows a first-time adopter to use a previous GAAP revaluation of an item of PPE at, or before, the date of transition to Ind-ASs as deemed cost at the date of the revaluation, if the revaluation was, at the date of the revaluation, broadly comparable to: (a) fair value; or cost or depreciated cost in accordance with Ind-ASs, adjusted to reflect, for example, changes in a general or specific price index.

It is not clear whether the fair value referred to in (a) has a Reference: to the fair value as on the date of transition or on the date of revaluation.

It may be appreciated that the revaluation carried out on an earlier date may not broadly be comparable to the fair value on the date of transition (which would be later than the date of the revaluation) and in that case, such concession to use the previous GAAP revaluation may not have any practical utility. Clarification is desired that on which date ‘the fair value’ in (a) should be comparable Is it at the date of transition or the date of the revaluation? It may be known that almost in all cases, the revaluation carried out at an earlier date, may not be broadly comparable with the fair value on the date of the transition.

Comments on ED ON AS 14 (revised) (corresponding to IFRS 3) ‘Business Combinations’

Reference:

Paragraph B56 of the Application Guidance.

Comments:

In the ED, the word ‘award’ has been replaced by ‘transaction’, (refer para 30, para 52 of the ED).