The Ministry of Corporate Affairs (MCA) on July 24, 2020 issues the Companies (Indian Accounting Standards) Amendment Rules, 2020 to further amend Companies (Indian Accounting Standards) Rules, 2015.
Following amendments are made to Companies (Indian Accounting Standards) Rules, 2015:
• Paragraph 3, in the said Act which specifies whether a transaction is a business transaction or not has been substituted, which states, “An entity shall determine whether a transaction or other event is a business combination by applying the definition in this Ind AS, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, the reporting entity shall account for the transaction or other event as an asset acquisition. Paragraphs B5–B12D provide guidance on identifying a business combination and the definition of a business”.
• A new paragraph 64P has been inserted which specifies the definition of business, which states, “An integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing goods or services to customers, generating investment income (such as dividends or interest) or generating other income from ordinary activities”.
• A new Paragraph B7A has been inserted which specifies optional test to identify concentration of fair values, which states, “Paragraph B7B sets out an optional test (the concentration test) to permit a simplified assessment of whether an acquired set of activities and assets is not a business. An entity may elect to apply, or not apply, the test. An entity may make such an election separately for each transaction or other event”.
• Paragraph B8 which specifies the elements of business has been substituted which states, “Although businesses usually have outputs, outputs are not required for an integrated set of activities and assets to qualify as a business. To be capable of being conducted and managed for the purpose identified in the definition of a business, an integrated set of activities and assets requires two essential elements—inputs and processes applied to those inputs. A business need not include all the inputs or processes that the seller used in operating that business. However, to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Paragraphs B12-B12D specify how to assess whether a process is substantive”.
• Paragraph B12 which specifies assessing whether an acquired process is substantive has been substituted which states, “Paragraphs B12A–B12D explain how to assess whether an acquired process is substantive if the acquired set of activities and assets does not have outputs (paragraph B12B) and if it does have outputs”.
• A new Paragraph B12A has been inserted which specifies the example of acquired sets of activities for the assets not having outputs, which states, “An example of an acquired set of activities and assets that does not have outputs at the acquisition date is an early-stage entity that has not started generating revenue. Moreover, if an acquired set of activities and assets was generating revenue at the acquisition date, it is considered to have outputs at that date, even if subsequently it will no longer generate revenue from external customers, for example because it will be integrated by the acquirer”.
• A new Paragraph 24H has been inserted which specifies uncertainty arising from interest rate benchmark reform, which states, “For hedging relationships to which an entity applies the exceptions set out in paragraphs 6.8.4-6.8.12 of Ind AS 109, an entity shall disclose the benchmark interest rates, extent of risk and the managing process.”
• A new Paragraph 46 A has been inserted which specifies the practical lessee may elect not to assess whether a rent concession meets the conditions specified in the act, which states, “As a practical expedient, a lessee may elect not to assess whether a rent concession that meets the conditions in paragraph 46B is a lease modification. A lessee that makes this election shall account for any change in lease payments resulting from the rent concession the same way it would account for the change applying this Standard if the change were not a lease modification.”
• A new paragraph C20A has been inserted which specifies the COVID-19 related rent concessions for lessees, which states, “A lessee shall apply Covid-19-Related Rent Concessions (see paragraph C1A) retrospectively, recognising the cumulative effect of initially applying that amendment as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the beginning of the annual reporting period in which the lessee first applies the amendment”.
[Notification No. G.S.R. 463 (E)]
