Module No.

2 Measurement Based on Accounting Policies

Module No. 3 Measurement Based on Accounting Policies
Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8),
First time adoption of Ind AS (Ind As 101),
Accounting for Government Grants and Disclosure of Government Assistance (Ind AS 20)
Share Based Payment (Ind AS 102)
Accounting Policies, Changes in Accounting Estimates and Errors (Ind AS 8),
Accounting Policies:
 Accounting policies are the specific principles, bases, conventions, rules, and practices applied by
an entity in preparing and presenting financial statements.
 When an Ind AS specifically applies to a transaction, other event or condition, the accounting
policy or policies applied to that item must be determined by applying the requirements of that Ind
AS. For example, if an entity has property, plant, and equipment, it must apply the accounting
policies prescribed in Ind AS 16 - Property, Plant and Equipment.
 In the absence of an Ind AS that specifically applies to a transaction, other event or condition,
management must use its judgment in developing and applying an accounting policy. However,
this accounting policy must result in financial information that is relevant and reliable.
Selection and Application of Accounting Policies:
 If an Ind AS deals with a similar and related issue, the accounting policy for the transaction or
event not covered by an Ind AS should be determined by considering the requirements and
guidance in the Ind AS dealing with similar and related issues.
 For example, if there is no specific Ind AS for accounting for a particular type of financial
instrument, the entity may apply the principles and guidance in Ind AS 109 - Financial
Instruments, which deals with the recognition and measurement of financial instruments.
 In making the judgment, management should also consider the most recent pronouncements of
other standard-setting bodies that use a similar conceptual framework to develop accounting
standards, such as the International Financial Reporting Standards (IFRS) issued by the
International Accounting Standards Board (IASB).
 The entity must select and apply its accounting policies consistently for similar transactions,
events or conditions, unless an Ind AS specifically requires or permits categorization of items for
which different policies may be appropriate.
Changes in Accounting Policies:
 An entity should change an accounting policy only if:
1. The change is required by an Ind AS, or
2. The change results in the financial statements providing reliable and more relevant
information about the effects of transactions, other events or conditions on the entity's
financial position, financial performance or cash flows.
 A change in accounting policy is not permitted if it is made to achieve a particular presentation of
an entity's financial position, financial performance or cash flows.
Applying Changes in Accounting Policies:
 If a change in accounting policy is due to the initial application of an Ind AS, the entity should
account for the change in accordance with the specific transitional provisions, if any, in that Ind
AS.
 When an entity changes an accounting policy upon initial application of an Ind AS that does not
include specific transitional provisions, or changes an accounting policy voluntarily, it must apply
the change retrospectively.
 Retrospective application means that the new accounting policy is applied as if it had always been
applied, by adjusting the opening balance of each affected component of equity for the earliest
prior period presented and other comparative amounts disclosed for each prior period presented as
if the new accounting policy had always been applied.
Changes in Accounting Estimates:
 A change in accounting estimate is an adjustment of the carrying amount of an asset or liability, or
the amount of the periodic consumption of an asset, that results from the assessment of the present
status of, and expected future benefits and obligations associated with, assets and liabilities.
 Changes in accounting estimates result from new information or new developments and,
accordingly, are not corrections of errors.

Sandesh DSouza, Assistant Professor, Department of Commerce, St Philomena’s College(Autonomous) Mysore pg. 1
 Module No. 2 Measurement Based on Accounting Policies
 The effect of a change in an accounting estimate should be recognized prospectively by including
it in profit or loss in the period of the change, if the change affects that period only, or the period
of the change and future periods, if the change affects both.
Errors:
 Errors can arise in respect of the recognition, measurement, presentation or disclosure of elements
of financial statements.
 Material prior period errors should be corrected retrospectively in the first set of financial
statements approved for issue after their discovery.
 Retrospective restatement involves correcting the recognition, measurement and disclosure of
amounts of elements of financial statements as if the error had not occurred in the prior periods.
 For example, if an error is discovered in the calculation of depreciation expense for the prior year,
the opening balance of retained earnings for the earliest prior period presented would be restated
to correct the cumulative effect of the error before the beginning of that period.
The application of these principles ensures that the financial statements provide relevant and reliable
information about the entity's financial position, performance and changes in financial position.
Consistent application of accounting policies, appropriate changes when necessary, and correction of
material prior period errors are essential for achieving this objective.

First-time Adoption of Indian Accounting Standards (Ind AS 101):

Introduction:
 Ind AS 101 applies when an entity adopts Indian Accounting Standards (Ind AS) for the first time
by an explicit and unreserved statement of compliance with Ind AS.
 The standard provides guidance for the initial adoption of Ind AS and specifies the transitional
provisions to be applied.
Opening Ind AS Balance Sheet:
 An entity shall prepare an opening Ind AS balance sheet at the date of transition to Ind AS, which
is the starting point for its accounting under Ind AS.
 The opening Ind AS balance sheet is the first balance sheet prepared in accordance with Ind AS.
 The date of transition is the beginning of the earliest period for which an entity presents full
comparative information under Ind AS in its first Ind AS financial statements.
Accounting Policies:
 An entity shall use the same accounting policies in its opening Ind AS balance sheet and
throughout all periods presented in its first Ind AS financial statements.
 Accounting policies shall comply with each Ind AS effective at the end of the entity's first Ind AS
reporting period, except as specified in Ind AS 101.
Measurement Principles:
 Except for certain exceptions and exemptions provided in Ind AS 101, an entity shall apply the
following principles in measuring all recognized assets and liabilities:
1. Recognize all assets and liabilities whose recognition is required by Ind AS.
2. Derecognize items that are not permitted to be recognized as assets or liabilities under Ind
AS.
3. Reclassify items that are recognized under previous GAAP as one type of asset, liability or
component of equity but have a different classification under Ind AS.
4. Apply Ind AS in measuring all recognized assets and liabilities.
Mandatory Exceptions:
 Ind AS 101 prohibits retrospective application of certain aspects of Ind AS in specific areas, such
as:
o Derecognition of financial assets and liabilities
o Hedge accounting
o Estimates
o Classification and measurement of financial assets
Optional Exemptions:
 Ind AS 101 provides certain optional exemptions from the general requirement of retrospective
application of Ind AS. These exemptions include, but are not limited to:
o Business combinations
o Fair value or revaluation as deemed cost for property, plant, and equipment

Sandesh DSouza, Assistant Professor, Department of Commerce, St Philomena’s College(Autonomous) Mysore pg. 2
 Module No. 2 Measurement Based on Accounting Policies
o Cumulative translation differences
o Compound financial instruments
o Designation of previously recognized financial instruments
Presentation and Disclosure:
 An entity's first Ind AS financial statements shall include at least three balance sheets, two
statements of profit and loss, two statements of cash flows, and two statements of changes in
equity, along with related notes.
 Specific disclosures are required in the first Ind AS financial statements to explain the transition
from previous GAAP to Ind AS.
Effective Date and Transition:
 Ind AS 101 is applicable when an entity first adopts Ind AS by an explicit and unreserved
statement of compliance with Ind AS.
 The transition provisions are applied prospectively from the date of transition to Ind AS.
These notes cover the key aspects of Ind AS 101, including the preparation of the opening Ind AS balance
sheet, application of accounting policies, measurement principles, mandatory exceptions, optional
exemptions, presentation and disclosure requirements, and the effective date and transition provisions.

Accounting for Government Grants and Disclosure of Government Assistance (Ind AS

20)
Objective of IAS 20
The objective of IAS 20 is to prescribe the accounting for, and disclosure of, government grants and other
forms of government assistance.

Scope
IAS 20 applies to all government grants and other forms of government assistance. However, it does not
cover government assistance that is provided in the form of benefits in determining taxable income. It does
not cover government grants covered by IAS 41 Agriculture, either. The benefit of a government loan at a
below-market rate of interest is treated as a government grant.

Accounting for grants

 A government grant is recognised only when there is reasonable assurance that (a) the entity will
comply with any conditions attached to the grant and (b) the grant will be received.

 The grant is recognised as income over the period necessary to match them with the related costs,
for which they are intended to compensate, on a systematic basis.
 Non-monetary grants, such as land or other resources, are usually accounted for at fair value,
although recording both the asset and the grant at a nominal amount is also permitted.

 Even if there are no conditions attached to the assistance specifically relating to the operating
activities of the entity (other than the requirement to operate in certain regions or industry sectors),
such grants should not be credited to equity.

 A grant receivable as compensation for costs already incurred or for immediate financial support,
with no future related costs, should be recognised as income in the period in which it is receivable.

 A grant relating to assets may be presented in one of two ways:

 as deferred income, or by deducting the grant from the asset's carrying amount.
 A grant relating to income may be reported separately as 'other income' or deducted from
the related expense.

If a grant becomes repayable, it should be treated as a change in estimate. Where the original grant related
to income, the repayment should be applied first against any related unamortised deferred credit, and any

Sandesh DSouza, Assistant Professor, Department of Commerce, St Philomena’s College(Autonomous) Mysore pg. 3
 Module No. 2 Measurement Based on Accounting Policies
excess should be dealt with as an expense. Where the original grant related to an asset, the repayment should
be treated as increasing the carrying amount of the asset or reducing the deferred income balance. The
cumulative depreciation which would have been charged had the grant not been received should be charged
as an expense.

Disclosure of government grants

The following must be disclosed
accounting policy adopted for grants, including method of balance sheet presentation nature and extent of
grants recognised in the financial statements unfulfilled conditions and contingencies attaching to
recognised grants
Government assistance
Government grants do not include government assistance whose value cannot be reasonably measured,
such as technical or marketing advice. Disclosure of the benefits is required.

Share-Based Payments under Ind AS 102

Equity-Settled Share-Based Payments

1. The goods or services received are measured at their fair value, unless the fair value cannot be
estimated reliably. In that case, they are measured based on the fair value of the equity instruments
granted.
2. For transactions with employees, the fair value is measured at the grant date.
3. For transactions with non-employees, the fair value is measured at the date when the goods or
services are received.
4. The fair value of equity instruments granted (e.g., share options) is determined using an
appropriate option pricing model, such as the Black-Scholes or binomial model.
5. Vesting conditions (service and non-market performance conditions) are taken into account when
estimating the number of equity instruments that will eventually vest.
6. Market conditions (e.g., target share price) are reflected in the fair value measurement at the grant
date.
7. Non-vesting conditions (e.g., transfer restrictions) are taken into account when estimating the fair
value of equity instruments granted.

Cash-Settled Share-Based Payments

1. The goods or services received are measured at the fair value of the liability incurred.
2. The liability is remeasured at each reporting date until it is settled, with changes in fair value
recognized in profit or loss.
3. The fair value of the liability is determined using an appropriate option pricing model or other
suitable valuation techniques.

Transactions with a Cash Settlement Alternative

1. For transactions where the entity or the counterparty can choose whether to settle in cash or equity
instruments, the transaction is accounted for as a cash-settled share-based payment, unless certain
conditions are met for equity settlement.
2. If the entity has a present obligation to settle in cash, the transaction is accounted for as a cash-
settled share-based payment.

Modification and Cancellation

1. If the terms and conditions of a share-based payment arrangement are modified, the entity
recognizes the incremental fair value granted as an expense over the remaining vesting period.
2. If a share-based payment is canceled, any remaining unrecognized compensation cost is
recognized immediately.

Sandesh DSouza, Assistant Professor, Department of Commerce, St Philomena’s College(Autonomous) Mysore pg. 4
 Module No. 2 Measurement Based on Accounting Policies
Disclosure Requirements

Ind AS 102 requires extensive disclosures related to the nature and extent of share-based payment
arrangements, the measurement basis used, and the effect on profit or loss and the financial position of the
entity.

These notes provide an overview of the key measurement principles for share-based payments under Ind
AS 102. The standard should be referred to for detailed guidance and specific requirements.

Sandesh DSouza, Assistant Professor, Department of Commerce, St Philomena’s College(Autonomous) Mysore pg. 5