3.

72 FINANCIAL REPORTING

UNIT 2:
INDIAN ACCOUNTING STANDARD 34: INTERIM
FINANCIAL REPORTING

LEARNING OUTCOMES
After studying this unit, you will be able to:
 State the objective and scope of Ind AS 34
 Define the relevant terms used in the standard
 Elaborate the contents of interim financial report
 Prescribe minimum content of Interim Financial Report
 Account for the significant events and transactions while preparing the
interim financial report
 Recommend principles of recognition and measurement in complete or
condensed financial statement for an interim period
 Prepare the interim financial report of an entity
 Differentiate between Ind AS 34 and AS 25.
 INDIAN ACCOUNTING STANDARD 34 3.73

UNIT OVERVIEW

Contents of an Interim Financial Report

Minimum
Components
of Interim Recognition and Measurement
Financial
Report

Significant
Events and Same
Transactions Accounting
Policies as Restatement of Previously
Annual
Revenues
Reported Interim Periods
Received
Seasonally,
Other Cyclically, or
Disclosures Occasionally
Costs incurred
Unevenly during Interim Financial
Disclosure in Annual
the Financial Reporting and
Financial Statements
Year Impairment

Materiality Use of Estimates

 3.74 FINANCIAL REPORTING

2.1 INTRODUCTION
Interim Financial Reporting applies when an entity prepares an interim financial report. Ind AS 34
does not mandate an entity as when to prepare such a report. Timely and reliable interim financial
reporting improves the ability of investors, creditors, lenders and others to understand an entity’s
capacity to generate earnings and cash flows and its financial condition and liquidity. Permitting
less information to be reported than in annual financial statements (on the basis of providing an
update to those financial statements), the standard outlines the recognition, measurement and
disclosure requirements for interim reports.

2.2 OBJECTIVE
The objective of this Standard is to prescribe
a) the minimum content of an interim financial report
b) the principles for recognition and measurement in complete or condensed financial
statements for an interim period.

2.3 SCOPE
• This Standard does not mandate which entities should be required to publish interim
financial reports, how frequently, or how soon after the end of an interim period.
• This Standard applies if an entity is required or elects to publish an interim financial report
in accordance with Indian Accounting Standards (Ind AS).
• Each financial report, annual or interim, is evaluated on its own for conformity to Ind AS.
The fact that an entity may not have provided interim financial reports during a particular
financial year or may have provided interim financial reports that do not comply with this
Standard does not prevent the entity’s annual financial statements from conforming to Ind
AS if they otherwise do so.
• If an entity’s interim financial report is described as complying with Ind AS, it must comply
with all of the requirements of this Standard.
 INDIAN ACCOUNTING STANDARD 34 3.75

2.4 DEFINITIONS
1. Interim period is a financial reporting period shorter than a full financial year.
2. Interim financial report means a financial report containing either a complete set of financial
statements (as described in Ind AS 1, Presentation of Financial Statements), or a set of
condensed financial statements (as described in this Standard) for an interim period.

2.5 CONTENTS OF AN INTERIM FINANCIAL REPORT

• An Interim Financial Report shall include, at minimum, the following:

A condensed balance sheet

A condensed statement of profit and loss

A condensed statement of changes in equity

A condensed statement of cash flows

Notes, material accounting policy information and other explanatory information

• In the interest of timeliness and cost considerations and to avoid repetition of information
previously reported, an entity may be required to or may elect to provide less information
at interim dates as compared with its annual financial statements.
• The interim financial report focuses on new activities, events, and circumstances and does
not duplicate information previously reported.
• Nothing in this Standard is intended to prohibit or discourage an entity from publishing a
complete set of financial statements (as described in Ind AS 1) in its interim financial report,
rather than condensed financial statements and selected explanatory notes. Nor does this
Standard prohibit or discourage an entity from including in condensed interim financial
statements more than the minimum line items or selected explanatory notes asset out in
this Standard.
 3.76 FINANCIAL REPORTING

2.5.1 Form and Content of Interim financial report

Form and content

If an entity’s latest annual financial report

If entity publishes a If an entity publishes
included the parent’s separate financial
complete set of condensed financial
statements in addition to consolidated
financial statements statements
financial statements

Statements Additional line This Standard

Its form and
shall included items if their neither requires
content should Present Basic
headings and ommission nor prohibits the
be in line with and diluted
subtotals would make inclusion of the
Ind AS 1 for a earnings per
included in their condensed parent’s separate
complete set of share for that
most recent interim financial statements in the
financial period
annual financial statements entity’s interim
statements
statements misleading. financial report.

2.5.2 Significant events and transactions

• An entity shall include in its interim financial report an explanation of events and
transactions that are significant to an understanding of the changes in financial position
and performance of the entity since the end of the last annual reporting period.
• Information disclosed in relation to those events and transactions shall update the relevant
information presented in the most recent annual financial report.
• A user of an entity’s interim financial report will have access to the most recent annual
financial report of that entity. Therefore, it is unnecessary for the notes to an interim
financial report to provide relatively insignificant updates to the information that was
reported in the notes in the most recent annual financial report.

The following is a list of events and transactions for which disclosures would be
required if they are significant: (The below list is not exhaustive)
1. the write-down of inventories to net realisable value and the reversal of such write-
down;
2. recognition of a loss from the impairment of financial assets, property, plant and
equipment, intangible assets, assets arising from contracts with customers, or other
assets, and the reversal of such an impairment loss;
3. the reversal of any provisions for the costs of restructuring;
4. acquisitions and disposals of items of property, plant and equipment;
5. commitments for the purchase of property, plant and equipment;
 INDIAN ACCOUNTING STANDARD 34 3.77

6. litigation settlements;
7. corrections of prior period errors;
8. changes in the business or economic circumstances that affect the fair value of the
entity’s financial assets and financial liabilities, whether those assets or liabilities
are recognised at fair value or amortised cost;
9. any loan default or breach of a loan agreement that has not been remedied on or
before the end of the reporting period;
10. related party transactions;
11. transfers between levels of the fair value hierarchy used in measuring the fair value
of financial instruments;
12. changes in the classification of financial assets as a result of a change in the
purpose or use of those assets; and
13. changes in contingent liabilities or contingent assets.

• Individual Ind AS provide guidance regarding disclosure requirements for many of the items
listed above. When an event or transaction is significant to an understanding of the
changes in an entity’s financial position or performance since the last annual reporting
period, its interim financial report should provide an explanation of and an update to the
relevant information included in the financial statements of the last annual reporting period.

Significant events and transactions

Include in interim financial report Do not include in interim financial report

An explanation of events and Avoid relatively insignificant updates to the

transactions that are significant to an information that was reported in the notes in the
understanding of the changes in financial most recent annual financial report because the
position and performance of the entity user will have access to the most recent annual
since the end of the last annual reporting financial report carrying such information.
period.

Information disclosed in relation to those

events and transactions shall update the
relevant information presented in the
most recent annual financial report.
 3.78 FINANCIAL REPORTING

2.5.3 Other disclosures

The information shall normally be reported on a financial year-to-date basis. In addition to
disclosing significant events and transactions, an entity shall include the following information, in
the notes to its interim financial statements. The following disclosures shall be given either in the
interim financial statements or incorporated by cross-reference from the interim financial
statements to some other statement (such as management commentary or risk report) that is
available to users of the financial statements on the same terms as the interim financial statements
and at the same time. If users of the financial statements do not have access to the information
incorporated by cross-reference on the same terms and at the same time, the interim financial
report is incomplete.
a) a statement that the same accounting policies and methods of computation are followed in
the interim financial statements. If those recently used policies or methods have been
changed, a description of the nature and effect of the change should also be given.
b) explanatory comments about the seasonality or cyclicality of interim operations.
c) the nature and amount of items affecting assets, liabilities, equity, net income or cash
flows that are unusual because of their nature, size or incidence.
d) the nature and amount of changes in estimates of amounts reported in prior interim
periods of the current financial year or changes in estimates of amounts reported in
prior financial years.
e) issues, repurchases and repayments of debt and equity securities.
f) dividends paid (aggregate or per share) separately for ordinary shares and other
shares.
g) the following segment information (disclosure of segment information is required in an
entity’s interim financial report only if Ind AS 108, Operating Segments, requires that
entity to disclose segment information in its annual financial statements):
i. revenues from external customers, if included in the measure of segment profit
or loss reviewed by the chief operating decision maker or otherwise regularly
provided to the chief operating decision maker.
ii. inter segment revenues, if included in the measure of segment profit or loss
reviewed by the chief operating decision maker or otherwise regularly provided
to the chief operating decision maker.
iii. a measure of segment profit or loss.
iv. a measure of total assets and liabilities for a particular reportable segment if
such amounts are regularly provided to the chief operating decision maker and
if there has been a material change from the amount disclosed in the last annual
financial statements for that reportable segment.
v. a description of differences from the last annual financial statements in the basis
of segmentation or in the basis of measurement of segment profit or loss.
 INDIAN ACCOUNTING STANDARD 34 3.79

vi. a reconciliation of the total of the reportable segments’ measures of profit or loss
to the entity’s profit or loss before tax expense (tax income) and discontinued
operations. However, if an entity allocates to reportable segments items such as
tax expense (tax income), the entity may reconcile the total of the segments’
measures of profit or loss to profit or loss after those items. Material reconciling
items shall be separately identified and described in that reconciliation.
h) events after the interim period that have not been reflected in the financial statements
for the interim period.
i) the effect of changes in the composition of the entity during the interim period, including
business combinations, obtaining or losing control of subsidiaries and long-term
investments, restructurings, and discontinued operations. In the case of business
combinations, the entity shall disclose the information required by Ind AS 103, Business
Combinations.
j) for financial instruments, the disclosures about fair value of Ind AS 113, Fair Value
Measurement, and Ind AS 107, Financial Instruments: Disclosures.
k) for entities becoming, or ceasing to be, investment entities, as defined in Ind AS 110,
Consolidated Financial Statements, the disclosures in Ind AS 112, Disclosure of
Interests in Other Entities.
l) the disaggregation of revenue from contracts with customers required by Ind AS 115,
Revenue from Contracts with Customers.

Other Disclosures

Shall be given (Refer the list in para 16A of Ind AS 34)

Either Or

in the interim incorporated by cross-reference from the interim financial

financial statements statements to some other statement (such as management
commentary or risk report)

Statements should be available to users of the financial statements on the same terms as the
interim financial statements and at the same time otherwise the interim financial statements
shall be considered as incomplete

The information shall normally be reported on a financial year-to-date basis.

 3.80 FINANCIAL REPORTING

2.5.4 Periods for which interim financial statements are required to be

presented
Interim reports shall include interim financial statements (condensed or complete) for periods as follows:
(a) balance sheet as of the end of the current interim period and a comparative balance sheet as of the
end of the immediately preceding financial year.
(b) statements of profit and loss for the current interim period and cumulatively for the current financial
year to date, with comparative statements of profit and loss for the comparable interim periods
(current and year-to-date) of the immediately preceding financial year.
(c) statement of changes in equity cumulatively for the current financial year to date, with a comparative
statement for the comparable year-to-date period of the immediately preceding financial year.
(d) statement of cash flows cumulatively for the current financial year to date,with a comparative
statement for the comparable year-to-date period of the immediately preceding financial year.
For an entity whose business is highly seasonal, financial information for the twelve months up to the end
of the interim period and comparative information for the prior twelve-month period may be useful.
Periods for which interim financial statements are required to be presented

Interim reports shall include interim financial statements (condensed or complete) ie

balance sheet statements of profit and statement of changes in statement of cash flows
loss equity

• as of the end • for the current interim • cumulatively for • cumulatively for
of the current period the current the current
interim
• cumulatively for the financial year to financial year to
period
current financial year date date
• a comparative to date • comparative • a comparative
balance sheet
• comparative statements statement for the statement for the
as of the end
of the of profit and loss for the comparable comparable year-
immediately comparable interim year-to-date to-date period of
preceding periods (current and period of the the immediately
financial year-to-date) of the immediately preceding
year immediately preceding preceding financial year
financial year financial year

Note: For an entity whose business is highly seasonal, financial information for the twelve months up to the
end of the interim period and comparative information for the prior twelve-month period may be useful.
 INDIAN ACCOUNTING STANDARD 34 3.81

Following is the illustrative example to understand the periods for which interim financial
statements are required to be presented.
Scenario (a) Entity publishes interim financial reports half-yearly
The entity's financial year ends 31 March (Financial year). The entity will present the following
financial statements (condensed or complete) in its half-yearly interim financial report as of
30 September 20X2:

Name of the component Current period Comparative

period

Balance sheet as at 30 September 20X2 31 March 20X2

Statement of profit and loss : 6 months ending 30 September 20X2 30 September 20X1

Statement of cash flows: 6 months ending 30 September 20X2 30 September 20X1

Statement of changes in equity: 6 months 30 September 20X2 30 September 20X1

ending

Scenario (b) Entity publishes interim financial reports quarterly

The entity's financial year ends 31 March (Financial year). The entity will present the following
financial statements (condensed or complete) in its quarterly interim financial report as of
30 September 20X2:

Name of the component Current periods Comparative periods

Balance sheet as at 30 September 20X2 31 March 20X2

Statement of profit and loss:

6 months ending; and 30 September 20X2; and 30 September 20X1; and
3 months ending 30 September 20X2 30 September 20X1

Statement of cash flows: 6 30 September 20X2 30 September 20X1

months ending

Statement of changes in equity:

6 months ending 30 September 20X2 30 September 20X1
 3.82 FINANCIAL REPORTING

2.5.5 Materiality
• In deciding how to recognise, measure, classify, or disclose an item for interim financial
reporting purposes, materiality shall be assessed in relation to the interim period financial
data.
• In making assessments of materiality, it shall be recognised that interim measurements
may rely on estimates to a greater extent than measurements of annual financial data.

• While judgement is always required in assessing materiality, this Standard bases the
recognition and disclosure decision on data for the interim period by itself for reasons of
understandability of the interim figures.
• Unusual items, changes in accounting policies or estimates, and errors are recognised and
disclosed on the basis of materiality in relation to interim period data to avoid misleading
inferences that might result from non-disclosure.

2.6 DISCLOSURE IN ANNUAL FINANCIAL STATEMENTS

• If an estimate of an amount reported in an interim period is changed significantly during the
final interim period of the financial year but a separate financial report is not published for
that final interim period, the nature and amount of that change in estimate shall be disclosed
in a note to the annual financial statements for that financial year.

• Ind AS 8 requires disclosure of the nature and (if practicable) the amount of a change in
estimate that either has a material effect in the current period or is expected to have a
material effect in subsequent periods.
• An entity is not required to include additional interim period financial information in its
annual financial statements.

2.7 RECOGNITION AND MEASUREMENT

S. No. Criteria Recognition and Measurement
1 Same 1. An entity shall apply the same accounting policies in its interim
accounting financial statements as are applied in its annual financial
policies as statements, except for accounting policy changes made after
annual the date of the most recent annual financial statements that
are to be reflected in the next annual financial statements.
 INDIAN ACCOUNTING STANDARD 34 3.83

2. The frequency of an entity’s reporting (annual, half-yearly, or

quarterly) shall not affect the measurement of its annual
results. To achieve that objective, measurements for interim
reporting purposes shall be made on a year-to-date basis.
3. Year-to-date measurements may involve changes in estimates
of amounts reported in prior interim periods of the current
financial year. But the principles for recognising assets,
liabilities, income, and expenses for interim periods are the
same as in annual financial statements.
2 Revenues 1. Revenues that are received seasonally, cyclically, or
received occasionally within a financial year shall not be anticipated or
cyclically, deferred as of an interim date if anticipation or deferral would
occasionally or not be appropriate at the end of the entity’s financial year.
seasonally Example: Dividend revenue, royalties, and government
grants.
2. Certain entities earn more revenue in certain interim periods
of a financial year than other interim periods. Such revenues
are recognised when they occur.
Example: seasonal revenues of retailers
3 Costs incurred Costs that are incurred unevenly during an entity’s financial year
unevenly shall be anticipated or deferred for interim reporting purposes if,
during the and only if, it is also appropriate to anticipate or defer that type of
financial year cost at the end of the financial year.
4 Use of 1. To ensure that the resulting information is reliable and that all
estimates material financial information that is relevant to an
understanding of the financial position or performance of the
entity is appropriately disclosed.
2. The preparation of interim financial reports requires a greater
use of estimation methods than annual financial reports.

Employer payroll taxes and insurance contributions

If employer payroll taxes or contributions to government-sponsored insurance funds are assessed
on an annual basis, the employer’s related expense is recognised in interim periods using an
estimated average annual effective payroll tax or contribution rate, even though a large portion of
the payments may be made early in the financial year. A common example is an employer payroll
tax or insurance contribution that is imposed up to a certain maximum level of earnings per
 3.84 FINANCIAL REPORTING

employee. For higher income employees, the maximum income is reached before the end of the
financial year, and the employer makes no further payments through the end of the year.
Major planned periodic maintenance or overhaul
The cost of a planned major periodic maintenance or overhaul or other seasonal expenditure that
is expected to occur late in the year is not anticipated for interim reporting purposes unless an
event has caused the entity to have a legal or constructive obligation. The mere intention or
necessity to incur expenditure related to the future is not sufficient to give rise to an obligation.
Provisions

A provision is recognised when an entity has no realistic alternative but to make a transfer of
economic benefits as a result of an event that has created a legal or constructive obligation. The
amount of the obligation is adjusted upward or downward, with a corresponding loss or gain
recognised in profit or loss, if the entity’s best estimate of the amount of the obligation changes.
This Standard requires that an entity apply the same criteria for recognising and measuring a
provision at an interim date as it would at the end of its financial year. The existence or non-
existence of an obligation to transfer benefits is not a function of the length of the reporting period.
It is a question of fact.
Year-end bonuses

The nature of year-end bonuses varies widely. Some are earned simply by continued employment
during a time period. Some bonuses are earned based on a monthly, quarterly, or annual measure
of operating result. They may be purely discretionary, contractual, or based on years of historical
precedent.
A bonus is anticipated for interim reporting purposes if, and only if, (a) the bonus is a legal
obligation or past practice would make the bonus a constructive obligation for which the entity has
no realistic alternative but to make the payments, and (b) a reliable estimate of the obligation can
be made. Ind AS 19, Employee Benefits provides guidance.
Variable lease payments

Contingent lease payments can be an example of a legal or constructive obligation that is

recognised as a liability. If a lease provides for contingent payments based on the lessee
achieving a certain level of annual sales, an obligation can arise in the interim periods of the
financial year before the required annual level of sales has been achieved, if that required level
of sales is expected to be achieved and the entity, therefore, has no realistic alternative but to
make the future lease payment.
 INDIAN ACCOUNTING STANDARD 34 3.85

Intangible assets
An entity will apply the definition and recognition criteria for an intangible asset in the same way
in an interim period as in an annual period. Costs incurred before the recognition criteria foran
intangible asset are met, are recognised as an expense. Costs incurred after the specific point in
time at which the criteria are met are recognised as part of the cost of an intangible asset.
‘Deferring’ costs as assets in an interim balance sheet in the hope that the recognition criteria will
be met later in the financial year is not justified.
Vacations, holidays, and other short-term compensated absences
Accumulating compensated absences are those that are carried forward and can be used in future
periods if the current period’s entitlement is not used in full. Ind AS 19, Employee Benefits
requires that an entity measure the expected cost of and obligation for accumulating compensated
absences at the amount the entity expects to pay as a result of the unused entitlement that has
accumulated at the end of the reporting period. That principle is also applied at the end of interim
financial reporting periods. Conversely, an entity recognises no expense or liability for non-
accumulating compensated absences at the end of an interim reporting period, just as it
recognises none at the end of an annual reporting period.
Other planned but irregularly occurring costs
An entity’s budget may include certain costs expected to be incurred irregularly during the financial
year, such as charitable contributions and employee training costs. Those costs generally are
discretionary even though they are planned and tend to recur from year to year. Recognising an
obligation at the end of an interim financial reporting period for such costs that have not yet been
incurred generally is not consistent with the definition of a liability.
Measuring interim income tax expense
Interim period income tax expense is accrued using the tax rate that would be applicable to
expected total annual earnings, that is, the estimated average annual effective income tax rate
applied to the pre-tax income of the interim period.
This is consistent with the basic concept set out in the Standard that the same accounting
recognition and measurement principles shall be applied in an interim financial report as are
applied in annual financial statements. Income taxes are assessed on an annual basis. Interim
period income tax expense is calculated by applying to an interim period’s pre-tax income the tax
rate that would be applicable to expected total annual earnings, that is, the estimated average
annual effective income tax rate. That estimated average annual rate would reflect a blend of the
 3.86 FINANCIAL REPORTING

progressive tax rate structure expected to be applicable to the full year’s earnings including
enacted or substantively enacted changes in the income tax rates scheduled to take effect later
in the financial year. Ind AS 12, Income Taxes provides guidance on substantively enacted
changes in tax rates. The estimated average annual income tax rate would be re-estimated on a
year-to-date basis, consistent with paragraph 28 of this Standard. The Standard requires
disclosure of a significant change in estimate.
To the extent practicable, a separate estimated average annual effective income tax rate is
determined for each taxing jurisdiction and applied individually to the interim period pre-tax income
of each jurisdiction. Similarly, if different income tax rates apply to different categories of income
(such as capital gains or income earned in particular industries), to the extent practicable a
separate rate is applied to each individual category of interim period pre-tax income. While that
degree of precision is desirable, it may not be achievable in all cases, and a weighted average of
rates across jurisdictions or across categories of income is used if it is a reasonable approximation
of the effect of using more specific rates.

Contractual or anticipated purchase price changes

Volume rebates or discounts and other contractual changes in the prices of raw materials, labour,
or other purchased goods and services are anticipated in interim periods, by both the payer and
the recipient, if it is probable that they have been earned or will take effect. Thus, contractual
rebates and discounts are anticipated but discretionary rebates and discounts are not anticipated
because the resulting asset or liability would not satisfy the conditions in the Conceptual
Framework for Financial Reporting that an asset must be a resource controlled by the entity as a
result of a past event and that a liability must be a present obligation whose settlement is expected
to result in an outflow of resources.

Depreciation and amortisation

Depreciation and amortisation for an interim period is based only on assets owned during that
interim period. It does not take into account asset acquisitions or dispositions planned for later in
the financial year.
Inventories
Inventories are measured for interim financial reporting by the same principles as at financial year-
end. Ind AS 2, Inventories establishes standards for recognising and measuring inventories.
Inventories pose particular problems at the end of any financial reporting period because of the need
to determine inventory quantities, costs, and net realisable values. Nonetheless, the same
measurement principles are applied for interim inventories. To save cost and time, entities often
 INDIAN ACCOUNTING STANDARD 34 3.87

use estimates to measure inventories at interim dates to a greater extent than at the end of annual
reporting periods. Following are examples of how to apply the net realisable value test at an interim
date and how to treat manufacturing variances at interim dates:
• Net realisable value of inventories
The net realisable value of inventories is determined by reference to selling prices and
related costs to complete and dispose at interim dates. An entity will reverse a write-down
to net realisable value in a subsequent interim period only if it would be appropriate to do so
at the end of the financial year.

• Interim period manufacturing cost variances

Price, efficiency, spending, and volume variances of a manufacturing entity are recognised
in the statement of profit and loss at interim reporting dates to the same extent that those
variances are recognised in the statement of profit and loss at financial year-end. Deferral
of variances that are expected to be absorbed by year-end is not appropriate because it
could result in reporting inventory at the interim date at more or less than its portion of the
actual cost of manufacture.
Foreign currency translation gains and losses
Foreign currency translation gains and losses are measured for interim financial reporting by the
same principles as at financial year-end.
Ind AS 21, The Effects of Changes in Foreign Exchange Rates specifies how to translate the
financial statements for foreign operations into the presentation currency, including guidelines for
using average or closing foreign exchange rates and guidelines for recognising the resulting
adjustments in profit or loss or in other comprehensive income. Consistently with Ind AS 21, the
actual average and closing rates for the interim period are used. Entities do not anticipate some
future changes in foreign exchange rates in the remainder of the current financial year in
translating foreign operations at an interim date.
If Ind AS 21 requires translation adjustments to be recognised as income or expense in the period
in which they arise, that principle is applied during each interim period. Entities do not defer some
foreign currency translation adjustments at an interim date if the adjustment is expected to reverse
before the end of the financial year.
Inventories

Full stock-taking and valuation procedures may not be required for inventories at interim dates,
although it may be done at financial year-end. It may be sufficient to make estimates at interim
dates based on sales margins.
 3.88 FINANCIAL REPORTING

Provisions
Determination of an appropriate amount of a provision (such as a provision for warranties,
environmental costs, and site restoration costs) may be complex and often costly and time-
consuming. Entities sometimes engage outside experts to assist in the annual calculations.
Making similar estimates at interim dates often entails updating of the prior annual provision rather
than the engaging of outside experts to do a new calculation.
Pensions
Ind AS 19, Employee Benefits requires that an entity determine the present value of defined
benefit obligations and the market value of plan assets at the end of each reporting period and
encourages an entity to involve a professionally qualified actuary in measurement of the
obligations. For interim reporting purposes, reliable measurement is often obtainable by
extrapolation of the latest actuarial valuation.
Contingencies
The measurement of contingencies may involve the opinions of legal experts or other advisers.
Formal reports from independent experts are sometimes obtained with respect to contingencies.
Such opinions about litigation, claims, assessments, and other contingencies and uncertainties
may or may not also be needed at interim dates.

Inter-company reconciliations
Some inter-company balances that are reconciled on a detailed level in preparing consolidated
financial statements at financial year-end might be reconciled at a less detailed level in preparing
consolidated financial statements at an interim date.

Illustration 1
Company A has reported ` 60,000 as pre tax profit in first quarter and expects a loss of
` 15,000 each in the subsequent quarters. It has a corporate tax slab of 20 percent on the first `
20,000 of annual earnings and 40 per cent on all additional earnings. Calculate the amount of tax
to be shown in each quarter.
Solution

Amount of income tax expense reported in each quarter would be as below:

Expected total Income = ` 15,000 [60,000 - (15,000 x 3)]

Expected tax as per slabs = 15,000 x 20% = ` 3,000

 INDIAN ACCOUNTING STANDARD 34 3.89

Average Annual Income tax rate = 3,000 / 15,000 = 20%

Q1 Q2 Q3 Q4
Profit / (Loss) before tax 60,000 (15,000) (15,000) (15,000)
Tax charge / (credit) 12,000 (3,000) (3,000) (3,000)
*****
Illustration 2
ABC Ltd. presents interim financial report quarterly. On 1.4.20X1, ABC Ltd. has carried forward
loss of ` 600 lakhs for income-tax purpose for which deferred tax asset has not been recognized.
ABC Ltd. earns ` 900 lakhs in each quarter ending on 30.6.20X1, 30.9.20X1, 31.12.20X1 and
31.3.20X2 excluding the carried forward loss. Income-tax rate is expected to be 40%. Calculate
the amount of tax expense to be reported in each quarter.
Solution
Amount of income tax expense reported in each quarter would be as below:

The estimated payment of the annual tax on earnings for the current year:

` 3,000* x 40 / 100 = ` 1,200 lakhs.

*(3,600 lakhs - ` 600 lakhs) = ` 3,000 lakhs
Average annual effective tax rate = (1,200 / 3,600) × 100 = 33.33%

Tax expense to be shown in each quarter = 900 x 33.33% = ` 300 lakhs

*****

Illustration 3
Innovative Corporation Private Limited (or “ICPL”) is dealing in seasonal product and the sales
pattern of the product, quarter wise is as under during the financial year 20X1-20X2:

Qtr. I Qtr. II Qtr. III Qtr. IV

ending 30 June ending 30 September ending 31 December ending 31 March

10% 10% 60% 20%

 3.90 FINANCIAL REPORTING

For the first quarter ending on 30 June, 20X1, ICPL has provided the following information :

Particulars Amounts (in crore)

Sales 70
Employees benefits expenses 25
Administrative and other expenses 12
Finance cost 4

ICPL while preparing interim financial report for first quarter wants to defer ` 16 crores
expenditure to third quarter on the argument that third quarter is having more sales therefore
third quarter should be debited by more expenditure. Considering the seasonal nature of
business and that the expenditures are uniform throughout all quarte `
Calculate the result of first quarter as per Ind AS 34 and comment on the company’s view.

Solution
Result of the first quarter ending 30 June

Particulars Amounts (in crore)

Sales 70
Total Revenue (A) 70
Less: Employees benefits expenses (25)
Administrative and other expenses (12)
Finance cost (4)
Total Expense (B) (41)
Profit (A-B) 29

Note- As per Ind AS 34, the income and expense should be recognized when they are earned
and incurred respectively. Seasonal incomes will be recognized when they occur. Therefore,
the argument of ICPL is not correct considering the priciples of Ind AS 34.
*****

Illustration 4
Fixed production overheads for the financial year is ` 10,000. Normal expected production
for the year, after considering planned maintenance and normal breakdown, also considering
 INDIAN ACCOUNTING STANDARD 34 3.91

the future demand of the product is 2,000 MT. It is considered that there are no quarterly /
seasonal variations. Therefore, the normal expected production for each quarter is 500 MT
and the fixed production overheads for the quarter are ` 2,500.

Actual production achieved Quantity (In MT)

First quarter 400
Second quarter 600
Third quarter 500
Fourth quarter 400
Total 1,900
Presuming that there are no quarterly / seasonal variation, calculate the allocation of fixed
production overheads for all the four quarters as per Ind AS 34 read with Ind AS 2. Will the
quarterly results affect the annual results?

Solution
If it is considered that there is no quarterly / seasonal variation, therefore normal expected
production for each quarter is 500 MT and fixed production overheads for the quarter are
` 2,500.
Fixed production overhead to be allocated per unit of production in every quarter will be ` 5 per
MT (Fixed overheads / Normal production).

Quarters Allocations
First  Actual fixed production overheads = ` 2,500
Quarter  Fixed production overheads based on the allocation rate of ` 5 per unit
allocated to actual production = ` 5 x 400 = ` 2,000
 Unallocated fixed production overheads to be charged as expense as per
Ind AS 2 and consequently as per Ind AS 34 = ` 500
Second  Actual fixed production overheads on year-to-date basis = ` 5,000
Quarter  Fixed production overheads to be absorbed on year-to-date basis = 1,000 x
` 5 = ` 5,000
 Earlier, ` 500 was not allocated to production in the 1 st quarter. To give
effect to the entire ` 5,000 to be allocated in the second quarter, as per Ind
AS 34, ` 500 are reversed by way of a credit to the statement of profit and
loss of the 2 nd quarter.
 3.92 FINANCIAL REPORTING

Third  Actual production overheads on year-to-date basis = ` 7,500

Quarter  Fixed production overheads to be allocated on year-to-date basis = 1,500 x
5 = ` 7,500
 There is no under or over recovery of allocated overheads. Hence, no
further action is required.
Fourth  Actual fixed production overheads on year-to-date basis
Quarter = ` 10,000
 Fixed production overheads to be allocated on year-to-date basis 1,900 x 5
= ` 9,500
 ` 500, i.e., [` 2,500 – (` 5 x 400)] unallocated fixed production overheads
in the 4 th quarter, are to be expensed off as per the principles of Ind AS 2
and Ind AS 34 by way of a charge to the statement of profit and loss.
 Unallocated productions overheads for the year ` 500 (i.e ` 10,000 –
` 9,500) are expensed in the Statement of profit and loss as per
Ind AS 2.

The cumulative result of all the quarters would also result in unallocated overheads of ` 500, thus,
meeting the requirements of Ind AS 34 that the quarterly results should not affect the
measurement of the annual results.
*****

2.8 RESTATEMENT OF PREVIOUSLY REPORTED INTERIM

PERIODS
A change in accounting policy, other than one for which the transition is specified by a new
Ind AS, shall be reflected by:
(a) restating the financial statements of prior interim periods of the current financial year and
the comparable interim periods of any prior financial years that will be restated in the annual
financial statements in accordancewith Ind AS 8; or
(b) when it is impracticable to determine the cumulative effect at the beginning of the financial
year of applying a new accounting policy to all prior periods, adjusting the financial
statements of prior interim periods of the current financial year, and comparable interim
periods of prior financial years to apply the new accounting policy prospectively from the
earliest date practicable.
Under Ind AS 8, a change in accounting policy is reflected by retrospective application, with
 INDIAN ACCOUNTING STANDARD 34 3.93

restatement of prior period financial data as far back as is practicable. However, if the cumulative
amount of the adjustment relating to prior financial years is impracticable to determine, then under
Ind AS 8 the new policy is applied prospectively from the earliest date practicable.
The effect of this alongwith respect to interim periods shall be that within the current financial year
any change in accounting policy is applied either retrospectively or, if that is not practicable,
prospectively, from no later than the beginning of the financial year.

2.9 INTERIM FINANCIAL REPORTING AND IMPAIRMENT

An entity is required to assess goodwill for impairment at the end of each reporting period, and, if
required, to recognise an impairment loss at that date in accordance with Ind AS 36. However, at
the end of a subsequent reporting period, conditions may have so changed that the impairment
loss would have been reduced or avoided had the impairment assessment been made only at that
date.
Accordingly, an entity shall not reverse an impairment loss recognised in a previous interim period
in respect of goodwill.
Illustration 5
ABC Limited manufactures automobile parts. ABC Limited has shown a net profit of ` 20,00,000
for the third quarter of 20X1.
Following adjustments are made while computing the net profit:
(i) Bad debts of ` 1,00,000 incurred during the quarter. 50% of the bad debts have been deferred
to the next quarter.
(ii) Additional depreciation of ` 4,50,000 resulting from the change in the method of depreciation.
(iii) Exceptional loss of ` 28,000 incurred during the third quarter. 50% of exceptional loss have
been deferred to next quarter.
(iv) ` 5,00,000 expenditure on account of administrative expenses pertaining to the third quarter
is deferred on the argument that the fourth quarter will have more sales; therefore fourth
quarter should be debited by higher expenditure. The expenditures are uniform throughout
all quarters.
Ascertain the correct net profit to be shown in the Interim Financial Report of third quarter to be
presented to the Board of Directors.
 3.94 FINANCIAL REPORTING

Solution
In the instant case, the quarterly net profit has not been correctly stated. As per Ind AS 34, Interim
Financial Reporting, the quarterly net profit should be adjusted and restated as follows:
(i) The treatment of bad debts is not correct as the expenses incurred during an inter imreporting
period should be recognised in the same period. Accordingly, ` 50,000 should be deducted
from ` 20,00,000.
(ii) Recognising additional depreciation of ` 4,50,000 in the same quarter is correct and is in
tune with Ind AS 34.
(iii) Treatment of exceptional loss is not as per the principles of Ind AS 34, as the entire amount
of ` 28,000 incurred during the third quarter should be recognized in the same quarter. Hence
` 14,000 which was deferred should be deducted from the profits of third quarter only.
(iv) As per Ind AS 34 the income and expense should be recognised when they are earned and
incurred respectively. As per para 39 of Ind AS 34, the costs should be anticipated or deferred
only when:
(i) it is appropriate to anticipate or defer that type of cost at the end of the financial year,
and
(ii) costs are incurred unevenly during the financial year of an enterprise.
Therefore, the treatment done relating to deferment of ` 5,00,000 is not correct as
expenditures are uniform throughout all quarters.
Thus considering the above, the correct net profits to be shown in Interim Financial Report of the
third quarter shall be ` 14,36,000 (` 20,00,000 - ` 50,000 - ` 14,000 - ` 5,00,000).
*****

2.10 SIGNIFICANT DIFFERENCES IN IND AS 34 VIS-À-VIS

AS 25
S. Particular Ind AS 34 AS 25
No.
1. Disclosures Ind AS 34 requires disclosure AS 25 does not specifically
by way of an explanation of requires such disclosure.
events and transactions that
are significant to an
understanding of the changes
 INDIAN ACCOUNTING STANDARD 34 3.95

in financial position and

performance of the entity since
the end of the last annual
reporting period.
2. Reversal of Ind AS 34 prohibits reversal of There is no such specific
Impairment Loss impairment loss recognised in prohibition in the AS 25.
a previous interim period in
respect of goodwill (in harmony
with paragraph 124 of Ind AS
36, which prohibits reversal of
impairment loss recognised for
goodwill in a subsequent
period) or an investment in
either an equity instrument or a
financial asset carried at cost.
Ind AS 34 includes Appendix A
which addresses the
interaction between the
requirements of Ind AS 34 and
the recognition of impairment
losses on goodwill in Ind AS 36
and the effect of that interaction
on subsequent interim and
annual financial statements
3. Inclusion of the Ind AS 34 states that it neither Under AS 25, if an entity’s annual
Parent’s Separate requires nor prohibits the financial report included the
Statements and inclusion of the parent’s consolidated financial
the Consolidated separate statements inthe statements in addition to the
Financial entity’s interim report if an separate financial statements,
Statements in the entity’s annual financial report the interim financial report
Entity’s Interim included the parent’s separate should include both the
Report financial statements in addition consolidated financial
to consolidated financial statements and separate
statements. financial statements, complete or
condensed.
4. Accounting Ind AS 34 additionally requires AS 25 requires the Notes to
Policies the information in respect of interim financial statements, (if
methods of computation material and not disclosed
followed. elsewhere in the interim financial
report), to contain a statement
that the same accounting
policies are followed in the
interim financial statements as
 3.96 FINANCIAL REPORTING

those followed in the most recent

annual financial statements or, in
case of change in those policies,
a description of the nature and
effect of the change.
5. Contingent Ind AS 34 requires furnishing of AS 25 requires furnishing of
Liabilities and information on both contingent information on contingent
Contingent Assets liabilities and contingent liabilities only.
assets, if they are significant.
6. Interim Financial Ind AS 34 requires that, where AS 25 does not contain these
Statements an interim financial report has requirements.
prepared on been prepared in accordance
Complete Basis with the requirements of Ind AS
34, that fact should be
disclosed.
Further, an interim financial
report should not be described
as complying with Ind AS
unless it complies with allofthe
requirements of Ind AS.
(The latter statement is
applicable when interim
financial statements are
prepared on complete basis
instead of ‘condensed basis’).
7. Transitional Ind AS 34 does not have this Under AS 25, when an interim
provision transitional provision. financial report is presented for
the first time in accordance with
that Standard, an entity need not
present, in respect of all the
interim periods of the current
financial year, comparative
statements of profit and loss for
the comparable interim periods
(current and year-to-date) of the
immediately preceding financial
year and comparative cash flow
statement for the comparable
year-to-date period of the
immediately preceding financial
year.
 INDIAN ACCOUNTING STANDARD 34 3.97

FOR SHORTCUT TO IND AS WISDOM: SCAN ME!

TEST YOUR KNOWLEDGE

Questions
1. The entity’s financial year ends on 31st March. What are the “reporting periods” for which
financial statements (condensed or complete) in the interim financial report of the entity as
on 30th September, 20X1 are required to be presented, if:
(i) Entity publishes interim financial reports quarterly

(ii) Entity publishes interim financial reports half-yearly.

2. Narayan Ltd. provides you the following information and asks you to calculate the tax
expense for each quarter, assuming that there is no difference between the estimated
taxable income and the estimated accounting income:
Estimated Gross Annual Income 33,00,000
(inclusive of Estimated Capital Gains of ` 8,00,000)
Estimated Income of Quarter I is ` 7,00,000, Quarter II is ` 8,00,000, Quarter III (including
Estimated Capital Gains of ` 8,00,000) is ` 12,00,000 and Quarter IV is ` 6,00,000.
Tax Rates: On Capital Gains 12%

On Other Income: First ` 5,00,000 30%

Balance Income· 40%
3. An entity reports quarterly, earns ` 1,50,000 pre-tax profit in the first quarter but expects
to incur losses of ` 50,000 in each of the three remaining quarters. The entity operates in
a jurisdiction in which its estimated average annual income tax rate is 30%.
 3.98 FINANCIAL REPORTING

The management believes that since the entity has zero income for the year, its income-
tax expense for the year will be zero. State whether the management’s views are correct
or not? If not, then calculate the tax expense for each quarter as well as for the year as
per Ind AS 34.
4. Due to decline in market price in second quarter, Happy India Ltd. incurred an inventory
loss. The Market price is expected to return to previous levels by the end of the year. At
the end of year, the decline had not reversed. When should the loss be reported in interim
statement of profit and loss of Happy India Ltd.?
Answers
1. Paragraph 20 of Ind AS 34, Interim Financial Reporting states as follows:
“Interim reports shall include interim financial statements (condensed or complete) for
periods as follows:

a) balance sheet as of the end of the current interim period and a comparative balance
sheet as of the end of the immediately preceding financial year.
b) statements of profit and loss for the current interim period and cumulatively for the
current financial year to date, with comparative statements of profit and loss for the
comparable interim periods (current and year-to-date) of the immediately preceding
financial year.
c) statement of changes in equity cumulatively for the current financial year to date,
with a comparative statement for the comparable year-to-date period of the
immediately preceding financial year.
d) statement of cash flows cumulatively for the current financial year to date, with a
comparative statement for the comparable year-to-date period of the immediately
preceding financial year.
Accordingly, periods for which interim financial statements are required to be presented
are provided herein below:
(i) Entity publishes interim financial reports quarterly

The entity will present the following financial statements (condensed or complete) in
its interim financial report of 30th September, 20X1:
 INDIAN ACCOUNTING STANDARD 34 3.99

Balance 30th September 31st March 20X1 - -

sheet at 20X1
Statement of 3 months ended 3 months ended 6 months 6 months ended
profit and 30 th September 30 th September ended 30 th 30 th September
loss for 20X1 20X0 September 20X0
20X1
Statement of 6 months ended 6 months ended
changes in 30 th September 30 th September
equity for 20X1 20X0
Statement of 6 months ended 6 months ended - -
cash flows for 30 th September 30 th September
20X1 20X0
(ii) Entity publishes interim financial reports half-yearly
The entity’s financial year ends 31st March. The entity will present the following
financial statements (condensed or complete) in its half-yearly interim financial report
of 30th September, 20X1:

Balance sheet at 30th September, 20X1 31st March, 20X1

Statement of profit and loss for 6 months ending 6 months ending

30 th September, 20X1 30 th September, 20X0

Statement of changes in equity for 6 months ending 6 months ending

30 th September 20X1 30 th September 20X0

Statement of cash flows for 6 months ending 6 months ending

30 th September 20X1 30 th September 20X0

2. As per para 30(c) of Ind AS 34 ‘Interim Financial Reporting’, income tax expense is
recognised in each interim period based on the best estimate of the weighted average annual
income tax rate expected for the full financial year.
If different income tax rates apply to different categories of income (such as capital gains or
income earned in particular industries) to the extent practicable, a separate rate is applied to
each individual category of interim period pre-tax income.

`
Estimated annual income exclusive of estimated capital gain
(33,00,000 – 8,00,000) (A) 25,00,000
Tax expense on other income:
 3.100 FINANCIAL REPORTING

30% on ` 5,00,000 1,50,000

40% on remaining ` 20,00,000 8,00,000
(B) 9,50,000
9,50,000
Weighted average annual income tax rate = B = = 38%
A 25,00,000

Tax expense to be recognised in each of the quarterly reports

`
Quarter I - ` 7,00,000 x 38% 2,66,000
Quarter II - ` 8,00,000 x 38% 3,04,000
Quarter III - ` (12,00,000 - 8,00,000) x 38% 1,52,000
` 8,00,000 x 12% 96,000 2,48,000
Quarter IV - ` 6,00,000 x 38% 2,28,000
10,46,000
3. As illustrated in para 30 (c) of Ind AS 34 ‘Interim financial reporting’, income tax expense is
recognised in each interim period based on the best estimate of the weighted average
annual income tax rate expected for the full financial year.
Accordingly, the management’s contention that since the net income for the year will be zero
no income tax expense shall be charged quarterly in the interim financial report, is not correct.
Since the effective tax rate or average annual income tax rate is already given in the question
as 30%, the income tax expense will be recognised in each interim quarter based on this
rate only. The following table shows the correct income tax expense to be reported each
quarter in accordance with Ind AS 34:
Period Pre-tax earnings Effective tax rate Tax expense
(in `) (in `)
First Quarter 1,50,000 30% 45,000
Second Quarter (50,000) 30% (15,000)
Third Quarter (50,000) 30% (15,000)
Fourth Quarter (50,000) 30% (15,000)
Annual 0 0

4. Loss should be recognised in the second quarter of the year.