Intangible assets, relevant Indian Accounting Standards (Ind AS) shall apply

By | November 18, 2016

MINISTRY OF CORPORATE AFFAIRS

NOTIFICATION

New Delhi, the 17th November, 2016

G.S.R. 1075(E).—In exercise of the powers conferred by sub-section (1) of section 467 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following further amendments to amend Schedule II to the said Act, namely:-

1. In the Companies Act, 2013, in Schedule II, under Part ‘A’, in para 3, in sub-paragraph (ii), for the brackets, letters and words starting with “(ii) For intangible“ and ending with the words “force shall apply”, the following brackets, letters and words shall be substituted, namely:-

“(ii) For intangible assets, the relevant Indian Accounting Standards (Ind AS) shall apply. Where a company is not required to comply with the Indian Accounting Standards (Ind AS), it shall comply with relevant Accounting Standards under Companies (Accounting Standards) Rules, 2006.”

2. This notification shall be applicable for accounting period commencing on or after 01st April, 2016.

[F. No. 17/60/2012-CL-V]

AMARDEEP SINGH BHATIA, Jt Secy.

Note : Schedule II of the Companies Act, 2013 came into force with effect from 1st April, 2014 and was amended (with effect from 1st April, 2014) vide notification number G.S.R. 237(E), dated the 31st March, 2014 and G.S.R. 627(E), dated the 29th August, 2014.


NOTIFICATION NO. GSR 627(E) [F.NO.A-17/60/2012-CL-V], DATED 29-8-2014

In exercise of the powers conferred by sub-section (1) of section 467 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following amendments further to amend Schedule II of the said Act with effect from the date of publication of this notification in the Official Gazette, namely:—

1. In Schedule II of the Companies Act, 2013,

(a) in Part ‘A’, in paragraph 3, for sub-paragraph (i), the following sub-paragraph shall be substituted, namely:—
“(i) The useful life of an asset shall not ordinarily be different from the useful life specified in Part C and the residual value of an asset shall not be more than five per cent of the original cost of the asset:
Provided that where a company adopts a useful life different from what is specified in Part C or uses a residual value different from the limit specified above, the financial statements shall disclose such difference and provide justification in this behalf duly supported by technical advice”,
(b) after Part ‘C’ under the heading Notes,—
(i) for paragraph 4 the following paragraph shall be substituted namely:—
“4(a) Useful life specified in Part C of the Schedule is for whole of the asset and where cost of a part of the asset is significant to total cost of the asset and useful life of that part is different from the useful life of the remaining asset, useful life of that significant part shall be determined separately.
(b) The requirement under sub-paragraph (a) shall be voluntary in respect of the financial year commencing on or after the 1st April, 2014 and mandatory for financial statements in respect of financial years commencing on or after the 1st April, 2015.”
(c) in paragraph 7, in sub-paragraph (b) for the words “shall be recognized”, the words “may be recognized” shall be substituted.

SCHEDULE II OF THE COMPANIES ACT, 2013 – DEPRECIATION – AMENDMENT IN SCHEDULE II

NOTIFICATION NO. GSR 237(E) [F.NO.17/60/2012-CL-V], DATED 31-3-2014

In exercise of the powers conferred by sub-section (2) of Section 123 read with sub-sections (1) of Section 467 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following alterations to Schedule II to the said Act, namely:—

1. In Schedule II,—

(1) in Part ‘A’, in para 3, for sub-paragraphs (i) to (iii), the following sub-paragraphs shall be substituted, namely:—

“(i) The useful life of an asset shall not be longer than the useful life specified in Part ‘C’ and the residual value of an asset shall not be more than five per cent of the original cost of the asset:
Provided that where a company uses a useful life or residual value of the asset which is different from the above limits, justification for the difference shall be disclosed in its financial statement.
“(ii) For intangible assets, the provisions of the accounting standards applicable for the time being in force shall apply, except in case of intangible assets (Toll Roads) created under ‘Build, Operate and Transfer’, ‘Build, Own, Operate and Transfer’ or any other form of public private partnership route in case of road projects. Amortisation in such cases may be done as follows:—
(a) Mode of amortization
Amortisation Rate = Amortisation Amount × 100
Cost of Intangible Assets (A)
Amortisation Amount
= Cost of Intangible Assets (A) × Actual Revenue for the year (B)
Projected Revenue from Intangible Asset (till the end of the concession period) (C)
(b) Meaning of particulars are as follows:—
Cost of Intangible Assets (A) = Cost incurred by the company in accordance with the accounting standards.
Actual Revenue for the year (B) = Actual revenue (Toll Charges) received during the accounting year.
Projected Revenue from Intangible Asset (C) Total projected revenue from the Intangible Assets as provided to the project lender at the time of financial closure /agreement.
The amortisation amount or rate should ensure that the whole of the cost of the intangible asset is amortised over the concession period.
Revenue shall be reviewed at the end of each financial year and projected revenue shall be adjusted to reflect such changes, if any, in the estimates as will lead to the actual collection at the end of the concession period.
(c) Example:—
Cost of creation of Intangible Assets  : Rs. 500 Crores
Total period of Agreement  : 20 Years
Time used for creation of Intangible Assets  : 2 Years
Intangible Assets to be amortised in  : 18 Years
Assuming that the Total revenue to be generated out of Intangible Assets over the period would be Rs. 600 Crores, in the following manner:—
Year No. Revenue (In Rs. Crores) Remarks
Year 1 5 Actual
Year 2 7.5 Estimate *
Year 3 10 Estimate *
Year 4 12.5 Estimate *
Year 5 17.5 Estimate *
Year 6 20 Estimate *
Year 7 23 Estimate *
Year 8 27 Estimate *
Year 9 31 Estimate *
Year 10 34 Estimate *
Year 11 38 Estimate *
Year 12 41 Estimate *
Year 13 46 Estimate *
Year 14 50 Estimate *
Year 15 53 Estimate *
Year 16 57 Estimate *
Year 17 60 Estimate *
Year 18 67.5 Estimate *
Total 600
‘*’ will be actual at the end of financial year.
Based on this the charge for first year would be Rs. 4.16 Crore (approximately) (i.e. Rs. 5/Rs. 600 × Rs. 500 Crores) which would be charged to profit and loss and 0.83% (i.e. Rs. 4.16 Crore/Rs. 500 Crore × 100) is the amortisation rate for the first year.
Where a company arrives at the amortisation amount in respect of the said Intangible Assets in accordance with any method as per the applicable Accounting Standards, it shall disclose the same.”

(2) in Part ‘C’, in para 5, in item IV, in sub-item (i), for clause (b), the following clause shall be substituted, namely:—

“(b) continuous process plant for which no special rate has been prescribed under (ii) below [NESD] 25 years”.

(3) under the heading ‘Notes’, appearing after Part ‘C’, paragraph 5 shall be omitted.

2. This notification shall come into force with effect from 1 April, 2014.

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