Key Takeaway of ICDS -Income Computation and Disclosure Standard

By | June 15, 2016

Income Computation and Disclosure Standard

Key Takeaway of ICDS -Income Computation and Disclosure Standard

  • The Income Computation and Disclosure Standard is applicable for computation of income chargeable under the head “Profits and gains of business or profession” or “Income from other sources” and not for the purposes of maintenance of books of account
  • Valuation of Inventories ((ICDS-II) 
    • The method of valuation of inventories once adopted by a person in any previous year shall not be changed without reasonable cause.
    • When the business has commenced during the previous year , value of the inventory as on the beginning of the previous year shall be the cost of inventory available, if any, on the day of the commencement of the business.
    • In case of dissolution of a partnership firm or association of person or body of individuals, notwithstanding whether business is discontinued or not, the inventory on the date of dissolution shall be valued at the net realisable value.
    • Interest and other borrowing costs, which do not meet the criteria for recognition of interest as a component of the cost , but included in the cost of the opening inventory as on the 1st day of April, 2015, shall be taken into account for determining cost of such inventory for valuation as on the close of the previous year beginning on or after 1st day of April, 2015 if such inventory continue to remain part of inventory as on the close of the previous year beginning on or after 1st day of April, 2015.

Income Computation and Disclosure Standard

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  • Construction Contracts (ICDS-III)
    • Contract revenue and contract costs associated with the construction contract, which commenced on or before the 31st day of March, 2015 but not completed by the said date, shall be recognised as revenue and costs respectively in accordance with the provisions of this standard. The amount of contract revenue, contract costs or expected loss, if any, recognised for the said contract for any previous year commencing on or before the 1st day of April, 2014 shall be taken into account for recognising revenue and costs of the said contract for the previous year commencing on the 1st day of April, 2015 and subsequent previous years.
  • Revenue Recognition (ICDS-IV)
    • In case of Sale of Goods, Revenue shall be recognised when there is reasonable certainty of its ultimate collection.

    • In case of Sale of Goods,  Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim for escalation of price and export incentives, revenue recognition in respect of such claim shall be postponed to the extent of uncertainty involved.
    • Revenue from service transactions shall be recognised by the percentage completion method. Under this method, revenue from service transactions is matched with the service transactions costs incurred in reaching the stage of completion, resulting in the determination of revenue, expenses and profit which can be attributed to the proportion of work completed
    • The transitional provisions of Income Computation and Disclosure Standard on construction contract shall mutatis mutandis apply to the recognition of revenue and the associated costs for a service transaction undertaken on or before the 31st day of March, 2015 but not completed by the said date.
    • Revenue for a transaction, other than a service transaction ,  undertaken on or before the 31st day of March, 2015 but not completed by the said date shall be recognised in accordance with the provisions of this standard for the previous year commencing on the 1st day of April, 2015 and subsequent previous year. The amount of revenue, if any, recognised for the said transaction for any previous year commencing on or before the 1st day of April, 2014 shall be taken into account for recognising revenue for the said transaction for the previous year commencing on the 1st day of April, 2015 and subsequent previous years.
  • Tangible Fixed Assets (ICDS-V)
    • When a tangible fixed asset is acquired in exchange for another asset, the fair value of the tangible fixed asset so acquired shall be its actual cost.
    • When a tangible fixed asset is acquired in exchange for shares or other securities, the fair value of the tangible fixed asset so acquired shall be its actual cost
    • The actual cost of tangible fixed assets, acquisition or construction of which commenced on or before the 31st day of March, 2015 but not completed by the said date, shall be recognised in accordance with the provisions of this standard. The amount of actual cost, if any, recognised for the said assets for any previous year commencing on or before the 1st day of April, 2014 shall be taken into account for recognising actual cost of the said assets for the previous year commencing on the 1st day of April, 2015 and subsequent previous years.
  • Effects of Changes in Foreign Exchange Rates(ICDS-VI)
    • A foreign currency transaction shall be recorded, on initial recognition in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.

    •  An average rate for a week or a month that approximates the actual rate at the date of the transaction may be used for all transaction in each foreign currency occurring during that period. If the exchange rate fluctuates significantly, the actual rate at the date of the transaction shall be used.
    • In respect of monetary items, exchange differences arising on the settlement thereof or on conversion thereof at last day of the previous year shall be recognised as income or as expense in that previous year.
    • In respect of non-monetary items, exchange differences arising on conversion thereof at the last day of the previous year shall not be recognised as income or as expense in that previous year.
    • Premium, discount or exchange difference on contracts (Forward Exchange Contracts) that are intended for trading or speculation purposes, or that are entered into to hedge the foreign currency risk of a firm commitment or a highly probable forecast transaction shall be recognised at the time of settlement.
  • Securities (ICDS-VIII)
    • This Income Computation and Disclosure Standard deals with securities held as stock-in-trade.“Securities” shall have the meaning assigned to it in clause (h) of Section 2 of the Securities Contract (Regulation) Act, 1956 (42 of 1956), other than Derivatives referred to in sub-clause (1a) of that clause.
    • Where a security is acquired in exchange for other securities, the fair value of the security so acquired shall be its actual cost.
    • Where a security is acquired in exchange for another asset, the fair value of the security so acquired shall be its actual cost.
  • Borrowing Costs  (ICDS-IX)
    • All the borrowing costs incurred on or after 1st day of April, 2015 shall be capitalised for the previous year commencing on or after 1st day of April, 2015 in accordance with the provisions of this standard after taking into account the amount of borrowing costs capitalised, if any, for the same borrowing for any previous year ending on or before 31st day of March, 2015.
  • Provisions, Contingent Liabilities and Contingent Assets (ICDS -X)
    • All the provisions or assets and related income shall be recognised for the previous year commencing on or after 1st day of April, 2015 in accordance with the provisions of this standard after taking into account the amount recognised, if any, for the same for any previous year ending on or before 31st day of March, 2015.

List of  Income Computation and Disclosure Standard Issued by 

  1. ICDS I – Income Computation and Disclosure Standard -I  (Accounting Policies)
  2. ICDS II -Income Computation and Disclosure Standard-II (Valuation of Inventories )
  3. ICDS III -Income Computation and Disclosure Standard -III (Construction Contracts)
  4. ICDS IV -Income Computation and Disclosure Standard IV (Revenue Recognition )
  5. ICDS V – Income Computation and Disclosure Standard V (Tangible fixed assets )
  6. ICDS VI -Income Computation and Disclosure Standard VI (Effects of Changes in Foreign Exchange Rates)
  7. ICDS VII -Income Computation and Disclosure Standard VII (Government Grants )
  8. ICDS VIII -Income Computation and Disclosure Standard VIII ( Securities )
  9. ICDS IX-Income Computation and Disclosure Standard IX (Borrowing Costs )
  10. ICDS X- Income Computation and Disclosure Standard X (Provisions, Contingent Liabilities and Contingent Assets)

 

 

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