Estimates as per Ind AS 101

The estimates considered as per Ind ASs at the date of transition should be consistent with the estimates made for the same date as per the previous GAAP.  While preparing the financial statements, an entity is required to make estimates depending upon the requirements of the concerned accounting standards wherever such estimates are required to be made.  When estimates are required to be made as per Ind AS, it should be ensured that such estimates are consistent with the estimates made as per the previous GAAP.

Receipt of additional information

When the entity receives information after the date of transition to Ind AS about estimates that it had made under previous GAAP, the receipt of that information should be treated in the same way as non-adjusting even after the reporting period as specified in Ind ASs with events after the reporting period.    In other words, the impact of the new information received should be reflected in the current year accounts and should not be adjusted against the opening balance sheet.

Estimates examples

• Date of transition: 1 April 2015; new information received on 15 July 2015 requires the revision of an estimate made as per previous GAAP at 31 March 2015.
• New information in not reflected in its opening Ind AS Balance Sheet.
• Unless the estimates need adjustment for any differences in accounting policies or there is objective evidence that the estimates were in error.
• The new information reflected in profit or loss or OCI for the year ended 31 March 2016.

Estimates not required as per previous GAAP.

• Estimates may be needed as per Ind ASs at the date of transition that were not required at that date under previous GAAP
• Those estimates as per Ind ASs shall reflect conditions that existed at the date of transition to Ind ASs
• Estimates at the date of transition to Ind ASs of market prices, interest rates or foreign exchange rates shall reflect market conditions at that date

Estimates for comparative period

• Estimates also apply to a comparative period presented in an entity’s first Ind AS financial statements.
• References to the date of transition to Ind ASs are replaced by references to the end of that comparative period.

Estimates – Implementation guidance

• Ind AS 10 is applied in determining whether:
• its opening Ind AS statement of financial position reflects an event that occurred after the date of transition and
• comparative amounts in its first Ind AS financial statements reflect an event that occurred after the end of that comparative period.
• Should determine whether changes in estimates are adjusting or non-adjusting events at the date of transition.

Estimates – Implementation – Case 1

• Previous GAAP required estimates of similar items for the date of transition to Ind ASs.
• Accounting policy is consistent with Ind ASs.
• The estimates as per Ind ASs are consistent with estimates made for that date as per previous GAAP.
• There is no objective evidence that those estimates were in error.
• The entity reports later revisions to those estimates as non-adjusting events of the period in which it makes the revisions.

Estimates – Implementation guidance

Estimates – Implementation – Case 2

• Previous GAAP required estimates of similar items for the date of transition to Ind ASs.
• Accounting policies are not consistent with its accounting policies as per Ind ASs.
• Estimates as per Ind ASs need to be consistent with the estimates as per previous GAAP for that date after adjusting for the difference in accounting policies.
• The opening Ind AS statement of financial position reflects those adjustments for the difference in accounting policies.
• As in case 1, later revisions to those estimates are non-adjusting events reported as events of the period in which it makes the revisions.
• Example: Previous GAAP may have required an entity to recognise and measure provisions on a basis consistent with Ind AS 37 Provisions, Contingent Liabilities and Contingent Assets.
• The previous GAAP measurement was on an undiscounted basis.
• The entity uses the estimates as per previous GAAP as inputs but discounts the measurement required by Ind AS 37.

Estimates – Case study

Entity A’s first Ind AS financial statements are for a period that ends on 31 March 2015 and include comparative information for one year.  Entity A –

1. Made estimates of accrued expenses and provisions at those dates.
2. Did not recognise a provision for a court case arising from events that occurred in September 2014. When the court case was concluded on 30 June 2015, entity A was required to pay Rs.1,00,000 and paid this on 10 July 2015.
3. Accounted on a cash basis for a defined benefit pension plan.

• The estimates are as per previous GAAP for accrued expenses.
• Provisions at 31 March 2013 and 2014 were made on a basis consistent with its accounting policies as per Ind ASs.
• Some of the accruals and provisions turned out to be overestimates and others to be underestimates.
• However, the estimates were reasonable and no error had occurred.
• How will the above 3 items be dealt with while preparing the accounts as per Ind AS.

Estimates – Case study – Solution

• In its opening Ind AS Balance Sheet at 1 Apr 2014 and in its comparative statement of financial position at 31 Mar 2013, entity A:

1.Estimates for accrued expenses & provisions:

• Accounting for those overestimates and underestimates involves routine adjustment of estimates as per Ind AS 8.
• Previous estimates for accrued expenses and provisions not adjusted

2.Provision for court case: Assumption 1 – Previous GAAP was consistent with Ind AS 37.

• Entity A concluded that the recognition criteria were not met.
• In this case, Entity A’s assumptions as per Ind ASs are consistent with its assumptions as per previous GAAP.
• Entity A does not recognise a provision at 31 Mar 2014.

Assumption 2 – Previous GAAP was not consistent with Ind AS 37.

• Estimates are made as per Ind AS 37.
• As per Ind AS 37, determine whether an obligation exists at the end of the reporting period by taking account of all available evidence, including any additional evidence provided by events after the reporting period.
• As per Ind AS 10 the resolution of a court case after the reporting period is an adjusting event after the reporting period if it confirms that the entity had a present obligation at that date.
• The resolution of the court case confirms that entity A had a liability in September 2013 when the events occurred that gave rise to the court case.
• So Entity A recognises a provision at 31 Mar 20X4.
• Entity A measures that provision by discounting Rs.1,00,000 paid on 10 July 2015 to its present value, using a discount rate that complies with Ind AS 37 and reflects market conditions at 31 Mar 2014.

3. Accounting for pension plan:

• Makes estimates (in the form of actuarial assumptions) necessary to account for the pension plan as per Ind AS 19 Employee Benefits.
• Entity A’s actuarial assumptions at 1 January 20X4 and 31 December 20X4 do not reflect conditions that arose after those dates.

For example, entity A’s:

1. discount rates at 1 January 20X4 and 31 December 20X4 for the pension plan and for provisions reflect market conditions at those dates; and
2. actuarial assumptions at 1 January 20X4 and 31 December 20X4 about future employee turnover rates do not reflect conditions that arose after those dates — such as a significant increase in estimated employee turnover rates as a result of a curtailment of the pension plan in 20X5.

• The difference is adjusted in the opening balance sheet.

Estimates – do not override other Ind ASs

• Estimates as per Ind AS 101 do not override requirements in other Ind ASs that base classifications or measurements on circumstances existing at a particular date.

Examples:

1. the distinction between finance leases and operating leases
2. the restrictions in Ind AS 38 Intangible Assets that prohibit capitalisation of expenditure on an internally generated intangible asset if the asset did not qualify for recognition when the expenditure was incurred
3. the distinction between financial liabilities and equity instruments