Disclosure Standards Short Answer Type Questions

Question 1.
Evaluate the requirements and disclosure of EPS under Ind. AS 33.
Answer:
Requirement:
An entity whose securities are publicly traded (or that is in process of public issuance) must present, on the face of the statement of comprehensive income, basic and diluted EPS for:
(a) profit or loss from continuing operations attributable to the ordinary equity holders of the parent entity.

(b) profit or loss attributable to the ordinary equity holders of the parent entity for the period for each class of ordinary shares that has a different right to share in profit for the period.
If an entity presents the components of profit or loss in a separate income statement, it presents EPS only in that separate statement.

Disclosure:
If EPS is presented, the following disclosures are required:
(a) the amounts used as the numerators in calculating basic and diluted EPS, and a reconciliation of those amounts to profit or loss attributable to the parent entity for the period

(b) the weighted average number of ordinary shares used as the denominator in calculating basic and diluted EPS, and a reconciliation of these denominators to each other

(c) instruments (including contingently issuable shares) that could potentially dilute basic EPS in the future, but were not included in the calculation of diluted EPS because they are antidilutive for the period(s) presented

(d) a description of those ordinary share transactions or potential ordinary share transactions that occur after the balance sheet date and that would have changed significantly the number of ordinary shares or potential ordinary shares outstanding at the end of the period if those transactions had occurred before the end of the reporting period. Examples include issues and redemptions of ordinary shares issued for cash, warrants and options, conversions, and exercises

Question 2.
Explain the scope of Related Party Disclosures.
Answer:
(i) This Standard shall be applied in:

identifying related party relationships and transactions.
identifying outstanding balances, including commitments, between an entity and its related parties.
identifying the circumstances in which disclosure of the items in (a) and (b) is required.
determining the disclosures to be made about those items.

(ii) This Standard requires disclosure of related party relationships, transactions and outstanding balances, including commitments, in the consolidated and separate financial statements of a parent, venturer or investor presented in accordance with Indian Accounting Standard (Ind AS) 27 Consolidated and Separate Financial Statements. This Standard also applies to individual financial statements.

(iii) Related party transactions and outstanding balances with other entities in a group are disclosed in an entity’s financial statements. Intra-group related party transactions and outstanding balances are eliminated in the preparation of consolidated financial statements of the group.
(a) Related party disclosure requirements as laid down in this Standard do not apply in circumstances where providing such disclosures would conflict with the reporting entity’s duties of confidentiality as specifically required in terms of a statute or by any regulator or similar competent authority.

(b) In case a statute or a regulator or a similar competent authority governing an entity prohibit the entity to disclose certain information which is required to be disclosed as per this Standard, disclosure of such information is not warranted. For example, banks are obliged by law to maintain confidentiality in respect of their customers’ transactions and this Standard would not override the obligation to preserve the confidentiality of customers’ dealings.

Question 3.
What are the objectives, scope and disclosure of related party as per Ind. AS 24.
Answer:
Objective and Scope of IAS 24:
The objective of IAS 24 is to ensure that an entity’s financial statements contain the disclosures necessary to draw attention to the possibility that its financial position and profit or loss may have been affected by the existence of related parties and by transactions and outstanding balances with such parties.

Disclosure:
Relationships between parents and subsidiaries. Regardless of whether there have been transactions between a parent and a subsidiary, an entity must disclose the name of its parent and, if different, the ultimate controlling party. If neither the entity’s parent nor the ultimate controlling party produces financial statements available for public use, the name of the next most senior parent that does so must also be disclosed.

Management compensation:
Disclose key management personnel compensation in total and for each of the following categories:

short-term employee benefits
post-employment benefits
other long-term benefits
termination benefits
share-based payment benefits

Question 4.
Discuss the Purpose of Related Party Disclosures.
Answer:
(i) Related party relationships are a normal feature of commerce and business. For example, entities frequently carry on parts of their activities through subsidiaries, joint ventures and associates. In those circumstances, the entity has the ability to affect the financial and operating policies of the investee through the presence of control, joint control or significant influence.

(ii) A related party relationship could have an effect on the profit or loss and financial position of an entity. Related parties may enter into transactions that unrelated parties would not. For example, an entity that sells goods to its parent at cost might not sell on those terms to another customer. Also, transactions between related parties may not be made at the same amounts as between unrelated parties.

(iii) The profit or loss and financial position of an entity may be affected by a related party relationship even if related party transactions do not occur. The mere existence of the relationship may be sufficient to affect the transactions of the entity with other parties. For example, a subsidiary may terminate relations with a trading partner.on acquisition by the parent of a fellow subsidiary engaged in the same activity as the former trading partner. Alternatively, one party may refrain from acting because of the significant influence of another – for example, a subsidiary may be instructed by its parent not to engage in research and development.

(iv) For these reasons, knowledge of an entity’s transactions, outstanding balances, including commitments, and relationships with related parties may affect assessments of its operations by users of financial statements, including assessments of the risks and opportunities facing the entity.

Question 5.
Explain the relationships between a Parent and Subsidiaries.
Answer:
Relationships between a parent and its subsidiaries shall be disclosed irrespective of whether there have been transactions between them. An entity shall disclose the name of its parent and, if different, the ultimate controlling party. If neither the entity’s parent nor the ultimate controlling party produces consolidated financial statements available for public use, the name of the next most senior parent that does so shall also be disclosed.

Question 6.
Explain the disclosures required on insurance contract.
Answer:

Information that helps users understand the amounts in the insurer’s financial statements that arise from insurance contracts.
Accounting policies for insurance contracts and related assets, liabilities, income and expense
The recognised assets, liabilities, income, expense and cash flows arising from insurance contracts
The effect of changes in assumptions
Reconciliations of changes in insurance liabilities, reinsurance assets, and, if any, related deferred acquisition costs
Risk management objectives and policies
Those terms and conditions of insurance contracts that have a material effect on the amount, timing, and uncertainty of the insurer’s future cash flows
Actual claims compared with previous estimates.

Question 7.
Explain the content of an interim financial report.
Answer:
Ind AS 1 defines a complete set of financial statements as including the following components:
(a) A balance sheet as at the end of the period (including statement of changes in equity for the period which is presented as a part of the balance sheet).

(b) A statement of profit and loss for the period.

(c) An entity is required to assess goodwill for impairment at the end of each reporting period, to assess investments in equity instruments and in financial assets carried at cost 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 and Ind AS 39. 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. This appendix provides guidance on whether such impairment losses should ever be reversed.

(d) A statement of cash flows for the period.

(e) Notes, comprising a summary of significant accounting policies and other explanatory information.

(f) A balance sheet as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements.

Question 8.
What is a interim financial report? What are disclosure requirements?
Answer:
Interim Financial report:
According to IAS 39 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.

Disclosure requirement:

The write down of inventories to net realisable value and the reversal of such write down
The reversal of any provisions for the costs of restructuring
Acquisitions and disposal of items of PPE
Litigation settlement
Corrections of prior period errors
Relate party disclosure
Any loan default or breach of a loan agreement that has not been remedied on or before the end of the reporting period.

Question 9.
Narrate the disclosure under insurance contracts as per Ind. AS 104.
Answer:
1. An insurer shall disclose information that identifies and explains the amounts in its financial statements arising from insurance contracts.

2. An insurer shall disclose: its accounting policies for insurance contracts and related assets, liabilities, income and expense.

3. The recognised assets, liabilities, income and expense (and, if it presents its statement of cash flows using the direct method, cash flows) arising from insurance contracts.

4. If the insurer is a cedant, it shall disclose: gains and losses recognised in profit or loss on buying reinsurance; and if the cedant defers and amortises gains and losses arising on buying reinsurance, the amortisation for the period and the amounts remaining unamortised at the beginning and end of the period.

5. The process used to determine the assumptions that have the greatest effect on the measurement of the recognised amounts, When practicable, an insurer shall also give quantified disclosure of those assumptions.

6. The effect of changes in assumptions used to measure insurance assets and insurance liabilities, showing separately the effect of each change that has a material effect on the financial statements.

Question 10.
Mention the disclosure requirements of operating segments under Ind. AS-108.
Answer:
The Ind AS 108 ‘Operating Segments’ replaces the prevailing accounting standard on segment reporting AS 17 and aligns with requirements of IFRS 8. It states that, the enterprise should prepare its segment report on the basis of operating segments which have determined by its key decision makers (i.e. the managerial approach). The main change from the current standard is the introduction of management approach.

In the time of issuing IFRS 8, IASB has recognized one of the benefits with this new approach is that, information through the eye of management will allow users to better judge the entity’s operations. As this new approach has been prescribed in new standard (i.e. Ind AS 108) which has already been issued and scheduled to be implemented, so some questions may arises whether this standard should bring any change in reporting practices in India or what extent it is different from existing standard AS 17 and really is it in the line of IFRS 8 or not.

In this backdrop, the present article makes an endeavor to evaluate the newness of the standard in compare to the existing standard AS 17 and also examine the degree of similarity with the IFRS 8. Finally prospective impact on reporting should also be investigated to judge the potentiality to meet the modern needs of the stakeholders.

To address the core objective of the study, the paper has been divided into eight sections. The first section has established theme of the study along with its core objective. A brief account of Ind AS 108 has been discussed in the second section. The third section has highlighted the unique features of it. Section four has made a comparison between AS 17 and Ind AS 108. Section five has identified the distinction between Ind AS 108 and IFRS 8. Sixth section of this paper has explored the prospective impact of it on segment reporting practices in India. Section seven has attempted to evaluate it critically. Finally a logistic conclusion has been offered in the last section.

This standard only shall applicable to that companies which has been notified in the Companies Indian Accounting Standards Rule 2015. If any company prepared its segment report without complying this standard, the information reported in this report should not be treated as segment information even though the company is not bound to follow the standard so far the above rule is concern. If any financial report contained both standalone and consolidated financial statements of the parent, segment information need to be presented only in the consolidated financial statements.

Reportable segment is that operating segment which meets any of the following Qualitative thresholds:
Its revenue, from both external customers and inter-segment transfers is 10% or more of the combined revenue, internal and external of all operating segments.
The absolute amount of its profit or loss is 10% or more of the greater, in absolute amount of

The combined reported profit of all operating segments.
The combined reported loss of all operating segments.

Its assets are 10% or more of the combined assets of all operating segments.
Two or more reportable segments can be aggregated, if they meet each of the following aggregation criteria:

Aggregation is consistent with the core principle
The segments have similar economic characteristics
The segments are similar in each of the following respect
Nature of the product and services they offer
Nature of the production process
Types or classes of the customers
Methods of distribution
Nature of regulatory environment, if applicable.

If the total external revenue reported by operating segments constitutes less than 75% of the entity’s revenue, additional operating segments must be identified as a reportable segment even if they do not meet the quantitative thresholds.

All other operating segments those are falling to meet either the quantitative thresholds or the aggregation criteria, shall be combined and reported as ‘All Others Segments’. For improving the usefulness of the segment report manager by his/her own discretion can report an operating segment additionally even if it does not meet the quantitative thresholds, if they think so.

To improve the comparability, if any reported operating segment In the current period was not meet the quantitative threshold in the last period that require to be restated and if the reported operating segments in the last period fails to meet the quantitative threshold in current period, that can also be reported if management think significant.

Although this standard not specified any maximum number for reported operating segments; but it asked to judge whether the number of reported segments exceeds the practical limit, only when the number reported operating segment more than ten.

Disclosures:
An entity should disclose information about its operating segments to enable users of financial report to evaluate the nature and financial effects of the business activities and the economic environment in which it operates. The disclosure requirement of Ind AS 108 is given bellow:

Information about profit or loss, assets and liabilities:

Revenue from external customers.
Revenue from inter segment transfer.
Interest revenue and expenses.
Depredation, depletion and amortization expenses.
Income tax expenses and benefit.
Material items of income and expenses.
The entities interest in the profit or loss of associates and joint ventures accounted for by the equity method.

Unique Features of Ind AS 108:
This standard requires reporting financial and descriptive information about its reportable segments. Reportable segments would be operating segments or aggregations of operating segments that meet specified criteria. Generally, financial information would require to be reported on the basis that is used internally for evaluating operating segments performance and allocating resources to operating segments. It extends the scope of segment reporting by including entities whose equities or debt securities are publicly traded and entities that are in process of issuing the securities in public securities markets.

It requires the information about the components of the entity that management used to make decisions about operating matters and assesses its performance. The reconciliation of total reportable segment revenue, total profit or loss, total assets and other amounts disclosed for reportable segments to corresponding amounts in the entities financial statements have to disclose.

An explanation of how segment profit or loss and segment assets are measure is to be mention in the financial statements for each reportabie segment. The entity have to report information about its .majpr customers and about the countries in which it earns revenue and holds assets, regardless of whether that information is used by management in operating decision making. Finally, it also requires the descriptive information about the way by which operating segments where determined.