The Institute of Cost Accountants of India Erode

The Institute of Cost Accountants of India Erode Chapter ICDS Disclosure in Income Tax Audit Report 02. 10. 2019 --Wednesday -- Time 6 -9 pm. Faculty: -CMA R. GOPAL MFM. , M. Phil. , FCMA Practicing Cost Accountant

• Objective • INCOME COMPUTATION DISCLOSURE SCHEME • uniformity in accounting policies governing computation of income in accordance with the pertinent tax provisions

existence from • financial year of 2015 - 16

Applicability • ICDS is applicable to the taxpayers who are recipients of income under the head “Profits and gains of business or profession or “Income from other sources”, irrespective of the accounting standards followed by a COMPANY • Provisions of ICDS are generally applicable to all taxpayers irrespective of their turnover or quantum of income, except for individuals or Hindu Undivided Family or FIRMS below limit

Non applicability • --Maintaining cash system of accounting • --individuals or Hindu Undivided Family or FIRMS below limit • --presumptive taxation schemes • --OTHER THAN under the head “Profits and gains of business or profession or “Income from other sources”,

Various ICDS • • • ICDS— 1 -- relating to accounting policies ICDS— 2 -- relating to valuation of inventories ICDS— 3 -- relating to construction contracts ICDS— 4 -- relating to revenue recognition ICDS— 5 -- relating to tangible fixed assets ICDS— 6 -- relating to the effects of changes in foreign exchange rates ICDS— 7 -- relating to government grants ICDS— 8 -- relating to securities ICDS— 9 -- relating to borrowing costs ICDS— 10 -- relating to provisions, contingent liabilities and contingent assets

ICDS— 1 -- relating to accounting policies • If there is a change in accounting policy which doesn’t have any material implications for the current previous year but which is expected to have a reasonable impact in the years to come, ICDS requires disclosures of such change in the previous year in which the change is adopted, as well as in the • previous year in which such change have resulted in material implications for the FIRST TIME.

ICDS— 2 -- relating to valuation of inventories • • • • The allocation of fixed production overheads for the purpose of their inclusion in the cost of conversion is based on the normal capacity of the production facilities. In the event of dissolution of a partnership firm or association of body of individuals, the inventory shall be valued at the net realizable value, whether or not the business is discontinued. ICDS does not permit any changes in the method of valuating inventory without reasonable grounds for the same. xxxxxxxxxxxxxxxxxxxxxxxx The costs of purchase shall consist of purchase price including DUTIES AND TAXES, freight xxxxxxxxxxxxxxxxxxxxxxxx Where by‐products, scrap or waste material are immaterial, they shall be measured at net realisable value and this value shall be DEDUCTED FROM THE COST OF THE MAIN PRODUCT. the following costs shall be excluded and recognised as expenses of the period in which they are incurred, namely: — �� a�� Abnormal amounts of wasted materials, labour, or other production costs; �� b�� Storage costs, unless those costs are necessary in the production process prior to a further production stage; �� c�� Administrative overheads that do not contribute to bringing the inventories to their present location and condition ; �� d�� Selling costs. First‐in First‐out and Weighted Average Cost Formula

ICDS— 3 -- relating to construction contracts • It uses the percentage completion method for determining the contract revenue and contact costs of a construction project. • ICDS prohibits adjustment of incidental income in the nature of interest, dividends or capital gains from contract cost or recognition of foreseeable or expected loss as contract cost until such costs are actually incurred.

ICDS— 4 -- relating to revenue recognition • • • deals with the basis for recognition of revenue which results from the sale of goods, royalties, dividend, etc. Revenue from sale of goods is recognized if there is a reasonable certainty of its collection. Revenue from providing services is recognized in accordance with the principles laid down in ICDS 3 on Construction Contract. “Completed contract method” is not recognized. Interest income shall accrue on time basis determined by the amount outstanding and the rate applicable. Discount or premium on debt securities is recognized over the period to maturity. Income on royalties will accrue as per the terms of the pertinent agreement. Dividend income is recognized as per the provisions of the Act.

ICDS— 5 -- relating to tangible fixed assets • An item is considered as tangible fixed asset if it is held for the purpose of producing or providing goods or services and is not held for sale in the normal course of business. • Exchange of assets will incur the equal FAIR MARKET VALUE of the acquired asset. If several assets are purchased for a consolidated price, the total consideration remitted shall be ascertained to • various assets in a fair manner.

ICDS— 6 -- relating to the effects of changes in foreign exchange rates • Treatment of transactions in foreign currencies. • Translating the financial statements of foreign operation. • Treatment of foreign currency transactions in the nature of forward exchange contracts

ICDS— 7 -- relating to government grants • It contains provisions with • respect to subsidies, cash incentives, duty drawbacks, waiver, concessions, and reimbursements.

…ICDS— 8 -- relating to securities • A security on acquisition is recognized at actual cost which consists of purchase price and acquisition charges. • With respect to security acquired in exchange for other security or another asset, the cost of acquisition is the fair value of the security or asset acquired. • In case of cum-interest securities, the accrued interest is deducted from the actual cost of securities.

ICDS— 9 -- relating to borrowing costs • ICDS has specified the formula for capitalization of borrowing costs which involves allocating the total general borrowing cost incurred in the ratio of average cost of qualifying assets on the first day and last day of the previous year. • As stated by ICDS, capitalization of borrowing costs should begin with the date of borrowing (If it is a specific borrowing), and the date of utilization of funds (if it is a general borrowing). It should conclude when all the requisite activities to prepare the inventory for its intended sale are complete (in case of inventories), and when the asset is first put to use (in case of other assets) .

ICDS— 10 -- relating to provisions, contingent liabilities and contingent assets • other than the ones: • Arising out of financial instruments, whether the same is carried at fair value or not. • Arising out of executory contracts. • Arising in insurance business from contracts with policy holders. • Covered by other ICDS.

Additional points--1 • Closing Stock in a Tax Audit will be exclusive of GST amount. . If you are eligible to claim credit of input tax, then closing stock will not include GST. Input tax credit (GST) will be a part of the current assets separately.

. . Additional points--2 –PURCHASE (or) SALES of goods includes GST

Additional points--3 • Initial money • + retention money • + contract cost • +GST • == contract value

Thanks • Query plz • ? ? ?