1

CHANGES REQUIRED IN
THE COMPANIES ACT, 1956
FOR
CONVERGENCE WITH IFRS

SUGGESTED CHANGES IN THE COMPANIES ACT, 1956
EXECUTIVE SUMMARY
The following additions, deletions and amendments are required in the various provisions
of the Companies Act, 1956 including the circulars referred to therein.
1. PROPOSED DIVIDENDS
CIRCULAR: No 3/124/75-CL-V, dated 22.11.76 – requiring proposed

dividends to be shown as ‘Current Liabilities and Provisions’ should be
withdrawn.
2. ACCOUNTING OF DEPRECIATION
Schedule XIV should be revised. The Ministry of Corporate Affairs has

already issued a draft Schedule XIV which is placed on their website.
ICAI is involved in the process of revision to make it consistent with
IFRS.
Section 205(1) – Provisos as under should be repealed :
(a) if the company has not provided for depreciation for any previous
financial year or years which falls or fall after the commencement
of the Companies (Amendment) Act, 1960, it shall, before
declaring or paying dividend for any financial year provide for
such depreciation out of the profits of that financial year or out of
the profits of any other previous financial year or years;
(b) if the company has incurred any loss in any previous financial year
or years, which falls or fall after the commencement of the
Companies (Amendment) Act, 1960, then, the amount of the loss
or an amount which is equal to the amount provided for
depreciation for that year or those years whichever is less, shall be
set off against the profits of the company for the year for which
dividend is proposed to be declared or paid or against the profits of
the company for any previous financial year or years, arrived at in
both cases after providing for depreciation in accordance with the
provisions of sub-section (2) or against both;
(c) the Central Government may, if it thinks necessary so to do in the

public interest, allow any company to declare or pay dividend for
any financial year out of the profits of the company for that year or
C:\Documents and Settings\geeta\Desktop\New Folder\Companies act IFRS Executive Summary - Final DR avinash.doc 2
any previous financial year or years without providing for
depreciation.
Section 205(2) – clauses (a), (b), (c) and (d) should be repealed. It shall
be redrafted as :
“For the purpose of sub-section (1), depreciation shall be provided in the

manner specified in the relevant accounting standard(s) prescribed by the
Central Government referred to in sub-section (3C) of section 211 of the
Companies Act, 1956 and in Schedule XIV’.
The proviso should be modified accordingly.
Section 205(5) – as under should be repealed :
• 205(5) ‘specified period’ – no. of years at the end of which at

least 95% of the original cost of the asset would have been
provided for by way of depreciation, if depreciation were to be
calculated as per Section 350.
3. ACCOUNTING FOR CHANGES IN ACCOUNTING POLICIES,

ACCOUNTING ESTIMATES AND PRIOR PERIOD ERRORS
The Circular issued by the Company Law Board prohibiting re-opening

of accounts should be revised to include the following as under:
“It is hereby clarified that any re-statement of the comparative amounts, in

order to comply with the requirements of the accounting standards
prescribed by the Central Government referred to in sub-section (3C) of
section 211 of the Companies Act, 1956, for the prior periods presented in
the annual financial statements laid before a company at its annual general
meeting, shall not require re-opening and revision of the accounts of each
of the affected prior periods. The financial statements presented shall be
deemed to be in agreement with the books of account to the extent of such
re-statement for all such periods and the amount of net profit, assets and
liabilities as per the approved audited accounts for all such periods shall
be considered as final for the respective period for the purpose of the
computation of the total managerial remuneration payable u/s 198,199 and
349 of the Act or any provision u/s 205 of the Act relating to declaration
of any dividend or any other such provision of the Act.”
4. PRESENTATION OF FINANCIAL STATEMENTS
The existing Schedule VI should be revised to make it consistent with

IFRS. The revised schedule is under preparation.
5. FINANCIAL INSTRUMENTS, PRELIMINARY EXPENSES AND

DEVELOPMENT EXPENDITURE
Section 80(1) Proviso (c) as under – should be repealed:
• Section 80(1) Proviso (c) : the premium, if any, payable on

redemption shall have been provided for out of the profits of the
company or out of the company’s (security) premium account,
before the shares are redeemed;
Section 78(2) (b), (c) and (d) – should be repealed:
Section 78(2) should read as under:
“(2) The securities premium account may, notwithstanding anything in sub

section (1), be applied by the company in paying up unissued shares of the
company to be issued to members of the company as fully paid bonus
shares;”
Section 100(1)(b) should be amended to read as under :
“Subject to confirmation by the Tribunal, a company limited by shares or

a company limited by guarantee and having a share capital, may, if so
authorized by its articles, by special resolution, reduce its share capital in
any way; and in the particular and without prejudice to the generality of
the foregoing power, may –
(b) either with or without extinguishing or reducing liability on any of its

shares, cancel any paid-up share capital which is lost and is represented
by accumulated losses or any loss arising out of impaired assets
identified on date of such reduction.”
6. DEFINITION OF CONTROL
The IFRS requires preparation of Consolidated Financial Statements,

which are not so required under the Companies Act, 1956. The Act
should be amended to require preparation of Consolidated Financial
Statements of a Group comprising the parent and subsidiary companies.
However, the definition of a subsidiary company presently given under
section 4 of the Companies Act should not be used as it is rule-based and
different from IAS 27, ‘Consolidated and Separate Financial Statements’.
For the purpose of this section, it should be required that the Consolidated
Financial Statements should be prepared for entities comprising parent and
subsidiary which is defined on the basis of the definition of ‘control’ as
under IAS 27 as below:
“Control is the power to govern the financial and operating policies of an

entity so as to obtain benefits from its activities.”
7. PAYMENT OF INTEREST OUT OF CAPITAL
Section 208 (1) (b) – should be repealed
8. BUSINESS COMBINATIONS
(i) Clause (vi) under sub-section (1) of section 394 should be amended as
under:
“(vi) such incidental, consequential and supplemental matters as

are necessary to secure that the reconstruction or amalgamation
shall be fully and effectively carried out which are not in conflict
with the requirements of the accounting standards prescribed by
the Central Government referred to in sub-section (3C) of section
211 of the Companies Act, 1956.”
(ii) The Proviso under sub-section 2 of section 391 should be amended to

read as under :
“Provided that no order sanctioning any compromise or

arrangement shall be made by the Tribunal unless the Tribunal is
satisfied that the company or any other person by whom an
application has been made under sub-section (1) has disclosed to
the Tribunal, by affidavit or otherwise, all material facts relating to
the company, such as the latest financial position of the company,
the latest auditor’s report on the accounts of the company, the
pendency of any investigation proceedings in relation to the
company under sections 235 to 251, a certificate by the company
that the scheme is not in conflict with the requirements of the
accounting standards prescribed by the Central Government
referred to in sub-section (3C) of section 211 of the Companies
Act, 1956 and the like.”
9. STATUS OF PREPAREDNESS WITH IFRS CONVERGENCE BY 2011 –
GENERAL ISSUE
A circular should be issued under the Companies Act as under:
“CIRCULAR
All companies have to achieve full convergence with International
Financial Reporting Standards (IFRS) by the year 2011 and all financial
statements presented on or after 1.4.2011 shall be prepared accordingly.
It is required that all companies shall incorporate the brief status on the
preparedness level and state of companies readiness for convergence with
IFRS, in the Board of Director’s report prepared under section 217(1) of
the Companies Act, 1956 and attached with the financial statements for all
periods closing on or after 31.3.2009.”
CHANGES REQUIRED IN THE COMPANIES ACT, 1956 FOR
CONVERGENCE WITH IFRSs
1. PROPOSED DIVIDENDS
A. IAS 10 - EVENTS AFTER THE REPORTING PERIOD
(i) PARA 12: If an entity declares dividends to holders of equity

instruments after the reporting period, the entity shall not
recognize those dividends as a liability at the end of the reporting
period.
(ii) PARA 13: Such dividends do not meet the criteria of a present
obligation in IAS 37.
Such dividends are disclosed in the notes in accordance with IAS 1
(Presentation of Financial Statements).
B. CIRCULAR: No 3/124/75-CL-V, dated 22.11.76
The department is of the firm view that there is a statutory

obligation to provide for proposed dividend in the profit &
Loss account and show the same under the head ‘Current
liabilities and provisions’ in the balance sheet. The failure to
make such provision in the accounts amounts to contravention of
Schedule VI and such accounts will not be regarded as reflecting a
true and fair view of the state of affairs of the company.
C. ISSUES OF CONVERGENCE
Proposed dividends are treated as non-adjusting events after the

reporting period and are not to be provided in the accounts of
reporting period as per IAS-10.
However, as per the provisions in the Companies Act, 1956,

proposed dividends of a reporting period are to be accounted for as
‘Provisions’ in the reporting period.
Hence, Convergence/adoption with IAS-10 can not be attained.
D. RECOMMENDATION:
CIRCULAR: No 3/124/75-CL-V, dated 22.11.76 – to be withdrawn.
2. ACCOUNTING OF DEPRECIATION
A. IAS 16: PROPERTY, PLANT & EQUIPMENT (PPE)
(i) PARA 43: Each part of an item of PPE with a cost that is
significant in relation to the total cost of the item shall be
depreciated separately.
BC 26 & BC 27: The unit of measure ‘ item as a whole’

used by an entity to depreciate its items of PPE though that
item may be composed of significant parts with
individually varying useful lives or consumption pattern
has been disapproved. The entity has to depreciate
separately any significant parts of an item of PPE .
(ii) PARAS 50 to 57 & PARA 6
The depreciable amount of an asset shall be allocated on

a systematic basis over its useful life.
The depreciable amount of an asset is determined after

reducing its residual value from its costs.
Useful life is the period over which an asset is expected to

be available for use or the number of production units
expected to be obtained from the asset. It is the expected
utility of the asset to an entity.
Depreciation of an asset begins when it is available for use

& ceases at the earlier of the date the asset is classified as
held for sale and the date the asset is derecognized . The
depreciation cannot be zero during the depreciation
period.
(iii) PARAS 60 TO 62
The depreciation method used shall reflect the pattern in

which the assets future economic benefits are expected
to be consumed by the entity.
The depreciation method applied shall be reviewed at least

at each financial year end.
The methods that can be used are:
(a) Straight – line method;

(b) Diminishing balance method; and
(c) Units of production method.
B. COMPANIES ACT, 1956
(i) Schedule XIV
It prescribes the rates of depreciation for items of tangible

fixed assets
It identifies 4 naturewise classes of fixed assets.
It prescribes rates on ‘shift’ basis and specifies assets where

‘No extra shift depreciation’ (NESD) is applicable.
It prescribes a ‘general rate’ of depreciation under the class

‘plant & machinery’ and ‘Furniture & Fittings’.
(ii) Section 350
Depreciation for the purpose of Section 349(4)(k) shall be

at the rate specified in schedule XIV.
(iii) Section 198 & 199
For the purpose of computing the total limit of managerial

remuneration or where any commission or any other
remuneration is payable to any officer or employee of the
company based on net profits of the company, the same
shall be computed in accordance with the provisions of
section 349 & 350.
(iv) Section 205
Dividends to be paid only out of profits
• 205(1) – No dividend shall be declared or paid for

any financial year except out of the profits for that
year arrived at after providing for depreciation in
accordance with the provisions of sub-section (2)
or out of the profits for any previous financial
year(s) arrived at after providing for
depreciation in accordance with those provisions.
PROVISO:
(a) if the company has not provided for depreciation for
any previous financial year or years which falls or
fall after the commencement of the Companies
(Amendment) Act, 1960, it shall, before declaring
or paying dividend for any financial year provide
for such depreciation out of the profits of that
financial year or out of the profits of any other
previous financial year or years;
(b) if the company has incurred any loss in any

previous financial year or years, which falls or fall
after the commencement of the Companies
(Amendment) Act, 1960, then, the amount of the
loss or an amount which is equal to the amount
provided for depreciation for that year or those
years whichever is less, shall be set off against the
profits of the company for the year for which
dividend is proposed to be declared or paid or
against the profits of the company for any previous
financial year or years, arrived at in both cases after
providing for depreciation in accordance with the
provisions of sub-section (2) or against both;
(c) the Central Government may, if it thinks necessary

so to do in the public interest, allow any company to
declare or pay dividend for any financial year out of
the profits of the company for that year or any
previous financial year or years without providing
for depreciation.
• 205(2) – For purposes of sub section (1), depreciation

shall be provided either-
(a) to the extent specified in section 350; or
(b) for such amount as arrived at by dividing 95% of

the original cost by the specified period; or
(c) any other basis approved by the Central

Government which writes off 95% of the original
cost on the expiry of the specified period; or
(d) any other depreciable asset for which no rate of

depreciation has been laid down by this Act or
Rules, on such basis as may be approved by
Central Government.
• 205(5) ‘specified period’ – no. of years at the end of which
at least 95% of the original cost of the asset would have
been provided for by way of depreciation, if depreciation
were to be calculated as per Section 350.
(v) Schedule VI-PART II : Item 3(iv)
If no provision for depreciation is made the fact should

be stated & the quantum of arrears computed as per section
205(2) shall be disclosed by way a note.
IAS 16 and provisions of Companies Act, 1956 are materially

different and convergence can not be achieved :
• Companies Act does not permit depreciation to be charged

for significant part of an item of an asset separately.
• Companies Act prescribes minimum fixed rates of

depreciation for different classes of assets based on shift
working and does not recognize allocation of depreciation
based upon the useful life of an asset & deduction of
residual value of the asset from its cost for arriving at the
depreciable amount.
• IAS 16 recognizes ‘units of production method’ also as a

method of depreciation , whereas the Companies Act does
not.
• Section 205(1) of the Companies Act, recognizes even non-

providing of depreciation in a reporting period and even
gives powers to the Central Government in specified
conditions to permit a company not to provide depreciation.
Schedule VI-PART II also recognizes the state of no
provision for depreciation being made.
• Section 205(2) of the Companies Act permits depreciation

to be provided either for 100% of the cost of the asset or
95% of the cost of the asset and also allows Central
Government to approve any basis of providing depreciation
on assets for which no rate has been laid down on the Act.
D. RECOMMENDATIONS
Schedule XIV should be revised. It should prescribe only
industry specific guidelines for indicative rates. These shall serve
as industry specific benchmarks. It should state that, the manner of
computing depreciation on assets specified in the Schedule and
also on assets not specified in the Schedule, shall be as per the
requirements of the accounting standards prescribed by the Central
Government referred to in sub-section (3C) of section 211 of the
Companies Act, 1956. These shall be the general guidelines and
used as rebuttable presumptions.
The Ministry of Corporate Affairs has already issued a draft

Schedule XIV which is placed on their website. ICAI is involved
in the process of revision to make it consistent with IFRS.
Section 205(1) – Proviso as under should be repealed :
(a) if the company has not provided for depreciation for any
previous financial year or years which falls or fall after the
commencement of the Companies (Amendment) Act, 1960,
it shall, before declaring or paying dividend for any
financial year provide for such depreciation out of the
profits of that financial year or out of the profits of any
other previous financial year or years;
(b) if the company has incurred any loss in any previous

financial year or years, which falls or fall after the
commencement of the Companies (Amendment) Act, 1960,
then, the amount of the loss or an amount which is equal to
the amount provided for depreciation for that year or those
years whichever is less, shall be set off against the profits
of the company for the year for which dividend is proposed
to be declared or paid or against the profits of the company
for any previous financial year or years, arrived at in both
cases after providing for depreciation in accordance with
the provisions of sub-section (2) or against both;
(c) the Central Government may, if it thinks necessary so to do

in the public interest, allow any company to declare or pay
dividend for any financial year out of the profits of the
company for that year or any previous financial year or
years without providing for depreciation.
Section 205(2) – clauses (b), (c) and (d) should be repealed. It

shall be redrafted as :
“For the purpose of sub-section (1), depreciation shall be provided
in the manner specified in the relevant accounting standard(s)
prescribed by the Central Government referred to in sub-section
(3C) of section 211 of the Companies Act, 1956 and Schedule
XIV’.
The proviso should be modified accordingly.
Section 205(5) – as under should be repealed :
• 205(5) ‘specified period’ – no. of years at the end of which

at least 95% of the original cost of the asset would have
been provided for by way of depreciation, if depreciation
were to be calculated as per Section 350.
Schedule VI- PART II: Item 3(iv) read as under should be

repealed:
• If no provision for depreciation is made the fact should

be stated & the quantum of arrears computed as per section
205(2) shall be disclosed by way a note.
3. ACCOUNTING FOR CHANGES IN ACCOUNTING POLICIES,

ACCOUNTING ESTIMATES AND PRIOR PERIOD ERRORS
IAS-8: ACCOUNTING POLICES, CHANGES IN ACCOUNTING

ESTIMATES AND ERRORS
(i) IN 8 – The standard requires retrospective application of voluntary

changes in accounting polices and retrospective restatement to correct
prior period errors. It removes the allowed alternative in the previous
version of IAS 8:
(a) to include in profit or loss for the current period the adjustment
resulting from changing an accounting policy or the amount of a
correction of a prior period error; and
(b) to present unchanged comparative information from financial

statements or prior periods.
(ii) IN 9 – As result of the removal of the allowed alternative, comparative

information for prior periods is presented as if new accounting policies
had always been applied and prior period errors had never occurred.
(iii) IN 14 – The Standard requires more detailed disclosure of the amounts of
adjustments resulting from changing accounting policies or correcting
prior period errors. It requires those disclosures to be made for each
financial statement line item affected and, if IAS 33 Earnings per Share
applies to the entity, for basic and diluted earnings per share.
(iv) BC 4 – The previous version of IAS 8 included allowed alternative

treatments of voluntary changes in accounting policies (paragraphs 54-57)
and corrections of fundamental errors (paragraphs 38-40). Under those
allowed alternatives:
(a) the adjustment resulting from retrospective application of a change

in an accounting policy was included in profit or loss for the
current period; and
(b) the amount of the correction of a fundamental error was included
in profit or loss for the current period.
(v) BC 5 – In both circumstances, comparative information was presented as

it was presented in the financial statements of prior periods.
(vi) BC 6 – The Board identified the removal of optional treatments for

changes in accounting policies and corrections of errors as an important
improvement to treatments and requires changes in accounting policies
and corrections of prior period errors to be accounted for
retrospectively.
(vii) Accounting Policies:
PARA 19
(a) An entity shall account for a change in accounting policy

resulting from the initial application of an IFRS in
accordance with the specific transitional provisions, if any
in that IFRS; and
(b) When an entity changes an accounting policy upon initial

application of an IFRS that does not include specific
transitional provisions applying to that change, or changes
an accounting policy voluntarily, it shall apply the change
retrospectively.
PARA 22
Subject to paragraph 23, when a change in accounting policy is

applied retrospectively in accordance with paragraph 19(a) or (b),
the entity shall adjust the opening balance of each affected
component of equity for the earliest prior period presented and
the other comparative amounts disclosed for each prior period
presented as if the new accounting policy had always been
applied.
(viii) Errors:
PARA 42
An entity shall correct material prior period errors

retrospectively in the first set of financial statements authorized
for issue after their discovery by:
• Restating the comparative amounts for the prior

period(s) presented in which the error occurred; or
• If the error occurred before the earliest prior period

presented, restating the opening balances of assets,
liabilities and equity for the earliest prior period presented.
PARA 46
The correction of a prior period error is excluded from profit

or loss for the period in which the error is discovered. Any
information presented about prior periods including any historical
summaries of financial data, is restated as for back as is
practicable.
(ix) Disclosure:
PARA 28(f) and 49(b)
For the current period and each prior period presented, to the
extent practicable, the amount of the adjustment:
(i) for each financial statement line item affected; and
(ii) if IAS 33 Earnings per Share applies to the entity, for basic
and diluted earnings per share;
(x) Changes in Accounting estimates:
PARA 36
The effect of a change in an accounting estimate, other than a
change to which paragraph 37 applies shall be recognized
prospectively by including it in profit or loss in :
(a) the period of the change, if the change affects that period
only; or
(b) the period of the change and future periods, if the change
affects both.
PARA 37
To the extent that a change in an accounting estimate gives rise to

changes in assets and liabilities, or relates to an item of equity, it
shall be recognized by adjusting the carrying amount of the related
asset, liability or equity item in the period of the change.
(i) Circular: No.1/2003 dated 13.1.2003 issued by erstwhile

company law board.
A company could reopen and revise its accounts even after

their adoption in the annual general meeting in order to
comply with technical requirements of taxation laws
and of any other law to achieve the object of exhibiting
true and fair view. The revised accounts would be required
to be adopted either in extraordinary general meting or in
subsequent annual general meeting.
(ii) Section 227(3) (c)
The auditors’ report shall also state -

Whether the company’s balance sheet and profit and loss
account dealt with by the report are in agreement with the
books of account and returns.
IAS 8 does not permit the adjustment resulting from retrospective

application of a change in an accounting policy and the amount of
correction of prior period errors to be included in profit or loss for
the current annual or shorter period. It requires restating of the
comparative amounts for each of the prior annual or shorter period
presented and if the error occurred before the earliest prior annual
or shorter period presented, restating the opening balances of
assets, liabilities and equity for the earliest prior annual or shorter
period presented.
Companies Act does not permit revision and reopening of accounts

for such purposes, once adopted in the annual general meeting. All
such adjustments and corrections have to be included in profit or
loss of the current period.
There are no issues of convergence arising out of changes in

accounting estimates.
D. RECOMMENDATION
The Circular issued by the Company Law Board should be

revised as under:
“It is hereby clarified that any re-statement of the comparative

amounts, in order to comply with the requirements of the
referred to in sub-section (3C) of section 211 of the Companies
Act, 1956, for the prior periods presented in the annual financial
statements laid before a company at its annual general meeting,
shall not require re-opening and revision of the accounts of each of
the affected prior periods. The financial statements presented shall
be deemed to be in agreement with the books of account to the
extent of such re-statement for all such periods and the amount of
net profit, assets and liabilities as per the approved audited
accounts for all such periods shall be considered as final for the
respective period for the purpose of the computation of the total
managerial remuneration payable u/s 198,199 and 349 of the Act
or any provision u/s 205 of the Act relating to declaration of any
dividend or any other such provision of the Act.”
4. PRESENTATION OF FINANCIAL STATEMENTS
A. IAS 1 - Financial statements
PARA 10 : A complete set of financial statements comprises :
(a) a statement of financial position as at the end of the

period;
(b) a statement of comprehensive income for the period;
(c) a statement of changes in equity for the period;
(d) a statement of cash flows for the period;
(e) notes, comprising a summary of significant accounting

policies and other explanatory information; and
(f) a statement of financial position 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.
Para 11: An entity shall present with equal prominence all of

the financial statements in a complete set of financial
statements.
Other comprehensive income: comprises items of income and

expense (including reclassification adjustments) that are not
recognized in profit or loss as required or permitted by other
IFRSs.
.
The components of ‘other comprehensive income’ include:
(a) changes in revaluation surplus (IAS 16 Property, Plant

and Equipment and IAS 38 Intangible Assets);
(b) actuarial gains and losses on defined benefit plans
recognized in accordance with paragraph 93A of IAS 19
Employee Benefits;
(c) gains and losses arising from translating the financial
statements of a foreign operation ( IAS 21 The Effects of
Changes in Foreign Exchange Rates);
(d) gains and losses on remeasuring available-for-sale
financial assets (IAS 39 Financial Instruments: Recognition
and Measurement);
(e) the effective portion of gains and losses on hedging
instruments in a cash flow hedge ( IAS 39).
Profit or loss is the total of income less expenses, excluding the

components of other comprehensive income.
Reclassification adjustments are amounts reclassified to profit

or loss in the current period that were recognized in other
comprehensive income in the current or previous periods.
Total comprehensive income is the change in equity during a
period resulting from transactions and other events, other than
those changes resulting from transactions with owners in their
capacity as owners.
Total comprehensive income comprises all components of ‘profit

or loss’ and of ‘other comprehensive income’.
IN6 - IAS 1 requires an entity to present, in a statement of

changes in equity, all owner changes in equity. All non-owner
changes in equity (i.e. comprehensive income) are required to be
presented in one statement of comprehensive income or in two
statements (a separate income statement and a statement of
comprehensive income). Components of comprehensive income
are not permitted to be presented in the statement of changes
in equity.
IN 7 – IAS 1 requires an entity to present a statement of financial

position as at the beginning of the earliest comparative period
in a complete set of financial statements when the entity applies
an accounting policy retrospectively or makes a retrospective
restatement, as defined in IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors, or when the entity reclassifies
items in the financial statements.
IN 8 – IAS 1 requires an entity to disclose reclassification

adjustments and income tax relating to each component of
other comprehensive income. Reclassification adjustments are
the amounts reclassified to profit or loss in the current period that
were previously recognized in other comprehensive income.
IN 9 - IAS 1 requires the presentation of dividends recognized

as distributions to owners and related amounts per share in the
statement of changes in equity or in the notes. Dividends are
distributions to owners in their capacity as owners and the
statement of changes in equity presents all owner changes in
equity.
BC75 : The Board reaffirmed its conclusion to require the

presentation of dividends in the statement of changes in equity or
in the notes, because dividends are distributions to owners in their
capacity as owners and the statement of changes in equity presents
all owner changes in equity. The Board concluded that an
entity should not present dividends in the statement of
comprehensive income because that statement presents non-
owner changes in equity.
PARA 39 : An entity disclosing comparative information shall
present, as a minimum, two statements of financial position,
two of each of the other statements, and related notes. When an
entity applies an accounting policy retrospectively or makes a
retrospective restatement of items in its financial statements, it
shall present, as a minimum, three statements of financial
position, two of each of the other statements, and related notes.
An entity presents statements of financial position as at:
(a) the end of the current period;

(b) the end of the previous period (which is the same as the
beginning of the current period); and
(c) the beginning of the earliest comparative period.
PARA 60: An entity shall present current and non-current assets,

and current and non-current liabilities, as separate classifications in
its statement of financial position in accordance with paragraphs
66-76 except when a presentation based on liquidity provides
information that is reliable and more relevant. When that
exception applies, an entity shall present all assets and liabilities in
order of liquidity.
PARA 61: Whichever method of presentation is adopted, an entity

shall disclose the amount expected to be recovered or settled after
more than twelve months for each assets and liability line item
that combines amounts expected to be recovered or settled
(a) no more than twelve months after the reporting period, and
(b) more than twelve months after the reporting period
PARA 87: An entity shall not present any items of income or

expense as extraordinary items, in the statement of
comprehensive income or the separate income statement (if
presented), or in the notes.
BC 61: In 2002, the Board decided to eliminate the concept of

extraordinary items from IAS 8 and to prohibit the presentation of
items of income and expense as ‘extraordinary items’ in the
income statement and the notes. Therefore, in accordance with
IAS 1, no items of income and expense are to be presented as
arising from outside the entity’s ordinary activities.
BC 63: The Board decided that items treated as extraordinary

result from the normal business risks faced by an entity and do
not warrant presentation in a separate component of the
income statement. The nature or function of a transaction or other
event, rather than its frequency, should determine its presentation
within the income statement. Items currently classified as
‘extraordinary’ are only a subset of the items of income and
expense that may warrant disclosure to assist users in predicting an
entity’s future performance
B. COMPANIES ACT, 1956 – SECTION 211(1), (2) and SCHEDULE

VI- PART I & PART II
PART I : Form of balance sheet
PART II (3) : The profit and loss account shall disclose the
following information in respect of the period covered by the
account :
• Part II (3) (xii) (b) – Profits or losses in respect of

transactions of a kind, not usually undertaken by the
company or undertaken in circumstances of an exceptional
or non-recurring nature, if material in amount.
• Part II (3) (xv) – Amount, if material, by which any items

shown in the profit and loss account are affected by any
change in the basis of accounting.
• Part II (3) (xiv) – The aggregate amount of the dividends

paid, and proposed, and stating whether such amounts are
subject to deduction of income-tax or not
PART II (6) (1) & (2) : Except in the case of the first profit and
loss account laid before the company after the commencement
of the Act, the corresponding amounts for the immediately
preceding financial year for all items shown in the profit and
loss account shall also be given in the profit and loss account.
The requirement in sub-clause (1) shall, in the case of companies

preparing quarterly or half-yearly accounts, relate to the profit
and loss account for the period which entered on the corresponding
date of the previous year.
The existing form of Balance Sheet set out in PART I of Schedule

VI and the requirements as to Profit and loss account set out in
PART II of Schedule VI do not permit the requirements set out in
IAS 1 as to presentation of financial statements as stated in (A)
and (B) above:
(1) Distinction between owner changes in equity and non-

owner changes in equity is not recognized in the
Companies Act, 1956.
(2) A separate statement of changes in equity presenting all

owner changes in equity is not permitted under Companies
Act, 1956.
(3) The concept of Comprehensive income and other

comprehensive income is not recognized as per
Companies Act, 1956.
(4) Companies Act does not mandate presentation of a third

statement of financial position as at the beginning of the
earliest comparative period where retrospective application
of accounting policies or re-statement of items has been
made.
(5) The form of balance sheet set out in Part I of Schedule VI

does not recognize current/non-current classification of
assets/liabilities
(6) The requirements set out in Part II of Schedule VI of

Companies Act, 1956 as stated in (B) above are in conflict
with IAS1
D. RECOMENDATIONS
The existing Schedule VI should be revised.
5. FINANCIAL INSTRUMENTS, PRELIMINARY EXPENSES AND

DEVELOPMENT EXPENDITURE
A. IAS 32 and IAS 38
(a) IAS 32 – FINANCIAL INSTURMENTS PRESENTATION
PARA 11 : The following terms are used in this Standard

with the meanings specified :
A ‘financial instrument’ is any contract that gives rise
to a financial asset of one entity and a financial liability
or equity instrument of another entity.
A ‘financial asset’ is any asset that is:
(a) Cash;
(b) an equity instrument of another entity;
(c) a contractual right:
(i) to receive cash or another financial asset

from another entity; or
(ii) to exchange financial assets or financial

liabilities with another entity under
conditions that are potentially favourable
to the entity; or
(d) a contract that will or may be settled in the

entity’s own equity instruments and is :
(i) a non-derivative for which the entity is or

may be obliged to receive a variable
number of the entity’s own equity
instruments; or
(ii) a derivative that will or may be settled

other than by the exchange of a fixed
amount of cash or another financial asset
for a fixed number of the entity’s own
equity instruments. For this purpose the
entity’s own equity instruments do not
include instruments that are themselves
contracts for the future receipt or
delivery of the entity’s own equity
instruments.
A ‘financial liability’ is any liability that is:
(a) a contractual obligation :
(i) to delivery cash or another financial asset

to another entity; or
conditions that are potentially
unfavourable to the entity; or
(b) a contract that will or may be settled in the

entity’s own equity instruments and is:
(i) a non-derivative for which the entity is or

may be obliged to deliver a variable
number of the entity’s own equity
instruments; or
(ii) a derivative that will or may be settled

other than by the exchange or a fixed
amount of cash or another financial asset
for a fixed number of the entity’s own
equity instruments. For this purpose the
entity’s own equity instruments do no
contracts for the future receipt or
delivery of the entity’s own equity
instruments.
An ‘equity instrument’ is any contract that

evidences a residual interest in the assets of an
entity after deducting all of its liabilities.
PARA 18: The substance of a financial instrument,

rather that its legal form, governs its classification on
the entity’s balance sheet. Substance and legal form are
commonly consistent, but not always. Some financial
instruments take the legal form of equity but are liabilities
in substance and others may combine features associated
with equity instruments and features associates with
financial liabilities. For example:
(a) a preference share that provides for mandatory

redemption by the issuer for a fixed or
determinable amount at a fixed or determinable
future date, or gives the holder the right to
require the issuer to redeem the instrument at or
after a particular date for a fixed or determinable
amount, is a financial liability.
(b) A financial instrument that gives the holder the
right to put it back to the issuer for cash or
another financial asset (a ‘puttable instrument’)
is a financial liability. This is so even when the
amount of cash or other financial assets is
determined on the basis of an index or other item
that has the potential to increase or decrease, or
when the legal form of the puttable instrument gives
the holder a right to a residual interest in the
assets of an issuer. The existence of an option for
the holder to put the instrument back to the issuer
for cash or another financial asset means that the
puttable instrument meets the definition of a
financial liability.
PARA 19 : If an entity does not have an unconditional

right to avoid delivering cash or another financial asset to
settle a contractual obligation, the obligation meets the
definition of a financial liability.
PARA 15 : The issuer of a financial instrument shall

classify the instrument, or its component parts, on initial
recognition as a financial liability, a financial asset or an
equity instrument in accordance with the substance of the
contractual arrangement and the definitions of a financial
liability, a financial asset and an equity instrument.
PARA 16 : When an issuer applies the definitions in

paragraph 11 to determine whether a financial instrument is
an equity instrument rather than a financial liability, the
instrument is an equity instrument if, and only if, both
conditions (a) and (b) below are met.
(a) the instrument includes no contractual obligation;
(i) to deliver cash or another financial asset to

another entity; or

conditions that are potentially unfavourable
to the issuer.
(b) if the instrument will or may be settled in the

issuer’s own equity instruments, it is ;
(i) a non-derivative that includes no
contractual obligation for the issuer to
deliver a variable number of its own
equity instruments; or
(ii) a derivative that will be settled only by the

issuer exchanging a fixed amount of cash or
another financial asset for a fixed number of
its own equity instruments. For this purpose
the issuer’s own equity instruments do not
contracts for the future receipt or delivery of
the issuer’s own equity instruments.
A contractual obligation, including one arising

from a derivative financial instrument, that will or
may result in the future receipt or delivery of the
issuer’s own equity instruments, but does not
meet conditions(a) and (b) above, is not an equity
instrument.
BC10 : The approach taken in the revised IAS 32 includes

two main conclusions:
(a) When an entity has an obligation to purchase its

own shares for cash (such as under a forward
contract to purchase its own shares), there is a
financial liability for the amount of cash that the
entity has an obligation to pay.
(b) When an entity uses its own equity instruments ‘as

currency’ in a contract to receive or deliver a
variable number of shares whose value equals a
fixed amount or an amount based on changes in an
underlying variable (eg a commodity price), the
contract is not an equity instrument, but is a
financial asset or a financial liability. In other
words, when a contract is settled in a variable
number of the entity’s own equity instruments,
or by the entity exchanging a fixed number of its
own equity instruments for a variable amount of
cash or another financial asset, the contract is
not an equity instrument but is a financial asset
or a financial liability
When an entity has an obligation to purchase its
own shares for cash, there is a financial liability
for the amount of cash that the entity has an
obligation to pay.
PARA 33: If an entity reacquires its own equity

instruments, those instruments (‘treasury shares’) shall
be deducted from equity. No gain or loss shall be
recoginised in profit or loss on the purchase, sale, issue or
cancellation of an entity’s own equity instruments. Such
treasury shares may be acquired and held by the entity
or by other members of the consolidated group.
Consideration paid or received shall be recognized
directly in equity.
PARA 35 : Interest, dividends, losses and gains –

Interest, dividends, losses and gains relating to a financial
instrument or a component that is a financial liability shall
be recognized as income or expense in profit or loss.
Distributions to holders of an equity instrument shall be
debited by the entity directly to equity, net of any
related income tax benefit. Transaction costs of an
equity transaction shall be accounted for as a deduction
from equity, net of any related income tax benefit.
PARA 36 : The classification of a financial instrument as

a financial liability or an equity instrument determines
whether interest, dividends, losses and gains relating to
that instrument are recognized as income or expense in
profit or loss. Thus, dividend payments on shares wholly
recognized as liabilities are recognized as expenses in the
same way as interest on a bond. Similarly, gains and
losses associated with redemptions or refinancings of
financial liabilities are recognized in profit or loss, whereas
redemptions or refinancings of equity instruments are
recognized as changes in equity. Changes in the fair value
of an equity instrument are not recognized in the financial
statements.
PARA 37 – An entity typically incurs various costs in

issuing or acquiring its own equity instruments. Those
costs might include registration and other regulatory fees,
amounts paid to legal, accounting and other professional
advisers, printing costs and stamp duties. The transaction
costs of an equity transaction are accounted for as a
deduction from equity (net of any related income tax
benefit) to the extent they are incremental costs directly
attributable to the equity transaction that otherwise
would have been avoided. The costs of an equity
transaction that is abandoned are recognized as an expense.
PARA 38 - Transaction costs that relate to the issue of a

compound financial instrument are allocated to the
liability and equity components of the instrument in
proportion to the allocation of proceeds.
PARA 40 - Dividends classified as an expense may be

presented in the income statement either with interest on
other liabilities or as a separate item.
(b) IAS-38 : INTANGIBLE ASSETS
PARA 69 : Examples of expenditure that is recognized

as an expense when it is incurred include :
(a) expenditure on start-up activities (i.e. start-up

costs), unless this expenditure is included in the
cost of an item of property, plant and equipment in
accordance with IAS 16. Start-up costs may
consist of establishment costs such as legal and
secretarial costs incurred in establishing a legal
entity.
PARA 57 : Development expenditure shall be recognized

as an intangible asset or expensed when it is incurred
Section 86 : The share capital of a company limited by shares

shall be only of two kinds, namely :-
(a) equity share capital
(b) preference share capital
Section 85(1): “Preference share capital” means, that part of the

share capital of the company which fulfils both the following
requirements, namely :
(a) that as respects dividends, it carries or will carry a

preferential right to be paid a fixed amount an amount
calculated at a fixed rate, which may be either free of or
subject to income-tax; and
(b) that as respect capital, it carries or will carry a preferential
right to be repaid the amount of the capital paid-up or
deemed to have been paid-up, whether or not there is a
preferential right to the payment of either or both of the
following amounts, namely :-
(i) any money remaining unpaid

(ii) any fixed premium or premium on any fixed scale.
Section 80(1) Proviso (c) : the premium, if any, payable on

redemption shall have been provided for out of the profits of the
company or out of the company’s (security) premium account,
before the shares are redeemed;
Section 80(5A) : Not withstanding anything contained in this Act,

no company limited by shares shall, after the commencement of
the Companies (Amendment) Act, 1996, issue any preference
share which is irredeemable or is redeemable after the expiry
of a period of twenty years from the date of its issue.
Section 78 (2) : The securities premium account may,

notwithstanding anything in sub-section (1), be applied by the
company –
(b) the securities premium account may be applied by the

company in writing off the preliminary expenses of the
company.
(c) in writing off the expenses of, or the commission paid or
discount allowed on, any issue of shares or debentures of
the company; or
(d) in providing for the premium payable on the redemption
of any redeemable preference shares or of any
debentures of the company.
Section 100(1)(b) : Subject to confirmation by the Tribunal, a

company limited by shares or a company limited by guarantee and
having a share capital, may, if so authorized by its articles, by
special resolution, reduce its share capital in any way; and in the
particular and without prejudice to the generality of the foregoing
power, may –
(b)either with or without extinguishing or reducing liability on any

of its shares, cancel any paid-up share capital which is lost or is
unrepresented by available assets
Companies Act mandates classification of share capital based on
legal form only & not on substance. It is contrary to IAS 32
which provides for a classification based on substance rather than
legal form.
Companies Act does not permit presentation of equity or

preference share capital as liability in any circumstance. It is
contrary to IAS 32 which requires classification of capital as
equity and financial liability based on substance.
As per IAS 32, dividend on capital designated as a financial

liability is to be charged as an expense in the statement of profit
and loss and dividend on equity instruments is to be deducted
from equity in the statement of changes in equity. However, as
per Companies Act, dividend on all types of capital is to be
presented only as on appropriation of profit.
As per IAS 32, all transaction costs of an equity transaction

including on issuing or acquiring its own shares, shall be
accounted for as a deduction from equity, net of any related
income tax benefit. However, as per Schedule VI of the
Companies Act, these have to be presented as Miscellaneous
Expenditure on the Assets side of Balance Sheet.
Premium on redemption of any redeemable preference shares or

of any debentures can be reduced from Securities Premium
account as per Companies Act, however, it is to be treated as an
expense as per IAS 32.
As per IAS 32, all losses and expenses relating to a financial

liability shall be recognized as an expense in profit or loss.
However, as per Section 78 of the Companies Act, securities
premium account may be applied in writing off such losses.
As per IAS 38, preliminary expenses have to be expensed in the

year of incurrence however, Companies act, permits the same to be
carried forward as Miscellaneous Expenditure or be written off
against securities premium account.
Section 100(1)(b) of the Companies Act, permits cancellation of

any paid -up share capital which is not represented by any of the
available assets. This direct set off of the assets against the share
capital without routing through the statement of profit and loss is
not permitted under IFRS.
D. RECOMMENDATIONS
Section 80(1) Proviso (c) as under – should be repealed :

• Section 80(1) Proviso (c) : the premium, if any, payable
on redemption shall have been provided for out of the
profits of the company or out of the company’s (security)
premium account, before the shares are redeemed;
Section 78(2) (b), (c) and (d) as under – should be repealed :
(b) the securities premium account may be applied by the

company in writing off the preliminary expenses of the
company.
(c) in writing off the expenses of, or the commission paid or
discount allowed on, any issue of shares or debentures of
the company; or
(d) in providing for the premium payable on the redemption
of any redeemable preference shares or of any
debentures of the company.
• Section 78(2) shall read as under:

“(2) The securities premium account may,
notwithstanding anything in sub section (1), be
applied by the company in paying up unissued
shares of the company to be issued to members of
the company as fully paid bonus shares;”
Section 100(1)(b) should be amended to read as under :
“Subject to confirmation by the Tribunal, a company limited by

shares or a company limited by guarantee and having a share
capital, may, if so authorized by its articles, by special resolution,
reduce its share capital in any way; and in the particular and
without prejudice to the generality of the foregoing power, may –
(b) either with or without extinguishing or reducing liability on any

of its shares, cancel any paid-up share capital which is lost and is
represented by accumulated losses or any loss arising out of
impaired assets identified on date of such reduction.”
6. DEFINITION OF CONTROL
A. IFRS– 3 : BUSINESS COMBINATIONS, IAS-27 : CONSOLIDATED

AND SEPARATE FINANCIAL STATEMENTS & IAS-28 :
INVESTMENTS IN ASSOCIATES
(a) IFRS – 3 : Appendix A – defined terms
• Control : The power to govern the financial and

operating policies of an entity so as to obtain benefits from
its activities.
• Business Combination : A transaction or other event in

which an acquirer obtains control of one or more
businesses. Transactions sometimes referred to as ‘true
mergers’ or mergers of equals’ are also business
combinations as that term is used in this IFRS.
• Business : An integrated set of activities and assets that is

capable of being conducted and managed for the purpose of
providing a return in the form of dividends, lower costs or
other economic benefits directly to investors or other
owners, members or participants
PARA 7: The guidance in IAS 27 Consolidated

and Separate Financial Statements shall be used to
identify the acquirer – the entity that obtains
control of the acquiree.
(b) IAS-27:
PARA 4 -
• Control : The power to govern the financial and

operating policies of an entity so as to obtain
benefits from its activities.
• Parent : An entity that has one or more subsidiaries
• Subsidiary : An entity including an unincorporated
entity, such as partnership, that is controlled by
another entity (known as parent).
GUIDANCE 1G2 – An entity has control, when it

currently has the ability to exercise that power,
regardless of whether control , is actively demonstrated
or is passive in nature. Potential voting rights held by an
entity that are currently exercisable or convertible provide
this ability. The ability to exercise power does not exist
when potential voting rights lack economic substance
(eg the exercise price is set in a manner that precludes
exercise or conversion in any feasible scenario).
Consequently, potential voting rights are considered
when, in substance, they provide the ability to exercise
power.
PARA 14 AND 15 – An entity may own share warrants,

share call options, debt or equity instruments that are
convertible into ordinary shares, or other similar
instruments that have the potential, if exercised or
converted, to give the entity voting power or reduce
another party’s voting power over the financial and
operating policies of another entity (potential voting rights).
The existence and effect of potential voting rights that
are currently exercisable or convertible, including
potential voting rights held by another entity, are
considered when assessing whether an entity has the
power to govern the financial and operating policies of
another entity. Potential voting rights are not currently
exercisable or convertible when, for example, they cannot
be exercised or converted until a future date or until the
occurrence of a future event. In assessing whether potential
voting rights contribute to control, the entity examines all
facts and circumstances (including the terms of exercise of
the potential voting rights and any other contractual
arrangements whether considered individually or in
combination) that affect potential voting rights, except the
intention of management and the financial ability to
exercise or convert such rights.
(c) IAS-28:
PARA 2: An associate is an entity, including an

unincorporated entity such as a partnership, over which the
investor has significant influence and that is neither a
subsidiary nor an interest in a joint venture.
Significant influence is the power to participate in the

financial and operating policy decisions of the investee but
is not control or joint control over those policies.
PARA 6: If an investor holds, directly or indirectly (eg

through subsidiaries), 20 percent or more of the voting
power of the investee, it is presumed that the investor has
significant influence, unless it can be clearly demonstrated
that this is not the case. A substantial or majority
ownership by another investor does not necessarily
preclude an investor from having significant influence.
PARA 10: An entity loses significant influence over an
investee when it loses the power to participate in the
financial and operating policy decisions of that investee.
The loss of significant influence can occur with or without
a change in absolute or relative ownership levels. It could
occur, for example, when an associate becomes subject to
the control of a government, court, administrator or
regulator. It could also occur as a result of a contractual
agreement.
Section 4(1) – A company shall be deemed to be a subsidiary of

another if, but only if –
(a) that other controls the composition of its Board of directors

(b) that other -
(ii) where the first-mentioned company is any other
company, holds more than half in nominal value of
its equity share capital;
(c) the first-mentioned company is a subsidiary of any company
which is that others subsidiary
C. ISSUE OF CONVERGENCE
Companies Act defines control over an entity only based on

composition of board of directors or holding of more than half in
the nominal value of the equity share capital. However, IFRS 3 &
IAS 27 define control as the power to govern the financial and
operating policies of another company, though it may not have
current control over the composition of board of directors or may
not currently hold more than half of the nominal value of the
equity capital of the other company. IFRS recognizes potential
ability to exercise power to govern.
The accounting, preparation and presentation of consolidated

and separate financial statements would be materially different
for companies identified to have ‘Control’ as per IFRS 3 and IAS
27. The accounting of such companies shall have to be as per a
‘Business Combination’ or a ‘Holding - Subsidiary’ relationship
and not as a single entity.
The applicability of various legal provisions as per Companies

Act would also be different for such companies identified as per
IFRS 3 & IAS 27.
D. RECOMENDATIONS
The Act should be amended to require preparation of Consolidated

Financial Statements of a Group comprising the parent and subsidiary
companies. However, the definition of a subsidiary company presently
given under section 4 of the Companies Act should not be used as it is
rule-based and different from IAS 27, ‘Consolidated and Separate
Financial Statements’. For the purpose of this section, it should be
required that the Consolidated Financial Statements should be prepared for
entities comprising parent and subsidiary which is defined on the basis of
the definition of ‘control’ as under IAS 27 as below:
“Control is the power to govern the financial and operating policies of an

entity so as to obtain benefits from its activities.”
7. PAYMENT OF INTEREST OUT OF CAPITAL
A. IFRS 32
a. PARA 35 : Interest, dividends, losses and gains – Interest,

dividends, losses and gains relating to a financial instrument or a
component that is a financial liability shall be recognized as
income or expense in profit or loss. Distributions to holders of
an equity instrument shall be debited by the entity directly to
equity, net of any related income tax benefit. Transaction costs
of an equity transaction shall be accounted for as a deduction
from equity, net of any related income tax benefit.
b. PARA 36 : The classification of a financial instrument as a

financial liability or an equity instrument determines whether
interest, dividends, losses and gains relating to that instrument
are recognized as income or expense in profit or loss. Thus,
dividend payments on shares wholly recognized as liabilities are
recognized as expenses in the same way as interest on a bond.
Similarly, gains and losses associated with redemptions or
refinancings of financial liabilities are recognized in profit or loss,
whereas redemptions or refinancings of equity instruments are
recognized as changes in equity. Changes in the fair value of an
equity instrument are not recognized in the financial statements.
Section 208 (1) – Where any shares in a company are issued for
the purpose of raising money to defray the expenses of the
construction of any work or building, or the provision of any plant,
which cannot be made profitable for a lengthy period, the company
may—
(a) pay interest on so much of that share capital as is for

the time being paid up, for the period and subject to the
conditions and restrictions mentioned in sub-sections (2) to
(7); and
(b) charge the sum so paid by way of interest, to capital as

part of the cost of construction of the work or building, or
the provisions of the plant.
Section 208(7) – The payment of the interest shall not operate as a

reduction of the amount paid up on the shares in respect of which it
is paid.
As per IFRS 32 any payment of interest out of capital has to be

charged as expense to profit or loss if the financial instrument is
financial liability instrument. If it is an equity instrument then it is
to be deducted from equity and presented in statement of
changes in equity.
The accounting treatment permitted under Companies Act to

capitalize such costs as part of cost of construction of the fixed
asset or to carry forward as Miscellaneous. Expenditure to be
written off over a period is contrary to provisions of IFRS 32.
D. RECOMMENDATIONS
Section 208 (1) (b) – should be repealed
8. BUSINESS COMBINATIONS
A. IFRS 3 – BUSINESS COM BINATIONS
(i) PARA 18
Measurement Principle: The acquirer shall measure the

identifiable assets acquired and the liabilities assumed at
their acquisition-date fair value.
Provisions for facilitating reconstruction and amalgamation of
companies.
(iv) Section 394 (1):
Where an application is made to the Tribunal under section

391 for the sanctioning of a compromise or arrangement
proposed between a company and any such persons as are
mentioned in that section, and it is shown to the Tribunal -
(a) that the compromise or arrangement has been

proposed for the purposes of, or in connection with,
a scheme for the reconstruction of any company or
companies, or the amalgamation of any two or more
companies; and
(a) that under the scheme the whole or any part of the
undertaking, property or liabilities of any company
concerned in the scheme (in this section referred to
as a “transferor company”) is to be transferred to
another company (in this section referred to as “the
transferee company”);
the Tribunal may, either by the order sanctioning the

compromise or arrangement or by a subsequent order,
make provision for all or any of the following matters;
(i) the transfer to the transferee company of the whole
or any part of the undertaking, property or liabilities
of any transferor company;
(ii) the allotment or appropriation by the transferee
company of any shares, debentures, policies, or
other like interests in that company which, under
the compromise or arrangement, are to be allotted
or appropriated by that company to or for any
person;
(iii) such incidental, consequential and supplemental
matters as are necessary to secure that the
reconstruction or amalgamation shall be fully
and effectively carried out.
The order of the Court may provide for such incidental,

consequential and supplemental matters concerning mergers and
acquisitions which may not be as per the recognition, measurement
and disclosure requirements of IFRS
D. RECOMMENDATION
(i) Clause (vi) under sub-section (1) of section 394 should be

amended as under:
“(vi) such incidental, consequential and supplemental

matters as are necessary to secure that the reconstruction or
amalgamation shall be fully and effectively carried out
which are not in conflict with the requirements of the
referred to in sub-section (3C) of section 211 of the
Companies Act, 1956.”
(ii) The Proviso under sub-section 2 of section 391 should be

amended to read as under:
“ Provided that no order sanctioning any compromise or

arrangement shall be made by the Tribunal unless the
Tribunal is satisfied that the company or any other person
by whom an application has been made under sub-section
(1) has disclosed to the Tribunal, by affidavit or otherwise,
all material facts relating to the company, such as the latest
financial position of the company, the latest auditor’s report
on the accounts of the company, the pendency of any
investigation proceedings in relation to the company under
sections 235 to 251, a certificate by the company that
the scheme is not in conflict with the requirements of
the accounting standards prescribed by the Central
Government referred to in sub-section (3C) of section
211 of the Companies Act, 1956 and the like.”
9. STATUS OF PREPAREDNESS WITH IFRS CONVERGENCE BY 2011 –

GENERAL ISSUE
A. ISSUES OF CONVERGENCE
There are still conceptual differences between the Indian

Accounting Standards and IFRS on various issues
The process of notifying the amendments to the existing Indian

Accounting Standards and notifying the new accounting standards
to make the Indian Accounting Standards fully convergent with
IFRS is likely to take some more time.
To achieve full convergence by 2011, the financial statements
prepared on or after 1.4.2009 shall also additionally have to be in
accordance with IFRS to make the data available for the
comparative periods.
B. RECOMMENDATIONS
“A circular should be issued under the Companies Act as under :
CIRCULAR
All companies have to achieve full convergence with International
Financial Reporting Standards (IFRS) by the year 2011 and all
financial statements presented on or after 1.4.2011 shall be
prepared accordingly.
It is required that all companies shall incorporate the brief status on

the preparedness level and state of companies readiness for
convergence with IFRS, in the Board of Director’s report prepared
under section 217(1) of the Companies Act, 1956 and attached
with the financial statements for all periods closing on or after
31.3.2009.”

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CHANGES REQUIRED IN

THE COMPANIES ACT, 1956

CONVERGENCE WITH IFRS

CIRCULAR: No 3/124/75-CL-V, dated 22.11.76 – requiring proposed

Schedule XIV should be revised. The Ministry of Corporate Affairs has

Section 205(1) – Provisos as under should be repealed :

(c) the Central Government may, if it thinks necessary so to do in the

“For the purpose of sub-section (1), depreciation shall be provided in the

The proviso should be modified accordingly.

Section 205(5) – as under should be repealed :

• 205(5) ‘specified period’ – no. of years at the end of which at

3. ACCOUNTING FOR CHANGES IN ACCOUNTING POLICIES,

The Circular issued by the Company Law Board prohibiting re-opening

“It is hereby clarified that any re-statement of the comparative amounts, in

The existing Schedule VI should be revised to make it consistent with

5. FINANCIAL INSTRUMENTS, PRELIMINARY EXPENSES AND

Section 80(1) Proviso (c) as under – should be repealed:

• Section 80(1) Proviso (c) : the premium, if any, payable on

Section 78(2) (b), (c) and (d) – should be repealed:

Section 78(2) should read as under:

“(2) The securities premium account may, notwithstanding anything in sub

Section 100(1)(b) should be amended to read as under :

“Subject to confirmation by the Tribunal, a company limited by shares or

(b) either with or without extinguishing or reducing liability on any of its

The IFRS requires preparation of Consolidated Financial Statements,

“Control is the power to govern the financial and operating policies of an

7. PAYMENT OF INTEREST OUT OF CAPITAL

Section 208 (1) (b) – should be repealed

“(vi) such incidental, consequential and supplemental matters as

(ii) The Proviso under sub-section 2 of section 391 should be amended to

“Provided that no order sanctioning any compromise or

A circular should be issued under the Companies Act as under:

A. IAS 10 - EVENTS AFTER THE REPORTING PERIOD

(i) PARA 12: If an entity declares dividends to holders of equity

B. CIRCULAR: No 3/124/75-CL-V, dated 22.11.76

The department is of the firm view that there is a statutory

Proposed dividends are treated as non-adjusting events after the

However, as per the provisions in the Companies Act, 1956,

Hence, Convergence/adoption with IAS-10 can not be attained.

CIRCULAR: No 3/124/75-CL-V, dated 22.11.76 – to be withdrawn.

BC 26 & BC 27: The unit of measure ‘ item as a whole’

(ii) PARAS 50 to 57 & PARA 6

The depreciable amount of an asset shall be allocated on

The depreciable amount of an asset is determined after

Useful life is the period over which an asset is expected to

Depreciation of an asset begins when it is available for use

The depreciation method used shall reflect the pattern in

The depreciation method applied shall be reviewed at least

The methods that can be used are:

(a) Straight – line method;

B. COMPANIES ACT, 1956

(i) Schedule XIV

It prescribes the rates of depreciation for items of tangible

It identifies 4 naturewise classes of fixed assets.

It prescribes rates on ‘shift’ basis and specifies assets where

It prescribes a ‘general rate’ of depreciation under the class

(ii) Section 350

Depreciation for the purpose of Section 349(4)(k) shall be

(iii) Section 198 & 199

For the purpose of computing the total limit of managerial

(iv) Section 205

Dividends to be paid only out of profits

• 205(1) – No dividend shall be declared or paid for