Various websites play host to different types of tax calculators, from which you can take your pick based on what you want to calculate. You should remember that you earn capital gains on your investments, which is why you become liable to pay capital gains tax. Irrespective of whether you put your money in bonds, stocks, or other financial instruments, you should have a clear idea about how your final return will get affected by the capital gains tax. In such a scenario, you can use a tax calculator for identifying your capital gains tax applicable on your investments in mutual funds and other financial instruments.

You may come across calculators that ask users to submit pertinent data, such as the date of investment, investment category (equity or debt etc), purchase value, date of redemption, and redemption value, among others, to offer users a reference point with respect to their tax liability.

Depending on what you are looking for, you can search online to find devices that assess your savings as well as tax liability. For example, if you want to have a fair idea about your returns on a specific financial instrument, you can use online calculators that compute the post tax returns produced by your chosen investment options. You may also come across need based redemption tools, which help you to identify the number of units of a particular share or other financial instrument that you have invested in, which should be sold in order to fulfil the present financial requirement. You may even use online tools like inflation calculators to analyse how inflation would affect your savings and the amount you will have in hand after meeting your tax liabilities.

Though such tools can help you to get a basic idea about your financial condition and investment returns/tax liability, they shouldn’t be used as an alternative for competent tax advice. There are many assumptions on which such tools work, which may or may not be applicable in your case. For example, you may come across mutual fund investment tools, which assume that no part redemptions were made for the particular investment, while assessing your tax liability or returns. Thus, only a professional tax consultant can help you with sound advice in case you have redeemed some units before the respective redemption date. Again, based on the budget and newly introduced finance bills, the actual figures may vary from what these tools show. This is why you should use them for indicative purposes, and not take major financial decisions based on what results/figures they show.

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2. How to invest in mutual funds online?
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Main objective of XBRL is Transparency. Investor has put in its money in company and shall be aware of it’s IN and OUT. The XBRL is a way of electronic communication of business and financial data and is of immense utility to the capital markets and the investing community.

XBRL involves huge initial conversion costs for companies but the long-term benefits for investors and the capital markets would be significant.

What is XBRL (eXtensible Business Reporting Language)

XBRL is a digital ‘language’ that was developed to provide a common electronic format for business and financial reporting.

• Developed specifically to communicate information between businesses and other users of financial information such as analysts, investors and regulators
• Provides a common electronic format for business reporting

It does not change what is being reported.  It only changes how it is reported.
It is self-contained document.

There are thousands of companies releasing financial results on quarterly, interim and on annual basis. There is no easy way to compare contents, but for XBRL.

Advantages of XBRL

• Streamlined processes for collecting, comparing and reporting financial information
• Reduced costs
• Improved financial communication and transparency
• Increased data accuracy
• Direct comparability
• Multi languages and accounting standards support
• Improved risk management and control
• Ease of maintenance
• Faster, more reliable and extended scope of analysis capabilities for better decision-making

ICAI & XBRL

ICAI has built up the Taxonomy which contains the concept; it does not contain any factual information reported by entity.

Taxonomy has been based on three broad reporting categories. These are

1. Commercial and Industrial
2. Banking Companies
3. Non-Banking Finance companies

The ICAI XBRL taxonomy has been constructed to conform to the current Indian Accounting Standards and Company Law.

XBRL AND IFRS

Transparency in the financial reporting is tremendously increasing around the world and two global standards have assisted to achieve these objectives i.e. IFRS and XBRL.

IFRS and XBRL are two different projects, a combined project implementation approach can enable greater efficiency and control over reporting.

To enhance transition to IFRS, consider how XBRL fits into your reporting processes as on date and start assessing how your current reporting processes may be affected by the adoption of IFRS.

Author:CA Shalini Tibe

Related posts:

1. Challenges for implementation of IFRS
2. IFRS:Why do we need IFRS in India?
3. IFRS: an improvement in accounting quality as well as corporate governance

It is basically search for mineral resources, including minerals, oil, natural gas and similar non-regenerative resources after the entity has obtained legal rights to explore in a specific area, as well as the determination of the technical feasibility and commercial viability of extracting the mineral resource.

Relevant IFRS applicable for Exploration and evaluation of Mineral resources, Oil and Gas Industry

• IFRS 6: Exploration for and Evaluation of Mineral Resources
• IAS 16 – Component accounting for assets
• IAS 36 – Impairments
• IAS 37 – Asset retirement obligations
• IAS 38 – Intangible assets
• IFRS 1 – opening balance sheet

What are the Exploration for and Evaluation Cost?

• Lease acquisition rights
• Technical studies and services
• Seismic costs
• Geologic and geophysical costs
• Exploratory drilling and testing
• Tangible and intangible costs

Transition issues (IFRS1)

Requires retrospective restatement of beginning balances which is subject to very high cost and limited benefits to users

Cash Generating Unit

IFRS 6 defines Cash Generating Unit (CGU) as smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets

Impairment of assets is done at the CGU level.  Application of CGU requires judgment. It will involve how management monitor operations, product line, regional areas, decision regarding continuing or disposing operations.

We have already discussed Component accounting in our previous articles.

IFRS 6

Objective - To specify the financial reporting for the exploration for and evaluation of mineral resources

Scope: It applies only to expenditure incurred before exploration and evaluation of mineral resources. It does not apply to companies who are engaged in exploration and evaluation of mineral resources.

Measurement: Exploration for and evaluation assets shall be measured at cost

It allows Full Cost Method for exploration and evaluation after this the companies are required to follow Successful effort method.

Successful Effort method (SE) v/s Full Cost Method (FC)

Oil and gas sector is only industry where companies are allowed to chose between two extreme different accounting methods.

Exploratory dry holes cost are capitalized in FC method where as in SE it is expensed.

Geologic and geophysical costs are capitalized in FC method where as in SE it is expensed.

Steps to proceed with IFRS 6

• The entity must determine accounting policies specifying which exploration and evaluation expenditures are recognized as assets, and how such assets are to be measured.
• On recognition, exploration and evaluation assets are measured at cost. Subsequently they are measured using either the cost model or the revaluation model.
• Exploration and evaluation assets are classified as tangible or intangible assets according to their nature.

An exploration and evaluation asset is assessed for impairment when circumstances suggest the carrying amount exceeds the recoverable amount.

Author: Shalini Tibe, IFRS Consultant

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Exposure Draft (ED) proposes to replace Incurred Loss Model for the assessment of impairment of financial assets measured at amortized cost currently included in IAS 39 with Expected Loss Approach that enables earlier recognition of credit risk.

Incurred Loss Model has been criticized because of following reasons:

 Expected losses are implicit in initial measurement of assets but are not taken into account when determining the Effective Interest rate used for subsequent measurement.

This results in a systematic overstatement of interest revenue in the period before a loss event occurs. In effect, subsequent impairment losses are in part reversals of inappropriate revenue recognition in earlier periods.

If suppose ABC Bank has given loan of Rs.100, 000 @ of 10 percent P.A. for 5 years then following will the schedule for interest repayment:

Under Incurred loss approach 10 percent interest rate includes expected loss factor which is accounted in Profit and Loss account as interest revenue.

Impairment loss is accounted only after a loss trigger is indicated. Thus there is an overstatement of interest revenue in the period before a loss event occurs.  

.

Thus ED has come out with Expected Loss Approach.

Expected Loss Approach (ELA)

•  An entity would have to estimate the expected credit losses over the life of asset on initial measurement of the asset.
•  No gain or loss would be recognized at inception of the asset.
•  The expected credit loss would be incorporated into Effective Interest rate (EIR) and consequently reduces EIR.
• Expected Cash flows (ECF) have to be determined at each measurement date and any gain or loss on subsequent reassessment would have to be recognized immediately in statement of Comprehensive income i.e. Profit and Loss a/c.

The proposed impairment model of ELA generates changes in Effective Interest rate (EIR) to include Expected loss rate in EIR calculation. Mingling of credit risk and credit rate would be difficult and costly to implement and generate significant operational challenges when it comes to practical implementation.

The operational aspects of applying the expected loss approach that requires historical information may not be available with all the entities.

ED proposes that Expected cash flows may be estimated on a Portfolio basis or on Individual basis.

A financial asset can be moved from Portfolio basis to Individual basis or vice versa. Whatever basis chosen, it shall provide the best estimate of Expected cash flow as per ED.

In case of Portfolio basis, Financial assets shall be grouped with similar credit risk characteristics that are indicative of the debtors ability to pay all the contractual amounts when due.

Amount of Expected credit loss would be more reliable when determined on portfolio basis and when based on statistical assessment. Loan portfolio contains a global credit risk exposure that can be estimated with certainty where as for each individual loan granted it will remain unpredictable.

Practically also expected losses can be determined at portfolio level. Because when we are looking at portfolio having similar credit risk characteristics, we can determine that some contractual cash flow will not be received although it may not be known at that point of time which specific asset will not perform.

In contrast entities in respect of individual loan at inception will estimate that it will receive full contractual payment over its term.

Thus International Accounting Standard Board (IASB) shall consider applying Expected loss model on portfolio basis.

IASB plans to issue final standard on amortized cost and impairment in the forth quarter of 2010. However the IFRS implementation date for is January 1, 2013.

Author: CA Shalini Tibe

Related posts:

1. Explanation of IFRS 9
2. Depriciation and Impairment – IFRS and Indian GAAP
3. Treatment Of Tangible Assets Under IFRS

When an item of Property, Plant and Equipment (PPE) is impaired i.e. recoverable amount < carrying amount, carrying amount is reduced to the amount of recoverable amount.

Asset should no more be carried more than their Recoverable amount.

Such a decrease in carrying amount is impairment and is booked in Profit and Loss.

After recognition of an impairment loss, the depreciation charge of the asset shall be adjusted in the future periods to allocate the asset’s revised carrying amount over its remaining useful life.

Example 1:

An entity acquires equipment for Rs.100

Economic life of equipment is 10 years but entity’s policy is to renew such equipment every 5 years i.e. useful life is 5 years

Residual value = 20

Depreciation Plan

Under IFRS there is need to review estimate of residual value at each financial year end where as under Indian GAAP there is no need for an annual review. Below example illustrate depreciation plan when there is change in estimate of residual value.

Suppose in example 1 residual value is estimated in year 4 = 10

Depreciation Plan

Under IFRS there is need to review estimate of useful life at each financial year end where as under Indian GAAP there is no need for an annual review. Below example illustrate depreciation plan when there is change in estimate of useful life.

Suppose now in example 1 the useful life is revised in year 3 as 4 years

Depreciation Plan

Suppose in example 1 depreciation test is performed in year 3 and estimation of recoverable amount at year end is 45

Now if you see in example 1 above the Net book value at year end 3 is 52

Thus Impairment is 52-45 = 7

Related posts:

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2. Phase 2 of IFRS 9: Exposure Draft on Amortised cost and Impairment
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Judgment required in applying Depreciation rates and Method

When deciding on depreciation rates and method, most common factors that can be taken into account are expected rate of technological developments, expected market requirement and the expected pattern of usage of the assets.

Review of Residual life

When reviewing residual values, an entity would estimate the amount that it would currently obtain for the disposal of the asset after deducting the estimated cost of disposal if the asset were already of the age and condition expected at the end of its useful economic life.

How to do Component Accounting?

Firstly allocate amount to significant parts and depreciate separately. Then group together significant parts with same useful life and depreciation methods.

The remainder of the item is to be also depreciated separately. Remainder consists of parts that are individually not significant.

Regular major inspection performed can also be considered as component of an item of PPE and can be depreciated separately.

For Instance

Suppose Cost of Acquisition of Building is Rs. 100,000 allocated to following components:

Above is an illustrative example. An opinion of expert valuers has to be sought for above information by companies for component accounting.

Replacement of components of PPE

• Capitalize the cost of replacing major component as separate assets such as replacement of elevators

• Net book value of old component is removed

• Routine repair and maintenance expenditure is to be expensed as incurred

Author name: CA Shalini Tibe