|Deals with securities held as stock in trade.
This ICDS does not deal with:
(a) The bases for recognition of interest or dividend;
(b) Securities held by a person engaged in the business of insurance;
(c) Securities held by mutual funds, venture capital funds, bank and public financial institutions formed under a Central or State Act or so declared under the companies act 2013
| Fair Value: is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s length transaction.
| Securities : shall have the meaning assigned to in clause (h) of Section 2 of securities Contract (Regulation) Act, 1956 other than derivatives referred in sub-clause (1a) of that clause.
Recognition and Initial Measurement
Subsequent measurement of Securities
Key differences with AS
ICDS VIII deals with only securities held as stock-in-trade thereby concentrating only on part of AS 13 which deals with both long term and short term investments of all types:
- ICDS requires securities to be valued at ‘global basis’ (category wise) and not on piecemeal basis.
- Cost of acquisition in case of acquisition of security by issue of security or by giving up an asset is fair value of securities issued and fair value of asset given up (if clearly available) respectively.
- Unlisted or thinly traded securities shall be value at cost in ICDS but in AS every security has to be accounted at cost or Fair value whichever is lower.
|This ICDS deals with :
(a) Treatment of transactions in foreign currencies;
(b) Translating the financial statements of foreign operations;
(c) Treatment of foreign currency transactions in the nature of forward exchange contracts
|Average rate :
Is the mean of the exchange rates in force during the period.
Is the exchange rate at the last day of the previous year
Is the difference resulting from reporting the same number of units of a foreign currency in the reporting currency of a person at different exchange rates
Is the ratio of exchange of two currencies
Is a currency other than the reporting currency of a person
|Foreign operations of a person:
Is a branch, by whatever name called, of that person, the activities of which are based or conducted in a country other than India.
|Foreign currency transactions:
Is a transaction which is denominated in or requires settlement in a foreign currency, including transactions arising when a person-
(i) Buys or sells goods or services whose price is denominated in a foreign currency; or
(ii) Borrows or lends funds when the amounts payable or receivable are denominated in a foreign currency; or
(iii) Becomes a party to an unperformed forward exchange contract; or
(iv) Otherwise acquires or disposes of assets, or incurs or settles liabilities, denominated in foreign currency.
|Forward exchange contract:
Means an agreement to exchange different currencies at a forward rate, and includes a foreign currency option contract or another financial instrument of a similar nature.
Is the specified exchange rate for exchange of two currencies at a specified future date
Shall have the meaning assigned to it in Section 2 of the FEMA Act 1999
|Integral foreign operations
Is a foreign operation, the activities of which are an integral part of the operations of the person
Are money held and assets to be received or liabilities to be paid in fixed or determinable amounts of money. Cash, receivables and payables are examples of monetary items
|Non-Integral foreign operations
Is a foreign operation that is not an integral foreign operation
Are assets and liabilities other than monetary items. Fixed assets, inventories and investments in equity shares are examples of non-monetary items.
Means Indian currency except for foreign operations where it shall mean currency of the country where the operations are carried out.
Foreign Currency transactions
Financial Statements of Foreign Operation
The method used to translate the financial statements of a foreign operation depends on the way in which it is financed and operates in relation to a person. Hence it is classified in to:
When the operation does not impact the Cash flow?
ICDS VI provides following indications that a foreign operation is a non-integral foreign operation rather than integral:
- The activities of foreign operation are conducted with a significant degree of autonomy from the activities of the person;
- Transactions with the person are not a high proportion of the foreign operation’s activities;
- The activities of the foreign operations are financed mainly from its own operations or local borrowings;
- Cost of labour, material and other components of the foreign operation’s products or services are primarily paid or settled in the local currency;
- The foreign operation’s sales are mainly in currencies other than Indian currency;
- Cash flows of the person are insulated from the day-to-day activities of the foreign operation;
- Sales price for the foreign operation’s products or services are not primarily responsive on a short term basis to changes in exchange rates but are determined more by local competition or local government regulations;
- There is an active local sales market for the foreign operation’s products or services, although there also might be significant amounts of exports.
Forward Exchange contracts
|Premium or discount arise on the contract is measured by difference between:
Exchange Rate at the date of inception of the contract – the Forward rate specified in the contract
|Exchange difference on the contract is difference between :
(a) The foreign currency amount of the contract translated at the exchange rate at the last day of the previous year, or the settlement date where the transaction is settled during the previous year; and
(b) The same foreign currency amount translated at the date of inception of the contract or the last day of the immediately preceding previous year, whichever is later.
Key Difference with AS
| Removal of Accumulation of FCTR
For non integral operations AS requires creation of FCTR to part the difference in exchange. This is because the profits and gains from non-integral operations are unrealised and are realisable only when the company is wound up. However ICDS suggests that such profit/loss be recognised on par with integral operations
Removal of Mark to Market
For trading and speculation transactions AS provides for recognising gains/losses on account of exchange differences on the basis of MTM. But ICDS requires gains/losses on such transactions should be realised only at the time of settlement.