ALL YOU NEED TO KNOW ABOUT ICDS BY CBDT

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In January, 2015, a revised set of twelve draft ICDSs were put up for public comments. After considering the comments of the stakeholders, theCentral Government has, vide Notifi cation dated 31.3.2015, in exercise of the powers conferred under section 145(2), notifi ed ten income computation and disclosure standards (ICDSs) to be followed by all assessees, following the mercantilesystem of accounting, for the purposes of computation of income chargeable to income-tax under the head “Profi t and gains of business or profession” or “Income from other sources”. Th is notifi cation shall come into force with effect from 1st April, 2015, and shall accordingly apply to the A.Y. 2016-17 and subsequent assessment years.

The ten notified ICDSs are:

ICDS I : Accounting Policies
ICDS II : Valuation of Inventories
ICDS III : Construction Contracts
ICDS IV : Revenue Recognition
ICDS V : Tangible Fixed Assets
ICDS VI : Th e Eff ects of Changes in Foreign Exchange Rates
ICDS VII : Government Grants
ICDS VIII : Securities

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ICDS I: ACCOUNTING POLICIES

• This ICDS deals with significant accounting policies.
• While it recognizes the fundamental accounting assumptions of going concern, consistency and accrual, it does not recognize the concepts of “materiality” and “prudence” in selection of accounting policies.
• Treatment and presentation of transactions have to be governed by their substance and not form.
• Marked to market loss or an expected loss is not to be recognized unless recognition of such loss is in accordance with the provisions of any other ICDS.

ICDS II :VALUATION OF INVENTORIES

• “Inventories” has been defined to mean assets held for – sale in the ordinary course of business; in the process of production for such sale; in the form of materials or supplies to be consumed in the production process or in the rendering of services.
• This ICDS requires inventory to be valued at cost or net realizable value, whichever is lower.
• This ICDS requires disclosure of the accounting policies adopted in measuring inventories including the cost formulae used and the total carrying amount of inventories and its classifi cation appropriate to a person.

ICDS III: CONSTRUCTION CONTRACTS

• This ICDS is required to be applied in determination of income for a construction contract of a contractor.
• It recognizes percentage of completion method (POCM) for recognizing contract revenue and contract costs associated with a construction contract.
• This ICDS also contains certain disclosure requirements, like the amount of contract revenue recognized as revenue in the period, the methods used to determine the stage

ICDS IV: REVENUE RECOGNITION

• This ICDS deals with the bases for recognition of revenue arising in the course of the ordinary activities of a person from :- the sale of goods; the rendering of services; the use by others of the person’s resources yielding interest, royalties or dividends.
• It does not, however, deal with the aspects of revenue recognition which are dealt with by other ICDSs.
• “Revenue” is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of a person from the sale of goods, from the rendering of services, or from the use by others of the person’s resources yielding interest, royalties or dividends. In an agency relationship, the revenue is the amount of commission and not the gross infl ow of cash, receivables or other consideration.
• This ICDS also contains a requirement wherein the revenue from sale of goods could be recognized when there is reasonable certainty of its ultimate collection.
• However, “reasonable certainty for ultimate collection” is not a criterion for recognition of revenue from rendering of services or use by others of person’s resources yielding interest, royalties or dividends.
• This ICDS contains certain disclosure requirements, like the amount of revenue from service transactions recognized as revenue during the previous year, the method used to determine the stage of completion of service transactions in progress, information relating to service transactions in progress at the end of the previous year etc.

Must Read :- Income Computation and Disclosure Standards ICDS : Features

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Regards

CA GROUPS

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