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CA Intermediate · Advanced Accounting · Applicability of Accounting Standards

Himalaya Finance Ltd is a non-banking finance company with unlisted securities and turnover of Rs 60 crore. It is not a bank, but a Non-Banking Financial Company with net worth of Rs 150 crore. Under the Companies (Accounting Standards) Rules, how is Himalaya classified?

Himalaya's classification depends on the applicable tests: NBFCs with net worth of Rs 250 crore or more follow Ind AS, whereas a smaller unlisted NBFC like this one follows Accounting Standards and is classified by the SMC tests of listing, turnover and borrowings, not by blanket rules.

  1. ANon-SMC if it falls within the specified NBFC category covered by Ind AS applicability; otherwise decided by the SMC tests of listing, turnover and borrowingsCorrect
  2. BAlways SMC since turnover is below Rs 250 crore
  3. CAlways Non-SMC since all NBFCs are Non-SMC under AS
  4. DAlways exempt from all Accounting Standards

Explanation

NBFCs with net worth of Rs 250 crore or more must follow Ind AS, while NBFCs below that threshold and unlisted follow the Accounting Standards. Under the Accounting Standards, the SMC test excludes banks, financial institutions and insurance companies, but a plain NBFC is classified through the usual listing, turnover and borrowing tests. Since Himalaya has net worth of Rs 150 crore, it is below the Ind AS threshold and is classified by the SMC tests. Statements of 'always' SMC or Non-SMC or total exemption are wrong.

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