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CA Final · Financial Reporting · Introduction to Indian Accounting Standards

Vindhya Pharma Ltd, an Ind AS company, is preparing its financial statements. A transaction is not specifically dealt with by any Ind AS. Management wants to decide the accounting policy. According to Ind AS 8 hierarchy as taught under the Ind AS framework, which approach is correct?

Management should apply Ind AS dealing with similar and related issues, then the Conceptual Framework's definitions and recognition criteria, and may consider other standard-setters' pronouncements that do not conflict. Old AS, automatic expensing or tax-driven treatment are not the prescribed approach under Ind AS 8.

  1. AApply the Ind AS dealing with similar and related issues, then the Conceptual Framework definitions and recognition criteria, and may consider other standard-setters' pronouncements consistent with theseCorrect
  2. BApply the old Accounting Standards (AS) as they are the default fallback
  3. CTreat the item as an expense immediately since no standard permits recognition
  4. DApply whichever treatment is most tax-efficient under the Income-tax Act

Explanation

Ind AS 8 requires management to use judgement; it first looks at Ind AS dealing with similar and related issues, then the Conceptual Framework definitions, recognition criteria and measurement concepts, and may also consider other standard-setters' latest pronouncements and accepted industry practice if consistent. Old AS are not a fallback, and tax-driven or automatic expensing has no basis.

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