Phase-wise Ind AS Applicability: Net Worth Thresholds and Company Categories
The applicability of Ind AS (Indian Accounting Standards) is a crucial topic for students preparing for school and competitive commerce exams. It determines when companies in India must shift from traditional Indian GAAP to Ind AS for financial reporting. Understanding this topic is essential for exams, business compliance, and practical knowledge in the corporate world.
| Phase | Effective Date | Criteria (Net Worth / Sector) | Entities Covered |
|---|---|---|---|
| Phase I | 01 April 2016 | Net worth ≥ ₹500 crore (as per 31 Mar 2014 or later) |
All listed & unlisted companies (excluding banks, NBFCs, insurance companies) |
| Phase II | 01 April 2017 | Net worth ≥ ₹250 crore but < ₹500 crore | All listed companies and unlisted companies meeting above net worth (excluding banks, NBFCs, insurance companies) |
| Phase III | 01 April 2018 | Net worth ≥ ₹500 crore | Banks, Insurance Companies, NBFCs (separate guidance as per IRDAI and RBI) |
| Phase IV | 01 April 2019 | Net worth ≥ ₹250 crore but < ₹500 crore | NBFCs and other financial sector entities |
Applicability of Ind AS: Overview
The applicability of Ind AS defines the set of companies and entities which must compulsorily prepare their financial statements as per Indian Accounting Standards. This move enables enhanced transparency, global comparability, and compliance as India converges with IFRS. Key factors determining applicability include net worth, listing status, and being part of special sectors like NBFCs or banks.
Phase-wise Ind AS Adoption Roadmap
Ind AS has been adopted by Indian companies in phases, based on notifications by the Ministry of Corporate Affairs (MCA). Each phase considers the net worth and sector of the entity to determine when Ind AS becomes mandatory. The roadmap below explains this phased approach, which is crucial for exams and practical compliance.
| Phase | Effective From | Entities | Net Worth Threshold |
|---|---|---|---|
| I | 01 April 2016 | All listed & unlisted companies | ≥ ₹500 crore |
| II | 01 April 2017 | All listed companies; unlisted companies | ≥ ₹250 crore but < ₹500 crore |
| III | 01 April 2018 | Banks, Insurance Companies, NBFCs | ≥ ₹500 crore |
| IV | 01 April 2019 | NBFCs (others) | ≥ ₹250 crore but < ₹500 crore |
Net Worth Calculation for Ind AS Applicability
Net worth plays a vital role in determining Ind AS applicability. It must be computed as per audited standalone accounts as of 31 March 2014 or the first audited period after this date.
- Net worth includes: paid-up share capital, reserves (created out of profits & securities premium), minus accumulated losses and deferred expenditure.
- Exclude: reserves from asset revaluation, written-back depreciation, miscellaneous expenses not written off.
- Include: capital reserves from promoter contribution and government grants only.
Special Scenarios and Exceptions in Ind AS Applicability
Some special rules apply to subsidiaries, holding companies, and sector-specific entities. Students often face MCQs on these tricky scenarios.
- If Ind AS applies to a parent company, it automatically applies to all subsidiaries, joint ventures, and associates—regardless of their individual net worth.
- Foreign subsidiaries of Indian companies can prepare standalone financials as per local law but must provide Ind AS-adjusted numbers for group consolidation.
- LLPs, partnership firms, and other non-corporate entities are generally not required to adopt Ind AS unless notified separately.
- NBFCs and banks have timelines as per special notifications from MCA, RBI, and IRDAI.
Voluntary Adoption and SEBI Guidelines
Companies with adequate infrastructure can voluntarily adopt Ind AS from any financial year beginning on or after 1 April 2015. Once Ind AS is adopted voluntarily, a company cannot revert to previous standards. SEBI guidelines require IPO applicants to furnish five years of financial statements, and allow voluntary presentation of all years under Ind AS for transparency. These rules are important for students targeting corporate roles and finance exams.
Usage in Exams and Real-World Practice
Applicability of Ind AS is a frequent topic in school, B.Com, and professional courses. It also forms the basis for correct company audit and financial statement preparation in the real world. Understanding the roadmap, net worth calculation, and special scenarios helps answer questions in board exams as well as practice as a professional accountant.
Key Points for Quick Revision
- Ind AS is mandatory based on net worth and listing for companies and financial sector entities.
- Net worth is calculated from audited standalone financials, excluding certain reserves and expenditures.
- Once applicable, Ind AS extends to all related subsidiaries and group entities.
- NBFCs and banks follow different timelines, with updates from MCA/RBI.
- Voluntary adoption is permitted, but once opted, it is irreversible.
Related Internal Links
- Indian Accounting Standards (Ind AS) and IFRS
- Development of Indian Accounting Standards
- Accounting Standards – Objectives, Benefits, and Limitations
- Companies Act 2013 – Private Companies
- Financial Statements of a Company
- Analysis of Financial Statements
- Functions of an Accountant
- Difference between GAAP and IFRS
- Balance Sheet
In summary, the applicability of Ind AS ensures transparent and globally comparable financial reporting in India. By mastering Ind AS criteria, phases, net worth calculation, and exceptions, students are better equipped for exams and corporate roles. At Vedantu, we simplify complex commerce topics, supporting your success in studies and in professional practice.
FAQs on Applicability of Indian Accounting Standards (Ind AS) Explained
1. What is the applicability of IND AS?
IND AS applicability determines when Indian Accounting Standards must be used. It depends on a company's net worth, turnover, and whether it's listed, varying for NBFCs and banks. The MCA provides phase-wise implementation details.
2. What is the IND AS applicability roadmap?
The IND AS roadmap outlines phased adoption based on net worth and sector. It began in April 2016, with larger companies adopting first, followed by smaller entities in subsequent phases. Check the MCA notifications for precise timelines and thresholds.
3. How is net worth calculated for IND AS applicability?
Net worth for IND AS is calculated using audited standalone accounts. It includes paid-up share capital and specified reserves, excluding revaluation reserves. The exact calculation method is detailed in the relevant MCA guidelines and ICAI pronouncements.
4. Is IND AS applicable to private companies and LLPs?
IND AS applies to private companies if they meet the specified net worth or listing criteria. LLPs typically aren't covered unless explicitly stated in MCA notifications. Consult the latest SEBI and ICAI guidelines for the most up-to-date information.
5. Can companies voluntarily adopt IND AS?
Yes, eligible companies can voluntarily adopt IND AS. However, once adopted, they cannot revert to previous accounting standards. Voluntary adoption may require adherence to specific SEBI disclosure rules and presentation of comparative financials.
6. What is the applicability of IND AS on LLPs?
The applicability of IND AS to LLPs is generally not mandatory unless specifically mandated by MCA notifications. The criteria might depend on the LLP’s size and activities. Refer to the most recent ICAI guidance for clarification.
7. What is the applicability of IND AS to banks?
IND AS applicability for banks follows a separate timeline and criteria set by the RBI, differing from the MCA guidelines for other entities. Banks often have specific requirements for adoption and reporting.
8. What is the applicability of IND AS 116?
IND AS 116, Leases, has its own specific applicability, regardless of the overall IND AS adoption phase. It applies to all lessees and lessors meeting the criteria, regardless of their net worth or listing status.
9. What are the net worth thresholds for IND AS adoption?
The net worth thresholds for mandatory IND AS adoption vary by phase and are specified in MCA notifications. These thresholds are subject to change, so always refer to the latest official publications. Check for updates from SEBI and ICAI as well.
10. What happens to subsidiaries when the parent company adopts IND AS?
If a parent company adopts IND AS, all its subsidiaries, associates, and joint ventures are also required to adopt it. This ensures consistency in consolidated financial reporting.
11. What is the difference between old Indian GAAP, AS, and IND AS?
Indian GAAP (Generally Accepted Accounting Principles) refers to the older accounting standards in India. AS (Accounting Standards) was a previous set of standards, and IND AS (Indian Accounting Standards) are the currently applied standards, largely converged with IFRS. The transition aimed for improved financial reporting consistency and transparency.
12. What is the role of SEBI in IND AS applicability?
SEBI (Securities and Exchange Board of India) plays a crucial role in enforcing IND AS compliance for listed companies. SEBI guidelines specify disclosure requirements and timelines for adoption. They also provide guidance on financial reporting under IND AS for listed entities.
