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Convergence to IND AS 16: Changes and Implications
--Poonam Dugar and Vibha Tripathi
With integrated global economies and cross-border mergers and acquisitions, uniformity of financial reporting by Indian companies is inevitable for the authenticity of their financial statements worldwide. The emergence of International Financial Reporting Standards (IFRS) marks the biggest revolution in financial reporting, though not without posing challenges of convergence in India. In order to harmonize with the financial reporting worldwide, the Institute of Chartered Accountants of India (ICAI) has issued 35 IND AS—the converged accounting standards which are in line with IFRS subject to certain carve outs (differences) due to tax-related issues, as notified by the Ministry of Corporate Affairs. With reference to this convergence, this paper provides an insight into the revised framework of AS 6 – Depreciation and AS 10 – Fixed Assets, with the formation of new IND AS 16 – Property, Plant and Equipment (PPE) and its implications through various illustrations. Moreover, the issues of recognition of assets are explained through different models of measurement, determination of their carrying amounts, accounting treatment of revaluation and depreciation charges on the assets. The analysis shows that adaptation to IFRS convergence opens new avenues for the accounting profession, followed by unforeseeable challenges. The analysis of the standard concludes that significant parts (components) of a PPE can be recognized, depreciated and derecognized separately and individually. There will be major changes in the value of PPE in the financial statements due to treatment of revaluation surplus.
© 2015 IUP. All Rights Reserved.
Non-Core Assets and Disclosure Requirements
--Reshma K Tiwari, Debabrata Das and Jasojit Debnath
In recent times, many highly leveraged companies in Indian corporate sector followed the route of disposal of their non-core assets to reduce the debt burden. ‘Non-core assets’ means the assets not used in core business operations. The purpose of this paper is to develop a conceptual framework about the non-core assets, its relevance and fill the gap in disclosure requirement in companies’ financial statements in this regard. Existing disclosure requirements limit the information availability regarding the holding of non-core assets on the face of the balance sheet statement as well as in notes to accounts. The paper using the existing literature, in addition to information available in Revised Schedule VI to the Companies Act 1956 and Indian Accounting Standards 1, 6 and 10, finds that disposal of non-core assets during the turbulent times are one of the common practices. However, there are lacunas in the disclosure requirements regarding the noncore assets in company’s financial statements. The findings of the present study may attract the attention of various users of financial statements and may form the base for revising the disclosure norms in this regard to bring greater transparency. The study is a pioneering attempt to examine the possibility of showing each class of fixed tangible asset under the heads ‘core assets’ and ‘non-core assets’ to facilitate better decision making and compliance with the conventional wisdom of transparency, corporate governance and full disclosure.
© 2015 IUP. All Rights Reserved.
Economic Value-Added as an Emerging Tool
of Performance Measurement:
Evidence from Indian Companies
--Poornima B G, Parab Narayan and Y V Reddy
The concept of Economic Value-Added (EVA) is of recent origin. Considering its importance in the corporate world, it becomes vital to understand its role in shareholders’ value creation and performance measurement for companies. The present study is an attempt to analyze the relationship between EVA and the traditional measures, i.e., Earnings Per Share (EPS), Return on Invested Capital (ROIC) and Return on Net Worth (RONW). Using a sample of 50 companies listed on Nifty 50 index of National Stock Exchange, India from 2009-10 to 2013-14, the study ranks the select companies based on their mean EVA. The study concludes that there exists significant difference between the mean values of the considered variables of the select companies. It also reveals that ROIC has significant influence on EVA.
© 2015 IUP. All Rights Reserved.
An Empirical Study on Economic Value-Added
and Market Value-Added of Selected Indian FMCG Companies
--E Madhavi and M S V Prasad
This study examines if the selected seven Indian companies from FMCG sector listed on National Stock Exchange (NSE) have created shareholder value in terms of Economic Value-Added (EVA) and Market Value-Added (MVA) during the five years from 2010 to 2014. EVA is a trademark of Stern Stewart & Co, who conceptualized the term. Their contention is that EVA has got better predictive power in analyzing the financial performance of a company than other traditional methods like ROIC, EPS, ROA, ROS and ROE. In the present study, data of seven companies—Britannia, Marico, Dabur, ITC, HUL, Emami and Godrej—is analyzed to test the same. MVA is taken as a proxy for determining the market value of the firms. Correlation and multiple regression are used to test the claim. The study supports Stern Stewart’s claim that EVA is a better predictor of market value of the firms as compared to EPS and is successful in indicating stronger relationship and relevance to capital markets than other traditional measures.
© 2015 IUP. All Rights Reserved.
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