The retail sector has to take into account some key changes arising from the transition to Ind-AS.
Revenue recognition There is a shift from a risk and rewards approach to recognising revenue on transfer of control to the customer. Besides transfer of risks and rewards, other criteria used in assessing whether control has transferred to the customer include physical possession, transfer of legal title and likelihood of collection.
For sales on consignment basis, revenue recognition may not happen until the product is physically delivered to the ultimate consumer. Also, there is a requirement to defer a part of the revenue for estimated product returns and create a refund liability. Besides, most discounts and incentives offered to customers would need to be netted off against revenues as compared to being presented as expenses under current GAAP.
Consolidation Under Ind-AS, companies would need to assess whether or not they have actual control over their investees as compared with an assessment based on voting rights. This may lead to changes in the scope of consolidation as additional entities may need to be consolidated or de-consolidated. Also, accounting for joint ventures would be done on the basis of the equity method as compared with proportionate consolidation.
Mergers and acquisitions The accounting for M&A transactions is significantly different under Ind-AS. A larger number of transactions may qualify to be treated as business acquisitions. This, in turn, would entail purchase accounting at fair values of various elements including the purchase consideration and acquired assets and liabilities. This will impact reported earnings.
The writer is Partner, Accounting Advisory Services at KPMG in India