Offsetting - Ind AS - Indian Accounting Standards - Companies Law

Offsetting An entity shall not offset assets and liabilities or income and expenses, unless required or permitted by an Ind AS. An entity reports separately both assets and liabilities, and income and expenses. Offsetting in the statement of profit and loss or balance sheet, except when offsetting reflects the substance of the transaction or other event, detracts from the ability of users both to understand the transactions, other events and conditions that have occurred and to assess the entity s future cash flows. Measuring assets net of valuation allowances-for example, obsolescence allowances on inventories and doubtful debts allowances on receivables-is not offsetting. Offsetting financial statement items is reasonable only when that reflects the substance of the transaction or other event. It should not lead to Window dressing . It should help the user to understand the transactions, other events and conditions that have occurred and to assess the entity s future cash flows. As per Ind AS 115, Revenue from Contracts with Customers, requires an entity to measure revenue from contracts with customers at the amount of consideration to which the entity expects to be entitled in exchange for transferring promised goods or services. For example, the amount of revenue recognized reflects any trade discounts and volume rebates the entity allows. If the transactions like sale of fixed assets, investments (non-current assets), foreign exchange gains and losses, it should present the gain or loss i.e., income after deducting the relevant expenses arising from the transaction. These do no generate revenue but are incidental to the main revenue generating activities. When there is material gain on one transaction should not be offset with material loss on another transaction i.e., when foreign exchange gain and foreign exchange losses are material it should be disclosed separately. As per IndAS 37, we can offset the reimbursement expenditure which is permitted by the Ind AS. In addition, an entity presents on a net basis gains and losses arising from a group of similar transactions, for example, foreign exchange gains and losses or gains and losses arising on financial instruments held for trading. However, an entity presents such gains and losses separately if they are material. Illustration - Is offsetting of revenue against expenses, permissible in case of a company acting as an agent and having sub-agents, where commission is paid to sub-agents from the commission received as an agent? Answer - Net presentation in the given case would not be appropriate, as it would not reflect substance of the transaction. The commission received as an agent is the gross revenue of the company. The amount of commission paid by it to sub-agents should be considered as an expense and should not be offset againsit commission earned by it.