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TMI BlogAccounting policies and standardsX X X X Extracts X X X X X X X X Extracts X X X X ..... tion. c. In respect of all interest-bearing investments, income must be accrued on a day to day basis as it is earned. Therefore, when such investments are purchased, interest paid for the period from the last interest due date upto the date of purchase must not be treated as a cost of purchase but must be debited to Interest Recoverable Account. Similarly interest received at the time of sale for the period from the last interest due date upto the date of sale must not be treated as an addition to sale value but must be credited to Interest Recoverable Account. d. In determining the holding cost of investments and the gains or loss on sale of investments, the 14 [ weighted ] average cost method must be followed. e. Transactions for purchase or sale of investments should be recognised as of the trade date and not as of the settlement date, so that the effect of all investments traded during a financial year are recorded and reflected in the financial statements for that year. Where investment transactions take place outside the stock market, for example, acquisitions through private placement or purchases or sales through private treaty, the transaction should be recorded in the ev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [ (k). The investments acquired or sold shall be accounted at transaction price excluding all transaction costs such as brokerage, stamp charges and any charge customarily included in the broker s contract note that are attributable to acquisition/sale of investments . ] l. Underwriting commission should be recognised as revenue only when there is no devolvement on the scheme. Where there is devolvement on the scheme, the full underwriting commission received and not merely the portion applicable to the devolvement should be reduced from the cost of the investment. m. 18 [ Non-traded investments shall be valued in good faith in accordance with the norms specified in the Eighth Schedule: Provided that in the case of real estate mutual funds schemes, investments in unlisted equity shares shall be valued as per the norms specified by the Board in this regard. ] 9 [Part B: For direct investment in real estate asset Definitions 1. In this Part, unless the context otherwise requires-: (a) fair value means the amount for which an asset could be exchanged between knowledgeable parties in an arm s length transaction and certified by the real estate valuer; (b) knowledgeable means that both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registration expenses and asset transfer taxes. 9. If the payment for a real estate asset is deferred, its cost is the cash price equivalent. A real estate mutual fund scheme shall recognise the difference between this amount and the total payments as interest expense over the period of credit. 10. A real estate mutual fund scheme may acquire one or more real estate assets in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets. The cost of such a real estate asset shall be measured at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. The acquired real estate asset shall be measured in this manner even if an real estate mutual fund scheme cannot immediately derecognize the asset given up. If the acquired real estate asset cannot be measured at fair value, its cost shall be measured at the carrying amount of the asset given up. 11. A real estate mutual fund scheme determines whether an exchange transaction has commercial substance by considering the extent to which its future cash flows are expected to change as a res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e asset reflects, among other things, rental income from current leases and reasonable and supportable assumptions that represent what knowledgeable, willing parties would assume about rental income from future leases in the light of current conditions. It also reflects any cash outflows that could be expected in respect of the asset. iv. The best evidence of fair value is given by current prices in an active market for similar real estate asset in the same location and condition and subject to similar lease and other contracts. Care shall be taken to identify any differences in the nature, location or condition of the asset, or in the contractual terms of the leases and other contracts relating to the asset. v. In the absence of current prices in an active market, information from a variety of sources shall be considered, including: (a) current prices in an active market for properties of different nature, condition or location (or subject to different lease or other contracts), adjusted to reflect those differences; (b) recent prices of similar properties on less active markets, with adjustments to reflect any changes in economic conditions since the date of the transactions that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fair value of real estate asset shall exclude prepaid or accrued operating lease income, because the real estate mutual fund scheme would recognise it as a separate liability or asset. (d) The fair value of real estate asset held under a lease reflects expected cash flows (including contingent rent that is expected to become payable). Accordingly, if a valuation obtained for aN asset is net of all payments expected to be made, it will be necessary to add back any recognised lease liability, to arrive at the fair value of the real estate asset for accounting purposes. ix. The fair value of real estate asset does not reflect future capital expenditure that will improve or enhance the asset and does not reflect the related future benefits from this future expenditure. x. Where a real estate mutual fund scheme expects that the present value of its payments relating to a real estate asset (other than payments relating to recognised liabilities) will exceed the present value of the related cash receipts it shall apply Accounting Standard (AS) 29, Provisions, Contingent Liabilities and Contingent Assets to determine whether to recognise a liability and, if so, how to measure it. 15. To de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .f. 23-1-2001. 4 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 2009, w.e.f. 8-4-2009. 5 Substituted for credited by the SEBI (Mutual Funds) (Amendment) Regulations, 1998 w.e.f. 12-1-1998. 6 Substituted for debited by the SEBI (Mutual Funds) (Amendment) Regulations, 1998 w.e.f. 12-1-1998. 7 Substituted for credited by the SEBI (Mutual Funds) (Amendment) Regulations, 1998 w.e.f. 12-1-1998. 8 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 2008, w.e.f. 16-4-2008. 9 Inserted by the SEBI (Mutual Funds) (Amendment) Regulations, 2008, w.e.f. 16-4-2008. 10. Substituted vide Notification No. SEBI/LAD-NRO/GN/2019/37 dated 23-09-2019 w.e.f. 15-10-2019 before it was read as, 3 [(g) Where income receivable on investments has accrued but has not been received for the period specified in the guidelines issued by the Board, provision shall be made by debiting to the revenue account the income so accrued in the manner specified by guidelines issued by the Board.] 11. Omitted vide Notification No. SEBI/LAD-NRO/GN/2019/37 dated 23-09-2019 w.e.f. 15-10-2019 before it was read as In respect of privately placed debt instruments any front-end discount offered should be reduced ..... X X X X Extracts X X X X X X X X Extracts X X X X
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