→ ICDS are applicable to all taxpayers except individual/ HUF who are not liable to

tax audit.
→ ICDS is applicable only to those assessee who follow Mercantile basis of Accounting.
→ ICDS are applicable for computation of Income under the head “PGBP” or “IFOS”
& not for maintaining books of Accounts.
→ Assessees need not maintain Separate Books of accounts for the purpose of ICDS.
→ In case of Conflict Between Act and ICDS the Provision of Act shall prevail to that
extent.
→ ICDS is also applicable to Assessee showing Presumptive Income
[Sec.44AD/44AE/44ADA/44B/44BB/44BBA].
→ ICDS is applicable irrespective of fact that companies follows AS or IND-AS.
→ ICDS is not applicable for computation of Book Profit for the purpose of MAT u/s
115JB. However AMT is computed on ATI and Hence ICDS is applicable for
computation of AMT.
→ ICDS is also Applicable for Computation of Income on Gross Basis Eg: Interest/
Royalty Etc.)
→ If there is a conflict between Income Tax Rules and ICDS provision of Rules shall
prevail over ICDS.
→ Net effect on the Income due to application of ICDS is to be disclosed in ROI & Tax
Audit Report in form 3CD. However, if a person is not liable for Tax Audit no
separate disclosure is required.

ICDS Name Eq. Name

Accounting Standard
I Accounting Policies 1 Disclosure of accounting
Policy
II Valuation of inventories 2 Valuation of inventories
III Construction Contracts 7 Construction Contracts
IV Revenue Recognition 9 Revenue Recognition

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 ICDS Name Eq. Name
Accounting Standard
V Tangible Fixed Assets 10 Accounting for fixed
assets
VI Effects of changes in 11 Effects of changes in
foreign exchange rates foreign exchange rates
VII Government Grants 12 Government Grants
VIII Securities 13 Accounting for investment
IX Borrowing Cost 16 Borrowing Cost
X Provisions, Contingent 29 Provisions, Contingent
liabilities and liabilities and
Contingent assets Contingent assets

→ Similar to Accounting Standard, it deals with Significant Accounting Policies.

→ It does not recognize the concepts of "Materiality" and "Prudence"
in selection of accounting policies.
→ Accounting Policies are applicable in Computation of Income
not Maintenance of Books.
→ Accounting Policies can be changed if there is a reasonable cause but reasonable
cause is not defined in ICDS.
→ Expected Loss or mark to market losses shall not be recognized unless permitted by
another ICDS. However ICDS is silent about mark to market Gains.

→ Meaning: "Inventories" are assets:

a) held for sale in the ordinary course of business,
b) in the process of production for such sale,
c) in the form of materials or supplies to be consumed in
the production process or in the rendering of services.
→ ICDS requires inventory to be valued at Cost or Net Realizable value, whichever is

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 lower.
→ Cost of inventories shall comprise of all costs of purchase, costs of services, costs of
conversion and other costs incurred in bringing the inventories to their present
location and condition.
→ As per ICDS in case of Dissolution of Firm/AOP/BOI stock would be valued on NRV,
whether business continued or not. However as per SC Shakti Trading Co case it is
valued at cost or NRV WIL. Hence if dissolution is before 1/4/16 follow shakti
trading otherwise
Romancing Analysis:- Inventory Not only Include Stock it also Include Services.

→ This ICDS is required to be applied in determination

of income for a construction contract of a contractor.
→ Contract revenue shall be recognised when there is
reasonable certainty of its ultimate collection.
→ It recognizes % of completion method for recognizing
contract revenue and contract costs. But Contract started before 31.03.2016 but not
completed before the said date can be recognised based on method regularly
employed.
→ Disclosure requirement of this ICDS includes,
(a) amount of contract revenue recognized,
(b) the methods used to determine the stage of completion of contracts in progress etc.
→ Retention money is considered as part of contract revenue and hence shall be
recognized under POCM under ICDS. [As per AS-7 there is not treatment of
retention money.
→ Penalties arising from delay in contract completion shall not be reduced from
contract revenue.
→ Whether Real estate developer/BOT projects and lease are also covered by this
ICDS??
→ At present no ICDS is recognised, therefore the provision of Act & ICDS shall apply
to these transaction.

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 → This ICDS deals with the bases for recognition of
revenue arising in the course of the ordinary activities
of a person from:
(a) The sale of goods,
(b) The rendering of services,
(c) The use by others of the person’s resources Yielding Interest, royalties and dividends
Cases When to recognise
Revenue from Sale of When there is reasonable certainty of
Goods its ultimate collection.
Revenue from service Generally: % completion method.
Transaction- More However it can be recognized on Straight line basis over
than 90 days the period of time, when service are provided by an In
terminate number of Acts over period.
Revenue from service When service are rendered and complete or substantially
contract with complete.
duration not more
than 90 days
Interest On Time basis determined by amount outstanding and rate
applicable
Interest on refund of Recognized on receipt basis
Taxes, Duties, cess
Dividend Recognised as per Income Tax Act.
→ It does not, however, deal with the aspects of revenue recognition which are dealt
with by other ICDSs.
→ Disclosure requirement of this ICDS includes, claim raised for escalation of price and
Export incentives but not completion of service transactions in progress, etc.

→ This ICDS deals with the treatment of Tangible Fixed Assets.

→ Tangible Fixed Assets is an assets is an assets being land, building, machine, P&M,

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 Furniture held with intention of being used for purpose of producing
or providing goods & services and is not held for sale in normal
course of business.
→ Revaluation of Assets is not permitted as per ICDS.
→ In case of exchange of assets cost of assets shall be FMV of assets
received in Return.
→ Income arising from transfer of tangible assets shall be computed as per Income Tax
Act.
→ The expenditure incurred till the plant begun commercial production, that is,
intended for sale or captive consumption shall be treated as capital expenditure.[for
example exp on trial run, experimental production]
→ Disclosure requirement of this ICDS includes, the description of Asset or Block of
Assets, Rate of Depreciation, Actual Cost or Written Down Value, etc.

→ This ICDS deals with:

(a) Treatment of transactions in foreign currencies,
(b) Translating the financial statements of foreign operations,
(c) Treatment of foreign currency transactions in the nature of
Forward Exchange Contracts
→ Treatment of Exchange – Difference at the Last day of the Previous Year:
For Monetary Items – Recognized as Income or as Expense.
For Non-Monetary items – Not recognized as income or as expenses.

Is there right/obligation to deliver

fixed/determinable amount of currency units

Yes No

Monetary Item Non-monetary Item

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 Examples:- Examples:-
✓ Trade receivables ✓ Property, plant & equipment
✓ Trade payables ✓ Inventories
✓ Pensions to be paid in cash. ✓ Some prepayments

→ On the last day of PY foreign currency monetary items shall be converted into
reporting currency by applying the closing rate.
→ Non monetary Items in foreign currency shall be converted into reporting currency
by using the exchange rate at the date of transaction.

Government Grants

Related to assets Related to expenditures

→ This ICDS deals with the treatment of government grants. Government grants are
sometimes called by other names such as subsidies, cash incentives, duty drawbacks,
etc.
Exclusions: This ICDS does not deal with:
(a) Government assistance other than in the form of Government grants, and
(b) Government participation in the ownership of the enterprise.
→ As per ICDS, Government Grants relating to depreciable fixed assets should be
deducted from the actual cost of the asset.

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 Government Grants

Against Not related Against Non

Depreciable Assets to assets Depreciable Assets

Reduce from cost Pro rata reduction should be To be recognized as

of Assets made in the same proportion Income over the
as such assets bears to all assets same period which
with reference to which govt the cost of meeting
grants is so received such obligation is
charged to Income

→ Disclosure requirement of this ICDS includes, nature and extent of Government

Grants recognized during the previous year as income, nature and extent of
Government Grants not recognized.

→ This ICDS deals with securities held as stock in trade. ICDS

excludes Derivatives from the definition of Securities. For
computation of PGBP and IFOS not CG
→ Meaning of Fair Value: “Fair value” is the amount for which an
asset could be exchanged between knowledgeable, willing buyer and a
knowledgeable, willing seller in an arm’s length transaction.
→ Securities are to be recognized at actual cost on acquisition, which shall comprise of
its purchase price & include acquisition charges like brokerage, fees, tax duty or cess.
→ ICDS Prescribe valuation category wise and not security wise as required by AS
[category means equity and Preference]
Shares Cost NRV AS-13 ICDS
Vishal LTD 520 150 50
Darshan Ispath Ltd 400 200 200
Rohan Ltd 150 350 150
Prakash Ltd 100 300 100
Total 1200 1000 500 1000

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 Value as per AS (script wise) : 500
Value as per ICDS (Category wise) : 1000
→ ICDS specifically provides for cost of security acquired in exchange for other
securities i.e. Fair value of the Securities Issued or Fair Value of the Securities
acquired whichever is lower.
→ At the end of any previous year, securities held as stock in trade have to be valued
at actual cost initially recognized or net realizable value at the end of that previous
year, whichever is lower.

This ICDS deals with the treatment of Borrowings Costs.

Directly Attributable Other Borrowing Cost

to the acquisition

Recognised as per
to be capitalized as Income Tax Act
part of the cost of
that asset.

→ Qualifying Asset has been defined to mean:

(a) Land, Building, machinery, plant or furniture, being tangible assets,
(b) Know – how, patents, copyrights, trademarks, licenses, franchises, or any other
business or commercial rights of similar nature, being intangible assets,
(c) Inventories that require a period of 12 months or more to bring them to a saleable
condition.
→ Disclosure requirement of this ICDS includes, Accounting policy adopted for
Borrowing Costs and value borrowing costs capitalized during the year.

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 AS- 29 ICDS

Contingent Assets are Contingent Assets are

recognized on the basis recognized on the basis
of Virtual certainty of Reasonable certainty

→ Employee benefit shall be governed by Act not ICDS

However, it requires contingent assets to be assessed continually. When it becomes
reasonable certain that inflow of economic benefit will arise, the asset and related
income have to be recognized in the previous year in which the change occurs.
→ A provision shall be used only for expenditures for which the provision was
originally recognized.
→ Disclosure requirements of this ICDS includes, each class of provision made, asset and
income recognized.

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