Impact of Covid-19 on Financial Reporting -Accounting Year ended 31 st March 2020

Impact on Financial Reporting :

The adverse impact of this global pandemic can vary from nation to nation, industry to industry and above all entity to entity. The effect depends upon the nature and extent of business connectivity of the individual entities with the nations more seriously affected by this pandemic. Apart from the health and safety of mankind, COVID-19 has unfavourably affected the economic environment which in turn has consequential impact on the results in the financial statements and reporting.

Impact on Entities to Whom IND-AS is Applicable :

1. Inventory Management (IND-AS -2 and AS-2 )

a) In accordance with IndAS 2 Inventories, and AS 2 Valuation of Inventories, it might be necessary to write down inventories to net realisable value due to reduced movementin inventory, decline in selling prices, or inventory obsolescence due to lower than expected sales .

b)Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

c)The management may consider written down of inventories to net realisable value item by item.

2. Impairment of Non- Financial Assets (Ind AS 36 and AS 28)

Due to COVID-19, there might be temporary ceasing of operations or an immediate decline in demand or prices resulting in lowering of revenues and profitability and reduced economic activity. These are the factors that the management may consider as the indicators that may require impairment testing for the purpose of Ind AS 36 and AS 28 .

a) Ind AS 36 Impairment of Assets, and AS 28 Impairment of Assets, require an entity to assess, at the end of each reporting period, whether there is any indication that non-financial assets may be impaired. The impairment test only has to be carried out if there are such indications. If any such indication exists, the entity shall estimate the recoverable amount of the asset .

b) For indefinite useful life intangible asset or an intangible asset not yet available for use and goodwill, Ind AS 36 requires an annual impairment testing. There could be an indicator that impairment testing of goodwill and indefinite useful life intangible assets are tested as of reporting date even if the entity follows other annual testing cycle as per IND AS 36

c) An entity needs to estimate the recoverable amount of the asset for impairment testing. Recoverable amount is the higher of the fair value less costs of disposal and the value in use. In cases where the recoverable amount is estimated based on value in use, the considerations on accounting estimates apply.

Critical Factors to be Considered

The Management needs to consider Whether :

a) contraction in economic activity due to the outbreak of COVID-19 is considered to be an impairment indicator at the reporting date, which results in an impairment assessment .

b) Assumptions used for impairment testing and to determine the recoverable amounts before the outbreak of COVID-19 requires any change.

c) The assumptions used to determine discount rate to measure the recoverable amount require any adjustments.

d) The forecasts or budgets for future cash flows prepared by management should be updated to reflect the impact of COVID-19 .

e) Reasonable assumptions are taken in estimating the value-in-use and fair value less costs of disposal and ensure that the impairment loss, if any, is estimated .