Note & Overview on OFFSETTING under IND-AS
Offsetting is defined under various standards of Ind AS as follows : -
Under IND AS 1 : Presentation of Financial Statements: -
Para 32 An entity shall not offset assets and liabilities or income and expenses, unless required or permitted by an Ind AS.
Para 33 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.
Under IND AS 32 : Financial Instruments: Presentation : -
Para 42 A financial asset and a financial liability shall be offset and the net amount presented in the balance sheet when, and only when, an entity: (a) currently has a legally enforceable right to set off the recognised amounts; and (b) intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. In accounting for a transfer of a financial asset that does not qualify for derecognition, the entity shall not offset the transferred asset and the associated liability.
Under IND AS 12 : Income Taxes : -
Para 71 An entity shall offset current tax assets and current tax liabilities if, and only if, the entity: (a) has a legally enforceable right to set off the recognised amounts; and (b) intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.
Decrypting the Intention of IND AS for Offsetting: -
- IND AS 1 specifically states "entity shall not offset assets and liabilities or income and expenses, unless required or permitted by an Ind AS."
- IND AS 1 also provides under Para 33 that “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.”
- Both the IND AS 12 & 32 aimed at right of being right of being “LEGALLY ENFORCEABLE TO SET OFF” under their respective circumstances.
- Extracts of IND AS stress on ENHANCED PRESENTATION rather than SUPRESSION OF FACTS which may happens in case of OFFSETTING.
General Query : Whether a provisionally recognized ITC under GST in Books of Accounts based on the mere satisfaction of condition under “IND AS-115 : Revenue from Contracts with Customer” lets the Offsetting possible w.r.t Liabilities under GST?
Possible Answer : Offsetting is legally NOT ENFORCEABLE since the Provisionally taken ITC in books of accounts is based on Certainty of Non-Cash Flows in Future based on Past Historical Experience through use of ITC recognized; although ITC is NOT Eligible/Admissible under Section 16(2) of CGST Act, 2017 which states “Eligibility and Conditions for taking input tax credit” lays down as follows: -
(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,––
- he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
- he has received the goods or services or both
Explanation.- For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
- subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and
- he has furnished the return under section 39.
Concluding, Offsetting is not tenable due to absence of Valid Invoice & leads to failure of recognition of ITC under GST & w.r.t stress of IND AS based on TRANSPARENCY IN ACCOUNTS & BETTER PRESENTATION of FINANCIAL STATEMENTS under Para 33 of IND AS – 1 which strictly conveys the message of showing both the records of transaction separately, unless the certainty arises as to the “LEGALLY ENFORCEABILITY” with the delivery of INVOICE.
Disclaimer: Above Written content is based on Author's research on the conditions & facts studied and in no way it leads to certainty or justifies any concrete situation. Readers & Analysts may have taken or may take other Conclusion based on their scenarios. This is presented for reading only. Any Queries/Remarks/Improvements/Suggestions are welcome. Thank you for reading. Happy Reading. :-)
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