Quick Summary
Executive summary 1 1. Certain Ind AS require capital reserve to be created toward unrealised profits arising from certain transactions or other events. However, currently, there is no specific guidance on their subsequent transfer to retained earnings or other free reserve. 2. The Guidance Note sets out principles for transfer of capital reserve to free reserve, including the timing when such transfer can be made. 3. Any reserve created as per the requirements of the Companies Act or o
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FAQ :
The Exposure Draft provides guidance on the subsequent transfer of capital reserves, which are created towards unrealised profits, to retained earnings or other free reserves.
Capital reserves created under Ind AS can be transferred to retained earnings or other free reserves when the company has realised the underlying amount and the amount is available for distribution under the law.
Reserves created as per the Companies Act or other applicable law cannot be transferred except as per that law. Purely capital reserves, like those from reissuing forfeited shares, cannot be transferred as the underlying transaction is complete.
The amount may be transferred either proportionately over time or at the end, such as upon the sale of an asset.
Yes, specific disclosures are required in the year of transfer.
This Guidance Note will come into effect retrospectively for Capital Reserves appearing in the books of accounts.
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