Page 31 - 1. COMPILER QB - INDAS 1

NEWLY ADDED QUESTIONS BY ICAI IN MAY 22 MODULE

Q12 (ICAI MODULE)

Is offsetting permitted under the following circumstances?

(a) Expenses incurred by a holding company on behalf of subsidiary, which is reimbursed by the subsidiary -
whether in the separate books of the holding company, the expenditure and related reimbursement of
expenses can be offset?
(b) Whether profit on sale of an asset against loss on sale of another asset can be offset?
(c) When services are rendered in a transaction with an entity and services are received from the same entity

in two different arrangements, can the receivable and payable be offset?
SOLUTION

a) As per paragraph 33 of Ind AS 1, offsetting is permitted only when the offsetting reflects the
substance of the transaction.

In this case, the agreement/arrangement, if any, between the holding and subsidiary company needs to
be considered. If the arrangement is to reimburse the cost incurred by the holding company on behalf
of the subsidiary company, the same may be presented net. It should be ensured that the substance of
the arrangement is that the payments are actually in the nature of reimbursement.
b) Paragraph 35 of Ind AS 1 requires an entity to present on a net basis gains and losses arising from a

group of similar transactions. Accordingly, gains or losses arising on disposal of various items of
property, plant and equipment shall be presented on net basis. However, gains or losses should be
presented separately if they are material.
c) Ind AS 1 prescribes that assets and liabilities, and income and expenses should be reported separately,
unless offsetting reflects the substance of the transaction. In addition to this, as per paragraph 42 of
Ind AS 32, a financial asset and a financial liability should be offset if the entity has legally

enforceable right to set off and the entity intends either to settle on net basis or to realise the asset
and settle the liability simultaneously.

In accordance with the above, the receivable and payable should be offset against each other and net
amount is presented in the balance sheet if the entity has a legal right to set off and the entity
intends to do so. Otherwise, the receivable and payable should be reported separately.

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