Page 3 - 31. COMPILER QB - CSR

March 31, 2018.
Hence, the Company will be required to form a CSR committee.

Q2 (RTP Nov 20)
In order to encourage companies and organisations to generously contribute to the Government’s COVID-19

relief fund, taxation laws have been amended to reckon these contributions as deductible for the financial year
ending 31st March, 2020 even if the contributions are made after the year end but within three months after
year end. Government of India issued the notification on 31 st March, 2020 by way of an Ordinance. Such
contributions to COVID-19 funds are considered for compliance with annual spends on corporate social
responsibility (CSR) for the current accounting year under the Companies Act, 2013. In this scenario, whether

the contributions to COVID-19 Relief Funds made subsequent to reporting date of the current accounting
period can be provided for as expenses of the current accounting period? Also show its impact on deferred tax,
if any.
Solution

According to paragraph 14 of Ind AS 37, a provision shall be made if:
a. An entity has a present obligation (legal or constructive) as a result of a past event;
b. It is probable that an outflow of resources embodying economic benefits will be required to settle the

obligation; and
c. A reliable estimate can be made of the amount of the obligation. If these conditions are not met as of
reporting date, no provision shall be recognised for that financial year.
Government of India issued the notification on 31st March, 2020 by way of an Ordinance and hence, it is
most unlikely for any entity to have a present obligation on 31st March, 2020, for such a commitment. As
these conditions are not met as of reporting date of financial year 2019 - 2020, no provision should be

recognised in the financial statements for that financial year.
In the fact pattern given above, the accounting implications for the financial year 2019-2020 are as follows:
 Do not recognize expense / liability for the contribution to be made subsequent to the year ended 31st
March, 2020 as it does not meet the criteria of a present obligation as at the balance sheet date. However,
the expected spend may be explained in the notes to the accounts as the same will also be considered in

measurement of deferred tax liability.
 If the entity claims a deduction in the Income Tax return for the financial year 2019 - 2020 for that
contribution made subsequent to 31st March, 2020, recognise Deferred Tax Liability as there would be a tax
saving in financial year 2019 - 2020 for a spend incurred in subsequent year.

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