ICAI invites comments on Exposure Draft of Guidance Note on Transfer of Capital Reserve

The Institute of Chartered Accountants of India(ICAI) has invites comments on Exposure Draft of Guidance Note on Transfer of Capital Reserve.

Research Committee of the Institute of Chartered Accountants of India invites comments on any aspect of this Exposure Draft of the ‘Guidance Note on Transfer of Capital Reserve’. Comments are most helpful if they indicate the specific paragraph or group of paragraphs to which they relate, contain a clear rationale and, where applicable, provide a suggestion for alternative wording.

Comments should be submitted in writing to the Secretary, Research Committee, The Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha Marg, New Delhi – 110002, to be received not later than 20th April, 2023. Comments can also be sent by e-mail at [email protected]

Executive summary

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

The Guidance Note sets out principles for transfer of capital reserve to free reserve, including the timing when such transfer can be made.

Any reserve created as per the requirements of the Companies Act or other applicable law cannot be transferred to other reserve except as per the requirements of the applicable law. Few other reserves, which are purely capital in nature, e.g., capital profit on reissuance of forfeited shares, cannot be transferred to free reserves/ retained earnings as underlying transaction is completed.

For capital reserves created as per the requirements of Ind AS or erstwhile Accounting Standards, the amount can be transferred to retained earnings or other free reserves when the following two conditions are met:

(i) The company has realised the underlying amount.

(ii) The amount has become available for distribution under the law

The amount may be transferred either proportionately each or at end on sale of the asset. Specific disclosures are required in the year of transfer.

This Guidance Note would come into effect in respect of Capital Reserve appearing in the books of accounts retrospectively.

For Official Guidance Note Download PDF Given Below: