On 20-2-2023, the Reserve Bank of India (‘RBI’) issued a circular on Implementation of Indian Accounting Standards (‘Ind AS’) to resolve the issue of Asset Reconstruction Companies (‘ARC’) recognizing management fees even though the said fee had not been realized for more than 180 days.

Applicability: All the ARCs who are preparing their financial statements as per Ind AS.

Key Points:

1. This circular addresses the concerns arising from continued recognition of unrealized income.

2. While calculating the Capital Adequacy Ratio and the amount available for payment of dividend, the ARCs will reduce the following amounts from their net owned funds:

• Management fee recognized during/ after the expiry of the planning period that remains unrealized beyond 180 days from the expiry of the planning period/ of such recognition, respectively.

• Any unrealized management fees, regardless of the period for which they have remained unrealized, where the net asset value of Security Receipts has fallen below 50% of the face value.

3. The Audit Committee of the Board (‘ACB’) will review the extent of unrealised management fees and recoverability of the same.

Notes to Accounts: format for disclosing information on ageing of the unrealized management fee recognized in the books of ARCs.

*Kriti Kumar, Editorial Assistant has reported this brief.

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