First-time adoption explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
A company that moves from the old accounting standards to Ind AS does not simply change from next year. Ind AS 101 requires an opening Ind AS balance sheet at the date of transition, drawn up as if Ind AS had always applied, apart from a short list of exceptions and a menu of exemptions, and then a reconciliation that explains every difference from the old numbers. This guide follows that path with an invented company.
Prepare an opening Ind AS balance sheet at the date of transition (paragraph 6) using the Ind AS effective at the end of the first reporting period (paragraph 7). Adjustments go directly to retained earnings (paragraph 11). Apply the mandatory exceptions (paragraphs 14 to 17 and Appendix B) and choose from the optional exemptions (Appendix D). Show at least three balance sheets and two of every other statement, with reconciliations of equity and total comprehensive income (paragraphs 21 and 24).
Ind AS as on 1 April 2025 (ICAI Compendium of Ind AS 2025-26, the standards notified under the Companies (Indian Accounting Standards) Rules, 2015). Amendments notified after 1 April 2025 are not reflected in this article and should be checked on mca.gov.in. Who must adopt Ind AS, and from when, is covered in our post on Ind AS applicability and the roadmap. Building the opening balance sheet and its reconciliations is a large part of financial statement preparation in the year of change.
What the paragraphs require
| Paragraph | Requirement | What it means in practice |
|---|---|---|
| 2-3 | Applies to the first Ind AS financial statements, which include an explicit and unreserved statement of compliance with Ind AS | A change by an entity already on Ind AS is outside the standard (paragraph 5) |
| 6-8 | Opening Ind AS balance sheet at the date of transition; same accounting policies throughout; Ind AS effective at the end of the first reporting period, not earlier versions | Apply the latest versions throughout |
| 10-11 | Recognise all assets and liabilities Ind AS requires, derecognise those it does not permit, reclassify, and measure under Ind AS; adjustments go to retained earnings or another equity category | Not through profit or loss |
| 14-17 | Estimates consistent with previous GAAP unless in error; later information is a non-adjusting event | Do not use hindsight on estimates |
| Appendix B | Other mandatory exceptions: derivatives at fair value and hedges (B4 to B6), certain NCI requirements prospective (B7), classification of financial assets on transition-date facts (B8), impairment of financial assets (B8D onwards) | |
| 18, Appendices C-D | Optional exemptions, not to be applied by analogy | Elected item by item |
| 20-22 | No exemption from presentation and disclosure; at least three balance sheets, two statements of profit and loss, cash flows and changes in equity; label previous GAAP information | |
| 23-26 | Explain the transition: equity reconciliations at the transition date and at the end of the latest period under previous GAAP; a reconciliation of total comprehensive income; separate errors from policy changes | Enough detail to understand material adjustments |
| 30-31 | Disclose fair values used as deemed cost and their effect |
Selected exemptions. D5 and D6 allow fair value, or a previous GAAP revaluation, as deemed cost for PPE (D7 extends this to right-of-use assets and some intangibles). D7AA lets a company with no change in functional currency keep its previous GAAP carrying value of PPE (and of intangibles and investment property) as deemed cost, after the D21 decommissioning adjustments, with no further transition adjustments to it (disclosure under paragraph 27AA). D9B measures a lessee's lease liability at the present value of remaining payments at its incremental borrowing rate, with the right-of-use asset at an equal amount adjusted for prepaid or accrued payments. D13 deems cumulative translation differences zero; D15 gives deemed cost for investments in subsidiaries, joint ventures and associates in separate statements; D18 spares the equity split of a compound instrument whose liability is gone. See also deemed cost under Ind AS 101 and the overview of Ind AS 101 First-time Adoption of Ind AS.
The method
- Fix the date of transition and the first Ind AS reporting period (paragraphs 3 and 21).
- Draw up the opening Ind AS balance sheet applying paragraph 10.
- Apply the mandatory exceptions (paragraphs 14 to 17 and Appendix B).
- Elect exemptions (Appendices C and D) item by item.
- Book the adjustments to retained earnings (paragraph 11).
- Prepare the reconciliations (paragraph 24) and the disclosures (paragraphs 27AA and 30).
Worked example
The entity and all figures in this example are invented for illustration. The tax rate and discount rate are assumed, for arithmetic only. Amounts are in rupees lakh.
Yamuna Auto Components Limited has the financial year ending 31 March and adopts Ind AS for the year ending 31 March of Year 3, with comparatives for Year 2. Its date of transition is therefore 1 April of Year 1 and its first Ind AS financial statements show balance sheets at 31 March Year 3, 31 March Year 2 and 1 April Year 1 (paragraph 21). Equity under previous GAAP at 1 April Year 1 is Rs 2,000.00 lakh, after providing for a proposed dividend of Rs 100.00 lakh.
Adjustments at the date of transition.
- Deemed cost of PPE (D7AA). There is no change in functional currency, and the company elects to continue its previous GAAP carrying value of Rs 1,800.00 lakh as deemed cost. The adjustment is nil, and the election and policy are disclosed (paragraph 27AA). Choosing fair value under D5 instead would have produced a different, valuation-based figure.
- Loan at amortised cost (Ind AS 109, effective interest method; Appendix B, paragraph B8C applies only where retrospective application is impracticable). A term loan of Rs 1,000.00 lakh bore a processing fee of which Rs 15.00 lakh was unamortised in substance but had been expensed under previous GAAP. The loan is restated at 1,000.00 - 15.00 = Rs 985.00 lakh; equity rises by Rs 15.00 lakh.
- Expected credit loss allowance (Appendix B, paragraph B8D). Ind AS 109 requires an allowance on trade receivables; Rs 40.00 lakh is recognised, reducing equity by 40.00.
- Proposed dividend (Ind AS 10, paragraphs 12 and 13). A dividend declared after the reporting period is not a liability at that date, so the Rs 100.00 lakh provision is reversed, increasing equity by 100.00.
- Lease recognised (D9B). The company has an operating lease with three annual payments of Rs 60.00 lakh remaining, paid at each year end. At an assumed incremental borrowing rate of 10 per cent, the lease liability is 60.00 x (0.9091 + 0.8264 + 0.7513) = 60.00 x 2.4869 = Rs 149.21 lakh (computed on unrounded factors). There are no prepaid or accrued lease payments, so under D9B(b)(ii) the right-of-use asset equals the liability. The entry grosses up the balance sheet and has no effect on equity.
- Deferred tax on adjustments (Ind AS 12). The ECL allowance does not change the tax base of the receivables, so a deductible temporary difference of Rs 40.00 lakh gives a deferred tax asset of 25% x 40.00 = Rs 10.00 lakh, credited to equity. The lease gives equal and offsetting taxable and deductible differences at the start, so nothing arises at transition. No tax effect is assumed on the loan restatement.
| Particulars (opening Ind AS balance sheet, 1 April Year 1) | Debit (Rs lakh) | Credit (Rs lakh) |
|---|---|---|
| Borrowings | 15.00 | |
| To Retained earnings | 15.00 | |
| Retained earnings | 40.00 | |
| To Allowance for expected credit loss | 40.00 | |
| Proposed dividend liability | 100.00 | |
| To Retained earnings | 100.00 | |
| Right-of-use asset | 149.21 | |
| To Lease liability | 149.21 | |
| Deferred tax asset | 10.00 | |
| To Retained earnings | 10.00 |
Reconciliation of equity at 1 April Year 1 (paragraph 24(a)(i)).
| Item | Rs lakh |
|---|---|
| Equity under previous GAAP | 2,000.00 |
| PPE deemed cost under D7AA | nil |
| Loan at amortised cost | +15.00 |
| Expected credit loss allowance | (40.00) |
| Proposed dividend reversed | +100.00 |
| Lease recognised (gross-up) | nil |
| Deferred tax asset on ECL | +10.00 |
| Equity under Ind AS | 2,085.00 |
Year 2 profit (paragraph 24(b)). Previous GAAP profit for Year 2 was Rs 300.00 lakh. Under Ind AS the loan fee amortisation adds finance cost of 5.00 and the ECL allowance rises by 10.00. The lease charge is depreciation 149.21 / 3 = 49.74 plus interest 10% x 149.21 = 14.92, a total of 64.66, against rent of 60.00 before: an extra 4.66. Deferred tax credits are 25% x 10.00 = 2.50 on the ECL, and 25% x (liability 149.21 + 14.92 - 60.00 = 104.13, less asset 149.21 - 49.74 = 99.47) = 25% x 4.66 = 1.17 on the lease.
| Reconciliation of total comprehensive income, Year 2 | Rs lakh |
|---|---|
| Profit under previous GAAP | 300.00 |
| Loan fee amortisation | (5.00) |
| ECL allowance increase | (10.00) |
| Lease: Ind AS charge 64.66 less rent 60.00 | (4.66) |
| Deferred tax credit (2.50 + 1.17) | +3.67 |
| Profit and total comprehensive income under Ind AS (no OCI items assumed) | 284.01 |
Reconciliation of equity at 31 March Year 2 (paragraph 24(a)(ii)). Previous GAAP equity at 31 March Year 2 is 2,000.00 + 300.00 - 120.00 (dividend proposed for Year 2 and provided under previous GAAP) = Rs 2,180.00 lakh.
| Item | Rs lakh |
|---|---|
| Equity under previous GAAP | 2,180.00 |
| Loan at amortised cost (15.00 less 5.00 amortised) | +10.00 |
| Expected credit loss allowance (40.00 + 10.00) | (50.00) |
| Year 2 dividend not a liability at 31 March | +120.00 |
| Lease: cumulative extra charge | (4.66) |
| Deferred tax (10.00 + 2.50 + 1.17) | +13.67 |
| Equity under Ind AS | 2,269.01 |
Check. The Ind AS equity rolls forward independently: opening 2,085.00 + profit 284.01 - dividend of Rs 100.00 lakh declared and recognised in Year 2 = Rs 2,269.01 lakh, which equals the reconciled figure. Retained earnings at transition rose by 15.00 - 40.00 + 100.00 + 10.00 = 85.00, equal to 2,085.00 - 2,000.00.
Presentation and disclosure
The reconciliations carry enough detail for users to understand the material adjustments and distinguish error corrections from policy changes (paragraphs 25 and 26). Previous GAAP comparatives are labelled as not prepared under Ind AS (paragraph 22), and paragraphs 27AA, 30 and 31 require disclosures where deemed cost is used. For the statutory format, see Schedule III format of financial statements.
Common mistakes
- Taking transition adjustments to profit or loss instead of retained earnings (paragraph 11).
- Using the Ind AS versions in force at the transition date rather than at the end of the first reporting period (paragraph 8).
- Revising estimates with hindsight in the opening balance sheet (paragraph 14).
- Applying an exemption by analogy (paragraph 18), or omitting the third balance sheet or reconciliations (paragraphs 21 and 24).
Need help with the transition to Ind AS?
A transition needs a gap analysis, an opening balance sheet and a reconciliation that ties to the old books and to the new. Our team can run the conversion with your finance staff within financial statement preparation, so your first Ind AS statements are supported line by line.
Key takeaways
- The opening Ind AS balance sheet is the starting point; its adjustments go to retained earnings.
- Estimates follow previous GAAP unless in error.
- Exemptions are optional and item-specific; D7AA offers a no-valuation route for PPE.
- Present three balance sheets and two of each other statement.
- Reconcile equity at two dates and total comprehensive income for one period.
Read next
- ITFG clarifications on Ind AS 101: date of transition, deemed cost, government grants and processing fees
- ITFG clarifications on Ind AS 101: foreign currency items, investments in subsidiaries and past combinations
- Deemed cost under Ind AS 101: the new gross block on transition
- Ind AS applicability and roadmap: who must adopt Ind AS
Disclaimer: Based on the Indian Accounting Standards as on 1 April 2025 (ICAI Compendium of Ind AS 2025-26, the standards notified under the Companies (Indian Accounting Standards) Rules, 2015) and, where named, the ITFG clarification bulletins of ICAI, as consulted on 4 October 2026. The worked example uses invented figures. Amendments notified after 1 April 2025 should be checked on mca.gov.in. This article is general information, not legal advice; check the official text before acting.