Chapter 8

Accounting Standards Ibrahim Sameer (MBA - Specialized in Finance,

B.Com – Specialized in Accounting & Marketing)

Introduction

• Imagine the world without traffic law and

enforcement! Think how people will behave.

Introduction

• Now, can you imagine the accounting profession

without rules and regulations?

Accounting Standards

• Accounting standards are guidelines that need to

be adhered by the accounting profession in

preparing and reporting of the financial statements.

Accounting Standards

• Section 166A of the Companies Act 1965 requires

directors of companies incorporated under the Act

to ensure accounts are prepared in accordance

with the applicable accounting standards to the

extent that the accounts give a true and fair view.

Accounting Standards

• In the past, international accounting standards

were issued by the Board of the International

Accounting Standards Committee (IASC); since

2001, the new set of standards has been known as

the international financial reporting standards

(IFRS) and has been issued by the International

Accounting Standards Board (IASB).

IAS 2 Inventories

• Inventories shall be measured at the lower of cost

or net realisable value (NRV).

• NRV = estimated selling price - estimated costs of

completion to make the sale.

• The cost of inventories shall be assigned by using

the first-in, first-out (FIFO) or weighted average

cost

IAS 8 Depreciation

• IAS 8 is applicable to all depreciable assets,

except the following:

• Expenditure on R&D

• Goodwill

• Live stock

Meaning of Depreciation

• Depreciation mean decline in the value of

depreciable assets on account of use and effluxion

(limited) of time.

• Depreciation is a gradual, continuous & permanent

decrease in the value of an assets.

How to Calculate Depreciation

Causes of Depreciation

• Physical wear & tear.

• Physical deterioration.

• Obsolescence.

Methods of Depreciation

• Straight line depreciation.

• Reducing balance method.

Changes in Depreciation

Methods

• Methods of depreciation once selected

consistently applied.

• Changes in method of depreciation is done in the

following conditions:

• For compliance of status.

• For compliance of IAS

• For more appropriate presentation of the financial

statement.

IAS 16: Fixed Assets

• IAS 16 Property, Plant and Equipment outlines the

accounting treatment for most types of property,

plant and equipment. Property, plant and

equipment is initially measured at its cost,

subsequently measured either using a cost or

revaluation model, and depreciated so that its

depreciable amount is allocated on a systematic

basis over its useful life.

IAS 33: EPS

• IAS 33 Earnings Per Share sets out how to

calculate both basic earnings per share (EPS) and

diluted EPS. The calculation of Basic EPS is based

on the weighted average number of ordinary

shares outstanding during the period, whereas

diluted EPS also includes dilutive potential

ordinary shares (such as options and convertible

instruments) if they meet certain criteria.

Questions & Answers

What else you want to know?

Thank You

Ibrahim Sameer Seek knowledge from cradle to grave