Indian Accounting Standards [One pager]

8/20/2019 Indian Accounting Standards [One pager]

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INDIAN

ACCOUNTING STANDARDS

[One pager]


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ACCOUNTING STANDARD

AS Content Page

Introduction 1

1 Disclosure of Accounting Policies 2

2 Valuation of Inventories 33 Cash Flow Statement 4

4 Contingencies and Events Occurring after the Balance Sheet Date 5

5 Net Profit or Loss for the Period, Prior Period Items and Change in Accounting Policies 5

6 Depreciation Accounting 6

7 Construction Contracts 7

9 Revenue Recognition 8

10 Accounting for Fixed Assets 9

11 Effects of Change in Foreign Exchange 10

12 Accounting for Government Grants 11

13 Accounting for Investment 12

14 Accounting for Amalgamation -15 Employee Benefits 13

16 Borrowing Costs 14

17 Segment Reporting 15

18 Related Party Disclosures 16

19 Accounting for Leases 17

20 Earnings Per Share 18

21 Consolidated Financial Statements

22 Accounting for taxes 19

23 Accounting for Investments in Associates in Consolidated Financial Statements 20

24 Discontinuing Operations 21

25 Interim Financial Reporting 22

26 Intangible Assets 23

27 Financial Reporting of Interest in Joint Venture 24

28 Impairment of Assets 25

29 Provisions, Contingent Liabilities and Contingent Assets 5&

26


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Singar Academy Page 1

INTRODUCTION

Accounting standards: Accounting Standards are written documents, policy documents issued by expert

accounting body or by the Government or other regulatory body covering the aspects of recognition,

measurement, treatment, presentation and disclosure of accounting transaction in the financial statement.

In India AS are issued by the Institute of Chartered Accountants of India (ICAI).

Objectives:

To standardize the diverse accounting policies and practices

To eliminate to the extent possible the non-comparability of financial statements

To add reliability to the financial statements

Compliance: Mandatory as per

Section 129 of Companies Act, 2013

IRDA(Preparation of financial Statements and Auditor’s Report of Insurance Companies)

Applicability

Level-1 entities: on corporate entities which fall in any one of the following categories at the end of

relevant accounting year are called as level-1 entities:1. Entities whose equity or debt securities are listed or in the process of listing with any stock exchange

whether in India or abroad.

2. Banks, financial institutions or entities carrying in insurance business

3. All commercial, industrial and business reporting entities whose turnover is greater than 50 crores in the

immediately preceding accounting period. Here other income is to be ignored in calculation of turnover.

4. All commercial, industrial and business reporting entities whose borrowings including public deposits in

excess of 10 crores at any time during the immediately preceding accounting year.

5. Subsidiary or holding entities of any of the above.

Level-2 entities: on corporate entities which are not covered in any of the above categories and fall any

one of the following categories are level-2 entities.1. All industrial, commercial and business reporting entities whose turnover exceeds rupees 10 crores but

doesn’t exceed rupees 50 crores in the immediately preceding accounting year.

2. All commercial, industrial and business reporting entities whose borrowings including public deposits

are above 1 crore but doesn’t exceed 10 crores at any time during the immediately preceding accounting

year.

3. Holding and subsidiary entities of any one of the above.

Level-3 entities: on corporate entities which are not covered under level-1 and level-2 are considered as

level-3 entities.

AS Number 1,2, 4 to 16, 19, 22, 26, 28 & 29 3, 17, 30, 31 & 32 20 18, 24

Applicability All entities Level ILevel-1 /

All companies

Level-1&2 /

All companies

AS Applicability

21 Mandatory to those entities which require preparing consolidated financial statements.

23 Mandatory to those entities which require to prepare & present consolidated financial statements

25 Level-1 and any entity which is required to prepare interim financial report

27 Mandatory to those entities which require to prepare & present consolidated financial statements


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Accounting Standard Page 2

AS1: DISCLOSURE OF ACCOUNTING POLICIES

Accounting Policies: It refers to the specific accounting principles and the method of applying those

principles adopted by the enterprises in the preparation and presentation of financial statements.

Major Considerations for Selection of Accounting Policies

1.

Prudence: Prudence means making of estimates which is required under conditions of uncertainty.2. Substance Over Form: It means that transaction should be accounted for in accordance with actual

happening and economic reality and not by its legal form.

3. Materiality: Financial statements should disclose all the items and facts which are sufficient enough to

influence the decisions of the reader or user of the financial statement.

Changes in Accounting Policies

A change should be made in the following cases:

Adoption of different accounting policies is required by the statute or for compliance with an Accounting

Standard

Change would result in more appropriate presentation of financial statement

Such change along with the amount to the extent ascertainable is to be disclosed.


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AS2: VALUATION OF INVENTORIES

Definition Non Applicability Objectives

Finished goods

Raw material and work in progress

Stores, consumables,

Spares

General Specific

AS 2 AS 10

Construction contracts

Service providers

Financial Instruments

Producers’ inventories

(Agro,forest products)

Method of computation of cost

Determination of value

Objectives

Methods of Computing Cost

(Sequence based)

Determination of Value

Whichever is lesser of

Cost Net Realisable Value

Specific identification

FIFO or Weighted Average Method

Standard cost or retail method

Disclosure

Accounting policy

Cost formula

Classification of inventories

Note: Reduction in the raw

materials’ prices can be adjusted

against replacement cost only if

the finished goods for which it is

used is sold below cost.

Cost of Purchase

+ Purchase price ××

+

Duties ××

+ Freight SALE ××

- Rebate ××

- Trade discount ××

- Duty drawback ××

+ Conversion Cost

Direct Labor ××

Direct expenses ××

Variable overhead

(Actual production)

××

Fixed overhead(Normal Production) ××

Exclude

- Holding & storage cost ××

Insurance ××

Interest and penalties ××

Administration cost ××

Selling & Dist. cost ××

Abnormal loss ××

××

Sale Price ××

- Cost of

Completion

××

- Cost of Sales ××

××

Guidance note on CENVATInclusive Method Exclusive Method

1 On availing CENVAT, credit the

CENVAT credit availed A/c

1 Debit CENVAT credit receivable A/c on duty paid

and credit on actual utilization

2 On inputs → Adjust against cost of raw

material

2 Balance in the A/c is shown on the asset side of B?S

3 On closing stock → Adjust against the

value of closing stock


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AS3: CASH FLOW STATEMENT

Balance Sheet

Liabilities Assets

Equity Share Capital ××× Fixed Assets (Net) ×××

Non Cash 18% Pref. Share Capital ××× Investments ××× Reserves ××× Current Assets

Except#

×××

Non-current Liabilities ×××

Current Liabilities ×××

#Cash + Bank +

Marketable Securities

××× Cash

××× ×××

Cash Flow Statement

Cash From Operations ₹

1 Net Profit for the year ×××

Add Non-cash or Non-operating expenses ×××

Less Non-cash or Non-operating income ×××

Add Decrease in Current Asset and Increase in Current Liabilities ×××

Less Increase in Current Asset and Decrease in Current Liabilities ×××

Add Extraordinary Loss (gain) ×××

Cash from Operation before Tax and Extraordinary Loss (Gain) ×××

Less Tax Paid on Operating Profit ×××

Less Extraordinary Loss (Gain) ×××

Cash from Operating after Tax ×××

2 Cash from Investing

Sale of Fixed Assets and Long Term Investment ××× Less Purchase of Fixed Assets and Long Term Investment ×××

Less Tax Paid on Capital Gain ×××

Cash from Investing ×××

3 Cash from Financing

Issue of Shares and Borrowings ×××

Less Redemptions of Shares and Repayment of Loan ×××

Less Interest / Dividend Paid ×××

Less Tax on Dividend Distribution ×××

Cash from Financing ×××

4 Cash from operating, Investing & Financing [1+2+3] ×××

5 Opening Balance [Cash + Bank + Marketable Securities] ×××

Closing Balance [Cash + Bank + Marketable Securities] ×××

Points to be noted: Profit or Loss on sale of short term investment [marketable securities]

Case Treatment

1 Profit on sale Less in NP to arrive Cash From Operation & Closing Cash Balance

2 Loss on sale Plus in NP to arrive Cash From Operation & Closing Cash Balance

Flow


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Singar Academy Page

AS4. CONTINGENCIES AND EVENTS OCCURRING AFTER THE BALANCESHEET DATE

AS5. NET PROFIT FOR THE PERIOD PRIOR PERIOD ITEMS / CHANGES IN ACCOUNTING POLICIES

AS29. PROVISIONS, CONTINGENT LIABILITIES, CONTINGENT ASSET

AS5. Prior

Period

Items

AS5. Net Profit or Loss

for the period

AS4. Contingencies and Events Occurring after the B/S Date

AS29. Provisions, Contingent Liabilities & Contingent

Assets

(1) Error or

(2)Omission

Net profit or loss

Ordinary

Activity

Extra-ordinary

Activity

Recognised

in the

period

Occur

occasionally

Ex.

Disposal of

Asset,

Litigation

Claims,

Provision

reversal

Ex. Loss

due to

earthquake,

Govt’s

Attachment

&Govt’s

grants

refundable

AS4

Non-applicability ContingencyInsurance

Retirement Scheme

Long Term Lease

Condition exists on B/S Date

Result not known on B/S date

Result would be known in future

based on events

Result may be gain or loss

Contingency

Exist on B/S Date After

B/S

Loss Gain

ProbableReasonable

PossibleRemote

Provision Note Ignore

(AS

29)

Provision deductible from assets only taken

Date

Disclose in

Director’s

report

AS4:

only for

(1)

Provision

for DD %

(2)Proposed

dividend

I. Changes in Accounting Polies (Disclose)

(1) Legal requirement, (2) AS & (3) Better Presentation

II. Changes in Accounting Estimates

Events Occurring after the B/S Date

Exist on B/S Date New events after B/S Date

Adjusted in the books Non-adjusted [but note]


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AS6. DEPRECIATION ACCOUTING

Asset Depreciable Asset Depreciation Non-applicability

Controlled by enterprise

Result of past events

Expected flow of future

economic benefit

Useful life exceeding 1

year

Limited life

Used for production or

rendering service

Measure of wearing out,

consumption or other loss of

value

Distribution of total cost over

its useful life

Forest, plantations

Wasting assets

R&D expenditure

Goodwill

Livestock

Method of Depreciation Selection of Method A/c Treatment Changes in Method

Straight line

Written down value

Type of asset

Nature of asset

Circumstances

Must be consistent from

period to period

Legal Requirements

AS requirements

Better presentation

DEPRECIATION(If straight line method is adopted) =

[Depreciable Amount = Original Cost – Scrap Value]

Cost Estimated Life Scrap Value

Cost +/- for Change

+ Acquisitioncost ×× (1) Due to Revaluation:

Depreciation on

revalued amount over

the remaining useful

life.

(2) Due to Exchange

Variation,

Duties,etc.,Depreciation

on the revisedWDVover

theremaining usefullife.

+ Installationcost ××

+/- Changes

inFOREXas per

AS 11

××

+/- Price

fluctuations

××

+/- Changes

induties

××

+/- Revaluation

changes

××

××

Factors to be

Considered

+/- for

Change

Legal

Contractual

No. of shifts

Repairs

Obsolescence

Changes in

demand

Innovations

Productionmethod

Depreciation

after change

Revaluednow

and

thenSubject

to Changes

A/C TREATMENT IN CASE OF

CHANGE

Re-compute till change

Difference between total depreciation

under new method and accumulated

depreciation under old method till

change

Surplus: Credit to P&L A/cDeficit: Debit to P&LA/c

Depreciation on

Additions / Extensions

If it is an integral part:

Depreciation over

remaining life

If it is not an integral

part: Separate

treatment

REPAIRS

Charge to

P&L A/c

DISCLOSURE

. Cost

. Depreciation

. Useful life

. Method

. Change in method

. Revaluation

DIPOSAL

Surplus:

Credit to P&L

A/c

Deficit: Debit

to P&L A/c


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AS7. CONSTRUCTION CONTRACTS

Construction

Contracts

Applicability Types of

contract

Methods of determining

profit/loss

Directly related to construction

of assets

Demolition of assets

To contractors

only

. Fixed price

. Cost plus

.

Mixed

percentage of completion

(recognized by as 7)

completed contract

Calculation of Profit / Loss

Contract Revenue

+ As per the agreement ××

+ Escalation clause ××

+ Claims reimbursed ××

+/- For change in Scope ××

- Penalty ××

A ××Contract Cost Incurred

+ Specific cost ××

+ Cost attributable to contract ××

+ Specifically chargeable to customer ××

- General & administration cost ××

- Selling & distribution cost ××

- R&D cost ××

- Depreciation of idle plant ××

- Pre contract cost ××

B ×× Estimated Cost

- Future cost ××

- Payment to sub-contractors in advance ××

C ××

Profit / Loss up to the date [A-B-C] ××

- Profit / Loss of Previous Year ××

Profit / Loss of Current Year ××

××

Measuring Contract Revenue

% of completion × Revenue ××

- Contract Cost ××

Profit up to date ××

- Recognized in previous year ××

Profit/Loss for current year ××

××

Methods of finding % of completion

1 Cost to cost method

Where, Total cost

Cost to date ××

+ Further estimated cost ××

××

2 Survey Method

3 Completion of physical proportion method

Expected Loss

Probable that cost is more than revenue

Create provision irrespective of work performed

and % of completion

Change in Estimate

Treatment as per AS 5

Recognition of Revenue & Expenses

Revenue -Period of PerformanceExpenses- Period of performance of work for which

it is incurred

Certainty of collectability

Reliable measurement of estimates

Disclosure

Method to determine the % of completion ofcontract

Method to determine the contract revenue

recognized in the period


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AS9. REVENUE RECOGNITION

Revenue Timing of Recognition Non Applicability

Gross inflow of cash, receivable

and other consideration

in the ordinary business

Sale

Rendering of services

AS 7

AS 12

AS 19Insurance

Gain on sale of assets

Revenue Recognition

(1) Sale of Goods (2) Rendering of Service

(3) Use of Enterprise

Resources and

Generating

Income

What is sale?

Ownership

Significant

risk/reward

Control

Certainty of

collection

Seller Buyer

→ →

MethodsCompleted contract

Proportionate completion

Recognition:

When there is no condition

Delivered

Delayed at buyer’s request

Subject to Conditions

Transaction Recognition

1 Installation &

Inspection

On installation

& acceptance

by buyer

2 Sale on

approval basis

On approval

3 Guaranteed

sale

On reasonable

period4 Warranty Sale Immediate

recognition;

Create provision

for unexpired

warranty

5 Consignment On Delivery to

buyer

6 Special order On

identification

and kept ready

for delivery

7 Subscriptions

for publication

On time / value

basis

8 Installment

sales

Cash price On the date of

sale

Interest Time basis

NORMS


1 Installation

&

Inspection

On installation

& acceptance

by client

2 Advertising On public

appearance

3 Insurance

commission

On

commencement

/ renewal of

policy

4 Financial

services

commission

Depends upon

the case

5 Admission

fee

When the event

takes place

6 Tuition fee Over the

period of

inspection

7 Entry fees Capitalized

8 Member

ship fees

Rational basis

regarding

timings &

nature of

service

Subsequent uncertainty in

Collection: create a provision for

the uncertainty in collection


1 Interest Time basis

2 Dividend On

declaration

3 Royalty On

agreement

basis

DISCLOSURE

Circumstances necessitating

the postponement of

recognition

Excise duty should be

deducted from gross turnover

excluded from opening &

closing stock


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AS10. ACCOUNTING FOR FIXED ASSETS

Fixed Assets Non Applicability Valuation for Special Cases

Useful life exceeding 1 year

Used for production

Not for sale

Forest, plantations

Wasting assets

Real estate

Livestock

Hire purchase- Cash price

Jointly held -Pro rata basis

At consolidated price – Fair basis by competent

valuer

Fixed Assets in Financial Statements

Historical Cost Revalued Price

(i) Purchased

Purchase Price ××

+ Duties ××

+ Attributable cost ××

- Govt. Grants ××

+/- Foreign Exchange Charges ××

+/- Price Adjustments ××

-Administration

and General OH

××

××

(ii) Self Constructed

Direct Cost ××

+ Attributable Cost ××

- Internal Profit ××

××

(iii)Acquit ion in Exchange

of Existing Assets

(a)Similar Assets:FMV of assets given up or taken up,

whichever is more evident

(b)

Non-similar Assets:

FMV of assets given up or taken up,

whichever is more evident OR net

book value of assets given up

(c)

In exchange of Shares

or other Securities: FMV of assets

given up or shares or securities which

is more evident

First Time

Downward Upward

Debit: P/L A/c Credit: P/L A/c

Subsequent Revaluation

Upward Downward

Credit P&L A/c to the

extent already debited

Debit revaluation

reserve to the extentalready credited

Credit Revaluation

Reserve for Balance

Amount

Debit P&L A/c for the

balance amount

Improvements and Repairs

Increase in future

economic benefits

No increase in future

economic benefits

Capitalize Debit P&L A/c

Additions & ExtensionsIntegral Part Separate Identity

Add to gross block Account separately

Retirement & Disposal

Retired from active

use

Previously revalued

assets

(1) Book value – NRV (1) Profit: Credit to P/L

A/c

(2) Loss – Debit to P/L

A/c

(2) Loss: Adjust with

Revaluation Reserve of

same asset(3) Show in B/S


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AS11. EFFECTS OF CHANGE IN FOREIGN EXCHANGE

APPLICABILITY

Transactions in Forex

Translation

A/c for forward exchange contracts

NON APPLICABILITY

Presentation in cash flow

Foreign currency borrowings

Accounting Treatment

Transaction Translation Forward Exchange

(a) Initial Recognition:

Rate on the date of transaction or

average rate

(b) On the balance sheet date

Monetary Non-monetary

Closing

rate

At

Historical

Cost

At Fair

Value

Actual

Rate

Value

on B/S

date

(c) Contingent Liability.: Rate on B/S date

(d) Treatment of exchange difference

(i) Initial: Date of transaction:

Bank A/c Dr

To Borrowings

(ii) Balance Sheet Date

Loss Gain

Diff. in

Exchange Dr

To Borrowings

Borrowings Dr

To Diff. in

Exchange

(iii) Settlement:

Borrowings A/c Dr

Diff. in Exchange Dr

To Bank

Foreign Operation

Branch Associates

Joint Venture Subsidiaries

Goodwill or Capital Reserve @

Closing Rate

Integral Non-integral

1 Historical

Cost

Historical

Rate

2 Closing

Stock

Closing

rate

3 Opening

Stock

Opening

Rate

4 Monetary

Assets

Valuation

Date

5 Nominal

Assets

Average

Rate

6 Change in

exchange

P/L A/c

7 Tax effect As per AS

22

1 Balance

Sheet

Items

Closing Rate

2 Income &

Expenses

Actual /

Average rate

3 Change in

exchange

Foreign

Currency

Translation

Reclassification: Integral to non-integral

Adjust in FCTR on date of change

Reclassification: Integral to non-integral

(1) Non-monetary asset – Historical Cost

(2) No adjustment till disposal

Hedging Speculation

Trading


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AS12. ACCOUNTING FOR GOVERNMENT GRANTS

NON-APPLICABILITY RECOGNITION GOVERNMENT

1.Govt. assistance other than Govt. grants

2.Govt. participation in ownership

1.Compliance with conditions

2. Receipt of grants

1. Govt.

2. Govt. agencies

3. Local bodies4. Foreign Govt.

Kinds

Non-monetary Monetary

Concessional Rate Free of Cost (1) Deduction from

gross value of assets

Show as deferred

income in P/L

Acquisition Cost Nominal Value

(Say ₹100)

(2) If grant = cost of the

asset, show nominal

value of asset in B/S

Non Depreciable Asset Depreciable Asset

No obligation to incur

expenses

Obligation to incur

expenses

Method I Method II

On Purchase

Fixed assets A/c Dr

To Bank A/c

On Purchase

Fixed assets A/c Dr

To Bank A/c

On Purchase

Fixed assets A/c Dr

To Bank A/c

On Purchase

Fixed assets A/c Dr

To Bank A/c

On Receipt of Grant

Bank A/c Dr

To Fixed asset A/c

(or)

Bank A/c Dr

To Capital Reserve

On Receipt of Grant

Bank A/c Dr

To Defer Govt grant A/c

Defer Govt. grant Dr

To P&L A/c

(To the extent ofdepreciation)

On Receipt of Grant

Bank A/c Dr

To Fixed asset A/c

Depreciation A/c Dr

To Fixed assets A/c

On Receipt of Grant

Bank A/c Dr

To DeferGovt grant A/c

Depreciation A/c Dr

To Fixed assets A/c

Defer Govt grant A/c DrTo Depreciation A/c

On Refund

Fixed assets A/c Dr

To Bank A/c

(or)

Capital Reserve A/c Dr

To Bank A/c

On Refund

Deferred Govt. grant

A/c Dr

P&L A/c (b/f) Dr

To Bank A/c

On Refund

Fixed assets A/c Dr

To Bank A/c

Depreciation A/c Dr

To Fixed assets A/c

(For remaining life)

On Refund

Defer Govt grant A/c Dr

P&L A/c (b/f) Dr

To Bank A/c

Depreciation A/c Dr

To Fixed assets A/c

NOTE:

Grants related to revenue: Received as compensation for expenses or losses already incurred should

be recognized as per AS5Contingency related to grants = Treatment as per AS 4

Promoter contribution= Credited to Capital Reserve


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AS 13 - ACCOUNTING FOR INVESTMENT

Non Applicability Classification Reclassification Disclosure

(1) AS 9

(2) AS 19

(3) AS 15

(4) Mutual funds, Venture capital

funds

Current Investment

Readily realizable, Less than one year

On the date of

transfer

At lower of cost or

fair value

(1) A/c policy

(2) Classification

(3) Aggregate amount of quoted &

unquoted securities

(4) Any restriction on investment

Long Term Investment

Other than current

Investment Property

(1) Investment in land or building(2) Not for use in production

Cost of Investment Carrying Amount Disposal of Investment

+ Purchase price ××

+ Acquisition charges ××

- Pre-acquisition interest ××

- Pre-acquisition Dividend ××

- Sale of right (if cum-right) ××

××

Current Investment Long-term Investment Investment

in Properties

Whichever is lesser

Cost of acquisition or

Net Realizable Value

Cost of acquisition

(Only permanent

reduction is adjusted

in cost)

Account it

as long term

Total Partial

Sale vale ××

- Carrying

Amount

××

P/L A/c ××

On

average

carrying

amount

Particulars Value

1 Investment in shares or securities Fair value

2 In exchange of shares or other securities FMV of assets given up or shares or securities which is more evident

3 Right shares subscribed Added to carrying amount


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AS15. EMPLOYEE BENEFITS

Defined Contribution Plans (DCP) Defined Benefit Plans (DBP)

1 Retirement benefit 1 Enterprise’s obligation is to provide the

agreed benefits2 Contribution charged to P&L A/c

3 Excess if any treated as prepayment 2 The extent of obligation islargely uncertainand subject to estimation of future condition

and events beyond control

4 Cost of Defined contribution plan should be

accounted as an expense on accrual basis.

5 Enterprise’s obligation is limited to contribution

agreed to be made and investment returns

arising from such contribution

Accounting Treatment Own Separate / Specific Fund Established

Through Trust(Or) Fund Established

Through Insurer

Provision for accruing liability in the P&L A/c for

the accounting period

1 Actuarial valuation

2 Actual contribution (+) shortfall to meet

actuarial amount to be charged to P&L A/c

3 Excess treated as prepayment


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AS16. BORROWING COSTS

Borrowing Cost Qualifying Asset Conditions for Capitalization

Interest and other cost incurred

relating to borrowing.

Includes- Amortization of discounts or

premium and ancillary cost

Finance charges under

finance lease

Exchange differences in

interest cost

Asset which takes substantial

period of time to get ready for its

intended use or saleExample:

Fixed asset in construction process

Intangible asset in development

phase

(1) Direct attribution to

acquisition, production or

construction of qualifying asset(2) Future economic benefit

Amount eligible for capitalization Commencement of capitalization

1 Specific Borrowing

Actual borrowing cost

(-) Income from temporary investment of

borrowing

2 General Borrowing

Determine on the basis of capitalization rate

to the expenditure on that asset

Amount capitalized during the period should

not exceed the total borrowing for the period

Expenditure on Qualifying Asset

Includes payment of cash, transfer of other assetor assumption of interest bearing securities.

Deduct progress payment and grant received

towards the cost incurred

satisfy three conditions:

1 Progress of activities essential to

prepare the asset for intended use

2 Incur borrowing cost

3 Incur expenditure for acquisition,

construction or purchase of qualifying

asset

Suspension of Capitalization

Suspend when active development is

interrupted

Don’t suspend for temporary delay

Cessation Of Capitalization

Cease when substantially all the activitiesnecessary to prepare the qualifying asset

for its intended use or sale are completed

Disclosure

1. A/c policy

2. Amount capitalized during the period


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AS17. SEGMENT REPORTING

Segment Enterprise revenue Segment result

1 Business segment Revenue from sales to external

customers are reported in P&L A/c

Segment Revenue ××

2 Geographic segment - Segment expenses ××

××

Segment Revenue Segment Expenses Segment Assets Segment Liabilities

+ Enterprise revenue directlyattributable to the segment

×× + Expenses directlyattributable to the segment

×× + Employed by thesegment in its operation

×× + Operating liabilities ××

+ Revenue from transactions

with other segments

×× + Reloading to transactions

with other segments

×× + Directly attributable to

the segment

×× + Directly attributable

to the segment

××

- extraordinary items ×× - extraordinary items ×× - Allowances and

provisions

×× - Income tax liabilities ××

- Interest/ dividend ×× - Interest cost ×× - - Other liabilities for

financing purposes

××

- Gain on sale of investment ×× - Loss on sale of investment ×× - Income tax assets ××

×× - Income tax ×× Administrative expenses ×× ××

- Administrative expenses ×× ××

××

Reportable Segments Identification of

Reportable SegmentsCondition Primary Secondary

Risk and Return Affected by 1 > 10% of total segmental revenue

1 Difference in product/ service Business Geographic (Customer) 2 > 10% of total segment result

2 Difference in area 3 > 10% of total assets of all the segments

2.1 Location of assets & customers Geographic Business 4 Management’s discretion

2.2 Assets only Geographic (Assets) Business + Geographic (customer) 5 75% of total external revenue

2.3 Customers only Geographic (Customer) Business + Geographic (assets)

3 Difference in product /

service and difference in area

Business Geographic (Customer)


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AS18. RELATED PARTY DISCLOSURES

Related Party ExceptionsRelated Party

Transactions

What should be

disclosed?

Associates

Subsidiaries Holding company

Joint ventures

KMP & their relatives

Direct/ indirect

control

Common control

Common director not able

to influence mutualdealings

Single customer / supplier /

franchiser

Finance providers

Trade union

Govt. departments &

agencies

State controlled enterprises

Transfer of

resources orobligations between

related parties

regardless of

whether or not a

price is charged

Related party

relationship Transactions

between a

reporting

enterprise and

its related party

Classification of Related Party

Control Significance Influence >51% of shareholding

Composition of Board of directors

Substantial voting power

Representation of Board of directors

Material inter-company transactions

Participation in policy making

Dependence on technical information

Inter change of managerial personnel

Disclosure Requirements

Due to control and

there is no transactions

Due to significant influence &

there is no transactions

Due to both and there are transactions

1. Name of the related

party2. Nature of

relationship

No disclosure 1. Name of the related party

2.

Nature of relationship3. Nature of transactions

4. Volume of transactions

5. Any other element essential for

understanding financial statements

6. Proportions of outstanding items

7. Amount written off/ back in the period

Note: Disclosure is mandatory even if the related party transactions is at arm length price


20/29


AS19. ACCOUNTING FOR LEASES

Non Applicability

Lease agreement to explore natural resources

Licensing agreements for films, plays, etc.,

Lease agreement to use land

Finance Lease Operating Lease

Transfers substantially all risks and rewards

incidental to ownership to the lessee

No transfer of legal ownership

Lease term covers major part of the asset’s life

It doesn’t transfer substantially all the risk and

reward incidental to ownership

In the books of

lessee

In the books of lessor In the books of lessor In the books of

lessee

Recognize at fair

value at the

inception of lease(or)

Present value of

MLP from lessee

point of view

Whichever is lower

Recognize receivable equal to

net investment

Finance income should berecognized in proportion to

outstanding balances

Charge depreciation as

per AS 6

Recognize lease income inP&L A/c using straight

line method

Recognize expenses

in P&L A/c on

straight line basis

Minimum Lease Payment (MLP) Sale and Lease Back

Lessor Lessee 1 Finance Lease

Lease rent ×× ×× Any P/L on sale is deferred

+ Guaranteed

residual value

×× ×× 2 Operating Lease

+ Unguaranteed

residual value

×× NA SP=FV SPFV

SP 9 11 11 9 9 11 12 9

FV 9 11 12 12 12 10 11 8

CV 10 10 10 10 10 10 10 10

P/(L) (1) 1 1 (1) - 0 1 (2)

SP-CV FV-CV

Defer - - - - (1) 1 1 1

NC C SP-

FV

SP-

FV

SP-

FV

- Contingency rent ×× ××

- Other cost/tax ×× ××

MLP ×× ××

Gross Investment

Net Investment (PV

of MLP)

×× ××

+ Unearned Finance

Charges

×× ××

×× ××


21/29


AS20. EARNINGS PER SHARE

1 Basic EPS

2 Diluted EPS

Weightage

1 Equity shares for cash Date of receipt of cash

2 Equity shares against conversion of debt Date of conversion

3 Against interest or principal of instrument Date when interest ceases to accrue

4 In exchange of settlement of liability Date of settlement

5 Service when the service was rendered

6 Partly paid up Fraction in the ration of paid up to face value

7 Purchase Date of acquisition

8 Merger Full year9 Rights issue Right factor

10 Bonus issue Full year

Note: Potential equity shares must be ranked in the order of dilutive effect


22/29


AS22. ACCOUNTING FOR TAXES

Objective Deferred Tax Current Tax

Tax shall be accounted on

accrual basis and not on

liability to pay

Income tax determined to

be payable as per Income

tax Act

Tax effect of timing difference between tax

expense on accrual basis and current tax

liability as per Income tax Act

Deferred Tax

1 Accounting income > Tax income Tax on accounting income >

Tax payable as per Income Tax Act

P&L A/c Dr ××

To Deferred Tax A/c ××

(Deferred Tax Liability)

2 Accounting income < Tax income Tax on accounting income <

Tax payable as per Income Tax Act

Deferred Tax A/c Dr ××

To P/L A/c ××

(Deferred Tax Asset)

3 Income as per Income Tax;

Loss as per Accounts

Tax on accounting income is nil;

there is liability to pay tax

Deferred Tax A/c Dr ××

To P/L A/c ××

(Deferred Tax Liability)

4 Loss as per Income Tax; Accounting profit;

MAT is payable

Tax on accounting profit but tax as per IT is nil; Carry

forward of loss is allowed

P&L A/c Dr ××

To Deferred Tax A/c ××(Deferred Tax Asset)

Case First year Subsequent year

1 Depreciation allowed is excess DTL (AT-CT) (Cr) Dr

2 Disallowed expenses DTA (CT-AT) (Dr) Cr

3 Disallowed incomes DTL (Cr) Dr

Permanent difference

Originate in one period and don’t reverse subsequently. It is permanent in nature

Unabsorbed Depreciation & Carry Forward Of Losses

Recognized only if there is sufficient taxable income available against which such deferred tax can be

realized

NOTE: Deferred tax assets and liabilities should not be discounted to their present values.


23/29


AS23. ACCOUNTING FOR INVESTMENTS IN ASSOCIATES IN

CONSOLIDATED FINANCIAL STATEMENTS

Associates Non Applicability

Enterprise in which the investor

has significant influence and

which is neither subsidiary nor

joint venture

1 Investor having no significant influence in an associate

2 Investment held exclusively for disposal

3 Associate operate under long term restrictions which impair

transfer of funds

4 When consolidated financial statement of investor is not made

Equity Method of Accounting

1 Investment (At cost) ××

- Net worth (not to be negative) ××

Goodwill / (Capital Reserve) ××

2 Carrying Amount = Book Value ××+/- Investor’s share in the profit / loss of associate ××

+/- Investor’s proportionate interest from changes in associates’ equity ××

- Distribution from associate received ××

××

3 Eliminate unrealized profits and losses

4 Investor’s share in associates profit or loss should be computed after

cumulative preference share whether or not dividend has been declared

Carrying Amount of Investment in Associates

Reduce any permanent decrease in the value Share of losses ≥ Carrying amount = Investment @nil value

Contingency

Disclose contingent liabilities

Contingencies for which investor is severally liable

Disclosure

Description of associate

Investment in associate’

Difference in reporting dates of associates and investor

Any differences in the accounting policies


24/29


AS24. DISCONTINUING OPERATIONS

Discontinuing Operation Which are not Discontinuing Operation?

Not a discontinued operation 1 Planned change

1 Single plan 2 Abrupt or unplanned changes

Disposing substantially in itsentirety

Demerger/ Spin off

Piece meal disposal

Abandonment

Gradual phasing out of product line Shifting of production/ marketing to various

location

Closing of facility to achieve productivity

Selling subsidiaries

2 Separate major line of business

3 Distinguished operationally

1 Initial Disclosure Event

Agreement to sell substantially all assets of discontinuing operation

(OR)

Approving & announcing of the plan

Whichever is earlier

2 Initial Disclosure

Description of operation

Segments reported

Date and nature of initial disclosure event

Time expected of discontinuance

Carrying amounts

Amount of revenue & expense

Pre-tax profit

Net cash flows

3 Other Disclosures

Gain or loss on disposal of assets/ settlement of liabilities

Net selling price, carrying amount of assets under binding sale of agreements

4 Updating Disclosure

Up to and including the period of discontinuance gets completed.

5 Interim Financial Reports

Disclose in notes

Any significant activity or event relating to discontinuing operation

Change in the amount or timing of cash flows relating to assets and liabilities to be disposed/

settled.


25/29


AS25. INTERIM FINANCIAL REPORTING

Interim Financial Reporting Financial Statements

Reporting for periods of less than

a year generally for a period of 3 periods

1 Balance sheet

2 Profit & loss A/c

3 Cash flow statement4 Notes to Accounts

Principles of Recognition

Integral View Discrete View

Measure interim period income by viewing each interim

period as an integral part of annual financial period

View each interim period separately

Year to date basis

For income tax expenses, use

weighted average annual effective tax

rate

Form and Contents

1 Completed financial statements

2 Condensed financial statements

3 Selection of explanatory notes

Minimum Disclosure of Notes

1 Change of accounting policies

2 Seasonal or cyclical effects

3 Unusual factors

4 Change in debt and equity

5 Changes in estimates6 Details of dividend payment

7 Material event

8 Effect of changes in composition of the enterprise

9 Material change in contingent liabilities


26/29


AS26. INTANGIBLE ASSETS

Non Applicability Intangible assets Recognition criteria

Financial assets

AS 14; AS 22; AS 19

Extraction or exploration of

natural resources except startup costs

Insurance

Share issue expense Termination benefits

Identifiable

Non-monetary

No physical substance

Retirement &

Disposal

Recognize gain orloss in P&L A/c

Characteristic of an asset

Future economic benefits

Reliably measured

Amortization

Over the useful life

Categories

Un-identified Acquired and Identified Internally generated

Research cost

Debited to P/L A/cDevelopment Costs

Capitalise

Subsequent expenses

Attributed to asset

Increase future economic

benefits

1. Yes: capitalize

2. No: Debit to P/L A/c

Separate

acquisition

Cost of acquisition

Exchange of

assets

Fair value of which is

more evident

Issue of shares

/ securities

Fair value of which is

more evident

Govt. Grants As per AS 12

Amalgamation

[Purchase]

Goodwill Others

Recognize Include

in thevalue

goodwill

Goodwill Intangible assets Brands

Non

recognized

Development

stage

××

+ Expenses on

materials &

services

××

+ Salaries and

wages

××

+ Direct Cost ××

+ Overheads ×× - Selling,

admn cost

××

- Initial

operating

cost

××

- Expenditure

on staff

training

××

Publishing

titles and

other

similar

items

should not

be

recognized


27/29


AS27. FINANCIAL REORTING OF INTEREST IN JOINT VENTURE

Joint Venture Operator Fee

A contractual agreement whereby two or more

parties carry an economic activity under joint control

Recognize as per AS 9

Fee is an expense for joint venture

Forms of joint venture

Jointly Controlled Operation Jointly Controlled Assets Jointly Controlled Entities

Parties carry out joint venture

activities side by side of their

main business

Joint ownership of assets for

the purpose of sharing

economic benefits

Joint control is exercised by the ventures

over the economic entity

Financial Reporting:

1. Assets it controls

2. Liabilities it incurs

3. Expenses it incurs

4. Share of income


1. Share in assets

2. Liabilities incurred

3. Income from sale / use of

its output in joint

venture

4. Separate expenses


1.

In Separate Financial Statement :

Treatment as per AS 13

2.

In Consolidated Financial Statement:

Interest should be reported as per

proportionate consolidation as per AS

21

Transaction Between A Venturer And A Joint Venture

1 Jointly Controlled Operation and Assets

Sale Account for profit / loss attributable to other venturer’s interest

Loss Recognise full loss

Profit No recognition till resale

2 Jointly Controlled Entities

Profit / Loss As per AS9

Consolidated Same as jointly controlled operation and assets


28/29


AS28. IMPAIRMENT OF ASSETS

Impairment of

Assets

Non

Applicability

Impairment Loss for Cash

Generating Unit

Effect of Impairment on

Depreciation /

Amortization

Weakening in thevalue of asset

Carrying amount >

Recoverable amount

AS 2 AS 7

AS 13

AS 22

Ignore impairment of division ifthere is no impairment to the cash

generating asset

Review as per AS 6/ AS 26

Carrying Amount Recoverable Amount Cash Flows

(Book value) (Net selling price) Include:

From continuing use of assets

Projected cash flow

Net cash flow if any to be

received (or paid) for disposal of

asset at the end of its useful lifeExclude:

Cash flow from financing

activities

Income tax receipts and payments

Original cost ××

- Depreciation ××

Whichever is higher

1 Sale vale ××

- Cost of disposal ××

or

2 Value in use (P.V of

estimated future cash flow +

P.V of residual value)

××

Recognition for individual asset

At historical cost At revalued amount

Debit P/L A/c

(Carrying amount – Revalued amount)

Loss =

Revaluation

reserve

Loss >

Revaluation

Reserve

Setoffagainst

revaluation

reserve

Balanceshould be

debited to

P&L A/c

Reversal of Impairment of Individual Asset

1 Asset A/c Dr ××

To Reversal of Impairment A/c ××

2 Reversal of Impairment A/c Dr ××

To P/L A/c ××

Note: After reversal, the carrying amount

should not exceed the carrying amount that

would have been determined had no

impairment loss been recognized in prior

accounting period.


29/29

AS29. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

Non-applicability

(1) Financial Instruments (2) Resulting from executor contracts (3) Insurance (4) AS 7, 15, 19, 22

Obligation for Past Events

Present Obligation

Exist on B/S Date + Probable (Most likely)

Possible Obligation

Doesn’t Exist on B/S Date

Not Probable

Provision

[If not deductible from asset]

Contingent Liability Contingent Liability /

Contingent Assets

Probable outflow of resources

Measurement of quantum of

liability

Result of past events

No Probable outflow

Cannot Measure quantum of

liability

Confirmed by future

events, not within

control of orgn.

May happen

Recognition 1 Present obligation

2 Result of past events

3 Exist on B/S date

4 Probable

5 Outflow of resources

6 No provision for future

expenditure which can be

avoided by future action

7 No recognition of future

operating cost

Recognition 1 Present obligation

2 Doesn’t Exist on B/S date

3 No Probable Outflow of resources

4 Quantum can’t be measured

5 If it becomes probable that an

outflow of future economic

benefits will be required to

settle obligation, it can be

recognized as provision

afterwards

Contingent Liability

Contingent Assets

No recognition

Disclosure in director’s

report

Restructuring

Measurement1 Best estimate

2 No discounting to present

value

3 Consider risk & uncertainty

4 Don’t deduct profit on

disposal of assets

5 Consider additional

evidence, if any, after B/S

date

6 Consider before tax

Disclosure

1 Opening balance

2 Additions

3 Unused provision

4 Closing balance

5 Expected reimbursement

recognized as an asset

Disclose only in Director’s report

Disclosure

1 Nature

2 Estimate, if possible

3 Indication of uncertainties

4 Any reimbursements

(1) programme that is

planned & controlled by

management

(2) Materially affects the (a)

scope of business (b)

manner of conduct

Provision for Restructuring Cost (Accounting)

Include

(1) Cost of terminating

lease/contracts

(2) Cost representing contractual

obligations with no economic

benefits

Exclude

(1) Cost of refraining

(2) Marketing cost

(3) Expected loss on sale of

asset

(4) New investments

Recognize if recognition principle of provisions is satisfied

No A/c treatment is prescribed

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