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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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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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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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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
Transaction Recognition
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
Transaction Recognition
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
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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
×× ××
×× ××
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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
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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.
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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
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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.
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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
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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
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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
Financial Reporting:
1. Share in assets
2. Liabilities incurred
3. Income from sale / use of
its output in joint
venture
4. Separate expenses
Financial Reporting:
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
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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.
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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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