Accounting standard 05
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This accounting standard provides guidelines for classifying and disclosing items in the statement of profit and loss to increase comparability between financial statements of different companies. It requires separate disclosure of ordinary activities, extraordinary items, prior period items, changes in accounting estimates, and changes in accounting policies. The standard defines these terms and specifies disclosure requirements for each category. Companies must disclose the nature and amount of any material items, changes, or policy changes along with their financial impact. The aim is to present financial statements on a uniform basis.
Accounting standard 05
- 2. OBJECTIVEOBJECTIVE To prescribe the classification and disclosure of certain items in the statement of profit and loss so that all enterprises prepare and present such a statement on a Uniform basis. Increases the Comparability of the Financial statements. Requires classification and disclosure of extraordinary and prior period items, and the disclosure of certain items within profit or loss from ordinary activities.
- 3. It also specifies the accounting treatment for changes in accounting estimates and the disclosures to be made in the FS regarding changes in accounting policies. Does not deal with the Tax implications of extraordinary items, prior period items, changes in accounting estimates, and changes in accounting policies for which appropriate adjustments will have to be made depending on the circumstances.
- 4. Disclosure under Following category Financial Statements Ordinary Items Extra-Ordinary Items Prior Period Items Changes in Accounting estimates Changes in Accounting Policies
- 5. RELEVANT DEFINITIONSRELEVANT DEFINITIONS Ordinary activities are any activities and other incidental activities which are undertaken by an enterprise as part of its business. Extraordinary items are income or expenses that arise from non recurring events and transactions and are not expected to recur frequently or regularly. Prior period items are income or expenses, which arise, in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods. It is generally infrequent in nature and can be distinguished from changes in accounting estimates.
- 6. Changes in Accounting Estimates:- An estimate may have to be revised if changes occur in the circumstances based on which the estimate was made, or as a result of new information, more experience or subsequent developments. The effect of change in an accounting estimate should be included in the determination of profit and loss in:- 1. The period of the change, if the change effects the period only; 2. the period of the change and the future periods, if the change affects the both. Accounting policies are the specific accounting principles and the methods of applying those principles in the preparation and presentation of financial statements. Only if it is required by statute or for compliance with an accounting policy.
- 7. Circumstances give rise to Special DisclosureCircumstances give rise to Special Disclosure The write-down of Inventories to net realizable value as well as the reversal of such write-downs. A restructuring of the activities of an enterprise and the reversal of any provisions for the cost of restructuring. Disposals of items of fixed assets. Disposals of long-term investments. Legislative changes having retrospective Application. Litigation Settlements Other Reversals of provisions.
- 8. DISCLOSURE REQUIREMENTSDISCLOSURE REQUIREMENTS Extraordinary items: The nature and the amount of each extraordinary item should be separately disclosed in the statement of profit and loss in a manner that its impact on current profit or loss can be perceived. Ordinary items: When items of income and expense from ordinary activities are of such size, nature or incidence that their disclosure is relevant to explain the performance of the enterprise for the period, the nature and amount of such items should be disclosed separately.
- 9. DISCLOSUREDISCLOSURE REQUIREMENTS- CONTD.REQUIREMENTS- CONTD. Prior period items: The nature and amount of prior period items should be separately disclosed in the profit and loss statement in such a way that their impact on the current profit or loss can be perceived. Accounting estimates: The nature and amount of a change in an accounting estimate which has a material effect in the current period or which is expected to have a material effect in subsequent periods, should be disclosed. If the effect cannot be quantified, this fact should be disclosed. Accounting policies: The effect of any change in an accounting policy, if material, should be disclosed in the financial statements of the period quantifying the impact. Where the effect cannot be quantified, wholly or in part, the fact should be disclosed.
- 10. DISCLOSUREDISCLOSURE REQUIREMENTS- CONTD.REQUIREMENTS- CONTD. Prior period items: The nature and amount of prior period items should be separately disclosed in the profit and loss statement in such a way that their impact on the current profit or loss can be perceived. Accounting estimates: The nature and amount of a change in an accounting estimate which has a material effect in the current period or which is expected to have a material effect in subsequent periods, should be disclosed. If the effect cannot be quantified, this fact should be disclosed. Accounting policies: The effect of any change in an accounting policy, if material, should be disclosed in the financial statements of the period quantifying the impact. Where the effect cannot be quantified, wholly or in part, the fact should be disclosed.