Accounting Standard ver 1.3.ppt

Sameer Pradhan & Co.
ACCOUNTING STANDARD

Applicable Indian Accounting Standards
Applicability of Accounting Standards
• Level I Enterprise
• Level II & III Enterprise

Applicable Indian Accounting Standard
• Level I Enterprise
– Enterprises whose equity or debt securities are listed whether in India or
outside India.
– Enterprises which are in the process of listing their equity or debt securities as
evidenced by the board of directors’ resolution in this regard.
– Banks including co-operative banks.
– Financial institutions.
– Enterprises carrying on insurance business.
– All commercial, industrial and business reporting enterprises, whose turnover
for the immediately preceding accounting period on the basis of audited
financial statements exceeds Rs. 50 crore. Turnover does not include ‘other
income’.
– All commercial, industrial and business reporting enterprises having
borrowings including public deposits, in excess of Rs. 10 crore at any time
during the accounting period.
– Holding and subsidiary enterprises of any one of the above at any time during
the accounting period.

List of Indian Accounting Standard
AS 1 Disclosure of accounting policies
AS 2 Valuation of inventories
AS 3 Cash flow statements
AS 4 Contingencies and events occurring after the balance sheet date
AS 5 net profit or loss for the period, prior period items
AS 6 Depreciation Accounting
AS 7 Construction contract
AS 8 R & D replaced by AS 26 Impairment of Assets
AS 9 Revenue Recognition
AS 10 Fixed Assets
AS 11 Foreign Exchange
AS 12 Government Grants
AS 13 Investment
AS 14 Amalgamations
AS 15 Employee Costs

List of Indian Accounting Standard
AS 16 Borrowing Costs
AS 17 Segment Reporting
AS 18 Related Party Disclosure
AS 19 Leases
AS 20 Earning Per Share
AS 21 Consolidated Financial Statements
AS 22 Deferred Tax
AS 23 Investment in associates in CFS
AS 24 Discontinuing Operations
AS 25 Interim Financial Reporting
AS 26 Intangible Assets
AS 27 FR of interests in joint venture
AS 28 Impairment of assets
AS 29 Provision, Contingent liabilities and contingent assets

List of IAS
IAS 1 Presentation of Financial Statements
IAS 2 Inventories
IAS 7 Cash Flow Statements
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
IAS 10 Events After the Balance Sheet Date.
IAS 11 Construction Contracts
IAS 12 Income Taxes
IAS 14 Segment Reporting (superseded by 8 on January 1, 2008)
IAS 16 Property, Plant and Equipment
IAS 17 Leases
IAS 18 Revenue
IAS 19 Employee Benefits
IAS 20 Accounting for Government Grants and Disclosure of Government Assistance
IAS 21 The Effects of Changes in Foreign Exchange Rates
IAS 23 Borrowing Costs
IAS 24 Related Party Disclosures
IAS 26 Accounting and Reporting by Retirement Benefit Plans

List of IAS
IAS 27 Consolidated Financial Statements
IAS 28 Investments in Associates
IAS 29 Financial Reporting in Hyperinflationary Economies
IAS 31 Interests in Joint Ventures
IAS 32
Financial Instruments: Presentation (Financial instruments disclosures are in 7
Financial Instruments: Disclosures, and no longer in 32)
IAS 33 Earnings Per Share
IAS 34 Interim Financial Reporting
IAS 36 Impairment of Assets
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
IAS 38 Intangible Assets
IAS 39 Financial Instruments: Recognition and Measurement
IAS 40 Investment Property
IAS 41 Agriculture

List of IFRS
IFRS 1
First time Adoption of International Financial Reporting
Standards
IFRS 2 Share-based Payment
IFRS 3 Business Combinations
IFRS 4 Insurance Contracts
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
IFRS 6 Exploration for and Evaluation of Mineral Resources
IFRS 7 Financial Instruments: Disclosures
IFRS 8 Operating Segments[1]

AS 1 – Disclosure of Accounting Policies
Fundamental Accounting Assumptions
a. Going Concern
b. Consistency
c. Accrual
The accounting policies refer to the specific
accounting principles and the methods of
applying those principles adopted by the
enterprise in the preparation and presentation
of financial statements.

Areas in Which Differing Accounting Policies are Encountered
• Methods of depreciation, depletion and amortization
• Treatment of expenditure during construction
• Conversion or translation of foreign currency items
• Valuation of inventories
• Treatment of goodwill
• Valuation of investments
• Treatment of retirement benefits
• Recognition of profit on long-term contracts
• Valuation of fixed assets
• Treatment of contingent liabilities.
The above list of examples is not intended to be exhaustive.

major considerations governing the selection and application of
accounting policies are:—
a. Prudence
In view of the uncertainty attached to future events, profits are not anticipated
but recognized only when realized though not necessarily in cash. Provision is
made for all known liabilities and losses even though the amount cannot be
determined with certainty and represents only a best estimate in the light of
available information.
b. Substance over Form
The accounting treatment and presentation in financial statements of transactions
and events should be governed by their substance and not merely by the legal
form.
c. Materiality
Financial statements should disclose all “material” items, i.e. items the knowledge
of which might influence the decisions of the user of the financial statements.

• All significant accounting policies adopted in the preparation and presentation of
financial statements should be disclosed.
• The disclosure of the significant accounting policies as such should form part of
the financial statements and the significant accounting policies should normally be
disclosed in one place.
• Any change in the accounting policies which has a material effect in the current
period or which is reasonably expected to have a material effect in later periods
should be disclosed. In the case of a change in accounting policies which has a
material effect in the current period, the amount by which any item in the
financial statements is affected by such change should also be disclosed to the
extent ascertainable. Where such amount is not ascertainable, wholly or in part,
the fact should be indicated.
• If the fundamental accounting assumptions, viz. Going Concern, Consistency and
Accrual are followed in financial statements, specific disclosure is not required. If
a fundamental accounting assumption is not followed, the fact should be
disclosed.

AS 2 – Valuation of Inventories
• Scope
This Statement should be applied in accounting for inventories other than:
1. work in progress arising under construction contracts, including directly related
service contracts (see Accounting Standard (AS) 7, Accounting for Construction
Contracts ;
2. work in progress arising in the ordinary course of business of service providers;
3. shares, debentures and other financial instruments held as stock-in-trade; and
4. producers’ inventories of livestock, agricultural and forest products, and mineral
oils, ores and gases to the extent that they are measured at net realizable value
in accordance with well established practices in those industries.

Definitions
The following terms are used in this Statement with the
meanings specified:
Inventories are assets:
1. held for sale in the ordinary course of business;
2. in the process of production for such sale; or
3. in the form of materials or supplies to be consumed in the
production process or in the rendering of services.
• Net realizable value is the estimated selling price in the ordinary
course of business less the estimated costs of completion and the
estimated costs necessary to make the sale.

• Measurement of Inventories
Inventories should be valued at the lower of cost
and net realizable value.
• Cost of Inventories
The cost of inventories should comprise all costs of
purchase, costs of conversion and other costs
incurred in bringing the inventories to their present
location and condition.

Exclusions from the Cost of Inventories
• abnormal amounts of wasted materials, labour, or
other production costs;
• storage costs, unless those costs are necessary in the
production process prior to a further production stage;
• administrative overheads that do not contribute to
bringing the inventories to their present location and
condition; and
• selling and distribution costs.

Cost Formulas
• The cost of inventories of items that are not ordinarily
interchangeable and goods or services produced and
segregated for specific projects should be assigned by
specific identification of their individual costs.
• The cost of inventories, other than those dealt with in
previous paragraph, should be assigned by using the first-in,
first-out (FIFO), or weighted average cost formula. The
formula used should reflect the fairest possible
approximation to the cost incurred in bringing the items of
inventory to their present location and condition.

Disclosure
The financial statements should disclose:
• the accounting policies adopted in measuring
inventories, including the cost formula used;
and
• the total carrying amount of inventories and its
classification appropriate to the enterprise.

AS 5 - Net Profit or Loss for the Period, Prior Period
Items and Changes in Accounting Policies
• Scope
This Statement should be applied by an enterprise in
presenting profit or loss from ordinary activities,
extraordinary items and prior period items in the
statement of profit and loss, in accounting for changes
in accounting estimates, and in disclosure of changes
in accounting policies.

•
Ordinary activities are any activities which are undertaken by an
enterprise as part of its business and such related activities in which the
enterprise engages in furtherance of, incidental to, or arising from, these
activities.
Extraordinary items are income or expenses that arise from events or
transactions that are clearly distinct from the ordinary activities of the
enterprise and, therefore, 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.
Accounting policies are the specific accounting principles and the
methods of applying those principles adopted by an enterprise in the
preparation and presentation of financial statements.

Net Profit or Loss for the Period
• All items of income and expense which are recognized in a period should
be included in the determination of net profit or loss for the period
unless an Accounting Standard requires or permits otherwise.
• The net profit or loss for the period comprises the following components,
each of which should be disclosed on the face of the statement of profit
and loss:
• profit or loss from ordinary activities; and
• extraordinary items.
• Extraordinary Items
Extraordinary items should be disclosed in the statement of profit and
loss as a part of net profit or loss for the period. 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.

• Profit or Loss from Ordinary Activities
When items of income and expense within profit or loss 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.
• Prior Period Items
The nature and amount of prior period items should be separately
disclosed in the statement of profit and loss in a manner that their
impact on the current profit or loss can be perceived.

• Changes in Accounting estimate
The effect of a change in an accounting estimate should be included in
the determination of net profit or loss in:
• the period of the change, if the change affects the period only; or
• the period of the change and future periods, if the change affects both.
• The effect of a change in an accounting estimate should be classified
using the same classification in the statement of profit and loss as was
used previously for the estimate.
• 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 it is
impracticable to quantify the amount, this fact should be disclosed.

Changes in Accounting Policies
• A change in an accounting policy should be made only if the
adoption of a different accounting policy is required by statute
or for compliance with an accounting standard or if it is
considered that the change would result in a more appropriate
presentation of the financial statements of the enterprise.
• Any change in an accounting policy which has a material effect
should be disclosed. The impact of, and the adjustments
resulting from, such change, if material, should be shown in the
financial statements of the period in which such change is made,
to reflect the effect of such change. Where the effect of such
change is not ascertainable, wholly or in part, the fact should be
indicated. If a change is made in the accounting policies which
has no material effect on the financial statements for the
current period but which is reasonably expected to have a
material effect in later periods, the fact of such change should
be appropriately disclosed in the period in which the change is
adopted.

AS 9 - Revenue Recognition
This Statement deals with the bases for recognition of revenue in
the statement of profit and loss of an enterprise. The Statement
is concerned with the recognition of revenue arising in the course
of the ordinary activities of the enterprise from
• the sale of goods,
• the rendering of services, and
• the use by others of enterprise resources yielding interest,
royalties and dividends.
This Statement does not deal with the following aspects of
revenue recognition to which special considerations apply:
• Revenue arising from construction contracts;
• Revenue arising from hire-purchase, lease agreements;
• Revenue arising from government grants and other similar
subsidies;
• Revenue of insurance companies arising from insurance contracts.

Definitions
• Revenue is the gross inflow of cash, receivables or other consideration
arising in the course of the ordinary activities of an enterprise from the
sale of goods, from the rendering of services, and from the use by
others of enterprise resources yielding interest, royalties and dividends.
Revenue is measured by the charges made to customers or clients for
goods supplied and services rendered to them and by the charges and
rewards arising from the use of resources by them. In an agency
relationship, the revenue is the amount of commission and not the gross
inflow of cash, receivables or other consideration.
• Completed service contract method is a method of accounting which
recognizes revenue in the statement of profit and loss only when the
rendering of services under a contract is completed or substantially
completed.
• Proportionate completion method is a method of accounting which
recognizes revenue in the statement of profit and loss proportionately
with the degree of completion of services under a contract.

Sale of goods
Rendering of services
Others:
• interest-charges for the use of cash resources or
amounts due to the enterprise;
• royalties-charges for the use of such assets as
know-how, patents, trade marks and copyrights;
• dividends-rewards from the holding of
investments in shares

• Disclosure
In addition to the disclosures required by
Accounting Standard 1 on ‘Disclosure of
Accounting Policies’ (AS 1), an enterprise
should also disclose the circumstances in
which revenue recognition has been
postponed pending the resolution of
significant uncertainties.

AS 6 – Depreciation
• This Statement deals with depreciation accounting and
applies to all depreciable assets, except the following
items to which special considerations apply:—
• forests, plantations and similar regenerative natural
resources;
• wasting assets including expenditure on the
exploration for and extraction of minerals, oils, natural
gas and similar non-regenerative resources;
• expenditure on research and development;
• goodwill;
• live stock.

• Depreciation is a measure of the wearing out,
consumption or other loss of value of a
depreciable asset arising from use, effluxion of
time or obsolescence through technology and
market changes. Depreciation is allocated so as to
charge a fair proportion of the depreciable amount
in each accounting period during the expected
useful life of the asset. Depreciation includes
amortization of assets whose useful life is
predetermined.
• Depreciable assets
• Useful life
• Depreciable amount

The following information should be disclosed in the
financial statements:
• the historical cost or other amount substituted for
historical cost of each class of depreciable assets;
• total depreciation for the period for each class of
assets; and
• the related accumulated depreciation

AS 26 – Intangible Assets
Introduction
• Effective from accounting periods commencing on or
after 1st April 2003.
• The following AS stand withdrawn w.e.f. introduction
of AS 26:
AS 8 Accounting for Research and development
AS 6 with respect to amortization of intangible assets;
AS 10 with respect to Fixed Assets like Goodwill,
Patents and Know- how (Para 16.3 to 16.7, 37 & 38)

Not applicable in respect of
• Intangible assets covered by other AS
• Financial assets
• Mineral rights and expenditure on exploration
• Intangible assets arising in insurance enterprises from
contracts with policyholders
• Intangible assets held for sale in ordinary course of
business
• Deferred tax assets
• Leases within the scope of AS 19 Leases
• Goodwill arising on amalgamation

What is an intangible assets?
• An intangible asset is an identifiable non –monetary
assets, without physical substance, held for use in the
production or supply of goods or services, for rental to
others, or for administrative purposes
•
• As asset is a resources:
• Controlled by an enterprise as a result of past events;
and
• From which future economic benefits are expected to
flow to the enterprise
• Monetary assets are money held and assets to be
received in fixed or determinable amounts of money
• Non- monetary assets are assets other than monetary
assets

Index
• Applicability and objective
• Definitions
• Overview
• Internally Generated Intangible Assets
• Recognition of expenses
• Subsequent Expenditure
• Amortization of intangibles
• Impairment of losses
• Disclosure requirements

Recognition and initial measurement
An intangible asset should be recognized if:
it is probable that the future economic benefits that
are attributable to the asset will flow to the enterprise;
And
the cost of the asset can be measured reliably
An intangible asset should be measured initially at cost

AS 26
Control
Future Economic benefits
Identifiably

Internally Generated Intangible Assets
To assess whether an internally generated intangible
asset meets criteria for recognition, the generation of
asses is classified into:
Research phase; and
Development phase

Research activities….
• activities aimed at obtaining new knowledge
• Search, evaluation & final selection of applications of
research findings
• Search for alternatives for materials, devices, products,
processes, systems or services
• Formulation, design, evaluation and final selection of
possible alternatives for new or improved materials,
devices, products, processes, systems or services

Development activities….
• Design, construction and testing of pre – production or
pre – use prototypes and models;
• Design of tools, jigs, moulds and dies involving new
technology;
• Design, construction and operation of a pilot plant that
is not of a scale economically feasible for commercial
production; and
• Design, construction and testing of a chosen
alternative for new or improved materials, devices,
products, processes, systems or services

Amortization
Intangible asset should be amortized
over the best estimate of its useful life,
with a rebuttable presumption that the
useful life will not exceed ten years from
the date when the asset is available for
use.

Disclosure
• Useful life
• Amortization method
• Gross carrying amount and accumulated
amortization
• Reconciliation of carrying amount at beginning
and year end covering;
additions; retirements and disposals;
impairment losses recognized or reversed in
the statement of profit and loss; amortization;
other changes

Additional disclosure
• Whether a intangible asset is amortised over
more than ten years, its reasons describing
the factors that played a significant role in
determining the useful life;
• For an individual material intangible asset;
description, carrying amount and remaining
period of amortisation;
• Restricted titles, pledged assets and
commitments for acquisition
• Aggregate amount of R & D expenditure
recognised as expenses during the period.

AS 28 – Impairment of Assets
• Applicability
• Scope
• Objective
• Computation
• Accounting treatment
• Disclosure
• Transitional Provisions

• Scope
Applies to all assets other than
1. Inventories (AS 2)
2. Assets arising from construction contract (AS 7)
3. Financial Assets/Instruments (AS 30/31)
4. Deferred Tax Assets

• Objectives
To identify assets which are carried at
amounts in excess of their recoverable amount
AS 28 defines recoverable amount as the
higher of value in use and net selling price
Assets is impaired if carrying amount exceeds
recoverable amount

• Indications of impairment
Assess at each Balance Sheet date whether an
asset may be impaired on the basis of
following factors;
Internal sources of information
• Physical damage of asset
• When enterprise plan to discontinue or
restructure operations
• Internal reporting on economic performance of
an asset

External sources of information
• An assets market value has declined
significantly due to passage of time or normal
use.
• Change in technology, market, economic or
legal environment in which the enterprise
operates
• Market interest rate
• Carrying amount of the net assets of the
enterprise is more than its market
capitalisation

Impairment Loss
• If carrying amount < = recoverable amount,
then asset is not impaired
• If carrying amount > recoverable amount,
then asset is impaired
• Impairment Loss = any excess of carrying
amount over recoverable amount

Measuring Recoverable Amount
• Recoverable amount is the higher of net
selling price and its value in use
• Net selling price
Assets market price less cost of disposal
• Value in use
Present value factor * (Estimated future net
value cash flows arising from use of the asset
+ disposal value)

Accounting Standard ver 1.3.ppt

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