ACCOUNTING STANDARDS

D.S. RAWAT FCA Partner Bansal & Co. Chartered Accountants

INTRODUCTION TO
ACCOUNTING STANDARDS

What are Accounting Standards

AS are written policy documents issued by expert accounting body or by government or other regulatories body

What these covers

Recognition Measurements Treatment Presentation Disclosure of accounting transaction in the financial statements

Objective Is to standardized the diverse accounting polices and practices

with a view to eliminate to the extent possible the noncomparability of financial statements Add the reliability to the financial statements

Accounting Standard & Boards Report

Section 217(2AA) (i) of Companies Act, 1956 states that Directors responsibility statement should include that in the preparation of the annual account & applicable accounting standards had been followed along with proper explanations relating to material departure

Applicability of AS w.e.f. 01.04.2004 (ICAI classification)

Applicability to Level I Enterprises Level II Enterprises Level III Enterprises

Accounting Standards Rules (2006)

Notified on 07.12.2006 Two types of Companies - SMC & Non- SMC Some relaxation to SMC All the AS & ASI notified verbatim ASI-11, 12, 27 & 29 not notified

 Exchange difference with have to be adjusted in P&L in case of asset linked exchange difference AS-18 applicable to all companies AS-20 applicable to all companies

Global Accounting
Need for Harmonization & Standardization

International Accounting Standards (IAS/IFRS)

US GAAP

International Accounting Standards (IAS/IFRS)

41 IAS (Effectively 29) 8 IFRS Comparision with Indian Accounting Standards 29 AS Guidance notes 2 Exposure drafts

US GAAP Hierarchy
Level A FASB Statements FASB Interpretations APB Opinions Accounting Research Bulletin

US GAAP Hierarchy
Level B FASB Technical Bulletins AICPA Industry Audit & Accounting Guides AICPA Statements of Position

US GAAP Hierarchy
Level C AICPA Practice Bulletins Emerging Issues Task Force Consensus Positions

AS1
DISCLOSURE OF ACCOUNTING POLICIES

What are Accounting Policies

Specific accounting principles and the method applying those principles adopted by the enterprises in preparation and presentation of the financial statements

Examples of Accounting Policies

Methods of deprecation Valuation of inventories Revenue recognition Amortization

What are Notes to Accounts?

Notes to accounts are the explanation of the management about the items in the financial statements

Need for disclosure of Accounting policies

For proper and better understanding of financial statement.
All significant accounting policies should be disclosed at one place.

Fundamental Accounting Assumptions

Going Concern Consistency Accrual

Assumption as regards fundamental accounting assumption

Selection of Accounting Policies Prudence Substance over form

Materiality

Change in Accounting Policies

Adoption of different accounting policies is required by statute For compliance with accounting standard It is considered that change would result in more appropriate presentation of financial statement

AS 2
Valuation of Inventories

Objective

To formulate the method of computation of cost of inventories

Definition
Held for sale in the ordinary course of business (finished Goods) In the process of production (Rawmaterial & WIP) Material or supplies to be consumed in production or rendering of services Spares - Regular

Not applicable to WIP under construction contract WIP for service provider Financial instrument held in stock in trade. Producers inventory like, livestock, agricultural and forest product, mineral oil, ore and gases.

Measurement of inventories
Inventories should be valued at lower of cost and net realisation value. Determination of cost of inventories Determination of net realisable value of inventories Comparison between the cost and net realisable value

What is Cost of Inventories Cost of purchase Cost of conversion Other costs (incurred in bringing the inventories to their present location and condition)

Cost of Purchase
Purchase price Duties and taxes Fright inward Other expenditures directly attributable to the acquisition Less: Duties and taxes recoverable by enterprises Trade discount Duty drawback Other similar items

Cost of conversion
Direct labour, direct material, direct expenses

Systematic allocation of fixed and variable production overheads

Inclusion of excise duty in valuation of finished goods.

Exclusion from cost Abnormal Cost

Interest cost subject to AS-16 Storage cost Administrative overhead Selling & distribution cost

Cost Formula
Specific identification method Specific identification method not applicable * FIFO * Weighted average

Cost of inventories in certain conditions Standard cost

Retails method

What is net realisable value

Estimated selling price Less: Estimated cost of completion Or Estimated cost necessary to made

Estimation net realisable value of raw material If finished production in which raw material and supplies used is sold at cost or above cost
If finished product in which raw material and supplies used is sold below cost Replacement price

Disclosure in financial Statements

Accounting policy measuring inventories adopted in

Cost formula used Classification of inventories like, finished goods, WIP, raw material, spare parts and its carrying amount.

AS-3
CASH FLOW STATEMENT

Need and Objective

Cash flow statement is additional information to user of financial statement

Applicability
This AS applies to the following enterprises : Which has turnover more than Rs. 50 crores in a financial year Listed companies cash flow statement of listed companies shall be presented only under the indirect method as prescribed in AS-3

 Banks, Financial institution & Insurance companies. All commercial enterprises having borrowings including public deposits in excess of Rs. 10 crores. Holding & subsidiaries enterprises of any of the above.

Features
Cash flow activities from operating

Cash flow from investing activities Cash flow activities from financing

Cash Equivalents
It consists of short-term highly liquid investments

Operating Activities
Cash receipts from the sale of goods & the rendering of services
Cash receipts from royalties, Fee. Commission & other revenue

Operating Activities
Cash payments to supplier for goods & services
Cash payments to & on behalf of employees

Investment Activities
Cash payments to acquire fixed assets Disposal of fixed assets Acquire share, warrants or debt instruments Disposal of shares, warrants or debt instruments

Financing Activities
Sale of share Buyback of shares Redemption of preference shares

Financing Activities
Issue / redemption of debentures Long-term loan/payment thereof

Dividend/interest paid

Cash flow from operating activities Direct Method In this method, gross receipts & gross payment of cash are disclosed.
Indirect Method In this method, profit & loss a/c is adjusted for the effects of transaction of non- cash nature.

Interest Received From investment From short-term investment classified, as cash equivalents should be considered as cash inflows from operating activities On trade advance & operating receivable should be in operating activities

Interest Paid
On loans/ debts is financing activities On working capital loan & any other loan taken to finance operating activities is in operating activities

Dividend Received
For financial enterprises in operating activities
For other than financial enterprises in investing activities

Dividend Paid
Always classified as financing activities

Cash flow from foreign currency transactions

The effect of change in exchange rate in cash and cash equivalents held in foreign currency

Extra-ordinary items Separately disclosed Treatment of Tax Cash flow for tax payments/refund should be classified as cash flow from operating activities

Extra-ordinary items Separately disclosed Treatment of Tax Cash flow for tax payments/refund should be classified as cash flow from operating activities

Cash flow relating to investments in associates, subsidiaries & joint venture

Reporting cash on net basis

Cash receipts & payment on behalf of customers Cash receipts & payments for items in which the turnover is quick

Cash flow relating to acquisition or disposal of subsidiaries Acquisition assuming

of assets by directly related liabilities Acquisition of an enterprises by means of issue of shares Conversion of debt to equity

 Disclose the components of cash and cash equivalents and should present a reconciliation of the amount in the cash flow statement with the equivalent items reported in the B/S

 Disclose the amount of significant cash & cash equivalent balance held by the enterprises that are not available for use by it with explanation of management

 IFRS/IAS-7 & US GAAP allow interest & dividend paid or received as operating cash flows whereas AS-3 does not US GAAP does not specially require disclosure of extraordinary items whereas AS-3 requires

 AS-3 & US GAAP do not make explicit distinction between bank borrowings & overdraft, whereas IFRS/IAS-7 makes so

AS 4
CONTINGENCIES AND EVENTS OCCURING AFTER THE BALANCE SHEET DATE

Need and Objective

While following prudent accounting policies, the provision is made for all known liabilities and losses even for those liabilities/events, which are probable

The AS deals with

Contingencies Events occurring balance sheet date after the

Applicability Liabilities of life assurance and general insurance

Obligation under benefit plans

retirement

Commitments arising from longterm lease contracts

What is contingency
Now covered by AS-29, except provision for bad & doubtful debts

Events occurring after the Balance Sheet date

Events, which occur between the balance sheet date and the date on which financial statements are approved by the competent authority

These events significant events and may be favorable & unfavorable

Adjusting Event The events related to circumstances existing on the date of balance sheet Accounting Treatment: -Loss should be accounted in the accounts and assets & liabilities to be adjusted

Non-adjusting Event The events not related to circumstances existing on balance sheet date, in other words entirely new events after B/S date Accounting Treatment: -Disclosure by way of notes to accounts only, no adjustment in accounts

Event effecting going concern

Proposed Dividend Event occurring after approval of accounts

Disclosure
If material contingent loss is not provided for, its nature and an estimate of financial effect should be disclosed by way of note.

Significant difference IFRS/IAS & US GAAP

with

Proposed dividend after balance sheet date but before the date of the financial statements in non adjusting event under corresponding IFRS/IAS 10 & US GAAP. However as per AS-4, the proposed dividend is shown in balance sheet and treated as adjusting event

Significant difference IFRS/IAS & US GAAP

with

Securities Exchange Commission regulation of US requires the adjustment of declared dividend after the balance sheet date but before the issuance of financial statements

AS5
NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND HNAGE IN ACCOUNTING POLICIES

Objective
The objective of this accounting standard prescribing the criteria for certain items in the profit and loss account so that comparability of the financial statement can be enhanced

Components of net profit

Profit or loss from ordinary activities Extra-ordinary items

Ordinary activities are defined as any activities, which are undertaken by an enterprise as part of its business and incidental to main business

Profit/loss from ordinary activities

When items of income and expenditure from ordinary activities are of such size and nature that their disclosure is relevant to explain the performance of the enterprises for the period

These items are not Extraordinary items The write down of inventories
Restructuring cost or reversal of provision
Profit or loss on disposal of fixed assets

These items are not Extraordinary items Profit or loss on disposal of long-term investment
Litigation settlements
Reversal of provisions Legislative charge having long-term retrospective application

Extra-ordinary items Extraordinary items are income or expenses that arise from transactions that are clearly distinct from ordinary activities

Example Extra-ordinary items Loss due to earthquakes Attachment of property Govt. grants becoming refundable Govt. grants for giving immediate financial support with no further cost

Example Extra-ordinary items Govt. grant receivable as compensation for expenses or losses incurred in previous accounting period.

Prior Period Items

Prior period items are income or expense, which arise in current period as a result of error or omission in the preparation of financial statement of one or more prior periods

Disclosure of Prior Period Items

Should be separately disclosed in the statement of profit loss in manner that their impact on current profit or loss an be perceived

Examples of Prior Period Items

Error in calculation in providing expenditure or income

Omission to account for income or expenditure Non-provision expenses of travelling

Examples of Prior Period Items Non-provision for salary

Applying incorrect depreciation

rate

of

Treating operating lease as finance lease Capitalisation f borrowing cost on

Change in Accounting Estimate Estimation of provision of sundry debtors Estimation of provision of any liabilities

Computing income tax provision

Estimating the useful life of fixed

Effect of Change in Accounting Estimate If an estimate pertains to ordinary activities classified as ordinary activities

If estimates pertains to extraordinary items classified as extraordinary

AS 6
DEPRECIATION ACCOUNTING

Depreciation is loss of value of an asset

It is a measure of wearing out, consumption or other loss of value of depreciable asset arising from use and passes of time

Depreciable Assets
Are expected to be used for more than one accounting period Have a limited useful life Are held for use in production of goods & services

Applicability of AS Except the followings: Forests, Plantations Wasting assets, Minerals & Natural Gas Expenditure on research & development Goodwill Live Stock Cattle, Animal husbandry

Calculation of depreciation
Historical cost or other amount in place of historical cost
Estimate useful life of depreciable assets

Estimated residual/scrap value

Cost of Depreciable Asset Increase/decrease in liability

Price adjustments Changes in duties

long-term

Revaluation of depreciable assets

Estimated useful life of Depreciable Asset Pre-determined by legal or contractual limits

Depends upon the number of shifts for which the asset is to be used
Repair & maintenance policy

Estimated useful life of Depreciable Asset Technological obsolescence Innovation/improvements Legal or other restrictions

Estimated residual /scrap value of depreciable asset

It is estimated value of depreciable assets at the end of its useful life

Depreciable amount Historical Cost Less Residual Value

Method of Depreciation
Straight Line Method (SLM)

Written Down (WDVM)

Value

Method

Selection of appropriate method Type of assets Nature of the use of such asset Circumstances prevailing in the business A combination of more than one method may be used

Change in depreciation method For compliance of statute For compliance standards of accounting

For more appropriate presentation of the financial statement

Procedure to be followed in case of change in depreciation method

Change of depreciation method should be treated as change in accounting policy and its effect should be quantified and disclosed

Change in estimated useful life

Should be allocated over the revised remaining useful life of assets

Change in historical cost

Provided prospectively over remaining useful life of the assets

the

Change in historical cost due to revaluation

Estimate of the remaining useful lives of the such assets

Depreciation charge on addition/extension to an existing asset

Addition/extension is an integral part of existing asset

Remaining useful life of the asset

Depreciation charge on addition/extension to an existing asset Addition/extension is not an integral part of existing assets Estimated useful life of additional assets
Depreciable asset is disposed of, discarded, demolished or destroyed

Disclosure
Total cost of each class of assets

Total depreciation Accumulated depreciation Depreciation method

Disclosure Depreciation rate, useful life of assets, if they are different than the rate specified in governing statute
A change in method of depreciation Effect of the revaluation

Significant differences with IAS/IFRS & US GAAP

AS-6 allows the depreciation on revalued value however, US GAAP prohibits revaluation. IAS-16 allows fair value accounting.

Significant differences with IAS/IFRS & US GAAP Change in depreciation method under AS-16 & US GAAP is treated as a change in accounting policy; whereas IAS-16, change in estimate.

AS9
REVENUE

RECOGNITION

Objective
When the revenue should be recognised in profit & loss account
The circumstances in which revenue recognition can be postponed.

What is revenue
Revenue means gross inflow of cash, receivable or other consideration arising in the course of ordinary activities of an enterprises, such as: The sale of goods Rendering the services Use of the enterprises resources by others yielding interest, dividend &

Applicability
Not applicable to : Revenue arising from construction contract Revenue arising from hire purchase, lease agreements

Applicability
Not applicable to : Revenue of insurance companies arising from insurance contract Gain realised or unrealized gain. Example Profit on sale of fixed assets.

Revenue from sale of goods

Transferred the ownership of goods to buyer, Or All significant risk & rewards of ownership Does not retain any effective control

Revenue recognition when delivery of goods sold subject to conditions

Installation & inspection Sale on approval Guaranteed sales Warranty sales

Subscription for publication

Instalment sales

Revenue Swaps
Repo Arrangement

Revenue from rendering of the services

Completed services contract method Proportionate Completion Method

Revenue recognition
Installation fee Advertising & insurance agency commission Financial service commission Admission fee Tuition fee Entrance & Membership fee

Revenue from interest

Revenue from royalties Revenue from dividend Subsequent uncertainty in collection

Disclosure
When the revenue recognition is postponed, the disclosure of the circumstances necessitating the postponed should be made

Disclosure of revenue from sales transactions (ASI-14)

Turnover (Gross) Less: Excise Duty Turnover (Net) XX XX XX

Guidance note on revenue recognition of real estate sale

The seller has transferred to the buyer all significant risk & rewards It is not unreasonable to expect ultimate collection

No significant uncertain the amount of consideration that will be derived.

Export related benefits such as DEPB

Treatment transfers

of

inter-divisional

Significant difference IFRS/IAS-18 & US GAAP

with

The definition of revenue is almost same in AS-9 & IFRS/IAS-18 There is no specific standard for recognising revenue under US GAAP Under IFRS/IAS-18 - Basis of percentage of completion method

Significant difference IFRS/IAS-18 & US GAAP AS-9 Two methods, POC & Completed method

with

IFRS/IAS-18 contains the provisions for revenue swaps, however. No such corresponding provisions are in AS-9.

AS10
ACCOUNTING FOR FIXED ASSETS

Fixed Assets
Held with intention of being used for the purpose of producing or providing goods and services Not held for sale in the normal course of business Expected to be used for more than one accounting period

Applicability Not applicable to : Forests, plantations and similar regenerative natural resources Wasting assets like, minerals, oils & natural gas. Expenditure on real estate development Live stock

Fixed assets in financial statements Historical cost- Cost of acquired fixed assets.

Purchase price Import duties & other non-refundable taxes Any directly attributable cost of bringing the asset to the working condition for its intended use

Historical cost of self-constructed fixed assets

All cost which are directly related to the specific asset All costs that are attributable to the construction activity should be allocated to the specific assets An internal profit included in the cost should be eliminated

Cost of asset acquired in exchange of existing assets Fixed assets exchanged not similar Fixed assets exchanged are similar Fixed assets acquired in exchange of share or other securities

Revalued price

Method of presentation of revalued asset in financial statement By re-stating the gross book value and accumulated depreciation By re-stating net block value adding there in the net increase on account of revaluation

Maximum amount of revaluation

Revaluation of fixed assets should be restricted to the net recoverable amount

Accounting revaluation

treatment

of

First time revaluation (upward)

First time revaluation (downward)

Accounting revaluation

treatment

of

First time revaluation (downward) subsequent revaluation (upwards)

First revaluation (upward) subsequent revaluation (downward)

Improvement & repairs Expected future benefit from fixed assets do nt change Expected future benefits from fixed asset will increase beyond the previously assessed standard performance

Addition or extension of capital nature to an existing asset

If integral part If separate identity

Retirement & disposal Deleted from the financial statement Gains or losses arising on disposal

Fixed assets are retired from active use and held for disposal Stated at the lower of net book value and net realisable value
Expected loss is recognised immediately Separately shown in financial statement

Disposal previously revalued fixed assets

If there is profit, credited to profit & loss a/c

If there is loss, adjusted against the balance of revaluation reserve

Disclosure Gross net book values of fixed assets Expenditure incurred on account of fixed assets
Revalued amount substituted for historical cost of fixed assets

Review of balance in CENVAT credit receivable accounts

Treatment of CENVAT credit on capital goods (Fixed assets)

Significant difference IFRS/IAS-16 & US GAAP

with

IFRS/IAS-16 also allow revaluation US GAAP does not allow revaluation

AS11
EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES (REVISED 2003)

Need and Objective

Transactions done in currency other than reporting currency is to be translated in reporting currency

Export of goods & services

Need and Objective Import of goods & services Foreign branches

Subsidiary/associate/JV overseas in

Scope & Applicability AS applies to Accounting for transactions in foreign currencies

In translating the financial statement of foreign operation Accounting for forward exchange contract

Non- applicability Re-statement of financial statement from its reporting currency to another currency The presentation in a cash flow statement of cash flows arising from transaction in a foreign currency Exchange difference arising from foreign currency borrowings covered by AS-16

What are Foreign Transactions?

Currency

Transaction denominated in a foreign currency or that require settlement in a foreign currency are called foreign currency transactions.

Classification for Accounting Treatment Category I Buying or selling the goods or services Lending and borrowing in foreign currency Acquisition & disposition of assets denominated in foreign currency.

Classification for accounting treatment Category II Foreign branch An associate Joint venture Foreign subsidiary

* Integral operation *Non-integral operation

Classification for accounting treatment Category III For managing risk/hedging For trading and speculation

Accounting treatment (Category-I)

Initial recognition of foreign transaction.
Valuation at the balance sheet date Contingent liabilities Treatment of exchange difference

Accounting Treatment (Category-II)

Integral foreign operation

Non-integral foreign operation

*Foreign currency translation reserve
*Consolidation procedure (foreign subsidiary & joint venture

Treatment reserve

of foreign currency

On partial disposal proportionate foreign currency translation reserve is recognised as income or expense
On full disposal, whole foreign currency translation reserve is recognised income or expense

Change in classification Integral to non-integral

Non-integral to integral
*Change with prospective effect

Forward exchange contract Means an agreement to exchange different currencies at a forward rate
* For Managing risk
- Premium or discount at the inception - Exchange difference

* Held for trading or speculation

Disclosure
Exchange difference included in net profit or loss. Foreign exchange translation reserve. Reconciliation of foreign exchange translation reserve. Change in classification of significant foreign operation Foreign currency risk management policy (encouraged)

Significant IAS/IFRS

difference

with

Substantially the same as AS-11 Forward contract are covered by IAS-39

Significant difference with US GAAP

Uses different terminology such functional currency Substantially the same as AS-11 FC/hedging is covered by FASB-133 as

AS-12 ACCOUTING FOR GOVERNMENT GRANTS

Government Grants
Assistance by the Govt. in the form of cash or kid to an enterprise in the return

This standard does not deal with:

Govt. assistance Tax holiday, tax exemption

Govt. participation Investment by the Govt. as equity

Recognition of Govt. grants

The enterprise will comply with the conditions attached to them and
The grant will be received

Kinds of Govt. grants

Monetary or non-monetary

The grant will be received

Non-monetary Govt. grants

Grants are given at concessional rate, then such assets are accounted for at their acquisition cost
Grants are given free of cost, then such assets are recorded at nominal value.

Monetary Govt. grants

Grants related to depreciable fixed assets

Grant is shown as deduction from the gross value of asset. When the grant is equal to the cost of assets, at nominal value
Grants treated as deferred income

Grants related to non-depreciable fixed assets

Gant is shown as deduction from the gross value of asset. When the grant is equal to the cost at nominal value. Conditions attached to grants are fulfilled, credited to capital reserve a/c

If conditions attached to grants is yet to be fulfilled Grants are credited to income over the same period over which the cost of meeting such conditions is charged to income Un-apportioned deferred income is disclosed in the balance sheet as deferred govt. grants

Grants related to revenue

Should be recognised in profit & loss a/c over the period to match them with related costs

Either be shown as Other Income or be deducted from the related expenses

Grants related to revenue

A grant is to be received as compensation for expenses or losses already incurred, should be recognised in the profit & loss a/c of the period on which it becomes receivables as extraordinary items (AS-5).

Grants in nature of promoters contribution

Grants should be credited to capital reserve

Refund of Govt. grants

Refund of grants related to revenue Refund of grants related to specific assets

Disclosure
The accounting policy adopted for Govt. grants including the methods of presentation in the financial statement

The nature and extent of Govt. grants recognised in the financial statement

Significant difference with IFRS/IAS-20 & US GAAP(SFAS-16)

AS-12 does not state about fair value measurement of non-monetary grants whereas IAS-20 , fair value at the time of initial recognition & US GAAP recognise at fair value

 Grant in the nature of promoter contribution is credited to capital reserve as per AS-12, if however as per IAS-20, such grant should be treated as deferred income Refund of grant is treated as extraordinary items as per AS-12, whereas in IAS-20 it is treated as a change in estimate

AS-13
ACCOUNTING FOR INVESTMENTS
D.S. Rawat Partner Bansal & CO

Investment
The assets held for earning income by way of dividend interest and rental, for capital appreciation or for other benefits

Scope
This AS deals with following aspects: Classification of investment Cost of investment Carrying amount/valuation Disposal of investment Re-classification of investment Disclosure of investment

Applicability
This AS does not deal with: The basis for recognition of interest, dividend & rentals Operating or finance leases Investment of retirement benefit plans Mutual funds, venture capital fund and/ or the related asset management companies, banks & public financial institutions

Current investment
Intended to be held for not more than one year from the date on which such investment is made.

Long-term investment
Investment other than current investment

Investment property
Investment in land or building that is not intended to be occupied substantially for use by or their operation of the investing enterprises.

Classification of Investment
Long-term investment Current investment

Cost of Investment
Purchase price & acquisition charges such as brokerage, fee & duties

Cost of Investment
Investment is acquired by issue of shares or other securities Purchase price of investment is the fair value of the securities issued

Cost of Investment Investment is acquired in exchange for another asset

Acquisition cost of investment is fair value of the asset given up or Fair value of the investment received

Cost of Investment
Pre-acquisition interest Dividend Right Shares - If right share offered are subscribed - If right share offered are not subscribed Investment purchased at cum-right

Carrying amount of investment

Current investment the lower of cost & realisable value Long-term Investment Usually carried/ valued at cost less: permanent diminution Investment properties

Disposal of investment Difference between the carrying amount & sale proceeds recognised in the profit & loss a/c
Part of total investment is disposed off, the carrying amount is determined on the basis of the average carrying amount

Reclassification of investment
From long-term investment to current investment -at the lower of cost & carrying amount at date of transfer From current investment to long-term investment - At the lower of cost & fair value at the date of transfer

Reclassification of investment
From long-term investment to current investment -at the lower of cost & fair value at date of transfer From current investment to long-term investment - At the lower of cost & fair value at the date of transfer

Disclosure
Accounting policies followed for valuation of investment
Classification of investment into current & long-term Aggregate amount of quoted & unquoted securities separately

Disclosure
Any significant restriction on investment like minimum holding period for sale/disposal

Significant difference with IFRS/IAS & US GAAP AS-13 covers all the investments like investment of property there are 3 IAS:IFRS/IAS-32, IFRS/IAS-39 & IFRS/IAS-40

Significant difference with IFRS/IAS & US GAAP

US GAAP too contains detailed provisions in respect of valuation of investing properties. The standards on accounting for derivatives are yet under formulation in India, though these have been established in US GAAP & IFRS/IAS a long time ago

AS-14
ACCOUNTING FOR AMALGAMATION

Amalgamation
Amalgamation means an amalgamation as per the provision of Companies Act,1956 or nay other law applicable to companies

Applicability
This AS is not applicable to cases of acquisition of shares when one company acquires /purchases the share of another company and the acquired company is not dissolved and its separate entity continues to exist

Applicability
This AS is applicable where acquired company is dissolved and separate entity ceased to exist & purchasing company continues with the business of acquired company.

Purchase consideration
Total of the shares and other securities issued and payment made in form of cash or other assets by the transferee company to shareholders of the transferor company.

Types of amalgamation
Amalgamation in the nature of merger

Amalgamation in the nature of purchase

Amalgamation in nature of merger

All assets & liabilities of transferor company are taken over
The shareholders holding at least 90% or more of the equity shares of the transferor company

Amalgamation in nature of merger

Consideration for the amalgamation is paid in equity shares

Business of the transferor company is intended to be carried No adjustment is made in the book values of the assets & liabilities of the transferor company

Amalgamation in nature of purchase

Accounting method
In case of merger- pooling interest method

In case of purchase purchase method

Pooling interest method

Line by line addition of respective assets & liabilities

The difference between purchase consideration paid by the transferee company to the transferor company & the amount of share capital (Equity + preference capital) of the transferor company should be adjusted with reserves

Purchase method
If purchase consideration exceeds the net assets taken over (Net Assets = Assets at their agreed value less liabilities at agreed value), the difference is debited to Goodwill A/c

Statutory Reserve Separate accounting adjustment/entry is not required for statutory reserve in the case of merger.

Statutory Reserve
However in case of amalgamation by way of purchase, the reserves being internal liabilities, are not recorded in the books of transferors as per the purchase method

Statutory Reserve
Statutory reserves in its books by debiting to amalgamation adjustment account and crediting statutory reserve

Statutory Reserve Amalgamation adjustment account shall be disclosed in balance sheet under the head of Misc. Expenditure
Reserve is no longer required the entry passed should be reversed

Treatment of Goodwill arising on amalgamation To amortise goodwill over a period not exceeding 5 years. The requirement of AS-26 intangible asset regarding amortisation shall not apply to such goodwill

Disclosure General nature of business of amalgamating companies

Effective date of amalgamation Method of accounting used
Particulars of scheme sanctioned under a statute

Amalgamation accounted under pooling interest method

Description & nature of shares issued Difference between consideration & net assets acquired

Amalgamation accounted under purchase method

Consideration for the amalgamation Difference between consideration & net assets acquired and treatment therof.

Different treatment of reserve

Significant difference with IFRS-3 & US GAAP

IFRS-3 allows only purchase method

IFRS-3 requires valuation of assets & liabilities at fair value whereas AS-14 requires valuation at carrying value

 IFRS-3 requires goodwill to be tested for impairment whereas AS-14 requires amortisation of goodwill
IFRS-3 requires recognition of negative goodwill immediately in profit & loss a/c whereas AS-14 requires it to be credited to Capital reserve

 Under US GAAP, FASB-141 has also been revised and the enterprises can no longer use the pooling of interest method . FAS-142 under US GAAP does not require any amortisation of goodwill. As it does not treat it as a wasting asset. FAS-142 now requires goodwill to be written off when impaired

AS-15
EMPLOYEE BENEFITS (REVISED 2005)

Applicability
Level-I Enterprises In its entirety Other than level-I Enterprises

Applicability
If number of persons employed during the year is 50 or more Recognition, measurement & disclosure principles in respect of defined benefit plans does not apply. However accrued liability in respect of defined plan based on projected unit credit method.

Applicability If average number of persons employed during the year is less than 50 Recognition, measurement & disclosure principles Defined benefit plan and long-term employee benefits will not apply to such enterprises. However liability to be provided

What are Employee Benefits?

Short-term employee benefits Post-employment benefits Other long-term employee benefits Defined contribution plans or defined benefit plans Termination benefits

What Employee Benefits not covered

Employee share-based payment

Accounting for Short-term employee benefits Wages, salaries & social security
Short-term compensated absences Profit sharing & bonus

Non-monetary benefits (Medial care, housing car)

Post-employment benefits
Gratuity & pension

Post-employment life insurance Post employment medical care

Defined Contribution Plans Multiple employee plans

State plans Insured benefits

Defined Benefit Plans

In this case benefit is defined but not the amount of liability

Accounting for Defined Benefit Plans

Actuarial assumptions are required to measure the obligation

Obligations are measured on discounted basis

Actuarial gain or loss is possible

Charge to Profit & Loss Account Current service cost Interest cost Expected return on nay plan assets or nay re-imbursement rights Actuarial gains & losses Past service cost The effect of any curtailment resettlements Effect of recognition of over funding

Accounting for the obligation in Balance Sheet

Plans assets comprise(a)Assets held by long-term employee benefit fund

(b)Qualifying insurance policies

Accounting for the obligation in Balancebenefit liability Defined Sheet The present value of the defined benefit obligation at the balance sheet date
Minus any past service cost not yet recognised
Minus the fair value at the balance

Disclosure Accounting policy for recognising actuarial gains & losses

A general description of the type of plan
A reconciliation of opening & closing balances of the present value of the defined benefit obligation

Disclosure A reconciliation of the opening & closing balances of the fair value of plan assets
A reconciliation of the present value of the defined benefit obligation & the fair value of the plan assets to the assets & liabilities

Disclosure The total expenses recognised in the statement of profit and loss
For each major category of plan assets The actual return on plan assets The principal actuarial assumptions used

Disclosure The effect of an increase of one percentage point and the effect of decrease of one percentage point in the assumed medical cost trend rates on expenses & obligation
Current annual period & previous four annual periods of

Other Long-term Employee Benefits

Long-term compensated absences
Jubilee or other long-service benefits Long-term disability benefits

Other Long-term Employee Benefits

Profit sharing & bonus payable 12 months or more
Deferred compensation paid 12 months or more after the end of the period in which it is earned

Termination Benefits

The Enterprise has a present obligation as a result of a past event

It is payable that an outflow of resources embodying economic benefits will be required to settle the obligation A reliable estimate can be made of the

Accounting for Termination Benefits

Expenditure on termination benefits on st March 2009 or before 31

Significant differences with IAS-19 & US GAAP Recognition of actuarial gains & losses
Recognition of deferred benefit assets Termination benefits- Recognition of liability Transitional provisions

AS-17 SEGMENT REPORTING

Meaning & Objective Multiple products/services and its operations in different geographical areas are exposed to different risk and return.

Segment Reporting helps to user of financial statements To better understand the performance of the enterprise To better assess the risks & returns of the enterprise

To make more informed judgement about the enterprises as a whole.

Segment Segment: Business It is distinguishable component of an enterprises

It is engaged in providing an individual product or services It is subject to risk & returns that are different from those of other business segment

Geographical Segment:
Its operation in different geographical areas, which are exposed to different risks & returns
The location of production or service facilities

The location of its customers

Enterprise Revenue: A revenue from sales to external customers as reported in the statement of profit & loss
Segment Result: Segment result is segment revenue less segment expenses ( its is segment profit or loss)

Identification of Reportable Segments

Segment revenue 10% or more Segment result 10% or more Segment asset 10% or more Segment - Management discretion At least 75% of total external revenue

Reportable Segments
Primary Secondary

Basis of Classification
Risks & return mainly effect by difference in product Primary Business Secondary Geographical Risks & return mainly effect by geographical area Primary Geographical Secondary Business

Risks & return mainly effect by both of by difference in product & its operation in different geographical area
Primary Business Secondary Geographical

Disclosure

Revenue from external customer Revenue from transactions with other segments Segment result Cost to acquire tangible & intangible fixed assets

 Depreciation & amortisation expenses.

Carrying amount of segment assets. Segment liabilities

Non-cash expenses other than depreciation & amortisation

Reconciliation of revenue, result, assets & liabilities

AS-18

RELATED PARTY DISCLOSURE

Need & Objective

Sometimes business transactions between related parties lose the feature and character of the arms length transaction.

Related Party
Holding companies, Subsidiaries & Fellow subsidiaries
Associates & Joint venture

Individuals owing , directly or indirectly interest in the voting power

 Relative of such individual Spouse, son, daughter, mother, father, brother, sister. Key management personnel & relative of such personnel

What should be disclosed

Related party relationship Transactions between a reporting enterprises and its related parties

Control Concept
Control by ownership (directly or indirectly more than 50% of the voting power Control over composition of BOD or other governing body Control of substantial interest in the voting power & power to direct the financial or operating policies of the enterprise

Significant Influence
By representation of the Board of Directors

Participation in policy-making process

Material inter-company transactions Inter-charge of management personnel Dependence on technical information

 Two companies have Party Exception of Related a director in common dealing between the companies
A Single customer or supplier or distributor

Provider of finance
enterprises.

 Trade union Govt. department & agencies

State controlled enterprises with other State controlled enterprises.

Related Party Transactions

Purchase/Sales of goods Purchase/Sales of fixed assets Rendering /receiving of services Leasing or hire purchase arrangements

 Transfer of research and development

License agreement Finance (incl. loan & equity)

Guarantees & collateral Management contracts of deputation employees

Disclosure Name of the related party should be disclosed

Nature of the related party relationship should be disclosed

Details of Disclosure Name of the related party Description of related party

Description of the nature of transaction Volume of the transactions either as an amount or as an appropriate proportion

 Any other element of the transaction, which is essential for understanding the financial statements Amount or appropriate proportion of outstanding items & provision for doubtful debts Amount written off or written back in the period in respect of debts due from doubtful debts.

Significant differences with IAS/IFRS and US GAAP

By and large related parties identified under US GAAP, IAS-24 & AS-18 would be same

As per IAS-24 State controlled entities are within the scope of related party disclosure whereas AS-18 excludes Statecontrolled enterprise from related party

 AS-18 & IAS-24 require that related party transaction even if at arms length prices is to be disclosed. Whereas as per US GAAP, no disclosure is required if arms length price is demonstrated Substantially same as those stipulated in AS-18, except that an enterprise is not required to disclose compensation arrangements, expenses allowance & other similar items in the ordinary course of business.

AS-19 ACCOUNTING FOR

LEASES

Needs & Objective

Lease is an arrangement by which the lessor gives the right to use an asset for given period of time to the lessee on rent

Substance
Lease can be structured to transferred ownership of the leased asset

Substance of transactions dictates the accounting treatment.

Types of lease Finance lease

Operating lease Classification of lease is made at the inception of the lease.

Finance lease
Which transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee by the lessor

Operating lease
Which does not transfer substantially all the risk and rewards incidental to ownership.

Applicability
AS is not applicable to: Lease agreement to explore natural resources such as oil, gas. Timber, metal & other mineral rights

Applicability AS is not applicable to: Licensing agreements for motion picture film, video recording, Plays, manuscripts, patents & other rights Lease agreement to use land

Accounting for finance lease In books of lessee Leased asset as well as liability for lease should be recognised at the lower of : Fair value of the leased asset

Present value of minimum lease payment from the lessee point of view

Apportionment of lease payment

apportionment between finance charge and principal amount

Accounting for finance lease In the books of lessor

Recognise asset given under finance lease as receivable at an amount equal to net investment in the lease & corresponding credit to sale of asset

Recognition of finance lease

Interest/finance income will be recognised in proportion to outstanding balance receivable from lease over leased period

Accounting for Operating Lease

In the books of lessor: Record leased out asset as the fixed asset in the balance sheet Charge depreciation as per AS-6 Recognise lease income in profit & loss a/c using straight-line method

Accounting for Operating Lease

In the books of lessee: Lease payments should be recognised as an expense in the profit & loss a/c on the straight-line basis.

Sale & lease back

Accounting treatment of sale & lease back If lease back is finance lease
Any profit or loss of sale proceeds over the carrying amount should not be immediately recognised as profit or loss in the financial statements of a seller-lessee

Accounting treatment of sale & lease back

it should be deferred & amortised over lease term in proportion to the depreciation of leased asset

Accounting treatment of sale & lease back

If lease back is operating lease Any profit or loss arising out of sale transaction is recognised immediately

If lease back is operating lease

If sale price below fair value Profit Recognise profit immediately Loss- Recognise loss immediately, provided loss is not compensated by future lease payment

If lease back is operating lease

If sale price below fair value

Loss Defer & amortise loss, if loss compensated by future lease payment

If sale price above fair value If carrying amount is equal to fair value which will result in profit, amortise the profit over lease period
Carrying amount less than fair value will result in profit-amortise & defer the profit equal to sale price less fair value & recognise balance profit immediately

If sale price above fair value

Carrying amount more than fair value will result in loss equal to (carrying amount less than fair value) should be recognised immediately. Profit equal to selling price less fair value should be amortised

Disclosure
Disclosure in operating lease by lessor General description Accounting policy Future lease payment

Disclosure in operating lease by lessee General description Total of future minimum lease payments

Disclosure in finance lease by the lessor General description Accounting policy Reconciliation of total gross investment in lease

Disclosure in finance lease by the lessor Minimum lease payment (MLP) Not later than one years Later than one year & not later than five years Later than five years

Disclosure in finance lease by the lessee Asset under finance lease segregated from the asset owned
Reconciliation of total MLP with its present value

Disclosure in finance lease by the lessee MLP in following categories on balance sheet date
Not later than one year later than one year & not later than five years Later than five years

Significant differences with IFRS/IAS-17 & US GAAP Under AS-19 & IAS-17 classification of lease into finance lease or operating lease is a matter of judgement. However, under US GAAP classification of operating lease & capital lease is less judgmental

Significant differences with IFRS/IAS-17 & US GAAP

Under US GAAP finance lease is referred as capital lease & further classified as sale type leases or direct financing leases or leveraged leases for the purpose of accounting whereas there in no such further classification of finance lease as per AS-19 or IAS17

Significant differences with IFRS/IAS-17 & US GAAP AS-19 is not applicable to lease agreement to use land whereas IAS-17 & US GAAP (FAS-13) is applicable to lease agreement to use land
there is difference between US GAAP, AS-19 ( IAS-17) regarding accounting treatment of sale & lease back transactions.

Significant differences with IFRS/IAS-17 & US GAAP Onerous leases are not dealt with by Indian GAAP in AS-19 whereas IAS37 deals with such onerous lease. Under the US GAAP provisions for vacant leasehold properties which have become onerous is dealt with by EITF-88-10

AS-21
CONSOLIDATED FINANCIAL STATEMENTS

D.S. Rawat Partner Bansal & CO.

Objective

The objective of this statement is to present financial statements of a parent and its subsidiary (ies) as a single economic entity

What is parent A parent is an enterprise that has one or more subsidiaries. What is subsidiary It is an enterprise that is controlled by another enterprise known as parent

Control Directly or indirectly (through subsidiary) by purchasing more than 50% of the voting power of an enterprise or by controlling composition of board of directors/governing body

Format of consolidated Financial Statements

These are prepared/presented in the same format as that followed by the parent for preparation of its separate financial statements.

Consolidated financial statements are no substitute for financial statements

Scope of statement

consolidated

financial

Should consolidate the financial statements of all its subsidiary(ies), whether domestic or foreign.

Exceptions
Control, which is intended to be temporary. The subsidiary operates under sever long-term restrictions

Dissimilar activities of parent

Consolidation Procedure
Cost of investment of parent Cancelled/eliminated with parents portion of equity of each subsidiary.
If the cost of investment in a subsidiary exceeds the parents portion of equity, the excess is debited in goodwill

Consolidation Procedure
Cost of investment in subsidiary is less than credited to capital reserve.
Minority interest Intra-group balances and transaction Unrealized loss

Consolidation reporting date

when

different

Difference is not more than Six months

Disposal of subsidiary

investment

in

Successive purchase of shares in a subsidiary by the parent

Goodwill or capital reserve on consolidation should be determined on step by step basis.

Minority Interest is in negative

Negative minority interest will not be shown in consolidated balance sheet date

Arrears of cumulative preference share of a subsidiary

Charging the arrear of cumulative preference dividend of a subsidiary, whether declared or not

Disclosure
List of all subsidiaries

Proportion of ownership Nature of relationship The fact for different accounting policies

Interpretation
One subsidiary has two parents (ASI-24)

Tax Expenses (ASI-26) Voting power shares are held as stockin-trade (ASI-25)
Notes and information disclosed in separate financial statements (ASI-15)

Transitional Provisions
On the first occasion comparative figure for the previous period need not be presented

Significant difference with IFRS/IAS & US GAAP Control

Requirements- As per AS-21, required in addition to, and not in lieu of, separate financial statements.

US GAAP (Statement 94) does not permit parent company only financial statement to be issued as general

Significant difference with IFRS/IAS & US GAAP

Goodwill Differential period Other statutory requirements Deferred tax Investment in subsidiary (a) at cost, (b) using the equity method as described Exception of consolidation

AS-22 ACCOUNTING FOR TAXES ON INCOME

Objective
This Accounting Standard prescribes the accounting treatment for taxes on income

Scope
Taxes on income Exclude tax payable on distribution of dividends and other distribution made by enterprises

Recognition and Measurement

Income-tax expense should be treated just like any other expenses on the accrual basis irrespective of the timing of payment of tax

Tax Expenses
Current Tax - Current tax in respect of taxable income (tax loss) for a period.

Deferred Tax Tax effect of timing difference. [Tax Expenses = Current Tax + Deferred Tax]

Measurement of Current & Deferred tax

Current Tax Current tax should be measured at the amount expected to be paid to (recovered from) taxation authorities using applicable tax rates and tax laws

Measurement of Current & Deferred tax

Deferred Tax Deferred tax should be measured using the rates and tax laws that have been enacted or substantially enacted by the balance sheet

Difference in Accounting Profit & Tax Profit Timing difference Difference due to rate of depreciation Difference due to method of depreciation Expense debited in the statement of profit & loss for accounting purpose but allowed for tax purpose in subsequent year. like

Difference in Accounting Profit & Tax Profit

Permanent Difference These difference originate in one period and do not reverse subsequently

Deferred Tax Liability

A temporary difference is created between the depreciation as per the books of account

Deferred Tax Asset

A deferred tax asset is recognised for temporary difference that will result in deductible amounts in future years and for carry forward.

Transitional Provision
First time applied, the amount of deferred tax asset/liability should be created in the same way had this accounting standard been in effect from the beginning

Prudence for Recognising deferred tax asset

Unabsorbed depreciation and carry forward losses
Re-assessment of deferred tax asset unrecognised

Deferred tax asset and liability should

Disclosure The break-up of deferred tax

In the case of deferred tax asset arises out of unabsorbed depreciation or loss, evidence supporting recognition should be disclosed

Deferred tax asset & liability should set off if permissible under

Significant difference with IFRS/IAS & US GAAP AS-22, DTA to be recognised to the extent there is a virtual certainty. Whereas as per IAS-12 DTA is recognised to the extent of its probable
AS-22 does not require numerical reconciliation between tax expenses and pre-tax accounting profit. Whereas IAS-12 requires.

Significant difference with IFRS/IAS & US GAAP Under US GAAP, an enterprise shall disclose nature of significant reconciled items
AS-22, DTA & DTL - measured using tax rates that have been enacted by the B/S date. Under US GAAP DTA & DTL be adjusted in the period enacted change in tax laws or rates

Significant difference with IFRS/IAS & US GAAP AS-22, DTA & DTL be disclosed separately from current assets and current liabilities. Under US GAAP, classification as current or non-current is based on the classification of related non-tax assets or liability.

AS-23 ACCOUNTING FOR INVESTMENT IN ASSOCIATES IN CONSOLIDATED FINANCIAL STATEMENTS

Objective
To set out the principles & procedures for recognising the investment in associates in the consolidated financial statements of the investor.

Applicability
Applicable for investment in associates when the investor prepares consolidated financial statements

Applicability
Not applicable: The investment is acquired & held exclusively with a view to its subsequent disposal in the near future The associates operate under long-term restrictions that significantly impair its ability to transfer funds to the investor

Applicability Not applicable: When investor has no significant influence in an associates or ceases to have the significant influence
When consolidated financial statement of investor is not made

What is an associates
An enterprise in which the investor has significant influence & which is neither a subsidiary nor a joint venture of the investor. If an investor holds directly or indirectly 20% or more of the voting power of associates, then it is assumed that investor has significant influence.

Significant influence is identified by one or more of the following criteria : Representation in the board Participation in the policy Material transactions Interchange of managerial personnel Provision of technical information

AS-23 is applicable only when investor has significant influence and not control.

Accounting for investment in associates Investment in an associates should be accounted for as per equity method in consolidated financial statement

Equity Method of accounting

Procedure should be followed: The investment is initially recorded at cost Identify only (not record the accounting entry for goodwill/capital reserve)

 Goodwill/capital reserve identified should be included in the carrying amount investment in associate but should be disclosed separately

Carrying amount is increased/decreased to recognise the investors share of the profit & losses of the associate after the date of acquisition

 Distributions received from associate should be reduced from the carrying amount Adjustment to the carrying amount should be made for alteration in the investors proportionate interest in the associates arising from changes in the associates equity

 Unrealized profits & loss resulting from transactions between investor & the associate should be eliminated Unrealized losses should be eliminated . However if the recoverable amount of transferred asset is more than the transfer cost of the asset the unrealized losses should also be eliminated

Carrying amount of investment in associates If there is permanent decrease in the value of investment in associate, the carrying amount of investment in associates should be reduced by the amount of permanent reduction

Carrying amount of investment in associates If investors share of losses in associates equals or exceeds the carrying amount of investment, the investor discontinues recognising its share of further losses & investment is reported at NIL value

Disclosure Description of associate including the proportion of ownership interest should be disclosed
Investment in associates accounted for using the equity method should be classified as long-term investments

Disclosure An associates uses accounting policies other than those adopted for the consolidated financial statements for like transactions & events in similar circumstances

Transitional provision On the first occasion when investment in an associates is accounted for in consolidated financial statements in associate with this statement the carrying amount of investment in the associate should be brought to the amount that would have resulted had the equity method of accounting been followed as per the statement

Significant difference with IFRS/IAS-28 & US GAAP

AS-23 & US GAAP require that goodwill or capital reserve within the investment amounts are required to be separately identified but IAS-28 does not require so

Significant difference with IFRS/IAS-28 & US GAAP As per AS-23, if the entity prepares consolidated financial statements. Whereas US GAAP (APB-18) requires the use of the equity method regardless of whether an entity has subsidiaries. IAS-28 permits investment in associates to be measured using equity method

AS-27

FINANCIAL REPORTING OF INTEREST IN JOINT VENTURE

What is Joint Venture

Joint venture is defined as contractual arrangement whereby two or more parties carry on economic activity under joint control

Joint Venture may be of three forms:

Jointly controlled operation Jointly controlled assets Jointly controlled entities

Jointly controlled operation

Joint venture is not a separate entity the venturers (parties) may carry out the joint venture activities side by side of their main business.

Financial Reporting control operation

in

Jointly

Jointly controlled operation in its separate financial statements and if consolidated financial statements are prepared then consolidated financial statements: - The assets it controls - The liabilities it incurs - The expenses it incurs - Its share of income that it earns from the joint venture

Jointly controlled Assets

There may be joint ownership of assets

Financial Reporting controlled Assets

in

Jointly

Its share incurred separately Its share in jointly incurred liabilities Any income from the sale or use of its share of output in the joint venture Any expenses separately incurred for joint venture

Jointly controlled Entities

Joint venture separate jointly controlled entity is established

Reporting & Recognition in financial statements in case of Jointly controlled Entities

In separate financial statement Venturer of jointly controlled entity as an investment by following the AS-13 Accounting for Investment

Reporting & Recognition in financial statements in case of Jointly controlled Entities

In consolidated financial statement Venturer is required to prepare consolidated financial statements, then the interest in a jointly controlled entity should be reported as per proportionate consolidation

Transaction between a venture & a joint venture

In case of jointly controlled operation & jointly controlled assets
In case of jointly controlled entities

In case of jointly controlled operation & jointly controlled assets

When a venturer sells the assets to a

joint venture, venturer should account for the portion of the gain or loss, which is attributable to the interest of other venture

 In case of loss the venture should recognise the full loss if the sale provides evidence of a reduction in the net realisable value of the current assets or impairment loss of fixed assets

Venturer purchases assets from a JV, should not recognise it share of the profits of the JV from the transaction until it resell the assets to an independent party.

In case of jointly controlled entities

Transaction is done as usual as per AS-9 Revenue Recognition & other generally accepted accounting principles However when venturers prepare the consolidated financial statements as per the proportionate consolidation method,

the gain or loss on the sale transaction should be recognised to the extent of interest of other venturer in jointly controlled entity however full loss (not to the extent of the other venturer interest) should be recognised, when the sale provides evidence of reduction in the net realisable value of current assets or an impairment of assets.

Operational Fee
Operator or manager of a joint venture should recognise the fee (income) as per AS9 on Revenue Recognition

Disclosure A list of all joint venture Proportion of interest The aggregate amount of each of the assets, liabilities, income & expenses Amount of capital commitments

Disclosure Any contingency that has been incurred in relation to its interest in JV Contingencies for which the venturer is liable for other venturer of JV

Significant difference IFRS/IAS-31 & US GAAP

with

Existence of a contract is must between the venturers as per AS-27 & IFRS/IAS-31 to qualify as a JV, whereas there is no such requirement under US GAAP (APB-18)

Significant difference IFRS/IAS-31 & US GAAP

with

AS-27 requires line-by-line consolidation of jointly controlled . US GAAP (APB-18) allows only the equity method of accounting in a separate financial statement of the investor

Significant difference IFRS/IAS-31 & US GAAP

with

IFRS/IAS-31 & AS-27 also provides the guidance for the fees charged by the operators or managers of JV & accounting for transactions between a venturer and JV. US GAAP does not include guidance of this type.

AS-28 IMPAIRMENT OF ASSETS

Meaning of impairment
Impairment asset is weakening in value of asset

What is carrying amount

The amount at which asset is shown in the Balance Sheet

What is recoverable amount

Net selling price Value in use

Net Selling Price

Binding sale agreement Active market
Best estimate information based on

Value in Use
Estimated future cash flow arising from use of asset + Residual Price (Scrap value) Present value which is calculated by applying discount rate to future cash flows.

What is impairment loss

Recoverable amount minus Carrying amount

Applicability
Inventories Asset arising from Construction Contract
Financial Assets

How do we know that the asset has impaired

Whether there is any indication of impairment of an asset

External Indications Internal Indications

Effect of Impairment Depreciation / Amortisation

on

The depreciation /amortisation should be reviewed as per AS-6 or AS-26

Recognition of an impairment loss for an individual asset

If an asset is carried at historical cost

If asset is carried at revalued amount

Impairment loss Generating Unit

for

Cash

What are Cash Generating Unit Smallest group of asset for which are flows can be determined independently

Step for measurement and recognition of Impairment loss

Identification of cash generating unit

Determination the future cash inflows for cash generating unit

Is goodwill as recognised in financial statement is related to this cash generating unit, if yes, allocate the carrying amount

Step for measurement and recognition of Impairment loss

Is corporate asset as recognised in financial statement is related to this cash generating unit
Determine net selling price of cash generating unit Determine the recoverable amount

Step for measurement and recognition of Impairment loss

Determine the carrying amount Determine impairment loss, if carrying amount is more than recoverable amount
Allocate the impairment loss

Recoverable amount of an individual asset cannot be determined

No impairment loss is recognised for an individual asset if related cash generating unit is not impaired

Impairment loss & Deferred loss

If an impairment loss is adjusted in account/financial statement, any related tax assets or liabilities are also to be determined as per AS-22 Accounting for Taxes on Income

Reversal Impairment loss

Reversal of impairment loss for individual asset Reversal of impairment loss for cash generating unit

Reversal of impairment loss for goodwill

Disclosures Basic requirements

Requirement for segment reporting Requirement for cash generating unit Requirement for impairment loss reversal of

Disclosures Basic requirements

Requirement for segment reporting Requirement for cash generating unit Requirement for impairment loss reversal of

Significant Differences IFRS/IAS-36 & US GAAP

Recognition of impairment loss Measurement of impairment loss impairment loss

with

Significant Differences with IFRS/IAS-36 & US GAAP AS-28,IFRS.IAS-36 calculate net selling by reducing cost of disposal from its fair value irrespective of the fact whether asset is to be disposed or not. Whereas under US GAAP cost of disposal is reduced only when the asset is to be disposed of.

Significant Differences with IFRS/IAS-36 & US GAAP US GAAP prohibits the reversal of impairment loss whereas the reversal of impairment loss is permitted as per AS-28, IFRS/IAS-36 While allocating goodwill or corporate assets under US GAAP only Bottom up and Top down are followed.

Significant Differences IFRS/IAS-36 & US GAAP

with

AS-28, IFRS/IAS-36 is more detailed as compared to US GAAP, there will be substantial difference in measurement, allocation & subsequent depreciation resulting from impairment loss

AS-29 PROVISIONS, CONTINGENT LIABILITIES & CONTINGENT ASSETS

Objective To prescribed the accounting Provisions

Contingent liabilities Contingent assets

for

Provision for restructuring cost

What is provision
Provision is liability

What is liability
Liability is a present obligation Arising from past events Settlement of which result in outflow of resources

What is Present Obligation

An obligation is present obligation if based on evidence available its existence in the balance sheet date is considered probable i.e., more likely than not.

Onerous Contract
A contact in which the unavoidable costs of meeting the obligation under the contract exceed the economic benefits expected to be recovered under it.

Recognition of Provision Present probable obligation as a result of a past obligating event An outflow of resources embodying economic benefits in settlement A reliable estimate Number of similar obligations to consider the outflow of resources probable obligation as a whole to be considered

Measurement of provision Best estimate of the expenditure required No discounting No tax effect Additional evidence after balance sheet to be considered Re-imbursement of expenditure Review of provision

Contingent Liability
Possible obligation (not probable) as a result of past event. Existence of which will be confirmed only by the occurrence or nonoccurrence of future event.

Future event not wholly within the control of the enterprises.

Contingent Liability
Contingent liability is a possible obligation however it may also be a present obligation
Probability of outflow of
resources is very low. Reliable estimate of the amount of the present obligation cannot be made.

Recognition Principles of Contingent Liability

An enterprise should not recognise the contingent liability but it should be disclosed in financial statement.

Disclosure of Contingent Liability

A brief description of the nature of contingent liability An estimate of the amount Indication of the uncertainties Possibility of any reimbursement

What is Contingent Assets? Possible asset as a result of past events.

Existence of contingent assets is to be confirmed by the occurrence & nonoccurrence of one or more future events. Future event not wholly within the control of the enterprise.

Recognition Principles of Contingent Asset An enterprise should not recognise a contingent asset
No disclosure is required of contingent asset

Provision for Restructuring Cost

AS-29 deals with restructuring cost provision of

AS-29 does not prescribe accounting of restructuring cost

the

What is Restructuring ? Sale or termination of line of business.

Relocation of business activities from one country or region to another.

What is Restructuring ? Change in management structure

Fundamental re-organization that has material effect on the nature & focus of the enterprise operations

Restructuring does not include

Retraining or relocating continuing staff Marketing Investment in new distribution networks system &

What is Restructuring Cost?

Provision for restructuring cost should include only the direct expenditure arising from restructuring & not associated with the ongoing activities of the enterprises.

Significant difference IAS/IFRS & US GAAP

with

AS-29 and IFRS/IAS-37 use words a reliable estimate whereas US GAAP (SFAS-5) uses reasonable estimate
AS-29 does not require the disclosure of contingent assets whereas IFRS/IAS & US GAAP require

Significant difference IAS/IFRS & US GAAP

with

IFRS/IAS-37 & US GAAP require that where the effect of value of money is material, provision may be treated as present value.