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Major differences between US GAAP and Indian GAAP Underlying assumptions Format/ Presentation of financial statements Cash flow statement Depreciation Long term debts Consolidation of subsidiary accounts Investments Foreign Currency transactions Expenditure during construction period Research and Development expenditure Amit Gilra

2. Major differences between US GAAP and Indian GAAP Revaluation reserve Extraordinary items , prior period items and changes in accounting policies Goodwill Capital issue expenses Preoperative expenses Employee benefits Loss on extinguishment of debt

3. Underlying assumptions In Indian GAAP financial statements are prepared in accordance with the principal of conservatism Which means that Anticipate no profits and provide for all possible losses Where as under US GAAP conservatism is not considered Revenue is recognised as and when it is earned or realised or realizable Example : Generally, organisations provides provision for bad debts regarding account receivables but provision for gain on account of non collection of money from us by creditors will not be provided Provision for discount on debtors and provision for discount on creditors

4. Format/ Presentation of financial statements In Indian GAAP, financial statements are prepared in accordance with the presentation requirements of Schedule VI to the companies Act, 1956 Where as in US GAAP financial statements are not required to be prepared under any specific format as long as they comply with the disclosure requirements of US GAAP There is no prescribed presentation requirement.

5. Cash flow statement Indian GAAP mandates cash flow statement only for listed companies and other companies whose turn over for the accounting period exceeds Rs.50 crore Thus, unlisted companies escapes the burden of providing cash flow statements as part of their financial statements. Where as in US GAAP every company whether it is listed or not is required to prepare cash flow statement for 3 years Current year and 2 immediately preceding years

6. Depreciation Accounting In India depreciation is provided based on the rates prescribed in Schedule XIV of Companies Act,1956. However the rates prescribed in the schedule are the minimum rates and the company has the option to provide depreciation higher than that rate. Where as in US GAAP depreciation is provided over the use life of the asset and there are no specific rates mentioned there in. Example : If the cost of the plant & machinery is 1,00,000$ (Scrap -10,000$) and estimated use life of the asset is 10years. Depreciation = (1,00,00010,000) / 10 = 9,000$

7. Depreciation Accounting Change in Depreciation Method: If a company wants to change its method of depreciation, then as per Indian GAAP retrospective re-computation of depreciation is made and any excess or deficit arising on such re-computation is required to be adjusted in the period in which such change is effected Where as in US GAAP the effect of change in method of depreciation is to be given prospectively

8. Long term Debts Under US GAAP current portion of long term debt is classified as current liability In Indian GAAP there is no such requirement with regards to principal portion of long term debt. When comes to interest portion of long term debt the treatment depends upon the situation- 1) Interest accrued but not due- In this situation the interest is shown under long term loan by adding the same to respective LT loan. 2) Interest accrued and due for payment- In this situation the o/s interest is shown as current liability.

9. Consolidation of subsidiary accounts Under Indian GAAP consolidation of subsidiary companies is not mandatory. But if the company want to present its consolidated financial statements to the users it must follow AS-21 Where as in US GAAP preparation of consolidated financial statements are mandatory.

10. Investments Under Indian GAAP, investments are classified asCurrent Investment Long term Investment and Investment Property Where as in US GAAP , investments are classified as- Held to maturity

Trading security and Available for sale and these are further segregated as current or non-current investments on individual basis 11. Foreign Currency transactions In US GAAP translation difference is taken to comprehensive income. Where as in Indian GAAP, separate treatment was prescribed for integral and non-integral operations. Integral Operations: Exchange difference arising on the translation of the financial statement of integral foreign operation should be charged to profit and loss account. Non-integral Operations: Resulting exchange difference should be accumulated in a foreign currency translation reserve. 12. Expenditure during construction period Under Indian GAAP all incidental expenditure on construction of assets during project stage are accumulated and allocated to the cost of the asset on completion of the project. Where as per US GAAP , such expenditure are divided into two heads- Direct and Indirect While, direct expenditure is accumulated and allocated to the cost of asset, indirect expenditure are charged to revenue. Example: portion of attributable supervisors salary 13. Research and development expenditure In Indian GAAP, R&D expenditure is charged to P&L except equipment and machinery which are to be capitalized and depreciated. In US GAAP all R&D costs are expenses except intangible assets purchased from others and Tangible assets that have alternative future uses 14. Revaluation Reserve In Indian GAAP , an enterprise can revalue its assets and the unrealized gain is transferred to Revaluation reserve . The incremental depreciation arising out of higher book value may be adjusted against the Revaluation Reserve Where as US GAAP does not allow revaluing its assets. 15. Extraordinary items, prior period items and changes in accounting policies In Indian GAAP , extraordinary items, prior period items and changes in accounting policies are disclosed with out netting off for tax effects. Where as per US GAAP, adjustments for tax effects are required to be made while reporting the prior period items.

16. Good will In Indian GAAP , goodwill is capitalized and charged to earnings over 5 to 10 years period. Where as in US GAAP, goodwill and intangible assets that have indefinite useful lives are not amortized, but they are tested at least annually for impairment.

17. Capital issue expenses In Indian GAAP , capital issue expenses are amortized over a period of time. Where as in US GAAP, capital issue expenses are required to be written off as when incurred against proceeds of capital.

18. Preoperative expenses In Indian GAAP, direct revenue expenditure during construction period like preliminary expenses, project related expenditure are allowed to be capitalized. Further, indirect revenue expenditure incidental and related to construction are also permitted to be capitalized. Other indirect revenue expenditure not related to construction, but incurred during construction period are treated as deferred revenue expenditure and classified as miscellaneous expenditure in b/s and written off over a period of 3 to 5 years. Where as in US GAAP the concept of preoperative expenses itself doesnt exist. All the start up costs should be expensed.

19. Employee benefits When comes to employee benefits in Indian GAAP- Provision for leave encashment is accounted based on actuarial valuation Compensation for VRS is amortized over 60months Where as in US GAAP- Leave encashment is accounted on actual basis VRS is charged in the year in which the employees accept the offer

20. Loss on extinguishment of debt In Indian GAAP, debt extinguishment premiums are adjusted against securities premium account. Where as in US GAAP, premium for early extinguishment of debts are expensed as incurred.

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