Sie sind auf Seite 1von 15

SEBI Grade A 2020: ACCOUNTANCY: ACCOUNTING STANDARDS

www.practicemock.com 1 info@practicemock.com 011-49032737


SEBI Grade A 2020: ACCOUNTANCY: ACCOUNTING STANDARDS
Table of Content

Table of Content ........................................................................................................... 2


Accounting Standards .................................................................................................... 4
Need for Accounting Standards: ......................................................................................................................... 5
AS 2: Valuation of Inventories ......................................................................................... 6
Applicability: ...................................................................................................................................................... 6
Non-Applicability: .............................................................................................................................................. 6
Valuation of Inventories: .................................................................................................................................... 6
Calculating Cost of Inventory: ............................................................................................................................ 6
Cost formula: ...................................................................................................................................................... 7
Disclosures to be made: ...................................................................................................................................... 7
AS 9: Revenue Recognition ............................................................................................. 7
Applicability: ...................................................................................................................................................... 7
Non-Applicability: .............................................................................................................................................. 7
Criteria for recognizing revenue: ........................................................................................................................ 8
Disclosures to be made: ...................................................................................................................................... 8
AS 10: Property, Plant and Equipment .............................................................................. 8
Applicability: ...................................................................................................................................................... 8
Non-Applicability: .............................................................................................................................................. 8
Definitions: ......................................................................................................................................................... 9
Recognition: ........................................................................................................................................................ 9
Measure at recognition:....................................................................................................................................... 9
Measurement after recognition: .......................................................................................................................... 9
Accounting for Revaluation: ............................................................................................................................... 9
Depreciation: ..................................................................................................................................................... 10
Retirements: ...................................................................................................................................................... 10
De-recognition: ................................................................................................................................................. 10
Disclosures to be made: .................................................................................................................................... 10
AS 11: The Effects of Changes in Foreign Exchange Rates ................................................. 10
Definitions: ....................................................................................................................................................... 11
Foreign Currency Transaction: ......................................................................................................................... 11
Recognizing Exchange Difference: .............................................................................................................. 11
Foreign Operations: .......................................................................................................................................... 11
Translation of Integral Operation: ................................................................................................................ 12
Translation of Non-Integral Operation: ........................................................................................................ 12
Recognizing Exchange Difference: .............................................................................................................. 12
Para 46 and 46A: ............................................................................................................................................... 12
Forward Exchange Contracts: ........................................................................................................................... 13

www.practicemock.com 2 info@practicemock.com 011-49032737


SEBI Grade A 2020: ACCOUNTANCY: ACCOUNTING STANDARDS
Contract not intended for trading or speculation purposes: .......................................................................... 13
Other Contract:.............................................................................................................................................. 13
Disclosures to be made: .................................................................................................................................... 13
AS 13: Accounting for Investments ................................................................................ 13
Applicability: .................................................................................................................................................... 13
Non-Applicability: ............................................................................................................................................ 13
Definitions: ....................................................................................................................................................... 14
Cost of an investment: ...................................................................................................................................... 14
Adjustments in certain cases: ............................................................................................................................ 14
Valuation/Carrying amount of Investments: ..................................................................................................... 15
Re-classification of Investments: ...................................................................................................................... 15
Disposal of Investments: ................................................................................................................................... 15
Disclosures to be made: .................................................................................................................................... 15

www.practicemock.com 3 info@practicemock.com 011-49032737


SEBI Grade A 2020: ACCOUNTANCY: ACCOUNTING STANDARDS
Accounting Standards
The Accounting Standards are formulated by the Accounting Standard Boards (ASB) of the Institute of
Chartered Accountants of India (ICAI), since its establishment in 1977. The key objective of formulating the
Accounting Standards is to harmonize varied accounting policies. There are several Accounting Standards,
listed below, that are formulated by the ASB. However, not all apply to each and every company, as the
companies are classified into Level I, II and III.

Level I Enterprise: Any enterprise that falls in any one or more of the following categories, at any time
during the accounting period, are classified as Level I enterprises. The Level I enterprises are required to
comply with all the accounting standards.

1. Enterprises whose equity or debt securities are listed whether in India or outside India.

2. Enterprises that are in the process of listing their equity or debt securities as evidenced by the board of
directors' resolution in this regard.

3. Banks including co-operative banks.

4. Financial institutions.

5. Enterprises carrying on insurance business.

6. All commercial, industrial and business reporting enterprises, whose turnover for the immediately
preceding accounting period based on audited financial statements exceeds Rs. 50 crore. Turnover does not
include 'other income'.

7. All commercial, industrial and business reporting enterprises having borrowings, including public deposits,
over Rs. 10 crores at any time during the accounting period.

8. Holding and subsidiary enterprises of any one of the above at any time during the accounting period.

Level II Enterprise: Those enterprises are not Level I enterprises but fall in any one or more of the
following categories, at any time during the year are classified as Level II enterprises. Level II has certain
relaxation to some of the accounting standards except the recognition and measurement principles. Further,
they also get relaxation concerning the disclosure requirements.

1. All commercial, industrial and business reporting enterprises, whose turnover for the immediately
preceding accounting period based on audited financial statements exceeds Rs. 40 lakhs but does not exceed
Rs. 50 crore. Turnover does not include 'other income'.

2. All commercial, industrial and business reporting enterprises having borrowings, including public deposits,
over Rs. 1 crore but not over Rs. 10 crores at any time during the accounting period.

3. Holding and subsidiary enterprises of any one of the above at any time during the accounting period.

Level III Enterprise: Those enterprises that are not covered under Level I and Level II are considered as
Level III enterprises. Level III has more relaxation as compared to Level I and II enterprises to some of the
accounting standards except the recognition and measurement principles. Further, they also get relaxation
concerning the disclosure requirements.

www.practicemock.com 4 info@practicemock.com 011-49032737


SEBI Grade A 2020: ACCOUNTANCY: ACCOUNTING STANDARDS

Need for Accounting Standards:


The information published in financial statements is of great importance to external users, such as
shareholders and investors as it helps them to decide with regards to their investments. Hence, there must
be a set of guidelines/norms in places that requires a company to disclose certain information in its financial
statements. Further, this also prevents the company from presenting the financial statement the way they
like. Beside this also help in gaining the public confidence in accounting information contained in the financial
statement if they are satisfied as to the logic, consistency, and fairness of the figures shown therein.

Below is the list of Accounting Standards that are in force.

Accounting Accounting Standard Name


Standard Number
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 and Changes in
Accounting Policies
AS 6 Depreciation Accounting
AS 7 Construction Contracts
AS 8 Accounting for Research & Development
AS 9 Revenue Recognition
AS 10 Property, Plant and Equipment
AS 11 The Effects of Changes in Foreign Exchange Rates
AS 12 Accounting for Government Grants
AS 13 Accounting for Investments
AS 14 Accounting for Amalgamations
AS 15 Employee Benefits
AS 16 Borrowing Costs
AS 17 Segment Reporting
AS 18 Related Party Disclosures
AS 19 Leases
AS 20 Earnings Per Share (EPS)
AS 21 Consolidated Financial Statements
AS 22 Accounting for Taxes on Income
AS 23 Accounting for Investments in Associates in Consolidated Financial
Statements
AS 24 Discontinuing Operations
AS 25 Interim Financial Reporting
AS 26 Intangible Assets
AS 27 Financial Reporting of Interests in Joint Ventures
AS 28 Impairment of Assets
AS 29 Provisions, Contingent Liabilities, and Contingent Assets

www.practicemock.com 5 info@practicemock.com 011-49032737


SEBI Grade A 2020: ACCOUNTANCY: ACCOUNTING STANDARDS
AS 2: Valuation of Inventories
The standard talks about different methods of accounting for the inventory or closing stock which has an
impact on the business revenue and the assets. Basically, it deals with determining the value of the
inventories to be carried in the financial statements, which also includes ascertainment of cost of inventories
and any write-down thereof to net realizable value (NRV).
The inventories can be defined as follows:
1. Those that are held for sale in the ordinary course of business, i.e. finished goods
2. Those that are in the production process, i.e. work in progress
3. Those that are kept in the form of materials or supplies and is to be used in the production process or
the rendering of services

Applicability:
This AS applies to enterprises in Level I, II, and III, and is primarily concerned with the valuation of
inventories.

Non-Applicability:
This AS shall not be applicable for valuation of inventories in the following cases:
1. work in progress arising under construction contracts, including directly related service contracts
2. work in progress arising in the ordinary course of business of the service provider
3. shares, debentures and other financial instruments held as stock-in-trade
4. producers’ inventories such as livestock, agricultural and forest products, and mineral oils, ores, and
gases to the extent that they are measured at Net Realizable Value following well-established practices in
those industries

Valuation of Inventories:
As per the AS, the inventories need to be valued at lower of:
Cost, which is basically the price paid for the purchase, costs of conversion and other direct costs incurred
in bringing the inventories to their present condition and location. The cost should also include the duties
and taxes, or

Net Realizable Value (NRV), which is determined based on the estimated selling price less estimated
costs of completion and the estimated costs necessary to make the sale. This assessment is required to be
made at each balance sheet date. The important thing to note here is that the inventory of raw material is
to be written down to NRV only if the price of the finished goods that will be produced using the raw material
is below the cost of production.

Calculating Cost of Inventory:


As already discussed above, the cost of inventory comprised of the price paid for the purchase (or cost
price), cost of conversion and other direct costs incurred to bring the inventories to its present condition
and location. Hence, there are three components involved in this method, namely,
1. Cost of purchase: This shall include the followings:
a. Purchase price excluding the trade discounts and rebates
b. Duties and taxes paid on the purchase of goods. However, those that are refundable in nature shall be
excluded
c. Freight Inwards or Carriage Inwards, both primary (i.e. cost incurred on bringing the goods to the factory
of the company) and secondary (i.e. cost incurred on transporting the goods to the warehouse) are to be
included
d. Any other expenses that can be directly attributed to the purchase

2. Cost of conversion: The following forms part of the cost of conversion:


a. Fixed overheads based on normal capacity. This may include factory costs such as rent, depreciation on
machinery and salaries paid to administrative personnel in the factory.
b. Variable production overheads assigned to each unit of production based on the actual use of production
facilities. This includes materials and consumables used in the production process.

3. Exclusions: The followings expenses incurred should be excluded while calculating the cost of inventory:

www.practicemock.com 6 info@practicemock.com 011-49032737


SEBI Grade A 2020: ACCOUNTANCY: ACCOUNTING STANDARDS
a. Any kind of abnormal wastages
b. Selling and distribution costs
c. Administrative overheads that do not contribute to bringing the inventories to its present location and
condition. This may include the cost of printing and stationery in the administrative building.
d. Storage costs, unless necessary in the production process prior to a further production stage
e. Any unallocated overhead

Cost formula:
• The method to value inventories that are not ordinarily interchangeable, and goods or services produced
and segregated for specific projects should be assigned by specific identification of their costs.
• For the other inventories, the valuation should be done either based on First-In, First-Out (FIFO) and
Weighted Average Cost, whichever reflects the fairest possible approximation to the cost incurred in
bringing the inventories to its present location and condition.

Disclosures to be made:
The following disclosure needs to be made in the financial statements:
1. The accounting policy adopted by the company in the inventory measurement
2. The basis of costing i.e. FIFO or weighted average should be disclosed
3. The classification of inventory into finished goods, raw materials, and work-in-progress and stores and
spares, etc.
4. Carrying amount of inventories carried at fair value less sale cost
5. The amount of inventories recognized as expense during the period
6. Any inventory amount written-down and recognized as expenses and its subsequent reversal, if any.

AS 9: Revenue Recognition
The standard deals with the recognition of revenue arising in the course of the ordinary activities of the
enterprise from:
a. Sale of goods
b. Rendering of services
c. Interest, royalties, and dividends
The standard has defined the word “revenue” as gross inflow of cash, receivables or other consideration
arising during the ordinary activities of an enterprise from the sale of goods, rendering of services and from
the use of other enterprise resources yielding interest, royalties, and dividends.

Applicability:
AS 9 applies to enterprises in Level I, II, and III, and is primarily concerned with:
1. When should the revenue be recognized in the profit and loss account?
2. What amount should be recognized as revenue as a result of the transaction?
3. What is the amount of expense incurred to earn revenue during the period?

Non-Applicability:
This AS is not applicable in case of the following:
1. Revenue arising from construction contracts
2. Revenue arising from hire-purchase, lease agreements
3. Revenue arising from government grants and other similar subsidies
4. Revenue of insurance companies arising from insurance contracts

www.practicemock.com 7 info@practicemock.com 011-49032737


SEBI Grade A 2020: ACCOUNTANCY: ACCOUNTING STANDARDS
Criteria for recognizing revenue:
Revenue arising from Criteria
Sale of goods 1. The Property in the goods or significant risks and rewards
of ownership have been transferred
2. There is no effective control in the goods transferred by
the seller to a degree usually associated with the ownership
3. There exists no significant uncertainty regarding the
amount of the consideration

Rendering of services 1. The revenue can be recognized as the service is


performed by either of the two methods:
(A) Proportionate completion method, where revenue is
recognized with the degree of completion of each service
(B) Completed service contract method, wherein the
revenue is recognized only when the rendering of services
under a contract is completed or substantially completed
2. There exists no significant uncertainty regarding the
amount of the consideration

Revenue arising from the use The revenue shall be recognized where there exists no
by others of enterprise significant uncertainty as to measurability or collectability
resources yielding: exists. It shall be recognized on the following basis:
-- Interest
-- Royalty Interest: Recognised on time proportion basis after taking
-- Dividend into account the amount outstanding and the rate applicable
Royalty: Revenue can be recognized on an accrual basis
only and in accordance with the terms and conditions listed
in the agreement
Dividend: To be recognized when the right to receive
dividend is established

Disclosures to be made:
The following disclosure needs to be made in the financial statements:
1. The revenue recognition policy should be disclosed
2. If any major revenue has been deferred due to uncertainty, the fact should be disclosed

AS 10: Property, Plant and Equipment


This accounting standard prescribes the accounting treatment for Property, Plant, and Equipment (PPE) so
that the users of the financial statements can discern information about the investment made by an
enterprise in its property, plant, and equipment and the changes in such investment.

Applicability:
This AS should be applied in accounting for property, plant, and equipment except when another AS requires
or permits a different accounting treatment.

Non-Applicability:
This AS shall not be applicable in the following cases:

www.practicemock.com 8 info@practicemock.com 011-49032737


SEBI Grade A 2020: ACCOUNTANCY: ACCOUNTING STANDARDS
1. In respect of biological assets related to an agricultural activity other than bearer plants. Although this
Accounting Standard applies to bearer plants it does not apply to the produce on bearer plants.
2. It shall also not apply to wasting assets including mineral rights, expenditure on the exploration for and
extraction of minerals, oil, natural gas, and similar non-regenerative resources.

Definitions:
A few important definitions to keep in mind:

Property, plant, and equipment are tangible items that


a. are held for use in the production or supply of goods or services, for rental to others, or administrative
purposes
b. are expected to be used for more than a period of twelve months.

Biological Asset refers to a living animal or plant

Bearer plant is a plant that


a. is used in the production or supply of agricultural produce
b. is expected to bear produce for more than a period of twelve months
c. has a very less likelihood of being sold as agricultural produce, except for incidental scrap sales.

Recognition:
The cost of PPE should be recognized as an asset only if:
a. future economic benefits associated with the item will probably flow to the enterprise, and
b. the cost the item can be measured reliably

Measure at recognition:
The initial recognition of fixed assets should be at Cost Price. The definition of cost for the Purchased
Fixed Assets shall be:
Purchase price XXX
Add Non Refundable Taxes XXX
Add Expense on Purchase (such as legal expense, commission, XXX
freight, etc.)
Add Installation Charges XXX
Less Sale Proceeds from Production of Trial Run XXX
Add Borrowing Cost as per AS 16 XXX
Add Exchange Difference as per AS 11 XXX
Add/Less Price Adjustments XXX
Cost of Assets XXX

In the case of Constructed Fixed Assets, i.e. those assets that are self-generated, the cost of an asset
shall be the actual cost incurred. It does not include any economic costs.
In the case of Exchange of Assets, the asset can be classified into Non-Similar and Similar Asset and so
the definition of cost shall vary accordingly.
A. Non-Similar Assets: The value of Fixed Assets obtained will be the fair value of asset obtained or fair
value of the asset surrendered, whichever is more clearly evident.
B. Similar Assets: The value of Fixed Assets obtained shall be the net book value of the asset surrendered
Add/Less Cash Paid/Received.

Measurement after recognition:


The entity should choose either the cost model or the revaluation model as its accounting policy and apply
that policy to an entire class of PPE.

Accounting for Revaluation:


When the Fixed Assets are to be revalued, then:
(i) All fixed assets in a class shall be revalued

www.practicemock.com 9 info@practicemock.com 011-49032737


SEBI Grade A 2020: ACCOUNTANCY: ACCOUNTING STANDARDS
(ii) Revaluation basis should be the same in each class. Here, the basis means the method of calculating
the fair value.
(iii) Revaluation can be upward or downward
(iv) The profit on revaluation shall be transferred to Revaluation Reserve, while the loss on revaluation shall
be adjusted against Revaluation Reserve against of similar asset to the extent it is available and the balance
shall be transferred to Profit and Loss Statement.
(v) The revaluation policy shall be disclosed. These policies include the Basis and Frequency)

Depreciation:
1. Every part of PPE with a cost that is significant to the total cost of the item should be depreciated
separately
2. The depreciable amount should be allocated on a systematic basis over its useful life
3. The depreciation charge for each period should be recognized in the Profit and Loss Statement unless it
is included in the carrying amount of another asset

4. The residual value & useful life should be reviewed at each balance sheet date. Similarly, the depreciation
method should also be reviewed at least at each financial year-end. Any change in either of the two shall
be accounted for as a change in an accounting estimate as per AS 5
5. The depreciation method used should reflect the pattern in which the asset’s future economic benefits
are expected to be consumed by the enterprise
6. The depreciation methods that shall be followed shall either be Straight Line Method (SLM), Written Down
Value (WDV) or Units of Production method

Retirements:
The items of PPE retired from active use and being held for disposal should be stated at the lower of their
carrying amount and net realizable value. In case there is any write-down, the same should be recognized
immediately in the Statement of Profit and Loss.

De-recognition:
1. The carrying amount of an item of PPE should be derecognized on disposal or when no future economic
benefits are expected from its use or disposal
2. Any gain/loss on de-recognition shall be recognized in Profit and Loss Statement, unless AS 19 requires
otherwise in a sale and leaseback, and should not be classified as revenue
3. For this purpose, gain/loss on de-recognition is the difference between the net disposal proceeds, if any,
and the carrying amount of the derecognized item of PPE

Disclosures to be made:
The following disclosure for AS 10 needs to be made in the financial statements:
1. Gross Block and Net Block of Fixed Assets
2. Revaluation Policy
3. Fixed Asset recognition policy

AS 11: The Effects of Changes in Foreign Exchange Rates


This accounting standard is mandatory and deals with accounting for foreign currency transactions in the
nature of forward exchange contracts. It shall be applied in:
1. Accounting for transaction in foreign currencies
2. Translating the financial statements of foreign operations

www.practicemock.com 10 info@practicemock.com 011-


49032737
SEBI Grade A 2020: ACCOUNTANCY: ACCOUNTING STANDARDS

Definitions:
Foreign currency is a currency other than the reporting currency of an enterprise. In other words, it is the
currency other than the domestic/local/home currency.

Foreign operation is a subsidiary, associate, joint venture or branch of the reporting enterprise, the
activities of which are based or conducted in a country other than the country of the reporting enterprise.

Forward exchange contract means an agreement to exchange different currencies at a forward rate.

Reporting currency is the currency used in presenting the financial statements.

Monetary items are money held and assets and liabilities to be received or paid in fixed or determinable
amounts of money.

Non-monetary items are assets and liabilities other than monetary items.

Foreign Currency Transaction:


All the transactions of any entity covered in AS 11 should present its accounts in local currency. Foreign
exchange should be converted into local currency for accounting purposes.
A. Initial Recognition: A foreign currency transaction that is denominated in or needs to settle in any
foreign currency, should be recorded by applying to the foreign currency amount the exchange rate between
the reporting currency and the foreign currency at the date of the transaction. In other words, it should be
recorded using the Spot Rate or Approximate Rate.
B. Subsequent Recognition: As per the AS 11, at each balance sheet date, various items should be
recorded using the following rates:
Item Exchange Rate

Foreign currency monetary item Closing rate with an exception where the
closing rate may not reflect the amount
likely to be realized or disbursed

Non-monetary items carried in terms of Exchange rate prevailing on the date of


historical cost denominated in a foreign transaction
currency
Non-monetary items carried at fair value or Exchange rates prevailing at the time the
other similar valuation. For instance, net values were determined
realizable value denominated in a foreign
currency

Recognizing Exchange Difference:


Any exchange difference arising on reporting the enterprise’s monetary items at the rates different from the
ones at which they’re recorded initially, then it must be transferred to the Profit and Loss Statement.

Foreign Operations:
Whenever an entity has an operation outside the country, such operations are called foreign operations. It
can be in the form of Brands, Associate, Subsidiary or Joint Venture. The foreign operation should be
classified as:
• Integral Operation, where the activities of the foreign operation are an integral part of those of the
reporting enterprise, or
• Non-Integral Operation, in which case the foreign operation is not an integral operation of the
reporting enterprise.

www.practicemock.com 11 info@practicemock.com 011-


49032737
SEBI Grade A 2020: ACCOUNTANCY: ACCOUNTING STANDARDS
Translation of Integral Operation:
Item Translation

Individual items It shall be translated as if all the integral foreign operation’s


transactions had been entered into by the reporting enterprise
itself

Cost and depreciation of tangible The rate at the date of purchase of the asset
fixed assets or,

if the asset is carried at fair value The rate that existed at the date of valuation

Cost of Inventories The existing rate at the date of when the cost was incurred

Recoverable amount or realizable The existing rate at the date of when the recoverable amount or
value of an asset net realizable value was determined

Translation of Non-Integral Operation:


Item Translation

Assets and Liabilities (both monetary The exchange rate prevailing at the balance sheet date
and non-monetary)
Income and expense items The rate at the date of transactions. For practical reason, a rate
that approximates the actual rate (i.e. an average rate for a
period) is mostly used.

Contingent liability disclosed in the The exchange rate prevailing at the balance sheet date
financial statements
Goodwill/capital reserve arising on The exchange rate prevailing at the balance sheet date
the acquisition

Recognizing Exchange Difference:


The recognition of exchange difference shall vary depending on whether it is Integral Operation or Non-
integral Operation:
• Integral Operation: Same as prescribed for foreign currency transactions
• Non-Integral Operation: The difference shall be accumulated in a foreign currency translation reserve
until the disposal of the net investment

Para 46 and 46A:


As per Para 46, the following treatment should be applied to exchange difference:
i. Exchange difference on Long Term Foreign Currency Monetary Item relating to depreciable assets should
be recognized in Asset Account
ii. Exchange difference on Long Term Foreign Currency Monetary Item relating to non-depreciable assets
should be recognized in Foreign Currency Monetary Item Translation Difference Account
iii. Exchange difference on Short Term Foreign Currency Monetary should be recognized in Profit and Loss
Statement
iv. When Para 46 is applied for deferment of Exchange Difference, any retrospective effect should be given
through General Reserve

www.practicemock.com 12 info@practicemock.com 011-


49032737
SEBI Grade A 2020: ACCOUNTANCY: ACCOUNTING STANDARDS
v. A new Para 46A was inserted to bring in two amendments to Para 46:
a. The date of carry forward of Foreign Currency Monetary Item Translation Difference Account has been
extended to 31st March 2020.
b. Those entities that had not opted for Para 46 earlier, can now avail Para 46.

Forward Exchange Contracts:


This AS is not applicable to exchange difference arising on forward exchange contracts entered for hedging
the foreign currency risk of future transactions in respect of which firm commitments are made or which are
highly probable forecast transactions.

Contract not intended for trading or speculation purposes:


• Any premium or discount arising at the inception of such a forward exchange contract needs to be
amortized as expense or income over the life of the contract.
• The exchange differences on such a forward exchange contract need to be recognized in the Profit and
Loss Statement during the reporting period in which the exchange rates change.
• In case of profit or loss arising on cancellation or renewal of such a forward exchange contract, then it
should be recognized as income or expense for the period.

Other Contract:
• Any gain or loss should be calculated by multiplying the foreign currency amount of the forward exchange
contract by the difference between the forward rate available at the reporting date for the remaining
maturity of the contract and the contracted forward rate (or the forward rate last used to measure again
or loss on that contract for an earlier period).
• The gain or loss calculated should be recognized in the Profit and Loss Statement for the period.
• The premium or discount on the forward exchange contract is not recognized separately.

Disclosures to be made:
The following disclosure for AS 11 needs to be made in the financial statements:
1. The treatment of Exchange Difference followed by the entity
2. The closing exchange rate

AS 13: Accounting for Investments


This accounting standard deals with accounting for investments in financial statements of enterprises and
also states the various disclosure requirements

Applicability:
This AS is mandatory and there is no exemption.

Non-Applicability:
This AS shall not be applicable in the following cases:
1. Recognition of interest, dividends, and rentals earned on investments covered by AS 9
2. Operating or Finance leases
3. Investment of retirement benefit plans and life insurance enterprises
4. Mutual funds and venture capital funds and/or the related asset management companies, banks and
public financial institutions formed under a Central or State Government Act or so declared under the
Companies Act, 2013

www.practicemock.com 13 info@practicemock.com 011-


49032737
SEBI Grade A 2020: ACCOUNTANCY: ACCOUNTING STANDARDS
Definitions:
Investments refer to assets held for earning income by way of dividends, interest, and rentals or for capital
appreciation. However, assets held as stock-in-trade or inventories are not considered to be an investment.
Investments can be of two types, namely, Current or Short-term investments, and Permanent or Long-term
investments.

Current Investments are those investments that are held with the intention of disposal within 12 months
from the date of acquisition. Such investments should be marketable.

Long-term investments are those investments that are not a current investment.

Investment property refers to an investment in land or buildings that are not intended to be occupied
substantially for use by, or in the operations of, the investing enterprise.

Fair value is an amount for which the asset could be exchanged in an arm’s length transaction. Under
appropriate circumstances, market value or net realizable value provides evidence of fair value.

Market value refers to the amount that is received from the sale of investment in an open market net of
expenses necessarily to be incurred on or before disposal.

Cost of an investment:
The cost of investment should include acquisition charges such as brokerage, fee, and duties. Further, there
can be multiple modes of acquisition of investment, such as:
A. By actual cash payment in which case the actual cash price shall be considered. It may include the
following:
Purchase price XXX
Add Taxes on purchases (such as STT) XXX
Add Expenses on purchases (such as XXX
Commission)
Add Expenses to obtain title (such as Stamp XXX
Duty)
Less Pre-acquisition dividend XXX
Cost of Investments XXX

A. Exchanged Investments: Whenever investments are obtained through the exchange, then the value of
investments will be:
a. The fair value of Investments obtained, or
b. The fair value of Asset given
whichever is more clearly evident.
B. Issue of shares or other securities: The investment value shall be the fair value of the securities issued.

Adjustments in certain cases:


Right shares: In case the right shares offered are subscribed for, the cost of the right shares shall be added
to the carrying amount of the original holding.

www.practicemock.com 14 info@practicemock.com 011-


49032737
SEBI Grade A 2020: ACCOUNTANCY: ACCOUNTING STANDARDS
Investments acquired on the cum-right basis: Where the investments are acquired on the cum-right
basis and the market value of investments immediately after their becoming ex-right is lower than the cost
at which they were acquired then, it may be appropriate to apply the sale proceeds of rights to reduce the
carrying amount of such investments to the market value.

Valuation/Carrying amount of Investments:


• The Current Investments are valued at cost price or fair value – whichever is lower. Such lower valuation
will not be on the overall (or global) basis. It should be on each security basis.
• Long-term investments are valued at cost price only. However, if there is any permanent decline in the
value of the investments, then provision for such decline shall be made.

Re-classification of Investments:
Whenever an investment is re-classified, then the following rules shall be applied:
• From Current Investment to Permanent Investment: Such investments should be carried in books
at Cost Price or Fair Value – whichever is lower.
• From Permanent Investments to Current Investments: Such investments should be carried in
books at Cost Price or Carrying Amount (Cost Provision for decline) – whichever is lower.

Disposal of Investments:
• At the time of disposal of an investment, the difference between the carrying amount and the disposal
proceeds, net of expenses, is recognized in the profit and loss statement
• In case of disposing of a part of the holding of an investment, the carrying amount to be allocated to
that part is to be determined based on the average carrying amount of the total holding of the investment

Disclosures to be made:
The following disclosure for AS 13 needs to be made in the financial statements:
1. The accounting policies followed to determine the carrying amount of investment
2. The amounts included in the profit and loss statement for:
a. Dividends, interest, and rentals on the investments presenting the income from such long-term and
current investments separately. Gross income must be stated, amount of TDS (tax deducted at source)
included under the Advance Taxes Paid
b. profits and losses on the disposal of current investment and the changes in carrying the amount of the
investment
c. profits and losses on the disposal of long-term investment and the changes in carrying the amount of the
investment
3. The substantial limitations on the right of ownership, realizability of the investments or remittance of
income and proceeds of the disposal
4. The aggregate amount of both the quoted and unquoted investments, providing the aggregate market
value of the quoted investments
5. Any other disclosures as explicitly required by the relevant statute governing the company

www.practicemock.com 15 info@practicemock.com 011-


49032737

Das könnte Ihnen auch gefallen