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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.
4. Financial institutions.
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.
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.
3. Exclusions: The followings expenses incurred should be excluded while calculating the cost of inventory:
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
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
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:
Definitions:
A few important definitions to keep in mind:
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.
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
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.
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 monetary item Closing rate with an exception where the
closing rate may not reflect the amount
likely to be realized or disbursed
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.
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
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
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
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
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.
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