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The objective of this Standard is to prescribe principles for the determination and
presentation of earnings per share which will improve comparison of performance
among different enterprises for the same period and among different accounting
periods for the same enterprise. The focus of this Standard is on the denominator of
the earnings per share calculation. Even though earnings per share data has
limitations because of different accounting policies used for determining 'earnings', a
consistently determined denominator enhances the quality of financial reporting.

 

This Standard should be applied by all companies. However, a Small and Medium
Sized Company, as defined in the Notification, may not disclose diluted earnings per
share (both including and excluding extraordinary items).

In consolidated financial statements, the information required by this Statement


should be presented on the basis of consolidated information.

In the case of a parent (holding enterprise), users of financial statements are usually
concerned with, and need to be informed about, the results of operations of both the
enterprise itself as well as of the group as a whole. Accordingly, in the case of such
enterprises, this Standard requires the presentation of earnings per share information
on the basis of consolidated financial statements as well as individual financial
statements of the parent. In consolidated financial statements, such information is
presented on the basis of consolidated information.

Equity shares participate in the net profit for the period only after preference shares.
An enterprise may have more than one class of equity shares. Equity shares of the
same class have the same rights to receive dividends.

A financial instrument is any contract that gives rise to both a financial asset of one
enterprise and a financial liability or equity shares of another enterprise. For this
purpose, a financial asset is any asset that is:

=? cash;
=? a contractual right to receive cash or another financial asset from another
enterprise;
=? a contractual right to exchange financial instruments with another enterprise
under conditions that are potentially favorable; or
=? an equity share of another enterprise.
A financial liability is any liability that is a contractual obligation to deliver cash or
another financial asset to another enterprise or to exchange financial instruments with
another enterprise under conditions that are potentially unfavorable.

Examples of potential equity shares are:

=? debt instruments or preference shares, that are convertible into equity shares;
=? share warrants;
=? options including employee ok option plans under which employees of an
enterprise are entitled to receive equity shares as part of their remuneration
and other similar plans; and
=? shares which would be issued upon the satisfaction of certain conditions
resulting from contractual arrangements (contingently assumable shares), such
as the acquisition of a business or other assets, or shares assumable under a
loan contract upon default of payment of principal or
=? interest, if the contract so provides.

  

An enterprise should present basic and diluted earnings per share on the face of the
statement of profit and loss for each class of equity shares that has a different right to
share in the net profit for the period. An enterprise should present basic and diluted
earnings per share with equal prominence for all periods presented.

This Standard requires an enterprise to present basic and diluted earnings per share,
even if the amounts disclosed are negative (a loss per share).

  

Basic Earnings per Share

Basic earnings per share should be calculated by dividing the net profit or loss for the
period attributable to equity shareholders by the weighted average number of equity
shares outstanding during the period. EarningsȄBasic

For the purpose of calculating basic earnings per share, the net profit or loss for the
period attributable to equity shareholders should be the net profit or loss for the
period after deducting preference dividends and any attributable tax thereto for the
period.

All items of income and expense which are recognised in a period, including tax
expense and extraordinary items, are included in the determination of the net profit or
loss for the period unless an Accounting Standard requires or permits otherwise [see
Accounting Standard (AS) 5, Net Profit or Loss for the Period, Prior Period Items and
Changes in Accounting Policies]. The amount of preference dividends and any
attributable tax thereto for * the period is deducted from the net profit for the period
(or added to the net loss for the period) in order to calculate the net profit or loss for
the period attributable to equity shareholders.

The amount of preference dividends for the period that is deducted from the net profit
for the period is:

=? The amount of any preference dividends on non-cumulative preference shares


provided for in respect of the period; and
the full amount of the required preference dividends for cumulative preference
shares for the period, whether or not the dividends have been provided for.
=? The amount of preference dividends for the period does not include the amount
of any preference dividends for cumulative preference shares paid or declared
during the current period in respect of previous periods.

If an enterprise has more than one class of equity shares, net profit or loss for the
period is apportioned over the different classes of shares in accordance with their
dividend rights.

  


(a) a bonus issue;


(b) a bonus element in any other issue, for example a bonus element in a rights issue to
existing shareholders;
(c) a share split; and
(d) a reverse share split (consolidation of shares).




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A parent who presents consolidated statements should:

=? Present these statements in addition to its separate financial statements.


=? Consolidate all subsidiaries, domestic as well as foreign.
=? A subsidiary should be excluded when control is temporary or when it operates
under severe long term restriction.
=? ‰isclose the reason for not including the subsidiary.

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=? Consolidated Balance Sheet.


=? Consolidated P&L Account.
=? Notes, statements and other explanatory material.
=? Consolidated cash flow statement (only if the parent presents its own Cash
Flow Statement)

These are to be presented in the same format as adopted by the parent for its separate
financial statements.

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Cost to the parent of its investment in each subsidiary and the parent's portion of
equity of each subsidiary to be eliminated, the excess or deficiency to be treated as
Goodwill / Capital Reserve Intra group balances, intra group transactions and
resulting unrealized profits and losses to be eliminated in full (unrealized losses
should not be eliminated if cost cannot be recovered) The financial statements should
be drawn up to the same reporting date. If not practicable, difference should not be
more than six months. If minority's share of loss exceeds the minority interest in the
equity of the subsidiary, such excess is to be adjusted against majority interest.
Subsequently, in case of profits in future, all such profits are allocated to the majority
interest, unless previous losses absorbed by the majority are recovered. Parent's share
of profits in subsidiary, should be adjusted for Preference ‰ividend, whether declared
or not on Preference Shares of subsidiary held outside the group.

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=? If it is not practicable to use uniform accounting policies, the fact together with
the proportion of such items in consolidated financial statements to which
different accounting policies apply should be disclosed.
=? If a member uses different accounting policies, for reasons other than those
stated above, appropriate adjustments should be made in consolidated financial
statements.

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Balance Sheet of a holding company to include certain particulars of its subsidiaries:

=? Attach a copy of audited statement of accounts.


=? Attach copies of Reports of Auditors and ‰irectors thereon.
=? Attach a statement of the holding company's interest in the subsidiary at the
end of the financial year
=? Attach details of net aggregate amount deal with as well as not dealt with
within the company's account of the subsidiary's profits after adjusting its
losses.
=? Attach a statement containing information on change in interest of the holding
co, change in fixed assets, investments, money borrowed or lent by it, in case
the financial years of the two do not coincide.




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Accounting Standard (AS) 22, Accounting for Taxes on Income, issued by the Council of
the Institute of Chartered Accountants of India, comes into effect in respect of
accounting periods commencing on or after 1-4-2001. It is mandatory in nature2 for:

All the accounting periods commencing on or after 01.04.2001, in respect of the


following:

=? Enterprises whose equity or debt securities are listed on a recognised stock


exchange in India and enterprises that are in the process of issuing equity or
debt securities that will be listed on a recognised stock exchange in India as
evidenced by the board of directorsǯ resolution in this regard.
=? All the enterprises of a group, if the parent presents consolidated financial
statements and the Accounting Standard is mandatory in nature in respect of
any of the enterprises of that group in terms of
=? All the accounting periods commencing on or after 01.04.2002, in respect of
companies not covered by above.All the accounting periods commencing on or
after 01.04.2003, in respect of all other enterprises.

The Guidance Note on Accounting for Taxes on Income, issued by the Institute of
Chartered Accountants of India in 1991, stands withdrawn from 1.4.2001. The
following is the text of the Accounting Standard.

 

The objective of this Statement is to prescribe accounting treatment for taxes on


income. Taxes on income are one of the significant items in the statement of profit and
loss of an enterprise. In accordance with the matching concept, taxes on income are
accrued in the same period as the revenue and expenses to which they relate. Matching
of such taxes against revenue for a period poses special problems arising from the fact
that in a number of cases, taxable income may be significantly different from the
accounting income. This divergence between taxable income and accounting income
arises due to two main reasons. Firstly, there are differences between items of revenue
and expenses as appearing in the statement of profit and loss and the items which are
considered as revenue, expenses or deductions for tax purposes. Secondly, there are
differences between the amount in respect of a particular item of revenue or expense
as recognised in the statement of profit and loss and the corresponding amount which
is recognised for the computation of taxable income.


 

!his Statement should be applied in accounting for taxes on income. !his includes the
determination of the amount of the expense or saving related to taxes on income in
respect of an accounting period and the disclosure of such an amount in the financial
statements.

For the purposes of this Statement, taxes on income include all domestic and foreign
taxes which are based on taxable income.

This Statement does not specify when, or how, an enterprise should account for taxes
that are payable on distribution of dividends and other distributions made by the
enterprise.

Taxable income is calculated in accordance with tax laws. In some circumstances, the
requirements of these laws to compute taxable income differ from the accounting
policies applied to determine accounting income. The effect of this difference is that
the taxable income and accounting income may not be the same.

The differences between taxable income and accounting income can be classified into
permanent differences and timing differences. Permanent differences are those
differences between taxable income and accounting income which originate in one
period and do not reverse subsequently. For instance, if for the purpose of computing
taxable income, the tax laws allow only a part of an item of expenditure, the disallowed
amount would result in a permanent difference.

Timing differences are those differences between taxable income and accounting
income for a period that originate in one period and are capable of reversal in one or
more subsequent periods. Timing differences arise because the period in which some
items of revenue and expenses are included in taxable income do not coincide with the
period in which such items of revenue and expenses are included or considered in
arriving at accounting income. For example, machinery purchased for scientific
research related to business is fully allowed as deduction in the first year for tax
purposes whereas the same would be charged to the statement of profit and loss as
depreciation over its useful life. The total depreciation charged on the machinery for
accounting purposes and the amount allowed as deduction for tax purposes will
ultimately be the same, but periods over which the depreciation is charged and the
deduction is allowed will differ. Another example of timing difference is a situation
where, for the purpose of computing taxable income, tax laws allow depreciation on
the basis of the written down value method, whereas for accounting purposes, straight
line method is used. Some other examples of timing differences arising under the
Indian tax laws are given in Appendix 1.

Unabsorbed depreciation and carry forward of losses which can be set-off against
future taxable income are also considered as timing differences and result in deferred
tax assets, subject to consideration of prudence
Accounting Standard (As) 23 - Accounting for Investments in Associates in
Consolidated Financial Statements

 

The objective of this Statement is to set out principles and procedures for recognizing,
in the consolidated financial statements, the effects of the investments in associates on
the financial position and operating results of a group.

 

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This Statement does not deal with accounting for investments in associates in the
preparation and presentation of separate financial statements by an investor.

The existence of significant influence by an investor is usually evidenced in one or


more of the following ways:

(a)Representation on the board of directors or corresponding governing body of the


investee;
(b)participation in policy making processes;
(c)material transactions between the investor and the investee;
(d)interchange of managerial personnel; or
(e)provision of essential technical information.

Under the equity method, the investment is initially recorded at cost, identifying any
goodwill/capital reserve arising at the time of acquisition and the carrying amount is
increased or decreased to recognize the investorǯs share of the profits or losses of the
investee after the date of acquisition. ‰istributions received from an investee reduce
the carrying amount of the investment. Adjustments to the carrying amount may also
be necessary for alterations in the investorǯs proportionate interest in the investee
arising from changes in the investeeǯs equity that have not been included in the
statement of profit and loss. Such changes include those arising from the revaluation of
fixed assets and investments, from foreign exchange translation differences and from
the adjustment of differences arising on amalgamations.


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àa) the investment is acquired and held exclusively with a view to its subsequent disposal
in the near future; or

àb) the associate operates under severe long-term restrictions that significantly impair
its ability to transfer funds to the investor.




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‰iscontinuing operation is a component of an enterprise:

That the enterprise, pursuant to a single plan, is:

=? disposing substantially in its entirety, such as by selling the component


in a single transaction or by demerger or spin-off of ownership of the
component to the enterprise's shareholders; or
=? disposing of piecemeal, such as by selling off the component's assets and
settling its liabilities individually; or
=? terminating through abandonment; and that represents a separate
major line of business or geographical area of operations andthat can be
distinguished operationally and for financial reporting purposes.

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1.? the enterprise has entered into a binding sale agreement for substantially all of
the assets
attributable to the discontinuing operation; or
2.? the enterprise's board of directors or similar governing body has both
? approved a detailed, formal plan for the discontinuance and
? made an announcement of the plan.
? terminating through abandonment; and
3.? that represents a separate major line of business or geographical area of
operations; and
4.? that can be distinguished operationally and for financial reporting purposes.

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Recognition and measurement principles established in other accounting standards


should be followed in the accounting of changes in assets, liabilities, revenue,
expenses, losses, and cash flow relating to a discontinuing operation.

   
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The following information should be included in the financial statements beginning


with the financial statements for the period in which the initial disclosure event
occurs:

1.? a description of the discontinuing operation(s);


2.? the business or geographical segment(s) in which it is reported as per AS 17-
Segment Reporting;
3.? the date and nature of the initial disclosure event;
4.? the date or period in which the discontinuance is expected to be completed if
known or determinable;
5.? the carrying amounts, as of the balance sheet date, of the total assets to be disposed
of and the total liabilities to be settled;
6.? the amounts of revenue and expenses in respect of the ordinary activities
attributable to the discontinuing operation during the current financial reporting
period;
7.? the amount of pre-tax profit or loss form ordinary activities attributable to the
discontinuing operation during the current financial reporting period, and the
income tax expense related thereto; and
8.? the amounts of net cash flows attributable to the operation, investing and financing
activities of the discontinuing operation during the current financial reporting
period.

If an initial disclosure event occurs between the balance sheet date and the date of
approval of accounts, disclosures as required by AS 4 - Contingencies and Events
Occurring after the Balance Sheet ‰ate, are made.


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Accounting Standard (AS) 25, Interim Financial Reporting, issued by the Council of the
Institute of Chartered Accountants of India, comes into effect in respect of accounting
periods commencing on or after 1-4-2002. If an enterprise is required or elects to
prepare and present an interim financial report, it should comply with this Standard.
The following is the text of the Accounting Standard.

 

This Statement does not mandate which enterprises should be required to present
interim financial reports, how frequently, or how soon after the end of an interim
period. If an enterprise is required or elects to prepare and present an interim
financial report, it should comply with this Statement.

A statute governing an enterprise or a regulator may require an enterprise to prepare


and present certain information at an interim date which may be different in form
and/or content as required by this Statement. In such a case, the recognition and
measurement principles as laid down in this Statement are applied in respect of such
information, unless otherwise specified in the statute or by the regulator.

The requirements related to cash flow statement, complete or condensed, contained in


this Statement are applicable where an enterprise prepares and presents a cash flow
statement for the purpose of its annual financial report.

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A complete set of financial statements normally includes:

=? Balance sheet;
=? Statement of profit and loss;
=? Cash flow statement; and
=? Notes including those relating to accounting policies and other statements and
explanatory material that are an integral part of the financial statements.

In the interest of timeliness and cost considerations and to avoid repetition of


information previously reported, an enterprise may be required to or may elect to
present less information at interim dates as compared with its annual financial
statements. The benefit of timeliness of presentation may be partially offset by a
reduction in detail in the information provided. Therefore, this Statement requires
preparation and presentation of an interim financial report containing, as a minimum,
a set of condensed financial statements. The interim financial report containing
condensed financial statements is intended to provide an update on the latest annual
financial statements. Accordingly, it focuses on new activities, events, and
circumstances and does not duplicate information previously reported.
This Statement does not prohibit or discourage an enterprise from presenting a
complete set of financial statements in its interim financial report, rather than a set of
condensed financial statements. This Statement also does not prohibit or discourage
an enterprise from including, in condensed interim financial statements, more than the
minimum line items or selected explanatory notes as set out in this Statement. The
recognition and measurement principles set out in this Statement apply also to
complete financial statements for an interim period, and such statements would
include all disclosures required by this Statement (particularly the selected disclosures
in paragraph 16) as well as those required by other Accounting Standards.