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Case Study
Shyam Steel
Submitted by:
Ajit Singh Shekhawat
Prateek Bhargava
Rohit Agarwal
Rohit Shah
Sharanjit Singh
Analysis
Shyam Steel Project in West Bengal
(34.25 Billion project and covers 1265 acres)
Project consists of
Ø 1.7 Million tonne Steel plant
Ø 1 Million tonne Cement plant
Ø150 MW Power Plant
Ø INDIAN GAAP
AS 10: the cost of the asset includes purchase price and any
tax or levies
Ø IFRS
IAS16: Same as the Indian GAAP
Ø US GAAP
Same as the Indian GAAP
Ø INDIAN GAAP
AS12: Recognize only when compliance with the condition
Non-monetary grant; land at concessional rate
Account at the acquisition rate
Ø IFRS
IAS20: Same as the Indian GAAP
Ø US GAAP
FAS116: Same as the Indian GAAP
Ø INDIAN GAAP
AS 10: the cost of bringing the asset to its working
condition for its intended use; definition of fixed asset
ØIFRS
IAS 16 Property, Plant and Equipment
Cost comprises of the purchase price, including import duties. If spare parts
can be used only in connection with a fixed asset, they are accounted for as property,
plant and equipment.
ØINDIAN GAAP
Accounting Standard (AS) 10: Accounting for Fixed Assets
Similar to IFRS
If spares can be used only in connection with a fixed asset and their use is
expected to be irregular, it may be appropriate to allocate the total cost on a
systematic basis over a period not exceeding the useful life of the principal item.
ØINDIAN GAAP
Accounting Standard (AS) 26: Intangible Assets
Expenditure on relocating or re-organizing part or all of an enterprise is recognized as
expense as and when it is incurred
Accounting Standard (AS) 10: Accounting for Fixed Assets
Expenses that do not increase the future benefits from the existing asset
beyond its previously assessed standard of performance are charged to the profit and
loss statement.
The amount spent on the repairs due to damage and poor handling during
transportation will also be recognized as expense in the profit and loss statement.
Government Grant
ØIFRS
should be recognized as income.
ØINDIAN GAAP
depreciable fixed assets may be treated as
deferred income which should be recognized in the
profit and loss statement
Ø INDIAN GAAP
test runs and experimental production, is usually capitalized as an indirect
element of the construction cost.
costs of construction that relate directly to the specific asset and costs
that are attributable to the construction activity in general and can be allocated to
the specific asset.
Ø According to US GAAP:
Interest paid for the loan taking for all activities during construction of plant (Capital work in
progress) till its becoming operational is capitalized.
Ø Conclusion:
Interest on loans taken for the project should be capitalized if the loan was used on assets that
necessarily take more than 12 months to get ready and operational.
Advertisement Expenditure
Advertisement expenses for promoting the product
Ø As per Indian Account Standard AS 26 para 56:
Expenditure incurred to provide future economic benefits to an
enterprise, but no intangible asset or other asset is acquired or
created that can be recognized, in such cases the expenditure is
recognized as an expense when it is incurred.
Ø As per US GAAP
Advertising and promotional costs are either expensed as
incurred or expensed when the advertising takes place for the
first time (policy choice).
Ø As per IFRS
Advertising and promotional costs are expensed as incurred
Ø Interpretation: Rs 40 crore spent for advertising has to be
marked as advertising expense and charged to Profit and loss.
Sale of product from Trial run
and Preliminary Expenses
Sale of products arising from trial production
Ø As per AS 26 (Paragraph 56)
Revenue earned from the sale of products arising from trial run is abated to the
cost of capital.
Ø US GAAP does not account for pre operative expenses and hence all pre
operative expenses should be expensed.
Preliminary expenses
Ø As per Indian Accounting Standard AS 26 (Paragraph 56 (a))
Preliminary costs are expensed as incurred
Ø As per IAS 38: Preliminary costs are expensed as incurred.
Ø Solution: The preliminary expenditure will be expensed.
Research & Development
Cost
Ø IFRS
Research costs are expensed as incurred. Development costs are
capitalised and amortised only when specific criteria are met.
Ø US GAAP
Research and development costs are expensed as incurred. Some
software and website development costs are capitalised.
Ø INDIAN GAAP
Similar to IFRS
The US GAAP has clear and less ambiguous rule in R&D cost matter
RELOCATING PLANT
Assuming the plant to be geographically and financially independent unit
Ø US GAAP Accounting for Costs Associated with Exit or Disposal Activities (FAS 146)
Incur as it occurs ( Accrual based). Restructuring liability
Ø IFRS IAS 37
Firms recognize restructuring costs when the firms has committed to and
approved a restructuring plan that management will control. it is not accrual but a
provision is booked. They term it as a restructuring provision
IFRS allows the company to have a restructuring provision and thus equip them to deal
with situation in a better way
QUESTIONS
THANK YOU