Indian Accounting Standards [One pager]

INDIAN ACCOUNTING STANDARDS [One pager]

ACCOUNTING STANDARD AS

Content

1 2 3 4 5 6 7 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29

Introduction Disclosure of Accounting Policies Valuation of Inventories Cash Flow Statement Contingencies and Events Occurring after the Balance Sheet Date Net Profit or Loss for the Period, Prior Period Items and Change in Accounting Policies Depreciation Accounting Construction Contracts Revenue Recognition Accounting for Fixed Assets Effects of Change in Foreign Exchange Accounting for Government Grants Accounting for Investment Accounting for Amalgamation Employee Benefits Borrowing Costs Segment Reporting Related Party Disclosures Accounting for Leases Earnings Per Share Consolidated Financial Statements Accounting for taxes Accounting for Investments in Associates in Consolidated Financial Statements Discontinuing Operations Interim Financial Reporting Intangible Assets Financial Reporting of Interest in Joint Venture Impairment of Assets Provisions, Contingent Liabilities and Contingent Assets

Page 1 2 3 4 5 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 5& 26

INTRODUCTION

  

Accounting standards: Accounting Standards are written documents, policy documents issued by expert accounting body or by the Government or other regulatory body covering the aspects of recognition, measurement, treatment, presentation and disclosure of accounting transaction in the financial statement. In India AS are issued by the Institute of Chartered Accountants of India (ICAI). Objectives: To standardize the diverse accounting policies and practices To eliminate to the extent possible the non-comparability of financial statements To add reliability to the financial statements

 

Compliance: Mandatory as per Section 129 of Companies Act, 2013 IRDA(Preparation of financial Statements and Auditor’s Report of Insurance Companies)

1. 2. 3. 4. 5.

1. 2.

3.

Applicability Level-1 entities: on corporate entities which fall in any one of the following categories at the end of relevant accounting year are called as level-1 entities: Entities whose equity or debt securities are listed or in the process of listing with any stock exchange whether in India or abroad. Banks, financial institutions or entities carrying in insurance business All commercial, industrial and business reporting entities whose turnover is greater than 50 crores in the immediately preceding accounting period. Here other income is to be ignored in calculation of turnover. All commercial, industrial and business reporting entities whose borrowings including public deposits in excess of 10 crores at any time during the immediately preceding accounting year. Subsidiary or holding entities of any of the above. Level-2 entities: on corporate entities which are not covered in any of the above categories and fall any one of the following categories are level-2 entities. All industrial, commercial and business reporting entities whose turnover exceeds rupees 10 crores but doesn’t exceed rupees 50 crores in the immediately preceding accounting year. All commercial, industrial and business reporting entities whose borrowings including public deposits are above 1 crore but doesn’t exceed 10 crores at any time during the immediately preceding accounting year. Holding and subsidiary entities of any one of the above. Level-3 entities: on corporate entities which are not covered under level-1 and level-2 are considered as level-3 entities. AS Number 1,2, 4 to 16, 19, 22, 26, 28 & 29 3, 17, 30, 31 & 32 20 18, 24 Level-1 / Level-1&2 / Applicability All entities Level I All companies All companies AS 21 23 25 27

Applicability Mandatory to those entities which require preparing consolidated financial statements. Mandatory to those entities which require to prepare & present consolidated financial statements Level-1 and any entity which is required to prepare interim financial report Mandatory to those entities which require to prepare & present consolidated financial statements

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Page 1

AS1: DISCLOSURE OF ACCOUNTING POLICIES Accounting Policies: It refers to the specific accounting principles and the method of applying those principles adopted by the enterprises in the preparation and presentation of financial statements.

1. 2. 3.

 

Major Considerations for Selection of Accounting Policies Prudence: Prudence means making of estimates which is required under conditions of uncertainty. Substance Over Form: It means that transaction should be accounted for in accordance with actual happening and economic reality and not by its legal form. Materiality: Financial statements should disclose all the items and facts which are sufficient enough to influence the decisions of the reader or user of the financial statement. Changes in Accounting Policies A change should be made in the following cases: Adoption of different accounting policies is required by the statute or for compliance with an Accounting Standard Change would result in more appropriate presentation of financial statement Such change along with the amount to the extent ascertainable is to be disclosed.

Accounting Standard

Page 2

AS2: VALUATION OF INVENTORIES   

Definition Finished goods Raw material and work in progress Stores, consumables, Spares General AS 2

Non Applicability Construction contracts Service providers Financial Instruments Producers’ inventories (Agro,forest products)

   

Specific AS 10

 

Objectives Method of computation of cost Determination of value

Objectives Methods of Computing Cost (Sequence based) 1. 2. 3.

1. 2. 3.

Specific identification FIFO or Weighted Average Method Standard cost or retail method Disclosure Accounting policy Cost formula Classification of inventories

Determination of Value Whichever is lesser of Cost Net Realisable Value Cost of Purchase + + + +

Note: Reduction in the raw materials’ prices can be adjusted against replacement cost only if the finished goods for which it is used is sold below cost.

-

Purchase price Duties Freight SALE Rebate Trade discount Duty drawback Conversion Cost Direct Labor Direct expenses Variable overhead (Actual production) Fixed overhead (Normal Production) Exclude Holding & storage cost Insurance Interest and penalties Administration cost Selling & Dist. cost Abnormal loss

Sale Price ×× ×× ×× ×× ×× ××

-

Cost Completion Cost of Sales

×× of

×× ×× ××

×× ×× ×× ××

×× ×× ×× ×× ×× ×× ××

Guidance note on CENVAT Inclusive Method 1 On availing CENVAT, credit the CENVAT credit availed A/c 2 On inputs → Adjust against cost of raw material 3 On closing stock → Adjust against the value of closing stock

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Exclusive Method 1 Debit CENVAT credit receivable A/c on duty paid and credit on actual utilization 2 Balance in the A/c is shown on the asset side of B?S

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AS3: CASH FLOW STATEMENT Balance Sheet

Flow

Liabilities Equity Share Capital 18% Pref. Share Capital Reserves

××× ××× ×××

Non-current Liabilities

×××

Current Liabilities

×××

Assets Fixed Assets (Net) Investments Current Assets Except# #Cash + Bank + Marketable Securities

×××

××× ××× ×××

×××

Non Cash

Cash

×××

Cash Flow Statement ₹ Cash From Operations 1 Net Profit for the year ××× Add Non-cash or Non-operating expenses ××× Less Non-cash or Non-operating income ××× Add Decrease in Current Asset and Increase in Current Liabilities ××× Less Increase in Current Asset and Decrease in Current Liabilities ××× Add Extraordinary Loss (gain) ××× Cash from Operation before Tax and Extraordinary Loss (Gain) ××× Less Tax Paid on Operating Profit ××× Less Extraordinary Loss (Gain) ××× Cash from Operating after Tax ××× 2 Cash from Investing Sale of Fixed Assets and Long Term Investment ××× Less Purchase of Fixed Assets and Long Term Investment ××× Less Tax Paid on Capital Gain ××× Cash from Investing ××× 3 Cash from Financing Issue of Shares and Borrowings ××× Less Redemptions of Shares and Repayment of Loan ××× Less Interest / Dividend Paid ××× Less Tax on Dividend Distribution ××× Cash from Financing ××× 4 Cash from operating, Investing & Financing [1+2+3] ××× 5 Opening Balance [Cash + Bank + Marketable Securities] ××× Closing Balance [Cash + Bank + Marketable Securities] ××× Points to be noted: Profit or Loss on sale of short term investment [marketable securities] Case Treatment 1 2

Profit on sale Loss on sale

Accounting Standard

Less in NP to arrive Cash From Operation & Closing Cash Balance Plus in NP to arrive Cash From Operation & Closing Cash Balance

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AS4. CONTINGENCIES AND EVENTS OCCURRING AFTER THE BALANCESHEET DATE AS5. NET PROFIT FOR THE PERIOD PRIOR PERIOD ITEMS / CHANGES IN ACCOUNTING POLICIES AS29. PROVISIONS, CONTINGENT LIABILITIES, CONTINGENT ASSET

Disclose in Director’s report

Contingency Exist on B/S Date Loss Gain (AS Reasonable Probable Remote 29) Possible Provision Note Ignore Provision deductible from assets only taken

After B/S Date

Events Occurring after the B/S Date Exist on B/S Date Adjusted in the books

AS4: only for (1) Provision for DD % (2) Proposed dividend

New events after B/S Date Non-adjusted [but note]

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AS6. DEPRECIATION ACCOUTING Asset  Controlled by enterprise   Result of past events  Expected flow of future economic benefit 

Method of Depreciation  Straight line  Written down value

Depreciable Asset

Depreciation

Useful life exceeding 1 year Limited life Used for production or rendering service

Measure of wearing out, consumption or other loss of value  Distribution of total cost over its useful life 

Selection of Method

 Type of asset  Nature of asset  Circumstances

Non-applicability

A/c Treatment

Forest, plantations Wasting assets R&D expenditure Goodwill Livestock

Changes in Method

 Must be consistent from Legal Requirements period to period  AS requirements  Better presentation

DEPRECIATION(If straight line method is adopted) = [Depreciable Amount = Original Cost – Scrap Value] Cost + + +/-

+/+/+/-

Cost Acquisitioncost Installationcost Changes inFOREXas per AS 11 Price fluctuations Changes induties Revaluation changes

×× ×× ××

×× ×× ××

Estimated Life

+/- for Change (1) Due to Revaluation: Depreciation on revalued amount over the remaining useful life. (2) Due to Exchange Variation, Duties,etc.,Depreciation on the revisedWDVover theremaining useful life.

       

Factors to be Considered Legal Contractual No. of shifts Repairs Obsolescence Changes in demand Innovations Production method

+/- for Change Depreciation after change

Scrap Value Revaluednow and thenSubject to Changes

××

1. 2.

3. 4.

A/C TREATMENT IN CASE OF CHANGE 1. Re-compute till change Difference between total depreciation under new method and accumulated 2. depreciation under old method till change Surplus: Credit to P&L A/c Deficit: Debit to P&LA/c

Accounting Standard

Depreciation on Additions / Extensions If it is an integral part: Depreciation over remaining life If it is not an integral part: Separate treatment

REPAIRS DISCLOSURE Charge to 1. Cost P&L A/c 2. Depreciation 3. Useful life DIPOSAL 4. Method Surplus: Credit to P&L5. Change in method 6. Revaluation A/c Deficit: Debit to P&L A/c

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AS7. CONSTRUCTION CONTRACTS Construction Contracts  Directly related to construction of assets  Demolition of assets

Applicability

Types of contract

To contractors 1. Fixed price only 2. Cost plus 3. Mixed

Calculation of Profit / Loss + + + +/-

+ + + -

-

-

Contract Revenue As per the agreement Escalation clause Claims reimbursed For change in Scope Penalty A Contract Cost Incurred Specific cost Cost attributable to contract Specifically chargeable to customer General & administration cost Selling & distribution cost R&D cost Depreciation of idle plant Pre contract cost B Estimated Cost Future cost Payment to sub-contractors in advance C Profit / Loss up to the date [A-B-C] Profit / Loss of Previous Year Profit / Loss of Current Year

1. percentage of (recognized by as 7) 2. completed contract

completion

Measuring Contract Revenue ×× ×× ×× ×× ×× ××

-

% of completion × Revenue Contract Cost Profit up to date Recognized in previous year Profit/Loss for current year

×× ×× ×× ×× ×× ××

Methods of finding % of completion ×× ×× ×× ×× ×× ×× ×× ×× ××

1

Cost to cost method Where, Total cost +

2 3

Cost to date Further estimated cost

×× ×× ××

Survey Method Completion of physical proportion method

Expected Loss ××  Probable that cost is more than revenue ××  Create provision irrespective of work performed ×× and % of completion ×× ×× Change in Estimate ×× Treatment as per AS 5 ××

Recognition of Revenue & Expenses 1. Revenue -Period of Performance 1. 2. Expenses- Period of performance of work for which it is incurred 2. 3. Certainty of collectability 4. Reliable measurement of estimates

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Methods of determining profit/loss

Disclosure Method to determine the % of completion of contract Method to determine the contract revenue recognized in the period

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AS9. REVENUE RECOGNITION Revenue

Timing of Recognition

Gross inflow of cash, receivable1. Sale and other consideration 2. Rendering of services in the ordinary business

Non Applicability 1. 2. 3. 4. 5.

AS 7 AS 12 AS 19 Insurance Gain on sale of assets

Revenue Recognition (2) Rendering of Service

(1) Sale of Goods What is sale? 1. Ownership 2. Significant Methods Seller3. risk/reward Buyer 1. Completed contract 4. Control 2. Proportionate completion → 5. Certainty of → collection Recognition: When there is no condition NORMS a) Delivered Transaction Recognition b) Delayed at buyer’s request 1 Installation On installation Subject to Conditions & & acceptance Transaction Recognition Inspection by client 1 Installation & On installation 2 Advertising On public Inspection & acceptance appearance by buyer 3 Insurance On 2 Sale on On approval commission commencement approval basis / renewal of 3 Guaranteed On reasonable policy sale period 4 Financial Depends upon 4 Warranty Sale Immediate services the case recognition; commission Create provision 5 Admission When the event for unexpired fee takes place warranty 6 Tuition fee Over the 5 Consignment On Delivery to period of buyer inspection 6 Special order On 7 Entry fees Capitalized identification 8 Member Rational basis and kept ready ship fees regarding for delivery timings & 7 Subscriptions On time / value nature of for basis service publication 8 Installment Subsequent uncertainty in sales Collection: create a provision for Cash price On the date of the uncertainty in collection sale Interest Time basis

Accounting Standard

(3) Use of Enterprise Resources and Generating Income

1 2

Transaction Interest Dividend

3

Royalty

Recognition Time basis On declaration On agreement basis

DISCLOSURE 1. Circumstances necessitating the postponement of recognition 2. Excise duty should be  deducted from gross turnover  excluded from opening & closing stock

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AS10. ACCOUNTING FOR FIXED ASSETS Fixed Assets  Useful life exceeding 1 year   Used for production   Not for sale  

Non Applicability

Valuation for Special Cases

Forest, plantations  Hire purchase- Cash price Wasting assets  Jointly held -Pro rata basis Real estate  At consolidated price – Fair basis by competent Livestock valuer Fixed Assets in Financial Statements

(i) + + +/+/-

Historical Cost Purchased Purchase Price Duties Attributable cost Govt. Grants Foreign Exchange Charges Price Adjustments Administration and General OH

×× ×× ×× ×× ×× ×× ×× ××

(ii) + (iii) (a)

(b)

(c)

Self Constructed Direct Cost Attributable Cost Internal Profit Acquit ion in Exchange of Existing Assets Similar Assets: FMV of assets given up or taken up, whichever is more evident Non-similar Assets: FMV of assets given up or taken up, whichever is more evident OR net book value of assets given up In exchange of Shares or other Securities: FMV of assets given up or shares or securities which is more evident

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×× ×× ×× ××

Revalued Price First Time Downward Upward Debit: P/L A/c Credit: P/L A/c Subsequent Revaluation Upward Downward Credit P&L A/c to the Debit revaluation extent already debited reserve to the extent already credited Credit Revaluation Debit P&L A/c for the Reserve for Balance balance amount Amount Improvements and Repairs Increase in future No increase in future economic benefits economic benefits Capitalize Debit P&L A/c Additions & Extensions Integral Part Separate Identity Add to gross block Account separately Retirement & Disposal Retired from active Previously revalued use assets (1) Book value – NRV (1) Profit: Credit to P/L A/c (2) Loss – Debit to P/L (2) Loss: Adjust with A/c Revaluation Reserve of same asset (3) Show in B/S

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AS11. EFFECTS OF CHANGE IN FOREIGN EXCHANGE APPLICABILITY

 Transactions in Forex  Translation  A/c for forward exchange contracts

NON APPLICABILITY

 Presentation in cash flow  Foreign currency borrowings

Accounting Treatment Transaction (a)

(b)

(c) (d) (i)

(ii)

(iii)

Initial Recognition: Rate on the date of transaction or average rate On the balance sheet date Monetary Non-monetary Closing At At Fair rate Historical Value Cost Actual Value Rate on B/S date Contingent Liability.: Rate on B/S date Treatment of exchange difference Initial: Date of transaction: Bank A/c Dr To Borrowings Balance Sheet Date Loss Gain Diff. in Borrowings Dr Exchange Dr To Diff. in To Borrowings Exchange Settlement: Borrowings A/c Dr Diff. in Exchange Dr To Bank

Accounting Standard

Translation

Branch

1 2 3 4 5 6 7

Foreign Operation Joint Venture Subsidiaries Associates Goodwill or Capital Reserve @ Closing Rate

Forward Exchange Hedging

Speculation Trading

Integral Non-integral Historical Historical 1 Balance Closing Rate Cost Rate Sheet Items Closing Closing Stock rate 2 Income & Actual / Expenses Average rate Opening Opening Stock Rate 3 Change in Foreign exchange Currency Monetary Valuation Translation Assets Date Nominal Average Assets Rate Change in P/L A/c exchange Tax effect As per AS 22 Reclassification: Integral to non-integral Adjust in FCTR on date of change Reclassification: Integral to non-integral (1) Non-monetary asset – Historical Cost (2) No adjustment till disposal

Page 10

AS12. ACCOUNTING FOR GOVERNMENT GRANTS NON-APPLICABILITY

RECOGNITION

GOVERNMENT

1.Govt. assistance other than Govt. grants 2.Govt. participation in ownership

1.Compliance with conditions 2. Receipt of grants

1. Govt. 2. Govt. agencies 3. Local bodies 4. Foreign Govt.

Kinds Non-monetary Concessional Rate Free of Cost Acquisition Cost

Nominal Value (Say ₹100)

Non Depreciable Asset No obligation to incur Obligation to incur expenses expenses On Purchase On Purchase Fixed assets A/c Dr Fixed assets A/c Dr To Bank A/c To Bank A/c On Receipt of Grant On Receipt of Grant Bank A/c Dr Bank A/c Dr To Fixed asset A/c To Defer Govt grant A/c (or) Defer Govt. grant Dr Bank A/c Dr To P&L A/c To Capital Reserve (To the extent of depreciation) On Refund On Refund Fixed assets A/c Dr Deferred Govt. grant To Bank A/c A/c Dr (or) P&L A/c (b/f) Dr Capital Reserve A/c Dr To Bank A/c To Bank A/c

Monetary (1) Deduction from Show as deferred gross value of assets income in P/L (2) If grant = cost of the asset, show nominal value of asset in B/S Depreciable Asset Method I Method II On Purchase Fixed assets A/c Dr To Bank A/c On Receipt of Grant Bank A/c Dr To Fixed asset A/c Depreciation A/c Dr To Fixed assets A/c

On Refund Fixed assets A/c Dr To Bank A/c Depreciation A/c Dr To Fixed assets A/c (For remaining life)

On Purchase Fixed assets A/c Dr To Bank A/c On Receipt of Grant Bank A/c Dr To DeferGovt grant A/c Depreciation A/c Dr To Fixed assets A/c Defer Govt grant A/c Dr To Depreciation A/c On Refund Defer Govt grant A/c Dr P&L A/c (b/f) Dr To Bank A/c Depreciation A/c Dr To Fixed assets A/c

NOTE: Grants related to revenue: Received as compensation for expenses or losses already incurred should be recognized as per AS5 Contingency related to grants = Treatment as per AS 4 Promoter contribution= Credited to Capital Reserve

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AS 13 - ACCOUNTING FOR INVESTMENT Non Applicability

Classification

Reclassification

(1) AS 9 (2) AS 19 (3) AS 15 (4) Mutual funds, Venture capital funds

Current Investment Readily realizable, Less than one year

 On the date of transfer  At lower of cost or fair value

Long Term Investment Other than current Investment Property (1) Investment in land or building (2) Not for use in production

Cost of Investment + + -

Purchase price Acquisition charges Pre-acquisition interest Pre-acquisition Dividend Sale of right (if cum-right)

1 2 3

(1) A/c policy (2) Classification (3) Aggregate amount of quoted unquoted securities (4) Any restriction on investment

Carrying Amount ×× ×× ×× ×× ×× ××

Current Investment Whichever is lesser Cost of acquisition or Net Realizable Value

Particulars Investment in shares or securities In exchange of shares or other securities Right shares subscribed

Accounting Standard

Disclosure

Long-term Investment Cost of acquisition (Only permanent reduction is adjusted in cost)

&

Disposal of Investment Investment in Properties Account it as long term

-

Total Sale vale Carrying Amount P/L A/c

×× ×× ××

Partial On average carrying amount

Value Fair value FMV of assets given up or shares or securities which is more evident Added to carrying amount

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AS15. EMPLOYEE BENEFITS Defined Contribution Plans (DCP) 1 2 3 4 5

Retirement benefit Contribution charged to P&L A/c Excess if any treated as prepayment Cost of Defined contribution plan should be accounted as an expense on accrual basis. Enterprise’s obligation is limited to contribution agreed to be made and investment returns arising from such contribution

Defined Benefit Plans (DBP) 1

Enterprise’s obligation is to provide the agreed benefits

2

The extent of obligation islargely uncertain and subject to estimation of future condition and events beyond control

Accounting Treatment

Provision for accruing liability in the P&L A/c for the accounting period

1 2 3

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Own Separate / Specific Fund Established Through Trust(Or) Fund Established Through Insurer Actuarial valuation Actual contribution (+) shortfall to meet actuarial amount to be charged to P&L A/c Excess treated as prepayment

Page 13

AS16. BORROWING COSTS Borrowing Cost

Qualifying Asset

Conditions for Capitalization

Interest and other cost incurred relating to borrowing. Includes Amortization of discounts or premium and ancillary cost  Finance charges under finance lease  Exchange differences in interest cost

Asset which takes substantial period of time to get ready for its intended use or sale Example: Fixed asset in construction process Intangible asset in development phase

(1) Direct attribution to acquisition, production or construction of qualifying asset (2) Future economic benefit

Amount eligible for capitalization 1

2

Specific Borrowing Actual borrowing cost (-) Income from temporary investment of borrowing General Borrowing  Determine on the basis of capitalization rate to the expenditure on that asset  Amount capitalized during the period should not exceed the total borrowing for the period

Expenditure on Qualifying Asset  Includes payment of cash, transfer of other asset or assumption of interest bearing securities.  Deduct progress payment and grant received towards the cost incurred

Accounting Standard

Commencement of capitalization 1 2 3

satisfy three conditions: Progress of activities essential to prepare the asset for intended use Incur borrowing cost Incur expenditure for acquisition, construction or purchase of qualifying asset

Suspension of Capitalization Suspend when active development is interrupted Don’t suspend for temporary delay Cessation Of Capitalization Cease when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are completed Disclosure 1. A/c policy 2. Amount capitalized during the period

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AS17. SEGMENT REPORTING

1 2

Segment

Enterprise revenue

Business segment Geographic segment

Revenue from sales to external customers are reported in P&L A/c

Segment Revenue + + -

Enterprise revenue directly attributable to the segment Revenue from transactions with other segments extraordinary items Interest/ dividend Gain on sale of investment

Segment result

Segment Expenses ××

+

××

+

×× ×× ×× ××

-

Expenses directly attributable to the segment Reloading to transactions with other segments extraordinary items Interest cost Loss on sale of investment Income tax Administrative expenses

-

Segment Revenue Segment expenses

Segment Assets ××

+

××

+

×× ×× ×× ×× ×× ××

-

1 2 2.1 2.2 2.3 3

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Primary

Segment Liabilities

Employed by the segment in its operation Directly attributable to the segment Allowances and provisions

××

+

Operating liabilities

××

××

+

××

××

-

Income tax assets Administrative expenses

×× ×× ××

Directly attributable to the segment Income tax liabilities Other liabilities for financing purposes

Reportable Segments Condition Risk and Return Affected by Difference in product/ service Difference in area Location of assets & customers Assets only Customers only Difference in product / service and difference in area

×× ×× ××

Geographic (Customer)

Geographic Geographic (Assets) Geographic (Customer) Business

Business Business + Geographic (customer) Business + Geographic (assets) Geographic (Customer)

××

Identification of Reportable Segments

Secondary

Business

×× ××

1 2 3 4 5

> 10% of total segmental revenue > 10% of total segment result > 10% of total assets of all the segments Management’s discretion 75% of total external revenue

Page 15

AS18. RELATED PARTY DISCLOSURES Related Party

Exceptions

Associates Subsidiaries Holding company Joint ventures KMP & their relatives Direct/ indirect control  Common control

 Common director not able to influence mutual dealings  Single customer / supplier / franchiser  Finance providers  Trade union  Govt. departments & agencies  State controlled enterprises

     

Related Party Transactions

What should be disclosed?

Transfer of resources or obligations between related parties regardless of whether or not a price is charged

 Related party relationship  Transactions between a reporting enterprise and its related party

Classification of Related Party Control  >51% of shareholding  Composition of Board of directors  Substantial voting power

    

Significance Influence Representation of Board of directors Material inter-company transactions Participation in policy making Dependence on technical information Inter change of managerial personnel

Disclosure Requirements Due to control and there is no transactions 1. Name of the related party 2. Nature of relationship

Due to significant influence & there is no transactions No disclosure

Due to both and there are transactions 1. 2. 3. 4. 5.

Name of the related party Nature of relationship Nature of transactions Volume of transactions Any other element essential for understanding financial statements 6. Proportions of outstanding items 7. Amount written off/ back in the period

Note: Disclosure is mandatory even if the related party transactions is at arm length price

Accounting Standard

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AS19. ACCOUNTING FOR LEASES Non Applicability  Lease agreement to explore natural resources  Licensing agreements for films, plays, etc.,  Lease agreement to use land Finance Lease

Operating Lease

 Transfers substantially all risks and rewards incidental to ownership to the lessee  No transfer of legal ownership  Lease term covers major part of the asset’s life In the books of In the books of lessor lessee Recognize at fair Recognize receivable equal to value at the net investment inception of lease Finance income should be (or) recognized in proportion to Present value of outstanding balances MLP from lessee point of view Whichever is lower

 It doesn’t transfer substantially all the risk and reward incidental to ownership

In the books of lessor Charge depreciation as per AS 6 Recognize lease income in P&L A/c using straight line method

Minimum Lease Payment (MLP)

+ + -

+

Lease rent Guaranteed residual value Unguaranteed residual value Contingency rent Other cost/tax MLP Gross Investment Net Investment (PV of MLP) Unearned Finance Charges

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Sale and Lease Back

Lessor ×× ××

Lessee ×× ××

××

NA

×× ×× ××

×× ×× ××

××

××

××

××

××

In the books of lessee Recognize expenses in P&L A/c on straight line basis

××

1 2

Finance Lease Any P/L on sale is deferred Operating Lease SP=FV

SPFV

SP

9

11

11

9

9

11

12

9

FV

9

11

12

12

12

10

11

8

CV

10

10

10

10

10

10

10

10

P/(L)

(1)

1

1

(1)

-

0

1

(2)

SP-CV Defer

-

-

-

FV-CV -

(1)

1

1

1

NC

C

SPFV

SPFV

SPFV

Page 17

AS20. EARNINGS PER SHARE 1

Basic EPS

2

Diluted EPS Weightage

1 2 3 4 5 6 7 8 9 10

Equity shares for cash Equity shares against conversion of debt Against interest or principal of instrument In exchange of settlement of liability Service Partly paid up Purchase Merger Rights issue Bonus issue

Date of receipt of cash Date of conversion Date when interest ceases to accrue Date of settlement when the service was rendered Fraction in the ration of paid up to face value Date of acquisition Full year Right factor Full year

Note: Potential equity shares must be ranked in the order of dilutive effect

Accounting Standard

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AS22. ACCOUNTING FOR TAXES Objective

Deferred Tax

Current Tax

Tax shall be accounted on accrual basis and not on liability to pay

Income tax determined to be payable as per Income tax Act

Tax effect of timing difference between tax expense on accrual basis and current tax liability as per Income tax Act

Deferred Tax 1

Accounting income > Tax income

Tax on accounting income > Tax payable as per Income Tax Act P&L A/c Dr ×× To Deferred Tax A/c (Deferred Tax Liability)

2

Accounting income < Tax income

Tax on accounting income < Tax payable as per Income Tax Act Deferred Tax A/c Dr ×× To P/L A/c (Deferred Tax Asset)

3

××

Income as per Income Tax; Loss as per Accounts

××

Tax on accounting income is nil; there is liability to pay tax Deferred Tax A/c Dr ×× To P/L A/c ×× (Deferred Tax Liability)

4

Loss as per Income Tax; Accounting profit; MAT is payable

Tax on accounting profit but tax as per IT is nil; Carry forward of loss is allowed

P&L A/c Dr ×× To Deferred Tax A/c (Deferred Tax Asset)

1 2 3

××

Case

First year

Subsequent year

Depreciation allowed is excess Disallowed expenses Disallowed incomes

DTL (AT-CT) (Cr) DTA (CT-AT) (Dr) DTL (Cr)

Dr Cr Dr

Permanent difference Originate in one period and don’t reverse subsequently. It is permanent in nature Unabsorbed Depreciation & Carry Forward Of Losses Recognized only if there is sufficient taxable income available against which such deferred tax can be realized

NOTE: Deferred tax assets and liabilities should not be discounted to their present values.

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AS23. ACCOUNTING FOR INVESTMENTS IN ASSOCIATES IN CONSOLIDATED FINANCIAL STATEMENTS Associates Enterprise in which the investor has significant influence and which is neither subsidiary nor joint venture

Non Applicability 1 2 3 4

Investor having no significant influence in an associate Investment held exclusively for disposal Associate operate under long term restrictions which impair transfer of funds When consolidated financial statement of investor is not made

Equity Method of Accounting 1 -

2 +/+/3 4

Investment (At cost) Net worth (not to be negative) Goodwill / (Capital Reserve)

×× ×× ××

Carrying Amount = Book Value Investor’s share in the profit / loss of associate Investor’s proportionate interest from changes in associates’ equity Distribution from associate received

×× ×× ×× ×× ××

Eliminate unrealized profits and losses Investor’s share in associates profit or loss should be computed after cumulative preference share whether or not dividend has been declared

Carrying Amount of Investment in Associates  Reduce any permanent decrease in the value  Share of losses ≥ Carrying amount = Investment @nil value Contingency  Disclose contingent liabilities  Contingencies for which investor is severally liable Disclosure  Description of associate  Investment in associate’  Difference in reporting dates of associates and investor  Any differences in the accounting policies

Accounting Standard

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AS24. DISCONTINUING OPERATIONS Discontinuing Operation

2 3

Not a discontinued operation Single plan  Disposing substantially entirety  Demerger/ Spin off  Piece meal disposal  Abandonment Separate major line of business Distinguished operationally

1

Initial Disclosure Event

1

2

3

4 5

Which are not Discontinuing Operation? 1 2 in

its

Planned change Abrupt or unplanned changes  Gradual phasing out of product line  Shifting of production/ marketing to various location  Closing of facility to achieve productivity  Selling subsidiaries

Agreement to sell substantially all assets of discontinuing operation (OR) Approving & announcing of the plan Whichever is earlier Initial Disclosure  Description of operation  Segments reported  Date and nature of initial disclosure event  Time expected of discontinuance  Carrying amounts  Amount of revenue & expense  Pre-tax profit  Net cash flows Other Disclosures Gain or loss on disposal of assets/ settlement of liabilities Net selling price, carrying amount of assets under binding sale of agreements Updating Disclosure Up to and including the period of discontinuance gets completed. Interim Financial Reports Disclose in notes  Any significant activity or event relating to discontinuing operation  Change in the amount or timing of cash flows relating to assets and liabilities to be disposed/ settled.

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AS25. INTERIM FINANCIAL REPORTING Interim Financial Reporting Reporting for periods of less than a year generally for a period of 3 periods

Financial Statements 1 2 3 4

Balance sheet Profit & loss A/c Cash flow statement Notes to Accounts

Principles of Recognition Integral View  Measure interim period income by viewing each interim period as an integral part of annual financial period

Discrete View  View each interim period separately  Year to date basis  For income tax expenses, use weighted average annual effective tax rate

Form and Contents 1 2 3 1 2 3 4 5 6 7 8 9

Accounting Standard

Completed financial statements Condensed financial statements Selection of explanatory notes Minimum Disclosure of Notes Change of accounting policies Seasonal or cyclical effects Unusual factors Change in debt and equity Changes in estimates Details of dividend payment Material event Effect of changes in composition of the enterprise Material change in contingent liabilities

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AS26. INTANGIBLE ASSETS Non Applicability

Intangible assets

Recognition criteria

 Financial assets  AS 14; AS 22; AS 19  Extraction or exploration of natural resources except startup costs  Insurance  Share issue expense  Termination benefits

 Identifiable  Non-monetary  No physical substance Retirement & Disposal Recognize gain or loss in P&L A/c

 Characteristic of an asset  Future economic benefits  Reliably measured Amortization Over the useful life

Categories Un-identified

Research cost Debited to P/L A/c Development Costs Capitalise Subsequent expenses Attributed to asset Increase future economic benefits 1. Yes: capitalize 2. No: Debit to P/L A/c

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Acquired and Identified Separate acquisition Exchange of assets Issue of shares / securities Govt. Grants Amalgamation [Purchase]

Cost of acquisition Fair value of which is more evident Fair value of which is more evident As per AS 12 Goodwill Others Recognize Include in the value goodwill

Internally generated Goodwill

Intangible assets

Non recognized +

+ + + -

-

Development stage Expenses on materials & services Salaries and wages Direct Cost Overheads Selling, admn cost Initial operating cost Expenditure on staff training

Brands ×× ××

×× ×× ×× ××

Publishing titles and other similar items should not be recognized

××

××

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AS27. FINANCIAL REORTING OF INTEREST IN JOINT VENTURE Joint Venture

Operator Fee

A contractual agreement whereby two or more parties carry an economic activity under joint control

 Recognize as per AS 9  Fee is an expense for joint venture

Forms of joint venture Jointly Controlled Operation Parties carry out joint venture activities side by side of their main business Financial Reporting: 1. Assets it controls 2. Liabilities it incurs 3. Expenses it incurs 4. Share of income

Jointly Controlled Assets Joint ownership of assets for the purpose of sharing economic benefits Financial Reporting: 1. Share in assets 2. Liabilities incurred 3. Income from sale / use of its output in joint venture 4. Separate expenses

Jointly Controlled Entities Joint control is exercised by the ventures over the economic entity Financial Reporting: 1. In Separate Financial Statement : Treatment as per AS 13 2. In Consolidated Financial Statement: Interest should be reported as per proportionate consolidation as per AS 21

Transaction Between A Venturer And A Joint Venture 1

2

Jointly Controlled Operation and Assets Sale Account for profit / loss attributable to other venturer’s interest Loss Recognise full loss Profit No recognition till resale Jointly Controlled Entities Profit / Loss As per AS9 Consolidated Same as jointly controlled operation and assets

Accounting Standard

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AS28. IMPAIRMENT OF ASSETS Impairment of Assets

Non Applicability

Weakening in the value of asset Carrying amount > Recoverable amount

-

   

AS 2 AS 7 AS 13 AS 22

Impairment Loss for Cash Generating Unit

Effect of Impairment on Depreciation / Amortization

Ignore impairment of division if there is no impairment to the cash generating asset

Review as per AS 6 / AS 26

Carrying Amount

Recoverable Amount

Cash Flows

(Book value)

(Net selling price)

Include:  From continuing use of assets  Projected cash flow  Net cash flow if any to be received (or paid) for disposal of asset at the end of its useful life Exclude:  Cash flow from financing activities  Income tax receipts and payments

Original cost Depreciation

×× ××

1 2

Whichever is higher Sale vale Cost of disposal or Value in use (P.V of estimated future cash flow + P.V of residual value)

×× ×× ××

Recognition for individual asset At historical cost Debit P/L A/c (Carrying amount – Revalued amount)

At revalued amount Loss = Revaluation reserve Setoff against revaluation reserve

Loss > Revaluation Reserve Balance should be debited to P&L A/c

Reversal of Impairment of Individual Asset 1 2

Asset A/c To Reversal of Impairment A/c Reversal of Impairment A/c To P/L A/c

Dr

×× ××

Dr

×× ××

Note: After reversal, the carrying amount should not exceed the carrying amount that would have been determined had no impairment loss been recognized in prior accounting period.

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AS29. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS Non-applicability (1) Financial Instruments

(2) Resulting from executor contracts

(3) Insurance

(4) AS 7, 15, 19, 22

Obligation for Past Events Present Obligation Exist on B/S Date + Probable (Most likely) Provision [If not deductible from asset] Probable outflow of resources Measurement of quantum of liability Result of past events

1 2 3 4 5 6

7

1 2 3 4 5

6

1 2 3 4 5

Recognition Present obligation Result of past events Exist on B/S date Probable Outflow of resources No provision for future expenditure which can be avoided by future action No recognition of future operating cost Measurement Best estimate No discounting to present value Consider risk & uncertainty Don’t deduct profit on disposal of assets Consider additional evidence, if any, after B/S date Consider before tax Disclosure Opening balance Additions Unused provision Closing balance Expected reimbursement recognized as an asset

Accounting Standard

Contingent Liability No Probable outflow Cannot Measure quantum of liability

1 2 3 4 5

Recognition Present obligation Doesn’t Exist on B/S date No Probable Outflow of resources

Quantum can’t be measured If it becomes probable that an outflow of future economic benefits will be required to settle obligation, it can be recognized as provision afterwards

Possible Obligation Doesn’t Exist on B/S Date Not Probable Contingent Liability / Contingent Assets Confirmed by future events, not within control of orgn. May happen  Contingent Liability Contingent Assets  No recognition Disclosure in director’s report

Restructuring

Disclose only in Director’s report (1) programme that is planned & controlled by Disclosure management 1 Nature (2) Materially affects the (a) 2 Estimate, if possible scope of business (b) 3 Indication of uncertainties manner of conduct 4 Any reimbursements Provision for Restructuring Cost (Accounting) Include (1) Cost of terminating lease/contracts (2) Cost representing contractual obligations with no economic benefits

Exclude (1) Cost of refraining (2) Marketing cost (3) Expected loss on sale of asset (4) New investments

Recognize if recognition principle of provisions is satisfied No A/c treatment is prescribed

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