ACCOUNTING STANDARDS

INTRODUCTION
TO
ACCOUNTING STANDARDS

What are Accounting Standards

AS are written policy documents

issued by expert accounting body or
by government or other regulatories
body

What these covers

Recognition
Measurements
Treatment
Presentation
Disclosure
of accounting transaction in the
financial statements

Objective
Is to standardized the diverse accounting
polices and practices
with a view to eliminate to the extent
possible the non-comparability of financial
statements
Add the reliability to the financial statements

Accounting Standard & Boards Report

Section 217(2AA) (i) of Companies

Act, 1956 states that Directors
responsibility statement should include
that in the preparation of the annual
account & applicable accounting
standards had been followed along with
proper explanations relating to material
departure

Applicability of AS w.e.f. 01.04.2004

Accounting Standards Rules (2006)

Notified on 07.12.2006
Two types of Companies

- SMC & Non- SMC

Some relaxation to SMC
All the AS & ASI notified verbatim
ASI-11, 12, 27 & 29 not notified

 Exchange difference with have to be

adjusted in P&L in case of asset
linked exchange difference
AS-18 applicable to all companies
AS-20 applicable to all companies

Global Accounting
Need for Harmonization &
Standardization
International Accounting Standards
(IAS/IFRS)
US GAAP

International Accounting Standards

(IAS/IFRS)

41 IAS (Effectively 29)

8 IFRS
Comparision with Indian Accounting
Standards
29 AS
Guidance notes
2 Exposure drafts

US GAAP Hierarchy
Level A
FASB Statements
FASB Interpretations
APB Opinions
Accounting Research Bulletin

US GAAP Hierarchy
Level B
FASB Technical Bulletins
AICPA Industry Audit & Accounting
Guides
AICPA Statements of Position

US GAAP Hierarchy
Level C
AICPA Practice Bulletins
Emerging Issues Task Force
Consensus Positions

AS1
DISCLOSURE OF ACCOUNTING
POLICIES

What are Accounting Policies

Specific accounting principles and the

method applying those principles
adopted by the enterprises in
preparation and presentation of the
financial statements

Examples of Accounting Policies

Methods of deprecation
Valuation of inventories
Revenue recognition
Amortization

What are Notes to Accounts?

Notes to accounts are the explanation
of the management about the items in
the financial statements

Need for disclosure of Accounting

policies
For proper and better
understanding of financial
statement.
All significant accounting
policies should be disclosed at
one place.

Fundamental Accounting Assumptions

Going Concern
Consistency
Accrual
Assumption as regards fundamental accounting
assumption

Selection of Accounting Policies

Prudence
Substance over form
Materiality

Change in Accounting Policies

Adoption of different accounting

policies is required by statute
For compliance with accounting
standard
It is considered that change would
result in more appropriate
presentation of financial statement

AS 2
Valuation
of
Inventories

Objective
To formulate the method of
computation of cost of inventories

Definition
Held for sale in the ordinary course of
business (finished Goods)
In the process of production (Rawmaterial & WIP)
Material or supplies to be consumed in
production or rendering of services
Spares - Regular

Not applicable to
WIP under construction contract
WIP for service provider
Financial instrument held in stock
in trade.
Producers
inventory
like,
livestock, agricultural and forest
product, mineral oil, ore and gases.

Measurement of inventories
Inventories should be valued at lower
of cost and net realisation value.
Determination of cost of inventories
Determination of net
realisable
value of inventories
Comparison between the cost and net
realisable value

What is Cost of Inventories

Cost of purchase
Cost of conversion
Other costs (incurred in bringing the
inventories to their present location
and condition)

Cost of Purchase

Purchase price
Duties and taxes
Fright inward
Other expenditures directly attributable to the
acquisition
Less:
Duties and taxes recoverable by enterprises
Trade discount
Duty drawback
Other similar items

Cost of conversion
Direct labour, direct material, direct
expenses
Systematic allocation of fixed and
variable production overheads
Inclusion of excise duty in valuation
of finished goods.

Exclusion from cost

Abnormal Cost
Interest cost subject to AS-16
Storage cost
Administrative overhead
Selling & distribution cost

Cost Formula

Specific identification method

Specific identification method not
applicable
* FIFO
* Weighted average

Cost of inventories in certain

conditions
Standard cost
Retails method

What is net realisable value

Estimated selling price
Less:
Estimated cost of completion
Or
Estimated cost necessary to made

Estimation net realisable value of

raw material
If finished production in which raw
material and supplies used is sold at
cost or above cost
If finished product in which raw
material and supplies used is sold
below cost Replacement price

Disclosure in financial Statements

Accounting policy
measuring inventories

adopted

in

Cost formula used

Classification of inventories like,
finished goods, WIP, raw material,
spare parts and its carrying amount.

AS-3
CASH FLOW STATEMENT

Need and Objective

Cash flow statement is additional
information to user of financial
statement

Applicability
This AS applies to the following
enterprises : Which has turnover more than Rs.
50 crores in a financial year
Listed companies cash flow
statement of listed companies shall
be presented only under the
indirect method as prescribed in
AS-3

 Banks, Financial institution &

Insurance companies.
All commercial enterprises having
borrowings
including
public
deposits in excess of Rs. 10 crores.
Holding & subsidiaries enterprises
of any of the above.

Features
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities

Cash Equivalents
It consists of short-term highly liquid
investments

Operating Activities
Cash receipts from the sale of
goods & the rendering of services
Cash receipts from royalties, Fee.
Commission & other revenue

Operating Activities
Cash payments to supplier for
goods & services
Cash payments to & on behalf of
employees

Investment Activities
Cash payments to acquire fixed
assets
Disposal of fixed assets
Acquire share, warrants or debt
instruments
Disposal of shares, warrants or
debt instruments

Financing Activities
Sale of share
Buyback of shares
Redemption of preference shares

Financing Activities
Issue / redemption of debentures
Long-term loan/payment thereof
Dividend/interest paid

Cash
flow
from
operating
activities
Direct Method In this method,
gross receipts & gross payment of
cash are disclosed.
Indirect Method In this method,
profit & loss a/c is adjusted for the
effects of transaction of non- cash
nature.

Received
Interest
From investment
From short-term investment classified,
as cash equivalents should be
considered as cash inflows from
operating activities
On trade advance & operating
receivable should be in operating
activities

Interest Paid
On loans/ debts is financing activities
On working capital loan & any other
loan taken to finance operating
activities is in operating activities

Dividend Received
For financial enterprises in operating
activities
For other than financial enterprises
in investing activities

Dividend Paid
Always classified as financing activities

Cash flow from foreign currency

transactions
The effect of change in exchange rate in
cash and cash equivalents held in
foreign currency

Extra-ordinary items
Separately disclosed
Treatment of Tax
Cash flow for tax payments/refund
should be classified as cash flow from
operating activities

Extra-ordinary items
Separately disclosed
Treatment of Tax
Cash flow for tax payments/refund
should be classified as cash flow from
operating activities

Cash flow relating to investments

in associates, subsidiaries & joint
venture

Reporting cash on net basis

Cash receipts & payment on behalf of
customers
Cash receipts & payments for items in
which the turnover is quick

Cash flow relating to acquisition or

disposal of subsidiaries
Non-cash Transaction

Acquisition
of
assets
by
assuming
directly
related
liabilities
Acquisition of an enterprises by
means of issue of shares
Conversion of debt to equity

Disclosure of
equivalents

cash

and

cash

Disclose the components of cash

and cash equivalents and should
present a reconciliation of the
amount in the cash flow statement
with the equivalent items reported
in the B/S

Disclosure of
equivalents

cash

and

cash

Disclose the amount of significant

cash & cash equivalent balance held
by the enterprises that are not
available for use by it with
explanation of management

Significant
difference
with
IFRS/IAS-7 & US GAAP
IFRS/IAS-7 & US GAAP allow
interest & dividend paid or received as
operating cash flows whereas AS-3
does
not
US GAAP does not specially require
disclosure of extraordinary items
whereas
AS-3
requires

Significant
difference
IFRS/IAS-7 & US GAAP

with

AS-3 & US GAAP do not make

explicit distinction between bank
borrowings & overdraft, whereas
IFRS/IAS-7
makes
so

AS 4
CONTINGENCIES AND
EVENTS OCCURING
AFTER THE BALANCE
SHEET DATE

Need and Objective

While following prudent accounting
policies, the provision is made for
all known liabilities and losses
even for those liabilities/events,
which are probable

The AS deals with

Contingencies

Events occurring
balance sheet date

after

the

Applicability
Liabilities of life assurance and
general insurance

Obligation under
benefit plans

Commitments arising from longterm lease contracts

retirement

What is contingency
Now covered by AS-29, except
provision for bad & doubtful debts

Events occurring after the Balance

Sheet date
Events, which occur between the
balance sheet date and the date on
which financial statements are
approved by the competent authority
These events significant events and
may be favorable & unfavorable

Adjusting Event
The events related to circumstances
existing on the date of balance sheet
Accounting Treatment: -Loss should
be accounted in the accounts and assets
& liabilities to be adjusted

Non-adjusting Event
The events not related to circumstances
existing on balance sheet date, in other
words entirely new events after B/S
date
Accounting Treatment: -Disclosure
by way of notes to accounts only, no
adjustment in accounts

Event effecting going concern

Proposed Dividend
Event occurring after approval of
accounts

Disclosure
If material contingent loss is not
provided for, its nature and an estimate
of financial effect should be disclosed
by way of note.

Significant
difference
with
IFRS/IAS & US GAAP
Proposed dividend after balance
sheet date but before the date of the
financial statements in non adjusting
event
under
corresponding
IFRS/IAS 10 & US GAAP. However
as per AS-4, the proposed dividend
is shown in balance sheet and
treated as adjusting event

Significant
difference
IFRS/IAS & US GAAP

with

Securities Exchange Commission

regulation of US requires the
adjustment of declared dividend
after the balance sheet date but
before the issuance of financial
statements

AS5

NET PROFIT OR LOSS

FOR THE PERIOD,
PRIOR PERIOD ITEMS
AND HNAGE IN
ACCOUNTING
POLICIES

Objective
The objective of this accounting
standard prescribing the criteria for
certain items in the profit and loss
account so that comparability of the
financial statement can be enhanced

Components of net profit

Profit or loss from ordinary activities

Extra-ordinary items

Ordinary activities are defined as any

activities, which are undertaken by an
enterprise as part of its business and
incidental to main business

Profit/loss from ordinary activities

When items of income and expenditure
from ordinary activities are of such size
and nature that their disclosure is
relevant to explain the performance of
the enterprises for the period

These items are not Extraordinary items

The write down of inventories
Restructuring cost or reversal of
provision
Profit or loss on disposal of fixed
assets

These items are not Extraordinary items

Profit or loss on disposal of long-term
investment
Litigation settlements
Reversal of provisions
Legislative charge having long-term
retrospective application

Extra-ordinary items
Extraordinary items are income or
expenses that arise from transactions
that are clearly distinct from ordinary
activities

Example Extra-ordinary items

Loss due to earthquakes
Attachment of property
Govt. grants becoming refundable
Govt. grants for giving immediate
financial support with no further cost

Example Extra-ordinary items

Govt.
grant
receivable
as
compensation for expenses or losses
incurred in previous accounting
period.

Prior Period Items

Prior period items are income or
expense, which arise in current period
as a result of error or omission in the
preparation of financial statement of
one or more prior periods

Disclosure of Prior Period Items

Should be separately disclosed in the
statement of profit loss in manner that
their impact on current profit or loss an
be perceived

Examples of Prior Period Items

Error in calculation in providing
expenditure or income
Omission to account for income or
expenditure
Non-provision
expenses

of

travelling

Examples
of
Prior
Period
Items
Non-provision for salary
Applying
incorrect
depreciation

rate

of

Treating operating lease as finance

lease
Capitalisation f borrowing cost on

Change in Accounting Estimate

Estimation of provision of sundry
debtors
Estimation of provision of any
liabilities
Computing income tax provision
Estimating the useful life of fixed

Effect of Change in Accounting

Estimate
If an estimate pertains to ordinary
activities classified as ordinary
activities
If estimates pertains to extraordinary
items classified as extraordinary

AS 6
DEPRECIATION
ACCOUNTING

Depreciation is loss of value of an

asset
It is a measure of wearing out,
consumption or other loss of value
of depreciable asset arising from use
and passes of time

Depreciable Assets
Are expected to be used for more
than one accounting period
Have a limited useful life
Are held for use in production of
goods & services

Applicability
of
AS
Except the followings:
Forests, Plantations
Wasting assets, Minerals & Natural
Gas
Expenditure
on
research
&
development
Goodwill
Live Stock Cattle, Animal
husbandry

Calculation of depreciation
Historical cost or other amount in
place of historical cost
Estimate useful life of depreciable
assets
Estimated residual/scrap value

Cost of Depreciable Asset

Increase/decrease
in
liability

long-term

Price adjustments
Changes in duties
Revaluation of depreciable assets

Estimated useful life of Depreciable

Asset
Pre-determined
by
legal
or
contractual limits
Depends upon the number of shifts
for which the asset is to be used
Repair & maintenance policy

Estimated useful life of Depreciable

Asset
Technological obsolescence
Innovation/improvements
Legal or other restrictions

Estimated residual /scrap value of

depreciable asset
It is estimated value of depreciable
assets at the end of its useful life

Depreciable amount
Historical Cost
Less
Residual Value

Method of Depreciation
Straight Line Method (SLM)
Written Down
(WDVM)

Value

Method

Selection of appropriate method

Type of assets
Nature of the use of such asset
Circumstances prevailing in the
business
A combination of more than one
method may be used

Change in depreciation method

For compliance of statute
For compliance
standards

of

accounting

For more appropriate presentation

of the financial statement

Procedure to be followed in case of

change in depreciation method
Change of depreciation method should
be treated as change in accounting
policy and its effect should be
quantified and disclosed

Change in estimated useful life

Should be allocated over the revised
remaining useful life of assets

Change in historical cost

Provided prospectively over
remaining useful life of the assets

the

Change in historical cost due to

revaluation
Estimate of the remaining useful lives
of the such assets

Depreciation charge on
addition/extension to an existing
asset
Addition/extension is an integral part
of existing asset
Remaining useful life of the asset

Depreciation charge on
addition/extension to an existing
asset
Addition/extension is not an integral
part of existing assets
Estimated useful life of
additional assets
Depreciable asset is disposed of,
discarded, demolished or destroyed

Disclosure
Total cost of each class of assets
Total depreciation
Accumulated depreciation
Depreciation method

Disclosure
Depreciation rate, useful life of assets,
if they are different than the rate
specified in governing statute
A change in method of depreciation
Effect of the revaluation

Significant differences with

IAS/IFRS & US GAAP
AS-6 allows the depreciation on
revalued value however, US GAAP
prohibits revaluation. IAS-16 allows
fair value accounting.

Significant differences with

IAS/IFRS & US GAAP
Change in depreciation method under
AS-16 & US GAAP is treated as a
change in accounting policy; whereas
IAS-16, change in estimate.

AS9

REVENUE
RECOGNITION

Objective
When the revenue should be
recognised in profit & loss account
The circumstances in which revenue
recognition can be postponed.

What is revenue
Revenue means gross inflow of cash,
receivable or other consideration arising
in the course of ordinary activities of an
enterprises, such as:
The sale of goods
Rendering the services
Use of the enterprises resources by others
yielding interest, dividend & royalties

Applicability
Not applicable to :
Revenue arising from construction
contract
Revenue arising from hire purchase,
lease agreements

Applicability
Not applicable to :
Revenue of insurance companies arising
from insurance contract
Gain realised or unrealized gain.
Example Profit on sale of fixed assets.

Revenue from sale of goods

Transferred the ownership of goods to
buyer,
Or
All significant risk & rewards of ownership
Does not retain any effective control
Uncertainty in collection

Revenue recognition when delivery

of goods sold subject to conditions
Installation & inspection
Sale on approval
Guaranteed sales
Warranty sales
Consignment sales

Subscription for publication

Instalment sales
Revenue Swaps
Repo Arrangement

Revenue from rendering of the

services
Completed services contract method
Proportionate Completion Method

Revenue recognition
Installation fee
Advertising & insurance agency
commission
Financial service commission
Admission fee
Tuition fee
Entrance & Membership fee

Revenue from interest

Revenue from royalties
Revenue from dividend
Subsequent uncertainty in collection

Disclosure
When the revenue recognition is
postponed, the disclosure of the
circumstances necessitating the
postponed should be made

Disclosure of revenue from sales

transactions (ASI-14)
Turnover (Gross)
Less: Excise Duty
Turnover (Net)

XX
XX
XX

Guidance
note
on
revenue
recognition of real estate sale
The seller has transferred to the buyer all
significant risk & rewards
It is not unreasonable to expect ultimate
collection
No significant uncertain the amount of
consideration that will be derived.

Export related benefits such as

DEPB
Treatment
transfers

of

inter-divisional

Significant
difference
IFRS/IAS-18 & US GAAP

with

The definition of revenue is almost

same in AS-9 & IFRS/IAS-18
There is no specific standard for
recognising revenue under US GAAP
Under IFRS/IAS-18 - Basis of
percentage of completion method

Significant
difference
IFRS/IAS-18 & US GAAP
AS-9 Two methods, POC &
Completed method

with

IFRS/IAS-18 contains the provisions

for revenue swaps, however. No such
corresponding provisions are in AS-9.

AS10
ACCOUNTING FOR
FIXED ASSETS

Fixed Assets
Held with intention of being used
for the purpose of producing or
providing goods and services
Not held for sale in the normal
course of business
Expected to be used for more
than one accounting period

Applicability
Not applicable to : Forests, plantations and similar
regenerative natural resources
Wasting assets like, minerals, oils
& natural gas.
Expenditure on real estate
development
Live stock

Fixed
assets
in
financial
statements
Historical cost- Cost of acquired fixed
assets.
Purchase price
Import duties & other non-refundable
taxes
Any directly attributable cost of
bringing the asset to the working
condition for its intended use

Historical cost of self-constructed

fixed assets
All cost which are directly related to
the specific asset
All costs that are attributable to the
construction activity should be
allocated to the specific assets
An internal profit included in the cost
should be eliminated

Cost of asset acquired in exchange

of existing assets
Fixed assets exchanged not similar
Fixed assets exchanged are similar
Fixed assets acquired in exchange of
share or other securities

Revalued price

Method of presentation of
revalued asset in financial
statement
By re-stating the gross book value
and accumulated depreciation

By re-stating net block value adding

there in the net increase on account
of revaluation

Maximum amount of revaluation

Revaluation of fixed assets should be
restricted to the net recoverable amount

Accounting
revaluation

treatment

of

First time revaluation (upward)

First time revaluation (downward)

Accounting
revaluation

treatment

of

First time revaluation (downward)

subsequent revaluation (upwards)
First
revaluation
(upward)
subsequent revaluation (downward)

Improvement & repairs

Expected future benefit from fixed
assets do nt change
Expected future benefits from fixed
asset will increase beyond the
previously
assessed
standard
performance

Addition or extension of capital

nature to an existing asset
If integral part
If separate identity

Retirement & disposal

Deleted from the financial statement
Gains or losses arising on disposal

Fixed assets are retired from active

use and held for disposal
Stated at the lower of net book value
and net realisable value
Expected
loss
is
recognised
immediately
Separately
shown in financial
statement

Disposal previously revalued fixed

assets
If there is profit, credited to profit &
loss a/c
If there is loss, adjusted against the
balance of revaluation reserve

Disclosure
Gross net book values of fixed assets
Expenditure incurred on account of
fixed assets
Revalued amount substituted for
historical cost of fixed assets

Review of balance in CENVAT credit

receivable accounts

Treatment of CENVAT credit on

capital goods (Fixed assets)

Significant
difference
IFRS/IAS-16 & US GAAP

with

IFRS/IAS-16 also allow revaluation

US GAAP does not allow revaluation

AS11

EFFECTS OF
CHANGES IN
FOREIGN EXCHANGE
RATES
(REVISED 2003)

Need and Objective

Transactions done in currency
other than reporting currency is
to be translated in reporting
currency
Export of goods & services

Need and Objective

Import of goods & services
Foreign branches
Subsidiary/associate/JV
overseas

in

Scope & Applicability

AS applies to
Accounting for transactions in
foreign currencies
In translating the financial
statement of foreign operation
Accounting for forward exchange
contract

Non- applicability
Re-statement of financial statement
from its reporting currency to another
currency
The presentation in a cash flow
statement of cash flows arising from
transaction in a foreign currency
Exchange difference arising from
foreign currency borrowings covered
by AS-16

What are Foreign

Transactions?

Currency

Transaction
denominated in a
foreign currency or that require
settlement in a foreign currency are
called foreign currency transactions.

Classification for Accounting

Treatment
Category I
Buying or selling the
goods or
services
Lending and borrowing in foreign
currency
Acquisition & disposition
of
assets denominated in foreign
currency.

Classification for accounting

treatment
Category II

Foreign branch
An associate
Joint venture
Foreign subsidiary
* Integral operation
*Non-integral operation

Classification for accounting

treatment
Category III
For managing risk/hedging
For trading and speculation

Accounting treatment (Category-I)

Initial recognition of foreign transaction.
Valuation at the balance sheet date
Contingent liabilities
Treatment of exchange difference

Accounting Treatment
(Category-II)
Integral foreign operation
Non-integral foreign operation
*Foreign currency translation reserve
*Consolidation procedure (foreign subsidiary & joint
venture

Treatment
reserve

of foreign currency

On partial disposal proportionate foreign

currency translation reserve is recognised
as income or expense
On full disposal, whole foreign currency
translation reserve is recognised income
or expense

Change in classification
Integral to non-integral
Non-integral to integral
*Change with prospective effect

Forward exchange contract

Means an agreement to exchange
different currencies at a forward rate
* For Managing risk
- Premium or discount at the inception
- Exchange difference

* Held for trading or speculation

Disclosure

Exchange difference included in net

profit or loss.
Foreign exchange translation reserve.
Reconciliation of foreign exchange
translation reserve.
Change in classification of significant
foreign operation
Foreign currency risk management policy
(encouraged)

Significant
IAS/IFRS

difference

with

Substantially the same as AS-11

Forward contract are covered by IAS-39

Significant difference with US

GAAP
Uses different terminology such
functional currency
Substantially the same as AS-11
FC/hedging is covered by FASB-133

as

AS-12
ACCOUTING FOR
GOVERNMENT
GRANTS

Government Grants
Assistance by the Govt. in the form of cash
or kid to an enterprise in the return

This standard does not deal with:

Govt. assistance Tax holiday, tax
exemption
Govt. participation Investment by the
Govt. as equity

Recognition of Govt. grants

The enterprise will comply with the
conditions attached to them and
The grant will be received

Kinds of Govt. grants

Monetary or non-monetary
The grant will be received

Non-monetary Govt. grants

Grants are given at concessional rate,
then such assets are accounted for at
their acquisition cost
Grants are given free of cost, then such
assets are recorded at nominal value.

Monetary Govt. grants

Grants related to depreciable fixed assets
Grant is shown as deduction from the
gross value of asset. When the grant is
equal to the cost of assets, at nominal
value
Grants treated as deferred income

Grants related to non-depreciable

fixed assets
Gant is shown as deduction from the
gross value of asset. When the grant is
equal to the cost at nominal value.
Conditions attached to grants are
fulfilled, credited to capital reserve a/c

If conditions attached to grants is yet to

be fulfilled
Grants are credited to income over the
same period over which the cost of
meeting such conditions is charged to
income
Un-apportioned deferred income is
disclosed in the balance sheet as
deferred govt. grants

Grants related to revenue

Should be recognised in profit & loss a/c
over the period to match them with
related costs
Either be shown as Other Income or be
deducted from the related expenses

Grants related to revenue

A grant is to be received as
compensation for expenses or losses
already incurred, should be recognised in
the profit & loss a/c of the period on
which it becomes receivables as extraordinary items (AS-5).

Grants in nature of promoters

contribution
Grants should be credited to capital reserve

Refund of Govt. grants

Refund of grants related to revenue
Refund of grants related to specific
assets

Disclosure
The accounting policy adopted for Govt.
grants including the methods of
presentation in the financial statement
The nature and extent of Govt. grants
recognised in the financial statement

Significant difference with

IFRS/IAS-20 & US GAAP(SFAS-16)
AS-12 does not state about fair value
measurement of non-monetary grants
whereas IAS-20 , fair value at the time
of initial recognition & US GAAP
recognise at fair value

 Grant in the nature of promoter

contribution is credited to capital reserve
as per AS-12, if however as per IAS-20,
such grant should be treated as deferred
income
Refund of grant is treated as extraordinary items as per AS-12, whereas in
IAS-20 it is treated as a change in
estimate

AS-13
ACCOUNTING FOR
INVESTMENTS
D.S. Rawat
Partner
Bansal & CO

Investment
The assets held for earning income by way
of dividend interest and rental, for capital
appreciation or for other benefits

Scope
This AS deals with following aspects:

Classification of investment
Cost of investment
Carrying amount/valuation
Disposal of investment
Re-classification of investment
Disclosure of investment

Applicability
This AS does not deal with:
The basis for recognition of interest,
dividend & rentals
Operating or finance leases
Investment of retirement benefit plans
Mutual funds, venture capital fund and/
or the related asset management
companies, banks & public financial
institutions

Current investment
Intended to be held for not more than
one year from the date on which such
investment is made.

Long-term investment
Investment other than current
investment

Investment property
Investment in land or building that is not
intended to be occupied substantially
for use by or their operation of the
investing enterprises.

Classification of Investment
Long-term investment
Current investment

Cost of Investment
Purchase price & acquisition charges
such as brokerage, fee & duties

Cost of Investment
Investment is acquired by issue of
shares or other securities
Purchase price of investment is the fair
value of the securities issued

Cost of Investment
Investment is acquired in exchange
for another asset
Acquisition cost of investment is fair
value of the asset given up
or
Fair value of the investment received

Cost of Investment
Pre-acquisition interest
Dividend
Right Shares
- If right share offered are subscribed
- If right share offered are not
subscribed
Investment purchased at cum-right

Carrying amount of investment

Current investment the lower of cost
& realisable value
Long-term Investment Usually
carried/ valued at cost
less: permanent diminution
Investment properties

Disposal of investment
Difference between the carrying
amount & sale proceeds recognised in
the profit & loss a/c
Part of total investment is disposed
off, the carrying amount is
determined on the basis of the average
carrying amount

Reclassification of investment
From long-term investment to current
investment -at the lower of cost &
carrying amount at date of transfer
From current investment to long-term
investment - At the lower of cost &
fair value at the date of transfer

Reclassification of investment
From long-term investment to current
investment -at the lower of cost & fair
value at date of transfer
From current investment to long-term
investment - At the lower of cost &
fair value at the date of transfer

Disclosure
Accounting policies followed for
valuation of investment
Classification of investment into
current & long-term
Aggregate amount of quoted &
unquoted securities separately

Disclosure
Any significant restriction on
investment like minimum holding
period for sale/disposal

Significant difference with

IFRS/IAS & US GAAP
AS-13 covers all the investments like
investment of property there are 3
IAS:IFRS/IAS-32, IFRS/IAS-39 &
IFRS/IAS-40

Significant difference with

IFRS/IAS & US GAAP
US GAAP too contains detailed
provisions in respect of valuation of
investing properties. The standards on
accounting for derivatives are yet
under formulation in India, though
these have been established in US
GAAP & IFRS/IAS a long time ago

AS-14
ACCOUNTING
FOR
AMALGAMATION

Amalgamation
Amalgamation means an amalgamation as
per the provision of Companies Act,1956
or nay other law applicable to companies

Applicability
This AS is not applicable to cases of
acquisition of shares when one company
acquires /purchases the share of another
company and the acquired company is not
dissolved and its separate entity continues
to exist

Applicability
This AS is applicable where acquired
company is dissolved and separate entity
ceased to exist & purchasing company
continues with the business of acquired
company.

Purchase consideration
Total of the shares and other securities
issued and payment made in form of cash
or other assets by the transferee company
to shareholders of the transferor company.

Types of amalgamation
Amalgamation in the nature of merger
Amalgamation in the nature of purchase

Amalgamation in nature of merger

All assets & liabilities of transferor
company are taken over
The shareholders holding at least 90% or
more of the equity shares of the
transferor company

Amalgamation in nature of merger

Consideration for the amalgamation is
paid in equity shares
Business of the transferor company is
intended to be carried
No adjustment is made in the book
values of the assets & liabilities of the
transferor company

Amalgamation in nature of purchase

Accounting method
In case of merger- pooling interest
method
In case of purchase purchase method

Pooling interest method

Line by line addition of respective assets

& liabilities
The difference between purchase
consideration paid by the transferee
company to the transferor company &
the amount of share capital (Equity +
preference capital) of the transferor
company should be adjusted with
reserves

Purchase method
If purchase consideration exceeds the
net assets taken over (Net Assets =
Assets at their agreed value less
liabilities at agreed value), the
difference is debited to Goodwill A/c

Statutory Reserve
Separate accounting adjustment/entry
is not required for statutory reserve in
the case of merger.

Statutory Reserve
However in case of amalgamation by
way of purchase, the reserves being
internal liabilities, are not recorded in
the books of transferors as per the
purchase method

Statutory Reserve
Statutory reserves in its books by
debiting to amalgamation adjustment
account and crediting statutory
reserve

Statutory Reserve
Amalgamation adjustment account
shall be disclosed in balance sheet
under the head of Misc.
Expenditure
Reserve is no longer required the
entry passed should be reversed

Treatment of Goodwill arising on

amalgamation
To amortise goodwill over a period
not exceeding 5 years. The
requirement of AS-26 intangible asset
regarding amortisation shall not apply
to such goodwill

Disclosure
General nature of business of
amalgamating companies
Effective date of amalgamation
Method of accounting used
Particulars of scheme sanctioned
under a statute

Amalgamation accounted under

pooling interest method
Description & nature of shares issued
Difference between consideration &
net assets acquired

Amalgamation accounted under

purchase method
Consideration for the amalgamation
Difference between consideration &
net assets acquired and treatment
therof.

Different treatment of reserve

Significant difference with IFRS-3

& US GAAP
IFRS-3 allows only purchase method
IFRS-3 requires valuation of assets &
liabilities at fair value whereas AS-14
requires valuation at carrying value

 IFRS-3 requires goodwill to be tested

for impairment whereas AS-14
requires amortisation of goodwill
IFRS-3 requires recognition of
negative goodwill immediately in
profit & loss a/c whereas AS-14
requires it to be credited to Capital
reserve

 Under US GAAP, FASB-141 has also

been revised and the enterprises can
no longer use the pooling of interest
method . FAS-142 under US GAAP
does not require any amortisation of
goodwill. As it does not treat it as a
wasting asset. FAS-142 now requires
goodwill to be written off when
impaired

AS-15
EMPLOYEE BENEFITS
(REVISED 2005)

Applicability
Level-I Enterprises In its entirety
Other than level-I Enterprises

Applicability
If number of persons employed
during the year is 50 or more
Recognition, measurement &
disclosure principles in respect of
defined benefit plans does not apply.
However accrued liability in respect
of defined plan based on projected
unit credit method.

Applicability
If average number of persons
employed during the year is less
than 50 Recognition, measurement
& disclosure principles Defined
benefit plan and long-term employee
benefits will not apply to such
enterprises. However liability to be
provided

What are Employee Benefits?

Short-term employee benefits
Post-employment benefits
Other long-term employee benefits
Defined contribution plans or defined
benefit plans
Termination benefits

What Employee Benefits not

covered
Employee share-based payment

Accounting for Short-term employee

benefits
Wages, salaries & social security
Short-term compensated absences
Profit sharing & bonus
Non-monetary benefits (Medial care,
housing car)

Post-employment benefits
Gratuity & pension
Post-employment life insurance
Post employment medical care

Defined Contribution Plans

Multiple employee plans
State plans
Insured benefits

Defined Benefit Plans

In this case benefit is defined but not the
amount of liability

Accounting for Defined Benefit

Plans
Actuarial assumptions are required to
measure the obligation
Obligations are measured on
discounted basis
Actuarial gain or loss is possible

Charge to Profit & Loss Account

Current service cost
Interest cost
Expected return on nay plan assets or
nay re-imbursement rights
Actuarial gains & losses
Past service cost
The effect of any curtailment resettlements
Effect of recognition of over funding

Accounting for the obligation in

Balance Sheet
Plans assets comprise(a)Assets held by long-term employee
benefit fund
(b)Qualifying insurance policies

Accounting for the obligation in

Balancebenefit
Sheet liability
Defined
The present value of the defined
benefit obligation at the balance sheet
date
Minus any past service cost not yet
recognised
Minus the fair value at the balance

Disclosure
Accounting policy for recognising
actuarial gains & losses
A general description of the type of
plan
A reconciliation of opening & closing
balances of the present value of the
defined benefit obligation

Disclosure
A reconciliation of the opening &
closing balances of the fair value of
plan assets
A reconciliation of the present value
of the defined benefit obligation & the
fair value of the plan assets to the
assets & liabilities

Disclosure
The total expenses recognised in the
statement of profit and loss
For each major category of plan assets
The actual return on plan assets
The principal actuarial assumptions
used

Disclosure
The effect of an increase of one
percentage point and the effect of
decrease of one percentage point in
the assumed medical cost trend rates
on expenses & obligation
Current annual period & previous four
annual periods of

Other Long-term Employee Benefits

Long-term compensated absences
Jubilee or other long-service benefits
Long-term disability benefits

Other Long-term Employee Benefits

Profit sharing & bonus payable 12
months or more
Deferred compensation paid 12
months or more after the end of the
period in which it is earned

Termination Benefits

The Enterprise has a present obligation

as a result of a past event
It is payable that an outflow of
resources embodying economic
benefits will be required to settle the
obligation
A reliable estimate can be made of the

Accounting for Termination Benefits

Expenditure on termination benefits on
or before 31st March 2009

Significant differences with IAS-19

& US GAAP
Recognition of actuarial gains &
losses
Recognition of deferred benefit assets
Termination benefits- Recognition of
liability
Transitional provisions

AS-17
SEGMENT REPORTING

Meaning & Objective

Multiple products/services and its
operations in different geographical
areas are exposed to different risk and
return.

Segment Reporting helps to user of

financial statements
To better understand the performance
of the enterprise
To better assess the risks & returns of
the enterprise
To make more informed judgement
about the enterprises as a whole.

Segment Segment:
Business
It is distinguishable component of an
enterprises
It is engaged in providing an individual
product or services
It is subject to risk & returns that are
different from those of other business
segment

Geographical Segment:
Its operation in different geographical
areas, which are exposed to different
risks & returns
The location of production or service
facilities
The location of its customers

Enterprise Revenue:
A revenue from sales to external
customers as reported in the statement of
profit & loss
Segment Result:
Segment result is segment revenue less
segment expenses ( its is segment profit
or loss)

Identification of Reportable Segments

Segment revenue 10% or more

Segment result 10% or more
Segment asset 10% or more
Segment - Management discretion
At least 75% of total external revenue

Reportable Segments
Primary
Secondary

Basis of Classification

Risks & return mainly effect by

difference in product
Primary Business
Secondary Geographical
Risks & return mainly effect by
geographical area
Primary Geographical
Secondary Business

Risks & return mainly effect by both of

by difference in product & its operation
in different geographical area
Primary Business
Secondary Geographical

Disclosure
Revenue from external customer
Revenue from transactions with other
segments
Segment result
Cost to acquire tangible & intangible
fixed assets

 Depreciation & amortisation expenses.

Carrying amount of segment assets.
Segment liabilities
Non-cash expenses other than
depreciation & amortisation
Reconciliation of revenue, result, assets
& liabilities

AS-18
RELATED PARTY
DISCLOSURE

Need & Objective

Sometimes business transactions
between related parties lose the feature
and character of the arms length
transaction.

Related Party
Holding companies, Subsidiaries &
Fellow subsidiaries
Associates & Joint venture
Individuals owing , directly or indirectly
interest in the voting power

 Relative of such individual Spouse,

son, daughter, mother, father, brother,
sister.
Key management personnel & relative
of such personnel

What should be disclosed

Related party relationship
Transactions between a reporting
enterprises and its related parties

Control Concept
Control by ownership (directly or indirectly
more than 50% of the voting power
Control over composition of BOD or other
governing body
Control of substantial interest in the voting
power & power to direct the financial or
operating policies of the enterprise

Significant Influence
By representation of the Board of
Directors
Participation in policy-making process
Material inter-company transactions
Inter-charge of management personnel
Dependence on technical information

Exception
Two companies
have aParty
director in
of Related
common dealing between the
companies
A Single customer or supplier or
distributor
Provider of finance
enterprises.

 Trade union
Govt. department & agencies
State controlled enterprises with other
State controlled enterprises.

Related Party Transactions

Purchase/Sales of goods
Purchase/Sales of fixed assets
Rendering /receiving of services
Leasing or hire purchase arrangements

 Transfer of research and development

License agreement
Finance (incl. loan & equity)
Guarantees & collateral
Management contracts of deputation
employees

Disclosure
Name of the related party should be
disclosed
Nature of the related party relationship
should be disclosed

Details of Disclosure
Name of the related party
Description of related party
Description of the nature of transaction
Volume of the transactions either as an
amount or as an appropriate proportion

 Any other element of the transaction,

which is essential for understanding
the financial statements
Amount or appropriate proportion of
outstanding items & provision for
doubtful debts
Amount written off or written back in
the period in respect of debts due from
doubtful debts.

Significant differences with IAS/IFRS

and US GAAP
By and large related parties identified
under US GAAP, IAS-24 & AS-18 would
be same
As per IAS-24 State controlled entities
are within the scope of related party
disclosure whereas AS-18 excludes Statecontrolled enterprise from related party

 AS-18 & IAS-24 require that related party

transaction even if at arms length prices is
to be disclosed. Whereas as per US GAAP,
no disclosure is required if arms length
price is demonstrated
Substantially same as those stipulated in
AS-18, except that an enterprise is not
required to disclose compensation
arrangements, expenses allowance & other
similar items in the ordinary course of
business.

AS-19
ACCOUNTING
FOR
LEASES

Needs & Objective

Lease is an arrangement by which the
lessor gives the right to use an asset for
given period of time to the lessee on rent

Substance
Lease can be structured to transferred
ownership of the leased asset
Substance of transactions dictates the
accounting treatment.

Types of lease
Finance lease
Operating lease
Classification of lease is made at the
inception of the lease.

Finance lease
Which transfers substantially all the
risks and rewards incidental to
ownership of an asset to the lessee by
the lessor

Operating lease
Which does not transfer substantially all
the risk and rewards incidental to
ownership.

Applicability
AS is not applicable to: Lease agreement to explore natural
resources such as oil, gas. Timber,
metal & other mineral rights

Applicability
AS is not applicable to: Licensing agreements for motion
picture film, video recording, Plays,
manuscripts, patents & other rights
Lease agreement to use land

Accounting for finance lease In

books of lessee
Leased asset as well as liability for
lease should be recognised at the lower
of : Fair value of the leased asset
Present value of minimum lease
payment from the lessee point of view

Apportionment of lease payment

apportionment between finance charge
and principal amount

Accounting for finance lease In the

books of lessor
Recognise asset given under finance
lease as receivable at an amount equal
to net investment in the lease &
corresponding credit to sale of asset

Recognition of finance lease

Interest/finance income will be
recognised in proportion to outstanding
balance receivable from lease over
leased period

Accounting for Operating Lease

In the books of lessor: Record leased out asset as the fixed
asset in the balance sheet
Charge depreciation as per AS-6
Recognise lease income in profit &
loss a/c using straight-line method

Accounting for Operating Lease

In the books of lessee: Lease payments should be recognised
as an expense in the profit & loss a/c
on the straight-line basis.

Sale & lease back

Accounting treatment of sale & lease

back
If lease back is finance lease
Any profit or loss of sale proceeds
over the carrying amount should not
be immediately recognised as profit or
loss in the financial statements of a
seller-lessee

Accounting treatment of sale & lease

back
it should be deferred & amortised
over lease term in proportion to the
depreciation of leased asset

Accounting treatment of sale & lease

back
If lease back is operating lease
Any profit or loss arising out of sale
transaction is recognised immediately

If lease back is operating lease

If sale price below fair value
Profit Recognise profit immediately
Loss- Recognise loss immediately,
provided loss is not compensated by
future lease payment

If lease back is operating lease

If sale price below fair value
Loss Defer & amortise loss, if loss
compensated by future lease payment

If sale price above fair value

If carrying amount is equal to fair value
which will result in profit, amortise the
profit over lease period
Carrying amount less than fair value
will result in profit-amortise & defer the
profit equal to sale price less fair value
& recognise balance profit immediately

If sale price above fair value

Carrying amount more than fair value
will result in loss equal to (carrying
amount less than fair value) should be
recognised immediately. Profit equal to
selling price less fair value should
be amortised

Disclosure
Disclosure in operating lease by lessor
General description
Accounting policy
Future lease payment

Disclosure in operating lease by lessee

General description
Total of future minimum lease
payments

Disclosure in finance lease by the

lessor
General description
Accounting policy
Reconciliation of total gross
investment in lease

Disclosure in finance lease by the

lessor
Minimum lease payment (MLP)
Not later than one years
Later than one year & not later than
five years
Later than five years

Disclosure in finance lease by the

lessee
Asset under finance lease segregated
from the asset owned
Reconciliation of total MLP with its
present value

Disclosure in finance lease by the

lessee
MLP in following categories on balance sheet
date
Not later than one year
later than one year & not later than five years
Later than five years

Significant differences with

IFRS/IAS-17 & US GAAP
Under AS-19 & IAS-17 classification
of lease into finance lease or operating
lease is a matter of judgement.
However, under US GAAP
classification of operating lease &
capital lease is less judgmental

Significant differences with

IFRS/IAS-17 & US GAAP
Under US GAAP finance lease is
referred as capital lease & further
classified as sale type leases or direct
financing leases or leveraged leases for
the purpose of accounting whereas
there in no such further classification
of finance lease as per AS-19 or IAS17

Significant differences with

IFRS/IAS-17 & US GAAP

AS-19 is not applicable to lease

agreement to use land whereas IAS-17 &

US GAAP (FAS-13) is applicable to
lease agreement to use land

there is difference between US GAAP,

AS-19 ( IAS-17) regarding accounting
treatment of sale & lease back
transactions.

Significant differences with

IFRS/IAS-17 & US GAAP
Onerous leases are not dealt with by
Indian GAAP in AS-19 whereas IAS37 deals with such onerous lease.
Under the US GAAP provisions for
vacant leasehold properties which
have become onerous is dealt with by
EITF-88-10

AS-21
CONSOLIDATED FINANCIAL
STATEMENTS

D.S. Rawat
Partner
Bansal & CO.

Objective
The objective of this statement is to
present financial statements of a
parent and its subsidiary (ies) as a
single economic entity

What is parent
A parent is an enterprise that has one
or more subsidiaries.
What is subsidiary
It is an enterprise that is controlled by
another enterprise known as parent

Control
Directly
or
indirectly
(through
subsidiary) by purchasing more than 50%
of the voting power of an enterprise or by
controlling composition of board of
directors/governing body

Format of consolidated Financial

Statements
These are prepared/presented in the
same format as that followed by the
parent for preparation of its separate
financial statements.

Consolidated financial statements

are no substitute for financial
statements

Scope of
statement

consolidated

financial

Should consolidate the financial

statements of all its subsidiary(ies),
whether domestic or foreign.

Exceptions
Control, which is intended to be temporary.
The subsidiary operates under sever long-term
restrictions
Dissimilar activities of parent

Consolidation Procedure
Cost of investment of parent
Cancelled/eliminated with parents
portion of equity of each subsidiary.
If the cost of investment in a
subsidiary exceeds the parents
portion of equity, the excess is debited
in goodwill

Consolidation Procedure
Cost of investment in subsidiary is less
than credited to capital reserve.
Minority interest
Intra-group balances and transaction
Unrealized loss

Consolidation
reporting date

when

different

Difference is not more than Six months

Disposal of
subsidiary

investment

in

Successive purchase of shares in a

subsidiary by the parent
Goodwill or capital reserve on
consolidation should be determined on
step by step basis.

Minority Interest is in negative

Negative minority interest will not be
shown in consolidated balance sheet
date

Arrears of cumulative preference

share of a subsidiary
Charging the arrear of cumulative
preference dividend of a subsidiary,
whether declared or not

Disclosure
List of all subsidiaries
Proportion of ownership
Nature of relationship
The fact for different accounting policies

Interpretation
One subsidiary has two parents (ASI-24)
Tax Expenses (ASI-26)
Voting power shares are held as stock-in-trade (ASI-25)
Notes and information disclosed in separate financial statements
(ASI-15)

Transitional Provisions
On the first occasion comparative figure
for the previous period need not be
presented

Significant difference with IFRS/IAS

& US GAAP
Control
Requirements- As per AS-21, required in
addition to, and not in lieu of, separate
financial statements.
US GAAP (Statement 94) does not
permit parent company only financial
statement to be issued as general purpose

Significant difference with IFRS/IAS

& US GAAP

Goodwill
Differential period
Other statutory requirements
Deferred tax
Investment in subsidiary (a) at cost,
(b) using the equity method as
described
Exception of consolidation

AS-22
ACCOUNTING FOR
TAXES
ON INCOME

Objective
This Accounting Standard prescribes
the accounting treatment for taxes on
income

Scope
Taxes on income
Exclude tax payable on distribution
of dividends and other distribution
made by enterprises

Recognition and Measurement

Income-tax expense should be treated
just like any other expenses on the
accrual basis irrespective of the
timing of payment of tax

Tax Expenses
Current Tax - Current tax in respect of
taxable income (tax loss) for a period.
Deferred Tax Tax effect of timing
difference.
[Tax Expenses = Current Tax + Deferred
Tax]

Measurement of Current
& Deferred tax
Current Tax
Current tax should be measured at
the amount expected to be paid to
(recovered from) taxation authorities
using applicable tax rates and tax
laws

Measurement of Current
& Deferred tax
Deferred Tax
Deferred tax should be measured
using the rates and tax laws that have
been enacted or substantially enacted
by the balance sheet

Difference in Accounting Profit

& Tax Profit
Timing difference
Difference due to rate of depreciation
Difference due to method of
depreciation
Expense debited in the statement of
profit & loss for accounting purpose
but allowed for tax purpose in
subsequent year. like Sec.43B of
Income-tax Act, 1961

Difference in Accounting Profit

& Tax Profit
Permanent Difference
These difference originate in one
period and do not reverse
subsequently

Deferred Tax
Liability
A temporary difference is created
between the depreciation as per the
books of account

Deferred Tax
Asset
A deferred tax asset is recognised for
temporary difference that will result
in deductible amounts in future years
and for carry forward.

Transitional
Provision

First time applied, the amount of

deferred tax asset/liability should be
created in the same way had this
accounting standard been in effect
from the beginning

Prudence for Recognising

deferred tax asset
Unabsorbed depreciation and carry
forward losses
Re-assessment
of
deferred tax asset

unrecognised

Deferred tax asset and liability should

Review of deferred tax asset

Disclosure
The break-up of deferred tax
In the case of deferred tax asset arises
out of unabsorbed depreciation or
loss, evidence supporting recognition
should be disclosed
Deferred tax asset & liability should
set off if permissible under the tax
laws

Significant difference with

IFRS/IAS & US GAAP
AS-22, DTA to be recognised to the
extent there is a virtual certainty.
Whereas as per IAS-12 DTA is
recognised to the extent of its
probable
AS-22 does not require numerical
reconciliation between tax expenses
and pre-tax accounting profit.
Whereas IAS-12 requires.

Significant difference with

IFRS/IAS & US GAAP
Under US GAAP, an enterprise shall
disclose nature of significant
reconciled items
AS-22, DTA & DTL - measured
using tax rates that have been enacted
by the B/S date. Under US GAAP
DTA & DTL be adjusted in the period
enacted change in tax laws or rates

Significant difference with

IFRS/IAS & US GAAP
AS-22, DTA & DTL be disclosed
separately from current assets and
current liabilities. Under US GAAP,
classification as current or noncurrent
is
based
on
the
classification of related non-tax
assets or liability.

AS-23
ACCOUNTING FOR
INVESTMENT IN
ASSOCIATES IN
CONSOLIDATED
FINANCIAL
STATEMENTS

Objective
To set out the principles & procedures
for recognising the investment in
associates in the consolidated financial
statements of the investor.

Applicability
Applicable
for
investment
in
associates when the investor prepares
consolidated financial statements

Applicability
Not applicable: The investment is acquired & held
exclusively with a view to its subsequent
disposal in the near future
The associates operate under long-term
restrictions that significantly impair its
ability to transfer funds to the investor

Applicability
Not applicable: When investor has no significant
influence in an associates or ceases to
have the significant influence
When consolidated financial statement of
investor is not made

What is an associates
An enterprise in which the investor has
significant influence & which is neither
a subsidiary nor a joint venture of the
investor. If an investor holds directly or
indirectly 20% or more of the voting
power of associates, then it is assumed
that investor has significant influence.

Significant influence is identified by

one or more of the following
criteria : Representation in the board
Participation in the policy
Material transactions
Interchange of managerial personnel
Provision of technical information

AS-23 is applicable only when

investor has significant influence and
not control.

Accounting for investment in

associates
Investment in an associates should be
accounted for as per equity method in
consolidated financial statement

Equity Method of accounting

Procedure should be followed: The investment is initially recorded at cost
Identify only (not record the accounting
entry for goodwill/capital reserve)

 Goodwill/capital reserve identified

should be included in the carrying
amount investment in associate but
should be disclosed separately
Carrying amount is increased/decreased
to recognise the investors share of the
profit & losses of the associate after the
date of acquisition

 Distributions received from associate

should be reduced from the carrying
amount
Adjustment to the carrying amount
should be made for alteration in the
investors proportionate interest in the
associates arising from changes in the
associates equity

 Unrealized profits & loss resulting

from transactions between investor
& the associate should be eliminated
Unrealized
losses
should
be
eliminated . However if the
recoverable amount of transferred
asset is more than the transfer cost of
the asset the unrealized losses should
also be eliminated

Carrying amount of investment in

associates
If there is permanent decrease in the
value of investment in associate, the
carrying amount of investment in
associates should be reduced by the
amount of permanent reduction

Carrying amount of investment in

associates
If investors share of losses in associates
equals or exceeds the carrying amount
of investment, the investor discontinues
recognising its share of further losses &
investment is reported at NIL value

Disclosure
Description of associate including the
proportion of ownership interest
should be disclosed
Investment in associates accounted
for using the equity method should be
classified as long-term investments

Disclosure
An associates uses accounting
policies other than those adopted for
the consolidated financial statements
for like transactions & events in
similar circumstances

Transitional provision
On the first occasion when investment in
an associates is accounted for in
consolidated financial statements in
associate with this statement the carrying
amount of investment in the associate
should be brought to the amount that
would have resulted had the equity
method of accounting been followed as
per the statement

Significant difference with

IFRS/IAS-28 & US GAAP
AS-23 & US GAAP require that
goodwill or capital reserve within the
investment amounts are required to be
separately identified but IAS-28 does
not require so

Significant difference with

IFRS/IAS-28 & US GAAP
As per AS-23, if the entity prepares
consolidated financial statements.
Whereas US GAAP (APB-18)
requires the use of the equity method
regardless of whether an entity has
subsidiaries.
IAS-28
permits
investment in associates to be
measured using equity method

AS-27
FINANCIAL
REPORTING OF
INTEREST IN JOINT
VENTURE

What is Joint Venture

Joint venture is defined as contractual
arrangement whereby two or more
parties carry on economic activity
under joint control

Joint Venture may be of three forms:

Jointly controlled operation
Jointly controlled assets
Jointly controlled entities

Jointly controlled operation

Joint venture is not a separate entity the
venturers (parties) may carry out the
joint venture activities side by side of
their main business.

Financial Reporting
control operation

in

Jointly

Jointly controlled operation in its separate

financial statements and if consolidated financial
statements are prepared then consolidated
financial statements:
- The assets it controls
- The liabilities it incurs
- The expenses it incurs
- Its share of income that it earns from the joint
venture

Jointly controlled Assets

There may be joint ownership of assets

Financial Reporting
controlled Assets

in

Jointly

Its share incurred separately

Its share in jointly incurred liabilities
Any income from the sale or use of its
share of output in the joint venture
Any expenses separately incurred for
joint venture

Jointly controlled Entities

Joint venture separate jointly controlled
entity is established

Reporting & Recognition in financial

statements in case of
Jointly
controlled Entities
In separate financial statement
Venturer of jointly controlled entity as an
investment by following the AS-13
Accounting for Investment

Reporting & Recognition in financial

statements in case of
Jointly
controlled Entities
In consolidated financial statement
Venturer is required to prepare consolidated
financial statements, then the interest in a
jointly controlled entity should be reported
as per proportionate consolidation

Transaction between a venture & a

joint venture
In case of jointly controlled operation &
jointly controlled assets
In case of jointly controlled entities

In case
of jointly controlled
operation & jointly controlled assets
When a venturer sells the assets to a

joint venture, venturer should account

for the portion of the gain or loss,
which is attributable to the interest of
other venture

 In case of loss the venture should recognise

the full loss if the sale provides evidence of
a reduction in the net realisable value of
the current assets or impairment loss of
fixed assets
Venturer purchases assets from a JV,
should not recognise it share of the profits
of the JV from the transaction until it resell
the assets to an independent party.

In case of jointly controlled entities

Transaction is done as usual as per AS-9
Revenue Recognition & other generally
accepted accounting principles
However when venturers prepare the
consolidated financial statements as per the
proportionate consolidation method,

the gain or loss on the sale transaction

should be recognised to the extent of interest
of other venturer in jointly controlled entity
however full loss (not to the extent of the
other venturer interest) should be
recognised, when the sale provides evidence
of reduction in the net realisable value of
current assets or an impairment of assets.

Operational Fee
Operator or manager of a joint venture
should recognise the fee (income) as per AS9 on Revenue Recognition

Disclosure
A list of all joint venture
Proportion of interest
The aggregate amount of each of the
assets, liabilities, income & expenses
Amount of capital commitments

Disclosure
Any contingency that has been
incurred in relation to its interest in JV
Contingencies for which the venturer
is liable for other venturer of JV

Significant
difference
IFRS/IAS-31 & US GAAP

with

Existence of a contract is must

between the venturers as per AS-27 &
IFRS/IAS-31 to qualify as a JV,
whereas there is no such requirement
under US GAAP (APB-18)

Significant
difference
IFRS/IAS-31 & US GAAP

with

AS-27
requires
line-by-line
consolidation of jointly controlled .
US GAAP (APB-18) allows only the
equity method of accounting in a
separate financial statement of the
investor

Significant
difference
IFRS/IAS-31 & US GAAP

with

IFRS/IAS-31 & AS-27 also provides

the guidance for the fees charged by
the operators or managers of JV &
accounting for transactions between a
venturer and JV. US GAAP does not
include guidance of this type.

AS-28
IMPAIRMENT
OF
ASSETS

Meaning of impairment
Impairment asset is weakening in
value of asset

What is carrying amount

The amount at which asset is shown
in the Balance Sheet

What is recoverable amount

Net selling price
Value in use

Net Selling Price

Binding sale agreement
Active market
Best estimate based on information

Value in Use
Estimated future cash flow arising
from use of asset + Residual Price
(Scrap value)
Present value which is calculated by
applying discount rate to future cash
flows.

What is impairment loss

Recoverable amount
minus
Carrying amount

Applicability
Inventories
Asset arising from Construction Contract
Financial Assets
Deferred Tax Asset

How do we know that the asset

has impaired
Whether there is any indication of
impairment of an asset
External Indications
Internal Indications

Effect of Impairment
Depreciation / Amortisation

on

The
depreciation
/amortisation
should be reviewed as per AS-6 or
AS-26

Recognition of an impairment loss

for an individual asset
If an asset is carried at historical cost
If asset is carried at revalued amount

Impairment loss
Generating Unit

for

Cash

What are Cash Generating Unit

Smallest group of asset for which are
flows can be determined independently

Step for measurement and

recognition of Impairment loss
Identification of cash generating unit
Determination the future cash inflows for
cash generating unit
Is goodwill as recognised in financial
statement is related to this cash generating
unit, if yes, allocate the carrying amount

Step for measurement and

recognition of Impairment loss
Is corporate asset as recognised in financial
statement is related to this cash generating
unit

Determine net selling price of cash

generating unit

Determine the recoverable amount

Step for measurement and

recognition of Impairment loss
Determine the carrying amount
Determine impairment loss, if carrying
amount is more than recoverable
amount
Allocate the impairment loss

Recoverable amount of an individual

asset cannot be determined
No impairment loss is recognised for an
individual asset if related cash
generating unit is not impaired

Impairment loss & Deferred loss

If an impairment loss is adjusted in
account/financial statement, any related
tax assets or liabilities are also to be
determined as per AS-22 Accounting
for Taxes on Income

Reversal Impairment loss

Reversal of impairment
individual asset

loss

for

Reversal of impairment loss for cash

generating unit
Reversal of impairment loss for goodwill

Disclosures

Basic requirements

Requirement for segment reporting

Requirement for cash generating unit

Requirement for reversal of impairment

loss

Disclosures

Basic requirements

Requirement for segment reporting

Requirement for cash generating unit

Requirement for reversal of impairment

loss

Significant
Differences
IFRS/IAS-36 & US GAAP
Recognition of impairment loss
Measurement of impairment loss
impairment loss

with

Significant
Differences
with
IFRS/IAS-36 & US GAAP
AS-28,IFRS.IAS-36 calculate net
selling by reducing cost of disposal
from its fair value irrespective of the
fact whether asset is to be disposed or
not. Whereas under US GAAP cost of
disposal is reduced only when the
asset is to be disposed of.

Significant
Differences
with
IFRS/IAS-36 & US GAAP
US GAAP prohibits the reversal of
impairment loss whereas the reversal
of impairment loss is permitted as per
AS-28, IFRS/IAS-36
While allocating goodwill or corporate
assets under US GAAP only Bottom
up and Top down are followed.

Significant
Differences
IFRS/IAS-36 & US GAAP

with

AS-28, IFRS/IAS-36 is more detailed

as compared to US GAAP, there will
be
substantial
difference
in
measurement, allocation & subsequent
depreciation
resulting
from
impairment loss

AS-29
PROVISIONS,
CONTINGENT
LIABILITIES &
CONTINGENT ASSETS

Objective
To prescribed the accounting for
Provisions
Contingent liabilities
Contingent assets
Provision for restructuring cost

What is provision
Provision is liability

What is liability

Liability is a present obligation

Arising from past events

Settlement of which result in outflow

of resources

What is Present Obligation

An obligation is present obligation if
based on evidence available its existence
in the balance sheet date is considered
probable i.e., more likely than not.

Onerous Contract
A contact in which the unavoidable costs
of meeting the obligation under the
contract exceed the economic benefits
expected to be recovered under it.

Recognition of Provision
Present probable obligation as a result
of a past obligating event
An outflow of resources embodying
economic benefits in settlement
A reliable estimate
Number of similar obligations to
consider the outflow of resources
probable obligation as a whole to be
considered

Measurement of provision
Best estimate of the expenditure
required
No discounting
No tax effect
Additional evidence after balance
sheet to be considered
Re-imbursement of expenditure
Review of provision

Contingent Liability
Possible obligation (not probable) as a
result of past event.
Existence of which will be confirmed
only by the occurrence or nonoccurrence of future event.
Future event not wholly within the
control of the enterprises.

Contingent Liability
Contingent liability is a possible
obligation however it may also be a
present obligation
Probability of outflow of

resources is very low.

Reliable estimate of the amount of the present
obligation cannot be made.

Recognition Principles of Contingent

Liability
An enterprise should not recognise the
contingent liability but it should be
disclosed in financial statement.

Disclosure of Contingent Liability

A brief description of the nature of
contingent liability
An estimate of the amount
Indication of the uncertainties
Possibility of any reimbursement

What is Contingent Assets?

Possible asset as a result of past
events.
Existence of contingent assets is to be
confirmed by the occurrence & nonoccurrence of one or more future
events.
Future event not wholly within the
control of the enterprise.

Recognition Principles of Contingent

Asset
An enterprise should not recognise a
contingent asset
No disclosure is required of contingent
asset

Provision for Restructuring Cost

AS-29 deals with
restructuring cost

provision

AS-29 does not prescribe

accounting of restructuring cost

of
the

What is Restructuring ?
Sale or termination
business.

of

line

of

Relocation of business activities from

one country or region to another.

What is Restructuring ?
Change in management structure
Fundamental re-organization that has
material effect on the nature & focus
of the enterprise operations

Restructuring does not include

Retraining or relocating continuing
staff
Marketing
Investment in new
distribution networks

system

&

What is Restructuring Cost?

Provision for restructuring cost should
include only the direct expenditure
arising from restructuring & not
associated with the ongoing activities of
the enterprises.

Significant
difference
IAS/IFRS & US GAAP

with

AS-29 and IFRS/IAS-37 use words a

reliable estimate whereas US GAAP
(SFAS-5) uses reasonable estimate
AS-29 does not require the disclosure
of contingent assets whereas IFRS/IAS
& US GAAP require

Significant
difference
IAS/IFRS & US GAAP

with

IFRS/IAS-37 & US GAAP require that

where the effect of value of money is
material, provision may be treated as
present value.

Reduced cost of financial reporting for global companies

Industry perception leadership
Streamlined M &A activity
More effective procurement with vendors customers reporting under
IFRS
Improved transparency and comparability for investors and rating
agencies
More efficient access to capital for global corporations
Ability to analyze impact tax-related issues
Ability to understand interaction with strategic initiatives to generate
value from synergies
Ability to secure scarce IFRS knowledge resources and optimize
human capital deployment decisions
More room for managements judgment and truer reflection of
economic reality with principles-based More room for managements
judgment and truer reflection of economic reality with principles-based
GAAP