INDIAN

ACCOUNTING STANDARDS
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 ACCOUNTING STANDARD
AS Content Page
Introduction 1
1 Disclosure of Accounting Policies 2
2 Valuation of Inventories 3
3 Cash Flow Statement 4
4 Contingencies and Events Occurring after the Balance Sheet Date 5
5 Net Profit or Loss for the Period, Prior Period Items and Change in Accounting Policies 5
6 Depreciation Accounting 6
7 Construction Contracts 7
9 Revenue Recognition 8
10 Accounting for Fixed Assets 9
11 Effects of Change in Foreign Exchange 10
12 Accounting for Government Grants 11
13 Accounting for Investment 12
14 Accounting for Amalgamation -
15 Employee Benefits 13
16 Borrowing Costs 14
17 Segment Reporting 15
18 Related Party Disclosures 16
19 Accounting for Leases 17
20 Earnings Per Share 18
21 Consolidated Financial Statements
22 Accounting for taxes 19
23 Accounting for Investments in Associates in Consolidated Financial Statements 20
24 Discontinuing Operations 21
25 Interim Financial Reporting 22
26 Intangible Assets 23
27 Financial Reporting of Interest in Joint Venture 24
28 Impairment of Assets 25
29 Provisions, Contingent Liabilities and Contingent Assets 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)

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:
1. Entities whose equity or debt securities are listed or in the process of listing with any stock exchange
whether in India or abroad.
2. Banks, financial institutions or entities carrying in insurance business
3. 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.
4. 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.
5. 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.
1. 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.
2. 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.
3. 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 Applicability
21 Mandatory to those entities which require preparing consolidated financial statements.
23 Mandatory to those entities which require to prepare & present consolidated financial statements
25 Level-1 and any entity which is required to prepare interim financial report
27 Mandatory to those entities which require to prepare & present consolidated financial statements

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 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.

Major Considerations for Selection of Accounting Policies

1. Prudence: Prudence means making of estimates which is required under conditions of uncertainty.
2. 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.
3. 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 Non Applicability Objectives
 Finished goods  Construction contracts  Method of computation of cost
 Raw material and work in progress  Service providers  Determination of value
 Stores, consumables,  Financial Instruments
Spares  Producers’ inventories
General Specific (Agro,forest products)
AS 2 AS 10

Objectives
Methods of Computing Cost Determination of Value
(Sequence based) Whichever is lesser of
Cost Net Realisable Value
1. Specific identification Cost of Purchase Sale Price ××
2. FIFO or Weighted Average Method + Purchase price ×× - Cost of ××
3. Standard cost or retail method + Duties ×× Completion
+ Freight SALE ×× - Cost of Sales ××
Disclosure ××
- Rebate ××
1. Accounting policy
- Trade discount ××
2. Cost formula
- Duty drawback ××
3. Classification of inventories
+ Conversion Cost
Note: Reduction in the raw Direct Labor ××
materials’ prices can be adjusted Direct expenses ××
against replacement cost only if Variable overhead ××
the finished goods for which it is (Actual production)
used is sold below cost. Fixed overhead ××
(Normal Production)
Exclude
- Holding & storage cost ××
Insurance ××
Interest and penalties ××
Administration cost ××
Selling & Dist. cost ××
Abnormal loss ××
××

Guidance note on CENVAT

Inclusive Method Exclusive Method
1 On availing CENVAT, credit the 1 Debit CENVAT credit receivable A/c on duty paid
CENVAT credit availed A/c and credit on actual utilization
2 On inputs → Adjust against cost of raw 2 Balance in the A/c is shown on the asset side of B?S
material
3 On closing stock → Adjust against the
value of closing stock

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 AS3: CASH FLOW STATEMENT
Balance Sheet
Liabilities Assets
Equity Share Capital ××× Fixed Assets (Net) ×××
18% Pref. Share Capital ××× Investments ×××
Reserves ××× Current Assets ××× Non Cash
Flow Non-current Liabilities ××× Except#
Current Liabilities ×××
#Cash + Bank + ×××
Cash
Marketable Securities
××× ×××

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 Profit on sale Less in NP to arrive Cash From Operation & Closing Cash Balance
2 Loss on sale Plus in NP to arrive Cash From Operation & Closing Cash Balance

Accounting Standard Page 4

 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

<----- 01.04.XX -----><----- 31.03.X1 -----> <----- Date of ----->

AS5. Prior AS5. Net Profit or Loss AS4. Contingencies and Events Occurring after the B/S Date Approval
Period for the period AS29. Provisions, Contingent Liabilities & Contingent of B/S
Items Assets by BOD

(1) Error or Net profit or loss AS4 Disclose in

(2) Extra- Non-applicability Contingency Director’s
Omission Ordinary report
ordinary 1. Insurance 1. Condition exists on B/S Date
Activity
Activity 2. Retirement Scheme 2. Result not known on B/S date
Recognised 3. Long Term Lease 3. Result would be known in future
Occur
in the based on events
occasionally
period 4. Result may be gain or loss
Ex. Loss
Ex.
due to Contingency
Disposal of
earthquake, Exist on B/S Date After
Asset,
Govt’s B/S
Litigation AS4:
Attachment Loss Gain Date
Claims, only for
&Govt’s
Provision Reasonable (AS (1)
grants Probable Remote
reversal Possible 29) Provision
refundable
Provision Note Ignore for DD %
Provision deductible from assets only taken (2)
I. Changes in Accounting Polies (Disclose) Proposed
(1) Legal requirement, (2) AS & (3) Better Presentation Events Occurring after the B/S Date dividend
II. Changes in Accounting Estimates Exist on B/S Date New events after B/S Date
Adjusted in the books Non-adjusted [but note]

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 AS6. DEPRECIATION ACCOUTING
Asset Depreciable Asset Depreciation Non-applicability
 Controlled by enterprise  Useful life exceeding 1 Measure of wearing out, Forest, plantations
 Result of past events year consumption or other loss of Wasting assets
 Expected flow of future Limited life value  R&D expenditure
economic benefit  Used for production or Distribution of total cost over Goodwill
rendering service its useful life  Livestock

Method of Depreciation Selection of Method A/c Treatment Changes in Method

 Straight line  Type of asset  Must be consistent from Legal Requirements
 Written down value  Nature of asset period to period  AS requirements
 Circumstances  Better presentation

DEPRECIATION(If straight line method is adopted) =

[Depreciable Amount = Original Cost – Scrap Value]
Cost Estimated Life Scrap Value
Cost +/- for Change Factors to be +/- for Revaluednow
+ Acquisitioncost ×× (1) Due to Revaluation: Considered Change and
+ Installationcost ×× Depreciation on  Legal Depreciation thenSubject
+/- Changes ×× revalued amount over  Contractual after change to Changes
inFOREXas per the remaining useful  No. of shifts
AS 11 life.  Repairs
+/- Price ×× (2) Due to Exchange  Obsolescence
fluctuations Variation,  Changes in
+/- Changes ×× Duties,etc.,Depreciation demand
induties on the revisedWDVover  Innovations
+/- Revaluation ×× theremaining useful  Production
changes life. method
××

A/C TREATMENT IN CASE OF Depreciation on REPAIRS DISCLOSURE

CHANGE Additions / Extensions Charge to 1. Cost
1. Re-compute till change 1. If it is an integral part: P&L A/c 2. Depreciation
2. Difference between total depreciation Depreciation over DIPOSAL 3. Useful life
under new method and accumulated remaining life Surplus: 4. Method
depreciation under old method till 2. If it is not an integral Credit to P&L5. Change in method
change part: Separate A/c 6. Revaluation
3. Surplus: Credit to P&L A/c treatment Deficit: Debit
4. Deficit: Debit to P&LA/c to P&L A/c

Accounting Standard Page 6

 AS7. CONSTRUCTION CONTRACTS
Construction Applicability Types of Methods of determining
Contracts contract profit/loss
 Directly related to construction To contractors 1. Fixed price 1. percentage of completion
of assets only 2. Cost plus (recognized by as 7)
 Demolition of assets 3. Mixed 2. completed contract

Calculation of Profit / Loss Measuring Contract Revenue

Contract Revenue % of completion × Revenue ××
+ As per the agreement ×× - Contract Cost ××
+ Escalation clause ×× Profit up to date ××
+ Claims reimbursed ×× - Recognized in previous year ××
+/- For change in Scope ×× Profit/Loss for current year ××
- Penalty ×× ××
A ××
Contract Cost Incurred Methods of finding % of completion
+ Specific cost ×× 1 Cost to cost method
+ Cost attributable to contract ××
Where, Total cost
+ Specifically chargeable to customer ××
Cost to date ××
- General & administration cost ××
+ Further estimated cost ××
- Selling & distribution cost ××
××
- R&D cost ××
- Depreciation of idle plant ××
2 Survey Method
- Pre contract cost ××
3 Completion of physical proportion method
B ××
Estimated Cost
Expected Loss
- Future cost ××  Probable that cost is more than revenue
- Payment to sub-contractors in advance ××  Create provision irrespective of work performed
C ×× and % of completion
Profit / Loss up to the date [A-B-C] ××
- Profit / Loss of Previous Year ×× Change in Estimate
Profit / Loss of Current Year ×× Treatment as per AS 5
××

Recognition of Revenue & Expenses Disclosure

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
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 Non Applicability

Gross inflow of cash, receivable1. Sale 1. AS 7

and other consideration 2. Rendering of services 2. AS 12
in the ordinary business 3. AS 19
4. Insurance
5. Gain on sale of assets

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

Accounting Standard Page 8

 AS10. ACCOUNTING FOR FIXED ASSETS
Fixed Assets Non Applicability Valuation for Special Cases
 Useful life exceeding 1 year  Forest, plantations  Hire purchase- Cash price
 Used for production  Wasting assets  Jointly held -Pro rata basis
 Not for sale  Real estate  At consolidated price – Fair basis by competent
 Livestock valuer

Fixed Assets in Financial Statements

Historical Cost Revalued Price
(i) Purchased First Time
Purchase Price ×× Downward Upward
+ Duties ×× Debit: P/L A/c Credit: P/L A/c
+ Attributable cost ×× Subsequent Revaluation
- Govt. Grants ×× Upward Downward
+/- Foreign Exchange Charges ×× Credit P&L A/c to the Debit revaluation
+/- Price Adjustments ×× extent already debited reserve to the extent
Administration ×× already credited
-
and General OH Credit Revaluation Debit P&L A/c for the
×× Reserve for Balance balance amount
(ii) Self Constructed Amount
Direct Cost ××
+ Attributable Cost ×× Improvements and Repairs
- Internal Profit ×× Increase in future No increase in future
×× economic benefits economic benefits
Acquit ion in Exchange Capitalize Debit P&L A/c
(iii)
of Existing Assets
Similar Assets: Additions & Extensions
(a) FMV of assets given up or taken up, Integral Part Separate Identity
whichever is more evident Add to gross block Account separately
Non-similar Assets:
FMV of assets given up or taken up, Retirement & Disposal
(b)
whichever is more evident OR net Retired from active Previously revalued
book value of assets given up use assets
In exchange of Shares (1) Book value – NRV (1) Profit: Credit to P/L
or other Securities: FMV of assets A/c
(c)
given up or shares or securities which (2) Loss – Debit to P/L (2) Loss: Adjust with
is more evident A/c Revaluation Reserve of
(3) Show in B/S same asset

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 AS11. EFFECTS OF CHANGE IN FOREIGN EXCHANGE
 Transactions in Forex
 Presentation in cash flow
APPLICABILITY  Translation NON APPLICABILITY
 Foreign currency borrowings
 A/c for forward exchange contracts

Accounting Treatment
Transaction Translation Forward Exchange
(a) Initial Recognition: Foreign Operation Hedging Speculation
Rate on the date of transaction or Joint Venture Subsidiaries Trading
average rate Branch Associates Goodwill or Capital Reserve @
(b) On the balance sheet date Closing Rate
Monetary Non-monetary
Closing At At Fair Integral Non-integral
rate Historical Value 1 Historical Historical 1 Balance Closing Rate
Cost Cost Rate Sheet
Actual Value 2 Closing Closing Items
Rate on B/S Stock rate 2 Income & Actual /
date 3 Opening Opening Expenses Average rate
(c) Contingent Liability.: Rate on B/S date Stock Rate 3 Change in Foreign
(d) Treatment of exchange difference 4 Monetary Valuation exchange Currency
(i) Initial: Date of transaction: Assets Date Translation
Bank A/c Dr 5 Nominal Average
To Borrowings Assets Rate
(ii) Balance Sheet Date 6 Change in P/L A/c
Loss Gain exchange
Diff. in Borrowings Dr 7 Tax effect As per AS
Exchange Dr To Diff. in 22
To Borrowings Exchange Reclassification: Integral to non-integral
(iii) Settlement: Adjust in FCTR on date of change
Borrowings A/c Dr Reclassification: Integral to non-integral
Diff. in Exchange Dr (1) Non-monetary asset – Historical Cost
To Bank (2) No adjustment till disposal

Accounting Standard Page 10

 AS12. ACCOUNTING FOR GOVERNMENT GRANTS

NON-APPLICABILITY RECOGNITION GOVERNMENT

1.Govt. assistance other than Govt. grants 1.Compliance with conditions 1. Govt.
2.Govt. participation in ownership 2. Receipt of grants 2. Govt. agencies
3. Local bodies
4. Foreign Govt.

Kinds
Non-monetary Monetary
Concessional Rate Free of Cost (1) Deduction from Show as deferred
gross value of assets income in P/L
Acquisition Cost Nominal Value (2) If grant = cost of the
(Say ₹100) asset, show nominal
value of asset in B/S

Non Depreciable Asset Depreciable Asset

No obligation to incur Obligation to incur Method I Method II
expenses expenses
On Purchase On Purchase On Purchase On Purchase
Fixed assets A/c Dr Fixed assets A/c Dr Fixed assets A/c Dr Fixed assets A/c Dr
To Bank A/c To Bank A/c To Bank A/c To Bank A/c
On Receipt of Grant On Receipt of Grant On Receipt of Grant On Receipt of Grant
Bank A/c Dr Bank A/c Dr Bank A/c Dr Bank A/c Dr
To Fixed asset A/c To Defer Govt grant A/c To Fixed asset A/c To DeferGovt grant A/c
(or) Defer Govt. grant Dr Depreciation A/c Dr Depreciation A/c Dr
Bank A/c Dr To P&L A/c To Fixed assets A/c To Fixed assets A/c
To Capital Reserve (To the extent of Defer Govt grant A/c Dr
depreciation) To Depreciation A/c
On Refund On Refund On Refund On Refund
Fixed assets A/c Dr Deferred Govt. grant Fixed assets A/c Dr Defer Govt grant A/c Dr
To Bank A/c A/c Dr To Bank A/c P&L A/c (b/f) Dr
(or) P&L A/c (b/f) Dr Depreciation A/c Dr To Bank A/c
Capital Reserve A/c Dr To Bank A/c To Fixed assets A/c Depreciation A/c Dr
To Bank A/c (For remaining life) 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 Disclosure

(1) AS 9 Current Investment  On the date of (1) A/c policy
(2) AS 19 Readily realizable, Less than one year transfer (2) Classification
(3) AS 15 Long Term Investment  At lower of cost or (3) Aggregate amount of quoted &
(4) Mutual funds, Venture capital Other than current fair value unquoted securities
funds Investment Property (4) Any restriction on investment
(1) Investment in land or building
(2) Not for use in production

Cost of Investment Carrying Amount Disposal of Investment

+ Purchase price ×× Current Investment Long-term Investment Investment Total Partial
+ Acquisition charges ×× in Properties Sale vale ×× On
- Pre-acquisition interest ×× Whichever is lesser Cost of acquisition Account it - Carrying ×× average
- Pre-acquisition Dividend ×× Cost of acquisition or (Only permanent as long term Amount carrying
- Sale of right (if cum-right) ×× Net Realizable Value reduction is adjusted P/L A/c ×× amount
×× in cost)

Particulars Value
1 Investment in shares or securities Fair value
2 In exchange of shares or other securities FMV of assets given up or shares or securities which is more evident
3 Right shares subscribed Added to carrying amount

Accounting Standard Page 12

 AS15. EMPLOYEE BENEFITS
Defined Contribution Plans (DCP)
1 Retirement benefit
2 Contribution charged to P&L A/c
3 Excess if any treated as prepayment
4 Cost of Defined contribution plan should be
accounted as an expense on accrual basis.
5 Enterprise’s obligation is limited to contribution
agreed to be made and investment returns
arising from such contribution
Accounting Treatment
Provision for accruing liability in the P&L A/c for
the accounting period
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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
Own Separate / Specific Fund Established
Through Trust(Or) Fund Established
Through Insurer
1 Actuarial valuation
2 Actual contribution (+) shortfall to meet
actuarial amount to be charged to P&L A/c
3 Excess treated as prepayment
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 AS16. BORROWING COSTS

Borrowing Cost Qualifying Asset Conditions for Capitalization

Interest and other cost incurred Asset which takes substantial (1) Direct attribution to
relating to borrowing. period of time to get ready for its acquisition, production or
Includes- intended use or sale construction of qualifying asset
 Amortization of discounts or Example: (2) Future economic benefit
premium and ancillary cost Fixed asset in construction process
 Finance charges under Intangible asset in development
finance lease phase
 Exchange differences in
interest cost

Amount eligible for capitalization Commencement of capitalization

1 Specific Borrowing
Actual borrowing cost
(-) Income from temporary investment of
borrowing
2 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
satisfy three conditions:
1 Progress of activities essential to
prepare the asset for intended use
2 Incur borrowing cost
3 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

Accounting Standard Page 14

 AS17. SEGMENT REPORTING

Segment Enterprise revenue Segment result

1 Business segment Revenue from sales to external Segment Revenue ××
2 Geographic segment customers are reported in P&L A/c - Segment expenses ××
××

Segment Revenue Segment Expenses Segment Assets Segment Liabilities

+ Enterprise revenue directly ×× + Expenses directly ×× + Employed by the ×× + Operating liabilities ××
attributable to the segment attributable to the segment segment in its operation
+ Revenue from transactions ×× + Reloading to transactions ×× + Directly attributable to ×× + Directly attributable ××
with other segments with other segments the segment to the segment
- extraordinary items ×× - extraordinary items ×× - Allowances and ×× - Income tax liabilities ××
- Interest/ dividend ×× - Interest cost ×× - provisions - Other liabilities for ××
- Gain on sale of investment ×× - Loss on sale of investment ×× - Income tax assets ×× financing purposes
×× - Income tax ×× Administrative expenses ×× ××
- Administrative expenses ×× ××
××

Reportable Segments Identification of

Condition Primary Secondary Reportable Segments
Risk and Return Affected by 1 > 10% of total segmental revenue
1 Difference in product/ service Business Geographic (Customer) 2 > 10% of total segment result
2 Difference in area 3 > 10% of total assets of all the segments
2.1 Location of assets & customers Geographic Business 4 Management’s discretion
2.2 Assets only Geographic (Assets) Business + Geographic (customer) 5 75% of total external revenue
2.3 Customers only Geographic (Customer) Business + Geographic (assets)
3 Difference in product / Business Geographic (Customer)
service and difference in area

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 AS18. RELATED PARTY DISCLOSURES

Related Party What should be

Related Party Exceptions
Transactions disclosed?
 Associates  Common director not able Transfer of  Related party
 Subsidiaries to influence mutual resources or relationship
 Holding company dealings obligations between  Transactions
 Joint ventures  Single customer / supplier / related parties between a
 KMP & their relatives franchiser regardless of reporting
 Direct/ indirect  Finance providers whether or not a enterprise and
control  Trade union price is charged its related party
 Common control  Govt. departments &
agencies
 State controlled enterprises

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 Due to significant influence & Due to both and there are transactions
there is no transactions there is no transactions
1. Name of the related No disclosure 1. Name of the related party
party 2. Nature of relationship
2. Nature of 3. Nature of transactions
relationship 4. Volume of transactions
5. 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 Page 16

 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  It doesn’t transfer substantially all the risk and
incidental to ownership to the lessee reward incidental to ownership
 No transfer of legal ownership
 Lease term covers major part of the asset’s life
In the books of In the books of lessor In the books of lessor In the books of
lessee lessee
Recognize at fair Recognize receivable equal to Charge depreciation as Recognize expenses
value at the net investment per AS 6 in P&L A/c on
inception of lease Finance income should be Recognize lease income in straight line basis
(or) recognized in proportion to P&L A/c using straight
Present value of outstanding balances line method
MLP from lessee
point of view
Whichever is lower

Minimum Lease Payment (MLP) Sale and Lease Back

Lessor Lessee 1 Finance Lease
Lease rent ×× ×× Any P/L on sale is deferred
+ Guaranteed ×× ×× 2 Operating Lease
residual value
+ Unguaranteed ×× NA SP=FV SP<FV SP>FV
residual value
SP 9 11 11 9 9 11 12 9
- Contingency rent ×× ××
FV 9 11 12 12 12 10 11 8
- Other cost/tax ×× ××
MLP ×× ×× CV 10 10 10 10 10 10 10 10
Gross Investment P/(L) (1) 1 1 (1) - 0 1 (2)
Net Investment (PV ×× ×× SP-CV FV-CV
of MLP)
Defer - - - - (1) 1 1 1
+ Unearned Finance ×× ××
Charges NC C SP- SP- SP-
×× ×× FV FV FV

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 AS20. EARNINGS PER SHARE

1 Basic EPS

2 Diluted EPS

Weightage
1 Equity shares for cash Date of receipt of cash
2 Equity shares against conversion of debt Date of conversion
3 Against interest or principal of instrument Date when interest ceases to accrue
4 In exchange of settlement of liability Date of settlement
5 Service when the service was rendered
6 Partly paid up Fraction in the ration of paid up to face value
7 Purchase Date of acquisition
8 Merger Full year
9 Rights issue Right factor
10 Bonus issue Full year

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

Accounting Standard Page 18

 AS22. ACCOUNTING FOR TAXES

Objective Deferred Tax Current Tax

Tax shall be accounted on Income tax determined to Tax effect of timing difference between tax
accrual basis and not on be payable as per Income expense on accrual basis and current tax
liability to pay tax Act 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; Tax on accounting income is nil;
Loss as per Accounts 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; Tax on accounting profit but tax as per IT is nil; Carry
MAT is payable forward of loss is allowed
P&L A/c Dr ××
To Deferred Tax A/c ××
(Deferred Tax Asset)

Case First year Subsequent year

1 Depreciation allowed is excess DTL (AT-CT) (Cr) Dr
2 Disallowed expenses DTA (CT-AT) (Dr) Cr
3 Disallowed incomes DTL (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.

Singar Academy Page 19

 AS23. ACCOUNTING FOR INVESTMENTS IN ASSOCIATES IN
CONSOLIDATED FINANCIAL STATEMENTS

Associates Non Applicability

Enterprise in which the investor
has significant influence and
which is neither subsidiary nor
joint venture
1 Investor having no significant influence in an associate
2 Investment held exclusively for disposal
3 Associate operate under long term restrictions which impair
transfer of funds
4 When consolidated financial statement of investor is not made

Equity Method of Accounting

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

2 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 ××
××
3 Eliminate unrealized profits and losses
4 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 Page 20

 AS24. DISCONTINUING OPERATIONS

Discontinuing Operation Which are not Discontinuing Operation?

Not a discontinued operation
1 Single plan
 Disposing substantially
entirety
 Demerger/ Spin off
 Piece meal disposal
 Abandonment
2 Separate major line of business
3 Distinguished operationally
1 Planned change
2 Abrupt or unplanned changes
in its  Gradual phasing out of product line
 Shifting of production/ marketing to various
location
 Closing of facility to achieve productivity
 Selling subsidiaries

1 Initial Disclosure Event

Agreement to sell substantially all assets of discontinuing operation
(OR)
Approving & announcing of the plan
Whichever is earlier
2 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
3 Other Disclosures
Gain or loss on disposal of assets/ settlement of liabilities
Net selling price, carrying amount of assets under binding sale of agreements
4 Updating Disclosure
Up to and including the period of discontinuance gets completed.
5 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.

Singar Academy Page 21

 AS25. INTERIM FINANCIAL REPORTING

Interim Financial Reporting Financial Statements

Reporting for periods of less than 1 Balance sheet
a year generally for a period of 3 periods 2 Profit & loss A/c
3 Cash flow statement
4 Notes to Accounts

Principles of Recognition
Integral View Discrete View
 Measure interim period income by viewing each interim  View each interim period separately
period as an integral part of annual financial period  Year to date basis
 For income tax expenses, use
weighted average annual effective tax
rate

Form and Contents

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

Accounting Standard Page 22

 AS26. INTANGIBLE ASSETS

Non Applicability Intangible assets Recognition criteria

 Financial assets  Identifiable  Characteristic of an asset
 AS 14; AS 22; AS 19  Non-monetary  Future economic benefits
 Extraction or exploration of  No physical substance  Reliably measured
natural resources except startup costs Retirement &
 Insurance Disposal Amortization
 Share issue expense Recognize gain or Over the useful life
 Termination benefits loss in P&L A/c

Categories
Un-identified Acquired and Identified Internally generated
Separate Cost of acquisition Goodwill Intangible assets Brands
acquisition Non Development ×× Publishing
Exchange of Fair value of which is recognized stage titles and
assets more evident + Expenses on ×× other
Issue of shares Fair value of which is materials & similar
/ securities more evident services items
Govt. Grants As per AS 12 + Salaries and ×× should not
Amalgamation Goodwill Others wages be
Research cost [Purchase] + Direct Cost ×× recognized
Recognize Include
Debited to P/L A/c in the + Overheads ××
Development Costs value - Selling, ××
Capitalise goodwill admn cost
Subsequent expenses - Initial ××
Attributed to asset operating
Increase future economic cost
benefits - Expenditure ××
1. Yes: capitalize on staff
2. No: Debit to P/L A/c training

Singar Academy Page 23

 AS27. FINANCIAL REORTING OF INTEREST IN JOINT VENTURE

Joint Venture Operator Fee

A contractual agreement whereby two or more  Recognize as per AS 9
parties carry an economic activity under joint control  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 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
2 Jointly Controlled Entities
Profit / Loss As per AS9
Consolidated Same as jointly controlled operation and assets

Accounting Standard Page 24

 AS28. IMPAIRMENT OF ASSETS

Impairment of Non Impairment Loss for Cash Effect of Impairment on

Assets Applicability Generating Unit Depreciation /
Amortization
Weakening in the  AS 2 Ignore impairment of division if Review as per AS 6
value of asset  AS 7 there is no impairment to the cash / AS 26
Carrying amount >  AS 13 generating asset
Recoverable amount  AS 22

Carrying Amount Recoverable Amount Cash Flows

(Book value) (Net selling price) Include:
Original cost ×× Whichever is higher  From continuing use of assets
- Depreciation ×× 1 Sale vale ××  Projected cash flow
- Cost of disposal ××  Net cash flow if any to be
or received (or paid) for disposal of
2 Value in use (P.V of ×× asset at the end of its useful life
estimated future cash flow + Exclude:
P.V of residual value)  Cash flow from financing
activities
 Income tax receipts and payments

Recognition for individual asset

At historical cost At revalued amount
Debit P/L A/c Loss = Loss >
(Carrying amount – Revalued amount) Revaluation Revaluation
reserve Reserve
Setoff Balance
against should be
revaluation debited to
reserve P&L A/c

Reversal of Impairment of Individual Asset

1 Asset A/c Dr ××
To Reversal of Impairment A/c ××
2 Reversal of Impairment A/c Dr ××
To P/L A/c ××

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.

Singar Academy Page 25

 AS29. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
(1) Financial Instruments (2) Resulting from executor contracts
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
Recognition
1 Present obligation
2 Result of past events
3 Exist on B/S date
4 Probable
5 Outflow of resources
6 No provision for future
expenditure which can be
avoided by future action
7 No recognition of future
operating cost
Measurement
1 Best estimate
2 No discounting to present
value
3 Consider risk & uncertainty
4 Don’t deduct profit on
disposal of assets
5 Consider additional
evidence, if any, after B/S
date
6 Consider before tax
Disclosure
1 Opening balance
2 Additions
3 Unused provision
4 Closing balance
5 Expected reimbursement
recognized as an asset
Accounting Standard
Non-applicability
(3) Insurance (4) AS 7, 15, 19, 22
Obligation for Past Events
Possible Obligation
Doesn’t Exist on B/S Date
Not Probable
Contingent Liability Contingent Liability /
Contingent Assets
No Probable outflow Confirmed by future
Cannot Measure quantum of events, not within
liability control of orgn.
May happen
Recognition  Contingent Liability
1 Present obligation
2 Doesn’t Exist on B/S date Contingent Assets 
3 No Probable Outflow of resources No recognition
4 Quantum can’t be measured Disclosure in director’s
5 If it becomes probable that an report
outflow of future economic
benefits will be required to
settle obligation, it can be
recognized as provision
afterwards Restructuring
Disclose only in Director’s report (1) programme that is
Disclosure planned & controlled by
1 Nature management
2 Estimate, if possible (2) Materially affects the (a)
3 Indication of uncertainties scope of business (b)
4 Any reimbursements manner of conduct
Provision for Restructuring Cost (Accounting)
Include Exclude
(1) Cost of terminating (1) Cost of refraining
lease/contracts (2) Marketing cost
(2) Cost representing contractual (3) Expected loss on sale of
obligations with no economic asset
benefits (4) New investments
Recognize if recognition principle of provisions is satisfied
No A/c treatment is prescribed
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