CFR Full Notes

Corporate
Financial
Reporting
For 3rd SEM M.com, Bangalore University
S.Darshan R. Madhankumar
R. Madhankumar M.com, PGDFM, PGDBL, (CS)
S. Darshan M.com, MFA, PGDBL, (CS)
Corporate Financial Reporting Page 2

Corporate Financial
Reporting
(CFR)

Assistant Professor
BSVP Arts and Commerce College for women Vijayanagar Bangalore

Assistant Professor
BSVP Arts and Commerce College for women Vijayanagar Bangalore


Syllabus:
Module 1: Accounting Standards
Accounting Standards, Interpretations and guidance notes on various aspects issued by the
ICAI and their applications. Overview of International Accounting Standards (IAS);
Module 2: International Financial Reporting Standards (IFRS)

Interpretations by International Financial Reporting Committee (IFRIC), Significance vis-à-vis
Indian Accounting Standards. US GAAP, Application of IFRS and US GAAP.
Module 3: Corporate Financial Reporting

Issues and problems with special reference to published financial statements; Sustainability
Reporting: Concept of Triple Bottom Line Reporting, Global Reporting Initiative (GRI), and
International Federation of Accountants (IFAC)
Module 4:Accounting and Reporting of Financial Instruments

Meaning, recognition, de-recognition and offset, compound financial instruments,
measurement of financial instruments, Hedge accounting, Disclosures; Financial Reporting
by Nonbanking finance companies, Merchant Bankers, stock and commodity market
intermediaries.
Module 5: Developments in Financial Reporting

Value Added Statement, Economic Value Added, Market Value Added, Shareholders’ Value
added, Human Resource Reporting, and Inflation Accounting.
References:
1. IFRS for India, Dr.A.L.Saini, Snow white publications
2. Roadmap to IFRS and Indian Accounting Standards by CA Shibarama Tripathy
3. IFRS explained – A guide to International financial reporting standards by BPP learning
Media
4. IFRS for finance executives by Ghosh T P, taxman allied services private limited
5. IFRS concepts and applications by Kamal Garg, Bharath law house private limited
6. IFRS: A Quick Reference Guide by Robert J. Kirk, Elsevier Ltd.
7. First lesson to International Financial ReportingStandards beginners guide by MP Vijay
Kumar, prime knowledge services.
8. A student’s guide to international financial reporting standards by Clare Finch, Kalpan
Publishing.


Chapter 1
Accounting standards
Syllabus:
Accounting standards, interpretations and guidance notes on various aspects issued
by the ICAI and their applications. Overview of International Accounting standards
(IAS)
Introductions:
The use of the word standard in accounting literature is of a recent origin what is described
as standard today used to be generally known as principles a few years ago. The British
introduced the term standards in place of principles. We know that financial statements are
prepared to summarize the end result of all the business activities by an enterprise during
an accounting period in monetary terms.
To compare the financial statements of various reporting enterprises poses some difficulties
because of the divergence in the method and principles adopt by these enterprises in
preparing their financial statements. In order to make these methods and principles uniform
and comparable to the extent possible standards are evolved and today there exist different
sets of accounting standards which are followed by different countries mean to say respective
countries use their own standards for accounting practice.
Meaning of accounting standards:

Accounting standards are the statements of code of practice of the regulatory accounting
bodies that are to be observed in the preparation and presentation of financial statements.
In other words The Accounting Standards are a set of guidelines and road map, known as
Generally Accepted Accounting Principles (GAAP), issued by the Accounting body of the
country
 Eg. ICAI – Standard Setting Board
Definition of accounting standards:

According to ICAI (Institute of Chartered Accountants of India), Accounting Standards are
“written documents, policies, procedures issued by expert accounting body or government or
other regulatory body covering the aspects of recognition, measurement, treatment,
presentation and disclosure of accounting transactions in the financial statement”.
Objectives of accounting standards:

 Standardization.
 Comparability.
 Reliability.
 Fair Representations.
 Increases the Arithmetic Accuracy.
 Flexibility in preparation of Financial Statements.
Advantages:
 It provides the accountancy profession with useful working rules.
 It assists in improving quality of work performed by accountant.
 It strengthens the accountant’s resistance against the pressure from directors to use
accounting policy which may be suspect in that situation in which they perform their
work.
 It ensures the various users of financial statements to get complete crystal information
on more consistent basis from period to period.
 It helps the users compare the financial statements of two or more organisations
engaged in same type of business operation.
Disadvantages:
 Users are likely to think that said statements prepared using accounting standard are
infallible.
 They have been derived from social pressures which may reduced freedom.
 The working rules may be rigid or bureaucratic to some user of financial statement.
 The more standards there are, the more costly the financial statements are to produce.
Types of accounting standards:

Accounting standards may be classified by their subject matter and by how they are enforced.
According to subject matter, standards may be follows:
1. Disclosure standards: Such standards are the minimum uniform rules for external
reporting.
2. Presentation standards: They specify the form and type of accounting information
to be presented and aim at reduce the costs to users of utilizing financial statements.
3. Content standards: These standards specify the accounting information which is to
be published. There are three aspects to such standards; disclosure, specific
construct and conceptually based accounting standards.
Another classification of accounting standards may be based upon their method of

preparation and enforcement. such standards etc.
1. Evolutionary and voluntary compliance standards: Such standards have evolved
as best practices and represent the conventional approach to according. As such their
general acceptability implies voluntary compliance by individual companies.
2. Privately set standards: Private accountancy bodies may formulate standards and
devise means for their enforcement. Other bodies such as trade associations or stock
exchanges may set accounting standards for companies as a condition of membership
or listing.
3. Government standards: These standards may be laws relating to company
accounting practices and disclosure, as in the case of the Indian companies Act or
tax rules defining taxable profits.
An important question with regard to standard setting is deciding whether standard should be
set by government or a private sector body or government backed agency.
1. If government as a standard setter. It is argued that government should act as

standard setter because government would be free of conflicts of interest. It can better
enforce compliance with accounting standards in that it is backed by the enforcement
power of law finally, government would act more quickly on pressing problems.
2. If private sector body as standard setter: Certain opinions have also been
advanced for giving standard setting task to private body because firstly, It is argued
that government could neither attract enough high quality talent nor devote sufficient
resources to standard setting. Secondly government would be susceptible to undue
political influence from special influence groups. Finally a private sector body would
be more responsive to the needs of diverse interest.

3. If some agency is involved in standards setting: Both government and private

sector body have their own advantages and disadvantages as well. so in this situation
it appears a governmental agency may prove useful as compared to standard setting
in public and private sector.
Difficulties in setting accounting standards
1. Difficulties in Definition: To agree on the scope of accounting and of principles or

standards, is admittedly most difficult. The disagreement in principle with
conventions leads to difficulty in standards setting and further does not make the
standards totally acceptable to society.
Some, for example, equate accounting with public accounting, that is mainly with
auditing and the problems of the auditor. Another opinion is that it (accounting) is
frequently assumed to have a basis in a private enterprise economy.
2. Political Bargaining in Standard Setting: Earlier, but not so many years ago,
accounting could be thought of as an essentially non-political subject. But, today, as
the standard setting process reveals, accounting can no longer be thought of as non-
political.
3. Conflict in Accounting Theories: There has been remarkable growth in accounting

theories especially relating to income measurement, asset valuation, and capital
maintenance. Though much of the developments has taken place abroad, (USA, UK,
Canada, Australia, etc.), accounting in other countries has also been influenced.
While the theorists battled on, the various sectional interests found that the theories
could be used to support their own causes and arguments.
Absence of a conceptual framework, i.e., a set of interlocking ideas on accountability

and measurement is not conducive to standard setting and improved financial
accounting and reporting.
4. Pluralism: The existence of multiple accounting agencies has made the task of
standard setting more difficult. In India, company financial reporting is influenced by
although in different degrees, by Accounting Standards Board of ICAI, Ministry of
Corporate Affairs, Institute of Cost and Works Accountants of India, Securities and
Exchange Board of India (SEBI).
Standard setting In India:

In India we have standard bodies which are in practice the national regulation, which have
the legal authority to set and implement regulatory rules and procedures in the financial
sector. for example the RBI is responsible for regulation and supervision of banks and other
financial institutions and money, foreign exchange and government securities markets. The
ministry of company affairs, inter alia, provides legal framework for incorporation and proper
functions of companies.
Further, we have self regulatory organization such as the Indian bank association(IBA), Fixed
income money market and derivate association of India (FIMMDA), Association of merchant
bankers of India(AMBI), Association of Mutual funds of India(AMFI), Foreign exchange
Dealers association of India(FEDAI), Primary Dealers association of India (PDAI), among other
which play a critical role in developing codes of conduct and setting and maintaining
standards. Following are the bodies responsible for setting up A.S.
1. ICAI: The Institution of Charted accountants of India on April 21,1975 eatablished

accounting standards board. The main function assigned to the ASB was to formulate
accounting standards from time to time. However ICAI with ASB is carrying a good
work of formulation and issuance of accounting standards.
2. Accounting standards and SEBI: Security and Exchange board of India was
established in 1982 and it deals with the formulation of Laws, by laws rules and
amendments for the purpose of giving smooth and strong support to stock market.
SEBI also focuses on protecting to interest of investor.
3. Accounting standard and Income tax act 1961: Section 145 of the income tax act
1961 deals with the method of accounting to adopted for computing the income under
the head of profit and gains from business and profession. “ The finance act 1995 had
amended section 145 w.e.f from 1st April 1999.
4. Accounting standards and company law: Accounting standards and company bill
1997, 415(2) of the company bill 1999 now proposed prescription of accounting
standard by the central government in consultation with the national advisory
committee on accounting standards(NACAS)
Procedure of Issuing AS (India)

The following is the summarized existing process followed by ASB in issuing accounting
standards.
1. ASB of ICAI after consultation with various study groups prepares the draft of AS
2. The draft as prepared will be circulated to council members of ICAI and to the specified
bodies like ICSI, ICWAI,CBDT,FICCI,ASSOCHAM, RBI, SEBI etc.
3. After the meeting with the above bodies the exposure draft is finalized by ASB and
submitted ICAI and public for their comments
4. After considering the comments received, the draft is finalized by ASB and Submitted
to ICAI
5. the ICAI is found necessary may with consultation with ASB make required
modification and issue the Final AS
6. NACAS to recommended to MCA to notifying the AS.
Present Standard Setting Process in India:

1. Identification of the board areas by the ASB for formulating the Accounting standard

2. Constitution of the study groups by the ASB for preparing the preliminary drafts of
the proposed accounting standards
3. Consideration of the preliminary draft prepared by the study group by the ASB and
revision, if any of the draft on the basis of deliberations at the ASB.
4. Meeting with the representatives of specified outside bodies to ascertain their views
on the draft of the proposed accounting standard
5. Finalization of the exposure draft of the proposed accounting standard on the basis
of comments received and discussion with the representatives of specified outside
bodies.
6. Issuance of the exposure draft inviting public comments.
7. Consideration of the comments received on the exposure draft and finalization of the
draft accounting standards by the ASB for submission to the council of the ICAI for
its consideration and approval for issuance.
8. Consideration of the draft accounting standard by the council of the institute and if
found necessary, modification of the draft in consultation with the ASB.
9. The Accounting standard so finalized is issued under the authority of the council.
AS-1 – Disclosure of Accounting Policies

This standard deals with the disclosure of significant accounting policies followed in the
preparation and presentation of financial statements. The purpose of this standard is to
promote better understanding of financial statements by establishing the disclosure of
significant accounting policies in the financial statements and the manner of doing so.
Compliance with this standard should go a long way in facilitating a more meaningful
comparison between financial statements of different enterprises.
AS-2 – Valuation of Inventories

Inventories generally constitute the second largest item after fixed assets, in the financial
statements particularly of manufacturing organisations. The value attached to inventories
can materially affect the operating results and the financial position. However, different basis
of valuing inventories are used by different businesses and even by different undertakings
within the same trade or industry. The primary issue in accounting for inventories is the
determination of the value at which inventories are carried in the financial statements until
the related revenues are recognised.
AS-3 – Cash Flow Statements

Accounting Standard-3 recommends that listed companies and other industrial commercial
and business enterprises will have to provide to their shareholders and public in general, as
the case may be, a cash flow statement along with balance sheet and income statement. Cash
flow statement provides information that enables users to evaluate the changes in net assets
of an enterprise, its financial structure and its ability to affect the amounts and timing of
cash flows in order to adapt to changing circumstances and opportunities
AS- 4 – Contingencies* and Events Occurring after the Balance Sheet Date
Events that occur between the balance sheet date and the date on which the financial
statements are prepared are referred to as events occurring after the balance sheet date. Such
events are classified into two categories: (i) events occurring after balance sheet date that

provide further evidence to the conditions which were prevailing on the balance sheet date
and (ii) events occurring after the balance sheet date that are indicative of the conditions
which occur subsequent to the balance sheet date.
*(Pursuant to AS 29, Provisions, Contingent Liabilities and Contingent Assets, becoming

mandatory, all the relevant portions of this Standard that deal with contingencies stand
withdrawn except to the extent they deal with impairment of assets not covered by other Indian
Accounting Standards.)
AS-5 – Net Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies
The standard ensures uniform classification and disclosure of certain items so that profit and
loss statement may be prepared on uniform basis and thereby facilitating inter-period and
inter-firm comparisons. The standard recommends that all items of income and expense
which are recognised in a period should be included in the determination of net profit or loss
for the period. While arriving at the net profit, extraordinary items and the effects of changes
in accounting estimates should also be incorporated. The profit and loss statement should
disclose clearly the profit or loss from ordinary activities and extraordinary activities.
AS-6 – Depreciation Accounting

This accounting standard makes recommendation in respect of accounting treatment of
matters such as allocation of depreciable amount, estimation of useful life of a depreciable
asset, change in the depreciation policy, change of historical cost of depreciable asset,
revaluation of depreciable asset etc. The standard recommends that depreciation on
depreciable asset should be allocated on a systematic basis to each accounting period during
the useful life of the asset. The depreciation method selected should be applied consistently
from period to period. A change in one method of providing depreciation to another method
should be made only if the adoption of the new method is required by statute or for
compliance with the accounting standard or if it is considered that the change would result
in a more appropriate preparation or presentation of financial statements.
AS-7 – Construction Contracts

The objective of this Accounting Standard is to prescribe the accounting treatment of revenue
and costs associated with construction contracts. The Standard prescribes only percentage
of completion method for recognising the revenue, which justifies the accrual system of
accounting. A construction contract is a contract specifically negotiated for the construction
of an asset or a combination of assets that are closely interrelated or interdependent in terms
of their design, technology and function or their ultimate purpose or use. Construction
contracts are formulated in a number of ways which for the purposes of this standard are
classified as fixed price contracts and cost plus contracts. Some construction contracts may
be a mix of both a fixed price contract and a cost plus contract.
AS-8 – Accounting for Research and Development

Note: Withdrawn pursuant to AS 26 becoming mandatory.

AS-9 – Revenue Recognition

This standard deals with the basis for recognition of revenue in the statement of profit and
loss of an enterprise. It lays down the conditions to recognise revenue by sale of goods,
rendering of services, resources yielding interest, royalties and dividends. Revenue should be
recognised for sale of goods or services only when the collection is reasonably assured and (i)
the property in goods is transferred from seller to buyer (ii) there is no uncertainty regarding
the amount of consideration that will be realised from sale of goods.
AS-10 – Accounting for Fixed Assets

Financial statements disclose information regarding fixed assets such as land and building,
plant and machinery, vehicles, furniture and fittings, goodwill, patents, trade marks and
designs etc. This standard deals with accounting for these fixed assets. The cost of fixed asset
should comprise its purchase price and any attributable cost of bringing the asset to its
working condition for its intended use. Any trade discounts and rebates are deducted in
arriving at the purchase price.
AS-11 – The Effects of Changes in Foreign Exchange Rates

This Standard should be applied in accounting for transactions and balances in foreign
currencies and in translating the financial statements of foreign operations. A foreign
currency transaction should be recorded, on initial recognition in the reporting currency, by
applying to the foreign currency amount the exchange rate between the reporting currency
and the foreign currency at the date of the transaction
AS-12 – Accounting for Government Grants

Government grants are assistance by Government in cash or kind to an enterprise for past
or future compliances with certain conditions. Such grants are sometimes called by other
names such as subsidies, cash incentives, duty drawback etc. There are two approaches to
the treatment of Government grants. The first one is ‘capital approach’ under which a grant
is treated as part of the shareholders’ funds and the second is the ‘income approach’ under
which a grant is taken to income over one or more periods.
AS-13 – Accounting for Investments

The standard deals with accounting for investments in the financial statement of enterprises
and related disclosures. Investments are assets held by an enterprise for earning income by
way of dividends, interest and rentals for capital appreciation or for other benefits to the
investing enterprise. Assets held as stock-in-trade are not investments. An enterprise should
disclose current investments and long-term investments distinctly in its financial statements.
The cost of an investment should include acquisition charges such as brokerage, fees and
duties.
AS-14 – Accounting for Amalgamations

This standard deals with accounting for amalgamations and treatment of any resultant
goodwill or reserves. The standard classifies amalgamation into two categories i.e. (i)
amalgamation in the nature of merger and (ii) amalgamation in the nature of purchase. In
the first category where there is genuine pooling not merely of assets and liabilities of the
amalgamating companies but also of the shareholders’ interests and of the business of these
companies.
AS-15 – Employee Benefits

This Standard prescribes accounting and disclosure for all employee benefits, except
employee share-based payments. The Standard specifies the following four categories of
employee benefits: (i) Short-term employee benefits, such as wages, salaries and social
security contributions (e.g., contribution to an insurance company by an employer to pay for
medical care of its employees), paid annual leave, profit- sharing and bonuses (if payable
within twelve months of the end of the period) and non-monetary benefits (such as medical
care, housing, cars and free or subsidised goods or services) for current employees. The
Standard requires that an enterprise should recognise the undiscounted amount of short-
term employee benefits when an employee has rendered service in exchange for those
benefits. (ii) Post-employment benefits, such as gratuity, pension, other retirement benefits,
post-employment life insurance and post-employment medical care.
AS-16 – Borrowing Cost

Borrowing costs are interest and other costs incurred by an enterprise in connection with
borrowing of funds e.g. interest and commitment charges on bank borrowings and other
short-term and long-term borrowings; amortization of discounts or premiums relating to
borrowings; amortization of ancillary costs incurred in connection with the arrangement of
borrowings etc. Borrowing costs that are directly attributable to the acquisition, construction
or production of qualifying asset should be capitalised as part of the cost of that asset. Other
borrowing costs should be recognised as an expense in the period in which they are incurred.
AS-17 – Segment Reporting

The objective of this standard is to establish principles for reporting financial information,
about the different types of products and services an enterprise produces and the different
geographical areas in which it operates. The standard is applied in presenting general
purpose financial statements. The dominant source and nature of risks and returns of an
enterprise should govern whether its primary segment reporting format will be business
segments or geographical segments.
AS-18 – Related Party Disclosures

This standard is applied in reporting related party relationships and transactions between a
reporting enterprise and its related parties. Related partly disclosure requirements do not
apply in circumstances where providing such disclosure would conflict with the reporting
enterprise’s duties of confidentiality as specifically required in terms of a statute or by any
regulator. It is stated that no disclosure is required in consolidated financial statements in
respect of intra-group transactions.
AS-19 – Leases
The objective of this standard is to prescribe, for lessees and lessors, the appropriate
accounting policies and disclosures in relation to finance leases and operating leases. A lease
is classified as a finance lease if it transfers substantially all the risks and rewards incident
to ownership, title may or may not eventually be transferred. A lease is classified as an
operating lease if it does not transfer substantially all the risks and rewards incident to
ownership. Leases in the Financial Statement of Lessees
(a) Financial Leases: In this case at the inception of a financial lease, the lessee should
recognise the lease as an asset and a liability.
(b) Operating Leases: Lease payments under an operating lease should be recognised as an
expense in the statement of profit and loss on a straight line basis over the lease term unless
another systematic basis is more representative of the time pattern of the user’s benefit.
transaction is established at fair value, any profit or loss should be recognised immediately.

AS-20 – Earnings Per Share

Earning per share (EPS) is a financial ratio that gives the information regarding earnings
available to each equity share. This accounting standard gives computational methodology
for determination and presentation of earnings per share. An enterprise should present basic
and diluted earning per share on the face of the statement of profit and loss account for each
class of equity shares that has a different right to share in the net profit for the period.
AS-21 – Consolidated Financial Statements

The objective of this standard is to lay down principles and procedures for preparation and
presentation of consolidated financial statements and for accounting for investments in
subsidiaries in separate financial statements. Consolidated financial statements are
presented by a parent (also known as holding enterprise) to provide financial information
about the economic activities of its group. Consolidated financial statements are the financial
statements of a group presented as those of a single enterprise. Consolidated financial
statements normally include consolidated balance sheet, consolidated statement of profit and
loss, and notes, other statements and explanatory material that form an integral part thereof
AS-22 – Accounting for Taxes on Income

This Accounting Standard prescribes the accounting treatment for taxes on income.
Traditionally amount of tax payable is determined on the profit/ loss computed as per
income-tax laws. According to this accounting standard, tax on income is determined on the
principle of accrual concept. According to this concept, tax should be accounted in the period
in which corresponding revenue and expenses are accounted; in simple words tax shall be
accounted on accrual basis; not on liability to pay basis. This Standard should be applied in
accounting for taxes on income.
AS-23 – Accounting for Investments in Associates in Consolidated Financial

Statements
An associate is an enterprise in which the investor has significant influence and which is
neither a subsidiary nor a joint venture of the investor. Significant influence may be gained
by share ownership, statute or agreement.
AS-24 – Discontinuing Operations

As per the standard, discontinuing operation is a component of an enterprise:
(a) that the enterprise, pursuant to a single plan, is:
(i) disposing of substantially in its entirety, such as by selling the component in a single
transaction or by demerger or spin-off of ownership of the component to the enterprise’s
shareholders; or
(ii) disposing of piecemeal, such as by selling off the component’s assets and settling its
liabilities individually; or
(iii) terminating through abandonment;
(b) that represents a separate major line of business or geographical area of operations;
(c) that can be distinguished operationally and for financial reporting purposes.
AS-25 – Interim Financial Reporting
An interim financial report means a financial report containing either a complete set of
financial statements or a set of condensed financial statements for an interim period. Lesson
9 Accounting Standards 417 An interim financial report should include, at a minimum, the
following components: (i) Condensed balance sheet; (ii) Condensed statement of profit and
loss; (iii) Condensed cash flow statement; and (iv) Selected explanatory notes.

AS-26 – Intangible Assets

The Standard defines an intangible asset as an identifiable “non-monetary asset, without
physical substance, held for use in the production or supply of goods or services, for rental
to others, or for administrative purposes.” An intangible asset should be recognised if, and
only if: (a) it is probable that the future economic benefits that are attributable to the asset
will flow to the enterprise; and (b) the cost of the asset can be measured reliably. An enterprise
should assess the probability of future economic benefits using reasonable and supportable
assumptions that represent best estimate of the set of economic conditions that will exist
over the useful life of the asset.
AS- 27 – Financial Reporting of Interests in Joint Ventures

A joint venture is a contractual arrangement whereby two or more parties undertake an
economic activity, which is subject to joint control. In respect of its interests in jointly
controlled operations, a venturer should recognize in its separate financial statements and
consequently in its consolidated financial statements
AS-28 – Impairment of Assets

The objective of this Standard is to prescribe the procedures that an enterprise applies to
ensure that its assets are carried at no more than their recoverable amount. In assessing
whether there is any indication that an asset may be impaired, an enterprise should consider,
as a minimum the following indications:
(a) External sources of information: (i) during the period, an asset’s market value has declined
significantly more than would be expected as a result of the passage of time or normal use;
(ii) market interest rates or other market rates of return on investments have increased during
the period, and those increases are likely to affect the discount rate used in calculating an
asset’s value in use and decrease the asset’s recoverable amount materially;
(b) Internal sources of information:
(i) evidence is available of obsolescence or physical damage of an asset;
(ii) significant changes with an adverse effect on the enterprise have taken place during the
period, or are expected to take place in the near future, in the extent to which, or manner in
which, an asset is used or is expected to be used. These changes include plans to discontinue
or restructure the operation to which an asset belongs or to dispose of an asset before the
previously expected date;
AS-29 – Provisions, Contingent Liabilities and Contingent Assets

A provision is a liability, which can be measured only by using a substantial degree of
estimation. A contingent liability is: (a) a possible obligation that arises from past events and
the existence of which will be confirmed only by the occurrence or non-occurrence of one or
more uncertain future events not wholly within the control of the enterprise; or (b) a present
obligation that arises from past events but is not recognised because: (i) it is not probable
that an outflow of resources embodying economic benefits will be required to settle the
obligation; or (ii) a reliable estimate of the amount of the obligation cannot be made.
AS 30, 31, & 32 – FINANCIAL INSTRUMENTS

Applicability of AS 30, 31 and 32 These standards are not mandatory but earlier adoption is
encouraged. It may be mentioned that it has not been adopted by NACAS and thus in case of
a company an earlier adoption of these standards might not comply with certain standards
like AS-13 investment: A Company needs to consult accounting experts in such situation.
Needless to mention that in case the company wishes to adopt the standard than it shall
adopt the entire standard and not a part of it.

International Accounting Standards Concept:

The information revealed by the published financial statements is of considerable importance
to shareholders, creditors and other interested parties. Hence it is the responsibility of the
accounting profession to ensure that the required information is properly presented. If the
accountants present the financial information using their own discretion and in their own
way; the information will be invalid and it may not sever the purpose. There is therefore, the
urgent need that certain standard should be followed for drawing up the financial statements
so that there is the minimum possible ambiguity and uncertainty about undertaken this task
of drawing up the standards. The IASC was established in 1973. It has its headquarters at
London. At present the IASC has two classes of membership.
1. Founder members being the professional accounting bodies of the following nine
countries.
2. Members being accounting bodies from countries other than the nine above which
seek and are granted membership.
The need for an IAS program has been attributed to three factors:
 The growth in international investment investors in international capital market are
to make decision based on published accounting which are based on accounting
policies and which again vary from country to country. The intentional accounting
standard will help investors to make more efficient decision.
 The increase prominence of multinational enterprises such enterprises render
accounts for the home and host countries in which their shareholders reside and in
local country in which they operate accounting standards will help to avoid confusion.
 The growth in the number of accounting standard setting bodies it is hoped that the
IASC can harmonize these separate rule making efforts.
Objectives of International Accounting Standards:

The objectives of IASC which are set out in its revised agreement and constitution are:
(i) To formulate and publish in the public interest accounting standards to be observed in the
presentation of financial statements and to promote their worldwide acceptance and
observation
(ii) To work for the improvement and harmonisation of regulation accounting standards and
procedures relating to the presentation of financial statements.
List of International Accounting standard issued by IASB
IAS 1 Presentation of Financial Statements.
IAS 2 Inventories
IAS 3 Consolidated Financial Statements Originally issued 1976, effective 1 Jan 1977.
Superseded in 1989 by IAS 27 and IAS 28

IAS 4 Depreciation Accounting Withdrawn in 1999, replaced by IAS 16, 22, and 38, all of
which were issued or revised in 1998
IAS 5 Information to Be Disclosed in Financial Statements Originally issued October 1976,

effective 1 January 1997. Superseded by IAS 1 in 1997
IAS 6 Accounting Responses to Changing Prices Superseded by IAS 15, which was withdrawn
December 2003
IAS 7 Cash Flow Statements
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
IAS 9 Accounting for Research and Development Activities – Superseded by IAS 38 effective
1.7.99
IAS 10 Events After the Balance Sheet Date
IAS 11 Construction Contracts
IAS 12 Income Taxes
IAS 13 Presentation of Current Assets and Current Liabilities – Superseded by IAS 1.
IAS 14 Segment Reporting (superseded by IFRS 8 on 1 January 2008)
IAS 15 Information Reflecting the Effects of Changing Prices – Withdrawn December 2003
IAS 16 Property, Plant and Equipment
IAS 17 Leases
IAS 18 Revenue
IAS 19 Employee Benefits
IAS 20 Accounting for Government Grants and Disclosure of Government Assistance
IAS 21 The Effects of Changes in Foreign Exchange Rates
IAS 22 Business Combinations – Superseded by IFRS 3 effective 31 March 2004
IAS 23 Borrowing Costs
IAS 24 Related Party Disclosures
IAS 25 Accounting for Investments – Superseded by IAS 39 and IAS 40 effective 2001
IAS 26 Accounting and Reporting by Retirement Benefit Plans
IAS 27 Consolidated Financial Statements
IAS 28 Investments in Associates

IAS 29 Financial Reporting in Hyperinflationary Economies
IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions –
Superseded by IFRS 7 effective 2007
IAS 31 Interests in Joint Ventures
IAS 32 Financial Instruments: Presentation (Financial instruments disclosures are in IFRS 7

Financial Instruments: Disclosures, and no longer in IAS 32)
IAS 33 Earnings Per Share
IAS 34 Interim Financial Reporting
IAS 35 Discontinuing Operations – Superseded by IFRS 5 effective 2005
IAS 36 Impairment of Assets
IAS 37 Provisions, Contingent Liabilities and Contingent Assets
IAS 38 Intangible Assets
IAS 39 Financial Instruments: Recognition and Measurement
IAS 40 Investment Property
IAS 41 Agriculture
Chapter 2
International Financial Reporting Standard(IFRS)
Syllabus:
Interpretations by International Financial Reporting Committee(IFRIC), Significance Vis a vis Indian
accounting standard. US GAAP, Application of IFRS and US GAAP.
Meaning of IFRS:

International financial reporting standards (IFRS) refers to a set of generally accepted

accounting principles (GAAP) used by companies to prepare financial statements, a critical
sources of information published annually at a minimum and useful to various stakeholders
in understanding a company’s financial performance and management’s stewardship of the
company’s resources.
In other words International financial reporting standards (IFRS) are a set of Accounting
standard developed by the international accounting standard board (IASB) which helps in
becoming the global standard for the preparation of public company financial statements.
Features of IFRS
1. Faithfull representation: It is another basic features of IFRS. The financial statement
is prepared under IFRS system is complete and free from Bias.
2. Comparability: The basic features of IFRS are Comparability. It will help to compare
financial statement form one period to the next or for two companies in the same industry
so that we can make a informed decision about the companies.
3. Accrual Basis of Accounting: An entity shall recognized items such as Assets, liabilities,
Equity, Income and Expenses when they satisfy the Recognisation criteria which are in
the frame work of IFRS.
4. Materiality and Aggregation: Every material class of similar item has to be presented
separately. Items that are dissimilar nature or function shall be presented separately
unless they are immaterial.
5. Verifiability: Verifiability helps the users that the information is faithfully presented
according to the economic phenomenon. It means that different knowledgeable and
independent observers could reach the consensus that a particular depiction provides a
faithful representation.
6. Timeliness: IT means having information available to Decision makers in time to be

capable of influencing their decisions. This is based on the conceptual framework of IFRS
and hence it helps the users of IFRS to take a relevant decision.
7. Understandability: Financial reports are prepared for users who have reasonable
knowledge of business and economic activities and who review and analyze the
information diligently. Some phenomenon is complex and cannot be made easy to
understand. Excluding information on those phenomenons might make their information
easier who understand.
Users of IFRS
a) Investors: A financial report helps the investors to take decision about buying and selling
of shares, taking up a rights issue and voting. Investors can also know the level of dividend
and any changes in share price by going through financial reports. A financial report
helps the investors to know about liquidity and solvency position of the company and also
the company’s future prospects.

b) Employees: Financial reporting helps the employees to know about their security of
employment and future prospects for job in the company and help them with collective
pay bargaining.
c) Lenders (Debenture holders and Creditors): They need information to decide whether
to lend to a company. They will also need to check that the value of any security remains
adequate, that the interest repayments are secured, that the cash is available to
redemption at the appropriate time and that any financial restrictions have not been
breached.
d) Suppliers: Suppliers to need to known whether the company will be a good customer and
pay its debts.
e) Customers: They need to know the weather the company will be able to continue
producing and supplying goods.
f) Government: Government is specifically concerned with compliance with tax and

company law, ability to pay tax and general contribution of the company to the economy.
Benefit /Advantages of IFRS:

a) Single Reporting: Convergence with IFRS eliminates multiple reporting such as Indian
GAAP, IFRS, US GAAP.
b) Increase Comparability: IFRS will give more comparability among sectors, countries
and companies. This will result in more transparent financial reporting of a company’s
activities which will benefit investors, customers and other key stakeholders in India and
overseas.
c) Access to Global Capital Markets: Convergence with IFRS will enable Indian entities to
have easier access to global capital markets and eliminates barriers to cross-border
listings. It encourages international investing and thereby leads to more foreign capital
flows to the country.
d) Benefits for Investors: Financial statements prepared using a common set of accounting
standards help investors better understand investment opportunities as opposed to
financial statements prepared using a different set of national accounting standards.
e) IFRS balance sheet will be closer to economic value: Historical cost will be substituted
by fair values for several balance sheet items, which will enable a corporate to know its
true worth.
f) Benefits to the accounting professional: Convergence to IFRS will increase the

opportunities for Indian professionals in abroad as they will be able to sell their services
as experts in different parts of the world.
g) Benefits for the Industry: Currently companies need to prepare additional financial
statements based on multiple reporting formats to arise capital in global market.
Convergence with IFRS will eliminate the requirement for dual set of financial statements
and thereby reduces the cost of raising funds by the companies.

h) Improvement in financial reporting: Better quality of financial reporting due to

consistent application of accounting principles and improvement in reliability of financial
statements. This, in turn, will lead to increased trust and reliance placed by investors,
analysts and other stakeholders in a company’s financial statements.
Disadvantages of IFRS:
a) Small companies that have no dealings outside the countries have no incentive to adopt
IFRS unless mandated.
b) There is an extremely high price-tag – “…the SEC estimates the costs for issuers of
transitioning to IFRS would be approximately $32 million per company and relate to the
first three years of filings on Form 10-K under IFRS. Total estimated costs for the
approximately 110 issuers estimated to be eligible for early adoption would be
approximately $3.5 billion” (SEC, 2008).
c) Although it is unlikely, Commissioners have three years to change their minds. A definite
decision will not be made until 2011. There is no incentive for early adoption due to the
fact that it could be a colossal waste of time and resources. Also, companies would be
required to have two sets of records, one GAAP, one IFRS, during this time just in case
IFRS is not adopted.
d) Many feel that during this financial crisis that the world is currently experiencing, a
conversion of this magnitude is too much to ask of executives and management
e) A minimum of two years of financial information prior to conversion would need to be

maintained on two sets of books, both GAAP and IFRS, to meet the requirement of
financial statements to contain three years of financial data.
Process of Setting IFRS
Identification and review of associated issues and consideration of the application

of the frame work to the issues.
Study of National Accounting requirements and practices and an exchange of

views with national standards setters
Corporate FinancialConsultation
Reporting with SAC about adding the topic to the IASB’s Agenda Page 22
Formation of an advisory (“ Working”) Group to advise IASB

Publishing an exposure draft (ED) for Public Comment
Consideration of all comments received within the comment period.
If considered desirable, holding a public hearing and conducting field-tests
Approval of a standard by at least Nine Votes of the IASB
Practical challenges in implementing IFRS

1. Change to regulatory environment: For the success of convergence in India, certain
regulatory amendment is required. For example, The Companies Act (Schedule VI)
prescribes the format for presentation of financial statements for Indian companies,
whereas the presentation requirements are significantly different under IFRS. So, the
companies act needs to be amended in line with IFRS.

2. Lack of Preparedness Adoption of IFRS by approximately 5000 listed companies by 2011

would result in a significant demand for IFRS resources. Corporate India and accounting
professionals need to be trained for effective migration to IFRS. Additionally auditors
would need to train their staff to audit under IFRS environment.
3. Educating Stakeholders Educating Stakeholders comprising of investors, lenders,

employees, auditors, audit committee and etc would be a big challenge as this would
require a considerable time and effort.
4. Significant cost Significant one-time costs of converting to IFRS (including costs of

internal personnel time, adapting IT systems, implementing revised reporting policies and
processes, training personnel and educating investors, analysts and members of the
board).
5. Complexity in the financial reporting process Under IFRS, companies would need to
increasingly use fair value measures in the preparation of financial statements.
Companies, auditors, users and regulators would need to get familiar with fair value
measurement techniques.
6. Impact on financial performance Due to the significant differences between Indian
GAAP and IFRS, adoption of IFRS is likely to have a significant impact on the financial
position and financial performance of most Indian companies.
7. Communication of Impact of IFRS to investors Companies also need to communicate

the impact of IFRS convergence to their investors to ensure they understand the shift
from Indian GAAP to IFRS.
8. Conceptual differences For example, the Indian standard on intangibles is based on the
concept that all intangible assets have a definite life, which cannot generally exceed 10
years; while IFRS acknowledge that certain intangible assets may have indefinite lives
and useful lives in excess of 10 years are not unusual.
9. Legal and regulatory considerations In some cases, the legal and regulatory accounting
requirements in India differ from the IFRS. In India, Companies Act of 1956, Banking
Regulation Act of 1949, IRDA regulations and SEBI guidelines prescribe detailed formats
for financial statements to be followed by respective enterprises in their financial
reporting. In such cases, strict adherence to IFRS in India would result in various legal
problems.
10. Training to Preparers

Some IFRS are complex. There is lack of adequate skills amongst the preparers and users
of Financial Statements to apply IFRS. Proper implementation of such IFRS requires
extensive education of preparers.
US GAAP
GAAP refers to accounting policies and procedures that are widely used in practice. Unlike India where
accounting has its basis in law, US GAAP has evolved to be a collection of pronouncements issued by a
particular accounting organization. US GAAP are the accounting rules used to prepare financial
statements for publicly traded companies and many private companies in United States. Generally
accepted accounting principles for local and state governments operates under different set of

assumptions, principles, and constraints, as determined by the Governmental Accounting Standards
Board. (GASB).
In the United States, as well as in other countries practicing under the English common law system,
the government does not set accounting standards, in the belief that the private sector has the better
knowledge and resources. The Securities and Exchange Commission (SEC) has the ultimate authority
to set US accounting and financial reporting standards for public (listed) companies. The SEC has
delegated this responsibility to the private sector led by the Financial Accounting Standards Board
(FASB). Other private sector bodies including the American Institute of Certified Public Accountants
(AICPA) and the FASB’s Emerging Issues Task Force(EITF) also establish authoritative accounting
Standard Board(FIN) also provide implementation and interpretation guidance. The SEC has the
Statutory authority to establish GAAP for filings made with it. While allowing most of the Standard
settings to be done in the private sector, the SEC is still very active in both its oversight responsibility
as well as establishing guidance and interpretations, as it believes appropriate. US GAAP have the
reputation around the world of being more perspective and detailed than accounting standards in other
countries. In order to organize and make clear what is meant by US GAAP, a GAAP hierarchy has been
established which contains four categories of accounting principles. The sources in the higher category
carry more weight and must be followed when conflicts arise. The table given below summaries the
current GAAP hierarchy for financial statements of non-governmental entities.
BALANCE SHEET
Basis of IFRS USGAAP IGAAP
Difference
Format IFRS does not prescribe any US GAAP also does not IGAAP provides two
format, but stipulates minimum prescribe any format , format of Balance Sheet-
line items like PPE, Investment but Rule S-X of SEC Horizontal and Vertical
property, Intangible assets, stipulates for listed format ( Part I of

Financial assets, Biological companies minimum line Schedule III to the

assets, inventory, receivables, etc. items to be disclosed Companies Act, 2013).
either on face of Balance
sheet or Notes to
Accounts.
Order Under IFRS, line items are Under US GAAP, items in In IGAAP, line items are
presented in increasing order of assets and liabilities are presented in increasing
liquidity. presented in decreasing order of liquidity.
order of liquidity.
Consolidation Consolidation of Financial Under US GAAP It is not mandatory for
statements of subsidiaries is not consolidation of results companies to prepare
compulsory until it is required of Subsidiaries and CFS under AS 21.
under some other law or Variable interest entity However, listed
regulation (FIN 46R) is compulsory enterprises are
mandatorily required by
listing agreement of SEBI
to prepare and present
CFS.
Current/Non- An organisation has an option to Bifurcation into current No such requirement
Current adopt Current or Non current & non-current items is
classification of assets and cumpulsorily required.
liabilities
IAS-1 – Presentation of Financial Statements

The standard prescribes the minimum structure and content, including certain information required
on the face of the financial statements. There are four basic financial statements: (i) Balance sheet (ii)
Income statement (iii) Cash flow statement (iv) Statement showing changes in equity. The statement
shows (a) each item of income and expense, gain or loss, which, as required by other IASC Standards,
is recognised directly in equity, and the total of these items, certain foreign currency translation gains
and losses and changes in fair values of financial instruments and (b) net profit or loss for the period.

Owners’ investments and withdrawals of capital and other movements in retained earnings and equity
capital are shown in the notes.
IAS-2 – Inventories
Inventories should be valued at the lower of cost and net realisable value. Net realisable value is selling
price less cost to complete the inventory and sell it. Cost includes all costs to bring the inventories to
their present condition and location. If specific cost is not determinable, the benchmark treatment is to
use FIFO or weighted average. An allowed alternative is LIFO, but then there should be disclosure of
the lower of (i) net realisable value and (ii) FIFO, weighted average or current cost. The cost of inventory
is recognised as an expense in the period in which the related revenue is recognised. If inventory is
written down to net realisable value, the writedown is charged to expense. Any reversal of such a write-
down in a later period is credited to income by reducing that period’s cost of goods sold.
IAS-7 – Cash Flow Statements
The cash flow statement is a required basic financial statement. It explains changes in cash and cash
equivalents during a period. Cash equivalents are short-term, highly liquid investments subject to
insignificant risk of changes in value. Cash flow statement should classify changes in cash and cash
equivalents into operating, investing, and financial activities.
IAS-8 – Accounting Policies,
Changes in Accounting Estimates and Errors An entity shall select and apply its accounting policies
consistently for similar transactions, other events and conditions, unless a Standard or an
Interpretation specifically requires or permits categorisation of items for which different policies may be
appropriate. An entity shall change an accounting policy only if the change (a) is required by a Standard
or an Interpretation; or (b) results in the financial statements providing reliable and more relevant
information about the effects of transactions, other events or conditions on the entity’s financial
position, financial performance or cash flows.
IAS-10 – Events After the Balance Sheet Date
An entity shall adjust the amounts recognized in its financial statements to reflect adjusting events
after the balance sheet date. Further an entity shall not adjust the amounts recognized in its financial
statements to reflect non-adjusting events after the balance sheet. If an entity declares dividends to
holders of equity instruments after the balance sheet date, the entity shall not recognize those dividends
as a liability at the balance sheet date. An entity shall not prepare its financial statements on a going
concern basis if management determines after the balance sheet date either that it intends to liquidate
the entity or to cease trading, or it has no realistic alternative but to do so.
IAS-11 – Construction Contracts

If the total revenue, past and future costs, and the stage of completion of a contract can be measured
or estimated reliably, revenues and costs should be recognised by stage of completion (the “percentage-
ofcompletion method”). The expected losses should be recognised immediately. If the outcome cannot
be measured reliably, costs should be expensed, and revenues should be recognised to the extent that
costs are recoverable (“cost recovery method”).
IAS-12 – Income Taxes
It provides, among other things: (i) Accrue deferred tax liability for nearly all taxable temporary
differences. (ii) Accrue deferred tax asset for nearly all deductible temporary differences if it is probable
a tax benefit will be realised. (iii) Accrue unused tax losses and tax credits if it is probable that they will
be realised. (iv) Use tax rates expected at settlement. (v) Current and deferred tax assets and liabilities
are measured using the tax rate applicable to undistributed profits. (vi) Non-deductible goodwill: no
deferred tax. (vii) Unremitted earnings of subsidiaries, associates, and joint ventures: Do not accrue

tax. (viii) Capital gains: Accrue tax at expected rate. (ix) Do not “gross up” government grants or other
assets or liabilities whose initial recognition differs from initial tax base.
IAS-14 – Segment Reporting
Basis of Segment Reporting: (i) Public companies must report information along product and service
lines and along geographical lines. (ii) One basis of segmentation is primary, the other is secondary. (iii)
Segment accounting policies the same as consolidated.
IAS-16 – Property, Plant and Equipment
The cost of an item of property, plant and equipment should be recognised as an asset if, and only if,
(a) it is probable that future economic benefits associated with the item will flow to the entity; and (b)
the cost of the item can be measured reliably. An item of property, plant and equipment that qualifies
for recognition, as an asset should shall be measured at its cost. An entity shall choose either the cost
model or the revaluation model as its accounting policy and shall apply that policy to an entire class of
property, plant and equipment. If an item of property, plant and equipment is revalued, the entire class
of property, plant and equipment to which that asset belongs shall be revalued. If an asset’s carrying
amount is increased as a result of revaluation, the increase shall be credited directly to equity under
the heading of revaluation surplus. If an asset’s carrying amount is decreased as a result of revaluation,
the decrease shall be recognized in profit or loss. However, the decrease shall be debited directly to
equity under the heading revaluation surplus in respect of that asset.
IAS-17 – Leases
A lease is classified as finance lease if it transfers substantially all risks and rewards incidental to
ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks
and rewards incidental to ownership. At the commencement of the lease term, lessees shall recognize
finance leases as assets and liabilities in their balance sheets at amounts equal to the fair value of the
leased property or, if lower, the present value of the minimum lease payments, each determined at the
inception of the lease. Any initial direct costs of the lessee are added to the amount recognized as an
asset. Finance lease gives rise to depreciation expense for depreciable assets as well as finance expense
for each accounting period. Lease payments under operating lease shall be recognized as an expense
on a straight-line basis over the lease term unless another systematic basis is more representative of
the time pattern of the user’s benefit.
IAS-18 – Revenue
Revenue should be measured at fair value of consideration received or receivable. Usually this is the
inflow of cash. Discounting is needed if the inflow of cash is significantly deferred without interest. If
dissimilar goods or services are exchanged (as in barter transactions), revenue is the fair value of the
goods or services received or, if this is not reliably measurable, the fair value of the goods or services
given up. Revenue should be recognised when: (i) significant risks and rewards of ownership are
transferred to the buyer; (ii) managerial involvement and control have passed; (iii) the amount of revenue
can be measured reliably; (iv) it is probable that economic benefits will flow to the enterprise; and (v)
the costs of the transaction (including future costs) can be measured reliably.
IAS-19 – Employee Benefits

Post-employment Benefits including Pensions Defined Contribution Plans: Contribution of a period
should be recognised as expenses. Defined Benefits Plans: Current service cost should be recognised
as an expense. Other Employee Benefits: Including vacations, holidays, accumulating sick pay, retiree
medical and life insurance, etc.
IAS-20 – Accounting for Government Grants and Disclosure of Government Assistance
Grants should not be credited directly to equity. They should be recognised as income in a way matched
with the related costs. Grants related to assets should be deducted from the cost or treated as deferred
income.

IAS-21 – The Effects of Changes in Foreign Exchange Rates
A foreign currency transaction shall be recorded, on initial recognition in the functional currency, by
applying to the foreign currency amount the spot exchange rate between the functional currency and
the foreign currency at the date of the transaction. Reporting at subsequent balance sheet date should
be: (a) foreign currency monetary items shall be translated using the closing rate; (b) non-monetary
items that are measured in terms of historical cost in a foreign currency shall be translated using the
exchange rate at the date of the transaction; and (c) non monetary items that are measured at fair value
in a foreign currency shall be translated using the exchange rates at the date when the fair value was
determined. Exchange differences arising on the settlement of monetary items or on translating
monetary items at rates different from those at which they were translated on initial recognition during
the period or in previous financial statements shall be recognized in profit and loss in the period in
which they arise. When a gain or loss on a non-monetary item is recognized directly in equity, any
exchange component of that gain or loss shall be recognized directly in equity. Conversely, when a gain
or loss on a monetary item is recognized in profit or loss, any exchange component of that gain or loss
shall be recognized in profit or loss.
IAS-23 – Borrowing Costs
The benchmark treatment is to treat borrowing costs as expenses. The allowed alternative is to capitalise
those directly attributable to construction. If capitalised and funds are specifically borrowed, the
borrowing costs should be calculated after any investment income on temporary investment of the
borrowings. If funds are borrowed generally, then a capitalisation rate should be used based on the
weighted average of borrowing costs for general borrowings outstanding during the period. Borrowing
costs capitalised should not exceed those actually incurred. Capitalisation begins when expenditures
and borrowing costs are being incurred and construction of the asset is in progress. Capitalisation
suspends if construction is suspended for an extended period, and ends when substantially all activities
are complete.
IAS-24 – Related Party Disclosures
This standard requires disclosure of related party transactions and outstanding balances in the
separate financial statements of a parent, venturer or investor. A party is related to an entity if: (a)
directly or indirectly through one or more intermediaries, the party: (i) controls, is controlled by, or is
under common control with, the entity which includes parents, subsidiaries and fellow subsidiaries: (ii)
has an interest in the entity that gives it significant influence over the entity; or (iii) has joint control
over the entity; (b) the party is an associate; (c) the party is a joint venture in which the entity is a
venturer; (d) the party is a member of the key management personnel; (e) the party is close member of
the family; (f) the party is controlled, jointly controlled or significantly influenced; (g) the party is a post
–employment benefit plan for the benefit of employees of the entity
IAS-26 – Accounting and Reporting by Retirement Benefit Plans
The standard applies to accounting and reporting by retirement benefit plans. It establishes separate
standards for reporting by defined benefit plans and by defined contribution plans.
IAS-27 – Consolidated and Separate Financial Statements
Consolidated financial statements are the financial statements of a group presented as those of a single
economic activity. Consolidated financial statements shall include all subsidiaries of the parent. Intra-
group balances, transactions, income and expenses shall be eliminated in full. The financial statements
of the parent and its subsidiaries used in the preparation of the consolidated financial statements shall
be prepared as on the same reporting date. When the reporting dates are different, the subsidiary
prepares additional financial statements as on the same date. Consolidated financial statements shall
be prepared using uniform accounting policies for like transactions. Minority interests shall be
presented in the consolidated balance sheet within equity, separately from the parent shareholders’
equity.

IAS-28 – Investments in Associates
An associate is an entity, including an unincorporated entity such as partnership, over which the
investor has significant influence and that is neither a subsidiary nor an interest in a joint venture. An
investment in an associate shall be accounted for using the equity method with specified exceptions.
An investor shall discontinue the use of equity method from the date that it ceases to have significant
influence over an associate. The investor in applying equity method uses the most recent available
financial statements of the associate. When the reporting dates of the investor and the associate are
different, the associates prepares, for the use of the investor, financial statements as of the same date
as the financial statements of the investor. The investor’s financial statements shall be prepared using
uniform accounting policies for like transactions and events in similar circumstances.
IAS-29 – Financial Reporting in Hyperinflationary Economies
Hyperinflation is indicated if cumulative inflation over three years is 100 per cent or more (among other
factors). In such a circumstance, financial statements should be presented in a measuring unit that is
current at the balance sheet date. Comparative amounts for prior periods are also restated into the
measuring unit at the current balance sheet date. Any gain or loss on the net monetary position arising
from the restatement of amounts into the measuring unit current at the balance sheet date should be
included in net income and separately disclosed.
IAS-31 – Interests in Joint Ventures
A joint venture is a contractual arrangement whereby two or more parties undertake an economic
activity that is subject to joint control. These are of three types: (i) Jointly controlled operations: It
should be recognised by the venturer by including the assets and liabilities that it controls and the
expenses that it incurs and its share of the income that it earns from the sale of goods or services by
the venture. (ii) Jointly controlled assets: It should be recognised as follows: (a) its share of the jointly
controlled assets, classified according to the nature of the assets; (b) any liability that it has incurred;
(c) its share of any liabilities incurred jointly with the other venturers in relation to the joint venture; (d)
any income from the sale or use of its share of output of the joint venture; (e) any expenses that it
incurred in respect of its interest in the joint venture. Lesson 9 Accounting Standards 435 (iii) Jointly
controlled entities: It may maintain its own accounting records and prepares and presents financial
statements in the same way as other entities in conformity with International Financial Reporting
Standard.
IAS-33 – Earnings Per Share
It is applicable only to public companies. An entity shall calculate basic earnings per share for profit or
loss attributable to ordinary equity holders. Basic earning per share shall be calculated by dividing
profit or loss attributable to ordinary equity holders by the weighted average number of ordinary shares.
An entity shall calculate diluted earnings per share amounts for profit or loss attributable to ordinary
equity holders of the parent entity and, if presented, profit or loss from continuing operations
attributable to those equity holders. For the purpose of calculating diluted earnings per share, an entity
shall adjust profit or loss attributable to ordinary equity holders of the parent equity, and the weighted
average number of shares outstanding, for the effects of all dilutive potential ordinary shares. Potential
ordinary shares shall be treated as dilutive when, and only when, their conversion to ordinary shares
would decrease earnings per share or increase loss per share from continuing operations. An entity
shall present on the face of the income statement basic and diluted earnings per share profit or loss
from continuing operations attributable to the ordinary equity holders of the parent entity and for profit
or loss attributable to the ordinary equity holders of the parent entity for the period for each class of
ordinary shares that has a different right to share in profit for the period.
IAS-34 – Interim Financial Reporting

The standard defines the minimum content of an interim financial report as a condensed balance sheet,
condensed income statement, condensed cash flow statement, condensed statement showing changes
in equity, and selected explanatory notes. Interim financial statements, complete or condensed, must
cover the following periods: (i) a balance sheet at the end of the current interim period, and comparative
as of the end of the most recent full financial year; (ii) income statements for the current interim period
and cumulative for the current financial year to date, with comparative statements for the comparable
interim periods of the immediately preceding financial year; (iii) a statement of changes in equity
cumulatively for the current financial year to date and comparative for the same year-to-date period of
the prior year; and (iv) a cash flow statement cumulatively for the current financial year to date and
comparative for the same year-to-date period of the prior financial year. Enterprises are required to
apply the same accounting policies in their interim financial reports as in their latest annual financial
statements
IAS-36 – Impairment of Assets
Impairment of assets, deals mainly with accounting for impairment of goodwill, intangible assets and
property, plant and equipment. The standard includes requirements for identifying an impaired asset,
measuring its recoverable amount, recognising or reversing any resulting impairment loss, and
disclosing information on impairment losses or reversals of impairment losses. An impairment loss
should be recognised whenever the recoverable amount of an asset is less than its carrying amount.
IAS-37 – Provisions, Contingent Liabilities and Contingent Assets
The standard set out three specific applications of these general requirements (a) a provision should
not be recognised for future operating losses; (b) a provision should be recognised for an onerous; (c) a
provision for restructuring costs should be recognised only when an enterprise has a detailed formal
plan for the restructuring and has raised a valid expectation in those affected that it will carry out the
restructuring by starting to implement that plan or announcing its main features to those affected by
it.
IAS-38 – Intangible Assets
The standard states that: (i) an intangible asset should be recognised, in the financial statements, if,
and only if: (a) it is probable that the expected future economic benefits that are attributable to the
asset will flow to the enterprise; and (b) the cost of the asset can be measured reliably. (ii) An entity
shall assess the probability of expected future economic benefits using reasonable and supportive
assumptions that represent management’s best estimate of the set of economic conditions that will exist
over the useful life of the asset. (iii) Internally generated goodwill shall not be recognized as an asset.
(iv) No intangible asset arising from research shall be recognized. (v) An intangible asset arising from
development shall be recognized subject to specified conditions. (vi) Expenditure on an intangible item
that was initially recognized as an expense shall not be recognized as part of the cost of an intangible
asset at a latter date. (vii) The accounting for an intangible asset is based on its useful life. (viii) An
intangible asset shall be derecognised on disposal or when no future economic benefits are expected
from its use or disposal.
IAS-39 – Financial Instruments:
Recognition and Measurement Under this standard an entity shall recognize a financial asset or
financial liability on the balance sheet when and only when, the entity becomes a party to the
contractual provisions of the instrument. An entity shall derecognise a financial asset when, the
contractual rights to the cash flows from the financial asset expire or it transfers the financial asset.
On derecognition of a financial asset in its entirety, the difference between the carrying amount and the
sum of (a) the consideration received and (b) any cumulative gain or loss that had been recognized
directly in equity shall be recognized in profit or loss. When a financial asset or liability is recognized
initially, an entity shall measure it at its fair value plus, in the case of a financial asset or financial
liability not at fair value through profit or loss, transaction costs that are directly attributable to the
acquisition or issue of the financial assets or financial liability. After initial recognition, an entity shall
measure all financial liabilities at amortised cost using the effective interest method.

IAS-40 – Investment Property
Investment property shall be recognized as an asset when it is probable that the future economic
benefits that are associated with the investment property will flow to the entity, and the cost of
investment property can be measured reliably. An investment property shall be measured initially at its
cost. Transaction cost shall also be included in the initial measurement. For accounting purpose an
enterprise must choose either: (i) a fair value model: Investment property should be measured at fair
value and changes in fair value should be recognised in the income statement; or (ii) a cost model:
Investment property should be measured at depreciated cost (less any accumulated impairment losses).
An investment property shall be derecognised on disposal or when the investment property is
permanently withdrawn from use and no future economic benefits are expected from its disposal.
IAS-41 – Agriculture
This standard prescribes the accounting treatment, financial statement presentation and disclosures
related to agricultural activity. Biological assets should be measured at their fair value less estimated
point-of-sale costs, except where fair value cannot be measured reliably. Agricultural produce harvested
from an enterprise’s biological assets should be measured at its fair value less estimated point-of-sale
costs at the point of harvest. If an active market exists for a biological asset or agricultural produce, the
quoted price in that market is the appropriate basis for determining the fair value of that asset. If an
active market does not exist, an enterprise uses market determined prices or values when available. A
gain or loss arising on initial recognition of biological assets and from the change in fair value less
estimated point-of- sale costs of biological assets should be included in net profit or loss for the period
in which it arises. If a government grant related to a biological asset measured at its fair value less
estimated point-of-sale costs is conditional, including where a government grant requires an enterprise
not to engage in specified agricultural activity, an enterprise should recognise the government grant as
income when the conditions attaching to the government grant are met.
CHAPTER 3
CORPORATE FINANCIAL REPORTING
Issues and problems with special reference to published financial statements; sustainability
reporting; concept of Triple bottom line reporting, global reporting initiative(GRI) and
International federation of Accountants(IFAC)
Issues and Problems with special reference to published financial statements

Annual report is major vehicle through which Indian Companies are publishing their financial
statement. Like Companies of any developed countries. Indian Annual Reports now include
much more than the legal minimum requirements. Regarding elements of annual reports, the
following are most common.
 Notice of annual General Meeting

 Chairman’s Report
 Summary of Financial results
 The Financial highlights for a number of years
 Director’s Report
 Management discussion and analysis
 Corporate Governance Report
 Auditor’s Report of Financial Statements
 Balance sheet
 Profit and Loss account
 Significant and Notes to accounts
 Cash flow statement
 Supplementary statement
 Information on human resources
 Value added statement
 Corporate social report
 Environment Report
 Information on Brand/Intangibles
 EVA reports
 Business Responsibility report.
The marked elements are provided voluntarily. Regarding last few items disclosure is limited
to large companies only. Companies are facing lot problems in publishing the annual reports.
While publishing financial statements, companies has to fulfil the requirements of all
stakeholders, (shareholders, creditors, investors, financial intermediaries, employees,
customers, suppliers, community, state and local governments etc.)in true and fair view.
management decision making is depends upon the financial statements. Therefore one must
be very careful in publishing annual reports. Today, Indian companies are facing many issues
and problems in publishing the annual reports which are as follows:
1. Globalization: International harmonization of accounting standards and the

resultant debate about whose standard should be adopted and how exactly reflects
the financial statements of an organization.
2. Influence of Management: Management is central to any discussion of financial

reporting, whether at statutory level or at the level of official pronouncement of
accounting bodies. Lack of support from the financial statement preparers may
impact on the management decision making process.
3. External Market pressures: The market pressures is the danger of aggressive

earnings management that results in stakeholders and the capital markets generally,
being misled to some extent about an entity’s performance and profitability. Recent
financial scandals may be viewed as coming about as a result of extreme disclosure
and earnings management.
4. The Informational perspective of the financial statements: The provision of

information to enable the users of the financial statements to take decisions and to
make assessments of future cash flows of the reporting entity. Since 1960s users have
been actively involved in dialogue about accounting principles and represented on
some accounting standards setting bodies. An outsider, however, might find it
remarkable that accounting knowledge should be articulated not only by professional
accounting bodies but also by accounting information users.

5. The debate about financial performance: The statement of financial performance

combines the statement of total recognized gains and losses and the profits and loss
account, one reason for this being that users seemed to be ignoring the statement of
total recognized gains and losses. However, there is a question as to what is meant by
the word ‘ Performance’ and whether just focusing on financial performance will really
indicate an enterprise’s overall performance.
6. Advance-in-Technology: Technology driven information system are capable of

capturing, organizing and dissemination information in real time. Investors can
quickly access information and consequently have expanded their demands for both
financial and non-financial information. Some of that information is traditional
historical financial data and some of it is new. It is even suggested that greater
disclosure may result in a lower cost of equity capital for some firms. However, if users
are ignoring data in the financial statement, one has to wonder how would cope with
this large amount of financial data.
7. The development of knowledge economy: For the past two hundered years, neo-
classical economics had recognized only two facts of production: labour and capital.
8. The rise of corporate governance: It is important to view the financial statements

in the context of corporate governance and it should be remembered that corporate
governance encompasses much more than just financial reporting. Therefore, it would
seem reasonable issues like corporate social responsibility and environment
accounting should be viewed in terms of corporate governance rather than financial
reporting.
9. Independence: This can be viewed as the key quality of the external audit; however,
auditor have frequently been criticized for their perceived lack of Independence : How
unfair may the financial relevance of the audit can quite rightly be questioned. In
order to help bolster the independence of the external auditor, larger companies have
established audit committees.
10. Fraud: Fraudulent financial statements are of great concern not only to the corporate
world, but also to the accounting profession. Every year the public has witnessed
spectacular business failures reported by the media.
Triple Bottom Line Reporting

There is no single, universally accepted definition of TBL reporting. In its broadest sense, and
for the purposes of this booklet, TBL reporting is defined as corporate communication with
stakeholders that describes the company's approach to managing one or more of the
economic, environmental and/ or social dimensions of its activities and through providing
information on these dimensions.
Consideration of these three dimensions of company management and performance is
sometimes referred to as sustainability or sustainable development. However, the term TBL
is used throughout this booklet.

In its purest sense, the concept of TBL reporting refers to the publication of economic,
environmental and social information in an integrated manner that reflects activities and
outcomes across these three dimensions of a company's performance.
Economic information goes beyond the traditional measures contained within statutory
financial reporting that is directed primarily towards shareholders and management. In a
TBL context, economic information is provided to illustrate the economic relationships and
impacts, both direct and indirect, that the company has with its stakeholders and the
communities in which it operates.
The concept of TBL does not mean that companies are required to maximise returns across
three dimensions of performance - in terms of corporate performance, it is recognized that
financial performance is the primary consideration in assessing its business success.
 An expanded spectrum of values and criteria for measuring organizational and

societal success: economic, environmental, social.
 In the private sector, a commitment to CSR implies a commitment to some form of
TBL reporting.
The Triple Bottom Line is made up of "Social, Economic and Environmental"

"People, Planet, Profit "
The trend towards greater transparency and accountability in public reporting and
communication is reflected in a progression towards more comprehensive disclosure of
corporate performance to include the environmental, social and economic dimensions of an
entity’s activities. Reporting information on any one or more of these three elements is
referred to as TBL (Triple Bottom Line) Reporting. This trend is being largely driven by
stakeholders, who are increasingly demanding information on the approach and performance
of companies in managing the environmental and social/community impact of their activities
and obtaining a broader perspective of their economic impact.
TREND TOWARDS TRIPLE BOTTOM LINE REPORTING

Companies are increasingly including economic, environmental and social information in
their public reporting, in addition to the financial information required for statutory reporting.
For some companies, this involves publication of a separate report or reports. For others, it
involves including such information within their annual reporting to shareholders.
A number of factors are driving this shift in public reporting, including response to mandatory
requirements; consistency with emerging public commitments by business through voluntary
codes of behaviour or charters and their associated business and signatory requirements;
and the increasing and changing demands from stakeholders for greater transparency about
operating policies and results. Stakeholders are placing increasing emphasis on
understanding the approach and performance of companies in managing the environmental
and social/community impact of their activities, and on obtaining a broader perspective of
the economic impact of companies.
The importance of stakeholders

Stakeholders typically include the following groups:
• Shareholders and investors;
• Employees;
• Customers;
• Suppliers;
• Community;
• Commonwealth, State and Local governments;
• Other stakeholders, including: business partners, local
authorities and regulatory bodies, trade unions, and non-governmental organizations.
It is impossible for a company to accommodate the often-competing interests of all
stakeholder groups in its public reporting. Essentially the company will seek to prioritise
among these stakeholder groups and target its reporting to those stakeholder groups, and on
those issues most critical to the company's success.
As TBL reporting develops, increased attention will be given to its role as part of an integrated
communications strategy seeking to meet the requirements of key stakeholder groups - the
delivery of such 'stakeholder appropriate' reporting is seen to provide greater value to the
reporting company and better communicate information to the respective stakeholders to
whom the reporting is directed.
Alignment with business strategy

TBL reporting has little relevance to the reporting company or its stakeholders if it is not
aligned to the company’s overall business strategy. A decision to move to full TBL reporting
should not be taken lightly. It must have senior management endorsement and commitment,
as it may have major resource implications, and a half-hearted approach is likely to be worse
than not adopting it all.
Benefits of TBL Reporting

The business case for TBL reporting centres on improved relationships with key stakeholders
such as employees, customers, investors and shareholders. creation of sound basis for
stakeholder dialogue. A substantial and varied body of literature dealing with the 'business
case' for TBL reporting has been developed during the last five to ten years. Alignment of
company reporting with the expectations of key stakeholders serves to improve the quality of
a company's relationships with such stakeholders and thus protect and enhance the value of
the organisation. Some of the specific organisational benefits identified include:
1. Reputation and brand benefits - corporate reputation is a function of the way in which
a company is perceived by its stakeholders. Effective communication with stakeholders
on one or more of the environmental, social, and economic dimensions can play an
important role in managing stakeholder perceptions, and, in doing so, protect and
enhance corporate reputation.
2. Securing a 'social licence to operate' - a 'licence to operate' is not a piece of paper, but
informal community and stakeholder support for an organisation's operations. Business
is increasingly recognising the link between ongoing business success and its 'licence to
operate', especially in the resources sector where the concept of a social licence to operate
has been central for some years. Communication with stakeholders is often critical to
securing and maintaining a 'licence to operate'
3. Attraction and retention of high calibre employees - existing and prospective

employees have expectations about corporate environmental, social and economic
behaviour, and include such factors in their decisions. The publication of TBL-related
information can play a role in positioning an employer as an 'employer of choice' which

can enhance employee loyalty, reduce staff turnover and increase a company's ability to
attract high quality employees.
4. Improved access to the investor market - a growing number of investors are including
environmental and social factors within their decision making processes. The growth in
socially responsible investment and shareholder activism is evidence of this. Responding
to investor requirements through the publication of TBL-related information is a way of
ensuring that the company is aligning its communication with this stakeholder group,
and therefore enhancing its attractiveness to this segment of the investment market.
5. Establish position as a preferred supplier - obtaining a differentiated position in the

market place is one way to establish the status of preferred supplier. Effectively
communicating with stakeholder groups on environmental, social and economic issues is
central to obtaining a differentiated position in the market place.
6. Reduced risk profile - there is an expanding body of evidence to suggest that
performance in respect of economic, social and environmental factors has the capacity to
affect the views of market participants about a company's exposure to, and management
of, risk. TBL reporting enables a company to demonstrate its commitment to effectively
managing such factors and to communicate its performance in these areas. A
communication policy that addresses these issues can play an important role in the
company's overall risk management strategy.

7. Cost savings - TBL reporting often involves the collection, collation and analysis of data
on resource and materials usage, and the assessment of business processes. For example,
this can enable a company to better identify opportunities for cost savings through more
efficient use of resources and materials.
8. Innovation - The development of innovative products and services can be facilitated
through the alignment of R&D activity with the expectations of stakeholders. The process
of publishing TBL reporting provides a medium by which companies can engage with
stakeholders and understand their priorities and concerns.
9. Aligning stakeholder needs with management focus - External reporting of
information focuses management attention on not only the integrity of the data but also
the continuous improvement of the indicator being reported.
10. Creating a sound basis for stakeholder dialogue - Publication of TBL reporting
provides a powerful platform for engaging in dialogue with stakeholders. Understanding
stakeholder requirements and alignment of business performance with such
requirements is fundamental to business success. TBL reporting demonstrates to
stakeholders the company's commitment to managing all of its impacts, and, in doing so,
establishes a sound basis for stakeholder dialogue to take place.
Forms of Reporting
A number of options, ranging from the inclusion of minimal TBL-related information within
statutory reporting through to the publication of a full TBL report, are available to companies
considering TBL reporting.
In choosing an appropriate path forward, companies are likely to take into account a diversity
of factors including: the overall strategic objectives; current capacity to report; prioritization
of stakeholder requirements; and the reporting activities within the industry sector.
Relationship with financial reporting

The information contained within a TBL report is of a different nature to that included in a
financial report. However, TBL reporting enables environmental and social risks that have
the capacity to materially affect financial performance to be identified and, therefore, taken
into consideration when preparing financial reports.
Implementation and Strategy
Critical issues for consideration in the development and implementation of TBL reporting
include: clear definition of the role of TBL reporting in driving strategic business objectives;
establishment of the resource and cost requirements; awareness of associated legal
implications; and understanding the risks involved in publishing TBL information.
Key challenges associated with implementation include:
• Awareness of relevant issues associated with TBL reporting;
• Understanding stakeholder requirements;
• Aligning TBL reporting with objectives and risks; and
• Determining and measuring performance indicators.
The importance of metrics and performance indicators

The use of appropriate performance indicators, presented in a consistent and recognisable
manner, can distil a large amount of complex information into a relevant and readily
understood form. It is important that companies develop indicators that reflect their own
strategic objectives and the requirements of key stakeholder groups.

Triple Bottom Line Accounting

1. Expanding the traditional reporting framework
2. Take into account environmental and social performance in addition to financial
performance.
3. Company's responsibility to 'stakeholders' rather than shareholders.
Legislation
1. Legislation permitting corporations to adopt a 'Triple Bottom Line' is under consideration
in some jurisdictions.
2. The triple bottom line has been adopted as a part of the State Sustainability Strategy
How is TBL reporting accomplished?

1. Economic
 Generally Accepted Accounting Principles
 Customers
 Suppliers
 Employees
2. Social
 Bribery and corruption
 Political contributions
 Child labour
 Security practices
 Indigenous rights
 Training and diversity
3. Environmental
 Energy
 Water
 Biodiversity
 Emissions, effluents, and waste
Through the application of what is called the Global Reporting Initiative 2002 or GRI and is
defined as “a common framework for sustainability reporting
International Federation Of Accountants (Ifac)

Investors and other stakeholders want to know what makes companies tick; at the same time, regulators
are increasingly requiring companies to report clearly on their business models. In response, IFAC, with
the Chartered Institute of Management Accountants (CIMA) and PwC, and at the request of the
International Integrated Reporting Council (IIRC), have released a background paper, which highlights
the business model as being at the heart of integrated reporting.
Currently, there is wide variation in how organizations define their business models and approach to
disclosure. This highlights the need for a clear, universally applicable, international definition of a
business model. The proposed definition and discussion in the paper aim to bridge the varied
interpretations by highlighting common areas and ensuring a consistent application across industries
and sectors.
The background paper found that, in a complex financial climate that has seen investors demand
greater transparency, reporting on business models is currently inconsistent, incomparable, and
incomplete because of a lack of consistent guidance.
“Towards Integrated Reporting – Communicating Value in the 21st Century” , where it was identified as
one of two “central themes for the future direction of reporting”. The Discussion Paper noted that
although there “is no single, generally accepted definition of the term ‘business model’ ... it is often seen
as the process by which an organization seeks to create and sustain value.”
Integrated Reporting Can Result in Better Governance

 Integrated reporting needs to reflect an organization’s strategy and values, as well as how it is
managed in all social, environmental, and economic dimensions of performance;
 The process of integrated reporting, in turn, is a powerful tool to help drive an organization’s
strategic agenda, providing management with key drivers of performance; Integrated reporting
has to be open and transparent by reflecting both improvements in performance as well as
weaknesses; and
 Pension fund investors, as well as some other institutional investors, are increasingly looking
for financial implications of ESG factors to understand how an organization’s strategy and
operations are affecting the numbers and key measures of performance.
Definition on Capitals:
(1) Financial capital. The pool of funds that is:
available to an organization for use in the production of goods or the provision of services
obtained through financing, such as debt, equity or grants, or generated through operations or
investments.
(2) Manufactured capital. Manufactured physical objects (as distinct from natural physical objects)
that are available to an organization for use in the production of goods or the provision of services,
including:
buildings
equipment
infrastructure (such as roads, ports, bridges and waste and water treatment plants).
Manufactured capital is often created by one or more other organizations, but also includes assets
manufactured by the reporting organization when they are retained for its own use.

(3) Human capital. People’s competencies, capabilities and experience, and their motivations to
innovate, including their:
alignment with and support of an organization’s governance framework and risk management
approach, and ethical values such as recognition of human rights
ability to understand, develop and implement an organization’s strategy
loyalties and motivations for improving processes, goods and services, including their ability to lead,
manage and collaborate.
(4) Intellectual capital. Organizational, knowledge-based intangibles, including:
intellectual property, such as patents, copyrights, software, rights and licences
“organizational capital” such as tacit knowledge, systems, procedures and protocols
intangibles associated with the brand and reputation that an organization has developed.
(5) Natural capital. All renewable and non-renewable environmental stocks that provide goods and
services that support the current and future prosperity of an orpositively or negatively, on natural
capital. It includes:
air, water, land, forests and minerals
biodiversity and ecosystem health.
(6) Social and relationship capital. The institutions and relationships established within and between
each community, group of stakeholders and other networks (and an ability to share information)
to enhance individual and collective well-being. Social and relationship capital includes:
shared norms, and common values and behaviours
key relationships, and the trust and willingness to engage that an organization has developed
and strives to build and protect with customers, suppliers, business partners, and other
external stakeholders
an organization’s social licence to operate
Approaches of Business Model Reporting
In reviewing the global examples of business model reporting, it became apparent that they could be
broadly allocated into five categories. Common approaches to business model reporting based on a
survey of current practices.
Approach Description
Organizational overview What the entity does, how it is structured or where it
operates
Business strategy Key aspects of the organization’s strategy
Value chain Place in the value chain and dependencies on key
inputs
Financial performance How the business model drives profitability or
revenue generation
Value creation How the organization’s inputs, activities and
relationships lead to value and desired outcomes
Divergent approaches need to be reconciled by forming a common, widely-accepted definition of key

elements that need to be considered when determining what constitutes a business model. These key
elements could usefully encompass inputs, activities, outputs and outcomes. A link to financial
performance, in terms of cost, revenue generation and cash flows, represents the value added that
accrues to the organization and investors.

The Framework draws a distinction between outputs and outcomes, but recognizes that both are
important in presenting a complete picture of a business model. Outputs represent the key products
and services that an organization produces. These outputs can then have a range of outcomes, both
internally to the organization and externally among a wider set of stakeholders. For example, in the
case of a car manufacturer, the output is the car; the outcomes to a consumer may be mobility, safety,
reliability, comfort and status. Outcomes that flow beyond the customer include environmental impacts
arising from emissions.
Incorporating the key elements of inputs, activities, outputs and outcomes will facilitate report
preparers to make the connection to the capitals. This, in turn, will encompass the broader concepts of
value creation identified in the Framework, as well as a more complete definition of business model
than is traditionally the case.
Linking strategy and business model disclosures is important, but they should be distinct disclosure
elements. Building upon an assessment of opportunities, risks and the market environment, an
organization’s strategy will determine the appropriate mix of products and services (outputs) to achieve
the desired outcomes that will generate the greatest benefits to customers and other stakeholders. The
aim of the business model is then to deliver on this strategy, and consequently the outputs and desired
outcomes, both of which may be expressed quantitatively in terms of targeted key performance
indicators. It is also important to avoid describing the business model as merely an organizational
overview and description of the business.
A description of the actual outputs and outcomes achieved is therefore fundamental to a proper
understanding of the effectiveness of an organization’s business model. Disclosure on the achievement
of outcomes (ideally presented relative to prior periods), market expectations, strategic goals or other
benchmarks can be considered part of the “Performance” Content Element of the Framework.
Performance analysis may identify changes necessary to the business model to better achieve the
current strategy. Alternatively, this analysis may highlight changes to strategic objectives that affect the
current business model.
Positioning the Business Model
It is important to establish where the business model sits within the broader narrative. Based on the
literature study and review of current reporting practices, it would be appropriate for the Framework to
make a distinction between business model disclosures and other information such as:
external factors or context
capitals
governance
strategy and resource allocation
opportunities and risks
performance
future outlook.

Chapter 4
Accounting and reporting of financial instruments
Meaning, recognition, de-recognition and offset, compound financial instruments, hedge

accounting, disclosure: financial reporting by non banking finance companies, merchant
bankers, stock and commodity market instruments.
Financial Instruments
Applicability: this statement is applicable on enterprises which are Non-SME.
Financial Instruments:
Financial Instrument is a contract that gives rise to a Financial asset for one enterprise and a Financial
Liability or an Equity for another enterprise. The examples are investments, debtors, deposits etc.
Initial Recognition
An entity should recognized the financial assets or a financial liability on its balance sheet when and
only when the entity becomes a party to the contractual provision of the instruments.
De-recognition
A financial asset is derecognised ie removed from the balance sheet, when and only when either the
contractual rights to the asset’s cash flows expire, or the asset is transferred and the transfer qualifies
for de recognition.
Financial Assets
A Financial asset is an asset that is
 Cash
 Equity Instruments of other enterprise, eg.
 Investment in ordinary shares.
A contractual right to receive cash, or to exchange financial assets or liabilities with other enterprise
under conditions that are potentially favourable to the enterprise.
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial
liability or equity instrument of another entity. The definition is wide and includes cash, deposits in other
entities, trade receivables, loans to other entities
Classification of Financial assets

1. Held for trading( Financial assets at fair value through profit and loss:
Assets falling within this category, which includes those classified as held for trading and
derivative assets that are not designated as effective hedging instruments, are measured at fair
value. Gains and losses that arise on changes in fair value are recognized in the statement of
profit and loss.
2. Held to maturity( Assets with fixed maturity and the entity has a positive intention and
ability to hold till maturity)
This category is intended for investments in debt instruments that the entity will not sell before
their maturity date irrespective of changes in market prices or the entity’s financial position or
performance. Investments in shares generally do not have a maturity date, and thus should
not be classified as held-to-maturity investments. IAS 39 requires a positive intent and ability
to hold a financial asset to maturity.
In order to be classified as held-to-maturity, a financial asset must also be quoted in an active

market. This fact distinguishes held-to-maturity investments from loans and receivables. Loans
and receivables, and financial assets that are held for trading, including derivatives, cannot be
classified as held-to-maturity investments. Floating rate debt is considered to have
determinable payments and can therefore be included in the held-to-maturity category

3. Loans and Receivables(Assets with fixed payments)

These include financial assets with fixed or determinable payments that are not quoted in an
active market. An entity can classify account receivables, and loans to customers in this
category. Financial assets with a quoted price in an active market and financial assets that are
held for trading, including derivatives, cannot be classified as loans and receivables. This
category differs from held-to-maturity investments as there is no requirement that the entity
shows an intention to hold the loans and receivables to maturity. If it is thought that the owner
of the asset may not recover all of the investment other than because of credit deterioration,
then the asset may not be classified as loans and receivables.
Loans and receivables are subsequently measured at amortised cost and are subject to
impairment testing. Amortised cost is discussed below.
4. Available for Sale

This category includes financial assets that do not fall into any of the other categories or those
assets that the entity has elected to classify into this category. For example, an entity could
classify some of its investments in debt and equity instruments as available-for-sale financial
assets. Financial assets that are held for trading, including derivatives, cannot be classified as
available-for-sale financial assets. Thus, AFS is a residual category. The AFS category will
include all equity securities except those classified as fair value through profit or loss.
Available-for-sale financial assets are carried at fair value subsequent to initial recognition.
There is a presumption that fair value can be readily determined for most financial assets either
by reference to an active market or by a reasonable estimation process. The only exemption to
this are equity securities that do not have a quoted market price in an active market and for
which a reliable fair value cannot be reliably measured. Such instruments are measured at cost
instead of fair value.
For available-for-sale financial assets, unrealised holding gains and losses are deferred in
reserves until they are realised or impairment occurs. Only interest income and dividend
income, impairment losses, and certain foreign currency gains and losses are recognised in
profit or loss.
Financial Liability:
Financial Liability is a contractual obligation to deliver cash or to exchange financial assets or financial
liabilities with another enterprise under conditions which are potentially unfavourable to the enterprise.
It also includes contracts which may be settled in the enterprise’s equity shares. Eg. Convertible
debenture, convertible Preference share.
Note:
Fixed assets, stock, pre-paid expenses are not financial assets. Deferred incomes and
warranty obligation are not financial liabilities.
Problem 1 (M.Com Bangalore University Jan 2015)

Entity A is considering the following Financial Instruments. You are required to classify the following
instruments into financial assets and Financial liability.
a) An accounting receivables that is not held for trading

b) Investment in shares and other equity instruments issued by other entities
c) Investments in bond and other debt instruments.
d) Bonds and other debt instruments issued by the entity
e) Deposits in other entities.
Solution:
Accountings for financial assets at fair value through profit & loss: (held for trading)
 On the day of acquisition the asset is recognized at fair values.
 The transaction costs are directly charged to the profit & loss account. (This is also applicable
for interim financial statement.)
 On subsequent reporting dates they are measured at fair values. The difference is transferred
to P/L A/c.
 On Disposal the assets will be de-recognised and the difference carrying amount & fair value
at the date of sale is transfer to P/c A/c.
 No impairment test is required.
 Any change in the fair value between trade date & settlement date is recognized through profit
& loss A/c.
Measurement of Financial Instruments
Problem 3

 28.03.2015 – Purchase 100 share of `600 each

 31.03.2015 – Fair value `632 each
 04.04.2015 – Settlement date – Fair value `624.
 22.04.2015 – Sold `690/ share (settled on the same date.)
Use trade date accounting.
Solution:
Journal Entries
Date Particulars Debit (`) Credit (`)
28.03.2015 Investment A/c Dr. 60,000 60,000
To, Liabilities A/c
31.03.2015 Investment A/c Dr. 3,200 3,200
To, P/L A/c
04.04.2015 P/L A/c Dr. 800
To, investment 800
Liabilities A/c Dr. 60,000 60,000
To, Bank A/c
22.04.2015 Bank A/c Dr. 69,000
To, Investment A/c 62,400
To, P/L A/c 6,600
Merchant Banker:
Merchant banker means an entity registered under SEBI(Merchant Bakes) Regulation 1999 Merchant
banker is a person engaged in the business of:

a) Issue Management: Either by making arrangements regarding selling, buying or subscribing to
securities as manager, consultant, adviser or
b) Rendering corporate advisory services in relation to issue management.
Requirements to be fulfilled by a Merchant banker for registration with SEBI

The applicant should comply with the following requirements for applying certificate of registration for
to act as a merchant banker-
1. Body Corporate: The Applicant should be a body corporate other than a NBFC under the RBI
Act 1934.
2. Infrastructure: Applicant should have necessary infrastructure like adequate office space,
equipments and manpower to effectively discharge its activities
3. Expertise: Atleast 2 person who have experience in to conduct the business of merchant
banker should be in employment with the merchant banker.
4. Bar on Registration: Person directly or indirectly connected with the applicant should not
have been granted registration by SEBI. Such person include associate, subsidiary, group
company of the applicant body corporate.
5. Capital adequacy requirements: Applicant should full fill the capital adequacy requirements.
6. Litigation: Applicant, its partner, director or principal officer should not be involved in any
litigation connected with the securities market which has an adverse effect on the applicant’s
business.
7. Economic offence: Applicant, its director, partner or principal officer should not have been
convicted for any offence involving moral turpitude or found guilty of any economic offence
8. Professional qualification: Applicant should have a professional qualification from an

institution recognized by the government in finance, law or business management
9. Fit and proper: The applicant should be a fit and the proper person
10. Investor’s Interest: Grant of certificate to the applicant is in the best interest of the investors.
Condition for grant/renewal of Certificate of registration:

No person can act as merchant banker without holding a certificate of registration from SEBI. May grant
or renew a certificate to the merchant banker(valid for 3 year period) under the following condition:
1. Change in status: Merchant banker should obtain the prior permission from SEBI to carry on
its Merchant banking activities if there is any change in its status or constitution.
2. Payment of fees: The Merchant banker should be shall pay the amount of fees for registration
or renewal in the manner required by SEBI.
3. Investor’s Grievance Redressal: The merchant banker should take adequate steps to redress
the investor’s grievances within one month from the date of receipt of the compliant. It should
also keep the board informed about the number , nature and other particulars of the complaints
received.
4. Adherence to regulations: Merchant banker should be strictly abide by and adhere to the
rules and regulation made under the SEBI Act in respect of the activities carried on by it.
Guidelines in respect of regulation/registration of Merchant bankers:

1. Renewal Application: Application for renewal of certificate of Registration shall be made by
the merchant bakers as per regulation 9 of SEBI(Merchant bankers) Rules and Regulation,
1992. The application should be in Form A of these regulation and also contain additional
information as contained in schedule XXVI.

2. Change in information if any: While filing the renewal application for the certificate of
registration as merchant banker, it shall provide a statement highlighting the change that have
taken place in the information that was submitted to SEBI for earlier registration and a
declaration stating that no other changes other than as intentioned in the above statement has
taken place.
3. Half Yearly Reports: Under regulation 28 of SEBI regulation 1992, the merchant banker shall
send half-yearly report in schedule XXVII format relating to their merchant baking activities.
This Report shall be submitted twice a year, as on 31 st march and 30th September and should
reach SEBI within 3 months from the close of the period to which it relates.
4. Registration with Association of Merchant bankers of India(AMBI):Registered Merchant

bankers shall inform the Board of their having become a member of AMBI with relevant details.
5. Issue of penalty points: Penalty points may be imposed on the merchant banker for violation
of any of the provision of operational gridlines under this chapter. The merchant bankers on
whom penalty point of 4 or more has been imposed may be restrained from filing any offer
document or associating or managing any issues for a particular period.
Capital Adequacy Requirements applicable to Merchant Bankers:

The Capital adequacy requirement should not be less than the net Worth of the person making
application for grant of registration. The Net worth required by Merchant is based on the nature of
activity undertaken b y them as detailed below.
Activity Minimum Net Worth
1. Issue Management consisting of
 Preparation of prospectus and other information relating to Rs. 5 Cr
issue
 Determining financial structure
 Tie up financiers
 Final allotment and refund of subscription
2. Role as advisor, consultant, co Manager underwriter, Portfolio Rs. 50 Lakhs
manager
3. Role as an underwriter advisor or consultant to an issue Rs. 20 Lakhs
4. Advisory or consultancy to an issue Nil
Books and Records to be maintained by Merchant bankers:

1. Records to be maintained: Merchant bankers are required to maintain the following books of
account and records and documents-
a) Copy of Balance sheet as at end of each accounting period.
b) Copy of profit and loss account for the period noted above.
c) Copy of auditor’s Report on the accounts for that period
d) Statement of Financial position.
2. Period of Maintenance: merchant bankers are required to preserve the books of account and
other record and documents maintained for a minimum period of five years.
3. Intimation of SEBI: Merchant bankers are required to intimate to the board, the place of
maintenance of books of accounts, records and documents.
4. Furnishing of accounts of SEBI: After each accounting year, merchant bankers are required
to furnish copies of the balance sheet, profit and loss account and other documents to SEBI.
Various Information to be furnished by merchant Bankers to SEBI: A merchant banker should

disclose the following information to SEBI. when required by it:-
a) Responsibilities of the Merchant banker with regard to management of an issue.

b) Change in the information or particulars previously furnished which affect the certificate
granted to it.
c) Details of company whose issue the merchant banker has managed or has been associated with
d) Details relating to the breach of the capital adequacy requirements as specified in the
regulations.
e) Details relating to activities as manager, Underwriter; consultant or advisor to an issue.
Inspection of books of Merchant bankers by SEBI/ Authorized person:

 SEBI may appoint one or more persons as inspecting authority to inspect the books of account,
and other records and documents of the merchant banker.
 Ensuring that books of accounts and other books are being maintained in the manner required.
 To confirm compliance with the statutory requirement under act rules and regulations
 Investigating in the interest of securities business or investor’s interest into the affairs of
merchant bankers.
Duty of Merchant Bankers:

1. Access to Premises: Merchant bankers should allow the inspecting authority to have
reasonable access to the premises occupied by the merchant banker and by any person on its
behalf.
2. Facility to Examine books: It should extent reasonable facility for examining any books,
records, documents and computerized data in its possession or in possession of such other
person.
3. Copies of documents: It should provide copies of documents or other materials to the
inspecting authority which in their opinion is relevant for the purpose of inspection.
Stock and Commodity Market intermediaries
Books of accounts/documents required to be maintained by the member of a stock exchange:
1. Required by statute: A member is required to maintain the following books as per Rule 15 of
securities Contract(Regulation) Rules, 1957 and Rule of SEBI(Stock broker and sub Brokers )
Rules 1992:
a) Transactions Register
b) Clients ledger

c) General ledger
d) Journals
e) Cash Book
f) Bank pass Book
g) Margin Deposit Book
h) Register of Accounts of Sub-brokers
i) Written consent of clients in respect of contracts entered into as principals.
2. Required by the Exchange: The following additional books/documents/registers may be

required under the rules/regulations/bye laws of the concerned stock exchange.
a) Copies of all margin statements downloaded from the exchange
b) Copies of spot Delivery Transactions entered into
c) Client Database and broker client agreement
d) Copy of registration certification of each sub-broker issued by SEBI
e) Copies of pool account statements.
f) Copy of approval for each remisier given by the exchange.
3. Other conditions:
1. A member should maintain separate sets of books of accounts under following
circumstances:
a) Where he holds membership of any other recognized stock exchange
b) Where he holder membership in a difference segment of the same stock exchange
2. A member should intimate to SEBI the place where the books of accounts, records and
documents are maintained.
3. The books of accounts and other records maintained under regulation 17 should be
preserved for a minimum period of five years.
Penal consequences: A stock brokers who fails to comply with the regulations or laws relating to
securities contract or contravenes any of them, shall be liable to
a) suspension of registration or b) cancellation of registration.
Non Banking Financial company(NBFC)
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956
engaged in the business of loans and advances, acquisition of
shares/stocks/bonds/debentures/securities issued by Government or local authority or other
marketable securities of a like nature, leasing, hire-purchase, insurance

NBFC expands to Non-Banking Financial Company is a company registered under the Companies Act,
1956 and regulated by the Central Bank i.e. Reserve Bank of India under RBI Act, 1934. These entities
are not banks, but they are engaged in lending and other activities, akin to that of banks like providing
loans and advances, credit facility, savings and investment products, trading in the money market,
managing portfolios of stocks, transfer of money and so on.
It is indulged in the activities of hire purchasing, leasing, infrastructure finance, venture capital
finance, housing finance, etc. An NBFC accepts deposits, but only term deposits and deposits
repayable on demand are not accepted by it.
In India, these companies emerged in the mid-1980’s. Kotak Mahindra Finance, SBI Factors,
Sundaram Finance, ICICI Ventures are examples of popular NBFC’s.
NBFC is divided into three categories, which are:

1. Asset Companies
2. Loan Companies
3. Investment Companies
Difference Between NBFC’s and Bank
Basis of NBFC Bank

Comparison

Meaning An NBFC is a company that provides Bank is a government

banking services to people without holding authorized financial
a bank license. intermediary that aims at
providing banking services to
the general public.
Incorporate under Companies Act of 1956 Banking regulation Act of 1949
Demand Deposit Not accepted Accepted
Foreign Investment Allowed to 100% Allowed upto 74% for Private
sector
Payment and Not a part of system Integral part of system
Settlement system
Module 5
Developments in Financial Reporting
Syllabus

Value Added Statement, Economic Value Added, Market Value Added, Shareholders’ Value
added, Human Resource Reporting, and Inflation Accounting
Value Added Statement

Introduction
Financial reporting has traditionally been concerned with the income statement, balance
sheet and cash flow statement. over the years, there have been initiatives to expand the
financial reporting package. one of these was that the corporate report of then accounting
standard steering committee of Britain suggested the inclusion of a value added statement
(VAS) in 1975.
A Financial statement show how much wealth a reporting entity has been able to create for
its shareholders within an accounting period through utilization of its capital
Value Added
Value Added is the wealth created by a Firm, through the combined effort of
 Capital
 Management and
 Employees.
This wealth concept arises due to the input- output exchange between a Firm and
components of its external environment.
Value Added = Sale Value of Outputs - Cost of Bought in goods and services
Advantages of value added statement

 It is easy to calculate.
 Helps a company to apportion the value to various stakeholders. The company can
use this to analyze what proportion of value added is allocated to which stakeholder.
 Useful for doing a direct comparison with your competitors.
 Useful for internal comparison purposes and to devise employee incentive schemes.
The Value Added Statement shows the Value Added of a business for a particular period. It
also reveals how it is arrived at and apportioned to the stakeholders like employees,
management, loan providers, Government and also to the business itself.

The Value Added Statements has two parts — the first part showing how the GVA is arrived
at and the second part showing the application / distribution of Value Added to various
beneficiaries.
Value added Statement

Particulars Rs. Rs.
Sales Xxx
Less: Cost of Bought in Material and Services (COBMS):
 Operating Cost Xxx
 Excise Duty Xxx
 Interest on Bank Overdraft Xxx Xxx
Value Added by Manufacturing and Trading Activities Xxx
Add: Other Income Xxx
Total Value Added/GVA xxx
Application Statement
Particulars Amount %
To Employees as Salaries, Wages, etc. Xxx
To Directors Xxx
To Government as Taxes, Duties, etc. Xxx
To Financiers as Interest on Borrowings Xxx
To Shareholders as Dividends Xxx
To Retained Earnings Including Depreciation, Reserve Xxx
Total Value added xxx
 Employees include Permanent, Temporary Workers, White Collar, Casual Labours etc.
Employee Expenses includes Perquisite, Staff Welfare, and Official Travelling etc. Auditors are
not employees.
 Directors include WTD, PTD, MD, Executive Directors, Non-executive directors. Directors
Sitting Fees is an expense.
 Government Taxes: Recoverable – Excise Duty, Service Tax, VAT etc. These taxes are not
contribution towards government since they are recoverable. Irrecoverable – Income Tax,
Wealth Tax, House Tax, Cess, Local Tax etc. These taxes are applicable towards government
since they are not recoverable. Provision for Deferred Tax Liability is considered as application
towards entity not for government.
 Providers of finance mean long term finance. Debentures are considered as long term finance.
 Shareholders means equity and preference shareholder. All Dividend will be included. Towards
entity include all reserves generated during the year.
 Retained earning during the year is also application towards entity.
Problems And Solution On Value Added Statement

Problem 1
The following is the profit and loss account of F ltd., from which you are required to prepare
a gross value added statement and reconcile the same with profit before taxation.
Particulars Rs. Rs.

Income: Sales 28,500
Other Income 750 29,250
Expenditure: Operating cost 25,600
Excise duty 1,700
Interest on bank overdraft 100
Interest on 12% debentures 1,150 28,550
Less: Profit before depreciation 700
Depreciation 250
Profit before tax 450
Less: Tax provision 270
Net profit after tax 180
Less: Transfer to replacement reserve 30
Balance profit 150
Less: Dividend 50
Retained Earnings 100
Note:
a) sales are net after deducting discounts, returns and sales tax
b) operating cost includes 10,200 as wages, salaries and other benefits to employees
c) bank over draft is a temporary source of finance
d) provision for tax includes 70 as deferred tax.
Solution:
Value added Statement
Particulars Rs. Rs.
Sales 28,500
Less: Cost of Bought in Material and Services (COBMS):
 Operating Cost (25,600 – 10,200) 15,400
 Excise Duty 1,700
 Interest on Bank Overdraft 100 17,200
Value Added by Manufacturing and Trading Activities 11,300
Add: Other Income 750
Total Value Added/GVA 12,050
Application Statement
Particulars Amount %
To Employees as Salaries, Wages, etc. 10,200 84.65
To Government as Taxes, Duties, etc. 200 1.65
To Financiers as Interest on Borrowings 1,200 9.95
To provide for maintenance and expansion of company 450 3.75
Total Value added 12,050 100
Problem 2
From the following profit and loss account of kalyani ltd. prepare a gross value added
statement. show the reconciliation between gross value statement and profit before tax

Particulars Rs. Rs.

Sales 206.42
Other income 10.20
216.62
Expenditure
 Production and operating expenses 1 166.57
 administrative expenses 2 6.12
 Interest and other charges 3 8.00
 Depreciation 5.69 186.28
Profit before tax 30.24
Provision for tax 3.00
27.24
Interest allowance reserve written back 0.46
Balance as per last balance sheet 1.35
29.05
Transferred to:
General reserve 24.30
Proposed dividend 3.00
Surplus carried to balance sheet 1.75
29.05
Notes:
1. Production & Operational Expenses (` Lakhs)
Increase in Stock 112
Consumption of Raw Materials 185
Consumption of Stores 22
Salaries, Wages, Bonus & other benefits 41
Cess and Local Taxes 11
Other Manufacturing Expenses 94
465
2. Administration Expenses include inter-alia Audit Fees of `4.80 Lakhs, Salaries &
Commission to Directors `5 Lakhs and Provision for Doubtful Debts `5.20 Lakhs.
Interest and Other Charges: (` Lakhs)
On Working Capital Loans from Bank 8
On Fixed Loans from IDBI 12
On Debentures 7
27
Problem 3 (2015 M.com Bangalore University December)

From the following profit and loss account of kalyani ltd. prepare a gross value added
statement. show the reconciliation between gross value statement and profit before tax
Particulars Rs. Rs.
Sales 610
Other income 25
635
Expenditure
 Production and operating expenses 1 465
 administrative expenses 2 19
 Interest and other charges 3 27
 Depreciation 14 525
Profit before tax 110
Provision for tax 16
94
Balance as per last balance sheet 7
101
Transferred to:
General reserve 60
Proposed dividend 11 71
Surplus carried to balance sheet 30
101
Notes:
1. Production & Operational Expenses (Lakhs)
Increase in Stock 112
Consumption of Raw Materials 185
Consumption of Stores 22
Salaries, Wages, Bonus & other benefits 41
Cess and Local Taxes 11
Other Manufacturing Expenses 94
465
2. Administration Expenses include inter-alia Audit Fees of Rs. 4.80 Lakhs, Salaries &
Commission to Directors Rs 5 Lakhs and Provision for Doubtful Debts Rs. 5.20 Lakhs.
Interest and Other Charges: (Lakhs)
On Working Capital Loans from Bank 8
On Fixed Loans from IDBI 12
On Debentures 7
27
ECONOMIC VALUE ADDED

Meaning: Economic Value Added (EVA) is ths surplus generated by an entity after meeting
an equitable charge towards the providers of Capital.
EVA = Operating Profit-Taxes paid-(Capital Employed x WACC)
Significance: Economic Value Added is an index to measure the financial performance. It

takes into account the Profit, Loss, Balance Sheet efficiency and Opportunity Cost of Capital.
Uses: EVA helps to –
(a) measure business performance,

(b) take important managerial decisions,
(c) equate managerial incentives with Shareholders’ interest, and
(d) improve financial and business literacy throughout the Firm.
List The Concepts In Economic Value Added (EVA).
Cost of Debt (Kd):

It is the Discount Rate that equates the Present Value of After Tax Interest Payment Cash
Outflows to the current Market Value of Debt Capital. [Note: Debt = Long Term Borrowings
only]
• Kd (for Irredeemable Debt) = [Interest (100% - Tax Rate)] ÷ Long Term Debt
• Kd (for Redeemable Debt) = {[Interest (100% - Tax Rate)l + [RV - NP1 ÷ n)
[RV + NP] ÷ 2
Where RV = Redemption Value of Debt; NR = Net Proceeds of Debt Issue; n = Number of years
after which Debt becomes redeemable.
Cost of Preference Capital (Kp):
It is the Discount Rate that equates the Present Value of Preference Dividend Cash Outflows
to the current Market Value of Preference Share Capital.
• Kp (for Irredeemable PSC) = Preference Dividend * Preference Share Capital
• Kd (for Redeemable PSC) = (Preference Dividend + TRV - NP] ^ n)
[RV + NP] - 2
Where RV = Redemption Value of PSC; NP = Net Proceeds of PSC Issue; n = Number of years
after which PSC becomes redeemable.
Cost of Equity (Ke)

it is the expected Market Rate Return on Equity Capital. This is,generally derived from the
Capital Asset Pricing.Model (CAPM), in the following manner –
Cost of Equity Capital = Risk Free Rate + (Beta x Equity Risk Premium)
Where Equity Risk Premium = Market Rate of Return Less Risk Free Rate of Return
Cost of Retained Earnings (Kr):

Reserves and Surplus are created out of appropriation of profit, i.e. by retention of profit
attributable to Equity Shareholders. So, the expectation of the shareholders to have value
appreciation on this money will be same as in case of Equity Share Capital. Accumulated
Reserves and Surplus which are free to Equity Shareholders carry the same cost as Equity
Share Capital.
Beta:
 Beta is a relative measure of volatility that is determined by comparing the return on
a share to the return on the stock market. Thus, Beta is a measure of non-diversifiable
risk.
 The greater the volatility, the more risky the Share and hence, the higher the Beta. A
Company having a Beta of 1.2 implies that, if the Stock Market increases by 10%, the
Company’s Share Price will increase by 12% (i.e. 10% x 1.2). Also, if the Stock Market
decreases by 10% the Company’s Share Price will decrease by 12%.
 It is the basis of explaining the relationship between the Return of a particular security
(e.g. Shares of a particular Company) and the return of the Stock Market as a whole
(i.e. Market Risk Premium). Beta is the responsiveness of Stock Return or Portfolio
Return (of a Company) to Market Return (as a whole).
 Beta is a statistical measure of volatility. For Listed Companies, Beta is calculated as
the co-variance of daily return on stock market indices and the return on daily share
prices of a particular Company divided by the Variance of the return on daily Stock
Market indices. Generally, maximum of yearly Beta of the Company should be taken
for calculations.
 For Unlisted Companies, Beta of similar firms in the industry may be considered after
transforming it to un-geared beta and then re-gearing it according to the Debt Equity
Ratio of the unlisted Company.
Equity Risk Premium:

Equity Risk Premium is the excess return above table Risk Free Rate that investors demand
for holding risky securities (i.e. Shares of the given Company). Equity Risk Premium = Market
rate of Return (MRR) Less Risk Free Rate.
Market Rate of Return: It may be calculated from the movement of share market indices
over a period of an economic cycle based on moving average, to smooth out abnormalities,
if any. Market Rate of Return may be calculated as under —
Stock Exchange Index at the end of the year – Stock Exchange Index at the beginning of the
year
Stock Exchange Index at the beginning of the year
The individual components of Capital i.e. Debt, Preference and Equity. Thus WACC or (Kr) is
equal to -
Kd x Debt + Kp x PSC + Ke * Equity
Total Funds Total Funds Total Funds
Problems On Economic Value Added

Problem 11
The following information is available of a concern: calculate EVA
 Debt capital 12% 2,000
 Equity capital 500
 Reserve and surplus 7,500
 Capital employed 10,000
 Risk free rate 9%
 Beta factor 1.05
 Market rate of return 19%
 Equity (Market) Risk premium 10%
 Net operating profit after tax 2,000
 Tax Rate 30%
Problem 12
From the following information of vinod ltd compute the economic value added:
 Share capital 2,000
 Reserve and surplus 4,000
 long term debt 400
 Tax rate 30%
 Risk free rate 9%
 Market rate of return 16%
 Interest 40
 Beta factor 1.05
 Profit before interest and tax 2,000
Problem 13
Compute EVA of Sarin ltd for 3 years from the information given
Particulars Year 1 Year 2 Year 3
Average capital employed 3,000 3,500 4,000
Operating profit before tax 850 1,250 1,600
Corporate income taxes 80 70 120
Average debt + Total capital employed (in%) 40 35 13
Beta variant 1.10 1.20 1.3
Risk free rate (In %) 12.50 12.50 12.5
Equity Risk premium (%) 10 10 10
Cost of Debt (Post tax)(%) 19 19 20
Problem 14
The capital structure of Himesh ltd is as under:
 80,00,000 equity share of 10 each = Rs 800 lakhs
 1,00,000 12% preference shares of Rs. 250 each = Rs. 250 lakhs
 1,00,000 10% Debenture of Rs. 500 each = Rs. 500 lakhs
 Term loan from Bank (at 10%) = Rs. 450 lakhs
The company’s Profit and loss account for the year showed a balance PAT of Rs. 100 Lakhs,
after appropriating equity dividend at 20%. The company is in the 40% tax bracket. Treasury
bonds carry 6.5% interest afid beta factor for the company may be taken at 1.5. The long run
market rate of return may be taken at 16.5% calculate EVA.

Problem 15
From the following information, compute EVA of Auto Ltd. (Assume 35% tax rate)
• Equity Share Capital = Rs.1,000 Lakhs • PE Ratio = 5 times
• 12% Debentures = Rs. 500 Lakhs • Financial Leverage = 1.5 times
Problem 16
Pilot ltd Supplies the following information using which you are required to calculate the
economic value added.
Financial Leverage 1.4 times
Capital
Equity shares of Rs. 1,000 each 34,000(Number)
Accumulated profit Rs. 260 Lakhs
10% Debenture of Rs. 10 each 80 Lakhs (Number)
Dividend Expectation of equity 17.50%
shareholders
Prevailing corporate tax rate 30%
Problem 17
Prosperous Bank has a criterion that it will give loans to companies that have an Economic
Value added greater than zero for the past three years on an average. The bank considering
lending money to a small company that has the economic value characteristics shown below.
The data relating to the company is as follow:
 Average operating income after tax equals Rs. 25,00,000 per year for the last three
years.
 Average total assets over the last three years equals Rs. 75,00,000.
 Weighted average cost of capital appropriate for the company is 10% which is
applicable for all three years.
 The company’s average current liabilities over the last three years are Rs. 15,00,000.
Does the company meet the bank’s criterion for the positive economic value added?
Problem 18
B & Co. has existing assets in which it has capital invested of ` 100 Crores. The After Tax
Operating Income on assets-in-place is ` 15 Crores. The Return on Capital Employed of 15%
is expected to be sustained in perpetuity, and Company has a Cost of Capital of 10%.
Estimate the Present Value of Economic Value Added (EVA) to the Firm from its assets-in-
place.
(ii) Differentiate between VA (Value Added) and Economic Value Added (EVA) concepts.
Particulars Value Added Economic Value Added

Meaning VA is the wealth that a Firm has been able EVA is the surplus generated
to create through the collective effort of by an entity after meeting an
Capital, Management and Employees. equitable charge towards the
providers of Capital.
Computation VA = Market Price of a Firm’s Output — EVA = Operating Profit - Taxes
Cost of Bought in Materials and Services paid - (Capital Employed x
WACC)
Purpose VA provides a useful measure in EVA is a management tool to
analysing the performance and activity help managers take decisions
of the reporting entity. which increase the
shareholders’ wealth.

Focus VA focusses on the Firm’s performance EVA focusses on Firm’s ability

and contribution towards various groups. to create surplus above
shareholders’ expectations.
Information VA reporting is based on the P & L EVA reporting uses market
Account information, which is primarily information and estimates like
internal data. Cost of Capital, Beta, Risk Free
Rate of Return etc.
Time Value of VA reporting does not recognise time value Time Value of Money is
Money of money, since it deals with the wealth recognised in EVA reporting
created by the Firm during a specified through the use of WACC. The
period of time e.g. a financial year. Weighted Average Cost of
Capital is based on the PV of
future interest/ dividend
outflows.
Market Value Added (MVA)

Market value Added (MVA) is the difference between the current market value of a firm and
the capital contributed by investors. If MVA is positive, the firm has added value. If it is
negative the firm has destroyed value.
To find out whether management has created or destroyed value since its inception, the firm’s
MVA can be used:
MVA=Market value of capital – capital employed
This calculation shows the difference between the market value of a company and the capital
contributed by investors (both bondholders and shareholders). In other words, it is the sum
of all capital claims held against the company plus the market value of debt and equity.
Calculated as:
The higher the MVA, the better. . A high MVA indicates the company has created substantial
wealth for the shareholders. A negative MVA means that the value of the actions and
investments of management is less than the value of the capital contributed to the company
by the capital markets, meaning wealth or value has been destroyed.
The aim of the company should be to maximize MVA. The aim should not be to maximize the
value of the firm, since this can be easily accomplished by investing ever-increasing amounts
of capital.
Step 1: Calculation of Market value of Equity share
Step 2: Calculation of Market value of Preference share
Step 3: Calculation of Market value of Debt
Step 4: Calculation of Capital Employed
Step 5: Calculation of MVA
Problem 19
The capital structure of A ltd whose shares are quoted on the NSE is as under.
Particulars Rs .(lakhs)
Equity shares of 100 each fully paid 505
9%, preference shares of Rs. 10 each 150
12% debenture of Rs. 10 each 5
Statutory Reserve 50.5
The statutory fund is compulsory required to be invested in government securities. The
ordinary shares are quoted at a premium of 500%. Preference shares @ 30 per shares and
debenture at par value.
Calculate MVA of the Company.
Problem 20
Compute MVA from the following information

Liabilities Rs. Assets Rs.

5000 Equity shares of Rs. 10 each 50,000 Fixed assets 3,00,000
1000 preference shares of Rs. 100 each 1,00,000 Current assets 2,00,000
Reserves and Surplus 50,000
1000 Debentures of Rs. 50 each 50,000
Current Liabilities 2,50,000
5,00,000 5,00,000
All the securities are listed in London stock exchange and there MV are as follows.
 Equity shares Rs. 500 per share
 Preference shares Rs. 200 per share
 Debenture at Par value
Shareholder Value Added (SVA)

Shareholder Value Added (SVA) represents the economic profits generated by a business
above and beyond the minimum return required by all providers of capital. “Value” is added
when the overall net economic cash flow of the business exceeds the economic cost of all the
capital employed to produce the operating profit. Therefore, SVA integrates financial
statements of the business (profit and loss, balance sheet and cash flow) into one meaningful
measure.
The SVA approach is a methodology which recognizes that equity holders as well as debt
financiers need to be compensated for the bearing of investment risk in Government
businesses. Historically, it has been apparent that debt financiers have been explicitly
compensated, however, this has not been the norm for providers of equity capital. Such
inequalities can lead to inefficiencies in the allocation and use of capital.
The SVA methodology is a highly flexible approach to assist management in the decision
making process. Its applications include performance monitoring, capital budgeting, output
pricing and market valuation of the entity.
Shareholder value added (SVA) is expressed as a company's capital costs from stock and
bond issues subtracted from its net operating profit after tax (NOPAT).
SVA = NOPAT - Cost of Capital
For instance, if a company's NOPAT is 200,000 and its capital costs are 50,000, its SVA would
be 150,000 (200,000 - 50,000 = 150,000)
Human Resource Accounting

 Human Resource Accounting is a recent phenomenon in India. Leading Public

Sector Units like OIL, BHEL, NTPC, MMTC and SAIL etc. have started reporting
Human Resources in their annual reports as additional information.
 (b) Companies in India have basically adopted the model of Human Resource
Valuation as advocated by Lev and Schwartz. Indian Companies focused their
attention on the present value of employee earning as a measure of their human
capital. However the Lev and Schwartz model has been suitably modified to suit the
Company’s individual circumstances.
A. Growing scope of Human Capital Reporting:

(i) Recent Reporting Trends: In the recent years, there is a growing trend of shift from the
traditional focus on financial reporting of quantifiable resources (i.e. which can be
measured in monetary terms) to a more comprehensive approach of reporting under
which Human Resources are also considered as Measurable Assets of a Going Concern.
(ii) Relevance: An organization is a dynamic entity and operates through the effort of its
human resources. The ratio of human to non-human capital indicates the degree of
labour intensity of an organisation. Comparison of the specific values of human capital
based on the organisation’s scales of wages and salaries with the general industry
standards can provide inputs on the Firm’s HR policies.
(iii) Purpose: Human Capital Reporting provides scope for planning and decision-making in
relation to proper manpower planning. Such reporting can also bring out the effect of
various rules, procedure and incentives relating to work force. This can even act as an
eye opener for modifications of existing statutes, laws etc.
(iv) Accounting: Business entities account for Fixed Assets on Historical Cost basis.
Similarly, employee-related costs like cost of recruitment, training and orientation of
employees, etc. can be considered for the purpose of capitalization. An appropriate
portion of such capitalized costs can be amortised each year over the estimated years of
effect of such costs.
(v) Standards: Currently, there is no standard format for Human Capital Reporting.
Generally, the Human Capital Report contains data pertaining to number of employees,
employment and training policies, collective bargaining arrangements, industrial
disputes, pension and pay arrangement and number of disabled employees.
B. Models of Human Resource Accounting (HRA):
1. Cost Based Models 2. Economic Value Models
(a) Likert’s Model - Historical Costs  Hekimian & Jones Model - Opportunity Cost
(b) Flamholtz’s Model - Replacement Costs  Lev & Schwartz Model - Discounted Wages &
Salaries
 Flamholtz’s Model - Stochastic Process &
Service Rewards
 Jaggi & Lau Model - Group Valuation
Problem 21
Compute According to Lev and Schwartz model 1971. The total value of HR of the
employee of the group skilled and unskilled.
 Annual average earnings of an employee till the retirement age Rs. 1,00,000
 Age of Retirement 65 years.
 Discount rate 15%
 No of employees in the group 20
 Average age 62 years.
Problem 22

From the following details compute according to lev and Schwartz 1971 model. The total
value of Hr of a employee of groups skilled and unskilled.
Particulars Skilled Unskilled
Average annual earnings of employees till the retirement 60,000 40,000
Age of Retirement 65years 62years
Discount rate 15% 15%
No of employee in the group 30 40
Average age 62 60
Problem 23
From the following details compute according to lev and Schwartz 1971 model. The total
value of Hr of a employee of groups skilled and unskilled.
Particulars Skilled Unskilled
Average annual earnings of employees till the retirement 50,000 30,000
Age of Retirement 65years 62years
Discount rate 15% 15%
No of employee in the group 20 25
Average age 62 60
Problem 24
From the following information in respect of L&S Ltd., calculate the Total Value of Human
Capital by following Lev and Schwartz Model. The Company uses 10% Cost of Capital for
discounting purposes. Retirement Age is 55 years. Distribution of Employees is –
Unskilled Semi skilled Skilled
Age No. Average No. Average No. Average
Annual Annual Annual
Earnings Earnings Earnings
30-39 70 6,00,000 50 7,00,000 30 10,00,000
40-49 20 8,00,000 15 10,00,000 15 12,00,000
50-54 10 10,00,000 10 12,00,000 5 14,00,000
Year 5 10 15 20 25
PV @ 10% 3.7908 6.1446 7.6061 8.5136 9.070
Problem 25
30-39 40 84,000 60 36,000 100 18,000
40-49 20 1,20,000 30 48,000 50 30,000
50-54 10 1,80,000 20 60,000 30 36,000
Year 5 10 15 20 25
PV @ 10% 3.7908 6.1446 7.6061 8.5136 9.070

Problem 26
30-39 70 3,000 50 3500 30 5000
40-49 20 4,000 15 5000 15 6000
50-54 10 5,000 10 6000 5 7000
Year 5 10 15 20 25
PV @ 15% 3.3520 5.0184 5.8468 6.2586 6.4632
Inflation Accounting
Meaning of Inflation Accounting

Inflation Accounting is that form of accounting which attempts to show the financial
statement items at current values in order to understand about the true profitability and
financial position of a concern. It attempts to adjust the stated values of various items in the
financial statements to their true current values.
Merits of Inflation accounting

 As the current values of assets and liabilities are shown, the Balance Sheet reveals
true and fair view of the financial position of the business.
 As the current values of incomes and expenses are shown, the Profit and Loss Account
reveals true profit or loss of the business.
 As the value of different plants installed at different times can be converted into
current values, the comparative analysis of the efficiency of different plants can be
conveniently made.
 As the current value of assets can be shown, the return on investment can be
calculated more accurately.
Methods of Inflation Accounting

1. Current Purchasing Power Accounting Method
2. Current Cost Accounting Method
Current Purchasing Power Method (CPP)
Steps in preparation of Current Purchasing Power adjusted Final Accounts

 Prepare final accounts under regular method (Historical Accounting System)
 Classify the items into Monetary Assets and Non-monetary Assets.
 Consider Cash & Bank balances ignoring the receipts and payments of the last day.
 Calculate Net Monetary Gain/Loss
 Calculate Indexed Cost of Goods Sold
 Prepare Price Level Adjusted Final Accounts
Monetary Items: - Items whose amounts remain fixed irrespective of the changes in the general price
level are called monetary items.
Non-monetary Items: - Items whose amounts keep changing in accordance with changes in the general
price level are called non-monetary items.
Problem 27
Classify the following items into monetary and non-monetary.

 Cash in hand
 Cash at bank
 Building
 Land
 Debtors
 Creditors
 Bank overdraft

Solution:
Statement showing classification into monetary and non-monetary items
Items Monetary/Non-monetary
Cash in hand Monetary
Cash at bank Monetary
Building Non-monetary
Land Non-monetary
Debtors Monetary
Creditors Monetary
Bank overdraft Monetary
Problem 28
Classify the following items into monetary and non-monetary
 Equity Share Capital
 Participating Preference Share Capital
 Non-participating Preference Share Capital
 Bills Payable
 Investments
 Prepaid Expenses
 Outstanding Expenses
 Stock
Solution:
Statement showing classification into monetary and non-monetary items
Items Monetary/Non-monetary
Equity Share Capital Non-monetary
Participating Preference Non -Monetary
Share Capital Non-monetary
Non-participating Preference Monetary
Share Capital Monetary
Bills Payable Monetary
Investments Non-monetary
Prepaid Expenses Monetary
Outstanding Expenses Monetary
Stock Non-monetary
Practice Problem
Classify the following items into monetary and non-monetary
 Cash
 Bank
 Stock
 Debtors
 Creditors
 Prepaid Expenses
 Prepaid Income
Calculation of Net Monetary gain or Loss:

Calculation of Net Monetary gain or Loss

Particulars Rs. Rs.
Monetary Assets:
Historical Value of Monetary assets on closing date Xxx
Less: Indexed value of Monetary assets:
 Opening value of Monetary assets,

Xxx
𝑪𝒍𝒐𝒔𝒊𝒏𝒈 𝑰𝒏𝒅𝒆𝒙
Indexed[𝑶𝒑𝒆𝒏𝒊𝒏𝒈 𝑽𝒂𝒍𝒖𝒆 𝒙 ]
𝑶𝒑𝒆𝒏𝒊𝒏𝒈 𝑰𝒏𝒅𝒆𝒙
Xxx
Add/Less: Additions or reductions during the year at indexed value Xxx
[𝑨𝒅𝒅𝒊𝒕𝒊𝒐𝒏 𝒐𝒓 𝒓𝒆𝒅𝒖𝒄𝒕𝒊𝒐𝒏𝒔 𝒙 ] Xxx
Monetary Liabilities: 𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑰𝒏𝒅𝒆𝒙
Indexed value of Monetary liabilities
 Opening value of Monetary liabilities Xxx
indexed[𝑶𝒑𝒆𝒏𝒊𝒏𝒈 𝑽𝒂𝒍𝒖𝒆 𝒙 ]
Add/Less: Additions or reductions during the year at indexed value Xxx
[𝑨𝒅𝒅𝒊𝒕𝒊𝒐𝒏 𝒐𝒓 𝒓𝒆𝒅𝒖𝒄𝒕𝒊𝒐𝒏𝒔 𝒙 ] xxx
𝑨𝒗𝒆𝒓𝒂𝒈𝒆 𝑰𝒏𝒅𝒆𝒙
xxx Xxx
Less: Historical value of monetary Liability
Net Monetary gain or Loss xxx
Problem 29
Compute the Net monetary results of P ltd. As on 31st March 2014 from the information given
below:
Particulars 1.4.2013 31.3.2014
Cash 25,000 30,000
Book Debts 51,000 60,000
Creditors 55,000 65,000
Loan 40,000 45,000
Retail Price Index 250 350
Average for the year 300
Solution:
Calculation of Monetary Assets and Monetary Liabilities
Monetary Assets
Particulars 1.4.2013 31.3.2014
Increase during the year
Cash 25,000 30,000
Book Debts 51,000 60,000 (90,000-76,000)
76,000 90,000 14,000
Monetary Liabilities
Particulars 1.4.2013 31.3.2014 Increase during the year
Creditors 55,000 65,000
(1,10,000-95,000)
Loan 40,000 45,000
15,000
95,000 1,10,000

Statement showing calculation of Net Monetary Gain or Loss

Particulars Rs. Rs.
Monetary Assets:
Historical Value of Monetary assets on closing date 90,000
Less: Indexed value of Monetary assets:
𝟑𝟓𝟎
 Opening value of Monetary assets, Indexed[𝟕𝟔, 𝟎𝟎𝟎 𝒙 ]
𝟐𝟓𝟎 1,06,400
𝟑𝟓𝟎
Add: Additions during the year at indexed value[𝟏𝟒, 𝟎𝟎𝟎 𝒙 ] 16,333 1,22,733
𝟑𝟎𝟎
(32,733)
Monetary Liabilities:
Indexed value of Monetary liabilities
𝟑𝟓𝟎
 Opening value of Monetary liabilities indexed[𝟗𝟓, 𝟎𝟎𝟎 𝒙 ] 1,33,000
𝟐𝟓𝟎
𝟑𝟓𝟎
Add: Additions during the year at indexed value [𝟏𝟓, 𝟎𝟎𝟎 𝒙 𝟑𝟎𝟎] 17,500
1,50,500
Less: Historical value of monetary Liability 1,10,000 40,500
Net Monetary gain 7,767
Problem 30
From the following information, calculate the net monetary gain or loss during the year ending 31-03-
2014.
Items 1-4-2013 31-03-2014
Bank 15,000 21,000
Debtors 45,000 54,000
Creditors 75,000 50,000
Stock 75,000 78,000
Fixed Assets 1,50,000 1,35,000
General Price Index 100 125
Average Price Index 120
Problem 31
2014.
Items 1-4-2013 31-03-2014
Cash 60,000 88,000
Debtors 80,000 1,00,000
Creditors 90,000 1,00,000
Bills Payable 70,000 80,000
Problem 32
2014.
Items 1-4-2013 31-03-2014
Cash 3,000 6,000
Debtors 2,000 500
Creditors 500 200
Problem 33
Following information have been disclosed by the balance sheet of a firm.
Monetary Assets Rs. 10,000 ; Monetary Liabilities Rs. 5,500.

The Price index at the time monetary assets were acquired, liabilities were created, was 100. It was
stands at 130 now. Presuming that there has been no change in the amount of assets and liabilities,
Calculate the “ General purchasing power gain or loss”.
Calculation of COGS using under FIFO

Calculation of Indexed Cost of Goods Sold when FIFO method
Particulars Rs.
Opening Stock [𝑯𝒊𝒔𝒕𝒐𝒓𝒊𝒄𝒂𝒍 𝑪𝒐𝒔𝒕 𝒙 ]
Add: Purchases [𝑨𝒎𝒐𝒖𝒏𝒕 𝒐𝒇 𝑷𝒖𝒓𝒄𝒉𝒂𝒔𝒆 𝒙 ]
Less: Closing Stock [𝑯𝒊𝒔𝒕𝒐𝒓𝒊𝒄𝒂𝒍 𝑪𝒐𝒔𝒕 𝒙 ]
COGS
Problem 34
From the following details find out; 1) cost of sales 2) closing stock using FIFO Method.
Opening stock on 1st April 2013 Rs. 40,000
Purchase during the year Rs.2,00,000
Closing stock on 31st March 2014 Rs. 30,000
Opening Price level Index 80
Average Level Index 125
Closing index 140
Solution:
Particulars Rs.
𝟏𝟒𝟎
Opening Stock [𝟒𝟎, 𝟎𝟎𝟎 𝒙 𝟖𝟎 ] 70,000
𝟏𝟒𝟎 2,24,000
Add: Purchases[𝟐, 𝟎𝟎, 𝟎𝟎𝟎 𝒙 𝟏𝟐𝟓]
2,94,000
Less: Closing Stock [[𝟑𝟎, 𝟎𝟎𝟎𝒙
𝟏𝟒𝟎
]] 35,000
𝟏𝟐𝟓
COGS 2,59,000
Alternative Method….
Particulars Historical Conversion CPP (Rs.)
Value Factor
Opening Stock 40,000 140/80 70,000
Add: Purchases 2,00,000 140/125 2,24,000
2,40,000 2,94,000
Less: Closing Stock 30,000 140/125 35,000
Cost of Goods Sold 2,59,000
Problem 35
From the following details find out; 1) cost of sales 2) closing stock using FIFO Method.
Opening stock on 1st April 2013 Rs. 80,000
Purchase during the year Rs.4,80,000
Closing stock on 31st March 2014 Rs. 1,20,000
Opening Price level Index 100
Average Level Index 140
Closing index 125
Ans: 4,92,800

Calculation of COGS using under LIFO

Particulars Rs.
Opening Stock [𝑯𝒊𝒔𝒕𝒐𝒓𝒊𝒄𝒂𝒍 𝑪𝒐𝒔𝒕 𝒙
] Xxx
Xxx
Add: Purchases [𝑨𝒎𝒐𝒖𝒏𝒕 𝒐𝒇 𝑷𝒖𝒓𝒄𝒉𝒂𝒔𝒆 𝒙 ]
Xxx
Less: Closing Stock
Out of Opening stock [𝑯𝒊𝒔𝒕𝒐𝒓𝒊𝒄𝒂𝒍 𝑪𝒐𝒔𝒕 𝒙
] Xxx
𝒐𝒑𝒆𝒏𝒊𝒏𝒈 𝑰𝒏𝒅𝒆𝒙
Out of purchase[𝑪𝒐𝒔𝒕 𝒐𝒇 𝒔𝒖𝒄𝒉 𝒑𝒓𝒖𝒄𝒉𝒂𝒔𝒆 𝒙 ] Xxx
COGS xxx
Problem 36
From the following data, compute historical and CPP adjusted cost of goods sold when LIFO Method is in
use.
Opening Stock Rs. 1,20,000
Purchases during the year Rs. 7,20,000
Closing Stock Rs. 1,80,000
Price Index at the beginning of the year 100, at the end of the year 140 and the average 125.
Solution
Particulars Rs.
𝟏𝟒𝟎
Opening Stock [𝟏, 𝟐𝟎, 𝟎𝟎𝟎𝒙 𝟏𝟎𝟎] 1,68,000
𝟏𝟒𝟎 8,06,400
Add: Purchases[𝟕, 𝟐𝟎, 𝟎𝟎𝟎 𝒙 𝟏𝟐𝟓]
9,74,400
Less: Closing Stock
𝟏𝟒𝟎
Out of Opening stock [𝟏, 𝟐𝟎, 𝟎𝟎𝟎 𝒙 ] 1,68,000
𝟏𝟎𝟎
𝟏𝟒𝟎
67,200
Out of purchase[𝟔𝟎, 𝟎𝟎𝟎 𝒙 ]
𝟏𝟐𝟓
COGS 7,39,200
Alternative Method…..
Calculation of Indexed Cost of Goods Sold when LIFO method is in use
Particulars Historical Conversion CPP Value (Rs.)
Value Factor
Opening Stock 1,20,000 140/100 1,68,000
Add: Purchases 7,20,000 140/125 8,06,400
8,40,000 9,74,400
Less: Closing Stock
- Out of Opening Stock 1,20,000 140/100 1,68,000
- Out of Purchase I 60,000 140/125 67,200
Cost of Goods Sold 7,39,200
Problem 37
From the following data, compute historical and CPP adjusted cost of goods sold when (a) FIFO Method is
in use and (b) LIFO Method is in use
Opening Stock Rs.50,000 Price Index 100
Purchases Rs. 50,000 Price Index 125 (average)
Closing Stock Rs.70,000 Price Index 200

Format for preparation of Current Purchasing Power adjusted Profit & Loss Account
Particulars HV (Rs.) CF CPP (Rs.)

Sales XXX XXX XXX
Less: Cost of Goods Sold XXX XXX XXX
Gross Profit XXX -------- XXX
Add: Incomes XXX XXX XXX
XXX -------- XXX
Less: Expenses XXX XXX XXX
XXX -------- XXX
Add: Monetary Gain XXX -------- XXX
XXX -------- XXX
Less: Monetary Loss XXX -------- XXX
Profit(Loss) XXX -------- XXX
Format for preparation of Current Purchasing Power adjusted Balance Sheet

LIABILITIES
Equity Share Capital XXXX XXXX XXXX
Preference Share Capital XXXX -------- XXXX
Profit & Loss Account XXXX -------- XXXX
Debentures XXXX -------- XXXX
Bank Loan – Long term XXXX -------- XXXX
Current Liabilities XXXX -------- XXXX
Total XXXX XXXX
ASSETS
Land & Buildings XXXX XXXX XXXX
Plant & Machinery XXXX XXXX XXXX
Furniture XXXX XXXX XXXX
Closing Stock XXXX -------- XXXX
Debtors XXXX -------- XXXX
Cash & Bank XXXX -------- XXXX
Note:
1. Profit & Loss A/c amount in CPP Value column should be taken from CPP adjusted Profit & Loss
A/c.
2. Closing Stock amount in CPP Value column should be taken from CPP adjusted cost of goods sold.
3. Monetary assets and monetary liabilities shall not be converted again in the balance sheet.

Problem 38 (Bangalore university M.com December 2015)

In the context of Inflation accounting system adjust the following profit and Loss account and Balance
sheet under the Current Purchasing power method (CPP) to ascertain the changes in net profit and
reserve.
Profit and Loss Account 31.12.2014
Particulars Rs Rs.
Sales - 5,00,000
Opening Stock 80,000 -
Purchases 4,20,000 -
5,00,000 -
Less: Closing Stock 70,000 4,30,000
Gross Profit 70,000
Depreciation(Building) 5,000 -
Administration 25,000 30,000
Net Profit 40,000
Balance sheet as at 31st December

Particulars Rs Rs.
Share Capital - 2,00,000
Reserves - 2,00,000
4,00,000
Land and Building 2,00,000
Less: Depreciation 45,000 1,55,000
Stock 70,000
Debtors 40,000
Cash 30,000
1,40,000
Less: Creditors 35,000 1,05,000
4,00,000
The following further information are given:
 Closing stock was acquired during last quarter of 2014
 Opening stock was acquired during the last quarter 2013
 land and building were acquired and capital issued in 2006. The Land and Building
is depreciated under the straight line method. over 40 years.
 The Price Indices are
a) 2006 Average 80
b) 2013 Last quarter 120
c) December 31,2013 100
d) 2014 Last quarter average 125
e) 2014 average 140
f) December 31.2014 150
 Sales , Purchases and Administration expenses assumed to occur over the year and
hence an average prices.
Solution:
This problem can be solved by following the 7 Steps as follows:
Step 1: Preparation of Financial statements under Historical Accounting System
Since the entire problem is given under historical accounting system, there is no necessity of
doing anything in this regard.

Step 2: Classification of Balance sheet items into monetary and Non-Monetary Items
Monetary Items Non- Monetary Items
Creditors Share capital
Debtors Reserve
Cash Land and Building
Stock
Step 3: Calculation of Cash Balance, ignoring Receipts and payments at the end of
the year
It is supposed to be the balance sheet figure of Rs. 30,000 (as Given)
Step 4: Calculation of Net Monetary gain or Loss
It is not possible to ascertain the Net monetary gain or loss because the opening balance at of
the monetary assets and liabilities are not known.
Step 5: Calculation of COGS Using FIFO Method

Particulars Rs.
𝟏𝟓𝟎
Opening Stock [𝟐, 𝟓𝟎, 𝟎𝟎𝟎 𝒙 ] 3,12,500
𝟏𝟐𝟎
𝟏𝟓𝟎
Add: Purchases [𝟓, 𝟓𝟎, 𝟎𝟎𝟎 𝒙 ] 5,89,286
𝟏𝟒𝟎
9,01,786
Less: Closing Stock [𝟐, 𝟎𝟎, 𝟎𝟎𝟎 𝒙
𝟏𝟓𝟎
] 2,40,000
𝟏𝟐𝟓
COGS 6,61,786
Step 6: Preparation of Profit and Loss Account

Sales 10,00,000 150/140 10,71,430
Less: Cost of Goods Sold 6,00,000 Step 5 6,61,786
Gross Profit 4,00,000 4,09,644
Add: Incomes - -
4,00,000 4,09,644
Less: Expenses 1,50,000 150/140 1,60,714
5,000 150/80 9,375
2,45,000 2,39,555
Add: Monetary Gain -
2,45,000 2,39,555
Less: Monetary Loss - -
Profit(Loss) 2,45,000 2,39,555
Step 7: Preparation of Balance sheet

LIABILITIES
Share capital 5,00,000 150/80 9,37,500
Reserve (Bf) 5,00,000 - 6,27,500
Creditors 2,00,000 - 2,00,000
Total 12,00,000 ,000
ASSETS
Plant and machinery 5,00,000 150/80 9,37,500
Less: Depreciation 50,000 150/80 93,750
4,50,000 8,43,750
Furniture 1,50,000 150/80 2,81,250
Stock 2,00,000 150/125 2,40,000
Debtors 3,00,000 - 3,00,000

Cash 1,00,000 - 1,00,000

12,00,000 12,00,000
Problem 39
The Balance sheet and Profit and Loss account of ABC ltd as on 31 st March 2014 are given below. You
are required to redraft the same under the current purchasing power method( CPP) to ascertain the
changes in Net profit and Reserve.
Profit and Loss Account for the year ended 31st March 2014
Particulars Rs Rs.
Sales - 10,00,000
Opening Stock 2,50,000 -
Purchases 5,50,000 -
8,00,000 -
Less: Closing Stock 2,00,000 6,00,000
Gross Profit 3,00,000
Depreciation(P&M) 5,000 -
General Expenses 1,50,000 1,55,000
Net Profit 2,45,000
Balance sheet as at 31st March 2014

Particulars Rs Rs.
Reserves - 5,00,000
-
10,00,000
Plant and Machinery 5,00,000
Less: Depreciation(till date) 50,000 4,50,000
Furniture 1,50,000
Stock 2,00,000
Debtors 3,00,000
Cash 1,00,000
7,50,000 5,50,000
Less: Creditors 2,00,000
10,00,000
The following further information are given:
 Closing stock was acquired during January 2014
 Opening stock was acquired during February 2013
 Plant and machinery and furniture were acquired and capital issued in 2004-05. Plant and
machinery is depreciated under the straight line method.
 The Price Indices are
1. 2004-05 Average 80
2. 2012-13 Last quarter 120
3. March 31,2013 100
4. 2013-14 Last quarter average 125
5. 2013-14 average 140
6. March 31.2014 150
Solution:
This problem can be solved by following the 7 Steps as follows:
Step 1: Preparation of Financial statements under Historical Accounting System
Since the entire problem is given under historical accounting system, there is no necessity of
doing anything in this regard.
Step 2: Classification of Balance sheet items into monetary and Non-Monetary Items

Monetary Items Non- Monetary Items

Creditors Share capital
Debtors Reserve
Cash Plant and Machinery
Furniture
Stock
Step 3: Calculation of Cash Balance, ignoring Receipts and payments at the end of
the year
It is supposed to be the balance sheet figure of Rs. 1,00,000 (as Given)
Step 4: Calculation of Net Monetary gain or Loss
It is not possible to ascertain the Net monetary gain or loss because the opening balance at of
the monetary assets and liabilities are not known.
Step 5: Calculation of COGS Using FIFO Method

Particulars Rs.
𝟏𝟓𝟎
Opening Stock [𝟐, 𝟓𝟎, 𝟎𝟎𝟎 𝒙 ] 3,12,500
𝟏𝟐𝟎
𝟏𝟓𝟎
Add: Purchases [𝟓, 𝟓𝟎, 𝟎𝟎𝟎 𝒙 ] 5,89,286
𝟏𝟒𝟎
9,01,786
Less: Closing Stock [𝟐, 𝟎𝟎, 𝟎𝟎𝟎 𝒙
𝟏𝟓𝟎
] 2,40,000
𝟏𝟐𝟓
COGS 6,61,786
Step 6: Preparation of Profit and Loss Account

Sales 10,00,000 150/140 10,71,430
Less: Cost of Goods Sold 6,00,000 Step 5 6,61,786
Gross Profit 4,00,000 4,09,644
Add: Incomes - -
4,00,000 4,09,644
Less: Expenses 1,50,000 150/140 1,60,714
5,000 150/80 9,375
2,45,000 2,39,555
Add: Monetary Gain -
2,45,000 2,39,555
Less: Monetary Loss - -
Profit(Loss) 2,45,000 2,39,555
Step 7: Preparation of Balance sheet

LIABILITIES
Share capital 5,00,000 150/80 9,37,500
Reserve (Bf) 5,00,000 - 6,27,500
Creditors 2,00,000 - 2,00,000
Total 12,00,000 17,65,000
ASSETS
Plant and machinery 5,00,000 150/80 9,37,500
Less: Depreciation 50,000 150/80 93,750
4,50,000 8,43,750
Furniture 1,50,000 150/80 2,81,250
Stock 2,00,000 150/125 2,40,000
Debtors 3,00,000 - 3,00,000
Cash 1,00,000 - 1,00,000

Total 12,00,000 17,65,000

The Balance sheet of Excellent ltd as on 31st March 2013 and the profit and loss account
for the year ended 31st March 2014 were as under:
Particulars Rs Rs.
Sales 40,000
Opening Stock 9,600
Purchases 18,400
28,000
Less: Closing Stock 8,000 20,000
Gross Profit 20,000
Depreciation 6,000
Expenses 3,200
Interest on Debentures 3,240 12,440
Net Profit 7,560

Particulars Rs Rs.
Share Capital - 40,000
13.5% Debentures - 24,000
-
64,000
Plant and Machinery 60,000
Stock 9,600
Debtors 4,800
Cash 4,000
18,400
Less: Creditors 14,400 4,000
64,000
The following information is relevant:
i) There is no change in debtors and creditors during the year.
ii) Following indices are to be taken
on 1.4.2013 – 200
Average 240
On 31.3.2014 300
iii) First in First out method to be used.
You are required to prepare final accounts for the year 2013-14 after adjusting for price level
changes under CPP Method.
Note:


The Balance sheet of SPVGMC ltd as on 1st April 2013 and the profit and loss account for
the year ended 31st March 2014 were as under:
Particulars Rs Rs.
Sales 13,00,000
Opening Stock 2,00,000
Purchases 8,00,000
10,00,000
Less: Closing Stock 2,00,000 8,00,000
Gross Profit 5,00,000
Depreciation
 Building 30,000
 Furniture 10,000
Expenses 1,00,000
Interest on Debentures 40,000 1,80,000
Net Profit 3,20,000

Particulars Rs Rs.
10% Debentures - 4,00,000
-
9,00,000
Land and Building 3,00,000
Furniture 1,00,000
Stock 2,00,000
Debtors 1,00,000
Cash 3,00,000
6,00,000
Less: Creditors 1,00,000 5,00,000
9,00,000
The following information is relevant:
i) There is no change in debtors and creditors during the year.
ii) Following indices are to be taken
on 1.4.2013 – 200
Average 250
On 31.3.2014 300
iii) First in First out method to be used.
You are required to prepare final accounts for the year 2013-14 after adjusting for price level
changes under CPP Method.
Note :

Problem 42
The following additional information is available:

 On December 31, 2008 the price-level index was 100. The price-level index as on
December 31, 2009 was 180 and the average price index for 2009 had been 120.
 The inventory purchases were made at a date when the price-level index was 150.
 All revenues and costs were incurred evenly throughout the year, with the exception
of the cost of goods sold and the depreciation expense.
 LIFO has been assumed.
 Depreciation for plant and equipment was accumulated by the straight line method
on a five-year life.
Note:

Current cost Accounting Method (CCA Method)
The Current purchasing power accounting method takes care of changes in the value of
Money, but it does not account for changes in the value of individual item. The value of the
items might have increased on the basis of general price index, whereas the actual values of
the items might have decreased. To Remove this drawback, the inflation committee, set up
by the government of U.K under the chairmanship of MR. Francis Sandilands to consider the
problem of price level changes accounting, in its report published in September 1975,
recommended the adoption of current cost accounting method for dealing with the problem
of inflation accounting. This method of inflation accounting is now accepted in the U.K and
U.S.A. The current cost accounting method is also recommended by the Institute of Chartered
Accountants of India.
Features of Current Cost Accounting Method: The Main features of this method are:
1. In this method, Historical values of items are not taken into account. Only the current
values of Individual items are taken as the basis for preparing profit and loss account
and balance sheet.
2. Under this method, Items are not adjusted as a result of the changes in the general
price level as they are adjusted under the current purchasing power method. They are
adjusted at their specific price level. That means, this method takes into account price
changes relevant to the particular firm or industry rather than the economy as a
whole.
3. It seeks to arrive at a profit which can be safely distributed as dividend without

impairing the operational capability of the firm.
4. In addition to adjustments for depreciation and cost of sales, this method deals with
working capital and also loan raised. that means this method deals with operating
profit and capital employed.
5. The current cost accounting method attempts to determine profit or loss by matching
current cost with current revenues.
6. It also attempts to state the assets and liabilities in the balance sheet at their current
values.
7. Under this method fixed assets are to be shown in the balance sheet at their values
to the business and not at their historical costs reduced by depreciation.
8. To ascertain the profit for the year depreciation is calculated on the current values of
the relevant fixed assets.
9. The fixed assets in the balance sheet should be shown at their value to the business.
The value to the business can be define in three ways: i) Net current replacement
value or replacement cost ii) Net realizable value iii) Economic value.
10. Under current cost accounting method, accounting profit’s dividend into three parts,
 Current cost operating profit.

 Realized holding gain.

 Unrealized holding gain.
Advantages of CCA are:

1. This method does an admirable job as for as measurement of real profit by ensuring
the matching of current cost with current revenues.
2. It also partly fulfils the functions of compiling a business firm to accumulate funds,
by way of depreciation provision, at a level higher than under historical accounting
system for replacement of fixed assets.
3. The balance sheet presented under this method is more informative to investors, as it
shows the assets at their value to the business.
4. IT is more rational, as it considers the specific effects of changing prices on individual
enterprises.
5. This can be built into book keeping system, which is not possible under the current
purchasing power accounting system. That means under this system, financial
statements can be prepared under current cost accounting on regular basis.
Disadvantages of current cost accounting method:

1. This method ignores a reality the questions of backlog depreciation
2. Application of current cost accounting will increase the degree of subjectivity
underlying the accounting figures.
3. As experienced staffs are to be appointed for evaluating the fairness and
reasonableness of assumption under lying the current cost accounting valuation,
application of current cost accounting method will increase the cost of conducting
audit.
Following are the steps involved in preparing financial statements under CCA Method
Step 1: Prepare financial statements under historical accounting system.
Step 2: Calculate Cost of sales adjustment (COSA)
Step 3: Calculate MWCA
Step 4: Calculation of Depreciation Adjustment
Step 5: Calculate backlog depreciation
Step 6: Calculation of Revaluation reserve
Step 7: Calculation of gearing adjustment
Step 8: Prepare the income statement under CCA method
Step 6: Prepare current cost balance sheet
Cost of Sales adjusted (COSA)

cost of sales refers to the adjustment made to project the cost of sales at current values. This
is to be made on account of presence of stock in the cost of sales. The cost of sales adjustment

will be deducted from profits before interest and tax and added to current cost accounting
reserve on the liabilities side of the balance sheet.
COSA can be calculated using the following formal.

𝑪 𝑶
COSA = (C – O) – Ia −
𝑰𝒄 𝑰𝑶
Problem 43 (M.Com Bangalore University June 2000)

Calculate COSA from the following data:
Opening stock Rs. 18,000
Closing Stock Rs. 24,000
Index number on 1.1.2003 185.8
Index number on 31.12.2003 203.4
Average index number for the year 193.5
Problem 44 (ICWA Final June 1993)
Particulars Historical Index No.

cost
Opening Stock 50,000 100
Purchases 1,80,000 120(Avg)
2,30,000
Less: Closing Stock 84,000 140
Cost of Sales 1,46,000
Problem 45

Problem
From the historic financial statements given below workout the profit and loss account and
Balance sheet under CCA method.

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Corporate

Corporate Financial Reporting Page 2

S. Darshan M.com, MFA, PGDBL, (CS)

R. Madhankumar M.com, PGDFM, PGDBL, (CS)

Corporate Financial Reporting Page 3

Corporate Financial Reporting Page 4

Module 2: International Financial Reporting Standards (IFRS)

Module 3: Corporate Financial Reporting

Module 4:Accounting and Reporting of Financial Instruments

Module 5: Developments in Financial Reporting

Corporate Financial Reporting Page 5

Corporate Financial Reporting Page 6

Meaning of accounting standards:

Definition of accounting standards:

Objectives of accounting standards:

Types of accounting standards:

Another classification of accounting standards may be based upon their method of

1. If government as a standard setter. It is argued that government should act as

Corporate Financial Reporting Page 8

3. If some agency is involved in standards setting: Both government and private

Difficulties in setting accounting standards

1. Difficulties in Definition: To agree on the scope of accounting and of principles or

3. Conflict in Accounting Theories: There has been remarkable growth in accounting

Absence of a conceptual framework, i.e., a set of interlocking ideas on accountability

Standard setting In India:

1. ICAI: The Institution of Charted accountants of India on April 21,1975 eatablished

Procedure of Issuing AS (India)

Present Standard Setting Process in India:

Corporate Financial Reporting Page 10

AS-1 – Disclosure of Accounting Policies

AS-2 – Valuation of Inventories

AS-3 – Cash Flow Statements

Corporate Financial Reporting Page 11

*(Pursuant to AS 29, Provisions, Contingent Liabilities and Contingent Assets, becoming

AS-6 – Depreciation Accounting

AS-7 – Construction Contracts

AS-8 – Accounting for Research and Development

Corporate Financial Reporting Page 12

AS-9 – Revenue Recognition

AS-10 – Accounting for Fixed Assets

AS-11 – The Effects of Changes in Foreign Exchange Rates

AS-12 – Accounting for Government Grants

AS-13 – Accounting for Investments

AS-14 – Accounting for Amalgamations

AS-15 – Employee Benefits

Corporate Financial Reporting Page 13

AS-16 – Borrowing Cost

AS-17 – Segment Reporting

AS-18 – Related Party Disclosures

Corporate Financial Reporting Page 14

AS-20 – Earnings Per Share

AS-21 – Consolidated Financial Statements

AS-22 – Accounting for Taxes on Income

AS-23 – Accounting for Investments in Associates in Consolidated Financial

AS-24 – Discontinuing Operations

Corporate Financial Reporting Page 15

AS-26 – Intangible Assets

AS- 27 – Financial Reporting of Interests in Joint Ventures

AS-28 – Impairment of Assets

AS-29 – Provisions, Contingent Liabilities and Contingent Assets

AS 30, 31, & 32 – FINANCIAL INSTRUMENTS

Corporate Financial Reporting Page 16

International Accounting Standards Concept: