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ACCOUNTING STANDARDS

AS 4 to AS
7

Nidhiya Maria Thomas


19CM101030
AS 4 : Events occurring after
Balance Sheet Date
 Definition:
Events after reporting period are
those events, favourable and
unfavourable, that occur between the
balance sheet date and the date
when the financial statements are
authorized to issue.
 There are two kinds of events:

Adjusting Events

Non – Adjusting Events


Accounting Treatment:
 Adjusting events:
Adjusting events affect the amounts in the
financial statements so they must be adjusted.

 Non- Adjusting Events:


Non adjusting events do not concern the
position as at the reporting date so the
financial statements are not adjusted. If
material, nature and its financial effect must be
disclosed.
AS 5: Net Profit or loss for the Period,
Prior Period Items and Changes in
Accounting Policies

 Net profit or loss for the period:


Two broad categories of net P/L for the period
are:
 P/L from ordinary activities.
 P/L from extraordinary activities.

 Accounting Treatment:
Should be disclosed separately in financial
statements as a separate head.
 Prior Period Items:
While preparing the financial statements, there
are certain items which actually correspond to
prior accounting periods. The income or losses
due to these items are a result of error or
omission in the financial statement of the prior
period.

 Accounting Treatment:
The current period’s financial statements
should clearly show the effect of such prior period
items.
 Changes In Accounting Estimates:
There are certain estimate which are used
while preparing the financial statements for any
period. At times these estimates are required to
be revised.

 Accounting Treatment:
Changes in the accounting estimates are
recognised in the financial statements in the
same period as the change.
 Changes in Accounting Policies:
A change in accounting policy should be undertaken
only in two cases:

 If the change is required by the law or the


accounting standard; or
 If the change helps in the better presentation of the
financial statements.

 Accounting Treatment:
Any change in the accounting policy which has a
material effect has to be disclosed. The impact of
such change should also be shown in financial
statements.
AS 7: Construction
Contracts
 Definition:
A construction contract is a contract
which is entered in specifically for
construction of an asset or combination of
assets that are closely inter linked.

AS 7 describes the accounting treatment


in respect of the revenue and cost in
relation to a construction contract.
 Types of Contracts:

Fixed Price Contract – A contract in which


contractor agrees to a fixed contract price.
Cost-Plus Contract – A contract in which
contractor is reimbursed for cost incurred plus a
percentage of these cost of a fixed fee.

 Accounting Treatment:
When the outcome of a construction contract can be
estimated reliably, contract revenue and contract cost
should be recognised as revenue and expense by
reference to the stage of construction.
 When the outcome of a construction contract
cannot be estimated reliably,
 Revenue should be recognised only to the
extend of contact cost incurred of which
recovery is possible
 Contract cost should be recognised as an
expense in the period in which they are
incurred.
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