By Asok Nadhani
Accounting Standards
3.1 Introduction
i
Accounting Standards (AS) are written policy
documents issued by expert accounting body, Government or other regulatory
body, covering the aspects of recognition, measurement, presentation and
disclosure of accounting transactions in the financial statements. The purpose
is to promote the dissemination of timely and useful financial information to
investors and others having an interest in the company’s economic performance.
ii
Accounting Standards bring uniformity in financial
statements, enabling comparability of financial statements of different
enterprises.
iii
Accounting Standards deal with the issue of
-
Recognition of events and transactions in the
financial statements, and their measurement.
-
Presentation of transactions and events in the financial
statements, in a meaningful and understandable manner,
-
Adequately disclose to enable the public at large,
stakeholders and potential investors take prudent and informed business
decisions.
iv
Accounting Standards standardize diverse accounting
policies to:
-
Eliminate or reduce the non-comparability of
financial statements, improving the reliability of financial statements,
-
Provide a set of standard accounting policies,
valuation norms and disclosure requirements.
3.2 Standards Setting Process
i
The ICAI has taken initiatives in setting and the
procedure of Accounting Standards adopting a consultative and transparent
approach. The composition of ASB includes representatives of industries
(namely, ASSOCHAM, CII, and FICCI), regulators, academicians, government
departments etc. Although ASB is a body constituted by the Council of the ICAI,
it (ASB) is independent in the formulation of accounting standards.
ii
The ASB considers the International Accounting Standards
(IASs)/ lnternational Financial Reporting Standards (IFRSs) while framing
Indian Accounting Standards (ASs) and try to integrate them, in the light of
the applicable laws, customs, usages and business environment in the country.
The accounting standard on
the relevant subject is then issued by the ICAI.
3.3 Compliance
of Accounting Standards
For the purpose of the compliance of the Accounting
Standards, all enterprises in India
a) Level I Enterprise
·
Enterprises whose equity or debt securities are
either listed (or in the process to be listed) in India India
·
Banks, Insurance Companies and Financial
Institutions.
·
All commercial, industrial and other reported
business enterprises, whose total turnover during the previous year is in
excess of Rs.50 crores (as per the audited financial statement).
·
All commercial, industrial and other reporting
business enterprises, whose total borrowings including public deposits during
the previous year are in excess of Rs.10 crores.
·
Holding or subsidiary company of any of the above
enterprises any time during the year.
b) Level II Enterprises
·
All commercial, industrial and other reporting
business enterprises, whose total turnover during the previous year exceeds
Rs.40 lakhs but does not exceed Rs.50 crores.
·
All commercial, industrial and other reporting
business enterprises, whose total borrowings including public deposits during
the previous year exceeds Rs.1 crore but does not exceed Rs.10 crores.
·
Holding or subsidiary company of any of the above
enterprises any time during the year.
c)
Level III Enterprise
All the enterprises not
covered in above two levels come under this level.
3.4
Listing of Accounting Standard (AS)
Following is the list of
Accounting Standard with their respective date of applicability along with the
scope.
AS
No AS
1.
Disclosure of accounting Policies (All Level),
w.e.f 1.4.91
2.
Valuation of inventories (All Level) , w.e.f 1.4.99
3.
Cash Flow Statement (Level1), w.e.f 1.4.01
4.
Contingencies and Events Occurring after Balance
Sheet Date, w.e.f 1.4.95
5.
Net Profit or Loss for the Period, Prior Period
Items and Changes in Accounting policies (All level), w.e.f 1.4.96
6.
Depreciation Accounting (All level), w.e.f 1.4.95
7.
Construction Contracts (All level), w.e.f 1.4.03
8.
Research & Development, w.e.f 1.4.03
9.
Revenue Recognition (All level), w.e.f 1.4.91
10.
Accounting for Fixed Assets (All level), w.e.f
1.4.91
11.
The Effects of Changes in Foreign Exchange Rates
(All level), w.e.f 1.4.04
12.
Accounting for Government Grants (All level), w.e.f
1.4.94
13.
Accounting for Investment (All level), w.e.f 1.4.95
14.
Accounting for Amalgamations (All level), w.e.f
1.4.95
15.
Employee Benefits (All level), w.e.f 7.12.06
16.
Borrowing Costs (All level), w.e.f 1.4.2000
17.
Segment Reporting (level I), w.e.f 1.4.01
18.
Related Party Disclosures (level I), w.e.f 1.4.01
19.
Leases (All level), w.e.f. 1.4.01
20.
Earning Per Shares (level I), w.e.f 1.4.01
21.
Consolidated Financial Statement (Enterprises
preparing CFS), w.e.f 1.4.01
22.
Accounting for Taxes on Income (All Enterprises),
w.e.f 1.4.01
23.
Accounting for Investment in Associates in
Consolidated Financial Statement (Enterprises preparing CFS), w.e.f 1.4.02
24.
Discounting Operations (Level I), w.e.f 1.4.04
25.
Interim Financial Statement (Level I), w.e.f 1.4.02
26.
Intangible Assets (All level), w.e.f 1.4.03
27.
Financial Reporting of Interests in Joint Ventures
(Enterprises preparing CFS), w.e.f 1.4.02
28.
Impairment of Assets (Level III), w.e.f 1.4.05
29.
Provisions, Contingent Liabilities and Contingent
Assets (All level), w.e.f 1.4.03
The institute has further
announced the following standards which will be recommendatory for 2 years
effective from 1.4.2009 and mandatory from 1.4.2011.
30.
Financial Instruments: Recognition &
Measurements, w.e.f 1-4-2009
and mandatory1-4-2011.
31.
Financial Instruments: Presentation, w.e.f 1-4-2009 and mandatory1-4-2011.
32.
Financial Instruments:
Disclosures, w.e.f 1-4-2009
and mandatory1-4-2011
3.5
Fundamental Concept on Accounting Standards
3.5.1
AS-1 Disclosure of Accounting Policies:
Applicability:
AS-1
is mandatory w.e.f 1.4.91 for companies governed by the Companies Act, 1956.
Fundamental
Assumption: The three fundamental assumptions are
a.
Going Concern- It means the enterprise which has prolonged operations.
b.
Consistency- Assumed policies are consistent
with each other.
c.
Accrual- Revenue and Cost are
accrual basis.
Three major
considerations for selecting the accounting policies are - Prudence, Substance
over form of and Materiality.
The enterprise
should represent the true and fair view in the financial statements.
Disclosure:
i
Same accounting policies should be adopted for
similar transactions in all accounting periods. A change in accounting policy
must be disclosed.
ii
Any change in the accounting policies which have a
material effect in the current period (or expected to have a material effect in
a later period) should be disclosed.
3.5.2
AS-2 Valuation of Inventories
Applicability: w.e.f 1.4.99
This standard
should be applied to all types of enterprises for accounting in Inventory
except the following:
i)
Work in progress arising under construction contracts.
ii)
Work in progress arising in the ordinary course of
business of service providers.
iii)
Shares, debentures and other financial instruments
held as stock-in-trade.
iv)
Producers’ inventories of livestock, agriculture
and forest products and mineral oils, ores and gases. Such inventories are
excluded from AS 2.
Cost
of inventories: It includes all costs of purchase, cost of conversion and other costs
incurred in bringing the inventories to their present location and condition,
excluding the following:
a
Abnormal wastages of materials, labour, or other
production costs.
b
Storage costs.
c
Administrative overheads.
d
Selling and distribution costs.
Method
of Valuation: There are three methods of Inventory costing: -
(i)
Standard Cost,
(ii)
Retail Method and
(iii)
Net Realizable Value.
Inventories are to be
valued at lower of cost and net realizable value.
Disclosure:
The following must be disclosed:-
i
The accounting polices adopted in measuring
inventories, including the cost formula used.
ii
The total carrying amount of inventories and its
classification appropriate to the enterprise.
iii
Carrying amounts and changes in them during an
accounting period for each class of inventory, e.g. raw materials, components,
work-in-progress, finished stock, stores, spares and loose tools.
3.5.3
AS-3 Cash Flow Statement
Applicability: w.e.f 1.4.01 in respect of the following enterprises:
- Whose equity or debt securities are listed
on recognized stock exchange in India India
- All other commercial, industrial and business
reporting enterprises, whose turnover for the accounting period exceeds Rs.50crores.
Salient Features:
1.
A
cash flow statement should report cash flows during the period classified by
operating, investing and financial activities.
2.
A
cash flow statement may be prepared by using either the direct method or
indirect method.
3.
Cash
flow arising from transactions
in a foreign currency should be recorded in enterprise’s reporting currency by
applying the exchange rate at the date of the cash flow.
4.
Investing
and financing transactions that do not involve use of cash and cash equivalent
balances should be excluded.
5.
Interest and Dividends
received and paid should each be disclosed separately as follows:-.
i.
Financial enterprise should
classify them as Operating Activities.
ii.
Other enterprises should
classify interest paid as Financing
Activities while Interest and Dividends received should be reported as Investing Activities.
iii.
Normally Dividends paid
should be classified as Financing Activities (though some argument that
it may be classified as operating activities to determine the ability of an
enterprise to pay dividends out of. Operating
cash flows) because they are cost of obtaining financial resources.
Disclosure: The following must be disclosed:-
a
The components of cash
and cash equivalents and reconciliation of the amounts in its cash flow
statement with the corresponding items reported in the balance sheet.
b
The cash management policy adopted in determining
the composition of cash and cash equivalents.
c
Cash flows representing
increases in operating capacity to determine the adequacy of the investment, to
maintain its operating capacity.
3.5.4 AS-4 Contingencies and Events Occurring after
Balance Sheet
Applicability: w.e.f 1.4.95
for all enterprise.
Contingencies:
1.
Contingencies is a condition or situation, the
ultimate outcome of which (gain or loss) will be known or determined only on
occurrence (or non-occurrence) of some uncertain future event. The outcome can
be favourable or unfavourable.
2.
Recognition of possible favourable outcomes, called
Contingent Assets, imply anticipation
of gains.
3.
Contingent
loss should be provided for by
a charge in P & L A/c, if it is probable that future events will confirm
that an asset has been impaired or a liability has been incurred as at the
balance sheet date, and a reasonable estimate of the amount of the loss can be
made (otherwise disclosure should be made).
Events occurring after the balance sheet date:
(i) These are significant
events (both favourable and unfavourable) that occur between the balance sheet
date and the date on which the financial statements are approved.
(ii) There are 2
types of events:-
a
Those which provide further evidence of conditions that existed at the balance
sheet date;
b
Those which are indicative of conditions that arose subsequent to the balance
sheet date.
The events occurring after the balance sheets can be reported by
-
making appropriate adjustment in the financial
statements
-
through report of the approving authority, (e.g.
Directors’ Report in case of companies)
Event occurring
after balance sheet date require adjustment in accounts.
Disclosure:
i
Regarding contingencies:
a
The nature of the contingency;
b The
uncertainties which may affect the future outcome;
c
An estimate of the financial effect, or a statement
that such an estimate cannot be made.
ii
Regarding Events occurring after the Balance Sheet
Date:
a
The nature of the event;
b An estimate of
the financial effect (or the reasons if such estimate cannot be made).
3.5.5 AS-5 (Revised) - Net Profit or
Loss for the period, prior Period Item and Changes in Accounting Policies:
Applicability: w.e.f.
01.04. 1996 for all
enterprises.
This Statement should be applied by an enterprise in presenting profit
or loss from ordinary activities, extraordinary items and prior period items in
the statement of profit and loss, in accounting for changes in accounting
estimates, and in disclosure of changes in accounting policies.
Disclosure:
i. Any change in accounting policy, which has
a material effect, should be disclosed.
ii.
The impact of such change, if material should be
shown in the financial statements of the period in which such change is made.
iii.
If change in accounting policy is expected to have
material effect on the financial statements of later period, the fact of such
change should be disclosed.
3.5.6 AS-6 (Revised) - Depreciation Accounting
Applicability:
w.e.f. 01.04.1995 for all
enterprises.
The standard
applies to all depreciable assets, except the following to which special
consideration apply:
a.
forests, plantations and similar regenerative
natural resources
b.
wasting assets including expenditure on the
exploration for and extraction of minerals, oils, natural gas and similar
non-regenerative resources.
c.
expenditure on research and development.
d.
livestock
Land has indefinite life. Hence, the standard does
not apply to land, unless it has a limited useful life.
Salient
Features:
1.
Depreciable
amount of a depreciable asset are allocated on systematic basis to each
accounting year over useful life of asset.
2.
In
case of addition or extension of the existing asset, depreciation to be
provided on adjusted figure prospectively over the residual useful life of the
asset or at the rate applicable to the asset.
Disclosure:
a
The information of,
-
The historical cost (or other amount substituted
for historical cost) of each class of
depreciable assets;
-
Total depreciation for the period for each class of
assets and the related accumulated depreciation.
b
In addition to above,
-
Depreciation methods used;
-
Depreciation rates (or the useful lives of the
assets), if they are different from the principal rates specified in the
statute.
c
Where any depreciable asset is disposed of,
discarded, demolished or destroyed, the net surplus or deficiency, if material,
should be disclosed separately.
3.5.7
AS-7 (Revised) - Construction Contracts
Applicability: w.e.f. 01.04.2003 for all enterprises
It is applicable to Contractors executing:-
a.
Contracts of rendering of services which are
directly related to the construction of assets.
b.
Contract for destruction or restoration of asset
and the restoration of the environment following the demolition of asset.
It is not
applicable for the construction projects undertaken by the enterprise on its
own account.
Contract Revenue:
It means the initial amount of revenue agreed in the contract, including claims
and incentive payments to the extent they are expected to result in revenue.
Recognition
of Contract Revenue:
a Two methods of accounting are generally
followed by the contractors:
i
Percentage of completion method
ii
Completed contract method
b In both the methods, provisions are made
for losses for:-
i
The stage of completion reached on the contract,
ii
Losses on the remainder of the contract.
c For the purpose of accounting, a single Contract
made with several customers may be combined.
Contract Cost: It represents specific
contract costs that can be directly allocated to the contract, and costs
specifically chargeable to the customer under the terms of the contracts.
Cost plus Contract: Cost plus contract, is a contract in which contractor
is reimbursed for specified cost incurred plus percentage of those cost or a
fixed fee.
Disclosure:
-
The amount of contract revenue recognized as
revenue in the period;
-
The methods used to determine the contract revenue recognized in the period;
-
The method used to determine the stage of
completion of contracts in progress.
-
Aggregate amount of costs incurred and recognized
profits (less recognized losses) up to the reporting date
-
Amount of advances received
-
Amount of retentions.
-
Gross amount due from customers for contract work
as an asset
-
Gross amount due to customers for contract work as
a liability.
3.5.8
AS-8 Accounting for Research and Development:
Applicability: w.e.f. 01.04.1991 for all enterprises.
However, the standard was withdrawn with effect from the date on which AS-26
'Intangible Assets' became mandatory i.e. w.e.f. 1.04.2003.
3.5.9
AS-9 - Revenue Recognition
Applicability: w.e.f. 01.04.2001 for all enterprises.
It does not deal with revenue recognition aspects
arising from construction contracts, hire-purchase and lease agreements,
government grants and other similar subsidies and revenue of insurance
companies from insurance contracts.
Salient features:
1.
Revenue is
the gross inflow of cash receivable or other consideration, arising in the
course of the ordinary activities of an enterprise from: sale of goods;
rendering of services; use of resources interest, royalties, and dividends yielding
other enterprises.
2.
Where the ultimate collection is not reasonably
certain at the time of raising any claim, revenue recognition is postponed to
the extent of uncertainty involved.
3.
The enterprise should disclose the circumstances in
which revenue recognition has been postponed.
3.5.10
AS-10 - Accounting for Fixed Assets
Applicability: w.e.f. 01.04.1991 for all enterprises.
1.
The statement deals with
accounting of fixed assets, such as land and buildings, plant and machinery, vehicles, furniture and fittings,
goodwill, patents, trademarks, designs etc.
2.
This statement does not deal with accounting for
the following items, to which special considerations apply:
a.
Forests, plantations and similar regenerative
natural resources.
b.
Wasting assets including mineral rights,
expenditure on the exploration for and extraction of minerals, oil, natural gas
and similar non-regenerative resources.
c.
Expenditure on real estate development.
d.
Livestock.
Salient features:
1.
Fixed Asset is an asset held for the purpose of
producing or providing goods or services, and is not held for sale in the
normal course of business.
2.
Cost
to include purchase price and attributable costs of bringing asset to its
working condition.
Disclosure:
The following
disclosures should be made:
i. Gross and net
book values of fixed assets at the beginning and end of an accounting period
showing additions, disposals, acquisitions and other movements.
ii.
Expenditure incurred on account of fixed assets in
the course of construction or acquisition.
iii.
Where revalued amounts are substituted for
historical costs of fixed assets, the method adopted to compute the revalued
amounts, the nature of indices used, if any, the year of any appraisal made.
3.5.11 AS-11(Revised) - Accounting for the
effect of changes in Foreign Exchange Rates Applicability:
w.e.f. 01.04.1995 for all enterprises.
To be applied in accounting
for transactions in foreign currencies, translating the financial statements of
foreign operations and accounting for foreign currency transactions in the
nature of forward exchange contracts.
Disclosure:
a
Exchange Difference
:
i
The amount of exchange differences included in the
net profit or loss for the period.
ii
Net exchange differences accumulated in foreign
currency translation reserve as a separate component of shareholders’ funds,
and a reconciliation of the amount of such exchange differences at the
beginning and end of the period.
b
Currency Difference: The reason for
any change in the reporting currency should also be disclosed.
c
Change in
Classification : When there is a change in the classification of a significant foreign
operation, an enterprise should disclose:
i
The nature of the change in classification
ii
The reason for the change
iii
The impact of the change in classification on
shareholder’ funds; and
iv
The impact on net profit or loss for each prior
period presented.
3.5.12
AS-12 - Accounting for Government Grants
Applicability:
w.e.f 1.04.1994 for all enterprises.
1
This statement deals with accounting for government
grants (like subsidies, cash incentives, duty drawbacks, etc.)
2
This statement does not deal with matters in
respect of:
a.
Government assistance other than in the form of
government grants.
b.
Government participation in the ownership of the
enterprise.
Disclosure:
The following disclosures
are:
i
The accounting policy adopted for government
grants, including the methods of presentation in the financial statements;
ii
The nature and extent of government grants
recognized in the financial statements, including grants of non-monetary assets
given at a concessional rate or free of cost.
3.5.13
AS-13 Accounting for Investments
Applicability: AS-13 is mandatory w.e.f. 01.04.1995 for
all enterprises.
Accounting Treatment:
i
Carrying amount for current investments is the
lower of cost and fair value. Valuation of current investments on overall basis
is not considered appropriate.
ii
Long-term investments are usually carried at cost.
iii
On disposal of an investment, the difference
between the carrying amount and the disposal proceeds is recognised in the
profit and loss statement.
iv
If an investment is acquired by issue of
shares/securities or in exchange of an asset, the cost of the investment is the fair value of the
securities issued or the assets given up.
Valuation
Methods of Investments: Fair value is the exchange price between buyer and
seller. Market value is the amount obtainable from the sale of an investment in
an open market.
Disclosure:
a.
The accounting policies for the determination of
carrying amount of investments.
b.
The amounts included in profit and loss statement
for:
i
Interest, dividends (showing separately dividends
from subsidiary companies), and rentals on investments showing separately such
income from long term and current investments.
ii
Profit and Losses on disposal of current investment
as well as long term investment, and changes in the carrying amount of the
respective investment should be disclosed.
3.5.14
AS-14 - Accounting for Amalgamations:
Applicability: w.e.f. 01.04.1995 for all enterprises.
This statement
deals with accounting for amalgamation and the treatment or any resultant
goodwill or reserves. This statement is directed principally to companies,
This statement
does not deal with cases of acquisitions. In acquisition, the acquired company
till continues to exist. It deals only with the accounting in the books of
Transferee (purchasing) company, but does not deal with the accounting in the
books of Transferor (vendor).
Accounting
Methods:
i)
Depending on the nature of amalgamation, AS- 14
prescribes two different methods of accounting:
a) Pooling of Interest Method: For amalgamations
in the nature of merger.
b) Purchase Method: for amalgamation in the
nature of purchase.
ii)
Under
the Pooling of the Interest Method, Assets, Liabilities and Reserves of the
transfer company are recorded at existing carrying amount, and in the same form,
as it was appearing in the books of the transferor.
iii)
Difference
in the value of capital issued by Transferee Company, against the value of the
shares of Transferor Company, is adjusted in Reserves.
iv)
Under
Purchase Method, all assets and liabilities of the transferor company be
recorded at existing carrying amount (or consideration be allocated to
individual identifiable assets and liabilities on basis of fair values at the
date of amalgamation). The reserves of the transferor Company will not exist.
The excess or shortfall of consideration over value of net assets is recognized
as goodwill or capital reserve.
Disclosure:
The following disclosures should be made:
i.
Names
and nature of the amalgamating companies, effective date of amalgamation,
method of accounting scheme, difference between the purchase consideration and
value of asset acquired etc.
ii.
In
case of Polling of Interest Method, number of share issued, difference between
the consideration and value of identifiable asset acquired and the treatment
thereof should be disclosed.
iii.
In
case of Purchase Method, consideration for amalgamation, difference between the
consideration and value of identifiable asset acquired and the treatment
thereof, amortization of goodwill should be disclosed.
3.5.15
AS - 15 (Revised 2005) - Employee Benefits
Applicability: w.e.f. 01.04.1995 for all enterprises and
was revised in 2005.
i)
It
is applicable on all employees (whether full time, part time, permanent, casual
or temporary). It also covers whole-time directors and other management
personnel.
ii)
It
is not applicable to employee share based payments such as ESOP, ESPS etc.
iii)
It
covers:
·
Short-term benefits: Salary, paid leave, bonus, non-monetary
benefits etc. falling due within 12 months.
·
Post-employment benefits: Gratuity, pension, post employments, life insurance,
medical care etc.
·
Other long-term benefits: Long-service leave, sabbatical leave,
Jubilee awards, etc.
Disclosure:
i.
Defined Contribution Plan: Amount recognised as expense.
ii.
Defined Benefit Plans: General description of type of plan.
iii.
Other
disclosures that may be required by AS-18 and AS-29.
3.5.16 AS-16 Borrowing Costs
Applicability: w.e.f. 01.04.2000 for all enterprises.
This Standard should be applied to Accounting for Borrowing Costs.
However it does not deal with cost of owners' equity, including preference
share capital not classified as a liability.
Accounting
Treatment
i. Borrowing costs
are capitalized as part of the cost of a qualifying
asset (an asset that takes substantial time to get ready), when future
economic benefits will result and the costs can be measured reliably. Other
borrowing costs are recognised as an expense in the period in which they are
incurred.
ii. Income on the temporary investment of the
borrowed funds be deducted from borrowing costs.
Disclosure
The financial statements
should disclose:
-
The accounting policy adopted for borrowing costs;
-
The amount of borrowing costs capitalized during
the period.
3.5.17
AS-17 Segment Reporting
Applicability: w.e.f. 01.04.2001 in respect of the
following enterprises:
-
Enterprises
whose equity or debt securities are listed on a recognised stock exchange in India
-
Enterprises
that are in the process of issuing equity or debt securities that will be
listed on a recognised stock exchange in India
-
All other commercial, industrial and business
reporting enterprises, whose turnover for the accounting period exceeds Rs.50 crore.
Segments:
There are two
types of segments
1.
Business
Segment- Segment made on
basis of products or service and are exposed to different risks and returns.
2.
Geographical
segment- Segment is made
on basis of its operation in different geographical areas and is exposed to
different risks and returns.
3.
Segment
Revenue- The aggregate of
the portion of ‘Enterprise Revenue’ directly attributable to a segment on a
reasonable basis.
4.
Enterprise
5.
Segment
Assets- Employed by a
segment in its operating activities or directly attributable to a segment. Ex.-Current
assets, Tangible and Intangible Fixed Assets.
6.
Segment
Liabilities- Operating
liabilities or directly attributable to a segment. Trade and other liabilities,
customers advance etc.
7.
Segment
Result- segment revenue –
segment expenses.
Disclosure The following are to be disclosed.
Revenue
from external customers as well as transactions with other segments, segment
results, acquisition cost of assets, carrying amount of assets, segment
liabilities, depreciation and amortization expenses, reconciliation cost, etc.
3.5.18 AS-18 Related Party Disclosures
Applicability:
w.e.f. 1.04.2000 in
respect of:
-
Enterprises
whose equity or debt securities are listed in recognized stock exchange
/Enterprise that are in the process of issuing equity or debt securities to be
listed in a recognised stock exchange in India.
-
All
other commercial, industrial and business reporting enterprises, whose turnover
for the accounting period exceeds Rs.50 crore.
-
Related
party follows:
(i)
Enterprises
that directly or indirectly control or are controlled by or are under common
control with the reporting enterprise,
(ii)
Associates,
Joint Ventures of the reporting entity; Investing party or venture in respect
of which reporting enterprise is an associate or a joint venture,
(iii)
Individuals
who own voting power exercising control or significant influence,
(iv)
Key
management personnel and their relatives, or who are able to exercise
significant influence.
Disclosures: Following to be disclosed:
-
Related
party relationship/transactions between reporting enterprise and related
parties.
-
Transactions
include purchase or sale of goods as well as fixed assets, rendering or receiving
services, leasing or hire purchase agreement ,finance, guarantees and
collaterals.
3.5.19 AS-19 Leases
Applicability: w.e.f. 01.04.2001 for all enterprises.
The standard applies to all leases except:
a.
Lease agreements to explore for or use of natural
resources, (like oil, gas, timber metals and other mineral rights).
b.
Licensing agreements for items such as motion
picture films, video recordings, plays, manuscripts, patents and copyrights.
c.
Lease agreements to use lands.
Salient
features
i)
For accounting purposes, leases are classified as
Financing lease, and Operating lease.
ii)
A finance
lease is one where risks and rewards incident to the ownership are transferred substantially; otherwise it is an operating
lease.
iii)
Accounting Treatment:
a) Financing lease:
i.
Treatment in the financial statements of Lessee: The fair value of the asset or the
present value of lease payments whichever is less should be recognised as an
asset with a corresponding liability.
ii.
Treatment in the financial
statements of the Lessor:
a.
The lessor shall recognize the asset at the net
lease payments receivable amount.
b.
The lessor shall determine the finance income to
reflect the constant periodic rate of return on the net investment outstanding
in respect of finance lease and shall recognize the income statement.
b)
Operating Leases:
i. Treatment in
the financial statements of Lessee: Lease payments
under an operating lease should be recognized as an expense.
ii. Treatment in Financial statement of Lessor: The lessor shall recognize
the lease payments in the income statements and shall continue to treat the
leased asset as a fixed asset.
Disclosures:
a)
For Finance
Lease
i)
By Lessee:
- Assets
acquired under finance lease as segregated from the assets owned
-The net
carrying amount at the balance sheet date for each class of assets
-Contingent
rents recognized as expense in the statement of profit and loss for the period.
ii) By Lessor:
- Unearned
finance income
- The
unguaranteed residual values accruing to the benefit of the lessor;
- The
accumulated provision for uncollectible
minimum lease payments receivable
- Contingent
rents recognised in the statement of profit
and loss for the period;
b) For Operating Lease
i)
By Lessee:
- Lease payments
recognised in the statement of profit and loss for the period, with separate
amounts for minimum lease payments and contingent rents;
- Sub-lease
payments received (or receivable) recognised in the statement of profit and
loss for the period
- The total of future minimum sublease payments expected to be received
under non- cancelable subleases at the balance sheet date etc.
ii)
By Lessor:
For each class of assets:
- the gross
carrying amount,
- the accumulated
depreciation and accumulated impairment losses at the balance sheet date;
- the depreciation
recognised, impairment losses recognized and impairment losses reversed in the
statement of profit and loss for the period.
- Total contingent
rents recognised as income in the statement of profit and loss for the period.
3.5.20
AS-20 Earnings Per Share
Applicability: w.e.f. 1.4.2001 in respect of the
following enterprises:
(i)
Enterprises
whose equity shares or potential equity shares are listed on a recognised stock
exchange in India
(ii)
Enterprise
(iii)
In case of a parent (holding co.), presentation of earnings per share
(EPS) information on the basis of
consolidated financial statements as well as individual financial statements of
the parent.
Salient
features:
i) An enterprise should present basic and diluted earnings per share-
ii)
Basic earnings per share
should be calculated by dividing the net profit or loss (after deducting preference dividends and any attributable tax thereto
for the period) for the period attributable to equity
shareholders by the weighted average number of equity shares outstanding during
the period.
Disclosure:
For calculating
basis and diluted EPS, the following should be disclosed:
- the amount used as numerators
- the weighted average number of equity
shares used as denominator and reconciliation of these denominators to each
other.
- The nominal value of shares.
3.5.21 AS-21 Consolidated
Financial Statements
Applicability: w.e.f. 1.04.2001.
It is not mandatory for an enterprise to
present consolidated financial statements. But, if the enterprise prepares consolidated
financial statements, such statements should be drawn in accordance with AS-21.
Salient
features:
i)
To
be applied in the preparation and presentation of consolidated financial
statements (CFS) for group of enterprises under the control of a parent.
ii)Consolidated financial statements to be
presented in addition to separate financial statements.
iii) All subsidiaries, domestic and foreign to
be consolidated.
iv)
Consolidated
balance sheet, Consolidated P & L, notes and other statements are included
in CFS, necessary for presenting a true and fair view.
Disclosure:
a.
In
CFS, a list of all subsidiaries including the name, country of incorporation,
proportion of ownership interest, proportion of voting power held should be
disclosed.
b.
The
following should be disclosed, where applicable:
i.
The
nature of relationship between the parent and subsidiary.
ii.
The
effect of the acquisition and disposal of subsidiaries on the financial position
at the reporting date.
iii.
The
names of the subsidiaries of which reporting date is different from that of the
parent.
3.5.22 AS-22 Accounting for Taxes on Income
Applicability: w:e.f. 1-4-2001
in respect of the following :
i.
Enterprises
whose equity or debt securities are listed (to be listed) in a recognised stock
exchange in India
ii.
If
the parent presents CFS and the Accounting Standard is mandatory in respect of
any enterprises of that group.
Salient
features:
1.
Taxable
income and accounting income should be clearly distinguished.
2.
Deferred
tax should be recognized .
3.
Current
tax should be measured at the amount expected to be paid using the applicable
tax rates.
4.
Deferred
tax assets and liabilities should be measured using the tax rates and tax laws.
5.
The
tax rates and tax laws enacted by the B/S date, and not to be discounted to
their present value.
Disclosure:
i.
Differed
tax assets and liabilities should be disclosed under a separate head in the
balance sheet.
ii.
The
break up of deferred tax assets and deferred tax liabilities into major
components of the respective balances should be disclosed.
3.5.23 AS-23 Accounting for Investments in
Associates in Consolidated Financial Statements
Applicability: w.e. f. 1.4.2002
AS-23 is
mandatory if an enterprise presents consolidated financial statement.
Disclosure:
-
An
appropriate listing and description of associates, proportion of ownership
interest, and proportion of voting power held should be disclosed.
-
The
names of the associates, of which reporting dates are different from that of
the financial statement of an investor and the differences in reporting dates
should be disclosed in the CFS.
3.5.24
AS-24 Discontinuing Operations
Applicability: w.e. f. 1. 4.2004.
-
This
standard is applicable for all discounting operations.
-
It is
necessary to segregate information about discontinuing operations from
continuing one and establishes principles for reporting information about
discontinuing operations.
Disclosure:
Disclosure is required for changes in any
significant activities or event, or any significant changes in the cash flow,
relating to disposal or settlement.
3.5.25
AS-25 Interim Financial Reporting
Applicability: w.e.f. 1. 4. 2002
If an enterprise prepares interim financial
report, it should comply with this Accounting Standard.
Disclosure:
Promoters’
and non promoters’ shareholding details, dividend paid or recommended, any
audit qualifications in the audited accounts of a period should be disclosed.
3.5.26 AS-26 Intangible Assets
Applicability: w.e.f.1-4-2003.
AS 26 applies to following types of enterprises:
i
Enterprises whose equity or
debt securities are listed (or are in the process of being listed) on a recognized
stock exchange in India
ii.
All
other commercial, industrial and business enterprises, whose turnover for the
Accounting period exceeds Rs.50crores.
Salient
features
i) An intangible asset is an identifiable non
monetary asset, without physical substance. It must have the characteristics of
an asset (i.e. future economic benefits and reliably measured).
ii) As per the standard, the intangible asset
initially shown at cost.
iii) An intangible asset to be recognized only
if future economic benefits will flow and the cost of the asset can be measured
reliably.
Disclosure: The following should be
disclosed:
-
Useful
life or amortization rate, amortization method, gross carrying amount,
accumulated amortization and impairment loss at the beginning,
-
Reconciliation
of carrying amount at the beginning and at the end of the period.
3.5.27
AS-27 Financial Reporting of Interests in Joint Ventures
Applicability:
w.e.f. 1-4-2002 for the enterprises those prepare and
present the consolidated financial statements in respect of accounting periods
commencing on or after 1-4-2002 .
Salient
features:
i)
A
joint venture is a contractual arrangement whereby two or more parties in collaboration
perform an economic an activity, which is subject to joint control.
ii)
Joint
control is the contractually agreed sharing of control over an economic
activity.
Disclosure:
(a)
A
venturer should disclose a list ventures and description of interests in
significant joint ventures.
(b)
In
respect of jointly controlled entitles, the venturer should disclose the
proportion of ownership interest, name and country of incorporation or
residence.
(c)
A
venturer should disclose, the aggregate amounts of each of the assets,
liabilities, income and expenses related to its interests in the jointly
controlled entities.
3.5.28
AS-28 Impairment of Assets
As 28
deals with impairment losses. Assets should not be carried at an amount higher
than the recoverable amount because of impairment.
Recoverable
Amount: it is the higher of an asset’s net selling price and its
present value.
Impairment
Loss: it is the amount by which the carrying amount of an asset
exceeds its recoverable amount.
Carrying
Amount: it is the amount at which an asset is recognized in the
balance sheet after deducting any accumulated depreciation and accumulated
impairment losses thereon.
Applicability:
w.e.f. 1-4-2005
i)
Enterprises
whose equity or debt securities are listed on a recognized stock exchange in India
ii)
Enterprises
that are in the process of issuing equity or debt securities that will be
listed or a recognized stock exchange in India
iii)
All
other commercial, industries and business reporting enterprises, whose turnover
for the accounting period exceed Rs.50crore.
iv)
Applied
in accounting for the impairment of all assets, other than inventories (AS-2), assets
arising from construction controls (AS-7), and financial assets, including
investments (AS-13), and deferred tax assets (A.S-22).
Disclosure:
(a) The amount of impairment losses recognized in the
statement of profit and loss during the period and the line item(s) of the
statement of profit and loss in which those impairment losses are included.
(b) The amount of reversals of impairment losses
recognized in the statement of profit and loss during the period.
(c) The amount of impairment losses
recognized directly against revaluation surplus during the period.
(d) The amount of reversals of impairment
losses recognized directly in revaluation surplus during the period.
3.5.29 AS- 29 Provisions, Contingent Liabilities and Contingent
Assets
Applicability:
w.e.f. 1-4-2004 .
This Statement should be
applied in accounting for provisions and contingent liabilities and in dealing
with contingent assets.
Salient
features:
1.
Provision
is a liability, which can be measured only by using a substantial degree of estimation
and arise from past events existing independently of an enterprise's future
actions (i.e. the future conduct of its business)
2.
A Contingent Liability
is
a
A possible
obligation that arises from past events, 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 recognized 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.
3.
Contingent
asset is possible asset that arises from past events, 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.
Disclosure:
i. For each class
of provision, an enterprise should disclose:
a
The carrying amount at the beginning and end of the
period;
b
Additional provisions made in the period, including
increases to existing provisions;
c
Amounts used (i.e. incurred and charged against the
provision) during the period.
d
Unused amounts reversed during the period.
ii.
Unless the possibility of any outflow in settlement
is remote, an enterprise should disclose a brief description for each class of
contingent liability at the balance sheet date, including the following, where
practicable: (Para 68 )
a
An estimate of its financial effect,
b
An indication of the uncertainties relating to any
outflow;
c
The possibility of any reimbursement.
3.5.30 AS 30 Financial
Instruments: Recognition and Measurement
Applicability : AS 30 comes
into effect from 1-4-2009 and initially remains for two years, and become
mandatory from 1-4-2011 for all commercial, industrial and business entities
except to a Small and Medium-sized Entity, as defined below:
i)
Whose equity or debt securities are not listed or
are not in the process of listing on any stock exchange.
ii)
Which is not a bank (including co-operative bank),
financial institution or any entity carrying on insurance business;
iii)
Whose turnover (excluding other income) does not
exceed rupees fifty crore in the immediately preceding accounting year;
iv)
Which does not have borrowings (including public
deposits) in excess of rupees ten crore at any time during the immediately
preceding accounting year;
v)
Which is not a holding or subsidiary entity of an
entity, which is not a small and medium-sized entity
From the date of this Standard becoming mandatory for the concerned
entities, AS 4, AS 11 & AS 13 stands withdrawn.
Objective: The objective
of this Standard is to establish principles for recognising and measuring
financial assets, financial liabilities and some contracts to buy or sell
non-financial items.
Requirements for presenting information are stated in AS 31, Financial
Instruments: Presentation.
Requirements for disclosing information are stated in AS 32, Financial
Instruments: Disclosures5
3.5.31 AS 31: Financial
Instruments: Presentation
Applicability: Accounting
Standard (AS) 31, Financial Instruments: Presentation, comes into effect
from 1-4-2009 and
initially remains recommendatory for two years and becomes mandatory from
i.
Whose equity or debt securities are not listed or
are not in the process of listing on any stock exchange,
ii.
Which is not a bank (including co-operative bank),
financial institution or any entity carrying on insurance business;
iii.
Whose turnover (excluding other income) does not
exceed rupees fifty crore in the immediately preceding accounting year;
iv.
Which does not have borrowings (including public
deposits) in excess of rupees ten crore at any time during the immediately
preceding accounting year;
v.
Which is not a holding or subsidiary entity of an
entity which is not a small and medium-sized entity
Objective: The objective
of this Standard is to establish principles for presenting financial instruments
as liabilities or equity and for offsetting financial assets and financial
liabilities. It applies to the classification of financial instruments, from
the perspective of the issuer, into financial assets, financial liabilities and
equity instruments; the classification of related interest, dividends, losses
and gains; and the circumstances in which financial assets and financial liabilities
should be offset.
Principles: The principles
in this Standard complement the principles for recognising and measuring
financial assets and financial liabilities in AS 30, and for disclosing
information about them in AS 32.
3.5.32 AS 32 : Financial
Instruments: Disclosures
Applicability: AS 32 comes into effect in respect of accounting
periods commencing on or after 1-4-2009 and
initially remains recommendatory for two years and becomes mandatory
from 1-4-2011 for all commercial, industrial and business entities, except to a
Small and Medium-sized Entity, as defined below:
i.
Whose equity or debt securities are not listed or
are not in the process of listing on any stock exchange,
ii.
Which is not a bank (including a co-operative
bank), financial institution or any entity carrying on insurance business;
iii.
Whose turnover (excluding other income) does not
exceed rupees fifty crore in the immediately preceding accounting year;
iv.
Which does not have borrowings (including public
deposits) in excess of rupees ten crore at any time during the immediately
preceding accounting year;
v.
Which is not a holding or subsidiary entity of an
entity which is not a small and medium-sized entity
Objective: The objective of this
Standard is to require entities to provide disclosures in their financial
statements that enable users to evaluate:
a)
The significance of financial instruments for the
entity’s financial position and performance.
b)
The nature and extent of risks arising from
financial instruments to which the entity is exposed during the period and at
the reporting date, and how the entity manages those risks.
