As (Recovered)

8/18/2019 As (Recovered)

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RESEARCH METHOD USED

Research is a systematic purposive investigation looking for the facts through verifiable methods

in order to establish a relationship between them and to conclude from them broad principles or

laws. There are various types of research based on the intent:

1. Pure and Applied Research

2. !ploratory Research

". #escriptive Research

$. #iagnostic %tudy

&. valuation %tudies

'. Action Research

This pro(ect report is based on !ploratory Research) that is) * have conducted a preliminary

study of an unfamiliar problem. * have done it to generate new ideas or increase my familiarity

with the problem. +enerally the methods used are literature survey) e!perience survey) case

studies etc.

Data Collection Method

There are two categories of data collection methods: Primary and %econdary. * have used both

sources of data. The sources include websites) te!t book and reference books. #etails of these

sources are available in ,ibliography and -ebliography.

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AS-16 BORROWING COST

Obecti!e"

The ob(ective of this %tandard is to prescribe the accounting treatment for borrowing costs.

Sco#e

1. This %tandard should be applied in accounting for borrowing costs.

2. This %tandard does not deal with the actual or imputed cost of owners e/uity) including

preference share capital not classified as a liability..

De$inition%

The following terms are used in this %tandard with the meanings specified:

1 ,orrowing costs are interest and other costs incurred by an enterprise in connection with the

borrowing of funds.

2 A /ualifying asset is an asset that necessarily takes a substantial period of time to get ready for

its intended use or sale. 0onditions of A% 1'

,orrowing costs may include:

a3 *nterest and commitment charges on bank borrowings and other short4term and long4term

borrowings5

b3 Amorti6ation of discounts or premiums relating to borrowings5

c3 Amorti6ation of ancillary costs incurred in connection with the arrangement of borrowings5

d3 7inance charges in respect of assets ac/uired under finance leases or under other similar

arrangements5 and

e3 !change differences arising from foreign currency borrowings to the e!tent that they are

regarded as an ad(ustment to interest costs.

!cess of the 0arrying Amount of the 8ualifying Asset over Recoverable Amount

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-hen the carrying amount or the e!pected ultimate cost of the /ualifying asset e!ceeds its

recoverable amount or net reali6able value) the carrying amount is written down or written off in

accordance with the re/uirements of other Accounting %tandards. *n certain circumstances) the

amount of the write4down or write4off is written back in accordance with those other Accounting

%tandards.

0ommencement of 0apitali6ation

The capitali6ation of borrowing costs as part of the cost of a /ualifying asset should commence

when all the following conditions are satisfied:

a3 !penditure for the ac/uisition) construction or production of /ualifying asset is being

incurred5

b3 ,orrowing costs are being incurred5 and

c3 activities that are necessary to prepare the asset for its intended use or sale are in progress.

!penditure on a /ualifying asset includes only such e!penditure that has resulted in payments

of cash) transfers of other assets or the assumption of interest4bearing liabilities. !penditure is

reduced by any progress payments received and grants received in connection with the asset see

Accounting %tandard 12) Accounting for +overnment +rants3. The average carrying amount of

the asset during a period) including borrowing costs previously capitali6ed) is normally a

reasonable appro!imation of the e!penditure to which the capitali6ation rate is applied in that

period.

*llustration

9ote: This illustration does not form part of the Accounting %tandard. *ts purpose is to assist in

clarifying the meaning of paragraph $e3 of the %tandard.

7acts:

;< =td. has taken a loan of >%# 1?)??? on April 1) 2?") for a specific pro(ect at an interest

rate of &@ p.a.) payable annually. n April 1) 2?") the e!change rate between the currencies

was Rs. $& per >%#. The e!change rate) as at Barch "1) 2?$) is Rs. $C per >%#. The

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corresponding amount could have been borrowed by ;< =td. in local currency at an interest

rate of 11 per cent annum as on April 1) 2?".

The following computation would be made to determine the amount of borrowing costs for the

purposes of paragraph $e3 of A% 1':

i3 *nterest for the period D >%# 1?)??? E &@ E Rs. $CF>%# DRs. 2$)???.

ii3 *ncrease in the liability towards the principal amount D >%#1?)??? E $C$&3 D Rs. "?)???.

iii3 *nterest that would have resulted if the loan was taken in *ndian currency D >%# 1?)??? E

$& E 11@ D Rs. $G)&??.

iv3 #ifference between interest on local currency borrowing and foreign currency borrowing D

Rs. $G)&?? Rs. 2$)??? D Rs.2&)&??.

Therefore) out of Rs. "?)??? increase in the liability towards principal amount) only Rs. 2&)&??

will be considered as the borrowing cost. Thus) total borrowing cost would be Rs. $G)&?? being

the aggregate of interest of Rs. 2$)??? on foreign currency borrowings Hcovered by paragraph

$a3 of A% 1'I plus the e!change difference to the e!tent of difference between interest on local

currency borrowing and interest on foreign currency borrowing of Rs. 2&)&??. Thus) Rs. $G)&??

would be considered as the borrowing cost to be accounted for as per A% 1' and the remainings.

$)&?? would be considered as the e!change difference to be accounted for as per Accounting

%tandard A%3 11) The ffects of 0hanges in 7oreign !change Rates.

*n the above e!ample) if the interest rate on local currency borrowings is assumed to be 1"@

instead of 11@) the entire e!change difference of Rs."?)??? would be considered as borrowing

costs) since in that case the difference between the interest on local currency borrowings and

foreign currency borrowings Hi.e. Rs. "$)&?? Rs. &C)&?? Rs. 2$)???3I is more than the

e!change difference of Rs. "?)???. Therefore) in such a case) the total borrowing cost would be

Rs. &$)??? Rs. 2$)??? J Rs. "?)???3 which would be accounted for under A% 1' and there

would be no e!change difference to be accounted for under A% 11) The ffects of 0hanges in

7oreign !change Rates.

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AS-1& SEGMENT RE'ORTING

Accounting %tandard A%3 1K) L%egment Reporting) issued by the 0ouncil of the *nstitute of

0hartered Accountants of *ndia) comes into effect in respect of accounting periods commencing

on or after 1.$.2??1.

,usiness segment

M 9ormally referred to as %,>s %trategic business units3

M #istinguishable component of enterprise that is engaged in providing individual product or

service or group of related products and services sub(ect to risks and returns that are different

from other business segments.

+eographical segment

M A distinguishable component of an enterprise engaged in providing products or services within

a particular environment sub(ect to risks and returns different from those components operating

in other economic environments.

M 7actors to consider:

%imilarity of economic and political conditions

Relationship between operations in different geographical regions

Pro!imity of operations

%pecial risks associated with operations in a particular area

!change control regulations and

The underlying currency risks

M +eographical location is one where:

=ocation of production or service facilities and other assets

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=ocation of its markets and customers

M +rouping of countries could be continent wise

M 9o splitting of *ndia into further segments normally re/uired unless there are specific risks

applicable to a region which are significant.

Risk and reward

M Nigher the risk) higher the rewards and losses and vice versa

M -hat one should look for is Lsignificantly different risks and rewards

M *f ma(ority of following are common it would be same segment:

9ature of product or service

9ature of production process

Type and class of customers

Bethods of distribution

9ature of regulatory environment

Primary and secondary segments

M Primary high intensity of disclosures

M %econdary4 low intensity of disclosures

M *f risks and rewards are primarily affected by differences in products or services) primary

segment should be business

M *f risks and rewards are primarily affected by the operations in different countries) then primary

segment should be geographical

M %egments reportable in standalone financial statements may not be reportable in 07%.

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#etermination of primary segment

M *nternal organi6ation and management structure of an enterprise and system of financial

reporting to board should normally the basis of identifying the primary segment e!cept when:

*f risks and returns are affected by both business and geography and matri! approach is

followed) then primary segment is business and secondary) geography

*f in organi6ation and reporting neither business nor geography is followed) directors should

take the decision

M -ith globali6ation risks are mainly seen as coming mainly from business rather than location5

in most cases business will be primary segment.

%eparate segments

M Reportable segment if

%ales 1?@ or more of total revenue

Profit or loss is 1?@ or more

M Of combined result of all segments in profit or

M Combined result of all segments in loss, whichever is greater in absolute amounts

Assets are 1?@ or more of total assets

M *f e!ternal revenue applicable to reportable segments constitutes less than K&@ of the total

enterprise revenue) additional segments to be identified even if less than 1?@3 till

K&@ is reached.

%egment e!penses

M !cludes

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!tra ordinary items

*nterest

M Finance charge part of finance lease rental to be also excluded

M Interest included in inventories under AS 16 to be included being part of operating expense

=oss on sale of investments and on e!tinguishment of debt

*ncome ta!

+eneral Admin e!penses) N e!penses and other enterprise level e!penses.

*llustration

This illustration does not form part of the Accounting %tandard. *ts purpose is to illustrate the

application of the Accounting %tandard.

An enterprise operates through eight segments) namely) A) ,) 0) #) ) 7) + and N. The relevant

information about these segments is given in the following table amounts in Rs.???3:

A , 0 # 7 + N Total%eg

ments3

Totalnter

prise3

1. %+B9T

RO9>

a3 !ternal

%ales

4 22& 1& 1? 1& &? 2? "& $??

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b3 *nter4segment

%ales1?? '? "? & 4 4 & 4 2??

c3 Total

Revenue1?? "1& $& 1& 1& &? 2& "& '?? $??

23 Total revenue

of each segment

as a percentage

of total revenue

of all segments

1'.K &2.

&

K.& 2.& 2.& C." $.2 &.C

". %egment

resultHProfitF

=ossI& G?3 1& &3 C &3 & K

$.0ombined

Result of all

%egments in

profits

& 1& C & K $?

&. 0ombined

Result of all

%egments in loss

G?3 &3 &3 1??

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'. %egment

Result as a

percentage of the

greater of the

totals arrived at $

and & above in

absolute amount

i.e.) 1??3

& G? 1& & C & & K

K. %+B9T

A%%T%

1& $K & 11 " & & G 1??

C. %egment assets

as a percentage

of total assets of

all segments

1& $K & 11 " & & G

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AS-() EARNING 'ER SHARE

arnings per %hare

This Accounting %tandard is mandatory for all companies. Nowever) disclosure of diluted

earnings per share both including and e!cluding e!tra4 ordinary items3 is not mandatory for

%mall and Bedium %i6ed 0ompanies) as defined in the 9otification. %uch companies are

however encouraged to make these disclosures.

Obecti!e

The ob(ective of this %tandard is to prescribe principles for the determination and presentation of

earnings per share which will improve comparison of performance among different enterprises

for the same period and among different accounting periods for the same enterprise. The focus of

this %tandard is on the denominator of the earnings per share calculation. ven though earnings

per share data has limitations because of different accounting policies used for determining

Learnings) a consistently determined denominator enhances the /uality of financial reporting.

Sco#e

1. This %tandard should be applied by all companies. Nowever) a %mall and Bedium %i6ed

0ompany) as defined in the 9otification) may not disclose diluted earnings per share both

including and e!cluding e!traordinary items3.

2. *n consolidated financial statements) the information re/uired by this %tatement should be

presented on the basis of consolidated information.

De$inition%

7or the purpose of this %tandard) the following terms are used with the meanings specified:

1 An e/uity share is a share other than a preference share.

2 A preference share is a share carrying preferential rights to dividends and repayment of capital.

" A financial instruments is any contract that gives rise to both a financial asset of one enterprise

and a financial liability or e/uity shares of another enterprise.

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$ A potential e/uity share is a financial instrument or other contract that entitles) or may entitle)

its holder to e/uity shares.

& %hare warrants or options are financial instruments that give the holder the right to ac/uire

e/uity shares.

' 7air values is the amount for which an asset could be e!changed) or liability settled) between

knowledgeable) willing parties in an arms length transaction.

*llustration

!ample 4 -eighted Average 9umber of %hares

Accounting year ?14?142?1 to "141242?13

9o. of share

issued

9o. of share

bought back

9o. of share

outstanding

1st

anuary)

2?1

,alance

beginning of year

1C?? 4 1C??

"1st

Bay)

2?1

*ssue of

share for

cash

'?? 4 2$??

1st 9ov.)

2?1

,uy

,ack of

shares

4 "?? 21??

"1st ,alance 2$?? "?? 21??

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#ec.)

2?1

at end of

year

0omputation of -eighted Average:

1)C?? ! &F123 J 2)$?? ! &F123 J 2)1?? ! 2F123 D 2)1?? shares.

The weighted average number of shares can alternatively be computed as follows:

1)C?? !12F123 J '?? ! KF123 4 "?? ! 2F123 D 2)1?? shares

AS-(( ACCOUNTING *OR TA+ES ON INCOME

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Obecti!e

The ob(ective of this %tandard is to prescribe accounting treatment for ta!es on income. Ta!es on

income are one of the significant items in the statement of profit and loss of an enterprise. *n

accordance with the matching concept) ta!es on income are accrued in the same period as the

revenue and e!penses to which they relate. Batching of such ta!es against revenue for a period

poses special problems arising from the fact that in a number of cases) ta!able income may be

significantly different from the accounting income. This divergence between ta!able income and

accounting income arises due to two main reasons. 7irstly) there are differences between items of

revenue and e!penses as appearing in the statement of profit and loss and the items which are

considered as revenue) e!penses or deductions for ta! purposes. %econdly) there are differences

between the amount in respect of a particular item of revenue or e!pense as recogni6ed in the

statement of profit and loss and the corresponding amount which is recogni6ed for the

computation of ta!able income.

Sco#e

1. This %tandard should be applied in accounting for ta!es on income. This includes the

determination of the amount of the e!pense or saving related to ta!es on income in respect of an

accounting period and the disclosure of such an amount in the financial statements.

2. 7or the purposes of this %tandard) ta!es on income include all domestic and foreign ta!es

which are based on ta!able income.

". This %tandard does not specify when) or how) an enterprise should account for ta!es that are

payable on distribution of dividends and other distributions made by the enterprise.

De$inition%

7or the purpose of this %tandard) the following terms are used with the meanings specified:

1 .Accounting income loss3 is the net profit or loss for a period) as reported in the statement of

profit and loss) before deducting income ta! e!pense or adding income ta! saving.

2. Ta!able incomes ta! loss3 is the amount of the income loss3 for a period) determined in

accordance with the ta! laws) based upon which income ta! payable recoverable3 is determined.

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". Ta! e!pense ta! saving3 is the aggregate of current ta! and deferred ta! charged or credited to

the statement of profit and loss for the period.

$. 0urrent ta! is the amount of income ta! determined to be payable recoverable3 in respect of

the ta!able income ta! loss3 for a period.

&. #eferred ta!es is the ta! effect of timing differences.

'. Timing differences are the differences between ta!able income and accounting income for a

period that originate in one period and are capable of reversal in one or more subse/uent periods.

K. Permanent differences are the differences between ta!able income and accounting income for

a period that originates in one period and do not reverse subse/uently.

Reco,nition

Ta! e!pense for the period) comprising current ta! and deferred ta!) should be included in the

determination of the net profit or loss for the period.

Ta!es on income are considered to be an e!pense incurred by the enterprise in earning income

and are accrued in the same period as the revenue and e!penses to which they relate. %uch

matching may result into timing differences. The ta! effects of timing differences are included in

the ta! e!pense in the statement of profit and loss and as deferred ta! assets sub(ect to the

consideration of prudence as set out in paragraphs 1&41C3 or as deferred ta! liabilities) in the

balance sheet.

Permanent differences do not result in deferred ta! assets or deferred ta! liabilities.

Re4assessment of >nrecogni6ed #eferred Ta! Assets

At each balance sheet date) an enterprise re4assesses unrecogni6ed deferred ta! assets. The

enterprise recogni6es previously unrecogni6ed deferred ta! assets to the e!tent that it has become

reasonably certain or virtually certain) as the case may be) that sufficient future ta!able income

will be available against which such deferred ta! assets can be reali6ed. 7or e!ample) an

improvement in trading conditions may make it reasonably certain that the enterprise will be able

to generate sufficient ta!able income in the future.

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Review of #eferred Ta! Assets

The carrying amount of deferred ta! assets should be reviewed at each balance sheet date. An

enterprise should write4down the carrying amount of a deferred ta! asset to the e!tent that it is no

longer reasonably certain or virtually certain) as the case may be) that sufficient future ta!able

income will be available against which deferred ta! asset can be reali6ed. Any such write4down

may be reversed to the e!tent that it becomes reasonably certain or virtually certain) as the case

may be) that sufficient future ta!able income will be available.

*llustration !amples of Timing #ifferences

9ote: This illustration does not form part of the Accounting %tandard. The purpose of this

illustration is to assist in clarifying the meaning of the Accounting %tandard. The sections

mentioned hereunder are references to sections in the *ncome4ta! Act) 1G'1) as amended by the

7inance Act) 2??1.

1. !penses debited in the statement of profit and loss for accounting purposes but allowed for

ta! purposes in subse/uent years) e.g.

a3 !penditure of the nature mentioned in section $", e.g. ta!es) duty) cess) fees) etc.3 accrued

in the statement of profit and loss on mercantile basis but allowed for ta! purposes in subse/uent

years on payment basis.

b3 Payments to non4residents accrued in the statement of profit and A% 22 issued 2??13loss on

mercantile basis) but disallowed for ta! purposes under section $?a3i3 and allowed for ta!

purposes in subse/uent years when relevant ta! is deducted or paid.

c3 Provisions made in the statement of profit and loss in anticipation of liabilities where the

relevant liabilities are allowed in subse/uent years when they crystalli6e.

2. !penses amorti6ed in the books over a period of years but are allowed for ta! purposes

wholly in the first year e.g. substantial advertisement e!penses to introduce a product) etc.

treated as deferred revenue e!penditure in the books3 or if amorti6ation for ta! purposes is over a

longer or shorter period e.g. preliminary e!penses under section ") e!penses incurred for

amalgamation under section "#) prospecting e!penses under section "&3.

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". -here book and ta! depreciation differ. This could arise due to:

a3 #ifferences in depreciation rates.

b3 #ifferences in method of depreciation e.g. %=B or -#O.

c3 #ifferences in method of calculation e.g. calculation of depreciation with reference to

individual assets in the books but on block basis for ta! purposes and calculation with reference

to time in the books but on the basis of full or half depreciation under the block basis for ta!

purposes.

d3 #ifferences in composition of actual cost of assets.

$. -here a deduction is allowed in one year for ta! purposes on the basis of a deposit made

under a permitted deposit scheme e.g. tea development account scheme under section ""A, or

site restoration fund scheme under section ""A,A3 and e!penditure out of withdrawal from such

deposit is debited in the statement of profit and loss in subse/uent years.

&. *ncome credited to the statement of profit and loss but ta!ed only in subse/uent years e.g.

conversion of capital assets into stock in trade.

'. *f for any reason the recognition of income is spread over a number of years in the accounts

but the income is fully ta!ed in the year of receipt.

INTERNATIONA *INANCIA RE'ORTING STANDARD .I*RS/

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Meanin,

*nternational 7inancial Reporting %tandards *7R%3 is a set of accounting standards developed by

an independent) not4for4profit organi6ation called the *nternational Accounting %tandards ,oard

*A%,3. The goal of *7R% is to provide a global framework for how public companies prepare

and disclose their financial statements. *7R% provides general guidance for the preparation of

financial statements) rather than setting rules for industry4specific reporting.

Naving an international standard is especially important for large companies that have

subsidiaries in different countries. Adopting a single set of world4wide standards will simplify

accounting procedures by allowing a company to use one reporting language throughout. A

single standard will also provide investors and auditors with a cohesive view of finances.

0urrently) over 1?? countries permit or re/uire *7R% for public companies) with more countries

e!pected to transition to *7R% by 2?1&. Proponents of *7R% as an international standard maintain

that the cost of implementing *7R% could be offset by the potential for compliance to improve

credit ratings. *7R% is sometimes confused with *A% *nternational Accounting %tandards3)

which are older standards that *7R% has replaced.

Obecti!e o$ *inancial State0ent%

7inancial statements are a structured representation of the financial positions and financial

performance of an entity. The ob(ective of financial statements is to provide information about

the financial position) financial performance and cash flows of an entity that is useful to a wide

range of users in making economic decisions. 7inancial statements also show the results of the

managementQs stewardship of the resources entrusted to it.

To meet this ob(ective) financial statements provide information about an entityQs: a3 assets5 b3

liabilities5 c3 e/uity5 d3 income and e!penses) including gains and losses5 e3 contributions by

and distributions to owners in their capacity as owners5 and f3 cash flows. This information)along with other information in the notes) assists users of financial statements in predicting the

entityQs future cash flows and) in particular) their timing and certainty.

The following are the general features in *7R%:

1.7air presentation and compliance with *7R%:

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7air presentation re/uires the faithful representation of the effects of the transactions) other

events and conditions in accordance with the definitions and recognition criteria for assets)

liabilities) income and e!penses set out in the 7ramework of *7R%.

2. +oing concern:

7inancial statements are present on a going concern basis unless management either intends to

li/uidate the entity or to cease trading) or has no realistic alternative but to do so.

". Accrual basis of accounting:

An entity shall recogni6e items as assets) liabilities) e/uity) income and e!penses when they

satisfy the definition and recognition criteria for those elements in the 7ramework of *7R%.

$. Bateriality and aggregation:

very material class of similar items has to be presented separately. *tems that are of a dissimilar

nature or function shall be presented separately unless they are immaterial.

&. ffsetting

ffsetting is generally forbidden in *7R%. Nowever certain standards re/uire offsetting when

specific conditions are satisfied such as in case of the accounting for defined benefit liabilities in

*A% 1G and the net presentation of deferred ta! liabilities and deferred ta! assets in *A% 123.

'. 7re/uency of reporting:

*7R% re/uires that at least annually a complete set of financial statements is presented. Nowever

listed companies generally also publish interim financial statements for which the accounting is

fully *7R% compliant3 for which the presentation is in accordance with *A% "$ Interim

Financing eporting .

K. 0omparative information:

*7R% re/uires entities to present comparative information in respect of the preceding period for

all amounts reported in the current periodQs financial statements. *n addition comparative

information shall also be provided for narrative and descriptive information if it is relevant to

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understanding the current periodQs financial statements. The standard *A% 1 also re/uires an

additional statement of financial position also called a third balance sheet3 when an entity

applies an accounting policy retrospectively or makes a retrospective restatement of items in its

financial statements) or when it reclassifies items in its financial statements. This for e!ample

occurred with the adoption of the revised standard *A% 1G as of 1 anuary 2?1"3 or when the

new consolidation standards *7R% 1?411412 were adopted as of 1 anuary 2?1" or 2?1$ for

companies in the uropean >nion3

2alitati!e Cha3acte3i%tic% o$ *inancial State0ent%

8ualitative characteristics of financial statements include:

Relevance Bateriality3

7aithful representation

nhancing /ualitative characteristics include:

0omparability

Oerifiability

Timeliness

>nderstandability

The elements directly related to the measurement of the %tate0ent o$ $inancial #o%ition include:

A%%et: An asset is a resource controlled by the entity as a result of past events and from which

future economic benefits are e!pected to flow to the entity.

iabilit4: A liability is a present obligation of the entity arising from the past events) the

settlement of which is e!pected to result in an outflow from the entity of resources embodying

economic benefits) i.e. assets.

E52it4: 9ominal e/uity is the nominal residual interest in the nominal assets of the entity after

deducting all its liabilities in nominal value.

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http://en.wikipedia.org/wiki/Statement_of_financial_positionhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Liability_(financial_accounting)http://en.wikipedia.org/wiki/Equity_(finance)http://en.wikipedia.org/wiki/Statement_of_financial_positionhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Liability_(financial_accounting)http://en.wikipedia.org/wiki/Equity_(finance)


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The financial performance of an entity is presented in the %tate0ent o$ co0#3ehen%i!e inco0e)

which consists of the income statement and the statement of other comprehensive income

usually presented in two separate statements3. 7inancial performance includes the following

elements which are recognised in the income statement or other comprehensive income as

re/uired by the applicable *7R% standard3:

Re!en2e%: increases in economic benefit during an accounting period in the form of inflows or

enhancements of assets) or decrease of liabilities that result in increases in e/uity. Nowever) it

does not include the contributions made by the e/uity participants for e!ample owners) partners

or shareholders3.

E#en%e%: decreases in economic benefits during an accounting period in the form of outflows)

or depletions of assets or incurrences of liabilities that result in decreases in e/uity. Nowever)

these donQt include the distributions made to the e/uity participants

Reco,nition o$ Ele0ent% o$ *inancial State0ent%

An item is recogni6ed in the financial statements when:

it is probable future economic benefit will flow to or from an entity.

the resource can be reliably measured

*n some cases specific standards add additional conditions before recognition is possible or

prohibit recognition altogether.

An e!ample is the recognition of internally generated brands) mastheads) publishing titles)

customer lists and items similar in substance) for which recognition is prohibited by *A% "C. *n

addition research and development e!penses can only be recognised as an intangible asset if they

cross the threshold of being classified as Qdevelopment costQ.

-hilst the standard on provisions) *A% "K) prohibits the recognition of a provision for contingent

liabilities) this prohibition is not applicable to the accounting for contingent liabilities in a

business combination. *n that case the ac/uirer shall recognise a contingent liability even if it is

not probable that an outflow of resources embodying economic benefits will be re/uired.

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COM'ARISON WITH CURRENT INDIAN ACCOUNTING STANDARD WITH THE

CORRES'ONDING NUMBER O* REE7ANT IAS8I*RS

Indian Acco2ntin, Standa3d IAS8I*RS

AS

!o"

!ame of Standard

IAS#

IFS

!o"

!ame of Standard

1 #isclosures of Accounting Policies 1 Presentation of financial statements

2 Oaluation of *nventories 2 *nventories

" 0ash 7low %tatements K %tatements of 0ash 7lows

$ 0ontingencies and vents ccurring

after the ,alance %heet #ate

1? vents after the Reporting Period

& 9et Profit or =oss for the Period)

Prior Period *tems and 0hanges in

Accounting Policies

C Accounting Policies) 0hanges in

Accounting stimates and rrors

' #epreciation

9o e/uivalent standard. *ncluded in *A%

1'

K 0onstructions 0ontracts 11 0onstructions 0ontracts

G Revenue Recognition 1C Revenue

1? Accounting for 7i!ed Assets 1' Property) Plant and /uipment

11 The ffects of 0hanges in 7oreign

!changes Rates

21 The ffects of 0hanges in 7oreign

!changes Rates

12 Accounting for +overnment +rants

2? Accounting for +overnment +rants and

#isclosure of +overnment Assistance

1" Accounting for *nvestments Bainly dealt with in *A% "G

1$ Accounting for Amalgamations *7R% " ,usiness 0ombinations

1& mployee ,enefits 1G mployee ,enefits

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1' ,orrowing 0osts 2" ,orrowings 0osts

1K %egment Reporting *7R% C perating %egments

1C Related Party #isclosures 2$ Related Party #isclosures

1G =eases 1K =eases

2? arnings Per %hare "" arnings Per %hare

21 0onsolidated 7inancial %tatements

2K 0onsolidated and %eparate 7inancial

%tatements

22 Accounting for Ta!es for *ncome 12 *ncome Ta!es

2" Accounting for *nvestment in

Associates in 0onsolidated 7inancial

%tatements

2C *nvestments in Associates

2$ #iscontinuing perations

*7R% & 9on4current Assets Neld for %ale and

#iscontinued perations

2& *nterim 7inancial Reporting "$ *nterim 7inancial Reporting

2' *ntangible Assets "C *ntangible Assets

2K 7inancial Reporting of *nterest in

oint Oentures

"1 *nterest in oint Oentures

2C *mpairment of Assets "' *mpairment of Assets

2G Provisions) 0ontingent =iabilities and

0ontingent Assets

"K Provisions) 0ontingent =iabilities and

0ontingent Assets

"? 7inancial *nstruments: Recognitionand Beasurement

"2 7inancial *nstruments: Recognition andBeasurement

"1 7inancial *nstruments: Presentation "G 7inancial *nstruments: Presentation

"2 7inancial *nstruments: #isclosures *7R% K 7inancial *nstruments: #isclosures

,enefits of Adopting *7R% for *ndian 0ompany

23


24/72

Ado#tion o$ I*RS b4 Indian Co0#an4

*ndia today has become an international economic force. *ndian companies has surpassed in

several sectors of the industry that includes) *T%) software) pharmaceutical) auto spare part to

name a few. And to stay as a leader in the international market *ndia opted the changes it need to

interface *ndian stakeholdersQ) the international stakeholdersQ and comply with the financial

reporting in a language that is understandable to all of them. *n response to the need several

*ndian companies have already been providing their financial statements as per >% +AAP andFor

*7R% on voluntary basis. ,ut) however this is becoming more of a necessity then (ust being a

best practice.

*n the coming years) critical decisions will need to be made regarding the use of global

accounting standards in *ndia. Barket participants will be called upon to determine whether

achieving a uniform set of high4/uality global accounting standards is feasible) what sort of

investments would be re/uired to achieve that outcome) and whether it is a desirable goal in the

first place. This dialogue will be critical to the future of financial reporting and of fundamental

importance to the long4term strength and stability of the global capital markets.

Performance measures) based on *ndian +AAP may need revisiting as it may change in *7R%

adoption by fair amount on account of valuation aspect. !pectation of investor and market will

also be re/uired to be of paramount importance to manage in the adoption of process.

DE7EO'MENTS IN INDIA- I*RS

The *ndian +AAP is influenced by several standard setters and influenced by %tatute) namely

0ompanies Act) *ncome Ta! Act) ,anking Regulation Act) *nsurance Act etc and directions from

regulatory bodies like R,*) %,*) *R#A.

The legal or regulatory re/uirement will prevail over the *7R% re/uirement) in case of conflicts.

Therefore) pre4conditions for *7R% adoption by *ndia to be effective need amendments in

re/uired legislation and clarity on impact of *7R% adoption on #irect and *ndirect ta!es)

especially transactions recorded at fair values.

24


25/72

*nstitute of 0hartered Accountants of *ndia is actively promoting the *A%,Qs pronouncements in

the country with a view to facilitating global harmoni6ation of Accounting %tandards and *0A*

has pronounced that *ndian +AAP will converge into *7R% with effect from April 1) 2?11.

According to the above press release) there will be two separate sets of Accounting %tandards

under %ection 211"03 of the 0ompanies Act) 1G&'. The two sets would be as described below:

*i3%t %et would comprise of the *ndian Accounting %tandards which are converged with the *7R%

*7R% converged standards3. *t shall be applicable to specified class of companies5

Second %et would comprise of the e!isting *ndian Accounting %tandards !isting Accounting

%tandards3 and would be applicable to other companies including small and medium companies

%B0s3.

WHO WI BE BENE*ITED9

The convergence with *7R% entails benefit to the following:

The Investors:- The investor will be benefited in as the way accounting information made

available to them will be more reliable) relevant) timely and most importantly the information

will be comparable across different legal framework. *t will develop better understanding and

confidence among the investors.

The Professional:- The professional) both in practice and in employment will get benefits as

they will be able to provide their services in various part of the world) as few years after

everybody will follow the same reporting standards.

The Corporate world:- The *ndian corporate reputation and relationship with international

finance community will elevate because of achievement of higher level of consistency between

reporting structure and re/uirements5 better access to international markets5 improving

confidence among the international investors. The international comparability will also get

improve strengthening the industrial and capital markets in the country.

CHAENGES TO BE *ACED9

25


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#espite several benefits as may be looked out by the different people) there will be several

challenges that will be faced on the way of *7R% convergence.

The first and far most would be from the differences between *ndian +AAP and *7R%. The

differences are wide and very deep routed) to say a few 4Plant Property and /uipment PP3

accounting) 7inancial *nstruments accounting) *nvestment accounting) ,usiness combination)

%hare based payment) current and non4current classification of asset and liabilities) presentation

of financial statements) all are not dealt under *ndian +AAP.

0onvergence is not (ust one time technical steps but will impose practical challenges of

significant business and regulatory matters like structuring of %P schemes) training of

employees) ta! planning) modification of *T system) compliance with debt covenants.

B3ie$ abo2t

I*RS 1 : *i3%t-ti0e Ado#tion o$ Inte3national *inancial Re#o3tin, Standa3d%

Inte3national *inancial Re#o3tin, Standa3d 1" *i3%t-ti0e Ado#tion o$ Inte3national

*inancial Re#o3tin, Standa3d% or I*RS 1 is an international financial reporting

standard issued by the *nternational Accounting %tandards ,oard *A%,3. *t sets out

re/uirements on the preparation and presentation of financial statements and interim financial

reports by entities that are adopting the *7R% for the first time) to ensure that they contain high4

/uality information.

*7R% 1 has been cited by Association of 0hartered 0ertified Accountants A00A3 as having

great practical significance in (urisdictions that are adopting the *7R%s. The standard has been

endorsed by the uropean 0ommission for use in the uropean >nion) with the 0ommission

%ervices finding in 2??G that the latest version of *7R% 1 has benefits that outweigh the costs of

adoption.

Sco#e

*7R% 1 applies to an entityQs first *7R% financial statements and to interim financial reports for

parts of the period covered by the first *7R% financial statements.

26

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27/72

The standard defines an entityQs first financial statement as the first annual financial statements

in which the entity adopts *7R%s) by an e!plicit and unreserved statement in those financial

statements of compliance with *7R%s. %pecific cases include financial statements of firms

whose most recent financial statements were prepared in accordance with national re/uirements

not consistent with *7R% or that did not present financial statements in previous periods.

Reco,nition and Mea%23e0ent

*n the first financial statement) *7R% 1 re/uires entities to present an opening *7R% statement of

financial position using accounting policies in compliance with each *7R% effective as of the end

of its first *7R% reporting period. Nowever) accounting estimates at the date of transition to

*7R%s are to be consistent with estimates made in accordance with the previously4used +AAP.

Any ad(ustments due to the previous use of a different +AAP are to be recogni6ed directly in

retained earnings or another category of e/uity if appropriate.

'3e%entation and Di%clo%23e

*7R% 1 re/uires entities to e!plain the effect of the transition to *7R% on their financial position)

financial performance) and cash flows. 7or e!ample) it re/uires entities to present certain

reconciliations between accounting amounts under the previous +AAP and that under *7R%.

An entity is permitted to use the fair value of an item of property) plant and e/uipment at the date

of transition to *7R%s as its deemed cost at that date. *f it does so) the entity is re/uired to

disclose the aggregate of these fair values and aggregate ad(ustments from the previous +AAP.

Additionally) interim financial reports covering part of the period of the first *7R% financial

statement are also re/uired include reconciliations from the previous +AAP) among other

re/uirements.

I*RS & : *inancial In%t320ent%" Di%clo%23e%

O!e3!ie;

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28/72

*7R% K Financial Instruments$ %isclosures re/uires disclosure of information about the

significance of financial instruments to an entity) and the nature and e!tent of risks arising from

those financial instruments) both in /ualitative and /uantitative terms. %pecific disclosures are

re/uired in relation to transferred financial assets and a number of other matters.

*7R% K was originally issued in August 2??& and applies to annual periods beginning on or after

1 anuary 2??K.

verview of *7R% K

*7R% K: adds certain new disclosures about financial instruments to those previously re/uired

by *A% "2 Financial Instruments$ %isclosure and Presentation as it was then cited3 replaces the

disclosures previously re/uired by *A% "? %isclosures in the Financial Statements of &an's and

Similar Financial Institutions Puts all of those financial instruments disclosures together in a

new standard on Financial Instruments$ %isclosures. The remaining parts of *A% "2 deal only

with financial instruments presentation matters.

Di%clo%23e 3e52i3e0ent% o$ I*RS &

*7R% re/uires certain disclosures to be presented by category of instrument based on the *A% "G

measurement categories. 0ertain other disclosures are re/uired by class of financial instrument.

7or those disclosures an entity must group its financial instruments into classes of similar

instruments as appropriate to the nature of the information presented. H*7R% K.'I

The two main categories of disclosures re/uired by *7R% K are:

• *nformation about the significance of financial instruments.

• *nformation about the nature and e!tent of risks arising from financial instruments.

28

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I*RS 1) : Con%olidated *inancial State0ent%

O!e3!ie;

*7R% 1? Consolidated Financial Statements outlines the re/uirements for the preparation and

presentation of consolidated financial statements) re/uiring entities to consolidate entities it

controls. 0ontrol re/uires e!posure or rights to variable returns and the ability to affect those

returns through power over an investee.

*7R% 1? was issued in Bay 2?11 and applies to annual periods beginning on or after 1 anuary

2?1".

Obecti!e

The ob(ective of *7R% 1? is to establish principles for the presentation and preparation of

consolidated financial statements when an entity controls one or more other entities. H*7R% 1?:1I

The Standa3d"


30/72

it is a wholly4owned subsidiary or is a partially4owned subsidiary of another entity and its other

owners) including those not otherwise entitled to vote) have been informed about) and do not

ob(ect to) the parent not presenting consolidated financial statements its debt or e/uity

instruments are not traded in a public market a domestic or foreign stock e!change or an over4

the4counter market) including local and regional markets3 it did not file) nor is it in the process of

filing) its financial statements with a securities commission or other regulatory organisation for

the purpose of issuing any class of instruments in a public market) and its ultimate or any

intermediate parent of the parent produces financial statements available for public use that

comply with *7R%s) in which subsidiaries are consolidated or are measured at fair value through

profit or loss in accordance with *7R% 1?.S

S 7air value measurement clause added by Investment (ntities$ Appl)ing the Consolidation

(xception *Amendments to IFS 1+, IFS 1 and IAS -. amendments) effective 1 anuary

2?1'.

*nvestment entities are prohibited from consolidating particular subsidiaries see further

information below3.

7urthermore) post4employment benefit plans or other long4term employee benefit plans to

which *A% 1G (mplo)ee &enefits applies are not re/uired to apply the re/uirements of *7R% 1?.

H*7R% 1?:$,I

Con%olidation #3oced23e%

0onsolidated financial statements: H*7R% 1?:,C'I

0ombine like items of assets) liabilities) e/uity) income) e!penses and cash flows of the parent

with those of its subsidiaries offset eliminate3 the carrying amount of the parentQs investment in

each subsidiary and the parentQs portion of e/uity of each subsidiary *7R% " &usiness

Combinations e!plains how to account for any related goodwill3

liminate in full intragroup assets and liabilities) e/uity) income) e!penses and cash flows

relating to transactions between entities of the group profits or losses resulting from intragroup

30

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31/72

transactions that are recognised in assets) such as inventory and fi!ed assets) are eliminated in

full3.

A reporting entity includes the income and e!penses of a subsidiary in the consolidated financial

statements from the date it gains control until the date when the reporting entity ceases to control

the subsidiary. *ncome and e!penses of the subsidiary are based on the amounts of the assets and

liabilities recognised in the consolidated financial statements at the ac/uisition date. H*7R%

1?:,CCI

The parent and subsidiaries are re/uired to have the same reporting dates) or consolidation based

on additional financial information prepared by subsidiary) unless impracticable. -here

impracticable) the most recent financial statements of the subsidiary are used) ad(usted for the

effects of significant transactions or events between the reporting dates of the subsidiary and

consolidated financial statements. The difference between the date of the subsidiaryQs financial

statements and that of the consolidated financial statements shall be no more than three months

H*7R% 1?:,G2) *7R% 1?:,G"I

Di%clo%23e

There are no disclosures specified in *7R% 1?. *nstead) *7R% 12 %isclosure of Interests in Other

(ntities outlines the disclosures re/uired.

I*RS 1> : Re,2lato34 De$e33al Acco2nt%

Obecti!e

The ob(ective of *7R% 1$ is to specify the financial reporting re/uirements for Qregulatory

deferral account balancesQ that arise when an entity provides good or services to customers at a

price or rate that is sub(ect to rate regulation. H*7R% 1$:1I

Sco#e

*7R% 1$ is permitted) but not re/uired) to be applied where an entity conducts rate4regulated

activities and has recognised amounts in its previous +AAP financial statements that meet the

definition of Qregulatory deferral account balancesQ sometimes referred to Qregulatory assetsQ and

Qregulatory liabilitiesQ3. H*7R% 1$.&I

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Accounting policies for regulatory deferral account balances

*7R% 1$ provides an e!emption from paragraph 11 of *A% C Accounting /olicies, Changes in

Accounting (stimates and (rrors when an entity determines its accounting policies for

regulatory deferral account balances. H*7R% 1$.GI Paragraph 11 of *A% C re/uires an entity to

consider the re/uirements of *7R%s dealing with similar matters and the re/uirements of

the Conceptual Framewor' when setting its accounting policies.

The effect of the e!emption is that eligible entities can continue to apply the accounting policies

used for regulatory deferral account balances under the basis of accounting used immediately

before adopting *7R% Qprevious +AAPQ3 when applying *7R%s) sub(ect to the presentation

re/uirements of *7R% 1$ H*7R% 1$.11I.

ntities are permitted to change their accounting policies for regulatory deferral account balances

in accordance with *A% C) but only if the change makes the financial statements more relevant

and no less reliable) or more reliable and not less relevant) to the economic decision4making

needs of users of the entityQs financial statements. Nowever) an entity is not permitted to change

accounting policies to start to recogni6e regulatory deferral account balances. H*7R% 1$.1"I

'3e%entation in $inancial %tate0ent%

The impact of regulatory deferral account balances are separately presented in an entityQs

financial statements. This re/uirement applies regardless of the entityQs previous presentation

policies in respect of regulatory deferral balance accounts under its previous +AAP.

Accordingly:

%eparate line items are presented in the statement of financial position for the total of all

regulatory deferral account debit balances) and all regulatory deferral account credit balances

H*7R% 1$.2?I

Regulatory deferral account balances are not classified between current and non4current) but are

separately disclosed using subtotals H*7R% 1$.21I

The net movement in regulatory deferral account balances are separately presented in the

statement of profit or loss and other comprehensive income using subtotals H*7R% 1$.2242"I

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Di%clo%23e%

*7R% 1$ sets out disclosure ob(ectives to allow users to assess: H*7R% 1$.2KI

the nature of) and risks associated with) the rate regulation that establishes the prices3 the entity

can charge customers for the goods or services it provides 4 including information about the

entityQs rate4regulated activities and the rate4setting process) the identity of the rate regulators3)

and the impacts of risks and uncertainties on the recovery or reversal of regulatory deferral

balance accounts.

INSURANCE ACT? 1@ REATING TO GENERA INSURANCE COM'AN

In%23ance Act 1@ Gene3al In%23ance Co0#an4

*2nction% o$ the Eec2ti!e Co00ittee o$ Gene3al In%23ance Co2ncil

6> 13 the functions of the !ecutive 0ommittee of the +eneral *nsurance 0ouncil shall be 4

a3 to aid and advise insurers) carrying on general insurance business ? in the matter of setting up

standards of conduct and sound practice and in the matter of rendering efficient service to

holders of policies of general insurance5

33


34/72

b3 To render advice to the Authority in the matter of controlling the e!penses of such insurers

carrying on business in *ndia in the matter of commission and other e!penses5

c3 To bring to the notice of the Authority the case of any such insurrecting in a manner

pre(udicial the interests of holders of general insurance po1icies5

d3 To act in any matter incidental or ancillary to any of the matters specified in 0lauses a3 to

c3 as with the approval of the Authority may be notified by the +eneral *nsurance 0ouncil in the

+a6ette of *ndia.

23 7or the purpose of enabling it effectively to discharge its functions) the !ecutive 0ommittee

of the +eneral *nsurance 0ouncil may collect such fees as may be prescribed from all insurers

carrying on general insurance business:

Provided that if the +eneral *nsurance 0ouncil thinks fit) it may by a resolution passed by it)

waive the collection of the prescribed fees for any year and where any such resolution has been

approved by the Authority) the !ecutive 0ommittee of the +eneral *nsurance 0ouncil shall not

collect any fees in relation to that year.

Eec2ti!e Co00ittee o$ the Gene3al In%23ance Co2ncil 0a4 ad!i%e in cont3ollin, e#en%e%

6>M 13 *t shall be the duty of the !ecutive 0ommittee of the +eneral *nsurance 0ouncil to

meet at least once before the "1st day of Barch every year to advise the Authority in fi!ing under

the proviso to subsection 13 of %ection $?40 the limits by which the actual e!penses of

management incurred by an insurer carrying on general insurance business in respect of such

business in the preceding year may e!ceed the limits prescribed under that sub4section) and in the

fi!ing any such limits the Authority shall have due regard to the conditions obtaining in general

insurance business in the preceding year) and he may fi! different limits for different groups of

insurers.

23 -here an insurer is guilty of contravening the provisions of %ection $?0 with respect to the

e!penses of management the Authority may) after giving the insurer an opportunity of being

heard) administer a warning to the insurer.

34


35/72

"3 -here in any case two warnings given to an insurer under sub4section 23 have been

disregarded by him) the Authority may take such action against the insurer as may be prescribed.

'o;e3% o$ Eec2ti!e Co00ittee% to act to,ethe3 in ce3tain ca%e%

'$9. The 0entral +overnment may prescribe the circumstances in which) the manner in which)

and the conditions sub(ect to which) the !ecutive committee of the =ife *nsurance 0ouncil and

the !ecutive 0ommittee of the +eneral *nsurance 0ouncil may hold (oint meetings for the

purpose of doing with any matter of common interest to both 0ommittee) and it shall be lawful

for the two 0ommittees at any such (oint meeting to delegate any matter under consideration for

the determination of a subcommittee appointed for this purpose from amongst the members of

the two 0ommittees.

Gene3al #o;e3% o$ i$e In%23ance Co2ncil and Gene3al In%23ance Co2ncil

6>R .13 7or the efficient performance of its duties) the =ife *nsurance 0ouncil or the +eneral

*nsurance 0ouncil) as the case may be) may

a3 Appoint such officers and servants as may be necessary and fi! the conditions of their

service5

b3 #etermine the manner in which any prescribed fee may be collected5

c3 eep and maintain up to date a copy of the list of all insurers who are members or

associate members of the *nsurance Association of *ndia5

d3 -ith the previous approval of the Authority) make regulations for

i3 The holding of elections other than the first elections5

ii3 The summoning and holding of meetings) the conduct of business thereat and the number

of persons necessary to form a /uorum5

35


36/72

iii3 The submission by insurers to the !ecutive 0ommittee of the =ife *nsurance 0ouncil) or

the +eneral *nsurance 0ouncil of such statements or information as may be re/uired of them

and the submission of copies thereof by the insurers to the Authority5

iv3 The levy and collection of any fees5

v3 The regulation of any other matter which may be necessary for the purpose of enabling it to

carry out its duties under this Act.

23 The =ife *nsurance 0ouncil or the +eneral *nsurance 0ouncil may authori6e the !ecutive

0ommittee concerned to e!ercise any of the powers conferred on the =ife *nsurance 0ouncil or

the +eneral *nsurance 0ouncil) as the case may be) under 01ause a3) 01ause b3 or 01ause c3

of sub4section 13.

'o;e3 o$ Cent3al Go!e3n0ent to 3e0o!e di$$ic2ltie%

6>S The 0entral +overnment may e!ercise such powers as may be necessary for bringing the

=ife *nsurance 0ouncil) the +eneral *nsurance 0ouncil or the !ecutive 0ommittee of any of the

said 0ouncils) as the case may be) into effective e!istence for the purposes of this Part) and any

such powers shall include

a3 the power to hold) in such manner as may be directed by the 0entral +overnment) the first

elections to the !ecutive 0ommittees of the =ife *nsurance 0ouncil and the +eneral *nsurance

0ouncil5

b3 where a notification under sub4section 13 of %ection '$A has been issued declaring

provident societies to be members of the *nsurance Association of *ndia) the powers to associate

provident societies effectively in the e!ercise of all powers and the discharge of all functions of

the =ife *nsurance 0ouncil and the !ecutive 0ommittee thereof5

c3 The power to make the provisions of %ection $?, applicable to the provident societies

specified in 0lause b3 in the same manner as they apply to insurers

'o;e3 to ee0#t

36


37/72

6>T The 0entral +overnment may) sub(ect to such conditions and restrictions as it may think fit

to impose) e!empt any insurer specified in sub-clausec3 of 01ause G3 of %ection 2 from the

operation of all or any of the provisions of this Part.

IRDA REGUATIONS *OR *INANCIA STATEMENTS O* GENERA INSUARANCE

COM'AN

'ART I

Accounting principles for preparation of financial statements

1. Applicability of Accounting %tandards444very ,alance %heet) Receipts and Payments

Account H0ash 7low statementI and Profit and =oss Account H%hareholders AccountI of the

insurer shall be in conformity with the Accounting %tandards A%3 issued by the *0A*) to the

e!tent applicable to the insurers carrying on general insurance business) e!cept that:

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38/72

i3 Accounting %tandard " A% "3 0ash 7low %tatements 0ash 7low %tatement shall be

prepared only under the #irect Bethod.

ii3 Accounting %tandard 1" A% 1"3 Accounting for *nvestments) shall not be applicable.

iii3 Accounting %tandard 1K A% 1K3 4 %egment Reporting shall apply irrespective of

whether the securities of the insurer are traded publicly or not.

2. Premium44Premium shall be recognised as income over the contract period or the period of

risk) whichever is appropriate. >nearned premium as well as premium received in advance) both

of which represent premium income not relating to the current accounting period) shall be

disclosed separately in the financial statements.

". Premium #eficiency44Premium deficiency shall be recognised if the sum of e!pected claim

costs) related e!penses and maintenance costs e!ceeds related unearned premiums.

7or contracts e!ceeding four years) once a premium deficiency has occurred) future changes to

the liability shall be based on actuarialFtechnical evaluation.

$. Ac/uisition 0osts444Ac/uisition costs) if any) shall be e!pensed in the period in which they

are incurred.

Ac/uisition costs are those costs that vary with) and are primarily related to) the ac/uisition of

new and renewal insurance contracts. The most essential test is the obligatory relationship

between costs and the e!ecution of insurance contracts i.e. commencement of risk3.

&. 0laims44The components of the ultimate cost of claims to an insurer comprise the claims

under policies and claims settlement costs. 0laims under policies comprise the claims made for

losses incurred) and those estimated or anticipated under the policies.

'. Procedure to determine the value of investments.444An insurer shall determine the values of

investments in the following manner:4

a3 Real state *nvestment Property44 *nvestment Property shall be measured at historical cost

less accumulated depreciation and impairment loss) residual value being considered 6ero and no

revaluation being permissible.

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39/72

The *nsurer shall assess at each balance sheet date whether any impairment of the investment

property has occurred.

An impairment loss shall be recognised as an e!pense in the RevenueFProfit and =oss Account

immediately.

7air value as at the balance sheet date and the basis of its determination shall be disclosed in the

financial statements as additional information.

b3 #ebt %ecurities44#ebt securities including government securities and redeemable preference

shares shall be considered as Uheld to maturityV securities and shall be measured at historical cost

sub(ect to amortisation.

c3 /uity %ecurities and #erivative *nstruments that are traded in active markets444=isted

e/uity securities and derivative instruments that are traded in active markets shall be measured at

fair value as at the balance sheet date. 7or the purpose of calculation of fair value) the lowest of

the last /uoted closing price of the stock e!changes where the securities are listed shall be taken.

K. =oans44=oans shall be measured at historical cost sub(ect to impairment provisions.

The insurer shall assess the /uality of its loan assets and shall provide for impairment. The

impairment provision shall not be less than the aggregate amount of loans which are sub(ect to

defaults of the nature mentioned below:4

i3 *nterest remaining unpaid for over a period of si! months5 and

ii3 *nstallment of loan falling due and remaining unpaid during the last si! months.

C. 0atastrophe Reserve4440atastrophe reserve shall be created in accordance with norms) if any)

prescribed by the Authority. *nvestment of funds out of catastrophe reserve shall be made in

accordance with prescription of the Authority.

*t is clarified that this reserve is towards meeting losses which might arise due to an entirely

une!pected set of events and not for any specific known purpose. This reserve is in the nature of

an amount set aside for the potential future liability against the insurance policies in force.

'ART II

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#isclosures forming part of 7inancial %tatements

A. The following shall be disclosed by way of notes to the ,alance %heet:

1. 0ontingent =iabilities:

a3 Partly4paid up investments

b3 >nderwriting commitments outstanding

c3 0laims) other than those under policies) not acknowledged as debts

d3 +uarantees given by or on behalf of the company

e3 %tatutory demandsFliabilities in dispute) not provided for

f3 Reinsurance obligations

g3 thers to be specified3

2. ncumbrances to assets of the company in and outside *ndia.

". 0ommitments made and outstanding for =oans) *nvestments and 7i!ed Assets.

$. 0laims) less reinsurance) paid to claimants inFoutside *ndia.

&. Actuarial assumptions for claim liabilities in the case of policies e!ceeding four years.

'. Ageing of claims distinguishing between claims outstanding for more than si! months and

other claims.

K. Premiums) less reinsurance) written from business inFoutside *ndia.

C. !tent of premium income recognised) based on varying risk pattern) category wise) with

basis and (ustification therefor) including whether reliance has been placed on e!ternal evidence.

G. Oalue of contracts in relation to investments) for:

a3 Purchases where deliveries are pending5

b3 %ales where payments are overdue.

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1?. perating e!penses relating to insurance business: basis of allocation of e!penditure

to various classes of business.

11. Nistorical costs of those investments valued on fair value basis.

12. 0omputation of managerial remuneration.

1". ,asis of amortisation of debt securities.

1$. a3 >nrealised gainFlosses arising due to changes in the fair value of listed e/uity shares and

derivative instruments are to be taken to e/uity under the head L7air Oalue 0hange Account and

on realisation reported in profit and loss Account.

b3 Pending realisation) the credit balance in the L7air Oalue 0hange Account is not available

for distribution.

1&. 7air value of investment property and the basis therefor.

1'. 0laims settled and remaining outstanding for a period of more than si! months on the

balance sheet date.

,. The following accounting policies shall form an integral part of the financial statements:

1. All significant accounting policies in terms of the accounting standards issued by the *0A*)

and significant principles and policies given in Part * of Accounting Principles. Any other

accounting policies followed by the insurer shall be stated in the manner re/uired under

Accounting %tandard A% 1 issued by *0A*.

2. Any departure from the accounting policies as aforesaid shall be separately disclosed with

reasons for such departure.

0. The following information shall also be disclosed:

1. *nvestments made in accordance with any statutory re/uirement should be disclosed

separately together with its amount) nature) security and any special rights in and outside *ndia.

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2. %egregation into performingF non performing investments for purpose of income

recognition as per the directions) if any) issued by the Authority

". Percentage of business sector4wise.

$. A summary of financial statements for the last five years) in the manner as may be prescribed

by the Authority.

&. Accounting Ratios as may be prescribed by the Authority.

'. ,asis of allocation of *nterest) #ividends and Rent between Revenue Account and Profit and

=oss Account.

'ART III

+9RA= *9%TR>0T*9% 7R PRPARAT*9 7 7*9A90*A= %TATB9T%

13 The corresponding amounts for the immediately preceding financial year for all items shown

in the ,alance %heet) Revenue Account and Profit and =oss Account should be given.

23 The figures in the financial statements may be rounded off to the nearest thousands.

"3 *nterest) dividends and rentals receivable in connection with an investment should be stated as

gross value) the amount of income ta! deducted at source being included under Qadvance ta!es

paidQ.

$3 *ncome from rent shall not include any notional rent.

7or the purposes of financial statements) unless the conte!t otherwise re/uires 4

a3 the e!pression Lprovision shall) sub(ect to note ** below mean any amount written off or

retained by way of providing for depreciation) renewals or diminution in value of assets) or

retained by way of providing for any known liability or loss of which the amount cannot be

determined with substantial accuracy5

b3 the e!pression reserve shall not) sub(ect to as aforesaid) include any amount written off or

retained by way of providing for depreciation) renewals or diminution in value of assets or

retained by way of providing for any known liability5

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c3 the e!pression capital reserve shall not include any amount regarded as free for distribution

through the profit and loss account5 and the e!pression revenue reserve shall mean any reserve

other than a capital reserve5

d3 The e!pression liability shall include all liabilities in respect of e!penditure contracted for

and all disputed or contingent liabilities.

**3 -here:

a3 any amount written off or retained by way of providing for depreciation) renewals or

diminution in value of assets) or

b3 any amount retained by way of providing for any known liability is in e!cess of the

amount which in the opinion of the directors is reasonably necessary for the purpose) the e!cess

shall be treated for the purposes of these accounts as a reserve and not as a provision.

'3 The company should make provisions for damages under lawsuits where the management is

of the opinion that the award may go against the insurer.

K3 Risks assumed in e!cess of the statutory provisions) if any) shall be separately disclosed

indicating the amount of premiums involved and the amount of risks covered. The auditor shall)

however) make an appropriate /ualification in this regard in his report.

C3 Any debit balance of Profit and =oss Account shall be shown as deduction from uncommitted

reserves and the balance if any) shall be shown separately.

'3e#a3ation o$ *inancial State0ent%

13 An insurer shall prepare the Revenue Account) Profit and =oss Account H%hareholders

AccountI and the ,alance %heet in 7orm ,4RA) 7orm ,4P=) and 7orm ,4,%) or as near thereto

as the circumstances permit. Provided that an insurer shall prepare Revenue Account separately

for fire) marine) and miscellaneous insurance business.

23 An insurer shall prepare separate Receipts and Payments Account in accordance with the

#irect Bethod prescribed in A% " U0ash 7low %tatementV issued by the *0A*.

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7RB ,4RA

9ame of the *nsurer:

Registration 9o. and #ate of Registration with the *R#A

RO9> A00>9T 7R TN ;AR 9## "1%T BAR0N) 2?WWW.

To be prepared separately fire) marine) and miscellaneous insurance3

Particulars %chedule 0urrent

;ear

Previous

;ear

Rs.???3 Rs.???3

1. Premiums earned 9et3 1

2. thers to be specified3

". 0hange in provision for une!pired risk

$. *nterest) #ividend X Rent +ross

TTA= A3

1. 0laims *ncurred 9et3 2

2. 0ommission "

". perating !penses related to *nsurance ,usiness $

$. thers To be specified

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45/72

TTA= ,3

perating ProfitF=oss3 from

7ireFBarineFBiscellaneous ,usiness A 4 ,3

7RB ,4P=



PR7*T A9# =%% A00>9T 7R TN ;AR 9## "1%T BAR0N) 2?WWW.

Particulars %chedule 0urrent

;ear

Previous

;ear

Rs.???3 Rs.???3

1. PRAT*9+ PR7*TF=%%3

a3 7ire *nsurance

b3 Barine *nsurance

c3 Biscellaneous *nsurance

2. *90B 7RB *9O%TB9T%

a3 *nterest) #ividend X Rent +ross

b3 Profit on sale of investments

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46/72

=ess: =oss on sale of investments

". TNR *90B To be specified3

TTA= A3

$. PRO*%*9% ther than ta!ation3

a3 7or diminution in the value of

investments

b3 thers to be specified3

&. TNR P9%%

a3 !penses other than those related to

*nsurance ,usiness

b3 thers To be specified3

TTA= ,3

Profit ,efore Ta!

Provision for Ta!ation

Profit After Ta!

=ess: 0atastrophe Reserve S

Profit available for appropriation

APPRPR*AT*9%

a3 *nterim dividends paid during the

year

46


47/72

b3 Proposed final dividend

c3 #ividend distribution ta!

d3 Transfer to any Reserves or ther

Accounts to be specified3

,alance of profitF loss brought forward from last

year

,alance carried forward to ,alance %heet

7RB ,4,=



,A=A90 %NT A% AT "1%T

BAR0N) 2?WWW.

%chedule 0urrent

;ear

Previous

;ear

Rs.???3 Rs.???3

%>R0% 7 7>9#%

%NAR0AP*TA=

&

R%RO% A9# %>RP=>% '

47


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7A*R OA=> 0NA9+ A00>9T

,RR-*9+% K

TTA=

APP=*0AT*9 7 7>9#%

*9O%TB9T% C

=A9% G

7*# A%%T% 1?

0>RR9T A%%T%

0ash and ,ank ,alances 11

Advances and ther Assets 12

%ub4Total A3

0>RR9T =*A,*=*T*% 1"

PRO*%*9% 1$

%ub4Total ,3

48


49/72

9T 0>RR9T A%%T% 03 D A 4 ,3

B*%0==A9>% P9#*T>R to the e!tent

not written off or ad(usted3

1&

#,*T ,A=A90 *9 PR7*T A9# =%%

A00>9T

TTA=

09T*9+9T =*A,*=*T*%

Particulars 0urrent ;ear Previous ;ear

Rs.???3. Rs.???3.

1. Partly paid4up investments

2. 0laims) other than against policies) not

acknowledged as debts by the company

". >nderwriting commitments outstanding

$. +uarantees given by or on behalf of the 0ompany

&. %tatutory demandsF liabilities in dispute) not

provided for

'. Reinsurance obligations

K. thers to be specified3

TTA=

SCHEDUES *ORMING 'ART O* *INANCIA STATEMENTS

49


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SCHEDUE 1

'REMIUM EARNED nearned Premium

Ad(ustment for changes in premium received in

advance

Total '3e0i20 Ea3ned .Net/

'3e0i20 Inco0e $3o0 b2%ine%% e$$ected "

*n *ndia

utside *ndia

Total '3e0i20 Ea3ned .Net/

50


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SCHEDUE (

CAIMS INCURRED


52/72

SCHEDUE-

COMMISSION

'a3tic2la3% C233ent ea3 '3e!io2% ea3

Rs.???3 Rs.???3

0ommission paid

#irect

Add: Re4insurance Accepted

=ess: 0ommission on Re4

*nsurance 0eded

9et 0ommission

SCHEDUE >

O'ERATING E+'ENSES REATED TO INSURANCE BUSINESS

'a3tic2la3% C233ent ea3 '3e!io2%

ea3

Rs.???3 Rs.???3

1. mployees remuneration X welfare benefits

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2. Banagerial remuneration

". Travel) conveyance and vehicle running e!penses

$. Rents) rates X ta!es

&. Repairs

'. Printing X stationery

K. 0ommunication

C. =egal X professional charges

G. Bedical fees

1?. AuditorsQ fees) e!penses etc

a3 as auditor

b3 as adviser or in any other capacity) in respect of

i3 Ta!ation matters

ii3 *nsurance matters

iii3 Banagement services5 and

c3 in any other capacity

11. Advertisement and publicity

12. *nterest X ,ank 0harges

1". thers to be specified3

1$. #epreciation

TOTA

SCHEDUE F

53


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SHARE CA'ITA

'a3tic2la3% C233ent

ea3

'3e!io2%

ea3

Rs.???3. Rs.???3.

1. Authorised 0apital

/uity %hares of Rs..... each

2. *ssued 0apital

/uity %hares of Rs. .....each

". %ubscribed 0apital

/uity %hares of Rs.......each

$. 0alled4up 0apital

/uity %hares of Rs. .....each

&. =ess : 0alls unpaid

Add : /uity %hares forfeited Amount originally paid

up3

=ess : Preliminary !penses

!penses including commission or brokerage

on

>nderwriting or subscription of shares

TOTA

SCHEDUE FA

SHARE CA'ITA

'ATTERN O* SHAREHODING


55/72

Sha3eholde3 C233ent ea3 '3e!io2% ea3

N20be3

o$ Sha3e%

o$

Holdin,

N20be3 o$

Sha3e%

o$ Holdin,

Promoters

Y *ndian

Y 7oreign

thers

TTA=

SCHEDUE 6

RESER7ES AND SUR'US


Rs.???3 Rs.???3

1. 0apital Reserve

2. 0apital Redemption Reserve

" %hare Premium

$ +eneral Reserves

=ess: #ebit balance in Profit and =oss Account

=ess: Amount utili6ed for ,uy4back

& 0atastrophe Reserve

' ther Reserves to be specified3

K ,alance of Profit in Profit X =oss Account

TOTA

55


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SCHEDUE - &

BORROWINGS


Rs.???3. Rs.???3.

1. #ebenturesF ,onds

2. 7i!ed #eposits

". ,anks

$. 7inancial *nstitutions

&. ther entities carrying on insurance business

'. thers to be specified3

TOTA

SCHEDUE-

IN7ESTMENTS


Rs.???3 Rs.???3

ONG TERM IN7ESTMENTS

1. +overnment securities and +overnment guaranteed

bonds including Treasury ,ills

2. ther Approved %ecurities

". ther *nvestments

a3 %hares

aa3 /uity

bb3Preference

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57/72

b3 Butual 7unds

c3 #erivative *nstruments

d3 #ebenturesF ,onds

e3 ther %ecurities to be specified3

f3 %ubsidiaries

g3 *nvestment Properties4Real state

SHORT TERM IN7ESTMENTS

1. +overnment securities and +overnment guaranteed

bonds including Treasury ,ills

2. ther Approved %ecurities

". ther *nvestments

a3 %hares

aa3 /uity

bb3Preference

b3 Butual 7unds

c3 #erivative *nstruments

d3 #ebenturesF ,onds

e3 ther %ecurities to be specified3

f3 %ubsidiaries

g3 *nvestment Properties4Real state

TOTA

IN7ESTMENTS

1 *n *ndia

57


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2 utside *ndia

TOTA

SCHEDUE - @

OANS


Rs.???3 Rs.???3

1. %0>R*T;4-*% 0=A%%*7*0AT*9

%ecured

a3 n mortgage of property

aa3 *n *ndia

bb3utside *ndia

b3 n %hares) ,onds) +ovt. %ecurities

c3 thers to be specified3

>nsecured

TOTA

2. ,RR-R4-*% 0=A%%*7*0AT*9

a3 0entral and %tate +overnments

b3 ,anks and 7inancial *nstitutions

c3 %ubsidiaries

d3 *ndustrial >ndertakings

e3 thers to be specified3

TOTA

". PR7RBA904-*% 0=A%%*7*0AT*9

a3 =oans classified as standard

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aa3 *n *ndia

bb3utside *ndia

b3 9on4performing loans less provisions

aa3 *n *ndia

bb3utside *ndia

TOTA

$. BAT>R*T;4-*% 0=A%%*7*0AT*9

a3 %hort Term

b3 =ong Term

TOTA

SCHEDUE - 1)

*I+ED ASSETS

Rs.???3

'a3tic2la

3%

Co%t8 G3o%% Bloc

De#3eciation

Net Bloc

peni

ng

Additio

ns

#educti

ons

0losi

ng

>pt

o

=as

t

;ea

r

7or

Th

e

;ea

r

n %alesF

Ad(ustme

nts

To

#at

e

As

at

ye

ar

en

d

Previo

us

;ear

59


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+oodwill

*ntangible

s

specify3

=and4

7reehold

=easehold

Property

,uildings

7urniture

X 7ittings

*nformati

on

Technolo

gy

/uipmen

t

Oehicles

ffice

/uipmen

t

thers

%pecify

nature3

TOTA

'RE7IO

US

EAR

SCHEDUE- 11

60


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CASH AND BAN BAANCES

'a3tic2la3% C233ent

ea3

'3e!io2%

ea3

Rs.???3 Rs.???3

1. 0ash including che/ues) drafts and stamps3

2. ,ank ,alances

a3 #eposit Accounts

aa3 %hort4term due within 12 months3

bb3 thers

b3 0urrent Accounts

c3 thers to be specified3

". Boney at 0all and %hort 9otice

a3 -ith ,anks

b3 -ith other *nstitutions

$. thers to be specified3

TOTA

,alances with non4scheduled banks included in 2 and " above

CASH J BAN BAANCES

1 *n *ndia

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