Inventories are assets - CA StudyAS1: DISCLOSURE OF ACCOUNTING POLICY Level I Level II Level III 1. Listed or Being Listed Enterprise 2. Banks and FI 3. Insurance Companies 4. Turnover

AS1: DISCLOSURE OF ACCOUNTING POLICY

Level I Level II Level III

1. Listed or Being Listed

Enterprise

2. Banks and FI

3. Insurance Companies

4. Turnover > 50 Crore in

Previous Audit Report

5. Borrowings > 10 crore in CY

6. Subsidiary and Holding of

such enterprise

Turnover > 1 Crore

Borrowings > Rs.1 Crore

Subsidiary or Holding of Such

Enterprise

Others and MSME

AS2: INVENTORY

Objective and Scope

• Set out overall requirements for the presentation of financial statements, guidelines for their structure and minimum requirements for their content

Complete set of financial statements

•Balance sheet

•statement of P&L

•statement of cash flow

•notes

•Going Concern

•Consistency

•Accrual

Fundamental Accounting Assumptions

•Materiality

•Substance Over Form

•PrudenceTrue and Fair View

Defi

niti

on Inventories are assets :

• Held for sale in ordinary course of business

• In the process of production for such sale

• In the form of material or supplies to be consumed in the production process or in the rendering of services

ACCOUNITNG STANDARDS

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C A . S U M I T L . S A R D A

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Measurement principle Inventories measured at lower of cost and net realizable value (NRV)

NRV NRV is the estimated selling price in the ordinary course of business, less the estimated

cost of completion and the estimated costs to make the sale

Cost formulas

Scope

All inventories except:

Financial instruments (Ind

AS 32)Biological assets

Does not apply to the measurement of inventories held by:

Producers of agricultural and forest products

measured at NRV

Minerals and mineral products measured at NRV

•Cost of purchase, including import duties, non-recoverable taxes, transport and handling and other directly attributable cost (trade discounts and rebates to be deducted)

•Cost of conversion such as direct labour, fixed and variable production overheads

•Other cost incurred in bringing the inventories to their present location and condition. Eg: cost of designing products for specific customers.

Cost Includes

•Abnormal waste

•Storage cost (unless necessary in the production process)

•Admin overheads not related to production

•Selling costs

•Interest cost (AS16 identifies circumstances where borrowing costs can be included)

Cost Excludes

For non-interchangeable items: specific identification

For interchangeable items, either :- FIFO, WEIGHTED

AVERAGE COSTUse of LIFO is prohibited


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Techniques for the measurement of cost

Standards cost method or the retail method used for convenience, if the results approximate cost

AS3: CASH FLOW STATEMENT

CLASSIFICATION

Standard cost method

•It takes into account normal levels of material and supplies, labour, efficiency and capacity utilization. They are regularly reviewed and revised

Retail method

•Often used in the retail industry. The cost of the inventories is determined by reducing the sale value of the inventories by the appropriate percentage gross margin

Operating activities

•principal revenue producing activities of the entity from the transaction that enters into the determination of profit or loss.

•Eg:

•cash receipts from the sale of goods and the rendering of services

•cash payment to suppliers for goods and services

•cash payments to and on behalf of employes

Investing activities

•Acquisition and disposal of long-term assets and other investments not included in cash equivalents.

•Eg:

•Purchase and sale of property, plant and equipment, intangible and other long term assets.

•Interest and dividend received.

•Cash payments (and receipts) to acquire (and sell) equity or debt instruments of other entities and interests in joint ventures.

•Cash advances and loans made to other partieS

Financing activities

•Activities that result in changes, in the size and composition of the contributed equity and borrowing of the entity. Eg:

•Cash proceeds from issuing shares

•Cash payment to acquire or redeem the entity’s shares

•Cash proceeds from issuing debentures, loans, etc.

•Cash repayment of loans, etc


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REPORTING CASHFLOWS

Operating

activities

Direct

method

Information about major classes of gross cash receipts and gross cash

payments may be obtained either:

a) From the accounting of the records of the entity or

b) By adjusting sales, cost of sales and other items in the statement of

profit and loss for –

I. Changes during the period in inventories and operating receivables and

payables

II. Other non-cash items and

III. Other items for which the cash effects are investing or financing

cash flows.

Indirect

method

Determined by adjusting profit and loss for the effects of:

a) Changes during the period in inventories and operating receivables and

payables

b) Non-cash items such as depreciation, provisions, deffered taxes,

unrealized foreign currency gains and losses, and undistributed profits

of associates and

c) All other items for which the cash effects are investing or financing

cash flows

Investing

and

financing

activities

Gross

basis

Major classes of gross cash receipts and gross payments except for

transaction which are required to be reported on net basis

Net basis 1. Cash receipts and payments on behalf of customers when the cash

flows reflect the activities of the customer rather than those of entity

and

2. Cash receipts and payment for items in which the turnover is quick, the

amounts are large, and the maturities are short

Other

Disclosures

1. Explanation of significant amount of cash balances that are not available for use

2. Disclosure of relevant information:

a. Undrawn borrowing amount

b. Identifying cash flows that increases operating capacity separately from

those that maintain operating capacity and

3. Cash flows of each reportable segments

Cash comprises cash on hand and demand deposits

Cash equivalents

Short term

High liquidity investments

Readily convertible to known amount of cash

Subject to insignificant risk of changes in value


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Specific considerations

AS4: EVENTS AFTER THE REPORTING DATE

Definition Those events favorable and unfavorable, that occur between the end of the

reporting period and the date when the financial statements are approved by the

board of directors

Recognition

and

measurement

Adjusting

events

An entity shall adjust the amounts recognized in its financial

statements.

Settlement after reporting date of court cases that confirm the

entity had a present obligation at reporting date

Bankruptcy of a customer that occurs after reporting date

confirms a loss existed at reporting date on trade receivables

Sales of the inventories after reporting date that give evidence

about their net realizable value at reporting date

Determination after reporting date of cost of assets purchased or

proceeds from assets sold, before reporting date

For

eign

cur

renc

y ca

sh f

low

s Cash flow transaction in a foreign currency shall be recorded in an entity’s currency by applying the exchange rate between the Indian currency and the foreign currency at the date of cash flow

Unrealized gains and losses arising from changes in exchange rates are not cash flows but it is reported in the statement of cash flows for reconciliation purpose

Inte

rest

and

div

idend

s Cash flows from interest and dividends received and paid shall each be disclosed separately

Financial institution classifies interest paid and interest received as cash flow

Other entity classifies interest paid as financing cash flows while interest and dividends received as investing cash flow

Tax

es o

n in

com

e Cash flows arising from taxes on income are normally classified as operating cash flow unless they can be specifically identified with financing and investing activities

Adju

sting

eve

nts Those that provide evidence of

conditions that existed at the end of the reporting period

Non

-adju

sting

eve

nts Those that are indicative of

conditions that arose after the reporting period


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Non-

adjusting

events

An entity shall not adjust the amounts recognized in its financial

statements.

Examples-

Major business combinations or disposal in subsidiary

Announcing a plan to discontinue operations

Major purchase or disposal of assets, classification assets as held

for sale or expropriation of major assets by government

Destruction of major production plant by fire after reporting date

Announcing or commencing a major restructuring

Major ordinary share transactions

Abnormal large changes after the reporting period in asset prices or

foreign exchange rates

Changes in tax rate or tax law

Entering into significant commitments such as guarantees

Commencing major litigation arising solely out of events that

occurred after the reporting period

Dividend The entity shall recognize dividend as liability dividends are declared to

holders of equity instruments after the reporting period

Disclosures

AS5: ACCOUNTING POLICIES & ESTIMATES

Going

co

ncern An entity shall restate the financial statements on a going concern

basis if management determines after the reporting date either that it intends to liquidate the entity or to cease trading, or that it has no realistic alternative but to do so

Date

of

app

rova

l fo

r issu

e

An entity shall disclose the date when financial statements were approved for issue and who gave that approval.

Non

-adju

sting

eve

nts

aft

er

the

repo

rting

period If material, non-disclosure could influence the economic decisions of users.

Thus, an entity shall disclose the following:

•The nature of the event, and

•An estimate of its financial effect, or a statement that such an estimate cannot be made

• Is required by AS

• Required by Statute

• Results in the financial statements providing reliable and more relevant information

Changes in accounting

policies only if


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Principle of

Change in

Accounting Policy

If change is due to new standard / interpretation, apply transitional

provision

If no transitional provisions, calculate retrospectively and account for

prospectively

Errors

Changes in accounting estimates

Revised AS 10: Property Plant and Equipment

•Accounting policy differs in substance from those previously undertaken

•Transaction did not occur previously or were immaterial. Any revaluation is assets as per AS10 is not a change in accounting policy to be dealt with their respective standards and not this standard

The following are not changes

in accounting policies

Definition

•Prior period errors are omission from, and misstatements in, the entity’s financial statements for one or more prior periods

Principle

•Correct material prior period error by:

•Presenting seperately in Current year for the prior period(s) presented,

Definition

A change in accounting estimate is an adjustment of the carrying amount of the asset or a liability, or the amount of the periodic consumption of an asset, that results from the assessment of the present status of, and expected future benefits and obligations associated with, assets and liabilities.

Changes in accounting estimates result from changes in the circumstances, new information or new developments and accordingly, are not corrections of errors

Principle Recognize the

change prospectively in profit or loss in:

Period of change, if it only affects that period, eg. Change in bad debts estimates or

Period of change and future periods if the changes affect both. Eg. Change in useful life of a depreciable asset

Disclos

ure The nature and

amount of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in future periods.

If the amount of the effect in future periods is not disclosed because it is impracticable, an entity shall disclose that fact

•It prescribes the accounting treatment for PPE

•It applies in accounting for PPE except- Ind AS105, 41, 106 and mineral rights and reserves etc

Objective and scope


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Asset acquired

in exchange

Of Another Asset Fair market value or Net book value whichever is more

clearly evident

Of Equity Fair market value

•Plant, property and equipment- tangible items are held for use in the production or supply of goods, for rental to others, for administrative purposes, and are expected to be used during more than one year.

•Depreciation- it is the systematic allocation of the depreciable amount of an asset over its useful life

Definition

Reco

gnition Recognize the cost of an item of PPE as an asset only

if:

• Probable future economic benefits associated with the item will flow to the entity and

• The cost of the item can be measured reliably.

Initial

measu

rement

Whether acquired or self-constructed PPE should be initially recorded at cost.

Cost comprises-

• Its purchase price + import duties and non-refundable taxes(-) trade discount and rebate

• Any cost directly attributable to bringing the asset to the location and condition necessary for it to be capital of operating in the manner intended by management

• The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

• Internal profit are eliminated

• Also include borrowing costs as per AS 16

• In an exchange transaction: cost is measured at the fair value

Subsequent measurement

The cost model

the asset is carried at cost less accumulated and impairment losses

The revaluation model

the asset is carried at a revalued amount, being its fair value at the date of the revaluation, less subsequent depreciation and impairment

losses


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Depreciation The depreciable amount is allocated on a systematic basis over the asset’s

useful life.

The residual value and the useful life shall be reviewed annually

Any change is accounted for prospectively as a change in an accounting

estimates under Ind AS 8

Depreciation is charged to profit or loss, unless it in included in the carrying

amount of another asset

Depreciation commences when the asset is available for use.

Depreciation

method

Should reflect the pattern in which the asset’s future economic benefits are

expected to be consumed

It should be reviewed annually and

Any significant change is accounted for as a change in an accounting estimate

under Ind AS 8

Method of depreciation-

1.straight line method

2. Diminishing balance method

3. Units of production method

Oth

ers

Cost of replacing part/major inspection-

•It is recognized in the carrying amount of the item of PPE if the recognition criteria are satisfied and

•Remaining carrying amount of the parts that are replaced or previous inspection cost is de-recognized

Spare parts, stand-by or servicing equipment: are classified as PPE when they meet the definition of PPE otherwise classified as inventory.

Previously there was

Increase in Value

Now Increase in value

Create RR

now decrease in Value

First adjust to RS, then to P&L

Decrease in value

now increase in value

First adjust to P&L euqal to

above, then RS

now Decrease in value

Charge to P&L

Subsequent

Revaluation


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De-recognition

The carrying amount of an item of PPE shall be derecognized-

a) On disposal or

b) When no future economic benefits are expected from its use or disposal

Gain or loss = difference between net disposal proceeds and carrying amount

Gain or loss is included in profit or loss

In case of revalued asset: revaluation surplus may be transferred directly to retained earnings

Revaluation shall be made with sufficient regularity to ensure that the carrying amount does not

differ materially from fair value at the end of the reporting period

Revaluation frequency depends upon the movements (annual revaluation for volatile items or

intervals between 3-5 years for others)

If an item is revalued, the entire class of asset to which that asset belongs is required to be

revalued

The net carrying amount of the asset is adjusted to the revalued amount and either

o The gross carrying amount is adjusted in manner consistent with the net carrying amount

o Accumulated depreciation is adjusted to equal the difference between the gross and net

carrying amount, or

o Accumulated depreciation is eliminated against the gross carrying amount

An increase in revaluation is recognized in other comprehensive income and accumulated in equity

under the heading of revaluation surplus except when the increase is recognized in profit or loss

to the extent that it reverses a revaluation decrease of the same asset previously recognized in

profit or loss.

Disclosure

Disclosures include but are not limited to-

Measurement bases used for determining the gross carrying amount

Depreciation method used

Useful life or depreciation rates used

Gross carrying amount and the accumulated depreciation at the start and end of the period

A reconciliation of the carrying amount at the start and end of the period showing-

addition/ assets held for sale/ other disposal/ acquisition through business combination/

revaluation/ impairment losses recognized and reversed / depreciation / exchange

differences/ other changes

Existence and amounts of restrictions on the title, and PPE pledged as security

Contractual commitments for the acquisition of PPE.

AS7: CONSTRUCTION CONTRACTS

Scope

• To establish ground rules for recognition of revenue and cost, relating to construction contracts, in different accounting periods in which construction work is performed


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AS9: REVENUE RECOGNITION

Fixed Price Contract

•Contract price or rate per unit of output is fixed

•Escalation clause could be present

Cost plus contract

•Revenue = Cost + Some percentage or fixed amount

Identification of contracts

Group of assets

(Construction of each asset to be treated as seperate contract if:)

Seperate proposal for each asset

seperate negociation for each asset with acceptance/rejection possible for each

part

identification of cost and revenue for each asset

Group of contracts

(With single or several customers to be treated as single if:)

Negotiated as a single package

Contacts closely inter related and in substance part of a single project

performed concurrently or in continuous sequence

Contract Revenue

•Recognised on Percentage Completion method

•Depends on initial amount agreed

•Variations in receipt maybe recognised if measurable and probable

Contract Expense

•Recognised on Percentage Completion method

•Any expected loss to be charged off immediately

•Includes all Direct cost and allocable cost

•Accrual basisInterest Charges & Royalty

•Right to receive establishedDividend

•exchange permission grantedInterest, royalty, dividend from

foreign

•when uncertainty removedescalation, incentives etc.

•recognise if item is ready for deliverydelivery delayed at buyers request

•when installation is completeinstallation major portion


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AS11: FOREIGN EXCHANGE TRANSACTION

DEFINITIONS

Net

investment

in foreign

operations

the amount of the reporting entity’s interest in the net assets of that operation

An item of which settlement is neither planner more likely to occur in the foreseeable

future is,

E.g.: Long term receivable

Trade receivable or trade payables are not included in the investment in foreign

operations

Monetary

items

Units of currency held and assets and liabilities to be received or paid in a fixed or

determinable number of units of currency.

E.g.: employee benefits to be paid in cash; provision that are to be settled in cash; and

cash dividends that are recognized as a liability.

Non-

Monetary

items

Other than Monetary item

I.e. absence of a right to receive (or an obligation to deliver) a fixed or determinable

number of units of currency.

E.g. prepaid rent, goodwill; intangible assets; inventories, PPE etc.

•approved or approval time expired w.e.l.sale on approval

•provision as per previous experienceguaranteed sales

•when sold by consigneeconsignment sales

•straight line basissubscriptions

• installments-recognise immediately

• interest- accrual basishire purchase

•service completedadvertising

• project charges- one time basis

• consultancy- continuous basisfinancial service commisions

•restrictions on remittances

•closing rate is unrealistic

when closing rate cannot be used for monetary items

• exchange difference recognised as income or loss in P&Lintegral operations

• exchange difference recognised in Foreign exchange reserve account

• on disposal income or expense recognised in P&Lnon integral operations


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Accounting for Integral Assets

Fixed Assets Historical cost

Inventory Purchase date price or NRV at fair value w.e.l.

Current Assets & Liab. Closing rate

Share Capital & Reserve Purchase date Exchange rate

P&L Average Rate Foreign Exchange

Fluctuation

Transferred to Profit and Loss

Accounting for Non Integral Operations

All assets and liab. Closing rate

Income and Exp. Date of transaction

Share Capital & Reserve Purchase date Exchange rate

P&L Average Rate Foreign Exchange

Fluctuation

Transferred to Foreign Currency Translation Reserve

AS12: GOVERNMENT GRANT

Related to specific fixed Asset Deduct form value of asset or,

Created a deferred reserve account charged to P&L as

deferred income account

Related to non-depreciable asset Credited to Capital Reserve

Related to obligatory requirement Credit to P&L over the period of incurring cost of obligation

Related to revenue Credit to P&L

Non-monetary asset at concessional

rate or no cost

No accounting required

Related to compensation for expense or

loss

Treated as extra-ordinary item

Becomes refundable Treated as extraordinary expense

(refund related to specific

fixed asset)

Depreciate prospectively

Definition

•Assistance by government

•In the form of transfer of monetary resources to an entity

•In return for past or future compliance with certain conditions relating to the operating activities on the entity

•Exclude those forms of government assistance which cannot reasonably have a value placed on them and which cannot be distinguished from the normal trading transactions of the entity

Scope

•It shall be applied in accounting and disclosure of government grant except

•Special problems were changing prices affect government grants

•Tax benefits: income tax holidays, investment tax credits, accelerated depreciation

•Government participation in the ownership of an entity


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AS13: INVESTMENTS

Scope

• To prescribe accounting treatment for Investments in the financial statements of an enterprise amd related disclosure requirements

Current Investments

• Readily realizable within 12 months from the date of purchase

• Carried at cost or Fair Value w.e.l., diff trf to P&L

Long term Investments

• Intended to be held for long term

• Carried at Cost unless Permanent Decline

Assets acquired for other than cash

by issue of securities

fair value of securities

by exchange of another asset

Fair value of asset given up or investment received whichever is more clearly evident

Identification of contracts

Group of assets

(Construction of each asset to be treated as seperate contract if:)

Seperate proposal for each asset

seperate negociation for each asset with acceptance/rejection possible for each

part

identification of cost and revenue for each asset

Group of contracts

(With single or several customers to be treated as single if:)

Negotiated as a single package

Contacts closely inter related and in substance part of a single project

performed concurrently or in continuous sequence


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AS14: AMALGAMATION

Accounting Treatment

Method Pooling of Interest Purchase Method

Reserves of transferor

company

Continued Discontinued except statutory

reserves

Difference of consideration

paid to asset acquired

Adjusted to reserves If excess – CR

If less paid – Goodwill

Recording assets/ liabilities Existing carrying amount Fair value recognition permitted

AS 15: EMPLOYEE BENEFITS

Objective and

scope

To prescribe accounting and disclosure for employee benefits

Applied by an employer in accounting for all employee benefits except shared

base payments.

Definition

Reclassified from Current to Long Term

•Transfer at Lower of Cost and Fair Value at the date of transfer

Reclassified from Long Term to Current

•Transfer at lower of Cost or Carrying Amount at the date of transfer

• dividend/interest is deducted from the asset valueacquired cum dividend/interest rights

• deducted from the asset valuepre aquisition dividend

• accounted in P&Lpost acquisition dividend

• added to carrying amount of investmentrights issue

• transferred to P&Lrights not subscribed and sold

• deduct sale of such rights portion from asset valueif investment acquired cum right

Type of Amalgamation

Pooling of Interest

All assets and liabilities

transferred

90% of shareholders

continue

Consideration only in equity

shares

Business not discontinued

no adjustment in book value

made

Purchase Method

if any of the condition

stated in PoI not satisfied


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Employee benefits are all forms of consideration given by an entity in exchange for service

rendered by employees or for the termination of employment

Types of

employee

benefits

SHORT TERM EMPLOYEE BENEFITS

E.g.: Wages, salaries, bonuses, etc. that are expected to be settled wholly within the 12

month’s from the date service is rendered

Compensated

absence :

Accumulating: carried forward and can be used in future periods if

the current period’s entitlement is not used in full

Non-accumulating: Cannot be carried forward to be used in future

period. Recognize expenses when absence occurs

All short term

benefit

Recognize the undiscounted amount as an expense / liability when the

employee has rendered service in exchange for the benefits

Profit sharing &

bonus schemes

Recognize the expenses when entity has a present legal or

constructive obligation to make payment ; and

A reliable estimate of the obligation can be made

OTHER LONG TERM BENEFITS

E.G: long service leave, etc An entity shall recognize the net total of the following

amounts in profit or loss:

(a) Service Cost;

(b) Net interest received on the defined benefits asset; and

(c) Re-measurement of the net defined benefits assets

TERMINATION BENEFITS

Provided in

exchange for

the termination

either

An entity’s decision to terminate an employee’s employment before

the normal retirement date or

An employee’s decision to accept an offer of benefits in exchange

for the termination of employment

Recognize

liability and

expense at the

earlier of

The date the entity cannot be longer withdraw the benefit or offer

The date the entity recognizes restricting cost

If termination benefits settled wholly before 12 months – apply short term employee

benefits

If termination benefits are not settled wholly before 12 months –apply other long term

employee benefits

POST EMPLOYEE BENEFITS

Post-employee benefits included:

Retirement benefits (e.g.: pension , lump sum payments

Other post –employment benefits life insurance, medical care.)

Insured

benefits

An entity may pay insurance premiums of fund a post employment benefit

plan.

Treat such plan as a defined contribution plan unless the entity will have a

legal or constructive obligation either


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8600364185

To pay the employee benefits directly when they fall due;

To pay further amounts if the insurer does not pay all future employee

benefits

If the entity retains such a legal or constructive obligation, the entity

shall treat the plan as defined benefits plan

Multi

employee

plans

These are defined contribution plans or defined benefit plans that pools

the asset of various entities that are not under the common control and

use those assets to provide benefits to employees of more than one entity

If the plan is defined benefit plan, an entity may apply defined

contribution accounting when sufficient information is not available to

apply the accounting requirements for defined benefit plans

State

Plans

An entity shall account for a state plan in the same way as for the multi

employer plan

Defined

Contributi

on Plan

Straightforward scheme Obligation is determined by the amount paid

into the plan each period

No actuarial assumption

The entity shall recognize the contribution payable

to the defined contribution plan in exchange for the

service

As a liability

As an expense

Disclose the amount recognized as an expense for DCP

Defined

Benefit

Plan

More complex scheme

o Need actuarial assumptions for estimating future benefits

o Need discounting of obligation to present value

o Since assumption change there will be actuarial gain or loss

Recognition and measurement

Following steps to account for defined benefit plans

Determine the

deficit or surplus

Make the reliable estimate of the ultimate cost of

the benefit that the employees have earned in

return for their service in the current and prior

periods (using the actuarial technique by the

projected unit credit method)

Discount that benefit in order to determine the

present value of the defined benefit obligation –

fair value of the plan assets

Determine net

defined benefit

asset/ liability

Amount of the deficit or surplus as above, adjusted

for any effect of limiting a net defined benefit

asset to the asset ceiling

Determine amount

to be recognized in

profit or loss

Current service cost

Past service cost or gain or loss on settlement

Net interest on net defined benefit liability

Actuarial Gain or loss

Presentation : offset

An entity shall offset an asset relating to one plan against a liability relating to another plan when

the entity.: (a) Has a legally enforceable right ;and


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(b) Intend either to settle the obligation on a net basis ,or to realize the surplus in one plan and

settle its obligation under the other plan simultaneously

Curtailment and

Settlement

Decrease in the amount of obligation accounted for

Steps

Reduce unamortized past service cost

Determine Curtailment benefit on gross obligation

Reduce Gross obligation proportionately by related curtailment after

reducing curtailment related to Unamortized past service cost

AS16: BORROWING COST

Definition

Borrowing

cost

Borrowing cost are interest and other costs incurred by an entity in connection with

the borrowing of funds

Borrowing cost may included :

(a) Interest expense

(b) Amortization of discount/ premium on loans

(c) Amortization of ancillary cost

(d) Finance lease charges

(e) Exchange differences arising from foreign currency

Qualifying

assets

(QA)

A qualified asset is an asset that necessarily takes a substantial period of time to get

ready for its intended use or sale.

Example include:

I. Inventories (that are not produced over a short period of time.)

II. Manufacturing plant

III. Power generation facilities

IV. Intangible assets

Example that is not (QA)

I. Financial assets

II. Assets that are ready for their intended use or sale when acquired

Recognition Capitalize borrowing cost that are directly attributable to the acquisition,

construction or production of a qualifying assets as part of the cost of that assets

Other borrowing cost as an expense in the period in which it incurs them.

Scope

• It applies in accounting for borrowing cost.

• does not deal with the actual or imputed cost of entity

• it does not apply to the borrowing cost direcly attributable to the :

• A qualifiying assets measured at fair value


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Borrowing

cost eligible

for

capitalization

Those borrowing cost that would have been avoided if the expenditure on the

qualifying assets had not been made.

In case of specific borrowing – actual borrowing costs incurred on that borrowing

less any investments income on the temporary investment of those borrowings.

In case of general borrowing apply a capitalization rate* to the expenditure on this

assets

The amount of the borrowing cost capitalization during the period cannot exceed the

amount of borrowing costs incurred during the period

*capitalization rate= weighted average of borrowing costs applicable to the general

borrowing

Disclosure

Amount of borrowing cost capitalized during the period

Capitalization Rate used

AS 17: SEGMENT REPORTING

Core principle an entity is required to disclose information to enable the nature and financial

effect of the business activities and the economic environments in which it

operates

Scope If an entity voluntarily chooses to disclose information about segment, it shall

not describe the information as segment information.

If a financial report contains both the consolidation FS of a parent within this

AS scope +parent’s separate FS, then applicable to only consolidated FS

Operating

segment

If risk and returns related to product or service- Business Segment

If risk and return related to geographical area – Geographical Segment

Com

menc

em

ent

of

the c

apit

aliz

atio

n

Incurs expenditures of the assets

Incurs borrowing cost

Undertakes activities that are necessary to prepare the assets for its intended use or sale

Sus

pens

ion

of c

apit

aliz

atio

n Suspend capitalization of borrowing cost during extanded period in which it suspends active development of a qualifying assets

When temporary delay is a part of prodn / construction than capitalization continues

Cess

atio

n of

cap

ital

izat

ion Cease capitalization when

substantially all the activities necessary to prepare the assets for this intended use or sale are complete.

When in entity completes the contrucation of a qualifying assets in parts and each part is capable of being used while contrucation continues on other parts then cease capitalization borrowing costs when it completes substsncially all the activities necessary to prepare that part for its intended use or sale


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Quantities

threshold

Information about an operating segment is required to be disclosed

separately that meets any of the following quantitative threshold :

- Its reported revenue, including both external sales and intersegment

sales, =10 % or more of the combined revenue of all operating segments

- The absolute amount of its reported profit or loss is 10 % or more of

the greater of :

o The combined reported profit of all operating segments that did not

report a loss; and

o The combined reported loss of all operating segments that reported

a loss.

- Its assets are 10 % or more of the combined assets of all operating

segments.

- If qualified minimum threshold limit in PY

- Management Discretion

If the total external revenue reported by operating segment constitutes

less than 75% of the total revenue, additional operating segments shall be

identified as reportable segments until at least 75 % of the entity’s

revenue is included in reportable segment

AS 18: RELATED PARTY DISCLOSURE

DEFINITIONS

Key management

personnel

persons having authority and responsibility for planning, directing and

controlling the activities of the entity, directly or indirectly, including any

director (whether executive or close family member)

Related party is a person or entity that is related to the reporting entity

•To ensure that financial statement contains disclosure requirement of related party relationships

•This standard shall be applied in:

•Indentifying relating party relationships, and transactions ;

•Identifying outstanding balances, including commitments;

•Identifying the circumstances in which disclosure is required; and

•Determining the discloser to be made

Objective & Scope

•Related party relationship transaction and outstanding balance in the related consolidated and separate financial statement of:

•A parent

•Investors with joint control of an investee

•Investor with significant influence over an investee

Disclosure is also

required of


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8600364185

Close family

member

those family member how may be expected to influence , or be influenced by

that person in their dealing with the entity including :

That person’s children ,spouse, brother ,sister father and mother ;

Children of that person’s spouse; and

Dependents of the that person or that person’s spouse

Government refers to government , government agencies and similar bodies whether local,

national or international

Related party

Individual A person or a close family member is related to a reporting entity if that person :

I. Has control or joint control of the reporting entity;

II. Has significant influence over the reporting entity; or

III. Is a member of the key management personnel of the reporting entity or of its

parent.

Entity Applies to an entity is related to a responding entity:

I. Parent, subsidiary and fellow subsidiary;

II. Associate & Joint venture;

III. The entity is controlled or jointly controlled by a person identified in above

table

IV. A person identified in above table has significant influence over the entity or is

a member of the key management personnel of the entity (or of parent of the

entity)

V. The entity, or any of its group member provides key management personnel

services.

Non related

party

Two entities simply because they have a director or key management personnel in

common

Two joint ventures who share joint control over a joint venture.

Provider of finance, trade unions, public utilities, and department and agencies of

a government simply by virtue of their normal dealings with an entity.

A single customer, supplier, franchiser, distributor, or general with whom an

entity transects a significant volume of business merely by virtue of the resulting

economic dependence.

DISCLOSURE

All Entities Relationship between a parent and its subsidiaries shall be disclosed irrespective of

whether there has been transaction between them.

An entity shall disclose the name of its parent and, if different, the ultimate

controlling party


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8600364185

If there has been related party transaction during the reporting period then disclose

The nature of the related party relationship

Information about those transitions and

Outstanding balances, including commitments

Provisions for doubtful debts

Bad or doubtful debt expense recognized from related parties

The above disclosure be made separately

For the parent;

Entities with the joint control of, or significant influence over, the entity;

subsidiaries; associates;

Joint ventures in which the entity is a joint venture;

Key management personnel of the entity or its parent; and

Other related parties

Amounts incurred by the entity for the provision of key management personnel

services that are provide by a separate management entity shall be disclosed

AS19: LEASES

Definition Lease an agreement whereby the lessor conveys to the lessee in return for a

payment or series of payments the right to use an asset for an agreed

period of time

Minimum lease

payments

lease payments over lease term + residual value guaranteed to lessor

+amount guaranteed by or on behalf of lessee

Gross

investments

MLP under finance lease + unguaranteed residual value

Net investment gross investment - unearned finance income

Classification:

Depends on the substance of the transaction rathr than the form of the contract

Operating lease: lease other than a finance lease

Accounting treatment-

Lessee:

Recognizes lease expenseon straight line basis overthe lease term ortransferred to P&L

Accounting treatment-

Lessors:

lessors should record assets in their balance sheet as per thenature of the asset

recognizes lease income on a straight line basis over the lease term

initial direct cost shall be added to the carrying amount of theleased asset and recognized as an expense over the lease term onthe same basis as the lease income


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Sales and leaseback transactions

finance lease: lease that transfer substantially all the risk and rewards incidental to ownership of an asset

Accounting treatment:

Lessor:

recognizes a receivable equal to the netinvestment of the lease

recognizes finance income based on apattern reflecting a constant periodic rateof return on the lease

initial direct costs are included in the initialmeasurement of the finance leasereceivable and reduce the amount of incomerecognized over the lease term

there is a special requirement in case ofmanufacturer granting finance lease

Accounting treatment:

Lessee:

recognizes as an asset and a liability in thebalance sheet

recognizes asset at the lower of the fairvalue of the leased asset and present valueof MLP

discount rate = implicit rate in the lease

lease payment are appointed betweenfinance charges and reduction of liability

finance charge allocation is allocated to aperiod to produce a constant rate ofinterest over the period of time

depreciation on the leased asset should bedone on systematic basis

Finance lease

any excess of sale proceeds over carrying amount shall

not be recognized immediately

but deferred and

amortized over the

lease term

Operating lease

if the sale price is at fair value , any excess of sale proceeds over carrying amount is recognized by the lessor immediately

if the sale is below fair value, If profit, recognize immediately. If loss,difference between WDV and FV should be transferrd to P&L and difference between SP and FV to be deferred over lease term

if the sale price is above market value, If loss, recognize immediately. If profit, difference between FV and WDV should be transferrd to P&L and difference between SP and FV to be

deferred over lease term


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8600364185

Examples

of

finance

lease

1. lease transfers ownership of the asset to the lessee by the end of the lease term

2. lessee has a bargain purchase option and it is certain at the date of inception that

the option will be exercised

3. the lease term is for the major part of the economic life of the asset

4. at the inception of the lease the present value of the minimum lease payments

amounts to substantially all of the fair value of the ;eased asset

5. the leased asset are of such a specialized nature that only the lessee can use

them without major modification

6. gains and losses from the fluctuation in the fair value of the residual accrue to

the lessee

7. the lessee has the ability to continue the lease for a secondary period at a rent

substantially lower than the market rent

8. if the lessee can cancel the lease, the lessor’s associated losses are borne by

lessee

AS20: EARNING PER SHARE

DEFINITIONS

ordinary share An ordinary share is an equity instrument that is subordinate to all other classes

of equity instruments

A potential

ordinary share

A potential ordinary share is a financial instruments that may entitle its holder to

ordinary shares

Dilution o is a reduction in EPS (increase in loss per share)

o from the assumption

o that convertible instruments are converted, options/warrant exercised, or

ordinary share issued upon the satisfaction of conditions

Anti-dilution o is an increase in EPS (reduction in loss per share)

o from the assumption

o That convertible instruments are converted, option/warrants exercised, or

ordinary shares issued upon the satisfaction of conditions.

Objective & Scope

•To prescribe for the determination and presentation of earning per share

•Applied to companies that have issued ordinary shares to which ASs notified under the Companies Act apply.

•An entity that discloses EPS shall calculate & disclose EPS as per this Std.

•When an entity present both consolidated and separate financial statements respectively, the disclosure shall be presented both in the consolidated (based on info in consolidated ES) and separate financial statements(based on info in separate FS)


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MEASUREMENT: TYPE OF EPS

Basic EPS Diluted EPS (DEPS)

Calculate Basic EPS = (a) / (b)

(a) = Earnings

(b)= Weighted Average No.s of Equity shares

Calculate Diluted EPS = (c) / (d)

(c) = Earnings for Basic EPS as per (a) with

adjustments

(d) = Weighted Average no. s of Equity shares

for Basic EPS as per (c) with adjustments

Earnings (a) = amounts for profit or loss

attributable to ordinary equity holders of the

parent entity from continuing operations.

I.e. Net Profit or Loss after Tax, Adjusted for

the after- tax amounts of:

o preference dividends,

o difference arising on the settlement of

preference share, and

o Other similar effects of preference shares

classified as equity.

o Income / expense debited or credited to

security premium/other reserves.

Earnings (c) = Basic Earnings as per (a) adjusted

for after- tax effect of :

o Any dividends or interest or other items

related to dilutive potential ordinary shares

and

o Changes in income or expense from the

conversion of the dilutive potential ordinary

shares

Basic – Weighted average number of shares =

o The number of ordinary shares outstanding

at the beginning of the period,

o Adjusted by the number of ordinary shares

bought back or issued during the period

o Multiplied by a time-Weighting factor.

Diluted – Weighted average number of shares

(d) =

o Weighted average number of ordinary shares

in Basic EPS per (a) plus

o Additional shares that would be issued on the

conversion of all the dilutive potential ordinary

shares.

o It is presumed that conversion is at beginning

of year / date of issue of potential ordinary

share.

o Diluted EPS presented when it would decrease

EPS or increase loss per share from continuing

operations.

Notes :

o share included : from the consideration is

receivable

o Bonus issue included : in the number of shares

as if the issue had occurred at the beginning

of the earliest period presented (so restate

comparatives)

Presentation

- an entity shall present basic and diluted earnings per share with equal prominence for all periods

presented

- The basic and diluted EPS for a discontinued operation should be disclosed either in the

statement of profit and loss or in the notes.

Disclosure

An entity shall disclose the following :

(a) The amounts used in the numerators and its reconciliation to profit or loss.

(b) The Weighted average number of ordinary shares used in the denominator and its reconciliation

to each other.

(c) Instruments that could potentially dilute basic earnings per share in the future but were not

included because they are currently anti-dilutive.


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AS 21:CONSOLIDATED FINANCIAL STATEMENT

PROCEDURE

a) Ascertain and eliminate cost of investment by parent in each subsidiary

b) Ascertain and eliminate parents portion of equity in each subsidiary

c) If a>b, record goodwill else CR

d) Ascertain Minority interest in income and net assets of the company

e) Consolidate profits of both the company by eliminating MI of profits

f) Eliminate intra group transactions, balance, resulting unrealized profits or

losses

AS 22:INCOME TAXES

Current taxes

• lays down principles and procedures for preparation and presentation of CFSObjective

Seperate Financial Statement to be prepared even if CFS are prepared

All domestic and foreign subsidiaries to be consolidated even if the business activities are dis similar

in no case the difference between reporting dates should exceed 6 months

CFS to be made on the basis of uniform accouting policies

For seperate financial statement of holding, investment to be reflected as per AS 13

in case enterprise ceases to be subsidiary, it shall be accounted for as per AS 13

when controlled by two enterprise, both will prepare CFS

negative minority not to be reflected in CFS, to be adjusted against Consolidated reserves

Arrears of preference dividend to be adjusted related to minority while preparing CFS

Recognise profit or loss on disposal of subsidiary in Consolidated P&L

Tax expense not to be recomputed

Recognized as a liability to the extent unpaid

Recognized as an asset to the extent the

amount already paid exceeds the amount due

The benefits relating to a tax loss that can be

carried back to recover current tax of a

previous period shall be recognized as an asset


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Current tax- measurement

• Measure the asset / liability using the tax rates that are enacted or substantially enacted to the reporting date

Timing difference

• Differences between taxable income and accounting income for a period that originate in one period and are capable of reversal in one or more subsequent periods

Permanent Difference

• These are the differences between taxable income and accounting income for a period that originate in one period and do not reverse subsequently

Deferred Taxes

of an asset

Tax of initial years being higher and subsequent years being lower

P&L - Credit, BS - Debit

of a liability

Tax of initial years being lower and subsequent years being higher

P&L - Debit BS - Credit

Defe

rred t

ax

–measu

rement

Measure the balance at tax rates that have been enacted or substantially enacted by the end of the reporting period

They should be measured at tax rates that are expected to apply in the period when the asset is realized or liability settled

Deferred tax assets and liabilities are not discounted

Average rate used when difference tax rates apply to different levels of taxable income

In case of losses/ unabsorbed depreciation, recognise DTA only if it is virtually certain with convincing evidence that future taxable income will be available

The carrying amount of a deferred tax asset is reduced when it is no longer virtually certain that sufficient taxable profit will be available for utilization with convincing evidence

Reduction shall be reversed to the extent that it becomes virtually certain with convincing evidence that sufficient taxable profit will be available

Ignore timing difference originating and reversing in tax holiday period

Ignore MAT while calculating DTA / DTL


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8600364185

Offset

AS 23: ACCOUNTING FOR ASSOCIATE

Exceptions Investment intended to be temporary

Associate operates in severe long term restrictions significantly impairing its

liability to transfer funds

AS 24: DISCONTINUING OPERATIONS

Objective &

scope

The objective of this Statement is to establish principles for reporting information

about discontinuing operations, thereby enhancing the ability of users of financial

statements to make projections of an enterprise's cash flows, earnings-generating

capacity, and financial position by segregating information about discontinuing

operations from information about continuing operations

Current tax asset/liability

An entity shall offset current tax assets and current tax liability if it has

A legally enforceable right to set off and

Intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously

Deferred tax asset/liability

An entity shall offset deferred tax asset and liability if it has:

A legally enforceable right to set off current assets against current tax liability; and

The deferred tax assets and deferred tax liability relate to income taxes levied by the same taxation authority

•Other than subsidiary or joint venture

•Has significant influence gained by statute, agreement or share ownership being more than 20%

Meaning

Ini

tial

R

eco

gnit

ion At cost

Identify goodwill/ CR and reflect it seperately S

ubse

quent

R

eco

gnit

ion Distribution received

to be deducted from investment

Increase / Decrease post acquisition profits/ losses

Elim

inat

e Unrealized profits/ losses from transaction with investor to the extent of investors interest

arrears of preference dividend

If Investors share of losses of an associate equals or exceeds the carrying amount of Investment, show Investment at NIL Value


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Definition That the enterprise, pursuant to a single plan,

Disposing of substantially in its entirety, such as by selling the component in

a single transaction or by demerger or spin-off of ownership of the

component to the enterprise's shareholders; or

Disposing of piecemeal, such as by selling off the component's assets and

settling its liabilities individually;

Terminating through abandonment; and

That represents a separate major line of business or geographical area of

operations; and

That can be distinguished operationally and for financial reporting purposes

Initial

Disclosure

Event

The enterprise has entered into a binding sale agreement for substantially all of

the assets attributable to the discontinuing operation; or

The enterprise's board of directors or similar governing body has both (i) approved

a detailed, formal plan for the discontinuance and (ii) made an announcement of the

plan

Exception • Change in scope of operations is not discontinuing

• Gradual phasing of a product line or class of service not a

discontinuing operations

• Discontinuing several products within an ongoing line of business not

necessarily discontinuing operations

• Shifting of some production or marketing activities- not discontinuing

• Closing activity to achieve productivity improvements in other cost

saving- not necessarily discontinuing operations

AS 25:INTERIM FINANCIAL REPORTING

Definitions

Interim period Interim period is a financial reporting period shorter than a full financial year

Interim

financial report

Interim financial report means a financial report containing either a complete set

of financial statement or a set of condensed financial statement for an interim

period

Objective and scope

•To prescribe the minimum contact of anintrarin financial report and to prescribe recognition and measurement principals

•This std dos not mandate which entities should be required to public intrarin financial riports

•This std applies if an entity is required or elect to publish an interim financial report as per ind As


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8600364185

Significant

events and

transactions

Significant events and transaction of changes in financial position and performance

of the entity since the end of the last annual reporting period should be included

Followings are the significant discloser: (the list is not exhaustive)

(a) Write-down of inventories to NRV and reversals;

(b) Reorganization of a impairment loss and reversals ;

(c) The reversal of any provision for the costs of restructuring ;

(d) Acquisitions and disposals of property , plant and equipment;

(e) Commitments for the purchase of property, plant and equipment;

(f) Litigation settlements;

(g) Corrections of prior period errors;

(h) Changes in the business or economic circumstances;

(i) Any loan default or breach of a loan agreements;

(j) Related party transaction;

Other

disclosure

o A statement that the same accounting policies or, if those changed, a

description of the nature and effect of the change.

o Explanatory comments about the seasonality or cyclicality of interim

operations

o The nature and amount of unusual items affecting assets liability, equity, net

income or cash flows because of their nature, size or incidence.

o The nature and amount of changes in estimates

o Issues, repurchases and repayments of debt and equity securities.

o Dividends paid separately for ordinary share and other share.

o Segment information

o Event after the interim period that have not been reflected in the financial

statement for the interim period. If an entity’s interim financial report is in

compliance with this standards, that fact shall be disclosed.

Content of interim financial report

Condensed balance sheet

Condensed statement of profit & loss

Condensed statement of cash flows

Selected explanatory notes

The condensed statement should include, at the minimum

Each of the headings and subtotals that were included in its most recent annual financial

statement

Selected explanatory notes as required by this standard

Additional line items should be included if their omission would make the condensed

interim financial stame

Basic and diluted earnigs per share for that period (when applicable)not misleading


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8600364185

What

periods are

required to

be

presented?

o Balance sheet as of end of the current interim period and its comparative for

the immediately preceding financial years

o St. of P&L for the current interim period and cumulatively for the current

financial year to date along with its prior period comparative

o Statement of changes of equity cumulatively for the current financial year to

date along with its prior period comparative

o Statement of cash flow cumulatively for the current financial year to date

along with the prior period comparatively.

Disclosure in

annual

financial

statement

o If an estimated in an interim period is changed significantly during the final

interim of the financial year but a separate financial reports is not published

o The nature and amount of that changes should be disclosed in the annual

financial statement for the financial year

Recognition and measurement

Accounting policies Revenues, received

seasonally, cyclically,

or occasionally

Cost incurred unevenly

during the financial

year

Use of estimates

o Same accounting

policies as annual

o Except for

accounting policy

changes that are to

be reflected in the

next annual financial

statement

Should not be

anticipated or deferred

in interim reports.

Should only be

anticipated or deferred

for interim reporting if

it is also appropriate in

the annual financial

statements

The preparation of

interim reports

generally requires a

greater use of

estimation methods

than annual financial

reports

AS 26: INTANGIBLE ASSET

Objective & scope

•To prescribe the accounting treatment for intangible assets

•It should be applied to all intangible assets, except:

•Intangible assets covered by another standard

•Financial assets as defined in Ind AS 32 :

•Exploration and evaluation of assets and expenditure on minerals, oil, natural gas etc


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8600364185

RECOGNITION AND MEASUREMENT

Separate

acquisition

Recognition

- Probable that the expected future economic benefits will

flow of the entity

- Cost can be reliably measured

Measurement - Measured initially at cost

- Cost comprise of :

(a) Its purchase price+(import duties and non-refundable

purchase taxes)-(trade discounts & rebates; and

(b) Any directly attributable cost of preparing the asset for

its intended use.

Acquisition by way

government grant

recognize at nominal value

(a) airport landing rights, licenses to operate radio or television

stations, import licenses or

(b) quotas or right to access other restricted resource

internally

generated

goodwill

Internally generated goodwill should not be recognized as an asset.

Other Examples include;

internally generated brand

customer lists

mastheads, publishing titles

Reason

as the Expenses cannot be distinguished from the cost of developing the business as

a whole

Intangible assets

•identifiable, non-monetary assets, without physical substance held for use in the production or supply of goods or services, for rental to others, or for administrative purposes has been removed from the definition of an intangible asset.

Identifiability

•If it either :

•is payable, ie is capable of being separated and sold, transferred licensed, rented or exchange; or

•arises from contractual or other legal rights

Notes

•some intangibles is contained in a physical asset, e.g. compact disc.

•When software is not an integral part of related hardware, it is an intangible asset


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8600364185

internally

generated

intangible

assets

an entity classifies the generation of the asset into:

(a) a research phase; and

(b) a developing phase;

If the research phase cannot be separated from the development phase then

the expenses is to be taken in the research phase only.

Research phase

Expenditure on research should be recognized as expenses when it is incurred.

Development phase

Expenditure on development phase should be capitalized as an Intangible

Asset if, and only if, all of the following are net :

(a) Technical feasibility of completing the intangible asset.

(b) Its intention to complete.

(c) Its intention to complete.

(d) Probable future economic benefits and the existence of a market or list

usefulness.

(e) The availability of adequate technical, financial and other resources to

complete.

(f) Its ability to measure expenditure reliably.

Recognition

of expense

Expenditure on an intangible item should be recognized as an expense when it

is incurred unless

o It forms part of the cost of the intangible asset

o The item is acquired in a business combination and cannot be recognized

as an intangible asset. Then it forms part of the goodwill

Past expense cannot be capitalized in the later period

Subsequent

Measurement

It is carried at its cost less any accumulated amortization and any

accumulated impairment losses

Useful life An entity should assess the useful life of an intangible asset

When finite

useful life

Amortization period and amortization method

The depreciable amount of an intangible asset should be allocated on a

systematic basis over its useful life

Amortization begins when the asset is available for use

Amortization ceases at the earlier of the date that the asset is classified as

held for sale and the date that the asset is derecognized

The amortization method used should reflect the pattern of future economic

benefits expected to be consumed

Residual value

It should be assumed to be zero unless

(a) There is a commitment by the third party to purchase the asset at the end

of the useful life

(b) There is an active market for the asset

a. Residual value can be determined by reference to that market and

b. It is probable that such market will exist at the end of the assets

useful life

Indefinite

useful life

Amortized maximum for 10yrs

Account for the change in accounting estimate


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8600364185

Retirement

and disposal

An intangible asset should be derecognized

o On disposal or

o When no future economic benefits are expected from its use or

disposal

o The gain or loss: Net disposal proceeds – Carrying amount of the asset

o Recognized in profit or loss (Gains not to be classified as revenue)

AS 27: FR OF INTEREST IN JV

RECOGNITION REQUIREMENTS

JCO JCA JCE

Assets owned by venture and

liabilities incurred by it to be

included in CFS or Separate FS

Share of JCA shown in the

books of venture

Share of liabilities incurred

Share of Income

Separate FS – Apply AS 13

CFS

Proportionate share of

assets, liability and Income

consolidated

Uniform accounting policy

adjustment required

Joi

ntly

Con

trol

led

Ope

rati

ons no seperate legal

entity

no seperate accounting records and FS required

Joi

ntly

Con

trol

led

Ass

ets No seoerate legal

entity

No seperate FS required, accounting limited to common expenses incurred J

oint

ly C

ontr

olle

d

Ent

ity Seperate legal entity

Seperate FS and accounitng required

Inter Transactions

JCO & JCA

Sale by venturer

Profit- Recognise other venturers portion

Loss - Recognise full

Purchase by Venturer

Recognise at purchase price

JCEWhether

purchase or sale

recognise gain or loss of other venturers portion

recognise loss in full


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AS 28: IMPAIRMENT

IMPAIRMENT LOSS = Carrying Amount > Recoverable Amount

(i.e. When recoverable amt > carrying amt. No. impairment)

When & what

to test for

Impairment?

External sources of

information

i. Significant decline in market value

ii. Change in technological, market, economic or legal

environment

iii. Change in interest rate

iv. Low market capitalization

Internal source of

information

i. Evidence of obsolescence or physical damage

ii. Discontinuance, disposal or restructuring plans

- Declining asset performance

Disclosure

The event and circumstances led to the recognition or reversal of the important loss.

The amount of the impairment loss recognized or reversed

For an individual asset :

(i) The nature of the asset; and

(ii) The reportable segment to which the asset belongs

Objective

•To prescribe the procedure that an entity applies to ensure that its assets are carried at no more than their recoverable amount

Scope

•Applied in accounting for the impairment of all assets, other than;

•Inventories, contract assets, deferred tax assets, employee benefits, financial assets, biological assets, insurance contract assets, amount

Definition

•An impairment loss is the amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount.

•An cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflow from other assets or group of assets.

•The recoverable amount of an asset or a cash- generating until is the fair value less costs of disposal and its value in use.

•Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit

What Assets to be identified for impairment?

Individual Assets

Cash Generating units (CGUs)


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8600364185

For a cash-generating unit :

(i) A description of the cash-generating unit

(ii) The amount of the impairment loss recognized or reversed by assets and by reportable

segment; and generating unit’s recoverable amount (if any), a description of the current and

former way of aggregating assets and the reasons for changing the way the cash-generating unit

is identified.

The recoverable amount and whether is fair value less asset (cash-generating unit) is its fair value

less cost of disposal or its value in use.

It the recoverable amount is fair value costs of disposal, the entity should disclose a level of the fair

value hierarchy, a description of the technique for measuring fair value less cost of disposal, key

assumptions and the discount rates used

If recoverable amount is value in use, the discount rate used in the current estimate and previous

estimate (if any) of value in use.

Additional disclosure

The main classes of assets affected by impairment losses and the main classes of assets affected by

reversals of impairment losses.

The main event and circumstances that led to the recognition of these impairment losses and

reversals of impairment losses.

RECOGNIZING AND MEASURING AN IMPAIRMENT LOSS

Consider

Individual

Assets

- Determine Recoverable Amount

- If carrying amount>Recoverable amt, difference is charged to P/L as

impairment loss (or adjusted against existing revaluation reserve)

Consider

CGU

- Determine Recoverable Amount of CGU to which the asset belongs

- If carrying amt (including goodwill > Recoverable amt, difference is impairment

loss

- Allocate impairment loss in the following order

o 1st : against Goodwill

o Next : to other Corporate Assets on pro-rata basis of carrying amt of

each asset

In Allocating Important loss,

an asset should not reduce

below highest of

- Its fair value less costs of disposal;

- Its fair value in use; and

- Zero

After recognition of an

impairment loss

Depreciation is adjusted in future period over the asset’s revised

carrying amount, less its residual value on a systematic basis over

its remaining useful life

REVERSING AN IMPAIRMENT LOSS

1. Assess : at each balance sheet date whether any indication that an impairment loss recognized

in prior period is to be reversed.

2. If yes, Estimate the Recoverable Amount

3. Recognize Reversal of impairment loss as follows:

o Individual asset- recognize in profit and loss asset carried at revalued amount.

o CGUs- allocated to assets of CGUs on a pro-rata basis.

o Goodwill- Impairment of goodwill is reversed same as above


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EXTERNAL

INDICATORS

Significant increase in market value

Favorable changes in technological market, economic or legal environment

Change in interest rates

Market interest rates have decreased.

INTERNAL

INDICATOR

Significant favorable changes in a way asset is used or expected to be used

Evidence from internal reporting indicates that economic performance of

the asset will be better than expected

AS29: CONTINGENT LIABILITIES AND ASSET

DEFINITIONS

Provision - A liability of

- Uncertain timing or amount

Onerous

contract

One where the unavoidable costs of meeting the obligations under the contract >

the economic benefits expected to be received under it

contingent

liability

- A possible obligation

- That arise from last event

- Whose existence will be conformed only by the occurrence or non-

occurrence of one or more uncertain future events

- Not wholly in the control of the control of the entity; or

- A present obligation

- That arise from last event

- That is not recognized

- Because it is not probable that an outflow will be required to settle the

obligation or

- The amount of the obligation cannot be measured reliably

Contingent

assets

- Possible assets

- That arise from the last event and

- Whose existence will be confirmed only by the occurrence of one or more

uncertain future events.

- Not wholly within the control of the entity.

Objective & scope

• To ensure that appropriate recognition criteria and measurement bases applied to provision, contingent liabilities and contingent assets with sufficient discloser

• Applied by the entity expert:

• From executor contracts, expert where contracts is onerous; and

• Those covered by another standards


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A restructuring - Is a program that is planned and controlled by management, and

- Materially changes either :

(a) The scope of a business undertaken by a entity ; or

(b) The manner in which that business is conducted.

RECOGNITION

Provision A provision should be recognized when :

(a) An entity has a present obligation (legal or constructive) as a result of

a past event.

(b) It is probable that an outflow will be required to settle the obligation ;

and

(c) A reliable estimate of the amount of obligation can be made.

Contingent

liability

- An entity should not recognize a contingent liability

- A contingent liability disclosed

- Unless the possibility of an outflow is remote.

Contingent

assets

- An entity should not recognize a contingent asset.

- A contingent asset is not disclosed

Measurement Best estimate - Provisions are measured at the best estimate of the

expenditure required to settle the present obligation at

the balance sheet date.

- Where there is a large population is involved: the

obligation should be estimated by weighing

- U[p shall possible outcomes

- Where a signal obligation is being measured: the most

likely outcome should be chosen.

- In determining the best estimate, mgt judgment,

experience of similar transaction, reports from

independent experts, evidence, related risks and

uncertainties be considered

Reimbursement - When some of the expenses is to be reimbursed from

third parties, reimbursement should be recognized only

when, it is probable that reimbursement will be received

if the entity settles the obligation.

- It is treated as a separate asset.

- It should not exceed the provision.

- In the statement of profit & loss, the expense relating to

a provision may be presented net of reimbursement.


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Changes in

provisions

- Provisions are reviewed at each reporting date and

adjusted to reflect current best estimate

- If it is no longer probable that an outflow will be required

to settle the obligation, the provision is reserved

Application of

the recognition

and

measurement

rules

Future

operating

losses

provision should not be recognized for future operating losses

Onerous

contracts

- the provision is recognized & measured for onerous

contract at the lower of:

Costs of fulfilling the contract

Compensation arising from failure to fulfilling it.

Restructuring - A constructive obligation or restructure arises only when

an entity has the following:

(a) Has a detailed formal plan for the restructuring

identifying at least ;

I. The business or part of the business concerned

;

II. The principal of business are affected ;

III. The location, function and no’s of employees

being compensated for terminating services.

IV. The expenditures that will be undertaken ; and

V. When the plan will be implemented ; and

(b) Has raised a valid expectation in those affected that

will carry out the restructuring by starting to

important that plan or announcing its main features.

- A restructuring provision should included only the direct

expenditures arising from the restructuring, which are

those that are both:

A) Necessarily entailed by the restructuring ; and

- Not associated with the ongoing activities of the entity

Ind AS 32, 109 & 107: FINANCIAL INSTRUMENTS

Objective & scope –Ind AS 32

To establish principles for presenting financial statement instruments as liability or equity and fro

offsetting financial assets and financial liabilities


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This standards shall be applied to all types of financial instrumental except:

(a) Interest in subsidiaries, associates or JVs

(b) Employer’s right and obligations under Ind AS 19.

(c) Insurance contract as defined in Ind AS 104 with exceptions

(d) Financial instruments that are within the scope of Ind AS 104

(e) Financial instruments, contract and obligation under share – bashed payment transactions

under Ind AS 102, (except for contracts within scope & for treasury share)

DEFINITION

Financial

instrument

Any contract that gives rise to a financial assets of one entity and

A financial liability or equity instrument of another entity

Equity

instrument

(a) Any contract

(b) Evidencing a residual interest in the assets of an entity

(c) After deducting all of liabilities.

Fair value (d) The price that would be received to sell an asset or

(e) Paid to transfer a liability

(f) In an ordinary transaction

(g) Between market participants

(h) At the measurement dates.

Financial

assets

(a) Cash;

(b) An equity instruments of another entity;

(c) A contractual right;

I. To receive cash or other financial asset from another entity; or

II. To exchange financial asset or financial liability with another entity that are

potentially favorable; or

(d) A contract selected in the entity’s own equity instrument and is;

A derivative or non-derivative for which the entity is or may be obliged to receive a

variable number of the entity’s own equity instrument;

Financial

liabilities

A financial liabilities is any liability that is:

(a) A Contractual obligation :

I. To deliver cash or another financial Asset to another entity ; or

II. To exchange financial assets or financial liabilities with another entity under

condition that are potentially unfavorable to the entity ; or

(b) A contract that will may be settled in the entity’s own equity instrument and is:

I. A derivative or a non-derivative for which the entity is or may be obliged to

deliver a variable number of the entity’s own equity instrument


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PRESENTATION

Liabilities and

equities

The issuer should classify the instrument, on initial recognition as a financial

liability, a financial assets or an equity instrument in accordance with the

substance of the contract and the definitions of a financial liability, a financial

assets and an equity instrument.

The instrument is an equity instrument if, and only if, both conditions (a) and (b)

below are net.

(a) The instrument includes no contractual obligation:

I. To deliver cash or another financial assets to another entity; or

II. To exchange financial assets or financial liabilities with another entity

under conditions that is potentially unfavorable to the issuer.

(b) If the insurer will or may be settled in the issuer’s own equity instruments it

is :

I. A non-derivative that include no contractual obligation for the issuer to

deliver a variable number of its own equity instruments; or

II. A derivative that will be settled only by the issuer exchanging the fix

amount of cash or other financial assets for a fixed number of its own

equity instruments.

Settlement options: when a derivative financial instrument gives one party a choice

over how it is settled, it is a financial assets or a financial liability unless all of the

statement alternatives would result in it being an equity instrument

Treasury

shares

If an entity reacquires its own equity instrument, that instrument shall be deducted

from equity. No gain or loss on the purchase, sale, issue or cancellation of an entity’s

own equity instruments. Such treasury share may be acquired and held by the entity

or by other members of the consolidated group. Consolidation paid or received shall

be recognized directly in equity.

Compound

financial

instruments

The issuer of a non-derivative financial instrument shall evaluate the terms of the

financial instrument to determine whether it contains both a liability an equity

component.

The split is made on initial recognition of the instrument and is not subsequently

revised.

The equity component of the compound instrument is the residual the fair value of

the liability component from the fair value of the instrument as a whole.

No gain /loss arise from initial recognition.

Interest,

dividend,

losses and

gains

Interest, dividend, losses and gains relating to a financial instrument or a component

that is a financial liability shall be recognized as income or expense in profit or loss.

Distribution to holders of an equity instrument shall be recognized by the entity

directly in equity. Transaction cost of an equity transaction shall be accounted for as

a deduction from equity.


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Offsetting

financial

assets and

liability

a financial assets and financial liability shall be offset and the amount presented in

the balance sheet when, an entity

a) Currently has a legally enforceable right to set off the recognized

amounts; and

b) Intends either to settle on a basis, or to realize the assets and the

liability simultaneously.

In accounting for a transfer of financial assets that does not qualify for de

recognition, the entity shall not offset the transferred asset and the associated

liability.

Scope- Ind AS 109

Applied by all entities to all types of financial instruments except:

(a) Those interest in subsidiaries, associates and joint ventures that are accounted for in

accordance with in AS 21, AS 23 or AS 27.

(b) Rights and obligations under leases to which Ind AS 17 Applies.

(c) Employer’s rights and obligations under employee benefit plans to, which Ind AS 19.

(d) Financial instrument issued by the entity that meet the definitions of an entity instrument in

Ind AS 32 or that are required to be classified as an equity instrument in accordance with Ind

AS 32.

Initial recognition and measurement (financial asset and financial liabilities)

Initial

recognition

when the entity becomes party to the contractual provisions of the instrument

Initial

measurements

at fair value, plus for those financial assets and liabilities not classified at fair

value through profit or loss, directly attributable transaction costs.

- Fair value – is the price that would be received to sell an asset or paid to

transfer a liability in an orderly transaction between market participants at the

measurement date.

- Directly attributable transaction costs- incremental costs that costs are

directly attributed to the acquisition, issuer or disposal of a financial assets or

financial liability

Financial assets- subsequent classification and measurement

Amortized

cost

Category

classification

criteria

both of the below conditions must

(a) The financial assets is held within a business model whose objective

is to hold financial asset in order to collect contractual cash flows

and

(b) The contractual terms of the financial assets give rise on specified

dates to cash flow that are solely payments of principal and interest

on the principal amount outstanding.

i. Principal is the fair value of the financial assets at initial

recognition

ii. Interest consist of consideration for time value of money


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Effective

interest

method

Interest revenue shall be calculated by using the effective interest

method to the gross carrying amount of a financial assets except for:

(a) Purchased or originated credit impaired financial asset, for those

financial asset the entity shall apply the credit adjusted

effective interest rate of the amortized costs of the financial

assets from initial recognition.

(b) Financial assets that are not purchased or originated credit

impaired financial assets but subsequently have become credit

impaired financial assets. For those financial assets, the entity

shall apply the effective interest rate to the amortized cost of

the financial asset in subsequent reporting periods.

Modification

of

contractual

cash flows

when the contractual cash flow of a financial assets are recognition or

modified and the reorganization or modification dose not result in the

de recognition of that financial asset, an entity shall recalculate the

gross carrying amount of the financial asset and shall recognize a

modification gain or loss in profit or loss. Any costs or fees incurred

adjust the carrying amount of the modified financial assets and are

amortized over the remaining term of the modified financial asset.

Write off: An entity shall directly reduce the gross carrying amount of a financial

asset when the entity has no reasonable expectations of recovering a

financial asset in its entity or a portion thereof

Fair value

through

profit or

loss

Category

classification

criteria

- Financial assets that do not meet the amortized cost criteria

- Financial assets designated at initial recognition. The option to

designate is available:

o If doing so eliminates, or significantly reduces, a measurement or

recognition inconsistency (i.e..: accounting mismatch).

NOTE: the option to designate is irrevocable

Subsequent

measurement

At fair value, with all gains and losses recognized in profit and loss

Fair value

through

OCI

Equity instrument

category

classification

criteria

Only for equity instruments that are neither held for trading nor

contingent consideration recognized by an acquirer in a business

combination to which Ind AS103 applies

Subsequent

measurement

Fair value with all gains and losses recognized in OCI

Changes in fair values are not subsequently recycled to profit and loss

Dividend is recognized in profit and Loss

Debt instruments

category classification

criteria

Entity holds the instrument to collect contractual cash flow

and to sell the financial assets

Subsequent

measurement

Fair value, with all gains and losses recognized in other comprehensive

income.

Changes in fair value are not subsequently recycled to profit and loss


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IMPAIRMENT

Recognition

of expected

credit

losses

general

approach

An entity shall recognize a loss allowance for expected credit losses on

1. A financial assets that is measured at

a. Amortized cost or

b. Fair value through other comprehensive income in this case, the loss allowance

shall be recognized in OCI and shall not reduce the carrying amount of the

financial assets in the balance sheet.

2. A lease receivable

3. A contract assets

4. A loan commitment

5. A financial guarantee contract measurement of loss allowance:

- If credit ricks significantly increased since its initial recognition, then at an

amount equal to the life time expected credit losses.

- If credit ricks not significantly increased since its initial recognition, at an

amount equal to 12 month expected credit losses.

Simplified

approach

Measure the loss allowances at an amount equal to lifetime expected credit losses

for .

(a) Trade receivable or contracted asset that result from transaction that are

within the scope of Ind AS 115, and that:

i) Do not contain a significant financing component in accordance with Ind AS

115, or

ii) Contain a significant financing component in accordance with Ind AS 115, if

the entity chooses at its accounting policy to measure the loss amount equal

to lifetime expected credit losses. That accounting policy shall be applied to

all such trade receivables or contract assets but may be applied separately

to finance and operating lease receivables.

Measure expected credit losses of a financial instruments in a way that reflects:

(a) Unbiased and probability- weighted amount that is determined by evaluating a

range of possible outcomes.;

(b) lease receivable that result from transaction that are within the scope of Ind

As 17 , if the entity chooses as its accounting policy to measure the loss

allowances at an amount equal to lifetime expected credit loss. That

accounting policy shall be applied to all lease receivable but may be applied

separately to finance and operating lease receivables.

Measure expected credit losses of a financial instrument in a way reflected:

(a) an unbiased and probability – weighted amount that is determined amount that

is determinate by evaluating a range of possible outcomes;

(b) the time value of money; and

(c) Reasonable and supportable information that is available without undue cost or

effort at the reporting date about past events, current conditions and forecast

of future economic conditions.

FINANCIAL LIABILITIES

Amortized cost Category

classification

criteria

Financial liabilities, except those that meet the

criteria of fair value through profit or loss, Financial

guarantee contracts, and commitment to provide a

loan at a loan at below market interest rate.


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8600364185

Subsequent

measurements

Amortized cost using the effective interest method

fair value through profit

and loss

Category

classification

criteria

Financial asset that do not meet the amortized

cost criteria

Financial asset designated at initial recognition.

The potion to designate is available:

o If doing so eliminates, or significantly (i.e.,

accounting mismatch)

NOTE: the option designate is irrevocable.

Subsequent

measurement

at fair value, with all gains and losses recognized in

profit and loss

(i) Financial guarantee

contracts and

(ii) Commitments to

provide a loan at a

below market interest

rate

Subsequent

measurement

(higher of)

(i) The amount of loss allowance determined and

(ii) The amount initially recognized less, when

appropriate, the cumulative amount of income

recognized in accordance with the principles of

Ind AS 115.

(iii) Financial liabilities

resulting from the

transfer of a

financial assets( that

does not qualify for

de recognition)

(where there is

continuing

involvement)

Financial liability for the consideration received is recognized.

If a transfer dose not results in de recognition, continue to

recognize the transferred asset in its entirety and shall recognize

a financial liability for the consideration received. Subsequently,

recognize any income on the transferred assets and any expense

incurred on the financial liability.

When an entity continues to recognize an asset to the extent of

its continuing involvement, the entity also recognizes an associated

liability. Despite the other measurement requirement in this

standard, the transferred asset and the associated liability are

measured on a basis that reflects the rights and the obligation

that the entity has retained. The associated liability is measured

in such a way that the net carrying amount of the transferred

assets and the associated liability is:

a) The amortized cost of the rights and obligations retained

by the entity, if the transferred asset is measured at

amortized cost, or

b) Equal to the faire value of the rights and obligations

retained by the entity when measured on a stand-alone

basis, if the transferred asset is measured at fair value

Embedded derivatives

Definition An embedded derivatives is a component of a hybrid contract that also

includes a non-derivative host- with the effect that some of the cash flow of

the combined instrument vary in a way similar to a standalone derivative

Hybrid contracts

with financial assets

hosts

The embedded derivative is not separated from the host contract instead,

the whole contracts in its entity is accounted for as a signal instrument


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8600364185

Other hybrid

Contracts

If a hybrid contract contains a host that is not an asset within the

scope of this Standards , an embedded derivatives

1) Shall be separated from the host , and

2) Accounted for as a derivative

Criteria: to separate an embedded derivative

1) Economics characteristics of the embedded derivative and host

are not closely related

2) An identical instrument( with the same terms) would meet the

definition of a derivative, and

3) The entire (hybrid) contract is not measured at fair value through

profit or loss.

If an embedded derivative is separated, the host contract shall be

accounted for in accordance with the appropriate standards

COMPARATIVES

AS 1: Accounting Policies

Point of Difference AS 1 Ind AS 1

1 Compliance with AS Not required Disclose

2 Extraordinary items Disclose separately Prohibited

3 Opening balance sheet Not required In case of change in policy

4 Statement of change in equity Not required Required

5 Statement of Other Comprehensive

Income

Not required Below P&L

6 Comparative information Not required Required

AS 2: Inventory


1 Inventory of Service Provider Excluded Included

2 Inventory of Commodity trader/ broker Included Excluded

3 Subsequent assessment of NRV Covered in AS 5 Covered in Ind AS 2

4 Inventory purchased on deferred basis Recorded at

purchase price

Purchase price less interest

chargeable beyond normal

credit period

5 Machine spares Defined Defined in Ind AS 16

AS 3: Cash flow statements


1 Bank OD Financing Activity Cash Equivalent

2 Asset purchase and sale in rental

business

Investing Activity Operating Activity

3 Undistributed profits of associate Not covered Deduct from profit while

calculating cash flow from OA

4 Cash flow from Extra ordinary

Activity

Separately disclosed Not covered


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8600364185

5 Sale of subsidiary stake without loss

of control

Investing Activity Financing Activity

6 Dividend paid in case of Financial

Enterprise

Operating Activity Financing Activity

AS 5: Change in policy, Prior period items and Change in Estimate


1 Extraordinary items Covered Excluded

2 Accounting for change in

accounting policy

Retrospective calculation,

prospective accounting

Retrospective calculation

retrospective accounting

3 Change in accounting policy

in case required by statute

Covered Not covered

4 Prior period items Accounting in current year Accounting retrospectively

5 Disclosure requirement Comparatively less Comparatively more

AS 4: Events occurring after balance sheet date


1 Non Adjusting Events Disclose in Directors

report

Disclose in notes to accounts

2 Proposed dividend Recognize in BS Disclose in notes to accounts

3 Going concern Restate balance sheet Fundamental change in basis of

accounting

4 Breach rectified later of long

term loan arrangement

Not covered Continue to classify as long term

loan

AS 22: Income Taxes


1 Approach Income Balance Sheet

2 DTA related to losses and

unabsorbed Depreciation

Virtual certainty with

convincing evidence

Probable benefits in future

3 Disclosure Separately Noncurrent asset/ liability

4 Revaluation of Fixed Asset No DTL/DTA DTL @ sale of asset rather

than through use

5 Guideline on change in tax status

of entity

Not covered Covered

6 Deferred taxes related to tax

holiday period

Covered Not covered

AS 15: Employee Benefits


1 Constructive (Assumed) Obligation Not Covered Covered

2 Directors in Definition Only whole time All

3 Short term employee benefit Due within 12 months

from date of

rendering service

Due within 12 months from

date of reporting date


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8600364185

4 Surplus funds accounting in Multi

employer plan

Not covered Covered

5 Contribution to multi employer fund Not related party Related party transaction

6 Actuary valuation Over regular interval Ones in every three years

7 Actuarial gains/ losses Recognized In P&L Recognized In OCI

AS 19: Leases


1 Land Lease Not Covered Covered

2 Property other than investment property held

for operating lease

Not Covered Covered

3 Biological asset other than Agriculture Activity Not covered Covered

4 Initial transaction cost for Mfg./ Dealer P&L OL- Amortize

FL- P&L

5 Initial transaction cost for Others Option to Amortize

or charge to P&L

Amortize

6 Cost incurred between inception and

commencement of lease

Not covered Covered

7 Accounting for incentives Not defined Defined

8 Escalation in lease rent under Operating lease Straight lined Other than related to

inflation straight lined

AS 12: Government Grant


1 Government Assistance Not Covered Covered

2 Non Depreciable asset received at

concessional price

Nominal Value Fair Value

3 Deferment of Govt. Grant related to non

depreciable asset

Not required Covered

4 Deferment of Govt. Grant related to

Promoters Contribution

Not required Covered

5 Loans at concessional rate Recognized at full

amount

Recognized at discounted

amount

AS 11: Foreign Exchange Fluctuation


1 Forward Exchange Contracts Covered Not covered

2 FCMITDA Covered Not Covered

3 Currency Type 1. Reporting

Currency

2. Foreign Currency

1. Functional Currency

2. Presentation Currency

3. Foreign Currency

AS 16: Borrowing Cost



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8600364185

1 Fair Value Assets Not Excluded Not covered

2 Repetitive inventory Covered Not Covered

3 Interest rate Weighted Avg. for GL

and Specific for SL

Effective interest rate

4 Substantial period of time Not Defined Defined

5 Disclosure of Capitalization rate Not required Required

AS 18: Related Party Disclosure


1 Domestic Partner Not covered Covered

2 State Controlled Enterprise Control of CG/SG Control or Significant

influence of CG/SG

3 KMP of holding in case of subsidiary Not covered Covered

4 JV to JV, JV to Associate Not Covered Covered

5 Post Employment Plans Not covered Covered

6 Compensation to KMP Disclose in aggregate Disclose each type separately

7 Govt. Related Entities Exempted Covered

AS 20: Earnings Per Share


1 Options related to own share Not covered Covered

2 Basic and Diluted EPs of Continuing

and Discontinued Operations

Aggregate Separately

3 Extra Ordinary Items Separately Not covered

AS 25: Interim Financial Reporting


1 Compliance If interim report

prepared

Interim report not necessarily

as per Ind AS 34

2 Change in Equity Not Required Required

3 Reversal of Impairment Loss related

to Goodwill

Permitted Not permitted

4 Parents Separate Financial

Statements in case of CFS

Present both Separate financial statement

not required

5 Dividend related to equity and other

shares

Aggregate Separately

6 Contingent Assets Not disclosed Disclosed

7 Extraordinary items Required Prohibited

8 Comparatives in case of change in

policy

Not revised Revised

AS 28: Impairment Loss


1 Financial assets like subsidiary, JV

and Associate

Not covered Covered


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8600364185

2 Biological Assets Not excluded Agriculture related not

covered

3 Intangible Asset with indefinite Life Not tested every year Tested for impairment every

year

4 Reversal of Goodwill Permitted Not permitted

5 Bottom up and Top down test Covered Not covered as goodwill is

always allocable

AS 29: Contingent Liabilities


1 Constructive Obligation Not Covered Covered

2 Discounting Prohibited Permitted

3 Contingent Assets Not disclosed Disclosed

4 Onerous Contracts No specific guidelines IL to be provided

AS 26: Intangible Assets


1 Definition Held for use in admin or

production or rental

No such requirement

2 Assumed probable benefit No such assumption If IA is purchased

3 Payment on deferred basis Recorded at purchase

price

Purchase price less

interest

4 Exchange of assets No guidelines FV of asset given

5 Government Grant Recorded at nominal value Fair Value

6 Indefinite Life asset Amortized within 10yrs Not amortized, tested

for impairment

7 Cessation, de-recognition guidelines Not provided Provided

8 Fair Value model Not given Given

9 Amortization over Useful life vs. legal

life

Legal life Useful life

10 Residual value Not checked annually Checked annually, no

amortization if value

more than CA

AS 13: Investments


1 Coverage All type of

Investments

Only properties

AS 24: Discontinuing Operations


1 Scope Discontinuing

Operations

Discontinued Operations and

Asset Held For Sale

2 Cash flow statement Separate disclosure No such requirement

3 Time period Not defined 12 months


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8600364185

4 Initial Disclosure Event Defined Not required

5 Measurement of Asset held for

disposal

Defined in AS 10 Cost or FV wel

6 Abandonment of Asset Considered as

discontinuing

Disclosed Separately

7 Reclassification as continued asset Not defined Defined

AS 17: Segment Reporting


1 Identification of Segment Risk and Return

Approach

Management Approach

2 Basis of Measurement As per accounting

policies defined

As defined by Chief

Operating Decision Maker

3 Aggregation criteria Not defined Defined

4 Single reportable segment No disclosure Certain disclosures

5 Interest Expense Not presented Presented

AS 7: Construction Contracts


1 Borrowing Cost Included as per AS 16 No specific reference

2 Fair Value Not recognized Revenue recognized at FV

3 Service concession arrangement Not specified Recognize as expense

AS 27: Joint Venture


1 Type 1. Jointly controlled operations

2. Jointly controlled assets

3. Jointly controlled entities

1. Joint operation

2. Joint venture

2 Equity method Only proportionate

consolidation method

Equity method defined

3 Near future disposal Considered joint venture Not considered joint venture

4 Applicability Only in case of CFS Applied in other than

separate financial

statements

5 Post acquisition reserves Disclosed No such requirement

AS 21: Consolidation


1 Mandatory No Yes

2 Control One half of voting rights Investor controls investee

3 More than one parent Disclose Cannot be more than one parent

4 Difference in reporting

dates

Not more than 6 months 3 months

5 Non controlling interest Presented separately other

than equity and liability

Presented separately in equity


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8600364185

6 Potential voting rights Not covered Defined

7 Temporary investment Not considered subsidiary No such exemption

AS 23: Investment in Associate


1 Significant influence Does not include joint control Includes joint control

2 Potential equity shares Not considered Considered

3 Equity method Only if CFS prepared Statement other than separate

financial statement

4 Exemption If fund transfer restriction No such exemption

5 Near future saleable Not considered as Associate Covered under Ind AS 105

6 Difference in reporting

dates

Can be any period 3 months

7 Uniform accounting policies Not necessary required

AS 14: Amalgamation


1 Method of accounting Pooling of interest and

purchase method

Purchase method

2 Asset and liability under

purchase method

Cost of fair value Fair value

3 Amortization of goodwill 5yrs Not amortized

4 Reverse acquisition Not covered covered

5 Contingent consideration Not Covered Covered

6 Bargain purchase gain Capital Reserve Other Comprehensive income

AS 10: Property, Plant and Equipment


1 Assets held for disposal Covered Covered under Ind AS 105

2 Stripping cost in mine Not covered covered

AS 9: Revenue


1 Definition From goods, services etc. Which result in increase in

equity

2 Measurement Nominal value Fair value

3 Barter Not covered Covered

4 Interest Accrual basis Effective interest method

5 Customer loyalty program Not covered Covered

6 Excise duty Deduct from revenue Not specifically provided

7 Disclosure Comparatively less Comparatively more


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Carve outs

Point of difference Ind AS IAS

1 Breach of Long term loan

arrangement which is

rectified

Ind AS 1

Disclose as long term loan

arrangement

IAS 1

Classify as current

2 Rectification of breach Ind AS 10

Non-adjusting event

IAS 10

Adjusting event

3 Escalation in Operating lease

rental

Ind AS 17

Do not straight line if at par

with inflation

IAS 17

Do not straight line if it

represents the time pattern

systematically

4 Construction of real estate Ind AS 18

Proportionate completion

method

IFRIC 15

Treat as sale of goods

5 Uniform accounting policies

while consolidating associate

Ins AS 28

Unless impracticable to do so

IAS 28

Compulsory

6 Foreign currency

denominated convertible

bonds

Ind AS 32

Equity component

IAS 32

Liability component

7 Carrying amount of property

plant and equipment on first

time adoption

Ind AS 101

Continue as per historical cost

and determine fair value in

future

IFRS 1

Apply fair value retrospectively

8 Para 46A on long term

monetary asset

Ind AS 101

Continue as per Para 46A

No such provision

9 Gain while acquiring

subsidiary

Ind AS 103

Recognize in OCI and transfer

to reserve

IFRS 3

Recognize in P&L


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GUIDANCE NOTE ON DERIVATIVES

Q. ABC Ltd. is an exporter of goods. In the month of July 2013, it receives the order for

supply of goods to US customers in the month of January 2014 and as per the payment cycle

with the customers; it expects to realize USD 100,000 in April 2014.

ABC Ltd has decided to fully hedge the sales from foreign currency risk. Immediately after

getting the order, to hedge the firm commitment in foreign currency it enters into a derivative

transaction with XYZ Bank, for future sale of USD 100,000 in the month of April 2014 @ Rs.

65 per USD (Spot Rate was Rs. 64.50 per USD).

For this purpose, it is assumed that the company has entered into a cash flow hedge, which is

generally the case for hedging foreign currency risk.

Further, it is assumed that:

1. At the time of booking of sale in January 2014, the USD rate was Rs. 61, and forward

rate for delivery on April 30, 2014 was Rs. 61.20.

2. On the reporting date on March 31, 2014, the USD rate was Rs. 60.50 and forward

rate for delivery on April 30, 2014 was Rs. 60.60.

3. At the time of realization USD rate was Rs. 60/- on April 30, 2014.

The above transaction should be accounted in the following manner (impact of discounting of

MTM of the hedging instrument has been ignored in this simplified illustration).

ABC Limited entered to sell a forward exchange

contract for USD 100,000 having ten months

maturity on April 30, 2014

Forward Exchange Rate

Spot Rate as at July 01, 2013

No entry in the books

65.00

64.50

Upto January

31,

2014

ABC Limited accounts the MTM effect in the

books

Forward Contract Rate Entered

Forward Contract Available in the market with

similar maturity

65.00

61.20

Forward Contract Receivable

To Cash Flow Hedge Reserve

380,000

380,000

January 31,

2014

ABC Limited recognizes the revenue by booking an

invoice for USD 100,000, having credited period of

90 days (i.e. due date –

April 30, 2014)

Spot rate as at January 31, 2014

Forward Contract Available in the Market with

similar maturity

61.00

61.20

Recognition of Revenue

Accounts Receivable

To Revenue

61.00,000

61,00,000

Recognition of Hedging gain

Cash Flow hedge reserve

To Statement of Profit & Loss

380,000

380,000


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March 31,

2014

Spot Rate

Forward Contract Available in the

Market with similar maturity

60.50

60.60

Restatement of Accounts Receivable

Forex Gain/Loss (P&L)

To Accounts Receivable

50,000

50,000

MTM Effect of Forward Cover

Forward Contract Receivable

To Forex Gain/Loss (P&L)

60,000

60,000

April 30,

2014

Spot rate

Realization of Accounts Receivable

Bank

Forex Gain/Loss (P&L)

To Accounts Receivable

60.00

60,00,000

50,000

60,50,000

Maturity of Forward Contract

Bank

To Forward Contract Receivable

To Forex Gain/Loss (P&L)

5,00,000

4,40,000

60,000

Guidance note on Accounting for Corporate Social

Responsibility

• Applicability

Section 135 of the Companies Act, 2013 (the Act)

Every company having a

– net worth of Rupees 500 crore or more, or

– turnover of Rupees 1,000 crore or more or

– a net profit of Rupees 5 crore or more, during any financial year,

Spends in every financial year atleast 2% of the average net profits of the company made during the

three immediately preceding financial years on Corporate Social Responsibility (CSR)

Net Profit

Additions to be made

1. Subsidy and bounties by CG

2. Profit on sale of Assets of company

Additions not to be made

1. Premium on shares or debentures;

2. profits on sales by the company of forfeited shares;

3. Profit on sale of undertaking

4. profits from the sale of any immovable property

5. Revaluation on fixed assets in book


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Deductions to be made

1. Usual working charges

2. Directors remuneration

3. Bonus or commission

4. Tax levied by CG other than IT

5. Interest on debenture/ unsecured loan/ mortgages

6. Repairs

7. Charity contribution under section 181

8. Depreciation

9. Loss of PY after commencement of act

10. Legal liability

11. Bad debts

12. Loss on sale of Fixed Assets

Deductions not to be made

1. Income tax or surcharge

2. Loss on sale of undertaking

3. Voluntary compensation for damages

4. Devaluation of assets in books

• If expenditure not made- Specify the reason in Directors Report

• Contractual obligation taken but payment not made- create a provision of the same

• What if paid in excess of 2% - expense off, no carry forward permitted

• How to accomplish CSR activities?

– making a contribution to the funds as specified in Schedule VII to the Act

– through a registered trust or a registered society or a company established under

section 8 of the Act (or section 25 of the Companies Act, 1956) by the company, either

singly or along with its holding or subsidiary or associate company or along with any

other company or holding or subsidiary or associate company of such other company, or

otherwise

– in any other way in accordance with the Companies (Corporate Social Responsibility

Policy) Rules, 2014, e.g. on its own

• What if expense leads to creation of asset?

– If ownership is transferred, derecognize

– If ownership is retained, since no economic benefits will flow to the enterprise, asset is

to be derecognized

• How to determine cost is specific cases

– Own manufactured goods transferred

1. Determine expense as per AS 2

2. Indirect tax also to be included in cost

– Service has been rendered

1. Determine at cost incurred in providing service

• Income earned from CSR projects

– Recognized as income in P&L

– Transferred to liability for CSR immediately by debiting P&L

– Not to form part for 2% calculation of profits

• Schedule VII

– eradicating hunger, poverty and malnutrition, promoting health care including

preventive health care and sanitation including contribution to the Swach Bharat Kosh


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set-up by the Central Government for the promotion of sanitation and making available

safe drinking water;

– promoting education, including special education and employment enhancing vocation

skills especially among children, women, elderly and the differently abled and livelihood

enhancement projects;

– hostels for women and orphans; setting up old age homes, day care centres and such

other facilities for senior citizens and measures for reducing inequalities faced by

socially and economically backward groups;

– ensuring environmental sustainability, ecological balance, protection of flora and fauna,

animal welfare, agro forestry, conservation of natural resources and maintaining quality

of soil, air and water2 including contribution to the Clean Ganga Fund set-up by the

Central Government for rejuvenation of river Ganga;

– protection of national heritage, art and culture including restoration of buildings and

sites of historical importance and works of art; setting up public libraries; promotion

and development of traditional arts and handicrafts

– measures for the benefit of armed forces veteran, war widows and their dependents;

– training to promote rural sports nationally recognized sports, Paralympic sports and

Olympic sports;

– contribution to the Prime Minister's National Relief Fund or any other fund set up by

the Central Government for socio-economic development and relief and welfare of the

Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and

women;

– contributions or funds provided to technology incubators located within academic

institutions which are approved by the Central Government;

– rural development projects;

– slum area development

Guidance note on Accounting for Depreciation

-CA. Sumit L. Sarda

1. Shift from rate based to useful life

Useful life to be same as given in Part C of Schedule II

If considered to be different

a. Give disclosure of the fact

b. Provide justification

Example 1

A Limited is a company incorporated under the Companies Act, 1956, engaged in the business of

manufacturing of toys. A Limited purchased a unit of machinery costing Rs. 60 lakhs as on April 01,

2014. As per Schedule II the general useful life of the assets is 15 years. However, as per A Ltd.’s

estimation, the useful life of the asset is 20 years supported by the technical advice. Issue: Should

the company use the useful life as 15 years or 20 years?

Answer

In this case, keeping in view the requirements under Schedule II, A Ltd. should depreciate the

machinery over its useful life of 20 years as determined by the company and not over 15 years as

indicated in Schedule II.

A limited should also provide disclosures in this regard as recommended later in this Guidance Note in


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the notes to accounts to justify the reason for difference between the indicative use life and A’s

estimated useful life.

Example 2

B Limited had considered the minimum rates of depreciation mentioned in Schedule XIV for

depreciating all its fixed assets till March 31, 2014. Based on the rates mentioned for SLM and WDV

in Schedule XIV, B Limited had derived the useful lives for the assets. Schedule II of the Companies

Act, 2013 is now applicable to B Limited w.e.f. April 1, 2014

Whether B Limited needs to follow the useful lives mentioned in the Schedule II or derived useful

lives considered till March 31, 2013 can be considered?

Answer

W.e.f. April 1, 2014, B limited should estimate the remaining useful lives of its assets based on the

definition of useful life in Schedule II and the factors specified in AS 6 for recognizing depreciation

in the statement of profit and loss. There is no relevance of the derived useful life as per Schedule

XIV. However, if B Limited estimates useful lives different from those specified in Schedule II, it

should disclose such differences in the financial statements and provide justification in this behalf

duly supported by technical advice.

2. Residual value of the asset

Can be equal to or lower than 5% of original cost

If considered to be higher

a. Disclose the fact

b. Provide justification

3. CPP and NESD

Continuous process plant and No extra shift depreciation plant

- Depreciation as per Schedule II

Multiple shift plant

- Double shift: Increase depreciation by 50%

- Triple shift: Increase depreciation by 100%

4. Unit of production method

Permissible where appropriate

Example 3

A Limited is a company incorporated under the Companies Act and engaged in the business of oil

exploration. Keeping in view the requirement in Schedule XIV it was depreciating its oil and gas

assets on SLM basis. In the financial year 2014-15, when A applies Schedule II it decides to

depreciate the said assets by following the UOP method.

Issue: How should change in method be accounted for?

Answer

In this case, in accordance with AS 6, A Limited should calculate depreciation on all such assets

following the UOP method since the assets came into existence and recognize any deficiency/gain in

the statement of profit and loss for the period ending on March 31, 2015.


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5. Transition

Existing asset

a. Depreciate as per remaining useful life left

b. If no useful life left: adjust assets value to General reserve

New asset/ second hand asset

a. Depreciate as per life mentioned in schedule II

Example 4

Limited has followed Schedule XIV rates for depreciation of a plant and machinery under WDV

method by following the rate of 13.91% as it runs under single shift. The WDV of the asset as at

March 31, 2014 is Rs.23,63,919 and remaining useful life as estimated by the company is 11 years. B

Limited estimates that the residual value of the asset is 5% of the original cost of the asset, i.e., Rs.

2,50,000.

Issue: On transition to Schedule II, how plant and machinery should be depreciated?

Answer

As per the transitional provisions given under Schedule II assets are required to be depreciated over

their remaining useful lives. In the above case, since B Ltd follows WDV method for depreciation, the

carrying value of Rs. 23,63,919 of plant and machinery should be depreciated by following the WDV

method over its remaining useful life of 11 years. B Limited should determine the rate of depreciation

to be charged under WDV method as follows:

Rate of Depreciation: {1- (Residual Value/Cost of the Asset)^1/useful life}*100

Rate of Depreciation in the above case = {1- (2,50,000/23,63,919)^1/11}*100

=18.47 %

Year Carrying value Depreciation WDV

1 2363919 4,36,690.25 19,27,228.75

2 1927228.75 3,56,019.82 15,71,208.93

3 15,71,208.93 2,90,251.75 12,80,957.19

4 12,80,957.19 2,36,633.11 10,44,324.07

5 10,44,324.07 1,92,919.53 8,51,404.54

6 8,51,404.54 1,57,281.22 6,94,123.32

7 6,94,123.32 1,28,226.43 5,65,896.90

8 5,65,896.90 1,04,538.97 4,61,357.93

9 4,61,357.93 85,227.33 3,76,130.59

10 3,76,130.59 69,483.16 3,06,647.43

11 3,06,647.43 56,647.43 2,50,000.00

Example 5

B Limited purchased a unit of plant and machinery on April 1, 2005, and depreciated the same at the

rate of 4.75% on straight line basis as per the depreciation rate given in Schedule XIV (equivalent


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useful life approximately 21 years), even though the useful life as estimated by the management at

the time of initial recognition of the asset was higher (30 years). For the financial year beginning on

April 1, 2014, when B Limited applies Schedule II, it estimates that the remaining useful life of the

plant and machinery as on April 1, 2014, is 18 years, which is different from the useful life remaining

as per Schedule XIV i.e., 12 years.

Issue: Which remaining useful life of plant and machinery should be considered by the B Limited to

provide depreciation?

Answer

B Limited should depreciate the plant and machinery over its estimated remaining useful life of 18

years on prospective basis and not on the basis of remaining useful life as per Schedule XIV, i.e., 12

years (21 years – 9 years).

Example 6

B Limited purchased machinery as on April 1, 2005 and depreciated the same on straight line method

as per the depreciation rates given in Schedule XIV. For the financial year beginning on April 1, 2014,

when B Limited applies Schedule II, it estimates that the remaining useful life of machinery is nil and

requires to be disposed off.

Issue: What should be the treatment of carrying amount of machinery?

Answer

The carrying amount of machinery (net of tax) may be recognized in the opening balance of the

retained earnings as on April 01, 2014.

Example 7

B Limited, a company incorporated under the Companies Act, acquired a second hand machinery for

Rs. 5,00,000 from C Limited As per the estimate of the C Limited, the useful life of the asset when

it was newly purchased by it was 15 years out of which 8 years have already elapsed (duration for

which machinery is used by the C Limited). B Limited, for the purpose of providing depreciation on

SLM basis under Schedule II, estimates that the asset can be used for 10 years and the residual

value is estimated to be nil.

What useful life of such second hand machinery should be considered by the B Limited for providing

depreciation?

Answer

In this case, B Limited should provide for depreciation on the machinery on the basis of useful life of

10 years and not 7 years remaining as per the earlier estimate of C Ltd. (15 years – 8 years).

Therefore, depreciation expense to be recognized in the statement of profit and loss for the year

would be Rs. 50,000 (5,00,000/10 yrs.).

6. Intangible Assets

Depreciation as per schedule II

Only Toll roads may use revenue based methodology

Example 8

B Limited is a company engaged in various projects of infrastructure development. B’s basic business

model is to enter into various infrastructure development projects with the Central and State

Governments controlled enterprises under Public Private Partnership (PPP) Model. During the year

2011-12, B Limited entered into a contract with the State Government of Haryana for developing a


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coal-fired thermal power plant serving the states of Haryana, Delhi, Rajasthan and Punjab.

At the year-end, i.e., 31st March, 2015, for providing amortization on the intangible assets arising

from the above-mentioned projects for developing thermal power plant, B Limited was of the view

that the revenue based amortization methodology as permitted by the Schedule II may be applied.

Whether the view taken by B Limited is appropriate?

Answer

In this case, use of revenue-based amortization is inappropriate as Schedule II permits revenue

based amortization only for intangible assets arising from toll road projects and not from any other

infrastructure projects even though they are entered into through PPP model, BOT or BOOT.

7. Revaluation

Depreciation to be provided on substituted figure

Amortization of revaluation surplus shall be made to revenue reserve and not P&L

8. Component approach

As per revised AS 10

Schedule III presentation and disclosure

As per Companies ACT

Ind AS related Changes are highlighted and marked bold, others are old schedule III

GENERAL INSTRUCTIONS FOR PREPARATION OF BALANCE SHEET:

(pehle Assets dikhana and then Equity and Liability)

1. An entity shall classify an asset as current when-

(a) it expects to realise the asset, or intends to sell or consume it, in its normal

operating cycle;

(b) it holds the asset primarily for the purpose of trading;

(c) it expects to realise the asset within twelve months after the reporting period; or

(d) the asset is cash or a cash equivalent unless the asset is restricted from being

exchanged or used to settle a liability for at least twelve months after the reporting period.

An entity shall classify all other assets as non-current.

2. The operating cycle of an entity is the time between the acquisition of assets for

processing and their realization in cash or cash equivalents, When the entity's normal

operating cycle is not clearly identifiable, it is assumed to be twelve months.

3. An entity shall classify a liability as current when-

(a) it expects to settle the liability in its normal operating cycle;


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(b) it holds the liability primarily for the purpose of trading;

(c) the liability is due to be settled within twelve months after the reporting period; or

(d) it does not have an unconditional right to defer settlement of the liability for at

least twelve months after the reporting period. Terms of a liability that could, at the option

of the counterparty, result in it settlement by the issue of equity instruments do not affect

its classification.

An entity shall classify all other liabilities as non-current.

4. A receivable shall be classified as a 'trade receivable' if it is in respect of the amount due

on account of goods sold or services rendered in the normal course of business.

5. A payable shall be classified as a 'trade payable' if it is in respect of the amount due on

account of goods purchased or services received in the normal course of business.

6. A company shall disclose the following in the Notes:

A Non-Current Assets

l. Property. Plant and Equipment : (name changed)

(i)Classification shall be given as:

(a) Land

(b) Buildings

(c) Plant and Equipment

(d) Furniture and Fixtures

(e) Vehicle

(f) Office equipment

(g) Bearer Plants

(h) Others (specify nature)

(ii) Assets under lease shall be separately specified under each class of assets

(iii) A reconciliation of the gross and net carrying amounts of each class of assets at the

beginning and end of the reporting period showing additions, disposals, acquisitions through

business combinations and other adjustments and the related depreciation and impairment

losses or reversals shall be disclosed separately.

ll. Investment Property:


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A reconciliation of the gross and net carrying amounts of each class of property at the


business combinations and other adjustments and the related depreciation and impairment


III. Goodwill: (To be shown separately from other ITA)

A reconciliation of the gross and net carrying amount of goodwill at the beginning and end

of the reporting period showing additions, impairments, disposals and other adjustments.

IV. Other Intangible assets

(i) Classification shall be given as:

(a) Brands or trademarks

(b) Computer software

(c) Mastheads and publishing titles

(d) Mining rights

(e) Copyright, patents, other intellectual property rights, services and operating

rights

(f) Recipes, formulae, models, designs and prototypes

(g) Licenses and franchises

(h) Others (specify nature)

(ii) A reconciliation of the gross and net carrying amounts of each class of assets at the


business combinations and other adjustments and the related amortization and impairment


V. Biological Assets other than bearer plants:

A reconciliation of the carrying amounts of each class of assets at the beginning and end of

the reporting period showing additions, disposals, acquisitions through business combinations

and other adjustments shall be disclosed separately.

VI. Investment

(i) Investments shall be classified as:

(a) Investments in Equity Instruments;

(b) Investments in Preference Shares;

(c) Investments in Government or trust securities;

(d) Investments in debentures or bonds;

(e) Investments in Mutual Funds;


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8600364185

(f) Investments in partnership firms; or

(g ) Other investments (specify nature)

Under each classification, details shall be given of names of the bodies corporate that are-

(i) subsidiaries, (ii) associates, (iii) joint ventures, or (iv) structured entities(name changed

from SPE), in whom investments have been made and the nature and extent of the

investment so made in each such body corporate (showing separately investments which are

partly-paid). lnvestment in partnership firms alongwith names of the firms, their partners,

total capital and the shares of each partner shall be disclosed separately.

(ii) The following shall also be disclosed:

(a) Aggregate amount of quoted investment and market value thereof:

(b) Aggregate amount of unquoted investment: and

(c) Aggregate amount of impairment in value of investment.

VII. Trade Receivables:

(i) Trade receivables shall be sub-classified as;

(a) Secured, considered good;

(b) Unsecured considered good; and

(c) Doubtful

(ii) Allowance for bad and doubtful debts shall be disclosed under the relevant heads

separately.

(iii) Debts due by directors or other officers of the company or any of them either

severally or jointly with any other person or debts due by firms or private companies

respectively in which any director is a partner or a director or a member should be

separately stated.

VIII. Loans;

(i) Loans shall be classified as -

(a) Security Deposits;

(b) Loans to related parties (giving details thereof); and

(c) Other loans (specify nature).

The above shall also be separately sub-classified as-


(b) Unsecured, considered good; and

(c) Doubtful. Allowance for bad and doubtful loans shall be disclosed under the relevant


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heads separately.

(ii) Loans due by directors or other officers of the company or any of them either severally

or jointly with any other persons or amounts due by firms or private companies respectively

in which any director is a partner or a director or a member should be separately stated.

IX. Bank deposits with more than 12 months maturity shall be disclosed under 'Other

financial assets';

X. Other non-current asset: Other non-current assets shall be classified as-

(i) Capital Advances; and

(ii) Advances other than capital advances;

(1) Advances other than capital advances shall be classified as:


(b) Advances to related parties (giving details thereof; and

(c) Other advances (specify nature).

(2) Advances to directors or other officers of the company or any of them either

severally or jointly with any other persons or advances to firms or private

companies respectively in which any director is a partner or a director or a

member should be separately stated, ln case advances are of the nature of a

financial asset as per relevant Ind AS, these are to be disclosed under other

financial assets separately.

(iii) Others (specify nature)

B. Current Assets

I. Inventories:

(i) Inventories shall be classified as-

(a) Raw materials;

(b) Work in-progress;

(c) Finished goods;

(d) Stock-in-trade (in respect of goods acquired for trading);

(e) stores and spares;

(f) Loose tools; and

(g) Others (specify nature).

(ii) Goods-in-transit shall be disclosed under the relevant sub-head of inventories.

(iii) Mode of valuation shall be stated.


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II. Investment;

(i) Investments shall be classified as-

(a) Investments in Equity lnstruments;

(b) lnvestment in Preference Shares;

(c) lnvestment in government or trust securities;

(d) Investments in debentures or bonds;

(e) Investments in Mutual Funds;

(f) lnvestment in partnership firms; and

(g) Other investments (specify nature).

Under each classification, details shall be given of names of the bodies corporate that are -

(i) subsidiaries, (ii) associates, (iii) joint ventures, or (iv) structured entities(changed from

SPE), in whom investments have been made and the nature and extent of the investment so

made in each such body corporate (showing separately investments which are partly - paid)

(ii) The following shall also be disclosed

(a) Aggregate amount of quoted investments and market value thereof;

(b) Aggregate amount of unquoted investments;

(c) Aggregate amount of impairment in value of investments,

III. Trade Receivables

(i) Trade receivables shall be sub-classified as:


(b) Unsecured considered good; and

(c) Doubtful.:

(ii) Allowance for bad and doubtful debts shall be disclosed under the relevant heads

separately.

(iii) Debts due by directors or other officers of the company or any of them either

severally or jointly with any other person or debts due by firms or. private companies


separately stated.

IV. Cash and cash equivalents:

Cash and cash equivalents shall be classified as -

a. Balances with Banks (of the nature of cash and cash equivalents);

b. Cheques, drafts on hand;

c. Cash on hand; and

d. Others (specify nature).


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V. Loans;

(i) Loans shall be classified as:

(a) Security deposits;

(b) Loans to related parties (giving details thereof); and

(c) others (specify nature).

(ii) The above shall also be sub -classified as -


(b) Unsecured, considered good; and

(c) Doubtful.

(iii) Allowance for bad and doubtful loans shall be disclosed under the relevant heads

separately.

(iv) Loans due by directors or other officers of the company or any of them either

severally or jointly with any other person or amounts due by firms or private companies

respectively in which any director is a partner or a director or a member shall be separately

stated.

VI. Other current assets (specify nature):

This is an all-inclusive heading, which incorporates current assets that do not fit into any

other asset categories. Other current assets shall be classified as-

(i) Advances other than capital advances

(1) Advances other than capital advances shall be classified as:


(b) Advances to related parties (giving details thereof);

(c) Other advances (specify nature)

(2) Advances to directors or other officers of the company or any of them either

severally or jointly with any other persons or advances to firms or private companies


separately stated.

(a) Earmarked balances with banks (for example. for unpaid dividend) shall be separately

stated.

(b) Balances with banks to the extent held as margin money or security against the

borrowings, guarantees, other commitments shall be disclosed separately.

(c) Repatriation restrictions, if any, in respect of cash and bank balances shall be separately

stated.

D. Equity- (name changes from share capital)


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I. Equity Share Capital: For each class of equity share capital:

(a) the number and amount of shares authorized;

(b) the number of shares issued, subscribed and fully paid, and subscribed but not fully

paid;

(c) par value per Share;

(d) a reconciliation of the number of shares outstanding at the beginning and at the

end of the period;

(e) the rights, preferences and restrictions attaching to each class of shares including

restrictions on the distribution of dividends and the repayment of capital;

(f) shares in respect of each class in the company held by its holding company or its

ultimate holding company including shares held by subsidiaries or associates of the holding

company or the ultimate holding company in aggregate;

(g) shares in the company held by each shareholder holding more than five per cent.

shares

specifying the number of shares held;

(h) shares reserved for issue under options and contracts or commitments for the sale

of shares or disinvestment, including the terms and amounts;

(i) for the period of five years immediately preceding the date at which the Balance

Sheet is prepared

• aggregate number and class of shares allotted as fully paid up pursuant to

contract without payment being received in cash;

• aggregate number and class of shares allotted as fully paid up by way of bonus

shares; and

• aggregate number and class of shares bought back;

(j) terms of any securities convertible into equity shares issued along with the earliest

date of conversion in descending order starting from the farthest such date;

(k) calls unpaid (showing aggregate value of calls unpaid by directors and officers);

(l) forfeited shares (amount originally paid up).

II. Other Equity: (name changed from R&S)

(i) Other Reserves' shall be classified in the notes as-

(a) Capital Redemption Reserve;

(b) Debenture Redemption Reserve;

(c) Share Options Outstanding Account; and

(d) others- (specify the nature and purpose of each reserve and the amount in

respect thereof);

(Additions and deductions since last balance sheet to be shown under each of the specified

heads)


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(ii) Retained Earnings represents surplus i.e. balance of the relevant column in the Statement

of Changes in Equity;

(iii) A reserve specifically represented by earmarked investments shall disclose the fact that

it is so represented;

(iv) Debit balance of Statement of Profit and Loss shall be shown as a negative figure under

the head 'retained earnings'. Similarly, the balance of 'Other Equity', after adjusting negative

balance of retained earnings, if any, shall be shown under the head 'Other Equity' even if the

resulting figure is in the negative; and

(v) Under the sub-head 'Other Equity', disclosure shall be made for the nature and amount

of each item.

E. Non-Current Liabilities- (name changed)

I. Borrowings:

(i) borrowings shall be classified as-

(a) Bonds or debentures

(b) Term loans

(I) from banks

(lI) from other Parties

(c) Deferred payment liabilities

(d) Deposits.

(e) Loans from related parties

(f) Long term maturities of finance lease obligations

(g) Liability component of compound financial instruments

(h) Other loans (specify nature);

(ii) borrowings shall further be sub-classified as secured and unsecured. Nature of

security shall be specified separately in each case.

(iii) where loans have been guaranteed by directors or others, the aggregate amount of

such loans under each head shall be disclosed;

(iv) bonds or debentures (along with the rate of interest, and particulars of

redemption or conversion, as the case may be) shall be stated in descending order of

maturity or conversion, starting from farthest redemption or conversion date, as the case

may be, where bonds/debentures are redeemable by installments, the date of maturity for

this purpose must be reckoned as the date on which the first installment becomes due;

(v) particulars of any redeemed bonds or debentures which the company has power to

reissue shall be disclosed;

(vi) terms of repayment of term loans and other loans shall be stated; and

(vii) period and amount of default as on the balance sheet date in repayment of


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borrowings and interest shall be specified separately in each case.

II. Provisions: The amounts shall be classified as-

(a) Provision for employee benefits; and

(b) Others (specify nature).

III. Other non-current liabilities;

(a) Advances; and

(b) Others (specify nature).

F. Current Liabilities (name changed)

I. Borrowings:

(i) Borrowings shall be classified as -

(a) Loans repayable on demand

(I) from banks

(II) from other parties

(b) Loans from related parties

(c) Deposits

(d) Other loans (specify nature);

(ii) borrowings shall further be sub-classified as secured and unsecured. Nature of

security shall be specified separately in each case;

(iii) where loans have been guaranteed by directors or others, the aggregate amount of

such loans under each head shall be disclosed;

(iv) period and amount of default as on the balance sheet date in repayment of

borrowings and interest, shall be specified separately in each case.

II. Other Financial Liabilities: Other Financial liabilities shall be classified as-

(a) Current maturities of long-term debt;

(b) Current maturities of finance lease obligations;

(c) Interest accrued;

(d) Unpaid dividends;

(e) Application money received for allotment of securities to the extent refundable and

interest accrued thereon;

(f) Unpaid matured deposits and interest accrued thereon;

(g) Unpaid matured debentures and interest accrued thereon; and

(h) Others (specify nature).

'Long term debt is a borrowing having a period of more than twelve months at the time of


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origination

III. Other current liabilities:

The amounts shall be classified as-

(a) revenue received in advance;

(b) other advances (specify nature); and

(c) others (specify nature);

V. Provisions: The amounts shall be classified as-

(i) provision for employee benefits; and

(ii) others (specify nature)

G. The presentation of liabilities associated with group of assets classified as held for sale and

non-current assets classified as held for sale shall be in accordance with the relevant Indian

Accounting Standards (Ind ASs)

H. Contingent Liabilities and Commitments: (to the extent not provided for)

(i) Contingent Liabilities shall be classified as-

(a) claims against the company not acknowledged as debt;

(b) guarantees excluding financial guarantees; and

(c) other money for which the company is contingently liable.

(ii) Commitments shall be classified as-

(a) estimated amount of contracts remaining to be executed on capital account

and not provided for;

(b) uncalled liability on shares and other investments partly paid; and

(c) other commitments (specify nature).

I. The amount of dividends proposed to be distributed to equity and preference shareholders

for the period and title related amount per share shall be disclosed separately. Arrears of

fixed cumulative dividends on irredeemable preference shares shall also be disclosed

separately.

J. Where in respect of an issue of securities made for a specific purpose the whole or part of

amount has not been used for the specific purpose at the Balance sheet date, there shall be

indicated by way of note how such unutilised amounts have been used or invested.

7. When a company applies an accounting policy retrospectively or makes a restatement of

items in the financial statements or when it reclassifies items in its financial statements, the

company shall attach to the Balance Sheet, a "Balance Sheet" as at the beginning of the


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earliest comparative period presented.

8. Share application money pending allotment shall be classified into equity or liability in

accordance with relevant Indian Accounting Standards. share application money to the

extent not refundable shall be shown under the head Equity and share application money to

the extent refundable shall be separately shown under 'Other financial liabilities'.

9. Preference shares including premium received on issue, shall be classified and presented as

'Equity' or 'Liability' in accordance with the requirements of the relevant Indian Accounting

Standards. Accordingly, the disclosure and presentation requirements in that regard

applicable to the relevant class of equity or liability shall be applicable mutatis mutandis to

the preference shares. For instance, redeemable preference shares shall be classified and

presented under 'non-current liabilities' as 'borrowings' and the disclosure requirements in

this regard applicable to such borrowings shall be applicable mutatis mutandis to redeemable

preference shares.

10. Compound financial instruments such as convertible debentures, where split into equity

and liability components, as per the requirements of the relevant Indian Accounting

Standards, shall be classified and presented under the relevant heads in 'Equity' and

'Liabilities'

11. Regulatory Deferral Account Balances shall be presented in the Balance Sheet in

accordance with the relevant Indian Accounting Standards.

GENERAL INSTRUCTIONS FOR PREPARING OF STATEMENT OF PROFIT AND LOSS

1. The provisions of this Part shall apply to the income and expenditure account, in like

manner as they apply to a Statement of Profit and Loss,

2. The Statement of Profit and Loss shall include:

(1) Profit of loss for the Period;

(2) Other Comprehensive Income for the period

The sum of (1) and (2) above is “ Total Comprehensive Income"

3. Revenue from operations shall disclose separately in the notes

(a) sale of products (including Excise Duty);

(b) sale of services; and

(c) other operating revenues.

4. Finance Costs: Finance costs shall be classified as-

(a) interest;


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(b) dividend on redeemable preference shares;

(c) exchange differences regarded as an adjustment

to borrowing costs; and

(d) other borrowing costs (specify nature).

5. Other income: other income shall be classified as-

(a) interest Income;

(b) dividend Income; and

(c) other non-operating income (net of expenses directly attributable to such income)

6. Other Comprehensive Income shall be classified into-

(A) Items that will not be reclassified to profit or loss

(i) Changes in revaluation surplus;

(ii) Re-measurements of the defined benefit plans;

(iii) Equity Instruments through Other Comprehensive Income;

(iv) Fair value changes relating to own credit risk of financial liabilities designated at fair

value through profit or loss;

(v) Share of Other Comprehensive Income in Associates and Joint Ventures, to the extent

not to be classified into profit or loss; and

(v) Share of Other Comprehensive Income in Associates and Joint Ventures, to the extent

not to be classified into profit or loss; and

(vi) Others (specify nature)

B) Items that will be reclassified to profit or loss;

(i) Exchange differences in translating the financial statements of a foreign operation;

(ii) Debt instruments through Other Comprehensive Income;

(iii) The effective portion of gains and loss on hedging instruments in a cash flow hedge;

(iv) Share of other comprehensive income in Associates and Joint Ventures, to the extent

to be classified into profit or loss; and

(v) Others (specify nature)

7. Additional Information:

A Company shall disclose by way of notes, additional information regarding aggregate

expenditure and income on the following items:

(a) employee Benefits expense (showing separately (i) salaries and wages, (ii) contribution to

provident and other funds, (iii) share based payments to employees, (iv) staff welfare

expenses).

(b) depreciation and amortisation expense;

(c) any item of income or expenditure which exceeds one per cent of the revenue from

operations or `10,00,000, whichever is higher, in addition to the consideration of '

materiality ‘as specified in clause 7 of the General Instructions for Preparation of Financial


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Statements of a Company;

(d) interest Income

(e) interest Expense

(f) dividend income;

(g) net gain or loss on sale of investments;

(h) net gain or loss on foreign currency transaction and translation (other than considered

as finance cost);

(i) payments to the auditor as (a) auditor, (b) for taxation matters, (c) for company law

matters, (d) for other services, (e) for reimbursement of expenses;

(j) in case of companies covered under section 135, amount of expenditure incurred on

corporate social responsibility activities; and

(k) details of items of exceptional nature;

8. Changes in Regulatory Deferral Account Balances shall be presented in the Statement of

Profit and Loss in accordance with the relevant Indian Accounting Standards

New Questions for revised AS 10 Q1. Entity A, a supermarket chain, is renovating one of its major stores. The store will have

more available space for in store promotion outlets after the renovation and will include a

restaurant. Management is preparing the budgets for the year after the store reopens, which

include the cost of remodelling and the expectation of a 15% increase in sales resulting from

the store renovations, which will attract new customers. State whether the remodeling cost

will be capitalized or not.

Solution

The expenditure in remodelling the store will create future economic benefits (in the form of

15% of increase in sales) and the cost of remodelling can be measured reliably, therefore, it

should be capitalised.

Q2. What happens if the cost of the previous part/inspection was/ was not identified in the

transaction in which the item was acquired or constructed?

Solution

De-recognition of the carrying amount occurs regardless of whether the cost of the previous

part/inspection was identified in the transaction in which the item was acquired or

constructed


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Q3. What will be your answer in the above question, if it is not practicable for an enterprise

to determine the carrying amount of the replaced part/inspection?

Solution

It may use the cost of the replacement or the estimated cost of a future similar inspection as

an indication of what the cost of the replaced part/existing inspection component was when

the item was acquired or constructed

Q4. Entity A has an existing freehold factory property, which it intends to knock down and

redevelop. During the redevelopment period the company will move its production facilities

to another (temporary) site. The following incremental costs will be incurred:

1. Setup costs of `5,00,000 to install machinery in the new location.

2. Rent of ` 15,00,000

3. Removal costs of ` 3,00,000 to transport the machinery from the old location to the

temporary location.

Can these costs be capitalised into the cost of the new building?

Solution

Constructing or acquiring a new asset may result in incremental costs that would have been

avoided if the asset had not been constructed or acquired. These costs are not to be included

in the cost of the asset if they are not directly attributable to bringing the asset to the

location and condition necessary for it to be capable of operating in the manner intended by

management. The costs to be incurred by the company do not meet the requirement of AS

10 and therefore, cannot be capitalized

Q5. Entity A, which operates a major chain of supermarkets, has acquired a new store

location. The new location requires significant renovation expenditure. Management expects

that the renovations will last for 3 months during which the supermarket will be closed.

Management has prepared the budget for this period including expenditure related to

construction and remodelling costs, salaries of staff who will be preparing the store before its

opening and related utilities costs.What will be the treatment of such expenditures?

Solution

Management should capitalise the costs of construction and remodelling the supermarket,

because they are necessary to bring the store to the condition necessary for it to be capable

of operating in the manner intended by management. The supermarket cannot be opened

without incurring the remodelling expenditure, and thus the expenditure should be

considered part of the asset. However, the cost of salaries, utilities and storage of goods are

operating expenditures that would be incurred if the supermarket was open. These costs are

not necessary to bring the store to the condition necessary for it to be capable of operating


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in the manner intended by management and should be expensed.

Q6. An amusement park has a 'soft' opening to the public, to trial run its attractions. Tickets

are sold at a 50% discount during this period and the operating capacity is 80%. The official

opening day of the amusement park is three months later. Management claim that the soft

opening is a trial run necessary for the amusement park to be in the condition capable of

operating in the intended manner. Accordingly, the net operating costs incurred should be

capitalised. Comment.

Solution

The net operating costs should not be capitalised, but should be recognised in the Statement

of Profit and Loss. Even though it is running at less than full operating capacity (in this case

80% of operating capacity), there is sufficient evidence that the amusement park is capable

of operating in the manner intended by management. Therefore, these costs are specific to

the start-up and, therefore, should be expensed as incurred.

Q7. Entity A exchanges surplus land with a book value of ` 10,00,000 for cash of `

20,00,000 and plant and machinery valued at ` 25,00,000. What will be the measurement

cost of the assets received?

Solution

Since the transaction has commercial substance. The plant and machinery would be recorded

at 25,00,000, which is equivalent to the fair value of the land of 45,00,000 less the cash

received of ` 20,00,000.

Q8. Entity A exchanges car X with a book value of ` 13,00,000 and a fair value of `

13,25,000 for cash of 15,000 and car Y which has a fair value of 13,10,000. The

transaction lacks commercial substance as the company’s cash flows are not expected to

change as a result of the exchange. It is in the same position as it was before the transaction.

What will be the measurement cost of the assets received?

Solution

The entity recognises the assets received at the book value of car X. Therefore,it recognises

cash of 15,000 and car Y as PPE with a carrying value of ` 12,85,000

Q9. Entity A is a large manufacturing group. It owns a number of industrial buildings, such

as factories and warehouses and office buildings in several capital cities. The industrial

buildings are located in industrial zones, whereas the office buildings are in central business

districts of the cities. Entity A's management want to apply the revaluation model as per AS

10 to the subsequent measurement of the office buildings but continue to apply the historical

cost model to the industrial buildings. State whether this is acceptable under AS 10 or not


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with reasons?

Solution

Entity A's management can apply the revaluation model only to the office buildings. The

office buildings can be clearly distinguished from the industrial buildings in terms of their

function, their nature and their general location. AS 10 permits assets to be revalued on a

class by class basis. The different characteristics of the buildings enable them to be classified

as different PPE classes. The different measurement models can, therefore, be applied to

these classes for subsequent measurement. All properties within the class of office buildings

must, therefore, be carried at revalued amount.

Q10. Entity A has a policy of not providing for depreciation on PPE capitalised in the year

until the following year, but provides for a full year's depreciation in the year of disposal of

an asset. Is this acceptable?

Solution

The depreciable amount of a tangible fixed asset should be allocated on a systematic basis

over its useful life. The depreciation method should reflect the pattern in which the asset's

future economic benefits are expected to be consumed by the entity. Useful life means the

period over which the asset is expected to be available for use by the entity. Depreciation

should commence as soon as the asset is acquired and is available for use.

Q11. Entity A purchased an asset on 1st January 2013 for ` 1,00,000 and the asset had an

estimated useful life of 10 years and a residual value of nil. On 1st January 2017, the

directors review the estimated life and decide that the asset will probably be useful for a

further 4 years. Calculate the amount of depreciation for each year, if company charges

depreciation on Straight Line basis.

Solution

The entity has charged depreciation using the straight-line method at ` 10,000 per annum

i.e (1,00,000/10 years).

On 1st January 2017, the asset's net book value is [1,00,000 – (10,000 x 4)] ` 60,000.

The remaining useful life is 4 years. The company should amend the annual provision for

depreciation to charge the unamortised cost over the revised remaining life of four years.

Consequently, it should charge depreciation for the next 4 years at `15,000 per annum

i.e. (60,000 / 4 years)

Note: Depreciation is recognised even if the Fair value of the Asset exceeds its Carrying

Amount. Repair and maintenance of an asset do not negate the need to depreciate it


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Q12. Entity B constructs a machine for its own use. Construction is completed on 1st

November 2016 but the company does not begin using the machine until 1st March 2017.

Comment

Solution

The entity should begin charging depreciation from the date the machine is ready for use –

that is, 1st November 2016. The fact that the machine was not used for a period after it

was ready to be used is not relevant in considering when to begin charging depreciation.

Q13. A property costing `10,00,000 is bought in 2016. Its estimated total physical life is

50 years. However, the company considers it likely that it will sell the property after 20

years.

The estimated residual value in 20 years' time, based on 2016 prices, is:

Case (a) 10,00,000

Case (b) 9,00,000

Calculate the amount of depreciation

Solution

Case (a)

The company considers that the residual value, based on prices prevailing at the balance

sheet date, will equal the cost. There is, therefore, no depreciable amount and depreciation is

correctly zero.

Case (b)

The company considers that the residual value, based on prices prevailing at the balance

sheet date, will be `9,00,000 and the depreciable amount is, therefore, `1,00,000.

Annual depreciation (on a straight line basis) will be `5,000 [{10,00,000 – 9,00,000} ÷

20].

Q14. Entity B manufactures industrial chemicals and uses blending machines in the

production process. The output of the blending machines is consistent from year to year and

they can be used for different products. However, maintenance costs increase from year to

year and a new generation of machines with significant improvements over existing machines

is available every 5 years. Suggest the depreciation method to the management.

Solution

Management should determine the depreciation method based on production output. The

straight-line depreciation method should be adopted, because the production output is

consistent from year to year. Factors such as maintenance costs or technical obsolescence

should be considered in determining the blending machines’ useful life


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Q15. Entity A carried plant and machinery in its books at 2,00,000. These were destroyed

in a fire. The assets were insured 'New for old' and were replaced by the insurance company

with new machines that cost 20,00,000.The machines were acquired by the insurance

company and the company did not receive the `20,00,000 as cash compensation. State, how

Entity A should account for the same?

Solution

Entity A should account for a loss in the Statement of Profit and loss on de-recognition of

the carrying value of plant and machinery in accordance with AS 10. Entity A should

separately recognise a receivable and a gain in the income statement resulting from the

insurance proceeds under AS 29 once receipt is virtually certain. The receivable should be

measured at the fair value of assets that will be provided by the insurer

Q16. XYZ Ltd. has acquired a heavy road transporter at a cost of `1,00,000 (with no

breakdown of the component parts). The estimated useful life is 10 years. At the end of the

sixth year, the power train (one of its component) requires replacement, as further

maintenance is uneconomical due to the off-road time required. The remainder of the vehicle

is perfectly roadworthy and is expected to last for the next four years. The cost of a new

power train is `45,000. Can the cost of the new power train be recognized as an asset, and,

if so, what treatment should be used?

Answer

The new power train will produce economic benefits to XYZ Ltd., and the cost is measurable.

Hence the item should be recognized as an asset as per AS 10 (Revised) as the recognition

criteria is satisfied. The original invoice for the transporter did not specify the cost of the

power train. However, its cost of the replacement is `45,000 which can be used as an

indication (usually by discounting factor) of the likely cost, six years previously.

If an appropriate discount rate is 5% per annum, `45,000 discounted back six years

amounts to `33,570 (45,000 x 0.746), which would be written out of the asset records.

The cost of the new power train, `45,000, would be added to the asset record, resulting in

a new asset cost of `1,11,430 (`1,00,000–`33,570 + `45,000)

Q17. ABC Ltd. is installing a new plant at its production facility. It has incurred these costs:

1. Cost of the plant (cost per supplier’s invoice plus taxes) `25,00,000

2.Initial delivery and handling costs `2,00,000

3. Cost of site preparation `6,00,000

4. Consultants used for advice on the acquisition of the plant `7,00,000

5. Interest charges paid to supplier of plant for deferred credit `2,00,000

6. Estimated dismantling costs to be incurred after 7 years `3,00,000

7. Operating losses before commercial production `4,00,000


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Please advise ABC Ltd. on the costs that can be capitalized in accordance with AS 10

(Revised).

Answer

According to AS 10 (Revised), these costs can be capitalized:

1. Cost of the plant `25,00,000

2. Initial delivery and handling costs `2,00,000

3. Cost of site preparation `6,00,000

4. Consultants’ fees `7,00,000

5. Estimated dismantling costs to be incurred after 7 years 3,00,000

`43,00,000

Note:

Interest charges paid on “Deferred credit terms” to the supplier of the plant (not a

qualifying asset) of `2,00,000 and operating losses before commercial production amounting

to `4,00,000 are not regarded as directly attributable costs and thus cannot be capitalized.

They should be written off to the Statement of Profit and Loss in the period they are

incurred.

Q18. Determine if the following costs can be added to the invoiced purchase price and

included in the initial recognition of the cost of the asset:

1. Consultants fees for choosing the new asset

2.A trade discount received of 5% of the purchase price of the asset

3.A discount received for paying the invoice within 90 days

4.Interest paid on a short term loan taken to provide the necessary cash for payment of the

purchase price

5. Import duties paid

6. Shipping costs and cost of road transport

7. Insurance for the shipping

8. An economic development rebate from the state

9. VAT paid on the purchase

10. Cost of laying a new concrete slab and installing special rubber mounted footings for the

new press in order to reduce vibration during use

11.Hire of a crane to transfer the press from the vehicles into the factory

12. Costs associated with removing a section of the factory roof to allow the machine to be

dropped into place and subsequently refitting the roof

13. Cost of installing soundproofing in the roof at the same time in order to provide

protection for workers in other parts of the factory building

14. Professional fees charged by consulting engineer for overseeing the installation process

15. Electricians fees for connecting the press to the power supply


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16. A portion of the operating costs (salaries, office expenses) of the purchasing department

17. Costs of materials (papers and inks) used in calibrating the machine and setting it up for

operation

18. Costs of training the operators of the new machine

19. A portion of the inefficiencies in production for the first month of use while the

operators

became comfortable with using the machine

Answer

Included in Cost: Point no. 2,5,6,7,8,10,11,12,14,15 and 17

Excluded from Cost: Point no. 1,3,4,9,13,16,18 and 19

Q19. A Ltd. has carried out certain works on various machines in their engineering plant,

which manufactures high quality metal patterns and templates for use in industry.

Determine in each case whether the costs of the improvements can be added to the existing

carrying value of the assets concerned?

1. The cost of an annual machine overhaul which will maintain the originally assessed

standard of performance of the machine for the coming 12 months.

2. The cost of repairs to a press machine, which was damaged by the emergency services

while trying to extricate the arm of a worker who had become trapped in the press.

3. Modifications to a cutting machine which will increase its rate of output from 500 to

560 patterns per shift.

4. Modifications to a lathe which will replace the current water cooling system with an

oil-based system, thereby extending the life of the lathe by a forecast 2 years.

5. The upgrading of a cutting machine with new software which will improve the

accuracy of its measurement and cutting tolerances by a number of microns, thereby

raising the quality of output.

6. Alterations to a production line which will allow automatic feeding from a machine to

the next one in the production process, thereby removing the need for an employee to

manually load the second machine.

Answer

Point 1: No. This may not be capitalized as subsequent expenditure, since it merely

maintains the originally assessed standard of performance of the asset.

Point 2: Yes. An impairment loss should have been recognized when the damage occurred

and any insurance payment received as compensation should have been recognized as income

in the Statement of Profit and Loss when received.

When expenditure is incurred to restore the asset, such expenditure is added to the carrying

amount of the asset to the extent that it is probable that future economic benefits will flow

to the enterprise.


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Point 3: Yes. The cost of such modifications may be added to the carrying amount of the

asset.

Point 4: Yes. Such costs may be capitalized.



Q20. An entity acquires the right to use an underground cave for gas storage purposes for a

period of 50 years. The cave is filled with gas, but a substantial part of that gas will only be

used to keep the cave under pressure in order to be able to get gas out of the cave. It is not

possible to distinguish the gas that will be used to keep the cave under pressure and the rest

of the gas. Evaluate whether AS 10 would apply or AS 2?

Answer

The total volume of gas must be virtually split into

(i) Gas held for sale, and

(ii) Gas held to keep the cave under pressure.

The former must be accounted for under AS2 as Inventories. The latter must be accounted

for as PPE under AS 10 and depreciated over the period the cave is expected to be used.

Q21. An entity operates an oil refining plant. For the refining process to take place, the

plant must contain a certain minimum quantity of oil. This can only be taken out once the

plant is abandoned and would then be polluted to such an extent that the plant’s value is

significantly reduced. Evaluate whether AS 10 would apply or AS 2?

Answer

The part of the crude that is necessary to operate the plant and cannot be recouped (or can

be recouped but would then be significantly impaired), even when the plant is abandoned,

should be considered as an item of PPE under AS 10 and amortized over the life of the

plant.

Documents

Inventories are assets - CA StudyAS1: DISCLOSURE OF ACCOUNTING POLICY Level I Level II Level III 1. Listed or Being Listed Enterprise 2. Banks and FI 3. Insurance Companies 4. Turnover