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A Presentation on:
INDIAN ACCOUNTING STANDARDS
Presented By:
Kul Bhushan MallikM.B.A-1st Sem.
F.M.S.,B.H.U.
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What are Accounting Standards?
Accounting standards are written documents,
policy documents issued by the expert accounting
body or by government or other regulatory bodycovering the aspects of reorganization, measurement,treatment, presentation and disclosure of accountingtransaction in the financial statements.
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What are the objectives of AccountingStandards?
Remove variations in the treatment of severalaccounting aspects and to bring aboutstandardization in presentation.
They intent to harmonize the diverse accountingpolicies and practices followed in the preparationand presentation of financial statements.
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Who issues Accounting Standards in India?
The Institute of Chartered Accountants of India(ICAI) constituted Accounting Standards Board(ASB) on April 21, 1977.
The main role of ASB is to formulate AccountingStandards from time to time.
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How many Accounting Standards havebeen prescribed?
So far ASB has issued the 31 Indian accountingstandards:
ame of theccounting( )tandards AS
itle of the Accounting StandardAS-1 Disclosure of Accounting Policies
AS-2 Valuation of Inventories
AS-3 Cash Flow Statements
AS-4 Contingencies and Events OccurringAfter the Balance Sheet DateAS-5 ,
Net Profit or Loss for the period Priorperiod Items and Changes in Accounting
.Policies
AS-6 Depreciation Accounting
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ContdHow many Accounting Standards have been prescribed?
ame of theccounting( )tandards AS
itle of the Accounting StandardAS-7 Construction Contracts
AS-8 Accounting for Research and Development( / - ) Withdrawn and included in as 26
AS-9
Revenue recognition
AS-10 Accounting for Fixed Assets
AS-11 The Effect of Changes in Foreign ExchangeRates
AS-12 Accounting for Government Grants
AS-13 Accounting for Investments
AS-14 Accounting for Amalgamations
AS-15 Accounting for Retirement Benefits in the
Financial Statements of Employers
AS-16 Borrowing Costs
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ContdHow many Accounting Standards have been prescribed?
ame of theccounting( )tandards AS
itle of the Accounting StandardAS-17 Segment ReportingAS-18 Related Party Disclosures
AS-19 Leases
AS-20 Earning Per Share
AS-21 Consolidated Financial StatementsAS-22 Accounting for Taxes on Income
AS-23 Accounting for Investments in Associatesin Consolidated Financial Statements
AS-24 Discontinuing Operations
AS-25 Discontinuing Operations
AS-26 Intangible Assets
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ContdHow many Accounting Standards have been prescribed?
ame of theccounting( )tandards ASitle of the Accounting Standard
AS-27 Financial Reporting of Interests in JointVentures
AS-28 Impairment of Assets
AS-29 ,Provisions Contingent Liabilities and
Contingent Asset
AS-30 :Financial Instruments Recognition andMeasurementAS-32 :Financial Instruments Presentation
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For what type of enterprise the Accountingstandards are mandatory?
Enterprise whose equity or debt are listed on arecognized stock exchange in India, and enterprisesthose are in the process of issuing equity or debt
securities that will be listed on a recognized stockexchange in India.
All other commercial, industrial and business
reporting enterprises, whose turnover for theaccounting period exceeds Rs. 50 crores.
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Disclosure of Accounting Policies (AS-1)
All significant accounting policies adopted in the preparation and presentation of financialstatements (Balance Sheet, Profit & /loss Account)should be disclosed.
Major points which are considered for the selection ofaccounting policies are:
1. Prudence: 2. Substance over form: 3. Materiality:
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ContdDisclosure of Accounting Policies (AS-1)
The disclosure of the significant accounting policiesas such should form part of the financial
statements and the significant accounting policiesshould normally be disclosed in one place.
If there is any change in the accounting policies inpreparation of financial statement from one periodto subsequent period, such changes affects the state
of affairs of financial statement of current periodor later period, then such changes must bedisclosed in financial statements.
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ContdDisclosure of Accounting Policies (AS-1)
If the fundamental accounting assumptions, viz.Going Concern, Consistency and Accrual are
followed in financial statements, specific disclosure
is not required. If a fundamental accountingassumption is not followed, the fact should bedisclosed.
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Valuation of Inventories (AS-2)
Objective of the standard
Formulate the methods of computation of cost of
inventories/stock, determine the value of closingstock/inventory at which the inventory to be shownin balance sheet till it is not sold and recognized asrevenue
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ContdValuation of Inventories (AS-2)
Inventories consists the following:
Held for sale in the ordinary course of business
(finished goods) In the process of production for such sale (Raw
material and work in progress)
In the form of materials or supplies to be consumed in
the production process or in the rendering ofservices. (Stores, spares, raw material)
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ContdValuation of Inventories (AS-2)
Measurement of Inventories
Inventories should be valued at the lower of cost andnet realizable value.
I.e. according to this standard, inventories should be
valued at historical or net realizable value, whicheveris lower.
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ContdValuation of Inventories (AS-2)
Major points for the valuation of inventories
Determination of cost of inventories
Determination of net realisable value of inventories
Comparison between the cost and net realizable value
Cost of InventoriesThe cost of inventories should comprise:
Costs of purchase Costs of conversion
Other costs
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Cost Formulas
Specific identification method for determining the cost
of inventories.
Specific identification method means directly linkingthe cost with specific item of inventories.
ContdValuation of Inventories (AS-2)
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Where specific identification method is not applicable,the cost of inventories is valued by the followingmethods:
FIFO (First In First Out)
Weighted Average cost
When it is impossible to calculate the cost, the
following methods may be followed to ascertain cost:
Standard cost
Retail Method
ContdValuation of Inventories (AS-2)
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Net realizable value
Net realizable value is the estimated selling price inthe ordinary course of business, less the estimated
costs of completion and the estimated costsnecessary to make the sale. Net realizable value isestimated on the basis of most reliable evidence atthe time of valuation.
ContdValuation of Inventories (AS-2)
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Comparison between the cost and net realizable value The comparison between the cost and net realizable
value should be made item by item or by group ofitems.
Disclosure in the financial statement
The financial statements should disclose the following:
Accounting policies adopted in measuring inventories,including the cost formula used
Classification of inventories-like raw material, work inprogress, finished goods, and its carrying amount
ContdValuation of Inventories (AS-2)
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Cash flow statements (AS-3)
Cash flow statement exhibits the flow of incoming andoutgoing cash, and assesses the ability of theenterprise to generate cash and utilize the cash. Thisstatement is one of the tools for assessing theliquidity and solvency of the enterprise.
1. An enterprise should prepare a cash flow statement
and should present it for each period for whichfinancial statements are presented.
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ContdCash flow statements (AS-3)
2. The cash flow statement should report cash flowsduring the period classified by operating, investing
and financing activities.
Operating activities are the principal revenue-producingactivities other then not investing or financingactivities.
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Examples of cash flows from operating activities are:
Cash receipts from the sale of goods and therendering of services;
Cash receipts from royalties, fees, commissions and
other revenue;
Cash payments to suppliers for goods and services
ContdCash flow statements (AS-3)
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Investing activities are the acquisition and disposal oflong-term assets and other investments not includedin cash equivalents.
Examples of cash flows arising from investing activitiesare:
Cash payments to acquire fixed assets;
Cash receipts from disposal of fixed assets (includingintangibles);
cash payments to acquire shares, warrants etc
Cash receipts from disposal of shares, warrants ordebt etc
ContdCash flow statements (AS-3)
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Financing activities are activities that result in changesin the size and composition of the owners' capital and
borrowings of the enterprise.
Examples of cash flows arising from financingactivities are:
Cash proceeds from issuing shares
Cash proceeds from issuing debentures, loans, notes,bonds, and other short or long-term borrowings
Cash repayments of amounts borrowed.
ContdCash flow statements (AS-3)
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3. An enterprise should report cash flows fromoperating activities using either:
Direct method, in this method, gross cash receipts
and gross cash payments are disclosed; or
Indirect method, in this method, profit and lossaccount is adjusted for the effects of transactions of
a non-cash nature.
ContdCash flow statements (AS-3)
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Foreign Currency Cash Flows
Cash flows arising from transactions in a foreign
currency should be recorded in an enterprise'sreporting currency by applying to the foreigncurrency amount the exchange rate between thereporting currency and the foreign currency at the
date of the cash flow. (AS-11)
ContdCash flow statements (AS-3)
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Interest and DividendsCash flows from interest and dividends received and
paid should each be disclosed separately.
Interest received: Received from investment. It is an investment
activities.
Received from trade advances should be in operatingactivities.
Interest paid: On loan/debts are in financial activities. On working capital loan and any other loan taken to
finance operating activities are in operating activities.
ContdCash flow statements (AS-3)
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Dividend received:
For financial enterprises-in operating activities.
For other then financial enterprises-in investing
activities.
Dividend paid:
Always classified as financial activities.
ContdCash flow statements (AS-3)
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Taxes on Income Cash flows arising from taxes on income should be
separately disclosed and should be classified as cashflows from operating activities unless they can bespecifically identified with financing and investing
activities.
Acquisitions and Disposals of Subsidiaries and OtherBusiness Units
The aggregate cash flows arising from acquisitions andfrom disposals of subsidiaries or other business units
should be presented separately and classified asinvesting activities.
ContdCash flow statements (AS-3)
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Non-cash Transactions
Investing and financing transactions that do notrequire the use of cash or cash equivalents should
be excluded from a cash flow statement. Such transactions should be disclosed elsewhere in
the financial statements in a way that provides allthe relevant information about these investing and
financing activities
ContdCash flow statements (AS-3)
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Contingencies and Events OccurringAfter the Balance Sheet Date (AS-4)
This Statement deals with the treatment in financialstatements of
(a) contingencies, and
(b) events occurring after the balance sheet date.
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Methods followed for estimation of contingencies areshown in flowchart below:
ContdContingencies and Events Occurring After theBalance Sheet Date (AS-4)
Contingencies
Existing condition orsituation at balancesheet date
Condition or situationafter balance sheet date
Contingentloss
Contingentgain
No accounting treatment
is recognized, neither bygiving provision nor bygiving accounting notes.
Expected loss may be:1.Probable loss2.Reasonably possible
3.Remote
Not recognized in financial statementsince there recognition will result inthe recognition of unrealized gain
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ContdContingencies and Events Occurring After theBalance Sheet Date (AS-4)
If the loss isprobable, provisionshould be made
If the loss isreasonably possible,disclosure is made inaccount by way ofnote.
If expected loss isremote, it will beignored
If there is no claim,
provision of probableloss should be madein full
If there is claim, provision
of probable loss should bemade after taking intoaccount the probablerecovery under the claim
Accounting treatment of
different losses
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Events occurring after the balance sheet date areclassified in two categories for the purpose ofaccounting treatment:
ContdContingencies and Events Occurring After theBalance Sheet Date (AS-4)
The event related tocircumstances existingon the date of balancesheet
The event not related tocircumstances existing onthe date of balance sheet,i.e. entirely new eventsafter balance sheet date
Loss should beaccounted in theaccounts and assetsand liabilities to be
adjusted.
Disclosure by way ofnotes to accounts only,no adjustment inaccount.
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Event occurring after approval of accounts, i.e. afterbalance sheet date and also after approval by theboard of directors, then such events should bedisclosed in the directors report.
Disclosure: If material contingent loss is not provided, its nature
and estimate of financial effect should be disclosedby way of note.
If estimate of financial effect cannot be made, the factshould be disclosed.
ContdContingencies and Events Occurring After theBalance Sheet Date (AS-4)
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