You are on page 1of 128

Index

Sr. No.

Particulars

Annexure

Basic Notes on AS

Notes on AS

Applicability of AS

AS

Notes on AS from 1 to 14

As 1 to 14

Example on AS from 1 to 14

Example AS 1 to 14

Notes on AS from 16 to 29

As 16 to 29

Example on AS from 16 to 29

Example AS 16 to 29

Notes on Accounting Standard Interpretation

ASI

Example on Accounting Standard Interpretation

Example ASI

Page No.
1 to 2
3 to 4
5 to 15
16 to 19
20 to 30
31 to 37
38 to 43
43 to 45

Back

Accounting Standards
What is Accounting Standards
Accounting Standards ( AS ) are written documents, policy documents issued
by expert accounting body or by government covering the aspects of Recognition,
Measurement, treatment, presentation and disclosure of accounting transaction
in the financial statement.

Objective of Accounting Standard


The main objective is to standardize the diverse accounting policies and
practices with a view to eliminate to the extent possible the non-comparability
of F/S & add the reliability to the F/S.

Classification of an Entity 1) As per ICAI AS Classification of an Entity as per ICAI, however this classification is not applicable
to companies covered by classfication made by Companies ( Accounting Standard )
Rules, 2006.
Level 1 Entity - Which fall in any one or more of the following category, at the end
of the relevant accounting period.
a) Entity whose equity or debt securities are listed or are in the process of listing
on any stock exchange, whether in India or Outside India.
b) Banks ( Including Co - op Bank ), financial Institutions or entities carrying on
Insurance Business.
c) All commercial reporting entities, whose turnover exceeds fifty crore in the
immediately preceeding accounting year.
d) All commercial reporting entities, having borrowings including public deposits
in excess of ten crore at any time during the immediately preceeding accounting
year.
e) Holding & Subsidiary entities of any one of the above.
Level 2 Entity - Which fall in any one or more of the following category, at the end
( SMEs )
of the relevant accounting period.
a) All commercial reporting entities, whose turnover exceeds forty lakh, but, does
not exceeds fifty crore in the immediately preceeding accounting year.
b) All commercial reporting entities, having borrowings including public deposits
in excess of one crore, but, does not exceeds ten crore at any time during the
immediately preceeding accounting year.
c) Holding & Subsidiary entities of any one of the above.
Prepared by - CA Nikunj Kikani
Author can be reach - nikunjkikani23@yahoo.com

Level 3 Entity ( SMEs ) - Entities which are not covered under Leve 1 or 2 Entities.

2) As per Companies AS Rules, 2006 Small & Medium Companies ( SMC ) - Company which satisty all the following
conditions as at the end of the accounting period called as SMC.
a) Entity whose equity or debt securities are not listed or are not in the process of
listing on any stock exchange, whether in India or Outside India.
b) The Company is not Bank or financial Institutions or Insurance Company.
c) All Company whose turnover ( Excluding other income ) does not exceeds fifty
Fifty crore in the immediately preceeding accounting year.
d) All Company does not have borrowings including public deposits
in excess of ten crore at any time during the immediately preceeding accounting
year.
e) The Company is not a Holding & Subsidiary of Non SMC.

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Back

Accounting Standard
Applicability of the AS
Sr. No.

Title of AS

Disclosure of Accounting Policies

Valuation of Inventories

Cash Flow Statement

Applicablity
As per ICAI Company
All Entity
All Company
All Entity

All Company

Level 1

Non SMC

Contingencies & Events Occuring


after the Balance Sheet date
Net P/L for the period, Prior
Period items & Change in Policies

All Entity

All Company

All Entity

All Company

Depreciation Accounting

All Entity

All Company

Construction Contracts

All Entity

All Company

Withdrawn

All Entity

All Company

Revenue Recognition

All Entity

All Company

Accounting for Fixed Assets


The effects of Changes in Foreign
Exchange Rates

All Entity

All Company

All Entity

All Company

12

Accounting for GOVT Grants

All Entity

All Company

13

Accounting for Investments

All Entity

All Company

14

Accounting for Amalgamations

All Entity

All Company

15

Employees Benefit

All Entity

All Company

16

Borrowing Cost

All Entity

All Company

17

Segment Reporting

Level 1

Non SMC

18

Related Party Disclosures

Level 1

All Company

19

Leases

All Entity

All Company

20

Earning per Share

Level 1

All Company

21

Consolidates F/S

22

Accounting for Taxes on Income

23

Accounting for Investment in


Associates in Consolidated F/S

24

Discontinuing Operations

25

Interim Financial Reporting

26

Intangible Assets

27

Financial Reporting of Interests


in Joint Ventures

28

Impairment of Assets

10
11

Note 1
All Entity

All Company

Note 1
Level 1

All Company
Note 2

All Entity

All Company

Note 1
All Entity

All Company

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

29

Provisions, Contingent Liabilities


& Contingent Assets

All Entity

All Company

30

Financial Instruments - Recognition


& Measurement

Non SME

Non SME

31

Financial Instruments - Presentation

Non SME

Non SME

32

Financial Instruments - Disclosure

Non SME

Non SME

Note -

1)

AS 21 / 23 / 27 are required to complied with by an enterprise


if, such enterprise pursuant to the requirements of Statute,
or Voluntarily prepares and present Consolidated F/S.

2)

This AS is not mandatory. However if, Enterprise is


Require to preapre and present an interim financial report,
it should comply with this Standard.

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Back
Accounting Standard 1 - Disclosure of Accounting Policies
Accounting Policies It refer to specific accounting principles & the method of applying
those principles adopted by the enterprise in preparation & presentation
of the financial statements. ( Refer Example 1 )
Notes to Accounts Notes to account are the explanation of the management about the items
in F/S ( P/L A/c & B/s ). ( Refer Example 2 )
It is required for better understanding of F/S.
Fundamental Accounting Assumptions are 1) Going Concern.
2) Consistency.
3) Accrual.
Points considered for application of accounting policies A) Prudence - It means making of estimates which is required under
conditions of uncertainty.
B) Substance over form - It means that transaction should be accounted for
in accordance with actual happening & economic reality of the transactions
not by its legal form.
C) Materiality - F/S should disclose all items & facts which are sufficient
enough to influence the decisions of users of F/S.

Accounting Standard 2 - Valuation of Inventories


Inventories consist of, Finished Goods which are held for sale in the
ordinary course of business, Raw material & WIP.
Cost of Inventories - It consist of,
1) Cost of Purchase.
2) Cost of Conversion - It consist of the cost directly related to the units Plus
Systematic allocation of fixed & variable production overheads that are
incurred in converting material into finished goods.
Allocation of fixed OH
- on normal capacity. ( Example 3 & 3A )
Allocation of Variable OH - On actual production.
3) Other Cost incurred in bringing the inventories to their present
Locations & Conditions.

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Measurment of Inventories As per Para 5 of AS 2, inventories should be valued at lower of cost & net
realisable value.
Net Realisable Value - It means the estimated selling price in ordinary course
of business, less estimated cost of completion & estimated cost necessary
to make the sale.
Estimation of NRV also takes into account the purpose for which the inventory
held. ( Example 4 )
The comparison between cost & NRV should be made item by item or group of
items. ( Example 5 )
NRV for Raw Material - Para 24 of AS 2 1) If, FG in which RM is used, is sold at or above cost, then NRV of RM is considered
more than its cost.
2) If, FG in which RM is used, is sold below cost, then NRV of RM is equal to
replacement price of RM.

Accounting Standard 3 - Cash Flow Statement This Statement shows the flow of incoming & outgoing cash.
This statement assess the ability of the enterpris to generate cash & utilization of
Cash.
Cash Flow Statement shows the cash movement under following head 1) Cash Flow from Operating activities - This are principle revenue of the enterprises.
2) Cash Flow from Investment activities - This includes acquisition & disposal of Long
Term assets & Investment, making & collecting loans, acquiring & disposal of
property, FA.
3) Cash Flow from Financing Activities - Those activities which result in change in
Size & Composition of owners capital & borrowing of the organization.
Treatment of Tax 1) Cash Flow for tax payment / refund should be classified as Cash Flow from
Operating Activities.
2) If, Cash Flow can be specifically identified as Cash flow from Investement /
Financing Activities, then, appropriate classification should made. ( Example 6 )

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Accounting Standard 4 - Contingencies & Events occuring after the B/S date
This A/s deals with 1) Contingencies.
2) Events occuring after the B/s Date.
1) What is Contingency - It refers to ,
Existing conditions or situation, results of such contingency is not known on the B/s
date, but it would be known only on happening or non happening of certain
events in future, results may be either a gain or loss. ( Example 7 )
Provision for loss is estimated on the basis of information available upto the date of
approval of A/c by competent authority.
But, the contingency must exist on the B/s date.
If, such contingency does not exist on the B/s Date then, no provision nor notes to
accounts is required.
2) Events occuring after the B/s Date - It referes to,
Events occur between the B/s Date & date on which F/s are approved by the
competent authority.
Accounting Treatment 1) The Events related to circumstances existing on the B/s Date - Loss should be
accounted in the accounts & assets & liabilities to be adjusted.
( Example 8 )
2) The Events not related to circumstances existing on the B/s Date - Disclosure by
way of notes to accounts only, i.e., no adjustment in accounts.
Events Occuring after the B/s date & also after approval of accounts by board of
directors of a company such event should be disclosed in the director's report
if, material.

Accounting Standard 5 - Net Profit or Loss for the period, Prior Period items &
Change in Accounting Policies
As per Para 12 of As 5, when items of Income & Expenses within P/L A/c from
ordinary activities are of such size, nature or incidence that, their disclosure is
relevant to explain the performance of the enterprise for the period then, the
nature & amount of such items should be disclosed separately.
Prior Period Items - This are income & expenses, which arise, in current period as
a result of error or omission in the preparation of F/S of one or more prior
Periods. ( Example 9 )
Change in Accounting Policies - In the following cases, changes in accounting
policies are made ( Example 10 )
A) For the compliance of law or Statute.
Prepared by - CA Nikunj Kikani
Author can be reach - nikunjkikani23@yahoo.com

B) For the compliance of Accounting Standard.


C) For better & appropriate presentation of F/S.

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Change in Accounting Estimate - It means that estimate is revised due to change in


the circumstances / conditions on which the estimates was based. Examples are 1) Estimation of provision of Sundry Debtors.
2) Computing income tax provision.
3) Estimation of useful life of FA.
4) Reestimating the residual value of FA.

Accounting Standard 6 - Depreciation Accounting


Depreciation is a measure of wearing out, consumption or other loss of value of a
depreciable asset arising from use & passage of time.
It is nothing but, distributino of total cost of assets over its useful life.
Depreciable Assets are assets which,
a) Are expected to be used for more than one accounting period.
b) Have a limited useful life.
c) Are held for use in production of goods & services & not for the purpose of sale in
Ordinary course of business.
Two Metohds of Depreciatino are A) Straight Line Method
( SLM ).
B) Written Down Value Method ( WDV ).
Calculation of Depreciation under SLM Depreciation = ( Cost - ( Estimated Scrap Value at the end of useful life ) )
Estimated useful life in number of years
Cost of Depreciable Assets - it is total cost spent in connection with its acquisition,
Installation, Commissionnig also improvement of the such assets.
Accounting Standard 7 - Construction Contracts
Objective of this standard is to Recognition & Measuement of Revenue from Long
Term Contracts in the books of Contractor.
Revenue should be recognised by adopting " Percentage of Completion Method ".
This AS apply only of Contractor & not to Contractee. ( Example 11 )
Construction Contracts - It is a contract specifically megotiated for the
Constrcution of an assets. E.g., contract for construction of bridge, building, dam,
Road etc..
Types of Construction Contract Fixed Price Contracts.
Prepared by - CA Nikunj Kikani
Author can be reach - nikunjkikani23@yahoo.com

Cost plus Contract.


Combination of above two.

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Contract Revenue consist of A) Revenue agreed as per agreement or contract.


B) Revenue arising due to escalation clause.
C) Incentives payment to contractor.
Contract Cost consist of A) Labour cost as well as supervision.
B) Cost of material used in construction.
C) Depreciation of P/M used in contract.
D) Cost of hiring P/M.
E) Cost of Design & Professional Fees.
Measurement of Contract Revenue - It should be recognised w.r.t. " Stage of
Completion Method " at the B/S Date.
Method for determinig Stage of Completion Cost to Cost Method % of Completion =

Cost to date
Cumulative cost incurred + Estimated cost to complete

Current Contract
Contract Price * % of Completion - Revenue Previously
Revenue
=
Recognised
By Survey of work performed.
Completion of Physical proportion of the contract work.
Provision for Expected Loss ( Example 12 )
As per Para 35 of AS 7, when it is probable that total contract cost will exceed total
Contract revenue then, expected loss should be recognised as an expenses
irrespective of,
* Whether or not work has commenced.
* Stage of completion of contract.

Accounting Standard 9 - Revenue Recognition


Revenue means gross infloe of Cash, receivable or other consideration arising in
the ordinary course of business.
Revenue from sale of goods recognised when all the following conditions fulfilled All the significant risks & rewards of ownership have been transferred to buyer.
Seller does not retain any effective control of ownership of the transferred goods.
There is no significant uncertainty in collection of amount of consideration.
Treatment of Inter divisional transfers ICAI has announced that inter divisional transfer / sales are not the revenue as per
Prepared by - CA Nikunj Kikani
Author can be reach - nikunjkikani23@yahoo.com

AS 9.
Since, in such case, risks & rewards remain within the enterprise & also there is no
consideration from the point of view of the enterpris as a whole, the recognition
criteria for revenue recognition are also not fulfilled in respect of inter divisional
transfers.

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Revenue on Installment Sales Revenue of Sale price excluding interest should be recognised on the date of sale.
Interest should be recognised proportionately to the unpaid balance.
Note 1) As per Para 9.2 of As 9, where the ability to assess the ultimate collection with
reasonable certainty is lacking at the time of sale, the revenue recognition
is postponed till uncertainty involved.
2) As per Para 9.5 of AS 9, It should be recognised only when it becomes reasonable
certain that ultimate collection will be certain.
3) As per Para 9.3 of As 9, When uncertainty of collection of revenue arises after,
The revenue recognition it is better to make provision for the uncertainty in
Collection rather than adjustment in already recognised revenue.

Accounting Standard 10 - Accounting for Fixed Assets


Fixed Assets refer to, an asset which are,
Held with intention of being used for the purpose of producing or providing goods
or Service.
Not held for sale in the normal course of business.
Expected to be used for more than one accounting period.
Cost of FA Includes 1) Purchase Price.
2) Import duties & other non refundable taxes.
3) Any directly attributable cost of bringing the asset to the working condition
for its intended use.
4) Loss or gain as per AS 11 if, applicable.
Revaluation of FA A) When FA are revalued, these assets are shown at revalued price in F/S.
B) When FA is revalued, an entire class of assets should be revalued.
C) Revaluation of FA should be restricted to the net recoverable amount of FA.
Treatment of Revaluation 1st Time revaluation ( Upward )
- Credit to Revaluation reserve account.
1st Time revaluation ( Downward ) - Debited to P/L account.
1st revaluation ( downward ) subsequent revaluation ( Upward ) ( a ) Debited to P/L account in the year of downward.
( b ) In the year of upward revaluation, amount can be credited to P/L account but,
restricted to amount of devaluation w/off earlier & balance can be credited to
Prepared by - CA Nikunj Kikani
Author can be reach - nikunjkikani23@yahoo.com

revaluation reserve account.


1st revaluation ( upward ) subsequent revaluation ( Downward ) ( a ) Credited to Revaluation Reserve account in the year of upward valuation.
( b ) In the year of downward valuation, amount can be charged to unutilized
revaluation reserve account & balance if any, should be charged to P/L account.

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Disposal & Retirement of FA A) Disposal 1) FA are deleted from the F/S either on disposal or an expected economic benefit
Is over.
2) Gain or Loss arising on such disposal are recognised in P/L account.
AA ) Disposal of previously revalued FA 1) If, there is profit then, credited to P/L account.
2) If, there is loss then, it can be adjusted against the balance of revaluation reserve
which arising out of revaluation of the same asset, if any.
B) Retire & held for disposal 1) Such asset is stated at lower of net book value & net realisable value in F/S.
2) Any expected loss is recognised immediately in P/L account.
3) Such asset should be separately shown in F/S.

Accounting Standard 11 - Effects of Changes in Foreign Exchange Rates


This AS applicable to

Accounting for transaction


In Foreign Currencies

Translating F/S of Foreign


Operation

Accounting for Forward


Exchange Contracts.

Foreign Currency Transactions - Transactions denominated in a FC or that require


Settlement in a FC.
Accounting Treatment Category 1 - Foreign Currency Transactions - Following issues to be consider A) Initial Recognition

- Sholud be recorded by applying an Exchange rate at the


Date of the Transaction.
B) Valuation at B/S date For Monetory items - It should be vlaued at closing rate. E.g., Debtors, Creditors.
For Non Monetary items - This are further bifurcated into two categories ( a ) Items carried at Historical Cost - E.g., Fixed Assets, Long term Investment.
( b ) Items carried at Fair Value - E.g., Inventory, Current Investment.
C) Treatment of Exchange difference - All types of exchange differences will be
Charged to P/L account.
Category 2 - Translation of F/S of Foreign Operation - There are of two types

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

1) Integral Foreign Operation


2) Non Integral Foreign Operation
Category 3 - Accounting for Forward Exchange Contracts
Forward Contract - It is an Agreement between two parties whereby one party
Agrees to buy from or sell to the other party an asset at future
Date fro an agreed price.

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Forward Contract has been classified in two types 1) Forward exchange contract entered for managing risk Exchange difference i.e. premimu or discount that arises on entering into
Contract should be recognised by transfer to P/L account.
Premium / Discount = Exchange rate at the date of inception of the contract ( - )
Forward rate sepcified in contract.
2) Forward exchange contract entered for trading or speculation As per this AS premium or discount on such forward contract not to be
Recognised.
At each B/S date, the value of contract is marked to its current market value &
Gain or Loss on the contract is recognised.
Asset Linked Exchange Differences 1) Foreign Currency exchange difference will not be transfer to P/L account arising on
Long Term Foreign Currency Monetary Items.
2) Exchange Difference related to Acquisition of Depreciable Asset
- Same will be added or deducted from
Cost of the Assets.
Acquisition of Non Depreciable Asset - Same will be transfer to " Foreign
Currency Monetary Items Translation Difference Account ".
Accounting Standard 12 - Accounting for Government Grants
Meaning - GOVT Grants are assistance by the govt in the form of cash or kind to an
Enterprise in return for past or future compliance with certain conditions.
Recognition of Govt Grants - Should be recognise when following conditions are
Fulfilled
The enterprise will comply with the conditions attached to them.
The Grants will received.
Two types of Govt Grants 1) Non Monetary - in the form of Asseets.
2) Monetary

( A ) - Related to depreciable Fixed assets Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Grants should be shown from the gross value of assets.


Grants are treated as deferred income & such incoem should recognised in
P/L account on a systematic basis over useful life of assets.
( B ) - Related to Non depreciable assets Grants should be shown from the gross value of assets.
If, conditions attached to grants are fulfilled then, should be credited
to Capiral Reserve Account.

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

If, conditions attached to grants are yet to be fulfilled then.


( a ) Grants sholud be credited to income over the same period over which
the cost of meeting such conditions is charged to P/L account.
( b ) Unapportioned deferred income should be disclosed in the B/s as
" Deferred Govt Grants ".
Treatment on Refund of Govt Grants Refund of Grants related to revenue ( A ) The amount should be adjusted against unamortised " Deferred Govt Grants ",
If any.
( B ) Balance amount should be charges to P/L account.
Refund of Grants related to Assets ( A ) - If, at the time of Grants received, it was deducted from asset then,
( a ) Refundable amount should be added to book value of assets.
( b ) Depreciation on revised book vlaue should be provided prosepctively.
( B ) - If, at the time of Grants received, it was treated as deffered income then,
( a ) Refund amount should be adjusted with unamortised deferred income.
( b ) Balance amount should be charged to P/L account.
( C ) - If, at the time of Grants received, it was credited to Capital Reserves then,
It should be adjusted with capital reserve account.

Accounting Standard 13 - Accounting for Investments


Meaning - It is the assets held for earning income by way of dividend, interest &
Rentals, for capital appreciation or for other benefits.
Aspects of this AS Classification of Investment ( A ) Current Investment
- Intended to held for not more than 1 year.
( B ) Long Term Investment - Other than Current Investment.
Cost of Investment It comprises of Purchase price, other acquisition charges such as, brokerage, fees,
Duties.
( Example 12 )
Carrynig amount of Investment
( A ) Current Investment Prepared by - CA Nikunj Kikani
Author can be reach - nikunjkikani23@yahoo.com

( 1 ) Valued at lower of cost & realisable value.


( 2 ) Any reduction in vlaue is transfer to P/L account & subsequent increase in
value should be transfer to P/L account, restricted to previously charged to
P/L account.
( B ) Long Term Investment ( 1 ) Valued at Cost.
( 2 ) If, there is decline which is not temporary then, carrying amount should
be reduced by such amount.

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Disposal of Investment ( A ) When all the investment is sold - Difference between carrying amount & net
Sale proceeds should be recognised in P/L account.
( B ) When part of investment is sold - Carrying amount of that part of investment
is determined on the basis of the average amount of the total investment.
Reclassification of Investment ( A ) From Long Term investment to Current Investment Transfer sholud be made at the lower of cost & carrynig amount at the date
of transfer.
( B ) From Current Investment to Long Term Investment Transfer should be made at the lower of cost & fair value on the date of
Transfer.

Accounting Standard 14 - Accounting for Amalgamation


Meaning - Amalgamation means an amalgamation as per the provision of Companies
Act, 1956 or any other law applicable to Companies.
Sections 391 to 394 of Companies Act,1956 governs the provisions of
Amalgamation.
Applicability ( A ) This AS deals with accounting to be made in the books of Transferee Company,
i.e. Purchasing Company in case of amalgamation.
( B ) This AS is not applicable to cases of acquisition of shares when one company
Purchases the shares of another company & selling company is not dissolved &
Separate entity continues to exist.
Purchase Consideration - It means total of shares & other securities issued & payment
made in form of Cash or other assets by the transferee
company to Shareholders of the transferor company.
Types of Amalgamation 1) Amalgamation in the nature of Merger - For this following conditions are satisfied,
All the assets & liabilities of Transferor company are taken over by the
Transferee company.
The Sh holding at least 90% or more of ES of the transferor company other than
holding by Transferee company, become the ESH of the transferee company.
Consideration for the amalgamation is paid in ES by the Transferee company.
Business of the transferor company is intended to be carried on by the
Prepared by - CA Nikunj Kikani
Author can be reach - nikunjkikani23@yahoo.com

Transferee company.
No Adjustment is made in the book value of the assets & liabilities of the
Transferor company by way of revaluation or otherwise.

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

2) Amalgamation in the nature of Purchase - An amalgamation will be considered in


the nature of purchase, if any one of the conditions regarding amalgamation in
the nature of merger is not satisfied.
Accounting Method 1) Amalgamation in the nature of Merger - Poolimg Interest Method.
2) In case of Purchase

- Purchsase Method.

Treatment of Goodwill arising in case of amalgamation 1) It should be Amortize over a period not exceeding five years unless longer
period can be justified.
2) The AS 26 intangible asset regarding amortization shall not apply to such goodwill.

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can be reach - nikunjkikani23@yahoo.com

Back
Example on Accounting Standard 1 to 14
Example 1 - Accounting Policies
Depreciation - Depreciation on FA has been provided on Straight line
Method at the rates prescribed under Schedule XIV of the companies Act, 1956.
Inventories - Inventories are valued at lower of cost & net realizable value. The
cost comprises of cost of purchase, cost of conversion & other cost including
appropriate production overhead incurred in bringing such inventories to their
present location.
Example 2 - Notes to Accounts
The Company has an investment of Rs. 100 Crore in ESC of ABC Limited. The
Loss of ABC Co. exceeds its paid up ESC & Reserves as on 31st March. In view of
long term investment strategies of the company, in opinion of management, no
provision is required to be made, since diminution in the value of such investment
is of temporary nature.
Example 3 - Allocation of Fixed OH Suppose ABC LTD has a plant with capacity to produce 1lakh units p.a. & FOH is Rs. 18
Lakh, i.e. FOH on the basis of normal capacity is Rs. 18 per unit.
Case 1 - Actual Production is 1 Lakh units FOH on the basis of normal capacity & actual OH will lead to 18 Lakh.
Case 2 - Actual Production is 90,000 units FOH will remain same. Therfore, OH on actual basis is Rs. 20 per unit.
Hence, by valuing stock at Rs. 20 for FOH, it will over valued & loss of Rs. 1.8 Lakh
will also included in closing stock which lead to higher GP.
Therefore, FOH for stock should be Rs. 16.2 Lakh ( 90,000*18 ) & balance of Rs. 1.2
Lakh will be transferred to P/L A/c.
Case 2 - Actual Production is 1.2 Lakh units At Rs. 18 per unit total FOH will be Rs. 21.6 Lakh, whereas actual FOH would be Rs. 18
Lakh. Therefore, FOH for stock purpose should be on actual basis i.e. 15 per unit.
Example 3A - Allocation of Fixed OH Total Production - 100 Units
Normal Capacity - 50 Units
Goods Sold

- 80 Units
Prepared by - CA Nikunj Kikani
Author can reach - nikunjkikani23@yahoo.com

Closing Stock
Direct Cost
FOH
Variable OH

- 20 Units
- 10 per unit
- 80
- 120

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Valuation of Stock = Direct Cost + FOH + Variable cost


= 10 + 0.8 ( 80/100 ) + 1.2 ( 120/100 )
= 12 Per Unit
In case of Actual Production is abnormally high then, FOH is allocated to FG on actual
Production basis.
Example 4 - Valuation of Stock
Suppose, there are 1,00,000 units in stock, of which 60,000 is to be delivered for
Rs. 40 each as per contract with one of the customer. Cost of stock is Rs. 45 per unit
& NRV is estimated of Rs. 50 perunit.
In this case, 60,000 units will be valued at Rs. 40 & balance stock of 40,000 units
will be valued at Rs. 45 per unit.
Example 5 - Valuation of Stock
Items - X
Cost
- 20
NRV
- 14
Value - 14

Y
16
16
16

Z
8
12
8

Total
44
42
38

Example 6 - Treatment of Tax


If, the enterprises paid a Tax on Capital Gain, resulting from Sales of FA then,
Tax should be deducted from Cash Flow of Investment Activities.
Example 7 - Contingency
A Company has filed a suit against debtor from whom Rs. 1 Crore is recoverable
on 31st March. The chances of recovery are not good as per legal opinion.
Now, as per AS - 4, company should make the provision for Bad & doubtful debts,
because, situation of non recovery from debtors is existing on B/s date, result of
which will be known in future.
Example 8 - Adjusting Events
Case Study - 1
On 25th April, due to destruction of the factory by fire ( fire took place on 25th March)
one of the company's debtor declared himself insolvent. He owed Rs. 1 Lakh to
Company.
As per Para 13 of As 4, Adjustment of Assets & liabilties is to be made if,
Prepared by - CA Nikunj Kikani
Author can reach - nikunjkikani23@yahoo.com

event relates to the condition existing on the B/s date

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Case Study - 2
A Company entered into an agreement to sell its Property included in B/s at Rs. 50
Lakh to another company for Rs. 80 Lakh. The agreement to sell was concluded on
31/01 & sale deed was registered on 30/04.
Now, on 31/03 Balance Sheet date, Assets should be adjusted because, sale of such
asset was concluded before B/s date. Such event is an event occuring after the
B/s date.
Registration of the sale deed only provides additional information relating to the
conditions existing at the B/s date. Therefore, Adjustment to Asset should be made.
Example 9 - Prior Period Items
Machinery Cost
- Rs. 10 Crore
Usefule Life
- 10 Years
Depreciation Rate
- 10% on SLM
Depreciation p.a.
- 1 Crore
Suppose, in above example, management by mistake calculates depreciation in 5th
year as 10% of Rs. 60 Lakh i.e. Rs. 6 Lakh instead of Rs. 10 Lakh then, in next year
depreciation will be Rs. 14 Lakh i.e., Rs. 10 Lakh as current year deprecation &
Rs. 4 Lakh a Prior Period Items.
Example 10 -Change in Accounting Policies
The company has been including interest in valuation of stock. After Revision of AS 2,
company decided to exclude interest from valuation of stock. This will result in
decrease in profit by Rs. 50 Lakh.
As per AS 5, change in accounting policies can be made in order to compliance with
accounting standard. Then, Disclosure will be,
" To be in conformity with the AS on Valuation of inventories issued by ICAI, interest
has been excluded from valuation of stock unlike preceeding years. Had the same
principle followed in previous years, Profit for the year & its corresponding
effect on the year end net assets would have beenhigher by Rs. 50 Lakh.
Example 11 - Application of AS 7
This AS would not be applicable for the construction projects undertaken by the
enterprises on its own account as a commercial nature.
E.g., Construction of housing projects on its own account & selling of this
Commercial flats to Public.
Example 11 - Provision of Loss
Contract Price
Cost incurred till date

- 80 Lakh
- 75 Lakh
Prepared by - CA Nikunj Kikani
Author can reach - nikunjkikani23@yahoo.com

Estimate cost of completion - 15 Lakh


As per AS 7, loss of Rs. 10 Lakh should be recognised as an expense immediately.

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Example 12 - Cost of Investment


Pre Acquisition Interest / Dividend - When interest has accrued in preacquisition
period & was included in cost of investment at the time of acquisition then,
Subsequent receipt of such pre acquisition interest should be deducted from the
Cost of Investment.
Right Shares ( a ) If, right shares offered are subscribed then, cost of right shares is added to the
Carrying amount of the investment.
( b ) If, right shares offered are not subscribed but, right shares is sold then, such
Proceeds are transfer to P/L account.

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

on actual

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Back
Accounting Standard 16 - Borrowing Cost
Meaning - It is defined as Interest & other costs incurred relating to borrowing of
Funds.
This AS does not deal with cost of owner's equity including PSC.
Applicability - BC which is directly related to the acquisition, construction or
Production of Qualifying Assets ( QA ) should be capitalsied.
Qualifying Assets - An which takes substantial period of time to get ready for its
intended use or sale is called QA.
Conditions for Capitalization of BC 1) Those BC which are directly attributable to the acquisition, construction or
Prodcution of QA, are eligible for capitalization.
2) QA will give future economic benefit to the enterprise & cost can be measured
reliably.
Amount of BC elegible for capitalization Specific Borrowing - Amount of BC to be capitalized will be, Actual BC incurred
during the period Less any income on the temporary
Investment of borrowed amount.
General Borrowing ( Example 1 )
1) Amount of BC to be capitalized should be determined by applying a
Capitalization rate to the expenditure on that asset.
2) Capitalization rate should be weighted average of BC.
3) Amount of BC capitalized during a period should not exceed the amount of BC
incurred during that period.
Commencement of Capitalization of BC - Following conditions must be fulfilled Activities which are essential to prepare the asset for its intended use, should
be in progress.
Borrowing Cost is Incurred.
Expenditure for acquisition, cinstruction or production of a QA is being incurred.
Cessation of Capitalization It should cease when substantially all the activities necessary to prepare the QA
for its use or sale are completed.

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Accounting Standard 17 - Segment Reporting


Segment Information - Information about multiple products / service & its operation
in different geographical areas is called segment information.
Types of Segments 1) Business Segment

- This segment is made on the basis of Products / Services,


which are exposed, to different risks & returns.

2) Geographical Segment - This Segment is made on the basis of its operation in


different Geographical areas, which are exposed to
different risks & returns.
Identification of Reportable Segments ( Sub Segments ) Definition 1) Reportable Segment is a Business or Geographical Segment identified on the basis
of their definitions for which segment information is required to be disclosed by
the statement.
2) Business or Geographical Segment which has been identified as reportable
Segment shall be further divided to include sub - segmens based on the following.
Segment Revenue from sales to external customers & internal transfer is 10% or
more than total external & internal revenue of all segments
OR
10% or more of segment result.
OR
Segment Assets is 10% or more than total assets of all segments.
Segment Results = Segment Revenue Less Segment Expenses.

( Example 2 )

Segment Results also means if, some segments are in loss then, total of loss of all
Loss making segments or if, some segments are in profit then, total profit of all
Profit making segments, whichever is higher i.e. total profit or total loss figure in
Aboslute term.

Accounting Standard 18 - Related Party Disclosure


Meaning - A Related party is essentially any party that controls or can significantly
Influence the management or operating policies of the company during
Prepared by - CA Nikunj Kikani
Author can reach - nikunjkikani23@yahoo.com

Reporting Period.

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

AS 18 deals with the following related party relationships.


Enteprises that directly or indirectly through one or more intermediaries control
other enterprises.
Associates & Joint Ventures of the reporting enterprises.
Individual owing directly or indirectly, an interest in the voting powers of the
Reporting enterprise that gives them control or significant influence over the
Enterprise.
Key Management personnel who have authority & responsibility for Planning,
Directing & Controlling the activities of the reporting enterprise.
As per this AS following things to be disclosed.
1) Related Party Relationship.
2) Transaction between a reporting enterprise & its related parties.
Related Party Transaction - It means a transfer of resource or obligations between
Related parties regardless of whether or not a Price
Charged.

Accounting Standard 19 - Accounting for Leases


Meaning - Lease is an arrangement by which the lessor gives the right to use an
Asset for given period of time to the lessee on rent.
Types of Lease 1) Finance Lease - In the following cases lease transaction are called Financial
Lease.
( Example 3 )
Lessee will get ownership of lease asset at the end of lease term ( HP transaction ).
Lessee has an option to buy lease asset at the end of the lease term at a price
which is lower than its expected fair value, at the date on which the option will
be exercise & the lessee will exercise the option.
Lease term covers major part of the life of the asset.
At the beginning of lease term the Present Value of minimum lease payment
Substantially cover fair value ( 90% or more as per US GAAP ).
The asset given is of Specialised nature & can be used only by lessee without
Major Modification.
2) Operating Lease - It is a Lease other than Financial Lease.

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Important Definitions 1) Minimum Lease Payment ( MLP ) from lessee point view = Lease Rent + Guaranteed
Residual Value ( GRV ) by or on behalf of lessee.
2) MLP from Lessor point of view = Lease rent + GRV by or on behalf of lessee or by an
Independent third party.
3) Unguaranteed Residual Value ( UGRV ) = Residual Value ( - ) GRV
4) Gross Investment ( GI ) = MLP from Lessor point view ( + ) UGRV.
5) Net Investment ( NI ) = Present Value of GI.
6) Unearned Finance Income = GI ( - ) NI.
7) Implicit Interest Rate - It means the discount rate that equates present value of GI
to the Fair Value. It is IRR for the Lessor.

Accounting Standard 20 -Earning Per Share


Meaning - It is a Financial ratio that gives the information regarding earning
available to each Equity Share.
( Example 4 )
Types of EPS 1) Basis EPS

= Net Profit or Loss for the period attributable to ESH


Weighted average number of ES o/s during the period

2) Diluted EPS = Net Profit attributable to ESH ( after adjustment for diluted earning )
Average number of wieghted ES o/s during the period
Calculation of Weighted Average Nos. of ES Bonus Shares - Number of ES must be adjusted as if, the Bonus issue was made
at the start of the earliest reporting period.
Right Issue

- If, the right issue is made at the Fair value then, it is treated on a
Normal issue, i.e. included in weighted average from the date
of issue.

However, in case of Right issue at below the fair value i.e. there is bonus element
to it, in such case, number of shares O/S before the right issue are to multiplied by a
Rights Factor.
Rights Factor - FV per share immediatelt beofre to the exercise of rights
Theoritical Ex - rights FV per share
Prepared by - CA Nikunj Kikani
Author can reach - nikunjkikani23@yahoo.com

Accounting Standard 21 - Consolidated Financial Statements


Whate is Parent

- A Parent is an enterprise that has one or more subsidiaries.

What is Subsidiaries - It is an enterpise that is controlled by another enterprise


Known as parent.
Control

- Control can be exercised directly or indirectly by purchasing


More than 50% of the voting power of an enterprise or by
Controlling composition of Board of Directors / Governing
Body.
( Refer ASI 24 )

Unrealised Losses

- Unrealized losses from intra group transactions should be


Eliminated if, recoverable amount is more than the cost of
Transactions.
( Example 5 )

Adjustment in case of minority interest is in negative 1) When minority interest comes in negative, this should be adjusted against
Majority Interest.
2) In other words, negative minority interest will not be shown in consolidated
Balance Sheet.
3) If, the subsidiary subsequent reports profits, all such profits should be allocated
to Majority interest until minority share of losses previously absorbed by the
Majority has been recovered.

Accounting Standard 22 - Accounting for Taxes on Income


Objective 1) As per this AS Tax on income is determined on the principle of accrual concept.
i.e. tax should be accounted in the period in which corresponding revenue &
Expenses are accounted.
2) In other words, Tax shall be accounted on accrual basis not on liability to pay basis.
Tax Expenses = Current Tax ( + ) Deferred Tax.
Current Tax 1) Meaning

- It is amount of inocme tax determined to be payable / refundable


in respect of the taxable income or tax loss for a period.
Prepared by - CA Nikunj Kikani
Author can reach - nikunjkikani23@yahoo.com

2) Measure

- It should be measured at the amount of expected to be paid to


GOVT by applying applicable tax rates & tax laws.

Deferred Tax 1) Meaning


2) Measure

- It is tax effect of timing differences.


- It should be measured at amount by applying the rates & tax laws
that have been substantially enacted by the B/S date.

The difference between Tax Expenses & Current Tax arises only on account of
Timing difference & thus creating Deferred Tax Asset / Liability.
( Example 6 )
Timing Difference

- These differences originaye in one period & capable of


Reversal in one or more subsequent period.

Permanent Difference - These differences originate in one period & do not reverse
subsequently.
Situation when DTL or DTA arises Situation

Particulars

i) Accounting Income ( AI ),
> Taxable Income ( TI )
ii) AI < TI

Tax on AI > Tax on TI

Deferred Tax Liability should be


Created

Tax on AI < Tax on TI

iii) Income as per IT,


Loss as per books

Tax on AI < Tax on TI

iv) Income as per books,


Loss as per IT

Tax on AI > Tax on IT

Remarks

Deferred Tax Asset should be


Created
Deferred Tax Asset should be
Created

Deferred Tax Liability should be


Created.

Note 1) Any item of Inocme or Expenses adjusted directly to Reserves / Securities


Premium account should be net of its tax effect to make it in compliance
With GAAP.
2) DTA / DTL should be set off if, permissible under the tax law but, to be shown
Separately if, not permissible.

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Accounting Standard 23 - Accounting for Investments in Associates CFS

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Accounting Standard 24 - Discontinuing Operations


Meaning - A Discontinuing Operation is a component of an enterprise,
( a ) That the enterprise, pursuant to a single plan is,
( i ) Disposing of substantially in its entirely, such as by selling the
component in a single transaction, or by demerger.
( ii ) Disposing of piecemeal, such as by selling off component's
assets & setting its liabilities individually.
( iii ) Terminating through abandonment.
( b ) That represents a separate major line of business or geographical
Area of operation.
( c ) That can be distinguish operationally & for financial reporting purposes.
A componenet can be distinguished operationally & for financially reporting purpose
If, All the following conditions are met The operating assets & liabilities of the component can be directly attributed to it.
Its Revenue can be directly attrinuted to it.
At least a majority of its operating expenses can be directly attributed to it.
Examples of activities that satisfy the discontinuing definition 1) Gradual or evolutionary phasing out of a product line or class of service.
2) Discontinuing, even if relatively abruptly, several products within an ongoing
line of business.
3) Shifting of some production or marketing activities for a particular line of
Business from one location to another.
4) Closing of a facility to achieve productivity improvements or other cost savings.
Discontinuance begins when initial disclosure event takes palce A Disclosure is required when either of the following two events takes place,
( Whichever is earlier )
The enterprise has entered into a binding sale agrrement for substantially all of
The assets attributable to the discontinuing operation.
The enterprise's board of directors or similar governing body has both,
( i ) Approved a detailed, formal plan for the discontinuance
&
( ii ) Made an announcement of the paln.
The Disclosure should continue in F/S for the periods upto & including the period
In which the discontinuance is completed.

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Accounting Standard 25 - Interim Financial Reporting ( IFR )


Meaning - It is the reporting for periods of less than a year generally for a period
of 3 Months.
As per this AS, IFR means a financial report containin either complete set of F/S or
Set of condensed F/S for an Interim Period.
Principles of Recognition & Measurements There are two distinctive principles of recognition & measurement of income &
Expenses in IFR Integral View - An approach to measuring interim period income by viewing each
Interim period as an integral part of the Financial periods.
Expenses are recognised in proprtion to revenues earned through
the use of special accruals & deferrals.
Discrete View - A approach to measuring interim period income by viewing each
Interim period separately.
Recognition of Income Tax Expenses For recognition of Income Tax Expenses, discrete view is not applicable.
As per This AS Income tax Expenses is recognised in each interim period on the
estimate of the "Average Annual Effective " Income Tax rate expected for the full
Year.
( Example 7 )

Accounting Standard 26 - Intangible Assets


Meaning - An Intangible Assets is an identifiable, non monetary asset without
Physical substance held for use in the production, supplying of goods,
or Services, for Rentals to other or for administrative purposes.
Recognition Criteria - Recognised in books of account if, following conditions are
Satisfied Probable future economics benefit will flow from the Intangible Assets to the
Enterprise.
The cost of Intangible Assets can be reliable measured.
As per this AS Intangible Asset should be shown at Cost.
The process of asset generation is classified into 1) Research Phase
- It is the activity that is aimed at inventing or creating a new
Product, Method or System.
Prepared by - CA Nikunj Kikani
Author can reach - nikunjkikani23@yahoo.com

2) Development Phase - It is the activity that converts the result of the research into
Marketable product.
Accounting Treatment for Research & Development cost Research Cost

- As per this AS, Research cost be expenses as & when


Incurred, i.e. Cannot be capitalized.

Development Cost - It should be expense out unless, asset recognition


Criteria meet.

Accounting Standard 27 - Financial Reporting of Interest in Joint Venture

Accounting Standard 28 - Impairment of Assets


Meaning - ( 1 ) It is a weakening in value of asset.
( 2 ) Asset is said to be impaired when, Carrying amount of asset is more
Than its recoverable amount.
Carrying Amount

- It is the amount at which asset is shown in the B/S.

Recoverable Amount - It is higher of,


Net Selling Price ( NSP )
Value in Use
( VIU )

( Example 8 )

Net Selling Price - It is the amount obtainable from the sale of an asset less
Disposal Cost.
Value in Use

- It is Present Value of,


Estimated future cash flow arising from use of asset ( + ) Residual
Price at the end of its useful life.

Discount Rate - It
(
(
(

is based on A ) Pre Tax Rate.


B ) Current Time value of money.
C ) Enterprises Weighted Average of capital or incremental financial
Cost.

Impairment Loss - Recoverable Amount ( - ) Carrying Amount.

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Recognition of Impairment Loss If, Asset carried at the historical cost

- Transfer to P/L account as an expenses.

If, Asset carried at the Revalued Amount ( a ) Impairment loss should be adjusted to revaluation reserve, if any.
( b ) Balance amount should be transfer to P/L account.

Accounting Standard 29 - Provisions, Contingent Liabilities & Contingent Asset


Provision - It is a liability, which can be measured only by using a substantial degree
Estimation.
Liability - It is present obligation of the enterprise arising from past events, the
Settlement of which is expected to result in an outflow from enterprise
of resources embodying economic benefits.
Present Obligation - An obligation is a present obligation is based on evidence
Available, its existence on the B/S date is considered
Probable i.e. more likely than not.
The Provisions, which are adjusted against the assets, in the B/S & not shown as
" Liability ", are not covered by this AS.
Features of the Provision

( Example 9 )

Provision is a liability.
A Liability is a present obligation, not future obligation.
Settlement of liability should result in an outflow from enterprise of resources.
Liability is a result of obligation event.
There is no realistic of alternative settlement of that obligation event.

As per Para 14 of AS 29, Provision should be recognised when 1) An enterprise has a present obligation as a result of a past event.
2) It is probable that an outflow of resources embodying economic benefits will be
Required to settle the obligation.
3) A reliable estimate can be made of the amount of the obligation.
If, above all conditions are not met, no provision should be recognised.

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Measurement of the Provision It should be the best estimate of the expenditure required to settle the present
Obligation.
No discounting of provision amount to paid in future to its present value.
It should be measured before tax.
Reimbursement of the expenditure ( Provision ) Amount of reimbursement against the provision may be presented net of the
Reimbursement in the P/L account if, reimbursement is virtually certain.
Use of the Provision

- It should be used only for those expenditure for which the


Provision was originally recognised.

Accounting Treatment - The amount of provision should be shown as an expenses


In the P/L account, net of reimbursement.
Contingent Liability - To be called contingent liability following conditions must
be fulfilled Possible obligation as a result of past event.
Existence of which will be confirmed only by the occurrence or non occurrence of
Future Event.
Future event not wholly within the control of the enterprises.
Possible Obligation - An obligation is a possible obligation if, based on the evidence
Available, its existence at B/S date is considered not Probable.
Contingent Asset - To be called contingent asset following conditions must
be fulfilled Possible asset as a result of past event.
Existence of which will be confirmed only by the occurrence or non occurrence of
Future Event.
Future event not wholly within the control of the enterprises.

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

efer ASI 24 )

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Back
Example on Accounting Standard 16 to 30
Example 1 - BC to be capitalized in case of General Borrowing
1) Borrowing Details Borrowing Type
18% Bank Loan
14% Debentures
16% Term Loan

Date of Borrowing

Amount

1/04/11
1/10/11
1/07/11

3,000
2,000
1,000

2) QA in which these borrowed funds are utilized Assets


Factory Shed
Plant 1
Plant 2

Amount
2,500
1,500
1,000

Period
12 Months
9 Months
7 Months

Step 1 - BC incurred during the year 2011 - 12


1) Bank Loan
2) Debentures
3) Term Loan

- 3,000*18%
= 540
- 2,000*14%*6/12 = 140
- 1,000*16%*9/12 = 120
BC

Step 2 - Capitalized Rate =

= 800

540 + 140 + 120


3,000 + 2,000*6/12 + 1,000*9/12
= 16.84%

Step 3 - BC to be Capitalized
Factory Shed - 2,500*16.84%*12/12 = 421
Plant 1
- 1,500*16.84%* 9/12 = 189.45
Plant 2
- 1,000*16.84%*7/12
= 98.23
BC to be capitalized = 708.68
Step 4 - BC transfer to P/L account = BC incurred - BC to be Capitalized
= 800 - 708.68
= 91.32.

Preapred by - CA Nikunj Kikani


Author ca reach - nikunjkikani23@yahoo.com

Example 2 - Reportable Segment

Particluars
Segment Revenue
Segment Results
Segment Assets

Segment
B
C

A
150
25
20

310
( 95 )
40

40
5
15

30
5
10

40
30
( 5 ) 15
10
5

State which are the Reportable Segments as per AS 17.


All are the Reportable Segments due to following reasons.
Basis
Segment Revenue
Segment Results
Segment Assets

Reportable Segment
A&B
A, B & F
A, B, C, D & E.

Example 3 - Finance Lease


Lease Term
Useful Life
Cost & FV
UGRV
IRR

- 3 Years
- 5 Years
- Rs. 3,00,000/- Rs. 40,000/- 10%

State whether, Lease constiture Finance or Operating Lease & also calculate
Unearned Finance Income.
IRR is 10% i.e. Present Value of MLP from Lessor point of view ( + ) UGRV = 3,00,000
PV of MLP ( + ) PV of UGRV = 3,00,000
( 40,000 * 0.7513 ) ( + ) X
= 3,00,000
30,052
(+)X
= 3,00,000
Therefore, X
= 2,69,948
Due to following reasons lease can be said as Finance Lease 1) At the beginnig of lease period the PV of MLP cover substantially the initial
Fair Value ( FV ) i.e. 90% ( 2,69,948 / 3,00,000 ) approximately.

Preapred by - CA Nikunj Kikani


Author ca reach - nikunjkikani23@yahoo.com

Calculation of Unearned Finance Income 1) Annual Lease Payment to lessor = PV of MLP / PV annuity factor for 3 years
= 2,69,948 / 2.4868
= Rs. 1,08,552/2) Gross Investment

= MLP ( + ) UGRV
= ( 1,08,552 * 3 ) ( + ) 40,0000
= Rs. 3,65,657/-

3) Unearned Finance Income

= GI ( - ) PV of GI
= 3,65,657 ( - ) 3,00,000
= Rs. 65,657/-.

Example 4 - EPS
Suppose,
1) O/s ES on 1st April - 20,00,000
2) Average FV per ES during the year - Rs. 75/3) Potential ES in capital strcture of the company ( a ) Options - 1,00,000 shares with exercise price of Rs. 60/( b ) 8% Convertible PS of 8,00,000 shares of Rs. 100 to be converted into 2 ES,
Corporate Dividend Tax - 10%.
( c ) 12% Convertible Debentures of Rs. 100 each, nominal value Rs. 10 Crore
convertible into 4 ES.
4) Tax Rate - 30%
5) Net profit for ESH during the period - Rs .1,00,00,000/Calculate Basic & Diluted EPS.
1) Basic EPS =

NP for ESH
Number of Shares O/s
= 1,00,00,000 / 20,00,000
= Rs. 5 per share.

2) Diluted EPS =
Partculars
a) in earning
b) in number of ES
c) EPS for in ES

Options
NIL
20,000
NIL

8% PS
70,40,000
16,00,000
4.4

12% Debentures
84,00,000
40,00,000
2.1

Therefore, Options are most diluted, debentures are less & PS are least diluted.
Preapred by - CA Nikunj Kikani
Author ca reach - nikunjkikani23@yahoo.com

Preapred by - CA Nikunj Kikani


Author ca reach - nikunjkikani23@yahoo.com

Calculation of Diluted EPS Particulars

NP to ESH

NP reported
Options

1,00,00,000
NIL
1,00,00,000

12% Debentures

84,00,000

No. of ES
20,00,000
5
20,000
20,20,000

70,40,000

Remarks

4.95

Dilutive

40,00,000

1,84,00,000
8% PS

EPS

60,20,000

3.06

Dilutive

3.34

Anti Dilutiv

16,00,000

2,54,40,000

76,20,000

Therefore, Reported Diluted EPS = Rs. 3.06/-.


Note 1) Only the dilutive potential ES are considered for calculation of diluted EPS.
Anti dilutive potential ES are ignored.
2) To decide whether potential ES are dilutive or anti dilutive, each issue of
Potential ES is considered separately.
3) In order of maximise the dilution each issue is considered in the sequence from
Most dilutive to least dilutive.
4) To determine the sequence, the earning per incremental potential equity share
is calculated.
5) Where the earning per incremental share is the least, the potential ES is
considered as the most dilutive.
Example 5 - Unrealized Losses in case of AS 21
Holding Company sells goods to Subsidiary Company & goods were lying in stock
at end. Other details are as follows Cost of Goods Sold - Rs. 5,00,000/Sale Amount
- Rs. 4,00,000/Now, if, recoverable amount of stock more than Cost of goods sold then only,
Unrealized loss of Rs. 1,00,000/- can be eliminated by adding to stock & adding to
Consolidate P/L account in consolidate B/S.

Preapred by - CA Nikunj Kikani


Author ca reach - nikunjkikani23@yahoo.com

Example 6 - AS 22
Suppose,
1) Profit before Depreciation & Taxes Year
2007 2008 2009 2010 -

08
09
10
11

Amount
15,00,000
18,00,000
25,00,000
30,00,000

2) Company Purchase the following Machines Date of Purchase


1st April, 2007
1st April, 2008
1st April, 2010

Amount
4,00,000
3,00,000
4,00,000

3) Depreciation rate as per Books - 15% p.a., WDV Method


4) Depraciation rate as per IT Act - 25% p.a.
5) Tax Rate for relevant year - 50%, 45%, 40%, 35%, 35% respectively.
Calculate Deferred Tax as per AS 22.
Solution Statement showing DTA / DTL
Particulars

Year 1

Year 2

Year 3

Book Depreciation
IT
Depreciation

60,000
1,00,000

96,000
1,50,000

81,600
1,12,500

Timing Difference

40,000

54,000

30,900

Tax rate for DTL


DTL
Less - DTL W/back
DTL W/back
Net DTL charged to P/L

Year 4
1,29,360
1,84,376
55,015

45%
40%
35%
35%
18,000
21,600
10,815
19,255
NIL
( 2,000 )
( 2,000 )
NIL
( 40,000 * 5% )
NIL
NIL
( 2,700)
NIL
( 54,000 * 5% )
18,000
19,600
6,115
19,255.

Preapred by - CA Nikunj Kikani


Author ca reach - nikunjkikani23@yahoo.com

P/ L Account Statement
Particulars

Year 1

NPBT
Less - Current Tax
Less - DTL ( Net )
NPAT

Year 2

Year 3

Year 4

14,40,000
17,04,000
24,18,400
28,70,640
( 7,00,000 )
( 7,42,500 )
( 9,55,000 )
( 9,85,469 )
( 18,000 )
( 19,600 )
( 6,115 )
( 19,255 )
7,26,000
9,41,900
14,57,285
18,65,916

Example 7 - Recognition of Income Tax Expenses


Accounting year ending on - 30th September every year.
Quarterly end on
Ending
Ending
Ending
Ending

on
on
on
on

December
March
June
September

Income
400
400
400
400

Average actual tax rate for the financial year ending on 31st March is 30% for Year 1 &
40% for year 2.
Calculate Tax Expense for each QTR as per AS 25.
QTR end on
End
End
End
End

on
on
on
on

December
March
June
September

Tax Expenses
Rs. 120/- ( 400 * 30% )
Rs. 120/- ( 400 * 30% )
Rs. 160/- ( 400 * 40% )
Rs. 160/- ( 400 * 40% )

Example 8 - Impairment of Loss


Carrying amount of Machinery - Rs. 200
Balance Useful life
- 5 Years
Residual Value
- 10
Estimated Future Cash Flow Year
1
2
3

Cash Flow
100
60
60
Preapred by - CA Nikunj Kikani
Author ca reach - nikunjkikani23@yahoo.com

4
5

40
40

Preapred by - CA Nikunj Kikani


Author ca reach - nikunjkikani23@yahoo.com

Discount Rate
Net Selling Price

- 25%
- 120

Calculate Impairment Loss, if any.


Step 1 - Value in Use Year
1
2
3
4
5

Cash Flow
100
60
60
40
50

DF @ 25%
0.8
0.64
0.512
0.4096
0.32768

Present Value ( PV )
80
38.4
30.72
16.384
16.384

Year 5 - Cash Flow = 40 + 10 ( Residual Value ).


Step 2 - Recoverable Amount - Higher of,
Value in Use
= 181.92
Net Selling Price = 120
i.e. 181.92.
Step 3 - Impairment Loss Carrying Amount ( - ) Recoverable Amount
200
( - ) 181.92
= Rs. 18.08/-, it should be charged to P/L account.
Example 9 - Provision as per AS 29
Case Study 1 Suppose, Company purchase a truck in beginning of the year 2011 & to kept it
Roadworthy, it have to get it checked & passed from RTO after every 3 Years.
The expenditure to be incurred after 3 years on its check up by the RTO need not to
be provided in year 2011 onwards as obligating event i.e. purchase of truck in 2011
which is subject to compulsory check by RTO has realistic alternative settlement that
truck may be disposed of before 3 years.
Case Study 2 Company sells goods under the term of the " Contract of Sale ", & undertake to make
Good by repairs for defect that become apparent within 2 years from the date of sale.
By experiebce it is probable that there will be some claims under the warranties.
Whether, provision for warranties is required or not as per AS 29.
Preapred by - CA Nikunj Kikani
Author ca reach - nikunjkikani23@yahoo.com

Yes, Provision is required due to following reasons.


There is present obligation as a result of past obligating event - The past event is
Sale of Goods, which give rise to present obligation.
An outflow of resources embodying economic benefits in settlement is probable
For the warranties as a whole.
No doubt for recognition of provision, reliable estimate of warranties has to be
Made.

Preapred by - CA Nikunj Kikani


Author ca reach - nikunjkikani23@yahoo.com

Preapred by - CA Nikunj Kikani


Author ca reach - nikunjkikani23@yahoo.com

Preapred by - CA Nikunj Kikani


Author ca reach - nikunjkikani23@yahoo.com

Preapred by - CA Nikunj Kikani


Author ca reach - nikunjkikani23@yahoo.com

Preapred by - CA Nikunj Kikani


Author ca reach - nikunjkikani23@yahoo.com

Remarks

Dilutive

Dilutive

Anti Dilutive

Preapred by - CA Nikunj Kikani


Author ca reach - nikunjkikani23@yahoo.com

Preapred by - CA Nikunj Kikani


Author ca reach - nikunjkikani23@yahoo.com

Preapred by - CA Nikunj Kikani


Author ca reach - nikunjkikani23@yahoo.com

Preapred by - CA Nikunj Kikani


Author ca reach - nikunjkikani23@yahoo.com

Preapred by - CA Nikunj Kikani


Author ca reach - nikunjkikani23@yahoo.com

Preapred by - CA Nikunj Kikani


Author ca reach - nikunjkikani23@yahoo.com

Back

Accounting Standard Interpretation ( ASI )


Particulars
Accounting Standard Interpretation 1 - Substantial period of time
1) Ordinarily, a period of 12 months is considered as substantial period
of time unless a shorter or longer period can be justified on the basis
of facts & circumstances of the case.
2) In estimating the period, time which an asset takes technologically &
Commercially, to get it ready for its intended use or sale should be
Considered.
Accounting Standard Interpretation 2 - Accounting for Machinery Sapres
1) Machinery Spares which are not specific to particular item of FA but,
can be generally for various items of FA should be treated as
Inventories for the purpose of AS 2 & should be charged to P/L, as &
when issued for consumption in the ordinary course of operation.
2) Machinery Spares which are specific to a particular item of FA &
their use is expected to be irregular then, it should be capitalised.
Accounting Standard Interpretation 3 - Accounting for taxes on income
in the situation of tax holiday u/s 80IA & 80IB of IT Act,1961 &
Accounting Standard Interpretation 5 - Accounting for taxes on income
of tax holiday u/s 10A & 10B of IT Act, 1961
( Example 3 )
1) Deffered tax in respect of timing difference which originate & reverse
during the tax holiday period, should not be recognised.
2) Deffered tax in respect of timing difference which originate during the
tax holiday period, but reverse after the holiday period, should be
recognised in the years in which the timing differences originates.
3) Timing differences which originates first, should be recognised as
Reversing first.
Accounting Standard Interpretation 4 - Loss under Capital Gain head
1) In case where there is a difference between the amount of " Loss "
recognised for accounting purpose & tax purpose because, of Cost
of acquisiton under income tax act,1961, in respect of Long Term
Capital Asset then, deffered tax asset should be recognised & c/f
on the amount which can be carried forward & set off in future years
as per Income Tax Act,1961.
Prepared by - CA Nikunj Kikani
Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Accounting Standard Interpretation 6 - Accounting for taxes in the


context of Section 115JB of the income tax Act,1961
1) In a period in which a company pay tax u/s 115JB of the IT Act,1961,
Deffered Tax in respect of timing difference arising during the period,
Tax effect of which is required to be recognised under AS 22 should
be measured using the regular tax rates & not tax rate u/s 115JB of
the Act.
Accounting Standard Interpretation 7 - Disclosure of Deferred Tax
Deffered Tax Assets - After the head " Investments ".
Deffered Tax Liability - After the head " Unsecured Loans ".
Accounting Standard Interpretation 8 - Interpretation of Teram " Near
Future "
1) Ordinarily the meaning of words " Near Future " should be considered
as not more than 12 Months from acquisition of relevant investment
unless a longer period can be justified on the basis of facts.
2) The intention with regard to disposal of the relevant investment
Considered at the time of acquisition of Investments.
Accounting Standard Interpretation 9 - Virtual Certainty supported by
Convincing Evidence
1) Determining of Virtual Certainty that sufficient future taxable income
Will have to be evaluated on a case to case basis & it should be
Supported by convincing evidence & evidence should be available
at the reporting date in a concrete term.
E.g., Profitable binding export order, Profit on future expansion etc..
Accounting Standard Interpretation 10-Interpretation of Para 4(e) of AS16
1) Para 4(e) of As 16 covers exchange difference on amount of principal
of the foreign currency borrowings to the extent of difference
between interest on local currency borrowing & interest on Foreign
Currency Borrowing.
2) For this purpose, the Interest rate for the local currency borrowing
should be considered, as the rate at which enterpris would have
Raised the borrowings locally, had the enterprise not decided to
Raise Foreign Currency Borrowing.
( Example 1 )
Accounting Standard Interpretation 11 - Accounting for taxes on Income in
case of an amalgamation

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Accounting Standard Interpretation 12 - Applicability of AS 20


1) Every Company which is required to give information under Part IV of
Schedule VI to the Company Act should disclose " EPS " in accordance
with AS 20, whether or not its Equity Share or potential equity shares are
Listed on a recognised stock exchange in India.
Accounting Standard Interpretation 13 - Related Party disclosure
1) Para 27 of AS 18 provides that " Disclosure of details of particular
Transactions with individual related party would frequently be too
Voluminous to be easily understood ".
Accordingly, items of a similar nature may be disclosed in agreegate by
type of related party.
2) However, this is not done in such a way as to obscure the importance
of significant transactions.
3) Hence, Purchases to Sales of goods are not agreegated with purchase
or sales of fixed assets.
Accounting Standard Interpretation 14 - Disclosure of Revenue from Sales
1) The amount of Turnover should be disclosed in the following manner Turnover ( Gross )

Less - Excise Duty


()
Turnover ( Net )

Accounting Standard Interpretation 15 - Notes to the CFS


1) All the notes appearing in the separate F/S of the parent enterprise &
Its subsidiaries need not be included in the notes to account of the CFS
2) Notes which are necessary for presenting a true & fair view of the CFS
should be included in the CFS as an integral part thereof.
Accounting Standard Interpretation 16 - Treatment of proposed dividend
under AS 23
1) In case an associate has made a provision for proposed dividend in its F/S
The investor's share of the result of operations of the associate should
be computed without taking into consideration of proposed dividend.
Accounting Standard Interpretation 17 - Adjustment of carrying amount
of Investment
1) Adjustment to the carrying amount of investment in an associate arising
Prepared by - CA Nikunj Kikani
Author can reach - nikunjkikani23@yahoo.com

from changes in the associate's equity that have not been included in
the statement of P/L of the associate should be directly made in the
Carrying amount of investment without routine it through the P/L of
CFS.

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

2) The corresponding debit / credit should be made in the relevant head of


the equity interest in CFS B/S.
3) E.g., Revaluation of FA, Adjusted to carrying amount of Investment
to the extent of proportionate share of the investor in the revalued
amount & corresponding amount of revaluation reserve should be
Shown in consolidated B/S.
Accounting Standard Interpretation 18 - Consideration of potential Eqity
Shares
1) The potential equity shares of the investee held by the investor should
not be taken in to account for determining the voting power of the
Investor.
Accounting Standard Interpretation 19 - Interpretation of the term
" Intermediaries "
1) For the purpose of Para 3 & 13 of AS 18, the term " Intermediaries "
should be confined to mean enterprise which are " Subsidiaries " as
Defined in AS 21.
Accounting Standard Interpretation 20 - Disclosure of Segment Information
1) In case by applying the definition of " Business Segment " &
" Geographical Segment " contained in AS 17, it is concluded that if,
There is neither more than one Business segment nor more than one
Geographical Segment, segment information as per AS 17 is not required
to be disclosed.
2) However, this fact should be disclosed by way of a note only.
Accounting Standard Interpretation 21 - Non executive director on the
Board - Related Party or
not
1) AKey
non
executive director
of (aKMP
company
should
considered
as a
managerial
personeel
) under
AS 18not
by be
virtue
of merely
Hold position as a director unless he has the authority & responsibilty
for planning, directing & controling the activities of the reporting
Enterprise.
2) AS 18 should not be applied in respect of non executive director, even if,
he participate in the financial and / or operating policy decision of the
Enterprise, unless he falls in any of the category sepcifies in AS 18.
Accounting Standard Interpretation 22 - Treatment of interest for
determine segment
expenses
Prepared by - CA Nikunj Kikani
Author can reach - nikunjkikani23@yahoo.com

1) The definition of the term " Segment expenses " contained in AS 17


does not include, inter alia, " Interest expenses ", including interest
incurred on advance or loans from other segments, unless the operation
of the segment are primarily of a financial nature.

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Accounting Standard Interpretation 23 - Remuneration paid to KMP


- Related party or not

1) Remuneration paid to KMP should be considered as as related party


transaction & require disclosure as per AS 18.
2) Related party transaction should be disclosed regardless of whether or
not a price is charged.
Accounting Standard Interpretation 24 - Definition of " Control "
1) When an enterprise is controlled by two enterprises as per definition of
" Control " as per AS 21, one by virtue of ownership of shares & another
by virtue of composition of BOD, the first mentioned enterprise will be
considered as subsidiary of both the controlling enterprises within the
meaning of AS 21 & therefore, both the enterprises should consolidate
the F/S of that enterprise as per requirement of AS 21.
Accounting Standard Interpretation 25 - Exclusion of a Subsidiary from CFS
1) Shares held as " Stock in Trade " & held exclusively with a view to their
Subsequent disposal in the near future, should be considered to be
Temporary.
2) Merely holding all the shares as " Stock in Trade " is not sufficient to be
considered as temporary control. It is only when all the shares held as
"Stock in Trade " are acquired & held exclusively with a view to their
subsequent disposal in the near future, the control would be considered
to be temporary.
Accounting Standard Interpretation 26 - Accounting for Taxes on Income
1) While preparing CFS, tax expenses to be shown in the CFS should be
Agreegate of the amounts of the tax expenses appearing in the separate
F/S of the parent & its subsidiary.
Accounting Standard Interpretation 27 - Applicability of AS 25
1) Presentation & disclosure requirement contained in AS 25 should be
Applied only if, an enterpise prepares & present an " Interim Financial
Report " as defined in AS 25.
Accounting Standard Interpretation 28 - AS 21 & AS 27
1) The Parent's share in the post acquisition reserves of a subsidiary,
Forming part of the corresponding reserves in CFS, is not requires to be
Prepared by - CA Nikunj Kikani
Author can reach - nikunjkikani23@yahoo.com

Disclose separately in CFS.


2) While, applying proportionate consolidation method, the venturer's
Share in the post acquisition reserves of the jointly controlled entity
shuold be shown separately under the relevant reserves in the CFS.

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Accounting Standard Interpretation 29 - Turnover in case of Contract


1) The amount of contract revenue recognised as revenues in the P/L A/c
as per AS 7 should be considered as Turnover.
Accounting Standard Interpretation 30 - Onerous Contract
1) If, an enterprise has a contract that is onerous, the present obligation
Under the contract should be recognised & measures as a provision
as per AS 29. ( Example 2 )

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Related to

AS 16

AS 2 & 10

As 22

AS 22

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

AS 22

AS 22

AS 21, 23,
27

AS 22

AS 16

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

AS 20

AS 18

AS 9

AS 21

AS 23

AS 23

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

AS 23

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

AS 23

AS 23

AS 18

AS 17

AS 18

AS 17

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

AS 17

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

AS 18

AS 21

AS 21

AS 21

AS 25

AS 21, 27
Prepared by - CA Nikunj Kikani
Author can reach - nikunjkikani23@yahoo.com

AS 21, 27

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

AS 7

AS 29

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Back

Example on Accounting Standard Interpretation ( ASI )


Example 1 - Para 4 ( e ) of AS 16
Foreign Currency Loan taken on - 1st April
Amount
- USD 1,00,000
Interest Rate
- 5% p.a. annually
Exchange Rate on 1st April
- Rs. 45 Per USD
on 31st March
- Rs. 48 Per USD
Domestic Interest rate
- 11% p.a.
a) Interest for the period = USD 1,00,000*5%*48 per USD
= Rs. 2,40,000.
b) Increase in the liability towards principal =
USD 1,00,000 * ( 48 - 45 ) = Rs. 3,00,000.
c) Interest if, domestic loan taken =
USD 1,00,000 * 45 * 11% = Rs. 4,95,000.
d) Difference between interest on local currency &
Foreign Currency borrowing =
Rs. 4,95,000 - Rs. 2,40,000
= Rs. 2,55,000.
Therefore, out of Rs. 3,00,000 increase in the liability towards principal
Amount only, Rs. 2,55,000 will be considered as the borrowing cost.
Thus, total borrowing cost would be Rs. 4,95,000 being the agreegate of
Interest of Rs. 2,40,000 & Rs. 2,55,000.
Remaining Rs. 45,000 would be considered as the exchange difference
to be accounted as per AS 11.
Example 2 - Onerous Contract
Suppose, company operates its business from factory under operating
Lease. During, the year company relocates its operation to a new factory.
The lease on the old factory continues for the next two years & it cannot
be cancelled & factory cannot be re - let to another user.
Now, in above case, the operating lease contract become onerous as
Economic benefit for lease contract for next two years is NIL & lessee
has to pay lease rent for next two years.
Therefore, provision on account of losses for lease rent payable in
next two years is to be provided in the current year itself.

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

Example 3 - ASI 5
Tax holiday period - 10 Years
Current period
- 2nd Year
Timing difference on depreciation Year 1 - Rs. 100
Year 2 - Rs. 200
Tax Rate
- 35%
Assume that, timing diffrence would reverse from 3rd year by Rs. 5.
1) In above case, deferred tax liability arose in year 1 of Rs. 100 will be
Reversed from 3rd year to the extent of Rs. 40 in tax holiday period
Only, balance of Rs. 60 is not reversed during the tax holiday period.
2) Rs. 200 which resulted during the year 2 is also not reversed during the
Tax holiday period.
3) Therefore, DTL of Rs. 91 ( ( 60 + 200 ) * 35% ) should be recognised at
the end of 2nd year & charged to P/L account.

Prepared by - CA Nikunj Kikani


Author can reach - nikunjkikani23@yahoo.com

You might also like