Accounting Standard 1-4

8/14/2019 Accounting Standard 1-4

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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?


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AS-8 Accounting for Research and Development( / - ) Withdrawn and included in as 26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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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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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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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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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.



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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



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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.



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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



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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



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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



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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.



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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.



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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)



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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.



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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.



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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.



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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



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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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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:


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.



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Accounting Standard 1-4

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