accounting standard 6

7/27/2019 accounting standard 6

1/208

Pragmatic changes envisaged

Income Tax Act Direct Tax Code

VAT, Service Tax,CE ..GST

Companies Act. New Companies Act Accounting Standard.. Indian AS

SAP/AAS/SA?

Above all EDP/ISA and so called paperlessworking


2/208

Challenges before practioners

Keep update for changes

Big Enterprises/Blue chip Vis a vis SMEs

Big 4 Practioners Vis a vis SME Practioners

Circumstances under SME Practioner works

Statements, standards,Guidance Notes are at

PAR for all practioners

Need to educate entrepreneur/accountant of

Auditee about AS


3/208

Study of AS is not any new thing or ideas

Systematic and uniform principles to guide:

Accounting, presentation and disclosures Prudence and Materiality plays important

role

To refresh your memory the stydy circlemeeting


4/208

Thus the source of Indian GAAP are :

1. The Statutory Requirements, such as :

The statutory requirements of Companies Act ; 1956

more particularly contained in Section 210 and 211 with

Schedule VI of the Act-True and Fair and 227 - reporting The statutory requirements of Banking Regulation Act ; 1949 and

Insurance Act; 1938.

2. The requirements of Regulatory Authorities, such as :

Reserve Bank of India

Securities Exchange Board of India3. Pronouncement of the Premier accounting body ICAI, such as :

Accounting Standard

Statement of Accounting matters

Guidance Notes

Opinions of Expert Advisory Committee4. Practices and Uses such as :

Published Accounts of renowned companies.

Articles and Opinions

5. Income Tax StandardsCourt Judgements


5/208

ATTEST FUNCTION1. In India the profession of Accountancy has been recognised and

provided with the attest function for certification of accounts.

2. Society confidence Vs. ExpectationsCode of Conduct.

3. The Chartered Accountants Act 1949 Section 21-22 contains

detailed provision in respect of misconduct.

4. Second schedules part I clause 7 & 9 provides that A Chartered

Accountant in practice shall be deemed to be guilty of

professional misconduct if he :

7. Is grossly negligent in the conduct of his professional

duties;

9. Fails to invite attention to any material departure from the

Generally Accepted Procedure of audit applicable to

circumstances;


6/208

5. Duty bound to follow ICAI Announcements.

6. Documents issued by Institute :

Statements=> Accounting matters

=> Auditing Matters

Guidance Notes Accounting Standards (AS)

Statements of Standard Auditing Practices

(SAPs)

# Opinions Expert Advisory Committee isanother though not general, important

document


7/208

Accounting Standard - 6Depreciation Accounting


8/208

Does not apply to :

forests, plantations etc.

expenditure on R&D

wasting assets

live-stock

goodwill

land


9/208

DepreciationWhat it is?

A measure of wearing out, consumption or other loss ofvalue of a depreciable asset arising from use, affluxion of

time or obsolescence through technology/market changes

Depreciable Assets Expected to be used for more than one accounting

period

Having a limited useful life

Held for use in production/supply of goods/ services,letting out to others, administrative purpose, and notfor sale in ordinary course of business


10/208

Useful LifePeriod over which a depreciable asset is expected to be

used

ORNumber of production units expected to be obtained from

use of asset

Useful life is shorter than physical life and is:

predetermined by legal/contractual limits

directly governed by extraction/consumption

dependent on extent of use and physical deteriorationon account of wear and tear

reduced by obsolescence arising fromtechnological/market changes, legal restrictions


11/208

DEPRECIATIONAmount determination

Depreciable amount of a depreciable asset should beallocated on a systematic basis during useful life

Relevant factorsHistorical cost/other substituted amount

Expected useful life

Estimated residual value

Depreciable Amount

Historical Cost (or other substituted amount)

less

Estimated residual value


12/208

Depreciation Method: Change

Normally consistency should be maintained

Change only if (same considerations as

applicable for APs)

Recalculation from inception on change

Difference (Deficiency/Surplus), to be adjusted

in year of change

Change to be treated a change in AP


13/208

DepreciationWhere Changes Prospectively

Useful life should be reviewed periodically: unamortisedamount to be charged in remaining useful life

Change in historical cost due to exchange fluctuations in

relative long term liability etc.: revised unamortised amount be

depreciated over residual useful life

Revaluation of assets: depreciation on revalued amount over

remaining useful life

Additions becoming integral part of asset: to be depreciated

over remaining useful life of asset. However, if addition retains

separate identity/capable of being independently used,

depreciation should be provided independently.


14/208

DisclosureGENERAL

Historical cost/other amount substituted for each classTotal depreciation of the period for each class

Related accumulated depreciation

ALONG WITH AP

Methods usedRates or useful life, if different than principal statutory rates

SPECIFIC

If revaluation materially affects depreciation : such effect in year

of changeIf any asset is discarded/disposed off/demolished/destroyed : net

surplus or deficiency, if material


15/208

Accounting for

Fixed Assets

Accounting Standard - 10


16/208

Accounting of forests/ plantations etc., wastingassets, expenditure on real estate development andlivestock

Inflation Accounting of fixed assets

Allocation of depreciation

Treatment of Subsidies etc.

Assets under leasing rights

This does not deal with


17/208

Definitions

Fixed AssetsAssets held with intention of

being used for producing

goods, providing services

etc. & not for sale in

ordinary course

FAIR Market Value(FMV)

Value agreed in open &

unrestricted market betweenparties dealing at arms length

Gross Book Value

Historical cost or other amount substituted forhistorical cost


18/208

Identification of Assets

Material Vs. Not Material Amounts

Stand by and Servicing Equipments are normally

capitalised. Spares (Machinery) NormallyProfit & loss-

irregular depends on life.

Nature of Assets- Separable like Aircraft and itsEngine


19/208

Components of Cost Cost of purchase

Cost attributable in bringing the asset in workingcondition

Financing cost upto the asset being ready for use

Expenditure incurred on startup and

commissioning of project.(internal profi ts be eliminated in case of self construction)

Ready to useActual use

Expenses in between are tobe charged to P & L


20/208


21/208

Disposal / Retirement of Asset Assets retired from active use and held for disposal to be

stated at lower of net book value and NRV : to shownseparately

Assets to be eliminated from FS on disposal or when no

further benefit is expected Losses from retirement or Gain/ Loss from disposal to be

recognised in P & L

On disposal of revalued asset gain / loss to be taken to P

& L except where a loss relates to an increase available

in RR, when it may be charged to RR

R l f F d


22/208

Revaluation of Fixed Assets If revalued, entire class be revalued. Or selection to

be on systematic basis : basis to be disclosed Revaluation not to exceed recoverable amount of a

class of assets

On upward revaluation, accumulated depreciation

not to be credited to P&L Increase to be credited to revaluation reserve (RR)

except to extent of earlier decrease charged to P&L,

which may be taken to P&L

Decrease to be charged to P&L except to extent ofof earlier increase standing in RR(unutilised),

which may be debited to RR


23/208

Acquisition Specific Modes

Assets acquired on Hire Purchase terms to be

recorded on Cash Value (actual / calculated) :

Disclaimer of ownership be indicated

Joint Ownership : Extent of share & Proportion of

all related figures be disclosed

Purchase of several assets for consolidated price :

apportionment on basis of competent valuersvaluation


24/208

Other Important Issues Goodwill be recorded only when acquired for

consideration. Where in acquisition of business,price paid is in excess of net assets taken over,

excess be termed as goodwill.

Direct cost for development of patents be

capitalised and w/off over legal term/ working

life, whichever is shorter.

Payment for know-how for plans, layouts etc. of

assets be capitalised under respective heads.

If know how is composite, apportionment be made

on reasonable basis.

D l


25/208

Disclosure

Gross & net book value : Opening / Closingshowing additions, disposals etc.

Expenditure on FA during construction /

acquisition Revalued amounts substituted for historical

costs, method of revaluation, nature of indices,

year of appraisal and fact of involving external

valuer


26/208


27/208


28/208

Recognition of Government GrantShould not be recognised unti l reasonable assurance of:

Compliance with conditions &Receipt of Grant

Should not be taken to P&L

as:

Generally are in nature of

promoters contribution

They are not earned but representincentive without cost

Should be taken to P&L as:

Rarely gratuitous

Govt. levies are also charge

against income

To correlate with exp.. to

which grant relates

Accounting TreatmentCapital approach Income approach

However, i t should be based on nature of each grant.

Grants related to Specific F/A :


29/208

Grants related to Specific F/A :Treatment

Should be deducted from Gross Value

(if grant is equal to cost, asset should be shown at

nominal value)

Alternatively Defer income on systematic basis over useful life

(f or depreciable assets)

Take to capital reserve.

(for other assets)However if requires fulfillment of obligations, be credited to

income over matching period \

Oth G t


30/208

Other GrantsRevenue Grants

To berecognised on systematic basis in P&L.Either asother income or deduction from related expenses.

If receivable as compensation for expense/ loss of

preceding year or as immediate financial support,

consider AS 5 for disclosure as extraordinary item

Promoters ContributionTake to capital reserve, treat shareholders fund

Assets at concessional rates / free of costAccount for at acquisition cost / nominal value

G t b mi f d bl


31/208

Grants becoming refundable

An extraordinary item

If revenueApply first against available unamortised credit balance

/ remaining charge to P&L

If related to F/AIncrease book value / reduce capital reserve / deferred

income (in first case, change depreciation

prospectively)

If promoters contributionReduce from Capital Reserve


32/208

D i s c l o s u r e

Accounting Policy adopted including

methods of presentation Nature and extent of grant recognised

including non monetary assets given at

concessional rates / free of cost


33/208

Accounting Standard - 13Accounting forInvestment


34/208

Does not deal with :

Bases for recognition of interest, dividends &rentals earned on investment which are covered by

AS-9

Operating/finance leases

Investments of retirement benefit plans and life

insurance enterprises


35/208


36/208

COST OF

INVESTMENT should include acquisition charges (brokerage, feeetc.)

if acquired in exchange of shares/securities then fair

value of such shares/securities should be taken as cost if acquired in exchange of other assets then fair

value of those assets which is more clearly evident

should be taken as cost

Interest/ Rentals/ Dividends are generally Income.However it may be recovery of cost where relates to

pre acquisition period.

Investments Carrying


37/208

Investments Carrying

AmountCURRENT INVESTMENTSLOWER OF COST & FV

(comparison not be on global basis)LONG-TERM INVESTMENTSAT COST

However, provision be made for declinein value, which is not temporary, on

individual basis


38/208

Any reduction / reversal

of reduction in carrying

amount On disposal, the surplus /

deficiency

Charge / credit to P&L a/c

DISCLOSURE


39/208

DISCLOSUREClassification of investment

Amounts included in P&L a/cAP of determination of carrying amount

Income from investments separately for current/LT at gross

figure

Profit/Loss on disposal of investments and changes incarrying amount separately for current/LT investments

Significant restrictions on ownership/realisability of

income/disposal proceeds

Aggregate amount of quoted/unquoted investments and MVof quoted investments

Other statutory disclosures


40/208


Amalgamation means an amalgamationpursuant to the provisions of the

Companies Act, 1956 or

other law applicableto companies

Accounting forAmalgamations

Amalgamation in the nature of Merger


41/208

g g

All assets / liability to become, of, transferee co.

Shareholders > 90% of equity share capital oftransferor co. become that of transferee co.

Consideration discharged by

issue of equity shares

Business is intended to

be carried by transferee co.

No adjustment is intended in book values of A/L on

incorporation in books of transferee co. except to ensureuniformity of Accounting Policy

I f any condition is not

satisf ied, it would be

amalgamation in the

nature of purchase


42/208

AMALGAMATION

IN THE NATURE OF

MERGER A n M

IN THE NATURE OF

PURCHASE A n P

Pooling of interest

method Purchase method


43/208

Purchase Method


44/208

u M* A/L to be incorporated at existing carrying amounts or,

alternatively, the consideration be allocated to individual

identifiable assets/liabilities on the basis of FV.* No reserves, except statutory reserves, shall be incorporated

* Difference between consideration and net assets be

recognised as Goodwill/capital reserve

* Goodwill be amortised over useful life generally notexceeding 5 years.

* Statutory Reserves, on complying with requirements,

should be incorporated by corresponding debit to

Amalgamation Adjustment a/c under head Misc. Exp.-Reversal by cross-entry of two accounts


45/208

Non cash element of consideration to be at

fair value

If some contingency exists as to the amount

of consideration, apply AS4

If scheme of amalgamation statutorily

sanctioned prescribe particular treatment ofrevenues, same be followed

Common Procedures


46/208


47/208

Accounting for Retirement

Benefits in the FinancialStatement of Employers

Accounting Standard - 15PF

PensionSuperannuationGratuity

LeaveEncashmentOthers

E E E E E


48/208

RETIREMENT BENEFITS

DEFINEDCONTRIBUTION SCHEMES

eg. P.F.etc.

DEFINEDBENEFIT

SCHEMES eg.Gratuity etc.

A i T


49/208

Accounting Treatment

Defined contribution scheme* Charged to P&L A/C

- Contribution for the year

- Shortfall between paid & payable

amount

* Excess payment, if any, it treated as perpayment



50/208

gSELF FUNDING

Annual

contribution

determined by

insurer to be

charged to P&L a/c

Appropriatecharge to P&L a/c

each year

Amount as per

actuarial valuationor other rational

method

TRUSTSCosts determined

through actuarial

valuation at least

once in 3 years Amount as per

actuarial valuation

to be charged to

P&L a/c each year

INSURERS

SCHEMEAnnualcontribution

determined by

insurer to be

charged to P&L a/c



51/208

g

Defined Benefit Scheme

Self Funding

-Appropriate amount

charge to P&L a/c

- Amount as per

actuarial valuation or

other rational method

Trust-Cost for the year

- Cost should be

determined through

actuarial valuation at leastonce in 3 year

- Shortfall betweenamount actually paid over

payable charge to P&L A/c

- Excess payment should

be treated as prepayment

InsurersScheme

-Annual

contributiondetermined by

insurers to be

charged to

P&L A/c.

Treatment of Alternation


52/208

Treatment of AlternationAlternation arising from introduction /

or additional benefits to retired

employees or changes in actuarial

method

Charge/credit to P&L a/cFollow AS - 5

Disclosure


53/208

Disclosure

Method of determining R/B cost Whether Actuarial Valuation

was made at the end of period or

any prior date? Disclose said prior

date and method for determining

cost for the period


54/208

Accounting Standard 16BORROWING COSTS

A.Borrowing Costs :Interest and other costs related to borrowedfunds like,

a. Interest and commitment charges.

b. Discounts or premiums.

c. Ancillary costs.

d. Finance charges as under finance lease.

e. Exchange differences from foreign currency.

B.Qualifying Assets : Those which require substantial time toget ready for intended use or sale like,

a. Manufacturing plantsb. Power generation facilities

c. Inventories that required substantial periods of

time to bring them to saleable condition.


55/208


56/208

B. a. In case of funds specifically borrowed for qualifying

assets:

Borrowing Costs Actual borrowing Income on temporary

to be capitalised cost incurred investment of funds

b. In case of general borrowings:

Borrowing Costs = Capitalisation rate* x Expenditure on the asset

Capitalisation rate = Weighted Average of outstanding

borrowing cost (excluding cost of specific borrowings).

= -

CAPITALISATION OF BORROWING COST


57/208

1. COMMENCEMENT : ALL 3 conditions below to besatisfied:

a. Expenses incurred must be for acquisition / construction /

production of qualifying asset.

b. Cost incurred must be borrowing cost.

c. Activities preparing the asset for intended use or sale must be in

progress. Such activities include related technical and administrative

work.

2. SUSPENSION :asset for intended use or sale) or asset isinterrupted. Except when:

a. Substantial technical/administrative work being done.

b. Temporary delay is inherent in the process.


58/208


59/208

Accounting Standard 17Segment Reporting

Application from 1.4.01 to :


60/208

* Enterprises listed/in the process of being listed in a recognised

stock exchange in India.

* Other enterprises with a turnover of more than Rs.50 crores.

Definitions:

Business Segment

.

Factors for Consideration

Nature of products/services.

Nature of production process.

Method used to distribute products/provide services.

Type/class of target customers.

Nature of regulatory environment, if applicable

Geographical SegmentQua location of offices or Qua location of customer


61/208

Qua location of offices or Qua location of customer

Factors for Consideration

Similarity of economic and political conditions.Operational relationship in various geographical areas.

Operational proximity.

Special operational risks in a specific area.

Exchange control regulations.

Currency risks.

Reportable SegmentA business / geographical segment required to be disclosed under this

standard.

Enterprise RevenueRevenue from sale to external customers as per the P&L A/C.

Segment Results = Segment Revenue Segment Expenses


62/208

Segment RevenueER directly attributable to a segment.

+

ER allocated to segment on a reasonable basis.

+

Revenue from transactions with other segments.

Excluding

Extraordinary items as per AS-5.

Interest & dividend income, provided the segmental

operations are not of a financial nature.

Profit on sale of investments/extinguishment of debts,provided the segmental operations are not of a

financial nature.

Segment Expenses


63/208

Expenses in a segment directly attributable to it.

+

Enterprise expenses allocated to segment on a reasonable basis.+

Expenses from transactions with other segments.

Excluding

Extraordinary items as per AS-5.

Interest expenses, provided the segmental operational are not of

a financial nature.

Income-Tax expenses.Head-office/Corporate office expenses.

Segment AssetsDirectly attributable /allocated Assets


64/208

Where segment result includes interest/dividend income, the related asset

should be included in segment assets.

Allowances/provisions reported as direct offsets in the Balance sheet should be

reduced from the related asset.

Income tax assets are to be excluded.

Segment Liabilities

Directly attributable /allocated liabilities

Where interest expense is considered in segment result, corresponding liability

is to be included in segment liabilities.

Income tax liabilities are to be excluded.

Segment Accounting PoliciesPolicies relating to preparation and presentation of financial statements and

those relating to segmental reporting.

Identifying Reportable Segments


65/208

Either

Primary = Business

Secondary = Geography

Or

Primary = Geography

Secondary = Business

Depending upon

Dominant source & nature of risk & returns

Normally indicated byInternal organisation & Management Structure

System of internal financial reporting to BOD/CEO

Exceptional Situations

I II


66/208

Risk and Returns strongly

affected by both Product /Service and

Geographically

Internal Management

Structure / ReportingSystem neither based on

Product / Service nor

Geographically

Primary = Business

Secondary = Geographically

Directors and

Management to decide

Primary and Secondary

segment based on

conditions discussion in

earlier slide.

Reportable SegmentA


67/208

Segment whose

are 10% or more of

Segment RevenueSegment Results Profit

or LossSegment Assets

Segment Revenue (and

Not Enterprise Revenue

the greater of

Segment Profit(of Profit Segment)

Segment Loss(of Loss Segment)

Segment Assets


68/208

Reportable SegmentB


69/208

Segments chosen by Management despite of small size

Smaller segments (below 10%) if external revenue of reportable

segments construes less then 75% of total enterprise revenue until

75% of total enterprise revenue is included in reportable segment.

Segment identified as reportable in immediately preceding year

should continue as reportable segment

Preceding year figures should be restated if segment identified as

reportable in current year was not reportable in preceding year.


70/208

Segment Accounting Policies

Follow policies adopted for preparation and presentation of

enterprise financial statement.

Allocate joint segment assets and liabilities between segments only

if the related revenue / expenses are also allocated.

DISCLOSURE


71/208

Reporting for each Primary Segment

Segment revenueclassified as external / internal / inter-

segment revenue.

Segment result.

Carrying amount of segment assets.

Carrying amount of segment liabilities.

Additions to segment tangible and intangible F/A


72/208

Only When Segments cash flow are not reports

Depreciation and amortisation of segment assets

Total significant non-cash expenses other than

depreciation/amortisation above

Notes :

A reconciliation segment information and enterprise

financial statement

Business Segment Geographical Segmentbased on Assets

GeographicalS t b d

I f Primary is


73/208

oSegment revenue for

each segment based ongeo. location whose

external revenue is 10%

or more of enterprise

revenue

oSegment assets for

each segment based on

geo. Location if > 10%

of total assets of geo.

Segments

oAdditions to assets for

each segment based on

geo. location of assets of

10% or more of total

oSegment whose revenuefrom sale > 10% of ER orsegment asset > 10%of

total assets then

Segment revenue fromexternal customer

Total carrying amount of

segment assetsCost incurred to acquireassets

oWhere location ofcustomer different from

assets

Geographical segment

whose sales > 10% of ER

oSegment whose revenuefrom sale > 10% of ER orasset > 10% total assets

then:

Segment revenue fromexternal customer

Carrying amount of S/A

Cost incurred to acquireS/A

oWhere location of assetsdifferent from that of

customers then GS whoserevenue/asset > 10% of

enterprise

Carrying amount of S/Ageographically

Cost incurred to acquireassets

Segment basedon Customers

OTHER DISCLOSURE


74/208

Inter-segment transfers, their basis of pricing

and change

Changes in accounting policies for segment

reportingfact and effect.

Composition of BS/GS, both primary and

secondary, if not otherwise disclosed.


75/208

ABB, Sweden and * Power generation; Power transmission and

di t ib ti I d t i l d b ildi t

Business Segments IASs - II


76/208

Switzerland distribution; Industrial and building systems;

Financial services; Various activities and

corporate.* Fujitsu, Japan * Information Technology

* LVMH, France * Champagne and Wines; Cognac and spirits;Fashion and leather goods; Fragrances and

cosmetics; Selective retailing; Other* Nokia, Finland * Telecommunications; Mobile phones; Other

Operations

* Novarties, Switzerland * Healtheare; Agribusiness; Nutrition;

Corporate

* Roche, Switzerland * Pharmaceuticals; Vitamins and finechemicals; Diagnostics; Healthcare;

Fragrances and flavours

Primary Secondary

Segment Revenue


77/208

- External Customers

- Other Segments

Segment Result Segment Assets Total Capital Expenditure Total Expenses-Depreciation and Amortisation Total Non-Cash Expenses other than

Depreciation and Amortisation

Reconciliation to Financial Statement

Basis of Pricing Inter-Segment Transfers

Changes in Segment Accounting Policies Composition of each Business Segment Composition of each geographical Segment


78/208


79/208

Scope


80/208

Conflict with

confidentiality required byStatute

State

ControlledEnterprises

CFS in respect of intra-group transactions

Enterprises

having

Turnoverless than 50

Crores

Does not applies to

Relationship Covered


81/208

Enterprises under significant control

of first two above

Key management

personal and relatives

Individuals directly or indirectly exercising control or

significant influence

Associates and

Joint Ventures

Enterprises directly or indirectly under common

control


82/208


83/208

Rationale


84/208

Are normal feature of commerce and business

Without Disclosure General presumption

Transactions at Arms length

Transaction by two independent parties

Existence of relationship is likely to influence thetransaction

Inherent difficulty in determine effect of relationship

Transactions which took place only due to relationship

Disclosure


85/208

Name/Nature of relationship of parties

Description of the relationshipName of transacting Party

Nature of transactions;

Volume of the transactionsIn absolute/Relative Terms

Any other Element for better understanding

Amounts and appropriate proportions of outstanding provisionsfor doubtful debts due

Amounts written off or written back


86/208


87/208


88/208

DEFINITIONS

Lease

A t f t f f i ht t t f d i d i t f t


89/208

Agreement for transfer of right to use asset for an agreed period in return of payments

Finance LeaseWhich transfers substantial risks and rewards of ownership

Operating Lease

Other than finance lease

Non-cancelable Lease

Which is Cancelable only on

Remote contingency

Permission of lessor

New lease with same lessor for similar assets

Payment of additional amount by lessee

Minimum Lease Payment (MLP)

Payment by lessee excluding contingent cost of services


90/208

and taxes but includes

For lessee For lessor

RV

guaranteed

on his behalf

RV guaranteed by or on

behalf of lessee by and

independent party

Economic Life

Period for which economically usable or number of production unitsexpected to be obtained


91/208

Finance Lease

Characteristics

O ti L


92/208

Finance Lease

Transfer of ownership of lessee

Option to purchase the assets at a

price lower than the fair value

which is reasonable certain to be

exercised

Term covers major part of the

economic life of asset

Present value of MLP amounts to

fair value of asset at inception

Unique use of asset by the lessee

Operating Lease

On cancellation losses borne

by lessee

Gains/losses from fluctuation

in FV borne by lessee

Option of continuance for

secondary period at rent

substantially lower than

market value

In books of Lessee In books of Lessor

DISCLOSUREFinance Lease


93/208

In books of Lessee

Recognized Asset and Liability at FV

If FV > PV of MLP then at PV of

MLP

PV computation, Discount Rate

=Interest Rate Implicit

Apportion LP into finance charges andoutstanding liability

Finance charges to be allocated at

constant periodic rate of interest.

Depreciation should be accounted

according to AS -6 If no reasonable

certainty of ownership thendepreciated over the lease term

Recognize asset at amount equalto NI

Finance income to be recognize at

constant periodic rate of return

Sales to be recognized as per

accounting policy

Sales should be restricted to

amount after applying commercial

rate of interest

Indirect expenses charged to

P&L


94/208


95/208


96/208

Operating Lease :


97/208

(a) Sale at Fair valueany P/L to be recognisedseparately

Carrying value - 100Fair Value - 150

Sales Value - 150

Since sale is at

fair value, there

is no impact of

lease back

package


P/L to be recognisedimmediately except

(b) Sales at below fair value


98/208

Sales Value

-if Rs. 140Profit Rs. 40

-If Rs. 90Loss Rs. 10

immediately except

- if loss is compensatedby future leasepayments below marketprice


Sales Value - 160

Out of profit of Rs. 60/-Rs. 10/- (i.e. over fairvalue) to be amortisedand Rs. 50/- (i.e.difference between fair

value & carrying value)to be recognisedimmediately

(c) Sales at below fair value


99/208

Accounting Standard 20EARNING PER

SHARE

Applicability/Scope

Enterprises

Wh E/PES li t d


100/208

Objective

Whose E/PES are listed

Which are disclosing EPS otherwise

Requirements applicable to CFS

Improve

comparisonMake EPS

more

compatible

Simplify

computation of

EPS

Potential Equity Shares (PES)

Fi i l I t t / th t t hi h


101/208

Financial Instrument / other contract, which

entitles / may entitle its holder to equity shares.

Financial Instruments (FI)Contract giving rise to:

FA of one and FL or ES of another Enterprise

Financial Asset (FA)

Cash


102/208

Contractual right to receive cash

Contractual right to exchange FI

ES of other enterprise

Potential Equity SharesConvertible Debt/Preference Shares

Share Warrant

Options

Contractual / Contingent Shares

What are


103/208

Basic EPSPer share profit attributable to Existing Equity

Shareholders.

Diluted EPS

Per share profits attributable to Existing and

Potential Equity Share-holder.

Basic EPS How Measured

Di i i f N t P fit L b W i ht d


104/208

Division of Net Profit or Loss by Weighted

Average no. of ES outstanding

Earnings - Basic

Net Profit or Loss attributable to ES holders

Per ShareBasic

Weighted Average no. of ES O/S during the period

Weighted Average no. of ES

Includes shares from the date consideration is received


105/208

Inclusion in case of Amalgamation

AnP AnM

From the date acquisition From beginning of reporting

period

Partly paid ES treated as fractions

In case different rights shares equivalent no. of shares

Contingent issue from the date conditions complied

Adjustment for change in no. without corresponding change in

resources except conversion of PES such as


106/208

Bonus

Bonus element in right issue

Split/reverse split

Bonus to be adjusted for all periods reported

No. of shares in case right issue with bonus element

Share OS prior to right X (FV/Share prior to right)Theoretical ex-right FV / share

Right Issue ExampleAccounting Year Ending on 31.12.2001

N f h O/ P i t Ri ht (FV R 21/ ) 500000


107/208

No. of shares O/s Prior to Right (FV Rs. 21/-) 500000

Right Issue on 1.3.2001 (1 to 5) (Rs. 15/-) 100000

Theoratical ex-right FV come to Rs. 20/- as under :

(500000 x 21) + (100000 x 15)

500000 + 100000

Adjustment Factor (2120) = 1.05

Outstanding ES for the year :

(50000 x 1.05 x 212) + (600000 x 1012)

Preceding Years O/s shares shal l also be adjusted.

Diluted EPS How MeasuredDivision of Net Profit or Loss by Weighted Average no. of ES O/s

both adjusted for dilutive PES


108/208

Net Profit or LossAttributable to ES holders including Dilutive PES i.e. after :

- Dividend (including tax) & Interest (after tax) on PES

- Other expense / income (after tax) attributable to PES

Weighted Average no. of ESWeighted Avg. of total No. of ES including shares to be issued on

conversion of Dilutive PES deeming the same as converted in ES. PESshall be deemed to have been so converted, in case such PES.

- issued earlier, at Beginning of the year.

- issue later, on the dated of issue of PES.

Diluted EPS Relevant IssuesAssumed exercise of dilutive option/PES


109/208

Proceeds at fair value

Difference in no. of shares issuable and shares would have been

issued at FV to be treated as without consideration

Option dilutive when results in issue at lower than FV

PES treated as dilutive only when leads to reduction in profit

Only dilutive PESAnti-dilutive to be ignored

Shares issued at FV treated as Anti-dilutive

If no. of ES or PES OS changes for the reason of issue of

Restatement


110/208

If no. of ES or PES OS changes for the reason of issue of

bonus shares, split or consolidation:

Adjust Basic & Diluted EPS for all the period presented

Even when Change is after b/s date, these have to be adjusted

If per share calculation reflects change in no. of shares, fact to

be disclosed

Presentation of Basic & Diluted EPS

For each class of ES


111/208

on face of P&Lequal prominence for all periods presented

even if negative

Amount used as numerator for basic/diluted alongwithreconciliation

No. of shares for basic/diluted EPS used as denominator with

reconciliation thereof

Nominal value of shares with EPS

ExampleEffects of Share Options on Diluted EPSNet Profit for the year 2001 Rs. 12,00,000

Weighted average number of equity shares outstanding during the year 2001 5,00,000 shares

Average fair value of one equity share during the year 2001 Rs. 20.00

Weighted average number of shares under option during the year 2001 1 00 000 shares


112/208

Weighted average number of shares under option during the year 2001 1,00,000 shares

Exercise price for shares under option during the year 2001 Rs. 15.00

Earnings Shares EPS

Net profit for the year 2001 Rs. 12,00,000

Weighted average number of shares outstanding during year2001 5,00,000

Basic EPS Rs. 2.40

Number of shares under option 1,00,000

Number of shares that would have been issued at fair value:

(1,00,000 X 15.0) / 20.00

* (75,000)

Diluted EPS Rs. 12,00,000 5,25,000 Rs. 2.29* The earning have not been increased as the total number of shares has been increased only by the number of

shares (25,000) deemed for the purpose of the computation to have been issued for no consideration

Computation of EPS


113/208

Accounting Standard 21Consolidated Financial

Statements

DOES NOT DEAL WITH:


114/208

Amalgamations & their effects on consolidation

goodwill arising out of amalgamation

Accounting for investment in associates

Accounting for investment in joint ventures

DEFINITIONS


115/208

Controlownership, directly or indirectly through

subsidiaries, of more than half of voting

power

control over composition of board of

director/governing body.

Minority Interest

Th t t f t lt d f t t f b idi


116/208

That part of net results and of net assets of subsidiary

attributable to interest not owned- directly or

indirectly, by the parent.

Minority interest in net assets:

amount of equity

share of movements in equity since

date relationship

SCOPE

Parent to present CFS;

consolidate all subsidiaries, domestic and foreign


117/208

consolidate all subsidiaries, domestic and foreign

other than

Temporary control

(subsidiary held & acquired for disposal in near future.)

severe long term restrictions on subsidiary which

significantly impair its ability to transfer funds to parent.

Investment -as per Accounting Standard 13.

Reasons for not consolidating -disclosed in CFS.

PROCEDURE

Line by line, adding like items


118/208

Cost to parent of investment & parents portion of equity

eliminated

If Cost > Parents portion then Goodwill

If Cost < Parents portion then Capital Reserve

Arrive at net income attributable to owners of parent after

adjusting minority interest

Present minority interest in consolidated B/S separately

Intragroup balance Intergroup transaction eliminated.

Unrealisable losses from intragroup transactions


119/208


eliminated (dont eliminate when even cost cant be

recovered)

Financial statement used in consolidation to be drawn

upto same reporting date.

If not practicable - in any case difference between

reporting dates not be more than six months.


120/208

Disclosure

List of all subsidiary name,


121/208

country of incorporation

proportion of ownership interest

Nature of relationship

Effect financial position at reporting date

Results for reporting period also

Names of subsidiary whose reporting date is different


122/208

Accounting Standard 22ACCOUNTING FOR TAXES ON

INCOME

Objective


123/208

Determinationof Expenses and

Savings of Tax

in an

Accounting

Period

Matching of

Taxes with

Revenue

Eliminate

effect of

difference in

tax and book

profit

PrescribedTreatment of

Taxes

APPLICABILITY/SCOPE

Mandatory from

1.4.2001


124/208

Enterprise whose equity/debt securities listed or

likely to be listed on recognized stock exchange

Enterprise of a group whose parent follow AS

22 in CFS

1.4.2002

All other companies whose securities are

not listed

1.4.2003

All other enterpirses

Introduction Accrual A fundamental accounting assumption

Tax Expense Recognition Rule


125/208

Tax Expense Recognition Rule

Same Period of recognition of Revenue/ Expenses

For accounting purpose should be based on accounting income and

taxable income.

Tax are due & paid on taxable income while recognised as expense on

the basis of accounting income.

Accounting income (loss)

Net profit or loss for a period, reported , before income tax expense/saving

Taxable income (tax loss)

Income/loss as per tax laws, on which tax is payable/recoverable


126/208

Tax expense (tax saving)Current tax + Deferred tax

Current tax

Tax payable (recoverable) on income for a period

Deferred tax

Tax effect of timing differences.

Timing differences

Differences originating in one period capable of reversal in subsequent periods

Permanent differences

Differences which are not reversible subsequently

DEFERRED TAX EFFECT

Two type of differences


127/208

Permanent

No

Asset/Liability

Timing

Tax

Asset/Liability

RECOGNITIONDetermine Net Profit or Loss after TaxExpense/Saving

I f Timing Di fference then

Deferred Tax Asset/Liability subject to prudence

In case unabsorbed Depreciation/AccumulatedLosses then DTA to the extent reasonably certainfuture tax income will be available for setoff

Basis ofreasonablecertainty

Past records

Realistic estimates

MEASUREMENTCurrent Tax Deferred Tax

Assets/Liabilities

At rates as per current lawAt rates which are enacted


128/208

Example

I n case of I ndividual

(A.Y. 20012002 ) 10+ 20 + 30 = 60 Average : 60/3 = 20%

Use 20% for measuring DTA and DTL.

p

or substantively enacted

In case of slab then average rate of tax

No Discounting

Re-assessment of Unrecognized DeferredTax Assets Annually


129/208

Review of DTA

- Carrying amount Annually

- Write up / Write down of DTA on the

basis of reasonable certainty

Set Off When

DTA/DTL

relates to

Right

Legally


130/208

same TaxLaws

Enforceable Presentation and

Disclosure

Current Tax Deferred Tax

Intends to

settle A/L onnet basis

DTA/DTL

relates to sameTax Law

Right Legally

Enforceable

OTHER DISCLOSURE

Nature of Evidences supporting recognition


131/208

Separately from Current Tax

Break up in major Components

Transitional Provision

First year of application Opening DTA/DTL to

be adjusted against Revenue Reserve

Example - DTLParticulars Year 1 Year 2


132/208

Net ProfitA/c 200 200

Dep. Adj. -50 +50

Tax Profit 150 250

Tax Effect @40% 80 80

Tax Payable @40% 60 100

Create/Reverse 20 (20)

DTL

Example DTAParticulars Year 1 Year 2


133/208

Net ProfitA/c 200 200

See 43B Adj. +50 -50

Tax Profit 250 150

Tax Effect @40% 80 80

Tax Payable @40% 100 60

Create/Reverse 20 (20)

DTL

Illustrative Timing DifferenceYear 0 WDV

in A/c

Tax

WDV

A/c

Dep

Tax

Dep

Diff. Tax

Effect

Cum

effect


134/208

100 100

1 75 63 25 37 -12 -4.8 -4.8

2 56 40 19 23 -4 -1.6 -6.4

9 5 2 5 2 1 0.4 -1.2

10 1 1 4 1 3 1.2 0

99 99 0

Analysis of Timing Difference1 A/c Income> Tax Income Tax Effect> Tax

Payable

DTL


135/208

2 A/c Income> Tax Income Tax Effect> TaxPayable

DTA

3 A/c Income> Tax Loss-C/F Tax Effect, No Tax /

MAT

DTL /

DTA

4 A/c Loss< Tax Loss C/F Advtage. Less infuture

DTL

5 A/c Loss> Tax Loss C/F Advtage. More in

future

DTA

6 A/c Income, A/c Loss Tax Effect


136/208

DEFINITIONS

An Associate


137/208

Is an enterprise in which the investor has

significant influence and which is neither

a subsidiary nor a joint venture of the

investor.

Control

Th hi di l i di l h h


138/208

The ownership, directly or indirectly through

subsidiaries, of more than one-half of the voting

power of an enterprise

Control of the composition of the board of

directors /corresponding governing body

Significant influence

power to participate in the financial and/or operatingpolicy decisions but not control over those policies.

S b idi


139/208

Subsidiaryenterprise that is controlled by another enterprise

(known as the parent).

Group

parent and all its subsidiaries.

Equity

residual interest in the assets of an enterprise after

deducting all its liabilities.

Consolidated Financial statements

financial statements of a group presented as those of a

single enterprise.

Th it th d


140/208

The equity method

method of accounting

the investment is initially recorded at cost,

identifying any goodwill/capital reserve

carrying amount of the investment is adjusted for the

post acquisition change in net assets.

The consolidated profit and loss reflectsthe investors share of the results .

ACCOUNTING IN THE EQUITY METHOD

G d ill/ it l i i i l d d i th


141/208

Goodwill/capital reserve arising - included in the

carrying amount but disclosed separately.

Intragroup balance Intergroup transaction eliminated.


eliminated (dont eliminate when even cost cant be

recovered)

Investor ensure that Reporting date are same.

If not associate should prepare for the same date.

If i ti bl diff t d t t t t b d


142/208

If, impracticable, different date statement can be used.

Investor - make adjustment for the effect of any

significant eventsbetween the dates.

Uniform Accounting Polices

investor recognize its share of results after

providing for preference dividend

If C i A t < l th t d t NIL


143/208

If Carrying Amount < = loss then reported at NILvalue and further loss is not booked

Exception

Additional losses are provided to the extent that the investor has

incurred obligation or made payments on behalf.

SIGNIFICANT INFLUENCEAn investor holds directly or indirectly 20% or more or less of

the voting power by this it is not evidenced that investor has

significant influence unless it can be clearly demonstrated.

Th i f i ifi i fl i id d i f ll i


144/208

The existence of significant influence is evidenced in following

ways:

Representation on the BOD / corresponding governing body

Participation in policy making processes.

Material transactions

Interchange of managerial personnel.

Provision of essential technical information.

ACCOUNTING FOR INVESTMENTS

Accounted for under the equity method except


145/208

Accounted for under the equity method except.

Investment is acquired and held for subsequent

disposal in near future.

severe long-term restriction on associates

(Accounting should be as per AS-13.)

Accounting under equity method should discontinue

from the date that - it ceases to have significant influence.

Disclosure required as per A S4.

Appropriate listing and description


146/208

Appropriate listing and description

Investment disclosed as long term investment.

Investors share in results disclosed separately.

Investors share of any extraordinary / prior period

item should be disclosed separately.

Associate having different Accounting Policy

Name of the Associates -reporting date is different.

Accounting Standard 24DISCONTINUING


147/208

DISCONTINUING

OPERATIONSApplies to all discontinuing operations of

an enterprise.

DEFINITIONSDiscontinuing Operation

is a component of an enterprise:

th t th t i t t i l l i


148/208

that the enterprise, pursuant to a single plan, is:

disposing of substantially in its entirety

disposing of piecemeal

terminating through abandonment;

that represents a separate major line of business or

geographical area of operations; and

that can be distinguished operationally and for

financial reporting purposes.

Initial Disclosure Event

the occurrence of one of the following, whichever occursearlier:


149/208

the enterprise has entered into a binding sale

agreement for substantially all of the assets or

the enterprises BOD/governing body has both

approved a detailed, formal plan for the

discontinuance and

made an announcement of the plan.

RECOGNITION AND MEASUREMENT

On occurrence of initial disclosure event

the net realizable value of the assets should be estimated


150/208

the net realizable value of the assets should be estimated

if carrying amount < realisable value

the estimated loss - recognised

After initial recognitionOn every balance sheet date, till the discontinuance is

completed, estimate the net realisable value of assets and

recognise any additional loss or reversal of estimated loss.

For any gain or loss that is recognized on the disposal

of assets or settlement of liabilities


151/208

The amount of the pre-tax gain or loss

Income tax expense relating to the gain or loss

Net Selling Price

DISCLOSURE

Initial disclosure event till discontinuance is completed

* description

* h d d


152/208

* the date and nature

* the date or period in which the discontinuance is completed

* the carrying amounts,of the total assets and the total liabilities

to be disposed of;

* the amounts of revenue, expenses, and pre-tax profit orloss from ordinary activities during the current financial reporting

period, and the income tax expense

* the amounts of net cash flows.


153/208

These Disclosureseither

in the notes to the FSor

on the face of of the FS

DISCLOSURES


154/208

on the face of of the FS

Except

pre tax gain or loss recognised on the disposal of assets or

settlement of liabilitiesshown on the face of the statement of P&L.

Restatement of prior periods

segregate continuing and discontinuing assets & liabilities,revenue, expenses and cash flows.



155/208

INTERIM FINANCIAL

REPORTING

Applicability And Scope

Enterprises, electing to prepare IFS


156/208

Does not mandate frequency of reporting

Requirements for cash flow applies as in annual FS

Effective from 1.4.2002

ObjectivePRESCRIBE

minimum content

Principles for

Definitions

I nter im per iod

Reporting periodh h f ll


157/208

p

recognition and

measurement in a

complete or

condensed financialstatements

Timely and

reliable reporting for

better understandingof the readers

p g pshorter than a full

financial year

I nter im f inancial

report

Financial reportcontaining

Complete/Condensedset of FS for an

interim period

Minimum Components

Condensed

balance sheet Selectedexplanatory


158/208

balance sheet

Condensed

statement of

profit and lossCondensed

cash flow

statement

explanatory

notes

Use of complete sets of FS not prohibited.

Complete Financial Statement Condensed Financial Statements

Conform to the requirements asapplicable to Annual FS

Include Minimum each of headings or

Sub Headings as in Annual FS

Selected Explanatory Notes

Forms and Contents


159/208

applicable to Annual FS Selected Explanatory Notes

Additional line items if omission

leads to a misleading impact

EPS where required to be presented as per AS 20

Selected Explanatory Notes

Explanations of the Events and transactions that are significant to an

understanding of the changes in the financial position and performancesince last reporting date.

Same accounting policies, if changed then description of nature/effect

Explanatory comments on seasonality of operations

Nature and amount of items which are unusual

nature and amount of changes in estimates

Reported in prior interim periods of current financial year


160/208

Reported in prior interim periods of current financial year

Reported in prior financial years

Issuances, buy-backs, repayments and restructuring of debt, E/PE

Dividends, aggregate or per share, separately for equity/others

Segment reporting as per AS-17

Effect of changes in composition of enterprise

Material changes in contingent liabilities

Other disclosures as required by the other AS

Periods of Interim Financial Statements

Balance SheetCash Flow

Statement

P&L


161/208

Current interim period prepared upto year to date with

comparative figures of same period in preceding year

Recognize how to

measure, classify, or

disclose item in IFR

materiality should be

assessed

Separate IFR for final interim period may

not be prepared

Disclose

Significant changes in estimatesseparately as per AS-5

Recognition And MeasurementSame accounting policies except changes taken place after the recent financial

statements

Seasonal or occasional revenues not to be anticipated or deferred

l i d C h ld b i i d d f d l if i i i


162/208

Unevenly incurred Costs should be anticipated or deferred only if, it is appropriate

to anticipate or defer the same at the end of financial year

Measurements and use of estimates should be such that all material financial

information relevant for understanding the financial position or performance are

disclosed

Change in accounting policy, should be made retrospectively from prior interim

periods year



163/208

INTANGIBLE ASSETS

Applicability Expenditure incurred on intangible items during accounting

periods commencing on or after 1-4-2003

Mandatory for:


164/208

Enterprises- whose equity or debt securities listed/to belisted on a recognised stock exchange

All other reporting enterprises,-turnover for the accounting

period exceeds Rs. 50 crores.

Other enterprises during accounting periods commencing

on or after 1-4-2004

Earlier application of the AS is encouraged.

After this Standard, the following standwithdrawn :

AS - 8, Accounting for Research and Development;

AS-6, Depreciation Accounting, with respect to the amortisation

(depreciation) of intangible assets; and


165/208

AS - 10, Accounting for Fixed Assets - paragraphs 16.3 to 16.7,

37 and 38.

Objective

Accounting treatment for intangible assets not dealt in another AS

To recognise an intangible asset if certain criteria are met

Measure the carrying amount of intangible assets and disclosures

about intangible assets.


166/208

Intangible asset

identifiable non-monetary asset, without physical substance,

held for

use in the production or supply , for rental to others, foradministrative purposes.

Asset


167/208

a resource:

controlled by an enterprise

future economic benefits are expected

Amortisation

systematic allocation of the depreciable amount of an intangibleasset over its useful life.

Depreciable amountcost less residual value.

Residual value

amount an enterprise expects to obtain at the end of assets useful life

Active Market

market where following conditions exist :

the items are homogeneous;


168/208

willing buyers and sellers can normally be found at any time;

prices are available to the public.

Impairment Loss

carrying amount > recoverable amount.

Carrying amount

amount at which an asset is recognised in the balance sheet, net of

any accumulated amortisation /accumulated impairment losses

Recognition Criteriarecognised if:

future economic benefits will flow to the enterprise

the cost measured reliably.

assess the probability of future economic benefits will exist over the useful

life

measured initially at cost


169/208

measured initially at cost.

acquired separately- the cost measured reliably.

acquired in an amalgamation in the nature of purchase - is accounted for in

accordance with A S 14 by way of a Government Grant - at a nominal value or at the acquisition

cost

acquired in Exchanges of Assets- is determined in accordance with AS 10

Internally Generated Goodwill - not be recognized as an asset

Internally Generated Intangible Assets

Meets the criteria for recognition, classifies into:

RESEARCH PHASEDEVELOPMENT PHASE


170/208

intangible asset arising

from research shouldnot recognized

Expenditure research

recognised as an expense

An intangible asset arising from development

recognised if demonstrate :

the technical feasibility

its intention to complete

its ability to use or sell

the existence of a market for the output

the availability of adequate resources

its ability to measure the expenditure

Recognition of an ExpensesRecognised as an expenses unless

forms part of an intangible assets;

item is acquired in an amalgamation in the nature


171/208

of purchase and cannot be recognized as an assets

Past expenses not recognized as an assets

Subsequent Expenses recognized as an Expenses

unless

it is for enabling the assets to earn futurebenefit

attributed to the assets

Amortization

Depreciable amount of an I.A. amortised on a systematic basis

method reflect the pattern in which the economic benefits are consumed

Period reviewed at least once in a year.

d l l


172/208

Residual ValueAssumed to be Zero unless there is an commitment by third or there exist an

active market.

Retirement/ Disposal eliminated from Balance Sheet.

Gains or losses (i.e. diff. between net disposal proceed and carrying

amount)

Disclosure

For Each Intangible assets distinguishing between internally generated&

others

Useful life Amortisation methods and rates


173/208

Gross and net carrying amountReconciliation

Showing

Addition

Disposals

Amortisation

Impairment loss

Other Disclosure

If amortised more than 10 years

reasons why? And factors

Material information

Title restrictedcommitments

Accounting Standard 27


174/208

Financial Reporting of

Interest in Joint Ventures

Scope / StatusMandatory application in case of

Accounting for interest inReporting of Assets, Liabilities,


175/208

Accounting for interest in

Joint VentureIncome and Expenses of Joint

Venture in SFS/CFS of

Venturers/Investors

Effective from 1.4.2002

Objective

SET OUT PRINCIPLES AND PROCEDURES FOR


176/208

Accounting of Interest

Reporting of Joint Venture Assets, Liabilities, Income and

Expenses in SFS

Joint Venture

Contractual arrangement to undertake an economic activity underJoint Control

Joint Control

Contractually agreed sharing of control

Control


177/208

Power to govern financial and operating policies

Venturer

Party having Joint Control

Investor

Party having no joint Control

Proportionate Consolidation

Method of Accounting and Reporting share Jointly controlledEntity in SFS.

FormsJointly

ControlledOperations

JointlyControlled

Assets

Jointly


178/208

Common Features

Bound by Contractual arrangement

Contractual Arrangement establishing Joint Control

ControlledEntity

Joint Control

Identifies Decision Areas

essential to Goal

Contractual Arrangement

Characteristics EvidencesContents

ContractbetweenVenturers

Activity, Duration

and Reporting

Obligations


179/208

Protective Rights and

Participative Rights

One Venturer as Operator

No significant influence

Agreement in writing

Contractual Arrangements with

Subsidiaries treated as JointVenture

Minutes of

Discussions

Arrangements

Incorporated inArticles

By-Laws of

Joint Venture

Appointment of

BoD/GB and

Voting rights of

Venturers

Capital

Contributions

Sharing of Output,

Income, Expensesand Results

CharacteristicsUse of Own Assets, Inventories,

incurring expenses,liabilities and

finance

No Separate Financial Statements

R iti f i t st i

Joint Ownership of Assets for common

economic benefit

Reflects economic reality and legal form

Limited Accounting records

Recognition of interest Separate and

Jointly Control Assets Jointly Control Operation


180/208

Recognition of interest inSeparate FS

Assets controls and liabilities incurs

Expenses incurred and share inincome from JV

Recognition of interest Separate andConsolidated FS:

Share in joint assets

Liabilities incurred individually

Liabilities incurred jointly

Income from sale or use of share of output

and expenses

Expenses incurred in Joint Venture

Common

No Separate Establishment,

Partnership or Other entity or

separate financial structure


181/208

separate financial structure

Agreements for sharing Joint

revenue and expenses

May prepare accounts forinternal management reporting

purposes

Jointly Controlled Entities Separate Establishment of Corporation, Partnership or Other entity

Controls Assets, incurs Liabilities and Expenses, Earns Income

Enter into Contracts in own name, raise finance

Vent rers entitled to share in res lts


182/208

Venturers entitled to share in results

Own accounting Records and own FS

Involves features of both jointly controlled assets and operations

Recognition of Interest in

Separate Financial Statements

As per AS-13

Consolidated Financial Statements

As Per Proportionate Consolidation Method

Excepts where


183/208

Interest is likely to dispose of in near future

jointly controlled entity operates under severe long-term

restrictions that significantly, impair its ability to transfer funds

Accounted as per AS-13

Reflect substance and economic

reality not structure or form

Line wise Consolidation as per AS-21

Accounting Policies

Uniform, If not adjustment,

Where no adjustment then

Proportionate Consolidation Method


184/208

No set off of legal right exist

Excess losses of investors to be

recognized by the venturers

Future profits , first absorbed by the

venturers to the extent of losses

Recognition of Goodwill/Capital

Reserve

j

disclose

Reporting Period

Consistent, statements drawn

to same date, if not adjustment,

where no adjustment

disclosure


185/208

Venturer Contributes orSales assets to the Joint

Venture

Venturer Purchases Assetsfrom Joint Venture

If Significant risk and reward ofownership transferred then

Should not recognize its shareof profits/losses until resells

Transaction Between a Venturer and Joint Venture


186/208

recognise

portion of Gain/Loss

attributable to interest of other

Venturers

full loss where evidence of

reduction in the net realizable

value/impairment loss exist

the assets to independent Party

Recognize losses immediately

in case of net realizable value or

Impairment loss

Transaction between Venturer and Joint Entity

Reporting Interests in FS of an Investor

No Joint Control:

IN SFS

Full profit/loss

IN CFS

Same as Above


187/208

No Joint Control:

a.) In CFS as per AS-13, AS-21 or AS-23 as appropriate

b.) In SFS as per AS-13

Operators of Joint Ventures

Should account for any fees in accordance

with AS-9

DisclosuresCommon for separate and consolidated financial

statementsCommitments in respect of its

interests separately

Interests and share in commitments

incurred jointly

Share of commitments of the joint

Contingent liabilities to be disclose

separately unless probability of

loss is remote:

Interest and share in liabilities

incurred jointly


188/208

ventures themselves. Share of liability of the Joint Ventures

themselves

Those, which arise as Venturer is

contingently liable for the liabilities of

other VenturersAdditional Disclosure in Separate

Financial Statement

Aggregate amounts of assets, liabilities,

income and expenses related to its

interest in the jointly controlled entities

List Joint Ventures

Description of Interest in Significant Joint


189/208

Ventures

Proportion of ownership interest, name, country

of incorporation or residence in respect of Jointly

Controlled Entities



190/208

IMPAIRMENT OF

ASSETS

Applicability

In respect of expenditure incurred on intangible items during

accounting periods commencing on or after 1-4-2004

Mandatory for:

Enterprises- whose equity or debt securities listed /to

be listing on a recognised stock exchange


191/208

g g g

All other business reporting enterprises,-turnover for

the accounting period exceeds Rs. 50 crores.

Other enterprises during accounting periods

commencing on or after 1-4-2005

Earlier application of the Accounting Standard is

encouraged.

Objectives prescribe the procedures to ensure that assets are carried at no more than theirrecoverable amount

recognize an impairment loss

when an enterprise reverse an impairment loss and it prescribes certain

disclosures .

Scope


192/208

Applied in accounting for the impairment of all assets

other than

inventories

assets arising from construction contracts

financial assets, including investments

deferred tax assets

Applies to assets that are carried at cost / at revalued amounts

DefinitionsRecoverable amount

higher of an asset's

net selling price

and its value in use

Value in use

present value of

estimated future cash

flows arise from the

continuing use of an

d fNet selling price


193/208

asset and from

its disposal at the end

g p

amount obtainable from the

sale parties

less costs of disposal Cost of Disposalincremental costs for

disposal of an assetImpairment loss

Amount by which the carrying amount of

an asset exceeds its recoverable amount.

Discount Rate

A pre-tax rate that reflect current market assessments of the time value

of money and the risks. not reflect risks for which future cash flow

estimates have been adjusted.

Carrying amount

Amount at which an asset is recognised in the balance sheet afterd d ti l t d d i ti


194/208

deducting any accumulated depreciation .

Cash-generating

Unit is the smallest identifiable group of assets that generates cashinflows from continuing use that are largely independent of the cash

inflows from other assets .

Corporate assets

Assets other than goodwill that contribute to the future cash flows.

Identifying an Asset that May be Impaired

Impaired when

Carrying Amount > Recoverable Amount.

Assess at each balance sheet date whether any assets is impaired.


195/208

y p

If yes

Estimate the recoverable amount .

In assessing an enterprise should consider the following

External sources of information Internal sources of information

an asset's market value declined evidence is available of obsolescence

or physical damage

significant changes with an adverse

effect in the technological, market,

economic or legal environment

significant changes with an adverse

effect- changes include plans todiscontinue or restructure the operation


196/208

market interest rates or other market

rates of return - increased

economic performance of an asset is /will be worse than expected

the carrying amount is more than its

market capitalisation

Measurement of Recoverable Amount Not necessary to determine both an asset's net selling price and its

value in use.

Possible to determine net selling price, even if an asset is not traded in an

active market.

If an asset not traded in an active market, the recoverable amount may be

taken to be its value in use.


197/208

Recoverable amount - for an individual asset

If not possible recoverable amount is determined for the cash-generating unit to

which it belongs, unless

The asset's value in use can be

estimated to be close to its net

selling price and net

selling price can be determined.

Net selling price is higher than

its carrying amount

EitherOr

Net Selling PriceThe best evidence is a

price in a binding sale

agreement adjusted

for incremental costs

If asset is traded in an

active market

market price less cost

of disposal

I f thisnot

I f both are not

il bl


198/208

Based on best informationavailable, at the balance sheet

date

available

Basis for Estimates of Future Cash Flows

Based on

Reasonable and supportable assumptions

The most recent financial budgets/forecasts

Composition of Estimates of Future Cash Flows

Estimates of future cash flows should include:


199/208

Estimates of future cash flows should include:

projections of cash

inflows projections of cash outflows

necessarily incurred for the

cash inflows net cash flows-

on disposal of

assets

Estimates of future cash flows not include flows arise

from:

a future restructuring which is not yet committed

future capital expenditure for improving /


200/208

p p p g

enhancing the asset

cash inflows or outflows from financing activities;

income tax receipts or payments.

Recognition and Measurement of an Impairment

LossRECOVERABLE AMOUNT < CARRYING AMOUNT

Carrying amount of the asset reduced to its recoverableamount.

Reduction is an impairment loss.

recognised as an expense immediately,


201/208

if revalued assets than according to AS-10

IMPAIRMENT LOSS > CARRYING AMOUNT

Recognise a liability if required by another AS

The depreciation charge adjusted in future periods to allocate the asset's

revised carrying amount less its residual value

Cash-Generating UnitsIdentification

If not possible to estimate the recoverable amount of the individual asset, an enterprise

should determine the recoverable amount of the cash-generating unit to which the asset

b l


202/208

belongs.

Cash generating unit identified consistently from period to period

What is cash generating units?

Discussed in earlier slides

GoodwillIn testing cash generating unit for impairment

goodwill related to this cash-generating unit is identified in FS

Perform BottomTest

Whether carrying amount of goodwill can be

allocated on a reasonable and consistent basis

then, compare the recoverable amount to its

carrying amount


203/208

carrying amount

Perform Top-Down Test

identify the smallest cash-generating unit towhich the carrying amount of goodwill can be

allocated on a reasonable and consistent basis

then, compare the recoverable amount of the

larger cash-generating unit to its carrying

amount

Corporate AssetsIn testing a cash-generating unit for impairment identify all the corporate assets on these CA

If carrying amount can allocated on a reasonable basis

If not

Impairment Loss for a Cash-Generating Unit

perform Top Down Testperform Bottom Test


204/208

p gAllocated to reduce the carrying amount in the following order:

Carrying amount not reduced below the highest of

its net selling price

to goodwill allocated to

the cash-generating unitthen, to other assets unit

on a pro-rata basisand

its value in use

zero.

Reversal of an Impairment Loss

Assess at each balance sheet date

There is any indication that an impairment loss recognised- may no longer exist

for this an enterprise should consider, as a minimum, of

External sourcesof information Internal sourcesof information

the asset's market


205/208

value has increased

significant changes

with a favorable

effect environment

market interest rates

or other market rates

have decreased

significant changes that

includes capital expenditure

incurred on improvement

Better performance

evidence is available

Disclosure:

For each type of assets

impairment losses recognized

reversal of impairment losses


206/208

An enterprise that applies AS-17 should disclose above for each

reportable segment

If amount of impairment loss or reversal of impairment loss materialto the FS then an entity should disclose:

impairment losses recognized against revaluation reserve

reversal of impairment losses against revaluation reserve

For an Individual Assets As a whole

Event and circumstances

AmountThe main classes of

t ff t d b


207/208

the nature; and the reportable

segment

For a cash generating unit-

description; amount; current and

former way of aggregating assets

Recoverable amount and basis

assets affected by

impairment

Events and circumstances


208/208

Date post:	02-Apr-2018
Category:	Documents
Upload:	aanu1234
View:	219 times
Download:	0 times