Accounting Standards Chapter 1

8/6/2019 Accounting Standards Chapter 1

1/21

Accounting Standards

Introduction

Accounting Standards are used as one of the main compulsory regulatory mechanismsfor preparation of general-purpose financial reports and subsequent audit of the same, in

almost all countries of the world. Accounting standards are concerned with the system of

measurement and disclosure rules for preparation and presentation of financialstatements. They appear with a set of authoritative statements of how particular types

of transactions, events and other costs should be recognized and reported in thefinancial statements. Accounting standards are devised to furnish useful information todifferent users of the financial statements, to such as shareholders, creditors, lenders,

management, investors, suppliers, competitors, researchers, regulatory bodies andsociety at large and so on. In fact, such statements are designed and prescribed so as to

improve & benchmark the quality of financial reporting.

The rapid growth of international trade and internationalization of firms, the

Developments of new communication technologies, the emergence of internationalcompetitive forces is perturbing the financial environment to a great extent. Under this

global business scenario, the residents of the business community are in badly needed of

a common accounting language that should be spoken by all of them across the globe. Afinancial reporting system of global standard is a pre-requisite for attracting foreign as

well as present and prospective investors at home alike that should be achieved through

harmonization of accounting standards.

Accounting Standards are the policy documents (authoritative statements of best

accounting practice) issued by recognized expert accountancy bodies relating to various

aspects of measurement, treatment and disclosure of accounting transactions and events

as relate to the codification of Generally Accepted Accounting Principles (GAAP). These

are stated to be norms of accounting policies and practices by way of codes or guidelines

to direct as to how the items, which go to make up the financ ial statements should bedealt with in accounts and presented in the annual accounts. The aim of setting

standards is to bring about uniformity in financial reporting and to ensure consistency

and comparability in the data published by enterprises.

Meaning of Accounting Standards

Accounting Standard relate to the codification of generally accepted accounting

principles. These are stated to be the norms of accounting policies and practices by way

of codes or guidelines to direct as to how the items which go to make up the financial

statements should be treated in accounts and disclosed in the annual reports.

Objectives of Accounting Standards

In a narrow sense

The objective of setting standard is to bring uniformity in financial reporting and to

ensure consistency and comparability in the data published by enterprises.

In a broader sense


2/21

1. To provide a generally understood and accepted measure of the phenomenaof concern

2. To reduce the amount of manipulation of the reported numbers that is likelyto occur in the absence of standards.

Need for Accounting standards

1. To gain the confidence of the user groups by producing a set of fairly presentedfinancial statements as a system of measurement and disclosures.

2. To protect the competing economic interests of the user groups who rely uponthe published financial statements.

3. It acts as a framework defining what should be done in preparing the financialstatements and also draws the boundaries within which acceptable conduct lies

and in that, they are similar in nature of laws.

4. To resolve the potential conflicts of financial interest among the various externalgroups that use and rely upon published financial statements.

Advantages or significance of Accounting Standards to the user groups

1. As the investors in the equity of any company may be from any part of theworld, it helps the investors in judging the yield and risk involved in alternative

investments in different companies and different countries.

2. It enables the public Accountants to deal with their clients by providing rules ofauthority to which the accountants have to adhere in preparing the financial

statements.

3. It helps in raising the standard of auditing itself in its task of reporting on thefinancial statements.

4. Government officials, tax authorities and others find accounting reports producedin accordance with established standards to be reliable and acceptable.

5. It helps the financial statements to be more reliable documents for the purpose ofanalysis and interpretation by analysts, researchers and consultants for economic

forecasting and planning.

Generally accepted accounting Principles-GAAP

The common set of accounting principles, standards and procedures that companies use

to compile their financial statements. GAAP are a combination of authoritative standards

and simply the commonly accepted ways of recording and reporting accountinginformation.

GAAP are imposed on companies so that investors have a minimum level of consistency

in the financial statements they use when analysing companies for investment purposes.

It cover such things as revenue recognition, balance sheet item classification and

outstanding share measurements. Companies are expected to follow GAAP rules when

reporting their financial data via financial statements. If a financial statement is not

prepared using GAAP principles, be very wary.


3/21

Accounting Standards prevalent all across the world:

Accounting standards are being established both at the national and international levels.

But the variety of accounting standards and principles among the nations of the world

has been a sustainable problem for globalising the business environment.

There are several standard setting bodies and organisations that are now actively

involved in the process of harmonisation of accounting practices. The most remarkable

phenomenon in the sphere of promoting global harmonisation process in accounting is

the emergence of international accounting standards.

The International Accounting Committee (IASC), now International Accounting Standard s

Board (IASB) was formed on 29th June 1973, by the recognized professional accounting

bodies in Canada, Australia, France, Japan, Germany, Mexico, Netherlands, United

Kingdom and the United States of America with its secretariat and head quarters in

London.

National standard setting bodies like Financial Accounting Standards Boards (FASB) of

USA, Accounting Standards Boards (ASB) of UK, and Indian Accounting Standards (IAS)

in India generally frame accounting standards in the line of IASC after due conside ration

of the local laws and conditions.

In India the Accounting Standards Board (ASB) was constituted by the Institute of

Chartered Accountants of India (ICAI) on 21st April 1977 with the function of formulating

accounting standards.

International Accounting Standards

An older set of standards stating how particular types of transactions and other events

should be reflected in financial statements. In the past, international accounting

standards (IAS) were issued by the Board of the International Accounting Standards

Committee (IASC).

In 2001, the new set of standards has been known as the international financial

reporting standards (IFRS) and has been issued by the international Accounting

Standards Board (IASB).

To achieve world wide acceptance, uniformity and meaning in matter of accounting, two

international accounting bodies viz, the International Accounting Standards committee

(IASC) and the Informational federation of Accounts committee were founded. IASC was

formed in 1973, through an agreement made by professional accountancy bodies from

Australia, Canada, France, Japan, Germany, Mexico, the Netherland, the United Kingdom

and Ireland and the USA.

Objectives of IASC

1. To formulate and publish in the public interest accounting standards to beobserved in the presentation of financial statements and to promote their world -

wide acceptance and observance.


4/21

2. To work generally for the improvement and harmonization of regulations,accounting standards and procedures relating to the presentation of financial

statements.

International Accounting Standards issued by IASC

IASC has issued 39 International Accounting Standards which deals with the topics

that affect the financial statements and business enterprises.

The following is the list of the International Accounting Standards, issued by IASC.

They are

IAS 1: Disclosure of accounting policies

IAS 2: valuation and presentation of Inventories in the context of historical cost

system.

IAS 3: Consolidated Financial Statements

IAS 4: Depreciation Accounting.

IAS 5: Information to be disclosed in financial Statements (superseded by IAS 1

after revisions)

IAS 6: Accounting responses to changing prices (now superseded by IAS 15)

IAS 7: Statements of changes in financial position (cash flow statements)

IAS 8: Treatment of unusual and prior period, fundamental errors and changes in

accounting policies, in financial statements. (Net profit or loss for the period,

fundamental errors and changes in accounting policies)

IAS 9: Accounting for research and Development activities.

IAS 10: contingencies and events occurring after the balance sheet date.

IAS 11: Accounting for construction contracts

IAS 12: Accounting for Income Taxes

IAS 13: Presentation of current assets and current liabilities (now superseded by IAS

1)

IAS 14: Reporting of financial information by segments.

IAS 15: Information reflecting the effects of changing prices

IAS 16: Accounting for property, plant and equipment.

IAS 17: accounting for leases.

IAS 18: revenue Recognition.

IAS 19: Accounting for retirement benefits in financial statements of Employers.


5/21

IAS 20: Accounting for Government grants and disclosure of government assistance.

IAS 21: Accounting for the effects of changes in Foreign Exchange rate

IAS 22: Accounting for business combinations

IAS 23: Capitalisation of borrowing costs.

IAS 24: Related party disclosures

IAS 25: Accounting for investments.

IAS 26: Accounting and reporting by Retirement Benefit Plans.

IAS 27: Consolidated financial Statements and Accounting for Investments in

Subsidiaries.

IAS 28: Accounting for Investments in Associates.

IAS 29: Financial Reporting in Hyperinflationary Economics

IAS 30: Disclosures in the financial statements at banks and similar financial

institutions

IAS 31: financial reporting of interests in Joint Ventures.

IAS 32: Financial Instruments: Disclosure and presentation.

IAS 33: Earning per share

IAS 34: Interim financial reporting.

IAS 35: Discounting Operations.

IAS 36: Impairment of assets

IAS 37: Provisions, contingent liabilities and contingent assets.

IAS 38: Intangible Assets.

IAS 39: Financial Instruments: recognition and measurement.

IAS 40: Investment Property (effective 1st Jan 2001)

IAS 41: agriculture (effective from 1st January 2003)

After ignoring the standards which have been superseded, currently there are 37

standards in existence (of which IAS 41 came into effect from 1st

January 2003).

Indian Accounting Standards

LIST OF ACCOUNTING STANDARDS (issued till date by the ICAI)

AS-1 DISCLOSURE OF ACCOUNTING POLICIES


6/21

AS-2 VALUATION OF INVENTORIES

AS-3 CASH FLOW STATEMENTS

AS-4 CONTINGENCIES AND EVENTS OCCURING AFTER BALANCE SHEETDATE

AS-5 NET PROFIT OR LOSS FOR THE PERIOD,PRIOR PERIOD AND CHANGES

IN ACCOUNTING ESTIMATES

AS-6 DEPRICIATION ACCOUNTING

AS-7 ACCOUNTING FOR CONSTRUCTION CONTRACTS

AS-8 ACCOUNTING FOR RESEARCH AND DEVELOPMENT

AS-9 REVENUE RECOGNITION

AS-10 ACCOUNTING FOR FIXED ASSETS

AS-11 ACCOUNTING FOR EFFECTS OF CHANGES IN FOREIGN EXCHANGE

RATES

AS-12 ACCOUNTING FOR GOVERNMENT GRANTS

AS-13 ACCOUNTING FOR INVESTMENTS

AS-14 ACCOUNTING FOR AMALGAMATIONS

AS-15 ACCOUNTING FOR RETIREMENT BENEFITS IN THE FINANCIALSTATEMENTS OF EMPLOYERS

AS-16 ACCOUNTING FOR BORROWING COSTS

AS-17 SEGMENTAL REPORTING

AS-18 RELATED PARTY DISCLOSURES

AS-19 LEASES

AS-20 EARNINGS PER SHARE

AS-21 CONSOLIDATED FINANCIAL STATEMENT

AS-22 ACCOUNTING FOR TAXES ON INCOME

AS-23 ACCOUNTING FOR INVESTMENTS IN ASSOCIATES IN CONSOLIDATED

BALANCE SHEET


7/21

AS-24 DISCOUNTING OPERATIONS

AS-25 INTEREIM FINANCIAL REPORTING

AS-26 INTANGIBLE ASSETS

AS-27 FINANCIAL REPORTING OF INTERESTS IN JOINT VENTURES

AS-1 DISCLOSURE OF ACCOUNTING POLICIES

This standard was issued in 1979 and effective from that time. It is mandatory to the

enterprises. Accounting policies refer to the specific accounting principles and the methods

of applying those principles adopted by the enterprise in the preparation and presentation of

financial statements.

Disclosure is required if fundamental accounting assumptions viz, going concern, consistency

and accrual concept are not followed in financial statement.

The objective of this standard is to

1. Promote better understanding of financial statement and2. To facilitate a more meaningful comparison between financial statements of different

enterprises.

AS-2 VALUATION OF INVENTORIES

This standard was issued in 1981, but it was revised in 1999. The revised standard came intoeffect from 1.4.1999. It is mandatory to the enterprises. Inventories are assets a) held for

sale in the ordinary course of business b) in the process of production for such sale or c) inthe form of materials or supplies to be consumed in the production process or in the rendering

of service.

It is applicable in accounting for inventories other than:

1. Work in progress arising undera) construction contracts, including directly related service contracts

b) Ordinary course of business of service providers.2. Shares, debentures and other financial instruments held as stock-in-trade and3. Producers inventories of live stock, agricultural and forest products and mineral

oils, ores and gases to the extent they are measured at net realizable value inaccordance with well established practices in those industries.

The main objective of this standard is to determine the value of inventories at which they are

carried in the financial statements until the related revenues are recognized.


8/21

AS-3 CASH FLOW STATEMENTS

This standard was issued in 1981, revised in March 1997. An enterprise should prepare acash flow statement and should present it for each period for which financial statements are

presented.

Cash comprises cash on hand and demand deposits with banks. Cash equivalents are shortterm highly liquid investments that are readily convertible into known amounts of cash and

which are subject to an insignificant risk of changes in value. Cash flows refers to both

inflow and outflow of cash and cash equivalents.

The objective of this standard is to provide users of financial statements with a basis to assessthe ability of the enterprise in generating cash and cash equivalents and the needs of the

enterprise to utilize those cash flows.

AS-4 CONTINGENCIES AND EVENTS OCCURING AFTER BALANCE SHEET

DATE

It deals with the treatment in financial statements of a) liabilities and b) events

occurring after the balance sheet date.

However, the following subjects, which may result in contingencies, are excluded from the

scope of this standard.

a) Liability of life assurance and general insurance enterprises arising from policiesissued.

b) Obligations under retirement benefit plans andc)

Commitments arising from long-term lease contracts.

Note:

1. A Contingency is a condition or situation, the ultimate outcome of which, gain orlose, will be known or determined only on occurrence, of one or more uncertain future

events.2. Events occurring after the balance sheet date are those significant events, both

favourable and unfavourable, that occur between the balance sheet date and the dateon which the financial statements are approved by the board of directors in the case of

a company and by the case of a company, and by the corresponding approvingauthority in the case of any other entity.

The main objective is to assist the estimation of amounts relating to conditions existing at

the balance sheet date.

AS-5 NET PROFIT OR LOSS FOR THE PERIOD,PRIOR PERIOD AND CHANGES

IN ACCOUNTING ESTIMATES

This standard should be applied by an enterprise in presenting profit or loss from ordinaryactivities, extraordinary items and prior period items in the statement of profit and loss, in


9/21

accounting for changes in accounting estimates, and in disclosure of changes in accountingpolicies. However, the statement does not deal with the tax implications of above mentioned

items, for which appropriate adjustments will have to be made depending on thecircumstances.

The main objective of this standard is to prescribe the classification and disclosure of certain

items in the statement of profit and losses so that all enterprises prepare and present such astatement on uniform basis, thereby enhancing the comparability of financial statements of

enterprise overtime, and with those of other enterprises.

Note:

1. Ordinary activities are any activities which are undertaken by an enterprise as part ofits business, and such related activities in which the enterprise engages in furtheranceof incidental to or arising from those activities.

2. Extra ordinary items are income or expenses that arise from events or transactions thatare clearly distinct from the ordinary activities of the enterprise and therefore, are not

expected to occur frequently or regularly.

3. Prior period items are income or expenses which arise in the current period as a resultof errors or omission in the preparation of the financial statements of one or more

prior periods.

AS-6 DEPRICIATION ACCOUNTING

This standard deals with depreciation accounting and applies to all depreciable assets, exceptthe following items:

1)

Forests, plantations and similar regenerative natural resources2) Wasting assets including expenditure on the exploration for and extraction ofminerals, oils, natural gas and similar non-regenerative resources.

3) Expenditure on research and development4) Goodwill5) Live stock6) Land (until it has limited useful life for the enterprise)

The main objective is to ensure allocation of depreciable asset, on a systematic basis to each

accounting period during the useful life of the asset.

Note:

1) Depreciation is a measure of the wearing out consumption or other loss of value of adepreciable asset arising from use, effluxion of time or obsolescence through

technology and market changes.

2) Depreciable assets are assets whichi) Are expected to be used during more than one accounting periodii) Have a limited useful life and


10/21

iii) Are held by an enterprise for use in production or supply ofgoods, for rental to others, or for administrative purposes and not

for the purpose of sale in the ordinary course of business.

AS-7 ACCOUNTING FOR CONSTRUCTION CONTRACTS

The standard deals with accounting for construction contracts in the financial statement of theenterprises undertaking such contracts. It also applies to enterprises undertaking construction

activities of the type dealt within this standard, not as a venture of a commercial nature where

the enterprise has entered into agreements for sale.

The main objective is to provide for preparation and presentation of financial statements ofconstruction undertakings on uniform basis.

Construction contract is a contract for the construction of an asset or a combination of assets

which together constitute a single project.

AS-8 ACCOUNTING FOR RESEARCH AND DEVELOPMENT

The standard deals with the treatment of cost of research and development in financial

statements but does not deal with the accounting implications of

i) Research and development activities conducted for others under a contractii) Exploration for oil, gas and mineral depositsiii) Research and development activities of enterprises at the construction

stage.

Note:

1.

Research is original and planned investigation undertaken with the hope of gainingnew scientific or technical knowledge and understanding.

2. Development is the translation of research findings or other knowledge into a plan ordesign for the production of new or substantially improved materials, devices,

products, processes, systems or services, prior to the commencement of commercial

production.

AS-9 REVENUE RECOGNITION

The standard deals with the basis for recognition of revenue in the statement of profit or loss

of an enterprise, arising in the course of the ordinary activities of the enterprise from the saleof goods, the rendering of services, and the use by others of enterprise resources yielding

interest, royalties and dividends. But does not deal with revenue recognitions of revenuearising from a) construction contracts b) hire purchase, lease agreements c) government

grants and other similar subsidies and d) insurance contracts of insurance companies.

The main objective is to provide for preparation and presentation of financial statements on

uniform basis.

Revenue refers to the gross inflow of cash, receivables or other consideration arising in thecourse of the ordinary activities of an enterprise from the sale of goods from the rendering of


11/21

services, and from the use by others of enterprise resources yielding interest, royalties anddividends.

AS-10 ACCOUNTING FOR FIXED ASSETS

The standards deal with accounting for fixed assets except with accounting for the following

items:

i) Forests, plantations and similar regenerative natural resources.ii) Wasting assets including mineral rights, expenditure on the exploration for and

extraction of mineral oil, natural gas and similar non-regenerative resources

iii) Expenditure on real estate development andiv) Live stock.The main objective of this standard is to provide for preparation and presentation of

financial statements on uniform basis.

Fixed asset is an asset held with the intention of being used for the purpose of producing

or providing goods or services and is not held for sale in the normal course of business.

AS-11 ACCOUNTING FOR EFFECTS OF CHANGES IN FOREIGN

EXCHANGE RATES

The standard should be applied by an enterprise a) in accounting for transactions

in foreign currencies and b) In translating the financial statements of foreignbranches for inclusions in the financial statements of the enterprise.

The main objective is that an enterprise may have transactions in foreign

currencies or it may have foreign branches. Foreign currency transactions should

be expressed in the enterprises reporting currency and the financial statements offoreign branches should be translated into the enterprises reporting currency inorder to include then in the financial statements of the enterprise. The principal

issues in accounting for foreign exchange transactions and foreign branches are to

decide which exchange rate to use and how to recognize the financial effect of

changes in exchange rates.

Note:

1. Reporting currency is the currency used in presenting the financial statements.2. Foreign currency is a currency other than the reporting currency of an

enterprise.

3. Exchange rate is the ratio of exchange of two currencies as applicable to therealization of a specific asset or the payment of a specific liability or therecording of a specific transaction or a group of interrelated transactions.

AS-12 ACCOUNTING FOR GOVERNMENT GRANTS


12/21

The standard deals with accounting for government grants (such as subsidies , cashincentives, duty draw backs etc) but does not deal with:

1. Special problems arising in accounting for government grants in financial statementreflecting the effects of changing prices or in supplementary information of a similar

nature.

2. Government assistance other than in the form of government grants and3. Government participation in the ownership of the enterprise.The main objective of this standard is to provide for preparation of financial statements

on uniform basis.

Note:

1. Government refers to government, government agencies and similar bodies whetherlocal, national or international.

2. Government grants are assistance by government in cash or kind to an enterprise forpost or future compliance with certain conditions.

AS-13 ACCOUNTING FOR INVESTMENTS

The standard deals with accounting for investments in the financial statements of enterprise

and related disclosure requirements, but does not deal with

1. The bases for recognition of interest, dividends and rentals earned on investments2. Operating or financial leases3. Investments of retirement benefit plans and life insurance enterprises and4. Mutual funds and or the related asset management companies, banks and public

financial institutions.

The main objective of this standard is to provide for preparation and presentation offinancial statement on uniform basis.

Investments are assets held by an enterprise for earning income by way of dividends, interest

and rentals for capital appreciation or for other benefits to the investing enterprise. Assets

held as stock-in-trade are not investments.

AS-14 ACCOUNTING FOR AMALGAMATIONS

The standard deals with accounting for amalgamations and the treatment of any resultantgoodwill or reserves, but does not deal with case of acquisitions which arise when there is

purchase by one company of the whole or part of the shares, or the whole or part of the assetsof another company in consideration for payment in cash or by issue of shares or other

securities in the acquiring company or partly in form and partly in the other.

The main objective is to provide for uniformity in accounting in the cases of amalgamation.

Note:


13/21

1. Amalgamation means an amalgamation pursuant to the provisions of the companiesAct, 1956, or any other statute which may be applicable to companies.

2. Transferor Company means the company which is amalgamated into anothercompany.

3. Transferee company means the company into which a transferors company isamalgamated.

AS-15 ACCOUNTING FOR RETIREMENT BENEFITS IN THE FINANCIAL

STATEMENTS OF EMPLOYERS

The standard deals with accounting for retirement benefits in financial statements.

Retirement benefits usually consists of a) provident fund b) superannuation/pensionc) gratuity d) leave encashment benefit on retirement e) post retirement health and

welfare schemes and f) other retirement benefits.

The main objective of this standard is to provide for preparation and presentation of

financial statements on uniform basis.

Note:

Retirement benefit schemes are arrangements to provide provident fund,superannuation or pension, gratuity or other benefits to employees on leaving service

or retiring or after an employees death, to his or her dependents.

AS-16 ACCOUNTING FOR BORROWING COSTS

The standard should be applied in accounting for borrowing costs. However, the standard

does not deal with actual or imputed cost of owners equity, including preference share

capital not classified as a liability.

The main objective is to prescribe the accounting treatment for borrowing costs.

Note:

Borrowing costs are interest and other costs incurred by an enterprise in connection with the

borrowing funds.

AS-17 SEGMENTAL REPORTING

The standard should be applied in presenting general purpose financial statements, and can

also be applicable in case of consolidated financial statements.

The main objective is to establish principles for reporting financial information, about the

different types of products and services an enterprise produces and the different geographicalareas in which it operates, enabling the users of financial statements in better understanding


14/21


15/21

3. An operating lease is a lease other than a finance lease.AS-20 EARNINGS PER SHARE:

The standard should be applied by enterprises whose equity shares or potential equityshares are listed on a recognized stock exchange in India. An enterprise which has neither

equity shares nor potential equity share which are to listed but which discloses earnings pershare should calculate and disclose earnings per share in accordance with this standard.

The main objective is to prescribe the principles for the determination and presentation ofearnings per share which will improve comparison of performance among different

enterprises for the same period and among different periods for the same enterprise.

Note:

1. An equity share is a share other than a preference share.2. A preference share is a share carrying preferential rights to dividends and repayment

of capital

3. A potential equity share is a financial instrument or other contract that entitles, or mayentitle, its holder to equity shares.

AS-21 CONSOLIDATED FINANCIAL STATEMENTS

The standard should be applied in the preparation and presentation of consolidated

financial statements for a group of enterprises under the control of a parent. The standardshould also be applied in accounting for investments in subsidiaries in the separate financial

statements of a parent. The statement should also be applied in accounting for investments insubsidiaries in the separate financial statements of a parent. The standard does not deal with:

a)

Methods of accounting for amalgamation and their effects on consolidation,including goodwill arising on amalgamation.b) Accounting for investments in associates, andc) Accounting for investment in joint ventures.

The objective of this standard is to lay down principles and procedures for preparation and

presentation of consolidated financial statements, that are presented by a parent (holdingCo.,) to provide financial information about the economic activities of its group. These

statements are intended to present financial information about a parent and its subsidiary as asingle economic entity to show the economic resources controlled by the group and the

results the group achieves with its resources.

Note:

1. Subsidiary is an enterprise that is controlled by another enterprise.(known as theparent)

2. A parent is an enterprise that has one or more subsidiaries.3. A group is a parent and all its subsidiaries.


16/21

AS-22 ACCOUNTING FOR TAXES ON INCOME

The standard should be applied in accounting for taxes on income. This includes thedetermination of the amount of the expense or saving related to taxes on income in respect of

an accounting period and the disclosure of such an amount in the financial statements. For

the purposes of this standard, taxes on income include all domestic and foreign taxes which

are based on taxable income.

The main objective is to prescribe accounting treatment for taxes on income.

Note:

1. Accounting income(loss) is the net profit or loss for a period as reported in thestatement of profit/loss, before deducting income tax expense or adding income taxsaving.

2. Taxable income (tax loss) is the amount of the income(loss) for a period, determinedin accordance with the tax laws, based upon which income tax payable (recoverable)

is determined.

3. Tax expense (tax saving) is the aggregate of current tax and deferred tax charged orcredited to the statement of profit or loss for the period.

4. Current tax is the amount of income tax determined to be payable (recoverable) inrespect of the taxable income (loss) for a period.

5. Deferred tax is the tax effect of timing differences.AS-23 ACCOUNTING FOR INVESTMENTS IN ASSOCIATES IN CONSOLIDATED

FINANCIAL STATEMENTS

The standard should be applied in accounting for investments in associates in the

preparation and presentation of consolidated financial statements by an investor. Thestandard does not deal with accounting for investments in associates in the preparation and

presentation of separate financial statements by an investor.

The main objective is to see out principles and procedures for recognizing, in the

consolidated financial statements, the effect of the investments in associates on the financial

position and operating results of a group.

Note:

1. An associate is an enterprise in which the investor has significant influence andwhich is neither a subsidiary nor a joint venture of the investor.

2. Significant influence is the power to participate in the financial and or operatingpolicy decisions of the investee but not control over those policies.

AS-24 DISCOUNTINUING OPERATIONS

The standard applied to all discontinuing operations of an enterprise. The requirements

related to cash flow statement contained in this standard are applicable where an enterpriseprepares and presents a cash flow statement.


17/21

The main objective is to establish principles for reporting information about discontinuingoperations, thereby enhancing the ability of users of financial statements to make projections

of an enterprises cash flows, earnings generating capacity, and financial position bysegregating information about discontinuing operations from information about continuing

operations.

Note:

A discontinuing operation is a component of an enterprise:

1. That the enterprise, pursuant to a single plan, is:a) Disposing of substantially in its entirely, such as by seeing the component in a

single transaction or by demerger or spin-off of ownership of the component tothe enterprises shareholders; or

b) Disposing of piecemeal, such as by selling off the components assets and settlingits liabilities individually; or

c) Terminating through abandonment; or2. That represents a separate major line of business or geographical area of operations;

and

3. That can be distinguished operationally and for financial reporting purposes.

AS-25 INTERIM FINANCIAL REPORTING

The standard is applicable to enterprises which are required to or elects to prepare and

present interim financial report. Minimum components of an interim financial report;

a) Condensed balance sheetb) Condensed statement of profit and lossc) Condensed cash flow statement; andd) Selected explanatory notes.

The main objective is to prescribe the minimum content of an interim financial report and toprescribe the principle for recognition and measurement in a complete or condensed financial

statements for an interim period, thereby enabling the improvement of investors creditors andothers ability to understand an enterprises capacity to generate earnings and cash flows and

its financial condition and liquidity.

Note:

1. Interim financial means a financial report containing either a complete set offinancial statements or a set of consolidated financial statements for an interim period.

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

AS-26 INTANGIBLE ASSETS


18/21

The standard should be applied by all enterprises in accounting for intangible assets, except

a) Intangible assets that are covered by another accounting standard.b) Financial assetsc) Mineral rights and expenditure on the exploration for or development and extraction

of, minerals, oil, natural gas, and similar non-regenerative resources, and

d) Intangible assets arising in insurance enterprises from contracts with policy holders.The main objective is to prescribe the accounting treatment for intangible assets that are not

dealt with specifically in another accounting standard

Note:

1. An intangible asset is an identifiable non-monetary asset without physical substance,held for use in the production or supply of guide or services for rental to others, or for

administrative purposes.2. An asset is a resource: a) controlled by an enterprise as a result of past events and b)

from which future economic benefits are expected to flow to the enterprise.

AS-27 FINANCIAL REPORTING OF INTERESTS IN JOINT VENTURES

The standard should be applied in accounting for interests in joint ventures and the reporting

of joint venture and the reporting of joint ventures assets, liabilities, income and expenses inthe financial statements of ventures and investors, regardless of the structures or forms under

which the joint venture activities take place.

The main objective is to set out principles and procedures for accounting for interest in joint

venture assets, liabilities, income and expenses in the financial statement s of ventures andinvestors.

Note:

1. Joint venture is a contractual arrangement whereby two or more parties, undertake aneconomic activity, which is subject to joint control.

2. A venture is a party to a joint venture and has joint control over the joint venture.3. An investor to a joint venture is a party to a joint venture and does not have control

over that joint venture.

EXERCISES

SECTION A

1. Give the meaning of accounting standards2. State any two objectives of accounting standards3. State any four Indian Accounting standards.4. Mention any two international accounting standards.


19/21

5. State the objective AS-2.6. Mention any two uses of accounting standards.7. What are borrowing costs?8. Define taxable Income.9. Give the meaning of intangible asset/10.What are cash equivalents?SECTION B & C

1. Bring out the need for accounting standards2. Elucidate the significance of accounting standards.3. Mention the accounting standards which are common in both, Indian and International

context.

4. Give the list of different Indian Accounting standards.5. Briefly explain any four Indian accounting standards.


20/21


21/21

Date post:	08-Apr-2018
Category:	Documents
Upload:	vinn-arasi
View:	225 times
Download:	4 times

Accounting Standards Chapter 1

Documents