FINANCIAL ACCOUNTING

PGDM –Ist TRIMESTER

• Concepts• Terms• Adjustments

BASIC CONCEPTS & QUES.

• WHAT IS ACCOUNTING?

• NEED FOR ACCOUNTING?

• DOUBLE ENTRY BOOK KEEPING SYSTEM

• Accounting is the art of recording ,classifying and summarizing in a systematic manner and in terms of money, transactions and events which are, in part at least , of financial character and interpreting the results thereof.

American Institute of certified public Accountants

PARTS OF ACCOUNTING

ACCOUNTING

JOURNAL LEDGER TRIAL BAL. FINAL A/C RATIOS CFS & FFS

GAAP

CONCEPTS CONVENTIONS

SEPARATE ENTITY CONSERVATISM

GOING CONCERN FULL DISCLOSURE

MONEY MEASUREMENT CONSISTENCY

DUAL ASPECT MATERIALITY

ACCOUNTING PERIOD TIMELINESS

HISTORICAL COST

MATCHING

REALIZATION

GOLDEN RULES

• PERSONAL A/C

• REAL A/C

• NOMINAL A/C

• REVENUE EXPENSES & INCOMES

• CAPITAL EXPENSES & INCOMES

CLASSIFICATION OF ITEMS

• ASSETS

• LIABILITY

• EXPENSES & LOSSES

• INCOMES & GAINS

• RESERVES

• PROVISIONS

FINAL A/C

• TRADING A/C

• PROFIT & LOSS A/C

• BALANCE SHEET

Benefits of IFRS

• Comparability of financial statements of companies belonging of one or more countries

• Facilitate consolidation of financial statement• To bring harmony in the efforts of country specific

standard setters • Cutting down the cost of formulation and

implementation of AS• Facilitate entry and working of multinational

companies across the gross without any accounting hindrance.

IFRS -1- FIRST TIME ADOPTION OF IFRS

• It contains the details about the first time adoption of IFRS and transition from GAAP to IFRS. It specifies the plan about transition from respective GAAP to IFRS.

• Main Provisions:Recognition of all assets and liabilities as per IFRS Derecognition of all assets and liabilities not

permitted IFRSReclassification of assets and liabilities as per IFRS

IFRS-2 – SHARE BASED PAYMENT

• It specifies the parameters about reporting and disclosure of share-based payment transaction in the financial statement. It requires a business entity to report in the P&L A/C and in the financial position the effect of share- based payment transactions, such as option granted to employees or other parties to be settled in cash , other assets and equity instrument.

Share – based payment for the goods and services Cash settled share based payment transaction Transaction of purchase of goods and services for which

settlement is to be done either in cash or in equity instrument of business entity.

• Measurement IssuesMeasure the goods and services procured at

the fair value of these goods or services, if the value of good and services cannot be established then fair value of equity instrument

Fair value of equity can be estimated at market price

IFRS – 3 BUSINESS COMBITIONS

• How acquirer should report – recognize and measure different assets acquired and liabilities assumed. It require in which manner consolidated financial statement of acquirer /investor should report

• All assets and liabilities should be recorded at fair market value at the acquired date and minority interest should also be at market value

• Exception to this – Items in lease aggreement

IFRS-4 INSURANCE CONTRACT

• It deals about the accounting provision regarding the reporting and disclosure of insurance policies and related assets and liabilities.

Only the provisions for claims that exist at the date of reporting date should be disclosed and not for expected claim

An adequacy test for the insurance liabilities should be assumed

Liabilities should be disclosed until these are discharged Insurance liabilities should be measure at current market

price

DIFFERENCES B/W AS AND IFRSPOINTS IFRS INDIAN GAAP

COMPONENTS OF FINANCIAL STATEMENTS

1. STATEMENT OF FINANCIAL POSITION

2. COMPREHENSIVE INCOME

3. CFS4. ST. OF CHANGE IN

EQUITY5. NOTES TO A/C

1. B/S2. P&L A/C3. CFS4. NOTES TO A/C

FORMAT NO SPECIFIC SCH VI

INCOME STATEMENT SPECIFIC FROMAT SCH VI

CFS MANDATORY EXEMPTED

EXTRA ORDINARY ITEM PROHIBITS THE PRESENTATION

MANDATORY

GOODWILL SUBJECT TO ANNUAL IMPAIRMENT

AMORTIZED IN 5 YRS

INTANGIBLE ASSETS MEASURED AT FAIR VALUE AT COST

CHANGE IN DEP. METHOD Prospective effect RETROSPECTIVE

LEASE OF LAND & BUILDING

CONTAINS PROVISIONS DOES NOT CONTAIL

INCEPTION AND COMMENCEMENT DATE

DIFFERENTIATE DOES NOT

IFRS – 5 Non Current Assets Held for Sale and Discontinued Operations

• It include assets like Financial instrument and Investment Property

Main ProvisionsAssets held for sale must be reported in annual a/cs:1. Cost or Fair Value which ever is less2. Cost of sell or depreciation should be adjusted in

from the reported amount

3. These assets should be reported separately

4. Assets related to discontinued operation should be reported separately

Disclosure:Criteria of identification of assets should

disclosed

IFRS 6 – EXPLORATION FOR AND EVALUATION OF MINERAL RESOURCES

• It is related to exploration expenditure incurred by companies in relation to technical feasibility of mining of mineral resources .This IFRS is about recognition and measurement of exploration expenditure

1. A business entity should determine suitable accounting policy for classifying exploration assets as cash generating units

2. Policy for Impairment test for the assets acquired under exploration activities

• If carrying amount of exploration assets exceeds its recoverable amount then it should be impaired so as to have true presentation of FS and impairment loss should be recognised

IFRS – 7 FINANCIAL INSTRUMENT

• It requires the disclosure of different financial instrument in the financial statements

Main Provisions:1. It should disclose the criteria for qualitative and

quantitative for the classification of Financial Instruments, financial assets , financial liability and Equity instrument.

2. Disclosure of Risk management practices for financial instrument and their impact on financial position

IFRS- 8 OPERATING SEGMENT

• Disclosure :1. Information about different operating

segments2. Information about different products , services

, geographical areas and major customers3. P&L from all segments4. Impact of business conditions concerning

different segments

EPS

• RETEROSPECTIVE EPS

ADJUSTED EPS= EQUITY SHAREHOLDERS EARNING/ WEIGHTED AVEG NO. OF EQ. SH

ILL: X LIMITED IS HAVING 1,00,000 EQ SH ON I APR 2010 . DURING THE YEAR IT ISSUE 20000 SH ON 1 JULY 2010 AND ON 1 JAN 2011 30000 MORE SH .

WEIGTED AVG SH = 100000X 3/12 + 120000 X 6/12 + 150000 X 3/12 = 122500

FINANCIAL RATIO’S