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AllACCOUNTINGSTANDARDS
AccountingStandardsarethedefinedaccountingpoliciesissuedbyGovernmentorexpertinstitute.Thesestandardsareissuedtobringharmonizationinfollowupofaccountingpolicies.
Presently,InstituteofCharteredAccountantsofIndiahasissued29AccountingStandardsaslistedbelow.
AS01.DisclosureofAccountingPolicies
AS02.ValuationofInventories
AS03.CashFlowStatements
AS04.ContingenciesandEventsOccurringAftertheBalanceSheetDate
AS05.NetProfitorLossforthePeriod,PriorPeriodItemsandChangesinAccountingPolicies
AS06.DepreciationAccounting
AS07.ConstructionContracts
AS08.AccountingforResearchandDevelopment(NotApplicablenow)
AS09.RevenueRecognition
AS10.AccountingforFixedAssets
AS11.AccountingfortheEffectsofChangesinForeignExchangeRates
AS12.AccountingforGovernmentGrants
AS13.AccountingforInvestments
AS14.AccountingforAmalgamation
AS15.AccountingforRetirementBenefitsinthefinancialStatementsofEmployers
AS16.BorrowingCosts
AS17.SegmentReporting
AS18.RelatedPartyDisclosure
AS19.Leases
AS20.EarningPerShare
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AS21.ConsolidatedFinancialStatements
AS22.AccountingforTaxesonIncome
AS23.AccountingforInvestmentsinAssociatesinConsolidatedFinancialStatements
AS24.DiscontinuingOperations
AS25.InterimFinancialReporting
AS26.IntangibleAssets
AS27.FinancialReportingofInterestsinJointVentures
AS28.ImpairmentofAssets
AS29.Provisions,ContingentLiabilities&ContingentAssets
ProcedureforIssuingAccountingStandards
..AccountingStandardBoard(ASB)determinesthebroadareasinwhichAccountin
gStandardsneedtobeformulated.
..InthepreparationofAS,ASBisassistedbyStudyGroups.
..ASBalsoholdsdiscussionswithrepresentativeofGovernment,PublicSectorUndertakings,Industryandotherorganizations(ICSI/ICWAI)forascertainingtheirviews.
..Anexposuredraftoftheproposedstandardispreparedandissuedforcomment
sbymembersofICAIandthepublicatlarge.
..Aftertakingintoconsiderationthecommentsreceived,thedraftoftheproposedstandardwillbefinalizedbyASBandsubmittedtothecounciloftheInstitute.
..ThecounciloftheInstitutewillconsiderthefinaldraftoftheproposedStandardandIffoundnecessary,modifythesameinconsultationwithASB.TheASontherelevantsubjectwill
thenbeissuedundertheauthorityofthecouncil.
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ACCOUNTINGSTANDARDS-01
DISCLOSUREOFACCOUNTINGPOLICY
Accountingpoliciesarethespecificaccountingprinciplesandthemethodsofapplyingthoseprinciplesadoptedbyanenterpriseinthepreparationandpresentationoffinancialstatements.
-Allsignificantaccountingpoliciesshouldbedisclosed.
-Suchdisclosureformpartoffinancialstatements.
-Alldisclosuresshouldbemadeatoneplace.
-Specificdisclosurefortheadoptionoffundamentalaccountingassumptionsisnotrequired.
-Disclosureofaccountingpoliciescannotremedyawrongorinappropriatetreatmentoftheitemintheaccounts.
Anychangeinaccountingpolicieswhichhasamaterialeffectinthecurrentperiodorwhichisreasonablyexpectedtohavematerialeffectinlaterperiodsshouldbedisclosed.
Inthecaseofachangeinaccountingpolicies,whichhasamaterialeffectinthecurrentperiod,theamountbywhichanyiteminthefinancialstatementsisaffectedbysuchchangeshouldalsobedisclosedtotheextentascertainable.Wheresuchamountisnotascertainable,thefactshouldbeindicated.
FundamentalAccountingAssumption:(GCA):
1]GoingConcern2]Consistency3]Accrual
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Majorconsiderationsgoverningtheselectionofaccountingpolicies:
1]Prudence2]Substanceoverform(LogicoverLaw)3]Materiality
Thefollowingareexamplesoftheareasinwhichdifferentaccountingpoliciesmaybeadoptedbydifferententerprises:
-Methodsofdepreciation
-Methodsoftranslationofforeigncurrency
-Valuationofinventories
-Valuationofinvestments
-Treatmentofretirementbenefits
-Treatmentofcontingentliabilitiesetc.
ACCOUNTINGSTANDARDS-02
VALUATIONOFINVENTORY
Inventoriesareassets:
heldforsaleinordinarycourseofbusiness;
intheprocessofproductionfrosuchsale(WIP);
intheformofmaterialsorsuppliestobeconsumedintheproductionprocessorintherenderingofservices.
However,thisstandarddoesnotapplytothevaluationoffollowinginventories:
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(a)WIParisingunderconstructioncontract(ReferAS7);
(b)WIParisingintheordinarycourseofbusinessofserviceproviders;
(c)Shares,debenturesandotherfinancialinstrumentsheldasstockintrade;and
(d)Producersinventoriesoflivestock,agriculturalandforestproducts,andmineraloils,oresandgasestotheextentthattheyaremeasuredatnetrealizablevalueinaccordancewithwellestablishedpracticesinthoseindustries.
Inventoriesshouldbevaluedatthelowerofcostandnetrealizablevalue.
Thecostofinventoriesshouldcomprise
a)Allcostsofpurchase
b)Costsofconversion
c)Othercostsincurredinbringingtheinventoriestotheirpresentlocationandcondition.
Thecostsofpurchaseconsistof
a)Thepurchaseprice
b)Dutiesandtaxes(otherthanthosesubsequentlyrecoverablebytheenterprisefromthetaxing
authoritieslikeCENVATcredit)
c)Freightinwardsandotherexpendituredirectlyattributabletotheacquisition.
Tradediscounts(butnotcashdiscounts),rebates,dutydrawbacksandothersimilaritemsaredeductedindeterminingthecostsofpurchase.
Thecostsofconversionincludedirectcostsandsystematicallocationoffixedandvariableproductionoverhead.
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Allocationoffixedoverheadsisbasedonthenormalcapacityoftheproductionfacilities.Normalcapacityistheproduction,expectedtobeachievedonanaverageoveranumberofperiodsorseasonsundernormalcircumstances,takingintoaccountthelossofcapacityresultingfromplannedmaintenance.
UnderRecovery:Unallocatedoverheadsarerecognizedasanexpenseintheperiodinwhichtheyareincurred.
Example:Normalcapacity=20000units
Production=18000units
Sales=16000units
ClosingStock=2000units
FixedOverheads=Rs.60000/-
Then,Recoveryrate=Rs60000/20000=Rs3perunit
FixedOverheadswillbebifurcatedintothreeparts:
CostofSales:16000x3=48000
ClosingStock:2000x3=6000
UnderRecovery:Rs.6000(tobechargedtoP/L)
(Apparentlyitseemsthatfixedcostelementinclosingstockshouldbe60000/18000*2000=Rs6666.67.butthisiswrongasperAS-2)
OverRecovery:Inperiodofhighproduction,theamountoffixedproductionoverheadsisallocatedtoeachunitofproductionisdecreasedsothatinventories.
Example:Normalcapacity=20000units
Production=25000units
Sales=23000units
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ClosingStock=2000units
FixedOverheads=Rs60000/-
Than,RecoveryRate=Rs60000/20000=Rs3perunit
But,RevisedRecoveryRate=Rs60000/25000=Rs.2.40perunit
CostofSales:23000x2.4=Rs.55200
ClosingStock:2000x2.4=Rs.4800
Jointorbyproducts:
Incaseofjointorbyproducts,thecostsincurreduptothestageofsplitoffshouldbeallocatedonarationalandconsistentbasis.Thebasisofallocationmaybesalevalueatsplitoffpointorsalevalueatthecompletionofproduction.Incaseofthebyproducts
ofnegligiblevalueorwastes,valuationmaybetakenatnetrealizablevalue.Thecostofmainproductisthenjointcostminusnetrealizablevalueofbyproductorwaste.
Theothercostsarealsoincludedinthecostofinventorytotheextenttheycontributeinbringingtheinventorytoitspresentlocationandcondition.
Interestandotherborrowingcostsareusuallynotincludedincostofinventory.However,AS-16recommendstheareaswhereborrowingcostsaretakenascostofinventory.
Certaincostsarestrictlynottakenascostofinventory.
(a)Abnormalamountsofwastedmaterials,labour,orotherproductioncosts;
(b)Storagecosts,unlessthosecostsarenecessaryintheproductionprocesspriortoafurtherproductionstage;
(c)Administrativeoverheadsthatdonotcontributetobringingtheinventoriestotheirpresentlocationandcondition;and
(d)SellingandDistributioncosts.
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CostFormula:
..Specificidentificationmethodfordeterminingcostofinventories
Specificidentificationmethodmeansdirectlylinkingthecostwithspecificitemofinventories.Thismethodhasapplicationinfollowingconditions:
..Incaseofpurchaseofitemspecificallysegregatedforspecificprojectandisnotordinarilyinterchangeable.
..Incaseofgoodsofservicesproducedandsegregatedforspecificproject.
..WhereSpecificIdentificationmethodisnotapplicable
Thecostofinventoriesisvaluedbythefollowingmethods;
..FIFO(FirstInFirstOut)Method
..WeightedAverageCost
Costofinventoriesincertainconditions:
Thefollowingmethodsmaybeusedforconvenienceiftheresultsapproximateactualcost.
StandardCost:Ittakesintoaccountnormallevelofconsumptionofmaterialandsupplies,labour,efficiencyandcapacityutilization.Itmustberegularlyreviewedtakingintoconsiderationthecurrentcondition.
RetailMethod:Normallyapplicableforretailtrade.Costofinventoryisdeterm
inedbyreducingthegrossmarginfromthesalevalueofinventory.
NetRealisableValue:NRVmeanstheestimatedsellingpriceinordinarycourseofbusiness,atthetimeofvaluation,lessestimatedcostofcompletionandestimatedcostnecessarytomakethesale.
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Comparisonbetweennetrealizablevalueandcostofinventory
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Thecomparisonbetweencostandnetrealizablevalueshouldbemadeonitem-by-itembasis.(Insomecases,groupofitems-by-groupofitembasis)
ForExample:
CostNRVInventoryValueasperAS-2
ItemA1009090
ItemB100115100
Total200205200190
RawMaterialValuation
Ifthefinishedgoods,towhichrawmaterialisapplied,issoldatprofit,RAWMATERIALisvaluedatcostirrespectiveofitsNRVlevelbeinglowertoitscosts.
ACCOUNTINGSTANDARDS-03
CASHFLOWSTATEMENT
Definitions:
Cashcomprisescashonhandandcashatbank.(DemandDepositswithbank)
CashEquivalentsare
..ShortTerm
..HighlyLiquidInvestments(Maturityaround3months)
..Subjecttoinsignificantriskofchangesinvalue.
CashFlowsareinflowsandoutflowsofcashandcashequivalents.
CashFlowStatementrepresentsthecashflowsduringthespecifiedperiodbyoperating,investing
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andfinancingactivities.
OperatingActivitiesaretheprincipalrevenue-producingactivitiesoftheenterpriseandotheractivitiesthatarenotinvestingactivitiesandfinancingactivities.
Example:
1]Cashreceiptsfromsalesofgoods/services
2]Cashreceiptsfromroyalties,feesandotherrevenueitems
3]Cashpaymentsforsalaries,wagesandrent
4]Cashpaymenttosuppliersforgoods
5]CashpaymentsorrefundsofIncomeTaxunlesstheycanbespecificallyidentifiedwithfinancingorinvestingactivities
6]Cashreceiptsandpaymentstofuturecontracts,forwardcontractswhenthecontractsareheldfor
tradingpurposes.
CashfromoperatingactivitiescanbedisclosedeitherbyDIRECTMETHODORBYINDIRECTMETHOD.
InvestingActivitiesaretheacquisitionanddisposaloflong-termassetsandotherinvestmentsnotincludedincashequivalents.
Example:
1]Cashpayments/receiptstoacquire/saleoffixedassetsincludingintangibleassets
2]Cashpaymentstoacquiresharesorinterestinjointventures(otherthanthecaseswhereinstrumentsareconsideredascashequivalents)
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3]Cashadvancesandloansmadetothirdparties(Loansanctionedbyafinancialenterpriseisoperatingactivity)
4]DividendsandInterestreceived
5]Cashflowsfromacquisitionsanddisposalofsubsidiaries
FinancingActivitiesareactivitiesthatresultinchangesinthesizeandcompositionoftheownerscapital(includingpreferencesharecapitalinthecaseofacompany)andborrowingoftheenterprise.
Example:
1]Cashproceedsfromissueofsharesanddebentures
2]Buybackofshares
3]RedemptionofPreferencesharesordebentures
4]Cashrepaymentsofamountborrowed.
5]DividendandInterestpaid
Anenterpriseshouldreportseparatelymajorclassesofgrosscashreceiptsandgrosscashpaymentsarisingfrominvestingandfinancingactivities.
However,cashflowsfromfollowingactivitiesmaybereportedonanetbasis.
..Cashreceiptsandpaymentsonbehalfofcustomers
Forexample:Cashcollectedonbehalfof,andpaidoverto,theownersofproperties.
..Cashflowsfromitemsinwhichturnoverisquick,theamountsarelargeandthematuritiesareshort.
Forexample:Purchaseandsaleofinvestments
..ForFinancialEnterprise:Cashreceiptsandpaymentsfortheacceptanceandrepaymentof
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depositswithafixedmaturitydate.
..ForFinancialEnterprise:Depositsplaced/withdrawnfromotherfinancialenterprises
..ForFinancialEnterprise:Cashadvancesandloansmadetocustomersandtherepaymentofthose
advancesandloans.
ForeignCurrencyCashFlows:
Cashflowsarisinginforeigncurrencyshouldberecordedinenterprisereportingcurrency
applyingtheexchangeconversionrateexistingonthedateofcashflow.
Theeffectofchangesinexchangeratesofcashandcashequivalentsheldinforeigncurrencyshouldbereportedasseparatepartofthereconciliationofthechangesincashandcashequivalentsduringtheperiod.
ExtraordinaryItems:Theseitemsshouldbeseparatelyshownunderrespectivehea
dsofcashfromoperating,investingandfinancingactivities.
Investingandfinancingtransactionsthatdonotrequiretheuseofcashandcashequivalentsshouldbeexcludedfromacashflowstatement.ForExample:
A]Theconversionofdebttoequity
B]Acquisitionofanenterprisebymeansofissueofshares
OtherDisclosure:
Componentsofcashandcashequivalents.
Reconciliationofclosingcashandcashequivalentswithitemsofbalancesheet.
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Theamountofsignificantcashandcashequivalentbalancesheldbytheenterprise,whicharenotavailableforusebyit.
ACCOUNTINGSTANDARDS-04
CONTINGENCIESANDEVENTSOCCURRINGAFTERTHEBALANCESHEETDATE
Contingency:Acontingencyisaconditionorsituation,theultimateoutcomeofwhich,gainorloss,willbeknownordeterminedonlyontheoccurrence,ornon-occurrence,ofoneormoreuncertainfutureevents.
AccountingTreatment:
Ifitislikelythatacontingencywillresultin
LOSS:Itisprudenttoprovideforthatlossinthefinancialstatements.
PROFIT:Notrecognizedasrevenue(However,whentherealizationofagainisvirtuallycertain,thensuchgainisnotacontingencyandaccountingforthegainisappropriate.)
Theestimatesoftheoutcomeandofthefinancialeffectofcontingenciesaredetermined
a)bythejudgmentofthemanagementbyreviewofeventsoccurringafterthebalancesheetdate.
b)byexperienceoftheenterpriseinsimilartransaction
c)byreviewingreportsfromindependentexperts.
Ifestimationcannotbemade,disclosureismadeoftheexistenceandnatureofthecontingency.
Provisionsforcontingenciesarenotmadeinrespectofgeneralorunspecifiedrisks.
Theexistenceandamountofguaranteesandobligationsarisingfromdiscounted
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billsofexchangearegenerallydisclosedbywayofnoteeventhoughthepossibilityoflossisremote.
Theamountofacontingentlossshouldbeprovidedforbyachargeinthestatementofprofitandlossif:
itisprobablethatfutureeventswillconfirmthat,aftertakingintoaccountanyrelatedprobablerecovery,anassethasbeenimpairedoraliabilityhasbeenincurredasatthebalancesheetdate,and
areasonableestimateoftheamountoftheresultinglosscanbemade.
Ifeitherofaforesaidtwoconditionsisnotmet,e.g.whereareasonableestimateofthelossisnotpracticable,theexistenceofthecontingencyshouldbedisclosedbywayofnoteunlessthe
possibilityoflossisremote.Suchdisclosureshouldprovidefollowinginformation:
a)Thenatureofthecontingency;
b)Theuncertaintieswhichmayaffectthefutureoutcome;
c)Anestimateofthefinancialeffectorastatementthatsuchanestimatecannotbemade.
EventsOccurringaftertheBalanceSheetDate:
Eventsoccurringafterthebalancesheetdatearethosesignificantevents,bothfavourableandunfavourable,thatoccurbetweenthebalancesheetdateandthedateonwhichthefinancialstatementsareapprovedbytheBoardofDirectorsincaseofacompany,and,bythecorrespondingapprovingauthorityinthecaseofanyotherentity.
Twotypesofeventscanbeidentified:
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AdjustingEvent:
Those,whichprovidefurtherevidenceofconditionsthat,existedatthebalancesheetdate
Actualadjustmentsinfinancialstatementsarerequiredforadjustingevent.
Exceptions:
1]Although,notadjustingevent,Proposeddividendareadjustedinbooksofaccount.
2]Adjustmentsarerequiredfortheevents,whichoccurafterbalancesheetdatethatindicatesthatfundamentalaccountingassumptionofgoingconcernisnolonger,appropriate.
Non-AdjustingEvents:
Those,hitchareindicativeofconditionsthatarosesubsequenttothebalancesheetdate.
Noadjustmentsarerequiredtobemadeforsuchevents.But,disclosuresshouldbemadeinthereportoftheapprovingauthorityofthoseeventsoccurringafterthebalancesheetdatethatrepresentmaterialchangesandcommitmentsaffectingthefinancialpositionoftheenterprise.Suchdisclosureshouldprovidefollowinginformation:
..Thenatureoftheevents
..Anestimateofthefinancialeffect,orastatementthatsuchanestimatecannotbemade.
ACCOUNTINGSTANDARDS-05
NETPROFITORLOSSFORTHEPERIOD,PRIORPERIODITEMSANDCHANGESINACCOUNTINGPOLICY
Allitemsofincomeandexpense,whicharerecognizedinaperiod,shouldbeincludedinthedeterminationofnetprofitorlossfortheperiodunlessanAccountingStandardrequiresorpermitsotherwise.
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Thenetprofitorlossfortheperiodcomprisesthefollowingcomponents,eachofwhichshouldbedisclosedonthefaceofthestatementofprofitandloss:
..Profitorlossfromordinaryactivities;and
..Extraordinaryitems.
OrdinaryActivitiesareanyactivities,whichareundertakenbyanenterpriseaspartofitsbusiness,andsuchrelatedactivitiesinwhichtheenterpriseengagesinfurtheranceof,incidentalto,orarisingfrom,theseactivities.
Whenitemsofincomeandexpenseswithinprofitorlossfromordinaryactivitie
sareofsuchsize,naturethattheirdisclosureisrelevanttoexplaintheperformanceoftheenterprisefortheperiod,thenatureandamountofsuchitemsshouldbedisclosedproperly.Examplesofsuchcircumstancesare:
(ExceptionalItems)
..Disposalofitemsoffixedassets
..Litigationsettlements
..Legislativechangeshavingretrospectiveapplication
..Disposaloflongterminvestments
..Reversalofprovisions
Extraordinaryitemsareincomeorexpensethatarisesfromeventsortransactionsthatareclearlydistinctfromtheordinaryactivitiesoftheenterpriseand,therefore,arenotexpectedtorecurfrequentlyorregularly.
Examplesofeventsortransactionsthatgenerallygiverisetoextraordinaryitemsformost
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enterprisesare:
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..Attachmentofpropertyoftheenterprise;
..Anearthquake
However,claimsfrompolicyholdersarisingfromanearthquakedonotqualifyasanextraordinaryitemforaninsuranceenterprisethatinsuresagainstsuchrisks.
Extraordinaryitemsshouldbedisclosedinthestatementofprofitandlossasapartofnetprofitorlossfortheperiod.Thenatureandtheamountofeachextraordinaryitemshouldbeseparatelydisclosedinthestatementofprofitandlossinamannerthatitsimpactoncurrentprofitorlosscanbeperceived.
PriorPeriodItems:
PriorperioditemsareincomeorexpensesthatariseinthecurrentperiodasaresultofERRORorOMMISSIONSinthepreparationofthefinancialstatementsofoneormorepriorperiods.
Thenatureandamountofpriorperioditemsshouldbeseparatelydisclosedinthestatementofprofitandlossinamannerthattheirimpactonthecurrentprofitorlosscanbeperceived.
ChangesinAccountingPolicy:
Accountingpoliciesarethespecificaccountingprinciplesandthemethodsofapplyingthoseprinciplesadoptedbyanenterpriseinthepreparationandpresentationoffinancialstatements.
Achangeinanaccountingpolicyshouldbemadeonlyiftheadoptionofadiffer
entaccountingpolicyisrequired:
a)Bystatute
b)Forcompliancewithanaccountingstandard
c)Ifitisconsideredthatthechangewouldresultinamoreappropriatepresentationofthefinancialstatementsoftheenterprise.
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Anychangeinaccountingpolicywhichhasamaterialeffect,shouldbedisclosed.Suchchangesshouldbedisclosedinthestatementofprofitandlossinamannerthattheirimpactonprofitorlosscanbeperceived.
Wheretheeffectofsuchchangeisnotascertainable,thefactshouldbeindicated.
Ifachangeismadeintheaccountingpolicieswhichhasnomaterialeffectonthefinancialstatementsforthecurrentperiodbutwhichisreasonablyexpectedtohavematerialeffectinlaterperiods,thefactofsuchchangeshouldbeappropriatelydisclosedintheperiodinwhichthechangeisadopted.
Thefollowingarenotchangesinaccountingpolicies:
a)Theadoptionofanaccountingpolicyforeventswhichdifferinsubstancefrompreviouslyoccurringeventse.g.introductionofaformalretirementgratuityschemebyanemployerinplaceofadhocex-gratiapaymentstoemployeesonretirement;and
b)Theadoptionofanewaccountingpolicyforeventsortransactionswhichdidnotoccurpreviouslyorthatwereimmaterial.
ChangeinAccountingEstimate:
Thenatureandamountofachangeinanaccountingestimatewhichhasamaterialeffectinthecurrentperiod,orwhichisexpectedtohaveamaterialeffectinsubsequentperiods,shouldbedisclosed.Ifitisimpracticabletoquantifytheamount,thisfactshouldbedisclosed.
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Theeffectofachangeinanaccountingestimateshouldbeclassifiedusingthesameclassificationinthestatementofprofitandlossaswaspreviouslyfortheestimate.
Forexample,theeffectofachangeinanaccountingestimatethatwaspreviouslyincludedasanextraordinaryitemisreportedasanextraordinaryitem.
Clarifications:
A)Changeinaccountingestimatedoesnotbringtheadjustmentwithinthedefinitionsofanextraordinaryitemorapriorperioditem.
B)Sometimes,itisdifficulttodistinguishbetweenachangeinanaccountingpolicyandachangeinaccountingestimate.Insuchcases,thechangeistreatedasachangeinanaccountingestimate,withappropriatedisclosures.
ACCOUNTINGSTANDARDS-06
DEPRECIATIONACCOUNTING
Depreciationisameasureofthewearingout,consumptionorotherlossofvalueofadepreciableassetarisingfromuse,passageoftimeorobsolescencethroughtechnologyandmarketchanges.Depreciationisallocatedsoastochargeafairproportionofthedepr
eciableamountineachaccountingperiodduringtheexpectedusefullifeoftheasset.Depreciationincludesamortisationofassetswhoseusefullifeispredetermined.
Thedepreciableamountofadepreciableassetshouldbeallocatedonasystematicbasistoeachaccountingperiodduringtheusefullifeoftheasset.
Depreciableassetsareassetswhich
[1]areexpectedtobeusedduringmorethanoneaccountingperiod;and
[2]havealimitedusefullife;and
[3]areheldbyanenterpriseforuseintheproductionorsupplyorforadministrativepurposes
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Depreciableamountofadepreciableassetisitshistoricalcost,orotheramountsubstitutedforhistoricalcostlesstheestimatedresidualvalue.
Usefullifeistheperiodoverwhichadepreciableassetisexpectedtobeusedbytheenterprise.Theusefullifeofadepreciableassetisshorterthanitsphysicallife.
Therearetwomethodofdepreciation:
1]StraightLineMethod(SLM)
2]WrittenDownValueMethod(WDVM)
Note:Acombinationofmorethanonemethodmaybeused.
Thedepreciationmethodselectedshouldbeappliedconsistentlyfromperiodtoperiod.Thechangeinmethodofdepreciationshouldbemadeonlyif;
Theadoptionofthenewmethodisrequiredbystatute;ORForcompliancewithanaccountingstandard;ORIfitisconsideredthatchangewouldresultinamoreappropriatepreparationoffinancialstatement;or
Whenthereischangeinmethodofdepreciation,depreciationshouldberecalculatedinaccordancewiththenewmethodfromthedateoftheassetscomingintouse.(i.e.RETROSPECTIVELY)
Thedeficiencyorsurplusarisingfromsuchrecomputationshouldbeadjustedintheyearofchangethroughprofitandlossaccount.
Suchchangeshouldbetreatedasachangeinaccountingpolicyanditseffectshouldbequantifiedanddisclosed.
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Theusefullivesofmajordepreciableassetsmaybereviewedperiodically.Wherethereisarevisionoftheestimatedusefullife,theunamortiseddepreciableamountshouldbechargedovertherevisedremainingusefullife.(i.e.PROSPECTIVELY)
Anyadditionorextensionwhichbecomesanintegralpartoftheexistingassetshouldbedepreciatedovertheremainingusefullifeofthatasset.
Thedepreciationonsuchadditionmayalsobeappliedattherateappliedtotheexistingasset.
Whereanadditionorextensionretainsaseparateidentityandiscapableofbeingusedaftertheexistingassetisdisposedof,depreciationshouldbeprovidedindependentlyonthebasisofestimateofitsownusefullife.
Wherethehistoricalcostofadepreciableassethasundergoneachangeduetoincreaseordecreaseinthelongtermliabilityonaccountofexchangefluctuations,priceadjustments,changesindutiesorsimilarfactors,thedepreciationontherevisedunamortiseddepreciableamountshouldbeprovidedprospectivelyovertheresidualusefullifeoftheasset.
Thisaccountingstandardisnotappliedonthefollowingitems.
Forestsandplantations
Wastingassets
Researchanddevelopmentexpenditure
Goodwill
Livestock
..DisclosureRequirements
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a)Thehistoricalcost
b)Totaldepreciationforeachclasschargedduringtheperiod
c)Therelatedaccumulateddepreciation
d)Depreciationmethodused(Accountingpolicy)
e)Depreciationratesiftheyaredifferentfromthoseprescribedbythestatutegoverningtheenterprise
ACCOUNTINGSTANDARDS-07
CONSTRUCTIONCONTRACT
AConstructioncontractisacontractspecificallynegotiatedfortheconstructionofan
assetoracombinationofassetsthatarecloselyinterrelatedorinterdependentintermsoftheirdesign,technologyandfunctionortheirultimatepurposeoruse.
Recognitionofcontractrevenueandcontractcost
Whentheoutcomeofaconstructioncontractcanbeestimatedreliably,contractrevenueandcontractcostshouldberecognizedasrevenueandexpensesbyreferencetothes
tageofconstruction.(Thisaccountingstandardrecommendstheuseofpercentageofcompletionmethod)
Whentheoutcomeofaconstructioncontractcannotbeestimatedreliably,
Revenueshouldberecognizedonlytotheextentofcontractcostsincurredofwhichrecoveryisprobable.(i.e.Revenuerecognized=CostsIncurred)
Contractcostsshouldberecognizedasanexpenseintheperiodinwhichtheyareincurred.
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Theoutcomeofaconstructioncontractcanbeestimatedreliablywhenallthefollowingconditionsaresatisfied:
a)Totalcontractrevenuecanbemeasuredreliably;
b)Thereceiptofrevenueisprobable;
c)Thecontractcoststocompletethecontractcanbemeasuredreliably;
d)Thestageofcompletionatthereportingdatecanbemeasuredreliably;
e)Thecontractcostsattributabletothecontractcanbeclearlyidentified.
ContractRevenueshouldcomprise:
theinitialamountofrevenueagreedinthecontract;and
variationsinamounttobereceived
-totheextentthatitisprobablethattheywillresultinrevenue;and
-theyarecapableofbeingreliablymeasured.
(Contractcanoftwokinds:FixedPricecontractandCostPluscontract)
ContractCostsshouldcomprise:
(a)coststhatrelatedirectlytothespecificcontract;
(b)coststhatareattributabletocontractactivityingeneralandcanbeallocatedtothecontract.
..Atanystageofcontract,whenitisprobablethattotalcontractcostswillexceedtotalcontractrevenue,theexpectedlossshouldberecognizedasanexpenseimmediately.Theamountofsuchlossisdeterminedirrespectiveof:
-whetherornotworkhascommencedonthecontract;
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-thestageofcompletionofcontractactivity;or
-whetheroutcomeofcontractisestimatedornot
..Whenanuncertaintyarisesaboutthecollectabilityofanamountalreadyincludedincontractrevenue,andalreadyrecognizedinthestatementofprofitandloss,theuncollectableamountortheamountinrespectofwhichrecoveryhasceasedtobeprobableisrecognizedasanexpenseratherthananadjustmentoftheamountofcontractrevenue.
..Contractcoststhatrelatetofutureactivity,arerecognizedasanassetprovideditisprobablethattheywillberecovered.SuchassetisclassifiedasContractWIP.
..Thestageofcompletionofacontractmaybedeterminedbyfollowingways;
-surveysofworkdone
-completionofphysicalproportionofthecontractwork
-theproportionthatcontractcostsincurredforworkperformedupto
-thereportingdatebeartotheestimatedtotalcontractcosts
..Whenacontractcoversanumberofassets,theconstructionofeachassetshouldbetreatedasaseparateconstructionofeachassetshouldbetreatedasseparateconstructioncontractwhen
-separateproposalshavebeensubmittedforeachasset;
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-eachassethasbeensubjecttoseparatenegotiation
-thecostsandrevenuesofeachassetcanbeidentified.
..Agroupofcontracts,whetherwithasinglecustomerorwithseveralcustomers,shouldbetreatedasasingleconstructioncontractwhen
-thegroupofcontractsisnegotiatedasasinglepackage;
-thecontractsareverycloselyinterrelated
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-thecontractsareperformedconcurrentlyorinacontinuoussequence.
..Therecognitionofrevenueandexpensesinconstructioncontractisbasedonreliableestimate.Thisestimatemayvaryfromoneaccountingyeartoanotheraccountingyear.TheeffectofchangeinestimateshouldbetreatedasperAS-5.i.e.Itshouldnotbetreatedaspriorperioditemorextraordinaryitem.
..Disclosure:
-ContractRevenuerecognizedasrevenue
-Methodusedtodeterminethecontractrevenue
-Methodusedtodeterminethestageofcompletion
-Contractcostsincurred+RecognisedProfitRecognisedLoss
-Amountofadvancesreceived
-Amountduefromcustomers
-Amountduetocustomers
ACCOUNTINGSTANDARDS-09
REVENUERECOGNITION
Revenueisthegrossinflowofcash,receivablesorotherconsiderationarising
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inthecourseoftheordinaryactivitiesofanenterprisefromthesaleofgoods,fromtherenderingofservices,andfromtheusebyothersofenterpriseresourcesyieldinginterest,royaltiesanddividends.
RevenueIncludes:
-Proceedsfromsaleofgoods
-Proceedsfromrenderingofservices
-Interest,royaltyanddividends.
Saleofgoods
-Revenuefromsalesshouldberecognizedwhen
-Allsignificantrisksandrewardsofownershiphavebeentransferredtothebuyerfromthe
seller.
-Ultimatereliabilityofreceiptisreasonablycertain.
RenderingofServices
Revenuefromservicetransactionsisusuallyrecognizedastheserviceisperformed,eitherbyproportionatecompletionmethodorbythecompletedservicecontractmethod.
ProportionateCompletionMethodThisisamethodofaccounting,whichrecognisesrevenueinthestatementofprofitandlossproportionatelywithdegreeofcompletionofservicesunderacontract.Revenueisrecognisedbyreferencetotheperformanceofeachact.Therevenuerecognisedunderthismethodwouldbedeterminedonthebasisofcontractvalue,associatedcosts,numberofactsorothersuitablebasis.
CompletedServiceContractMethodThisisamethodofaccounting,whichrecognisesrevenueinthestatementofprofitandlossonlywhentherenderingofservicesunderacontractiscompletedorsubstantiallycompleted.Revenueunderthismethodisrecognisedoncompletionorsubstantialcompletionofthejob.
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RevenuefromInterest:-Recognisedontimeproportionbasis
RevenuefromRoyalties:-Recognisedonaccrualbasisinaccordancewiththetermsoftherelevantagreement.
RevenuefromDividends:-Recognisedwhenrighttoreceiveisestablished
SubsequentUncertaintyInCollection:-Whentheuncertaintyrelatingtocollectabilityarisessubsequenttothetimeofsaleortherenderingofservices,itismoreappropriatetomakeaseparateprovisiontoreflecttheuncertaintyratherthantoadjusttheamountofrevenueoriginallyrecorded.
Disclosure:Anenterpriseshoulddisclosethecircumstancesinwhichrevenuerecognitionhasbeenpostponedpendingtheresolutionofsignificantuncertainties.
EXAMPLES
1]Onsale,buyertakestitleandacceptsbillingbutdeliveryisdelayedatbuyersrequest
-Revenueshouldberecognisednotwithstandingthatphysicaldeliveryhasnotbeencompleted.
2]Deliverysubjecttoinstallationsandinspections
-Revenueshouldnotberecogniseduntilthecustomeracceptsdeliveryandinstallationandinspectionarecomplete.However,wheninstallationprocessisverysimple,revenueshouldberecognised.Forexample,Televisionsalesubjecttoinstallation.
3]Saleonapproval
-Revenueshouldnotberecogniseduntilthegoodshavebeenformallyacceptedortimeforrejectionhaselapsedorwherenotimehasbeenfixed,areasonabletimehaselapsed.
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4]Saleswiththeconditionofmoneybackifnotcompletelysatisfied
-Itmaybeappropriatetorecognizethesalebuttomakesuitableprovisionforreturnsbasedonpreviousexperience.
5]Consignmentsales
-Revenueshouldnotberecogniseduntilthegoodsaresoldtoathirdparty.
6]Installmentsales
-Revenueofsalepriceexcludinginterestshouldberecognisedonthedateofsale.
7]Specialorderandshipments
-Revenuefromsuchsalesshouldberecognizedwhenthegoodsareidentifiedandreadyfordelivery.
8]Wheresellerconcurrentlyagreestorepurchasethesamegoodsatalaterdate
-Thesaleshouldnotberecognised,asthisisafinancialarrangement.
9]Subscriptionsreceivedforpublications
-Revenuereceivedorbilledshouldbedeferredandrecognisedeitheronastraight-linebasisovertimeorwheretheitemsdeliveredvaryinvaluefromperiodtoperiod,revenueshouldbebasedonthesalesvalueoftheitemdelivered.
10]Advertisementcommissionreceived
-Itisrecognisedwhentheadvertisementappearsbeforepublic.
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11]Tuitionfeesreceived
-Shouldberecognisedovertheperiodofinstruction.
12]Entranceandmembershipfees
Entrancefeeisgenerallycapitalized
Ifthemembershipfeepermitsonlymembershipandallotherservicesorproductsarepaidforseparately,thefeeshouldberecognisedwhenreceived.Ifthemembershipfeeentitlesthemembertoservicesorpublicationstobeprovidedduringtheyear,itshouldberecognisedonasystematicandrationalbasishavingregardtothetimingandnatureofallservices.
13]Saleofshowtickets
-Revenueshouldberecognisedwhentheeventtakesplace.
14]Guaranteedsalesofagriculturalcrops
-Whensaleisassuredunderforwardcontractorgovernmentguarantee,thecropscanberecognisedatnetrealizablevaluealthoughitdoesnotsatisfythecriteriaofrevenuerecognition.
Theaboveaccountingstandardisnotapplicablefor:
Revenuearisingfromconstructioncontracts
Revenuearisingfromhirepurchase,leaseagreements
RevenuearisingfromGovernmentgrantsandsubsidies
RevenueofInsurancecompaniesarisingfrominsurancecontracts
Profitorlossonsaleoffixedassets
Realisedorunrealizedgainsresultingfromchangesinforeignexchangerates
ACCOUNTINGSTANDARDS-10
ACCOUNTINGFORFIXEDASSETS
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Definitions:
FixedAssetisanassetheldwiththeintentionofbeingusedforthepurposeofproducingorprovidinggoodsorservicesandisnotheldforsaleinthenormalcourseofbusiness.(Itisexpectedtobeusedformorethanoneaccountingperiod.)
Thecostoffixedassetincludes:
Purchaseprice
ImportDutiesandothernon-refundabletaxes
Directcostincurredtobringtheassettoitsworkingcondition
Installationcost
Professionalfeeslikefeesofarchitects
Generaloverheadofenterprisewhentheseexpensesarespecificallyattributabletoacquisition/preparationoffixedassets
Anyexpensesbeforethecommercialproduction,includingcostoftestrunandexperimentalproduction
Anyexpensesbeforetheassetisreadyforusenotputtouse
Lossondeferredpaymentarisingoutofforeigncurrencyliability
Priceadjustment,changesindutiesandsimilarfactors
Thecostoffixedassetisdeductedwith:
Tradediscountsandrebates
Saleproceedsoftestrunproduction
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Amountofgovernmentgrantsreceived/receivableagainstfixedassets(SeeAS-12)
Gainondeferredpaymentarisingoutofforeigncurrencyliability
..Similarly,historicalcostofselfconstructedfixedassetswillinclude:
..Allcostwhicharedirectlyrelatedtothespecificasset
..Allcoststhatareattributabletotheconstructionactivityshouldbeallocatedtofixedassets
..Anyinternalprofitincludedinthecostshouldbeeliminated.
AnyexpensesincurredonassetbetweendateofreadyforuseandputtouseiseitherchargedtoP&LA/cortreatedasdeferredrevenueexpendituretobeamortisedin3-5yearsaftercommencementofproduction.
Whenfixedassetisacquiredinexchangeforanotherasset,thecostoftheassetacquiredshouldberecorded
-eitherat,fairmarketvalue
-orat,thenetbookvalueoftheassetsgivenup
Forthispurpose,fairmarketvaluemaybedeterminedbyreferenceeithertotheassetgivenuportotheassetacquired,whicheverismoreclearlyevident.
FixedassetacquiredinexchangeforsharesorothersecuritiesshouldberecordedatFMVofassetsgivenuporassetacquired,whicheverismoreclearlyevident.(i.etheoptionofrecordingtheassetatnetbookvalueofassetgivenupisclosed)
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Fairmarketvalueisthepricethatwouldbeagreedtoinanopenandunrestrictedmarketbetweenknowledgeableandwillingpartiesdealingatarmslengthdistance.
Subsequentexpendituresrelatedtoanitemoffixedassetshouldbeaddedtoitsbookvalueonlyiftheyincreasethefuturebenefitsfromtheexistingassetbeyonditspreviouslyassessedstandardofperformance.
Materialitemsretiredfromactiveuseandheldfordisposalshouldbestatedattheloweroftheirnetbookvalueandnetrealizablevalueandshownseparately.Fixedassetsshouldbeeliminatedfromthefinancialstatementsondisposalorwhennofurtherbenefitisexpectedfromitsuseanddisposal.Profit/lossonsuchdisposalorwritingoffisrecognizedintheprofitandlossaccount.
REVALUATION
Whenthefixedassetsarerevalued,theseassetsareshownatrevaluedprice.Revaluationoffixedassetsshouldberestrictedtothenetrecoverableamountoffixedasset.
Whenafixedassetisrevalued,anentireclassofassetsshouldberevaluedorselectionofassetsforrevaluationshouldbemadeonasystematicbasis.Thatbasismustbedisclosed.
Accountingtreatmentofrevaluationunderdifferentsituation:
Whenrevaluationismadeupward
FixedAssetsA/cDr.
ToRevaluationReserve
Whenrevaluationismadedownward
P&LA/cDr
ToFixedAssets
Whenrevaluationismadeupwardsubsequenttopreviousupwardrevaluation
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FixedAssetsA/cDr.
ToRevaluationReserve
Whenrevaluationismadedownwardsubsequenttopreviousupwardrevaluation
RevaluationReserveA/cDr.(TotheextentofcarryingamountofR.R)
P&LA/cDr.(BalancingFigure)
ToFixedassets
Whenrevaluationismadeupwardsubsequenttopreviousdownwardrevaluation
FixedassetsA/cDr.
ToP&LA/c(Totheextentofpreviousdownwardrevaluation)
ToRevaluationReserve(BalancingFigure)
Whenrevaluationismadedownwardsubsequenttopreviousdownwardrevaluation
P&LA/cDr.
ToFixedAssets
AccountingtreatmentondisposalofFixedAssets:
Onsaleoffixedassets
BankA/cDr.
P&LA/cDr.(IfLoss)
ToFixedAssets
ToP&LA/c(IfProfit)
Onsaleoffixedassetswhereupwardrevaluationhastakenplace
Ondisposalofapreviouslyrevalueditemoffixedasset,thedifferencebetweennetdisposalproceedsandthenetbookvalueisnormallychargedorcreditedtotheprofitandlossaccount
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exceptthat,totheextentsuchalossisrelatedtoanincreasewhichwaspreviouslyrecordedasacredittorevaluationreserveandwhichhasnotbeensubsequentlyreversedorutilized,itischargeddirectlytothataccount.Theamountstandinginrevaluationreservefollowingtheretirementordisposalofanassetwhichrelatestothatassetmaybetransferredtogeneralreserve.
IfLossIfProfit
BankA/cDr.BankA/cDr.
RevaluationReserveA/cDr.ToFixedAssetsA/c
P&LA/cDr.ToP/LA/c
ToFixedAssets
RevaluationReserveA/cDr.RevaluationReserveA/cDr.
ToGeneralReserveToGeneralReserve
..Inthecaseoffixedassetsownedbytheenterprisejointlywithothers,theextentoftheenterprisesshareinsuchassets,andtheproportionoftheoriginalcost,accumulateddepreciation
andWDVshouldbestatedintheB/S.
Alternatively,theproratacostofsuchjointlyownedassetsmaybegroupedtogetherwithsimilarfullyownedassetswithanappropriatedisclosurethereof.
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..Onlypurchasedgoodwillshouldberecordedinbooks.
..Disclosure:
Grossandnetbookvalueoffixedassetsatthebeginningandendofperiodshowingadditionsanddisposals
Revaluedamountssubstitutedforhistoricalcostsoffixedassets,themethodadoptedtocomputethesameandwhetheranexternalvaluerwasinvolved.
ACCOUNTINGSTANDARDS-12
ACCOUNTINGFORGOVERNMENTGRANTS
Applicability:Mandatoryforallenterpriseswithrespectfrom01/04/1994.
GovernmentGrantsareassistancebygovernmentincashorkindforpastorfuturecompliancewithcertainconditions.
Governmentgrantsmaybereceivedinfollowingways.
Grantsrelatedtoacquisitionoffixedassets
Grantsrelatedtorevenue
Grantsrelatedtopromoterscontribution
Grantsrelatedtocompensationforexpenses
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GovernmentGrantsshouldberecognised
Wherethereisreasonableassurancethattheenterprisewillcomplywiththeconditionsattachedtothem;andThegrantswillbereceived.
AmountofGrant:
MonetaryGrant:Amountearnedshouldbethevalueofgrant.
Non-MonetaryGrant:
Wheregrantsaregivenatconcessionalrate,thensuchassetsareaccountedforattheiracquisitioncost.
Wheregrantsaregivenfreeofcost,thensuchassetsarerecordedatnominalvalue.
AccountingTreatment:
GrantsrelatedtoDepreciableassets:
EITHER,GrantsareshownasdeductionfromGrossvalueofassets
BankA/cDr.
ToGovernmentGrant
GovernmentGrantDr.
ToFixedAssets
(Whengrantisequaltobookvalueofasset,fixedassetisshownatnominalvalue.)
OR,Grantsaretreatedasdeferredincome
BankA/cDr.
ToGrant
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[Inthiscase,GrantsarerecognisedasprofitinP&LA/conasystematicandrationalbasisovertheusefullifeofassets(i.e.inproportiontotheamountofdepreciationchargedoverperiod)]
{NeteffectonProfit&LossA/cwillremainsameinbothcases}
GrantsrelatedtoNon-Depreciableassets:
EITHER,GrantsareshownasdeductionfromGrossvalueofassets
BankA/cDr.
ToGovernmentGrant
GovernmentGrantDr.
ToFixedAssets
(Whengrantisequaltobookvalueofasset,fixedassetisshownatnominalvalue.)
OR,shownasreserves
Whennofutureobligationsaretobefulfilled
BankA/cDr.
ToGov.Grant
Gov.GrantDr.
ToCapitalReserve
Whengrantrequiresfulfillmentofcertainobligations
BankA/cDr.
ToGov.Grant
Gov.GrantDr.(Shouldbecreditedtoincomeoverthesameperiodoverwhichthecostof
ToP&LA/cmeetingsuchexpenseischargedtorevenue)
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(Inrespectiveyears)
Thedeferredincomebalanceshouldbeseparatelydisclosedinthefinancialstatement.
Grantsrelatedtorevenue
Governmentgrantsrelatedtorevenueshouldberecognisedonasystematicbasisintheprofitandlossaccountovertheperiodsnecessarytomatchwiththerelatedcosts,whichtheyareintendedtocompensate.
Grantsrelatedtopromoterscontribution
GrantshouldbetreatedasCapitalReserve.
BankA/cDr.
ToGovGrant
GovGrantA/cDr.
ToCapitalReserve
Grantsrelatedtocompensationforexpenses
Governmentgrantsreceivableascompensationforexpensesorlosses(withnofurthercosts)shouldberecognisedasanincomeintheyearofreceivableasanExtra-ordinaryitem.
REFUNDOFGOVERNMENTGRANT
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Governmentgrantssometimesbecomerefundablebecausecertainconditionsarenotfulfilled.Thegrantrefundableistreatedasanextraordinaryitem.
Theamountrefundableinrespectofagovernmentgrantrelatedtoaspecificassetisrecordedbyincreasingthebookvalueoftheassetorbyreducingthecapitalreserveorthedeferredincomebalance,asappropriate,bytheamountrefundable.(Wherethebookvalueofassetisincreased,thedepreciationshouldbeprovidedonnewassetvalueprospectively)
Wheretheamountrefundableisinrespectofagovernmentgrantrelatedtorevenue,therefundisappliedfirstagainstanyunamortiseddeferredcreditremaininginrespectofthegrant.Restamountofrefundshouldbechargedtoprofitandlossaccount.
Where,theamountrefundableisinrespectofpromoterscontribution,thecapital
reserveshouldbereducedbytheamountrefundable.
ContingencyrelatedtoGovt.Grant
AcontingencyrelatedtoGovt.grantreceivableandrefundableshouldbetreatedinaccordancewithAS-4.
Disclosures:
Theaccountingpolicyadopted
Thenatureandextentofgov.grantsrecognisedinthefinancialstatements.
ACCOUNTINGSTANDARDS-13
ACCOUNTINGFORINVESTMENTS(REV.03)
Applicability:Mandatoryforallenterprises.
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InvestmentsareclassifiedasLongTermInvestmentsandShortTermInvestments.
CurrentInvestmentisintendedtobeheldfornotmorethanoneyearandreadilyrealisable.
LongtermInvestmentisaninvestmentotherthanacurrentinvestment.
Thecarryingamountofcurrentinvestmentsislowerofcostandfairvalue.
Itisprudenttocarryinvestmentsindividuallyatthelowerofcostandfairvalue.But,suchcomparisoncanalsobemadecategory-wise.
Thecarryingamountoflong-terminvestmentsiscarriedatcost.However,whenthereispermanentdeclineinthevalueofalong-terminvestment,thecarryingamountisreducedtorecognizethedecline.Thecarryingamountoflong-terminvestmentsshouldbedeterminedonindividualbasis.
AnyreductionorreversalofreductioninvalueofinvestmentisadjustedthroughP&LA/c.
CostofInvestments:
Thecostofaninvestmentshouldincludeacquisitionchargessuchasbrokerage,feesandduties.
Ifaninvestmentisacquired-
-byissueofsharesorothersecurities;thentheinvestmentsshouldbevaluedatthefairvalueoftheissuedsecurity.(i.e.Issuepricedeterminedbystatutoryauthority)
-Byexchangeofanotherasset;thentheinvestmentsshouldbevaluedatfairvalueoftheassetgivenuporassetacquired,whicheverismoreclearlyevident.
InvestmentProperty-InvestmentPropertyisinvestmentinlandorbuildingstha
tisnotintendedtobeoccupiedsubstantiallyforuseby,orintheoperationsof,theinvestingenterprise.Aninvestmentpropertyisclassifiedaslong-terminvestment.
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DisposalofInvestments-Ondisposal,thedifferencebetweenthecarryingamountandthedisposalproceeds,netofexpenses,isrecognizedintheprofitandlossstatement.
ReclassificationofInvestments-Long-termtoshort-term:Transfersfromoneclasstoanotherclassaremadeatlowerofcostandcarryingamountatthedateoftransfer.Currenttolong-term:Transfersaremadeatlowerofcostandfairvalueatthedateoftransfer.
Disclosure:
1]Accountingpoliciesfordeterminationofcarryingamount
2]ClassificationofInvestments
3]TheamountsincludedinProfitandlossstatement
-profitsorlossesondisposalandchangesincarryingamountofcurrentandlongterminvestments
-interest,dividends(showingseparatelydividendsfromsubsidiary)andrentalsoninvestmentsshowingseparatelysuchincomefromcurrentandlongterminvestments.
-GrossIncomeshouldbedisclosed(i.e.TheamountofTDSshouldbeshownunderadvancetaxespaid)
4]Aggregateamountofquotedandunquotedinvestmentsgivingtheaggregatemarketvalueofquotedinvestments.
ACCOUNTINGSTANDARDS-15
ACCOUNTINGFORRETIREMENTBENEFITS
(Revisedin2005&titledasEmployeesBenefit)
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Applicability:Itismandatoryforallenterprises.
RetirementBenefitsconsistsof:
1.ProvidentFund
2.Superannuation/Pension
3.Gratuity
4.LeaveEncashmentBenefit
5.OtherRetirementBenefits
AccountingtreatmentunderDefinedContributionScheme/ProvidentFund
Contributionpayablebytheemployerinayearischargedtoprofit&lossaccount.
AccountingtreatmentunderDefinedBenefitScheme/Gratuity/LeaveEncashment
PaymentofRetirementBenefitoutofitsownfund
Appropriateprovisionforaccruingliabilityiscreatedthroughprofit&lossac
count.Accruingliabilityiscalculatedbyactuarialmethod.
Note:Actuarialvaluationistheprocessusedbyanactuary(expert)toestimatethepresentvalueofbenefitstobepaidunderaretirementbenefitscheme.Actuarialvaluationshouldnormallybeconductedatleastonceineverythreeyears.DifferencesarisingafterfreshactuaryvaluationshouldbeadjustedthroughProfit&Lossaccountintheyearinwhichfreshactuaryvaluationis
conducted.
Benefitsfundedthroughcreationofatrust
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Amounttobecontributedtothetrusteveryyearisprovidedthroughprofit&lossaccount.Theamounttobecontributediscalculatedbyactuarialvaluation.
Benefitsfundedthroughaschemeadministratedbytheinsurer
Thepremiumpaidtotheinsurerischargedtoprofit&lossaccount.Suchpremiumiscalculatedthroughactuarialvaluation.
ReviewofActuarialMethod/Assumption
Anyalterationsintheretirementbenefitcosts,arisingduetochangeinmethod/assumption,are
EITHER,chargedtocreditedtoprofitandlossaccountintheyearofchangein
accordancewith
AccountingStandard5.PriorPeriodandextraordinaryitemandchangesinaccountingpolicies.
OR,spreadoveraperiodnotmorethantheexpectedremainingworkinglivesoftheparticipatingEmployees.
Disclosure:
Methodbywhichretirementbenefitcostsfortheperiodhavebeendefined
Whenaccountingismadeasperactuarialvaluation,dateonwhichsuchvaluationwasconducted.
ACCOUNTINGSTANDARDS-17
SEGMENTALREPORTING
ABUSINESSSEGMENTisadistinguishablecomponentofanenterprisethatisengagedinprovidinganindividualproductorserviceoragroupofrelatedproductsorservicesandthatissubjecttorisksandreturnsthataredifferentfromthoseofotherbusinesssegments.
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AGEOGRAPHICALSEGMENTisadistinguishablecomponentofanenterprisethatisengagedinprovidingproductsorserviceswithinaparticulareconomicenvironmentandthatissubjecttorisksandreturnsthataredifferentfromthoseofcomponentsoperatinginothereconomicenvironments.
Therisksandreturnsofanenterprisearebothbythegeographicallocationofproductionorservicefacilitiesandotherassetsofanenterpriseandlocationofitscustomers.Thedefinitionallowsgeographicalsegmentstobebasedonanyofthetwo.
AREPORTABLESEGMENTisabusinesssegmentorageographicalsegmentidentifiedonthebasisofforegoingdefinitionsforwhichsegmentinformationisrequiredtobedisclosedbythestandard.
ENTERPRISEREVENUEisrevenueisrevenuefromsalestoexternalcustomersasreportedinthestatementofprofitandloss.(i.e.Salesmadetoexternalcustomersbyallsegments)
SEGMENTREVENUEistheaggregateofrevenuedirectlyattributabletosegmentsrevenuereasonablyallocatedtosegment;andrevenuefromtransactionswithothersegments.
SEGMENTEXPENSEistheaggregateofoperatingexpensedirectlyattributabletosegmentexpensesreasonablyallocatedtosegment;andexpensesrelatingtotransactionswithothersegments.
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However,SEGMENTREVENUE/EXPENSEdoesnotinclude
(a)ExtraordinaryitemsasdefinedinAS-5
(b)Interestordividend(includingearned/incurredonloanstoothersegment)unlesstheoperationsofthesegmentareprimarilyofafinancialnature
(c)Gainsonsalesofinvestmentsoronextinguishmentsofdebt(Capitalgain/loss)unlesstheoperationsofthesegmentareprimarilyofafinancialnature.
(d)Generaladministrationexpenses,headofficeexpensesandotherexpensesthatariseattheenterpriselevelandrelatetotheenterpriseasawhole.
SEGMENTRESULTissegmentrevenuelesssegmentexpenses.
SEGMENTASSETSarethoseoperatingassetsthatareemployedbyasegmentinitsoperatingactivitiesandthateitheraredirectlyattributablethesegmentorcanbeallocatedtothesegmentonareasonablebasis.
SEGMENTLIABILITIESarethoseoperatingliabilitiesthatresultfromoperatingactivitiesandthateitheraredirectlyattributablethesegmentorcanbeallocatedtothesegmentonareasonablebasis.
(Ifthesegmentresultofasegmentincludesinterestexpense,itssegmentliabilitiesincludetherelatedinterest-bearingliabilitiesandviceversa.)
..(Segmentliabilitiesdonotincludeincometaxliabilitiesandviceversa.)
Similarly,ifdepreciationsegmentexpensesthenrelatedassetscomesundersegmentassets.
PrimarysegmentandSecondarysegment
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Oneamongthetwo,BusinessSegmentandGeographicalSegment,isprimarysegmentandotherbecomessecondarysegment.Thereportingrequirementsfortheprimaryandsecondarysegmentsaredifferent.
Basisforidentifyingprimaryandsecondarysegments
Risksandreturnsarethemaincriteriaforidentifyingprimaryandsecondarysegments.
..Iftherisksandreturnsofanenterpriseareaffectedpredominantlybydifferencesintheproducts,businesssegmentsarerecognizedasprimarysegmentsandgeographicalsegmentsassecondarysegmentsandviceversa.
..Iftherisksandreturnsofanenterpriseareaffectedbothbydifferencesintheproductsaswellasdifferencesinthelocationsinwhichitoperates,thentheenterprises
houldusebusinesssegmentsasitsprimarysegmentandgeographicalsegmentasitssecondarysegment.
..Ifrisksandreturnsofanenterpriseareaffectedneitherbydifferencesinproducts/servicesnorbydifferencesingeographicalareasofoperations,themanagementmayelectanyofthetwoasprimarywithotherbeingsecondarysegment.
(InternalorganizationandmanagementstructureofanenterpriseanditssystemofinternalfinancialreportingtotheboardofdirectorsandtheCEOshouldnormallybethebasisforidentifyingthepredominantsourceandnatureofrisksanddifferingratesofreturnfacingtheenterprise.)
ReportableSegments
Abusinesssegmentorgeographicalsegmentshouldbeidentifiedasreportablesegmentif:
(a)itsrevenuefromsalestoexternalcustomersandfromtransactionswithothersegmentsis10%ormoreofthetotalrevenue,externalandinternal,ofallsegments;or
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(b)itssegmentresult,whetherprofitorloss,is10%ormoreof-thecombinedresultofallsegmentsinprofit,orthecombinedresultofallsegmentsinloss,whicheverisgreaterinabsoluteamount;or
(c)itssegmentassetsare10%ormoreofthetotalassetsofallsegments.
Abusiness/reportablesegmentthatisnotareportablesegmentasperabove,mayberecognizedasreportablesegmentdespiteitssizeatthediscretionofthemanagementoftheenterprise.
Iftotalexternalrevenueattributabletoreportablesegmentsconstituteslessthan75%ofthe
totalenterpriserevenue,additionalsegmentsshouldbeidentifiedasreportablesegments,eveniftheydonotmeet10%thresholdsasabove,untilatleast75%percentofthetotalenterpriserevenueisincludedinreportablesegments.
Asegmentidentifiedasareportablesegmentintheimmediatelyprecedingperiodbecauseitsatisfiedtherelevant10%thresholdsshouldcontinuetobeareportablesegmentforthecurrentperiodnotwithstandingthatitsrevenue,result,andassetsnolongermeetthe10%thresholds.
PrimaryReportingFormat
Thefollowingdisclosuresarerequiredforeachreportablesegmentofprimarysegment:
(1)Segmentrevenue,(withclassificationofexternalandinternal)
(2)Segmentresult
(3)Totalcarryingamountofsegmentassets
(4)Totalamountofsegmentliabilities
(5)Totalcostincurredduringtheperiodtoacquiresegmentassets
(6)Depreciationandamortisationrecognizedasexpense,and
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(7)TotalnoncashexpensesotherthanDep.Andamortisationrecognizedasexpense.
Disclosersrequiredpursuanttoclause(6)and(7)above,neednotbemadeinrespectofasegment,iftheenterprisereportscashflowsarisingfromoperating,investingandfinancingactivitiesforsuchsegment.
Anenterpriseshouldpresentareconciliationbetweentheinformationdisclosedforreportablesegmentsandaggregatedinformationintheenterprisefinancialstatements(inrespectofclause1to4above)
SecondaryReportingFormat
Whereprimarysegmentsarebusinesssegments
Segmentrevenuefromexternalcustomersforeachgeographicalsegmentwhoserevenuefromsalestoexternalcustomersis10%ormoreofenterprisesrevenue;
Thetotalcarryingamountofsegmentassetsforeachgeographicalsegmentwhosesegmentassetsis10%ormoreofthetotalassetsofallgeographicalsegments;
Newassetsacquiredforeachgeographicalsegmentwhosesegmentassetsis10%or
moreofthetotalassetsofallgeographicalsegments.
Whereprimarysegmentsaregeographicalsegmentsbasedonlocationofassets
Thefollowinginformation(point1to3)shouldbedisclosedforeachbusinesssegmetwhoserevenuefromsalestoexternalcustomersis10%ormoreofenterpriserevenueorwhosesegmentassetsare10%ormoreofthetotalassetsofallbusinesssegments;
Segmentrevenuefromexternalcustomers;
thetotalcarryingamountofsegmentassets;and
newsegmentassetsacquired;
Iflocationofcustomersisdifferentfromlocationofitsassets,thentheenterpriseshouldalsoreportrevenuefromsalestoexternalcustomersforeachcustomersbasedgeographicalsegmentwhoserevenuefromsalestoexternalcustomersis10%ormoreofenterpriserevenue.
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Whereprimarysegmentsaregeographicalsegmentsbasedonlocationtocustomers
Points1to3asabove.
Iflocationsofassetsaredifferentfromlocationsofcustomers,thentheenterpriseisrequiredtoreportthefollowingsegmentinformationforeachassetbasedgeographicalsegmentwhoserevenuefromsalestoexternalcustomersis1%ormoreofenterpriserevenueorwhosesegmentassetsare10%ormoreoftotalenterpriseassets
i)Thetotalcarryingamountofsegmentassetsbygeographicallocationoftheassets;and
ii)Newsegmentassetsacquiredbylocationofassets.
OtherDisclosures:
Inmeasuringandreportingsegmentrevenuefromtransactionswithothersegments,inter-
segmenttransfersshouldbemeasuredonthebasisthattheenterpriseactuallyusedtopricethosetransfers.Thetransfer-pricingbasisshouldbedisclosedinthefinancialstatements.
Anenterpriseshouldindicatethetypesofproductsandservicesincludedineachreportedbusinesssegmentandindicatethecompositionofeachreportedgeographicalsegment,primaryandsecondary,ifnototherwisedisclosedinthefinancialstatements.
ACCOUNTINGSTANDARDS-16
BORROWINGCOSTS
Applicability:Mandatoryforallenterprisesw.e.f.01/04/2000.
BorrowingCostsinclude:
Interestandcommitmentchargesonborrowings
Amortizationofdiscountsorpremiumsrelatingtoborrowings
Amortisationofancillarycostsincurredinconnectionwiththearrangementofborrowings
Exchangedifferencearisingfromborrowingstotheextentitamountstointerestcosts.
Borrowingcostsshouldberecognizedasanexpenseintheperiodinwhichtheya
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reincurred.
Borrowingcoststhataredirectlyattributabletotheacquisition,constructionorproductionofaqualifyingassetshouldbecapitalizedaspartofthatasset.
QualifyingAssetisanassetthatnecessarilytakesasubstantialperiodoftimetogetreadyforitsintendeduseorsale.e.g.HeavyPlant&Machinery.
BORROWINGCOSTELIGIBLEFORCAPITALISATION
SpecificBorrowingforacquisitionofqualifyingasset:Borrowingcosttobecapitalised
Amountofborrowingcost=SpecificBorrowingCostIncomefromtemporaryinvestment
GeneralBorrowingandusedforacquisitionofqualifyingasset:Borrowingcostshouldbecapitalisedwiththefollowingamount;
AmountofBorrowingCost=ExpenditurecostonassetorAssetcost*Capitalisat
ionrate
CapitalisationRate=WeightedAverageBorrowingcostsongeneralborrowing
(i.e.Excludingcostofspecificborrowing)
Note:Whenwiththecapitalizationofborrowingcost,thecostexceedsthenetrecoverableamount,thecarryingamountiswrittendowntonetrecoverableamountaspertherecommendationofotheraccountingstandards.
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COMMENCEMENTOFCAPITALISATION
CapitalisationofBorrowingshouldcommencewhenallthefollowingconditionsaresatisfied
1.Expenditurefortheacquisitionofaqualifyingassetisbeingincurred
2.Borrowingcostsarebeingincurred;and
3.Activitiesthatarenecessarytopreparetheassetforitsintendeduseorsaleareinprogress
SUSPENSIONOFCAPITALISATION
Capitalisationofborrowingcostsshouldbesuspendedduringextendedperiodsinwhichactivedevelopmentisinterrupted.
Howevercapitalizationshouldnotbesuspendedwhenatemporarydelayisanecessarypartoftheprocessofgettinganassetreadyforitsintendeduseorsale.
Example:
Borrowingcostsincurredwhilelandisunderdevelopmentarecapitalizedduringtheperiodinwhichactivitiesrelatedtothedevelopmentarebeingundertaken.However,itshouldnotbecapitalizedwhenlandacquiredforbuildingpurposesisheldwithoutuse.
CESSATIONOFCAPITALISATION
Capitalisationofborrowingcostsshouldceasewhensubstantiallyalltheactivitiesnecessarytopreparethequalifyingassetforitsintendeduseorsalearecomplete.
Whentheconstructionofaqualifyingassetiscompletedinpartsandacompletedpartiscapableofbeingusedwhileconstructioncontinuesfortheotherparts,capitali
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zationofborrowingcostsinrelationtothatpartshouldceasewhensubstantiallyalltheactivitiesnecessarytopreparethatpartforitsintendeduseorsalearecomplete.
Example:
Housingcomplexcomprisingseveralbuildings:Ifindividualbuildingcanbeusedseparately,itscapitalisationshouldcease.
Disclosure:
TheAccountingPoliciesadoptedforborrowingcosts.
Theamountofborrowingcostscapitalizedduringtheperiod.
ACCOUNTINGSTANDARDS-18
RELATEDPARTYDISCLOSURES(REV.03)
Applicability:Mandatoryforallenterpriseswithrespectfrom01/04/2004
Relatedpartyisconsideredtoberelatedifatanytimeduringthereportingperiodonepartyhastheabilitytocontroltheotherpartyorexercisesignificantinfluenceovertheotherpartyinmaking
financialand/oroperatingdecisions.ThefollowingrelatedpartyrelationshiparecoveredunderAS-18:
Enterprisesthatdirectly,orindirectlythroughoneormoreintermediaries,control,orarecontrolledby,orareundercommoncontrolwiththereportingenterprise(e.g.Holdingcompanies,subsidiariesandfellowsubsidiaries)
AssociatesandjointventuresofthereportingenterpriseIndividualsowning,directlyorindirectly,aninterestinthevotingpowerofthereportingenterprisethatgivesthemcont
rolorsignificant
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influenceovertheenterprise,andrelativesofanysuchindividual;Keymanagementpersonnelandrelativesofsuchpersonnel;andEnterprisesoverwhichanypersondescribedin(4)or(5)isabletoexercisesignificantinfluence.
KeyManagementPersonnel
Thosepersonswhohavetheauthorityandresponsibilityforplanning,directingandcontrollingtheactivitiesofthereportingenterprise.
Thefollowingarenotdeemedtoberelatedparty:
Twocompaniessimplybecausetheyhavecommondirector
Asinglecustomer/supplierwithwhomanenterprisetransactsasignificantvolum
eofbusinessmerelybyvirtueoftheresultingeconomicdependence
Providersoffinance
TradeUnions
PublicUtilities
GovernmentdepartmentsandGovernmentsponsoredbodies
DISCLOSURE
Iftherehavebeentransactionsbetweenrelatedparties,duringtheexistenceofarelatedpartyrelationships,thereportingenterpriseshoulddisclosethefollowings:
Nameofthetransactingrelatedparty
Descriptionoftherelationship
Descriptionofnatureoftransaction
Volumeoftransaction(Amountwiseorproportionwise)
Anyotherinformationnecessaryforunderstandingfinancialstatements
Outstanding(Amountwiseorproportionwise)andanyprovisionfordoubtfuldebtduefromsuchparty
Amountswrittenofforwrittenbackinrespectofdebtsduefromortorelatedparties.
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Thefollowingsaretheexamplesoftherelatedpartytransactions
Purchaseorsaleofgoods
Renderingorreceivingservices
Purchasesorsalesoffixedassets
Licenceagreements
Leasingorhirepurchaseagreements
Guaranteesandcollaterals
Managementcontractsincludingfordeputationofemployees.
ACCOUNTINGSTANDARDS19
LEASES
Applicability:-Mandatoryforallenterprisesw.e.f.1.04.2001.
Itshouldbeappliedinaccountingforallleasesotherthan:
a)leaseagreementstoexplorefororusenaturalresources;
b)licensingagreementsforitemssuchasplays,manuscripts,patentsandcopyrights;and
c)leaseagreementstouselands.
Lease:Aleaseisanagreementwherebythelessorconveystothelesseeinreturnforapaymentorseriesofpaymentstherighttouseanassetforanagreedperiodoftime.
FinanceLease:Allrisksandrewardsincidenttoownershipofanassetistransferred.
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OperatingLease:Leaseotherthanfinancelease;i.e.whichdoesnottransferalltheriskandrewardincidentaltoownership.
MinimumLeasePayments:
ForLessor
TotalLeaserenttobepaidovertheleaseterm+AnyGuaranteedResidualValuebyoronbehalfofLessee+ResidualValueGuaranteedbyThirdParty-ContingentRent-CostforServiceandtaxtobepaidbyandreimbursedtolessor
ForLessee
TotalLeaserenttobepaidovertheleaseterm+AnyGuaranteedResidualValuebyoronbehalfofLessee-ContingentRent-CostforServiceandtaxtobepaidbyandreimbursed
tolessor
AccountingforFinanceLeaseInthebooksoflessee
Thelesseeshouldrecognizetheleaseasanassetatlowerofthefollowing
-FairValueoftheleasedasset
-Presentvalueofminimumleasepayments
(Incalculatingthepresentvalueoftheminimumleasepayments,thediscountrateistheinterestrateimplicitinthelease.Ifimplicitrateisnotknown,thelesseesincrementalborrowingrateshouldbeused.)Entryrequiredtobepassed:
LeaseAssetsA/cDr
ToLessor
Allleasepaymentsshouldthenbeapportionedbetweenthefinancechargeandthereductionoftheoutstandingliability.FinancechargeshouldbedebitedtoP&LA/c.
LessorA/cDr
P&LA/cDr(Withtheamountoffinancecharge)
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ToBankA/c(Withtheamountofleasepayment)
ThelesseeasperAS-6shoulddepreciatetheleasedasset.
AccountingforFinanceLeaseInthebooksoflessor
Thelessorshouldrecognizethetransactionassalewiththecashprice.Ifartificiallylowratesofinterestarequoted,profitonsaleshouldberestrictedtothatwhichwouldapplyifacommercialrateofinterestwerecharged.Thecostofsalerecognizedatthecommencementoftheleasetermisthecost/carryingamountlessthepresentvalueoftheunguaranteedresidualvalue.
AccountingforOperatingLeaseInthebooksoflessee
Leasepayments(excludingcostsforservicessuchasinsuranceandmaintenance)arerecognizedasanexpenseinthestatementofprofitorlossonastraight-linebasisunlessanothersystematicbasisismoreappropriate.
AccountingforOperatingLeaseInthebooksoflessor
Leasereceiptsarerecognizedasanincomeinthestatementofprofitorlossonastraight-linebasisunlessanothersystematicbasisismoreappropriate.Thelessorshoul
dpresentanassetgivenunderoperatingleaseinitsbalancesheetunderfixedassets.
Initialdirectcostsincurredspecificallytoearnrevenuesfromanoperatingleaseare
..Either,deferredandallocatedtoincomeovertheleaseterminproportionofincome
..Or,recognizedasanexpenseinthestatementofcurrentyearprofitandloss
.
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SALEANDLEASEBACKTRANSACTIONS
Asaleandleasebacktransactioninvolvesthesaleofanassetbythevendorandtheleasingofthesameassetbacktothevendor.
Ifsaleandleasebacktransactionresultsinfinancelease:
Excessordeficiencyofsaleproceedsoverthecarryingamountshouldbedeferredandamortisedovertheleaseterminproportiontothedepreciationoftheleasedasset.Itshouldnotbeimmediatelyrecognizedasincomeorlossinthefinancialstatements.
Ifsaleandleasebacktransactionresultsinoperatinglease:
Ifthesalepriceisequaltofairvalue
-Anyprofitorlossshouldberecognizedimmediately.
Ifthesalepriceisbelowfairvalue
-Anyprofitorlossshouldberecognizedimmediately,exceptthat,iftheloss
iscompensatedbyfutureleasepaymentsatbelowmarketprice
-Ifthelossiscompensatedbyfutureleasepaymentsatbelowmarketprice,theprofitorlossshouldbedeferredandamortisedinproportiontotheleasepayments.
Ifthesalepriceisabovefairvalue
-Theexcessoverfairvalueshouldbedeferredandamortisedovertheperiodforwhichtheassetisexpectedtobeused.
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Further,ifthefairvalueatthetimeofasaleandleasebacktransactionislessthanthecarryingamountoftheasset,alossequaltotheamountofthedifferencebetweenthecarryingamountandfairvalueshouldberecognizedimmediately.
DisclosureRequirements:
Inthebooksoflesseeincaseoffinanciallease
Assetsacquiredunderfinancelease
Reconciliationbetweenthetotalofminimumleasepaymentsandtheirpresentvalueasatthebalancesheetdatewithfollowingsegregation
notlaterthanoneyear
laterthanoneyearandnotlaterthanfiveyears
laterthanfiveyears
Contingentrentsrecognizedasexpense
Futureminimumsubleasepaymentsexpectedtobereceivedundernon-cancellablesubleases
Generaldescriptionoftheleasingarrangements
Inthebooksoflessorincaseoffinanciallease
Generaldescriptionofthesignificantleasingarrangement
Accountingpolicyforinitialdirectcost
Reconciliationoftotalgrossinvestmentinleaseandpresentvalueofminimumleasepayment(MLP)receivableatthebalancesheetdate
MLPreceivableinfollowingcategories
notlaterthanoneyear
laterthanoneyearandnotlaterthanfiveyears
laterthanfiveyears
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Inthebooksoflesseeincaseofoperatinglease
Generaldescriptionofthesignificantleasingarrangement
Totaloffutureminimumleasepaymentsinthefollowingperiod
notlaterthanoneyear
laterthanoneyearandnotlaterthanfiveyears
laterthanfiveyears
3.Leasepaymentsrecognizedinprofit&lossaccountfortheperiod
Inthebooksoflessorincaseofoperatinglease
Generaldescriptionofthesignificantleasingarrangement
Accountingpolicyfortheinitialdirectpayment
Futureleasepaymentsinaggregateclassifiedas:
notlaterthanoneyear
laterthanoneyearandnotlaterthanfiveyears
laterthanfiveyears
ACCOUNTINGSTANDARDS-20
EARNINGPERSHARE(REV.04)
Applicability:-Mandatoryw.e.f.1.04.2001inrespectofenterpriseswhoseequitysharesorpotentialequitysharesarelistedonarecognizedstockexchangeinIndia.
AnenterpriseshouldpresentBASIC&DILUTEDEPSonthefaceofthestatementofprofitandlossaccountforeachclassofequitysharesthathasadifferentrighttoshareinthenetprofitfortheperiod.EPStobecalculated&presentedevenincaseoflosses.
BasicEPS=Netprofit/lossfortheperiodattributabletoequityshareholders
WeightedAverageNo.ofEquityShares
DilutedEPS=AdjustedNetprofit/lossfortheperiodattributabletoequityshareholders.
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WeightedAverageNo.of(EquityShares+DilutivePotentialEquityShares)
Wherenetprofit/lossforequityshareholders=PATlessPreferenceDividendincludingCDT
(PreferenceDividendshouldbedeductedwhetherornotprovidedincaseofCumulativePreferenceShares).
Equitysharesissuedforcash
Dateonwhichcashisreceived
Debenturesconvertedtocash
Dateofconversion
EquitysharesissuedinexchangeforsettlementOfaliability
Datewhensettlementbecomeseffective
Equitysharesissuedforrenderingofservices
Dateonwhichservicesarerendered
EquitySharesissuedincourseofAmalgamationinthenatureofPurchase
DateoftheAcquisition
EquitySharesissuedincourseofAmalgamationinthenatureofPurchase
Beginningofthereportingperiod
Datefromwhichthesharesareincludedforcalculationofweightedno.ofshares:
Partlypaidequitysharesaretreatedasafractionofanequitysharetothee
xtentthattheywereentitledtoparticipateindividendsrelativetoafullypaidequityshares.
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Whereanenterprisehasequitysharesofdifferentnominalvaluesbutwiththesamedividendrights,thenumberofequitysharesiscalculatedbyconvertingallsuchequitysharesintoequivalentnumberofsharesofthesamenominalvalue.
BONUSISSUE,SHARESPLIT,REVERSESHARESPLITetc.
Inthesecases,sharesareissuedtoexistingshareholdersfornoadditionalconsideration.Therefore,thenumberofequitysharesoutstandingisincreasedwithoutanincreaseinresources.
RIGHTSISSUE
Inrightsissue,theexercisepriceisoftenlessthanthefairvalueoftheshares.Therefore,arightissuegenerallyincludesabonuselement.Hence,numberofequitysharestobetakenfor
calculatingBasicEPSshouldbe:
RightShares+(EquitySharespriortoright*conversionfactor)
Where,conversionfactor=Fairvaluepershareimmediatelypriortotheexerciseofrights
Theoreticalex-rightsfairvaluepershare
Where,Theoreticalex-rightsfairvalue=(FairvalueofPriorshares+RightProceeds)
PostRighttotalno.ofequityshares
DILUTEDEARNINGSPERSHARE
DilutedEPS=AdjustedNetprofit/lossfortheperiodattributabletoequityshareholders
WeightedAverageNo.of(EquityShares+DilutivePotentialEquityShares)
IncalculatingdilutedEPS,thenetprofit(consideredforBASICEPS)isadjuste
dwiththecorrespondingchangesinprofitsthatshallarisewhendilutivepotentialsharesareissued.Forexample:Whendebenturesareconvertedtoshares,thenetprofitshouldbeaddedwithinterestamountandfurtheradjustedwithrelatedtaxexpense.
Potentialequitysharesshouldbetreatedasdilutivewhen,andonlywhen,thei
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rconversiontoequityshareswoulddecreasenetprofitpersharefromcontinuingordinaryoperations.
DISCLOSURE
Basic&DilutedEPS
Amountusedasnumerator&reconciliationwithPAT
NumberusedasdenominatorforBasic&DilutedEPS&reconciliationthereon
NominalvalueofsharesalongwithEPSfigures
ACCOUNTINGSTANDARDS-22
ACCOUNTFORTAXESONINCOME
Applicability:-a)Mandatoryw.e.f.1-04-2001inrespectofthefollowing:
1.EnterpriseswhoseequityordebtsecuritiesarelistedonarecognizedstockexchangeinIndia;
2.Alltheenterprisesofagroup,iftheparentpresentsconsolidatedfinancialstatements.
b)Mandatoryw.e.f.1.04.2002,inrespectofcompaniesnotcoveredbya);
c)Mandatoryw.e.f.1.04.2006inrespectofallotherenterprises.
AccountingIncome(loss)isthenetprofitorlossforaperiod,asreportedinthestatementofprofitandloss,beforedeductingincometaxexpenseoraddingincometaxsaving.(i.e.PBTasperP/LA/c)
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TaxableIncome(taxloss)istheamountofincome(loss)foraperiod,determinedinaccordancewiththetaxlaws,baseduponwhichincometaxpayable(recoverable)isdetermined.(i.e.GTI)
TaxExpense(taxsaving)istheaggregateofcurrenttaxanddeferredtaxchargedorcreditedtothestatementofprofitandlossfortheperiod.(i.e.taxwhichistobedebitedorcreditedtoP/LA/c)
Currenttaxistheamountofincometaxdeterminedtobepayable(recoverable)inrespectofthetaxableincome(taxloss)foraperiod.(i.e.taxasperIncometaxAct)
Deferredtaxisthetaxeffectoftimingdifferences.Modeljournalentriestobepassedinbooksofaccountshouldbeasunder:
CurrentTaxA/c...Dr
ToProvisionforCurrentTax
DeferredTaxA/c.Dr
ToDeferredTaxLiabilityA/c
OR
DeferredTaxAssetsA/c..Dr
ToDeferredTaxA/c
TaxExpenseA/c..Dr
DeferredTaxA/c..Dr(IncaseDTAiscreated)
ToCurrentTaxA/c
ToDeferredTaxA/c(IncaseDTLiscreated)
P/LA/c..Dr
ToCurrentTaxA/c
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PermanentDifferencesarethedifferencesbetweentaxableincomeandaccountingincomeforaperiodthatoriginateinoneperiodanddonotreversesubsequently.
Examples:
ExpendituredisallowedasperIncomeTaxAct(Forever)
ExcessexpenditureallowedbyIncomeTaxAct,1961inrespectofScientificExpenditure
TimingDifferencesarethedifferencesbetweentaxableincomeandaccountingincomeforaperiodthatoriginateinoneperiodandarecapableofreversalinoneormoresubsequentperiods.
Examples:
-Depreciationrate/methoddifferentasperAccountsandIncometaxCalculation
-ExpenditureofthenaturementionedinSection43B(e.g.salestaxchargedinaccountonaccrualbasisbutnotpaid;suchsalestaxwillbeanallowableexpenditureintheyearofpaymentandadisallowableexpenditureintheyearinwhichaccrued)
HintsforcreationofDTLorDTA
Whenaccountingprofit/lossishigherthantaxableprofit/loss:DeferredTaxliabilityiscreatedorDeferredtaxassetisreversed.
Whenaccountingprofit/lossislessthantaxableprofit/loss:DeferredtaxassetiscreatedorDeferredTaxLiabilityisreversed.
Whentaxablelossiscarriedforwardforsetoff:DeferredTaxAssetiscreated.
Whencarriedforwardtaxablelossissetoff:DeferredTaxAssetisreversed.
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However,DeferredTaxAsset(DTA)shouldberecognizedandcarriedforwardonlytotheextentthatthereisareasonablecertaintythatsufficientfuturetaxableincomewillbeavailableagainstwhichsuchdeferredtaxassetscanbereversed/realized.
Example:DeferredTaxAssetshouldbecreatedinrespectoftaxablelossbeingcarriedforward,whenthereisreasonablecertaintythatcarriedforwardtaxablelosswillbesetoff.(i.e.Adequatetaxableprofitisexpectedinfuture)
Thecarryingamountofdeferredtaxassetsshouldbereviewedateachbalancesheetdate.Anenterpriseshouldwritedownthecarryingamountofdeferredtaxassettotheextentthatitisnolongerreasonablycertainthatsufficientprofitswillbeavailable.
Such,writtendownvaluecanbere-statedifitbecomesvirtuallycertainthats
ufficientprofitswillbeavailable(forsetoff).
Alsoateachbalancesheetdate,anenterprisere-assessesunrecognizeddeferredtaxassets.Theenterpriserecognizespreviouslyunrecognizeddeferredtaxassetstotheextentthatithasbecomereasonablycertainthatsufficientfuturetaxableincomewillbeavailableagainstwhichsuchdeferredtaxassetscanberealized.
Presentation&Disclosure
IntheBalanceSheet,aDeferredTaxAssetshouldbeshownaftertheheadINVESTMENTandDeferredTaxLiabilityshouldbeshownaftertheheadUNSECUREDLOAN.
CurrentTaxassetsandliabilitiesshouldbeseparatelyshownwithDeferredTax
assetsandliabilities.
DeferredTaxassetisset-offwithdeferredtaxliabilitieswhen
-theenterprisehasalegallyenforceablerighttoset-offassetsagainstliabilitiesrepresentingcurrenttax;and
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-thedeferredtaxassetsandthedeferredtaxliabilitiesrelatetotaxesonincomeleviedbythesamegoverningtaxationlaws.
Thenatureoftheevidencesupportingtherecognitionofdeferredtaxassetsshouldbedisclosed,ifanenterprisehasunabsorbeddepreciationorcarryforwardoflossesundertaxlaws.
ACCOUNTINGSTANDARDS-24
DISCONTINUINGOPERATIONS
Adiscontinuingoperationisacomponentofanenterprise:
(a)thattheenterprise,pursuanttoasingleplan,is:
-disposingofsubstantiallyinitsentirety(exampledemerger)
-disposingofpiecemeal(sellingandsettlingassetsandliabilitiesonebyone)
-terminatingthroughabandonment;and
(b)Thatrepresentsaseparatemajorlineofbusinessorgeographicalareaofoperations;and
(c)Thatcanbedistinguishedoperationallyandforfinancialreportingpurposes.
Examplesofactivitiesthatmaynotsatisfycriteria(a)abovebutthatcanbediscontinuingoperationsincombinationwithothercircumstancesinclude:
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-gradualorevolutionaryphasingoutofaproductlineorclassofservice;
-discontinuing,evenifrelativelyabruptly,severalproductswithinanongoinglineofbusiness;
-shiftingofsomeproductionormarketingactivitiesforaparticularlineofbusinessfromonelocationtoanother;and
-closingofafacilitytoachieveproductivityimprovementsorothercostsavings;
-Sellingsharesofsubsidiarywhoseactivitiesaresimilartothoseoftheparentorothersubsidiaries.(IncaseofConsolidatedFinancialStatements)
AreportablebusinesssegmentorgeographicalsegmentasdefinedinAS-17wouldnormallysatisfycriteria(b)above.
Acomponentthatcanbedistinguishedoperationallyandforfinancialreportingpurposes{criteria[c]above}ifallthefollowingconditionsaremet:
theoperatingassetsandliabilitiesofthecomponentcanbedirectlyattributed
toit;
itsrevenuecanbedirectlyattributedtoit;
atleastamajorityofitsoperatingexpensescanbedirectlyattributedtoit.
PresentationandDisclosure
Anenterpriseshouldincludethefollowinginformationrelatingtoadiscontinui
ngoperationinitsfinancialstatementsbeginningwiththefinancialstatementsfortheperiodinwhichtheinitialdisclosureeventoccursanduptoandincludingtheperiodinwhichdiscontinuanceiscompleted.:
INITIALDISCLOSURE:
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Adescriptionofthediscontinuingoperation(s);
thebusinessorgeographicalsegment(s)inwhichitisreportedasperAS17
thedateandnatureoftheinitialdisclosureevent;
thedateorperiodinwhichthediscontinuanceisexpectedtobecompletedifknownordeterminable;
thecarryingamounts,asofthebalancesheetdate,ofthetotalassetstobedisposedofandthetotalliabilitiestobesettled;
revenueandexpensesfromsuchdiscontinuingoperationincurrentreportingperiod;
pre-taxprofit/lossfromdiscontinuingoperationduringthecurrentfinancialreportingperiod,andincometaxexpense.
netcashflowsattributabletotheoperating,investing,andfinancingactivitie
softhediscontinuingoperationduringthecurrentfinancialreportingperiod.
Withrespecttoadiscontinuingoperation,theinitialdisclosureeventistheoccurrenceofoneofthefollowing,whicheveroccursearlier
theenterprisehasenteredintoabindingsaleagreementforsubstantiallyalloftheassetsofthe
discontinuingoperation;or
theenterprisesboardofdirectorsorsimilargoverningbodyhasboth
(i)approvedaformalplan;and
(ii)madeanannouncementoftheplan.
OtherDisclosures
Whenanenterprisedisposesofassetsorsettlesliabilitiesattributabletoa
discontinuingoperationorentersintobindingagreementsforthesaleofsuchassetsorthesettlementofsuchliabilities,itshouldinclude,initsfinancialstatements,thefollowinginformationwhentheeventoccurs.
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Gainorlossrecognizedonsuchdisposal.
Netsellingprices(orrangeofprices)ofthoseassetsforwhihtheenterprisehasenteredintobindingcontract,theexpectedtimingofreceiptofcashflowandthecarryingamountofthoseassets.
Thedisclosuresrequiredaboveshouldbepresentedinthenotestothefinancialstatementsexceptthefollowing,whichshouldbeshownonthefaceofthestatementsofprofitorloss;
pre-taxprofit/lossfromordinaryactivitiesofdiscontinuingoperationandrelatedincometaxexpense
pre-taxgainorlossrecognizedondisposalofassetsorsettlementofliabilities.
Ifanenterpriseabandonsorwithdrawsfromaplanthatwaspreviouslyreportedasadiscontinuingoperation,thatfact,reasonthereforanditseffectshouldbedisclosed.
Comparativeinformationforpriorperiodsinrespectofdiscontinuingoperationsshouldalsobedeemedasdiscontinuingoperations.
ACCOUNTINGSTANDARDS-28
IMPAIRMENTOFASSETS
ImpairmentofAssetsmeansweakeninginthevalueofasset.Anenterpriseshouldassessateachbalancesheetdatewhetherthereisanyindicationthatanassetmaybeimpaired.Ifanysuchindicationexists,theenterpriseshouldestimatetherecoverableamountofthe
asset.
IndicationofImpairmentofanasset
-ExternalSourcesofInformation
Marketvaluehasdeclinedsignificantlymorethanthatwouldbeexpectedasare
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sultofdepreciation.
Adverseeffectontheenterpriseduetochangeintechnology,marketconditions,etc.
Changeininterestrates.
Thecarryingamountofthenetassetsofthereportingenterpriseismorethanitsmarketcapitalization.
-InternalSourcesofInformation
Physicaldamageofasset
Significantchangeinstyleorextentofuseofasset.
InternalReportingindicatesthattheeconomicperformanceofanassetis,orwillbe,worsethanexpected.
Assets-ThisASdoesnotapplyto
Inventories(AS-2)
AssetsarisingfromConst.Contracts(AS-7)
FinancialAssetsincludingInvestments(AS-13)
AFinancialAssetisanyassetthatis:-
Cash;
Acontractualrighttoreceivecashoranotherfinancialassetfromanotherenterprise;
Acontractualrighttoexchangefinancialinstrumentswithanotherenterpriseunderconditionsthatarepotentiallyfavorable;or
Anownershipinterestinanotherenterprise.
DeferredtaxAsset(AS-22)
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RECOVERABLEAMOUNT:(ofassetorcashgeneratingunit)
HIGHEROF
-NETSELLINGPRICEOFASSET
-VALUEINUSE
NetSellingPrice:Itistheamountobtainablefromsaleofanassetinanarmslengthtransactionbetweenknowledgeable,willingpartieslessthecostsofdisposal.
Valueinuse:ItisthepresentvalueofestimatedfutureCashflowexpectedtoarisefromcontinueuseofanassetandfromitsdisposalattheendofitsusefullife.
Estimatingthevalueinuseofanassetinvolvesthefollowingsteps:-
-Estimationoffuturecashinflows&Outflows.
-Applicationofappropriatediscountrate.
Projectionofcashflowshouldbebasedon
-Mostrecentfinancialbudgets/forecasts.
-Reasonableandsupportableassumptionsontheeconomicconditions.Givingmoreweightstoexternalevidence.
-Steadyordeclininggrowthratefortheperiodbeyondtheperiodcoveredbymostrecentbudgets/forecasts.
Increasinggrowthratecanbetakenwhenitcanbeproperlyjustified.However,growthrateshouldnotexceedthelong-termaveragegrowthratefortheproducts/industries/countriesinwhich
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theenterpriseoperates.
Futurecashflowsshouldbeestimatedfortheassetinitscurrentcondition.Estimatesoffuturecashflowsshouldnotincludeestimatedfuturecashinflowsoroutflowsthatareexpectedtoarisefrom:-
afuturerestructuringtowhichanenterpriseisnotyetcommitted;or
futurecapitalexpenditurethatwillimproveorenhancetheassetinexcessofitsoriginallyassessedstandardofperformance.
Estimatesoffuturecashflowsshouldnotinclude;
Cashinflowsoroutflowsfromfinancingactivities;or
Incometaxreceiptsorpayments.
ForeignCurrencyFutureCashFlows:Futurecashflowsareestimatedinthecurrencyinwhichtheywillbegeneratedandthendiscountedusingadiscountrateappropriateforthecurrency.Anenterprisetranslatesthepresentvalueobtainedusingtheexchangerateatthebalancesheetdate(describeinAccountingstandard(AS)11,AccountingfortheEffectsofchangesinForeignExchangerates,astheclosingrate).
DISCOUNTRATE:ThediscountrateshouldbePRETAXRATE.Thatreflectscurrentmarketassessmentsofthetimevalueofmoney&theriskspecifictotheasset.
Asastartingpointtheenterprisemaytakeintoaccountthefollowingrates:-
-Weightedaveragecostofcapital.
-Marketborrowingrate.
-EnterprisesincrementalBorrowingrates.
IMPAIRMENTLOSS
AnImpairmentLossistheamountbywhichthecarryingamountofanassetexceedsits
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recoverableamounti.e.
Impairmentloss=Carryingamount(-)Recoverableamount.
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AnimpairmentlossorarevaluedassetisrecognizedasanexpenseinthestatementofProfitorLoss.However,animpairmentlossonarevaluedassetisrecognizeddirectlyagainstanyrevaluationsurplusfortheassettotheextentthattheimpairmentlossdoesnotexceedtheamountheldintherevaluationsurplusforthesameasset.
Whentheamountestimatedforanimpairmentlossisgreaterthanthecarryingamountoftheassettowhichitrelates,anenterpriseshouldrecognizealiabilityif,andonlyif,thatisrequiredbyanotherAccountingStandards.
AccountingentriesrequiredtobepassedonrecognitionofImpairmentloss:-
ImpairmentLossA/c.Dr.
ToAssetsA/c.
P/LA/c/revaluationreserveA/c..Dr.
ToImpairmentLossA/c
AftersuchrecognitionDepreciationshouldbecalculatedprospectivelyconsideringsuchloss:
CASHGENERATINGUNIT
Cashgeneratingunitisthe
..Smallestidentifiablegroupofassets.
..Thatgeneratescashinflows.
..Thatarelargelyindependentofthecashinflowsfromotherassets.
Ifthereisanyindicationthatanassetmaybeimpaired,therecoverableamountshouldbeestimatedfortheindividualasset.
Ifitisnotpossibletoestimatetherecoverableamountoftheindividualasset,anenterpriseshoulddeterminetherecoverableamountofthecashgeneratingunittowhichthe
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assetbelongs(theassetscashgeneratingunit).
Therecoverableamountofanindividualassetcannotbedeterminedif:
Theassetsvalueinusecannotbeestimated(tobeclosetoitsnetsellingprice);and
Theassetdoesnotgeneratec