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FINALCOURSESTUDYMATERIAL
PAPER 1
Financial Reporting
Volume I
BOARD OF STUDIESTHE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
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This study material has been prepared by the faculty of the Board of Studies. The
objective of the study material is to provide teaching material to the students to enable
them to obtain knowledge and skills in the subject. Students should also supplement their
study by reference to the recommended text books. In case students need any
clarifications or have any suggestions to make for further improvement of the material
contained herein, they may write to the Director of Studies.
All care has been taken to provide interpretations and discussions in a manner useful for
the students. However, the study material has not been specifically discussed by the
Council of the Institute or any of its Committees and the views expressed herein may not
be taken to necessarily represent the views of the Council or any of its Committees.
Permission of the Institute is essential for reproduction of any portion of this material.
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
All rights reserved. No part of this book may be reproduced, stored in retrieval system, or
transmitted, in any form, or by any means, Electronic, Mechanical, photocopying, recording, or
otherwise, without prior permission in writing from the publisher.
Revised Edition : January, 2013
Website : www.icai.org
Department/ : Board of Studies
Committee
E-mail :
ISBN No. :
Price : `
Published by : The Publication Department on behalf of The Institute of Chartered
Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha
Marg, New Delhi-110 002, India.
Typeset and designed at Board of Studies.
Printed by : Sahitya Bhawan Publications, Hospital Road, Agra- 282 003
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AWORDABOUT STUDYMATERIAL
The paper of Financial Reporting in the Final Course concentrates on aspects of preparing and
analyzing financial statements. Students are expected to acquire advanced knowledge in this
paper. The importance of the subject of financial reporting is growing over the years due to various
factors like liberalization, flow of cross-border capital, emergence of global corporations and
movement towards better corporate governance practices. Standardization of accounting policies
and financial reporting norms are significant aspects that make the subject more interesting in the
recent years. Various new Accounting Standards and Guidance Notes have been formulated by
the Institute of Chartered Accountants of India keeping in mind the growing importance of financialreporting in the corporate scenario.
The students are required to develop understanding of the Accounting Standards and the relevant
Guidance notes and gain ability to apply the provisions contained therein to practical situations.
The last decade has witnessed a sea change in the global economic scenario. The emergence of
transnational corporations in search of money, not only for fuelling growth, but to sustain ongoing
activities has necessitated raising of capital from all parts of the world. When an enterprise decides
to raise capital from the foreign markets, the rules and regulations of that country will apply and the
enterprise should be able to understand the differences between the rules governing financial
reporting in the foreign country as compared to that of its own country. Thus translations and re-
instatements of financial statements are of great significance. Therefore, chapter based onoverview of Indian Accounting Standards, International Accounting Standards/International
Financial Reporting Standard and US GAAPs has also been included in the Final Course
curriculum.
The Study Material is divided into three volumes for ease of handling by the students. Volume I
contains Chapters 1 7 and Volume 2 contains Chapters 8 10. Appendices containing text of
Accounting Standards, Guidance Notes, Framework for Preparation and Presentation of Financial
Statements, Applicability of Accounting Standards to various entities and Revised Schedule VI
have been included in Volume II. Volume III of the Study Material comprises of Practice Manual.
Care has been taken to present the chapters in the same sequence as prescribed in the syllabus to
facilitate easy understanding by the students. Small illustrations have been incorporated in eachchapter/unit to explain the concepts/principles covered in the chapter/unit.
Students are also advised to update themselves with the latest changes in the area of financial
reporting. For this they may refer to academic updates in the monthly journal The Chartered
Accountant and the Students Journal The Chartered Accountant Student (published by the Board
of Studies), financial newspapers, SEBI and Corporate Law Journal, published financial statements
of companies etc. Latest relevant amendments in SEBI Regulations and RBI notifications for
NBFCs have been incorporated in this revised edition.
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The students are expected to cover the entire syllabus and practice on their own while goingthrough the Volume III ie. Practice Manual. The main aim of this Practice Manual is to provide
guidance as to the manner of writing answers in the examination. The Practice Manual will serve
as a useful and handy reference guide while preparing for Final Examination. Further, it will
enhance the understanding about the pattern of questions set and the manner of answering such
questions. It will enable solving the problems in the best possible manner and guide the students to
improve their performance in the examinations. It will also help them to work upon their grey areas
and plan a strategy to tackle theoretical as well as practical problems.
An effort has been made to arrange the questions in more logical manner i.e. sub-topic wise or on
the basis of accounting standards to will help the students in preparing for the Final Course
Examination.
Any theoretical additions made in the chapters have been highlighted in bold and italics while
practical illustrations have been highlighted with grey shading in the study material for easy
identification and quick reference.
We thank CA. Ajay Lunawat for his valuable contribution in Chapter-4 Accounting for Corporate
Restructuring and Chapter-5 Consolidated Financial Statements of Group Companies.
Happy Reading and Best Wishes!
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Signif icant Changes in the Revised Edition
ChapterNo.
Name of theChapter
UnitNo.
Name of theUnit
Section/Sub-Sections
Changes
1 AccountingStandards andGuidance Notes
1 Introduction toAccountingStandards
1.5 Applicability ofAccountingStandards
Para amended
1.6 List ofAccountingStandards
List amended
1.7 Accounting
StandardInterpretations
Para deleted
9 AS 9: RevenueRecognition
Illustration 7Newly added
11 AS 11: TheEffects ofChanges inForeignExchange Rates
11.6 Recognition ofExchangeDifferences Para amended
12 AS 12:Accounting for
Govt. Grants
12.5 Presentation ofGrants related
to SpecificFixed Assets
Para amended
15 AS 15:EmployeeBenefits
15.2 ApplicabilityPara amended
16 AS 16:Borrowing Costs
16.6 ExchangeDifferences onForeignCurrencyBorrowings
Para added
19 AS 19: Leases 19.7 Sale andLeaseback
Transactions
Illustrationadded
33 Guidance Notes 33.3 GuidanceNotes onaccountingaspects
List amended
33.4 An Overviewof GuidanceNotes
Para amended
Illustrations no.5,6,7 added
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2 InternationalAccountingStandards,InternationalFinancialReportingStandards, TheirInterpretationsand US GAAPs-An Overview
8.9 IFRS 9:FinancialInstruments
Para amended
8.10 IFRS 10:ConsolidatedFinancialStatements
Para amended
8.12 IFRS 12:Disclosure ofInterests inother Entities
Para amended
8.13 IFRS 13: FairValueMeasurement
Para amended
12 StandingInterpretationsCommittee An Overview
Para amended
3 CorporateFinancialReporting
4.3 BusinessResponsibilityReport
Newly added
4 Accounting forCorporate
Restructuring
3 Asset basedrestructuring Para amended
6 Amalgamation:AccountingAspects
Para amended
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SYLLABUS
PAPER 1 : FINANCIAL REPORTING
(One paper Three hours 100 marks)
Level of Knowledge:Advanced knowledge
Objectives:(a) To gain ability to analyze financial statements including consolidated financial statements
of group companies and financial reports of various types of entities,
(b) To gain ability to apply valuation principles,
(c) To familiarise with recent developments in the area of financial reporting,
(d) To gain ability to solve financial reporting and valuation cases.
Contents:
1. Accounting Standards and Guidance Notes on various accounting aspects issued by the
ICAI and their applications.
2. Overview of International Accounting Standards (IAS) / International Financial Reporting
Standards (IFRS), Interpretations by International Financial Reporting Interpretation
Committee (IFRIC), Significant difference vis-a-vis Indian Accounting Standards.
Understanding of US GAAP, Applications of IFRS and US GAAP.
3. Corporate Financial Reporting - Issues and problems with special reference to published
financial statements.
4. Accounting for Corporate Restructuring (including inter-company holdings).
5. Consolidated Financial Statements of Group Companies
Concept of a Group, purposes of consolidated financial statements, minority interest ,Goodwill , Consolidation procedures Minority interests, Goodwill, Treatment of pre-
acquisition and post-acquisition profit .
Consolidation with two or more subsidiaries, consolidation with foreign subsidiaries.
Consolidated profit and loss account, balance sheet and cash flow statement.
Treatment of investment in associates in consolidated financial statements.
Treatment of investments in joint ventures in consolidated financial statements.
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6. Accounting and reporting of financial instruments
Meaning, recognition, derecognition and offset, compound financial instruments
Measurement of financial instruments
Hedge accounting
Disclosures
7. Share based payments
Meaning, Equity settled transactions, Transaction with employees and non- employees
Determination of fair value of equity instruments
Vesting conditions
Modification, cancellation and settlement
Disclosures
8. Financial Reporting by Mutual funds, Non-banking finance companies, Merchant
bankers, Stock and commodity market intermediaries.
9. Valuation
(a) Concept of Valuation
(b) Valuation of Tangible Fixed Assets
(c) Valuation of Intangibles including brand valuation and valuation of goodwill
(d) Valuation of liabilities
(e) Valuation of Shares
(f) Valuation of Business
10. Developments in Financial Reporting
(a) Value Added Statement
(b) Economic Value Added, Market Value Added, Shareholders Value Added
(c) Human Resource Reporting
Note If either old Accounting Standards (ASs), Guidance Notes (GNs), Announcements
and Limited Revisions to ASs are withdrawn or new ASs, GNs, Announcements and LimitedRevisions to AS are issued by the Institute of Chartered Accountants of India in place ofexisting ASs, GNs, Announcements and Limited Revisions to AS, the syllabus will accordingly
exclude / include such new developments in the place of the existing ones with effect from thedate to be notified by the Institute.
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VOLUME 1
CONTENTS
CHAPTER 1 ACCOUNTING STANDARDS AND GUIDANCE NOTES
Unit 1: Introduction to Accounti ng Standards
1.1 Objectives of Accounting Standards ............................................................ 1.1
1.2 Benefits and Limitations .............................................................................. 1.2
1.3 Standard-Setting Process ........................................................................... 1.3
1.4 How Many Accounting Standards? ............................................................. 1.3
1.5 Applicability of Accounting Standards .......................................................... 1.4
1.6 List of Accounting Standards ..................................................................... 1.13
Unit 2: AS 1 Disclosure of Account ing Policies
2.1 Introduction .............................................................................................. 1.15
2.2 Accounting Policies .................................................................................. 1.15
2.3 Applicability.............................................................................................. 1.17
2.4 Fundamental Accounting Assumptions ..................................................... 1.172.5 Considerations in the Selection of Accounting Policies ............................... 1.18
2.6 Disclosure of Accounting Policies ............................................................. 1.19
2.7 Disclosure of Changes in Accounting Policies ........................................... 1.19
2.8 Disclosure of Deviations from Fundamental Accounting Assumptions ......... 1.19
2.9 Illustrations .............................................................................................. 1.19
Unit 3: AS 2 Valuation of Inventor ies
3.1 Introduction .............................................................................................. 1.22
3.2 Scope ..................................................................................................... 1.22
3.3 Measurement of Inventories ...................................................................... 1.23
3.4 Cost Formulas .......................................................................................... 1.27
3.5 Net Realisable Value (NRV) ...................................................................... 1.28
3.6 Disclosure ................................................................................................ 1.30
3.7 Illustrations .............................................................................................. 1.31
Unit 4: AS 3 Cash Flow Statements
4.1 Introduction ............................................................................................. 1.33
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4.2 Objective ................................................................................................. 1.33
4.3 Presentation of a Cash Flow Statement ..................................................... 1.34
Unit 5: AS 4 Contin gencies and Events occurri ng after the Balance Sheet Date
5.1 Introduction .............................................................................................. 1.47
5.2 Contingencies .......................................................................................... 1.47
5.3 Events Occurring after the Balance Sheet Date .......................................... 1.47
5.4 Disclosure ................................................................................................ 1.48
5.5 Illustrations .............................................................................................. 1.48
Unit 6: AS 5 Net profit or Loss for the Period, Prior Period Items andChanges in Accounti ng Policies
6.1 Introduction .............................................................................................. 1.51
6.2 Net Profit or Loss for the Period ................................................................ 1.51
6.3 Prior Period Items .................................................................................... 1.52
6.4 Changes in Accounting Estimates ............................................................ 1.53
6.5 Changes in Accounting Policies ................................................................ 1.53
6.6 Miscellaneous Illustrations ........................................................................ 1.54
Unit 7: AS 6 Depreciation Account ing
7.1 Introduction .............................................................................................. 1.58
7.2 Depreciation ............................................................................................. 1.58
7.3 Depreciable Assets .................................................................................. 1.58
7.4 Depreciable Amount ................................................................................ 1.58
7.5 Historical Cost ......................................................................................... 1.59
7.6 Useful Life .............................................................................................. 1.59
7.7 Additions to Existing Assets ...................................................................... 1.60
7.8 Amount of Depreciation ............................................................................ 1.60
7.9 Methods of Depreciation ........................................................................... 1.60
7.10 Basis for Computation of Depreciation ....................................................... 1.62
7.11 Disposal of Assets .................................................................................... 1.63
7.12 Change in Method of Depreciation ............................................................. 1.63
7.13 Disclosure ................................................................................................ 1.64
Unit 8: AS 7 Construction contracts
8.1 Introduction .............................................................................................. 1.65
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8.2 Definitions of the Terms used in the Standard ............................................ 1.65
8.3 Combining and Segmenting Construction Contracts ................................... 1.65
8.4 Contract Revenue ..................................................................................... 1.66
8.5 Contract Costs ......................................................................................... 1.66
8.6 Recognition of Contract Revenue and Expenses ........................................ 1.67
8.7 Disclosure ................................................................................................ 1.68
8.8 Illustrations .............................................................................................. 1.69
Unit 9: AS 9 Revenue Recognit ion
9.1 Introduction .............................................................................................. 1.719.2 Revenue .................................................................................................. 1.71
9.3 Sale of Goods .......................................................................................... 1.72
9.4 Rendering of Services .............................................................................. 1.72
9.5 Interest, Royalties and Dividends .............................................................. 1.72
9.6 Effect of Uncertainties on Revenue Recognition ......................................... 1.73
9.7 Disclosure ................................................................................................ 1.73
9.8 Illustrations .............................................................................................. 1.74
Unit 10: AS 10 Accounti ng for Fixed Assets
10.1 Introduction .............................................................................................. 1.77
10.2 Identification of Fixed Assets .................................................................... 1.77
10.3 Machinery Spares ..................................................................................... 1.77
10.4 Components of Cost ................................................................................. 1.78
10.5 Self-constructed Fixed Assets ................................................................... 1.78
10.6 Non-monetary Consideration ..................................................................... 1.79
10.7 Improvements and Repairs ....................................................................... 1.80
10.8 Amount Substituted for Historical Cost (Revaluation) ................................. 1.80
10.9 Retirements and Disposals (derecognition) ................................................ 1.8110.10 Hire Purchases ......................................................................................... 1.81
10.11 Joint Ownership ....................................................................................... 1.81
10.12 Goodwill ................................................................................................... 1.81
10.13 Disclosure ................................................................................................ 1.82
10.14 Illustrations .............................................................................................. 1.82
Unit 11: AS 11 The Effects of Changes in Foreign Exchange Rate
11.1 Introduction .............................................................................................. 1.86
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11.2 Scope ...................................................................................................... 1.86
11.3 Definitions of the terms used in the Standard ............................................. 1.87
11.4 Initial Recognition ..................................................................................... 1.87
11.5 Reporting at each balance sheet date ....................................................... 1.88
11.6 Recognition of Exchange Differences ........................................................ 1.88
11.7 Classification of Foreign Operations as Integral or Non-integral .................. 1.89
11.8 Translation of Foreign Integral Operations ................................................. 1.90
11.9 Translation of Non-Integral Foreign Integral Operations ............................. 1.90
11.10 Change in the Classification of a Foreign Operation ................................... 1.9211.11 Tax Effects of Exchange Differences ......................................................... 1.92
11.12 Forward exchange contract ....................................................................... 1.92
11.13 Disclosure ................................................................................................ 1.93
11.14 Miscellaneous Illustrations ........................................................................ 1.94
Unit 12: AS 12 Accounti ng for Government Grants
12.1 Introduction .............................................................................................. 1.96
12.2 Accounting Treatment of Government Grants ............................................. 1.96
12.3 Recognition of Government Grants ............................................................ 1.97
12.4 Non-monetary Government Grants ............................................................ 1.97
12.5 Presentation of Grants Related to Specific Fixed Assets ............................ 1.97
12.6 Presentation of Grants Related to Revenue ............................................... 1.98
12.7 Presentation of Grants of the nature of Promoters contribution .................. 1.98
12.8 Refund of Government Grants ................................................................... 1.98
12.9 Disclosure ................................................................................................ 1.99
12.10 Miscellaneous Illustrations ........................................................................ 1.99
Unit 13: AS 13 Account ing for Investments
13.1 Introduction ............................................................................................ 1.101
13.2 Definition of the terms used in the Standard ............................................. 1.101
13.3 Forms of Investments .............................................................................. 1.101
13.4 Classification of Investments .................................................................... 1.102
13.5 Cost of Investments ................................................................................. 1.102
13.6 Carrying Amount of Investments............................................................... 1.102
13.7 Investment Properties .............................................................................. 1.102
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13.8 Disposal of Investments ........................................................................... 1.103
13.9 Reclassification of Investments ................................................................ 1.103
13.10 Disclosure ............................................................................................... 1.103
Unit 14: AS 14 Accounti ng for Amalgamations
14.1 Introduction ............................................................................................. 1.105
14.2 Definition of the terms used in the Standard ............................................. 1.105
14.3 Types of Amalgamations .......................................................................... 1.105
14.4 Amalgamation in the Nature of Merger ..................................................... 1.105
14.5 Amalgamation in the Nature of Purchase ................................................. 1.10614.6 Methods of Accounting for Amalgamations................................................ 1.106
14.7 Treatment of Reserves of the Transferor Company on Amalgamation ........ 1.107
14.8 Treatment of Goodwill Arising on Amalgamation ....................................... 1.108
14.9 Disclosures ............................................................................................. 1.108
14.10 Miscellaneous Illustrations ....................................................................... 1.109
Unit 15: AS 15 Employ ee Benefits
15.1 Introduction ............................................................................................. 1.116
15.2 Applicability............................................................................................. 1.116
15.3 Meaning of the term Employee Benefits ................................................. 1.117
15.4 Short-term Employee Benefits .................................................................. 1.117
15.5 Post Employment Benefits: Defined Contribution vs Defined Benefits ............. 1.118
15.6 Is the gratuity scheme a defined contribution or defined benefit scheme? ....... 1.119
15.7 Other Long Term Employee Benefits ........................................................ 1.119
15.8 Termination Benefits ................................................................................ 1.119
15.9 Accounting Treatment .............................................................................. 1.120
15.10 Disclosures ............................................................................................. 1.121
15.11 Actuarial Assumptions ............................................................................. 1.121
15.12 Actuarial Gains and Losses ..................................................................... 1.122
Unit 16: AS 16 Borrowing Costs
16.1 Introduction ............................................................................................. 1.124
16.2 Borrowing Costs ..................................................................................... 1.124
16.3 Qualifying Asset ..................................................................................... 1.124
16.4 Substantial Period ................................................................................... 1.125
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16.5 Borrowing Costs Eligible for Capitalisation ................................................ 1.125
16.6 Exchange Differences on Foreign Currency Borrowings ............................ 1.126
16.7 Excess of the Carrying Amount of the Qualifying Asset over RecoverableAmount ................................................................................................... 1.127
16.8 Commencement of Capitalisation ............................................................. 1.127
16.9 Suspension of Capitalisation .................................................................... 1.128
16.10 Cessation of Capitalisation ...................................................................... 1.128
16.11 Disclosure ............................................................................................... 1.128
16.12 Illustrations ............................................................................................. 1.128
Unit 17: AS 17 Segment Reportin g
17.1 Introduction ............................................................................................. 1.133
17.2 Objective ................................................................................................ 1.133
17.3 Scope ..................................................................................................... 1.133
17.4 Definition of the terms used in the Accounting Standard ............................ 1.134
17.5 Treatment of Interest for determining Segment Expense ............................ 1.136
17.6 Allocation ................................................................................................ 1.136
17.7 Primary and Secondary Segment Reporting Formats ................................. 1.137
17.8 Matrix Presentation ................................................................................. 1.137
17.9 Business and Geographical Segments ...................................................... 1.138
17.10 Identifying Reportable Segments (Quantitative Thresholds) ...................... 1.138
17.11 Segment Accounting Policies ................................................................... 1.139
17.12 Primary Reporting Format ........................................................................ 1.139
17.13 Secondary Segment Information ............................................................... 1.140
17.14 Disclosures ............................................................................................. 1.141
Unit 18: AS 18 Related Party Disc los ures
18.1 Introduction ............................................................................................. 1.144
18.2 Objective ................................................................................................ 1.144
18.3 Scope ..................................................................................................... 1.144
18.4 Definitions of the Terms used in the Accounting Standard ......................... 1.145
18.5 The Related Party Issue .......................................................................... 1.147
18.6 Disclosure ............................................................................................... 1.148
18.7 Miscellaneous Illustrations ....................................................................... 1.148
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Unit 19: AS 19 Leases
19.1 Introduction ............................................................................................ 1.150
19.2 Scope ..................................................................................................... 1.150
19.3 Definition of the Terms used under AS 19 ................................................. 1.151
19.4 Classification of Leases ........................................................................... 1.153
19.5 Leases in the Financial Statements of Lessees ......................................... 1.154
19.6 Leases in the Financial Statements of Lessors .......................................... 1.156
19.7 Sale and Leaseback Transactions ............................................................ 1.163
19.8 Miscellaneous Illustrations ....................................................................... 1.164Unit 20: AS 20 Earnings per Share
20.1 Introduction ............................................................................................. 1.170
20.2 Definition of the terms used in the Accounting Standard ............................ 1.170
20.3 Basic Earnings per Share ........................................................................ 1.171
20.4 Diluted Earnings Per Share ...................................................................... 1.176
20.5 Restatement ............................................................................................ 1.178
20.6 Presentation ............................................................................................ 1.178
20.7 Disclosure ............................................................................................... 1.178
Unit 21: AS 21 Consol idated Financ ial Statements
21.1 Introduction ............................................................................................. 1.186
21.2 Objective ................................................................................................ 1.186
21.3 Scope ..................................................................................................... 1.186
21.4 Definitions of the Terms used in the Accounting Standard ......................... 1.187
21.5 Circumstances under which Preparation of Consolidated FinancialStatements are Prepared ........................................................................ 1.187
21.6 Subsidiaries with Dissimilar Activities ....................................................... 1.188
21.7 Loss of Control ........................................................................................ 1.188
21.8 Existence of Control ............................................................................... 1.188
21.9 Consolidation Procedures ........................................................................ 1.190
21.10 Cost of Control ........................................................................................ 1.190
21.11 Illustrations ............................................................................................. 1.191
21.12 Minority Interest ...................................................................................... 1.193
21.13 Other Points ............................................................................................ 1.195
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21.14 Disposal of Holding ................................................................................. 1.197
21.15 Disclosure ............................................................................................... 1.199
21.16 Transitional Provisions ............................................................................ 1.199
21.17 Accounting for taxes on income in the consolidated FinancialStatements .............................................................................................. 1.199
Unit 22: AS 22 Account ing for Taxes on Income
22.1 Introduction ............................................................................................. 1.200
22.2 Need ....................................................................................................... 1.200
22.3 Definitions ............................................................................................... 1.201
22.4 Recognition ............................................................................................. 1.201
22.5 Re-assessment of Unrecognised Deferred Tax Assets .............................. 1.201
22.6 Measurement .......................................................................................... 1.202
22.7 Review of Deferred Tax Assets ................................................................ 1.202
22.8 Disclosure ............................................................................................... 1.202
22.9 Transitional Provision .............................................................................. 1.203
22.10 Relevant Explanation to AS-22 ................................................................. 1.203
22.11 Miscellaneous Illustrations ....................................................................... 1.204
Unit 23: AS 23 Accounting for Investments in Associates in Consolid atedFinancial Statements
23.1 Introduction ............................................................................................. 1.209
23.2 Objective ................................................................................................ 1.209
23.3 Definitions of the terms used in the Accounting Standard .......................... 1.209
23.4 Associates Accounted for using the Equity method ................................... 1.211
23.5 Circumstances under which Equity Method is followed .............................. 1.212
23.6 Application of the Equity Method .............................................................. 1.213
23.7 Contingencies ......................................................................................... 1.217
23.8 Disclosure ............................................................................................... 1.217
23.9 Transitional Provisions ............................................................................ 1.218
23.10 Relevant Explanation to AS 23 ................................................................. 1.218
Unit 24: AS 24 Discontinuing Operations
24.1 Introduction ............................................................................................. 1.223
24.2 Objective ................................................................................................ 1.223
24.3 Discontinuing Operation .......................................................................... 1.223
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26.11 Acquisition by way of a Government Grant ................................................ 1.241
26.12 Internally Generated Intangible Assets ..................................................... 1.241
26.13 Research Phase ...................................................................................... 1.241
26.14 Development Phase................................................................................. 1.242
26.15 Cost of an Internally Generated Intangible Asset ....................................... 1.243
26.16 Items to be Recognised as an Expense .................................................... 1.243
26.17 Subsequent Expenditure .......................................................................... 1.244
26.18 Amortisation Period ................................................................................. 1.244
26.19 Amortisation Method ................................................................................ 1.24526.20 Residual Value ........................................................................................ 1.245
26.21 Review of Amortisation Period and Amortisation Method ........................... 1.245
26.22 Recoverability of the Carrying Amount-Impairment Losses ........................ 1.246
26.23 Retirements and Disposals ...................................................................... 1.246
26.24 Disclosure ............................................................................................... 1.246
26.25 Transitional Provisions ............................................................................ 1.247
26.26 Illustrations ............................................................................................. 1.248
Unit 27: AS 27 Financial Reporting of Interests in Joint Ventures
27.1 Introduction ............................................................................................. 1.251
27.2 Scope ..................................................................................................... 1.251
27.3 Definitions ............................................................................................... 1.251
27.4 Contractual Arrangement ......................................................................... 1.252
27.5 Forms of Joint Ventures ........................................................................... 1.253
27.6 Jointly Controlled Operations (JCO) ......................................................... 1.253
27.7 Jointly Controlled Assets (JCA) ................................................................ 1.255
27.8 Jointly Controlled Entities (JCE) ............................................................... 1.260
27.9 Consolidated Financial Statements of A Venturer ...................................... 1.262
27.10 Transactions between a Venturer and Joint Venture .................................. 1.267
27.11 Reporting Interests in Joint Ventures in the Financial Statements of an
Investor .................................................................................................. 1.268
27.12 Operators of Joint Ventures ..................................................................... 1.268
27.13 Disclosures ............................................................................................. 1.268
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Unit 28: AS 28 Impairment of Assets
28.1 Introduction ............................................................................................. 1.269
28.2 Scope ..................................................................................................... 1.269
28.3 Assessment ........................................................................................... 1.270
28.4 Measurement of Recoverable Amount ...................................................... 1.271
28.5 Basis for Estimates of Future Cash Flows ................................................. 1.272
28.6 Composition of Estimates of Future Cash Flows ........................................ 1.272
28.7 Recognition and Measurement of an Impairment Loss ............................... 1.273
28.8 Identification of the Cash-Generating Unit to which an Asset Belongs ........ 1.27328.9 Recoverable Amount and Carrying Amount of a Cash-Generating Unit ....... 1.274
28.10 Goodwill .................................................................................................. 1.274
28.11 Corporate Assets ..................................................................................... 1.274
28.12 Impairment Loss for a Cash-Generating Unit ............................................. 1.275
28.13 Reversal of an Impairment Loss ............................................................... 1.275
28.14 Reversal of an Impairment Loss for an Individual Asset ............................. 1.275
28.15 Reversal of an Impairment Loss for a Cash-Generating Unit ...................... 1.276
28.16 Reversal of an Impairment Loss for Goodwill ............................................ 1.276
28.17 Impairment in case of Discontinuing Operations ........................................ 1.276
28.18 Disclosure ............................................................................................... 1.277
28.19 Transitional Provisions ............................................................................ 1.278
28.20 Illustrations ............................................................................................. 1.278
Unit 29: AS 29 Provisions, Contingent Liabil i t ies and Contingent Assets
29.1 Introduction ............................................................................................. 1.281
29.2 Scope .................................................................................................... 1.282
29.3 Definitions ............................................................................................... 1.283
29.4 Provisions ............................................................................................... 1.284
29.5 Present Obligation ................................................................................... 1.284
29.6 Past Event .............................................................................................. 1.284
29.7 Probable Outflow of Resources Embodying Economic Benefits .................. 1.284
29.8 Reliable Estimate of the Obligation ........................................................... 1.285
29.9 Contingent Liabilities ............................................................................... 1.285
29.10 Contingent Assets ................................................................................... 1.285
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32.5 Disclosures ............................................................................................. 1.314
32.6 Reclassification ....................................................................................... 1.314
32.7 Derecognition .......................................................................................... 1.315
32.8 Collateral ................................................................................................ 1.315
32.9 Allowance Account for Credit Losses ........................................................ 1.316
32.10 Compound Financial Instruments with Multiple Embedded Derivatives............ 1.316
32.11 Defaults and Breaches ............................................................................. 1.316
32.12 Statement of Profit and Loss and Equity ................................................... 1.317
32.13 Nature and Extent of Risks Arising from Financial Instruments .................. 1.31732.14 Qualitative Disclosures and Quantitative Disclosures ................................ 1.317
32.15 Credit Risk .............................................................................................. 1.318
32.16 Liquidity Risk .......................................................................................... 1.318
32.17 Sensitivity Analysis .................................................................................. 1.318
32.18 Other Market Risk Disclosures ................................................................. 1.319
Unit 33: Guidance Notes
33.1 Introduction ............................................................................................. 1.320
33.2 Status of Guidance Notes ........................................................................ 1.320
33.3 Guidance Notes on Accounting Aspects.................................................... 1.321
33.4 An Overview of Guidance Notes ............................................................... 1.321
33.5 Miscellaneous Illustrations ....................................................................... 1.329
CHAPTER 2 INTERNATIONAL FINANCIAL REPORTING STANDARDS, THEIRINTERPRETATIONS AND US GAAPs AN OVERVIEW
1. Introduction .................................................................................................. 2.1
2. Objectives of the IASB ................................................................................... 2.2
3. Scope and Authority of International Financial Reporting Standards ................. 2.2
4. Due Process .................................................................................................. 2.4
5. Timing of Application of International Financial Reporting Standards ................... 2.5
6. Conceptual Framework .................................................................................. 2.6
7. International Financial Reporting Standards. ...................................................... 2.8
8. Overview of International Financial Reporting Standards ................................... 2.11
9. Overview of International Accounting Standards .............................................. 2.36
10. International Financial Reporting Interpretations Committee (IFRIC) ................... 2.89
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4.9 Discontinuance of Proportionate Consolidation Method ................................ 5.105
4.10 Joint Venture-cum-Subsidiary ..................................................................... 5.106
CHAPTER 6 ACCOUNTING AND REPORTING OF FINANCIAL INSTRUMENTS
1. Introduction .................................................................................................. 6.1
2. Classification of Financial Assets...................................................................... 6.1
3. Initial Recognition of Financial Instruments ...................................................... 6.11
4. De-Recognition of Financial Assets and Liabilities ............................................ 6.11
5. Measurement ............................................................................................... 6.13
6. Reclassifications ........................................................................................... 6.15
7. Impairment and Uncollectibility of Financial Assets ....................................... 6.15
8. Gains and Losses ........................................................................................ 6.16
CHAPTER 7 SHARE BASED PAYMENTS
1. Introduction ................................................................................................... 7.1
2. Definitions ..................................................................................................... 7.1
3. Types of Transactions .................................................................................. 7.2
4. Employee Share-Based Payments .................................................................. 7.2
5. Employee Share Based Payment Plans .......................................................... 7.3
6. Equity Settled Employee Share Based Payment Plans .................................... 7.47. Accounting Procedure for ESOP ..................................................................... 7.6
8. Variation in Vesting Period ........................................................................... 7.10
9. Graded Vesting ........................................................................................... 7.14
10. Employees Stock Purchase Plans (ESPP) .................................................... 7.18
11. Modifications ............................................................................................... 7.19
12. Cancellation and Settlements during Vesting Period ...................................... 7.21
13. Dilution of EPS due to ESOP granted ........................................................... 7.22
14. Stock Appreciation Rights (SAR) .................................................................. 7.26
15. Employee Share-Based Payment Plans with Cash Alternatives ...................... 7.28
16. Disclosures ................................................................................................. 7.32
Note: Chapters 8 -10 of Financial Reporting and Appendices I, II, III, IV and V are available inVolume 2.