ACCOUNTING STANDARDS PRESENTATION
Angel_Angel
accounting__standards_presentation.pptx
ACCOUNTING STANDARDS
(By)
.
AS–1
DISCLOSURE OF ACCOUNTING POLICIES
What are Notes to Accounts?
Notes to accounts are the explanation of the management about the items in the financial statements
What are Accounting Policies Specific accounting principles and the method applying those principles adopted by the enterprises in preparation and presentation of the financial statements
Examples of Accounting Policies
Methods of deprecation
Valuation of inventories
Revenue recognition
Amortization
Need for disclosure of Accounting policies
For proper and better understanding of financial statement.
All significant accounting policies should be disclosed at one place.
Fundamental Accounting Assumptions
Going Concern
Consistency
Accrual
Assumption as regards fundamental accounting assumption
Selection of Accounting Policies
Prudence
Substance over form
Materiality
Change in Accounting Policies
Adoption of different accounting policies is required by statute
For compliance with accounting standard
It is considered that change would result in more appropriate presentation of financial statement
AS–5
NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND CHANGE IN ACCOUNTING POLICIES
Objective
The objective of this accounting standard prescribing the criteria for certain items in the profit and loss account so that comparability of the financial statement can be enhanced
Components of net profit
Profit or loss from ordinary activities
Extra-ordinary items
Ordinary activities are defined as any activities, which are undertaken by an enterprise as part of its business and incidental to main business
Profit/loss from ordinary activities
When items of income and expenditure from ordinary activities are of such size and nature that their disclosure is relevant to explain the performance of the enterprises for the period
These items are not “Extra-ordinary items”
The write down of inventories
Restructuring cost or reversal of provision
Profit or loss on disposal of fixed assets
These items are not “Extra-ordinary items”
Profit or loss on disposal of long-term investment
Litigation settlements
Reversal of provisions
Legislative charge having long-term retrospective application
Extra-ordinary items
Extraordinary items are income or expenses that arise from transactions that are clearly distinct from ordinary activities
Example Extra-ordinary items
Loss due to earthquakes
Attachment of property
Govt. grants becoming refundable
Govt. grants for giving immediate financial support with no further cost
Example Extra-ordinary items
Govt. grant receivable as compensation for expenses or losses incurred in previous accounting period.
Prior Period Items
Prior period items are income or expense, which arise in current period as a result of error or omission in the preparation of financial statement of one or more prior periods
Disclosure of Prior Period Items
Should be separately disclosed in the statement of profit loss in manner that their impact on current profit or loss an be perceived
Examples of Prior Period Items
Error in calculation in providing expenditure or income
Omission to account for income or expenditure
Non-provision of travelling expenses
Examples of Prior Period Items
Non-provision for salary
Applying incorrect rate of depreciation
Treating operating lease as finance lease
Capitalisation f borrowing cost on working capital
Change in Accounting Estimate
Estimation of provision of sundry debtors
Estimation of provision of any liabilities
Computing income tax provision
Estimating the useful life of fixed assets
Effect of Change in Accounting Estimate
If an estimate pertains to ordinary activities classified as ordinary activities
If estimates pertains to extraordinary items classified as extraordinary
AS – 6
DEPRECIATION
ACCOUNTING
Depreciation is loss of value of an asset
It is a measure of wearing out, consumption or other loss of value of depreciable asset arising from use and passes of time
Depreciable Assets
Are expected to be used for more than one accounting period
Have a limited useful life
Are held for use in production of goods & services
Applicability of AS
Except the followings:
Forests, Plantations
Wasting assets, Minerals & Natural Gas
Expenditure on research & development
Goodwill
Live Stock – Cattle, Animal husbandry
Calculation of depreciation
Historical cost or other amount in place of historical cost
Estimate useful life of depreciable assets
Estimated residual/scrap value
Cost of Depreciable Asset
Increase/decrease in long-term liability
Price adjustments
Changes in duties
Revaluation of depreciable assets
Other similar reasons
Estimated useful life of Depreciable Asset
Pre-determined by legal or contractual limits
Depends upon the number of shifts for which the asset is to be used
Repair & maintenance policy
Other similar reasons
Estimated useful life of Depreciable Asset
Technological obsolescence
Innovation/improvements
Legal or other restrictions
Estimated residual /scrap value of depreciable asset
It is estimated value of depreciable assets at the end of its useful life
Depreciable amount
Historical Cost
Less
Residual Value
Method of Depreciation
Straight Line Method (SLM)
Written Down Value Method (WDVM)
Selection of appropriate method
Type of assets
Nature of the use of such asset
Circumstances prevailing in the business
A combination of more than one method may be used
Change in depreciation method
For compliance of statute
For compliance of accounting standards
For more appropriate presentation of the financial statement
Procedure to be followed in case of change in depreciation method
Change of depreciation method should be treated as change in accounting policy and its effect should be quantified and disclosed
Change in estimated useful life
Should be allocated over the revised remaining useful life of assets
Change in historical cost
Provided prospectively over the remaining useful life of the assets
Change in historical cost due to revaluation
Estimate of the remaining useful lives of the such assets
Depreciation charge on addition/extension to an existing asset
Addition/extension is an integral part of existing asset
Remaining useful life of the asset
Depreciation charge on addition/extension to an existing asset
Addition/extension is not an integral part of existing assets
Estimated useful life of
additional assets
Depreciable asset is disposed of, discarded, demolished or destroyed
Disclosure
Total cost of each class of assets
Total depreciation
Accumulated depreciation
Depreciation method
Disclosure
Depreciation rate, useful life of assets, if they are different than the rate specified in governing statute
A change in method of depreciation
Effect of the revaluation
Significant differences with IAS/IFRS & US GAAP
AS-6 allows the depreciation on revalued value however, US GAAP prohibits revaluation. IAS-16 allows fair value accounting.
Significant differences with IAS/IFRS & US GAAP
Change in depreciation method under AS-16 & US GAAP is treated as a change in accounting policy; whereas IAS-16, change in estimate.
AS–10
ACCOUNTING FOR
FIXED ASSETS
Fixed Assets
Held with intention of being used for the purpose of producing or providing goods and services
Not held for sale in the normal course of business
Expected to be used for more than one accounting period
Applicability
Not applicable to :-
Forests, plantations and similar regenerative natural resources
Wasting assets like, minerals, oils & natural gas.
Expenditure on real estate development
Live stock
Fixed assets in financial statements
Historical cost- Cost of acquired fixed assets.
Purchase price
Import duties & other non-refundable taxes.
Any directly attributable cost of bringing the asset to the working condition for its intended use.
Historical cost of self-constructed fixed assets
All cost which are directly related to the specific asset
All costs that are attributable to the construction activity should be allocated to the specific assets
An internal profit included in the cost should be eliminated
Cost of asset acquired in exchange of existing assets
Fixed assets exchanged not similar
Fixed assets exchanged are similar
Fixed assets acquired in exchange of share or other securities
- When the fixed assets are revalued these assets are shown at revalued prices in financial statement. - An entire class of assets should be revalued or the selection of assets for revaluation should be made on a systematic basis.
Revalued price
Method of presentation of revalued asset in financial statement
By re-stating the gross book value and accumulated depreciation
By re-stating net block value adding there in the net increase on account of revaluation
Maximum amount of revaluation
Revaluation of fixed assets should be restricted to the net recoverable amount
Accounting treatment of revaluation
First time revaluation (upward)
First time revaluation (downward)
Accounting treatment of revaluation
First time revaluation (downward) subsequent revaluation (upwards)
First revaluation (upward) subsequent revaluation (downward)
Improvement & repairs
Expected future benefit from fixed assets do nt change
Expected future benefits from fixed asset will increase beyond the previously assessed standard performance
Addition or extension of capital nature to an existing asset
If integral part
If separate identity
Retirement & disposal
Deleted from the financial statement
Gains or losses arising on disposal
Fixed assets are retired from active use and held for disposal
Stated at the lower of net book value and net realisable value
Expected loss is recognised immediately
Separately shown in financial statement
Disposal previously revalued fixed assets
If there is profit, credited to profit & loss a/c
If there is loss, adjusted against the balance of revaluation reserve
Disclosure
Gross net book values of fixed assets
Expenditure incurred on account of fixed assets
Revalued amount substituted for historical cost of fixed assets
Review of balance in CENVAT credit receivable accounts
Treatment of CENVAT credit on capital goods (Fixed assets)
Significant difference with IFRS/IAS-16 & US GAAP
IFRS/IAS-16 also allow revaluation
US GAAP does not allow revaluation
