PRESENTATION ON ACCOUNTING

STANDARDS

 AS-16 BORROWING COSTS

 AS-18 REALTED PARTY DISCLOSURES
 AS-30 FINANCIAL INSTRUMENTS-
RECOGNITION & MEASUREMENT

Presented By : Group-10
• Ashish Kumar
• K.Anvesh
• Nitin Chauhan
• Rohit Khandelwal
• Sonal Mishra
• Tanuj Gupta
 AS-16 --- BORROWING COSTS

Objective--The objective of this Standard is to prescribe the

accounting treatment for Borrowing Costs.

 AS16 --Made effective from Accounting Period on or after 01/04/2000.

 Borrowing Costs are defined as interest and other cost incurred by an

enterprise relating to borrowing of funds.

 Other elements of Borrowing Cost are Interest and Commitment charges,

Finance charges and Currency Exchange difference.

 One time cost incurred on borrowing a fund should be amortized over the
period of that borrowed fund, while rest of its part should be amortized
during the life of that asset ( like Stamp Duty, Registration Fees).
 Why Borrowing Cost Should be Capitalised?

 To ascertain the Proper Valuation of the Qualifying Asset.

 Qualifying Asset means that assets that take substantial period( more than 1
year) of time to get ready for its intended use.

Capitalisation of Borrowing Cost :

 Borrowing cost that are directly attributable to the construction or acquisition

of Qualifying asset are allowed for Capitalisation.

 Conditions for the expense to be capitalized: -

 Expenditure for acquisition or construction should be incurred by money
borrowed.
 Activity necessary to prepare the asset for its intended use should be in
progress.
 Such Expense shall be during the year (whether accrued or paid).
 Cessation of Borrowing Suspension of
Cost Borrowing Cost

 Capitalization of Expense into the  If the project is interrupted during

borrowing cost shall be done up to the period than borrowing cost for
the date when the asset is ready that period should not be
for use. capitalised.

 After the cessation of the  Unavoidable or compulsory delay

Qualifying Asset, it should be may not be suspended. For e.g.
expensed out . Construction of bridge in high
(carried forward to P&L account) flooded geographical area.

 Capitalisation in Parts :  When work resumes Capitalisation

For e.g. can be restarted.
Construction of residential flats,
some are ready to be sold,so
Cessation only on remaining flats.
 DISCLOSURES

 The financial statements should disclose :

 the accounting policy adopted for borrowing costs.

 the amount of borrowing costs capitalised during the period.

 AS 18– RELATED PARTY DISCLOSURES

 Objective –
The objective of this Standard is to establish requirements for disclosure of:

 Related Party Relationships.

 Transactions between a reporting enterprise and its related

parties.
 AS- 18 --- Related Party Disclosures

 Who are Related Party of an Enterprise ??

 Subsidiary Company – a holding company holds one half of its nominal value of
Equity capital or composition of Board of Directors.

 Associate Company – neither Subsidiary nor Joint Venture with that party but has
significant influence.

 Joint Venture – it is a Contractual agreement between two or more parties to

govern Financial & Operating policies of an economic activity subject to Joint
control.

 Key Management Personnel – persons authorised to control, plan and direct

activities of an Enterprise.

 What is Related Party Transaction ?

Transfer of resources and obligations between related parties, regardless of

whether or not a price is charged.
 Typical Related Party Transaction

 Simple transaction (purchase of equipment) between two entities (“Buyer” and

“Seller”) controlled by the same shareholder (“Mr James”), who is on the board of
both firms.

Mr. James

Mr. James owns 60% of Mr. James owns 90%

Buyer Co. shares of Seller Co. shares

Buyer Co. Seller Co.

Buyer Co. buys equipment

from Seller Co.
 Key Problem:
 The proposed transaction may have a business purpose.
For e.g. purchasing the equipment may lead to expanded sales.

 James is on both sides of the transaction and may benefit if Buyer acquires
overpriced equipment from Seller (not for personal benefit).
 Meaning of Control ?
Control can be achieved in following ways in an enterprise :

 By Ownership – having more than 50% Voting Rights.

 Composition of Board of Directors – to appoint or remove majority of Directors of

the Company.

 By way of Substantial interest in Voting Power -- Directly or indirectly owning 20%

or more Voting power.

For e.g.
Company A enjoys 60 % voting rights in Company B and 30 % Voting Rights
in Company C. Are Company B and Company C related party of Company A?

 Disclosure as per AS 18 –

 PARA 21 of AS -- Name of Related party and Nature of relationship

 PARA 23 of AS -- Amount written off Debt
 PARA 26 of AS -- Items of similar nature by type of Related party
 AS-30 ---FINANCIAL INSTRUMENTS--
RECOGNITION & MEASUREMENT

 Objective – To establish principles for recognising and measuring

financial assets, financial liabilities and some contracts to buy
or sell non-financial items.
 It will be applicable from periods commencing from 01/04/2009.

 FINANCIAL INSTRUMENT -- It is any contract that gives rise to both a

financial asset of one enterprise and a financial liability or equity shares of
another enterprise.

 FINANCIAL ASSETS – An asset that derives value because of a contractual

claim. Stocks, bonds, bank deposits, and the like are all examples of
financial assets.

 FINANCIAL LIABILITY– Any liability that arises because of a Financial

instrument (as discussed above).
 RECOGNITION : Disclosure of Asset or contract in the Balance Sheet
during the particular time.

 MEASUREMENT : A financial instrument can be measured in the following

ways :

 Fair Value of Assets and Liabilities of acquire and issue.

 Short term receivables and payables at original price after discount.

 Fair value + Direct Transaction cost (Brokerage, Security Exchange).

 Derivatives -- Financial instruments whose value is based on the market
value of an underlying asset such as stocks, bonds or a commodity.
Examples of derivatives are futures contracts, options and forward contracts

 Hedging – It’s a two way process to minimize the risk.

 Why Hedging is required ?

 Hedge Accounting Process --

Hedge accounting means recognition of changes in profit or loss at the
same time in relation to the following : -

HEDGE ACCOUNTING

Fair Value Cash Flow

Hedge Hedge
THANK YOU