Financial Accounting

Accounting Standards
Issued by
ICAI
Introduction
• Accounting standards:
▫ Accounting Bodies have tried to achieve a
uniformity in accounting policies
▫ Prescribing certain accounting standards in order
to narrow down the range available to an
organization in respect of collection and
presentation of accounting information.
International Accounting Standards
• International Accounting Standards Committee
(established in 1973)
• Accounting committees of all countries are a
member to IASC
• IAS 1 to IAS 41
Objectives of the IASC
• Formulating, publishing and promoting the use
of accounting standards worldwide
• To work for the improvement and
harmonization of regulations, accounting
standards and procedures relation to financial
statements.
Importance of the IASC
• Globalization of the economy
• Foreign investors bias.
Indian Accounting Standards
• ICAI constituted an Accounting Standard Board
on 21st April, 1977.
• Function of ASB: to frame accounting standards
which would be formally issued under the
authority of Council of Institute of Chartered
Accountants.
Importance of Accounting Standards
• Presenting clear-cut accounts on a uniform basis
• Standards represent ideal practice of accounting.
• Ensure comparability of accounts
• Account show the clear position of the state of
affairs
Accounting Standards Issued by ICAI
• ASB has issued 29 standards.
• In line with the International standards.
AS 1: Disclosure of Accounting Policies
• Deals with disclosure of significant accounting
policies
• Accounting policies vary from enterprises to
enterprises.
• Three fundamental assumptions
▫ Going Concern
▫ Accrual Concept
▫ Consistency.
AS 2: Inventories
• Inventories
• Three aspects of Inventory Valuation
▫ Measurement of cost
▫ Measurement of net realizable value.
▫ Comparison between Cost and Net Realizable
Value.

Important Cost Formula

AS 3: Cash Flow Statement
• Cash Flow statement
• Cash and cash Equivalent
• Types of Cash Flow
 Cash flow from operating activities
 Cash flow from investing activities
 Cash flow from financial activities
AS 4: Contingencies and events
occurring after the Balance Sheet Date.
• Marked as a note under the Balance Sheet for
future reference.

▫ Contingencies.
▫ Events occurring after the Balance Sheet Date.
AS 5: Net Profit or Loss for the Period,
Prior Period Items and Changes in
Accounting Policies.
• All income and expenses should be included in
the determination of net profit or loss for the
period unless an accounting standard requires or
permits otherwise
• Prior period items.
• The change in the accounting policy should be
made only if adoption of different policy is
required or if the change is for the improvement
of enterprise.
AS 6: Depreciation Accounting.
• Depreciation assets are:
• expected to be used more then one AY
• have a limited useful life
• Used in the production of supply and goods.
• Depreciation cannot be applied to:
• Forests and plantation
• Minerals, oils, natural gas etc.
• Expenditure on R&D
AS 7: Construction Contracts
• The standard deals with the treatment of
revenue and cost associated with construction
contracts.
• A construction contract is a contract for the
construction of an asset or of a combination of
assets which together constitute a single project.
• Types of construction contracts:
▫ Fixed price contract
▫ Cost plus contract
AS 8: Accounting for research and development:

• This standard deals with the treatment of costs of

research and development in financial
statements.
• Cost incurred for research and development
mainly includes the following:
▫ Salaries , wages , and other related cost of
personals.
▫ Cost of material and services consumed.
▫ Overhead costs
▫ Payment to outside bodies for R&D
AS 9: Revenue recognition
• This standard deals with the bases for the
recognition of revenue in the statement of profit
and loss of an enterprise.
• It is only concerned with the recognition of
revenue arising in the course of ordinary activities
of the enterprise which are –
▫ The sale of goods
▫ The rendering of services
▫ The use by others of enterprise resources yielding
interest , royalties and dividends.
AS 10: Accounting for Fixed Assets

• ASSET is a resource :
▫ Controlled by the enterprise as a result of past events,
▫ from which future economic benefits are expected to
flow to the enterprise.

• Fixed Asset
▫ Tangible Fixed Assets
▫ Intangibles
▫ Capital Work In Progress
AS 11: Effects of changes in Foreign Exchange Rate
 

• An entity has to present its financial statements in

terms of currency of the country, although it might
have transactions in terms of foreign currency.

• Monetary Items : measured at year end exchange

rate.

• Non-Monetary Items: measured at exchange rate

on the date of transaction.
AS 12: Accounting for Government Grants
 

• This standard is applicable to govt. grants.

• GOVT. : Govt. and Govt. agencies, and similar local,

national or international bodies.

• GOVT. GRANTS : Assistance by govt. in cash or kind to an

enterprise for past and future, compliance with certain
conditions.

• Exceptions :
▫ Govt. assistance which cannot be reasonably valued.
▫ Transactions which cannot be distinguished from normal trading
transactions.
AS 13: Accounting for investments
• It deals with accounting for investments in the financial
statement of enterprise and related disclosure. it does
not deals with operating or financial leases, investment
of retirement benefit plans, life insurance etc.

• Definition:
▫ Investments
▫ Current investments
▫ Long term investments
▫ Fair value
▫ Market value
▫ Investment property.
AS 14: Accounting for Amalgamations
• This statement deals with accounting for
amalgamations and the treatment of any resultant
goodwill or reserves, but not with cases of
acquisitions.
• Definitions:
▫ Amalgamation
▫ Transferor company
▫ Transferee company
• Types of amalgamation:
▫ Nature of merger
▫ Nature of purchase
• Accounting approach:
▫ Pooling interest method
▫ Purchase method
AS15: Accounting for Retirement benefits in the
Financial Statements of Employers Introduction:
• This standard prescribe accounting & disclosure for all
employee benefits, except employee share-based payments.
• Retirement benefits usually consists of:-
▫ PF
▫ Pension
▫ Gratuity etc.
• Definition:
▫ Retirement benefits schemes
▫ Defined contribution schemes
▫ Defined benefit schemes
▫ Pay-as-you-go
AS 16: Borrowing Costs

• Borrowing costs are interest and other costs

incurred by an enterprise in connection with the
borrowing of funds. 

• Borrowing cost may include different factors.

AS17: Segment Reporting

• This standard is made for all those enterprises

which produce more than one product or which
operates in different geographical locations

• Factors that should be considered.

• Objectives
AS 18: Related Party Disclosure

• Parties are considered to be related if at any time

during the reporting period one party has the
ability to control the other party or exercise
significant influence over the other party in
making financial and/or operating decisions. 

• This Standard is mandatory in nature for

different organizations.
AS 19: Leases
• The objective of this Standard is to prescribe, for lessees
and lessors, the appropriate accounting policies and
disclosures in relation to finance leases and operating
leases.

• This Standard should be applied in accounting for all

leases other than:
▫ lease agreements to explore for or use natural resources,
such as oil, gas, timber, metals and other mineral rights;
▫ licensing agreements for items such as motion picture films,
video recordings, plays, manuscripts, patents and
copyrights;
▫ lease agreements to use lands.
AS 20: Earnings per Share

• The Objective is to prescribe principles for

determination and presentation of earnings per
share which will improve comparison of
performance among different enterprises for the
same period and among different accounting
periods for the same enterprise.
• To enhance the quality of financial reporting.
AS 21: Consolidated Financial Statements

• The objective of this statement is to lay down

principles and procedures for presentation and
preparation of consolidated financial statements,
that are presented by parent (Holding
enterprise) to provide financial information
about the economic activities of the group.
 AS 22:Accounting for Taxes on
Income
• Came into effect from 1st April, 2001.
• Mandatory in nature for two types of
enterprises.
• Applicable for all enterprises .
• Prescribe accounting treatment for taxes on
income in accordance with the matching concept:

• Matching of taxes with the corresponding

revenue and expenses since taxable income
significantly varies with the accounting
income

• Reasons
• Timing Difference
• Permanent Differences

•Timing difference results in D.T.A or D.T.L.

TREATMENT AND DISCLOSURE
• D.T.A treated on the basis of PRUDENCE i.e.
availability of sufficient taxable income.
• Time period of 7 yrs.
• D.T.A & D.T.L should be distinguished from C.A
& C.L.
• D.T.A & D.T.L should be disclosed under
separate heading.
• Evidence supporting future taxable income
should also be disclosed.
AS 23-ACCOUNTING FOR
INVESTMENT IN ASSOCIATED IN
CONSOLIDATED BALANCE SHEET
• To prescribe principles & procedures for
recognizing the effects of investment on financial
position & operating result.
• What is an Associate?
• Defining Sufficient Influence.
DISCLOSURES
• Use of Equity Method for calculating investments.
• Disclosure of not using Equity Method.
• Goodwill / Capital reserve should be included in the
carrying amount of investments, but should be
disclosed.
• Investments to be distinguished as long term
investments.
• Investors share of profit / loss to be disclosed.
• Names of associates, reporting dates should also be
disclosed.
• In case of use of different accounting policies adopted
should also be disclosed.
AS 24-ACCOUNTING FOR
DICONTINUING OPERATIONS
• Came into effect on 1.4.2004
• To establish principles for reporting
information on discontinuing operations.
• Mandatory for all discontinuing operations.
• What is a Discontinuing Operation?
1.By disposing it entirety.
2.By Piecemeal
3.By abandonment.
DISCLOSURES
• Description of discontinuing operations.
• Date & period in which discontinuance is
expected to complete.
• Amount of assets & liabilities to be disposed off.
• Amount of revenue & expenses attributable to
discontinuing operations.
• Amount of net cash flow attributable to
Operating, Investing & Financing activities.
AS 25: Interim Financial Reporting 

• The objective of this Standard is to prescribe the

minimum content of an interim financial report
and to prescribe the principles for recognition
and measurement in a complete or condensed
financial statements for an interiperiod.
• Timely and reliable interim financial reporting
improves the ability of investors, creditors, and
others to understand an enterprise's capacity to
generate earnings and cash flows, its financial
condition and liquidity.
AS 26: Intangible Assets
 

• The objective of this Standard is to prescribe the

accounting treatment for intangible assets that are
not dealt with specifically in another Accounting
Standard.
• This Standard requires an enterprise to recognise
an intangible asset if, and only if, certain criteria
are met.
• The Standard also specifies how to measure the
carrying amount of intangible assets and requires
certain disclosures about intangible assets.
AS 27: Financial Reporting of Interests in Joint Ventures

• This Standard is mandatory in respect of separate

financial statements of an enterprise.
• In respect of consolidated financial statements of an
enterprise, this Standard is mandatory in nature
where the enterprise prepares and presents the
consolidated financial statements.
• The objective of this Standard is to set out
principles and procedures for accounting for
interests in joint ventures and reporting of joint
venture assets, liabilities, income and expenses in
the financial statements of venturers and investors.
AS 28: Impairment of Assets
• The objective of this Standard is to prescribe the
procedures that an enterprise applies to ensure that its
assets are carried at no more than their recoverable
amount. An asset is carried at more than its
recoverable amount if its carrying amount exceeds the
amount to be recovered through use or sale of the
asset.

• If this is the case, the asset is described as impaired

and this Standard requires the enterprise to recognise
an impairment loss.
AS29: Provisions, Contingent Liabilities and
Contingent Assets
• The objective of this Standard is to ensure that
appropriate recognition criteria and measurement
bases are applied to provisions and contingent
liabilities and that sufficient information is disclosed
in the notes to the financial statements to enable
users to understand their nature, timing and amount.

• The objective of this Standard is also to lay down

appropriate accounting for contingent assets.
 AbhijeetAditi
Prashant
Amrita

Aahna

Anjali Thank You!

Bhuvan

Abhishek

Amarjit
Ajay
Amit