COMPARISON OF INDIA AND U.S.

GAAP
(by P.R. Ramesh & N. Venkatram, from 'The Chartered Accountant', October 2000)

A comparison of accounting treatment under US GAAP and India GAAP in some

significant areas in which different could surface whilst restating accounts, is given
below:

Area U.S. GAAP India GAAP

Fixed assets

Assets valuation Carried at historical cost. Only
downward revaluation is permitted, for
impairment. Exchange fluctuations on
loans taken for, purchase of assets are
expensed when incurred.
Depreciation Depreciation is charged based on the,
useful lives of assets.
Capitalised Capitalisation is required.
Interest costs
Long-lived assets Assets, including intangibles, are
reviewed for impairment, which is
measured at the currying amount of the
assets minus the un-discounted future
cash flows. Restoration of recognised
impairment losses is prohibited.
Research and Expensed when incurred (with the
development exception of development costs in,
costs specialised industries). Purchased R&D
may be capitalised if it has alternative
future use.
Leases Capital leases reflected in the fixed
assets of lessee. Operating lessee
disclosed in footnotes
Inventory Carried at the lower of costs or
valuation (year replacement costs.
end)
Loans (asset) Impairment of loans is measured as the
present value of the expected future
cash flows discounted at the loan’s
effective interest rate minus the
recorded investment in the loan.
Impairment is considered for each loan
individually.
Deferred revenue Deferral is not generally permitted.
Usually at historical cost. Revolution of
fixed assets is permitted. Exchange
fluctuations on loans are capitalised.
Depreciation is charged at statutory
rates, which may be higher than that
computed considering the useful of
assets.
Actual interest costs incurred on the
installation or construction of fixed
assets are capitalised.
Assets retired from active use or held
for disposal are state at book value or
net realisable value.
Research and development costs may
be capitalised if the criteria of technical
feasibility of the product, resource
availability and existence of market, are
met…
The asset is reflected in the books of
the lessor. The lessee expenses the
lease rentals payable during the year.
Carried at the lower of costs and- net
realisable value.
Impairment of loans is provided for in
accordance with Reserve Bank of India
prudential norms (for the financial
sector), or on the basis of recoverability
(for others).
Expenses, such as pre–operative
expenditure
Investment Securities are individually marketed to
Marketable market, with unrealized gains or losses
Securities taken to current income.
Long term
investments
0-20 percent Securities are individually marketed to
ownership market, with unrealized gains or losses
taken to shareholders equity
20-50 percent Equity method of accounting. Inter-
company profit effect is eliminated
51-100 percent Consolidated, using pulling of interest
(up to 2001) or purchase accounting.
Minority interest is disclosed as a line
item. Inter-company transactions are
eliminated.
Deferred taxes Computed under the liability method.
The tax expense for the period is,
determined through the change in the
deferred tax assets and liabilities.
Debt Long-term debt is valued at present
value: all other debt at face value. -
Pension Reflected in the balance sheet based
Liabilities On the accumulated benefit obligation
less the fair value of the plan assets.
Goodwill Taken to balance sheet and amortised,
over a period not exceeding 40 years
(20 years under consideration)
Discontinued Discontinued operations are separately
operations identified segments. Income for
operation and gain/loss, on disposal are
disclosed separately.
Earnings per Disclosure of basic and diluted EPS is
share required.
expenditure, restructuring costs and
the costs of voluntary retirement
schemes are generally amortised over a
period of 3-5 years.
Current investments are carried at the
lower of costs or market value.
Long term investments are carried at
costs less provision for diminution in
value.
Treated as current or long-term based
on intention. Dividend income is
recognised when received.
Consolidation is not required. Carried at
cost, as long-term investments. Profits
of subsidiary are recognised to the
extent dividend is received. Losses of
subsidiary are not reflected.
Accounted for under the tax payable
(flow through) method, though the
liability method is recommended.
Principally valued at face value.
Disclosed on the balance sheet if
unfunded.
Liabilities, such as gratuity, are funded.
Purchased goodwill is capitalised and
amortised over the expected period of
benefit or charged against available
capital reserves.
Gain/loss on disposal of segments are
shown gross, as extraordinary items.
Disclosure is made voluntarily of the
basic EPS.