Accounting: Special Issue On

VOL 21 NO.
12 PAGES 36 MAY 2018 50
The Institute
of Chartered
Accountants of
India
(Set up by an act of
Parliament) Your monthly guide to CA news, information and events
SPECIAL ISSUE ON
ACCOUNTING
CONTENTS
EDITORIAL BOARD INSIDE

President and Editor-in-Chief 03 President’s Communication
CA. Naveen N. D. Gupta, New Delhi
Vice President
CA. Prafulla Premsukh Chhajed, Mumbai
Chairman and Editor 04 Vice-President’s Communication
CA. Dhinal A.Shah, Ahmedabad
Vice-Chairman
CA. Vijay Kumar Gupta, Faridabad 05 Chairman’s Communication
Members
CA. Atul Kumar Gupta, New Delhi
CA. Babu Abraham Kallivayalil, Kochi
06 Advanced Accounting
CA. (Dr.)Debashis Mitra, Kolkata
CA. Dhiraj Kumar Khandelwal, Mumbai
CA. Kemisha Soni,Indore
CA. K. Sripriya, Chennai 32 Finance Update
CA. Madhukar Narayan Hiregange, Bangalore
CA. Manu Agrawal, Kanpur
CA. Mangesh Pandurang Kinare, Mumbai
CA. M. Devaraja Reddy, Hyderabad 33 Important Announcement
CA. M. P. Vijay Kumar, Chennai
CA. Mukesh Singh Kushwah, Ghaziabad
CA. Prakash Sharma, Jaipur
CA. Rajesh Sharma, New Delhi
36 Crossword
CA. Ranjeet Kumar Agarwal, Kolkata
CA. Sanjiv Kumar Chaudhary, New Delhi
CA. Sushil Kumar Goyal, Kolkata SWACHH BHARAT - A STEP TOWARDS CLEANLINESS
Dr. P.C.Jain, New Delhi
Shri Vijay Jhalani, New Delhi
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02 May 2018 The Chartered Accountant Student

PRESIDENT’S COMMUNICATION
recruitment in taxation, audit and other financial profiles.
You would be pleased to know that in the recently concluded
Campus Placement Programme organized in February-
March 2018 across the country, 130 organisations
participated with their 221 interview panels and 1472
candidates got the job offers. Highest salary (cost to company)
offered in the domestic posting category was ` 22.30 lakh per
annum, with average salary (cost to company) offered was
` 8.40 lakh per annum.
3 Ps for Life: Patience, Perseverance, Passion

In your pursuit to achieve your academic, personal and
professional goals, you invest several years working
incessantly at a nerve-wrecking pace to find your worthy
place in society as a responsible citizen and in industry as a
Dear Students, professional. Little do you realize that the education gained
I
thus far just trains you to make a good living but not for a
convey my best wishes to all the students appearing in good life.
the May 2018 examinations. I sincerely hope that you all
will perform well and bring laurels to your family as well You must realize that training to make a good life means
as to the institute. I am sure, you must have utilized the being conscious about your inner self, finding greater
learning resources and publications provided by the ICAI, purpose of your life, true success, fulfillment and eternal
for exam preparation and also undertaken the mock test happiness. This would happen when you will start accepting
papers for self-assessment. With a sound strategy, skillful your life as it is. People when realize that everything in life
execution, indomitable spirit and unflinching commitment happens according to their time and their clock, they have
towards your goal, you are bound to achieve success and the courage and patience to tread ahead on the chosen path.
make it to the league of young Chartered Accountants, who Nothing is too early or too late in life. You will have to work
are ever ready to take up challenging assignments both in in your time zone to achieve your goals. In this incredible
industry and in practice. journey called life you will have to constantly discover the
hidden dimensions of your persona, pursuing your passion
3 Ps for Exams: Preparation, Priority, Presentation with utmost allegiance and perseverance, not restricting
yourself to the stereotypes and conventions imposed by your
As you are already neck deep into studies, busy revisiting social milieu. One of the greatest scientist, Albert Einstein,
and revising important concepts, preparation for the once said: “Not everything that counts can be counted and
d-day is important. I suggest you pay an advance visit to not everything that is counted truly counts”. You should
the exam centre to ascertain the travelling time, traffic and create a meaningful and purposeful life for yourself, to make
distance. It is pertinent to reinforce that utilizing your time a difference in the lives of others. And that will be your true
effectively, especially during the examination is crucial for success. Do not benchmark your life by the standards set
your success. You must utilize the initial reading time to by others. Set your own standards and surpass your own
set your priority, the order in which you would answer the benchmarks.
questions. Apportion your time prudently according to the
weightage and complexity of the question, utilizing some You must stay positive, motivated and focused. Have
time in planning and structuring your answers before you faith in your capabilities. Strengthen your strengths and
start to pen your answers. Remember, presentation is most overcome your shortcomings by consistently working on
important and you must present your answers articulately them. Concentrate on your studies with determination and
to maximize your score. Enumerate the points to enhance commitment to your goals without worrying about the result.
the readability of your answers. Write neatly and legibly, Self-discipline, perseverance and persistence are the keys to
explaining the concept with clarity, precision and coherence, success. Keep treading the path that you have chosen and
highlighting important terms and keywords. Incorporate never lose sight of your goals. Strive to become a winner in
illustrations and examples, wherever necessary. Do not let life. Be positive and cheerful while working on your goals.
stress get the better of you. Focus your energies on your Remember, winning is a mindset; it is a way of life. As a
strengths to bring out the best in you. This will help to elevate famous motivator remarked: “Winners don’t do different
your confidence, setting the momentum for the current paper things, they do things differently”. So chart your own
as well as forthcoming papers. After each exam, you must success story and unleash the winner within!
relax for a while to rejuvenate your mind and body to prepare
for the subsequent exam. Yours Sincerely,
Campus Placements
It is a matter of pride for all of us that our esteemed
Institute is becoming a popular destination amongst the
reputed organizations looking for confident, committed CA. NAVEEN N. D. GUPTA
and competent entry-level professionals through campus PRESIDENT, ICAI, NEW DELHI
The Chartered Accountant Student May 2018 03

It always seems impossible until it’s done. - Nelson Mandela
VICE PRESIDENT’S COMMUNICATION
Dear Students, As soon as you are through with your examinations you
need to take a decision on which direction, you want
I take this opportunity to take your professional life. You have to choose your
to extend my best career path according to your interest and aptitude.
wishes to all of you First of all, you need to carefully develop a specialist
for your forthcoming in you by acquiring in-depth knowledge, undertaking
CA Examinations, deeper study, having practical outlook and a committed
which is scheduled to focus on the area of your interest. You should see your
be held in May 2018. I qualification as only the starting point and not as the
am confident that your end for your professional education and development.
strenuous and persistent In this highly competitive era, you should be capable
efforts will lead you to enough to market yourself very effectively. Need of
the path of glorious victory. If you have put your best the Industry is changing, technology is changing and
efforts with utmost sincerity in your preparations, it you should always remain adaptive to the changes.
will definitely reward you in a befitting manner. A Develop strong communication and technology skills,
thorough preparation of your subjects will help you use every opportunity to broaden and extend your
to secure good marks. Along with subject preparation, knowledge. You all should combine your technical skills
students undertaking practical training seriously will and strategic vision to contribute effectively to the new
definitely do well. Above all, you should take maximum range of performance measures and the contemporary
advantage of the educational inputs such as study demand of the stakeholders.
material, revision test papers, suggested answers and
other supplementary study materials developed by the Yours sincerely,
Board of Studies on a regular basis. If you find any
difficulty in understanding the materials or clear your
genuine doubts, you can always address the Board of
Studies. The BoS faculties will answer your queries
CA. PRAFULLA P. CHHAJED
and assist you in clearing your doubts. VICE PRESIDENT, ICAI, NEW DELHI
Election to the Managing Committee of WICASA
The Annual General Meeting (AGM) of Members of the Western India Chartered Accountants Stu-
dents’ Association (WICASA) will be held on Sunday, the 3rd June, 2018 at 05.P.M at Khimji Kuvarji
Vikamsey auditorium of the Institute of Chartered Accountants of India, ICAI Tower, Plot No. C-40,
G-Block, Opp. MCA Ground, Bandra- Kurla Complex, Bandra ( East) Mumbai- 400 051.
Elections to the Managing Committee of the Association for the year 2018-19 would also be held from
10.00 A.M to 2.00 P.M on the same day. For details, students may visit: www.wirc-icai.org
ICAI Mobile App

The ICAI has developed a mobile app “ICAI Now” that empowers the members, students and other
stakeholders to remain updated on important announcements and various other initiatives of the
Institute. Students are advised to download the freely accessible app on their mobile phones from the
link https://www.icai.org/mobile/.
Director, Board of Studies
A creative man is motivated by the desire to achieve, not by the desire to beat others. - Ayn Rand
CHAIRMAN’S COMMUNICATION
like to suggest a few tips that you should keep in mind

while in the exam hall. Read all the instructions and
follow them. Give a quick reading of the question paper.
Attempt those questions on which you have a sound
knowledge. Come back to those questions, which you
are not comfortable with, later on. This will help you to
save time. Have confidence in yourself.
I am happy to say that a large number of students have
participated in the Mock Tests organized by the Board
T
Dear Students,
of Studies through the Regional Councils and Branches
he May examinations are round the corner.
across the country. This will greatly benefit the students
My best wishes to all the students who are
appearing for the May 2018 Examination.
appearing in the examinations. I sincerely
hope that all of you will do well in the There are students who do not realize their true
examination. In the recent examinations, the pass potential. Most of them are very happy with whatever
percentage has shown a rising trend. I wish in this they are able to achieve. With the fast changing
examination also, larger number of students pass. scenario, it has become very essential for the students
I know that the stress level on all of you before and to get good results and excel. You should also be very
after the examinations will be on the higher side. But clear about what you intend to achieve in your life. You
you should not allow this to be an obstacle for you to should have a high degree of self-confidence to achieve
become successful. If you have done your preparations your goals in life. Swami Vivekananda said, “We are
with utmost devotion, dedication and sincerity, I am responsible for what we are, and whatever we wish
sure that your hard work will earn you good results. ourselves to be, we have the power to make ourselves.
Your methodical and systematic study combined with If what we are now has been the result of our own
careful planning and strategy will definitely help you to past actions, it certainly follows that whatever we
reach heights. Just remember, there is no substitute for wish to be in future can be produced by our present
hard work and labour. actions; so we have to know how to act.”
As you all know that Chartered Accountancy as a Stay focused on your desires. If you remain focused,
profession and as an academic course involves a great you never lose your desire and passion to obtain which
amount of hard work. It does not stop on clearing the you seek. Once your examinations are over, take a brief
CA final. It is a continuous education process in the break to avoid monotony and rejuvenate your mind.
fast changing world. The expectation of the industry You should also learn how you can utilize your idle
from a qualified Chartered Accountant is increasing time in a productive manner.
day by day. To meet these expectations, one should Before I wind up this message, once again I wish you
have expert level of knowledge. Students should not all good luck for your examinations. Keep your mind
appear for the examination with a pre-conceived strong, goals firm so that you can deliver the best.
notion that these are the toughest and impossible to
Yours sincerely,
clear. Nor should these examinations be taken lightly.
CA, like any other professional examinations require a
great deal of dedication and commitment. Chartered
Accountancy course is a rigorous one and hence, it
requires dedicated efforts on the part of students. Many
students are not able to get better results because they
CA. DHINAL A. SHAH
cannot cope up with the time. If you can manage your
CHAIRMAN, BOARD OF STUDIES, ICAI
time properly, you can have the best results. I would
It does not matter how slowly you go as long as you do not stop. - Confucius
ADVANCED ACCOUNTING
A CAPSULE ON ACCOUNTING STANDARDS FOR QUICK RECAP

It has always been the endeavour of Board of Studies to provide quality academic inputs to the students. Considering this
objective in mind, it has been decided to bring forth a crisp and concise capsule for the topic on Accounting Standards covered
in Intermediate Paper 5 “Advanced Accounting”. The significant provisions of AS 7, AS 9, AS 14, AS 18, AS 19, AS 20, AS 24, AS
26 and AS 29 have been gathered and presented through pictorial presentations in this capsule which will help the students in
grasping the intricate practical aspects of each Accounting Standard. Although, the capsule has been prepared keeping in view
the new and revised scheme of Education and Training of ICAI, the students of earlier scheme may also be benefitted from it. This
capsule, though, facilitates the students in undergoing quick revision, under no circumstances, such revisions can substitute the
detailed study of the material provided by the Board of Studies.
AS 7 “CONSTRUCTION CONTRACTS”
AS 7 prescribes the principles of accounting for construction contracts in the financial statements of contractors. The focus of the
standard is on allocation of contract revenue and contract costs to the accounting periods in which construction work is performed.
What are Construction Contracts? AS 7 prescribes conditions under which the outcome of a
contract can be estimated reliably.
Contracts
specifically Contracts for Contracts for
negotiated for rendering of destruction or Total contract revenue can be
the construction services related restoration of measured reliably.
of an asset or to construction of assets. In fixed
combination assets.
of assets that price
are closely contract It is probable that the economic
interrelated. benefits associated with the
contract will flow to the
enterprise.
Construction contracts can be classified into two
categories. Both contract costs to complete
Outcome the contract and the stage of
Types of construction of contract completion at the
contracts contracts reporting date can be measured
can be reliably.
estimated
reliably
Fixed price contract Cost plus contract Contract costs attributable
when to contract can be clearly
identified and measured reliably
so that actual contract costs
incurred can be compared with
Contractor agrees to a Contractor is prior estimates.
fixed contract price or reimbursed for
fixed rate per unit of allowable or otherwise
output, which in some defined costs, plus It is probable that the
cases is subject to cost percentage of these economic benefits associated
escalation. costs or a fixed fee. with the contract will flow to
the enterprise.
If the final outcome of the contract

In cost plus Contract costs attributable
contract to the contract, whether or
not specifically reimbursable,
Can be estimated reliably Can not be estimated can be clearly identified and
reliably measured reliably.
Revenue Revenue should Contract costs

and costs be recognized should be
recognized as only to the extent recognised as Methods for Determination of Stage of
per percantage of contract costs an expense in Completion of Contracts
of completion incurred, of the period in
method which recovery is which they are Determination of Stage of Completion
considering probable. incurred. (Method to be chosen depending on the nature of the contract)
the stage of
completion
of contract at Proportion that Surveys of work Completion
reporting date. contract performed of a physical
costs incurred for proportion of
work performed upto the contract
Note: Any expected loss (when contract cost > contract the reporting date work
revenue) on the construction contract should be recognised bear to the estimated
total contract costs
as an expense immediately in both the situations.

ADVANCED ACCOUNTING
As per the standard, Contract revenue and Contract costs A contract may provide for the construction of an additional
comprise of the following: asset at the option of the customer or may be amended to include
the construction of an additional asset.
Contract Revenue
Variations in contract work, Construction of the additional asset should be

claims and incentive payments if treated as a separate construction contract when
Initial amount of revenue (i) it is probable that they will
agreed in the contract. result in revenue.
(ii) they are capable of being Asset differs significantly in design, technology or
reliably measured. function from the asset or assets covered by the
original contract
Contract Costs Price of the asset is negotiated without regard to the

original contract price.
Costs Costs that are Such other costs
that relate attributable to as are specifically
directly to contract activity chargeable to the
the specific in general and customer under Disclosures in Financial Statements
contract. can be allocated the terms of the
General Specific for contracts in progress
to the contract. contract.
Amount of contract revenue
recognised as revenue in the Amount of advances received
period
• Application of percentage of
completion on a cumulative basis in Methods used to determine the
each accounting period to the current stage of completion of contracts Amount of retentions
estimates of contract revenue and in progress
contract costs.
• Effect of a change in the estimate Retentions are the amounts of progress billings which are
of contract revenue or contract
Changes costs, or the effect of a change in the
not paid until the satisfaction of conditions specified in the
in estimate of the outcome of a contract, contract for the payment of such amounts or until defects
Estimates is accounted for as a change in have been rectified.
accounting estimate.
• The changed estimates are used
in determination of the amount of
revenue and expenses recognised in An enterprise
the statement of profit and loss in the should present Due from customers As an asset
gross amount
period in which the change is made for contract
and in subsequent periods. work in the
financial
statements Due to customers As a liability
When a contract covers a number

of assets, each contract should be
treated as separate contract if
Separate proposals Each asset has been

subject to separate Costs and
have been negotiation and revenues of each
submitted for each contractor and asset can be
asset. customers are able identified.
to accept or reject
that part of the
contract relating to
each asset.
A group of Group of contracts is negotiated as a

contracts, single package.
whether with a
single customer
or with several Contracts are performed concurrently
customers, or in a continuous sequence.
should be treated
as a single
construction Contracts are so closely interrelated
contract when that they are, in effect, part of a single
project with an overall profit margin.

ADVANCED ACCOUNTING
AS 9 “REVENUE RECOGNITION”
AS 9 explains the timing for recognition of revenue in the Sale of Goods
financial statements and also state the circumstances under Revenue from sale of goods should be recognised when the
which revenue recognition should be postponed. requirements as to performance as set out in the standard are
satisfied.
Bases for recognition In the statement of

of revenue arising profit and loss of In sale of goods, performance should be regarded as
AS 9 deals with in the course of the an enterprise. being achieved when
ordinary activities
Revenue is the gross inflow of cash, receivables

or other consideration arising from
Use by others of
Rendering of enterprise resources Seller of goods has
Sale of goods services yielding interest,
royalties and dividends transferred to the buyer the
No significant uncertainty
property in the goods for a
exists regarding the amount
price or all significant risks
of the consideration that
and rewards of ownership
AS 9 does not deal with reveue arising from will be derived from the
have been transferred to the
sale of the goods.
buyer and the seller retains
no effective control of the
Construction contracts goods transferred.
Hire-purchase, lease agreements

Rendering of Services
Revenue from service transactions is usually recognised as the
service is performed.
Government grants and other similar subsidies
Methods of recognition of Revenue

Insurance contracts of insurance companies
Proportionate Completed service

completion method contract method
Realised gains
resulting from
the disposal of (i) Recognition of revenue in (i) Recognition of revenue
non-current
assets the statement of profit and in the statement of profit
Unrealised gains Unrealised gains loss proportionately with and loss only when the
resulting from resulting from
the holding of the degree of completion rendering of services
the restatement non-current of services under a under a contract is
of the carrying assets e.g.
amount of an contract. completed or substantially
obligation appreciation in (ii) Performance consists of completed.
Items not the value of fixed
assets the execution of more (ii) Services become
included than one act.
within the chargeable.
definition of (iii) Revenue is recognised (iii) Performance consists of
“revenue” Unrealised proportionately the execution of a single
Realised gains holding gains
resulting from resulting from by reference to the act.
the discharge the change in performance of each act.
of an obligation value of current
at less than its assets, and the
carrying amount Realised or natural increases
unrealised gains in herds and Note: Revenue from Sale of goods “for consideration” and Service
resulting from agricultural and
changes in foreign forest products transactions should be recognized only when no significant
exchange rates uncertainty exists regarding amount of consideration.
and adjustments
due to translation
of foreign
currency financial
statements

ADVANCED ACCOUNTING
Use of Enterprise Resources by Other Parties Effect of Uncertainties on Revenue Recognition
Use of enterprise resources by others may yield revenue in the Where the ability to assess the ultimate collection with reasonable
form of Interest, Royalties and Dividends. certainty is lacking at the time of raising any claim, revenue
recognition is postponed to the extent of uncertainty involved.
Recognition of Revenue when enterprise When the uncertainty relating to collectability arises subsequent
resources are used by others to the time of sale or the rendering of the service, it is more
appropriate to make a separate provision to reflect the uncertainty
rather than to adjust the amount of revenue originally recorded.
Disclosures
Royalties - Dividends -
In addition to the disclosures required by AS 1 “Disclosure
Interest - Accrual basis When right to
of Accounting Policies”, an enterprise should disclose the
Time basis depending upon the receive the payment
circumstances in which revenue recognition has been postponed
terms of agreement. is established.
pending the resolution of significant uncertainties.
AS 14 “ACCOUNTING FOR AMALGAMATIONS”

AS 14 (Revised) deals with the accounting to be made in the Transferor company Company which is amalgamated into another
books of Transferee company in the case of amalgamation and company.
the treatment of any resultant goodwill or reserve. Transferee company Company into which a transferor company is
amalgamated.
Reserve Portion of earnings, receipts or other surplus
Objective of an enterprise (whether capital or revenue)
appropriated by the management for a general
Accounting for amalgamations or a specific purpose other than a provision for
depreciation or diminution in the value of assets
or for a known liability.
Consideration for the Aggregate of the shares and other securities
Treatment of any resultant goodwill or reserves amalgamation issued and the payment made in the form of cash
or other assets by the transferee company to the
shareholders of the transferor company.
Disclosures Fair value Amount for which an asset could be exchanged
between a knowledgeable, willing buyer and a
knowledgeable, willing seller in an arm’s length
transaction.
Scope
This standard deals The standard does not deal Types of Amalgamations and Methods of Accounting
with Accounting for with cases of acquisitions
Amalgamation i.e. where one entity is acquired Amalgamation may be either
acquisition of one entity by by the other and the in the nature of
the other and the acquired acquired entity continues
entity ceased to exist to exist.
Merger Purchase
Key Terms
Meaning of Amalgamations
In an amalgamation,
two or more companies Amalgamations which are in
are combined into one effect a mode by which one
by merger or by one Amalgamations where there is company acquires another
taking over the other. a genuine pooling not merely of company and as a consequence,
Amalgamation means an the assets and liabilities of the the shareholders of the company
amalgamating companies but which is acquired normally
amalgamation
also of the shareholders’ interests do not continue to have a
and of the businesses of these proportionate share in the equity
companies are amalgamations in of the combined company, or the
pursuant to the nature of merger. business of the company which
the relevant includes is acquired is not intended to be
provisions “merger” continued.
of the
Companies
Act Method of Accounting - Method of Accounting -
Pooling of Interest method Purchase method

ADVANCED ACCOUNTING
The standard specifies the conditions to be satisfied by an Treatment of Reserves of the Transferor
amalgamation to be considered as amalgamation in nature of Company on Amalgamation
merger or purchase.
Conditions for Amalgamation in the nature Treatment of Reserves

of Merger and Purchase
Amalgamation in the nature of merger is an amalgamation which
satisfies all the following conditions:
Amalgamation in Amalgamation in the
(i)
All the assets and liabilities of the transferor company nature of merger nature of purchase
become, after amalgamation, the assets and liabilities of the
transferee company.
Identity of the reserves, other
(ii) Shareholders holding not less than 90% of the face value Identity of the
than the statutory reserves is
of the equity shares of the transferor company (other than reserves is preserved
the equity shares already held therein, immediately before not preserved. The amount
and they appear in the
amalgamation, by the transferee company or its subsidiaries of the consideration is
financial statements
or their nominees) become equity shareholders of the deducted from the value of
of the transferee
transferee company by virtue of the amalgamation. the net assets of the transferor
company in the
company acquired by the
same form in which
transferee company. If the
(iii)Consideration for the amalgamation receivable by those they appeared in the
result of the computation
equity shareholders of the transferor company who agree financial statements
is negative, the difference is
to become equity shareholders of the transferee company of the transferor
debited to goodwill arising on
is discharged by the transferee company wholly by the company.
issue of equity shares in the transferee company, except amalgamation and if the result
that cash may be paid in respect of any fractional shares. of the computation is positive,
the difference is credited to
(iv)The business of the transferor company is intended to Capital Reserve.
be carried on, after the amalgamation, by the transferee
company.
(v) No adjustment is intended to be made to the book values

of the assets and liabilities of the transferor company
when they are incorporated in the financial statements
of the transferee company except to ensure uniformity of Statutory Reserves
accounting policies.
Statutory reserves retain their identity in the financial statements of
Amalgamation in the nature of purchase is an amalgamation which the transferee company in the same form in which they appeared in the
financial statements of the transferor company, so long as their identity is
does not satisfy any one or more of the conditions specified above. required to be maintained to comply with the relevant statute.
Methods of Accounting
Purchase Method Statutory reserves are recorded in the financial statements of the transferee
company by a corresponding debit to a suitable account head (e.g.
‘Amalgamation Adjustment Reserve’) which is presented as a separate line
Under the purchase method, the transferee company accounts for item under the head “Reserves and Surplus”.
the amalgamation either
• By incorporating the assets and liabilities at their existing
carrying amounts or When the identity of the statutory reserves is no longer required to be
• By allocating the consideration to individual identifiable maintained, both the reserves and the aforesaid account are reversed.
assets and liabilities of the transferor company on the basis of
their fair values at the date of amalgamation.
Balance of Profit and Loss Account

Pooling of Interests Method
1 Assets, liabilities and reserves of the Balance of the Profit and Loss Account appearing in
transferor company to be recorded the financial statements of the transferor company
Pooling of interests by the transferee company at existing
is a method of carrying amounts and in the same form
accounting for as at the date of the amalgamation.
amalgamations, the Amalgamation in nature Amalgamation in the
object of which is 2 If the transferor and the transferee of merger nature of purchase
to account for the companies have conflicting accounting
amalgamation as if the policies, a uniform set of accounting
separate businesses policies should be adopted following the Is aggregated with the Debit or credit
of the amalgamating amalgamation. corresponding balance appearing balance loses its
companies were
in the financial statements of the identity.
intended to be 3 The difference between the amount of
continued by the transferee company.
share capital issued (plus any additional
transferee company. consideration in the form of cash or
other assets) and the amount of share Alternatively, it is transferred to
capital of the transferor company the General Reserve, if any.
should be adjusted in reserves.

ADVANCED ACCOUNTING
Treatment of Goodwill For amalgamations accounted for under the pooling of interests
method, the following additional disclosures are considered
Goodwill arising on amalgamation represents a payment made appropriate in the first financial statements following the
in anticipation of future income and it is appropriate to treat it as amalgamation:
an asset to be amortised on a systematic basis over its useful life.
Description and number of shares issued, together
Due to the nature of goodwill, it is frequently difficult to estimate with the percentage of each company’s equity shares
its useful life with reasonable certainty. exchanged to effect the amalgamation; and
It is considered appropriate to amortise goodwill over a period

not exceeding 5 years unless a longer period can be justified. Amount of any difference between the consideration
and the value of net identifiable assets acquired, and the
treatment thereof.
Disclosure Requirements
For all amalgamations, the following disclosures are considered
appropriate in the first financial statements following the For amalgamations accounted for under the purchase method,
amalgamation: the following additional disclosures are considered appropriate
in the first financial statements following the amalgamation:
Names and general nature of business of the amalgamating
companies; Consideration for the amalgamation and a description of the
consideration paid or contingently payable; and
Effective date of amalgamation for accounting purposes;
Amount of any difference between the consideration
Method of accounting used to reflect the amalgamation; and and the value of net identifiable assets acquired, and the
treatment thereof including the period of amortisation of
any goodwill arising on amalgamation.
Particulars of the scheme sanctioned under a statute.
AS 18 “RELATED PARTY DISCLOSURES”

AS 18 prescribes the requirements for disclosure of related party relationship and transactions between the reporting enterprise
and its related parties. The requirements of the standard apply to the financial statements of each reporting enterprise as also to
consolidated financial statements presented by a holding company.
Related Parties and Related Party Relationships

in making financial
or exercise significant and/or operating
one party has the influence over the decisions.
if at any time during ability to control the other party
Parties are considered the reporting period other party
to be related
(e)
(a)
(b) (c) (d) Enterprises
Enterprises over which any
that directly, Individuals person described
Associates and Key in (c) or (d) is
or indirectly owning, directly
joint ventures management able to exercise
through or indirectly, an
AS 18 deals of the reporting personnel and significant
one or more interest in the influence.
only with enterprise and relatives of such
intermediaries, voting power of This includes
related party the investing
control, or are the reporting personnel enterprises
relationships party or
controlled by, enterprise owned by
in sitiuations venturer in directors
or are under that gives
when: respect of which or major
common them control
the reporting shareholders of
control with, or significant
enterprise is an the reporting
the reporting influence over enterprise and
associate or a
enterprise (this the enterprise, enterprises
joint venture.
includes holding and relatives that have a
companies, of any such member of key
subsidiaries individual. management in
and fellow common with
the reporting
subsidiaries). enterprise.

ADVANCED ACCOUNTING
In the context of AS 18, following are deemed not to be the consent or concurrence of any other person, to appoint or
related parties: remove all or a majority of directors/members of the governing
body of that company/enterprise.
Two companies simply because they have a director in
common (unless the director is able to affect the policies of
both companies in their mutual dealings). An enterprise is deemed to have the power to appoint
a director/ member of the governing body, if any of the
A single customer, supplier, franchiser, distributor or general
agent with whom an enterprise transacts a significant volume following conditions are satisfied:
of business.
A person’s The director/

Providers of finance, Trade unions, Govt. agencies and A person cannot appointment as member of the
public utilities in the course of their normal dealings with be appointed as director/member governing body is
an enterprise. director/member of governing nominated by that
of the governing body follows enterprise; in case
body without the necessarily from that enterprise
exercise, in his his appointment is a company,
favour, by that to a position the director is
enterprise of held by him in nominated by
such a power or that enterprise that company/
No disclosure is required in consolidated financial or subsidiary thereof.
statements in respect of intra-group transactions.
Substantial Interest
Key Terms
An enterprise/individual is considered to have a
substantial interest in another enterprise if
Related Party Transaction
That enterprise or That individual owns, directly

individual owns, directly or indirectly, 20% or more
or indirectly, 20% or more interest in the voting power of
interest in the voting power the enterprise.
of the other enterprise
regardless of
whether or
between not a price is Associate
related charged.
or parties
obligations
resources
in which nor a
A Associate an and
has which is joint
transfer is an investing significant venture
enterprise reporting neither a
of influence subsidiary of that
party party.
Control
Control includes
Significant Influence
Significant influence is participation in the financial and/or operating
Control of the policy decisions of an enterprise, but not control of those policies.
composition
Ownership, Substantial
of the board Significant influence may be gained by share ownership, statute
directly or interest in voting
of directors in or agreement.
indirectly, of more power and the
the case of a
than one half of power to direct,
company or of the
the voting power by statute or As regards share ownership, if an investing party holds, directly
composition of
of an enterprise agreement, the or indirectly, through intermediaries, 20% or more of the
the corresponding financial and/or voting power of the enterprise, it is presumed that the investing
governing body in operating policies party does have significant influence, unless it can be clearly
case of any other of the enterprise. demonstrated that this is not the case.
enterprise
A substantial or majority ownership by another investing party

For the purpose of AS 18, an enterprise is considered to control does not necessarily preclude an investing party from having
the composition of the board of directors of a company or significant influence.
governing body of an enterprise, if it has the power, without

ADVANCED ACCOUNTING
Key Management Personnels are The Related Party Issue

Related party relationships are a normal feature of commerce
Those persons who have the authority and responsibility
for planning, directing and controlling the activities of the and business.
reporting enterprise.
In relation to an individual, Relative means Without related party disclosures, there is a general
presumption that transactions reflected in financial
statements are consummated on an arm’s-length basis
between independent parties.
Any person or be The operating results and financial position of an enterprise

Spouse, son, who may be influenced by, in his/her may be affected by a related party relationship even if related
daughter, expected to that individual dealings with
brother, sister, and which the reporting party transactions do not occur.
influence
father and is neither a enterprise.
mother subsidiary
Sometimes, transactions would not have taken place if the
related party relationship had not existed.
Joint Venture and Joint Control Disclosure

Name of the related party and nature of the related party relationship
Undertake Which is where control exists should be disclosed irrespective of whether or
Joint A Whereby
contractual two or an subject not there have been transactions between the related parties.
Venture economic to joint
is arrangement more
activity control.
parties If there have been transactions between related parties, during
the existence of a related party relationship, the reporting
enterprise should disclose the following:
To govern The name of the transacting related party;

Contractually Sharing of the Of an
Joint agreed power financial economic
Control and activity.
is operating A description of the relationship between the parties;
policies
A description of the nature of transactions;

Holding Company
A company having one or more subsidiaries is a holding company.
Volume of the transactions either as an amount or as an
Subsidiary Company appropriate proportion;
A company is Subsidiary Any other elements of the related party transactions necessary for
an understanding of the financial statements;
Amounts or appropriate proportions of outstanding items

in which another company
of which another company pertaining to related parties at balance sheet date and provisions
(the holding company) for doubtful debts due from such parties at that date;
holds, either by itself and/ (the holding company)
or through one or more controls, either by itself and/
subsidiaries, more than or through one or more
one-half, in nominal value subsidiaries, the composition Amounts written off or written back in the period in respect of
of its equity share capital; of its board of directors. debts due from or to related parties.
or
Items of a similar nature may be disclosed in aggregate by type of
related party except when separate disclosure is necessary for an
Fellow Subsidiary understanding of the effects of related party transactions on the
financial statements of the reporting enterprise.
Company is if both are same
fellow of another holding No disclosure is required in the financial statements of state-
considered to subsidiaries
subsidiary company company. controlled enterprises as regards related party relationships with
be a of the
other state-controlled enterprises and transactions with such
enterprises.

ADVANCED ACCOUNTING
AS 19 “LEASES”
The objective of AS 19 is to prescribe, for lessees and lessors, the Minimum Lease Payments
appropriate accounting policies and disclosures in relation to finance
leases and operating leases. Minimum lease payments are
the payments over the lease term

series of
periodic
in return payments that the lessee is
for a (Lease rents).
payment
conveys to the or
Lessee (another to make excluding contingent rent,
party)
whereby the
Lessor (legal
owner of an
asset) costs for services and
A Lease
is an
agreement
taxes to be paid by and
Scope
reimbursed to the lessor,
Lease agreements to explore for or use of
natural resources such as oil, gas, timber
metals and other mineral rights.
together with:
(a) in the case of the lessee, any residual value guaranteed
by or on behalf of the lessee; or
Licensing agreements for items such as (b) in the case of the lessor, any residual value guaranteed
motion picture films, video recordings, to the lessor:
plays, manuscripts, patents and (i) by or on behalf of the lessee; or
AS 19 applies to copyrights. (ii) by an independent third party financially capable of
all leases other meeting this guarantee.
than:
Lease agreements to use lands.
However, if the lessee has an option to purchase the asset at a
price which is expected to be sufficiently lower than the fair value
at the date the option becomes exercisable that, at the inception of
Agreements that are contracts for the lease, is reasonably certain to be exercised, the minimum lease
services, that do not transfer right to use payments comprise minimum payments payable over the lease term
assets from one contracting party to the and the payment required to exercise this purchase option.
other.
Fair Value
Key Terms Fair value
Non-cancellable lease is a lease that is cancellable
in an arm’s length
Upon the occurrence of With the permission of the transaction. is the amount
some remote contingency; lessor; or
or
Upon payment by the lessee of knowledgeable,

If the lessee enters into a
new lease for the same or an additional amount such that, willing parties for which an asset
an equivalent asset with the at inception, continuation of
same lessor; or the lease is reasonably certain.
a liability settled
The lease term is the non-cancellable period for which the lessee between could be exchanged
has agreed to take on lease the asset together with any further periods or
for which the lessee has the option to continue the lease of the asset,
with or without further payment, which option at the inception of the
lease it is reasonably certain that the lessee will exercise.

ADVANCED ACCOUNTING
Economic Life Unearned Finance Income
the number of Difference between:

the period over which an production or
Economic asset is expected to be similar units
or expected to be
life is either: economically usable by obtained from
one or more users; the asset by one
or more users. Gross investment in the lease; and
Useful Life Present value of
(i) Minimum lease payments under a finance lease from the

Number of standpoint of the lessor; and
Period over production or
Useful life of a which the leased similar units (ii) Any unguaranteed residual value accruing to the lessor, at
leased asset is asset is expected OR expected to be
either: the interest rate implicit in the lease.
to be used by the obtained from the
lessee; use of the asset by
the lessee.
Net investment in the lease is the gross investment in the lease less
unearned finance income.
Residual Value
Interest rate implicit in the lease
Residual is the at the end

value estimated fair of the lease Discount rate Any unguaranteed
value term.
that, at the Minimum lease residual value
inception of the payments under a accruing to the
lease, causes finance lease from lessor, to be equal
the aggregate the standpoint of to the fair value of
present value of the lessor; and the leased asset.
Guaranteed Residual Value
Guaranteed residual value is:

in the case of the lessee,
that part of the residual value
which is guaranteed by the
lessee or by a party on behalf in the case of the lessor, that
of the lessee (the amount of the part of the residual value which Lessee’s Incremental Borrowing Rate of Interest
guarantee being the maximum is guaranteed by or on behalf of
amount that could, in any the lessee, or by an independent
event, become payable). third party who is financially
capable of discharging
the obligations under the
guarantee. is the rate of interest
the lessee would have to pay on a similar lease or,
if that is not determinable,

Unguaranteed Residual Value the rate that, at the inception of the lease,
the lessee would incur to borrow over a similar term
Its and with a similar security, the funds necessary to

Amount of the Exceeds
by which guaranteed purchase the asset.
asset residual
the
residual value.
value
Contingent Rent
Contingent rent is that portion of the lease payment

Gross Investment
that is not fixed in amount but is based on a factor

Aggregate Minimum Under a From the
of lease finance standpoint
payments lease of the lessor.
other than just the passage of time

ADVANCED ACCOUNTING
Types of Leases
For accounting purposes, leases are classified as
Finance leases Operating leases
A lease that transfers substantially, all the risks and rewards incident to A lease is classified as an Operating Lease, if it does not transfer substantially
ownership of an asset. Title may or may not be eventually transferred. all the risk and rewards incident to ownership.
Indicators of Finance Lease
Lessee has
the option to
purchase the asset At the inception
at a price which of the lease,
is expected to be present value of
Lease term is for Leased asset is
Situations, which Lease transfers sufficiently lower the minimum
the major part of a specialised
would normally ownership of than the fair value lease payment
of the economic nature such
lead to a lease the asset to the at the date the amounts
life of the asset that only the
being classified lessee by the end option becomes to at least lessee can use it
even if title is not
as a finance lease of the lease term. exercisable substantially all without major
transferred.
are: such that, at of the fair value modifications
the inception of of the leased being made.
the lease, it is asset.
reasonably certain
that the option
will be exercised.
Indicators of situations which individually or in combination could A finance lease gives rise to a depreciation expense for the asset
also lead to a lease being classified as a finance lease are: as well as a finance expense for each accounting period. The
depreciation policy for a leased asset should be consistent with
If the lessee can If gains or losses from If the lessee that for depreciable assets which are owned, and the depreciation
cancel the lease and the fluctuations in the can continue
the lessor’s losses recognised should be calculated on the basis set out in AS 10
residual value accrue the lease for a
associated with the secondary period (Revised), Property, Plant and Equipment. If there is no reasonable
to the lessee certainty that the lessee will obtain ownership by the end of the
cancellation are at a rent, which is
borne by the lessee. substantially lower lease term, the asset should be fully depreciated over the lease
than market rent. term or its useful life, whichever is shorter.
Lease classification is made at the inception of the lease. If at any

Initial direct costs are often incurred in connection with
time the lessee and the lessor agree to change the provisions of the specific leasing activities, as in negotiating and securing leasing
lease, other than by renewing the lease, in a manner that would have arrangements. The costs identified as directly attributable to
resulted in a different classification of the lease had the changed terms activities performed by the lessee for a finance lease are included
been in effect at the inception of the lease, the revised agreement is as part of the amount recognised as an asset under the lease.
considered as a new agreement over its revised term.
Accounting for Finance Leases (Books of Computation of Interest Rate implicit on
Lessee) Lease (IRR)
On the date of inception of lease, lessee should show it as an Minimum
asset and corresponding liability at lower of: lease payments
under a finance
(i) Fair value of leased asset at the inception of the lease lease from the
standpoint of the
(ii) Present value of minimum lease payments from the standpoint lessor; and
of the lessee (present value to be calculated with discount rate The interest rate
implicit in the lease
equal to interest rate implicit in the lease, if this is practicable to is the discount rate
determine; if not, the lessee’s incremental borrowing rate should that, at the inception
be used). Lease payments to be apportioned between the finance of the lease, causes
charge and the reduction of the outstanding liability. the aggregate present Any
value of unguaranteed
residual value
accruing to the
Finance charges to be allocated to periods during the lease term so lessor, to be equal
as to produce a constant rate of interest on the remaining balance to the fair value
of liability for each period. of the leased
asset.

ADVANCED ACCOUNTING
Disclosures made by the Lessee in case of Review of Unguaranteed Residual Value by

Finance Lease Lessor
The lessee should, in addition to the requirements of AS 10 (Revised)
AS 19 requires a lessor to review unguaranteed residual value
and the governing statute, make the following disclosures for finance
leases: used in computing the gross investment in lease regularly. In case
any reduction in the estimated unguaranteed residual value is
(a) Assets acquired under finance lease as segregated from the identified, the income allocation over the remaining lease term is to
assets owned;
be revised. An upward adjustment of the estimated residual value
is not made.
(b) For each class of assets, the net carrying amount at the
balance sheet date;
Manufacturer or Dealer Lessor
The manufacturer or dealer lessor should recognise the
(c)
Reconciliation between the total of minimum lease transaction of sale in the statement of profit and loss for
payments at the balance sheet date and their present the period, in accordance with the policy followed by the
value. In addition, an enterprise should disclose the total enterprise for outright sales.
of minimum lease payments at the balance sheet date, and
their present value, for each of the following periods:
Initial direct costs should be recognised as an expense in the
(i) not later than one year;
(ii) later than one year and not later than five years; statement of profit and loss at the inception of the lease.
(iii) later than five years;
Disclosures
(d) Contingent rents recognised as expense in the statement of
The lessor should make the following disclosures for
profit and loss for the period;
finance leases:
(e) Total of future minimum sublease payments expected to (a) Reconciliation between the total gross investment in the lease at
be received under non-cancelable subleases at the balance the balance sheet date, and the present value of minimum lease
sheet date; and payments receivable at the balance sheet date. In addition, an
enterprise should disclose the total gross investment in the lease
and the present value of minimum lease payments receivable at
the balance sheet date, for each of the following periods:
(f )
General description of the lessee’s significant leasing (i) not later than one year;
arrangements including, but not limited to, the following: (ii) later than one year and not later than five years;
(i)
the basis on which contingent rent payments are (iii) later than five years;
determined;
(ii)
the existence and terms of renewal or purchase
options and escalation clauses; and
(iii) restrictions imposed by lease arrangements, such (b) Unearned finance income;
as those concerning dividends, additional debt, and
further leasing.
(c) Unguaranteed residual values accruing to the benefit of the

Accounting for Finance Leases (Books of lessor;
Lessor)
The lessor should recognise assets given under a finance lease in its
balance sheet as a receivable at an amount equal to the net investment (d)
Accumulated provision for uncollectible minimum lease
in the lease. payments receivable;
In a finance lease, the lessor recognises the net investment in lease
which is usually equal to fair value as receivable by debiting the
Lessee A/c.
(e) Contingent rents recognised in the statement of profit and loss
Recognition of Finance Income for the period;
The unearned finance income is recognised over the lease term
based on a pattern reflecting a constant periodic return on the net
investment in lease outstanding.
(f ) General description of the significant leasing arrangements of
the lessor;
Initial Direct Costs
For finance leases, initial direct costs incurred to produce finance
income are either recognised immediately in the statement of (g) Accounting policy adopted in respect of initial direct costs.
profit and loss or allocated against the finance income over the
lease term.

ADVANCED ACCOUNTING
Accounting for Operating Leases Disclosures by Lessors
Accounting treatment in the Books of lessee As per AS 19, the lessor should, in addition to the requirements
Lease payments under an operating lease should be recognised as an of AS 10 (Revised)* and the governing statute, make the following
expense in the statement of profit and loss of a lessee on a straight disclosures for operating leases:
line basis over the lease term unless another systematic basis is more
representative of the time pattern of the user’s benefit.
(a)
For each class of assets, the gross carrying amount, the
accumulated depreciation and accumulated impairment losses
Disclosures by Lessees at the balance sheet date; and
Lessees are required to make following disclosures for operating (i) the depreciation recognised in the statement of profit and
leases: loss for the period;
(ii) impairment losses recognised in the statement of profit and
loss for the period;
(a) Total of future minimum lease payments under non-cancelable (iii) impairment losses reversed in the statement of profit and
operating leases for each of the following periods: loss for the period;
(i) not later than one year;
(ii) later than one year and not later than five years;
(iii) later than five years; (b) Future minimum lease payments under non-cancelable
operating leases in the aggregate and for each of the following
(b) Total of future minimum sublease payments expected to periods:
be received under non-cancelable subleases at the balance (i) not later than one year;
sheet date; (ii) later than one year and not later than five years;
(iii) later than five years;
(c)
Lease payments recognised in the statement of profit and
loss for the period, with separate amounts for minimum lease
(c) Total contingent rents recognised as income in the statement of
payments and contingent rents;
profit and loss for the period;
(d) Sub-lease payments received (or receivable) recognised in the

statement of profit and loss for the period; (d)
General description of the lessor’s significant leasing
arrangements; and
(e)
General description of the lessee’s significant leasing
arrangements including, but not limited to, the following:
(e) Accounting policy adopted in respect of initial direct costs.
(i) the basis on which contingent rent payments are determined;
(ii) the existence and terms of renewal or purchase options and
escalation clauses; and
(iii) restrictions imposed by lease arrangements, such as those
concerning dividends, additional debt, and further leasing.
Sale and Leaseback

Accounting Treatment in the books of Lessor
Lease income from operating

leases should be recognised
The lessor should in the statement of profit and One vendor Lessee or seller
present an asset given loss on a straight line basis sells an asset receives cash
under operating lease over the lease term, unless for cash and immediately and
as fixed assets in its another systematic basis is then takes it makes periodic
balance sheets. more representative of the back from the payment in the
time pattern in which benefit buyer on lease. form of lease rents
derived from the use of the for right to use the
leased asset is diminished. property.
Accounting Lease payments

treatment of a sale and the sale price
Depreciation of leased assets The impairment losses are generally
should be charged in books on assets given on and lease back
depends upon interdependent as
of lessor on a basis consistent operating leases are they are negotiated
with the normal depreciation the type of lease
determined and treated involved. as a package.
policy of the lessor for similar
assets. as per AS 28*.
* AS 10 and AS 28 are not covered in the syllabus of Paper 5.

ADVANCED ACCOUNTING
Where sale and leaseback results in finance lease Sale price Carrying Carrying Carrying
The excess or deficiency of sales proceeds over the carrying amount established at amount equal amount less amount above
should not be recognized immediately but deferred and amortised fair value to fair value than fair value fair value
over the lease term in proportion to the depreciation of the leased Profit No profit Recognise No profit
asset. profit (note 1)
Where sale and leaseback results in operating lease immediately
Case 1: Sale price = Fair Value
Profit or loss should be recognised immediately. Loss not Recognise loss Recognise loss (note 1)
compensated immediately immediately
by future lease
Case 2: Sale Price < Fair Value payments at
Profit should be recognised immediately. The loss should also be below market
recognised immediately except that, if the loss is compensated by price
future lease payments at below market price, it should be deferred
and amortised in proportion to the lease payments over the period Loss Defer and Defer and (note 1)
compensated amortise loss amortise loss
for which the asset is expected to be used. by future lease
payments at
Case 3: Sale Price > Fair Value below market
The excess over fair value should be deferred and amortised over the price
period for which the asset is expected to be used. Sale price above fair value (paragraph 50)
If the fair value at the time of a sale and leaseback transaction is less
than the carrying amount of the asset, a loss equal to the amount of Profit Defer and Defer and Defer and
the difference between the carrying amount and fair value should be amortise amortise amortise
profit profit profit (note
recognised immediately.
2)
Sale price Carrying Carrying Carrying Loss No loss No loss (note 1)

established at amount equal amount less amount above
fair value to fair value than fair value fair value
Profit No profit Recognise profit Not applicable Note 1: Circumstances that require the carrying amount of an asset
immediately to be written down to fair value where it is subject to a sale and
Loss No loss Not applicable Recognise loss leaseback.
immediately Note 2: Profit would be the difference between fair value and sale
price as the carrying amount would have been written down to fair
Sale price below fair value (paragraph 50) value in accordance with AS 19.
AS 20 “EARNINGS PER SHARE”
The objective of AS 20 Earnings per share (EPS) is a financial ratio indicating the amount
of profit or loss for the period attributable to each equity share and
AS 20 gives computational methodology for determination and
is to describe principles presentation of basic and diluted earnings per share.
for determination and presentation
of earnings per share

This Accounting Standard is mandatory for all companies.
However, disclosure of diluted earnings per share (both including
which will improve comparison of performance and excluding extraordinary items) is not mandatory for SMCs.
among different enterprises
for the same period and

In consolidated financial statements, the information required by
among different accounting periods AS 20 should be presented on the basis of consolidated
information.
for the same enterprise.

ADVANCED ACCOUNTING
Key Terms Potential Equity Share

Equity Shares A financial That
Other entitles, Its holder
instrument
An equity share a preference share. contract or may to equity
or
entitle, shares.
is a share other than
Preference Share Share Warrants or Options
Financial instruments
Preference Carrying to dividends
share preferential and that give the holder
rights repayment
of capital. right to acquire equity shares.
Fair Value
A Financial Instrument
Fair value is
the amount
Any contract that
gives rise to both

for which an
in an arm’s
asset could be
length
exchanged,
transaction.
a financial asset of
one enterprise and
a financial liability between or a liability

or equity shares knowledgeable, settled,
willing parties
of another
enterprise.
Financial Asset Basic Earnings Per Share

A financial asset is any asset that is
Basic earnings per share is calculated as
Cash
A contractual right to receive cash or another financial asset from

Net profit (loss) attributable to equity shareholders
another enterprise
Weighted average number of equity shares outstanding during the period
A contractual right to exchange financial instruments with another
enterprise under conditions that are potentially favourable; or
An equity share of another enterprise. For calculating basic earnings per share, the net profit or
loss for the period attributable to equity shareholders
Financial Liability
should be the net profit or loss after deducting preference
Any liability that is a dividends and any attributable tax thereto for the period.
Contractual obligation to deliver cash or another financial All items of income and expense which are recognised in a
asset period, including tax expense and extraordinary items, are
included in the determination of the net profit or loss for
To another enterprise or to exchange financial instruments the period.
With another enterprise under conditions that are

potentially unfavourable.

ADVANCED ACCOUNTING
Amount of any preference dividends In calculating diluted earnings per share, effect is given to all
Amount of on non-cumulative preference shares dilutive potential equity shares that were outstanding during
preference provided for in respect of the period; and the period, that is:
dividends for the
period that is Full amount of the required preference
deducted from the dividends for cumulative preference
net profit for the shares for the period, whether or not the The weighted average number of equity
period is: dividends have been provided for. shares outstanding during the period
The net profit for the is increased by the weighted average
period attributable to number of additional equity shares
equity shares is: which would have been outstanding
If an enterprise has more than one class of equity shares, net profit or
loss for the period is apportioned over the different classes of shares assuming the conversion of all dilutive
in accordance with their dividend rights. potential equity shares.
Earnings Per Share

Increased by the Increased by the Adjusted for the
The number of shares used in the denominator for basic amount of dividends amount of interest after-tax amount of
EPS should be the weighted average number of equity shares recognised in the recognised in the any other changes in
outstanding during the period. period in respect period in respect expenses or income
of the dilutive of the dilutive that would result
potential equity potential equity from the conversion
The weighted average number of equity shares outstanding shares as adjusted shares as adjusted of the dilutive
during the period is the number of shares outstanding at the for any attributable for any attributable potential equity
beginning of the period, adjusted by the number of equity change in tax change in tax shares.
shares bought back or issued during the period multiplied by expense for the expense for the
a time-weighting factor. period; period; and
For the purpose of calculating diluted earnings per share, an

(i) Are treated as a fraction of (ii) to the extent that they were
enterprise should assume the exercise of dilutive options and other
an equity share entitled
dilutive potential equity shares of the enterprise. The assumed
Partly paid proceeds from these issues should be considered to have been
equity shares
received from the issue of shares at fair value. The difference between
(iii) to participate in dividends (iv) relative to a fully paid the number of shares issuable and the number of shares that would
equity share have been issued at fair value should be treated as an issue of equity
shares for no consideration.
Where an enterprise has equity shares of different nominal values but Options and other share purchase arrangements are dilutive when they
with the same dividend rights, the number of equity shares is calculated would result in the issue of equity shares for less than fair value. The
by converting all such equity shares into equivalent number of shares of amount of the dilution is fair value less the issue price. Therefore, in order
the same nominal value. to calculate diluted earnings per share, each such arrangement is treated
as consisting of:
Equity shares may be issued, or the number of shares outstanding may
be reduced, without a corresponding change in resources. Examples
include: bonus issue or share splits. (a) A contract to issue a certain number of equity shares at their average
fair value during the period. The shares to be so issued are fairly
In a rights issue, the exercise price is often less than the fair value of the priced and are assumed to be neither dilutive nor anti-dilutive.
shares. A rights issue usually includes a bonus element. (b) A contract to issue the remaining equity shares for no consideration.
Such equity shares generate no proceeds and have no effect on the
net profit attributable to equity shares outstanding.
The number of equity shares to be used in calculating basic earnings per

share for all periods prior to the rights issue is the number of equity shares
outstanding prior to the issue, multiplied by the following adjustment
factor: Dilutive Potential Equity Shares
Fair value per share immediately prior to the exercise of rights
Theoretical ex -rights fair value per share Potential equity shares are anti-dilutive when their conversion to equity
shares would increase earnings per share from continuing ordinary
activities or decrease loss per share from continuing ordinary activities.
The theoretical ex-rights fair value per share is calculated by adding the
aggregate fair value of the shares immediately prior to the exercise of the
rights to the proceeds from the exercise of the rights, and dividing by the
number of shares outstanding after the exercise of the rights. In considering whether potential equity shares are dilutive or anti-
dilutive, each issue or series of potential equity shares is considered
separately rather than in aggregate.
Diluted Earnings per Share
Where an enterprise has equity shares of different nominal values
but with the same dividend rights, the number of equity shares is Potential equity shares are weighted for the period they were
calculated by converting all such equity shares into equivalent outstanding.
number of shares of the same nominal value.

ADVANCED ACCOUNTING
Restatement Disclosure
If the number of equity or potential equity shares outstanding
increases as a result of a bonus issue or share split or decreases Where the statement of profit and The amounts used as the
as a result of a reverse share split (consolidation of shares), the loss includes extraordinary items numerators in calculating basic and
calculation of basic and diluted earnings per share should be basic and diluted EPS computed diluted earnings per share, and a
adjusted for all the periods presented. on the basis of earnings excluding reconciliation of those amounts to
extraordinary items (net of tax the net profit or loss for the period.
If these changes occur after the balance sheet date but before expense).
An enterprise should
the date on which the financial statements are approved by disclose
the board of directors, the per share calculations for those
financial statements and any prior period financial statements The weighted average number
presented should be based on the new number of shares. of equity shares used as the The nominal value of shares along
denominator in calculating basic with the earnings per share figures.
and diluted earnings per share
and a reconciliation of these
Presentation denominators to each other.
An enterprise should present AS 20 requires an enterprise

basic and diluted earnings to present basic and diluted
per share on the face of the earnings per share, even if If an enterprise discloses, in addition to basic and diluted earnings per
statement of profit and loss for the amounts disclosed are share, per share amounts using a reported component of net profit other
each class of equity shares that negative . than net profit or loss for the period attributable to equity shareholders,
has a different right to share in such amounts should be calculated using the weighted average number of
the net profit for the period. equity shares determined in accordance with AS 20.
AS 24 “DISCONTINUING OPERATIONS”
The objective of AS 24 is to establish principles for reporting Assets, liabilities, revenue, and expenses are directly attributable
information about discontinuing operations, thereby enhancing to a component if they would be eliminated when the component
the ability of users of financial statements to make projections of an is sold, abandoned or otherwise disposed of. If debt is attributable
enterprise's cash flows, earnings-generating capacity, and financial to a component, the related interest and other financing costs are
position by segregating information about discontinuing operations similarly attributed to it.
from information about continuing operations.
Discontinuing Operation Discontinuing operations are infrequent events, but this does
not mean that all infrequent events are discontinuing operations.
A discontinuing operation is a component of an enterprise
That represents That can be

Initial Disclosure Event
That the a separate major distinguished
enterprise, line of business operationally Enterprise has entered into
pursuant to a or geographical and for financial With respect to a binding sale agreement
single plan* area of operations reporting a discontinuing for substantially all of
purposes. operation, the the assets attributable to
initial disclosure discontinuing operation or Approved a
event is the detailed, formal
occurrence plan for the
*(i) Disposing of substantially in its entirety, such as by selling the of one of discontinuance
component in a single transaction or by demerger or spin-off of the events, and
ownership or whichever
occurs earlier:
(ii) Disposing of piecemeal, such as by selling off the component’s
Enterprise’s board of Made an
assets and settling its liabilities individually or directors or similar announcement
(iii) Terminating through abandonment. governing body has of the plan.
To qualify as a discontinuing operation, the disposal must be

pursuant to a single coordinated plan.
Recognition and Measurement
A component can • Operating assets and liabilities of the component can be
be distinguished directly attributed to it. This AS does not provide any guidelines
operationally and for • Its revenue can be directly attributed to it.
financial reporting • For recognizing and measuring,
• Majority of its operating expenses can be directly
purposes if these attributed to it. • Effect of discontinuing operations,
conditions are met: • Relevant Accounting Standards should be referred.

ADVANCED ACCOUNTING
Presentation and Disclosure Separate disclosure for each discontinuing

Initial Disclosure
operation
An enterprise should include the following information relating to Any disclosures required by AS 24 should be presented separately
a discontinuing operation in its financial statements beginning with for each discontinuing operation.
the financial statements for the period in which the initial disclosure
event occurs:
Presentation of the Required Disclosures
A description of The amounts of net cash flows attributable
the discontinuing to the operating, investing, and financing
activities of the discontinuing operation The amount of pre-tax profit or loss
operation(s). during the current financial reporting period. from ordinary activities attributable
All disclosures
to the discontinuing operation
should be presented
during the current financial
in the notes to the
The amount of pre-tax profit or loss from reporting period, and the income
The business financial statements
ordinary activities attributable to the tax expense related thereto
or geographical except these
segment(s) in which it discontinuing operation during the current disclosures which
financial reporting period, and the income
is reported. tax expense related thereto. should be shown
The amount of the pre-tax gain or
on the face of the
loss recognized on the disposal of
statement of profit
assets or settlement of liabilities
and loss:
attributable to the discontinuing
The date and The amounts of revenue and expenses in operation.
nature of the initial respect of the ordinary activities attributable
disclosure event. to the discontinuing operation during the
current financial reporting period.
Restatement of Prior Periods
Comparative information for prior periods that is presented in financial
The date or period in statements prepared after the initial disclosure event should be restated
which the discontinuance The carrying amounts, as of the balance to segregate assets, liabilities, revenue, expenses, and cash flows of
sheet date, of the total assets to be continuing and discontinuing operations.
is expected to be disposed of and the total liabilities to be
completed if known or settled.
determinable. Disclosure in Interim Financial Reports
Other Disclosures • Any significant activities or events

Disclosures in an since the end of the most recent
interim financial annual reporting period relating
When an enterprise disposes of assets or settles liabilities
report in respect to a discontinuing operation and
attributable to a discontinuing operation or enters into • Any significant changes in
of a discontinuing
binding agreements for the sale of such assets or the the amount or timing of cash
operation
settlement of such liabilities, it should include, in its financial flows relating to the assets to
statements, the following information when the events occur: be disposed or liabilities to be
• For any gain or loss that is recognised on the disposal of settled.
assets or settlement of liabilities attributable to the discontinuing
operation:
(i) the amount of the pre-tax gain or loss
(ii) income tax expense relating to the gain or loss
• The net selling price or range of prices (which is after

deducting expected disposal costs) of those net assets for
which the enterprise has entered into one or more binding
sale agreements, the expected timing of receipt of those
cash flows and the carrying amount of those net assets on
the balance sheet date.
The disclosures should continue in financial statements for periods

up to and including the period in which the discontinuance
is completed. Discontinuance is completed when the plan is
substantially completed or abandoned, though full payments from
the buyer(s) may not yet have been received.
If an enterprise abandons or withdraws from a plan that was
previously reported as a discontinuing operation, that fact, reasons
therefore and its effect should be disclosed.

ADVANCED ACCOUNTING
AS 26 “INTANGIBLE ASSETS”
The objective of AS 26 is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another Accounting
Standard. AS 26 also specifies how to measure the carrying amount of intangible assets and requires certain disclosures about intangible assets.
Scope Amortisation
• Intangible assets that are covered by another
Accounting Standard.
AS 26 should • Financial assets.
be applied by all • Mineral rights and expenditure on the of the of an
enterprises in The systematic over its useful
exploration for, or development and extraction depreciable intangible
accounting for of, minerals, oil, natural gas and similar non- allocation life.
intangible assets, amount asset
except regenerative resources.
• Intangible assets arising in insurance
enterprises from contracts with policyholders.
• Other intangible assets used (such as

computer software), and other expenditure Depreciable Amount
AS 26 applies to (such as start-up costs), in extractive industries
or by insurance enterprises.
Expenditure The cost of an its residual

Less
on advertising, asset value.
training, start - up
cost.
Research and
Goodwill. development
activities.
Useful Life
AS 26 also
applies to Useful life is either
Right under (a) Period of time over

licensing which an asset is
agreements for
Trademarks. items such as expected to be used by
motion picture the enterprise; or
films, video
recordings.
(b) Number of production
Patents, or similar units expected
copyrights.
to be obtained from the
asset by the enterprise.
Key Terms
Asset Controlled by an Fair Value
enterprise as a result
Fr ono pec erp
of past events and

ec e ex ent
om m te ris
ar the
a
Fair
rce is
to
wh c
amount for could be knowledgeable, in an arm’s

ou set
value of
ich ben flow
exchanged length
i
:
which that willing parties

res n as
an asset between transaction.

asset
fu efits
is the
d
A
tu
to e.
re
An Active Market
Monetary Assets
or determinable Willing buyers

amounts of A market Items traded Prices are
assets to be where all the within the and sellers can
received in fixed money. normally be available to
are money held conditions market are the public.
Monetary assets and exist homogeneous. found.
Non-monetary assets are assets other than monetary assets.

ADVANCED ACCOUNTING
Impairment Loss Control
An enterprise controls an
carrying its asset if the enterprise has
Amount by amount of an exceeds recoverable the power to obtain the
which asset Future economic benefit is
amount. future economic benefits
flowing from the underlying also flown from the skill of
resource and also can restrict labour and customer loyalty
the access of others to those but usually this flow of
benefits. benefits cannot be controlled
Carrying Amount by the enterprise. Hence,
these items don’t even
Amount at which an asset is recognised in the balance sheet, qualify as intangible asset.
net of any accumulated amortisation and accumulated

impairment losses thereon.
Future Economic Benefits
Financial Asset
The future economic benefits flowing from an intangible asset may
A contractual right to receive include revenue from the sale of products or services, cost savings,
cash or another financial asset or other benefits resulting from the use of the asset by the enterprise.
Cash. from another enterprise. Use of intellectual property in a production process may reduce
future production costs rather than increase future revenues.
A financial asset
is any asset that is
Recognition and Initial Measurement of an
A contractual right to exchange
Intangible Asset
financial instruments with An ownership interest in another
another enterprise under enterprise. The recognition of an item as an intangible asset requires an
conditions that are potentially
favourable. enterprise to demonstrate
Intangible Assets It is probable that the future

economic benefits that are The cost of the asset can be
attributable to the asset will measured reliably.
An intangible asset is flow to the enterprise
An intangible asset should be measured initially at cost.

An identifiable Non-monetary asset
Separate Acquisition
If an intangible asset is acquired separately; cost of the intangible
Without physical substance asset can usually be measured reliably.
Cost of an intangible asset comprises its purchase price
Held for use in the production or supply of goods or services, for rental including any import duties and other taxes (other than those
to others, or for administrative purposes. subsequently recoverable by the enterprise from the taxing
authorities) and any directly attributable expenditure on
making the asset ready for its intended use.
If an item covered by AS 26 does not meet the definition of an
intangible asset, expenditure to acquire it or generate it internally If an intangible asset is acquired in exchange for shares or other
is recognised as an expense when it is incurred. securities of the reporting enterprise: asset is recorded at its fair
value or the fair value of the securities issued whichever is more
Identifiability clearly evident.
The definition of an intangible asset requires that an intangible Acquisition as part of an Amalgamation
asset be identifiable. To be identifiable, it is necessary that the
intangible asset is clearly distinguished from goodwill.
Intangible asset A transferee If the cost (i.e. fair
An intangible asset can be clearly distinguished from goodwill recognises an value) of an intangible
acquired in an
if the asset is separable. An asset is separable if the enterprise intangible asset that asset acquired as part
amalgamation in the
could rent, sell, exchange or distribute the specific future meets the recognition of an amalgamation in
nature of purchase
economic benefits attributable to the asset without disposing criteria, even if that the nature of purchase
is accounted for in
of future economic benefits that flow from other assets used in intangible asset had cannot be measured
accordance with AS
the same revenue earning activity. not been recognised reliably, that asset is
14 (Revised).
If an asset generates future economic benefits only in in the financial not recognised as a
combination with other assets, the asset is identifiable if the statements of the separate intangible
enterprise can identify the future economic benefits that will transferor and asset but is included
flow from the asset. in goodwill.

ADVANCED ACCOUNTING
Acquisition by way of a Government Grant An intangible asset arising from development (or from the
development phase of an internal project) should be recognised if, and
only if, an enterprise can demonstrate all of the following:
a. The technical feasibility of completing the intangible asset so that it

will be available for use or sale.
If an intangible
or for nominal b. Its intention to complete the intangible asset and use or sell it.
asset is acquired
consideration,
free of charge,
c. Its ability to use or sell the intangible asset.
d. How the intangible asset will generate probable future

economic benefits.
it should be by way of a
accounted for on government
the basis of their e. The availability of adequate technical, financial and other resources
grant,
acquisition cost to complete the development and to use or sell the intangible asset and
or for nominal
consideration. f. Its ability to measure the expenditure attributable to the intangible
asset during its development reliably.
Expenditure on internally generated brands, mastheads, publishing

Internally Generated Goodwill titles, customer lists and items similar in substance cannot be
distinguished from the cost of developing the business as a whole.
Internally generated goodwill Therefore, such items are not recognised as intangible assets.
is not recognised as an asset Cost of an Internally Generated Intangible

because it is not an identifiable resource Asset
controlled by the enterprise
that can be measured reliably at cost. Expenditure on materials and services used
The cost of an internally or consumed in generating the intangible
generated intangible asset.
asset comprises all
Internally Generated Intangible Assets expenditure that can be Salaries, wages and other employment
directly attributed, or related costs of personnel directly engaged
allocated on a reasonable in generating asset.
To assess whether an internally generated intangible asset and consistent basis,
meets the criteria for recognition, an enterprise classifies the for creating, producing Any expenditure that is directly attributable
generation of the asset into and making the asset to generating the asset.
ready for its intended
use from the time when Overheads that are necessary to generate
the intangible asset first the asset and that can be allocated on a
meets the recognition reasonable and consistent basis to the asset.
criteria. The cost includes
Research Phase Development Phase
If an enterprise cannot distinguish the research phase from the

development phase of an internal project to create an intangible
The costs Selling, administrative and other general
asset, the enterprise treats the expenditure on that project as if it overhead expenditure unless this
which are not expenditure can be directly attributed to
were incurred in the research phase only. components making the asset ready for use.
of the cost of
an internally Clearly identified inefficiencies and initial
Research Phase generated
operating losses incurred before an asset
achieves planned performance and
intangible
Expenditure on training the staff to operate
Research is original and planned investigation undertaken with asset: the asset.
the prospect of gaining new scientific or technical knowledge and
understanding.
No intangible asset arising from research or from the research phase

should be recognised. Expenditure on research or on the research
phase should be recognised as an expense when it is incurred. Recognition of an Expense
Expenditure on an intangible item should be recognised
Development Phase as an expense when it is incurred unless:
Development is the application of research findings or other
knowledge to a plan or design for the production of new or The item is acquired in an
substantially improved materials, devices, products, processes, It forms part of the cost of an amalgamation in the nature
systems or services prior to the commencement of commercial intangible asset that meets the of purchase and cannot be
production or use. recognition criteria. recognized as an intangible
asset.

ADVANCED ACCOUNTING
In some cases, expenditure is incurred to provide future
economic benefits to an enterprise, but no intangible asset In some cases, there may be persuasive evidence that the
or other asset is acquired or created that can be recognised. useful life of an intangible asset will be a specific period longer
In these cases, the expenditure is recognised as an than ten years. In these cases, the presumption that the useful
expense when it is incurred. Expenditure on research life generally does not exceed ten years is rebutted and the
is always recognised as an expense when it is incurred. enterprise:
Expenses recognised as expenses cannot be reclassified as cost of

intangible asset in later years.
Amortises the intangible asset over the best
Nature of Expenditure Accounting treatment estimate of its useful life.
Planning Expense when incurred
Application and
Infrastructure Estimates the recoverable amount of the intangible
Apply the requirements of AS 10 asset at least annually in order to identify any
Development
impairment loss and
Graphical Design and If a separate asset is not identifiable,
Content Development then expense when incurred, unless it
meets the recognition criteria
Operating Discloses the reasons why the presumption is

Expense when incurred, unless in rare
circumstances it meets the criteria, in rebutted and the factors that played a significant
which case the expenditure is included role in determining the useful life of the asset.
in the cost of the web site
Other Expense when incurred Amortisation Method

A variety of amortisation methods can be used to allocate the
depreciable amount of an asset on a systematic basis over its
Subsequent Expenditure useful life. These methods include the straight-line method, the
diminishing balance method and the unit of production method.
Subsequent expenditure on an intangible asset after its The method used for an asset is selected based on the expected
purchase or its completion should be recognised as an pattern of consumption of economic benefits and is consistently
expense when it is incurred unless applied from period to period.
It is probable that the

Residual Value
expenditure will enable the Expenditure can be measured Residual value is the amount, which an enterprise expects to obtain
asset to generate future and attributed to the asset for an asset at the end of its useful life after deducting the expected
economic benefits in excess of reliably. costs of disposal.
its originally assessed standard
of performance and There is a i. Residual value
commitment by can be determined
a third party to by reference to
If these conditions are met, the subsequent expenditure should be purchase the asset that market and
The residual at the end of its
added to the cost of the intangible asset. value of an useful life.
intangible
Subsequent expenditure on brands, mastheads, publishing titles, asset should be
customer lists and items similar in substance is always recognised as assumed to be
zero unless ii. It is probable
an expense to avoid the recognition of internally generated goodwill. that such a market
There is an active will exist at the
end of the asset’s
Measurement Subsequent to Initial market for the
useful life.
asset and:
Recognition
After initial recognition, an intangible asset should be carried at
its cost less any accumulated amortisation and any accumulated
impairment losses.
Review of Amortisation Period and
Amortisation Period Amortisation Method
The depreciable amount of an intangible asset should be allocated on The amortisation period and the amortisation method should be
a systematic basis over the best estimate of its useful life. Amortisation reviewed at least at each financial year end.
should commence when the asset is available for use.
If there has been a significant change in the expected pattern of
AS 26 adopts a presumption that the useful life of intangible assets economic benefits from the asset, the amortisation method should
is unlikely to exceed ten years. be changed to reflect the changed pattern.

ADVANCED ACCOUNTING
Retirements and Disposals Disclosure

I. Additions, indicating
An intangible asset should be derecognised (eliminated Useful lives or the separately those from
from the balance sheet) if amortisation rates used. internal development and
through amalgamation.
Amortisation methods
used. II. Retirements and
disposals.
The financial statements
should disclose for each
class of intangible assets,
distinguishing between Gross carrying amount III. Impairment losses
When no future economic internally generated and the accumulated recognised in the
Disposed benefits are expected from its intangible assets and other amortisation (aggregated statement of profit and
intangible assets with accumulated loss.
use and subsequent disposal. impairment losses) at the
beginning and end of the
period.
IV. Impairment losses
Gains or losses arising from the retirement or disposal of an reversed in the statement
of profit and loss.
intangible asset should be determined as the difference between A reconciliation of the
carrying amount at the
the net disposal proceeds and the carrying amount of the asset and beginning and end of the
period showing:
should be recognised as income or expense in the statement of profit
and loss. V. Amortisation recognised
during the period and
VI. Other changes in the

carrying amount during
the period.
Other Disclosure
The financial statements should also disclose:
a. If an intangible asset is amortised over more than ten years, the reasons why it is presumed that the useful life of an intangible asset will
exceed ten years from the date when the asset is available for use.
b. A description, the carrying amount and remaining amortisation period of any individual intangible asset that is material to the financial
statements of the enterprise as a whole.
c. The existence and carrying amounts of intangible assets whose title is restricted and the carrying amounts of intangible assets pledged as
security for liabilities and
d. The amount of commitments for the acquisition of intangible assets.
AS 29 “PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS”

AS 29 lays down appropriate accounting for contingent assets. The objective of AS 29 (Revised) is to ensure appropriate recognition criteria
and measurement bases are applied to provisions and contingent liabilities.
Scope Key Terms

Executory contracts are contracts under which neither party has
performed any of its obligations or both parties have partially performed
their obligations to an equal extent.
AS 29 should be Those resulting from financial
applied in accounting instruments that are carried at fair value;
for provisions and Those resulting from executory contracts
except where the contract is onerous*; A Provision is a liability which can be measured only by using a substantial
contingent liabilities degree of estimation.
Those arising in insurance enterprises
and in dealing with from contracts with policy-holders; and
contingent assets, Those covered by another Accounting
other than Standard. A Liability is a present obligation of the enterprise arising from past
events, the settlement of which is expected to result in an outflow from the
enterprise of resources embodying economic benefits.
* An ‘onerous contract’ is a contract in which the unavoidable costs of meeting

An Obligating event is an event that creates an obligation that results in an
the obligations under the contract exceed the economic benefits expected to be enterprise having no realistic alternative to settling that obligation.
received under it.

ADVANCED ACCOUNTING
(a)A possible obligation that Past Event

arises from past events and
the existence of which will A past event that leads to a present obligation is called an obligating
be confirmed only by the event. For an event to be an obligating event, it is necessary that
occurrence or non-occurrence the enterprise has no realistic alternative to settling the obligation
of one or more uncertain future
created by the event.
events not wholly within the
control of the enterprise; or (i)
It is not probable that
A Contingent an outflow of resources No provision is recognised for costs that need to be incurred
liability is: embodying economic to operate in the future. The only liabilities recognised in an
(b) A present obligation that benefits will be required to
arises from past events but settle the obligation; or
enterprise’s balance sheet are those that exist at the balance sheet
is not recognised because date.
(ii)A reliable estimate of the
amount of the obligation It is only those obligations arising from past events existing
cannot be made.
independently of an enterprise’s future actions that are recognised
as provisions.
A Contingent asset is a possible asset that arises from past events the
existence of which will be confirmed only by the occurrence or non-
occurrence of one or more uncertain future events not wholly within the An event that does not give rise to an obligation immediately may
control of the enterprise. do so at a later date, because of changes in the law. However, the
causing of the damage will become an obligating event when a
new law requires the existing damage to be rectified.
Present obligation - an obligation is a present obligation if, based on the
evidence available, its existence at the balance sheet date is considered
probable, i.e., more likely than not Probable Outflow of Resources Embodying
Economic Benefits
Possible obligation - an obligation is a possible obligation if, based on the
evidence available, its existence at the balance sheet date is considered not For a liability to qualify for recognition there must be
probable. not only a present obligation but also the probability of
an outflow of resources embodying economic benefits
to settle that obligation. An outflow of resources or
A Restructuring is a programme that is planned and controlled by other event is regarded as probable if the probability
management, and materially changes either:
that the event will occur is greater than the probability
(a) The scope of a business undertaken by an enterprise; or
that it will not. Where it is not probable that a present
(b) The manner in which that business is conducted.
obligation exists, an enterprise discloses a contingent
liability, unless the possibility of an outflow of resources
embodying economic benefits is remote.
Provisions
Where there are a number of similar obligations (e.g.,
A provision should be recognised when:
product warranties or similar contracts) the probability
that an outflow will be required in settlement is
determined by considering the class of obligations as a
whole. Although the likelihood of outflow for any one
item may be small, it may well be probable that some
(b)It is probable outflow of resources will be needed to settle the class of
(a)An enterprise that an outflow (c)A reliable estimate
has a present can be made of obligations as a whole. If that is the case, a provision is
of resources
obligation as a embodying the amount of the recognised (if the other recognition criteria are met).
result of a past economic benefits obligation.
event; will be required to
settle the obligation;
and
Reliable Estimate of the Obligation
Present Obligation The use of estimates is an

inherent part of preparing In the extremely rare case
financial statements and does where no reliable estimate
An enterprise should Where it is more likely Where it is more can be made, a liability exists
determine whether likely that no present not undermine their reliability.
than not that a present Provisions require a greater that cannot be recognised.
a present obligation obligation exists at the obligation exists at the degree of estimation than most That liability will, instead,
exists at the balance balance sheet date, the balance sheet date, the other items, but it should not be disclosed as a contingent
sheet date by taking enterprise recognises enterprise discloses be impossible to determine a liability.
account of all available a provision (if the a contingent liability, range of possible outcomes.
evidence. recognition criteria are unless the possibility of
met); and an outflow of resources
embodying economic
benefits is remote.

ADVANCED ACCOUNTING
Contingent Liabilities Future Events

An enterprise should not recognise a contingent liability but should be
disclosed. A contingent liability is disclosed, unless the possibility of an It is only those Future events that The effect of possible
outflow of resources embodying economic benefits is remote. obligations arising may affect the amount new legislation is taken
from past events that required to settle an into consideration in
Where an enterprise is jointly and severally liable for an obligation, the part exist independently obligation should be measuring an existing
of the obligation that is expected to be met by other parties is treated as a of the enterprise’s reflected in the amount
contingent liability. The enterprise recognises a provision for the part of the obligation when
obligation for which an outflow of resources embodying economic benefits future actions that are of a provision where sufficient objective
is probable, except in the extremely rare circumstances where no reliable recognised as provisions. there is sufficient evidence exists that the
estimate can be made. objective evidence that legislation is virtually
they will occur. certain to be enacted.
Contingent Assets Expected Disposal of Assets

Contingent
assets usually An enterprise
A contingent asset
Gains on the expected disposal of assets are not taken into
arise from should not Contingent assets
recognise a is not disclosed are assessed account in measuring a provision, even if the expected disposal
unplanned in the financial
or other contingent asset, continually and is closely linked to the event giving rise to the provision. Instead,
since this may statements. It is if it has become
unexpected usually disclosed virtually certain
an enterprise recognises gains on expected disposals of assets at
events that result in the
recognition of in the report of the that an inflow the time specified by the Accounting Standard dealing with the
give rise to approving authority
the possibility income that may of economic assets concerned.
never be realised. where an inflow of benefits will arise,
of an inflow economic benefits
of economic the asset and the
is probable. related income are
benefits to the
recognised.
enterprise.
Reimbursements
Where some or all of the expenditure required to settle a provision
is expected to be reimbursed by another party, the reimbursement
Table- Provisions and contingent liabilities should be recognised when, and only when, it is virtually certain
Where, as a result of past events, there may be an outflow of that reimbursement will be received if the enterprise settles the
resources embodying future economic benefits in settlement of: obligation.
(a) a present obligation the one whose existence at the balance sheet
date is considered probable; or
(b) a possible obligation the existence of which at the balance sheet
Some or all of the expenditure required to settle a provision is
date is considered not probable.
expected to be reimbursed by another party.
There is a present There is a possible There is a possible
obligation that obligation or a present obligation or a
probably requires an obligation that may, present obligation The enterprise The obligation for the The obligation
outflow of resources but probably will not, where the likelihood has no obligation amount expected to be for the amount
and a reliable require an outflow of of an outflow of for the part of the reimbursed remains expected to be
estimate can be made resources. resources is remote. expenditure to be with the enterprise and reimbursed
of the amount of
obligation. reimbursed by the it is virtually certain that remains with the
other party. reimbursement will be enterprise and the
A provision is No provision is No provision is received if the enterprise r e im b ur s e m e n t
recognised. recognised. recognised.
settles the provision. is not virtually
Disclosures are Disclosures are No disclosure is
required for the required for the required. certain if the
provision. contingent liability. enterprise settles
the provision.
Measurement- Best Estimate The enterprise The reimbursement is The expected
has no liability for recognised as a separate reimbursement is
The estimates of the amount to be asset in the balance not recognised as
The amount outcome and financial
recognised as a effect are determined reimbursed. sheet and may be offset an asset.
provision should be by the judgment of the against the expense
the best estimate management of the
of the expenditure enterprise, supplemented in the statement of
required to settle the by experience of similar profit and loss. The
present obligation at transactions and, in amount recognised
the balance sheet date. some cases, reports from
independent experts. for the expected
reimbursement does not
exceed the liability.
Risks and Uncertainties No disclosure is The reimbursement is The expected

required. disclosed together with reimbursement is
The risks and uncertainties that inevitably surround many events the amount recognised disclosed.
and circumstances should be taken into account in reaching the for the reimbursement.
best estimate of a provision.

ADVANCED ACCOUNTING
Decision Tree A provision for restructuring costs is recognised only when the
recognition criteria for provisions are met. No obligation arises
Start for the sale of an operation until the enterprise is committed to
the sale, i.e., there is a binding sale agreement.
Present obligation No No (a) Necessarily entailed by the

as a result of an A restructuring provision restructuring; and
Possible obligation?
obligating event? should include only the direct
Yes expenditures arising from the
Yes restructuring, which are those
that are both: (b) Not associated with the
No Yes ongoing activities of the enterprise
Possible obligation? Remote?
Yes
No ( rare) No Identifiable future operating losses up to the date of a
Reliable estimate?
restructuring are not included in a provision.
Yes
Gains on the expected disposal of assets are not taken into
Provide account in measuring a restructuring provision, even if the sale
of assets is envisaged as part of the restructuring.
Disclose contingent
liability
Do nothing Disclosure
For each class of provision, an enterprise
Changes in Provisions should disclose:
Provisions should be reviewed at each balance sheet date and
adjusted to reflect the current best estimate. If it is no longer
probable that an outflow of resources embodying economic
benefits will be required to settle the obligation, the provision
should be reversed. Carrying Additional Amounts used Unused amounts
amount at provisions made (i.e. incurred and reversed during
the beginning in the period, charged against the period.
Note: As per the amendment made in AS 29 (Revised) and end of the including the provision)
period; increases during the
pursuant to MCA notification dated 30 March 2016, to existing period; and
effective from financial year 2016-17, all the existing provisions;
provisions for decommissioning, restoration and similar
liabilities should be discounted prospectively, with the
corresponding effect to the related item of property, plant
and equipment. (a) A brief description of the
nature of the obligation
and the expected timing of
any resulting outflows of
Use of Provisions An enterprise economic benefits;
b) An indication of the
A provision should be used only for expenditures for which the should disclose uncertainties about those
provision was originally recognised. Only expenditures that outflows. Where necessary
relate to the original provision are adjusted against it. for each class of to provide adequate
information, an enterprise
provision: should disclose the
Application of the Recognition and major assumptions made
concerning future events, and
Measurement Rules
(c) The amount of any expected
Future Operating Losses reimbursement, stating the
amount of any asset that
Future operating losses do not meet the definition of a liability has been recognised for that
and the general recognition criteria, therefore provisions should expected reimbursement.
not be recognised for future operating losses. Note: SMCs are exempt from the above disclosure requirements.
Restructuring
The following are examples of events Unless the possibility
of any outflow in (a) An estimate of its financial effect,
that may fall under the definition of
restructuring: settlement is remote, (b) An indication of the uncertainties
an enterprise should
disclose for each class of relating to any outflow; and
contingent liability at the (c) The possibility of any
balance sheet date a brief
description of the nature reimbursement.
Closure of Fundamental of the contingent liability
Sale or business re-organisations and, where practicable:
termination of a locations in that have a
line of business a country or Changes in material effect
region or the management on the nature
relocation structure. and focus of
Where any of the information required by the standard is not
of business the enterprise’s disclosed because it is not practicable to do so, that fact should
activities. operations. be stated.

FINANCE UPDATE
MCX starts enrolling bank subsidiaries for trading in commodity derivatives
Multi Commodity Exchange (MCX) has started enrolling bank subsidiaries for trading in commodity
derivatives. For more details please read at:
http://www.business-standard.com/article/markets/mcx-starts-enrolling-bank-subsidiaries-for-trading-in-
commodity-derivatives-118011900054_1.html
Move to stop trading Indian indices abroad comes under criticism

The move by Indian exchanges to stop licensing their indices and securities to overseas bourses has come
under the attack of Washington-based Futures Industry Association (FIA). For more details please read at:
https://economictimes.indiatimes.com/markets/stocks/news/move-to-stop-trading-indian-indices-abroad-
comes-under-criticism/articleshow/62896805.cms
RBI’s aye to dollar-rupee futures in GIFT may roil SGX's present

With the Budget paving the way for a unified regulator for India’s International Financial Services Centre —
housed in Gujarat’s GIFT City — the stage is set for GIFT authorities and the government to push for the trade
of Dollar-Rupee (USD/INR) currency futures in GIFT. For more details please read at:
economictimes.indiatimes.com/markets/forex/rbis-aye-to-dollar-rupee-futures-in-gift-may-roil-sgxx-present/
articleshow/62893844.cms
NSE, BSE plan commodity derivatives platforms

India’s leading stock exchanges National Stock Exchange and Bombay Stock Exchange plan to enter the
commodity derivatives market. For more details please read at:
economictimes.indiatimes.com/markets/stocks/news/nse-bse-plan-commodity-derivatives-platforms/
articleshow/63839275.cms
Sebi strengthens algo trading rules; co-location services

The SEBI issued new measures to provide “fair and equitable access” to the colocation facilities offered by the
bourses. It directed all exchanges to provide “managed colocation services”, under which small brokers get
access to colocation services without having to rent the entire space or rack. For more details please read at:
http://www.business-standard.com/article/economy-policy/sebi-strengthens-algo-trading-rules-co-location-
services-118041000042_1.html
Tighter reporting of remittances under LRS to prevent abuse

Wealthy individuals who transfer money often to offshore entities for investments and other purposes face
tighter scrutiny. For more details please read at:
economictimes.indiatimes.com/news/economy/finance/tighter-reporting-of-remittances-under-lrs-to-prevent-
abuse/articleshow/63629442.cms
LoU ban to impact financial flexibility of importers: Ind-Ra

Banning of letters of undertaking (LoUs) and letters of comfort (LoCs) by the RBI as trade finance instruments
is likely to reduce financial flexibility of importers. For more details please read at:
economictimes.indiatimes.com/news/economy/finance/lou-ban-to-impact-financial-flexibility-of-importers-
ind-ra/articleshow/63615850.cms
US frowns over India’s forex policies

In a recent report to Congress, the US Treasury department has included India along with five other nations
for their foreign exchange and macroeconomic policies.For more details please read at:
www.livemint.com/Money/yvHO356kUpTRxvJ2qN7pEO/US-frown-over-Indias-forex-policies.html
RBI allows higher position limit for FPIs in interest rate futures
The Reserve Bank of India has eased position limit in interest rate futures (IRFs) for foreign portfolio investors
(FPIs). The banking regulator has allowed a limit of ₹5,000 crore for FPIs to go long in IRFs.For more details
please read at:
https://www.thehindubusinessline.com/economy/rbi-allows-higher-position-limit-for-fpis-in-interest-rate-
futures/article22896684.ece
First blockchain network: Online bill discountingexchanges implement tech

The RBI had introduced TReDS to facilitate financing trade receivables ofmicro, small and medium enterprises.
For more details please read at:
http://www.business-standard.com/article/economy-policy/first-blockchain-network-online-bill-discounting-
exchanges-implement-tech-118040300062_1.html

ANNOUNCEMENT
IMPORTANT ANNOUNCEMENT
The Institute of Chartered Accountants of India

[Set up by an Act of Parliament]
Post Box No.7112, ‘ICAI BHAWAN’, Indraprastha Marg
New Delhi – 110002
10th April, 2018
Postponement of Chartered Accountants Examinations Scheduled to be held on

11Th & 12Th May, 2018 at Karnataka State Only.
In partial modification of the Institute’s Notification No. 13-CA(Exam)/M/2018 dated 8th February, 2018, it is notified
for general information that in view of the General Election to the Legislative Assembly of Karnataka, the Chartered
Accountants Examinations scheduled to be held on 11th & 12th May 2018, as detailed below, at Belgaum, Bellary,
Bengaluru, Hubli, Mangaluru, Mysuru, Shimoga and Udupi centre(s) (In the State of Karnataka only) stand postponed
and the examination in the said paper(s) shall now be held on 19th & 18th May 2018 respectively at the same venue(s) and
at the same timing(s). Admit Cards already issued would remain valid.
Details are as follows:

Examination & Paper Previous Notified Date Rescheduled Date
Intermediate (IPC) & Intermediate Examinations

11th May 2018 19th May 2018
(Revised Scheme), (Group II), Paper – 5, Advanced
(Friday) (Saturday)
Accounting
Final {Existing Scheme} Examination, (Group II), Paper

– 6, Information Systems Control and Audit.
Final {Revised Scheme} Examination, (Group II), Paper

– 6 (Elective). 12th May 2018 18th May 2018
(Saturday) (Friday)
Foundation Examination, Paper – 2, Business Laws &
Business Correspondence & Reporting.
PQC – International Taxation – Assessment Test,

Paper – 2, International Tax – Practice.
However, it is clarified that the schedule of examinations notified vide Notification No. 13-CA(Exam)/M/2018
dated 8th February, 2018 in respect of all other cities shall remain unchanged. In other words, there will be no
change in the schedule of examinations for other cities.
The candidates are advised to stay in touch with the website of the Institute, www.icai.org.
(B. Muralidharan)
Joint Secretary (Exams)

ANNOUNCEMENT
IMPORTANT ANNOUNCEMENT
The Institute of Chartered Accountants of India

[Set up by an Act of Parliament]
Post Box No.7112, ‘ICAI BHAWAN’, Indraprastha Marg
New Delhi – 110002
17th April, 2018
REG: CHANGE IN EXAMINATION VENUE IN THANE,

ZONE – II, MAY 2018 EXAMINATIONS
Due to unavoidable circumstances, all the candidates initially allocated to Keraleeya Samajam Dombivili’s Model College,
P - 32, Phase – II, Residential Area, MIDC, Dombivli (EAST), DISTT. THANE – 421203, MAHARASHTRA have been
re-allocated to Keraleeya Samajam (Regd.) Dombivli’s Model College, Khambalpada, Thakurli (EAST), DISTT. THANE –
421201, MAHARASHTRA
The admit cards already issued shall remain valid. All other details also remain unchanged.
Candidates are advised to make a note of the new venue and accordingly appear in the May 2018 examinations from the new
centre only i.e. Keraleeya Samajam (Regd.) Dombivli’s Model College, Khambalpada, Thakurli (EAST), DISTT. THANE –
421201, MAHARASHTRA
Candidates are advised to stay in touch with the website of the Institute, www.icai.org.
(B. Muralidharan)
Joint Secretary (Exams)
CROSSWORD SOLUTION – APRIL 2018

1
S 2
P Y 3
E 4
S T O 5
P 6
D O
7
H E A 8
L T H A 9
E G
A R 10
E C O 11
N 12
O M 13
I C
M T A 14
W A R 15
N O 16
D
17
S T A N D A 18
R D E
19
R 20
A S H 21
L O E N
22
E L S E 23
F M 24
T N T
25
V I 26
R 27
O R 28
B E T 29
R
E 30
N 31
L A N A
32
R 33
I A 34
A N 35
N O 36
R T H
37
S E N T C 38
N P A
39
E C O 40
I E 41
P O N J I

RNI NO. 66180/1997 Registered: DL(C)-01/1280/2018-20, D. NO. MH/MR/TECH-47/3/2018 License To Post Without Prepayment,
WPP Licence No.: MR/TECH/WPP-247/DL(C)/2018 Posted at Mumbai Patrika Channel Sorting Office, Mumbai
Posting Date: Last three days of advance month & first 04 days of current month, Date of publication: 26th of previous month
CROSSWORD - MAY 2018

1 2 3 4 5 6 7 8 23. Conform
9 10 24. One of trigonometric ratio ___Q
27. Whirlpool
11 12
30. ----------to Information Act is applicable to all
13 14 15 16 17
citizen of the country with certain restrictions.
18 19 20 32. Name of a religious book in India.
21 22 23 24
35. Two ______ trainings are a part of Revised
Scheme of education & Training of ICAI
25 26 27
36. A form of bank guarantee under which a bank can
28
I 29 30 allow its customer to raise money from another
31 32 33 Indian bank’s foreign branch in the form of a short
term credit
34 35 36 37
37. Roman numeral for 250
38 39
40 41
ACROSS: members and future faculty members

1. The pricing method that establishes selling together to advance student learning.
prices based on total costs and expense per 41. Measures of customer complaints and
unit is _____________margin pricing. warranty claims are used in tracking
4. A person who is lazy _____________performance.
9. Helps in wrong doing
10. A mistake caused by fault DOWNWARD
11. Latin adverb inserted after quotations 1. Opposite of Fail
12. The smallest multiple shared by a group of 2. Banker’s Bank in India
number 3. it promotes policies that will improve
13. The service now transformed to NCPR the economic and social well-being of
(National Consumer Preference Register) by people around the world
the TRAI (The Telecom Regulatory Authority 4. A gradual and continuous loss of
of India). strength, numbers, or value.
16. Roman numeral of 49 5. ______ is the system level
17. A collection of business processes focused on management of co-channel
consistently meeting customer requirements interference, radio resources, and other
and enhancing their satisfaction radio transmission characteristics in
19. Roman numeral for 101 wireless communication systems.
20. One of major trade partners of India 6. Used with Either
21. Avoidable costs are _____________if a 7. A frim under perfectly competitive
product or segment is discontinued. market earns ____ profits in the long
25. Father of Economics _____ Smith run.
26. Consume 8. Remove
28. Angry 12. A type of parasite
29. Geek 14. A measure of expected average
31. A platform to provide recognition to the utilization of productive capacity over
informal earning. a span of years is _____________
33. Do away with capacity
34. Business leader in a Corporate office 15. Female form of some animals
36. The biggest Public Sector Insurance company 17. One of four equal parts
in India 18. Supporting service departments costs
38. The manager of a _____________ centre is have _____________ connection with
responsible for producing a quality product or products
If undelivered, please return to: The
service at reasonable but minimal cost. 22. ________is the sharing of car journeys
Institute of Chartered Accountants of
39. Type of trade securities so that more than one person travels in
India, ICAI Bhawan, Indraprastha Marg,
40. Network was created to bring faculty a car.
New Delhi-110104
36

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VOL 21 NO.

12 PAGES 36 MAY 2018 50

EDITORIAL BOARD INSIDE

02 May 2018 The Chartered Accountant Student

3 Ps for Life: Patience, Perseverance, Passion

The Chartered Accountant Student May 2018 03

Election to the Managing Committee of WICASA

ICAI Mobile App

04 May 2018 The Chartered Accountant Student

like to suggest a few tips that you should keep in mind

A CAPSULE ON ACCOUNTING STANDARDS FOR QUICK RECAP

If the final outcome of the contract

Revenue Revenue should Contract costs

06 May 2018 The Chartered Accountant Student

Variations in contract work, Construction of the additional asset should be

Contract Costs Price of the asset is negotiated without regard to the

When a contract covers a number

Separate proposals Each asset has been

A group of Group of contracts is negotiated as a

The Chartered Accountant Student May 2018 07

Bases for recognition In the statement of

Revenue is the gross inflow of cash, receivables

Hire-purchase, lease agreements

Methods of recognition of Revenue

Proportionate Completed service

08 May 2018 The Chartered Accountant Student

AS 14 “ACCOUNTING FOR AMALGAMATIONS”

The Chartered Accountant Student May 2018 09

Conditions for Amalgamation in the nature Treatment of Reserves

(v) No adjustment is intended to be made to the book values

Balance of Profit and Loss Account

10 May 2018 The Chartered Accountant Student

It is considered appropriate to amortise goodwill over a period

AS 18 “RELATED PARTY DISCLOSURES”

Related Parties and Related Party Relationships

The Chartered Accountant Student May 2018 11

A person’s The director/

That enterprise or That individual owns, directly

A substantial or majority ownership by another investing party

12 May 2018 The Chartered Accountant Student

Key Management Personnels are The Related Party Issue

Any person or be The operating results and financial position of an enterprise

Joint Venture and Joint Control Disclosure

To govern The name of the transacting related party;

A description of the nature of transactions;

Amounts or appropriate proportions of outstanding items

The Chartered Accountant Student May 2018 13

the payments over the lease term

Upon payment by the lessee of knowledgeable,

14 May 2018 The Chartered Accountant Student

the number of Difference between:

Useful Life Present value of

(i) Minimum lease payments under a finance lease from the

Residual is the at the end

Guaranteed residual value is:

the lessee would have to pay on a similar lease or,

if that is not determinable,

Its and with a similar security, the funds necessary to

Contingent rent is that portion of the lease payment

that is not fixed in amount but is based on a factor

The Chartered Accountant Student May 2018 15

Finance leases Operating leases

Indicators of Finance Lease

(v) No adjustment is intended to be made to the book values

(c) Unguaranteed residual values accruing to the benefit of the

(d) Sub-lease payments received (or receivable) recognised in the

Right under (a) Period of time over

a. The technical feasibility of completing the intangible asset so that it