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APPLICATION OF ACCOUNTING STANDARDS IN AIR LIQUIDE
Submitted in partial fulfillment of the requirements of Master of Business Administration (MBA) Kurukshetra University, Kurukshetra
Training Supervisor: Mr. Gaurav sachdeva Designation
Submitted By: Name of Student: HUNNY GARG MBA: 3rd Semester Roll. No:45
Department of Management Studies NC College of Engineering Irena, Panipat SESSION 2009 – 2011 1
I have been selected in Air Liquid north India pvt ltd. for my summer training. Air Liquid is the world leader in gas industry. Our first experience of project has been successfully, thanks to the support staff of many friends & colleagues with gratitude. We wish to acknowledge all of them. However, we wish to make special mention of the following. First of all we are thankful of our project guide Mr. Srinivas prasad & Mr. Gaurav sachdeva (HEAD OF FINANCE DEPARTMENT) of Air Liquid north India Pvt ltd. in Delhi under whose guideline we were able to complete our project. We are whole heartedly thankful to them for giving valueable time & attention & for providing us a systematic way for completing our project in time. We must make special mention of (Mr. Saurabh Garg), our project in charge for their co-operation & assistance in solving a technical problem. We would thank to our H.O.D. Mrs. Prerna dawar
SERIAL NO 1
CHAPTER NAME ABOUT COMPANY • INTODUCTION • HISTORY • STRATEGY • INNOVATION • ENVIRONMENT • HIGHTECH • MISSION
PAGE NO 5 5 5 7 8 9 11
ABOUT ACCONTING STANDARDS 19
APPLICBLE ACCONTING STANDARDS IN AIR LIQUID 48
CHAPTER-1 ABOUT AIR LIQUIDE INTRODUCTION 4 .
nitrogen and argon. the strategic company program. In a time of transformation for the world and its markets.000 French francs subscribed by 24 shareholders. Air Liquide has developed an ambitious strategy aiming at a long-term growth. the goal is to maintain the momentum gained within the framework of ALMA.the group offer innovative solutions based on constantly enhanced technologies and produces Air gases(oxygen.nitrogen. Georges Claude’s contribution to his century entailed a project to liquefy air in order to separate its different components of oxygen. company for the Study and Exploitation of Georges Claude’s Processes. the Environment.heakth and the environment. 1902. It was thus that Air Liquide. the Group will regain solid footing on the path of sustained and lasting growth in tomorrow’s stabilized economic environment. ALMA will thus enable the Group to hold its course for long-term development around its five growth drivers that have maintained their potential: Energy. and Emerging Economies. The launch of the company was sealed with his partnership with Paul Delorme.rare. 1902 in developing a new air liquefaction process.Air Liquid is the world leader in gases for industry. On November 8. High Tech. After two years of tireless perseverance and technical setbacks.gases…)and many other gases including hydrogen AIR LIQUIDE HISTORY The turn of the 19th century was a major turning point in the race to modernity. Health. 5 .argon. AIR LIQUIDE STRATEGY For this reason. he finally succeeded on May 25. was born. a public limited company was constituted with a capital of 100. Thanks to this. when nearly each day saw new technological advances.
have accelerated the depletion of fossil resources. Health Preserving patient and improving his quality of life Mature economies are seeing aging populations and an accompanying desire for improved quality of life. and it drives scientific progress and knowledge advancement. Environment Preserving our atmosphere Actively engaged in sustainable development. notably in emerging economies. Air Liquide invests 60% of its Research and Development (R&D) budget in solutions aiming to preserve the environment and life. which are damaging to the environment when used in large quantities. 6 .LONG TERM GROWTH STRATEGY Energy Contributing to a transformation within the energy industry Energy is one of today’s main issues. This has led to an increase in demand for the Group products and services in the Health field. Increases in demand. compact technologies that cost less. High Tech Pushing the front line of progress Developing more and more high tech fulfills two objectives: it improves everyday life via more powerful. to open new markets.
Today. The Group poursuing its development there. making their technologies progress and enabling them to open new outlooks in their core businesses. By combining its molecules and innovative applications. the Group fully plays its role as world leader. Discover "Exploring the Future" video : Innovation by Air Liquide 7 .Emerging Economies Guiding the growth of new markets Emerging economies are gas needs because of it industrial expansion. move its business forward by creating new solutions for its customers. fully playing its role towards society. Air Liquide provides its customers with true added value by improving the efficiency of their processes. Today. By doing so. emerging economies amount to more than 80% of the Group's opportunities portfolio. Anticipating the challenges of its markets and innovating allows Air Liquide to progress and ensure its competitiveness in a way that is ever more respectful of life and the planet. AIR LIQUIDE INNOVATION Innovating allows Air Liquide to open new markets. over a third of the Group’s revenue is generated through applications that did not exist 10 years ago.
40% of technical glass furnaces have been converted to oxycombustion’s filed and their NOx emissions have been divided by 30. aluminum. Many industrial processes such as manufacturing glass. Air Liquide’s researchers have developed specific burners.ENVIRONMENT Oxygen for cleaner combustion To reduce industrial emissions. They traditionally use combustion that combines a fuel (fuel oil. Using oxycombustion also make it possible to reduce the energy consumption of the furnace. oxycombustion makes it possible to limit nitrous oxide or NOx emissions. adapted to oxygen use. this expertise allows our engineers to develop oxycombustion processes that will enable CO2 emissions to be efficiently captured as they are released from industrial units before being buried in the subsoil. 8 . To this date. which are harmful for man and the environment. Air Liquide is developing combustion processes that use oxygen rather than air. By replacing air with oxygen. The cutting-edge expertise Air Liquide has developed is shown by over 800 patents in this field. are produced by the high-temperature reaction of the oxygen and nitrogen present in air. These emissions. Today. natural gas…) and air (21% oxygen and 78% nitrogen). They generate oxycombustion flames (2600°C) that produce much more energy than air combustion flames (1900°C) and optimize the injection of oxygen into industrial furnaces. steel… must heat or melt raw materials.
HIGH TECH Our researchers and engineers have developed a unique expertise in gases under exceptional conditions: very high pressure. More efficient chips To manufacturer increasingly efficient electronic components. a greenhouse gas. Everywhere in the world. Generally.Reducing CO2 emissions Today. which emit CO2 which control is a major challenge in the preservation of the environment. CO2 capture and storage are promising ways that consist in capturing industrial CO2 emissions as they are released from stacks. it is vital to develop. power generation uses fossil fuels like coal. 9 . transporting them and burying them in the Earth’s deep layers. very low temperatures and very high purity. In This technology reproduces what nature has been doing for millions of years in natural CO2 deposits. It has enabled them to develop innovative solutions. the semiconductor industry must constantly make the materials that compose them evolve. which drive knowledge and technologies forward. to preserve our environment. CO2 will be transported from its emission site to an appropriate site appropriate one for its burial. This CO2 must be concentrated in order for the process to be cost-effective and safe. Air Liquide is actively participating in these developments. technologies that will allow the reduction of CO2 emissions.
For example. they also played a major role in the conception of the LHC (Large Hadron Collider). 10 . the world’s most powerful particle accelerator. Nuclear fusion: the energy of the future Over a longer term. these engineers are taking part in experimental projects on energy transportation via superconducting cables and energy production through nuclear fusion. they will actively contribute to design the energy solutions of tomorrow .The Air Liquide R&D teams are developing patented molecules called advanced precursors. they took part in the design of the cryogenic systems of both Herschel and Planck satellites. The LHC: at the heart of the world’s mysteries At the CERN. and especially very high purity. Respecting our customers’ quality standards. By providing all their technological expertise. Cryogenics: cold for space Our teams are partners in unique projects to which they contribute their know-how in very low temperatures. they make the chips of tomorrow ever more efficient. It is cooled by means of a system supplied by Air Liquide.
Two years later. To meet these challenges. enabling progress and preserving life. optimizing the use of air and the planet’s natural resources. despite a damaged business environment. Air Liquide remains on course for long-term development and reaffirms its ambition. following an unprecedented economic slowdown that affected the entire world. Beyond size and revenue. Our vision Our activities lie at the heart of the most important challenges facing the planet.AIR LIQUIDE MISSION AND VISION OUR AMBITION In early 2008. Our mission Anticipate the challenges facing our current and future markets worldwide and deliver sustainable progress for our customers. its leadership is evident in the vision shared by its entire workforce. the Group set out a clear vision: to be the recognized world leader in its industry. Air Liquide develops innovative technologies and sustainable solutions. employees and shareholders 11 .
Finance and Operations Control Ron LaBarre Group Vice-President.AIR LIQUIDE MANAGEMENT TEAM Benoît Potier Chairman and CEO Pierre Dufour Senior Executive Vice-President Jean-Pierre Duprieu Senior Vice-President François Darchis Senior Vice-President Jean-Marc de Royere Senior Vice-President Fabienne Lecorvaisier Group Vice-President. Large Industries World Business Line Guy Salzgeber Vice-President. Northern and Central Europe Augustin de Roubin 12 .
its subsidiaries are integrated into local cultures and traditions while transmitting the Group’s values through their action and local commitment. AIR LIQUIDE SUSTAINABLE DEVELOPMENT A socially responsible firm Developing the potential of the Company’s men and women in their commitment to common objectives. sustain life. in the healthcare sector. Wherever Air Liquide operates.continuously inspire our behaviors and actions. Integrity. especially in terms of respecting human rights. Air Liquide respects laws and regulations. protect customer products and. A long term relationship Creating value for shareholders by developing the Company’s activity and performance over the long term and communicating this performance in a transparent manner. increased performance. social rights and the environment. and prohibits any form of corruption. constant calling into question. especially the rules of free competition. 13 .AIR LIQUIDE ETHICS The Air Liquide Group holds to the highest standards in how it runs its activities. transparency. through innovation and rigorous management . Corporate citizenship Preserving life and the environment in the Group’s operations and at its customers’ sites with 36 % of the Group’s sales generated by gas applications and services that help preserve the environment.
American. and comprises members with complementary experience and skills. including five nationalities (German. Board Committees The Board has established three sub-committees: the Audit and Accounts Committee. Dutch. Board of Directors The Board of Directors has 12 members of whom 9 are independent. 14 . the Appointments and Governance Committee and the Remuneration Committee. English. French).AIR LIQUIDE CORPORATE GOVERNANCE The Board of Directors The Board of Directors is comprised of twelve members appointed by the General Shareholders’ Meeting.
49 70.60) 89.99% 15 .71 86.43% 1289985 shares traded (capital turnover: 113260460.33 17h39 3. regarding the share price announced on its website.38 88.82 89.03 2.AIR LIQUIDE SHARE PRICE Share price AIR LIQUIDE or GL Multimedia cannot be held responsible for inaccurate. Source : GL Multimedia Air Liquide Data opening price last price change volume highest (day) highest (year) lowest (year) closing price 86.37 CAC40 Data value change 3752. delayed or interrupted data.
In this case. be quickly deployed for the entire company 16 . Following September 11.AIR LIQUIDE CHALLENGES Air Liquide traditionally conferred autonomy on its subsidiaries and guaranteed top-notch client service while seeking out innovative technology to ensure international collaboration among its teams. provide full security and fast information flow. be easy to use. The ebusiness team realized it needed to deploy a permanent. “But. the search for a solution accelerated as increased security measures following the attacks made travel more difficult. but we soon realized that we needed a collaborative tool that everybody could use. Air Liquide assembled a team—reporting to the executive committee—to consolidate the company’s e-business initiatives. and. The eventual solution needed to facilitate communication throughout the organization. They became major inconveniences because we didn’t unify our approach. our decentralized model also presented challenges. we quickly realized web technologies were a way to improve the way we worked. regardless of geography.” explained Petrignani. increase interactivity among the teams.” explained Jean-Francois Petrignani. Intranet/Internet Project e-Business Manager for Air Liquide. We ended up being counterproductive. “In a decentralized group like ours. while reducing the impact of geographic distances. eliminating virtual meeting room reservations. it left room for a proliferation of different initiatives— Intranets and discussion forums—in addition to portals and videoconferences. “E-learning was one of our first points of attack.” In 2000. online meeting solution that would overcome the new travel-related constraints.
primarily for training. particularly for certain sales trainings. I also know that WebEx will easily support this increase because of the flexibility and performance of its worldwide platform. I’m sure that we are going to see an increase due in part to the corporate mandate to reduce expenses. the Air Liquide e-business team continues to promote the use of WebEx. WebEx has a specific solution but we are starting tests with our current set-up. Secondly. “Our objective is for e-meetings to become a reflex and that we increase its uses and applications.AIR LIQUIDE FUTURE Aside from the implementation of an ROI measurement tool.” concluded Petrignani. AIR LIQUIDE FINANCIAL DATA In millions of euros 2004 2005 2006 2007 2008 2009 2009/20 08 publish ed % 17 . those who have used WebEx are sure to tell those around them of its efficiency and their satisfaction. with the support of convinced users – the current “ambassadors” for the solution.
908 1.6% Net profit (Group share) 780 933 1.8% 18 .8% 901 975 1.801 13.230 = Cash flow from operating (before change in working capital) Industrial capital expenditure Industrial capital expenditure/sales ratio Financial capital expenditure (acquisitions) Return on equity (ROE) Return o n capital employed after tax 11.275 0.302 242 109 9.411 3.6% 9.6% 16.859 76 72 1.6% 17.805 1.2% 11.123 1.002 1.7% 18.3% 12.207 2.3% 11.220 1.change Revenue 9.9% 11.9% 12.949 11.976 -8.128 1.889 2.3% 17.692 1.1% 1.359 1.428 10.3% 10.4% 17.7% 11.5% 14.435 10.2% 16.2% 2.103 11.6% 11.054 2.
CHAPTER-2 ABOUT ACCONTING STANDARDS INTRODUCTION OF ACCONTING STANDARDS • Written Document issued by Government OR Regulatory body 19 .
Accounting Standards IAS under NACAS As per International.• • • In India issued by ICAI on 21st april 1977 Initiated by kumar Manglam Birla chairman committee of corporate governance for financial disclosure Also initiated by chairman person of nacas OBJECTIVES • • • • Standardise the diverce Acconting policies Add the reliablity to the Financial statement Eradicate baffling variation in treatment of acconting aspects Facilitate inter-firm and inta-firm comparison Accounting Standards in different Nations • • • • IN India 32. there are 41 Acconting Standards called as IFRS Adoped by 8 countries in the World 70 to 80 Countries planning to adhere IFRS EVALUATION AND TYPES OF AS Acconting Standards AS 1 to AS 15 AS 16 to AS 29 Initiated 1975 to 1995 2000 to 2007 20 .
Employee Benefits (revised 2005) AS 15 (issued 1995)Accounting for Retirement Benefits in the Financial Statement of Employers AS 16 Borrowing Costs AS 17 Segment Reporting AS 18.Prior Period Items and Changes in Accounting Policies AS 6 Depreciation Accounting AS 7 Construction Contracts (revised 2002) AS 8 Accounting for Research and Development AS 9 Revenue Recognition AS 10 Accounting for Fixed Assets AS 11 The Effects of Changes in Foreign Exchange Rates (revised 2003).AS 30 to AS 32 Later part of 2007 LIST OF ACCOUNTING STANDARDS AS 1 Disclosure of Accounting Policies AS 2 Valuation of Inventories AS 3 Cash Flow Statements AS 4 Contingencies and Events Occuring after the Balance Sheet Date AS 5 Net Profit or Loss for the period.Contingent` Liabilities and Contingent Assets 21 . Related Party Disclosures AS 19 Leases AS 20 Earnings Per Share AS 21 Consolidated Financial Statements AS 22 Accounting for Taxes on Income. AS 23 Accounting for Investments in Associates in Consolidated Financial Statements AS 24 Discontinuing Operations AS 25 Interim Financial Reporting AS 26 Intangible Assets AS 27 Financial Reporting of Interests in Joint Ventures AS 28 Impairment of Assets AS 29 Provisions. AS 12 Accounting for Government Grants AS 13 Accounting for Investments AS 14 Accounting for Amalgamations AS 15 (revised 2005) Employee Benefits Limited Revision to Accounting Standard (AS) 15.
AS 30 Financial Instruments: Recognition and Measurement and Limited Revisions to AS 2, AS 11 (revised 2003), AS 21, AS 23, AS 26, AS 27, AS 28 and AS 29 AS 31, Financial Instruments: Presentation Accounting Standard (AS) 32, Financial Instruments: Disclosures, and limited revision to Accounting Standard (AS) 19, Leases
SOME OF THE ACCOUNTING STANDARDS ARE STUDIED BELOW
ACCONTIG STANDARD – 1
Disclosure of accounting policies
The Standard deals with the disclosure of significant accounting policies followed in preparing and presenting financial statements. In the initial years, this accounting standard will be recommendatory in character. During this period, this standard is recommended for use by companies listed on a recognized stock exchange and other large commercial ,industrial and business enterprises in the public and private sectors
1. This statement deals with the disclosure of significant accounting policies followed in preparing and presenting financial statements. 2. The view presented in the financial statements of an enterprise of its state of affairs and of the profit or loss can be significantly affected by the accounting policies followed in the preparation and presentation of the financial statements. The accounting policies followed vary from enterprise to enterprise.disclosure of significant accounting policies followed is necessary
The following have been generally accepted as fundamental accounting assumptions:— All assumptions applicable on Air liquide a. Going Concern The enterprise is normally viewed as a going concern, that is, as continuing in operation for the foreseeable future. It is assumed that the enterprise has neither the intention nor the necessity of liquidation or of curtailing materially the scale of the operations. b. Consistency It is assumed that accounting policies are consistent from one period to another. c. Accrual Revenues and costs are accrued, that is, recognized as they are earned or incurred (and not as money is received or paid) and recorded in the financial statements of the periods
2. items the knowledge of which might influence the decisions of the user of the financial Disclosure of Accounting Policies 1.to which they relate. (The considerations affecting the process of matching costs with revenues under the accrual assumption are not dealt with in this Statement. Such disclosure should form part of the financial statements. Materiality Financial statements should disclose all “material” items. Substance over Form The accounting treatment and presentation in financial statements of transactions and events should be governed by their substance and not merely by the legal form. 25 .e. i. it is necessary that all significant accounting policies adopted in the preparation and presentation of financial statements should be disclosed. Prudence In view of the uncertainty attached to future events. schedules and notes. b. To ensure proper understanding of financial statements. c. Provision is made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only a best estimate in the light of available information.) The major considerations governing the selection and application of accounting policies are:—which is adopt by air liquide a. 3 It would be helpful to the reader of financial statements if they are all disclosed as such in one place instead of being scattered over several statements. profits are not anticipated but recognised only when realised though not necessarily in cash.
Where such amount is not ascertainable. 26 . 5. Examples of matters in respect which disclosure of accounting policies adopted will be required are contained in paragraph 14. the fact should be indicated. the fact of such change should be appropriately disclosed in the period in which the change is adopted. If a change is made in the accounting policies which has no material effect on the financial statements for the current period but which is reasonably expected to have a material effect in later periods. This list of examples is not. wholly or in part. however. intended to be exhaustive. The amount by which any item in the financial statements is affected by such change should also be disclosed to the extent ascertainable. 6. Disclosure of accounting policies or of changes therein cannot remedy a wrong or inappropriate treatment of the item in the accounts. Any change in an accounting policy which has a material effect should be disclosed.4.
1981.1999 and is mandatory in nature. including the ascertainment of cost of inventories and any 27 . ‘Valuation of Inventories’.4. Objective A primary issue in accounting for inventories is the determination of the value at which inventories are carried in the financial statements until the related revenues are recognised. issued in June.This Statement dealswith the determination of such value.The revised standard comes into effect in respect of accounting periods Commencing on or after 1.ACCONTING STANDARDS 2 Valuation of Inventories This revised Standard supersedes Accounting Standard (AS) 2.
Fixed production overheads are those indirect costs of production that remain relatively constant regardless of the volume of production. Trade discounts. Measurement of Inventories Inventories should be valued at the lower of cost and net realizable value. Cost of Inventories The cost of inventories should comprise all costs of purchase. Costs of Purchase The costs of purchase consist of the purchase price including duties and taxes (other than those subsequently recoverable by the enterprise from the taxing authorities). such as direct labour. rebates. costs of conversion and other costs incurred in bringing the inventories to their present location and condition. such as depreciation and maintenance of factory Other Costs 28 . duty drawbacks and other similar items are deducted in determining the costs of purchase.write-down thereof to net realisable value. freight inwards and other expenditure directly attributable to the acquisition. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods. Costs of Conversion The costs of conversion of inventories include costs directly related to the units of production.
Exclusions from the Cost of Inventories In determining the cost of inventories in accordance with paragraph 6. labour. Cost Formulas 29 . or other production costs. unless those costs are necessary in the production process prior to a further production stage. it may be appropriate to include overheads other than production overheads or the costs of designing products for specific customers in the cost of inventories. (b) storage costs. usually not included in the cost of inventories. Valuation of Inventories Interest and other borrowing costs are usually considered as not relating to bringing the inventories to their present location and condition and are. (c) administrative overheads that do not contribute to bringing the inventories to their present location and condition. Examples of such costs are: (a) abnormal amounts ofwastedmaterials. it is appropriate to exclude certain costs and recognise them as expenses in the period in which they are incurred. and (d) selling and distribution costs.Other costs are included in the cost of inventories only to the extent that they are incurred in bringing the inventories to their present location and condition. therefore. For example.
The cost of inventories.However. an enterprise could obtain predetermined effects on the net profit or loss for the period by selecting a particular method of ascertaining the items that remain in inventories . in such circumstances. revised in the light of current conditions. specific identification of costs is inappropriate since. other than those dealt with in paragraph 14. Specific identification of cost means that specific costs are attributed to identified items of inventory. such as the standard cost method or the retail method. Standard costs take into account normal levels of consumption of materials and supplies. if necessary.The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects should be assigned by specific identification of their individual costs. should be assigned by using the first-in. regardless of whether they have been purchased or produced. first-out (FIFO). Techniques for the Measurement of Cost Techniques for the measurement of the cost of inventories. They are regularly reviewed and. labour. or weighted average cost formula. efficiency and capacity utilisation.when there are large numbers of items of inventory which are ordinarily interchangeable. This is an appropriate treatment for items that are segregated for a specific project. The retail method is often used in the retail trade for measuring inventories of large numbers of rapidly changing items that have similar margins and for which it is 30 . The formula used should reflect the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition. may be used for convenience if the results approximate the actual cost.
In some circumstances.impracticable to use other costing methods. The percentage used takes into consideration inventory which has been marked down to below its original selling price. An average percentage for each retail department Net Realisable Value The cost of inventories may not be recoverable if those inventories are damaged. for example. it may be appropriate to group similar or related items. or if their selling prices have declined. These estimates take into consideration fluctuations of price or cost directly relating to events occurring after the balance sheet date to the extent that such events confirm the conditions existing at the 31 . Estimates of net realisable value are based on themost reliable evidence available at the time the estimates are made as to the amount the inventories are expected to realise. Inventories are usuallywritten down to net realisable value on an itembyitem basis. The practice of writing down inventories below cost Valuation of Inventories to net realisable value is consistent with the view that assets should not be carried in excess of amounts expected to be realised from their sale or use. finished goods. however. The cost of inventories may also not be recoverable if the estimated costs of completion or the estimated costs necessary to make the sale have increased. or all the inventories in a particular business segment. if they have become wholly or partially obsolete. This may be the case with items of inventory relating to the same product line that have similar purposes or end uses and are produced and marketed in the same geographical area and cannot be practicably evaluated separately from other items in that product line. The cost of the inventory is determined by reducing from the sales value of the inventory the appropriate percentage gross margin. It is not appropriate to write down inventories based on a classification of inventory.
all paragraphs of AS 4 that deal with contingencies stand withdrawn except to the extent they deal with impairment of assets not covered by other Indian Accounting Standards. Contingent Liabilities and Contingent Assets. the net realisable value of the excess inventory is based on general selling prices. The said limited revision to AS 29 comes into effect in respect of accounting periods commencing on or after April 1. Estimates of net realisable value also take into consideration the purpose for which the inventory is held. Contingencies and Events Occurring After the Balance Sheet Date5 . Materials and other supplies held for use in the production of inventories are not written down below cost if the finished products in 5 Pursuant to AS 29. An assessment is made of net realisable value as at each balance sheet date. Provisions. For example. 2006 which they will be incorporated are expected to be sold at or above cost. becoming mandatory in respect of accounting periods commencing on or after 1-4-2004.balance sheet date. when there has been a decline in the price of materials and it is estimated that the cost of the finished products will exceed net realisable value. so as to include Onerous Contracts in the scope of the Standard. the materials are written down to net realisable value. If the sales contracts are for less than the inventory quantities held. A limited revision to AS 29 was made in 2005. the replacement cost of the materials may be the best available measure of their net realisable value. However. Contingent losses on firm sales contracts in excess of inventory quantities held and contingent losses on firm purchase contracts are dealt with in accordance with the principles enunciated in Accounting Standard (AS) 4. In such circumstances. Reference may be made to Announcement XX under the section titled 'Announcements of the Council regarding status of various documents issued by the Institute of Chartered Accountants of India' appearing at the beginning of this Compendium. the net realisable value of the quantity of inventory held to satisfy firm sales or service contracts is based on the contract price. 32 .
This Standard is mandatory in nature in respect of accounting periods commencing on or after 1-4-2004 for the enterprises which fall in any one or more of the following categories. 34 . issued by the Council of the Institute of Chartered Accountants of India. This Standard supersedes Accounting Standard (AS) 3. comes into effect in respect of accounting periods commencing on or after 1-4-1997. ‘Changes in Financial Position’. at any time during the accounting period: (i) Enterprises whose equity or debt securities are listed whether in India or outside India.ACCOUNTING STANDARD 3 Accounting Standard (AS) 3. ‘Cash Flow Statements’ (revised 1997). issued in June 1981.
cash equivalents. (iii) Banks including co-operative banks. in excess of Rs. (vi) All commercial. whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds Rs. for example. it must be readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. For an investment to qualify as a cash equivalent. Cash and Cash Equivalents Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. including public deposits. say. Investments in shares are excluded from cash equivalents unless they are. (iv) Financial institutions.(ii) Enterprises which are in the process of listing their equity or debt securities as evidenced by the board of directors’ resolution in this regard. (v) Enterprises carrying on insurance business. an investment normally qualifies as a cash equivalent only when it has a short maturity of. (vii) All commercial. (viii)Holding and subsidiary enterprises of any one of the above at any time during the accounting period. 10 crore at any time during the accounting period. industrial and business reporting enterprises. preference shares of a company 35 . industrial and business reporting enterprises having borrowings. in substance. 50 crore. Turnover does not include ‘other income’. Therefore. three months or less from the date of acquisition.
acquired shortly before their specified redemption date (provided there is only an insignificant risk of failure of the company to repay the amount atmaturity). Cash flows exclude movements between items that constitute cash or cash equivalents because these components are part of the cash management of an enterprise rather than part of its operating. Cash management includes the investment of excess cash in cash equivalent Presentation of a Cash Flow Statement The cash flow statement should report cash flows during the period classified by operating. investing and financing activities. in forecasting future operating cash flows. This information may also be used to evaluate the relationships among those activities. An enterprise presents its cash flows from operating. Cash flows from operating activities are primarily derived from the 36 . Information about the specific components of historical operating cash flows is useful. investing and financing activities. repay loans and make new investments without recourse to external sources of financing. Classification by activity provides information that allows users to assess the impact of those activities on the financial position of the enterprise and the amount of its cash and cash equivalents. Operating Activities The amount of cash flows arising from operating activities is a key indicator of the extent towhich the operations of the enterprise have generated sufficient cash flows to maintain the operating capability of the enterprise. pay dividends. A single transaction may include cash flows that are classified differently. investing and financing activities in a manner which is most appropriate to its business. in conjunction with other information.
and items of income or expense associated with investing or financing cash flows. Reporting Cash Flows from Operating Activities 1. any deferrals or accruals of past or future operating cash receipts or payments. 37 . Therefore. or (b) the indirect method. Financing Activities The separate disclosure of cash flows arising from financing activities is important because it is useful in predicting claims on future cash flows by providers of funds (both capital and borrowings) to the enterprise. whereby net profit or loss is adjusted for the effects of transactions of a non-cash nature. they generally result from the transactions and other events that enter into the determination of net profit or loss.principal revenue-producing activities of the enterprise. Investing Activities The separate disclosure of cash flows arising from investing activities is important because the cash flows represent the extent towhich expenditures have been made for resources intended to generate future income and cash flows. whereby major classes of gross cash receipts and gross cash payments are disclosed. An enterprise should report cash flows fromoperating activities using either: (a) the direct method.
cost of sales (interest and similar income and interest expense and similar charges for a financial enterprise) and other items in the statement of profit and loss for: i) changes during the period in inventories and operating receivables and payables. The direct method provides information which may be useful in estimating future cash flows and which is not available under the indirect method and is. 3. Reporting Cash Flows from Investing and Financing Activities An enterprise should report separately major classes of gross cash receipts and gross cash payments arising from investing and financing activities Reporting Cash Flows on a Net Basis Cash flows arising from the following operating. Under the direct method. ii) other non-cash items. deferred taxes. considered more appropriate than the indirect method. (b) non-cash items such as depreciation. and . and iii) other items for which the cash effects are investing or financing cash flows. and 38 . therefore.2. and unrealised foreign exchange gains and losses. or (b) by adjusting sales. Under the indirect method. information about major classes of gross cash receipts and gross cash payments may be obtained either: (a) from the accounting records of the enterprise. the net cash flow from operating activities is determined by adjusting net profit or loss for the effects of: (a) changes during the period in inventories and operating receivables and payables. investing or financing activities may be reported on a net basis: (a) cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customer rather than those of the enterprise. provisions.
investing or financing activities as appropriate and separately disclosed. Interest and Dividends Cash flows from interest and dividends received and paid should each be disclosed separately. Arate that approximates the actual rate may be used if the result is substantially the same as would arise if the rates at the dates of the cash flows were used. The cash flows associated with extraordinary items should be classified as arising from operating. The effect of changes in exchange rates on cash and cash equivalents held in a foreign currency should be reported as a separate part of the reconciliation of the changes in cash and cash equivalents during the period. Cash flows arising from interest paid and interest and dividends received in the case of a financial enterprise should be classified as cash flows arising from operating activities. and the maturities are short.Dividends paid should be classified as cash flows from financing activities Taxes on Income 39 . Extraordinary Items 28. the amounts are large. In the case of other enterprises.(b) cash receipts and payments for items in which the turnover is quick. Foreign Currency Cash Flows Cash flows arising from transactions in a foreign currency should be recorded in an enterprise’s reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the cash flow. cash flows arising from interest paid should be classified as cash flows from financing activities while interest and dividends received should be classified as cash flows from investing activities.
Non-cash Transactions Investing and financing transactions that do not require the use of cash or cash equivalents should be excluded from a cash flow statement.Cash flows arising from taxes on income should be separately disclosed and should be classified as cash flows from operating activities unless they can be specifically identified with financing and investing activities. Such transactions should be disclosed elsewhere in the financial statements in a way that provides all the relevant information about these investing and financing activities. and (b) the portion of the purchase or disposal consideration discharged by means of cash and cash equivalents. Investments in Subsidiaries. Acquisitions and Disposals of Subsidiaries and Other Business Units The aggregate cash flows arising from acquisitions and from disposals of subsidiaries or other business units should be presented separately and classified as investing activities. Associates and Joint Ventures When accounting for an investment in an associate or a subsidiary or a joint venture. Components of Cash and Cash Equivalents An enterprise should disclose the components of cash and cash equivalents and should present a reconciliation of the amounts in its cash flow statement with the equivalent items reported in the balance sheet. in respect of both acquisition and disposal of subsidiaries or other business units during the period each of the following: (a) the total purchase or disposal consideration. an investor restricts its reporting in the cash flow statement to the cash flows between itself and the investee/joint venture. An enterprise should disclose. in aggregate. 40 .
the amount of significant cash and cash equivalent balances held by the enterprise that are not available for use by it. 41 .Other Disclosures An enterprise should disclose. Examples include cash and cash equivalent balances held by a branch of the enterprise that operates in a countrywhere exchange controls or other legal restrictions apply as a result of which the balances are not available for use by the enterprise. together with a commentary by management. There are various circumstances in which cash and cash equivalent balances held by an enterprise are not available for use by it.
such as land.vehicles. buildings. This statement does not deal with the specialised aspects of accounting for fixed assets that arise under a comprehensive systemreflecting the effects 42 .goodwill. patents. furniture and fittings. In many enterprises these assets are grouped into various categories.ACCONTING STANDARD 10 Accounting for Fixed Assets Financial statements disclose certain information relating to fixed assets. trade marks and designs. plant andmachinery.
plantations and similar regenerative natural resources. (ii) wasting assets including mineral rights. it is termed as net book value Identification of Fixed Assets Whether items are to be classified as fixed assets. It may be appropriate to aggregate individually insignificant items. An enterprise may decide to expense an item which could otherwise have been included as fixed asset. However. Stand-by equipment and servicing equipment are normally capitalised. This statement does not deal with accounting for the following items to which special considerations apply: (i) forests. Judgement is required in applying the criteria to specific circumstances or specific types of enterprises. When this amount is shown net of accumulated depreciation. Fair market value is the price that would be agreed to in an open and unrestricted market between knowledgeable and willing parties dealing at arm’s length who are fully informed and are not under any compulsion to transact. natural gas and similar non-regenerative resources. if such spares can be used only in connection 43 . and to apply the criteria to the aggregate value. Machinery spares are usually charged to the profit and loss statement as and when consumed. (iii) expenditure on real estate development. expenditure on the exploration for and extraction of minerals. and (iv) livestock. because the amount of the expenditure is not material. Gross book value of a fixed asset is its historical cost or other amount substituted for historical cost in the books of account or financial statements. oil.of changing prices but applies to financial statements prepared on historical cost basis.
itmay be appropriate to allocate the total cost on a systematic basis over a period not exceeding the useful life of the principal item. (ii) initial delivery and handling costs. particularly when the assets exchanged are similar. including import duties and other non-refundable taxes or levies and any directly attributable cost of bringing the asset to itsworking condition for its intended use. (iii) installation cost. An alternative accounting treatment that is sometimes used for an exchange of assets. Included in the gross book value are costs of construction that relate directly to the specific asset and costs that are attributable to the construction activity in general and can be allocated to the specific asset. any trade discounts and rebates are deducted in arriving at the purchase price. for example fees of architects and engineers. Examples of directly attributable costs are: (i) site preparation. 44 . its cost is usually determined by reference to the fair market value of the consideration given.with an itemof fixed asset and their use is expected to be irregular. Self-constructed Fixed Assets In arriving at the gross book value of self-constructed fixed assets. Components of Cost The cost of an itemof fixed asset comprises its purchase price. Itmay be appropriate to consider also the fairmarket value of the asset acquired if this is more clearly evident. is to record the asset acquired at the net book value of the asset given up. and (iv) professional fees. such as special foundations for plant. Any internal profits are eliminated in arriving at such cost Non-monetary Consideration When a fixed asset is acquired in exchange for another asset. in each case an adjustment is made for any balancing receipt or payment of cash or other consideration.
it is difficult to determinewhether subsequent expenditure related to fixed asset represents improvements that ought to be added to the gross book value or repairs that ought to be charged to the profit and loss statement. it is usually recorded at its fair market value. is accounted for separately.g. an increase in capacity. or the fair market value of the securities issued. The cost of an addition or extension to an existing asset which is of a capital nature and which becomes an integral part of the existing asset is usually added to its gross book value. 45 .Any addition or extension. Such financial statements are to be distinguished from financial statements prepared on a basis intended to reflect comprehensivelythe effects of changing prices Retirements and Disposals An item of fixed asset is eliminated from the financial statements on disposal.which has a separate identity and is capable of being used after the existing asset is disposed of. whichever is more clearly evident.When a fixed asset is acquired in exchange for shares or other securities in the enterprise. Only expenditure that increases the future benefits from the existing asset beyond its previously assessed standard of performance is included in the gross book value.. e. Improvements and Repairs Frequently. Amount Substituted for Historical Cost Sometimes financial statements that are otherwise prepared on a historical cost basis include part or all of fixed assets at a valuation in substitution for historical costs and depreciation is calculated accordingly.
such assets are recorded at their cash value. On disposal of a previously revalued itemof fixed asset. the difference between net disposal proceeds and the net book value is normally charged or credited to the profit and loss statement except that. which. Valuation of Fixed Assets in Special Cases In the case of fixed assets acquired on hire purchase terms. although legal ownership does not vest in the enterprise. it is charged directly to that account. In historical cost financial statements. to the extent such a loss is related to an increase which was previously recorded as a credit to revaluation reserve and which has not been subsequently reversed or utilised.Goodwill arises frombusiness connections.Whenever abusiness is acquired for a price (payable either in cash or in shares or(otherwise) which is in excess of the value of the net assets of the business taken over. is recorded in the books only when someconsideration in money or money’s worth has been paid for it. Fixed Assets of Special Types Goodwill.Items of fixed assets that have been retired from active use and are held for disposal are stated at the lower of their net book value and net realisable value and are shown separately in the financial statements. gains or losses arising on disposal are generally recognised in the profit and loss statement. They are shown in the balance sheet with an appropriate narration to indicate that the enterprise does not have full ownership thereof. trade name or reputation of an enterprise or fromother intangible benefits enjoyed by an enterprise. Disclosure 46 . if not readily available. The amount standing in revaluation reserve following the retirement or disposal of an asset which relates to that asset may be transferred to general reserve. Any expected loss is recognised immediately in the profit and loss statement. the excess is termed as ‘goodwill’. in general. is calculated by assuming an appropriate rate of interest.
the nature of any indices used. and whether an external valuer was involved. and (iii) revalued amounts substituted for historical costs of fixed assets. disposals. the method adopted to compute the revalued amounts. (ii) expenditure incurred on account of fixed assets in the course of construction or acquisition. 47 . acquisitions and other movements. the year of any appraisal made. in case where fixed assets are stated at revalued amounts.Certain specific disclosures on accounting for fixed assets are already required by Accounting Standard 1 on ‘Disclosure of Accounting Policies’ and Accounting Standard 6 on ‘Depreciation Accounting’. Further disclosures that are sometimes made in financial statements include: (i) gross and net book values of fixed assets at the beginning and end of an accounting period showing additions.
CHAPTER-3 HOW THESE ACCOUNTING STANDARDS ARE IN AIR LIQUID Below are the sample statements of Significant Accounting Policies followed in Air Liquide and disclosed as per Accounting Standard 1: (a) Basis of preparation of financial statements ( Disclosure as per Accounting standard 1) The financial statements have been prepared and presented under the historical cost convention on the accrual basis of accounting following generally accepted accounting principles in India (GAAP) and comply with the Accounting Standards prescribed by the Companies (Accounting Standards) Rules. 1956 to the extent applicable. 2006 and the relevant provisions of the Companies Act. 48 .
are consistent with those used in the previous year. or at the rates prescribed under Schedule XIV of the Companies Act. Depreciation on fixed assets costing up to Rs. if any. 5. Borrowing costs relating to acquisition of fixed assets are also included to the extent they relate to the period till such assets are ready to be put to use.000 or less is provided 100% in the year of acquisition. 1956 whichever is higher.The accounting policies have been consistently applied by the Company and except for the change in accounting policy discussed more fully below. Actual results could differ from those estimates. Cost comprises the purchase price and any directly attributable cost of bringing the asset to its working condition for its intended use. (c) Fixed Assets ( As per Accounting Standard 10. Any revision to accounting estimates is recognised in accordance with the requirements of the respective accounting standard. the disclosure of contingent liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the period reported. Depreciation on Leasehold Land and Leasehold improvements is provided over the lease period. (b) Use of Estimates ( Disclosure as per Accounting standard 1) The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities.Accounting for Fixed Assets) Fixed assets are stated at cost less accumulated depreciation and impairment losses. 49 . (d) Depreciation ( As per Accounting Standard 10.Accounting for Fixed Assets) Depreciation is provided using Written Down Value Method (WDV) as per the useful lives of the assets estimated by the management.
Operating lease payments are recognized as an expense in the Profit and Loss account on straight line basis over the lease term. In assessing value in use the estimated future cash flows are discounted to their present value at the weighted average cost of capital. are recognised immediately in the Profit and Loss Account. (g) Investments ( As per Accounting Standard 13. All other investments are classified as 50 .Accounting for Investments) Investments that are readily realisable and intended to be held for not more than a year are classified as current investments. (f) Leases ( Accounting Standard 19) Where the Company is the lessee Leases where the lessor effectively retains substantially all the risks and benefits of ownership of the leased term. Where the Company is the lessor Assets subject to operating leases are included in fixed assets. are classified as operating leases. Initial direct costs such as legal costs. Lease income is recognised in the Profit and Loss Account on a straight-line basis over the lease term. brokerage costs. Costs. An impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverable amount. etc.Impairment of Assets) The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairment based on internal / external factors.(e) Impairment (As per Accounting Standard 28. The recoverable amount is the greater of the assets net selling price and value in use. including depreciation are recognised as an expense in the Profit and Loss Account.
Cost is determined on a weighted Finished goods average basis.512.421 2.268.722. Lower of cost or net realizable value. However.179 3. wherever applicable. materials and other items held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost.034 510.934 51 .117 207 491.long-term investment. less estimated costs of completion and to make the sale.998 193.091 -17.253 4. Current investments are carried at lower of cost and fair value determined on an individual investment basis.127 -1. Cost is determined on a weighted average basis. provision for diminution in value is made to recognize a decline other than temporary in the value of the investment.659 Value (Rs. Lower of cost or net realizable value.816 18. Cost of finished goods includes Goods purchased for resale excise duty.679 320.593 5. Net realizable value is the estimated selling price in the ordinary course of business. Long-tern investments are carried at cost. (h) Inventories ( As per Accounting Standard 2 : Valuation of Inventories) Inventories are valued as follows : Raw materials and and spares stores Lower of cost or net realizable value.627 203. However.909 385.814 1.330.110 9.259 724 3. Closing Value of Finished Goods Class of Goods Closing Stock Liquid Oxygen Liquid Nitrogen Liquid Argon Gas & Mix Argon Gas Oxygen Gas Nitrogen Unit M3 M3 M3 M3 M3 M3 Quantity 2009 2008 493.) 2009 2008 3.385 3. Cost includes direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity.106 204.
750 7.254.914 (i) Revenue recognition ( As per Accounting Standard 9 –Revenue Recognition) Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured.334 849.177 279.540 300. (j) Foreign currency transactions ( As per Accounting Standard 11 – The effect of changes in Foreign Exchange Rates ) (i) Initial Recognition Foreign currency transactions are recorded in the reporting currency.356 650 705 9. Income from services Revenues from service contracts are recognised pro-rata over the period of the contract as and when services are rendered.204 223.014. Interest Revenue is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable.144 8. by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction. Sale of Goods Revenue is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer. Sales Tax and VAT deducted from turnover (gross) is the amount that is included in the amount of turnover (gross) and not the entire amount of liability arised during the year.423 13. 52 .345 899.Gas Helium Gas CO2 Gas Hydrogen Total M3 M3 NM3 970 240 10. Excise Duty.037 4.241 476.
(iii) Exchange Differences Exchange differences arising on the settlement of monetary items or on reporting company's monetary items at rates different from those at which they were initially recorded during the year. 53 . The leaves are also en-cashable during the tenure of the employment. or reported in previous financial statements. Liability for leave encashment is accrued and provided for on the basis of actual leaves available at the end of each financial year.(ii) Conversion Foreign currency monetary items are reported using the closing rate. ii. Gratuity liability is accrued on the basis of an actuarial valuation made at the end of each financial year by the Life Insurance Corporation of India and is contributed to them. iii. are recognised as income or as expenses in the year in which they arise except those arising from investments in non-integral operations. Retirement benefits in the form of Provident Fund are charged to the Profit & Loss Account of the year when the contribution to the Provident Fund is due. and non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency are reported using the exchange rates that existed when the values were determined. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction. (k) Retirement benefits ( Disclosure as per Accounting Standard 1) i.
but probably will not. All direct capital expenditures on expansion are capitalised. there is a possible obligation or a present obligation that may. no provision or disclosure is made. in respect of which a reliable estimate can be made. Both direct and indirect expenditure are capitalised only if they increase the value of the asset beyond its original standard of performance. (n) Provisions and Contingent Liabilities and Contingent Assets Provisions A provision is recognised when an enterprise has a present obligation as a result of past event.(l) Expenditure on new projects and substantial expansion Expenditure directly relating to construction activity is capitalised. Income earned during construction period is deducted from the total of the indirect expenditure. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote. Contingent Assets 54 . Indirect expenditure incurred during construction period is capitalised as part of the indirect construction cost to the extent to which the expenditure is indirectly related to construction or is incidental thereto. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates. it is probable that an outflow of resources will be required to settle the obligation. Other indirect expenditure (including borrowing costs) incurred during the construction period which is not related to the construction activity nor is incidental thereto is charged to the Profit and Loss Account. only that portion is capitalised which represents the marginal increase in such expenditure involved as a result of capital expansion. As regards indirect expenditure on expansion. Contingent Liability A contingent liability is disclosed where. as a result of past events. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the balance sheet date. require an outflow of resources.
Contingent assets are not recognised in the financial statements. Air Liquide follows the indirect method for computation of Cash Flows as per Accounting Standard 3. (o) Cash and cash equivalents Cash and cash equivalents in the balance sheet comprises of cash at bank and in hand and short term investments with an original maturity of three months or less. The format is attached below: 55 .
CHAPTER-4 OBJECTIVES & METHODOLOGY 58 .
To examine critically the current practices being followed in the organization of these accounting standards 2. . in depth and comparative analysis of financial department of air Liquide north India pvt ltd. This can only be achieved if the organization works as an integrated unit. How much these acconting standards is important for a company or organization to do all the work efficiently Specific Objectives of this Project is to: 1.OBJECTIVES&METHDOLOGY Significance (i) Significance of the Industry: To achieve and maintain a competitive advantage is extremely essential for organizations to survive. To identity weak areas in the process of implementation of these acconting standards at this organization. In my summer training we know how these acconting standards applicable in Air liquide 2. This will help them to maintain accounts of the company (ii) Significance of the Researcher: I have gained lot of experience while doing this project. 3. To suggest measures to the revenue cycle from invoice through cash receipt. 59 .2 Objectives The objective of this project study is to do a conceptual.
4. To suggest a Managing interdependencies of complex Bill of Materials Tracking the 3-way match between Purchase orders (what was ordered). Systems are too restrictive and do not allow much flexibility in implementation 60 . and Costing (what the vendor invoiced) Methodology The research was probability based exploratory research. Inventory receipts (what arrived). Primary Data • Internal data from companies offices and employees Secondary Data • • Web site of the company Internet Limitations of the study • Time period is very short for that.
CHAPTER-5 BIBLOGRAPHY 61 .
BIBLOGRAPHY WEBSITES: WWW.AIRLIQUIDE.ICAI.WIKIPEDIA.COM WWW.ORG WWW.COM REFRENCE: Mr Gaurav sachdeva Mr Srinivas prasad NEWSPAPER: THE TIMES OF INDIA THE ECONOMIC TIMES 62 .
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