BBA-Financial Accounting and

Analysis-105

Unit 1: Nature and Scope of Accounting

Topic: Introduction and general concepts

Reference: Financial accounting for BBA, S.N. Maheshwari 04-12-2021 1

 Accounting
Standards

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 Learning Objectives
After completion of the topic students are expected to learn:

S.No CO’s Course Outcome KL PO

1 Able to define Accounting
CO1 functions, it's limitations and K1,K2 PO1
Accounting Principles

Reference Textbook: 04-12-2021 3

 Learning Outcome
After studying this topic, students will be able
to:
• Understand the meaning and concept of
accounting standards
• Relevance of accounting standards

PO1:To familiarize students with accounting

standards

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 Relief to small companies: Relaxations in
compliance with accounting standards
https://economictimes.indiatimes.com/small-biz/policy-trends/relief-to-small-companies-relaxations-in-compliance-with-
accounting-
standards/articleshow/84542985.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

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 Introduction to AS
• Written Documents issued by
Government or Regulatory Body
• In India, issued by ICAI on 21st April,1977
• Initiated by Kumar Mangalam Birla,
chairman committee of Corporate
Governance for Financial Disclosures

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 Objectives
• Standardise the diverse Accounting
Policies
• Add the reliability to the Financial
Statement
• Eradicate mysterious variation in
treatment of accounting aspects
• Facilitate inter-firm and intra-firm
comparison

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 Accounting Standards in Different
Nations

• In India, 32 Accounting Standards as IAS

under NACAS (National Advisory
Committee on Accounting Standards)
• As per International, there are 41
Accounting Standards called as IFRS
• Adopted by 8 countries in the world
• 70 to 80 countries planning to adhere
IFRS
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 Evolution and Types of
AS
Accounting Standards Initiation

1. AS 1 to AS 15 1979 to 1995

2. AS 16 to AS 29 2000 to 2007

3. AS 30 to AS 32 Later part of 2007

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 AS 1-Disclosure of Accounting
Policies

• Specific policies adapted to prepare

FS
• Should be disclosed at one
place Purpose :-
1. Better understanding of FS
2. Better comparison analysis
3. Mostly needed w.r.t Depreciation
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 AS 2- Accounting for
Inventories
• Used for computation of Cost of
inventories and to show in BS till it is
sold
Consists of :-
1. Raw Materials
2. Work in progress
3. Finished goods
4. Spares, etc
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 Measurements of
Inventories
• Determination of Cost of Inventories
Cost of purchase (Purchase price,
duties & taxes, freight inwards)
Cost of conversion
• Determination of Net realisable value
• Comparison of cost and net realisable

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 AS 3- Cash Flow
Statements
• Incoming and outgoing of cash
• Act as barometer to judge surplus and
deficit
• Explain Cash flow under 3 heads :-
1. Cash flow from operating activities
2. Cash flow from financing activities
3. Cash flow from investing activities

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 AS 4- Contingencies and events
occurring after BS date
• For maintaining Provision of Bad debts
• Generally uses Conservative concepts
of Accounting like Bankruptcy, frauds &
errors.

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 AS 5- Net profit or loss for the period,
prior period items and change in
Accounting
policies
• Ascertain certain criteria for certain items
• Include income and expenditures of
Financial year
• Consists of 2 component
1. Profit and loss of ordinary activities
2. Profit and loss of extra ordinary activities

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 AS 6- Accounting for
Depreciation
• A non-cash expenditure
• Distribution of total cost to its useful
life
• Occurs due to obsolescence
• Different methods of computation
1. Straight line method ( SLM )
2. Written-down value or diminishing
value (WDV)
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 AS 7- Construction
Contract
• Contract specifically negotiated for
construction of Asset or combination of
Assets closely inter-related

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 AS 8- Accounting for
R&D
• To deal with treatment of Cost of research
and development in the financial
statements, identify items of cost which
comprise R&D costs lays down condition
R&D cost may be deferred and requires
specific disclosures to be made regarding
R&D costs.

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 AS 9- Revenue
Recognition
• Means gross inflow of cash and
other consideration like arising
out of :-
1. Sale of goods
2. Rendering services
3. Use of enterprise resources by other
yielding interest, dividend and royalities.

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 AS 10- Accounting for Fixed Assets

• Called as Cash generating Assets

• Expected to used for more than a
Accounting period like land, building,
P/M, etc
• Shown at either Historical or Revalued
value

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 AS 11- Effect of change in FOREX
Rates
• Classification for Accounting
treatment:-
1. Category I: Foreign currency
transactions:
a) buying and selling of goods or services
b) lending and borrowing in foreign
currency
c) Acquisition and disposition of assets
2. Category II: Foreign operations:
a) Foreign branch
b) Joint venture
c) Foreign Subsidiary
3. Category III: Foreign Exchange
contracts:
a) For managing Risk/hedging
b) For trading and Speculation
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 AS 12- Accounting for Govt.
Grants

• Assistance provided by Govt. in cash

or in kind like
1. Grants of Assets like P/M, Land,etc
2. Grants related to depreciable FA
3. Tax exemptions in notified area

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 AS 13- Accounting for
Investments
• Assets held for earning incomes like dividend,
interest, rental for capital appreciation, etc
• It involves:-
1. Classification of Investment
2. Cost of Investment
3. Valuation of Investment
4. Reclassification of Investment
5. Disposal of Investment
6. Disclosure of Investment in FS

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 AS 14- Accounting for
Amalgamation
• Section 391 to 394 of Companies Act, 1956
governs the provision of amalgamation.
• Disclosures:
1. Names and nature of amalgamating companies
2. Effective date of amalgamation
3. Method of Accounting used
4. Particulars of scheme sanctioned under a statute

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 AS 15- Employees
Benefits
• All forms of consideration given by
enterprise directly to the employees or
their spouses, children or other
dependants, to other such as trust,
insurance companies in exchange of
services rendered.

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 AS 16- Borrowing
Costs
• Interest and cost incurred by an
enterprise in connection to the borrowed
funds.
• Availed for acquiring building, installed
FA to make it useable and saleable.

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 AS 17- Segment
Reporting
• It consists of 2 segment:-
1. Business segment
2. Geographical segment
• Information and different risk and
return reporting.

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 AS 18- Related party
disclosure
• Related party are those party that controls or
significantly influence the management or operating
policies of the company during reporting period
• Disclosure:
1. Related party relationship
2. Transactions between a reporting enterprises and its
related
parties.
3. Volume of transactions
4. Amt written off in the period in respect of debts

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 AS 19- Accounting for
Leases
• Agreement between Lessor And
Lessee
• Two types of leases:
1. Operating lease
2. Finance lease
• Different from Sale
• Classification to be made at the
inception
04-12- Reference: Financial 29
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 AS 20- Earning per
share
• Earning capacity of the firm
• Assessing market price for share
• AS gives computational methodology
for determination and presentation of
EPS
• 2 types of EPS

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 AS 21- Consolidated Balance Sheet

• Accounting for Parent and

Subsidiary company in single
entity
• Disclosure:-
1. List of all subsidiaries
2. Proportion of ownership interest
3. Nature of relation whether direct or
indirect
04-12- Reference: Financial 31
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 AS 22- Accounting for taxes and
income

• Tax accounted for period in which

are accounted
• It should be accrued and not liability to
pay
• Deals in 2 measurements:-
1. Current tax
2. Deferred tax
04-12- Reference: Financial 32
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 AS 23- Accounting for
investments in Associates in CFS
(Consolidated Financial
Statements)
• Objectives to set out principles and
procedures for recognizing the investment
associates in CFS of the investors, so that
effect of investments in associates on
financial position of group is indicated.

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 AS 24- Discontinuing
operations
• Establishes principles for reporting
information about discontinuing
operations
• Covers discontinuing operations rather
than discontinued operation

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 AS 25-Interim Financial Reporting
(IFR)

• Reporting for less than a year i.e 3

months
• Clause 41 says publish financial
results on quarterly basis
• Objective is to provide frequently and
timely assessment

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 AS 26- Intangible
Assets
• No physical existence
• Can not be seen or even
touched
• 3 featured as per AS
1. Identifiable
2. Non-monetary assets
3. Without physical substance

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 AS 27- Financial Reporting of
interest in Joint Venture
• What is joint venture?
• Three types of JV in case of Financial
reporting

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 AS 28- Impairment of
Assets
• Weakening of Assets value
• Occurs when carrying cost more
than recoverable amount
• Carrying cost = Cost of assets –
Accumulated
Depreciation

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 AS 29- Provision, contingent
liabilities and
• Provisions:-
assets
It is a Liability
Settlement should result in
outflow Liability is result of
obligating event
• Contingent liabilities:-
Obligation arises of past
event
Existence confirmed when actually occurred of uncertain
future
• Contingent Asset
Same as Contingent liability

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 Financial
Instruments
• AS 30 – Recognition and Measurement
• AS 31 – Presentation
• AS 32 – Disclosures
• Has not been made mandatory
(expected in 2009)

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 Recapitulation
• An accounting standard is a common set of principles,
standards, and procedures that define the basis of
financial accounting policies and practices.
• Accounting standards apply to the full breadth of an
entity’s financial picture, including assets, liabilities,
revenue, expenses, and shareholders' equity.
• Banks, investors, and regulatory agencies, count on
accounting standards to ensure information about a
given entity is relevant and accurate.

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 Reference
• Financial Accounting for Managers, Pearson Education, Dhamija,S.(2015)

• Advanced Management Accounting,S Chand and Co.,Jawahar L. (2016)

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04-12- Reference: Financial 43
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