Corporate Accounting

Prof. (Mrs.) Prashanta Athma

Professor,
Department of Commerce,
Osmania University,
Hyderabad, Telangana State.

Mrs. N. Rajyalaxmi
Asst. Professor,
Department of Commerce,
University College for Women,
Koti, Hyderabad, Telangana State.

MUMBAI  NEW DELHI  NAGPUR  BENGALURU  HYDERABAD  CHENNAI  PUNE  LUCKNOW

 AHMEDABAD  ERNAKULAM  BHUBANESWAR  INDORE  KOLKATA  GUWAHATI
© Authors
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or
by any means, electronic, mechanical, photocopying, recording and/or otherwise without the prior
written permission of the publisher.

First Edition : 2015

Published by : Mrs. Meena Pandey for Himalaya Publishing House Pvt. Ltd.,
“Ramdoot”, Dr. Bhalerao Marg, Girgaon, Mumbai - 400 004.
Phone: 022-23860170/23863863, Fax: 022-23877178
E-mail: himpub@vsnl.com; Website: www.himpub.com
Branch Offices :
New Delhi : “Pooja Apartments”, 4-B, Murari Lal Street, Ansari Road, Darya Ganj,
New Delhi - 110 002. Phone: 011-23270392, 23278631; Fax: 011-23256286
Nagpur : Kundanlal Chandak Industrial Estate, Ghat Road, Nagpur - 440 018.
Phone: 0712-2738731, 3296733; Telefax: 0712-2721215
Bengaluru : No. 16/1 (Old 12/1), 1st Floor, Next to Hotel Highlands, Madhava Nagar,
Race Course Road, Bengaluru - 560 001.
Phone: 080-32919385; Telefax: 080-22286611
Hyderabad : No. 3-4-184, Lingampally, Besides Raghavendra Swamy Matham, Kachiguda,
Hyderabad - 500 027. Phone: 040-27560041, 27550139; Mobile: 09390905282
Chennai : No. 8/2, 2nd Madley Street, Ground Floor, T. Nagar, Chennai - 600 017.
Mobile: 09345345055
Pune : First Floor, "Laksha" Apartment, No. 527, Mehunpura, Shaniwarpeth
(Near Prabhat Theatre), Pune - 411 030. Phone: 020-24496323/24496333;
Mobile: 09370579333
Lucknow : House No 731, Shekhupura Colony, Near B.D. Convent School, Aliganj,
Lucknow - 226 022. Mobile: 09307501549
Ahmedabad : 114, “SHAIL”, 1st Floor, Opp. Madhu Sudan House, C.G. Road, Navrang Pura,
Ahmedabad - 380 009. Phone: 079-26560126; Mobile: 09377088847
Ernakulam : 39/176 (New No: 60/251) 1st Floor, Karikkamuri Road, Ernakulam,
Kochi - 682011, Phone: 0484-2378012, 2378016; Mobile: 09344199799
Bhubaneswar : 5 Station Square, Bhubaneswar - 751 001 (Odisha).
Phone: 0674-2532129, Mobile: 09338746007
Indore : Kesardeep Avenue Extension, 73, Narayan Bagh, Flat No. 302, IIIrd Floor,
Near Humpty Dumpty School, Indore - 452 007 (M.P.). Mobile: 09301386468
Kolkata : 108/4, Beliaghata Main Road, Near ID Hospital, Opp. SBI Bank,
Kolkata -700 010, Phone: 033-32449649, Mobile: 09883055590, 07439040301
Guwahati : House No. 15, Behind Pragjyotish College, Near Sharma Printing Press,
P.O. Bharalumukh, Guwahati - 781009, (Assam).
Mobile: 09883055590, 09883055536
DTP by : Nitin Gode
Printed at : M/s. Charita Impressions, Hyderabad. On behalf of HPH.
 Preface

The book on “Corporate Accounting” lays particular emphasis on the fundamentals of

Accounting Standards; Valuation of Goodwill and Shares; Company Final Accounts;
Amalgamation and Internal Reconstruction; Bank and Insurance Accounts alongwith the Lab
work wherever necessary.
A sincere and an earnest attempt is made to present the information in a non-technical,
simple and lucid manner so as to enable the reader to understand the subject matter without
difficulty.
The book is designed focussing its attention on the Syllabus at the undergraduate level of
various universities. The book contains sufficiently a large number of illustrations for a better
grasp in the subject matter. Wherever necessary, working notes and explanations have been
provided. Lab work for the Company Accounts, Amalgamation and Bank Accounts is provided
using tally software.
Suggestions for improvement of the work are solicited.
We thank Mr. S. Chandra Babu, HR and Legal Professional; Mr. V. Sravan Kumar, Senior
Assistant, ZP, RR Dist., Mr. Vinay Aditya and Ms Simhavalli Hasini for their silent contribution
in the completion of the herculean task.
We also thank the publishers for the timely publication and our special thanks are to Mr.
Krishna Poojari for the keen interest taken by him in bringing out this book.

— Authors
 Syllabus

B.Com. Degree Course (III Year)

Corporate Accounting
Paper: 301 Max. Marks: 70T + 30P= 100
P.P.W: 5(4+1) Time: 3 Hours

Objectives
1. To provide the knowledge relating to the Accounting Standards
2. To enable the students to prepare the final accounts using Accounting package
3. To enable the students to prepare Financial Statements of Insurance and Bank Companies
Unit-I: Accounting Standards - Valuation of Goodwill and Shares
 Accounting Standards: Need and Importance - An overview of Indian Accounting Standards
 Valuation of Goodwill: Need - Methods: Normal Profit Method, Super Profits Method,
Capitalization Method
 Valuation of Shares: Need for Valuation - Methods of Valuation: Net Assets Method, Yield
Basis Method, Fair Value Method
Unit-II: Company Final Accounts - Issue of Bonus Shares and Profits Prior to Incorporation
 Preparation of Final Accounts: Provisions relating to the preparation of Final Accounts –
Profit and Loss Account and Balance Sheet
 Computer Lab Work: Preparation of Final Accounts using Computers
 Issue of Bonus Shares: Provisions of Company’s Act and SEBI Guidelines - Acquisition of
Business and Profits Prior to Incorporation – Accounting Treatment
Unit-III: Amalgamation and Internal Reconstruction
 Amalgamation in the nature of Merger and Purchase: Calculation of Purchase
Consideration - Treatment in the Books of Transferor and Transferee (as per Accounting
Standard 14, excluding Inter- Company Holdings)
 Computer Lab Work: Recording of transactions relating to Mergers using Computers
 Internal Reconstruction: Accounting Treatment – Preparation of Final Statements after
Reconstruction
 Computer Lab Work: Recording of transactions relating to Internal Reconstruction using
Computers
Unit-IV: Bank Accounts
 Bank Accounts: Books and Registers to be maintained by the Banks - Slip System of Posting
- Rebate on Bills Discounted - Schedule of Advances – Non Performing Assets - Legal
Provisions relating to preparation of Final Accounts
 Computer Lab Work: Preparation of Bank Final Accounts using Computers
Unit-V: Accounts of Insurance Companies
 Life Insurance Companies: Preparation of Revenue Account - Profit and Loss Account -
Balance Sheet and Valuation Balance Sheet
 General Insurance: Preparation of Final Accounts with special reference to Fire & Marine
Insurance only
 Contents

Sr. No. Title Page No.

1 Accounting Standards 1 – 12
2 Valuation of Goodwill 13 – 36
3 Valuation of Shares 37 – 60
4A Company Final Accounts 61 – 110
4B Company Accounts Lab Work 111 – 118
5 Bonus Shares and Profits Prior to Incorporation 119 – 146
6A Amalgamation of Companies 147 – 186
6B Amalgamation and Internal Reconstruction Lab Work 187 – 211
7 Internal Reconstruction 212 – 234
8A Bank Accounts 235 – 284
8B Bank Accounts Lab Work 285 – 302
9 Life Insurance Companies 303 – 343
10 General Insurance 344 – 375
 Chapter

Accounting Standards
1

CONTENTS
 Introduction
 Definition
 Need for Accounting Standards
 Importance of Accounting Standards
 Accounting Standards Board of India
 Compliance with the Accounting Standards
 Objectives of the Accounting Standards
 Scope of Accounting Standards
 Procedure for Issue of Accounting Standards
 Accounting Standards Issued in India
 Implementation of IFRS in India
 Summary
 Glossary
 Questions

OBJECTIVES
The objectives of this chapter are to:
 Appreciate the need for Accounting Standards
 Know the scope of Accounting Standards
 Learn the Accounting Standards issued by the Accounting Standards Board of India

INTRODUCTION
The main objective of Accounting Theory is to give a coherent set of logical principles for the
evaluation and development of Accounting Practices. To achieve this purpose, some sound accounting
principles are to be followed.
The main purpose of Accounting Standards is to serve as the working basis for the Institutions. It
is not proper to compare the Financial Statements of the different Companies as the Accounting
 –2– Corporate Accounting

Concepts and Conventions permit a variety of alternative practices. Therefore, the Accounting
Standards are required, which conform to the applicable laws, customs, and usage and business
environment.

DEFINITION
According to Kohler, Accounting Standards mean “A mode of conduct imposed on accountants
by custom, law or professional body”.
Michael Bromwich defines “Accounting Standards are uniform rules for financial reporting
applicable to either all or to a certain class of entity promulgated by what is perceived of as
predominantly an element of the accounting community specially created for this purpose. Standard
setters can be seen as seeking to perceive a preferred accounting treatment from the available set of
methods for treating one or more accounting problems, other policy statements by the profession will
be referred to as recommendations”.

NEED FOR ACCOUNTING STANDARDS

Financial Statements are prepared in monetary terms by an enterprise to summarize the end-result
of all the business activities during an accounting period. These business activities vary from one
enterprise to another. The divergence in the methods and principles adopted by the enterprises in
preparing their financial statements will pose some difficulties if the financial statements of various
reporting enterprises are to be compared. Therefore, standards are evolved, to make these methods and
principles uniform and comparable, to the extent possible.
The Institute of Chartered Accountants of India (ICAI) recognizing the need to harmonize the
diverse accounting policies and practices in use in India constituted Accounting Standards Board
(ASB) on April 21, 1977. The main role of ASB is to formulate Accounting Standards from time to
time.
Section 211(3A) of Companies Act, 1956 provides that every Profit and Loss Account and
Balance Sheet of the company shall comply with the Accounting Standards. The Statutory Auditors
are required to make qualification in their report in case any item is treated differently from the
prescribed Accounting Standard. However, while qualifying, they should consider the materiality of
the relevant item. In addition to this, Section 227(3) (d) of Companies Act, 1956 requires an Auditor to
report whether in his opinion; the Profit and Loss Account and Balance Sheet are complied with the
Accounting Standards referred to in Section 211(3C) of Companies Act, 1956.
The basic objective of Accounting Standards is to remove the variations in the treatment of
several accounting aspects and to bring about standardization in presentation. They intend to
harmonize the diverse accounting policies followed in the preparation and presentation of the financial
statements by different reporting enterprises so as to facilitate intra-firm and inter-firm comparison.

IMPORTANCE OF ACCOUNTING STANDARDS

The importance of accounting standards is due to the following reasons.
 Accounting Standards help to develop uniformity in the preparation of the Financial
Statements.
 Accounting Standards facilitate the comparison of the Financial Statements of the various
Companies and manipulation can be reduced.
 Accounting Standards increases the credibility and the reliability of the Financial Statements.
Accounting Standards –3–

 Uniformity in Accounting Practices and Policies may bring transparency in the Accounting
data.
 Accounting Standards provide meaningful information to the various users of the Financial
Statements so that they can make better investment decisions.

ACCOUNTING STANDARDS BOARD OF INDIA

The Institute of Chartered Accountants of India constituted the Accounting Standards Board
(ASB) on 21st April, 1977. It provides support to its members and it recognized the need for harmony
of the diverse Accounting Policies and Practices followed in India.
Accounting Standards Board’s primary function is to formulate the Accounting Standards after
taking into consideration the applicable laws, customs, usages and business environment. It also gives
importance to the International Accounting Standards issued by the International Accounting
Standards Committee (IASC). It gives suggestions and publicizes the Accounting Standards and
persuades the concerned parties to adopt them in the preparation and presentation of the Financial
Statements. ASB has the responsibility of issuing clarifications on issues arising from the standards
and also review the Accounting Standards at periodical intervals.

COMPLIANCE WITH THE ACCOUNTING STANDARDS

The Companies Amendment Act, 1999 has made the compliance of Accounting Standards
mandatory. Accounting Standards guide as to how a particular type of transaction and other events
should be reflected in the Financial Statements and accordingly, compliance with Accounting
Standards will normally be necessary for the Financial Statements to give a true and fair view.
 Accounting Standards are mandatory and the mandatory status of an Accounting Standard
implies that while discharging their functions, it will be the duty of the Members of the
Institute to examine whether the Accounting Standards are complied with in the presentation
of the Financial Statements which are covered by their audit. In the event of any deviation
from the Accounting Standard, it will be their duty to make adequate disclosures in their
Audit Reports so that the users of the Financial Statements may be aware of such deviation.
 Ensuring compliance with the Accounting Standards while preparing the Financial
Statements is the responsibility of the Management of the enterprise. Statutes governing
certain enterprises require the enterprises to prepare the Financial Statements in compliance
with the Accounting Standards, e.g., The Companies Act, 1956 (Section 211), The Insurance
Regulatory and Development Authority (Preparation of the Financial Statements and
Auditor’s Report of the Insurance Companies Regulation, 2000).
 Financial Statements cannot be stated as complying with the Accounting Standards unless
they comply with all the requirements of each applicable standard.
 Business Community is required to adopt the Accounting Standards in order to achieve
uniformity in the preparation and presentation of the Financial Statements.
 In the formulation of the Accounting Standards, the emphasis would be on laying down the
Accounting Principles and not on detailed rules for the application and implementation
thereof.
 –4– Corporate Accounting

OBJECTIVES OF THE ACCOUNTING STANDARDS

The following are the objectives of the Accounting Standards
 To conceive of and suggest the areas in which Accounting Standards need to be developed.
 To formulate the Accounting Standards with a view to assisting the council of the ICAI in
evolving and establishing the Accounting Standards in India.
 To examine as to how far the relevant International Accounting Standards/International
Financial Reporting Standards can be adopted while formulating the Accounting Standards
and to adapt the same.
 To review, at regular intervals, the Accounting Standards from the point of view of the
acceptance or changed conditions and if necessary, revise the same.
 To provide from time to time, interpretations and guidance on Accounting Standards.
 To carry out such other functions relating to the Accounting Standards.

SCOPE OF ACCOUNTING STANDARDS

The scope of the Accounting Standards is detailed below.
 Efforts will be made to issue Accounting Standards which are in conformity with the
applicable laws, customs, usages and business environment in India. However, if a particular
Accounting Standard is found to be not in conformity with the law, the provisions of the
said law will prevail and the Financial Statements should be prepared in conformity with
such law.
 Accounting Standards by their nature cannot and do not override the local regulations which
govern the preparation and presentation of the Financial Statements in the country.
However, the ICAI will determine the extent of disclosures to be made in the Financial
Statements and the Auditor’s Report thereon. Such disclosure may be by way of appropriate
notes to explain the treatment of particular items. Such explanatory notes will be only in the
nature of clarification and therefore, need not be treated as adverse comments on the related
Financial Statements.
 Accounting Standards are intended to apply only to the items which are material. Any
limitations with regard to the applicability of a specific Accounting Standard will be made
clear by the ICAI from time to time. The date from which it will apply, will also be specified
by the ICAI. However, no standard will have retrospective application, unless otherwise
stated.
 The Institute will use its best endeavors to persuade the Government, appropriate
Authorities, Industries and Business Community to adopt the standards in order to achieve
uniformity in the preparation and presentation of the Financial Statements.
 In the formulation of the Accounting Standards, the emphasis would be on laying down
Accounting Principles and not on detailed rules for application and implementation thereof.
 The ASB may consider any issue requiring interpretation on any Accounting Standard.

PROCEDURE FOR ISSUE OF ACCOUNTING STANDARDS

The following procedure is adopted for issuing Accounting Standards by the Accounting
Standards Board:
Accounting Standards –5–

 The Accounting Standards Board (ASB) identifies the broad areas in which Accounting
Standards need to be formulated and the priority thereof.
 In the preparation of the Accounting Standards, ASBs holds a dialogue with the Study
Groups, Representatives of the Government, Public Sector Undertakings and Other
Organizations.
 ASB prepares the draft of the proposed standards which includes, Objective of the Standard,
Scope of the Standard, Definition of the terms used in the Standards, Recognition and
Measurement Principles, Presentation and Disclosure Requirements.
 The ASB will circulate the draft of the Accounting Standards to the Council Members of the
ICAI and the following specified Bodies for their comments:
 Department of Company Affairs (DCA)
 Comptroller and Auditor General of India (C &AGI)
 Central Board of Direct Taxes (CBDT)
 The Institute of Cost and Works Accountants of India (ICWAI)
 The Institute of Company Secretaries of India (ICSI)
 Securities and Exchange Board of India (SEBI)
 Standing Conference of Public Enterprises (SCOPE)
 Indian Bank’s Association (IBA)
 Any other Body considered relevant by the ASB keeping in view the nature of the
Accounting Standard
 After considering the views of the representatives of the specified Bodies on the draft of the
proposed Accounting Standard, the ASB will finalize the Exposure Draft of the proposed
Accounting Standard.
 The final draft of the proposed standard will be issued to the Council of the ICAI and if
necessary, ICAI modifies the same in consultation with the ASB.
The Accounting Standards will be mandatory from the respective dates mentioned in the
Accounting Standards. It is the duty of the Members of the Institute to examine whether the
Accounting Standards are complied within the presentation of the Financial Statements covered by
their audit.

ACCOUNTING STANDARDS ISSUED IN INDIA

List of Accounting Standards (mandatory) as on July 1, 2012
No. of Accounting Title of the Accounting Standard Revised
Standards (ASs) Dates
w.e.f.
AS – 1 Disclosure of Accounting Policies 1/4/1993
AS – 2 Valuation of Inventories 1/4/1999
AS – 3 Cash Flow Statement 1/4/2001
AS – 4 Contingencies and Events Occurring after the Balance Sheet Date 1/4/1998
AS – 5 Net Profit or Loss for the Period, Prior Period Items and Changes in 1/4/1997
Accounting Policies
 –6– Corporate Accounting

AS – 6 Depreciation Accounting 1/4/1995

AS – 7 Accounting for Construction Contracts 1/4/2003
AS – 9 Revenue Recognition 1/4/1993
AS – 10 Accounting for Fixed Assets 1/4/1993
AS – 11 The Effects of Changes in Foreign Exchange Rates 1/4/2003
AS – 12 Accounting for Govt. Grants 1/4/1994
AS – 13 Accounting for Investments 1/4/1995
AS – 14 Accounting for Amalgamations 1/4/1995
AS – 15 Employee Benefits 1/4/1995
AS – 16 Borrowing Costs 1/4/2000
AS – 17 Segment Reporting 1/4/2001
AS – 18 Related Party Disclosures 1/4/2001
AS – 19 Leases 1/4/2001
AS – 20 Earnings per Share 1/4/2001
AS – 21 Consolidated Financial Statement 1/4/2001
AS – 22 Accounting for Taxes on Income 1/4/2003
AS - 23 Accounting for Investment in Associates in Consolidated Financial 1/4/2002
Statements
AS – 24 Discontinuing Operations 1/4/2005
AS – 25 Interim Financial Reporting 1/4/2005
AS – 26 Intangible Assets 1/4/2003
AS – 27 Financial Reporting of Interests in Joint Venture 1/4/2002
AS – 28 Impairment of Assets 1/4/2008
AS – 29 Provisions, Contingent Liabilities and Contingent Assets 1/4/2004
Note: AS - 8 is no longer in force as it is merged with AS - 26
List of Accounting Standards (not mandatory) as on 1st July, 2012
No. of Accounting Title of the Accounting Standard
Standards (ASs)
AS – 30 Financial Instruments: Recognition and Measurement
AS – 31 Financial Instruments: Presentation
AS – 32 Financial Instruments: Disclosures
Source: The Institute of Chartered Accountants of India and other websites

AS–1 Disclosure of Accounting Policies

This Standard deals with the Accounting Policies and specific Accounting Principles and the
Methods of applying those principles to be adopted by the Enterprises in the preparation and
presentation of the Financial Statements.
Accounting Standards –7–

AS–2 Valuation of Inventories

This Standard deals with the determination of the value of the Closing Stock/Inventory at which
the inventory is to be shown in the Balance Sheet till it is not sold and recognized as revenue.

AS–3 Cash Flow Statements

This Accounting Standard is not mandatory for Small and Medium Sized Companies. It is
additional information to the users of the Financial Statements. This Standard deals with the provision
of the information about the historical changes in cash and cash equivalents of an Enterprise by means
of a Cash Flow Statement which classifies the cash flows during the period into Operating, Investing
and Financing Activities.

AS–4 Contingencies and Events Occurring after the Balance Sheet Date
The main purpose of this Standard is to prescribe the method of Accounting Contingencies and
the Events, which take place after the Balance Sheet date but before the approval of the Balance Sheet
by the Board of Directors.

AS–5 Net Profit or Loss for the Period, Prior Period Items and Changes in
Accounting Policies
The Objective of this Accounting Standard is to prescribe the disclosure of certain items in the
Profit and Loss Account so that all the firms prepare and present such a statement on a uniform basis.
This Accounting Standard also deals with the changes in the Accounting Policy, Accounting Estimates
and Extraordinary Items.

AS–6 Depreciation Accounting

It is a measure of depreciation of an asset arising from the use and passage of time. Different
Enterprises adopt different Accounting Policies for Depreciation. Disclosure of Accounting Policies
followed for Depreciation is necessary for appreciating the view presented in the Financial Statements
of the Enterprise.

AS–7 Accounting for Construction Contracts

This Accounting Standard deals with the Accounting for Construction Contracts in the Financial
Statements of the Contractors. This Standard does not apply to the Contractees and would not be
applicable for the construction projects undertaken by the Enterprise as a commercial venture which is
in the nature of production activities.

AS–8 Revenue Recognition

The objective of this standard is to explain as to when the revenue should be recognized in the
Profit and Loss Account and also state the circumstances in which revenue recognition is postponed.
This Standard deals with the revenue arising in the course of an ordinary activities of an enterprise
such as the sale of goods, rendering of services and use of the Enterprises resources for earning
interest, dividend and royalties etc.
 –8– Corporate Accounting

AS–9 Accounting for Fixed Assets

This Standard deals with Accounting for Fixed Assets such as Land, Buildings, Plant and
Machinery, Vehicles, Furniture and Fittings, Goodwill, etc. The Assets held with the intention of
being used for the purpose of producing or providing services and not held for sale in the normal
course of business will be considered as the Fixed Assets and are expected to be used for more than
one Accounting Period.

AS–10 Effects of Changes in the Foreign Exchange Rates

This Standard deals with the accounting for the transactions in Foreign Currencies, in translating
in the Financial Statements of Foreign Operations, Integral as well as non-integral and also accounting
for Forward Exchange. Amount of Exchange Difference included in the Net Profit or Loss; Amount
Accumulated in Foreign Exchange Translation Reserve, Reconciliation of Opening and Closing
Balance of Foreign Exchange Translation Reserve should be disclosed to know the effect of changes
in the Foreign Exchange Rate.

AS–11 Accounting for Government Grants

This Accounting Standard deals with the Government Grants such as subsidies, cash incentives,
duty drawbacks, etc. It also deals with the Government assistance (such as Tax Holliday in backward
areas) other than in the form of Government Grants. Government participation in the ownership of the
Enterprise is not covered in this Standard.

AS–12 Accounting for Investments

It deals with the assets held for earning income by way of dividend, interest and rentals, for
capital appreciation or for other benefits.

AS–13 Accounting for Amalgamations

This Accounting Standard considers only those amalgamations which may be either an
amalgamation in the nature of merger or an amalgamation in the nature of purchase. This Standard is
not applicable to the cases of acquisition of shares when one company acquires/purchases the shares of
another company and the acquired company is not dissolved and its separate entity continues to exist.

AS–14 Employee Benefits

It mainly focuses on the accounting for retirement benefits and is mandatory in nature. The scope
of this Accounting Standard has been enlarged by Revised Committee of ICAI, in the year 2006 and
includes accounting for short-term employee benefits and termination benefits.

AS–15 Borrowing Costs

To build and install the Fixed Assets and other Assets, Enterprises borrow funds and incur the
interest expenses to acquire and build these Assets. This Accounting Standard mainly deals with the
accounting treatment of borrowing cost (interest + other cost) and whether the cost of borrowing
should be included in the cost of the assets or not.
Accounting Standards –9–

AS–16 Segment Reporting

The main objective of this Standard is to establish principles for reporting financial information
about the different types of products and services an enterprise produces or renders and the different
geographical areas in which it operates.

AS–17 Related Party Disclosers

This Accounting Standard deals with the requirements for the disclosure of the related party
relationships and transactions between a reporting enterprise and its related parties. Related Party
relationship affects the volume and decisions of the business of one enterprise for the benefit of the
other enterprise.

AS–18 Lease
As per this Standard, if a sale and leaseback transaction results in a Financial Lease, any excess
or deficiency of sales proceeds over the carrying amount should not be immediately recognized as
income or loss in the Financial Statements of a seller-lessee. Instead, it should be deferred and
amortized over the lease term in proportion to the depreciation of the lease assets. If a sale and
leaseback transaction results in an Operating Lease, any profit or loss should be recognized
immediately.

AS–19 Earning per Share

This Accounting Standard is applicable to the Enterprises whose equity shares or potential equity
shares are listed in a recognized Stock Exchange in India. It is a Financial Ratio that gives the
information regarding earnings available to each equity share. Accounting Standard gives
computational methodology for the determination and presentation of Earning per Share.

AS–20 Consolidated Financial Statements

The main objective of this statement is to present the Financial Statements of a parent and its
Subsidiary/ies as a single economic entity. In other words, the Holding Company and its
Subsidiary/ies are treated as one entity for the preparation of the Consolidated Financial Statements.

AS–21 Accounting for Taxes on Income

This Accounting Standard prescribes the accounting treatment for taxes on income. Traditionally,
amount of tax payable is determined on the profit/loss computed as per the Income Tax Laws. Tax on
income is determined on the principle of accrual concept.

AS–22 Accounting for Investments in Associates in Consolidated Financial

Statements
The objective of this Standard is to formulate the principles and procedures for recognizing the
investment in Associates in the Consolidated Financial Statements of the Investing Company, so that
the effect of investment in Associates on the Financial Position of the group is indicated.
 – 10 – Corporate Accounting

AS–23 Discontinuing Operations

This Standard establishes the principles for reporting information about the discontinuing
operations. The main aim of the disclosure of the information is about the operations which the
enterprise plans to discontinue rather than disclosing the operations which are already discontinued.

AS–24 Interim Financial Reporting

The main purpose of this Standard is to prescribe the minimum content of an Interim Financial
Report and lay down the principles for recognition and measurement of the Assets, Liabilities,
Revenue and Expenses for an interim period.

AS–25 Intangible Assets

This Standard is mandatory in nature and comes into effect in respect of the expenditure incurred
on Intangible Assets during the accounting periods commencing on or after 1/4/2003. It defines
Intangible Asset as an identifiable Non-monetary Asset without physical substance, held for use in the
production or supply of goods and services for rentals to others, for administrative purpose.

AS–26 Financial Reporting of interest in Joint Ventures

The objective of this Standard is to set out the principles and procedures for accounting for
interest in Joint Ventures and reporting of Joint Ventures Assets, Liabilities, Income and Expenses in
the Financial Statements of Venturers and Investors.

AS–27 Impairment of Assets

According to this Standard, an Asset is said to be impaired when carrying amount of the Assets is
more than its recoverable amount. As per this Standard, the carrying amount at which an Asset is
recognized in the Balance Sheet should be after deducting any accumulated depreciation and
accumulated impairment losses thereon.

AS–28 Provisions, Contingent Liabilities and Contingent Assets

The objective of this Standard is to prescribe the method of Accounting for Provisions,
Contingent Liabilities, Contingent Assets, and Provision for Restructuring Cost.

Implementation of IFRS in India

IFRS is a globalization theme and many countries in the world like Hong Kong, Australia,
Pakistan, Russia, South Africa, Singapore, Turkey, and European Union are following. Approximately,
150 Countries across the world are following IFRS. Adoption of IFRS means the use of the
International Financial Reporting Standards as the primary Generally Accepted Accounting Principles
(GAAP) by the domestic listed and unlisted companies in their consolidated Financial Statements for
the external Financial Reporting. This means that, the basis of the presentation, Note and Auditor’s
Report indicate that the Financial Statements are prepared on the basis of IFRSs. It will provide a
chance for India to integrate with the common Accounting International Standards which will save the
cost which has to be incurred by MNCs and internationally listed companies for maintaining dual
accounting and reporting system.
IFRS would enhance the comparability between the Financial Statements of various companies
across the globe. The industry would be able to raise capital from the foreign markets at lower cost if it
Accounting Standards – 11 –

can create confidence in the minds of the foreign investors that its Financial Statements comply with
the Globally Accepted Accounting Standards. It would reduce different accounting requirements
prevailing in the various countries thereby enabling the enterprises to reduce the cost of compliances.
It serves the international clients by providing professional opportunities. It would increase their
mobility to work in different parts of the world either in industry or practice.
The Government has created general awareness about IFRS and the ground is prepared to bring
necessary changes in the accounting practices. The Ministry of Corporate Affairs is constrained
delaying the adoption of IFRS. It is made optional to the companies to either report their Financial
Statements based on the existing Indian AS or adopt IFRS. A decision may be taken to make the
application of IFRS mandatory from the year 2016. Though the time line of convergence of Indian
GAAP with IFRS was from April 2011, many large listed companies have already adopted new
standards and those who are in transition will be actively incorporating the change in the coming years.

SUMMARY
Accounting Standards serve as the working basis for the Institutions. It is not proper to compare
the Financial Statements of the different Companies as the Accounting Concepts and Conventions
permit a variety of alternative practices. Therefore, the Accounting Standards are required, which
conform to the applicable laws, customs, and usage and business environment.
Accounting Standards help to develop uniformity in the preparation of the Financial Statements.
The Accounting Standards facilitate the comparison of the Financial Statements of the various
Companies and manipulation can be reduced. It increases the credibility and the reliability of the
Financial Statements. Uniformity in Accounting Practices and Policies may bring transparency in the
Accounting data. It provides meaningful information to the various users of the Financial Statements
so that they can make better investment decisions.
The Institute of Chartered Accountants of India constituted the Accounting Standards Board
(ASB) on 21st April, 1977. It provides support to its Members and it recognized the need for harmony
of the diverse Accounting Policies and Practices followed in India.
Accounting Standards Board’s primary function is to formulate the Accounting Standards after
taking into consideration the applicable laws, customs, usages and business environment. It also gives
importance to the International Accounting Standards issued by International Accounting Standards
Committee (IASC). It gives suggestions and publicizes the Accounting Standards and persuades the
concerned parties to adopt them in the preparation and presentation of the Financial Statements. ASB
has the responsibility of issuing clarifications on issues arising from the standards and also review the
Accounting Standards at periodical intervals.
The Companies Amendment Act, 1999 has made the compliance of Accounting Standards
mandatory. Accounting Standards guide as to how a particular type of transaction and other events
should be reflected in the Financial Statements and accordingly, compliance with the Accounting
Standards will normally be necessary for the Financial Statements to give a true and fair view. ICAI
has so far issued 29 Accounting Standards which are mandatory in India and the adoption of three
other Accounting Standards is voluntary.
IFRS is a globalization theme and many countries in the world like Hong Kong, Australia,
Pakistan, Russia, South Africa, Singapore, Turkey, and European Union are following. Approximately,
150 Countries across the world are following IFRS. Adoption of IFRS means the use of the
International Financial Reporting Standards as the primary Generally Accepted Accounting Principles
 – 12 – Corporate Accounting

(GAAP) by the domestic listed and unlisted Companies in their consolidated Financial Statements for
the external Financial Reporting.
The Government has created general awareness about IFRS and the ground is prepared to bring
necessary changes in the Accounting Practices. The Ministry of Corporate Affairs is constrained
delaying the adoption of IFRS. It is made optional to the Companies to either report their Financial
Statements based on the existing Indian AS or adopt IFRS. A decision may be taken to make the
application of IFRS mandatory from the year 2016. Though the time line of convergence of Indian
GAAP with IFRS was from April 2011, many large listed companies have already adopted new
standards and those who are in transition will be actively incorporating the change in the coming years.

GLOSSARY
 Accounting Standards: Mean a mode of conduct imposed on Accountants by custom, law
or Professional Body.
 Accounting Standard Board: Is constituted by the Institute of Chartered Accountants of
India to frame the Accounting Standards to be followed by all the Companies uniformly in
India.
 IFRS: Adoption of IFRS means the use of the International Financial Reporting Standards
as the primary Generally Accepted Accounting Principles (GAAP) by the domestic listed
and unlisted companies in their consolidated Financial Statements for the external Financial
Reporting.

QUESTIONS
1. Define Accounting Standards.
2. What is the need for Accounting Standards?
3. Explain the importance of Accounting Standards.
4. What is the role of Accounting Standards Board in India?
5. Write a note on compliance with the Accounting Standards
6. What are the objectives of Accounting Standards?
7. Explain the Scope of Accounting Standards.
8. Briefly describe the procedure for issuing Accounting Standards.
9. Give an account of Accounting Standards.
10. Write about IFRS.

.........
Accounting Standards – 13 –