AS 1 To 29

SARANSH
Last Mile Referencer for
ACCOUNTING
STANDARDS
The Institute of Chartered

Accountants of India
(Setup by an Act of Parliament)
Board of Studies (Academic)
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Saransh - Last Mile Referencer for Accounting Standards
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same may be brought to the notice of the Director, BoS. The Council of the Institute is not
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Published in January 2023 by:

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BOS (Academic), the student wing of the Institute, does not leave any stone unturned
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education through its value added study materials, wherein concepts are explained in
lucid language. Illustrations and Test Your Knowledge Questions contained therein
facilitate enhanced understanding and application of concepts learnt. Booklet on
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Revision Test Papers contain updates and Q & A to help students update themselves
PREFACE
with the latest developments before each examination and revise the concepts and
provisions by solving questions contained therein. Suggested Answers containing
the ideal manner of answering questions set at examination also helps students revise
for the forthcoming examination. Mock Test Papers help students assess their level
of preparedness before each examination. BoS (Academic) also conducts live virtual
classes through eminent faculty for its students across the length and breadth of the
country.
To reach out to its students, the BoS (Academic) has also been publishing
subject-specific capsules in its monthly Students’ Journal “The Chartered
Accountant Student” since the year 2017 for facilitating effective revision of concepts
dealt with in different topics of each subject at the Foundation, Intermediate and
Final levels of the chartered accountancy course. Each issue of the journal includes a
capsule relating to specific topic(s) in one subject at each of the three levels. In these
capsules, the concepts and provisions are presented in attractive colours in the form
of tables, diagrams and flow charts for facilitating easy retention and quick revision
of topics.
The BoS (Academic) is now coming out with a comprehensive booklet ‘Saransh - Last
Mile Referencer for Accounting Standards’ wherein the significant concepts dealt
with across topics in accounting are captured by way of diagrams, flow charts and
tables. The booklet captures the substantial provisions contained in Accounting
Standards forming part of the syllabi of the subject at intermediate level. The
booklet encapsulates diagrams, flow charts, tables and illustrated journal entries.
This one stop repository would, thus, consolidate all significant topics of accounting
at one place, by capturing the key points. This would help the reader appreciate the
requirements contained in each such accounting standard at a glance. It will surely
facilitate the reader to grasp the essence of the subject as a whole by serving them as
a ready reckoner.
Happy Reading!
© ICAI BOS(A)
SARANSH
Message of Key ICAI Office Bearers
CA. (Dr.) Debashis Mitra

President, ICAI
The Board of Studies (Academic) of ICAI has always been at the forefront of providing
quality education to aspiring CA students and handholding them in preparing for their
exams. Saransh — Last Mile Referencer is a step in that direction. This pack of 3 booklets
on Accounting, Auditing & Cost Management and Strategic Decision Making covers
˦˜˚ˡ˜Ѓ˖˔ˡ˧˖ˢˡ˖˘ˣ˧˦ˢ˙˘˔˖˛˖˛˔ˣ˧˘˥˜ˡˣ˥˘˖˜˦˘˙ˢ˥ˠʡˇ˛˜˦˪˜˟˟ˡˢ˧ˢˡ˟ˬ˛˘˟ˣ˦˧˨˗˘ˡ˧˦˙ˢ˥
their reference for examinations but also Members can use it for their practice reference.
CA. Aniket S. Talati

Vice-President, ICAI
It has always been the endeavour of ICAI to provide updated information to its student to
˞˘˘ˣ˧˛˘ˠ˔˕˥˘˔˦˧˔˕ˢ˨˧˧˛˘˟˔˧˘˦˧˛˔ˣˣ˘ˡ˜ˡ˚˦˜ˡ˧˛˘˔˖˖ˢ˨ˡ˧˜ˡ˚˔ˡ˗˥˘˟˔˧˘˗Ѓ˘˟˗˦ʡˇ˛˘
Board of Studies (Academic), the academic wing of ICAI, has come up with a series of
booklets ‘Saransh – Last Mile Referencer’ with key points of different subjects. This will help
facilitate effective revision of concepts in each subject.
CA. Dayaniwas Sharma

Chairman, Board of Studies (Academic)
Saransh — Last Mile Referencer is a compilation of capsules on different subjects of

Foundation, Intermediate and Final levels of the chartered accountancy course. This
˦˘˥˜˘˦ˢ˙˕ˢˢ˞˟˘˧˦˖ˢˡ˦ˢ˟˜˗˔˧˘˦˔˟˟˦˜˚ˡ˜Ѓ˖˔ˡ˧˧ˢˣ˜˖˦ˢ˙ʴ˖˖ˢ˨ˡ˧˜ˡ˚˜ˡ˖˟˨˗˜ˡ˚ʴ˖˖ˢ˨ˡ˧˜ˡ˚
Standards & Ind AS, Auditing with Auditing Standards and Cost Management and
Strategic Decision Making at one place by capturing the key points. The concepts and
ˣ˥ˢ˩˜˦˜ˢˡ˦ˣ˥˘˦˘ˡ˧˘˗˜ˡ˔˧˧˥˔˖˧˜˩˘˖ˢ˟ˢ˨˥˦˜ˡ˧˛˘˙ˢ˥ˠˢ˙˧˔˕˟˘˦ʟ˗˜˔˚˥˔ˠ˦˔ˡ˗Єˢ˪˖˛˔˥˧˦
will facilitate quick revision of topics and easy retention.
CA. Vishal Doshi

Vice-Chairman, Board of Studies (Academic)
Among the many best-in-class services that the Board of Studies (Academic) provides to
its students, Saransh — Last Mile Referencer is another initiative in that direction. These
booklets on different subjects have been provided in a concise and precise form. It will
facilitate understanding of the concepts better to students and grasp the essence of the
subject. These capsules will enhance of level of preparedness before the examinations.
© ICAI BOS(A)
SARANSH

INDEX
Topic Pg No.
ACCOUNTING STANDARDS
Introduction to Accounting Standards 1

AS 1 “Disclosure of Accounting Policies” 4
AS 2 “Valuation of Inventories” 5
AS 3 “Statement of Cash Flows” 8
AS 4 “Contingencies and Events Occurring after the Balance Sheet Date” 13
AS 5 “Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies” 15
AS 7 “Construction Contracts” 17
AS 9 “Revenue Recognition” 19
AS 10 “Property, Plant and Equipment” 21
AS 11 “The Effects of Changes in Foreign Exchange Rates” 28
AS 12 “Accounting for Government Grants” 33
AS 13 “Accounting for Investments” 35
AS 14 “Accounting for Amalgamations” 37
AS 16 “Borrowing Costs” 40
AS 17 “Segment Reporting” 42
AS 18 “Related Party Disclosures” 46
AS 19 “Leases” 49
AS 20 “Earnings Per Share” 54
AS 22 “Accounting for Taxes on Income” 58
AS 24 “Discontinuing Operations” 61
AS 26 “Intangible Assets” 63
AS 29 “Provisions, Contingent Liabilities and Contingent Assets” 67
© ICAI BOS(A)
SARANSH Accounting Standards
INTRODUCTION TO ACCOUNTING STANDARDS

Overview
Concepts & Benefits Accounting Significance of

of Accounting Standards setting List of Accounting
Global Standards
Standards process Standards
International Financial International

Concept of Ind AS Convergence to Reporting Standards as Financial Reporting
Carve Outs IFRS in India global standards Standards (IFRS)
Issuance of Accounting Standards

Standardisation of
Accounting Standards are written alternative accounting
policy documents issued by treatments
Government
ICAI
e.g. (MCA) for corporate
for non corporate entities
entities in consultation
with N'3" Benefits
Comparability of Enhanced
of financial Accounting disclosures
statements Standards
Accounting Standards - Benefits
Recognition Measurement Presentation

of events and of of Disclosures
transactions transactions transactions
and events and events
© ICAI BOS(A) 1
Accounting Standards Setting Process 6LJQLÀFDQFHRI*OREDO6WDQGDUGV

Identification of area
Constitution of study group

Cross
border flow
Preparation of draft and its circulation Lower risk of money
of errors of Global listing
judgment in different
Ascertainment of views of different bodies on draft stock
markets
Finalisation of exposure draft (E.D.)
Reduced
Comments received on exposure draft (E.D.) operational Significance Comparability
challenges of Global of financial
Standards statements
Modification of the draft
Issuance of AS
Greater Elimination
transparency of costly
requirements
List of Accounting Standards Enhanced
1 Disclosure of Accounting Policies
accountability
2 Valuation of Inventories
3 Cash Flow Statement
4 Contingencies and Events Occurring after the Balance Sheet Date
5 Net Profit or Loss for the Period, Prior Period Items and
Changes in Accounting Policies
,QWHUQDWLRQDO)LQDQFLDO5HSRUWLQJ
7 Construction Contracts 6WDQGDUGV ,)56
9 Revenue Recognition
10 Property, Plant and Equipment
11 The Effects of Changes in Foreign Exchange Rates IFRS issued by Interpretations on IAS/IFRS
IASB issued by IFRS Interpretations
12 Accounting for Government Grants Committee
13 Accounting for Investments
14 Accounting for Amalgamations
15 Employee Benefits IAS issued Interpretations
16 Borrowing Costs by IASC and on IAS issued
adopted by IASB
17 Segment Reporting IFRS by SIC
18 Related Party Disclosures
19 Leases
20 Earnings Per Share
21 Consolidated Financial Statements
22 Accounting for Taxes on Income
23 Accounting for Investments in Associates in Consolidated
Financial Statements
24 Discontinuing Operations ,QWHUQDWLRQDO)LQDQFLDO5HSRUWLQJ
25 Interim Financial Reporting
Standards (,)56V DV*OREDO6WDQGDUGV
26 Intangible Assets
Enhanced
27 Financial Reporting of Interests in Joint Ventures Principle transparency Emergence
IFRSs based set of and as Global
28 Impairment of Assets comparability of
standards Standards
29 Provisions, Contingent Liabilities and Contingent Assets financial
statements
Effectively, there are now only 27 Accounting Standards.
© ICAI BOS(A) 2
&RQYHUJHQFHWR,)56LQ,QGLD
Deviation from
corresponding IFRS, if
Indian Accounting
Application of IFRS in required
Convergence Standards (Ind AS)
to IFRS; India considering legal
ICAI
not adoption and other conditions
prevailing in India Decision to have two
sets of Accounting Accounting Standards
standards (AS)
Ind AS ,QGLDQ$FFRXQWLQJ6WDQGDUGV%HQHÀWV
Ind AS are IFRS converged standards issued by
the Central Government with certain carve outs. Globalization Transparency Comparability Enhanced
and of financial of financial Disclosure
Steps for notification Liberalization statements statements requirements
2EMHFWLYHVDQG&RQFHSWVRI&DUYH2XWV
Sent to Formulation of Ind AS

Central
Govt. for
Sent to N'3" Notification Departures
for deliberation
Resulting into carve-outs Not resulting into carve-outs

Formulation by
ASB of ICAI
Removal of options in
Deviation from the
accounting principles and
accounting principles
practices in Ind AS vis-a-
stated in IFRS
vis IFRS
© ICAI BOS(A) 3
AS 1 “DISCLOSURE OF ACCOUNTING POLICIES”
Introduction
Considerations in selection of Accounting policies
AS 1 deals with the disclosure of significant accounting policies
followed in preparation and presentation of financial statements.
AS 1 covers Substance over

Prudence Form Materiality
Fundamental Accounting Accounting Policies

Assumptions In view of the The accounting Financial
uncertainty treatment and statements
attached to presentation should disclose
future events, in financial all “material”
These assumptions Accounting policies refer profits are not statements of items, i.e. items
underlie the preparation to the specific accounting
and presentation of principles and the methods anticipated transactions and the knowledge
financial statements. of applying those principles but recognised events should of which might
adopted by the enterprise only when be governed by influence the
in the preparation and realised though their substance decisions of
presentation of financial
statements. not necessarily and not merely the users of
in cash. by the legal the financial
form. statements.
Fundamental Accounting Assumptions 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.
Going Concern Consistency Accrual
The enterprise Accounting Revenues Not required

is normally policies are and costs are If followed to be
viewed as a considered to accrued, that is, disclosed
going concern, be consistent recognised as
that is, as from one they are earned
continuing in period to or incurred
operation for another. and recorded Fundamental
the foreseeable in the financial Accounting
future. statements of Assumptions
the periods
to which they
relate.
If not Specific
followed disclosure
required
It is assumed that the enterprise has neither the intention nor in financial
the necessity of liquidation or of curtailing materially the scale statements.
of the operations.
© ICAI BOS(A) 4
Accountant has to make decisions from various permitted

alternative methods for recording or disclosing various items in Disclosure of Accounting Policies
the books of accounts for example: All significant accounting policies adopted in the preparation and
presentation of financial statements should be disclosed.
Items to be disclosed Method of disclosure or valuation
Inventories FIFO, Weighted Average etc.

Disclosure should form part of the financial statements.
Cash Flow Statement Direct Method, Indirect Method
Depreciation Straight Line Method, Reducing Disclosure of accounting policies or of changes therein cannot
remedy a wrong or inappropriate treatment of the item in the
Balance Method, Units of accounts.
Production Method etc.
This list is not exhaustive. Disclosure of Changes in Accounting Policies
Change in Accounting Policy
Considerations in Selection of Accounting
Policies
Having material effect in Having non-material effect in
True and fair view of the state current period current period but expected
of affairs of the enterprise as to have material effect in later
at the balance sheet date; periods
Amount Not
Selection of ascertained ascertained
Accounting Policies
must ensure Fact of such change to be
disclosed in current period.
Correct determination of Amount to be Fact to be
profit or loss for the period. disclosed disclosed
AS 2 “VALUATION OF INVENTORIES”
Introduction Definition of Inventories
AS 2 (Revised) ‘Valuation of Inventories’, provides complete
guidance for determining the value at which inventories, are
carried in the financial statements until related revenues are Inventories are assets
recognised. It also provides guidance on the cost formulas that
are used to assign costs to inventories and any write-down
thereof to net realisable value. Held for In the
sale in process of In the form of
the production
Scope of AS 2 ordinary for such
materials* or supplies*
to be consumed in
course sale
Applicability of AS 2 in accounting of business
for inventories other than
It includes It includes Production

Work in Work in Shares, goods Finished process
progress progress debentures and purchased goods or
arising under arising in other financial and held work in
construction the ordinary instruments for resale progress,
contracts, course of held as stock- produced,
including business in-trade; or
materials Rendering
directly of service of services
related service providers; and
contracts; supplies
awaiting
use in the
production
process
* Other than machinery
Producers’ inventories of livestock, agricultural and forest spares, servicing
products, and mineral oils, ores and gases to the extent that equipment and stand-
they are measured at net realisable value in accordance with by equipment meeting
well established practices in those industries. the definition of PPE
© ICAI BOS(A) 5
Determination of Cost of Inventories
Costs of purchase Costs of conversion Other costs
Purchase price Direct labour Overheads Costs incurred

to bring the
inventories to
their present
location and
Duties and other taxes (non- Fixed production Variable production condition
recoverable from the taxing authorities) overheads (remains overheads (It vary
relatively constant directly, or nearly
regardless of the volume directly, with the
of production) volume of production)
Other expenditure directly attributable
to the acquisition
Trade discounts, rebates, duty

drawbacks and other similar items are
deducted in determining the costs of
purchase
Allocation of Cost to Joint Products and By-Products
When more than one product is produced in the process
Outcome - Joint products Outcome - Main product with a

By-product
When the cost of conversion When the cost of conversion When the by-product is When the by-product is
of each product is separately of each product is not immaterial material
identifiable separately identifiable
Cost of each product Allocation of cost is based on By-product is

is calculated on the relative sales value of each product measured at NRV and By-product is treated
basis of separate cost either at the stage in the production this value is deducted as joint product
incurred. process when the products become from the cost of the and accordingly, the
separately identifiable, or at the main product. accounting is done.
completion of production.
© ICAI BOS(A) 6
Conversion Cost
Factory Overheads Direct labour Joint Cost
Fixed Variable Main/Joint*** By Products
At Normal At Actual At Actual Sale value at Sale value at NRV is deducted

Capacity* Production** Production Separation Completion from cost of main /
joint products
*When actual production is almost equal or lower than normal capacity.

** When actual production is higher than normal capacity.
*** Allocation at reasonable and consistent basis.
Costs excluded from a Abnormal amounts of wasted materials, labour, or other production costs;
the cost of inventories a Storage costs, unless the production process requires such storage;
and recognised as a Administrative overheads that do not contribute to bringing the inventories
expenses to their present location and condition;
a Selling and distribution costs.
Cost Formulas
Inventory Valuation
Technique
Inventory ordinarily Inventory not ordinarily

interchangeable interchangeable
Historical Cost Non Historical

Methods Cost Methods
Specific Identification Method
(applicable when individual items
FIFO can be clearly identified and specific
Retail Inventory / Standard Cost
Adjusted selling price costs are attributed)
Method
method
It takes into account normal

Weighted levels of consumption (and are
Average It is used when large reviewed regularly)
numbers of rapidly
changing items with
similar margins are Materials
involved
Supplies
Cost is determined by Labour

reducing sales value of efficiency
the inventory by the
appropriate percentage
gross margin Capacity
utilisation
© ICAI BOS(A) 7
Disclosures
Information about the carrying amounts held in different
Measurement of Inventories
classification of inventories and the extent of changes in these assets
must be disclosed in financial statements.
Stock-in-trade
Raw Materials Finished Goods and (in respect of
Work in progress goods acquired
for trading),
Finished goods, Stores and spares,
At cost (if Lower of
finished goods
are sold at or Work in progress, Loose tools,
above cost),
otherwise at Cost Net Realisable Common
Value Classifications of
replacement cost Raw materials and inventories Others.
components,
The financial Accounting The total

Realisable Value less Selling Expenses less statements policies adopted carrying amount
estimated cost of completion should in measuring of inventories
disclose inventories, together with
including the its classification
cost formula appropriate to the
used. enterprise.
AS 3 “STATEMENT OF CASH FLOWS”

Introduction
AS 3 provides information about historical changes in cash and cash equivalents of an enterprise by mean of a cash flow statement
which classifies cash flows during an accounting period into operating, investing and financing activities.
Objectives of AS 3
To assess To require
Ability of the Needs of the entity Provision of

Timing and information about
entity to generate to utilise those cash certainty of
cash and cash flows. the historical changes
generation of cash in cash and cash
equivalents. flows. equivalents of an
entity.
© ICAI BOS(A) 8
Presentation of a statement of cash flows
Report cash flows (inflows and outflows) during the period
Classified as
Operating activities Investing activities Financing activities Cash and cash equivalents
These are the principal Investing activities are the Financing activities are Cash Cash equivalents
revenue-producing acquisition and disposal of activities that result in
activities of the entity long-term assets and other changes in the size and are short-
other than investing or investments not included composition of the owner’s term, highly
financing activities It comprises
in cash equivalents capital and borrowings of cash on liquid
the entity hand & investments
demand
Reporting deposits
An entity shall report separately major classes with banks are readily
of gross cash receipts and gross cash payments convertible
arising from investing and financing activities to known
amounts of
Under direct Under indirect cash
method method
are subject
Profit or loss is adjusted for to an
Major classes insignificant
of gross cash a non-cash transactions
a any deferrals or accruals of past or future risk of
receipts and changes in
gross cash operating cash receipts or payments
a items of income or expense associated with value
payments are
disclosed investing or financing cash flows
are not for
investment
purposes
Entities are encouraged to follow the direct method. The
direct method provides information which may be useful has a short
in estimating future cash flows and which is not available Exception maturity of,
under the indirect method. say, 3 months
or less from
Investments in shares are excluded the date of
from cash equivalents acquisition
Cash flows arising from operating activities
Key indicator of the extent to which the operations Examples

of the entity have generated sufficient cash flows to
a repay loans
a maintain the operating capability of the entity
a pay dividends (a) Cash receipts from the sale of goods and the rendering of services
a make new investments without recourse to
external sources of financing (b) Cash receipts from royalties, fees, commissions and other revenue
(c) Cash payments to suppliers for goods and services
(d) Cash payments to and on behalf of employees
(e) Cash receipts and cash payments of an insurance entity for
premiums and claims, annuities and other policy benefits
(f ) Cash payments or refunds of income taxes unless they can be
specifically identified with financing and investing activities
(g) cash receipts and payments relating to futures contracts, forward
contracts, option contracts and swap contracts when the contracts
Generally, result from the are held for dealing or trading purposes.
transactions and other (h) Cash flows arising from the purchase and sale of dealing or trading
events that have role in securities
the determination of net (i) Cash advances and loans made by financial institutions since they
profit or loss relate to their main revenue-producing activity
© ICAI BOS(A) 9
Cash flows arising from investing activities
Represent the extent to which expenditures

have been made for resources intended to Examples
generate future income and cash flows
(a) cash payments to acquire fixed assets (including intangibles). These payments include those relating to capitalised research and
development costs and self-constructed fixed assets;
(b) cash receipts from sales of property, plant and equipment, intangibles and other long-term assets;
(c) cash payments to acquire equity or debt instruments of other entities and interests in joint ventures (other than payments for
those instruments considered to be cash equivalents or those held for dealing or trading purposes);
(d) cash receipts from sales of equity or debt instruments of other entities and interests in joint ventures (other than receipts for those
instruments considered to be cash equivalents and those held for dealing or trading purposes);
(e) cash advances and loans made to other parties (other than advances and loans made by a financial institution);
(f ) cash receipts from the repayment of advances and loans made to other parties (other than advances and loans of a financial
institution);
(g) cash payments for futures contracts, forward contracts, option contracts and swap contracts except when the contracts are held
for dealing or trading purposes, or the payments are classified as financing activities; and
(h) cash receipts from futures contracts, forward contracts, option contracts and swap contracts except when the contracts are held
for dealing or trading purposes, or the receipts are classified as financing activities.
Note: When a contract is accounted for as a hedge of an identifiable position the cash flows of the contract are classified in the
same manner as the cash flows of the position being hedged.
Cash flows arising from financing activities
useful in Examples (a) cash proceeds from issuing shares

predicting or other equity instruments;
claims on (b) cash proceeds from issuing
future cash debentures, loans, notes, bonds,
flows by mortgages and other short-term
providers of
funds to the or long-term borrowings;
entity. (c) cash repayments of amounts
borrowed.
Reporting cash flows on a net basis
Entities other than financial institutions Financial institutions
Cash flows arising from operating, investing or financing activities Cash flows arising from each of the
following activities of a financial
institution may be reported on a net basis:
Cash receipts and payments on behalf Cash receipts and payments for items in (a) Cash receipts and payments for
of customers when the cash flows which the turnover is quick, the amounts the acceptance and repayment of
reflect the activities of the customer are large, and the maturities are short deposits with a fixed maturity date;
rather than those of the entity (b) The placement of deposits with
and withdrawal of deposits from
other financial institutions; and
Examples are: Examples are advances made for, and the (c) Cash advances and loans made
(a) The acceptance and repayment of repayment of: to customers and the repayment
demand deposits of a bank; (a) Principal amounts relating to credit of those advances and loans.
(b) Funds held for customers by an card customers;
investment entity; and (b) The purchase and sale of investments;
and
(c) Rents collected on behalf of,
(c) Other short-term borrowings, for
and paid over to, the owners of example, those which have a maturity
properties period of three months or less.
© ICAI BOS(A) 10
Arising from Recorded in Exchange rate between the

Foreign an enterprise’s Foreign
transactions in a currency reporting currency and the
currency cash reporting foreign currency at the date of
flows foreign currency amount
currency the cash flow
a Cash flows denominated in a foreign currency are reported in a manner consistent with AS 11.
a Weighted average exchange rate for a period may be used for recording foreign currency transactions.
Important Points
1. Unrealised gains and losses arising from are not cash flows.
changes in foreign currency exchange rates
2. The effect of exchange rate changes on cash is reported in the statement of cash flows in order to reconcile cash and
and cash equivalents held or due in a foreign cash equivalents at the beginning and the end of the period.
currency is presented separately from cash flows from operating, investing and
financing activities and includes the differences, if any, had those cash
flows been reported at end of period exchange rates.
Interest and Dividends
Cash flows from interest and dividends received and paid shall
each be disclosed separately.
In case of financial institutions In the case of other entities
Interest paid Interest and dividends Interest paid Interest and dividends
received Dividends paid Dividends paid received
Classified as cash Classified as cash

flows arising from Classified as cash flows from financing activities flows from investing
operating activities activities
They are costs of obtaining financial resources
They are returns on investments.
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.
Acquisitions and Disposals of Subsidiaries and Other Business Units
Cash flows arising from
Acquisitions of subsidiaries or other businesses Disposal of subsidiaries or other businesses
Shall be classified as Shall be presented Shall disclose, in aggregate, during the period
investing activities separately
The cash flow effects of disposals are

not deducted from those of acquisions
The total purchase or disposal The portion of the purchase or disposal consideration
consideration discharged by means of cash and cash equivalents.
© ICAI BOS(A) 11
Important points/disclosures
Investing and financing transactions that do shall be excluded from a statement of cash flows.
not require the use of cash or cash equivalents disclosed elsewhere in the financial statements in a way that provides all relevant
information.
Components of cash and cash equivalents disclose the components of cash and cash equivalents.
shall present a reconciliation of the amounts in its statement of cash flows with
the equivalent items reported in the balance sheet.
discloses the policy which entity adopts in determining the composition of cash
and cash equivalents.
Other disclosures disclose, together with a commentary by management, the amount of significant
cash and cash equivalent balances held by the enterprise that are not available
for use by it.
© ICAI BOS(A) 12
AS 4 “CONTINGENCIES AND EVENTS OCCURRING AFTER THE BALANCE SHEET DATE”

Introduction
AS 4 defines contingencies and events occuring after the balance sheet date and describes the accounting treatment and disclosure
requirements thereof.
AS 4 “CONTINGENCIES AND EVENTS OCCURRING AFTER THE BALANCE SHEET DATE”

AS 4 deals with
Introduction
AS 4 defines contingencies and events occuring after the balance sheet date and describes the accounting treatment and disclosure
Events occurring
requirements thereof. after Contingencies*
the balance sheet date Excluding
AS 4 deals with
Liabilities of life assurance
and general insurance Obligations under Commitments arising from
Events occurring
enterprises after
arising from retirement benefit plans Contingencies*
long-term lease contracts
the balance
policiessheet date
issued; Excluding
* All paragraphs of this Standard that deal with contingencies are applicable only to the extent not covered by other Accounting
Standards prescribed
Liabilities by the Central Government.
of life assurance
and general insurance Obligations under Commitments arising from
enterprises arising from retirement benefit plans long-term lease contracts
policies issued;
Contingency
* All paragraphs of this Standard that deal with contingencies are applicable only to the extent not covered by other Accounting
Standards prescribed by the Central Government. Condition / Situation
Contingency
Ultimate outcome Determined only on
the occurrence, or non-
occurrence,
Gain Loss Condition / Situation of one or more uncertain
future events
Ultimate outcome Determined only on

Not recognised in the Charge in the statement of the occurrence, or non-
financial statements profit and loss occurrence,
Gain Loss of one or more uncertain
future events
Disclosed in the financial
(a) It is probable that future events will confirm statements. If either of
(b) Reasonable estimate of the conditions (a) and
that,
Notafter considering
recognised related probable recovery,
in the theof
Charge in the statement amount of the resulting
an financial
asset has statements
been impaired or a liability has been (b) is not met, unless
profit and loss loss can be made. the possibility of a loss is
incurred as at the balance sheet date;
remote.
Disclosed in the financial

The
(a) It existence
is probableand amount
that futureofevents
guarantees, obligations arising from discounted bills of exchange and similar
will confirm obligations
statements. undertaken
If either of
by an enterprise are generally disclosed in financial (b) Reasonable
statements by way of estimate
note, of though the possibility
even that a loss
the conditions (a) to the
and
that, after considering related probable recovery, the amount of the resulting
enterprise will occur, is remote.
an asset has been impaired or a liability has been (b) is not met, unless
loss can be made. the possibility of a loss is
incurred as at the balance sheet date;
remote.
The existence and amount of guarantees, obligations arising from discounted bills of exchange and similar obligations undertaken
by an enterprise are generally disclosed in financial statements by way of note, even though the possibility that a loss to the
enterprise will occur, is remote.
© ICAI BOS(A) 13
Both favourable and By the Board of Directors in case

unfavourable of a company
Events occurring
after the That occur between the end
reporting period of the reporting period and By the corresponding approving
the date when the financial authority in case of any other
statements are approved entity
Adjusting events Non-adjusting events
Those which provide further evidence of conditions that Those which are indicative of conditions that arose
existed at the balance sheet date after the balance sheet date.
Disclosure
Adjusting events after the reporting period Non-adjusting events after the reporting period
Adjust the amounts recognised in the financial Do not adjust the amounts recognised in the financial
statements to reflect it statements to reflect it
Example of a non-adjusting event

Example of adjusting events: Decline in market value of investments between the
Events occurring after the balance sheet date may balance sheet date and the date on which the financial
indicate that the enterprise ceases to be a going statements are approved. Ordinary fluctuations in
concern. market values do not relate to the condition of the
For example, Destruction of a major production plant investments at the balance sheet date
by a fire after the balance sheet date may indicate
a need to consider whether it is proper to use the
fundamental accounting assumption of going concern
in the preparation of the financial statements. If non-adjusting events after the reporting period are
material, then disclose
• the nature of the event; and
• an estimate of its financial effect, or a statement
that such an estimate cannot be made.
Dividend Declared after Do not recognise it as a No obligation exists at

the reporting period liability at the end of the Disclosed in the notes the end of reporting
but before approval of reporting period. period.
financial statements
© ICAI BOS(A) 14
AS 5 “NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND
CHANGES IN ACCOUNTING POLICIES”
Introduction Net Profit or Loss for the Period
The objective of AS 5 is to prescribe the classification and The net profit or loss for the period comprises the following
disclosure of certain items in the statement of profit and loss components, each of which should be disclosed on the face of the
so that all enterprises prepare and present such a statement on statement of profit and loss.
a uniform basis. This standard requires the classification and
disclosure of extraordinary and prior period items, and the
disclosure of certain items within profit or loss from ordinary Net Profit or Loss for the Period comprises
activities. It also specifies the accounting treatment for changes
in accounting estimates and the disclosures to be made in the
Ordinary Items,
financial statements regarding changes in accounting policies.
Extraordinary items, Extra Ordinary Items,
This Prior period items,

Prior Period Items,
Statement
does not Changes in accounting estimates, and
deal with tax Changes in Accounting Estimates and
implications
of Changes in accounting policies for which
appropriate adjustments are made. Changes in Accounting Polices.
Profit or Loss from Ordinary Activities

Ordinary Activities
Activities Example Disclosure Special disclousre
• Write-down of inventories to net realisable value as

Which are Profit/ Loss When items of well as the reversal of such write-downs
undertaken by an on sale of income and expense
enterprise as part merchandise. within profit or
loss from ordinary • Restructuring of the activities of an enterprise and the
of its business reversal of any provisions for the costs of restructuring
and such related activities are of
activities in which such size, nature
the enterprise or incidence that • Disposals of items of fixed assets and long-term
engages in their disclosure is investments
furtherance of, relevant to explain
incidental to, or performance of entity,
arising from, these Nature and amount of • Legislative changes having retrospective application
activities. such items should be
disclosed separately. • Litigation settlements and other reversals of provisions
Extraordinary Items
Extraordinary items
Income or expenses Disclosed in the Examples

that arise from events statement of profit
or transactions that and loss
are clearly distinct
from the ordinary
activities of the
enterprise and, As a part of net profit Attachment of property
therefore, are not or loss for the period. of the enterprise
expected to recur
frequently or regularly
Nature and amount of in a manner that
each item separately its impact on An earthquake
disclosed current profit
or loss can be
perceived.
An event or transaction may be extraordinary for one enterprise but not so for another enterprise because of the differences between their
respective ordinary activities.
© ICAI BOS(A) 15
Prior Period Items
Which arise in the current period as Errors or omissions In the preparation of the
Are income or expenses financial statements
a result of
Errors may occur as a result of mathematical mistakes, Of one or more prior

mistakes in applying accounting policies, misinterpretation periods.
of facts, or oversight
The nature and amount of prior period items should be separately disclosed in the statement of
profit and loss in a manner that their impact on the current profit or loss can be perceived
Changes in Accounting Estimates

An estimate may have to be changes occuring in the circumstances new information, more experience or
revised consequent to based on which the estimate was made, or subsequent developments.
Revision of an is neither an nor a prior period

estimate extraordinary item item.
should be reviewed if expectations change should be as a change in

Residual value and the an accounting
useful life of PPE at each financial differ from previous accounted for
year-end and estimates estimate.
Effect of a change in an accounting

estimate
Included in the Classification in statement

determination of net profit of profit and loss Disclosure
or loss
Period of the Using same classification Nature and amount need

Period of the change and as was used previously for to be disclosed
change future periods the estimate.
which has a material
effect in the current
if the change if the change period,
affects the period affects both
only. periods. or expected to have
a material effect in
subsequent periods.
Accounting Policies
Can be changed only Conditions wherein there are no Disclosure

changes in accounting policies
When the adoption of a
different accounting policy Any change in accounting period
Adoption of an accounting policy which has material effect should be
is required by statute; or for events or transactions that disclosed
differ in substance from previously
For compliance with an occurring events or transactions,
accounting standard; or The impact of, and the adjustments
resulting from, such change,
Adoption of a new accounting should be shown in the financial
When it is considered that the change policy for events or transactions statements of the period in which
would result in a more appropriate which did not occur previously or such change is made, to reflect the
presentation of the financial that were immaterial. effect of such change.
statements of the enterprise.
© ICAI BOS(A) 16
AS 7 “CONSTRUCTION CONTRACTS”
AS 7 prescribes the principles of accounting for construction contracts in the financial statements of contractors. The focus of the
standard is on allocation of contract revenue and contract costs to the accounting periods in which construction work is performed.
What are Construction Contracts? AS 7 prescribes conditions under which the outcome of a
contract can be estimated reliably.
Contracts
specifically Contracts for Contracts for
negotiated for rendering of destruction or Total contract revenue can be
the construction services related restoration of measured reliably.
of an asset or to construction of assets. In fixed
combination assets.
of assets that price
are closely contract It is probable that the economic
interrelated. benefits associated with the
contract will flow to the
enterprise.
Construction contracts can be classified into two
categories. Both contract costs to complete
Outcome the contract and the stage of
Types of construction of contract completion at the
contracts contracts reporting date can be measured
can be reliably.
estimated
reliably
Fixed price contract Cost plus contract Contract costs attributable
when to contract can be clearly
identified and measured reliably
so that actual contract costs
incurred can be compared with
Contractor agrees to a Contractor is prior estimates.
fixed contract price or reimbursed for
fixed rate per unit of allowable or otherwise
output, which in some defined costs, plus It is probable that the
cases is subject to cost percentage of these economic benefits associated
escalation. costs or a fixed fee. with the contract will flow to
the enterprise.
If the final outcome of the contract

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

and costs be recognized should be
recognized as only to the extent recognised as Methods for Determination of Stage of
per percantage of contract costs an expense in Completion of Contracts
of completion incurred, of the period in
method which recovery is which they are Determination of Stage of Completion
considering probable. incurred. (Method to be chosen depending on the nature of the contract)
the stage of
completion
of contract at Proportion that Surveys of work Completion
reporting date. contract performed of a physical
costs incurred for proportion of
work performed upto the contract
Note: Any expected loss (when contract cost > contract the reporting date work
revenue) on the construction contract should be recognised bear to the estimated
total contract costs
as an expense immediately in both the situations.
© ICAI BOS(A) 17
As per the standard, Contract revenue and Contract costs A contract may provide for the construction of an additional
comprise of the following: asset at the option of the customer or may be amended to include
the construction of an additional asset.
Contract Revenue
Variations in contract work, Construction of the additional asset should be

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

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

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

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

contracts, single package.
whether with a
single customer
or with several Contracts are performed concurrently
customers, or in a continuous sequence.
should be treated
as a single
construction Contracts are so closely interrelated
contract when that they are, in effect, part of a single
project with an overall profit margin.
© ICAI BOS(A) 18
AS 9 “REVENUE RECOGNITION”
AS 9 explains the timing for recognition of revenue in the Sale of Goods
financial statements and also state the circumstances under Revenue from sale of goods should be recognised when the
which revenue recognition should be postponed. requirements as to performance as set out in the standard are
satisfied.
Bases for recognition In the statement of

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

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

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

Insurance contracts of insurance companies
Proportionate Completed service

completion method contract method
Realised gains
resulting from
the disposal of (i) Recognition of revenue in (i) Recognition of revenue
non-current
assets the statement of profit and in the statement of profit
Unrealised gains Unrealised gains loss proportionately with and loss only when the
resulting from resulting from
the holding of the degree of completion rendering of services
the restatement non-current of services under a under a contract is
of the carrying assets e.g.
amount of an contract. completed or substantially
obligation appreciation in (ii) Performance consists of completed.
Items not the value of fixed
assets the execution of more (ii) Services become
included than one act.
within the chargeable.
definition of (iii) Revenue is recognised (iii) Performance consists of
“revenue” Unrealised proportionately the execution of a single
Realised gains holding gains
resulting from resulting from by reference to the act.
the discharge the change in performance of each act.
of an obligation value of current
at less than its assets, and the
carrying amount Realised or natural increases
unrealised gains in herds and Note: Revenue from Sale of goods “for consideration” and Service
resulting from agricultural and
changes in foreign forest products transactions should be recognized only when no significant
exchange rates uncertainty exists regarding amount of consideration.
and adjustments
due to translation
of foreign
currency financial
statements
© ICAI BOS(A) 19
Use of Enterprise Resources by Other Parties Effect of Uncertainties on Revenue Recognition

Use of enterprise resources by others may yield revenue in the Where the ability to assess the ultimate collection with reasonable
form of Interest, Royalties and Dividends. certainty is lacking at the time of raising any claim, revenue
recognition is postponed to the extent of uncertainty involved.
Recognition of Revenue when enterprise When the uncertainty relating to collectability arises subsequent
resources are used by others to the time of sale or the rendering of the service, it is more
appropriate to make a separate provision to reflect the uncertainty
rather than to adjust the amount of revenue originally recorded.
Disclosures
Royalties - Dividends -
In addition to the disclosures required by AS 1 “Disclosure
Interest - Accrual basis When right to
of Accounting Policies”, an enterprise should disclose the
Time basis depending upon the receive the payment
circumstances in which revenue recognition has been postponed
terms of agreement. is established.
pending the resolution of significant uncertainties.
© ICAI BOS(A) 20
AS 10 “PROPERTY, PLANT AND EQUIPMENT”

Introduction PPE are tangible items that:
The objective of this Standard is to prescribe accounting Use in Production or
treatment for Property, Plant and Equipment (PPE). Supply of Goods or
Services
Condition 1:
Held for
PPE For Rental to others
AS 10 (Revised)
(Tangible
Items)
Condition 2: For Administrative
Expected purposes
to be
Help the Users of Used for more than
Financial Statements to 12 months
understand
Intangible items are covered under AS 26.

“Administrative purposes”: The term ‘Administrative purposes’ has
Information about Changes in been used in wider sense to include all business purposes. Thus, PPE
Investment in PPE such Investment would include assets used for:
a Selling and distribution
a Finance and accounting
The principal issues in Accounting for PPE are: a Personnel and other functions of an Enterprise.
Determination Depreciation Items of PPE may also be acquired for safety or environmental
of their carrying charge reasons.
amounts The acquisition of such PPE, although not directly increasing the
future economic benefits of any particular existing item of PPE,
may be necessary for an enterprise to obtain the future economic
benefits from its other assets.
Impairment Such items of PPE qualify for recognition as assets because they
Recognition losses to be
of PPE enable an enterprise to derive future economic benefits from
recognised related assets in excess of what could be derived had those items
Principle Issues in relation to not been acquired.
in Accounting them.
of PPE
Other definitions
1. Biological Asset: Till the time, the Accounting Standard on
“Agriculture” is issued, accounting for livestock meeting the
Scope of Standard definition of PPE, will be covered as per AS 10 (Revised).
As a general principle, AS 10 (Revised) should be applied in AS 10 (Revised)
accounting for PPE. Except when another Accounting Standard does not apply if
requires or permits a different accounting treatment. definition of PPE
Living not met
AS 10 (Revised) Animal
Not Applicable to
Biological
Asset
AS 10 (Revised)
Wasting Assets including Plant applies to Bearer
Biological Assets* Plants
(other than Bearer Mineral rights, Expenditure
Plants) related to on the exploration for and
agricultural activity extraction of minerals, oil,
natural gas and similar non- 2. Bearer Plant: Is a plant that (satisfies all 3 conditions):
regenerative resources
Is used in the Of Agricultural
*AS 10 (Revised) applies to Bearer Plants but it does not apply to production or supply produce
the produce on Bearer Plants.
Clarifications: Is expected to bear For more than a

1. AS 10 (Revised) applies to PPE used to develop or maintain the produce period of 12 months
assets described above.
2. Investment property (defined in AS 13 (Revised)), should be Has a remote likelihood Except for incidental
accounted for only in accordance with the Cost model prescribed of being sold as scrap sales
in this standard. Agricultural produce
© ICAI BOS(A) 21
Note: When bearer plants are no longer used to bear produce they When to apply the above criteria for Recognition?
might be cut down and sold as scrap. For example - use as firewood. An enterprise evaluates under this recognition principle all its costs
Such incidental scrap sales would not prevent the plant from on PPE at the time they are incurred.
satisfying the definition of a Bearer Plant. These costs include costs incurred:
To acquire or
Following are not Situation I
"Bearer Plants" construct an item
Initially
of PPE
Cost
Incurred
Plants cultivated Plants cultivated to Annual Crops Situation II To add to, replace
to be harvested Produce part of, or service
as Agricultural Agricultural Subsequently
produce produce it
and
Harvest and Treatment of Spare Parts, Stand by Equipment and Servicing
sell the plant Equipment
as Agricultural Case I If they meet the definition of PPE as per AS 10 (Revised):
produce
Recognised as PPE as per AS 10 (Revised)
Case II If they do not meet the definition of PPE as per AS 10
(Revised):
Such items are classified as Inventory as per AS 2 (Revised)
Trees which are
Trees grown for cultivated both Maize and Treatment of Subsequent Costs
use as lumber for their fruit and wheat Cost of day-to-day servicing
their lumber Costs of day-to-day servicing are primarily the costs of labour and
consumables, and may include the cost of small parts. The purpose
of such expenditures is often described as for the ‘Repairs and
Maintenance’ of the item of PPE.
Agricultural Produce is the harvested product of Biological An enterprise does not recognise in the carrying amount of an item
Assets of the enterprise. of PPE the costs of the day-to-day servicing of the item. Rather, these
3. Agricultural Activity: is the management by an Enterprise of: costs are recognised in the Statement of Profit and Loss as incurred.
Biological transformation and Harvest of Biological Assets Replacement of Parts of PPE
Parts of some items of PPE may require replacement at regular
Agricultural Activity intervals.
An enterprise recognises in the carrying amount of an item of PPE
the cost of replacing part of such an item when that cost is incurred if
Management the recognition criteria are met.
Notes: The carrying amount of those parts that are replaced is

derecognised in accordance with the de-recognition provisions
Biological transformation and of this Standard.
harvest of Biological Assets
Regular Major Inspections - Accounting Treatment
When each major inspection is performed, its cost is recognised
in the carrying amount of the item of PPE as a replacement, if the
recognition criteria are satisfied.
For Sale For Conversion Into Additional Any remaining carrying amount of the cost of the previous inspection
into Agriculture Biological (as distinct from physical parts) is derecognised.
Produce Assets
Measurement of PPE
Recognition Criteria for PPE Cost Model
At
The cost of an item of PPE should be recognised as an asset if, and
Recognition
only if:
Measurement
(a) It is probable that future economic benefits associated with the Cost Model
item will flow to the enterprise, and
(b) The cost of the item can be measured reliably.
After Revaluation
Notes: Recognition Model
1. It may be appropriate to aggregate individually insignificant
items, such as moulds, tools and dies and to apply the criteria
to the aggregate value. Measurement at Recognition
2. An enterprise may decide to expense an item which could An item of PPE that qualifies for recognition as an asset should
otherwise have been included as PPE, because the amount of be measured at its cost.
the expenditure is not material. What are the elements of Cost?
Cost of an item of PPE comprises:
© ICAI BOS(A) 22
Cost of an Item of PPE

Measurement of Cost
Cost of an item of PPE is the cash price equivalent at the
recognition date.
Includes Excludes
Cost of an item of PPE
Purchase Price
Costs of opening a new facility or
Any Directly business (Such as, Inauguration
Attributable Costs costs)
Costs of introducing a new PPE acquired in Exchange for a
product or service (including costs If payment is deferred
beyond normal credit Non-Monetary Asset or Assets
Decommissioning, of advertising and promotional or combination of Monetary and
Restoration and activities) terms
Non-monetary Assets
similar Liabilities Costs of conducting business in a
new location or with a new class of
customer (including costs of staff
training)
Administration and other general
overhead costs Total payment minus Cost of such an item of PPE is
Cash price equivalent measured at fair value unless
Recognition of costs in the carrying amount of an item of PPE
ceases when the item is in the location and condition necessary
for it to be capable of operating in the manner intended by
management.
is recognised unless such Exchange Fair value
The following costs are not included in the carrying amount of an as an interest is transaction of neither
item of PPE: interest capitalised lacks the asset(s)
1. Costs incurred while an item capable of operating in the manner expense over in commercial received nor
intended by management has yet to be brought into use or is the period of accordance substance; Or the asset(s)
operated at less than full capacity. credit with AS 16 given up
is reliably
2. Initial operating losses, such as those incurred while demand for measurable.
the output of an item builds up. And
3. Costs of relocating or reorganising part or all of the operations of
an enterprise.
Note:
Note: Some operations occur in connection with the construction
or development of an item of PPE, but are not necessary to bring 1. The acquired item(s) is/are measured in this manner even if an
the item to the location and condition necessary for it to be enterprise cannot immediately derecognise the asset given up.
capable of operating in the manner intended by management.
These incidental operations may occur before or during the 2. If the acquired item(s) is/are not measured at fair value, its/their
construction or development activities. cost is measured at the carrying amount of the asset(s) given up.
3. An enterprise determines whether an exchange transaction
Decommissioning, Restoration and similar Liabilities: has commercial substance by considering the extent to which
The cost of an item of PPE comprises initial estimate of the costs of its future cash flows are expected to change as a result of the
dismantling, removing the item and restoring the site on which it transaction. An exchange transaction has commercial substance
is located, referred to as ‘Decommissioning, Restoration and similar if:
Liabilities’, the obligation for which an enterprise incurs either
when the item is acquired or as a consequence of having used the (a) the configuration (risk, timing and amount) of the cash flows
item during a particular period for purposes other than to produce of the asset received differs from the configuration of the
inventories during that period. cash flows of the asset transferred; or
Exception: An enterprise applies AS 2 (Revised) “Valuation of (b) the enterprise-specific value of the portion of the operations
Inventories”, to the costs of obligations for dismantling, removing
and restoring the site on which an item is located that are incurred of the enterprise affected by the transaction changes as a
during a particular period as a consequence of having used the item result of the exchange;
to produce inventories during that period.
(c) and the difference in (a) or (b) is significant relative to the
Same as a the cost of fair value of the assets exchanged.
Cost of a Self-
constructed Asset constructing an similar asset PPE purchased for a Consolidated Price
for sale
Where several items of PPE are purchased for a consolidated price,
the consideration is apportioned to the various items on the basis of
Eliminate Include Not included their respective fair values at the date of acquisition.
PPE held by a lessee under a Finance Lease
Internal Borrowing Costs Abnormal amounts
profits as per AS 16 of wasted material, The cost of an item of PPE held by a lessee under a finance lease is
labour, or other determined in accordance with AS 19 (Leases).
resources
Government Grant related to PPE
Bearer plants are accounted for in the same way as self-constructed
items of PPE before they are in the location and condition necessary The carrying amount of an item of PPE may be reduced by
to be capable of operating in the manner intended by management. government grants in accordance with AS 12 (Accounting for
Government Grants).
© ICAI BOS(A) 23
If there is no market-based evidence of fair value because of the

Measurement after Recognition specialised nature of the item of PPE and the item is rarely sold,
except as part of a continuing business, an enterprise may need
to estimate fair value using an income approach or a depreciated
replacement cost approach.
Cost model Revaluation Model Accounting Treatment of Revaluations
When an item of PPE is revalued, the carrying amount of that asset is
adjusted to the revalued amount.
PPE carried at a At the date of the revaluation, the asset is treated in one of the
PPE carried at following ways:
revalued amount.
Technique 1: Gross carrying amount is adjusted in a manner that is
consistent with the revaluation of the carrying amount of the asset.
Cost Less Any Whose fair value Gross carrying amount
Accumulated can be measured
Depreciation and reliably. a May be restated by reference to observable market data, or
Any Accumulated a May be restated proportionately to the change in the carrying
Impairment losses
amount.
Accumulated depreciation at the date of the revaluation is
Revaluation for entire class of PPE
a Adjusted to equal the difference between the gross carrying
If an item of PPE is revalued, the entire class of PPE to which that amount and the carrying amount of the asset after taking into
asset belongs should be revalued. account accumulated impairment losses
Reason:
Technique 2: Accumulated depreciation is eliminated against the
The items within a class of PPE are revalued simultaneously to avoid Gross Carrying amount of the asset
selective revaluation of assets and the reporting of amounts in the
Financial Statements that are a mixture of costs and values as at
different dates.
Revaluation - Increase or Decrease
Class of PPE is
A similar in operations of Revaluation

grouping nature and an enterprise.
of assets use
Increase Decrease
Frequency of Revaluations
Revaluations should be made with sufficient regularity to ensure Credited directly Charged to the
to owners’ interests Statement of profit
that the carrying amount does not differ materially from that which under the heading of and loss
would be determined using Fair value at the Balance Sheet date. Revaluation surplus
The frequency of revaluations depends upon the changes in fair
values of the items of PPE being revalued.
Exception: Exception:
When the fair value of a revalued asset differs materially from its When it is subsequently When it is subsequently
carrying amount, a further revaluation is required. Increased (Initially Decreased (Initially
Decreased) Increased)
Frequency of Revaluations
(Sufficient Regularity) Recognised in the Decrease should be debited
Statement of profit and loss directly to owners’ interests
to the extent that it reverses under the heading of
a revaluation decrease of Revaluation surplus to the
the same asset previously extent of any credit balance
Items of PPE Items of PPE with recognised in the Statement existing in the Revaluation
experience significant only insignificant of profit and loss. surplus in respect of that asset.
and volatile changes changes in Fair
in Fair value value
Treatment of Revaluation Surplus
The revaluation surplus included in owners’ interests in respect of
Annual revaluation Revalue the item only an item of PPE may be transferred to the Revenue Reserves when the
every 3 or 5 years asset is derecognised.
Case I : When whole surplus is transferred:
If the asset is:
Determination of Fair Value a Retired; Or
Fair value of items of PPE is usually determined from market-based a Disposed of.
evidence by appraisal that is normally undertaken by professionally Case II : Some of the surplus may be transferred as the asset is
qualified valuers. used by an enterprise:
© ICAI BOS(A) 24
In such a case, the amount of the surplus transferred would be: It is depreciated in a manner that reflects the benefits to be
Depreciation (based on Revalued Carrying amount) – Depreciation derived from it.
(based on Original Cost) II. If the cost of land includes the costs of site dismantlement,
removal and restoration:
Transfers from Revaluation Surplus to the Revenue Reserves That portion of the land asset is depreciated over the period
are not made through the Statement of Profit and Loss. of benefits obtained by incurring those costs.
B. Buildings:
Buildings have a limited useful life and therefore are depreciable
Depreciation assets.
Component Method of Depreciation
Each part of an item of PPE with a cost that is significant in relation to
the total cost of the item should be depreciated separately.
An increase in the value of the land on which a building stands
A significant part of an item of PPE may have a useful life and a does not affect the determination of the depreciable amount of
depreciation method that are the same as the useful life and the the building.
depreciation method of another significant part of that same item.
Such parts may be grouped in determining the depreciation charge.
Depreciation charge for each period should be recognised in the
Statement of Profit and Loss unless it is included in the carrying Depreciation Method
amount of another asset. The depreciation method used should reflect the pattern in which the
Depreciable Amount and Depreciation Period future economic benefits of the asset are expected to be consumed by
Depreciable amount is: the enterprise.
Cost of an asset (or other amount substituted for cost i.e. revalued The method selected is applied consistently from period to period
amount) -Residual value unless:
a There is a change in the expected pattern of consumption of
The depreciable amount of an asset should be allocated on a those future economic benefits; Or
systematic basis over its useful life. a That the method is changed in accordance with the statute to
Review of Residual Value and Useful Life of an Asset best reflect the way the asset is consumed.
Residual value and the useful life of an asset should be reviewed
at least at each financial year-end and, if expectations differ from Methods of Depreciation
previous estimates, the change(s) should be accounted for as a
change in an accounting estimate in accordance with AS 5 ‘Net Profit
or Loss for the Period, Prior Period Items and Changes in Accounting
Policies’.
Commencement of period for charging Depreciation
Straight-line Diminishing Units of Production
Depreciation of an asset begins when it is available for use, i.e., when Method Balance Method Method
it is in the location and condition necessary for it to be capable of
operating in the manner intended by the management.
Cessation of Depreciation
Results in
I. Depreciation ceases to be charged when asset’s residual value a constant
exceeds its carrying amount Results in a Results in
charge over decreasing a charge
The residual value of an asset may increase to an amount equal the useful life charge over based on the
to or greater than its carrying amount. If it does, depreciation if the residual the useful life. expected use
value of the or output.
charge of the asset is zero unless and until its residual value asset does not
subsequently decreases to an amount below its carrying amount. change.
II. Depreciation of an asset ceases at the earlier of:
a The date that the asset is retired from active use and is held
for disposal, and
a The date that the asset is derecognised. Review of Depreciation Method
Therefore, depreciation does not cease when the asset becomes idle The depreciation method applied to an asset should be reviewed at
or is retired from active use (but not held for disposal) unless the asset least at each financial year-end and, if there has been a significant
is fully depreciated. However, under usage methods of depreciation, change in the expected pattern of consumption of the future
the depreciation charge can be zero while there is no production. economic benefits embodied in the asset, the method should be
changed to reflect the changed pattern.
Land and Buildings
Land and buildings are separable assets and are accounted for Such a change should be accounted for as a change in an
separately, even when they are acquired together. accounting estimate in accordance with AS 5.
A. Land: Land has an unlimited useful life and therefore is not
depreciated.
Exceptions: Quarries and sites used for landfill. Depreciation Method based on Revenue:
Depreciation on Land: A depreciation method that is based on revenue that is generated by
an activity that includes the use of an asset is not appropriate.
I. If land itself has a limited useful life:
© ICAI BOS(A) 25
Changes in Existing Decommissioning, If the related asset is measured using the

Restoration and Other Liabilities Revaluation model
Changes in the liability alter the revaluation surplus or deficit
previously recognised on that asset, so that:
(i) Decrease in the liability credited directly to revaluation
Changes in surplus in the owners’ interest
Liabilities
Exception:
It should be recognised in the Statement of Profit and Loss to
the extent that it reverses a revaluation deficit on the asset that
was previously recognised in the Statement of Profit and Loss.
Similar Price
factors The cost of PPE Adjustments
may undergo Note: In the event that a decrease in the liability exceeds the
changes carrying amount that would have been recognised had the
subsequent to asset been carried under the cost model, the excess should be
its acquisition or recognised immediately in the Statement of Profit and Loss.
construction on
account of:
(ii) Increase in the liability should be recognised in the
Statement of Profit and Loss
Changes in Exception:
initial estimates It should be debited directly to Revaluation surplus in the
of amounts Changes in owners’ interest to the extent of any credit balance existing
provided for Duties
Dismantling, in the Revaluation surplus in respect of that asset
Removing,
Restoration, Caution:
and A change in the liability is an indication that the asset may
have to be revalued in order to ensure that the carrying
amount does not differ materially from that which would be
Accounting for the above changes: determined using fair value at the balance sheet date.
What happens if the related asset has reached the end of its
Related Asset is useful life?
measured using Cost
Model All subsequent changes in the liability should be recognised in the
Statement of Profit and Loss as they occur. This applies under both
the cost model and the revaluation model.
Accounitng
(Depends upon)
Situations and Its Accounting
Related Asset is
measured using
Revaluation Model
Impairments De- Compensation Cost of
of items of recognition from third items of PPE
If the related asset is measured using the Cost PPE of items of parties for restored,
items of PPE purchased or
model PPE retired
that were constructed
or disposed impaired, lost as
Changes in the Liability should be added to, or deducted from, of or given up replacements
the cost of the related asset in the current period
Note: Amount deducted from the cost of the asset should not
exceed its carrying amount. If a decrease in the liability exceeds Recognised Determined Is included in Is
the carrying amount of the asset, the excess should be recognised in accordance in determining determined
with AS 28 accordance profit or in
immediately in the Statement of Profit and Loss. with AS 10 loss when accordance
(Revised) it becomes with AS 10
receivable (Revised)
If the adjustment results in an addition to the cost of an asset
a Enterprise should consider whether this is an indication that the
new carrying amount of the asset may not be fully recoverable. Retirements
Items of PPE retired from active use and held for disposal should be
stated at the lower of:
Note: If it is such an indication, the enterprise should test the
a Carrying Amount, and
asset for impairment by estimating its recoverable amount, and a Net Realisable Value
should account for any impairment loss, in accordance with
applicable Accounting standards. Note: Any write-down in this regard should be recognised
immediately in the Statement of Profit and Loss.
© ICAI BOS(A) 26
De-Recognition
In case the useful lives or the depreciation rates used are
different from those specified in the statute governing the
Derecognition of Carrying enterprise, it should make a specific mention of that fact;
amount PPE:
The gross carrying amount and the accumulated depreciation
(aggregated with accumulated impairment losses) at the
When no future beginning and end of the period; and
On disposal economic benefits Accounting A reconciliation of the carrying amount at the beginning and
are expected from Treatment end of the period showing:
its use or disposal (i) additions
(ii) assets retired from active use and held for disposal
(iii) acquisitions through business combinations
(iv) increases or decreases resulting from revaluations and
By sale Gain or loss arising from de- from impairment losses recognised or reversed directly
recognition of an item of PPE should in revaluation surplus
be included in the Statement of (v) impairment losses recognised in the statement of profit
Profit and Loss when the item is and loss
By entering derecognised unless AS 19 on Leases, (vi) impairment losses reversed in the statement of profit
into a finance requires otherwise on a sale and and loss
lease, or leaseback (AS 19 on Leases, applies to (vii) depreciation
disposal by a sale and leaseback.) (viii)net exchange differences arising on the translation of the
By donation, financial statements of a non-integral foreign operation
in accordance with AS 11
Gain or loss arising from (ix) other changes.
de-recognition of an item of PPE
= Net disposal proceeds (if any) - Additional Disclosures:

Carrying Amount of the item The financial statements should also disclose:
The existence and amounts of restrictions on title, and property, plant

and equipment pledged as security for liabilities;
Note: Gains should not be classified as revenue, as defined in AS
9 ‘Revenue Recognition’. The amount of expenditure recognised in the carrying amount of an
item of property, plant and equipment in the course of its construction;
Exception: The amount of assets retired from active use and held for disposal;
An enterprise that in the course of its ordinary activities, routinely
sells items of PPE that it had held for rental to others should transfer The amount of contractual commitments for the acquisition of
such assets to inventories at their carrying amount when they cease property, plant and equipment;
to be rented and become held for sale.
The proceeds from the sale of such assets should be recognised in
revenue in accordance with AS 9 on Revenue Recognition. If amount of contractual commitments is not disclosed separately
on the face of the statement of profit and loss, the amount of
Determining the date of disposal of an item: compensation from third parties for items of property, plant and
equipment that were impaired, lost or given up that is included in the
An enterprise applies the criteria in AS 9 for recognising revenue statement of profit and loss.
from the sale of goods.
Disclosures related to Revalued Assets:

Disclosure
If items of property, plant and equipment are stated at revalued
Disclosures amounts, the following should also be disclosed:
The effective date of the revaluation;
General Additional Disclosures related

to Revalued Assets Whether an independent valuer was involved;
The methods and significant assumptions applied in

General Disclosures: estimating fair values of the items;
(a) The measurement bases (i.e., cost model or revaluation
model) used for determining the gross carrying amount; The extent to which fair values of the items were determined
directly by reference to observable prices in an active market
or recent market transactions on arm’s length terms or were
estimated using other valuation techniques; and
(b) The depreciation methods used;
The revaluation surplus, indicating the change for the period

(c) The useful lives or the depreciation rates used. and any restrictions on the distribution of the balance to
shareholders.
© ICAI BOS(A) 27
Transitional Provisions the requirements of this Standard, should be capitalised at their

respective carrying amounts.
Previously Recognised Revenue Expenditure
Where an entity has in past recognised an expenditure in the Note: The spare parts so capitalised should be depreciated over
Statement of Profit and Loss which is eligible to be included as a part their remaining useful lives prospectively as per the requirements
of the cost of a project for construction of PPE in accordance with the of this Standard.
requirements of this standard:
a It may do so retrospectively for such a project.
Revaluations
Note: The effect of such retrospective application, should be The requirements of AS 10 (Revised) regarding the revaluation
recognised net-of-tax in Revenue reserves. model should be applied prospectively.
In case, on the date of this Standard becoming mandatory, an
PPE acquired in Exchange of Assets enterprise does not adopt the revaluation model as its accounting
policy but the carrying amount of items of PPE reflects any
The requirements of AS 10 (Revised) regarding the initial previous revaluation it should adjust the amount outstanding in the
measurement of an item of PPE acquired in an exchange of assets Revaluation reserve against the carrying amount of that item.
transaction should be applied prospectively only to transactions
entered into after this Standard becomes mandatory.
Note: The carrying amount of that item should never be less
Spare parts
than residual value. Any excess of the amount outstanding
On the date of this Standard becoming mandatory, the spare as Revaluation reserve over the carrying amount of that item
parts, which hitherto were being treated as inventory under AS 2 should be adjusted in Revenue reserves.
(Revised), and are now required to be capitalised in accordance with
AS 11 “THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES”

Introduction
The standard deals with the issues involved in accounting for foreign currency transactions and foreign operations i.e., to decide which
exchange rate to use and how to recognise the financial effects of changes in exchange rates in the financial statements.
Important points/disclosures
AS 11
Applicable Not applicable for
(a) Specifying the currency in which an enterprise presents its financial statements. However, an
(a) In accounting enterprise normally uses the currency of the country in which it is domiciled. If it uses a different
for transactions in currency, the Standard requires disclosure of the reasons for using that currency. The Standard also
foreign currencies. requires disclosure of the reason for any change in the reporting currency.
(b) In translating (b) Presentation in a cash flow statement of cash flows arising from transactions in a foreign
the financial currency and the translation of cash flows of a foreign operation, which are addressed in AS 3
statements of ‘Cash flow statement’.
foreign operations.
(c) Exchange differences arising from foreign currency borrowings to the extent that they are regarded as
an adjustment to interest costs.
(c) Accounting for
foreign currency
transactions in the
nature of forward (d) Restatement of an enterprise’s financial statements from its reporting currency into another currency
exchange contracts. for the convenience of users accustomed to that currency or for similar purposes.
Definitions of the Terms used in the Standard
A foreign currency
transaction is a Borrows or lends Otherwise acquires
transaction which is Buys or sells goods or Becomes a party to an or disposes of
services whose price funds when the unperformed forward
denominated in or amounts payable assets, or incurs or
requires settlement is denominated in a exchange contract or settles liabilities,
foreign currency or receivable are
in a foreign currency, denominated in a denominated in a
including transactions or foreign currency.
foreign currency or
arising when an
enterprise either:
© ICAI BOS(A) 28
Monetary items are money held and assets and liabilities to be received or paid in fixed or determinable amounts of money.
Example, cash, receivables and payables.
Non-monetary items are assets and liabilities other than monetary items. Examples: fixed assets, inventories and investments in equity shares.
Foreign operation is a subsidiary, associate, joint venture or branch of the reporting enterprise, the activities of which are based or
(FO) conducted in a country other than the country of the reporting enterprise.
Integral foreign is a foreign operation, the activities of which are an integral part of those of the reporting enterprise.
operation (IFO)
A foreign operation that is integral to the operations of the reporting enterprise and carries on its business as if it
were an extension of the reporting enterprise's operations.
Non-integral foreign is a foreign operation that is not an integral foreign operation.
operation (NFO) ‘Net investment in a non-integral foreign operation’ is the reporting enterprise’s share in the net assets of that operation.
Forward exchange
contract an agreement to exchange different currencies at a forward rate.
Forward rate is specified exchange rate for exchange of two currencies at specified future date.
Foreign currency is a currency other than the reporting currency of an enterprise.
Initial Recognition
A foreign currency transaction should be recorded, on initial recognition in the 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 transaction.
Reporting at each Balance Sheet Date When the transaction is settled in a subsequent accounting
period, exchange difference recognised in each intervening
period up to the period of settlement is determined by the
Foreign currency
change in exchange rates during that period.
items Alternatively, exchange differences arising on reporting of
long-term foreign currency monetary items at rates different from
those at which they were initially recorded during the period, or
reported in previous financial statements, insofar as they relate
to the acquisition of a depreciable capital asset, can be added to
Monetary Non-monetary or deducted from the cost of the asset and should be depreciated
over the balance life of the asset;
In other cases, can be accumulated in the Foreign Currency
Reported Monetary Item Translation Difference (FCMITD) Account
using the and (amortised over the balance period of such long term
closing rate. assets or liability, by recognition as income or expense in each
of such periods)
Carried in Carried at Such option is irrevocable and should be applied to all such
terms of fair value or Contingent foreign currency monetary items.
historical other similar liability
cost
denominated
valuation
denominated
denominated
in foreign
Classification of Foreign Operations as
in a foreign in a foreign currency Integral or Non-Integral
currency currency
The method used to translate the financial statements of
a foreign operation
Reported Reported
using the using the Disclosed depends on the way in which it is financed
exchange exchange by using the
rate at the rates that closing rate.
date of the existed and operates in relation to the reporting enterprise.
transaction. when the
values were
determined.
foreign operations are classified as either ‘integral foreign
operations’ or ‘non-integral foreign operations’.
Recognition of Exchange Differences
Exchange differences arising on the settlement of monetary
Translation of Integral Foreign Operations (IFO)
items or on reporting an enterprise’s monetary items at rates The individual items in The cost and depreciation of
different from those at which they were initially recorded the financial statements tangible fixed assets is translated
during the period, or reported in previous financial statements, of the foreign operation using the exchange rate at the
should be recognized as income or as expenses in the period are translated as if all date of purchase of the asset or,
in which they arise. its transactions had if the asset is carried at fair value
been entered into by the or other similar valuation, using
An exchange difference results when there is a change in reporting enterprise itself. the rate that existed on the date
the exchange rate between the transaction date and the date of the valuation.
of settlement of any monetary items arising from a foreign
currency transaction. The recoverable amount or
The cost of inventories is realisable value of an asset is
When the transaction is settled within the same accounting translated at the exchange translated using the exchange
period as that in which it occurred, all the exchange difference rates that existed when rate that existed when the
is recognised in that period. those costs were incurred. recoverable amount or net
realisable value was determined.
© ICAI BOS(A) 29
Translation of Non-Integral Foreign Operations (NFO)

The translation of the financial statements of a non-integral foreign operation is done using the following procedure:
Translation
Assets and Income and Resulting exchange Any goodwill or A contingent liability disclosed in
Liabilities Expense Items differences capital reserve the financial statements
at exchange rates should be accumulated

Closing rate at the dates of the in a foreign currency arising on the closing rate
transactions translation reserve acquisition
for its disclosure

Until the disposal in the financial
of the net closing rate. statements of
investment. the reporting
enterprise.
Procedure of Translation for Non-Integral Foreign Operations (NFO)
For practical reasons, a rate that approximates the actual exchange rates, for example an average rate for the period is often used to
translate income and expense items of a foreign operation.
Incorporation of the financial statements of a non-integral foreign operation in those of the reporting enterprise follows normal
consolidation procedures, such as the elimination of intra-group balances and intra-group transactions of a subsidiary.
When the financial statements of a non-integral foreign operation are drawn up to a different reporting date from that of
the reporting enterprise, the non-integral foreign operation often prepares, for purposes of incorporation in the financial
statements of the reporting enterprise, statements as at the same date as the reporting enterprise.
The exchange differences are not recognised as income or expenses for the period because the changes in the exchange rates have
little or no direct effect on the present and future cash flows from operations of either the non-integral foreign operation or the
reporting enterprise.
When a non-integral foreign operation is consolidated, but is not wholly owned, accumulated exchange differences arising
from translation and attributable to minority interests are allocated to, and reported as part of, the minority interest in the
consolidated balance sheet.
An enterprise may dispose of its interest in a non-integral foreign operation through sale, liquidation, repayment of share capital,
or abandomnent of all, or part ot: that operation. The payment of a dividend forms part of a disposal only when it constitutes a
return of the investment. Remittance from a non-integral foreign operation by way of repatriation of accumulated profits does not
form part of a disposal unless it constitutes return of the investment. In the case of a partial disposal, only the proportionate share
of the related accumulated exchange differences is included in the gain or loss. A write-down of the carrying amount of a non-
integral foreign operation does not constitute a partial disposal. Accordingly, no part of the deferred foreign exchange gain or loss
is recognised at the time of a write-down.
© ICAI BOS(A) 30
Indications that a FO is a non-integral foreign operation rather than an integral foreign operation
Control RE may control the FOA of the FO are carried out with a significant degree of autonomy from those of the RE
Transactions With the RE are not a high proportion of the FOA
Finance FOA are financed mainly from its own operations or local borrowings rather than from RE
Costs of labour, material and other components of the FO’S products or services are primarily paid or
Cost settled in the local currency rather than in the RE currency
Indications
Sales FO's sales are mainly in currencies other than the RE currency
RE cash flows are insulated from the day-to-day activities of the FO rather than being directly affected
Cash Flows by the FOA
Sales prices for the FO’S products are not primarily responsive on a short-term basis to changes in
Sales prices exchange rates but are determined more by local competition or local government regulation.
Local sales There is an active local sales market for the FO’S products, although there also might be significant amounts
market of exports.
RE - Reporting Enterprise
FO- Foreign Operation
FOA - Foreign Operation Activities
Change in the Classification of a Foreign Operation
Reclassfication of
Foreign operation
Integral foreign Non- integral

operation to foreign
operation to
Non- integral Integral foreign

foreign operation operation
Translated amounts
Exchange for non-monetary Exchange
differences items at the date of differences
the change
Treated as the Which have been

Arising on the historical cost deferred are not
translation of for those items recognised as
non-monetary in the period income or expenses
assets at the of change and until the disposal of
date of the subsequent the operation
reclassification periods
accumulated in a
foreign currency
translation reserve
© ICAI BOS(A) 31
Tax Effects of Exchange Differences

Accounted for in Gains and losses on foreign currency transactions and exchange differences arising on the translation of the
accordance with AS 22. financial statements of foreign operations may have associated tax effects.
Forward Exchange Contract

Forward exchange
contract or Another
financial instrument
Not intended for trading or Intended for trading or

speculation purposes speculation purposes
Cancellation
Premium or Exchange or renewal of Premium or Contract Value Gain or loss
discount differences contract discount
Marked to its
Amortised as Recognised in Ignored current market
expense or income the statement of Recognised.
value at each
over the life of the profit and loss balance sheet
contract in the reporting date
period in which
the exchange rates
change.
Recognised as
income or as
expense for the
period.
Disclosure
as a separate
Included in the net profit or loss for the period component of
shareholders’
Exchange funds, and a
differences Amount reconciliation of
Accumulated in foreign currency translation reserve
the amount of
such exchange
Reason for using a different currency (in which the differences at the
enterprise is domiciled) beginning and end
Reporting currency of the period.
Reason for any change in the reporting currency
Disclosure
Nature of the change in classification
Reason for the change

Change in the
classification of a
significant foreign Impact of the change in classification on shareholders'
operation funds; and
Impact on net profit or loss for each prior period

presented had the change in classification occurred at
the beginning of the earliest period presented.
Presentation of Foreign Currency Monetary Item Translation Difference Account (FCMITDA)

Debit or credit balance in FCMITDA should be shown on the “Equity and Liabilities” side of the balance sheet under the head
‘Reserves and Surplus’ as a separate line item.
The Chartered Accountant Student July 2019 29

© ICAI BOS(A) 32
AS 12 “ACCOUNTING FOR GOVERNMENT GRANTS”
AS 12 Accounting Treatment of Government Grants
Deals with Two approaches

◊ Accounting for government grants such as subsidies,
◊ Cash incentives,
◊ Duty drawbacks, etc.
Does not deal with:

◊ The special problems arising in accounting for ‘Capital approach’ ‘Income approach’
government grants in financial statements reflecting
the effects of changing prices or in supplementary
information of a similar nature.
◊ Government assistance other than in the form of
government grants.
◊ Government participation in the ownership of the
enterprise
Grant is treated as part of Grant is taken to income
shareholders’ funds over one or more periods.
Treatment of non- Presentation of grants

monetary government related to specific fixed
grants; assets; Grants which have the Income approach may be
AS 12 describes characteristics similar to those of more appropriate in the
promoters’ contribution case of other grants.
should be treated as part of
Revenue grants and those Treatment for refund of shareholders’ funds.
in the nature of promoters’ government grants etc.
contribution;
Recognition of Government Grants
Meaning of Government Grants A government Enterprise will

grant is not comply with the Grant will be
recognised until conditions received.
en t there is reasonable attached to it; and
kin
d pa terp o an assurance that
s
or co t or rise
ash mp fu fo
in
c lia tur r
nc e
e Receipt of a grant is not of itself conclusive
evidence that the conditions attaching to the grant
have been or will befulfilled.
t
ver nce
wit dition
en
con
nm
a
hc
by ssist
ert s
A
ain
go
Non-Monetary Government Grants

Land or
other
resources,
They exclude those forms of government assistance
which cannot reasonably have a value placed upon Non-Monetary Account
them and transactions with government which cannot Government Concessional at their
Grants rates acquisition
be distinguished from the normal trading transactions cost.
of the enterprise.
Free of cost Recorded at

a nominal
value.
© ICAI BOS(A) 33
Presentation of Grants
Presentation of Grants
Related to Specific Related to Revenue In nature of Promoters’

Fixed Assets Contribution
Method I : Method II: Grants related Where the government

to revenue are grants are of the nature of
sometimes promoters’ contribution,
The grant is shown as Grants related to depreciable presented as a i.e., they are given
a deduction from the assets are treated as deferred credit in the profit with reference to the
gross value of the asset income which is recognised in and loss statement, total investment in an
concerned in arriving the profit and loss statement on either separately undertaking or by way
at its book value. a systematic and rational basis or under a general of contribution towards
over the useful life of the asset. heading such as its total capital outlay
‘Other Income’. (for example, central
The grant is thus Alternatively, investment subsidy
recognised in the profit Grants related to non- they are deducted scheme) and no repayment
and loss statement depreciable assets are credited in reporting the is ordinarily expected
over the useful life of to capital reserve as there is related expense. in respect thereof, the
a depreciable asset usually no charge to income in grants are treated as
by way of a reduced respect of such assets. capital reserve which can
depreciation charge. be neither distributed as
dividend nor considered as
If a grant related to a non- deferred income.
Where the grant
equals the whole, or depreciable asset requires the
virtually the whole, of fulfilment of certain obligations,
the cost of the asset, the grant is credited to income
the asset is shown in over the same period over
the balance sheet at a which the cost of meeting such
nominal value. obligations is charged to income.
Refund of Government Grants

If certain conditions are not fulfilled grants become refundable and are treated as an extraordinary item.
Refund of Government Grant
Related to Revenue Related to a Specific fixed asset In the nature of promoters’

contribution
is applied first against any is recorded by increasing the book Refundable, in part or in full, to
unamortised deferred credit value of the asset or by reducing the government on non-fulfilment
remaining in respect of the grant the deferred income balance, of some specified conditions, the
as appropriate, by the amount relevant amount recoverable by the
To the extent that the amount refundable. government is
refundable exceeds any such deferred
credit, or where no deferred credit
exists, In the first alternative, i.e., where the
book value of the asset is increased,
depreciation on the revised book Reduced from the capital reserve.
the amount is charged immediately value is provided prospectively over
to profit and loss statement. the residual useful life of the asset.
Disclosure
The accounting policy adopted
for government grants,
including the methods of The nature and extent of government
presentation in the financial grants recognised in the financial
statements statements, including grants of
non-monetary assets given at a
concessional rate or free of cost.
© ICAI BOS(A) 34
AS 13 “ACCOUNTING FOR INVESTMENTS”
AS 13 deals with accounting for investments in the financial CLASSIFICATION OF INVESTMENTS

statements of enterprises and related disclosure requirements.
Classification of Investments
Basis for recognition

of interest, dividends
and rentals earned on Operating or finance leases Current Long Term
investments which are Investments Investments
covered by AS 9
AS 13 does not
deal with Mutual funds, venture By nature readily realisable;
Investments on capital funds and/ Other than
retirement benefit or the related asset
intended to be held for not more a current
plans and life insurance management companies, banks than one year from the date on investment
enterprises and public financial institutions which such investment is made.
formed under a Central or State
Government Act or so declared
under the Companies Act, 2013
Type of Cost of
DEFINITION OF INVESTMENTS acquisition investments
Investments are assets
held by an enterprise
Cash price including charges such
In Cash/ bank
as brokerages, fees and duties
for earning for capital appreciation

income or for other benefits By Issue of
shares/ other Fair value of securities issued
securities
Dividends
*O FYDIBOHF Fair value of asset given up or
Assets held as Stock- for another fair value of investment acquired,
Interests asset whichever is more clearly evident
in-trade are not
‘Investments’.
Rentals
Accounting for
Interest accrued/Dividend declared
t "NPVOU GPS XIJDI BO BTTFU DPVME CF FYDIBOHFE
between a knowledgeable, willing buyer and a
knowledgeable, willing seller in an arm’s length
Fair value transaction. Pre-acquisition Post-acquisition
t 6OEFS BQQSPQSJBUF DJSDVNTUBODFT NBSLFU WBMVF period period
or net realisable value provides an evidence of
fair value.
Deducted from cost Recognized as an

Market t "NPVOU PCUBJOBCMF GSPN UIF TBMF PG BO of investment income
value JOWFTUNFOU JO BO PQFO NBSLFU OFU PG FYQFOTFT
necessarily to be incurred on or before disposal.
© ICAI BOS(A) 35
Subscribed
Right shares Cost of shares added
to carrying amount If acquired on cum-right
basis & the market value of
investments immediately
BGUFS UIFJS CFDPNJOH FY
Not subscribed, but sold right is lower than the
Accounting for
Sale proceeds taken to cost for which they were
P&L A/c acquired, apply the sale
proceeds of rights to reduce
the carrying amount of
No amount is entered such investments to the
Bonus market value.
in the capital column of
investment account.
CARRYING AMOUNT OF INVESTMENTS
Carrying Amount
Current investments Long term investments
Lower of cost and fair value. Valuation carried Valuation
Any reduction to fair value PO PWFSBMM PS HMPCBM Determined on an

at cost. individual investment basis.
is debited to profit and loss basis is not considered
account, however, if fair value appropriate; prudent
of investment is increased method is to carry Where there is a decline, other than temporary,in the carrying
subsequently, the increase in investment individually. amounts of long term valued investments, the resultant reduction
value of current investment up to in the carrying amount is charged to the profit and loss statement.
the cost of investment is credited The reduction in carrying amount is reversed when there is a rise
to the profit and loss account (and in the value of the investment, or if the reasons for the reduction
FYDFTT QPSUJPO JG BOZ JT JHOPSFE OP MPOHFS FYJTU
INVESTMENT PROPERTIES RECLASSIFICATION OF INVESTMENTS
t "O JOWFTUNFOU QSPQFSUZ JT BO JOWFTUNFOU JO MBOE PS CVJMEJOHT Reclassification of Investments

that are not intended to be occupied substantially for use by, or
in the operations of, the investing enterprise. Current to Long-term Long-term to Current
t "O JOWFTUNFOU QSPQFSUZ JT BDDPVOUFE GPS JO BDDPSEBODF XJUI DPTU
NPEFM BT QSFTDSJCFE JO "4 3FWJTFE A1SPQFSUZ 1MBOU BOE
Equipment’. Transfer at Lower of cost & fair Transfer at lower of cost & carrying
value at the date of transfer amount at the date of transfer
t ͳF DPTU PG BOZ TIBSFT JO B DPPQFSBUJWF TPDJFUZ PS B DPNQBOZ
the holding of which is directly related to the right to hold the
DISCLOSURE
investment property, is added to the carrying amount of the
investment property. Accounting policies followed for valuation of investments;
Amounts included in profit and loss statement for:

DISPOSAL OF INVESTMENTS t *OUFSFTU EJWJEFOET TIPXJOH TFQBSBUFMZ EJWJEFOET GSPN TVCTJEJBSZ
DPNQBOJFT BOE SFOUBMT PO JOWFTUNFOUT TIPXJOH TFQBSBUFMZ TVDI
income from long term and current investments.
t (SPTT JODPNF TIPVME CF TUBUFE UIF BNPVOU PG JODPNF UBY
Difference When part of EFEVDUFE BU TPVSDF CFJOH JODMVEFE VOEFS "EWBODF 5BYFT 1BJE
between investment is t 1SPmUT BOE MPTTFT PO EJTQPTBM PG DVSSFOU JOWFTUNFOUT BOE DIBOHFT
If investments held in carrying amount of such investments.
the carrying disposed,
as stock-in-trade, t 1SPmUT BOE MPTTFT PO EJTQPTBM PG MPOH UFSN JOWFTUNFOUT BOE
amount and carrying amount
cost of stocks changes in carrying amount of such investments.
the disposal is allocated to
disposed calculated
proceeds, net that part on
as per cost formula Significant restrictions on the right of ownership, realizability of
PG FYQFOTFT the basis of
as per AS 2. investments or remittance of income and proceeds of disposal.
is recognised average carrying
in the P & L amount of total
Aggregate amount of quoted and unquoted investments, giving
statement. investment.
aggregate market value of quoted investments.
Other disclosures as specifically required by relevant statute

governing enterprise.
© ICAI BOS(A) 36
AS 14 “ACCOUNTING FOR AMALGAMATIONS”

AS 14 (Revised) deals with the accounting to be made in the Transferor company Company which is amalgamated into another
books of Transferee company in the case of amalgamation and company.
the treatment of any resultant goodwill or reserve. Transferee company Company into which a transferor company is
amalgamated.
Reserve Portion of earnings, receipts or other surplus
Objective of an enterprise (whether capital or revenue)
appropriated by the management for a general
Accounting for amalgamations or a specific purpose other than a provision for
depreciation or diminution in the value of assets
or for a known liability.
Consideration for the Aggregate of the shares and other securities
Treatment of any resultant goodwill or reserves amalgamation issued and the payment made in the form of cash
or other assets by the transferee company to the
shareholders of the transferor company.
Disclosures Fair value Amount for which an asset could be exchanged
between a knowledgeable, willing buyer and a
knowledgeable, willing seller in an arm’s length
transaction.
Scope
This standard deals The standard does not deal Types of Amalgamations and Methods of Accounting
with Accounting for with cases of acquisitions
Amalgamation i.e. where one entity is acquired Amalgamation may be either
acquisition of one entity by by the other and the in the nature of
the other and the acquired acquired entity continues
entity ceased to exist to exist.
Merger Purchase
Key Terms
Meaning of Amalgamations
In an amalgamation,
two or more companies Amalgamations which are in
are combined into one effect a mode by which one
by merger or by one Amalgamations where there is company acquires another
taking over the other. a genuine pooling not merely of company and as a consequence,
Amalgamation means an the assets and liabilities of the the shareholders of the company
amalgamating companies but which is acquired normally
amalgamation
also of the shareholders’ interests do not continue to have a
and of the businesses of these proportionate share in the equity
companies are amalgamations in of the combined company, or the
pursuant to the nature of merger. business of the company which
the relevant includes is acquired is not intended to be
provisions “merger” continued.
of the
Companies
Act Method of Accounting - Method of Accounting -
Pooling of Interest method Purchase method
© ICAI BOS(A) 37
The standard specifies the conditions to be satisfied by Treatment of Reserves of the Transferor
an amalgamation to be considered as amalgamation in Company on Amalgamation
nature of merger or purchase.
Conditions for Amalgamation in the nature Treatment of Reserves

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

of the assets and liabilities of the transferor company
when they are incorporated in the financial statements
of the transferee company except to ensure uniformity of Statutory Reserves
accounting policies.
Statutory reserves retain their identity in the financial statements of
Amalgamation in the nature of purchase is an amalgamation which the transferee company in the same form in which they appeared in the
financial statements of the transferor company, so long as their identity is
does not satisfy any one or more of the conditions specified above. required to be maintained to comply with the relevant statute.
Methods of Accounting
Purchase Method Statutory reserves are recorded in the financial statements of the transferee
company by a corresponding debit to a suitable account head (e.g.
‘Amalgamation Adjustment Reserve’) which is presented as a separate line
Under the purchase method, the transferee company accounts for item under the head “Reserves and Surplus”.
the amalgamation either
• By incorporating the assets and liabilities at their existing
carrying amounts or When the identity of the statutory reserves is no longer required to be
• By allocating the consideration to individual identifiable maintained, both the reserves and the aforesaid account are reversed.
assets and liabilities of the transferor company on the basis of
their fair values at the date of amalgamation.
%DODQFHRI3URÀWDQG/RVV$FFRXQW
Pooling of Interests Method
1 Assets, liabilities and reserves of the Balance of the Profit and Loss Account appearing in
transferor company to be recorded the financial statements of the transferor company
Pooling of interests by the transferee company at existing
is a method of carrying amounts and in the same form
accounting for as at the date of the amalgamation.
amalgamations, the Amalgamation in nature Amalgamation in the
object of which is 2 If the transferor and the transferee of merger nature of purchase
to account for the companies have conflicting accounting
amalgamation as if the policies, a uniform set of accounting
separate businesses policies should be adopted following the Is aggregated with the Debit or credit
of the amalgamating amalgamation. corresponding balance appearing balance loses its
companies were
in the financial statements of the identity.
intended to be 3 The difference between the amount of
continued by the transferee company.
share capital issued (plus any additional
transferee company. consideration in the form of cash or
other assets) and the amount of share Alternatively, it is transferred to
capital of the transferor company the General Reserve, if any.
should be adjusted in reserves.
© ICAI BOS(A) 38
Treatment of Goodwill For amalgamations accounted for under the pooling of interests
method, the following additional disclosures are considered
Goodwill arising on amalgamation represents a payment made appropriate in the first financial statements following the
in anticipation of future income and it is appropriate to treat it as amalgamation:
an asset to be amortised on a systematic basis over its useful life.
Description and number of shares issued, together
Due to the nature of goodwill, it is frequently difficult to estimate with the percentage of each company’s equity shares
its useful life with reasonable certainty. exchanged to effect the amalgamation; and
It is considered appropriate to amortise goodwill over a period

not exceeding 5 years unless a longer period can be justified. Amount of any difference between the consideration
and the value of net identifiable assets acquired, and the
treatment thereof.
Disclosure Requirements
For all amalgamations, the following disclosures are considered
appropriate in the first financial statements following the For amalgamations accounted for under the purchase method,
amalgamation: the following additional disclosures are considered appropriate
in the first financial statements following the amalgamation:
Names and general nature of business of the amalgamating
companies; Consideration for the amalgamation and a description of the
consideration paid or contingently payable; and
Effective date of amalgamation for accounting purposes;
Amount of any difference between the consideration
Method of accounting used to reflect the amalgamation; and and the value of net identifiable assets acquired, and the
treatment thereof including the period of amortisation of
any goodwill arising on amalgamation.
Particulars of the scheme sanctioned under a statute.
© ICAI BOS(A) 39
AS 16 “BORROWING COSTS”
ͳF PCKFDUJWF PG "4 JT UP BDDPVOU GPS CPSSPXJOH DPTUT *U SUBSTANTIAL PERIOD OF TIME
does not deal with the actual or imputed cost of owners’ equity,
including preference share capital not classified as a liability.
Borrowing costs are interest and other costs incurred by an

enterprise in connection with the borrowing of funds.
Substantial
BORROWING COSTS MAY INCLUDE period of time
depends on
Borrowing Costs the facts and
circumstances of
each case
Interest & Amortisation &YDIBOHF

commitment of ancillary A period of
charge on costs Differences* twelve months
In
Borrowings relating to is considered as estimating
Borrowings substantial period the period,
6OMFTT B of time time which
shorter or an asset takes
longer period technologically
Amortisation of Finance charges DBO CF KVTUJmFE and commercially
Discount / Premium for assets acquired on the basis of to get it ready for
on Borrowings on Finance Lease the facts and its intended use
circumstances or sale should be
of the case. considered
5P UIF FYUFOU UIFZ BSF SFHBSEFE BT BO BEKVTUNFOU
to interest cost
EXCHANGE DIFFERENCES ON FOREIGN CURRENCY
BORROWINGS
A QUALIFYING ASSET
&YDIBOHF EJĉFSFODFT BSJTJOH GSPN GPSFJHO DVSSFODZ CPSSPXJOH BOE
An asset when acquired for DPOTJEFSFE BT CPSSPXJOH DPTUT BSF UIPTF FYDIBOHF EJĉFSFODFT XIJDI
its intended use or sale. arise on the amount of principal of the foreign currency borrowings
UP UIF FYUFOU PG UIF EJĉFSFODF CFUXFFO JOUFSFTU PO MPDBM DVSSFODZ
borrowings and interest on foreign currency borrowings.
Necessarily takes a "NPVOU PG FYDIBOHF EJĉFSFODF OPU FYDFFEJOH UIF EJĉFSFODF CFUXFFO
substantial period of interest on local currency borrowings and interest on foreign
time to get ready for Is ready for use
currency borrowings is considered as borrowing cost to be accounted
its intended use or sale GPS VOEFS UIJT 4UBOEBSE BOE UIF SFNBJOJOH FYDIBOHF EJĉFSFODF JG
any, is accounted for under AS 11, ‘The Effects of Changes in Foreign
&YDIBOHF 3BUFT
Interest rate for the local currency borrowings is considered as

Qualifying asset Not qualifying asset that rate at which the enterprise would have raised the borrowings
locally had the enterprise not decided to raise the foreign currency
borrowings.
Other investment and those inventory that

are routinely manufactured or otherwise BORROWING COSTS ELIGIBLE FOR CAPITALISATION
produced in large quantities on a repetitive Treatment of Borrowing Costs
basis over a short period of time
Borrowing Costs
Directly related* for:

Manufacturing Power Inventories Investment t BDRVJTJUJPO
that require t DPOTUSVDUJPO
plants generation property t QSPEVDUJPO PG
facilities a substantial
period of
time to
bring them
Qualifying Assets Assets other than Qualifying assets
to a saleable
condition
Capitalized 3FWFOVF &YQFOEJUVSF
PS UIBU DPVME IBWF CFFO BWPJEFE JG UIF FYQFOEJUVSF PO RVBMJGZJOH BTTFUT

had not been made.
© ICAI BOS(A) 40
Thus, borrowing costs are capitalised as part of the cost of a qualifying asset when it is probable that they will result in future economic benefits to the
FOUFSQSJTF BOE UIF DPTUT DBO CF NFBTVSFE SFMJBCMZ 0UIFS CPSSPXJOH DPTUT BSF SFDPHOJTFE BT BO FYQFOTF JO UIF QFSJPE JO XIJDI UIFZ BSF JODVSSFE
Borrowings
Specific borrowings General borrowings
Borrowed Borrowing If funds No Direct Amount of borrowing The amount of

funds costs that temporarily relationship costs eligible for borrowing costs
specifically for directly invested . between capitalisation capitalised during a
the purpose relate to that particular determined by applying QFSJPE TIPVME OPU FYDFFE
of obtaining qualifying asset borrowings and a a capitalisation rate to the amount of borrowing
a particular can be readily Capitalised UIF FYQFOEJUVSF PO UIBU costs incurred during
borrowing costs= qualifying asset
qualifying asset identified. asset. that period.
borrowing costs
less any income
earned on the The capitalisation rate should be the weighted average of the
temporary borrowing costs applicable to the borrowings of the enterprise that
investment of are outstanding during the period, other than borrowings made
those borrowings specifically for the purpose of obtaining a qualifying asset.
EXCESS OF THE CARRYING AMOUNT OF THE SUSPENSION OF CAPITALISATION

QUALIFYING ASSET OVER RECOVERABLE AMOUNT
8IFO UIF DBSSZJOH BNPVOU PS UIF FYQFDUFE VMUJNBUF DPTU PG Capitalisation of
the qualifying asset borrowing costs
&YDFFET JUT SFDPWFSBCMF BNPVOU PS OFU SFBMJTBCMF WBMVF

Suspended Not suspended
Carrying amount is written down or written off
in accordance with the requirements of other
Accounting Standards.
EVSJOH FYUFOEFE during a period when a
periods in when substantial temporary
In certain circumstances, the amount of the write-down which active technical and delay is a
or write-off is written back in accordance with those other
Accounting Standards. development is administrative necessary part
interrupted. work is being of the process
carried out. of getting an
COMMENCEMENT OF CAPITALISATION asset ready for
its intended use
The capitalisation of borrowing costs as part of the cost of or sale.
a qualifying asset should commence when all the following
conditions are satisfied CESSATION OF CAPITALISATION
An asset is normally When the construction

Expenditure for Borrowing Activities that ready for its intended of a qualifying asset
Capitalisation of
the acquisition, costs are being are necessary borrowing costs use or sale when its is completed in parts
construction incurred. to prepare the should cease physical construction and a completed part is
or production asset for its when substantially or production is capable of being used
all the activities complete even though while construction
of a qualifying intended use routine administrative
necessary to continues for the other
asset is being or sale are in prepare the work might still parts, capitalisation
incurred: progress: qualifying asset for continue.
its intended use or of borrowing costs
If minor
sale are complete. in relation to a part
modifications, such
as the decoration of a should cease when
&YQFOEJUVSF PO B RVBMJGZJOH BTTFU JODMVEFT POMZ TVDI FYQFOEJUVSF substantially all the
that has resulted in payments of cash, transfers of other assets property to the user’s
specification, are all activities necessary to
PS UIF BTTVNQUJPO PG JOUFSFTUCFBSJOH MJBCJMJUJFT &YQFOEJUVSF JT
reduced by any progress payments received and grants received that are outstanding, prepare that part for its
in connection with the asset. The average carrying amount of this indicates that intended use or sale are
the asset during a period, including borrowing costs previously substantially all the complete.
DBQJUBMJTFE JT OPSNBMMZ B SFBTPOBCMF BQQSPYJNBUJPO PG UIF activities are complete.
FYQFOEJUVSF UP XIJDI UIF DBQJUBMJTBUJPO SBUF JT BQQMJFE JO UIBU
period.
The activities necessary to prepare the asset for its intended use DISCLOSURE
or sale encompass more than the physical construction of the The financial statements should disclose:
asset. They include technical and administrative work prior to the
commencement of physical construction. However, such activities
FYDMVEF UIF IPMEJOH PG BO BTTFU XIFO OP QSPEVDUJPO PS EFWFMPQNFOU The accounting
UIBU DIBOHFT UIF BTTFUT DPOEJUJPO JT UBLJOH QMBDF 'PS FYBNQMF policy adopted for
borrowing costs incurred while land is under development are borrowing costs; The amount of
capitalised during the period in which activities related to the and borrowing costs
development are being undertaken. However, borrowing costs capitalised during
incurred while land acquired for building purposes is held without any the period.
associated development activity do not qualify for capitalisation.
© ICAI BOS(A) 41
AS 17 “SEGMENT REPORTING”
ͳF PCKFDUJWF "4 JT UP FTUBCMJTI QSJODJQMFT GPS SFQPSUJOH other economic environments. Factors that should be considered in
financial information, about the different types of products and identifying geographical segments include:
services an enterprise produces and the different geographical
areas in which it operates. Information about segments helps Similarity of economic and political conditions;
users of financial statements to:
Relationships between operations in different
geographical areas;
Better understand the performance of the
enterprise;
1SPYJNJUZ PG PQFSBUJPOT
Better assess the risks and returns of the
enterprise; and
Special risks associated with operations in a particular
area;
.BLF NPSF JOGPSNFE KVEHFNFOUT BCPVU UIF
enterprise as a whole.
&YDIBOHF DPOUSPM SFHVMBUJPOT BOE
'PS $PNQBOJFT "4 JT OPU NBOEBUPSZ GPS 4.$T
'PS /PODPNQBOJFT "4 JT OPU NBOEBUPSZ GPS FOUJUJFT GBMMJOH
in Level II and Level III. The underlying currency risks.
SCOPE A reportable segment is a business segment or a geographical

segment identified on the basis of definitions of business segment
"4 TIPVME CF BQQMJFE JO QSFTFOUJOH HFOFSBM QVSQPTF and geographical segment for which segment information is
financial statements. required to be disclosed by this Standard.
An enterprise should comply with the requirements of
this Standard fully and not selectively. Identifying Reportable Segments as Primary Segment or
Secondary Segment
If a single financial report contains both consolidated
financial statements and separate financial statements of If the risks and returns of an enterprise are affected
parent, segment information need to be presented only predominently by the differences in the products and
on basis of the consolidated financial statements. services, its primary segment will be business segment and
geographic segment will be secondary.
DEFINITION OF THE TERMS USED IN THE

ACCOUNTING STANDARD
If the risks and returns of an enterprise are affected
A business segment is a distinguishable component of an enterprise predominently by the fact that it operates in different
that is engaged in providing an individual product or service or a geographical areas, its primary segment will be geographical
HSPVQ PG SFMBUFE QSPEVDUT PS TFSWJDFT BOE UIBU JT TVCKFDU UP SJTLT BOE segment and business segment will be secondary.
returns that are different from those of other business segments.
Factors that should be considered in determining whether products
or services are related include: A single geographical segment does not include operations in
economic environments with significantly differing risks and
The nature of returns. A geographical segment may be a single country, a group
the products or of two or more countries, or a region within a country.
services
The risks and returns of an enterprise are influenced both by the
geographical location of its operations (where its products are
If applicable, the nature of the QSPEVDFE PS XIFSF JUT TFSWJDF SFOEFSJOH BDUJWJUJFT BSF CBTFE BOE
The nature of
regulatory environment, for the production also by the location of its customers (where its products are sold
FYBNQMF CBOLJOH JOTVSBODF processes PS TFSWJDFT BSF SFOEFSFE
or public utilities
The definition allows

The methods used to The type or class of geographical segments
distribute the products or customers for the to be based on either:
provide the services products or services
A geographical segment is a distinguishable component of an Location of production

enterprise that is engaged in providing products or services within or service facilities Location of its
B QBSUJDVMBS FDPOPNJD FOWJSPONFOU BOE UIBU JT TVCKFDU UP SJTLT BOE and other assets of an customers.
returns that are different from those of components operating in enterprise; or
© ICAI BOS(A) 42
CRITERIA FOR IDENTIFYING REPORTABLE SEGMENT EXPENSE

SEGMENTS
Segment expense
Revenue Test 4FHNFOU SFWFOVF PG BMM TFHNFOU SFWFOVFT

Is aggregate of Does not include
Result Test 4FHNFOUSFTVMU PG IJHIFS PG TFHNFOUT JOQSPmU &YQFOTF SFTVMUJOH &YUSBPSEJOBSZ JUFNT BT
or loss from the operating defined in AS 5.
activities of a
segment that is
Assets Test 4FHNFOU BTTFUT PG UPUBM BTTFUT PG BMM TFHNFOUT directly attributable
to the segment, and *OUFSFTU FYQFOTF JODMVEJOH
interest incurred on advances
or loans from other segments,
Management choice- Management may designate any segment as unless the operations of the
reportable segment despite its size even if tests are not satisfied Relevant portion of segment are primarily of a
FOUFSQSJTF FYQFOTF financial nature.
that can be allocated
on a reasonable basis
to the segment,
75% Test *T FYUFSOBM SFWFOVF PG SFQPSUBCMF TFHNFOU PG Losses on sales of investments
enterprise revenue PS MPTTFT PO FYUJOHVJTINFOU PG
debt unless the operations of
&YQFOTF SFMBUJOH UP
t 1SFWJPVT ZFBST TFHNFOU JOGPSNBUJPO UP DPOUJOVF JO the segment are primarily of a
transactions with
current year financial nature.
other segments of
t *G JODPOTJTUFOU QSFWJPVT ZFBS mHVSFT UP CF SFHSPVQFE UP the enterprise.
fall in line with current year
*ODPNF UBY FYQFOTF
*O UIF MBTU UFTU 5FTU JG UPUBM FYUFSOBM SFWFOVF BUUSJCVUBCMF UP
SFQPSUBCMF TFHNFOUT DPOTUJUVUFT MFTT UIBO QFS DFOU PG UIF UPUBM
(FOFSBM BENJOJTUSBUJWF FYQFOTFT IFBEPĊDF FYQFOTFT BOE
enterprise revenue, additional segments should be identified PUIFS FYQFOTFT UIBU BSJTF BU UIF FOUFSQSJTF MFWFM BOE SFMBUF
as reportable segments, even if they do not meet the 10 per to the enterprise as a whole. However, costs are sometimes
DFOU UISFTIPMET JO PUIFS UFTUT VOUJM BU MFBTU QFS DFOU PG UPUBM incurred at the enterprise level on behalf of a segment.
4VDI DPTUT BSF QBSU PG TFHNFOU FYQFOTF JG UIFZ SFMBUF UP UIF
enterprise revenue is included in reportable segments. operating activities of the segment and if they can be directly
attributed or allocated to the segment on a reasonable basis.
SEGMENT REVENUE SEGMENT RESULT
is segment revenue less TFHNFOU FYQFOTF

Segment revenue
SEGMENT ASSETS
Is aggregate of Does not include Segment assets
Portion of enterprise
revenue that is &YUSBPSEJOBSZ JUFNT Operating assets Include Do not include
directly attributable as defined in AS 5.
to a segment,
that are If the segment JODPNF UBY
employed by result of a assets;
a segment in segment includes
its operating interest or
Relevant portion of Interest or dividend activities and
enterprise revenue income, including dividend income,
its segment assets used
that can be allocated interest earned on for general
on a reasonable basis advances or loans to assets include
that either the related enterprise or
to a segment, and other segments unless are directly head-office
the operations of the receivables, loans,
attributable to investments, or purposes.
segment are primarily of the segment
a financial nature; and other interest
or or dividend
Revenue from generating assets.
transactions with can be
Gains on sales of allocated to
other segments of
investments or on the segment on
the enterprise.
FYUJOHVJTINFOU PG EFCU a reasonable
unless the operations of basis.
the segment are primarily
of a financial nature. Segment assets are determined after deducting related allowances/
provisions that are reported as direct offsets in the balance sheet of the
enterprise.
© ICAI BOS(A) 43
Segment liabilities
Operating liabilities Include &YBNQMFT Does not include
that result from the trade and other payables, JODPNF UBY borrowings and
If the segment result of a liabilities;
operating activities of a segment includes interest accrued liabilities, other liabilities
segment and that either FYQFOTF JUT TFHNFOU customer advances, that are incurred
are directly attributable liabilities include the product warranty for financing rather
to the segment or can be related interest-bearing provisions, and other than operating
allocated to the segment liabilities. claims relating to the purposes.
on a reasonable basis. provision of goods and
services.
"TTFUT BOE MJBCJMJUJFT UIBU SFMBUF KPJOUMZ UP UXP PS NPSF TFHNFOUT TIPVME CF BMMPDBUFE UP TFHNFOUT JG BOE POMZ JG UIFJS SFMBUFE SFWFOVFT BOE FYQFOTFT BMTP
are allocated to those segments.
TREATMENT OF INTEREST FOR DETERMINING PRIMARY AND SECONDARY SEGMENT REPORTING

SEGMENT EXPENSE
Primary Reporting Format
ͳF JOUFSFTU FYQFOTF SFMBUJOH UP PWFSESBGUT BOE PUIFS
operating liabilities identified to a particular segment An enterprise should disclose the following for each
TIPVME OPU CF JODMVEFE BT B QBSU PG UIF TFHNFOU FYQFOTF reportable segment identified as primary segment:
unless the operations of the segment are primarily of a
financial nature or unless the interest is included as a B TFHNFOU SFWFOVF DMBTTJmFE JOUP TFHNFOU SFWFOVF GSPN
part of the cost of inventories. TBMFT UP FYUFSOBM DVTUPNFST BOE TFHNFOU SFWFOVF GSPN
transactions with other segments;
In case interest is included as a part of the cost of
JOWFOUPSJFT XIFSF JU JT TP SFRVJSFE BT QFS "4 SFBE C TFHNFOU SFTVMU
XJUI "4 3FWJTFE BOE UIPTF JOWFOUPSJFT BSF QBSU PG
segment assets of a particular segment, such interest
TIPVME CF DPOTJEFSFE BT B TFHNFOU FYQFOTF *O UIJT D UPUBM DBSSZJOH BNPVOU PG TFHNFOU BTTFUT
case, the amount of such interest and the fact that the
segment result has been arrived at after considering
E UPUBM BNPVOU PG TFHNFOU MJBCJMJUJFT
such interest should be disclosed by way of a note to the
segment result.
F UPUBM DPTU JODVSSFE EVSJOH UIF QFSJPE UP BDRVJSF TFHNFOU
ALLOCATION BTTFUT UIBU BSF FYQFDUFE UP CF VTFE EVSJOH NPSF UIBO POF
QFSJPE UBOHJCMF BOE JOUBOHJCMF mYFE BTTFUT
There is a presumption that amounts that have been
identified with segments for internal financial reporting
purposes are directly attributable or reasonably allocable to G UPUBM BNPVOU PG FYQFOTF JODMVEFE JO UIF TFHNFOU SFTVMU
segments for purpose of measuring the segment revenue, for depreciation and amortisation in respect of segment
TFHNFOU FYQFOTF TFHNFOU BTTFUT BOE TFHNFOU MJBCJMJUJFT assets for the period; and
of reportable segments.
4FHNFOU SFWFOVF TFHNFOU FYQFOTF TFHNFOU BTTFUT BOE H UPUBM BNPVOU PG TJHOJmDBOU OPODBTI FYQFOTFT PUIFS UIBO
segment liabilities are determined before intra-enterprise depreciation and amortisation in respect of segment assets,
balances and intra-enterprise transactions are eliminated UIBU XFSF JODMVEFE JO TFHNFOU FYQFOTF BOE UIFSFGPSF
as part of the process of preparation of enterprise financial deducted in measuring segment result.
TUBUFNFOUT FYDFQU UP UIF FYUFOU UIBU TVDI JOUSBFOUFSQSJTF
balances and transactions are within a single segment.
An enterprise should present a reconciliation between the
information disclosed for reportable segments and the
While the accounting policies used in preparing and
aggregated information in the enterprise financial statements.
presenting the financial statements of the enterprise as In presenting the reconciliation:
a whole are also the fundamental segment accounting
policies, segment accounting policies include, in addition, segment segment segment segment
policies that relate specifically to segment reporting, such revenue result should assets should liabilities
as identification of segments, method of pricing inter- should be be reconciled be reconciled should be
segment transfers, and basis for allocating revenues and reconciled to enterprise to enterprise reconciled
FYQFOTFT UP TFHNFOUT to enterprise net profit or assets to enterprise
revenue loss liabilities.
© ICAI BOS(A) 44
SECONDARY SEGMENT INFORMATION If primary format of an enterprise for reporting segment information is
geographical segments that are based on location of assets, and if the
location of its customers is different from the location of its assets, then
If primary format is business segment, it should also report the the enterprise should also report revenue from sales to external customers
following information: for each customer-based geographical segment whose revenue from sales
t TFHNFOU SFWFOVF GSPN FYUFSOBM DVTUPNFST CZ to external customers is 10 per cent or more of enterprise revenue.
geographical area based on the geographical location
of its customers, for each geographical segment whose If primary format of an enterprise for reporting segment information is
geographical segments that are based on location of customers, and if
SFWFOVF GSPN TBMFT UP FYUFSOBM DVTUPNFST JT QFS DFOU the assets of the enterprise are located in different geographical areas
or more of enterprise revenue; from its customers, then the enterprise should also report the following
t UIF UPUBM DBSSZJOH BNPVOU PG TFHNFOU BTTFUT CZ segment information for each asset-based geographical segment whose
geographical location of assets, for each geographical revenue from sales to external customers or segment assets are 10 per
cent or more of total enterprise amounts:
segment whose segment assets are 10 per cent or more t UIF UPUBM DBSSZJOH BNPVOU PG TFHNFOU BTTFUT CZ HFPHSBQIJDBM
of the total assets of all geographical segments; and location of the assets
t UIF UPUBM DPTU JODVSSFE EVSJOH UIF QFSJPE UP BDRVJSF t UIF UPUBM DPTU JODVSSFE EVSJOH UIF QFSJPE UP BDRVJSF TFHNFOU
TFHNFOU BTTFUT UIBU BSF FYQFDUFE UP CF VTFE EVSJOH NPSF BTTFUT UIBU BSF FYQFDUFE UP CF VTFE EVSJOH NPSF UIBO POF QFSJPE
UBOHJCMF BOE JOUBOHJCMF mYFE BTTFUT CZ MPDBUJPO PG UIF BTTFUT
UIBO POF QFSJPE UBOHJCMF BOE JOUBOHJCMF mYFE BTTFUT CZ
geographical location of assets, for each geographical
segment whose segment assets are 10 per cent or more OTHER DISCLOSURES
of the total assets of all segments.
Other Disclosures
If primary format is geographical segments (whether based

on location of assets or location of customers), it should also In measuring and The basis An enterprise should
report the following segment information for each business reporting segment of pricing indicate the types of
segment whose revenue from sales to external customers is revenue from inter-segment products and services
transactions with transfers and included in each
10 per cent or more of enterprise revenue or whose segment
other segments, any change reported business
assets are 10 per cent or more of the total assets of all business
inter-segment therein should segment and indicate
segments: transfers should be disclosed in the composition of each
t TFHNFOU SFWFOVF GSPN FYUFSOBM DVTUPNFST be measured on the financial reported geographical
t UIF UPUBM DBSSZJOH BNPVOU PG TFHNFOU BTTFUT BOE the basis that the statements. segment, both primary
t UIF UPUBM DPTU JODVSSFE EVSJOH UIF QFSJPE UP BDRVJSF enterprise actually and secondary, if not
TFHNFOU BTTFUT UIBU BSF FYQFDUFE UP CF VTFE EVSJOH NPSF used to price otherwise disclosed
UIBO POF QFSJPE UBOHJCMF BOE JOUBOHJCMF mYFE BTTFUT those transfers. in the financial
statements.
© ICAI BOS(A) 45
AS 18 “RELATED PARTY DISCLOSURES”

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

in making financial
or exercise significant and/or operating
one party has the influence over the decisions.
if at any time during ability to control the other party
Parties are considered the reporting period other party
to be related
(e)
(a)
(b) (c) (d) Enterprises
Enterprises over which any
that directly, Individuals person described
Associates and Key in (c) or (d) is
or indirectly owning, directly
joint ventures management able to exercise
through or indirectly, an
AS 18 deals of the reporting personnel and significant
one or more interest in the influence.
only with enterprise and relatives of such
intermediaries, voting power of This includes
related party the investing
control, or are the reporting personnel enterprises
relationships party or
controlled by, enterprise owned by
in sitiuations venturer in directors
or are under that gives
when: respect of which or major
common them control
the reporting shareholders of
control with, or significant
enterprise is an the reporting
the reporting influence over enterprise and
associate or a
enterprise (this the enterprise, enterprises
joint venture.
includes holding and relatives that have a
companies, of any such member of key
subsidiaries individual. management in
and fellow common with
the reporting
subsidiaries). enterprise.
© ICAI BOS(A) 46
In the context of AS 18, following are deemed not to be the consent or concurrence of any other person, to appoint or
related parties: remove all or a majority of directors/members of the governing
body of that company/enterprise.
Two companies simply because they have a director in
common (unless the director is able to affect the policies of
both companies in their mutual dealings). An enterprise is deemed to have the power to appoint
a director/ member of the governing body, if any of the
A single customer, supplier, franchiser, distributor or general
agent with whom an enterprise transacts a significant volume following conditions are satisfied:
of business.
A person’s The director/

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

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

For the purpose of AS 18, an enterprise is considered to control does not necessarily preclude an investing party from having
the composition of the board of directors of a company or significant influence.
governing body of an enterprise, if it has the power, without
© ICAI BOS(A) 47
Key Management Personnels are The Related Party Issue

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

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

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

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

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

in which another company
of which another company pertaining to related parties at balance sheet date and provisions
(the holding company) for doubtful debts due from such parties at that date;
holds, either by itself and/ (the holding company)
or through one or more controls, either by itself and/
subsidiaries, more than or through one or more
one-half, in nominal value subsidiaries, the composition Amounts written off or written back in the period in respect of
of its equity share capital; of its board of directors. debts due from or to related parties.
or
Items of a similar nature may be disclosed in aggregate by type of
related party except when separate disclosure is necessary for an
Fellow Subsidiary understanding of the effects of related party transactions on the
financial statements of the reporting enterprise.
Company is if both are same
fellow of another holding No disclosure is required in the financial statements of state-
considered to subsidiaries
subsidiary company company. controlled enterprises as regards related party relationships with
be a of the
other state-controlled enterprises and transactions with such
enterprises.
© ICAI BOS(A) 48
AS 19 “LEASES”
The objective of AS 19 is to prescribe, for lessees and lessors, the Minimum Lease Payments
appropriate accounting policies and disclosures in relation to finance
leases and operating leases. Minimum lease payments are
the payments over the lease term

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

If the lessee enters into a
new lease for the same or an additional amount such that, willing parties for which an asset
an equivalent asset with the at inception, continuation of
same lessor; or the lease is reasonably certain.
a liability settled
The lease term is the non-cancellable period for which the lessee between could be exchanged
has agreed to take on lease the asset together with any further periods or
for which the lessee has the option to continue the lease of the asset,
with or without further payment, which option at the inception of the
lease it is reasonably certain that the lessee will exercise.
© ICAI BOS(A) 49
Economic Life Unearned Finance Income
the number of Difference between:

the period over which an production or
Economic asset is expected to be similar units
or expected to be
life is either: economically usable by obtained from
one or more users; the asset by one
or more users. Gross investment in the lease; and
8VHIXO/LIH Present value of
(i) Minimum lease payments under a finance lease from the

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

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

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

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

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

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

Aggregate Minimum Under a From the
of lease finance standpoint
payments lease of the lessor.
other than just the passage of time
© ICAI BOS(A) 50
7\SHVRI/HDVHV
For accounting purposes, leases are classified as
Finance leases Operating leases
A lease that transfers substantially, all the risks and rewards incident to A lease is classified as an Operating Lease, if it does not transfer substantially
ownership of an asset. Title may or may not be eventually transferred. all the risk and rewards incident to ownership.
,QGLFDWRUVRI)LQDQFH/HDVH
Lessee has
the option to
purchase the asset At the inception
at a price which of the lease,
is expected to be present value of
Lease term is for Leased asset is
Situations, which Lease transfers sufficiently lower the minimum
the major part of a specialised
would normally ownership of than the fair value lease payment
of the economic nature such
lead to a lease the asset to the at the date the amounts
life of the asset that only the
being classified lessee by the end option becomes to at least lessee can use it
even if title is not
as a finance lease of the lease term. exercisable substantially all without major
transferred.
are: such that, at of the fair value modifications
the inception of of the leased being made.
the lease, it is asset.
reasonably certain
that the option
will be exercised.
Indicators of situations which individually or in combination could A finance lease gives rise to a depreciation expense for the asset
also lead to a lease being classified as a finance lease are: as well as a finance expense for each accounting period. The
depreciation policy for a leased asset should be consistent with
If the lessee can If gains or losses from If the lessee that for depreciable assets which are owned, and the depreciation
cancel the lease and the fluctuations in the can continue
the lessor’s losses recognised should be calculated on the basis set out in AS 10
residual value accrue the lease for a
associated with the secondary period (Revised), Property, Plant and Equipment. If there is no reasonable
to the lessee certainty that the lessee will obtain ownership by the end of the
cancellation are at a rent, which is
borne by the lessee. substantially lower lease term, the asset should be fully depreciated over the lease
than market rent. term or its useful life, whichever is shorter.
Lease classification is made at the inception of the lease. If at any

Initial direct costs are often incurred in connection with
time the lessee and the lessor agree to change the provisions of the specific leasing activities, as in negotiating and securing leasing
lease, other than by renewing the lease, in a manner that would have arrangements. The costs identified as directly attributable to
resulted in a different classification of the lease had the changed terms activities performed by the lessee for a finance lease are included
been in effect at the inception of the lease, the revised agreement is as part of the amount recognised as an asset under the lease.
considered as a new agreement over its revised term.
$FFRXQWLQJIRU)LQDQFH/HDVHV %RRNVRI Computation of Interest Rate implicit on
/HVVHH /HDVH ,55
On the date of inception of lease, lessee should show it as an Minimum
asset and corresponding liability at lower of: lease payments
under a finance
(i) Fair value of leased asset at the inception of the lease lease from the
standpoint of the
(ii) Present value of minimum lease payments from the standpoint lessor; and
of the lessee (present value to be calculated with discount rate The interest rate
implicit in the lease
equal to interest rate implicit in the lease, if this is practicable to is the discount rate
determine; if not, the lessee’s incremental borrowing rate should that, at the inception
be used). Lease payments to be apportioned between the finance of the lease, causes
charge and the reduction of the outstanding liability. the aggregate present Any
value of unguaranteed
residual value
accruing to the
Finance charges to be allocated to periods during the lease term so lessor, to be equal
as to produce a constant rate of interest on the remaining balance to the fair value
of liability for each period. of the leased
asset.
© ICAI BOS(A) 51
'LVFORVXUHVPDGHE\WKH/HVVHHLQFDVHRI Review of Unguaranteed Residual Value by

)LQDQFH/HDVH /HVVRU
The lessee should, in addition to the requirements of AS 10 (Revised)
AS 19 requires a lessor to review unguaranteed residual value
and the governing statute, make the following disclosures for finance
leases: used in computing the gross investment in lease regularly. In case
any reduction in the estimated unguaranteed residual value is
(a) Assets acquired under finance lease as segregated from the identified, the income allocation over the remaining lease term is to
assets owned;
be revised. An upward adjustment of the estimated residual value
is not made.
(b) For each class of assets, the net carrying amount at the
balance sheet date;
0DQXIDFWXUHURU'HDOHU/HVVRU
The manufacturer or dealer lessor should recognise the
(c) Reconciliation between the total of minimum lease transaction of sale in the statement of profit and loss for
payments at the balance sheet date and their present the period, in accordance with the policy followed by the
value. In addition, an enterprise should disclose the total enterprise for outright sales.
of minimum lease payments at the balance sheet date, and
their present value, for each of the following periods:
Initial direct costs should be recognised as an expense in the
(i) not later than one year;
(ii) later than one year and not later than five years; statement of profit and loss at the inception of the lease.
(iii) later than five years;
Disclosures
(d) Contingent rents recognised as expense in the statement of
The lessor should make the following disclosures for
profit and loss for the period;
finance leases:
(e) Total of future minimum sublease payments expected to (a) Reconciliation between the total gross investment in the lease at
be received under non-cancelable subleases at the balance the balance sheet date, and the present value of minimum lease
sheet date; and payments receivable at the balance sheet date. In addition, an
enterprise should disclose the total gross investment in the lease
and the present value of minimum lease payments receivable at
the balance sheet date, for each of the following periods:
(f ) General description of the lessee’s significant leasing (i) not later than one year;
arrangements including, but not limited to, the following: (ii) later than one year and not later than five years;
(i) the basis on which contingent rent payments are (iii) later than five years;
determined;
(ii) the existence and terms of renewal or purchase
options and escalation clauses; and
(iii) restrictions imposed by lease arrangements, such (b) Unearned finance income;
as those concerning dividends, additional debt, and
further leasing.
(c) Unguaranteed residual values accruing to the benefit of the

$FFRXQWLQJIRU)LQDQFH/HDVHV %RRNVRI lessor;
/HVVRU
The lessor should recognise assets given under a finance lease in its
balance sheet as a receivable at an amount equal to the net investment (d) Accumulated provision for uncollectible minimum lease
in the lease. payments receivable;
In a finance lease, the lessor recognises the net investment in lease
which is usually equal to fair value as receivable by debiting the
Lessee A/c.
(e) Contingent rents recognised in the statement of profit and loss
Recognition of Finance Income for the period;
The unearned finance income is recognised over the lease term
based on a pattern reflecting a constant periodic return on the net
investment in lease outstanding.
(f ) General description of the significant leasing arrangements of
the lessor;
Initial Direct Costs
For finance leases, initial direct costs incurred to produce finance
income are either recognised immediately in the statement of (g) Accounting policy adopted in respect of initial direct costs.
profit and loss or allocated against the finance income over the
lease term.
© ICAI BOS(A) 52
$FFRXQWLQJIRU2SHUDWLQJ/HDVHV 'LVFORVXUHVE\/HVVRUV
Accounting treatment in the Books of lessee As per AS 19, the lessor should, in addition to the requirements
Lease payments under an operating lease should be recognised as an of AS 10 (Revised)* and the governing statute, make the following
expense in the statement of profit and loss of a lessee on a straight disclosures for operating leases:
line basis over the lease term unless another systematic basis is more
representative of the time pattern of the user’s benefit.
(a) For each class of assets, the gross carrying amount, the
accumulated depreciation and accumulated impairment losses
'LVFORVXUHVE\/HVVHHV at the balance sheet date; and
Lessees are required to make following disclosures for operating (i) the depreciation recognised in the statement of profit and
leases: loss for the period;
(ii) impairment losses recognised in the statement of profit and
loss for the period;
(a) Total of future minimum lease payments under non-cancelable (iii) impairment losses reversed in the statement of profit and
operating leases for each of the following periods: loss for the period;
(i) not later than one year;
(ii) later than one year and not later than five years;
(iii) later than five years; (b) Future minimum lease payments under non-cancelable
operating leases in the aggregate and for each of the following
(b) Total of future minimum sublease payments expected to periods:
be received under non-cancelable subleases at the balance (i) not later than one year;
sheet date; (ii) later than one year and not later than five years;
(iii) later than five years;
(c) Lease payments recognised in the statement of profit and
loss for the period, with separate amounts for minimum lease
(c) Total contingent rents recognised as income in the statement of
payments and contingent rents;
profit and loss for the period;
(d) Sub-lease payments received (or receivable) recognised in the

statement of profit and loss for the period; (d) General description of the lessor’s significant leasing
arrangements; and
(e) General description of the lessee’s significant leasing
arrangements including, but not limited to, the following:
(e) Accounting policy adopted in respect of initial direct costs.
(i) the basis on which contingent rent payments are determined;
(ii) the existence and terms of renewal or purchase options and
escalation clauses; and
(iii) restrictions imposed by lease arrangements, such as those
concerning dividends, additional debt, and further leasing.
6DOHDQG/HDVHEDFN
$FFRXQWLQJ7UHDWPHQWLQWKHERRNVRI/HVVRU
Lease income from operating

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

treatment of a sale and the sale price
Depreciation of leased assets The impairment losses are generally
should be charged in books on assets given on and lease back
depends upon interdependent as
of lessor on a basis consistent operating leases are they are negotiated
with the normal depreciation the type of lease
determined and treated involved. as a package.
policy of the lessor for similar
assets. as per AS 28*.
* AS 10 and AS 28 are not covered in the syllabus of Paper 5.
© ICAI BOS(A) 53
Where sale and leaseback results in finance lease Sale price Carrying Carrying Carrying
The excess or deficiency of sales proceeds over the carrying amount established at amount equal amount less amount above
should not be recognized immediately but deferred and amortised fair value to fair value than fair value fair value
over the lease term in proportion to the depreciation of the leased Profit No profit Recognise No profit
asset. profit (note 1)
Where sale and leaseback results in operating lease immediately
Case 1: Sale price = Fair Value
Profit or loss should be recognised immediately. Loss not Recognise loss Recognise loss (note 1)
compensated immediately immediately
by future lease
Case 2: Sale Price < Fair Value payments at
Profit should be recognised immediately. The loss should also be below market
recognised immediately except that, if the loss is compensated by price
future lease payments at below market price, it should be deferred
and amortised in proportion to the lease payments over the period Loss Defer and Defer and (note 1)
compensated amortise loss amortise loss
for which the asset is expected to be used. by future lease
payments at
Case 3: Sale Price > Fair Value below market
The excess over fair value should be deferred and amortised over the price
period for which the asset is expected to be used. Sale price above fair value (paragraph 50)
If the fair value at the time of a sale and leaseback transaction is less
than the carrying amount of the asset, a loss equal to the amount of Profit Defer and Defer and Defer and
the difference between the carrying amount and fair value should be amortise amortise amortise
profit profit profit (note
recognised immediately.
2)
Sale price Carrying Carrying Carrying Loss No loss No loss (note 1)

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

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

In consolidated financial statements, the information required by
among different accounting periods AS 20 should be presented on the basis of consolidated
information.
for the same enterprise.
© ICAI BOS(A) 54
Key Terms Potential Equity Share

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

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

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

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

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

potentially unfavourable.
© ICAI BOS(A) 55
Amount of any preference dividends In calculating diluted earnings per share, effect is given to all
Amount of on non-cumulative preference shares dilutive potential equity shares that were outstanding during
preference provided for in respect of the period; and the period, that is:
dividends for the
period that is Full amount of the required preference
deducted from the dividends for cumulative preference
net profit for the shares for the period, whether or not the The weighted average number of equity
period is: dividends have been provided for. shares outstanding during the period
The net profit for the is increased by the weighted average
period attributable to number of additional equity shares
equity shares is: which would have been outstanding
If an enterprise has more than one class of equity shares, net profit or
loss for the period is apportioned over the different classes of shares assuming the conversion of all dilutive
in accordance with their dividend rights. potential equity shares.
Earnings Per Share

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

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

share for all periods prior to the rights issue is the number of equity shares
outstanding prior to the issue, multiplied by the following adjustment
factor: Dilutive Potential Equity Shares
Fair value per share immediately prior to the exercise of rights
Theoretical ex -rights fair value per share Potential equity shares are anti-dilutive when their conversion to equity
shares would increase earnings per share from continuing ordinary
activities or decrease loss per share from continuing ordinary activities.
The theoretical ex-rights fair value per share is calculated by adding the
aggregate fair value of the shares immediately prior to the exercise of the
rights to the proceeds from the exercise of the rights, and dividing by the
number of shares outstanding after the exercise of the rights. In considering whether potential equity shares are dilutive or anti-
dilutive, each issue or series of potential equity shares is considered
separately rather than in aggregate.
Diluted Earnings per Share
Where an enterprise has equity shares of different nominal values
but with the same dividend rights, the number of equity shares is Potential equity shares are weighted for the period they were
calculated by converting all such equity shares into equivalent outstanding.
number of shares of the same nominal value.
© ICAI BOS(A) 56
Restatement Disclosure
If the number of equity or potential equity shares outstanding
increases as a result of a bonus issue or share split or decreases Where the statement of profit and The amounts used as the
as a result of a reverse share split (consolidation of shares), the loss includes extraordinary items numerators in calculating basic and
calculation of basic and diluted earnings per share should be basic and diluted EPS computed diluted earnings per share, and a
adjusted for all the periods presented. on the basis of earnings excluding reconciliation of those amounts to
extraordinary items (net of tax the net profit or loss for the period.
If these changes occur after the balance sheet date but before expense).
An enterprise should
the date on which the financial statements are approved by disclose
the board of directors, the per share calculations for those
financial statements and any prior period financial statements The weighted average number
presented should be based on the new number of shares. of equity shares used as the The nominal value of shares along
denominator in calculating basic with the earnings per share figures.
and diluted earnings per share
and a reconciliation of these
Presentation denominators to each other.
An enterprise should present AS 20 requires an enterprise

basic and diluted earnings to present basic and diluted
per share on the face of the earnings per share, even if If an enterprise discloses, in addition to basic and diluted earnings per
statement of profit and loss for the amounts disclosed are share, per share amounts using a reported component of net profit other
each class of equity shares that negative . than net profit or loss for the period attributable to equity shareholders,
has a different right to share in such amounts should be calculated using the weighted average number of
the net profit for the period. equity shares determined in accordance with AS 20.
© ICAI BOS(A) 57
AS 22 “ACCOUNTING FOR TAXES ON INCOME”

"4 QSFTDSJCFT UIF BDDPVOUJOH USFBUNFOU PG UBYFT PO JODPNF DEFINITIONS
BOE GPMMPXT UIF DPODFQU PG NBUDIJOH FYQFOTFT BHBJOTU SFWFOVF
GPS UIF QFSJPE 5BYBCMF JODPNF NBZ CF TJHOJmDBOUMZ EJĉFSFOU Net profit or loss for a period, as reported
from the accounting income posing problems in matching of in the statement of profit and loss, before
UBYFT BHBJOTU SFWFOVF GPS B QFSJPE Accounting EFEVDUJOH JODPNFUBY FYQFOTF PS BEEJOH
income (loss) JODPNF UBY TBWJOH
DIVERGENCE BETWEEN TAXABLE INCOME AND
ACCOUNTING INCOME "NPVOU PG UIF JODPNF MPTT GPS B QFSJPE
EFUFSNJOFE JO BDDPSEBODF XJUI UIF UBY
Taxable
Differences between MBXT CBTFE VQPO XIJDI JODPNFUBY QBZBCMF
income (tax
UBYBCMF JODPNF BOE SFDPWFSBCMF JT EFUFSNJOFE
loss)
accounting income
"HHSFHBUF PG DVSSFOU UBY BOE EFGFSSFE UBY
Tax expense charged or credited to the statement of profit
(tax saving) and loss for the period.
Timing differences Permanent differences
"NPVOU PG JODPNF UBY EFUFSNJOFE UP CF
QBZBCMF SFDPWFSBCMF JO SFTQFDU PG UIF UBYBCMF
Current tax JODPNF UBY MPTT GPS B QFSJPE
For a period that

For a period that
originate in one period 5BY FĉFDU PG UJNJOH EJĉFSFODFT
originate in one period
and are capable of Deferred tax
and do not reverse
reversal in one or more
subsequently
subsequent periods.
© ICAI BOS(A) 58
RECOGNITION REVIEW OF DEFERRED TAX ASSETS
The carrying amount of deferred

Permanent differences
5BY FYQFOTF
While recognising UBY BTTFUT TIPVME CF SFWJFXFE BU
do not result in deferred
for the period, UBY BTTFUT PS EFGFSSFE UBY
UIF UBY FĉFDU each balance sheet date.
of timing
comprising liabilities.
differences,
DVSSFOU UBY 5BYFT PO JODPNF BSF
consideration of
and deferred DPOTJEFSFE UP CF BO FYQFOTF
prudence cannot
UBY TIPVME CF incurred by the enterprise
be ignored.
included in the in earning income and are
Therefore,
determination accrued in the same period
of the net profit BT UIF SFWFOVF BOE FYQFOTFT
EFGFSSFE UBY
Any such write-down An enterprise
assets are should write-down
or loss for the to which they relate. may be reversed to
recognised and the carrying amount
period. Such matching may result UIF FYUFOU UIBU JU
carried forward
into timing differences. becomes reasonably PG B EFGFSSFE UBY
only to the
5BY FĉFDUT PG UJNJOH
FYUFOU UIBU UIFSF certain or virtually BTTFU UP UIF FYUFOU
differences are included that it is no longer
is a reasonable certain, so that
JO UIF UBY FYQFOTF JO UIF reasonably certain
certainty of their TVĊDJFOU GVUVSF
statement of profit and loss
realisation. UBYBCMF JODPNF XJMM or virtually certain,
BOE BT EFGFSSFE UBY BTTFUT PS
BT EFGFSSFE UBY MJBCJMJUJFT JO be available. TP UIBU TVĊDJFOU
the balance sheet. GVUVSF UBYBCMF
income will be
available against
which deferred
UBY BTTFU DBO CF
realized.
REASSESSMENT OF UNRECOGNISED DEFERRED
TAX ASSETS
At each balance sheet date, DISCLOSURE
BO FOUFSQSJTF SFBTTFTTFT VOSFDPHOJTFE EFGFSSFE UBY

assets.
t 6OEFS "4 UIFSF JT OP TQFDJmD
3FDPHOJTFT QSFWJPVTMZ VOSFDPHOJTFE EFGFSSFE UBY SFRVJSFNFOU UP EJTDMPTF DVSSFOU UBY BOE
assets EFGFSSFE UBY JO UIF TUBUFNFOU PG QSPmU BOE
loss.
UP UIF FYUFOU UIBU JU IBT CFDPNF SFBTPOBCMZ DFSUBJO PS Statement t $POTJEFSJOH UIF SFRVJSFNFOUT VOEFS UIF
virtually certain, of profit Companies Act, 2013, the amount of income
and loss UBY BOE PUIFS UBYFT PO QSPmUT TIPVME CF
disclosed.
as the case may be, t "4 EPFT OPU SFRVJSF BOZ SFDPODJMJBUJPO
CFUXFFO BDDPVOUJOH QSPmU BOE UIF UBY
UIBU TVĊDJFOU GVUVSF UBYBCMF JODPNF XJMM CF BWBJMBCMF FYQFOTF
BHBJOTU XIJDI TVDI EFGFSSFE UBY BTTFUT DBO CF SFBMJTFE
MEASUREMENT
Measurement t ͳF CSFBLVQ PG EFGFSSFE UBY BTTFUT

BOE EFGFSSFE UBY MJBCJMJUJFT JOUP NBKPS
components of the respective balance should
be disclosed in the notes to accounts.
$VSSFOU UBY %FGFSSFE UBY BTTFUT BOE t %FGFSSFE UBY BTTFUT BOE MJBCJMJUJFT TIPVME CF
liabilities
Balance disclosed under a separate heading in the
sheet balance sheet of the enterprise, separately
from current assets and current liabilities.
t ͳF OBUVSF PG UIF FWJEFODF TVQQPSUJOH UIF
"NPVOU FYQFDUFE UP Measured using SFDPHOJUJPO PG EFGFSSFE UBY BTTFUT TIPVME CF
be paid to (recovered UIF UBY SBUFT disclosed, if an enterprise has unabsorbed
should not be
GSPN UIF UBYBUJPO BOE UBY MBXT depreciation or carry forward of losses under
discounted to
authorities, using the that have been UBY MBXT
their present
BQQMJDBCMF UBY SBUFT enacted by the
value.
BOE UBY MBXT balance sheet
date.
© ICAI BOS(A) 59
PRESENTATION TRANSITIONAL PROVISION
An enterprise should offset

0O UIF mSTU PDDBTJPO UIBU UIF UBYFT PO JODPNF BSF
accounted for in accordance with this Statement, the
Assets and liabilities Deferred tax assets and enterprise should recognise, in the financial statements,
representing current tax deferred tax liabilities if UIF EFGFSSFE UBY CBMBODF UIBU IBT BDDVNVMBUFE QSJPS
if the enterprise: UP UIF BEPQUJPO PG UIJT 4UBUFNFOU BT EFGFSSFE UBY BTTFU
liability with a corresponding credit/charge to the revenue
enterprise has a legally SFTFSWFT TVCKFDU UP UIF DPOTJEFSBUJPO PG QSVEFODF JO DBTF
has a legally
enforceable right to PG EFGFSSFE UBY BTTFUT
enforceable right to
set off assets against
set off the recognised
liabilities representing
amounts and The amount so credited/charged to the revenue reserves
DVSSFOU UBY BOE
should be the same as that which would have resulted
EFGFSSFE UBY BTTFUT if this Statement had been in effect from the beginning.
intends to settle the BOE UIF EFGFSSFE UBY
asset and the liability MJBCJMJUJFT SFMBUF UP UBYFT
on a net basis. on income levied by
the same governing
UBYBUJPO MBXT
© ICAI BOS(A) 60
AS 24 “DISCONTINUING OPERATIONS”
The objective of AS 24 is to establish principles for reporting Assets, liabilities, revenue, and expenses are directly attributable
information about discontinuing operations, thereby enhancing to a component if they would be eliminated when the component
the ability of users of financial statements to make projections of an is sold, abandoned or otherwise disposed of. If debt is attributable
enterprise's cash flows, earnings-generating capacity, and financial to a component, the related interest and other financing costs are
position by segregating information about discontinuing operations similarly attributed to it.
from information about continuing operations.
Discontinuing Operation Discontinuing operations are infrequent events, but this does
not mean that all infrequent events are discontinuing operations.
A discontinuing operation is a component of an enterprise
That represents That can be

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

pursuant to a single coordinated plan.
Recognition and Measurement
A component can • Operating assets and liabilities of the component can be
be distinguished directly attributed to it. This AS does not provide any guidelines
operationally and for • Its revenue can be directly attributed to it.
financial reporting • For recognizing and measuring,
• Majority of its operating expenses can be directly
purposes if these attributed to it. • Effect of discontinuing operations,
conditions are met: • Relevant Accounting Standards should be referred.
© ICAI BOS(A) 61
Presentation and Disclosure Separate disclosure for each discontinuing

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

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

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

up to and including the period in which the discontinuance
is completed. Discontinuance is completed when the plan is
substantially completed or abandoned, though full payments from
the buyer(s) may not yet have been received.
If an enterprise abandons or withdraws from a plan that was
previously reported as a discontinuing operation, that fact, reasons
therefore and its effect should be disclosed.
© ICAI BOS(A) 62
AS 26 “INTANGIBLE ASSETS”
The objective of AS 26 is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another Accounting
Standard. AS 26 also specifies how to measure the carrying amount of intangible assets and requires certain disclosures about intangible assets.
Scope Amortisation
• Intangible assets that are covered by another
Accounting Standard.
AS 26 should • Financial assets.
be applied by all • Mineral rights and expenditure on the of the of an
enterprises in The systematic over its useful
exploration for, or development and extraction depreciable intangible
accounting for of, minerals, oil, natural gas and similar non- allocation life.
intangible assets, amount asset
except regenerative resources.
• Intangible assets arising in insurance
enterprises from contracts with policyholders.
• Other intangible assets used (such as

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

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

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

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

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

res n as
an asset between transaction.

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

amounts of A market Items traded Prices are
assets to be where all the within the and sellers can
received in fixed money. normally be available to
are money held conditions market are the public.
Monetary assets and exist homogeneous. found.
Non-monetary assets are assets other than monetary assets.
© ICAI BOS(A) 63
Impairment Loss Control
An enterprise controls an
carrying its asset if the enterprise has
Amount by amount of an exceeds recoverable the power to obtain the
which asset Future economic benefit is
amount. future economic benefits
flowing from the underlying also flown from the skill of
resource and also can restrict labour and customer loyalty
the access of others to those but usually this flow of
benefits. benefits cannot be controlled
Carrying Amount by the enterprise. Hence,
these items don’t even
Amount at which an asset is recognised in the balance sheet, qualify as intangible asset.
net of any accumulated amortisation and accumulated

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

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

An identifiable Non-monetary asset
Separate Acquisition
If an intangible asset is acquired separately; cost of the intangible
Without physical substance asset can usually be measured reliably.
Cost of an intangible asset comprises its purchase price
Held for use in the production or supply of goods or services, for rental including any import duties and other taxes (other than those
to others, or for administrative purposes. subsequently recoverable by the enterprise from the taxing
authorities) and any directly attributable expenditure on
making the asset ready for its intended use.
If an item covered by AS 26 does not meet the definition of an
intangible asset, expenditure to acquire it or generate it internally If an intangible asset is acquired in exchange for shares or other
is recognised as an expense when it is incurred. securities of the reporting enterprise: asset is recorded at its fair
value or the fair value of the securities issued whichever is more
Identifiability clearly evident.
The definition of an intangible asset requires that an intangible Acquisition as part of an Amalgamation
asset be identifiable. To be identifiable, it is necessary that the
intangible asset is clearly distinguished from goodwill.
Intangible asset A transferee If the cost (i.e. fair
An intangible asset can be clearly distinguished from goodwill recognises an value) of an intangible
acquired in an
if the asset is separable. An asset is separable if the enterprise intangible asset that asset acquired as part
amalgamation in the
could rent, sell, exchange or distribute the specific future meets the recognition of an amalgamation in
nature of purchase
economic benefits attributable to the asset without disposing criteria, even if that the nature of purchase
is accounted for in
of future economic benefits that flow from other assets used in intangible asset had cannot be measured
accordance with AS
the same revenue earning activity. not been recognised reliably, that asset is
14 (Revised).
If an asset generates future economic benefits only in in the financial not recognised as a
combination with other assets, the asset is identifiable if the statements of the separate intangible
enterprise can identify the future economic benefits that will transferor and asset but is included
flow from the asset. in goodwill.
© ICAI BOS(A) 64
Acquisition by way of a Government Grant An intangible asset arising from development (or from the
development phase of an internal project) should be recognised if, and
only if, an enterprise can demonstrate all of the following:
a. The technical feasibility of completing the intangible asset so that it

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

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

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

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

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

should be recognised. Expenditure on research or on the research
phase should be recognised as an expense when it is incurred. Recognition of an Expense
Expenditure on an intangible item should be recognised
Development Phase as an expense when it is incurred unless:
Development is the application of research findings or other
knowledge to a plan or design for the production of new or The item is acquired in an
substantially improved materials, devices, products, processes, It forms part of the cost of an amalgamation in the nature
systems or services prior to the commencement of commercial intangible asset that meets the of purchase and cannot be
production or use. recognition criteria. recognized as an intangible
asset.
© ICAI BOS(A) 65
In some cases, expenditure is incurred to provide future

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

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

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

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

Residual Value
expenditure will enable the Expenditure can be measured Residual value is the amount, which an enterprise expects to obtain
asset to generate future and attributed to the asset for an asset at the end of its useful life after deducting the expected
economic benefits in excess of reliably. costs of disposal.
its originally assessed standard
of performance and There is a i. Residual value
commitment by can be determined
a third party to by reference to
If these conditions are met, the subsequent expenditure should be purchase the asset that market and
The residual at the end of its
added to the cost of the intangible asset. value of an useful life.
intangible
Subsequent expenditure on brands, mastheads, publishing titles, asset should be
customer lists and items similar in substance is always recognised as assumed to be
zero unless ii. It is probable
an expense to avoid the recognition of internally generated goodwill. that such a market
There is an active will exist at the
end of the asset’s
Measurement Subsequent to Initial market for the
useful life.
asset and:
Recognition
After initial recognition, an intangible asset should be carried at
its cost less any accumulated amortisation and any accumulated
impairment losses.
Review of Amortisation Period and
Amortisation Period Amortisation Method
The depreciable amount of an intangible asset should be allocated on The amortisation period and the amortisation method should be
a systematic basis over the best estimate of its useful life. Amortisation reviewed at least at each financial year end.
should commence when the asset is available for use.
If there has been a significant change in the expected pattern of
AS 26 adopts a presumption that the useful life of intangible assets economic benefits from the asset, the amortisation method should
is unlikely to exceed ten years. be changed to reflect the changed pattern.
© ICAI BOS(A) 66
Retirements and Disposals Disclosure

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

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

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

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

An Obligating event is an event that creates an obligation that results in an
the obligations under the contract exceed the economic benefits expected to be enterprise having no realistic alternative to settling that obligation.
received under it.
© ICAI BOS(A) 67
Past Event
(a)A possible obligation that

arises from past events and
the existence of which will A past event that leads to a present obligation is called an obligating
be confirmed only by the event. For an event to be an obligating event, it is necessary that
occurrence or non-occurrence the enterprise has no realistic alternative to settling the obligation
of one or more uncertain future
created by the event.
events not wholly within the
control of the enterprise; or (i)It is not probable that
A Contingent an outflow of resources No provision is recognised for costs that need to be incurred
liability is: embodying economic to operate in the future. The only liabilities recognised in an
(b) A present obligation that benefits will be required to
arises from past events but settle the obligation; or
enterprise’s balance sheet are those that exist at the balance sheet
is not recognised because date.
(ii)A reliable estimate of the
amount of the obligation It is only those obligations arising from past events existing
cannot be made.
independently of an enterprise’s future actions that are recognised
as provisions.
A Contingent asset is a possible asset that arises from past events the
existence of which will be confirmed only by the occurrence or non-
occurrence of one or more uncertain future events not wholly within the An event that does not give rise to an obligation immediately may
control of the enterprise. do so at a later date, because of changes in the law. However, the
causing of the damage will become an obligating event when a
new law requires the existing damage to be rectified.
Present obligation - an obligation is a present obligation if, based on the
evidence available, its existence at the balance sheet date is considered
probable, i.e., more likely than not 3UREDEOH2XWÁRZRI5HVRXUFHV(PERG\LQJ
(FRQRPLF%HQHÀWV
Possible obligation - an obligation is a possible obligation if, based on the
evidence available, its existence at the balance sheet date is considered not For a liability to qualify for recognition there must be
probable. not only a present obligation but also the probability of
an outflow of resources embodying economic benefits
to settle that obligation. An outflow of resources or
A Restructuring is a programme that is planned and controlled by other event is regarded as probable if the probability
management, and materially changes either:
that the event will occur is greater than the probability
(a) The scope of a business undertaken by an enterprise; or
that it will not. Where it is not probable that a present
(b) The manner in which that business is conducted.
obligation exists, an enterprise discloses a contingent
liability, unless the possibility of an outflow of resources
embodying economic benefits is remote.
Provisions
Where there are a number of similar obligations (e.g.,
A provision should be recognised when:
product warranties or similar contracts) the probability
that an outflow will be required in settlement is
determined by considering the class of obligations as a
whole. Although the likelihood of outflow for any one
item may be small, it may well be probable that some
(b)It is probable outflow of resources will be needed to settle the class of
(a)An enterprise that an outflow (c)A reliable estimate
has a present can be made of obligations as a whole. If that is the case, a provision is
of resources
obligation as a embodying the amount of the recognised (if the other recognition criteria are met).
result of a past economic benefits obligation.
event; will be required to
settle the obligation;
and
Reliable Estimate of the Obligation
Present Obligation The use of estimates is an

inherent part of preparing In the extremely rare case
financial statements and does where no reliable estimate
An enterprise should Where it is more likely Where it is more can be made, a liability exists
determine whether likely that no present not undermine their reliability.
than not that a present Provisions require a greater that cannot be recognised.
a present obligation obligation exists at the obligation exists at the degree of estimation than most That liability will, instead,
exists at the balance balance sheet date, the balance sheet date, the other items, but it should not be disclosed as a contingent
sheet date by taking enterprise recognises enterprise discloses be impossible to determine a liability.
account of all available a provision (if the a contingent liability, range of possible outcomes.
evidence. recognition criteria are unless the possibility of
met); and an outflow of resources
embodying economic
benefits is remote.
© ICAI BOS(A) 68
&RQWLQJHQW/LDELOLWLHV Future Events

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

Contingent
assets usually An enterprise
A contingent asset
Gains on the expected disposal of assets are not taken into
arise from should not Contingent assets
recognise a is not disclosed are assessed account in measuring a provision, even if the expected disposal
unplanned in the financial
or other contingent asset, continually and is closely linked to the event giving rise to the provision. Instead,
since this may statements. It is if it has become
unexpected usually disclosed virtually certain
an enterprise recognises gains on expected disposals of assets at
events that result in the
recognition of in the report of the that an inflow the time specified by the Accounting Standard dealing with the
give rise to approving authority
the possibility income that may of economic assets concerned.
never be realised. where an inflow of benefits will arise,
of an inflow economic benefits
of economic the asset and the
is probable. related income are
benefits to the
recognised.
enterprise.
Reimbursements
Where some or all of the expenditure required to settle a provision
is expected to be reimbursed by another party, the reimbursement
Table- Provisions and contingent liabilities should be recognised when, and only when, it is virtually certain
Where, as a result of past events, there may be an outflow of that reimbursement will be received if the enterprise settles the
resources embodying future economic benefits in settlement of: obligation.
(a) a present obligation the one whose existence at the balance sheet
date is considered probable; or
(b) a possible obligation the existence of which at the balance sheet
Some or all of the expenditure required to settle a provision is
date is considered not probable.
expected to be reimbursed by another party.
There is a present There is a possible There is a possible
obligation that obligation or a present obligation or a
probably requires an obligation that may, present obligation The enterprise The obligation for the The obligation
outflow of resources but probably will not, where the likelihood has no obligation amount expected to be for the amount
and a reliable require an outflow of of an outflow of for the part of the reimbursed remains expected to be
estimate can be made resources. resources is remote. expenditure to be with the enterprise and reimbursed
of the amount of
obligation. reimbursed by the it is virtually certain that remains with the
other party. reimbursement will be enterprise and the
A provision is No provision is No provision is received if the enterprise r e im b ur s e m e n t
recognised. recognised. recognised.
settles the provision. is not virtually
Disclosures are Disclosures are No disclosure is
required for the required for the required. certain if the
provision. contingent liability. enterprise settles
the provision.
Measurement- Best Estimate The enterprise The reimbursement is The expected
has no liability for recognised as a separate reimbursement is
The estimates of the amount to be asset in the balance not recognised as
The amount outcome and financial
recognised as a effect are determined reimbursed. sheet and may be offset an asset.
provision should be by the judgment of the against the expense
the best estimate management of the
of the expenditure enterprise, supplemented in the statement of
required to settle the by experience of similar profit and loss. The
present obligation at transactions and, in amount recognised
the balance sheet date. some cases, reports from
independent experts. for the expected
reimbursement does not
exceed the liability.
5LVNVDQG8QFHUWDLQWLHV No disclosure is The reimbursement is The expected

required. disclosed together with reimbursement is
The risks and uncertainties that inevitably surround many events the amount recognised disclosed.
and circumstances should be taken into account in reaching the for the reimbursement.
best estimate of a provision.
© ICAI BOS(A) 69
Decision Tree A provision for restructuring costs is recognised only when the
recognition criteria for provisions are met. No obligation arises
Start for the sale of an operation until the enterprise is committed to
the sale, i.e., there is a binding sale agreement.
Present obligation No No (a) Necessarily entailed by the

as a result of an A restructuring provision restructuring; and
Possible obligation?
obligating event? should include only the direct
Yes expenditures arising from the
Yes restructuring, which are those
that are both: (b) Not associated with the
No Yes ongoing activities of the enterprise
Possible obligation? Remote?
Yes
No ( rare) No Identifiable future operating losses up to the date of a
Reliable estimate?
restructuring are not included in a provision.
Yes
Gains on the expected disposal of assets are not taken into
Provide account in measuring a restructuring provision, even if the sale
of assets is envisaged as part of the restructuring.
Disclose contingent
liability
Do nothing Disclosure
For each class of provision, an enterprise
Changes in Provisions should disclose:
Provisions should be reviewed at each balance sheet date and
adjusted to reflect the current best estimate. If it is no longer
probable that an outflow of resources embodying economic
benefits will be required to settle the obligation, the provision
should be reversed. Carrying Additional Amounts used Unused amounts
amount at provisions made (i.e. incurred and reversed during
the beginning in the period, charged against the period.
Note: As per the amendment made in AS 29 (Revised) and end of the including the provision)
period; increases during the
pursuant to MCA notification dated 30 March 2016, to existing period; and
effective from financial year 2016-17, all the existing provisions;
provisions for decommissioning, restoration and similar
liabilities should be discounted prospectively, with the
corresponding effect to the related item of property, plant
and equipment. (a) A brief description of the
nature of the obligation
and the expected timing of
any resulting outflows of
Use of Provisions An enterprise economic benefits;
b) An indication of the
A provision should be used only for expenditures for which the should disclose uncertainties about those
provision was originally recognised. Only expenditures that outflows. Where necessary
relate to the original provision are adjusted against it. for each class of to provide adequate
information, an enterprise
provision: should disclose the
Application of the Recognition and major assumptions made
concerning future events, and
Measurement Rules
(c) The amount of any expected
Future Operating Losses reimbursement, stating the
amount of any asset that
Future operating losses do not meet the definition of a liability has been recognised for that
and the general recognition criteria, therefore provisions should expected reimbursement.
not be recognised for future operating losses. Note: SMCs are exempt from the above disclosure requirements.
Restructuring
The following are examples of events Unless the possibility
of any outflow in (a) An estimate of its financial effect,
that may fall under the definition of
restructuring: settlement is remote, (b) An indication of the uncertainties
an enterprise should
disclose for each class of relating to any outflow; and
contingent liability at the (c) The possibility of any
balance sheet date a brief
description of the nature reimbursement.
Closure of Fundamental of the contingent liability
Sale or business re-organisations and, where practicable:
termination of a locations in that have a
line of business a country or Changes in material effect
region or the management on the nature
relocation structure. and focus of
Where any of the information required by the standard is not
of business the enterprise’s disclosed because it is not practicable to do so, that fact should
activities. operations. be stated.
© ICAI BOS(A) 70
SARANSH Last Mile Referencer for
ACCOUNTING
STANDARDS


The Institute of Chartered Accountants of India
ICAI Bhawan, A-29,
Sector-62, Noida 201 309
E-mail: bosnoida@icai.in June | 2023 | P3364 (New)
Phone: 0120 - 3045930
www.boslive.icai.org
www.icai.org

AS 1 To 29

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SARANSH

Last Mile Referencer for

The Institute of Chartered

Board of Studies (Academic)

© 2023. The Institute of Chartered Accountants of India (Also referred to as ICAI)

Published in January 2023 by:

Message of Key ICAI Office Bearers

CA. (Dr.) Debashis Mitra

CA. Aniket S. Talati

CA. Dayaniwas Sharma

Saransh — Last Mile Referencer is a compilation of capsules on different subjects of

CA. Vishal Doshi

The Institute of Chartered

Introduction to Accounting Standards 1

INTRODUCTION TO ACCOUNTING STANDARDS

Concepts & Benefits Accounting Significance of

International Financial International

Issuance of Accounting Standards

Recognition Measurement Presentation

Accounting Standards Setting Process 6LJQLÀFDQFHRI*OREDO6WDQGDUGV

Constitution of study group

Finalisation of exposure draft (E.D.)

Effectively, there are now only 27 Accounting Standards.

Sent to Formulation of Ind AS

Resulting into carve-outs Not resulting into carve-outs

AS 1 “DISCLOSURE OF ACCOUNTING POLICIES”

AS 1 covers Substance over

Fundamental Accounting Accounting Policies

Going Concern Consistency Accrual

The enterprise Accounting Revenues Not required

Accountant has to make decisions from various permitted

Inventories FIFO, Weighted Average etc.

It includes It includes Production

Determination of Cost of Inventories

Costs of purchase Costs of conversion Other costs

Purchase price Direct labour Overheads Costs incurred

Trade discounts, rebates, duty

Allocation of Cost to Joint Products and By-Products

When more than one product is produced in the process

Outcome - Joint products Outcome - Main product with a

Cost of each product Allocation of cost is based on By-product is

Factory Overheads Direct labour Joint Cost

Fixed Variable Main/Joint*** By Products

At Normal At Actual At Actual Sale value at Sale value at NRV is deducted

*When actual production is almost equal or lower than normal capacity.

Inventory ordinarily Inventory not ordinarily

Historical Cost Non Historical

It takes into account normal

Cost is determined by Labour

The financial Accounting The total

AS 3 “STATEMENT OF CASH FLOWS”

Ability of the Needs of the entity Provision of

Presentation of a statement of cash flows

Report cash flows (inflows and outflows) during the period

Cash flows arising from operating activities

Key indicator of the extent to which the operations Examples

Cash flows arising from investing activities

Represent the extent to which expenditures

Cash flows arising from financing activities

useful in Examples (a) cash proceeds from issuing shares

Reporting cash flows on a net basis

Entities other than financial institutions Financial institutions

Arising from Recorded in Exchange rate between the