Accounting Standard (AS) 1 Disclosure of Accounting Policies

 Fundamental Accounting Assumptions

Certain fundamental accounting assumptions underlie the preparation and presentation of
financial statements. They are usually not specifically stated because their acceptance and use
are assumed. Disclosure is necessary if they are not followed.
The following have been generally accepted as fundamental accounting assumptions: —
a. Going Concern - The enterprise is normally viewed as a going concern, that is, as
continuing in operation for the foreseeable future. It is assumed that the enterprise has neither
the intention nor the necessity of liquidation or of curtailing materially the scale of the
operations.
b. Consistency - It is assumed that accounting policies are consistent from one period to
another.
c. Accrual - Revenues and costs are accrued, that is, recognised as they are earned or
incurred (and not as money is received or paid) and recorded in the financial statements of the
periods to which they relate.

 Nature of Accounting Policies

1. The accounting policies refer to the specific accounting principles and the methods of
applying those principles adopted by the enterprise in the preparation and presentation of
financial statements.
2. There is no single list of accounting policies which are applicable to all circumstances. The
differing circumstances in which enterprises operate in a situation of diverse and complex
economic activity make alternative accounting principles and methods of applying those
principles acceptable. The choice of the appropriate accounting principles and the methods of
applying those principles in the specific circumstances of each enterprise calls for
considerable judgement by the management of the enterprise.
3. The various Standards of the Institute of Chartered Accountants of India combined with the
efforts of government and other regulatory agencies and progressive managements have
reduced in recent years the number of acceptable alternatives particularly in the case of
corporate enterprises. While continuing efforts in this regard in future are likely to reduce the
number still further, the availability of alternative accounting principles and methods of
applying those principles is not likely to be eliminated altogether in view of the differing
circumstances faced by the enterprises.

 Areas in Which Differing Accounting Policies are Encountered (At least 5)

The following are examples of the areas in which different accounting policies may be
adopted by different enterprises.
 (a) Methods of depreciation, depletion and amortisation
(b) Treatment of expenditure during construction
(c) Conversion or translation of foreign currency items
(d) Valuation of inventories
(e) Treatment of goodwill
(f) Valuation of investments
(g) Treatment of retirement benefits
(h) Recognition of profit on long-term contracts
(i) Valuation of fixed assets
(j) Treatment of contingent liabilities.

 Considerations in the Selection of Accounting Policies

The primary consideration in the selection of accounting policies by an enterprise is that the
financial statements prepared and presented on the basis of such accounting policies should
represent a true and fair view of the state of affairs of the enterprise as at the balance sheet
date and of the profit or loss for the period ended on that date.
For this purpose, the major considerations governing the selection and application of
accounting policies are: —
a. Prudence - In view of the uncertainty attached to future events, profits are not anticipated
but recognised only when realised though not necessarily in cash. 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.
b. Substance over Form - The accounting treatment and presentation in financial statements
of transactions and events should be governed by their substance and not merely by the legal
form.
c. Materiality - Financial statements should disclose all “material” items, i.e. items the
knowledge of which might influence the decisions of the user of the financial statements.

 Main Principles
1. All significant accounting policies adopted in the preparation and presentation of
financial statements should be disclosed.
2. The disclosure of the significant accounting policies as such should form part of the
financial statements and the significant accounting policies should normally be
disclosed in one place.
3. Any change in the accounting policies which has a material effect in the current
period or which is reasonably expected to have a material effect in later periods
should be disclosed. In the case of a change in accounting policies which has a
material effect in the current period, the amount by which any item in the financial
 statements is affected by such change should also be disclosed to the extent
ascertainable. Where such amount is not ascertainable, wholly or in part, the fact
should be indicated.
4. If the fundamental accounting assumptions, viz. Going Concern, Consistency and
Accrual are followed in financial statements, specific disclosure is not required. If a
fundamental accounting assumption is not followed, the fact should be disclosed.
 Indian Accounting Standard (Ind AS) 16 Property, Plant and Equipment

 Scope
This Standard shall be applied in accounting for property, plant and equipment except when
another Standard requires or permits a different accounting treatment.

This Standard does not apply to:

(a) property, plant and equipment classified as held for sale in accordance with Ind AS 105,
Non-current Assets Held for Sale and Discontinued Operations.
(b) biological assets related to agricultural activity other than bearer plants (See Ind AS 41,
Agriculture). This Standard applies to bearer plants but it does not apply to the produce on
bearer plants.
(c) the recognition and measurement of exploration and evaluation assets (see Ind AS 106,
Exploration for and Evaluation of Mineral Resources).
(d) mineral rights and mineral reserves such as oil, natural gas and similar non-regenerative
resources. However, this Standard applies to property, plant and equipment used to develop or
maintain the assets described in (b)–(d).
(e) Other Indian Accounting Standards may require recognition of an item of property, plant
and equipment based on an approach different from that in this Standard. For example, Ind
AS 17, Leases, requires an entity to evaluate its recognition of an item of leased property,
plant and equipment on the basis of the transfer of risks and rewards. However, in such cases
other aspects of the accounting treatment for these assets, including depreciation, are
prescribed by this Standard.
(f) An entity accounting for investment property in accordance with Ind AS 40, Investment
Property, shall use the cost model in this Standard

 Important Definitions

o A bearer plant is a living plant that: (a) is used in the production or supply of
agricultural produce; (b) is expected to bear produce for more than one period; and (c)
has a remote likelihood of being sold as agricultural produce, except for incidental
scrap sales.
o Carrying amount is the amount at which an asset is recognised after deducting any
accumulated depreciation and accumulated impairment losses.
o Cost is the amount of cash or cash equivalents paid or the fair value of the other
consideration given to acquire an asset at the time of its acquisition or construction or,
where applicable, the amount attributed to that asset when initially recognised in
accordance with the specific requirements of other Indian Accounting Standards, e.g.
Ind AS 102, Share-based Payment.
o Depreciable amount is the cost of an asset, or other amount substituted for cost, less
its residual value. Depreciation is the systematic allocation of the depreciable amount
of an asset over its useful life.
o Entity-specific value is the present value of the cash flows an entity expects to arise
from the continuing use of an asset and from its disposal at the end of its useful life or
expects to incur when settling a liability.
 o Fair value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement
date. (See Ind AS 113, Fair Value Measurement.)
o An impairment loss is the amount by which the carrying amount of an asset exceeds
its recoverable amount. Property, plant and equipment are tangible items that: (a) are
held for use in the production or supply of goods or services, for rental to others, or
for administrative purposes; and (b) are expected to be used during more than one
period. Recoverable amount is the higher of an asset’s fair value less costs to sell and
its value in use.
o The residual value of an asset is the estimated amount that an entity would currently
obtain from disposal of the asset, after deducting the estimated costs of disposal, if the
asset were already of the age and in the condition expected at the end of its useful life.
o Useful life is: (a) the period over which an asset is expected to be available for use by
an entity; or (b) the number of production or similar units expected to be obtained
from the asset by an entity.
 Recognition
The cost of any item of PPE must be recognized as an asset only when: (a) It is apparent that
the future economic benefits related to such asset would flow to the business; and (b) Cost of
such asset could be reliably measured

 Constituents of cost
The cost of the item of PPE includes: (a) The purchase price, which includes the import
duties and any non-refundable taxes on such purchase, after deducting rebates and trade
discounts (b) Costs which are directly attributable to bringing assets to the condition and
location essential for it to operate in a manner as intended by the management (c) Initial
estimate of costs of removing and dismantling an item and restoring a site where it is located

 Measurement after recognition

A business must choose cost model or revaluation model as the accounting policy and should
apply such policy to its entire class of PPE.

 Cost model
After recognizing an asset, PPE should be carried at the cost as reduced by the accumulated
depreciation and accumulated impairment losses (if any).

 Revaluation model
After recognizing an asset, PPE whose fair value could be reliably measured should be
carried at the revalued amount, being the fair value at revaluation date and reduced by
successively accumulated depreciation and successive accumulated impairment losses (if
any).
(a) Revaluations must be made with adequate regularity for ensuring that carrying amount
doesn’t differ substantially from that which would be determined if fair value at end of the
reporting period is used
 (b) In case an item of PPE is revalued, whole class of such PPE to which such asset belongs
should be revalued
(c) In case the carrying amount of an asset increases due to revaluation, such increase should
be credited to other comprehensive income and should be accumulated in equity. However,
such increase should be recognized in P/L statement to the extent of reversal of a revaluation
decrease of similar asset recognized previously in the P/L statement
(d) In case the carrying amount of an asset is decreased due to revaluation, such decrease
should be recognized in the P/L statement. However, such decrease should be debited to other
comprehensive income to the extent of credit balances available in revaluation surplus with
respect to such similar asset

 Depreciation
Each part of PPE with a cost which is substantial with respect to the total cost of the PPE
should be separately depreciated. The amount of depreciation should be allocated on an
orderly basis over the useful life of an asset. The standard also requires:
The method of depreciation used should reflect an asset’s pattern of future economic benefits
At each balance sheet date, the standard requires review of
(i) Residual value and the useful life of assets
(ii) Depreciation method employed

 Derecognition
The carrying amount of items of PPE should be derecognized:
(a) At the time of their disposal; or
(b) When there are no future economic benefits anticipated from the use or disposal of such
asset Any gain or loss arising from such derecognition should be included in the P/L
statement when such item is derecognized. Gains arising from such derecognition shouldn’t
be classified as part of revenue.

 Disclosure Requirements
Ind AS 16 prescribes financial statements should disclose, for every class of PPE:
(i) Measurement basis for determining carrying amount
(ii) Depreciation methods used
(iii) Depreciation rates/ Useful lives of the assets
(iv) Aggregate carrying amount and accrued depreciation at the start and at the end of
(v) Existence and value of restrictions on the title and PPE pledged as collateral for
liabilities
(vi) Amount of expenditure recognized in carrying amount of an item of PPE during
its construction
(vii) Amount with respect to contractual commitment for acquisition of PPE
 Indian Accounting Standard 33 – Earnings per Share
 Objective of IAS 33
The objective of IAS 33 is to prescribe principles for determining and presenting earnings per
share (EPS) amounts to improve performance comparisons between different entities in the
same reporting period and between different reporting periods for the same entity. [IAS 33.1]
 Scope
IAS 33 applies to entities whose securities are publicly traded or that are in the process of
issuing securities to the public. [IAS 33.2] Other entities that choose to present EPS
information must also comply with IAS 33.
If both parent and consolidated statements are presented in a single report, EPS is required
only for the consolidated statements.
 Key definitions
o Ordinary share: also known as a common share or common stock. An equity instrument
that is subordinate to all other classes of equity instruments.
o Potential ordinary share: a financial instrument or other contract that may entitle its
holder to ordinary shares.
Examples
1. convertible debt
2. convertible preferred shares
3. share warrants
4. share options
5. share rights
6. employee stock purchase plans
7. contractual rights to purchase shares
8. contingent issuance contracts or agreements (such as those arising in business
combination)
o Dilution: a reduction in earnings per share or an increase in loss per share resulting from
the assumption that convertible instruments are converted, that options or warrants are
exercised, or that ordinary shares are issued upon the satisfaction of specified conditions.
o Antidilution: an increase in earnings per share or a reduction in loss per share resulting
from the assumption that convertible instruments are converted, that options or warrants
are exercised, or that ordinary shares are issued upon the satisfaction of specified
conditions.
o Basic EPS: Basic EPS is calculated by dividing profit or loss attributable to ordinary
equity holders of the parent entity (the numerator) by the weighted average number of
ordinary shares outstanding (the denominator) during the period. The earnings
numerators (profit or loss from continuing operations and net profit or loss) used for the
calculation should be after deducting all expenses including taxes, minority interests, and
preference dividends. The denominator (number of shares) is calculated by adjusting the
shares in issue at the beginning of the period by the number of shares bought back or
issued during the period, multiplied by a time-weighting factor.
o Diluted EPS: Diluted EPS is calculated by adjusting the earnings and number of shares
for the effects of dilutive options and other dilutive potential ordinary shares. The effects
of anti-dilutive potential ordinary shares are ignored in calculating diluted EPS.
 Disclosure
If EPS is presented, the following disclosures are required:
1. The amounts used as the numerators in calculating basic and diluted EPS, and a
reconciliation of those amounts to profit or loss attributable to the parent entity for the
period
2. The weighted average number of ordinary shares used as the denominator in
calculating basic and diluted EPS, and a reconciliation of these denominators to each
other
3. Instruments (including contingently issuable shares) that could potentially dilute basic
EPS in the future, but were not included in the calculation of diluted EPS because
they are antidilutive for the period(s) presented
4. A description of those ordinary share transactions or potential ordinary share
transactions that occur after the balance sheet date and that would have changed
significantly the number of ordinary shares or potential ordinary shares outstanding at
the end of the period if those transactions had occurred before the end of the reporting
period. Examples include issues and redemptions of ordinary shares issued for cash,
warrants and options, conversions, and exercises
An entity is permitted to disclose amounts per share other than profit or loss from continuing
operations, discontinued operations, and net profit or loss earnings per share. Guidance for
calculating and presenting such amounts is included in IAS 33.73 and 73A.