A Presentation on:

INDIAN ACCOUNTING STANDARDS

Presented By:
Kul Bhushan Mallik
M.B.A-1st Sem.
F.M.S.,B.H.U.
 What are Accounting Standards?

 Accounting standards are written documents,

policy documents issued by the expert accounting
body or by government or other regulatory body
covering the aspects of reorganization, measurement,
treatment, presentation and disclosure of accounting
transaction in the financial statements.

 What are the objectives of Accounting
Standards?

• Remove variations in the treatment of several

accounting aspects and to bring about
standardization in presentation.


• They intent to harmonize the diverse accounting

policies and practices followed in the preparation
and presentation of financial statements.
•
Who issues Accounting Standards in India?

• The Institute of Chartered Accountants of India

(ICAI) constituted Accounting Standards Board
(ASB) on April 21, 1977.
•
• The main role of ASB is to formulate Accounting
Standards from time to time.
 How many Accounting Standards have
been prescribed?
• So far ASB has issued the 31 Indian accounting
standards:
 Name of the Title of the Accounting Standard
Accounting
Standards ( AS )
AS-1 Disclosure of Accounting Policies
AS-2 Valuation of Inventories
AS-3 Cash Flow Statements
AS-4 Contingencies and Events Occurring
After the Balance Sheet Date
AS-5 Net Profit or Loss for the period, Prior
period Items and Changes in Accounting
AS-6 Depreciation
Policies. Accounting
Contd…How many Accounting Standards have been prescribed?
Name of the Title of the Accounting Standard
Accounting
AS-7
Standards ( AS ) Construction Contracts
AS-8 Accounting for Research and Development
Withdrawn
(Revenue and included in /as-26)
recognition
AS-9
AS-10 Accounting for Fixed Assets
AS-11 The Effect of Changes in Foreign Exchange
Rates
Accounting for Government Grants
AS-12
AS-13 Accounting for Investments
AS-14 Accounting for Amalgamations
AS-15 Accounting for Retirement Benefits in the
Financial
Borrowing Statements
Costs of Employers
AS-16
Contd…How many Accounting Standards have been prescribed?
Name of the Title of the Accounting Standard
Accounting Segment Reporting
AS-17
Standards ( AS )
AS-18 Related Party Disclosures
AS-19 Leases
AS-20 Earning Per Share
AS-21 Consolidated Financial Statements
AS-22 Accounting for Taxes on Income
AS-23 Accounting for Investments in Associates
in ConsolidatedOperations
Discontinuing Financial Statements
AS-24
AS-25 Discontinuing Operations
AS-26 Intangible Assets
Contd…How many Accounting Standards have been prescribed?

Name of the Title of the Accounting Standard

Accounting Financial Reporting of Interests in Joint
AS-27
Standards ( AS ) Ventures
Impairment of Assets
AS-28
AS-29 Provisions, Contingent Liabilities and
Contingent Asset
Financial Instruments: Recognition and
AS-30
Measurement
Financial Instruments: Presentation
AS-32
 For what type of enterprise the Accounting
standards are mandatory?
• Enterprise whose equity or debt are listed on a
recognized stock exchange in India, and enterprises
those are in the process of issuing equity or debt
securities that will be listed on a recognized stock
exchange in India.


• All other commercial, industrial and business

reporting enterprises, whose turnover for the
accounting period exceeds Rs. 50 crores.

Disclosure of Accounting Policies (AS-1)

• All significant accounting policies adopted in the

preparation and presentation of financial
statements (Balance Sheet, Profit & /loss Account)
should be disclosed.


• Major points which are considered for the selection of

accounting policies are:
 1. Prudence:
 2. Substance over form:
 3. Materiality:

 Contd…Disclosure of Accounting Policies (AS-1)

• 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.


• If there is any change in the accounting policies in

preparation of financial statement from one period
to subsequent period, such changes affects the state
of affairs of financial statement of current period
or later period, then such changes must be
disclosed in financial statements.

 Contd…Disclosure of Accounting Policies (AS-1)

• 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.

 Valuation of Inventories (AS-2)
Objective of the standard


• Formulate the methods of computation of cost of

inventories/stock, determine the value of closing
stock/inventory at which the inventory to be shown
in balance sheet till it is not sold and recognized as
revenue
 Contd…Valuation of Inventories (AS-2)

Inventories consists the following:



• Held for sale in the ordinary course of business

(finished goods)
• In the process of production for such sale (Raw
material and work in progress)
• In the form of materials or supplies to be consumed in
the production process or in the rendering of
services. (Stores, spares, raw material)

 Contd…Valuation of Inventories (AS-2)

Measurement of Inventories


• Inventories should be valued at the lower of cost and

net realizable value.


 I.e. according to this standard, inventories should be

valued at historical or net realizable value, whichever
is lower.
•
 Contd…Valuation of Inventories (AS-2)

Major points for the valuation of inventories



• Determination of cost of inventories

• Determination of net realisable value of inventories
• Comparison between the cost and net realizable value
•
 Cost of Inventories
The cost of inventories should comprise:


• Costs of purchase
• Costs of conversion
• Other costs

 Contd…Valuation of Inventories (AS-2)

Exclusions from the Cost of Inventories

Following costs are excluded from the cost of
inventories:
• Abnormal amounts of wasted materials, labour, or
other production costs;
• Storage costs,
• Administrative overheads
• Selling and distribution costs.

 Contd…Valuation of Inventories (AS-2)

 Cost Formulas


Specific identification method for determining the cost



of inventories.
• Specific identification method means directly linking
the cost with specific item of inventories.
 Contd…Valuation of Inventories (AS-2)

Where specific identification method is not applicable,



the cost of inventories is valued by the following

methods:
• FIFO (First In First Out)
• Weighted Average cost


When it is impossible to calculate the cost, the



following methods may be followed to ascertain cost:

• Standard cost
• Retail Method

 Contd…Valuation of Inventories (AS-2)

Net realizable value



• Net realizable value is the estimated selling price in

the ordinary course of business, less the estimated
costs of completion and the estimated costs
necessary to make the sale. Net realizable value is
estimated on the basis of most reliable evidence at
the time of valuation.

 Contd…Valuation of Inventories (AS-2)
Comparison between the cost and net realizable value
• The comparison between the cost and net realizable
value should be made item by item or by group of
items.
•
Disclosure in the financial statement

• The financial statements should disclose the following:

• Accounting policies adopted in measuring inventories,
including the cost formula used
• Classification of inventories-like raw material, work in
progress, finished goods, and its carrying amount
 Cash flow statements (AS-3)

Cash flow statement exhibits the flow of incoming and



outgoing cash, and assesses the ability of the

enterprise to generate cash and utilize the cash. This
statement is one of the tools for assessing the
liquidity and solvency of the enterprise.


1. An enterprise should prepare a cash flow statement



and should present it for each period for which

financial statements are presented.

 Contd…Cash flow statements (AS-3)

2. The cash flow statement should report cash flows



during the period classified by operating, investing

and financing activities.


Operating activities are the principal revenue-producing



activities other then not investing or financing

activities.



 Contd…Cash flow statements (AS-3)

Examples of cash flows from operating activities are:



• Cash receipts from the sale of goods and the

rendering of services;
• Cash receipts from royalties, fees, commissions and
other revenue;
• Cash payments to suppliers for goods and services

 Contd…Cash flow statements (AS-3)

Investing activities are the acquisition and disposal of



long-term assets and other investments not included

in cash equivalents.


Examples of cash flows arising from investing activities



are:
• Cash payments to acquire fixed assets;
• Cash receipts from disposal of fixed assets (including
intangibles);
• cash payments to acquire shares, warrants etc
• Cash receipts from disposal of shares, warrants or
debt etc
 Contd…Cash flow statements (AS-3)

Financing activities are activities that result in changes



in the size and composition of the owners' capital and

borrowings of the enterprise.


Examples of cash flows arising from financing



activities are:
• Cash proceeds from issuing shares
• Cash proceeds from issuing debentures, loans, notes,
bonds, and other short or long-term borrowings
• Cash repayments of amounts borrowed.

 Contd…Cash flow statements (AS-3)

3. An enterprise should report cash flows from



operating activities using either:



• Direct method, in this method, gross cash receipts

and gross cash payments are disclosed; or
• Indirect method, in this method, profit and loss
account is adjusted for the effects of transactions of
a non-cash nature.

 Contd…Cash flow statements (AS-3)

Foreign Currency Cash Flows



• Cash flows arising from transactions in a foreign

currency should be recorded in an enterprise's
reporting currency by applying to the foreign
currency amount the exchange rate between the
reporting currency and the foreign currency at the
date of the cash flow. (AS-11)

 Contd…Cash flow statements (AS-3)
Interest and Dividends
Cash flows from interest and dividends received and

paid should each be disclosed separately.



Interest received:
• Received from investment. It is an investment
activities.
• Received from trade advances should be in operating
activities.
Interest paid:

• On loan/debts are in financial activities.

• On working capital loan and any other loan taken to
finance operating activities are in operating activities.
•
 Contd…Cash flow statements (AS-3)

Dividend received:


• For financial enterprises-in operating activities.

• For other then financial enterprises-in investing
activities.


Dividend paid:


• Always classified as financial activities.


 Contd…Cash flow statements (AS-3)

Taxes on Income


• 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
• The aggregate cash flows arising from acquisitions and
from disposals of subsidiaries or other business units
should be presented separately and classified as
investing activities.

 Contd…Cash flow statements (AS-3)

Non-cash Transactions


• Investing and financing transactions that do not

require the use of cash or cash equivalents should
be excluded from a cash flow statement.
• Such transactions should be disclosed elsewhere in
the financial statements in a way that provides all
the relevant information about these investing and
financing activities
 Contingencies and Events Occurring
After the Balance Sheet Date (AS-4)

This Statement deals with the treatment in financial



statements of


(a) contingencies, and

(b) events occurring after the balance sheet date.


 Contd…Contingencies and Events Occurring After the
Balance Sheet Date (AS-4)

Contingencies
Contingencies refer to a condition or situation:

• Result of which is not known on the date of balance

sheet date.
• Result of which would be known only on the
occurrence and non occurrence of certain events in
future.
• Result may be either loss or gain.
Estimation of outcome of contingency is determined

by management.

 Contd…Contingencies and Events Occurring After the
Balance Sheet Date (AS-4)
Methods followed for estimation of contingencies are


shown in flowchart below:


Contingencies

Existing condition or Condition or situation

situation at balance after balance sheet date
sheet date
No accounting treatment
Contingent Contingent is recognized, neither by
loss gain giving provision nor by
giving accounting notes.

Expected loss may be: Not recognized in financial statement

1.Probable loss since there recognition will result in
2.Reasonably possible the recognition of unrealized gain
3.Remote
 Contd…Contingencies and Events Occurring After the
Balance Sheet Date (AS-4)
Accounting treatment of
different losses

If the loss is If the loss is If expected loss is

probable, provision reasonably possible, remote, it will be
should be made disclosure is made in ignored
account by way of
note.

If there is no claim, If there is claim, provision

provision of probable of probable loss should be
loss should be made made after taking into
in full account the probable
recovery under the claim
 Contd…Contingencies and Events Occurring After the
Balance Sheet Date (AS-4)

Events occurring after the balance sheet date are



classified in two categories for the purpose of

accounting treatment:
The event related to The event not related to
circumstances existing circumstances existing on
on the date of balance the date of balance sheet,
sheet i.e. entirely new events
after balance sheet date

Loss should be Disclosure by way of

accounted in the notes to accounts only,
accounts and assets no adjustment in
and liabilities to be account.
adjusted.
 Contd…Contingencies and Events Occurring After the
Balance Sheet Date (AS-4)

Event occurring after approval of accounts, i.e. after

balance sheet date and also after approval by the
board of directors, then such events should be
disclosed in the director’s report.
Disclosure:

• If material contingent loss is not provided, its nature

and estimate of financial effect should be disclosed
by way of note.
• If estimate of financial effect cannot be made, the fact
should be disclosed.
 

 THANK YOU