Accounting Standard (AS) 9-11

By: chandan kumar

Revenue Recognition
Accounting Standard (AS) 9

Introduction
This standard deals with the bases for recognition of revenue in the statement of profit and loss of an enterprise. • The sale of goods • Rendering the services • Use of the enterprises resources by other yielding interest, dividend and royalties

Non - Applicability
• Revenue arising from construction contracts. • Revenue arising from hire-purchase, lease agreements. • Revenue arising from government grants and other similar subsidies. • Revenue of insurance companies arising from insurance contracts.

Revenue from Sale of Goods
• Seller has transferred the ownership of goods to buyer for a price. • Seller does not retain any effective control of ownership of the transferred goods. • There is no significant uncertainty in collection of the amount of consideration.

Rendering of the Services
• Completed service contract method
recognize revenue only when rendering of services under a contract is completed or substantially completed.

• Proportionate completion method
recognize revenue proportionately with the degree of completion of services under a contract.

Revenue from interest, dividend and royalties
• Interest accrues, in most circumstances, on the time basis determined by the amount outstanding and the rate applicable. • Royalties accrue in accordance with the terms of the relevant agreement. • Dividend accrues, when the declaring company declares dividend.

Application to Commercial situation
Sale of Goods
 Delivery is delayed at buyer’s request and buyer takes
title and accepts billing.  Delivered subject to conditions
(i) installation and inspection (ii)sales on approval (iii)guaranteed sales (iv)consignment sales (v)cash on delivery sales

 Instalment sales
interest should be recognized proportionately to the unpaid balance

Application ……….
Rendering of services  Installation fees
    Advertising commission Admission fee Tuition fees Entrance and Membership fees

Disclosure
• In addition to the disclosures required by Accounting Standard 1 on ‘Disclosure of Accounting Policies’ (AS 1) , an enterprise should also disclose the circumstances in which revenue recognition has been postponed pending the resolution of significant uncertainties.

Accounting for Fixed Assets
Accounting Standard (AS) 10

Introduction
Fixed assets are• Held with the intention of being used for the purpose of producing or providing goods and services. • Not held for sale in the normal course of business. • Expected to be used for more than one accounting period.

Examples
• • • • • Goodwill Land Building Plant & machinery Furniture & fitting etc.

Non - Applicability
• Forests ,plantations and similar regenerative natural resources. • Wasting assets like minerals, oil and natural gas. • Real state development. • The treatment of government grants and subsidies.

Fixed assets in Financial Statement
• Historical cost • Revalued price

Historical cost of acquired fixed assets
• Purchase price • Import duties and other non- refundable taxes • Site preparation • Delivery and handling cost • Installation cost • Professional fees

Cost of self constructed fixed assets
• All cost which are directly related to the specific asset. • All costs that are attributable to the construction activity should be allocated to the specific assets. • Any internal profit included in the cost should be eliminated.

Non-Monetary Consideration
• Fixed assets exchanged not similar.
assets acquired should be recorded either at fair market value of asset given up or fair market value of asset acquired ,if this is more clearly evident.

• Fixed assets exchanged are similar
assets acquired should be recorded either at fair market value of asset given up or fair market value of asset acquired ,if this is more clearly evident or net book value of the asset given up.

• Fixed assets acquired in exchange of share or other securities
assets should be recorded at either fair market value of assets purchased or fair market value of share or securities.

Revalued Price
• By re – stating the gross book value and accumulated depreciation. • By re - stating net book value adding there in the net increase on account of revaluation. Revaluation of fixed assets should be restricted to the net recoverable amount of fixed asset.

Improvement and Repairs
• Expected future benefits from fixed assets do not change. The expenses are charged to profit & loss account. • Expected future benefits from fixed assets will increase beyond the previously assessed standard performance. Expenses are included in the gross book value of asset.

Retirement and Disposals
• Fixed asset are deleted from the financial statement either on disposal or on expected economic benefit. • Gains or losses arising on disposal are generally recognized in profit & loss account.

The Effects of Changes in Foreign Exchange Rates
Accounting Standard (AS) 11

Introduction
This Statement should be applied:
• In accounting for transactions in foreign currencies. • In translating the financial statements of foreign operations.

Definition
• Exchange rate is the ratio for exchange of two currencies. • Average rate is the mean of the exchange rates in force during a period. • Closing rate is the exchange rate at the balance sheet date. • Monetary items are money held and assets and liabilities to be received or paid in fixed or determinable amounts of money.

• Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. • Foreign currency is a currency other than the reporting currency of an enterprise. • Reporting currency is the currency used in presenting the financial statements. • Forward rate is the specified exchange rate for exchange of two currencies at a specified future date. • Forward exchange contract means an agreement to exchange different currencies at a forward rate.

Initial Recognition
• Buys or sells goods or services whose price is denominated in a foreign currency. • Borrows or lends funds when the amounts payable or receivable are denominated in a foreign currency. • Otherwise acquires or disposes of assets, or incurs or settles liabilities, denominated in a foreign currency.

Recognition of Exchange Differences
• Exchange differences arising on the settlement of monetary items or on reporting an enterprise’s monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements, should be recognized as income or as expenses in the period in which they arise.

Reporting at Subsequent Balance Sheet Dates
• Foreign currency monetary items should be reported using the closing rate. • Non-monetary items which are carried in terms of historical cost denominated in a foreign currency should be reported using the exchange rate at the date of the transaction.

Translation of financial statements of foreign branches
• Opening inventories: exchange rate prevailing at the commencement of the year. • Closing inventories: exchange rate at the balance sheet date. • Depreciation: exchange rate applicable for the translation of the fixed asset.

Accounting Standard (AS) 12

Accounting for Government Grants

Introduction
• This Statement deals with accounting for government grants. • Government grants are sometimes called by other names such as subsidies, cash incentives etc.

Non- Applicability
• Government participation in the ownership of the enterprise. • Government assistance other than in the form of government grants.

Recognition of Government Grants
• The enterprise will comply with the conditions attached to them • The grants will be received

Accounting treatment of government grants
• Grant is shown as deduction from the gross value of asset in arriving its book value. When the grants equals to the cost of assets, the asset should be shown in the balance sheet at the nominal value. • Grants are treated as deferred income. The deferred income is recognized in profit & loss account on a systematic and rational basis over the useful life of assets.

Grants related to revenue
• Grants should be recognized in profit & loss account over the period necessary to match them with related cost which they are intended to compensate . Such grants should either be shown as other income or be deducted from the related expenses. • A grant received as compensation for expenses or losses already incurred should be recognized in the profit & loss account of the period in which it becomes receivable as extraordinary items.

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