LECTURE ON

ACOUNTING STANDARDS

OF

ICAI
by V.K. GUPTA
Objectives

1. Standardize the diverse Accounting

Policies.
2. Add the reliability to the Financial
Statement.
3. Eradicate baffling variation in
treatment of accounting aspects.
4. Facilitate inter- firm and intra-
firm comparison
Accounting Standards in
Different Nations


In India, 32 Accounting Standards as

IAS under NACAS As per
International, there are 41 Accounting
Standards called as IFRS Adopted by
8 countries in the world 70 to 80
countries planning to adhere IFRS
Clause 50 added to the listing
agreement mandatory
 AS 1- Disclosure of
Accounting Policies

 Specific policies adopted to prepare Financial

Statement Should be disclosed at one place…
 Purpose :
1.Better understanding of Financial Statement
2.Better comparison analysis
3.Mostly needed w.r.t Depreciation
 AS 2- Revised
Valuation of Inventories

 A primary issue in accounting for

inventories is the determination of the
value at which inventories are carried
in the financial statements until the
related revenues are recognized. This
Statement deals with the
determination of such value,
including the ascertainment of cost of
inventories and any write-down
thereof to net realizable value.
AS 2- Revised
Valuation of Inventories –conti..
 The following terms are used in this Statement with
the meanings specified:
 Inventories are assets:
 (a) held for sale in the ordinary course of business;
 (b) in the process of production for such sale; or
 (c) in the form of materials or supplies to be
consumed in the production process or in the
rendering of services.
 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.
AS 2- Revised
Valuation of Inventories –conti..
 Inventories encompass goods purchased and held
for resale, for example, merchandise purchased by a
retailer and held for resale, computer software held
for resale, or land and other property held for resale.
Inventories also encompass finished goods
produced, or work in progress being produced, by
the enterprise and include materials, maintenance
supplies, consumables and loose tools awaiting use
in the production process. Inventories do not include
machinery spares which can be used only in
connection with an item of fixed asset and whose
use is expected to be irregular; such machinery
spares are accounted for in accordance with
Accounting Standard (AS) 10, Accounting for Fixed
Assets.
AS 2- Revised
Valuation of Inventories –conti

 Measurement of Inventories
 Inventories should be valued at the
lower of cost and net realizable value.
1. Cost of Inventories
The cost of inventories should
comprise all costs of purchase, costs
of conversion and other costs
incurred in bringing the inventories to
their present location and condition.
AS 2- Revised
Valuation of Inventories –conti
 Net Realizable Value
 The cost of inventories may not be recoverable if
those inventories are damaged, if they have become
wholly or partially obsolete, or if their selling prices
have declined. The cost of inventories may also not
be recoverable if the estimated costs of completion
or the estimated costs necessary to make the sale
have increased. The practice of writing down
inventories below cost to net realizable value is
consistent with the view that assets should not be
carried in excess of amounts expected to be realized
from their sale or use.
(AS 3) Revised
Cash Flow Statements
 Information about the cash flows of an enterprise is
useful in providing users of financial statements with a
basis to assess the ability of the enterprise to generate
cash and cash equivalents and the needs of the
enterprise to utilise those cash flows. The economic
decisions that are taken by users require an evaluation of
the ability of an enterprise to generate cash and cash
equivalents and the timing and certainty of their
generation.
 The Statement deals with the provision of information
about the historical changes in cash and cash
equivalents of an enterprise by means of a cash flow
statement which classifies cash flows during the period
from operating, investing and financing activities
 (AS 5) Revised Net Profit or Loss for the
Period, Prior Period Items and Changes
in Accounting Policies
 The objective of this Statement is to prescribe the
classification and disclosure of certain items in the
statement of profit and loss so that all enterprises
prepare and present such a statement on a uniform
basis. This enhances the comparability of the financial
statements of an enterprise over time and with the
financial statements of other enterprises. Accordingly,
this Statement requires the classification and disclosure
of extraordinary and prior period items, and the
disclosure of certain items within profit or loss from
ordinary activities. It also specifies the accounting
treatment for changes in accounting estimates and the
disclosures to be made in the financial statements
regarding changes in accounting policies
 (AS 6) Revised
Depreciation Accounting
This Statement deals with depreciation accounting and applies to all
depreciable assets, except the following items to which special
considerations apply:—
(i) forests, plantations and similar regenerative natural resources;
(ii) wasting assets including expenditure on the exploration for and
extraction of minerals, oils, natural gas and similar non-regenerative
resources;
(iii) expenditure on research and development;
(iv) goodwill;
(v) live stock.
This statement also does not apply to land unless it has a limited useful life
for the enterprise.
2. Different accounting policies for depreciation are adopted by different
enterprises. Disclosure of accounting policies for depreciation followed
by an enterprise is necessary to appreciate the view presented in the
financial statements of the enterprise.
 (AS 7)
Accounting for Construction
Contracts
 This Statement deals with accounting for construction contracts in
the financial statements of enterprises undertaking such contracts
(hereafter referred to as 'contractors'). The Statement also applies
to enterprises undertaking construction activities of the type dealt
with in this Statement not as contractors but on their own account
as a venture of a commercial nature where the enterprise has
entered into agreements for sale.
 The feature which characterizes a construction contract dealt with
in this Statement is the fact that the date at which the contract is
secured and the date when the contract activity is completed fall
into different accounting periods. The specific duration of the
contract performance is not used as a distinguishing feature of a
construction contract. Accounting for such contracts is essentially
a process of measuring the results of relatively long-term events
and allocating those results to relatively short-term accounting
periods.
 (AS 8)Accounting for Research and
Development
The allocation of the costs of research and development activities to accounting periods is
determined by their relationship to the expected future benefits to be derived from these
activities. In most cases there is little, if any, direct relationship between the amount of
current research and development costs and future benefits because the amount of such
benefits, and the periods over which they will be received, are usually too uncertain.
Research and development costs are therefore usually charged to expense in the period
in which they are incurred.
If it can be demonstrated, however, that the product or process is technically and
commercially feasible and that the enterprise has adequate resources to enable the
product or process to be marketed, it may be appropriate to defer the costs of related
research and development to future periods. Research and development costs
previously written off are not reinstated because they were incurred at a time when the
technical and commercial feasibility of the project was too uncertain to establish a
relationship with future benefits and they were therefore proper charges to those past
periods.
Deferred research and development costs are amortized on a systematic basis, either by
reference to the sale or use of the product or process or by reference to a reasonable
time period. However, technological and economic obsolescence create uncertainties
that restrict the number of units and time period over which deferred costs are to be
amortized.
Wherever research and development costs are to be deferred, the appropriate legal
requirements are also taken into account, for example, in the case of companies the need
to provide depreciation on fixed assets used for purposes of research and development
in accordance with the provisions of Sections 205 and 350 of the Companies Act.
 (AS 4 Revised) Contingencies
and Events Occurring After the
Balance Sheet Date
 Contingencies
The amount of a contingent loss should be provided for by a charge in the statement of profit and
loss if:
(a) it is probable that future events will confirm that, after taking into account any related probable
recovery, an asset has been impaired or a liability has been incurred as at the balance sheet
date, and
(b) a reasonable estimate of the amount of the resulting loss can be made.
11. The existence of a contingent loss should be disclosed in the financial statements if either of
the above conditions is not met, unless the possibility of a loss is remote.
12. Contingent gains should not be recognized in the financial statements.

Events Occurring after the Balance Sheet Date

13. Assets and liabilities should be adjusted for events occurring after the balance sheet date that
provide additional evidence to assist the estimation of amounts relating to conditions existing
at the balance sheet date or that indicate that the fundamental accounting assumption of going
concern (i.e., the continuance of existence or substratum of the enterprise) is not appropriate.
14. Dividends stated to be in respect of the period covered by the financial statements, which are
proposed or declared by the enterprise after the balance sheet date but before approval of the
financial statements, should be adjusted.
15. Disclosure should be made in the report of the approving authority of those events occurring
after the balance sheet date that represent material changes and commitments affecting the
financial position of the enterprise.
 (AS 9)Revenue Recognition
Revenue from sales or service transactions should be recognised when the
requirements as to performance set out in paragraphs 11 and 12 are satisfied,
provided that at the time of performance it is not unreasonable to expect
ultimate collection. If at the time of raising of any claim it is unreasonable to
expect ultimate collection, revenue recognition should be postponed.
In a transaction involving the sale of goods, performance should be regarded as
being achieved when the following conditions have been fulfilled:
(i) the seller of goods has transferred to the buyer the property in the goods for a
price or all significant risks and rewards of ownership have been transferred to
the buyer and the seller retains no effective control of the goods transferred to
a degree usually associated with ownership; and
(ii) no significant uncertainty exists regarding the amount of the consideration that
will be derived from the sale of the goods.
In a transaction involving the rendering of services, performance should be
measured either under the completed service contract method or under the
proportionate completion method, whichever relates the revenue to the work
accomplished. Such performance should be regarded as being achieved when
no significant uncertainty exists regarding the amount of the consideration
that will be derived from rendering the service.
Revenue arising from the use by others of enterprise resources yielding interest,
royalties and dividends should only be recognised when no significant
uncertainty as to measurability or collectability exists. These revenues are
recognised on the following bases:
 (AS 10)
Accounting for Fixed Assets
Financial statements disclose certain information relating to fixed assets. In many enterprises these
assets are grouped into various categories, such as land, buildings, plant and machinery,
vehicles, furniture and fittings, goodwill, patents, trade marks and designs. This statement
deals with accounting for such fixed assets except as described below.
This statement does not deal with the specialized aspects of accounting for fixed assets that arise
under a comprehensive system reflecting the effects of changing prices but applies to financial
statements prepared on historical cost basis.
This statement does not deal with accounting for the following items to which special
considerations apply:
(i) forests, plantations and similar regenerative natural resources;
(ii) wasting assets including mineral rights, expenditure on the exploration for and extraction of
minerals, oil, natural gas and similar non-regenerative resources;
(iii) expenditure on real estate development; and
(iv) livestock.

Expenditure on individual items of fixed assets used to develop or maintain the activities covered in
(i) to (iv) above, but separable from those activities, are to be accounted for in accordance with
this Statement.
This statement does not cover the allocation of the depreciable amount of fixed assets to future
periods since this subject is dealt with in Accounting Standard 6 on 'Depreciation Accounting'.
This statement does not deal with the treatment of government grants and subsidies, and assets
under leasing rights. It makes only a brief reference to the capitalization of borrowing costs and
to assets acquired in an amalgamation or merger. These subjects require more extensive
consideration than can be given within this Statement .
 AS-11Accounting for the Effects of
Changes in Foreign Exchange
Rates
 Monetary items denominated in a foreign currency (e.g. foreign currency notes,
balances in bank accounts denominated in a foreign currency, and receivables,
payables and loans denominated in a foreign currency) should be reported using the
closing rate. However, in certain circumstances, the closing rate may not reflect with
reasonable accuracy the amount in reporting currency that is likely to be realized
from, or required to disburse, a foreign currency monetary item at the balance sheet
date, e.g., where there are restrictions on remittances or where the closing rate is
unrealistic and it is not possible to effect an exchange of currencies at that rate at
the balance sheet date. In such circumstances, the relevant monetary item should
be reported in the reporting currency at the amount which is likely to be realized
from, or required to disburse, such item at the balance sheet date;
 (b) non-monetary items other than fixed assets, 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;
 (c) non-monetary items other than fixed assets, which are carried in terms of fair
value or other similar valuation, e.g. net realizable value, denominated in a foreign
currency, should be reported using the exchange rates that existed when the values
were determined (e.g. if the fair value is determined as on the balance sheet date,
the exchange rate on the balance sheet date may be used); and
 AS-11Accounting for the Effects of
Changes in Foreign Exchange
Rates Conti…
 Exchange differences arising on repayment of liabilities incurred for
the purpose of acquiring fixed assets, which are carried in terms of
historical cost, should be adjusted in the carrying amount of the
respective fixed assets. The carrying amount of such fixed assets
should, to the extent not already so adjusted or otherwise accounted
for, also be adjusted to account for any increase or decrease in the
liability of the enterprise, as expressed in the reporting currency by
applying the closing rate, for making payment towards the whole or a
part of the cost of the assets or for repayment of the whole or a part of
the monies borrowed by the enterprise from any person, directly or
indirectly, in foreign currency specifically for the purpose of acquiring
those assets.
 11. The carrying amount of fixed assets which are carried in terms of
revalued amounts should also be adjusted in the manner described
above. However, such adjustment should not result in the net book
value of a class of revalued fixed assets exceeding the recoverable
amount of assets of that class, the remaining amount of the increase
in liability, if any, being debited to the revaluation reserve, or to the
profit and loss statement in the event of inadequacy or absence of the
revaluation reserve.
 (AS 12) Accounting for Government
Grants
Two broad approaches may be followed for the accounting treatment of government grants:
the 'capital approach', under which a grant is treated as part of shareholders' funds, and
the 'income approach', under which a grant is taken to income over one or more periods.

Those in support of the 'capital approach' argue as follows:

(i) Many government grants are in the nature of promoters' contribution, i.e., they are given
with reference to the total investment in an undertaking or by way of contribution towards
its total capital outlay and no repayment is ordinarily expected in the case of such grants.
These should, therefore, be credited directly to shareholders' funds.
(ii) It is inappropriate to recognize government grants in the profit and loss statement, since
they are not earned but represent an incentive provided by government without related
costs.
Arguments in support of the 'income approach' are as follows:
(i) Government grants are rarely gratuitous. The enterprise earns them through compliance
with their conditions and meeting the envisaged obligations. They should therefore be
taken to income and matched with the associated costs which the grant is intended to
compensate.
(ii) As income tax and other taxes are charges against income, it is logical to deal also with
government grants, which are an extension of fiscal policies, in the profit and loss
statement.
(iii) In case grants are credited to shareholders' funds, no correlation is done between the
accounting treatment of the grant and the accounting treatment of the expenditure to
which the grant relates
 (AS 13) Accounting for
Investments
 If an investment is acquired, or partly acquired, by the issue of shares or other securities, the
acquisition cost is the fair value of the securities issued (which, in appropriate cases, may be
indicated by the issue price as determined by statutory authorities). The fair value may not
necessarily be equal to the nominal or par value of the securities issued.
 If an investment is acquired in exchange, or part exchange, for another asset, the acquisition
cost of the investment is determined by reference to the fair value of the asset given up. It
may be appropriate to consider the fair value of the investment acquired if it is more clearly
evident.
 Interest, dividends and rentals receivables in connection with an investment are generally
regarded as income, being the return on the investment. However, in some circumstances,
such inflows represent a recovery of cost and do not form part of income. For example, when
unpaid interest has accrued before the acquisition of an interest-bearing investment and is
therefore included in the price paid for the investment, the subsequent receipt of interest is
allocated between pre-acquisition and post-acquisition periods; the pre-acquisition portion is
deducted from cost. When dividends on equity are declared from pre-acquisition profits, a
similar treatment may apply. If it is difficult to make such an allocation except on an arbitrary
basis, the cost of investment is normally reduced by dividends receivable only if they clearly
represent a recovery of a part of the cost.
 When right shares offered are subscribed for, the cost of the right shares is added to the
carrying amount of the original holding. If rights are not subscribed for but are sold in the
market, the sale proceeds are taken to the profit and loss statement. However, where the
investments are acquired on cum-right basis and the market value of investments
immediately after their becoming ex-right is lower than the cost for which they were acquired,
it may be appropriate to apply the sale proceeds of rights to reduce the carrying amount of
such investments to the market value.
 AS-16 BORROWING COSTS
 Borrowing costs that are directly attributable to the
acquisition, construction or production of a
qualifying asset should be capitalized as part of the
cost of that asset. The amount of borrowing costs
eligible for capitalization should be determined in
accordance with this Statement. Other borrowing
costs should be recognized as an expense in the
period in which they are incurred.
 7. Borrowing costs are capitalized as part of the
cost of a qualifying asset when it is probable that
they will result in future economic benefits to the
enterprise and the costs can be measured reliably.
Other borrowing costs are recognized as an
expense in the period in which they are incurred.
 AS-17 Segment Reporting

The objective of this Statement is to establish principles for reporting financial

information, about the different types of products and services an enterprise
produces and the different geographical areas in which it operates. Such
information helps users of financial statements:
(a) better understand the performance of the enterprise;
(b) better assess the risks and returns of the enterprise; and
(c) make more informed judgments about the enterprise as a whole.

Many enterprises provide groups of products and services or operate in

geographical areas that are subject to differing rates of profitability,
opportunities for growth, future prospects, and risks. Information about different
types of products and services of an enterprise and its operations in different
geographical areas - often called segment information - is relevant to assessing
the risks and returns of a diversified or multi-location enterprise but may not be
determinable from the aggregated data. Therefore, reporting of segment
information is widely regarded as necessary for meeting the needs of users of
financial statements
 AS-18 Related Party Disclosures

The objective of this Statement is to establish

requirements for disclosure of:

(a) related party relationships; and

(b) transactions between a reporting

enterprise and its related parties.
 AS-19Leases
1. This Statement should be applied in accounting for all leases
other than: lease agreements to explore for or use natural
resources, such as oil, gas, timber, metals and other mineral
rights; and licensing agreements for items such as motion
picture films, video recordings, plays, manuscripts, patents
and copyrights; and lease agreements to use lands.
2. 2. This Statement applies to agreements that transfer the right
to use assets even though substantial services by the lessor
may be called for in connection with the operation or
aintenance of such assets. On the other hand, this Statement
does not apply to agreements that are contracts for services
that do not transfer the right to use assets from one
contracting party to the other
 (AS) 20-Earnings Per Share

 The objective of this Statement is to prescribe principles

for the determination and presentation of earnings per
share which will improve comparison of performance
among different enterprises for the same period and
among different accounting periods for the same
enterprise. The focus of this Statement is on the
denominator of the earnings per share calculation.
 Even though earnings per share data has limitations
because of different accounting policies used for
determining ‘earnings’, a consistently determined
denominator enhances the quality of financial reporting.
 (AS) 21Consolidated Financial
Statements
 The objective of this Statement is to lay down
principles and procedures for preparation and
presentation of consolidated financial statements.
Consolidated financial statements are presented by a
parent (also known as holding enterprise) to provide
financial information about the economic activities of
its group. These statements are intended to present
financial information about a parent and its
subsidiary (ies) as a single economic entity to show
the economic resources controlled by the group, the
obligations of the group and results the group
achieves with its resources
 (AS) 22-Accounting for Taxes on
Income
 The objective of this Statement is to prescribe accounting treatment
for taxes on income. Taxes on income is one of the significant items in
the statement of profit and loss of an enterprise. In accordance with
the matching concept, taxes on income are accrued in the same
period as the revenue and expenses to which they relate. Matching of
such taxes against revenue for a period poses special problems
arising from the fact that in a number of cases, taxable income may be
significantly different from the accounting income. This divergence
between taxable income and accounting income arises due to two
main reasons. Firstly, there are differences between items of revenue
and expenses as appearing in the statement of profit and loss and the
items which are considered as revenue, expenses or deductions for
tax purposes. Secondly, there are differences between the amount in
respect of a particular item of revenue or expense as recognized in the
statement of profit and loss and the corresponding amount which is
recognized for the computation of taxable income
 (AS) 23-Accounting for Investments in
Associates in Consolidated Financial
Statements

 The objective of this Statement is to set out

principles and procedures for recognizing, in the
consolidated financial statements, the effects of
the investments in associates on the financial
position and operating results of a group.
 (AS) 24-Discontinuing Operations

 The objective of this Statement is to establish

principles for reporting information about
discontinuing operations, thereby enhancing
the ability of, users of financial statements to
make projections of an enterprise's cash
flows, earnings-generating capacity, and
financial position by segregating information
about discontinuing operations from
information about continuing operations.
 (AS) 25-Interim Financial
Reporting
 The objective of this Statement is to prescribe the
minimum content of an interim financial report and
to prescribe the principles for recognition and
measurement in a complete or condensed financial
statements for an interim period. Timely and reliable
interim financial reporting improves the ability of
investors, creditors, and others to understand an
enterprise's capacity to generate earnings and cash
flows, its financial condition and liquidity
 (AS) 26-Intangible Assets

 The objective of this Statement is to

prescribe the accounting treatment for
intangible assets that are not dealt with
specifically in another Accounting Standard.
This Statement requires an enterprise to
recognize an intangible asset if, and only if,
certain criteria are met. The Statement also
specifies Intangible Assets how to measure
the carrying amount of intangible assets and
requires certain disclosures about intangible
assets.
 (AS) 27-Financial Reporting of
Interests in Joint Ventures

 This Statement should be applied in accounting for

interests in joint ventures and the reporting of joint
venture assets, liabilities, income and expenses in the
financial statements of ventures and investors,
regardless of the structures or forms under which the
joint venture activities take place.
 The requirements relating to accounting for joint
ventures in consolidated financial statements,
contained in this Statement, are applicable only
where consolidated financial statements are prepared
and presented by the venturer.
 (AS) 28-Impairment of Assets

 The objective of this Statement is to prescribe the

procedures that an enterprise applies to ensure that
its assets are carried at no more than their
recoverable amount. An asset is carried at more than
its recoverable amount if its carrying amount
exceeds the amount to be recovered through use or
sale of the asset. If this is the case, the asset is
described as impaired and this Statement requires
the enterprise to recognize an impairment loss. This
Statement also specifies when an enterprise should
reverse an impairment loss and it prescribes certain
disclosures for impaired assets.
 (AS) 29-Provisions, Contingent
Liabilities and Contingent Assets
 The objective of this Statement is to ensure
that appropriate recognition criteria and
measurement bases are applied to provisions
and contingent liabilities and that sufficient
information is disclosed in the notes to the
financial statements to enable users to
understand their nature, timing and amount.
 The objective of this Statement is also to lay
down appropriate accounting for contingent
assets.
 (AS) 30-Financial Instruments:
Recognition and Measurement
 The objective of this Standard is to establish
principles for recognizing and measuring financial
assets, financial liabilities and some contracts to
buy or sell non-financial items.
 Requirements for presenting information about
financial instruments are in Accounting Standard
(AS) 31, Financial Instruments: Presentation.
 Requirements for disclosing information about
financial instruments are in Accounting Standard
(AS) 32, Financial Instruments: Disclosures.
 (AS) 31-Financial Instruments:
Presentation
 The objective of this Standard is to establish principles for
presenting financial instruments as liabilities or equity and for
offsetting financial assets and financial liabilities. It applies to
the classification of financial instruments, from the perspective
of the issuer, into financial assets, financial liabilities and
equity instruments; the classification of related interest,
dividends, losses and gains; and the circumstances in which
financial assets and financial liabilities should be offset.
 2. The principles in this Standard complement the principles for
recognizing and measuring financial assets and financial
liabilities in Accounting Standard (AS) 30, Financial
Instruments: Recognition and Measurement and for disclosing
information about them in Accounting Standard (AS) 32,
Financial Instruments: Disclosures.
 (AS) 32-Financial Instruments:
Disclosures

The objective of this Standard is to require entities to provide

disclosures in their financial statements that enable users to
evaluate:
(a) the significance of financial instruments for the entity’s financial
position and performance; and
(b) the nature and extent of risks arising from financial instruments
to which the entity is exposed during the period and at the
reporting date, and how the entity manages those risks.
2. The principles in this Accounting Standard complement the
principles for recognizing, measuring and presenting financial
assets and financial liabilities in Accounting Standard (AS) 30,
Financial Instruments: Recognition and Measurement and
Accounting Standard (AS) 31, Financial Instruments:
Presentation.
THANK YOU