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33 viewsFast Track Material On Accounting Standrds
Uploaded by
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
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/ 41
CA - INTER
COURSE MATERIAL
Quality Education
beyond your imagination...
SUBJECT CODE: 5, MATERIAL NO: 41
FAST TRACK MATERIAL ON ACCOUNTING STANDARDS _39e
(APPLICABLE FOR OLD AND NEW SYLLABUS)
(COVERS ACCOUNTING AND ADVANCED ACCOUNTING)
N
MASTER MINDS"
CA « CMA « CS MEC + CEC
GUNTUR | RAJAHMUNDRY | KURNOOL | VIZAG | NELLORE
HYDERABAD | VIJAYAWADA | TIRUPATHI
Cell: 98851 25025 / 26
Visit us @ www.mastermindsindia.com | Mail: [email protected]
Facebook Page: Masterminds For CA | Youtube Channel: Masterminds For CA
Page 1 S.No Chapter Name Pages
1. AS - 1: Disclosure Of Accounting Policies 03
2 AS - 2: Valuation of Inventories 03
3. AS - 3: Cash Flow Statement 06
4 AS - 4: Contingencies & Events occuring after Balance Sheet 07
Date
5. ‘AS - §: Net Profit / Loss for the Period, Prior Period Items and 07
Change in Accounting Policies
6. AS - 7: Construction Contracts 07
7. AS - 9: Revenue Recognition 09
8. AS - 10: Property, Plant and Equipment (PPE) 2
9. AS - 11: The Effects of Changes in Foreign Exchange Rates 16
10. AS - 12: Accounting for Government grants 18
4 AS - 13: Accounting for Investments 19
12 AS - 14: Accounting for amalgamation 20
13, AS - 16: Borrowing Costs 20
14, AS - 17: Segment Reporting 22
15. AS - 18: Related Party Disclosures 26
16. AS - 19: Leases 29
17. AS - 20: Earning per Share 32
18. AS - 22: Accounting for Taxes on Income 34
19. ‘AS - 24: Discontinuing operation 35
20. AS - 26: INTANGIBLE ASSETS 37
a AS - 29: Provisions, Contingent Liabilities and Contingent 39
Assets | MASTERMINDS = No.1 for CA/CMA & MEC/CEC
AS -1: DISCLOSURE OF ACCOUNTING POLICIES
1. Accounting policies are principles and methods adopted in preparation & presentation of Financial
statements.
2. Selection of accounting policies is the responsibility of the management
3. In selection of accounting policies management should consider the following considerations:
‘+ Primary Consideration: Selected policies should give True & Fair view to Financial statements
+ Secondary Consideration:
> Prudence
> Substance Over form
> Materiality
closure of Accounting pol
ies:
‘* Accounting policies should form part of the financial statements
‘+ Allpolicies should be disclosed at one place
‘+ Disclosure is not a remedy for wrong or inappropriate accounting
5. Fundamental Accou
19 assumptions:
© Going concem
= #
© Accrual
6. Disclosure of fundamental accounting assur
7. Disclosure is necessary if the entity
is not necessary when the entity is following the
AS - 2: VALUATION OF INVENTORIES
Objective: To determine the carrying amount of inventories in financial statements
2. Scope: AS - 2, doesn't apply to
‘+ Work in progress arising under construction contracts.
‘+ WIP of service providers.
‘+ Entities holding shares, debentures, other financial instruments as stock in trade,
‘+ Inventories of livestock, agricultural and forest products, mineral oils, ores and gases
3. Defi
Held forsale in the ordinary course of business (FG)
Inventories |_| Assets Used in process of production for such sale (WIP)
To be consumed in the process of production or in
rendering the services,
Copyrights Reserved
To MASTER Guntur
CA Inter | 39e | Fast Track | Accounting Standards - 3s | 98851 25025 / 26
4, Measurement of inventories:
5. Cost of inventory: - Includes
Cost of purchase
Cost of conversion
Other costs (to bring inventory to present location).
> Cost of purchase:
Purchase price XK
Add: Non-refundable taxes & duties XXX
Carrying cost XXX
Inward insurance cost XXX
Other costs XXX
Less: Trade discounts (XXX)
Quantity discounts ox)
Duty drawbacks (XXX)
Cost of purchase XXX
> Cost of conversion: Costs incurred to conve Zw materials into finished goods.
Fixed Overheads
If Actual Production > IF Actual Production <
Normal capacity Normal capacity
‘Absorb based on actual ‘Absorb based on normal
Production capacity
> Other costs: All other costs incurred to bring the inventory to the present location and condition
Eg: Quality Control cost, R&D Cost, Packing Cost etc.
6. Cost of inventory excludes the followin,
‘Absorption should be based
‘on actual production
‘* Abnormal waste of Raw material, labour * Selling & Distribution Costs
or other production costs
+ Interest & finance charges in general
+ Storage costs
‘* Administration Overheads
Spe
‘+ Joint products: Costs are allocated on a rational and consistent basis.
> Sales Value at the time of separation or;
CA Inter | 39e | Fast Track | Accounting Standards Rs
7. Allocation of cost
situations: | MASTERMINDS = No.1 for CA/CMA & MEC/CEC
> Sale value of final products or,
> Sale value of final products Less Further processing cost
‘¢ By-products: No need to find out the cost of by product.
> Cost of main product = Total cost (-) NRV of by product
8. Cost Formulas:
Inventory Valuation techniques
Inventory
ordinarily
interchangeable
Spectic identification ‘Any method which gives
method Fairest possible approximation to the Cost
———
FIFO Weighted Average SP Standard Cost Retail Cost
9. Net realizable value (NRV): \S
A. Estimated selling price in the ordinary<§
B. Less: Cost of completion (in case: EN
. Less: Cost to make the sale i of WIP & FG) (00x)
NRV Xxx.
Xxx,
(oe)
NET REALISABLE VALUE (NRV)
a a!
Finished goods Work in progress Raw material
J q q
A-c A-B-c Normally valued at cost,
Ro need to determine
NRV
Raw material valuation
IFFG sold at cost (or)
above cost
i
Raw material Valued
at cost
IfFG sold below cost
Valued at
Replacement cost
CA Inter | 39e | Fast Track | Accounting Standards - s | 98851 25025 / 26 iastermindsindia.com
‘+The accounting policies adopted in measuring inventories, cost formulas used.
‘* Total carrying amount of inventories and its classification appropriate to the enterprise.
AS - 3: CASH FLOW STATEMENT
1. Cash flow statement reflects the various sources and applications of cash & cash equivalents during
the year.
2. Cash includes cash in hand, cash at bank & Demand deposits with Banks
Cash equivalents
‘+ Short term & Highly liquid investments which are readily convertible into cash
‘+ Insignificant risk of changes in value
4, Based on the nature of Business of the entity; the Cash activities are classified as follows:
‘© Operating Activities
‘+ Investing activities
‘+ Financing activities
5. Operating act
ies:
‘+ Principal revenue producing activities
‘+ Those activities which can't be classified as i financing
6. Investing acti
ies: SS
‘© Purchase & Sale of long term assets gir ome
‘+ Income received from the investms
iancing activities:
‘+ Which changes the composit QS
‘+ Financing Costs
8 Presentation of Cash flows from operating a
be presented in Two ways, They are
‘Size of owner's capital & borrowing,
's: The Cash flows from operating activities can
+ Direct Method: Which gives information about major classes of Gross cash receipts & payments
+ Indirect method: Cash flows from operating activities are determined by adjusting the Profit or
Loss before tax and extraordinarylexceptional items with the following:
> Non-cash items
> Non-operating items
> Changes in working capital
> Tax paid & Extraor
closu
‘+ The components of cash & cash equivalents
‘+ Reconciliation of the amount in cash flow statements with amount reported in balance sheet
‘+ Cash balances not available for use by the entity
«Any additional information
CA Inter | 39e | Fast Track | Accounting Standards ys | No.
AS — 4: CONTINGENCIES & EVENTS OCCURING AFTER BALANCE SHEET DATE
REFER FLOWCHART
AS — 5: NET PROFIT / LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND
CHANGE IN ACCOUNTING POLICIES
REFER FLOWCHART
AS —7: CONSTRUCTION CONTRACTS
1. Objective: Prescribes the Accounting treatment of the following in relation to Construction contracts
(Ce) Cow)
2. Definition: A Contract for construction of a single asset Or group of assets which are closely
interrelated and also includes
‘* Service contracts in relation to Construction &
© Contracts for Destruction & Restoration
3. Profit/ Loss from a contract = Contract Revenue — C ee
4. Recognition of Contract revenue and Expenses:
Can Outcome be estimated reliably?
SS
Refer Point No.7
for CA/CMA & MEC/CEC
Based on Percentage of
work Completion
5. When the Outcome can be estimated reliably:
|. Contract Revenue:
‘A. Determination of Contract revenue: Contract revenue for a period = (Total contract revenue
x % of Work completed) — Revenue already recognised
B. Determination of “% of Completion”
‘+ Based on Cost incurred: Percentage of work completed = (Contract cost incurred till date/
Estimated total cost) x 100
C. Determination of Total Contract Revenue:
Total Contract Revenue
f r er t 1
Initially. Addiless: Addiess: Add: Less: Add:
agreed Variation in Escalation Claim Penalties due to Incentive
amount: Contract clause amount delay receipts:
‘© if Customer approves ‘© Negotiations reached advanced stage ‘Specific performance
the variation Receipt probable & customer ‘standards met
© Reliably measurable accepted Reliably measurable
5 en
CA Inter | 39e | Fast Track | Accounting Standards Wa 98851 25025 / 26
Contract Cost:
Determination of Contract Cost:
Contract cost for a peri
Contract Cost includes:
© Spec
> Ex: Material cost, Labour cost, Depreciation of plant etc.
> Incidental income which is not included in Revenue should be reduced from cost
‘+ Attributable and allocable costs: Costs which are not specifically incurred for a particular
contract, These costs are allocated to various contracts in a systematic and rational basis.
> Ex: Insurance premium paid, Cost of design and technical assistance etc.
‘+ Other Costs as per agreement: If itis specifically mentioned in the agreement, it should
added to contract cost
> Ex: General admin costs, R&D costs ete,
= Actual cost incurred during the period
cost: Costs that are directly related to a specific Contract
C. Unallocable costs:
Note:
> Material not used/installed at the site will included in the cost } Considered as
> Advance payments to labour will not din the cost Ape
6. When the Outcome of a contract CannoX Be SStimated reliably:
+ Recognise revenue to the extent offSseecoverableif recovery of such costs possible
7. When the entity expects a Los:
8. Combining & Segmenting construction contracts:
Recognise Cost as an expens:
Contract cost > Contract Revenue
Expected loss should be recognized
‘as an expense immediately
General administration cost Allocable if mentioned
in Contract
R&D Cost
Selling costs
Depreciation on plant which is not used for contract
ONS
AEDs incurred
\ én it is probable that
Whether or not work has.
commenced
Irrespective of Percentage of Completion
Profit expected from other
contracts
Ht
Combining: Group of contracts as ‘Segmenting: Each assot as
‘ingle Construation contact separate construction contract
y Y
‘All contracts negotiated as single package © Separate proposals for each asset
Closely interrelated © Separate negotiation for each asset
Performed at same time or one after * Revenues and costs of each asset can be:
another identified
CA Inter | 39e | Fast Track | Accounting Standards - sc | Cn No.1 for CA/CMA & MEC/CEC
9. Uncertainty in collection:
Uncertainty
Subsequent to
Prior to recognition of
Revenue
Postpone Revenue recognition till the
date of clearance of such uncertainties
Meke appropriate provision but should
nal reverse revenue already recognised
10. Disclosures:
‘* Contract revenue recognized
‘* Method used for determination of contract revenue
‘* Methods used for determination of percentage of completion
‘© Details of Contracts in progress
9: REVENUE RECOGNITION
1. Objective: Deals with timing of Recognition of rea
2. Scope: Deals with Revenues arising in the ord) jurse of business
Sale of Goods || Rendering of services Other income — interest, royalties &
e
3. Definition:
Revenue is the gross inflow of
ee
Cash Receivables Other consideration
(A. Sale of goods
in the ordinary course of business
toon } IB. Rendering of services
IC. Other income
4, Sale of Goods: Revenue from sale of goods is recognized if the following conditions are satisfied
‘+ Significant risk and rewards of ownership transferred to buyer
‘+ NO significant uncertainty in ultimate collection at the time of recognition
5. Recognition under different situations in case of Sale of goods:
[Delivery delayed at buyers request | _ When itis expected that [Goods must be
but tile passed on to buyer delivery will be made je inhand
J+ Identified
Je Ready for delivery
CA Inter | 39e | Fast Track | Accounting Standards ys | 98851 25025 / 26
Delivery subject to inspection
instalation r|
Goods sent on sale on
approval
Consignment sales [of
Cash on delivery sales,
Guaranteed sales (Buyer has
Unlimited right to return) [>
* Goods formally aooepted by buyer
L+}
When Customer accepts delivery
installation and inspection
(or)
+ Reasonable time period elapsed
When goods are sold to third party by
consignee
When cash is received either by the
seller or his agent
‘At the time of sale — For fll invoice
‘Amount & Create provision for
expected returns
Instaliment sales Lyf
[= On date of sale > Sale price ~ interest
Interest on time basis
&
[Sale/ Repurchase agreements|_p{
Nota REV H ene recognition |
‘Subscriptions for publication
straight line basis overtime
Th proportion fo value of items
delivered if value of items differ
from period to period
Ifany advance
received > As
liability
6. Rendering of services: Revenue from Rendering of services is recognized if the following conditions
are satisfied
‘© Services should be performed
«NO significant uncertainty in ultimate collection at the time of recognition
7. Methods to determine performance of service: }
Proportionate completion
method
q
Performance consists of
‘execution of more than one act
‘Applicability
Completed service method
q
Performanos consists of
Single act (Or)
‘+ More than one act & Services to be
performed are significant to whole
performance
Based on percentage of work
completed
=>
When the final act takes place & Service
becomes chargeable to customer
CA Inter | 39e | Fast Track | Accounting Standards | MASTERMINDS = No.1 for CA/CMA & MEC/CEC
8. Recognition under different situations in case of Rendering of services:
Installation fees Ls ‘When installation completed & aocepted by customer ]
‘Advertisomentincome _ L{When related advertisement appears before public }
‘On commencement or renewal dates of related insurance
Insurance agency | [On
commission policies
Fees on Artistic © When event takes place
performances, banquets or [->|+ In case of No. of events allocated to each unit on
any special programmes systematic basis
Tuition fees} >| On SLM Basis
Entrance fees Depends on nature of service received } Generally
rl . Capitalised
Membership fees
'* Only for membership - Recognise when received
‘* Membership + other services - Systematic basis
NN
Financial service
Commissions
Dividend
When right to receive dividend
Time basis Acotual Basis is established ie, When
declared in AGM
ed
‘+ There should not be any uncertainty in collection at the time of Recognition
* Incase of Uncertainty > Postpone recognition
10. Effect of uncertainty on Revenue
Atthe time of recognition ‘Subsequent to recognition
[= Postpone to the extent of Uncertainty
J> Recognise only when there is no
uncertainty
[+ Make a provision for doubtful debts to the
extent of uncertainty
J+ Revenue already recognized should not
be reversed
CA Inter | 39e | Fast Track | Accounting Standards Tl 98851 25025 / 26 iastermindsindia.com
AS - 10: PROPERTY, PLANT AND EQUIPMENT (PPE)
- Scope:
+ Generally PPE are grouped into categories like Land, Buildings, Plant & Machinery, Furniture &
Fittings, etc.
Does not deal with:
> Biological assets related to agricultural activity other than bearer plants.
> Wasting assets including mineral rights, expenditure on exploration for and extraction of
minerals, oil, natural gas and similar non- regenerative resources
> If PPE'S recognition is covered by any other AS, to that extent one should follow the
respective standard
‘© Bearer Plant:
> Is.used in the Production/supply of agricultural produce
> Expected to bear produce for more than a period of 12 months
> Has a remote likelihood of selling the bearer plant as an agricultural produce, except for
incidental scrap sales
2. Definition of PPE: PPE are tangible items
a) Held for use in
> Producing goods >» Rental to others
> Providing services > Administrative purpose
And
b) Expected to be used for more than 12 mont!
3. Recognition & Measurement:- PPE- (Asset ns)
‘+ Probable future economic benefits inflows to the entity
‘+ Cost should be measured reliably
ee t
WS
Initial Recognition Subsequent Recognition
& Measurement & Measurement
When the entity ‘Ason every Balanos
incurred costs sheet dale
4. Initial Recognition:
Asset acquired by
Cash iCredit (A) Self-construction (B) Exchange of Non-monetary assets (C)
A. Asset Purchased by Cash/ Credit - PPE should be measured at its Cost
Cost of asset includes
> Purchase Price > Installation costs
> Taxes & duties (Non-refundable) > Professional costs
> Initial delivery and handling costs > Borrowing costs (as per AS-16)
> Site preparation cost
CA Inter | 39e | Fast Track | Accounting Standards — | MASTERMINDS = No.1 for CA/CMA & MEC/CEC
> Present value of decommissioning, > Test runs expenditure (-) realisable value
restoration costs > Directly attributable costs( if any)
Adjustments to be made for:-
> Subsequent price changes > Trade discounts
> Changes in duties » Government Grants
Note: The following costs should not form part of cost of the PPE.
> General administration Overheads
> Expenses incurred between the date of ready to use and actual commencement of commercial
production
B, Self-Constructed PPE:- Cost Includes
> AllCosts capitalised as above in A
> Cost of construction directly relate to specific asset
> Costs attributable to construction activity,
> Borrowing costs (As per AS - 16)
Note:
+ Any internal profits should be eliminated
‘+ Abnormal loss of material, labour, other Resource ghquld be eliminated.
©. PPE acquired by Exchange of Assets:~ Asset i fed at,
Fair value
can be
measured
reliably
Fair Value of Asset given up (Or) Carrying amount ofthe asset
Fair value of Asset aoquired siven up
(Whichever is clearly evident)
5. Component Accounting:
Asset / PPE has
+
Different & Significant physical Components
4
With substantially different useful lives
¥
Each component is recognised & depreciated } ‘Accounting
‘separately over its individual useful life treatment
Note: If a significant component is replaced, then Old component is derecognized and new
‘component is capitalized
CA Inter | 39e | Fast Track | Accounting Standards Tl 98851 25025 / 26
6. Subsequent Expenditure on PPE:-
www.master
economic benefits
Does Subsequent expenditure increase the future
Capitalise along with PPE
7. Subsequent Measurement:
Charged to P&L Alc
‘Subsequent Measurement: - (on each balance sheet date)
q
Two accounting models
——
Cost Mode! Revaluation Model
¥ ¥
PPE Should be measured at Cost XXX PPE should be measured at FVof PPE XXX
(-) Accumulated depreciation: (xX) (() Subsequent Accumulated depreciation (XXX)
(¢) Accumulated Impaired less: (0X) (©) Subsequent impaired loss (000)
Net Carrying Amount KK Net carrying amount XK
8. Revaluation Accounting YY
First Time Revaluation ‘Subsequent Revaluation
= Aor PPE Alc Dr.
To revaluation surplus Alc
Se sree Revaluation Surplus Alc (to the extent available)
& | To Revaluation surplus wW jownward | Bt ave (balancing Figure)
To PPE Alc
= PPE Alc Dr.
E Upward | To P&L Alc (to the extent charged earlier)
3 P&L Avc Dr. To Revaluation surplus A/c (Balancing Figure)
§ To PPE Alc PamAeDe
3
8 pei) To PPE Alc
9. Retirement of PPE: If PPE is retired from active use and
held for disposal; PPE should be stated in
Cost
(or)
Balance Sheet.
Net Realisable Value }
Whichever is
Lower
10. Disposal of PPE:
Ifthe entity followed
oo
Cost Mode! Revaluation Model
+ +
¥ ProfitLoss—-P&L Alc ¥ ProfiLoss—+P & L Ale
¥ Balance in Revaluation surplus GR
CA Inter | 39e | Fast Track | Accounting Standards | MASTERMINDS = No.1 for CA/CMA & MEC/CEC
1.
12.
13.
14.
Depreciation: Systematic allocation of the Depreciable amount of an asset over its useful life.
A. Depreciable Amount:
Histoticalrevalued amount: XXX
Less: Estimate residual value (XXX)
Depreciable amount 0x
B. Factors in determining depreciation amount:
‘+ Historical cost/ Revalued amount
© Useful life
+ Residual value
C. Useful Life: Period over which Depreciable asset is expected to be used by the entity,
D. Estimated residual value: An estimated amount which can be recovered from the asset at the
end of its useful life.
Notes:
‘* As part of component accounting, an entity should allocate the total cost among its significant
parts and provide depreciation on each such part separately.
‘+ The depreciation charge should be recognized in P&L unless it is included in the carrying
amount of another asset.
Method of Depreciation:-
‘+ Depreciation method should reflect the pattern j the future economic benefits of the
asset are expected tobe consumed by the enti’
‘+ Depreciation method selected to an asset sha ‘reviewed at least at each financial year end.
+ Change in the method of depreciation £@SA be accounted for as a change in accounting
estimate.
+ Two different methods can be different parts of single PPE.
‘+ Ifany asset has been added, s¢ carded, demolished or destroyed during any financial year
then depreciation should be calculated on pro rata basis.
Depreciation on addition/extension to an existing asset:
Addition / Extension to an existing asset
=,
Integral part + Depreciable over remaining Non Integral part + Depreciate independently
life of existing asset on the basis ofits own useful life
Treatment of machinery spares:
Machinery spares
‘Treated as PPE Treated as Inventory
Deprecated on systematic basis Charged to PAL
cover Useful fe
CA Inter | 39e | Fast Track | Accounting Standards Wl 98851 25025 / 26 www.mastermindsindia.com
15. Disclosures: For each PPE, the following disclosures should be made:
a) Measurement basis used (Cost or d) Gross carrying amount & accumulated
revaluation model) depreciation
b) Depreciation methods used ) Revaluation details
¢) Useful lives & depreciation rates used ) Reconciliation of the carrying amount at
the beginning and end of the period
AS - 11: THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES
- Scope: This standard deals with the following:
‘+ Foreign currency transactions Abbrevations Used:
‘+ Translation of financial statements of foreign operations. ca ogee soc
© CS~Closing stock
‘+ Accounting for forward exchange contracts © HO-Head Office
2. Accounting for Foreign currency transactions:
A. Definitions:
a) Monetary items: Monetary items are
‘+ Money held &
‘+ Other assets and Liabilt
Examples: Cash in hand & at Bank, Trade receivables, Trade payables
b) Non-Monetary items: Other than Monetar
Examples: Tangible fixed assets, Intar sets etc.
Which are receivable and payable
in terms of money
B. Recognition and Measurement
+ Initial recognition & Measure! Sansctons should be recorded at the rate prevailing as
on the date of transaction
+ Subsequent recognitiog jasurement: It depends on the Classification of items into
Monetary and Non-monet
‘Subsequent Measurement
Monetary Items
{Closing rate ~ Exchange rate on date of
Balance sheet
Carrying
value
Measured at
Historical Costie.
Exchange rate on date of
purchase
Fair value / NRV Le.
Exchange rate on date of
Valuation
C. Exchange rate difference: All the exchange differences should be recognized in P&L A/c as Exchange
Gain or Loss in the year in which it occurs.
Exception: Para 46A (Refer Point No.4)
3. Accounting for Translation of Foreign Operation
A. Foreign Operation: A foreign operation includes a foreign
CA Inter | 39e | Fast Track | Accounting Standards Wl | MASTERMINDS = No.1 for CA/CMA & MEC/CEC
B. Classification of foreign operations:
‘+ Integral foreign Operation: A Foreign operation (Branch) does its business outside india as if
itis an extension to the indian business.
+ Non-integral foreign operation: A Foreign operation does business independently and
accumulates cash and other monetary items and remits foreign currency occasionally.
C. Translation of Financial statements of an Integral foreign operation:
[ Integral foreign operation
aa
BS items | P&L Items,
‘Average rate }
Contingent | ( Others J
Tabiities
OS - Opening rate
CS~ Closing rate
Dep. — Rate on the
date of acquisition
of asset
«Bal. of HO-
‘Amount shown as
due in HO Books
(Closing rate >)
\
Monetary items ] [Non — monetary items |
{Rate as on the date of
(Closing rate) | transection or if the assets
~~" are revalued rate as on the
| date of revaluation
[Exchange difference on conversion should be recognized in P & L Alc as Exchange Gain or Loss
D. Translation of Financial statements of an Non-Integral foreign operation:
(im = integral foreign oncontion |
[Bis items ie. | { P&L items } Contingent |
| Monetary & Non ~ liabilities t
[Monetary items | +. i ¥ -
[Average rate J oo ~ [* OS= Opening rate
i L (Closing rate) je CS— Closing rate
( Closing rate) “|. Dep. —Rate on the
— — date of acquisition
of asset
+ Bal. of HO-
Amount shown as
due in HO Books
Exchange difference should be transferred to "Foreign currency translation reserve”
Balance in FCTR exist in the B/S til date of sale as part of reserves and surplus.
Balance in FCTR should be recognized in P & L on sale of foreign operation
CA Inter | 39e | Fast Track | Accounting Standards 98851 25025 / 26 iastermindsindia.com
4. Accounting for Forward exchange contracts
‘A. Forward exchange contract: An agreement to exchange different currencies at a specified future
date at a predetermined rate
B. Accounting treatment:
{ Forward exchange contract entered for
exchange fluctuation risk [ oe ae
¥ ¥
+ The difference between the spot rate * The contract will be recognized at the
(on the date of contract) and forward forward rate. No discount / premium
rate shall be recognized as deferred will be recognized.
discount / premium + The contract will be marked to market
‘+ Such premium / discount shall be and the gain / loss wil be recognized
amortised over the period of contract in the statement of P &L
* Any Profit/ loss arising on cancellation
of renewal shall be recognize as
income or expense.
2 ere eee carte eee ree
5. Treatment of Exchange difference as per Para &
A. Applicability: <
‘+ An Option available to the Companies
‘+ Ifexercised by any company, sho
‘+ Para 46A is Prospective and
‘+ Only in relation to All Lony foreign currency monetary items
B. Long term foreign currency Rysnetary items: Assets or liabilities which are expressed in foreign
currency and that have a term of 12 months or more from the starting date of such asset or
liability.
C. Treatment of Exchange difference:
{ Ifthe Long term foreign currency monetary iter is
acquired for acquisition of j
ae
A Depreciable fixed asset Other than @ depreciable fixed asset |
+ ¥
* Exchange difference is adjusted] * Foreign exchange fluctuation Gain / Loss|
against the value offixed asset. | should be transferred to “Foreign
‘+ The balance in the depreciable asset]
after addition / deletion should be|
depreciated over the remaining life
AS - 12: ACCOUNTING FOR GOVERNMENT GRANTS
currency monetary item translation
difference account”.
+ The balance in the above Alc should be
amortised over the balance period of the
asset or lability
REFER FLOWCHART
CA Inter | 39e | Fast Track | Accounting Standards | MASTERMINDS = No.1 for CA/CMA & MEC/CEC
AS - 13: ACCOUNTING FOR INVESTMENTS
Investment is an asset held for earning income by way of
+ Dividend, * for capital appreciation or
‘+ Interest and rental, + for other similar benefits.
2. Investments are recognized and measured in two stages
Initial Measurement
© Measured at Cost and
Classification is not relevant
3. Cost of investment includes:
‘* Basic cost of investments,
‘+ Direct costs incurred for acquisition
4. Income from investment: Income from investments is classified as follows:
Income from investment
‘Subsequent Measurement
Depends on Classification
PRE Acquisition income
+ Earned and accrued during pre
acquisition period
‘+ Received by investor after acquisition
‘© If included in cost of investments, then
exclude when received
POST Acquisition income
© Eamed and accrued after
acquisition and received after
acquisition
+ Recognise as income and
credited to P&L Ale
5. Bonus and Right Shares:
+ Bonus Shares:
> Issued to existing equity shareholders at free of cost
> Cost of investment — NIL
> No need to record any journal entry
> No. of bonus shares are added to existing No.of shares
© Right shares:
> Issued to existing shareholders the “Right” to purchase the shares at a discounted price
> Shareholders can renounce their right if they don't want to exercise the right
> Proceeds from renouncement of rights
= H+,
Credited to Pal Credited to Cost of investments
‘Acquired on Ex-tight basis ‘© Acquired on cum-right basis
‘* Market value came down below
cost after right issue
CA Inter | 39e | Fast Track | Accounting Standards A io | 98851 25025 / 26 iastermindsindia.com
. Classification of investments for Subsequent measurement: For subsequent measurement on
Balance sheet date investments are classified as follows:
Cost OR Fair value
> Readily realizable whichever is lower
© Current Investments: }
_Intension to hold for not more than one year from date of acquisition,
‘+ Long term Investments:
} Always value at Cost
> Which is not current investment
Exception: In case of permanent diminution reduced to Carrying amount
Note: The carrying amount of Investments should be on individual basis but not on overalll basis
. Sale of investments: The profitLoss on sale of investments should be recognized in the P&L A/c
‘+ If the investments are sold in full:
» Profit(Loss) = Sale proceeds (Net of selling exp) - Carrying amount (Book value)
‘+ Ifthe investments are partly sold:
> The carrying amount of the partly sold investments are determined by Average cost basis.
> Now the Profit(Loss) will be determined as above
Reclassification of investments:
+ From Long term to Current : Lower of Cost and Carrying amount} (On the dale of Reclassification
‘+ From Current to Long term: Lower of Cost and
value
Disclosures:
‘© Gross income received/ Receivable
‘+ ProfitLoss on sale of investments
‘+ Quoted and unquoted investme >the market value of quoted investments
Si — 14: ACCOUNTING FOR AMALGAMATION
REFER FLOWCHART
AS - 16: BORROWING COSTS
Objective: Whether the borrowing cost should be capitalized or charged to Profit & Loss account.
Definitions:
i) Borrowing Cost : Interest and other costs incurred relating to borrowing of funds.
may Includes:-
a) Interest & commitment charges on borrowing
b) Amortisation of discounts or premium,
6) Amortisation of ancillary costs incurred for arrangement of borrowing.
) Finance charges incase of finance leases.
e) Exchange difference arising from foreign currency borrowings to the extent that they are
regarded as adjustment to interest costs. (See 7th Point)
ii) Qualifying asset: An asset that necessarily takes substantial period of time to get ready for its
intended use / sale.
iii) substantial period of time:
«Primarily depends on facts of the case
‘+ Generally 12 months period
+ Even less than 12 months (if justifiable)
CA Inter | 39e | Fast Track | Accounting Standards Em | MASTERMINDS = No.1 for CA/CMA & MEC/CEC
3. Recognition:
Borrowing cost directly related
a
‘Acauistion Construction Production
of
a Qualifying asset NOT a Qualifying assat
¥ ¥
Canitalse Charge to PAL
4, Quantum of Capitalisation: The amount to be capitalized depends on the funds used for acquiring
the Qualifying asset. If the Qualifying asset is acquired out of
a) Specific borrowing:
Actual borrowing costs incurred wx
Less: Any income on temporary investments of borrx@@q amount 0x
‘Amount to be capitalized LVF HK
i) Entity should determine Capitalisa
Specific borrowings should not be og
b) General borrowing: Ss
ee
}) Capitalisation rate =
iv) Aggregate of outstanding borrowings = Amount of borrowings x No. of months
outstanding / 12
Periodof construction
2
Note: Where the expenditure incurred on a qualifying asset is on different dates, then in such cases
the average accumulated expenses will be calculated by considering the period weights.
5. Period of Capitalisation:
v) Interest to be capitalized - Exp.incurred on asset x capitalisation rate x:
Period of Capitalisation
| rr!
‘Commencement ‘Suspension Cessation
J. Expenditure con] | Capitalisation is suspended when] «Capitalisation of borrowing costs|
qualifying asset being| the active development is should be stopped when|
incurred & interrupted substantially all necessary
eS activities are completed.
J+ Borrowing costs are} |* Exceptions:
being incurred & > Substantial techrical_a| f+ Wen qualiying asset is
J. Activities are in| ‘administrative work is carried completed in’ parts |
progress out Captalsaton shouldbe topped
Progr when any completed part is}
> Temporary delay for making capable of being used while
asset ready to use / sale construction carries on for other]
parts,
CA Inter | 39e | Fast Track | Accounting Standards Em 98851 25025 / 26 iastermindsindia.com
Excess of carrying amount than Recoverable amount:
‘+ If caryying amount (after Capitalisation) > Recoverable Amount (NRV); Excess Carrying amount
is written off as per,
> AS-2 (Incase qualifying asset is inventory)
> AS~28 (incase qualifying asset is fixed asset)
Exchange difference arising from foreign currency borrowings to the extent that they are
regarded as adjustment to interest costs.
‘+ Adjustment to interest cost
Interest in reporting currency (if the loan taken in reporting currency) — xxx
Less: interest on foreign currency loan (convert using closing rate) — (x0)
Adjustment to interest cost 790%
‘+The adjustment to interest cost should be considered as borrowing cost as per AS - 16
‘+The Adjustment to interest cost cannot exceed the Exchange difference.
‘+ Exchange difference as per AS - 11 = Exchange difference — Adjustment to interest cost
Disclosures: ee
Copyrights Reserved
a) The accounting policy adopted for borrowing costs, | To MASTER MINDS, Guntur |
b) The amount of borrowing costs ~—< < Jerod.
AS — 17: SEGMENT REPORTING
Objective: Reporting of segment infor S Se for meeting the needs of users of financial
statements, This standard makes it
. Scope: This standard is basicall sure standard. Its applicable to the entities presenting
‘© General purpose financial stad
‘* Consolidated financial statements
can be classified into
‘Geographical segment (Economic
‘environment
Geographical segment by
location of Operations
. Classification of segments: Segments of an enti
Business segment
(Product wise)
‘Geographical segment by
location of customers
Primary reportable segment ie.
Which provides comprehensive
int.
‘Secondary reportable segment ie
Which provides Lite information
CA Inter | 39e | Fast Track | Accounting Standards Em | MASTERMINDS = No.1 for CA/CMA & MEC/CEC
4. Definitions:
A. Business Segment:
Whose risk and
retums are
different from
—>(_ Povres
product/service
Distinguishable
conpenent ofa Engaed
Business enterprise
L[ — agroupot
productsiservices
other business
segments
B. Geographical segment:
Distinguishable
component of a Engaged
Business enterprise a
C. Segment revenue: S$
$ &&
‘Segment Revenue includes
Ei
Allocated revenue
D. Segment Expense:
Segment Expense includes
Inter sogment
expense
Providing a product/service in a particular
‘economic environment
Whose risk and retums are different from
other business segments
Excludes:
© Extraordinary item
‘+ InterestDividend income
‘+ Profit on sale of assets
Inter segment
revenue
Directly attributable
revenue
Excludes:
Extraordinary item
Interest expense
Loss on sale of assets
+ Income tax
Admin exp & HO exp
Directly attributable
expense
Allocated expense
E. Segment Asset:
Excludes:
InterestDividend
generating assets
Income tax assets like
DTA, Adv.Tax
Segment Asset includes
Allocated to
segment
Directly atibutable
to segment
Used for HO purposes
CA Inter | 39e | Fast Track | Accounting Standards [ 5 nl 2 98851 25025 / 26 www.mastermindsindia.com
F, Segment Liability:
Segment Liability includes
Excludes:
* Interest bearing liabilities
* Income tax Liabilities like
oeaiee DTL, Provision for tax
segment
Directly atibutable
to segment
5. Identification of Primary and Secondary reportable segments:
If the Dominant source of Risk and Revenue is affected by
Products!Services
* Business segment is PRS |
Location of customers/Assets
‘© Geographical segment is PRS
‘+ Business segment is SRS
* Geographical segment is SRS
6. Identification of Reportable segment: S
A. REVENUE Criteria: WS Revenue rom externa & inter
Stoner = 10% To Re sore segment ranters
Ow Aggregate af only segment profs; Or
‘Segment result (whether profit]88ss) > 10% of
B. RESULTS Criteria:
(In absolute manner)
C. ASSETS Criteri
‘Segment Assets 2 10% of Total assets of all Segments
D. Management Discretion:
Even if the above conditions are not satisfied, Management at its discretion can designate a
Business or Geographical segment as Reportable segment,
E. Overall External revenue Criteri
If Total external Revenue of all reportable segments <75% of Enterprise Revenue
segments as Reportable segments tl it segments 2s Reportable segments
Management can designate additional No need to designate any additional
becomes > 75%
F.
G.
CA Inter | 39e | Fast Track | Accounting Standards Em | MASTERMINDS = No.1 for CA/CMA & MEC/CEC
H. Based on Comparative information:
If Reportable Segment in the Previous year
the Current year even the 10% Limitis conditions is Satisfied
Considered as Reportable Segment in Check whether any of the above
not satisfied in the CY
Note: If any one of the above condition is satisfied by a Business or Geographical segment, then it
should be considered as Reportable Segment.
7. Disclosures: The disclosure information remains same in respect of Primary reportable segment
irrespective of the nature of Segment i.e. Business segment or Geographical segment
‘A. Reporting requirements of Primary reportable segment:
‘+ Segment revenue * Depreciation & Amortisation expense
© Segment result + Non-cash expenses other than depreciation
+ Segment assets
‘© Segment liabilities &
‘* Capital expenditure incurred on fixed
assets AS
B. Reporting requirements of Seconggtyréportable segment: Secondary segment reporting
information will depends on the Pri
RRP portable segment (PRS)
If Primary reportable segment is
Geographical segment by Location | [ Geographical segment by Location of
Business segment (BS) of Assets Customers
(GSby LOA) (GSby Loc)
J
‘© Canying amount of Segment) f~ Segment revenue from Extemal sales] (* Segment revenue from Extemal sales of
assets of GS by LOA of BS Bs
‘© Segment revenue from Extemal] |» Canying amount of Segment assets| |« Carrying amount of Segment asses of
sales of GS by LOC of BS 8s
‘© Cost incured in acquting| |» Cost incured in acquiing TAITA of| |= Cost incured in acquiring TANTA of BS
TNITA of GS by LOA Bs '* Carrying amount of Segment assets of
‘+ Revenue from extemal customers by| | GS byLOA
GS by Loc '* Cost incurred in acquiring TANITA of GS
byLOA
Copyrights Reserved
‘To MASTER MINDS, Guntur
CA Inter | 39e | Fast Track | Accounting Standards 98851 25025 / 26
AS-18: RELATED PARTY DISCLOSURES
iastermindsindia.com
1. Objective: This standard requires disclosure of
Related party Relationship and
* Related party Transactions
2. Definitions:
+ Related party:
Directly or indirectly
Over the other partyin making
Y Financial andior
Y Operating
Decisions
One party has the
ability
Exercise Significant
Influence
‘+ Control: Control implies holding directly or indirectly
> More than one half of the Voting power of an enterprise (Or)
> Control of the composition of the board of directors (Or)
> Asubstantial interest in
Power fo direct he financial
andior operating policies of
the enterprise
an enterprise, But not control
those policies.
‘+ Substantial interest: An Enterprise/Individual owns, 20% or more interest in the voting power
3. Scope: The following relationships are covered by AS-18
A
a) Holding and Subsidiary
bb) Investor Vs. Associate and Venturer Vs. Joint venture
¢) An individual having Control’ Significant influence & his relatives
4) Key managerial personnel & their relatives
e) Entities over which any person described in (c) or (d) above having significant influence
Holding and subsidiary:
Entities that directly, or indirectly through
‘one or more intermediaries
With the Reporting
‘Ate controlled by entity
or
‘Are under common
control
CA Inter | 39e | Fast Track | Accounting Standards Em for CA/CMA & MEC/CEC
Example:
RELATED PARTIES,
ALtd. In the books of ALtd,
«Direct contol ~8 & C Lid
ae (9% } | > indirect contel-D Lid
In the books of B Ltd.
B Ld. CLta ‘© Direct control -D Ltd
© Controlled by ~ALtd
75% * Under Common control ~C & D
In the books of CLtd.
DL. ‘© Controlled by - ALtd
‘* Under common control — B & D Itd
In the Books of D Ltd.
‘© Directly Controlled by - B Ltd
‘© Indirectly controlled by ~ A Ltd
‘Under common control ~ C Ltd
Note: In a group of Holding & Subsidiary, each subsidiary is related to all other subsidiaries
B. Investor Vs. Associate and Venturer Vs. Joint venture
‘+ Associates and Joint ventures of the Reporting eny &
‘+ Investing party or venturer in respect of which R&ROMiing entity is an associate or joint venture
WS ias Significant influence over B & C Ltd.
RELATED PARTIES
In the Books of A Lid.
+ Associates ~B Ltd &C Ltd
In the Books of B Ltd.
‘* Investing party —A Ltd
In the Books of C Ltd.
‘© Investing party — A Ltd
Note: Co - Associates are not related parties except if they are under common control
Example: (Venturer Vs. Joint venture)
ALtd & B Ltd - Co- Venturers
CLLtd - Joint Venture
ALtd & C Ltd are Related parties
BLid & C Ltd are Related parties
ALUd & B Lid are not Related parties
Note:
. Indi
10 — Venturers are not related parties.
idual having Control! Significant influence & his relatives
Over the
reporting
entity
Individual having
Or
Significant
influence
Relative as per AS - 18: Relative of an individual includes
CA Inter | 39e | Fast Track | Accounting Standards 98851 25025 / 26
Planning
Activities of
the entity
KMP are those
persons having
For
Directing
(a
ind
Responsibility
Note: A Non-executive director is not considered as Key management personnel
E. Entities over which any person described in (C) or (D) above having significant influence
Example:
Controlling
PLid
Reporting entity)
P Ltd and R Ltd. are
considered as Related
patties
4. Exclusions from Related pat WY
+ Companies having common diStors
Exception: If the above directors are able to influence the policies of the companies
+ Persons with whom entity transacts significant volume of business &
+ Following parties:
> Providers of finance > Public utilities
> Trade unions > Govt. Departments & Agencies
5. Disclosu
< Control oxists =
Irrespective of whether
transactions exist or not
[> Name of the related party
J+ Nature ofthe related party relationship
Only if transaction happened during existence of
related party relationship
Name of related party
Description of relationship
Description of nature of transactions
Volume of transactions
Outstanding items
‘Amounts written off or written baok
CA Inter | 39e | Fast Track | Accounting Standards Em Con No.1 for CA/CMA & MEC/CEC
AS --19: LEASES
1. Objective: Prescribes the accounting treatment for leases in the books of
©
2. Scope: Applicable to all leases other than
«Lease agreements to explore for or use natural resources
+ Licensing agreements for such as motion picture films, video recordings, patents and
‘copyrights
+ Lease agreements to use lands
3. Definition of Lease:
In return of a payment or
series of payments
4. Types of Leases:
Finance lease
Substantially all the Risks & rewards Which is NOT a finance
incidental to ownership transferred to lease
lessee
ators of finance lease:
+ Transfer of Ownership of the asset to the lessee at the end of the lease term
‘+ Lessee has an option to purchase the asset at a lower price than fair value on the date of
exercising the option
‘+The lease term is for the major part of the economic life of the asset
‘+ The leased asset is of a specialized nature which can be used only by the lessee without
major modifications.
‘+ The PV of Minimum lease payments are substantially equal to the fair value of the leased
asset at the inception
IF any of the above clause is there in
the lease agreement
Operating lease
CA Inter | 39e | Fast Track | Accounting Standards Em 98851 25025 / 26
6. Finance lease Accounting — In the books of Lessee
‘+ Inthe books of lessee Asset & Liability should be recognized at
[Discounted using
+ implicit interest rate in
lease (IRR) OR
+ Lessee's incremental
borrowing rate
‘Anybody on behalf of
lessee
PV of (ALR + GRV)
¥ PVof MLP (From lessee point of view)
Y Implicit Interest rate in lease is that rate
Fair value of asset = Present value of
‘* Subsequent lease rentals shall be apportio
‘* The recognized leased asset should b
7. Finance lease accounting - In the h
jestment in lease (GIL)
.en interest expense and principal portion
jated as per revised AS-10
Lessor
In the books of Lessor recogn@@e@be receivable amount as an asset at NET INVESTMENT in
lease WN
Receivable from lessee Alc
To Asset Sales Alc
NET INVESTMENT in Lease
>~—+#1.—
Less
Gross investment in lease includes
Total Minimum Lease payments Unguaranteed residual
(Lessor point of view) value (UGRV)
[Lessee
‘Anybody on behalf of lessee
Independent party
Guaranteed residual
value (GRV) By
‘+ Uneamed finance income = Gross investment in lease ~ PV of Gross investment in lease at IRR
‘+ MLPs receipts should be apportioned between Interest income and Receipt of receivable
CA Inter | 39e | Fast Track | Accounting Standards Em No.
for CA/CMA & MEC/CEC
ing Lease Accounting — In the books of Lessor and Lessee
4 4
[* MLP's received should be taken to P & L as [+ MLP’s paid should Charged to P & Las an
income on Straight line basis unless any ‘expense on Straight line basis unless any
systematic method adopted by the entity. systematic method adopted by the entity.
Difference between the Actual amount of rental payment and Amount charged as per
Straightline basis —» Considered as Deferred rentals
9. Sale and lease back transactions: One party sells an asset to another party and the buyer of the
asset leases it back to the seller immediately
Recognition of ProfiliLoss from sale (Abbrevations
Used:
SV- Sale value
BV - Book value
FV -Fair value
en
If the Lease back results in
Finance lease
ProfitLoss should be deferred and amortised over the lease term in
proportion to the depreciation of leased asset
Recognise Profit tothe extent
of FV- BV immediately
# Defer proft io the extent of
sv-FV
+ IFBVPFY, then bring down
the BV to FV; Now the
difference between SV and
BV to be Deferred
If loss is Compensated by future
lease payments then defer it
otherwise recognize immediately
Copyrights Reserved
To MASTER MINDS, Guntur
CA Inter | 39e | Fast Track | Accounting Standards Em
Recognise
immediately 98851 25025 / 26 iastermindsindia.com
AS — 20: EARNING PER SHARE
1. Objective: Deals with determination and presentation of EPS.
2. Presentation of EPS: An entity should present the following EPS on the face of P&L A/c
Basic EPS Diluted EPS
Net profitLoss for the periodattributable to equity shareholders A
‘Weighted average no.of equity shares outs tan ding during the period (WANES) B
3. Basic EPS =
No. of equity shares
Outstanding a the beginning KK
+1: Shares issued or bought back
during the year X Time weight factor (XX)
Weighted average No. of shares XXX
Time factor should be considered from Effective
date
SS Effective date
S&S > Date on which cash received
> Date on which services rendered
Less: Appropriations
General reserve
Preference dividend
Equity dividend
ooT
Profits attributable to ESH
C. Effective date in Various situations:
Shares Issued for
© Cash
&
«Conversion of DebertS > From date of Conversion
‘© Settlement of a Liability > Date of settlement or as agreed upon
‘+ Purchase of Asset > Date on which asset is purchased
‘+ Amalgamation in the nature of purchase > Date of Acquisition
‘+ Amalgamation in the nature of Merger > From the Beginning of current
reporting period
© Bonus Issue >From the Beginning of previous
reporting period
4. Calculation of EPS in case of Bonus issu
Calculated
In case of Bonus issue the following EPS are to be
Current year = Previous year =
Current year earings Previous year earnings
ToIaIWANES atterbonusissue Tela WANES nPreviousissve
CA Inter | 39e | Fast Track | Accounting Standards El | MASTERMINDS = No.1 for CA/CMA & MEC/CEC
Adjusted EPS: Restatement of previous year EPS as if the bonus issue is there in the previous year
‘Adjusted Eps = NeteottLosstorthePr evius year atibuabletoequty shareholders
TotaiNo of Sharesafier bonusissue
‘+ Incase of Bonus issue there will be increase in No. of shares without increase in resources
‘© Which leads to reduction in Current year EPS and there by the need for Calculation of adjusted
EPS arises.
5. Calculation of EPS in case of Right issue: Generally rights are issued at less than Fair value. So,
there exists bonus element in the right issue also.
«Bonus Element (BE) = FaitValueper shareimmediatelypriortothe exercseotrights
~~ TheortcalEx — rights fair value per share(TERP)
‘+ Theoretical Ex-right value per share(TERP) =
Fair Value ofshare outs tan dingbeforerightsissue + Amount received onissue of rights
Total No.of shares after ightissue
‘+ Calculation of WANES after Right issue:
‘Opening No. of shares X BE
Current year
(Opening No. of shares X BE X No. of months upto right
issuel12) +
(Total No. of shares after right issue X No. of Months
after issue/12)
+ EPS In case of Right issue: In case @RWM issue the folowing EPS are to be Calculated
Basic EPS of| Adjusted EPS.
(Current year = Previous year =
Currertyeareamings Previous yeareamings
Current year WANES afer rightissue Previous year WANES betorerightiswe
«Adjusted EPS = NetoottLessforiePreviousyearatrbutabletoeguy shareelaers
Previous year WANES afer ightissue
6. Diluted EPS: Refers to the reduction in EPS due to the effect of Potential Equity shares
‘+ Potential equity shares (PES): A Financial instrument or other contract, which entitles or may
entitle the Holder to equity shares.
* Potential equity shares includes
Convertible Debentures Or ‘Share warrants Employee stock
Convertible preference shares options
‘+ Potential equity shares can be Dilutive Or Anti-dilutive
«Incase of Anti-dilutive potential equity shares DEPS need not be calculated
CA Inter | 39e | Fast Track | Accounting Standards Em 98851 25025 / 26 iastermindsindia.com
* Diluted Earnings Per Share(DEPS)
NetProftorlossattributabletoequity shareholdersafter giving tect of potentially dilutive equity shares
WeightedaverageNo of sharesatter gvingeffect of potentially dilutive equity shares
AS - 22: ACCOUNTING FOR TAXES ON INCOME
1, Objective:
‘+ Prescribes the accounting treatment for taxes on income. This standard wants to book the tax
expense based on Accounting income.
2. Scope:
‘+ Itis applicable only for taxes on taxable income ie., income tax (domestic and foreign tax)
‘+ Not applicable for other taxes like goods & Service tax, Customs duty ete.
3. Definition:
‘Accounting Income’ Net profit /Loss before tax as per the statement of Profit / Loss
Taxable Income (Taxoss): | Income / Loss calculated as per tax laws
Current Tax: ‘Tax on taxable income for current year
Deferred tax Tax effect of timing differences ie. An adjustment made towards tax
expense as per taxable income and tax expense as per accounting
income
Tax Expense / Saving ‘Current tax +/- Deferred tax
Timing Difference Difference between accounting income and taxable income arises in
‘one period and capable of being reversed in subsequent years
snot deductible u/s 438 etc.
funting income and taxable income arises in
verse subsequently
Permanent Difference: Difference betwe
Eg: Dividend R38 agricultural income etc.
Deferred tax asset © Arise: "accounting income < taxable income
= In ix benefit on a future date (carry forward (unused tax
Deferred tax liability We when accounting income > Taxable income.
« Ncome tax payable on future date
4, Recognition:
Identify the differences between Accounting income and taxable income
t
Permanent difference Timing difference
No DTADTL
Only to the extent that there is reasonable
certainty that sufficient future taxable
income will be available
Recognise OTA Recognise DTL
5. Other Pe
‘A. Incase of unabsorbed depreciation and carried forward losses & deferred tax asset o be recognized
only to the extent of that there is virtual certainty (not reasonable) that sufficient future taxable income
is available against which the carried forward losses / unabsorbed depreciation can be adjusted,
CA Inter | 39e | Fast Track | Accounting Standards Em | MASTERMINDS = No.1 for CA/CMA & MEC/CEC
B. On every balance sheet date Re-assess unrecognized DTA
©. Deferred tax ~ Tax holiday
a) Tax holiday: Entity need not pay taxes on certain income during this period
b) Don't recognize deferred tax which arises during tax holiday period and also reversing during
tax holiday period
¢) Recognise deferred tax which arises during tax holiday period and reversing after tax holiday
period.
d) Follow FIFO basis for reversing concept
6. Minimum Alternative tax (MAT):
‘A. MAT is calculated on book profits of the company
B. tis minimum amount of tax payable by the company,
©. When current tax is less than MAT, Company should pay MAT amount to the government.
D.
|. For deferred tax calculation, entity should consider regular taxes even in case of MAT payment to
the goverment.
m
Amount of tax debited to P & L = current tax + Differed tax + excess of MAT over current tax
Excess of MAT over current tax is called MAT credit and it can be carried forward for set off in 7
years.
G. The carrying amount of deferred tax asset should dat each balance sheet date.
7. Presentation & disclosure: \S
A. Deferred tax asset & deferred tax lability \ off provided
a) Entity has legally enforceable right
b) Entity has intension to settle o
In general, entity disclose DT/ LL on net basis (above conditions will satisfy by the entity)
AS-24: DISCOUNTINUING OPERATION
MEANING: It is a component of an entity which
a) Represents, separate major line of business or Geographical area.
Eg: car division, bike division, business in India, USA ete.
b)
‘Should be distinguished (separated) for operational
and financial reporting purpose
[Said to be separated when
Operating Assets & Liabilities ) (Revenue directly (Major of operating
attributed directly to the attributable to it | | expenses directly
component. can be identified | | attributable to it can
Eg: Deblors, Creditors etc, be identified
‘Should satisty all the conditions
&
CA Inter | 39e | Fast Track | Accounting Standards Em 98851 25025 / 26
Is discontinued [not going to continue in future)
(Piecemeal disposal ‘Abandonment of
operation
Selling substantially in
total (Total business
component sold at once)
Settlement of assets &
liabilities (settlement)
individually or in small
groups over the period.
‘Stopping the operations with
intension to sell (change of
product does not result in
discontinuous)
[Single transaction
Eg: Demerger, Spin off ete.
Initial Disclosure Event:
Earlier of
a) Entering into binding sale agreement to sell the component.
(waar)
b) Board of directors / similar governing body has
i) Approved formal plan for discontinuance WS
| nce GBS
fa) Identified major assets to disposal of
b) Method of disposal
Ic) Period to complete
Jd) Location to complete
le) Compensation to and termination of employees on
disposal
if) Amount realized from disposal
i) Made an announcement of the formal plan for discontinuance.
Disclosure:
Itis a disclosure standard, it requires the following disclosure in notes to accounts from the year in which
initial disclosure event occurred till completion of discontinuance.
a) Description of the discontinuing operation
b) Is ita segment reported as per AS-17
¢) The date and nature of initial disclosure event.
d) Period required for discontinuing
e) Details of total assets to be disposed and liabilities to be settled
f) Revenue and Expense attributable to discontinuing operation
g) Pre tax profit or loss of discontinuing operation and income tax expense related there to
h) Cash flows attributable to operating activities, investment activities & financing activities
‘AS-4 to be applied when initial disclosure event happened after the balance sheet date but before
approval of financials by board of directors.
CA Inter | 39e | Fast Track | Accounting Standards Em | MASTERMINDS = No.1 for CA/CMA & MEC/CEC
Additional disclosure when there is a binding agreement to sale or method of discontinuing starts.
a) Pre tax gain or loss on disposal and tax related there to,
b) Information about binding agreement to sale
i) Selling price of asset (net of expenses)
ii) Expected time of cash flow
i) Carrying amount of those assets on balance sheet,
Significant change in Cash flows & Time of Cash flows to be disclosed.
Change in the plan or withdrawal from the plan of discontinuing to be disclosed and Reason of change,
effected to be disclosed.
Re statement of prior periods: Current year discontinuing operation to be shown as discontinuing
‘operation for previous year also in current year financial statements for comparison purpose.
Disclosure in interim financial reports: Disclosure of discontinuing operations should be made as per
AS-25. “Interim Financial reporting’ includes
a) Activities or Events relating to discontinuing operations (from recent annual reporting period to a
discontinuing operation)
b) Significant changes in the amount or timing of Cash flows relating to the assets to be disposed or
liabilities to be settled.
& AS-26 INTANGIBLE ASSETS
1, Objective: Deals with
Et
& Measurement
Requirements of Intangible Asset
Intangible Asset
Disclosure
2. Definition :
Identifiable { Non-Monetary Asset } {_mitnout Physical Existence
Held for
Producing / supply of
aa Providing Services
Renting Services
| ‘Administration Purpose |
3. Recognition: Recognised only when it satisfies following conditions
Future Economic Benefits wil ow into the
Entity
Cost should be measured
reliably
CA Inter | 39e | Fast Track | Accounting Standards 98851 25025 / 26
4. Initial Recognition:
OTHER THAN CASH
Purchase Price
(+) Non-tefundable taxes and duties
(+) Registration charges
(+) Brokerage Costs
(+) Any Directly Attributable cost
(+) Trade Discounts and Rebate
(+) Government Grants
ii, Self-generated Intangible Assets
GOODWILL
OTHER THAN GOODWILL
I
FVof Asset given or FV of Asset Acquited
whichever is more clearly evident
t
Research Phase
Shall not be recognized
Development Phase
Capitalse subject to following conditions
5. Cost of internally generated Goodwill:
INCLUDES
Material/Services consumed,
Salaries, wages and other employment
benefits
All costs and Overheads directly related
Borrowing Costs as per AS-16
6. Recognition of an Expense:
1. Technical feasibility to continue
2. Intention to complete
3. Able to use or sell
4, Probable future economic benefits
5. Cost can be reliable measure the expenditure incurred
EXCLUDES
Seling Overheads
Administration OH
Abnormal loses
Initial operating loses
Training Costs
‘+ Any Expense incurred on an intangible item should be recognised as an expense if it doesn’t
satisfy Recognition Criteria,
‘* Any expenditure on Intangible Asset once charged to P&L account cannot be capitalized.
CA Inter | 39e | Fast Track | Accounting Standards | MASTERMINDS = No.1 for CA/CMA & MEC/CEC
7 Subsequent expenditure:
‘* Increase Future economic ‘© Expenditure incurred to
benefits compared to orginal maintain original level of
‘* Measured reliably performance
Capitalise Charged to P&L
8. Amortization:
‘© Shall be Amortised over useful life of Asset
‘+ Amortisatiion period shall not exceed 10 years unless otherwise proved
‘* The method of Amortisation depends on pattem of flow of economic benefits
Ifthe future economic benefits determined reliably
SL SLM Basis
© The Amortisation period and method shou} SOAS jiewed at the end of every financial year.
In the proportion of FEB's
‘+ Incase of change in useful life or patt
be followed as per AS-5.
fonomic benefits then prospective Accounting should
QQ
y
9. Disposal:
Net sale proceeds ~ Carrying amount of Asset = Gain/Loss
Income/Expenditure in P&L
10. Disclosures:
‘+The useful lives or the amortisation rates used
‘* Method of amortisation;
‘+The gross carrying amount and the accumulated at the beginning and end of the period;
‘+ Areconciliation of the carrying amount at the beginning and end of the period
AS — 29 PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT
ASSETS
1. Objective: Deals with
+ Recognition, }
© Measurement and
© Disclosure requirements
Contingent Contingent
liabilities assels
CA Inter | 39e | Fast Track | Accounting Standards Em 98851 25025 / 26
Provision is a
2. Provision:
Which can be measured
Using Substantial degree of
Estimation
Isa Present Arising from Past Resulting in Future outflow of
Obligation event ‘economic resources
i.e, Obligation exists on the balance sheet date and based on the evidence the probability of occurrence
is more than non-ocourrenee. i, “More likely than not"
3. Recognition of Provision: Conditions to be satisfied for recognition of a provision.
‘Present Obligation as a result of past event
Allthe conditions should
‘© Future outflow of economic resources be satisfied
‘+ Reliably measurable
Note:
¥ Provision should be reviewed 0} balance sheet date
¥ NO Provision is required for £@#a#S8perating losses
¥ Provision should not be Na inted except in case of Decommissioning, restoration and
similar liabilities recogniz®8&s per AS - 10
¥ If there is any reimbursement right, it should not be adjusted against the provision rather it
should be shown separately
Contingent liability
Having present obligation but not
recognized as provision due to
Amount cannot be
measured reliably
4. Contingent Liabilit
Having Possible obligation which will
be confirmed by occurrence or Non-
coacurrence of fulure event which is not
Outflow of Future
‘economic benefits is
‘ot probable
Possible Obligation: Based on the evidence available, its existence at the balance sheet date is not
probable.
CA Inter | 39e | Fast Track | Accounting Standards M40 | | MASTERMINDS = No.1 for CA/CMA & MEC/CEC
5. Recognition of Contingent liability:
‘Should not be Disclosed in FS in Notes
Recoanized in FS to accounts
Only if Outflow of FEB is NOT
remote
6. Contingent Asset & Its Recognition:
‘+ A Possible asset that arises from past event and its existence will be confirmed only by
‘occurrence or non-occurrence of uncertain future events not wholly with in the control of enterprise
© Usually arises from unplanned or unexpected events
q_ Can be disclosed in Approving
