BBS College of Engineering and Technology

Department of Business Administration

M.B.A 1st Semester
Financial Accounting and Analysis (BMB- 103)
Name of Faculty: Shubham Kushwaha
Unit -2
Mechanics of Accounting: Accounting Standards and IFRS: International Accounting
Principles and Standards; Matching of Indian Accounting Standards with International
Accounting Standards, Double entry system of Accounting, journalizing of transactions;
Ledger posting and Trial Balance.
____________________________________________________________________________________________
Accounting Standards - They are those rules of action or conduct which are adopted by the
accountants universally while recording accounting transactions. Accounting standards are
rules and guidelines that govern how financial statements are prepared, ensuring consistency,
reliability, and comparability across organizations. They provide a framework for the accounting
practices used in preparing and reporting financial information, which helps stakeholders make
informed decisions.

International Accounting Standards Board

The International Accounting Standarda Board (IASB), is an independent body formed in 2001
with the sole responsibility of establishing the International Financial Reporting Standards
(IFRS). It succeeded the International Accounting Standards Committee (IASC). which was
earlier given the responsibility of establishing the international accounting standards.

IASB is based in London. It has also provided the 'Conceptual Framework for Financial
Reporting' issued in September 2010 which provides a conceptual understanding and the basis
of the accounting practices under IFRS.

International Financial Reporting Standards (IFRS) IFRS are a set of international accounting
standards stating how particular types of transactions and other events should be reported in
financial statements. IFRS are issued by the International Accounting Standards Board (IASB),
and they specify exactly how accountants must maintain and report their accounts. IFRS are
standard in many parts of the world, including the European Union (EU) and many countries in
Asia and South America, but not in the United States.

The IFRS Foundation is a not-for-profit, public interest organisation established to develop a

single set of high-quality, understandable, enforceable and globally accepted accounting
standards IFRS Standards and to promote and facilitate adoption of the standards. IFRS
Standards are set by the IFRS Foundation's standard-setting body, the International Accounting
Standards Board. The mission is to develop IFRS Standards that bring transparency,
accountability and efficiency to financial markets around the world.
International Accounting Standards (IAS) vs. IFRS

The international accounting standards (IAS) were an older set of standards stating how
particular types of transactions and other events should be reflected in financial statements. In
the past, international accounting standards were issued by the Board of the International
Accounting Standards Committee (IASC); since 2001, the new set of standards has been known
as the international financial reporting standards (IFRS) and has been issued by the
International Accounting Standards Board (IASB).

IFRS vs IAS-Keypoints:

 IAS stands for International Accounting Standards, while IFRS refers to International
Financial Reporting Standards.

 IAS standards were published between 1973 and 2001, while IFRS standards were
published from 2001 onwards. IAS standards were issued by the IASC, while the IFRS are
issued by the IASB, which succeeded the IASC.

 Principles of the IFRS take precedence if there's contradiction with those of the IAS, and
this results in the IAS principles being dropped.

Financial Statements under IFRS:

 A statement of financial position as at the end of the period - more commonly known to
us as the "Balance sheet'.

 A statement of profit and loss for the year and the statement of other comprehensive
income Other comprehensive income would include those items of income/expense that
are not recognized in the profit and loss account to comply with the other relevant
standards.

 A statement of changes in equity This would include a reconciliation between amounts

shown at the beginning and the end of the year.

 A statement of cash flows for the period.

 Notes to the financial statements including a summary of significant accounting policies

followed and other explanatory information.

IFRS vs. US GAAP

The largest difference between the US GAAP (Generally Accepted Accounting Principles) and
IFRS is that IFRS is principle-based while GAAP is rule-based. Rule-based frameworks are more
rigid and allow less room for interpretation, while a principle-based framework allows for more
flexibility.
Indian Accounting Standard

Indian Accounting Standard (abbreviated as Ind-AS) Ind-AS are the Accounting standard
adopted by companies in India and issued under the supervision and control of Accounting
Standards Board (ASB), which was constituted as a body in the year 1977. IND AS are basically
standards that have been harmonised with the IFRS to make reporting by Indian companies
more globally accessible. Ind AS are named and numbered in the same way as the
corresponding International Financial Reporting Standards (IFRS). National Advisory Committee
on Accounting Standards (NACAS) recommend these standards to the Ministry of Corporate
Affairs (MCA). Ind AS shall be applied to the companies of financial year 2015- 16 voluntarily
and from 2016-17 on a mandatory basis.

Accounting Standards Board In order to harmonise varying accounting policies and practices,
the Institute of Chartered Accountants of India (ICAI) formed the Accounting Standards Board
(ASB) in April, 1977. ASB includes representatives from industry and government. The main
function of the ASB is to formulate accounting standards. This Board of the Institute of
Chartered Accountants of India has so far formulated around 27 Accounting Standards.

The Accounting Standards Board was established in 1977 as a regulator and body. ASB is a
professional and autonomous body managed by the Institute of Chartered Accountants of India.
(ICAI). Apart from this, there are other bodies such as Confederation of Indian Industry (CII),
Federation of Indian Chambers of Commerce and Industry (FICCI) and Associated Chambers of
Commerce and Industry of India (ASSOCHAM) which regulate ASB.

Individuals, professors and academics from the above-mentioned bodies acquire different
standards with regard to accounting. Indian accounting standards were developed to harmonize
standards related to international accounting and reporting. International Accounting Standards
comply with International Financial Reporting Standards (IFRS). The Indian government body
that recommends this standard to the Department of Corporate Affairs is the National Advisory
Committee on Accounting Standards (NACAS).

MCA has notified a phase-wise convergence to IND AS from current accounting standards. IND
AS shall be adopted by specific classes of companies based on their Net worth and listing
status.

Phase 1

 It is a listed or unlisted company.

 Mandatory applicability of IND AS to all companies from 1st April 2016, provided:

 Its Net worth is greater than or equal to Rs. 500 crore.

Phase II

 Mandatory applicability of IND AS to all companies from 1st April 2017, provided:
  It is a listed company or is in the process of being listed.

 Its Net worth is greater than or equal to Rs. 250 crore but less than Rs. 500 crore (for any
of the below mentioned periods).

Phase III

 Mandatory applicability of IND AS to all Banks, NBFCs, and Insurance companies from
1st April 2018, whose:

 Net worth is more than or equal to INR 500 crore with effect from 1st April 2018.

Phase IV

 All NBFCs whose Net worth is more than or equal to INR 250 crore but less than INR 500
crore shall have IND AS mandatorily applicable to them with effect from 1st April 2019.

Following are the objectives of applying Indian accounting standards:

1. Ensure companies in India adopt these standards to implement internationally

recognized best practices.

2. Ensure that compliance is maintained worldwide.

3. The standard was developed in accordance with IFRS principles. Therefore, it serves as
a guide for the implementation of the standard.

4. Have a single framework for a single accounting system.

5. Accounting systems used in India can be analyzed and understood by global companies.

6. This will make the annual financial statements and company accounts transparent.

7. These standards are harmonized to ensure that companies comply with global
requirements.

8. A wider scope is acceptable through this Indian accounting standard as Indian

companies have expanded their global scope as compared to the past.

Note: Ind-AS are not exact replica of IFRS. There are carve-in and carve-out:

CARVE OUT ----------> Deviation in IND AS from IFRS

CARVE IN ----------> Additional note in IND AS which is not present in IFRS

Accounting Standard
As No Description As Description
No

1 Disclosure of Accounting Principles 16 Borrowing Costs

2 Valuation of Inventories 17 Segment Reporting

3 Cash Flow Statements 18 Related Party Disclosures

4 Contingencies and Events Occurring 19 Leases

After the Balance Sheet Date

5 Net Profit or Loss for the Period, Prior 20 Earnings Per Share
Period Items and Changes in
Accounting Policies

7 Construction Contracts (Revised 21 Consolidated Financial Statements

2002)

9 Revenue Recognition 22 Accounting for taxes on income

10 Accounting for Fixed Assets 23 Accounting for Investments in

Associates in Consolidated Financial
Statements

11 The Effects Of Changes In Foreign 24 Discontinuing Operations

Exchange Rates (Revised 2003)

12 Accounting for Government Grants 25 Interim Financial Reporting

13 Accounting for Investments 26 Intangible Assets

14 Accounting for Amalgamations 27 Financial Reporting of Interests in Joint

Ventures

15 Employee Benefits (Revised 2005) 28 Impairment of Assets

29 Provisions, Contingent Liabilities and

Contingent Assets.
Accounting Standards vis-à-vis Ind AS
Ind-AS No Description AS- No Title

Ind-AS-101 First-time Adoption of Indian

Accounting Standards

Ind-AS-102 Share-based Payment

Ind-AS-103 Business Combinations AS 14 Accounting for Amalgamations

Ind-AS-104 Insurance Contracts

Ind-AS-105 Non-current Assets Held for Sale AS 24 Discontinuing Operations

and Discontinued Operations

Ind-AS-106 Exploration for and Evaluation of 5 Guidance Note on Accounting for

Mineral Resources Oil and Gas Producing Activities

Ind-AS-107 Financial Instruments: Disclosures AS 32 Financial Instruments: Disclosures

Ind-AS-108 Operating Segments AS 17 Segment Reporting

Ind-AS-109 Financial Instruments AS 30 Financial Recognition and

Measurement Instruments:

Ind-AS-110 Consolidated Financial Statements AS 21 Consolidated Statements Financial

Ind-AS-111 Joint Arrangements AS 27 Financial Reporting of Interests in

Joint Ventures

Ind-AS-112 Disclosure of Interests in Other

Entities

Ind-AS-113 Fair Value Measurement

Ind-AS-114 Regulatory Deferral Accounts

Ind-AS-115 Revenue from Contracts with AS 7, Construction Contract, Revenue

Customers AS 9 Recognition

Ind-AS-116 Leases AS 19 Leases

Ind-AS-1 Presentation of Financial AS 1 Disclosure of Accounting Policies

Statements

Ind-AS-2 Inventories AS 2 Valuation of Inventories

Ind-AS-7 Statement of Cash Flows AS 3 Cash Flow Statements

Ind-AS-8 Accounting Policies, Changes in AS 5 Net Profit or Loss for the Period,
Accounting Estimates and Errors Prior period Items and Changes in
Accounting Policies

Ind-AS-10 Events after the Reporting Period AS 4 Contingencies and Events Occurring
After the Balance Sheet Date

Ind-AS-12 Income Taxes AS 22 Accounting for Taxes on Income

Ind-AS-16 Property, Plant and Equipment AS 10 Property. Plant and Equipment

Ind-AS-19 Employee Benefits AS 15 Employee Benefits

Ind-AS-20 Accounting for Government Grants AS 12 Accounting for Government Grants

and Disclosure of Government
Assistance

Ind-AS-21 The Effects of Changes in Foreign AS 11 The Effects of Changes in Foreign

Exchange Rates Exchange Rates

Ind-AS-23 Borrowing Costs AS 16 Borrowing Costs

Ind-AS-24 Related Party Disclosures AS 18 Related Party Disclosures

Ind-AS-27 Separate Financial Statements

Ind-AS-28 Investments in Associates and AS 23 Accounting for Investment in

Joint Ventures Associates in Consolidated
Financial Statements

Ind-AS-29 Financial Reporting in

Hyperinflationary Economies

Ind-AS-32 Financial Instruments :

Presentation

Ind-AS-33 Earnings per Share AS 20 Earnings per Share

Ind-AS-34 Interim Financial Reporting AS 25 Interim Financial Reporting

Ind-AS-36 Impairment of Assets AS 28 Impairment of Assets

Ind-AS-37 Provisions, Contingent Liabilities AS 29 Provisions, Contingent Liabilities

and Contingent Assets and Contingent Assets
Ind-AS-38 Intangible Assets AS 26 Intangible Assets

Ind-AS-40 Investment Property AS 13 Accounting for Investments

Ind-AS-41 Agriculture

Comparison Chart Showing the 'International Financial Reporting

Standards (IFRS)'/ 'International Accounting Standards (IAS)' and the
Corresponding 'Indian Accounting Standards (Ind AS) notified by MCA:

The International Financial Reporting Standards (IFRS) and International Accounting Standards
(IAS) form a comprehensive framework for financial reporting, ensuring consistent and
comparable accounting practices worldwide. IAS were issued by the International Accounting
Standards Committee (IASC) prior to 2001, when the responsibility shifted to the International
Accounting Standards Board (IASB), which developed IFRS. Here’s a rundown of the major IAS
that remain integral to the IFRS framework, along with explanations for each:
 IAS 1: Presentation of Financial Statements: IAS 1 lays down the guidelines for how
financial statements should be structured to ensure clarity, uniformity, and transparency.
It mandates that entities present a complete set of financial statements, which includes
the balance sheet, income statement, statement of changes in equity, and cash flow
statement, along with explanatory notes. This standard emphasizes fair presentation,
requiring entities to disclose all material information that affects the company’s financial
position and performance, giving stakeholders a clear, comparable overview of financial
health and performance.

 IAS 2: Inventories: IAS 2 addresses the treatment of inventory costs, requiring

inventories to be recorded at the lower of cost or net realizable value, which helps
prevent overstating assets. It details acceptable cost calculation methods, such as FIFO
and weighted average cost, to ensure inventory values are accurate and reflective of
current market conditions. By standardizing inventory reporting, IAS 2 aids stakeholders
in understanding the real value and liquidity of a company's stock.

 IAS 7: Statement of Cash Flows: This standard requires companies to prepare a cash
flow statement, divided into operating, investing, and financing activities. It allows
stakeholders to see how cash moves within the company, offering insight into liquidity,
solvency, and the company's capacity to generate cash from its core operations. IAS 7 is
essential for analyzing a company’s ability to maintain operations, expand, and pay
dividends, providing a direct view of cash movement and financial stability.

 IAS 8: Accounting Policies, Changes in Accounting Estimates, and Errors: IAS 8

prescribes guidelines for selecting and applying accounting policies consistently. It also
provides a framework for adjusting financial records to account for changes in
estimates or the correction of errors, thus ensuring that changes are well-documented
and justified. This standard promotes consistency over time, ensuring that comparability
is maintained despite necessary adjustments, thereby aiding users in understanding how
financial results are determined.

 IAS 10: Events After the Reporting Period: IAS 10: distinguishes between adjusting and
non-adjusting events that occur after the reporting period but before the financial
statements are issued. Adjusting events, such as significant financial transactions that
reflect conditions at the reporting date, must be incorporated into the financials. Non-
adjusting events are disclosed separately. This helps prevent misleading financial
statements and provides stakeholders with a complete picture of post-reporting date
developments.

 IAS 12: Income Taxes: This standard provides detailed guidance on accounting for
income taxes, ensuring both current and deferred taxes are accurately represented. It
requires companies to recognize deferred tax liabilities or assets for the temporary
differences between book and tax values, aligning tax effects with the entity’s financial
 performance. IAS 12’s structured approach allows for better alignment of tax-related
expenses, promoting accurate reporting and compliance with tax laws.

 IAS 16: Property, Plant, and Equipment: IAS 16 outlines the accounting treatment for
tangible fixed assets, such as machinery, equipment, and buildings, which are essential
to a company’s operations. The standard mandates that these assets be initially
recorded at cost, with options to later revalue them based on fair market value. IAS 16
promotes accuracy by ensuring depreciation and impairment are regularly assessed,
preventing overvaluation and ensuring asset values reflect reality.

 IAS 19: Employee Benefits: IAS 19 requires entities to recognize employee benefits as
they are earned, covering short-term and long-term obligations, including pensions and
retirement benefits. This standard ensures that companies accurately disclose their
obligations to employees, reflecting both current costs and long-term commitments.
Accurate reporting of employee benefits is crucial for understanding a company’s future
financial commitments.

 IAS 20: Accounting for Government Grants and Disclosure of Government Assistance:
IAS 20 addresses the recognition of government grants, requiring that they be accounted
for systematically and logically. This ensures that grants and financial support are
recognized fairly and accurately, avoiding income distortion. It also calls for clear
disclosure of government support received, promoting transparency in the financial
impact of government assistance on the entity.

 IAS 21: The Effects of Changes in Foreign Exchange Rates: IAS 21 governs the
treatment of foreign currency transactions, requiring companies to translate these into
the presentation currency. It mandates recognition of exchange rate differences that
impact income and financial position, aiding stakeholders in understanding currency risk
exposure and its financial impact. This ensures that financial statements remain
relevant and comparable for multinational entities.

 IAS 23: Borrowing Costs: This standard defines the treatment of borrowing costs,
particularly those directly attributable to acquiring, constructing, or producing assets.
IAS 23 requires companies to capitalize these costs, integrating them into asset values
rather than expensing them. This reflects the true cost of assets, supporting more
accurate financial statements and providing a clearer picture of financing costs
associated with significant investments.

 IAS 24: Related Party Disclosures: IAS 24 mandates disclosure of transactions and
balances with related parties, ensuring that relationships that could influence financial
results are transparent. By requiring companies to disclose these transactions, IAS 24
promotes trust, helping users of financial statements assess potential conflicts of
interest and the fairness of transactions.
 IAS 26: Accounting and Reporting by Retirement Benefit Plans: IAS 26 establishes the
requirements for retirement benefit plans to provide clear information on plan assets,
liabilities, income, and expenses. It ensures that financial reports accurately reflect the
position and performance of retirement plans, promoting accountability for funds
managed on behalf of beneficiaries.

 IAS 27: Separate Financial Statements: This standard addresses the preparation of
financial statements that separate an entity’s results from those of its investments. IAS
27 requires specific treatments for investments in subsidiaries, associates, and joint
ventures, providing clarity on how a company’s financials are distinct from its
investments.

 IAS 28: Investments in Associates and Joint Ventures: IAS 28 requires entities to use
the equity method for investments in associates and joint ventures, ensuring that the
financial performance of these investments is accurately represented. This method
provides a realistic view of the investor’s share in profits and losses, supporting a fair
assessment of joint ventures and partnerships.

 IAS 29: Financial Reporting in Hyperinflationary Economies: In hyperinflationary

economies, IAS 29 requires restating financial statements to reflect the erosion of
purchasing power. It enables companies to adjust assets, liabilities, income, and
expenses for inflation, ensuring that the financial statements are not misleading due to
currency devaluation.

 IAS 32: Financial Instruments: Presentation: This standard clarifies how financial
instruments should be presented as liabilities or equity, distinguishing between debt and
equity financing. IAS 32 promotes clarity and consistency in the reporting of complex
financial instruments, improving user understanding of financial obligations and
ownership.

 IAS 33: Earnings per Share: IAS 33 standardizes the calculation of earnings per share
(EPS), ensuring consistency across entities. It aids investors in comparing profitability
on a per-share basis, making it easier to assess a company’s performance relative to its
peers.

 IAS 34: Interim Financial Reporting: IAS 34 sets the guidelines for interim reporting,
ensuring timely disclosure of financial performance during the year. This standard helps
companies provide stakeholders with up-to-date information, making it possible to
assess a company’s performance before the year-end.

 IAS 36: Impairment of Assets: This standard requires companies to test for impairment,
ensuring that assets are not overstated. IAS 36 mandates that assets be valued at
recoverable amounts, promoting transparency and providing a realistic view of asset
values in the company’s balance sheet.
 IAS 37: Provisions, Contingent Liabilities, and Contingent Assets: IAS 37 addresses the
recognition of provisions, contingent liabilities, and assets, ensuring that potential
obligations and risks are accurately disclosed. It prevents entities from misrepresenting
or underreporting potential liabilities, fostering transparency in financial obligations.

 IAS 38: Intangible Assets: IAS 38 covers the recognition and valuation of intangible
assets like patents and trademarks. It requires companies to amortize these assets
systematically, ensuring their value is accurately represented, reflecting both the
potential and limitations of intangible resources.

 IAS 40: Investment Property: This standard provides guidance for recognizing and
measuring investment properties, allowing for either cost or fair value accounting. IAS
40’s requirements ensure that companies consistently account for property held for
investment, which aids in understanding asset values for entities involved in real estate.

 IAS 41: Agriculture: IAS 41 applies to agricultural activity, covering biological assets like
crops and livestock. It requires valuation at fair value, ensuring these assets reflect
market conditions and providing a realistic view of the economic value within the
agriculture sector.

IFRS 1 through IFRS 14, which cover a range of important topics in international
financial reporting. Each standard addresses specific accounting areas, ensuring
consistent financial reporting practices worldwide.

 IFRS 1: First-time Adoption of International Financial Reporting Standards: IFRS 1

provides guidance for entities transitioning to IFRS for the first time. It requires
companies to prepare an opening IFRS statement of financial position and to apply IFRS
principles retrospectively to ensure comparability across financial statements. The
standard also provides some exemptions and reliefs to ease the transition, facilitating a
smoother adoption process.

 IFRS 2: Share-based Payment: This standard covers transactions where a company

compensates employees or other parties with shares, share options, or cash payments
based on share prices. IFRS 2 requires companies to recognize the fair value of share-
based payments as an expense over the vesting period, aligning costs with the period in
which the services are received, which promotes transparency in employee
compensation practices.

 IFRS 3: Business Combinations: IFRS 3 governs accounting for business acquisitions,

requiring companies to use the purchase method. This standard mandates the
recognition and fair valuation of identifiable assets, liabilities, and any goodwill arising
from acquisitions, with a focus on clear disclosure of acquisition impacts. It aims to
ensure consistent and comparable reporting for mergers and acquisitions.
 IFRS 4: Insurance Contracts: IFRS 4 is an interim standard that provides guidance on
accounting for insurance contracts until a more comprehensive standard, IFRS 17, was
issued. It allows insurers to continue with existing local practices but requires additional
disclosures, aiming to improve the transparency of the effects of insurance contracts on
financial statements.

 IFRS 5: Non-current Assets Held for Sale and Discontinued Operations: This standard
addresses the classification, measurement, and presentation of assets that are to be
sold or disposed of. IFRS 5 requires such assets to be classified as “held for sale” and
measured at the lower of carrying amount and fair value less costs to sell. It also
mandates separate reporting for discontinued operations, helping stakeholders identify
non-recurring parts of the business.

 IFRS 6: Exploration for and Evaluation of Mineral Resources: IFRS 6 provides guidance
for entities involved in mineral exploration and evaluation activities. It allows companies
to develop accounting policies specific to their operations and requires the assessment
of exploration assets for impairment. This standard helps standardize reporting for
entities in the natural resources sector, ensuring that exploration costs are managed
consistently.

 IFRS 7: Financial Instruments: Disclosures: IFRS 7 outlines requirements for the

disclosure of financial instruments, covering their significance, risk exposure, and
impact on financial performance. The standard emphasizes transparency around credit,
liquidity, and market risks associated with financial instruments, enabling users to
assess an entity’s risk profile and financial stability.

 IFRS 8: Operating Segments: IFRS 8 requires companies to disclose information on

their operating segments, reflecting how management views and assesses business
performance. Companies must report segment revenue, profit, assets, and liabilities
separately, providing stakeholders with insight into the distinct components of the
business and their individual contributions to the entity’s financial performance.

 IFRS 9: Financial Instruments: IFRS 9 covers the classification, measurement,

impairment, and hedge accounting of financial instruments. It introduced a new model
for expected credit losses to replace the previous incurred loss model, promoting timely
recognition of credit risks. This standard aims to align financial asset valuation with risk,
creating more accurate and responsive financial reporting.

 IFRS 10: Consolidated Financial Statements:IFRS 10 provides principles for preparing

and presenting consolidated financial statements for a group of entities under the
control of a parent. It defines “control” in terms of power over an investee, exposure to
variable returns, and the ability to affect returns, ensuring consistent practices in
determining and consolidating subsidiaries.
 IFRS 11: Joint Arrangements: This standard addresses the accounting treatment of joint
arrangements, classifying them into joint operations or joint ventures based on control
and rights. In joint operations, assets, liabilities, revenues, and expenses are recognized
directly, while joint ventures are accounted for using the equity method. IFRS 11
promotes consistent accounting for collaborative business activities.

 IFRS 12: Disclosure of Interests in Other Entities: IFRS 12 mandates disclosures about
an entity’s interests in subsidiaries, joint arrangements, associates, and unconsolidated
structured entities. It aims to provide transparency regarding the nature, risks, and
financial impact of these relationships on the reporting entity, helping users understand
potential exposure to risk and resource commitments.

 IFRS 13: Fair Value Measurement: This standard establishes a single framework for
measuring fair value across various IFRS standards. IFRS 13 defines fair value, clarifies
its application, and enhances disclosure requirements to ensure that fair value
measurements are transparent, consistent, and comparable. It helps stakeholders better
understand the basis of fair value calculations and the impacts on financial statements.

 IFRS 14: Regulatory Deferral Accounts: IFRS 14 allows first-time IFRS adopters that
operate in regulated environments to continue recognizing regulatory deferral accounts
in their financial statements. This interim standard permits entities to keep certain
accounting treatments for rate-regulated activities until the IASB develops a
comprehensive standard, supporting a smoother transition for entities with regulatory
assets or liabilities.

 Note :- IAS 11: Construction Contracts

IAS 11, now superseded by IFRS 15, previously provided guidance on the accounting
treatment for construction contracts. Its main purpose was to address the specific
financial reporting needs for long-term construction contracts that spanned multiple
accounting periods. Under IAS 11, companies were required to recognize revenue and
expenses associated with construction projects on a percentage-of-completion basis,
meaning revenue was recognized as the work progressed. This method required
companies to estimate the stage of completion of a contract, the expected costs to
complete it, and any anticipated losses, allowing revenues and costs to be recorded in
line with the project’s progress. If a contract was expected to incur a loss, IAS 11
mandated immediate recognition of the entire loss amount. This approach provided
stakeholders with timely information on project performance, financial obligations, and
overall profitability.

IAS 11 was replaced by IFRS 15, Revenue from Contracts with Customers, which
introduced a unified framework for revenue recognition across various industries,
including construction.
Indian Accounting Standards (Ind-As)

India's accounting standards, issued by the Institute of Chartered Accountants of India

(ICAI) and notified by the Ministry of Corporate Affairs, govern financial reporting
practices in the country. Known as Indian Accounting Standards (Ind AS), these
standards are largely converged with International Financial Reporting Standards (IFRS)
but have certain modifications to fit the Indian context. Here's an overview of the main
Ind AS, with brief explanations of each:

 Ind AS 1: Presentation of Financial Statements: Ind AS 1 prescribes the format

and presentation of financial statements, ensuring that they are comparable and
understandable. It requires entities to present a balance sheet, income statement,
statement of changes in equity, and cash flow statement, along with explanatory
notes. The objective is to provide a transparent and accurate depiction of a
company’s financial position and performance.

 Ind AS 2: Inventories: This standard deals with the valuation of inventories,

requiring them to be measured at the lower of cost or net realizable value. Ind AS
2 includes detailed guidance on cost determination, including acceptable
methods like FIFO and weighted average cost, promoting consistent inventory
reporting across entities.

 Ind AS 7: Statement of Cash Flows: Ind AS 7 mandates the preparation of a cash

flow statement, categorizing cash flows into operating, investing, and financing
activities. This provides stakeholders insight into the cash movements within an
organization, highlighting liquidity, solvency, and the ability to generate cash from
operations.

 Ind AS 8: Accounting Policies, Changes in Accounting Estimates, and Errors: Ind

AS 8 outlines the process for selecting and applying accounting policies,
addressing changes in estimates and errors in prior periods. It promotes
consistency in financial reporting and ensures that such changes are clearly
disclosed, maintaining comparability over time.

 Ind AS 10: Events after the Reporting Period: This standard addresses the
treatment of significant events that occur after the reporting period but before
the financial statements are issued. It differentiates between adjusting and non-
adjusting events, requiring companies to incorporate relevant events into their
financial results if they reflect conditions existing at the reporting date.

 Ind AS 12: Income Taxes: Ind AS 12 outlines the accounting for current and
 deferred taxes, ensuring accurate tax reporting. It requires entities to recognize
deferred tax liabilities or assets for temporary differences between accounting
and tax treatments, aligning tax impacts with the company’s financial
performance.

 Ind AS 16: Property, Plant, and Equipment: This standard prescribes the
accounting treatment for tangible assets like buildings, machinery, and
equipment. Ind AS 16 requires these assets to be initially recorded at cost and
subsequently depreciated. It also allows entities to choose between the cost
model and the revaluation model, ensuring asset values reflect true worth.

 Ind AS 17: Leases: Ind AS 17 provides guidance on lease accounting, classifying

leases as either operating or finance leases based on the transfer of risks and
rewards. Lessees and lessors recognize assets, liabilities, revenue, and expenses
differently depending on the classification, aligning financial reporting with lease
terms.

 Ind AS 19: Employee Benefits: This standard covers accounting for employee
benefits, including pensions, retirement plans, and short-term benefits. Ind AS 19
requires entities to recognize obligations as they arise, providing an accurate
picture of long-term commitments to employees.

 Ind AS 20: Accounting for Government Grants and Disclosure of Government

Assistance: Ind AS 20 governs the recognition and disclosure of government
grants. It ensures that such grants are systematically recognized, avoiding
income distortion, and that entities disclose any government support they receive,
promoting transparency in public assistance.

 Ind AS 21: The Effects of Changes in Foreign Exchange Rates: Ind AS 21

outlines how to handle foreign currency transactions and translate financial
statements into the functional currency. It also requires entities to account for
exchange rate differences, ensuring accurate representation of currency risk in
financial statements.

 Ind AS 23: Borrowing Costs: This standard deals with borrowing costs that are
directly attributable to acquiring or constructing assets, requiring capitalization
of such costs. Other borrowing costs are typically expensed. This ensures that
the value of assets reflects the cost of financing them.

 Ind AS 24: Related Party Disclosures: Ind AS 24 requires entities to disclose

transactions and relationships with related parties, including family members,
 associates, and entities under common control. This transparency allows
stakeholders to assess potential conflicts of interest.

 Ind AS 27: Separate Financial Statements: This standard governs the

preparation of financial statements for a parent company that elects to or is
required to present separate financial statements. Ind AS 27 provides
consistency in accounting for investments in subsidiaries, joint ventures, and
associates.

 Ind AS 28: Investments in Associates and Joint Ventures: Ind AS 28 specifies

the equity method for accounting investments in associates and joint ventures. It
allows entities to reflect the investor’s share of profits or losses, providing a
realistic view of joint ventures’ financial impact.

 Ind AS 32: Financial Instruments: Presentation: This standard sets requirements

for classifying financial instruments as liabilities or equity. Ind AS 32 ensures
consistent presentation of complex instruments, clarifying an entity's obligations
versus ownership interests.

 Ind AS 33: Earnings per Share: Ind AS 33 provides a method for calculating
earnings per share (EPS), allowing investors to assess company profitability
based on share performance. This enables comparability across companies on a
per-share basis.

 Ind AS 34: Interim Financial Reporting: This standard prescribes minimum

requirements for interim financial reports, ensuring that companies present
relevant financial information periodically. This provides stakeholders with a
timely view of financial performance.

 Ind AS 36: Impairment of Assets: Ind AS 36 mandates companies to test for

asset impairment regularly. If an asset’s carrying amount exceeds its recoverable
amount, an impairment loss is recognized, preventing overstatement of assets.

 Ind AS 37: Provisions, Contingent Liabilities, and Contingent Assets: Ind AS 37

covers the recognition of provisions and disclosure of contingent liabilities and
assets, promoting accuracy in accounting for potential obligations and uncertain
events.

 Ind AS 38: Intangible Assets: This standard governs the recognition,

measurement, and amortization of intangible assets, such as patents and
trademarks. Ind AS 38 ensures that these assets are valued correctly, reflecting
 their long-term value to the business.

 Ind AS 40: Investment Property: Ind AS 40 covers accounting for property held
for investment purposes. It allows entities to choose between the cost model
and fair value model, providing flexibility in valuation and helping users
understand the value of investment property.

 Ind AS 41: Agriculture: Ind AS 41 applies to agricultural activities and biological

assets. It requires assets to be measured at fair value, reflecting the current
market conditions in agriculture and allowing users to understand the impact of
biological transformation.

 Ind AS 102: Share-based Payment: Ind AS 102 provides guidance on recognizing

share-based payments, ensuring the fair value of such payments is recorded as
an expense over the vesting period. This promotes transparency in employee
compensation.

 Ind AS 103: Business Combinations: Ind AS 103 governs the treatment of

mergers and acquisitions, requiring the acquisition method for business
combinations. It ensures that assets, liabilities, and goodwill are measured at fair
value, providing stakeholders with a clear view of the financial impact of
business acquisitions.

 Ind AS 105: Non-current Assets Held for Sale and Discontinued Operations: Ind
AS 105 provides guidance on classifying and presenting assets that are intended
for sale. It requires separate reporting for discontinued operations, giving
stakeholders an understanding of non-recurring parts of the business.

 Ind AS 109: Financial Instruments: Ind AS 109 deals with the classification,
measurement, impairment, and hedge accounting for financial instruments. It
aligns financial instrument valuation with credit risk, promoting timely
recognition of expected credit losses.

 Ind AS 110: Consolidated Financial Statements: Ind AS 110 provides a

framework for preparing consolidated financial statements, defining the concept
of control and requiring entities to consolidate all subsidiaries they control.

 Ind AS 111: Joint Arrangements: This standard addresses the accounting for
joint arrangements, distinguishing between joint operations and joint ventures.
 Ind AS 111 requires different accounting treatments depending on the nature of
control in joint arrangements.

 Ind AS 112: Disclosure of Interests in Other Entities: Ind AS 112 mandates

disclosure requirements for entities with interests in subsidiaries, joint
arrangements, associates, and unconsolidated structured entities. It promotes
transparency regarding the nature and risk of these relationships.

 Ind AS 113: Fair Value Measurement: Ind AS 113 establishes a framework for
fair value measurement, providing a consistent approach across all Ind AS. It
defines fair value, outlines its application, and requires disclosures to enhance
transparency and comparability.

 Ind AS 114: Regulatory Deferral Accounts: Ind AS 114 allows first-time IFRS
adopters in regulated environments to continue recognizing regulatory deferral
accounts. This standard helps regulated entities transition to IFRS by permitting
existing practices for regulatory assets and liabilities.

Double entry System

According to this system the total amount debited always equals the total amount credited. It
follows from 'dual aspect concept that at any point in time owners' equity and liabilities for any
accounting entity will be equal to assets owned by that entity. E.g. Suppose Mr. A has
purchased goods of Rs.1000 for cash from Mr. B. so here, on one hand, he has received goods
and on the other hand the cash is given to Mr. B. So, you should have noticed that the goods
have been acquired by giving up cash. Therefore, as its name signifies, this system records both
the aspects of a single transaction, i.e. the increase in goods with the simultaneous decrease in
cash.

Due to two-fold effect, the system possesses completeness, accuracy as well as it matches
with the Generally Accepted Accounting Principles (GAAP). A complete procedure is there for
recording every transaction. The procedure starts from source documents, followed by the
journal, ledger, trial balance, then at the end financial statements are prepared. There are fewer
chances of fraud and embezzlement because the full-fledged recording of transactions is done
in this system. Errors can easily be detected. Further, the accounts can be reconciled, due to the
two-fold aspect. Tax laws also recommend Double Entry System to record transactions.
Although a person should be professionally skilled to maintain records as per this system.
Moreover, due to the complexity of this system, it is time-consuming too.
Key Differences Between Single Entry System and Double Entry System.

1. The bookkeeping system in which only one aspect of a transaction is recorded, i.e. either debit or credit,
is known as Single Entry System. Double Entry System, is a system of keeping records, whereby both the
aspects of a transaction are captured.

2. Single Entry Transaction is simple and easy whereas Double Entry System is complex as well as it
requires expertise in accounting for maintaining records.

3. In single entry system, incomplete records are maintained while in double entry system complete
recording of transactions is there. . In single entry system comparison between two accounting periods is
very difficult.

4.Conversely, we can easily compare two accounting periods in the double entry system.

5. Single Entry System maintains personal and cash accounts. On the other hand, personal, real and
nominal accounts are kept in Double Entry System.

6. The Single Entry system is best suited for small enterprises, but big organisations prefer Double Entry
System.

7. Frauds and embezzlement are easy to identify in double entry system which cannot be located in single
entry system.

Accounting Cycle

Accounting cycle or accounting process includes the following:

(a) Identifying the transactions from source documents like purchase orders, loan agreements, invoices,
etc.

(b) Recording the transactions in the journal proper and other subsidiary books as and when they take
place.

(C)Classifying all entries posted in the journal or subsidiary books and posting them to the appropriate
ledger accounts.

(d) Summarising all the ledger balances and preparing the trial balance and final accounts with a view to
ascertaining the profit or loss made during a particular period and ascertaining the financial position of
the business on that particular date.
Journal: Journal is the book of primary entry in which every transaction is recorded before
being posted into the ledger. It is that book of account in which transactions are recorded in a
chronological (day to day) order.

Compound Journal Entry: Transactions which are inter-connected and have taken place.
simultaneously are recorded by means of a compound or combined journal entry. For example
receipt of cash from a debtor and allowance of discount to him are recorded by means of a
single journal entry.

Subsidiary Books of Accounts: It is not advisable to record all transactions in one journal for
large business organizations. Therefore, the journal is sub-divided into many subsidiary books.
The sub-division of journal into various subsidiary journals in which transactions of similar
nature are recorded are called subsidiary books. The following are the subsidiary books:

Double Column Cash Book: It has two amount columns on both sides; one is for cash and
another is for discount. Cash column is meant for recording cash receipts and payments while
discount column is meant for recording discount received and allowed..

Discount columns are merely memorandum columns. Discount allowed account and discount
received account are opened in the ledger and the totals of discount columns are posted to
these accounts

Triple Column Cash Book: This type of cash book contains the following three amount columns
on each side:

(a) Discount column for discount received and allowed;

(b) Cash column for cash received and cash paid; and

(c) Bank column for money deposited and money withdrawn from the bank.

When triple column cash book is prepared, there is no need for a separate bank account in the
ledger.
Petty Cash Book Payments in cash of small amounts like traveling expenses, postage, carriage
etc. are petty cash expenses. These petty cash expenses are recorded in the petty cash book.

Opening Entries - Opening entries are passed at the beginning of the financial year to open the
accounts by recording the assets, liabilities and capital appearing in the balance sheet of the
previous year. Assets have a debit balance and therefore, assets are debited in the opening
entry, while liabilities have a credit balance and are therefore credited in the opening entry. One
sample journal entry can be represented as:

Assets A/c Dr.

To Liabilities A/c

To Capital A/c

Closing entries - Closing entries are passed at the end of the accounting year for closing of
accounts relating to expenses and revenues. These accounts are closed by transferring their
balances to the Trading and Profit & Loss Account.

Adjustment Entries: At the end of the accounting year, adjustments entries are passed for
outstanding/prepaid expenses, accrued income/income received in advance etc. Entries for all
these adjustments are passed in the journal proper.

Transfer Entries - Transfer entries are passed in the general journal for transferring an item.
entered in one account to another account. All expenses and income accounts are closed by
transferring them to the respective revenue accounts such as trading Accounts and profit and
loss accounts for examples salaries account of the current year does not again up the next year.

Ledger - Ledger is the principal book of accounts where similar transactions relating to a
particular person or property or revenue or expense are recorded. The main function of a ledger
is to classify or sort out all the items appearing in the journal or other subsidiary books under
their appropriate accounts so that at the end of the accounting period each account will contain
the entire information of all the transactions relating to it in a summarised or condensed form.

Trial Balance - A trial balance is a schedule or list of debit and credit balances extracted from
various accounts in the ledger including cash and bank balances from cash book. Since every
transaction has a dual effect i.e. every debit has a corresponding credit and vice versa, the total
of the debit balances and credit balances extracted from the ledger must tally.