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Accounting Standard
Accounting Standard
Valuation of Inventories
1. This Statement should be applied in accounting for inventories other than: 48 AS 2 (revised 1999) (a) work in progress arising under construction contracts, including directly related service contracts (see Accounting Standard (AS) 7, Accounting for Construction Contracts3); (b) work in progress arising in the ordinary course of business of service providers; (c) shares, debentures and other financial instruments held as stock-in-trade; and (d) producers inventories of livestock, agricultural and forestproducts, and mineral oils, ores and gases to the extent that they are measured at net realisable value in accordance. 2. The inventories referred to in paragraph 1 (d) aremeasured at net realisable value at certain stages of production. This occurs, for example, when agricultural crops have been harvested or mineral oils, ores and gases have been extracted and sale is assured under a forward contract or a government guarantee, orwhen ahomogenousmarket exists and there is a negligible risk of failure to sell.These inventories are excluded fromthe scope of this Statement..
Measurement of Inventories
5. Inventories should be valued at the lower of cost and net realisable value. Cost of Inventories 6. The cost of inventories should comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
Costs of Purchase
7. The costs of purchase consist of the purchase price including duties and taxes (other than those subsequently recoverable by the enterprise from the taxing authorities), freight inwards and other expenditure directly attributable to the acquisition. Trade discounts, rebates, duty drawbacks and other similar items are deducted in determining the costs of purchase. Costs of Conversion 8. The costs of conversion of inventories include costs directly related to the units of production, such as direct labour. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods. Fixed production overheads are those indirect costs of production that remain relatively constant regardless of the volume of production, such as depreciation and maintenance of factory buildings and the cost of factory management and administration. Variable production overheads are those indirect costs of production that vary directly, or nearly directly, with the volume of production, such as indirect materials and indirect labour.
This revised standard comes into effect in respect of accounting periods commencing on or after 1.4.1995 and is mandatory in nature.3 It is clarified that in respect of accounting periods commencing on a date prior to 1.4.1995, Accounting Standard 4 as originally issued in November 1982 (and subsequently made mandatory) applies. The amount of a contingent loss should be provided for by a charge in the statement of profit and loss if: (a) it is probable that future events will confirm that, after taking into account any related probable recovery, an asset has been impaired or a liability has been incurred as at the balance sheet date, and (b) a reasonable estimate of the amount of the resulting loss can be made. 11. The existence of a contingent loss should be disclosed in the financial statements if either of the conditions in paragraph 10 is not met, unless the possibility of a loss is remote. 12. Contingent gains should not be recognised in the financial statements. Events Occurring after the Balance Sheet Date 13. Assets and liabilities should be adjusted for events occurring after the balance sheet date that provide additional evidence to assist the estimation of amounts relating to conditions existing at the balance sheet date or that indicate that the fundamental accounting assumption of going concern (i.e., the continuance of existence or substratum of the enterprise) is not appropriate. 14. Dividends stated to be in respect of the period covered by the financial statements, which are proposed or declared by the enterprise after the balance sheet date but before approval of the financial statements, should be adjusted. 15. Disclosure should be made in the report of the approving authority of those events occurring after the balance sheet date that represent material changes and commitments affecting the financial position of the enterprise. 16. If disclosure of contingencies is required by paragraph 11 of this Statement, the following information should be provided: (a) the nature of the contingency; (b) the uncertainties which may affect the future outcome; (c) an estimate of the financial effect, or a statement that such an estimate cannot be made. 17. If disclosure of events occurring after the balance sheet date in the report of the approving authority is required by paragraph 15 of this Statement, the following information should be provided: (a) the nature of the event; (b) an estimate of the financial effect, or a statement that such an estimate cannot be made.
Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies
The objective of this Statement is to prescribe the classification and disclosure of certain items in the statement of profit and loss so that all enterprises prepare and present such a statement on a uniform basis. This enhances the comparability of the financial statements of an enterprise over time and with the financial statements of other enterprises. Accordingly, this Statement requires the classification and disclosure of extraordinary and prior period items, and the disclosure of certain items within profit or loss from ordinary activities. It also specifies the accounting treatment for changes in accounting estimates and the disclosures to bemade in the financial statements regarding changes in accounting policies.
Depreciation Accounting
The following is the text of the revised Accounting Standard (AS) 6, Depreciation Accounting, issued by the Council of the Institute of Chartered Accountants of India. 1. This Statement deals with depreciation accounting and applies to all depreciable assets, except the following items to which special considerations apply: (i) forests, plantations and similar regenerative natural resources; (ii) wasting assets including expenditure on the exploration for and extraction ofminerals, oils, natural gas and similar non-regenerative resources; (iii) expenditure on research and development; (iv) goodwill; (v) live stock. This statement also does not apply to land unless it has a limited useful life for the enterprise. 2. Different accounting policies for depreciation are adopted by different enterprises. Disclosure of accounting policies for depreciation followed by an enterprise is necessary to appreciate the view presented in the financial statements of the enterprise.
Construction Contracts
Accounting Standard (AS) 7, Construction Contracts (revised 2002), issued by the Council of the Institute of Chartered Accountants of India, comes into effect in respect of all contracts entered into during accounting periods commencing on or after 1-4-2003 and is mandatory in nature2from that date. Accordingly, Accounting Standard (AS) 7, Accounting for Construction Contracts, issued by the Institute in December 1983, is not applicable in respect of such contracts. Early application of this Standard is, however, encouraged.
Revenue Recognition
The following is the text of the Accounting Standard (AS) 9 issued by the Institute of Chartered Accountants of India on Revenue Recognition.2 In the initial years, this accounting standard will be recommendatory in character. During this period, this standard is recommended for use by companies listed on a recognised stock exchange and other large commercial, industrial and business enterprises in the public and private sectors.3
1. This Statement deals with the bases for recognition of revenue in the statement of profit and loss of an enterprise. The Statement is concerned with the recognition of revenue arising in the course of the ordinary activities of the enterprise from the sale of goods
Employee Benefits
Accounting Standard (AS) 15, Employee Benefits (revised 2005), issued by the Council of the Institute of Chartered Accountants of India, comes into effect in respect of accounting periods commencing on or after April 1, 2006 and is mandatory in nature2 from that date: (a) in its entirety, for the enterprises which fall in any one or more of the following categories, at any time during the accounting period: (i) Enterprises whose equity or debt securities are listed whether in India or outside India. (ii) Enterprises which are in the process of listing their equity or debt securities as evidenced by the board of directors resolution in this regard. (iii) Banks including co-operative banks. (iv) Financial institutions. (v) Enterprises carrying on insurance business. (vi) All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accountingperiod on the basis of audited financial statements exceedsRs. 50 crore. Turnover does not include other income. (vii) All commercial, industrial and business reporting enterprises having borrowings, including public deposits, in excess of Rs. 10 crore at any time during the accounting period.
(viii) Holding and subsidiary enterprises of any one of the above at any time during the accounting period.
Borrowing Costs
Objective
The objective of this Statement is to prescribe the accounting treatment for borrowing costs.
Scope
1. This Statement should be applied in accounting for borrowing costs. 2. This Statement does not deal with the actual or imputed cost of owners equity, including preference share capital not classified as a liability. 3. Borrowing costs may include: (a) interest and commitment charges on bank borrowings and other short-term and long-term borrowings; (b) amortisation of discounts or premiums relating to borrowings; (c) amortisation of ancillary costs incurred in connection with the arrangement of borrowings; (d) finance charges in respect of assets acquired under finance leases or under other similar arrangements; and (e) exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs4
Segment Reporting
Accounting Standard (AS) 17, Segment Reporting, issued by the Council of the Institute of Chartered Accountants of India, comes into effect in respect of accounting periods commencing on or after 1.4.2001. This Standard is mandatory in nature2 in respect of accounting periods commencing on or after 1-4-20043 for the enterprises which fall in any one ormore of the following categories, at any time during the accounting period: (i) Enterprises whose equity or debt securities are listed whether in India or outside India. (ii) Enterprises which are in the process of listing their equity or debt securities as evidenced by the board of directors resolution in this regard. (iii) Banks including co-operative banks. (iv) Financial institutions. (v) Enterprises carrying on insurance business.
(vi) All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds Rs. 50 crore. Turnover does not include other income. (vii) All commercial, industrial and business reporting enterprises having borrowings, including public deposits, in excess ofRs. 10 crore at any time during the accounting period. (viii) Holding and subsidiary enterprises of any one of the above at any time during the accounting period. The enterprises which do not fall in any of the above categories are not required to apply this Standard.
Leases
Accounting Standard (AS) 19, Leases, issued by the Council of the Institute of Chartered Accountants of India, comes into effect in respect of all assets leased during accounting periods commencing on or after 1.4.2001 and is mandatory in nature2 from that date. Accordingly, the Guidance Note on Accounting for Leases issued by the Institute in 1995, is not applicable in respect of such assets. Earlier application of this Standard is, however, encouraged. In respect of accounting periods commencing on or after 1-4-20043 , an enterprise which does not fall in any of the following categories need not disclose the information required by paragraphs 22(c), (e) and (f); 25(a), (b) and (e); 37(a), (f) and (g); and 46(b), (d) and (e), of this Standard: (i) Enterprises whose equity or debt securities are listed whether in India or outside India. (ii) Enterprises which are in the process of listing their equity or debt securities as evidenced by the board of directors resolution in this regard. (iii) Banks including co-operative banks. (iv) Financial institutions. (v) Enterprises carrying on insurance business.
(vi) All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds Rs. 50 crore. Turnover does not include other income. (vii) All commercial, industrial and business reporting enterprises having borrowings, including public deposits, in excess ofRs. 10 crore at any time during the accounting period. (viii) Holding and subsidiary enterprises of any one of the above at any time during the accounting period. In respect of an enterprise which falls in any one or more of the above categories, at any time during the accounting period, the Standard is applicable in its entirety.
Objective
The objective of this Statement is to prescribe principles for the determination and presentation of earnings per share which will improve comparison of performance among different enterprises for the same period and among different accounting periods for the same enterprise. The focus of this Statement is on the denominator of the earnings per share calculation. Even though earnings per share data has limitations because of different accounting policies used for determining earnings, a consistently determined denominator enhances the quality of financial reporting.
Objective
The objective of this Statement is to lay down principles and procedures for preparation and presentation of consolidated financial statements. Consolidated financial statements are presented by a parent (also known as holding enterprise) to provide financial information about the economic activities of its group. These statements are intended to present financial information about a parent and its subsidiary(ies) as a single economic entity to show the economic resources controlled by the group, the obligations of the group and results the group achieves with its resources.
(a) All the accounting periods commencing on or after 01.04.2001, in respect of the following: i) Enterprises whose equity or debt securities are listed on a recognised stock exchange in India and enterprises that are in the process of issuing equity or debt securities thatwill be listed on a recognised stock exchange in India as evidenced by the board of directors resolution in this regard. ii) All the enterprises of a group, if the parent presents consolidated financial statements and the Accounting Standard is mandatory in nature in respect of any of the enterprises of that group in terms of (i) above. (b) All the accounting periods commencing on or after 01.04.2002, in respect of companies not covered by above. (c) All the accounting periods commencing on or after 01.04.2006, in respect of all other enterprises.
Objective
The objective of this Statement is to set out principles and procedures for recognising, in the consolidated financial statements, the effects of the investments in associates on the financial position and operating results of a group.
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Discontinuing Operations
Accounting Standard (AS) 24, Discontinuing Operations, issued by the Council of the Institute of Chartered Accountants of India, comes into effect in respect of accounting periods commencing on or after 1.4.2004. This Standard ismandatory in nature2 in respectof accountingperiods commencing on or after 14-20043 for the enterprises which fall in any one or more of the following categories, at any time during the accounting period: Enterprises whose equity or debt securities are listed whether in India or outside India. (ii) Enterprises which are in the process of listing their equity or debt securities as evidenced by the board of directors resolution in this regard. (iii) Banks including co-operative banks. (iv) Financial institutions. (v) Enterprises carrying on insurance business. (vi) All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds Rs. 50 crore. Turnover does not include other income. (vii) All commercial, industrial and business reporting enterprises having borrowings, including public deposits, in excess ofRs. 10 crore at any time during the accounting period.
(viii) Holding and subsidiary enterprises of any one of the above at any time during the accounting period. Earlier application is encouraged. The enterprises which do not fall in any of the above categories are not required to apply this Standard.
Objective
The objective of this Statement is to prescribe the minimum content of an interim financial report and to prescribe the principles for recognition and measurement in a complete or condensed financial statements for an interim period. Timely and reliable interimfinancial reporting improves the ability of investors, creditors, and others to understand an enterprise's capacity to generate earnings and cash flows, its financial condition and liquidity.
Intangible Assets
Accounting Standard (AS) 26, 'Intangible Assets', issued by the Council of the Institute of Chartered Accountants of India, comes into effect in respect of expenditure incurred on intangible items during accounting periods commencing on or after 1-4-2003 and ismandatory in nature2 fromthat date for the following: (i) Enterprises whose equity or debt securities are listed on a recognised stock exchange in India, and enterprises that are in the process of issuing equity or debt securities that will be listed on a recognised stock exchange in India as evidenced by the board of directors' resolution in this regard. (ii) All other commercial, industrial and business reporting enterprises, whose turnover for the accounting period exceeds Rs. 50 crores.
Scope
1. This Statement should be applied in accounting for interests in joint ventures and the reporting of joint venture assets, liabilities, income and expenses in the financial statements of venturers and investors, regardless of the structures or forms under which the joint venture activities take place. 2. The requirements relating to accounting for joint ventures in consolidated financial statements, contained in this Statement, are applicable only where consolidated financial statements are prepared and presented by the venturer.
Impairment ofAssets
This Standard is mandatory in nature2 in respect of accounting periods commencing on or after: (a) 1-4-20043, for the enterprises, which fall in any one or more of the following categories, at any time during the accounting period: (i) Enterprises whose equity or debt (ii) Enterprises which are in the process of listing their equity or debt securities as evidenced by the board of directors resolution in this regard. (iii) Banks including co-operative banks. (iv) Financial institutions. (v) Enterprises carrying on insurance business. (vi) All commercial, industrial and business reporting enterprises, whose turnover for the immediately preceding accounting period on the basis of audited financial statements exceeds Rs. 50 crore. Turnover does not include other income. (vii) All commercial, industrial and business reporting enterprises having borrowings including public deposits, in excess of Rs. 10 crore at any time during the accounting period. (viii) Holding and subsidiary enterprises of any one of the above at any time during the accounting period.
(vii) All commercial, industrial and business reporting enterprises having borrowings, including public deposits, in excess of Rs. 10 crore at any time during the accounting period. (viii) Holding and subsidiary enterprises of any one of the above at any time during the accounting period.