SVKM’S

Narsee Monjee College of Commerce and Economics

(Autonomous)

Name of the Course: Accounting I

FY BCOM (Hons): Semester 1
TOPIC: COMPARISON OF AS 2, AS 10, And AS 22 of TWO FMCG COMPANIES
________________________________________________
Submitted by:
Sr. No Full Name SAP ID Division Contact Content
Of Roll Number Contributed
learners Nos

1 DANISH AGARWAL 45202220084 A004 7002208693 Introduction,

preparation of word
file and ppt.
2 MANASHI AGARWAL 45202220120 A005 7205220636 Comparison of AS22
3 SHREYANSHI AGARWAL 45202220065 A006 7903754877 Comparison of AS10
4 RUCHITA AGARWAL 45202220074 A010 9131295504 Comparison of AS02
5 PANKHURI ARORA 45202220110 A012 8795771812 Conclusion

Teacher In charge: Dr. Shivani Pandya

 TABLE OF CONTENTS
SL.NO TOPIC PAGE NO

1 Introduction 1

2 Comparison of AS 2 4

3 Comparison of AS 22 6

4 Comparison of AS 10 7

5 Conclusion 9

6 Bibliography 10
 INTRODUCTION

Accounting standards are a general set of practices and guidelines used to organize
bookkeeping and other accounting functions across an organization over time. Accounting
standards apply to all areas of a company's financial existence, including income, assets,
liabilities, expenses, and equity, including equity and reserves. Investors, banks and
regulators rely on accounting standards to ensure that information about a particular company
is adequate and accurate.

The above external agencies rely on these agencies for accurate information. These technical
statements ensure reporting transparency and set boundaries for financial reporting activities.

Accounting Standard 2: Inventory Valuation

An important issue faced by businesses is determining the cost of valuing inventories as

assets in their financial statements. AS 2 deals with inventory accounting by businesses.

Inventories are assets held in the course of business operations in the manufacture of such
scales in the form of materials or consumables consumed by a business.

Inventory is valued at net realizable value or cost, whichever is lower. Net realizable value is
the value achievable on the scale of the property, less costs to complete and sell. Fair value is
the amount for which a commodity can be exchanged between buyers and sellers in the
market.

Storage costs include acquisition, conversion, and distribution costs. Acquisition costs
include initial costs to purchase inventory, import duties or other taxes, and transportation,
handling, and other costs directly associated with the purchase of inventory.

Manufacturing costs include costs directly related to the conversion of goods from raw
materials to finished goods. These are divided into fixed and variable costs.

Fixed costs are costs that do not change as the output produced changes.

Variable costs are costs that change as the output produced changes.

There is also a way to value inventory.

First In, First Out (FIFO)

The first in, first out method assumes that goods are consumed in the order in which they are
purchased.

Weighted Average Cost Method (WAC)

In this method, the average cost of each item available for sale is computed. Such a cost is
calculated by taking the weighted average of similar items available at the beginning of the
year and cost of similar items purchased or manufactured during the year.

The weighted average is also calculated when a new shipment arrives

Accounting Standard 10: Property, Plant and Equipment.

Accounting Standard 10 deals with property, plant and equipment (PPE). The underlying
purpose of this standard is to establish or clarify the accounting for property, plant and
equipment. It is intended to help users of the financial statements understand the investment
in property, plant and equipment of the business unit and changes made to it.

Application of AS 10

AS 10 applies when accounting for property, plant and equipment. However, if another
accounting standard requires different accounting treatment for property, plant and
equipment, it may not apply.

AS 10 is used to describe real estate, P&E (plants and equipment), but this standard
does not apply to:

(a)This standard applies to fruiting plants, but not to products produced by fruiting plants. and

(b) Expenses associated with exploration and production of mining rights, oil, minerals,
natural gas and other non-renewable resources are examples of wasted assets.

AS 10 Assets reported under property, plant and equipment. Costs of Property, plant
and Equipment are recognized only if:

(I) It is clear that future economic advantages connected to such assets will flow to the firm;

(ii) The cost of such assets can be measured reliably if the cost of such assets can be
recognized as an asset.
Asset Cost Valuation

The organization's accounting policy is either a revaluation model or a cost model and is
applicable across classes of real estate and P&E. After recognizing an asset as property, plant
and equipment, it is measured at cost less accumulated depreciation and accumulated
impairment losses, if any, based on a cost model.

Under the revaluation model, once an asset is identified and its fair value determined with
certainty, it is recognized at the revalued amount, which is the asset's fair value on the
revaluation date less accumulated depreciation and accumulated impairment losses. must (if
any). Periodic revaluations are performed to ensure that the carrying amount does not differ
materially from the fair value at the balance sheet date.

Depreciation in accordance with AS 10

Depreciation must be recognized in the income statement each period unless it is included in
the carrying amount of another asset in accordance with the standard. The depreciation value
of an asset should be systematically distributed over the useful life of the asset.

Real estate or P&E (plants and equipment) with significant costs compared to the total cost of
the item should be depreciated separately.

The standard also requires that the residual value and useful life of an asset be reviewed at the
end of each financial year and if the forecast differs from previous estimates, the difference is
accounted for as a change in accounting estimate in accordance with accounting standards.
stipulates that it should be processed Standard 5 – Net income or loss for the current period,
items from previous periods, and changes in accounting policies. The depreciation method
used must be consistent with the pattern of future economic benefits of the assets consumed
by the enterprise. Various depreciation methods are available to systematically allocate the
depreciation amount of an asset over its useful life.

The Two FMCG companies that we have chosen for this project report are

1. HINDUSTAN UNILEVER
2. INDIAN TOBACCO COMPANY
 ACCOUNTING STANDARD – 2

Disclosure of Inventories in the Annual Report 2021-22

ITC

HUL

COMPARISON

●The inventory of ITC Ltd. is classified into Raw materials (include Packing Material),
Work-in –progress, Finished Goods (manufactured), Stock in Trade (goods purchased for
resale), Stores & Spares and Intermediates – Tissue Paper and Paperboards and the inventory
of HUL Ltd. is classified into Raw materials, packing materials, work-in –progress, finished
goods (which includes goods purchased for re-sale as both are stock together) and Stores &
Spares.

In ITC ltd., Cost includes expenses which took place in ordinary course of business in
bringing such inventories to their current location and condition and includes appropriate
overheads based on normal level of activity. In HUL Ltd., Cost of Raw Material and stores &
spares includes cost of purchase and other costs.

● The above items are measured at net realizable value if the finished product in which
they are incorporated is expected to be sold at a loss.

Similarities between the two:

● Both ITC Ltd and HUL ltd records the cost on the basis of Weighted Average Method
(WAC) and not using FIFO or LIFO method.

● Inventories are stated at cost or net realizable value whichever is lower.

● From time to time, obsolete, underperforming, and defective inventory

is identified, and regulations are created for such inventory, as appropriate.

ITC Ltd: During FY 2021-22, The cost of inventories recognized as an expense includes Rs
17.9 crores in respect of write-downs of inventory to net realizable value. Also, reversal of
previous write-downs of Rs 0.91 crore have been made owing to subsequent increase in
realizable value. (Figures referred from ITC Ltd. Annual Report 21-22)

HUL Ltd: During FY 2021-22 an amount of Rs156 crores was charged to consolidated
statement of Profit & Loss on account of Damaged and slow-moving inventory. The reversal
on account of above during the year amounted to Rs0 crore. (Figures referred from HUL Ltd.
Annual Report 21-22)
 ACCOUNTING STANDARD 22

Accounting For Taxes and Income

The purpose of this standard is to prescribe the accounting for income tax. According to the
matching concept, income tax accrues in the same period as related income and expenses.
Such adjustments to taxes and income over a period of time often pose special problems
stemming from the fact that taxable income can differ significantly from accounting income.
This discrepancy between taxable income and accounting income arises primarily for two
reasons. There are differences between the income and expenses that appear on the income
statement and the items that are income, expense or deductible for tax purposes.

ITC HUL

1. ITC and HUL, both companies have created deferred tax liability during the year
which shows that in subsequent future years they will have to pay more tax in future.
2. Both ITC and HUL have not paid any tax for earlier year in their accounting year.
3. In ITC, probably from next financial year deferred tax asset might be created as near
observing that there is down trend in creation of deferred tax liability whereas in HUL
from the next financial year, deferred tax liability might be created on the basis of
trend appearing in financial statement.
4. ITC is paying approximately 34% income tax as compared to HUL paying 23%
approximately, which shows a lot of expenses is being disallowed by the tax auditor
of ITC.
5. Also, there might be a chance of claiming lower depreciation in ITC (as per income
tax Act) as compared to depreciation of ₹1038.04 claimed (as per companies Act).
6. Due to heavy tax expense, the earning after tax of ITC is comparatively lower to
HUL.
 ACCOUNTING STANDARD 10
PROPERTY PLANT AND EQUIPMENT
NOTES TO THE FINANCIAL STATEMENT:
Gross Block FREEHOLD BUILDINGS PLANT AND FURNITURE OFFICE TOTAL
PARTICULARS ADDITIONS WITHDRAWALS AND AS AT 31ST MARCH, 2022 LAND EQUIPMENT AND EQUIPMENT
ADJUSTMENTS FIXTURES
PROPERTY, PLANT & Gross Block
EQUIPMENT Opening balance as at 1 st April 59 1,633 4,291 154 139 6,276
2020
Land (1) 56.23 35.26 2016.73
Additions through business 421 367 328 1 16 1,133
combinations
Buildings 745.03 57.03 8428.65
Additions - 64 475 6 23 568
Leasehold 1.40 0.02 Disposal/ Adjustments
13.28 (3) (16) (54) (5) (3) (81)
Improvements Opening balance as at 1 st April 477 2,048 5,040 156 175 7,896
2021
Plant and Equipment 1772.87 210.41 16256.41
Addition - 83 633 6 12 734
Furniture and Fixtures 79.51 4.75 Disposals/ Adjustments
884.78 (0) (12) (200) (10) (6) (228)
Balance as at 31 st march 2022 477 2,119 5,473 152 181 8,402
Vehicles 15.18 18.28 155.61
Accumulated depreciation
Office Equipment 2.87 0.86 28.57
Opening balance as at 1 st April - 283 1,717 81 86 2,167
2020
Railway Sidings - - 1.73
Additions - 95 556 12 32 695
TOTAL 2673.09 326.61 Disposals/ Reclassification
27785.76 - (4) (26) (1) (2) (33)
Opening balance as at 1 st April - 374 2,247 92 116 2,829
2021
Additions - 86 528 11 27 652
Disposals/ Reclassification - (6) (159) (9) (6) (180)
The above includes following assets given on Gross Accumulated Net Block Depreciation
operating lease: Balance as at 31 st march 2022 - 454 2,616 94 137 3,301
Block Depreciation charge for the year
Particulars 2021-22 Net block
Balance as at 31 st March 2021 477 1,674 2,793 64 59 5,067
Land 1.48 - 1.48 -
Balance as at 31 st March 2022 477 1,665 2,857 58 44 5,101
Buildings 4.98 1.40 3.58 0.16
Plant and Equipment 229.25 144.79 84.46 20.49
HUL
TOTAL 235.71 146.19 89.52 20.65

ITC
COMPARISION
1) It is evaluated at the price at which it was 1) Property, Plant and Equipment is recognised
purchased or the fair value net of its at the cost of acquisition or construction less
accumulated depreciation and impairment accumulated depreciation and impairments,
losses, if any. It is inclusive of the import if any. Cost is inclusive of inward freight,
duties and any other non-refundable taxes duties and taxes and incidental expenses
post diminishing rebates and trade related to acquisition.
discounts.

2) The useful life of the major assets under 2) The company reviews the estimated useful
property, plant and equipment of HUL are lives of property, plant and equipment at the
as follows: end of each reporting period. The expected
Factory Building- 60 years
Plant and Equipment- 3 to 21 years
General furniture and fixtures- 10 years
Office equipment (including computers)- 3 to 5
Years
3) Depreciation on items of property, plant and
equipment is provided on a pro-rata basis
using the straight-line method based on the
imputed useful life prescribed under
Schedule II to the Companies Act, 2013.
Freehold land is not depreciated.
4) The property, plant and equipment as per the
consolidated balance sheet of the Hindustan
Unilever Ltd as at 21st march 2022 is 6169
crores INR.
useful lives of major assets under ITC Ltd
are as follows:
Buildings- 30 to 60 years
Leasehold Improvements- shorter of lease period or
estimated useful lives.
Plant and Equipment- 7 to 25 years
Furniture and Fixtures- 8 to 10 years
Vehicles- 8 to 10 years
Office equipment- 5 years
3) Commencement of charging depreciation on
these assets happens only once they are
ready to be used for the task for which they
are intended, generally on commissioning.
Depreciation on these assets is charged, as
specified in schedule II of the Companies
Act, 2013, on a straight-line basis. Land is
not depreciated
4) The Property, Plant and Equipment as per
the Balance sheet of Indian Tobacco
Company Limited as at 31st march 2022 is
19559.15 Crores INR.
 CONCLUSION

To conclude the above, Study of accounting practices is very important to judge reliability
and relevancy of accounting information. Accounting is the one and only means by which
economic events are recorded and results of such events are communicated to external users.
With the increase in the complexities of business world, accounting personnel have to play
the role of information providers. Now, in every sphere of business decisions, accounting
information plays a dominant role.

The objective of Accounting Standard 2 is to prescribe the accounting treatment for

inventories. A primary issue in accounting for inventories is the amount of cost to be
recognised as an asset and carried forward until the related revenues are recognised. This
Standard deals with the determination of cost and its subsequent recognition as an expense,
including any write-down to net realisable value. It also provides guidance on the cost
formulas that are used to assign costs to inventories. The objective of this Accounting
Standard 10 is to prescribe the accounting treatment for property, plant and equipment so that
users of the financial statements can discern information about investment made by an
enterprise in its property, plant and equipment and the changes in such investment.
Furthermore, Accounting Standard 22 is to prescribe accounting treatment of taxes on
income. Taxable income may be significantly different from the accounting income posing
problems in matching of taxes against revenue for a period.
 BIBLOGRAPHY

ITC Annual Report

https://www.itcportal.com/about-itc/shareholder-value/annual-reports/itc-annual-report-
2022/pdf/ITC-Report-and-Accounts-2022.pdf

HUL Annual Report

https://www.hul.co.in/files/92ui5egz/production/8a1b3f103408328781a6ebf434b8e5172e4bf
c91.pdf

Money Control

https://www.moneycontrol.com/financials/itc/consolidated-profit-lossVI/ITC

https://www.moneycontrol.com/financials/hindustanunilever/consolidated-profit-lossVI/HU

Others

https://www.legalraasta.com/blog/as-10/

ICAI CA INTER Accountancy module