CA Inter

Accounting

AS – 1
DISCLOSURE OF ACCOUNTING
POLICIES
Concept Summary
i Accounting Policies

a) Meaning b) Selection c) Disclosure

AS-1 deals with
2) Fundamental Alling Assumption
3) Disclosure of change in Policies

Specific Alang principles

d
Accounting Policy those principles
methods
of applying
•

in
preparation d presentation
•

of FS

AS -2 → Inventories → FIFO Wtd Avg .

Areas where
As -10 → PPE → cost model d Reval
different accounting
Uah on model
'

policies can be AS -12 → Govt Grant .

adopted FIFO wtd .

Avg
As 13 Investments →
.

-
→ ,

As-11 →
Exchange Difference treatment .

d d
Primary secondary
consideration
Selection of consideration ,

a a
Accounting policies
true and fair •
Prudence
view •
materiality
• Substance over

Form

1
 Accounting Standards

a) All policies used

significant Alang
in FS shall be disclosed at one
Disclosure of
Accounting policies
place .

b) In No her to Alls =) Forms part of Fs

4 Disclosure not a remedy to woong
treatment -

•
shall be disclosed in Notes to Alis .

Changes in
fact of change Effect of change
•

,
Accounting policies
and Reason shall be disclosed
such
•

if effect not quantifiable ,

fact shall be disclosed .

a) 3 Principles =) G- Going concern

C- Consistency
A- Accrual
Fundamental
Accounting b) Followed
by everyone
disclosure
Assumption
c) if followed No separate
-

required
d) if not followed - shall be
disclosed .

2
 CA Inter
Accounting

AS-2
VALUATION OF INVENTORIES
Concept Summary
Assets : -

•
for sale in OCB ;
held
held for production of such goods ;
Inventory •

•
held for being consumed in process
of such production .

a) WIP dfa cost or NRV ; lower →•

Item by item basis •

Raw material cost

Valuation of b) RM is on
Inventory Exception if price : -

of sold
a decline and FG are being
shall be valued
below cost RM ,

cost)
at NRV ( Replacement
cost
of FG of manufacturing Entity
d & &
Cost
of
mat
Conversion
cost
Other [Actual)
Raw .
costs
Determination of &
consumed a) labour [Actual ]
Cost of inventory
b) Direct exp [Actual]
a
purchase cost
• FFIFnce c) Pmdn#head
⇐ TD / Rebate • variable [ Actual ]
f) Nonrefundable • fixed [Next point]
taxes
4) f- Purchase
xp
.

for
[ At actuates] 3
 Accounting Standards

Absorbed in FG using
of
cost
Normal
capacity .

Exception :
-

Treatment of Fixed
"
Normal
Overheads If Actual production >
be
Fa shall
"

capacity ,
then

included in cost
using actual
capacity
Normal loss Included in cost

Effect of Normal &

•
Cost unit / = Total lost
total units Nl units
Abnormal Loss
Abnormal loss =) not included in
cost .
It is charged to PIL as an

expense as and when incurred .

1)
storage
cost → not
part of Prodn
2) Inherent cost
Exclusions from Cost
3) Abnormal loss
4) Selling d Distribution cost
5) General Admin overheads
determined
a) Byproduct cost not
•
:

•
valued at NRV

Total cost
Cost of Joint & •
cost
of main
prod .
=

By Products NRV of By prod

.

b) Joint Product : total cost to be

apportioned rationally .

Eg .
sales valve at split off stage
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 CA Inter
Accounting

NRV Est
selling Price
•
= .

⇐ Esr cost .
to complete / WIP)
C) Est cost .
to sell (w IP d Fa )
Net realisable value
Also consider purpose
for which
•

inventory is held .

• methods to determine cost

Preference Specific Identification

1st =

• 2nd Preference FIFO or wtd

Avg
=

Cost Formula
.
.

• 3rd Preference . Non historical

cost formulas
like standard cosh , Retail method .

•
used by entity in retail business

cost
of closing stock : -

Retail inventory
method Esr .
SP
of d. stock = ✗✗ ✗

f) Avg .
GP
margin
=
l✗
Esr .
Cost
of d- St Ix . ✗

a) Producer 's inventory of livestock ,

minerals ,
oils etc .
(measured at NRV)
Exclusions from AS-2
b) shares / Deb . held as stock in trade

e) WIP of service providers

a) WIP
of construction contracts

5
 Accounting Standards

AS – 10
PROPERTY, PLANT AND EQUIPMENT
Concept Summary
As deals with A PPE
king for
-
10 .

f) Purchase of PPE
Iii) Determination Amt
Coverage of Caeorying
Liii) Depreciation
Civ) Disposal of PPE

Tangible assets which are?

-

(a) held for use in the business

(Production Admin rental to others)

PPE , ,

(b) Expected to be used for more

than 12 months .

a) Biological assets
except Beaner
Plants

Exclusions from PPE Iii) Washing assets .

However , assets req .

tooperate or
can be classified
maintain such assets
as PPE .

conditions :
living plants that satisfies 3
-

(a) Held to bear

agriculture produce
(b) Expected to bear such produce
Bearer Plants
for more than 12 months

likelihood of
(c) There is
remote

selling Plant as
agriculture produce
.

the

Bearer plants does not include ! -

(a) Seasonal crops

(b) Plants raised for wood

(c) Plants where there is more than 6

remote likelihood of selling it
an agri produce . .
 CA Inter
Accounting

2 conditions are satisfied ! -

Initial Recognition of 4) FEDS are

expected to flow
PPE Iii ) Cost can be
reliably measured

purchase price
Cost of PPE f) TD / rebates
Case 1 – Purchased ④ nonrefundable taxes

C) exp incurred to make PPE

for Cash
.

ready for intended

use .

Pr of decommissioning / restoration liab .

xp incurred to construct PPE

f- .

like material labour construction

Cost of PPE , ,

costs
Case 2 – Self
.

shall not be included !

Following
-

constructed
Inter Department at profits
Iii) Abnormal wastage

(a) Cosr shall be determined with

Cost of PPE
reference to asset
Case 3 – PPE in
fair value of
up / acquired if transaction
given
exchange of other has commercial substance .

assets cost shall be determined

(b) otherwise
with reference to Book value of asset
given .

Cost of PPE Cost

of each asset acquired shall
Case 3 – PPE be determined by apportioning
in
purchased at the
purchase cost
total

consolidated price
ratio
of fair value of all assets

acquired .

7
?⃝
 Accounting Standards

his Initial operating losses

Iii) Advertisement costs

Ciii) Cost of opening a new facility

Exclusions from Cost liv) cost of relocating the business

G) General admin overheads

of introducing
new
Ivi ) cost
a

product

a) if expenditure increases FEBS

from PPE -
it shall be
capitalised
Subsequent
expenditure on PPE b) Otherwise
-

charged to PIL Atc .

Capitalised to the cost

of PPE .

* The Book value

of old part
Major replacement
shall be de
recognised

capitalised to the cost

of PPE

* The Book value

of old inspection
Major inspection shall be de
recognised

2 options :
.

(a) Cost model

Determination of
model
Carrying amount (b) Revaluation .

shall select one model

Entity
for of PPE as its
entire class

A king policy and apply consistently .

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 CA Inter
Accounting

lil Entire class PPE shall be revalued

of
Iii ) Revaluation shall be done with

sufficient regularity
.

Rules for revaluation volatile

a) experiences
Asset

changes in price
Annually
Once in 3 to 5 yrs
b) Otherwise
.

liii) Rev in shall be done using

based evidences in dep
by
.

market
valuer .

Accounting for
Upward Rev In PP F- Alc Dr -
:

revaluation - To Rev In Reserve Ale

1st time Downward Kevin =

PIL Alcor
TO PPE Alc

(a) First upward now downward

→ loss shall be
firstly charged
Kevin reserve
against balance of
Accounting for and then excess loss charged to plz .

revaluation -
(b) First downward now upward
Subsequently
shall be credited to PILAK
→
Profit
booked
to the extent
of earlier loss
coedited
and excess
profit shall be
to Revlon . Reserve .

Two choices :
-

① Transferred folly to isRevenue

Treatment of reserves when asset de recognised
revaluation surplus Iii)
Transferred to Revenue reserve
to compensate excess
every year
depn on PPE due to upward revln .

9
 Accounting Standards

(a) PPE shall be

depreciated using
where each
component approach
Component approach
component shall be depreciated
of depreciation as per its own useful life .

⑤ Component is a
significant part
of PPE whose useful life is diff from -

other parts
PPE is used construction
Accounting for ① if for
PPE
of other asset Depn on
depreciation
shall be added to cost of new Ameer
Cii) Otherwise =
charged to PIL Ak

PPE shall commence

Depn on

Commencement of
when the asset is ready/ available
depreciation
for use .

Shall be selected based on

expected
pattern of consumption of FEBS .

Method of
(a) SLM
depreciation
(b) WDV

C) Production units method

factors like residual valve , useful

life etc .
shall be reviewed every
Review of factors
year and if
there is
any significant
affecting depreciation
shall
change then the change
& effect of changes ,

be a / cred for as a
change in Alang
estimate .

[ Prospective effects
the remaining BV
of
PPE shall be depreciated
using new estimates over
remaining useful life .

10
 CA Inter
Accounting

(a) When asset is De recognised

(b) Scrap value equals or exceeds
Cessation of
ant
carrying
.

depreciation
(c) Asset is retired
from active
use and held for disposal .

Cost may change because of : -

in duties
a) Change
b) n
•
liabilities

Changes in cost of c) Price adjustment

PPE change in initial
d) estimate of
Decommissioning liab
-

Effect : Cost model =

change shall be
adjusted to cost
=

Revln model =
change adjusted to Kevin

reserve or PIL Afc

(1) sale PPE

of
On

127 when no r-f- Bs one expected

Gain or loss shall be transferred
to Pll Ak
Derecognition of PPE
Gain or loss : -

✗✗
Price
selling
=

Net
ant
⇐ carrying a [ ✗×)
sale
on date of

11
 Accounting Standards

AS – 11
THE EFFECTS OF CHANGES IN
FOREIGN EXCHANGE RATES
Concept Summary

Y foreign currency transactions

2) Foreign operations → Translation

Scope of FC trial balance to

Reporting
currency IRC )
3) forward contracts

transactions which are

denominated
in
requires or settlement
Foreign currency
in
transactions foreign currency .

a) FC transactions shall be

initially recognised in RC

b) date
Initial recognition using Exchange rate on

of transaction

c) for convenience ,
Avg . rate
is also used .

12
 CA Inter
Accounting

Fc transactions settled
if are

at a rate different from rate

Settlement of which it
initially recognised
at was ,

foreign currency
transaction
the
exchange difference shall
be treated Income /
as
Expense
in the
period in which they
arise d shall be
charged to PKAK .

FC Assets d liabilities shall be

measured as
follows :
-

Reporting at Balance hate

4) FCM Is closing
Sheet date F-✗ Ch
Iii) FC Non MI s
-
rate on

date of transaction
Liii) Contingent liab . Cl rate
.

includes :
i FCMI -

(a) Fc cash d Bank bat .

and
Foreign currency
(b) Assets or liab . which one to
monetary and non-
be received or paid in fixed
monetary items
amount of money .

2) Items other than Femi are FC Non MI .

Exchange difference on reporting

Treatment of or settlement of FCM Is shall

exchange difference be treated as / F- Xp of

Inc . .

the
period in which they arise
and share be
changed to Pll Alc .

13
 Accounting Standards

Exception to
a) if
long term FCMI relates to
treatment of
depreciable fixed
a Asset

change diff
F- ✗ .

then exchange diff . shall be

for long term added to I deducted from cost BV
/
Para 46A
PPE
of
.

FCM Is .

b) In other cases ,
F- ✗
change diff .

shall be accumulated in FCMI

Translation Difference Alc and

amortized loan
to sell over
period of .

a) Foreign Branch

b) Foreign subsidiary
Foreign operations c) foreign Associate or JV

d W

Integral
d
Non -

integral
&
works
independently
as an works
Types of foreign
operations
extension of without much
the
entity in interference of
foreign country the entity .

14
 CA Inter
Accounting

Items NII
If .O :O
(a) Income
or f-
xp .
Avgrahe Avgrahe
(b) Adl
I

a. rate a. rate
FCMI ,

Rahl on
Translation of Trial FCNONMIS A. ramekin
balance of foreign date of
tram
operations
.

④ Hooelated books of Ho
practical Bat . in
items
Qsin Branch
Chapter ) PILAK foreign Rk
(d) f-✗ on -

diff .

currency
Translation
Reserve All

(a) Integral to Non

Integral
-

FCNONMI shall be remeasured

using exchange raheofdahe of

Change in
reclassification d exchange diff
.

classification of
shall be accumulated in
FCTR .

foreign operation
(b) Non
Integral to
Integral
translated amounts of FCNONMI
will be treated as their cost
.

FCTR will remain intact until

disposal of foreign operation

.

15
 Accounting Standards

A contract to
buy or sell Foreign
Forward contract currency
at a
future date at
a
predetermined price
.

the initial
premium / discount
shall be treated as Inc / f- xp .
.

Forward contract for

and charged to PIL over the
hedging
period of contract .

Any further change in exchange

rate is
ignored .

The initial
premium / discount

Forward contract for

shall be
ignored .

The forward contract shall be

speculation
marked to market and any
gain / loss due to change in

exch rate shall be

.

trfd to PIC
on and when it occurs .

(a) Exchange diff recognised in PIL

.

in FCTR
n

Disclosures ⑨ n n

f) Reclassification of Fo
(d) Adoption of Para 46 A

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 CA Inter
Accounting

AS – 12
GOVERNMENT GRANTS
Concept Summary
Govt Grants
.
are :

Govt
a) Assistance by
Meaning of Govt Grant kind
by In cash or

c) for pastor future compliance

with certain conditions .

Two conditions : -

Recognition of Govt. (a) Reasonable assurance that

grant entity will comply with conditions

(b) Reasonable certain ity that
Grant will be received

in on monetary asset read

at concessional rate
Non-monetary Govt
Recognise asset at Acquisition cost .

Grant
27 Recd free Recognise
asset at Nominal value .

onpnñonn 1- Grant reduced from

cost of fixed asset
Monetary Govt Grant
Grant treated
for Depreciable fixed options -
as

and
asset Deferred income amortised
to PIL Ale in ratio
of Depreciation
on Asset over useful life

17
 Accounting Standards

OPIE 1- Grant reduced from

Monetary Govt Grant cost
of Asset .

for Non - Depreciable credited to

Option2- Grant
Asset
capital Reserve

(a) Grant to meet revenue expenses

→ Treated as Deferred income

and amosh's ed to PIL over the

Monetary Govt Grant period of Expense .

related to revenue In PIL either show it on Other Income

or reduce from related expense

Disclose separate (b) Grant for past losses or financial
Extraordinary PIL immediately
charged to
an
inenn support :

Monetary Govt Grant • like Grant to set up factory

in nature of in backward areas

Promoter’s shall be credited

such
grantreserve
•

contribution to Capital .

(a)
Alling treatment =
Reverse of
the treatment made on
recognition
Disclosed separately as Extra
(b)
Refund of Govt Grant
d ordinary item .

Due to non -

(c) if cosh of Fixed Asset is

compliance Of increased , depreciation shall
conditions .
be recalculated prospectively .

18
 CA Inter
Accounting

AS – 16
BORROWING COST
Concept Summary
It includes interest and other
costs incurred in relation to

arrangement of borrowings
.

Borrowing costs (a) Interest and commitment charges

disc / premiums
(b) Amortization of
.

4) n
ancillary costs
n

(d) Finance charges in case of asset acq .

under finance lease

(e) Exchange diff on FC .

Borrowings .

Exchange diff arising -

on
reporting
or settlement
of fc Borrowings
Exchange difference of shall be treated as B- cost to

foreign currency the extent

of difference between :
-

borrowings (a) Int .

if same amt of funds -

were borrowed in India

⇐
(b) Actual int . on FC Borrowings

if B. cost
for the period shall
be
changed to PIL as an exp .

Treatment of 2) if B. cost is directly attributable

Borrowing Costs to construction or acquisition

asset then
of a
Qualifying
such B. cost shall be capitalised

19
 Accounting Standards

A QA is an asset that takes

substantial period of time to

get ready for intended use .

Qualifying Asset It does not include ! -

( OA) intended
4) Assets
ready for use when

purchased
(2) investments in
shares / Deb
(3) inventories routinely manufactured
in
large quantities

Conditions for 4) B. cost is directly attributable

to 0A
capitalisation Iii) FEBS will
flow to the
entity
iii. cost of asset can be reliably
measured
when all 3 conditions are satisfied : -

incurred ;
(a) F-xp .
on QA is being
Commencement of incurred ;
(b) B. cosh is
being
capitalisation
to construct QA
(c) Activities
in
progress
are .

a) if activities of construction are

temporarily interrupted then B- cost

Suspension of incurred that period shall

during
capitalisation not be shall be
capitalised .
It changed
to PIL Ale .

b) However interruption is necessary

if
construction capitalisation shall
for ,

continue .

Cessation of Capitalisation of B. cost shall cease

capitalisation
when
of QA
construction is

substantially complete .

B- cost
thereafter shall be charged
to PIL .

20
 CA Inter
Accounting

(a) If completed part can be used

when construction continues for

other
pants capitalisation
,
of B. cost

Qualifying asset shall cease

for that
part
.

completed in parts shall

(b) Otherwise capitalisation
continue until other parts are

complete .

funds are specifically

In care
B- cost
borrowed for a QA the ,

to be capitalised is computed
Computation of as
follows : -

borrowing cost to be d) Actual B- cost incurred on

capitalised in case of such specific Borrowing

specific borrowing Cii) less : income on temporary
investments funds out
of idle

of such
specific Borrowing
.

In care
of general borrowings
a
,

entity share compute

weighted average capitalisation

Computation of sake
of
all General Borrowings .

borrowing cost to be B. cost to be capitalised :

capitalised in case of Period]
[F-Xp . on QA ☒ w ACR g)
General borrowing

21
Accounting Standards

22
CA Inter
Accounting

23
Accounting Standards

24