CA INTER CA Jai Chawla

ACCOUNTS &
AS 1 - DISCLOSURE OF A/C POLICIES Most
Recent
Updates

Join us
ADV. ACCOUNTS
CHARTS
7887 7887 05
Most
Recent
Videos
Subscribe
Vsmart Academy channel &
Vsmart Academy page/group CA. Jai Chawla channel

1 Meaning of 2 “Fundamental Accounting Selection of

Basic Requirement of 3 4
Accounting Policy Assumptions” Accounting Policy
AS - 1

• Specific Accounting
Principles & All Significant Such Disclosure Going Consistency Accrual Consider Following 3 Principles
• the Methods of applying A/c Policies Disclosure shall be made Concern to select any A/c Policy for
those Principles adopted by shall form part at One Place any Transaction or event
Adopted by enterprise in entities should of Financial Business will run Entity has Financial
Preparation & Presentation be Disclosed Statements For Foreseeable followed same A/c statements are
of Financial Statements Under Future Policies which it prepared as per Substance over Materiality Prudence
Financial had Followed accrual Basis not Legal form
So that users can Without the Statements in the last year as cash Basis
Examples :- Understand & disclosure disclosure is A/c Policy should
Always Consider Select the A/c
Analyse the of A/c Policies, generally made the Substance of be such that it
1) Inventories Valuation 1) No Specific disclosures are required if above Policy based
Financial Financial in “Notes to Transaction not Considers
Method - fundamental A/c Assumptions are Followed on Material
FIFO, Weighted Avg. Statements & take Statements are Accounts & its Legal Form Foreseeable
Proper decisions treated as Significant Facts
2) If Fundamental A/c Assumption are not Losses or outflows
2) Cash Flow Statement incomplete A/c Policies in future
Statements” followed by entity then Fact Should be disclosed.
Presentation -
Direct Method &
Indirect Method

5 Change in Accounting Policies

Entity can change its A/c Effect of change

Policy when any one out of in A/c Policy
three Conditions are Satisfied :-
(1) (2) (3) Material in Non-Material
(or) (or)
Adoptions of Adoptions of Change in A/c Current in current Period
different A/c different A/c Policy would Period but Ascertainable
Policy is required Policy is because result in more in later Periods
by Law/Statue of Compliance appropriate
with Accounting presentation Amt Amt not
Standards of Financial Ascertained Ascertained Fact of Such
Requirement Statements. change in later
Fact that Period should
Amount to be
amount is non- be disclosed in
disclosed Current Period
ascertainable
should be disclosed

1
 CA INTER CA Jai Chawla
ACCOUNTS &
AS 2 - INVENTORIES Most
Recent
Updates

Join us
ADV. ACCOUNTS
CHARTS
7887 7887 05
Most
Recent
Videos
Subscribe
Vsmart Academy channel &
Vsmart Academy page/group CA. Jai Chawla channel

1 Meaning 2 Non- applicability 3 Measurement 4 5 6 Special Cases

How to Identify cost? When an Inventory
of Inventory
An Asset Recognized as an expense?

Depends on 1) Trade Dis. vs. Cash Discount

Held for In Proces Materials 1) WIP under Construction
Sale in of or Supplies contracts (AS-7) Lower of Nature of Inventory
Ordinary Production to be When capitalized Consider Not to Consider
COGS When
course for Sale Consumed 2) WIP for Service Providers reduced to PPE
when
of Buss. (WIP) in Production Such as Software Development Not ordinarily 2) Conversion of PPE into Inventory
actually to NRV
(F.G.) (RM) Consultancy, Medical Services Interchangeable sold When such PPE is sold regularly after
By way of using in the ordinary course of business
3) Shares, Debentures & other Specific Identification
Securities held in stock in Trade While Valuing Depreciation
Method By way of Sale of such PPE shall be booked as
(Cost sheet of each Closing
Debiting to Stock at NRV sale of Inventory on Gross Basis
4) Livestock, Agriculture & & every inventory
Forest Products & Mineral Trading A/c 3) Spares/Tools/Equipments used in PPE
shall be taken into
Oils, ores & gases. consideration)
(They are measured at NRV)
If it fulfills If it does not fulfil
Ordinarily
criteria of AS -10 the criteria of AS -10
Interchangeable

OR NRV Then treated as PPE, Expenses out as

COST Historical Non-Historical may be as a separate
Estimated SP (-) Cost to Sale Approach Approach Inventory
Purchase Price + component only if amount as per AS 2
Conversion Cost + Other Cost is material
Estimate NRV Best evidence:- Retail Standard Cost
Sale event after BS date FIFO WAC price Allocation of Cost to Joint Products
7
& By-Products
Labour Prod OH
How to Use?
NRV of NRV of WIP NRV of Raw material Standard price of
Fixed Variable not measurable How to Use? a) Material
Finished Goods NRV of FG SP is to be Joint Products By Products
OH OH Est. SP of FG (-) Est. Further Cost b) Labour
adjusted with c) O/H
(-) Cost to Sale to Complete GP% Allocate the total Cost
Allocation on Allocation are taken and NRV of By-Product
Normal on Actual If NRV of If NRV of they are regularly of Conversion in ratio of shall be reduced from
When to Use?
Capacity basis Capacity basis FG is higher FG is Lower when there are reviewed based on relative Sales Value either at Total Cost to value the
except when always than Cost wide variety revised prices 1) Stage of Production Process Cost of Main Product
Actual production of Products with when Products becomes
Measure RM at When to Use:- Separately Identifiable
is more than Measure similar margin Cost records are
RM at Replacement Cost or Or
Normal Org. Cost of RM maintained properly &
In that case use Actual Cost 2) at the Completion of
whichever is Lower every product is having Production
Actual Capacity diff profit margin

2
 CA INTER CA Jai Chawla
ACCOUNTS &
AS 20 - EARNINGS PER SHARE Most
Recent
Updates

Join us
ADV. ACCOUNTS
CHARTS
7887 7887 05
Most
Recent
Videos
Subscribe
Vsmart Academy channel &
Vsmart Academy page/group CA. Jai Chawla channel

1 Presentation 2 Measurement & Restatement

Present Basic EPS Diluted EPS

- Both EPS & DEPS
on the Face of SPL When to calculate this DEPS?
- with equal Prominence When Co. has O/s Potential Eq.Sh.
Numerator Denominator
to both
- Negative EPS & DEPS Net Profit Available for Eq.Sh. Weighted Avg. Eq.Shares O/s
shall also be Presented
Dilutive Anti-dilutive
- Consolidated EPS & DEPS
in CFS to be Presented
NP/loss
(-) Tax Exp. (CT +/- DT)
(-) Pref Divd.
( Opening New Bought
O/s Shares + issue - Back ) x Time weight
EPS Decreases EPS Increases
(-) CDT if any

From When...? Numerator Denominator

Diluted NPAESH WAES for Basic EPS

Public Conversion Issue in Issued in Issue in case of +

( )
Issue of lieu of Int. Exchange Amalgamation NP/Loss + Post Tax + Saving in + CDT/ New Issue on
Debenture or Principal of Liability available Saving in Pref. Div DDT Conversion
or Pref. Sh. on other Settlement of Deb. / Pref. Sh. X Time Weight
Cash Merger for ESH Interest on on
Loans Purchase +
Receivable from Beg. for Debentures Conversion
from Issue of Stock Option
Conversion Settlement of Reporting Acquisition Basic EPS
3 Right Issue see below Date When
becomes for Free of Cost
Interest Period Date
Effective
Steps Ceases to
Accrue
STEP - 1:- Calculate Theoretical Ex - Right Price
(Cum - Right Price)
4 Special Cases
= [ Fair Value No. of Shares
]Right Excercise
Before Right X Before Right + Shares X Price
5 Example of Potential Eq. Sh.

No. of Shares after Right Issue A] (i) Reduce Cum. Prf. Divd. - if proposed or not
(ii) Reduce Non Cum. PD - Only if proposed - Convertible Debn
STEP - 2:- Right Factor OR Adjustment element - Convertible Pref. Sh.
B] Different Face Value OR Partly paid Sh. - ESOP for Free Portion
= Fair Value Prior to Right (Cum - Right Price) - Use Amount of Equity Capital instead of Nos.
Theoretical Ex - Right Price - Share Warrants
- Share Application Money
STEP - 3:- Basic EPS C] Bonus / Split / Reverse split - Pending Allotment
Date is always irrelevant (time weight always
Net P/L for ESH 12/12)
[(O/s Eq. Share Before Right x Right Factor)xTime Weight]
+ [Total no. of shares after Right Issue x Time Weight]

19
 BuyBack of Equity CA INTER
ACCOUNTS &
ADV. ACCOUNTS
CA Jai Chawla
7887 7887 05
(Sec 68 of the Companies Act 2013) Most
Recent
Updates
CHARTS
Most
Recent
Videos
Subscribe
Vsmart Academy channel &
Join us
Vsmart Academy page/group CA. Jai Chawla channel

A/cing Treatment Other Points

Meaning Source of Threshold Limit of

BuyBack BuyBack When BuyBack is Announced
Share Capital A/c Dr (FV)
Premium on BB A/c Dr (Prem)
To Eq share BB a/c (BB price)
1- If Buy Back is out of Securities Premium
Purchase of Own Free Reserves, then create Capital
Shares by the Co. 1- Fresh Issue of Securities Fresh Issue Proceed Redemption Reserve (CRR) equal to
and Cancellation OR Buy Back A/c Dr Nominal Amt of Shares brought back
thereof 2- Out of Free Reserves & To New Security A/c
Securities Premium A/c By Members To Sec. Premium A/c 2-Only fully paid up shares can be brought
back
By BOD 1. Upto 25% of PSUC in any
Financial year If any Investment/ Asset
Upto 10% of PUSC + FR is Sold for BB 3-Not defaulted in filing of FS for 3PFY

2. Upto 25% of PSUC + FR Bank A/c Dr

To Investment A/c 4-No default in payment of Dividend
(Aggregate Buy Back of all
Classes of Equity) (Balance to P/L)
5-No Penalty by Court/Tribunal in last
3PFY
To Create CCR of offense under RBI/ SEBI / SCRA /
General Reserve Dr FEMA
P/L Dr
Sec. Prem Dr
To CRR
(Note- In any preference)
In any case, Post
BuyBack D/E Ratio Payment for BB
PUSC= Paid Up Share Capital must not be more Eq. Share BB Dr
FR= Free Reserves than 2:1 To Bank A/c

To Write off Prem on BB

Sec Prem A/c Dr (1 Pref.)
Free Reserve Dr (2 Pref.)
To Prem on BB

34