CA INTER

CA. Jai Chawla

AS 2 - INVENTORIES ADVANCED 7887 7887 05

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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 on 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

AS 7 - CONSTRUCTION CONTRACTS ADVANCED 7887 7887 05

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Applicable on Main Contract Method allowed for Is Outcome of Contract

Recognition of Revenue Estimated Reliably
Accounting in the books of Contractors
Types of Construction Contracts Combining & Segmenting Percentage of Completion Method Yes No
(Recognise Revenue
w.r.t. Stage of Completion) Continue with ‘% of Revenue to be Recognised
Fixed Price Cost Plus Two or more Contracts A Contract of Multiple Assets Completion method’ for =
Contract Contract shall be Combined if - to be treated Separate Contract Revenue Recognition Cost incurred till date to the
(Full Price or Fixed (Cost + some % of (a) Negotiated as a Single for each Asset - if How to Measure Stage
of Completion? extent Recoverable i.e
Price P.U. of output ) fixed amount) Package (or) (a) Separate Proposal for each Asset & No Profit/Loss
(b) All Contracts are Part (b) Separate Negotiation & (2 ways)
of Single Project (or) (c) Ability to Reject/Accept partly & 1) Cost incurred till date
(c) All Contracts are (d) Cost & Revenue Identifiable ÷
Performed Continuously of Each Asset Total Estimated. Contract Cost; or

If Additional Assets are Introduced 2) Survey of Work Performed

Contract Revenue Contact Cost in Existing Contract (Based on Engineer Report) Disclosure Requirement

Initial Agreed Amt Direct Specific Exp.

1. Contract Revenue & Contract cost
(+/-) (+) Treat Separate Contract Combined Contract
Variation Amt 2. Stage of Completion-Method followed
Allocable General Exp.
(+) 1. Differs Significantly 3. Amt. Payable to Customer & Receivable from Customer
(+)
Claim in Design/Technology/Function (or) Otherwise 4. Adv. Received from Customer
Customer Specific Exp.
2. Price Negotiated Separately
(+) (-) 5. Retention by Customer
Incentives (if any) Incidental income (not 6. Profit recognised
(+) included in contract revenue)
7. Progress billings
Escalation Clause Treatment of Contract Cost
(-)
Penalties
Actual cost If Estimated total
Incurred Contract cost
during the period Exceeds Est. Revenue
Book Immediately Total Revenue ---- xxx
- Total Est. Cost ----xxx
Total Loss xxx
- Loss Already xxx
booked
Excess Loss xxx

Make Provision
Immediately through P&L

7
 CA INTER
CA. Jai Chawla

AS 17 - SEGMENT REPORTING ADVANCED 7887 7887 05

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1 Segments 2 How to Decide Primary or Secondary?

Check Dominant Source of Risk and Return (RR)

Business Geographical RR Affected by

Segments (BS) Segments (GS)

* Distinguishable Component & * Distinguishable Component & Product & Geographical Both
* Individual Product or Service * Product or Service services Location BS=Primary
Or within Economic Environment & BS=Primary GS=Primary GS=Secondary
BS=Secondary 3 Important Terms
* Related Group of Product or Services & * Independent Risk and Returns GS=Secondary
* Independent Risk and Returns
Reportable Segment = Segment Segment
Business Segment Wise Revenue (SR) Expense (SE)
or
Geographical Segment Wise
Includes Excludes Includes Excludes

4 Disclosure Requirements
1. Directly Attributable Revenue 1. Extraordinary Items 1. Directly Attributable Exp. 1. Extraordinary Items
2. Allocable Revenue from 2. Interest & Dividend 2. Allocable Exp. from 2. Interest
Enterprise Common Revenue (Unless Financing Business) Enterprise Common Exp. (Unless Financing Business)
Total Segment Segment Segment External Reco. of Segment 3. Inter Segment Revenue Gain on Sale of Investment 3. Inter Segment Exp. 3. Loss on Sale of Investment
Revenue Revenue Result A/L Revenue & Enterprise 3. Income Tax Expense
of Entity 4. General Enterprise Expense
Most Imp: (Para 27) Segment Asset (SA)
How To decide Reportable Segment? (Same with Segment Liability)
Important Points: 1) S. Revenue = 10% or more of All Segments
· Any Segment which was Reportable in PY bcoz of Revenue; OR
Para 27, such Segment shall be Reportable segment Operating Asset
2) Result= 10% or more of all
in CY even though it does not Fulfill Para 27 Segment in loss
· First time Reportable segment = Restate PY Comparative Info or whichever is
Directly Attributable
Segment in profit higher OR
+ Reasonably Attributable
3) SA= 10% or more of all S. Assets
Note: 1) DO NOT include DTA.
+
External Revenue of = 75% or more
2) Take Advances and Investments
Reportable Segment of Total External Revenue when Interest or Dividend
is considered in revenue.
If Not
Add More Segments to make
Minimum of 75% of the Total Revenue

19
 CA INTER
CA. Jai Chawla
7887 7887 05
AS 22 - ACCOUNTING for TAXES ON INCOME For Most Recent Updates
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1 Imp. Definitions 2 Difference between A/c Income & Taxable Income 3 Types of Taxes (as per AS 22)

Accounting Income
Current Tax and Deferred Tax
PBT as per P&L a/c Permanent Diff. Timing Diff.
Arises in One Period Arises in One Period &
Taxable Income but no Reversal in Future to be Reversed in Future
Tax Calculated as per CT Asset CT Liab. DTA DTL
Tax Law (IT Act, 1961) Examples : Examples : TDS Income Tax Tax Saving in Future Tax Liab. of Future
- Donations, - Bonus not yet paid (Sec. 43 B) Adv. Tax payable for Current
Current Tax - Penalty, - Interest to Nationalised bank (Sec. 43 B)
Tax on Taxable & Previous years DTA ---- Dr P&L A/c ---- Dr
- Personal Expenses - PF Contribution (Sec. 43 B)
Income - Govt. taxes (Sec. 43 B) To P&L A/c To DTL
P&L a/c Dr.
- Prov. for BD / Legal damages (Sec. 36) To CT/ Prov. for Tax DTA subject to below
Deferred Tax - Depreciation (Sec. 32)
Tax on Timing No DTA/DTL
Difference Para 15 Para 17
Items other than B/F Losses Entity has B/F Losses
Tax Exp. & Unabsorbed Depn & Unabsorbed Depn
CT + DTL - DTA Check Reasonable Certainty Check Virtual Certainty with Convincing
-DTL Reversal of Future Taxable Income Evidence (VCCE) of Future Taxable Income
+ DTA Reversal
Yes No Yes No
Timing Difference Create DTA Do not Create DTA Do not
Difference of A/c
Income & Taxable Income Special Cases
5 Other Areas 4

Offsetting of Presentation of CT & DT Remember Tax Holiday Period (THP) Minimum Alternative Tax (MAT)
CTA & CTL / DTA & DTL (Eg. Sec 80 IA)
1. DTA/DTL - No discounting
BS P&L No Impact on Treatment of MAT
at Present Value
Possible If Otherwise 2. Measurement at applicable Timing TD arise in THP DT Calculation
Not Possible After PBT Diff arise in & to be Revered If MAT is more
Tax Rate
CTA/CTL DTA/DTL THP & after THP for DT than Regular Tax
- Entity has Legal 3. Reviewed / Recalculated at
Show Tax each B/S date Reversed in THP Calculation
Right to set off Current Non
and Expense on Created & ignore - Excess of MAT
(Short Term Current Current Tax -Book Profit over Regular Tax
- Intention to Settle Ignore - No DTA/DTA
Provision CTL + DTL Recog DTA/DTL of MAT
as Net Basis in the year
Other Current - DTA Recog & Recognise Additional Tax
For Eg. Entity has right to of Occurrence
Assets - CTA + DTA Reversal - Mat Rate Expense in P&L
Setoff TDS of AY 20-21 - DTL Reversal
with Tax Liability of AY 20-21

26
 CA INTER
CA. Jai Chawla

AS 25 - INTERIM FINANCIAL REPORTING ADVANCED 7887 7887 05

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1 5 6 7
2 3
WHAT IS IFR ? Types of IFR Form & Content of Seasonal / Occasional Cost Incurred Unevenly Important Notes
Condensed Fin. Statements Revenue (eg. Property Tax;
Advert. Exp; Bad-debts)
F/S for a period Less than
12m Period Complete set of F/S OR Set of Condensed F/S · Same Headings / Sub-headings to be No Deferment or
used as per most recent Annual F/s anticipation is allowed Can be Deferred or Anticipated if it is
· Selected Explanatory Notes (Jis Period me mila ussi appropriate to do so
AS 25 doesn't require Same as Annual Preparing F/S · Additional line items & Notes if their period me report Hoga) (i.e. fulfilling the definition of
which entity should Reporting covering with minimum omission may result in misleading Asset/Liab.
prepare IFR & how all Disclosures as per disclosures & Information. then only allowed to Differ or
Frequent it should all AS & following Content considering · Basic & DEPs EPS to be Disclosed Anticipated)
prepare. Complete Schedule New Changes During also (Agar Exp. Ka benefit next interim
III requirements. the Interim Period.
period me milega to differ kar sakte hai)
AS 25 Requires (Shortcut Approach)
(Agar Exp ka Benefit last interim period
minimum content to Periods for Which Interim Financial
4 me mila hai to last interim period me
be disclosed while Statements are Required to be Presented bhi anticipate kar sakte hai)
preparing IFR.

Statement Current period Comparative period

Balance sheet End of current interim period End of immediately preceding financial year • Interim financial results (as per clause 41 of SEBI listing agreement) is
Example – Current FY = 22-23 not Interim Financial Report as per AS 25
Statement of Current interim period and Comparable interim period and year-to-date
Current Interim Period - profit and loss cumulatively for the year – to – of immediately preceding financial year • Change in Estimate from one Interim Period to another is justified &
Q2 = (July to Sep) date (YTD) allowed if it is as per any AS. Nature & Amt. of Such change should be
1) Balance Sheet disclosed in selected Explanatory Notes of IFR
Cash flow Cumulatively for the current Comparable year-to-date of immediately
Current Period Comparative statement financial year-to-date preceding financial year
30/9/22 31/03/22 • While recognizing Tax Exp of each Interim Period, it should be
Estimated based on Annual Calculation first (i.e Calculate
2) Statement of P&L (Financial Results) W. Arg Tax Rate => Total Estm. Tax x 100
Current Period Comparative Total Estm. Income
Q2 Q2 Interim Income X W. Avg. Tax Rate
1/7/22 to 30/9/22 1/7/21 to 30/9/21

YTD YTD
1/4/22 to 30/9/22 1/4/21 to 30/9/21
3) Cash Flow Statement
Current Period Comparative
1/4/22 to 30/9/22 1/4/21 to 30/9/21
Only YTD Only YTD

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 CA INTER
CA. Jai Chawla

AS 26 - INTANGIBLE ASSETS (I.A.) ADVANCED 7887 7887 05

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Page -1 Telegram Channel

1 7 Conditions of I.A. 2 Some Important Terms 3 Recognition & Measurement of I.A. (V.Imp)

1. Identifiable
2. No Physical Substance Recognition Measurement
FEB Identifiable Control Non-Monetary
3. Non Monetary
4. Enterprise can Control
i.e. Ownership If & only if - Initial Measurement
5. Expected Future Eco. Increase Saving in Separate Identity Can be Sold/ Can Arise Power to Restrict others No Fixed or • Probable FEB are at COST
benefits. (FEB) in Revenue Cost / Tax & Distinguishable Rented from receive FEB from use of Asset Determinable Expected to flow
6. Held for Use from Goodwill Exchanged Contract Amt. (Eg. &
7. Cost can be Measured Independently Eg. License Fixed Asset) • Cost can be
Reliably Measured Reliably
4 How to Measure the Cost?

I.A. Purchased Internally Generated I.A.

Cost
Goodwill Research &
Do not Recognise Development Exp.

Research Development
Separately Shares / Acquired by Asset Acquired in an Phase Phase
Acquired Securities Govt. Grant Exchanged Amalgamation
Exchanged
Whether Separately Identified ? Expense Cost = Asset
Cost of Acq. FV of IA Concessional Free of in P&L (if 6 conditions
FV of IA whichever Yes No Immediately are met)
(COA) Acquired whichever Rate Cost Acquired
is more is more in the Same
+ or or
Clearly COA Clearly Purchase Year
Non Refundable Nominal FV of Asset Purchase Merger • Technical Feasibility
Evident Evident Method
Duties/Taxes FV of Value Given up Method Method • Intention to Complete
+ Securities • Ability to Sell or Use
Direct Exp. issued Included in • Generation of FEB
at FV at Same BV Goodwill • Adequate Resource (Financial & other) available
• Cost can be Measured Realiably

30
 CA INTER
CA. Jai Chawla

AS 26 - INTANGIBLE ASSETS (I.A.) ADVANCED 7887 7887 05

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Page -2 Telegram Channel

5 Amortisation Treat as Expense 6 Other Imp Areas

Method Period Residual Review of Subsequent Following

- Generally upto 10 years Value Method Exp. are Not I.A.
- If more than 10 years & Period (always P&L)
Capitalized
In the Pattern If Pattern
Generally Exception : At least Once if FEB Expected 1. Preliminary Exp.
of FEB can’t be
Provide Estimate Recoverable Amt. Zero Commitment to in a year to Increase 2. Pre-Operating Exp.
Consumption Determined
proper Annually & Provide Purchase by 3rd Party 3. Staff Training Cost
on Asset
Evidence for Imp. Loss through P&L is available 4. Heavy Advertisement Exp.
- Ist Priority SLM If there is a change,
then it is a Change in A/c Estimate

Prospective effect on Financial Statement

31
 CA INTER
CA. Jai Chawla

AS 29 - PROVISIONS, CONTINGENT LIABILITIES ADVANCED 7887 7887 05

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AND CONTINGENT ASSETS

Telegram Channel

Areas Coverage

1 Scope 2 Important Terms 3 When to Recognition -

Non Applicability
Obligation Liability Present Obligation Possible Obligation

F Financial Instruments
F Executory Contract The state of having Present Obligation Existence of an Existence of an
to do something as arising from Past Obligation that is Obligation
obligation which
which
(other than Onerous Contract)
Promised because Events (result in “More likely than Not” is
is Not
not probable.
Probable.
where Parties have not Performed or it is a Law or Duty. Outflow of Resources)
Performed till equal Extent
F Insurance Enterprises Liability Provisions Contingent liabilities Contingent asset
F Provisions & Liabilities
Covered by other AS (AS 7, 22, 19, 15)
When Outflow When Liability Possible Asset
is Certain i measured Present Obligation Possible obligation arising from Past
4 Other Imp. Areas or using Substantial arising from Past Event arising from Past Events that will be
Determined Degree of Estimation not Recog. because Events that will be confirmed by
confirmed by Future Future Uncertain
Outflow not Probable Uncertain events Not Event Not Controlled
(a) Reimbursement (b) Review of Provision/ c) Provision for Restructuring Cost - Present Obligation (or) Controlled by Entity by Entity.
of any Amt. if Virtually Cont. Liab - Due to Past events Obligation can’t be
Certain to be Received - Exists on BS data Reliably Estimated
Once in a year Planned & Controlled To change scope & - Probable future - Realisation is
by Entity Manner of Business Outflow - Present Obligation Virtually Certain
B/S P&L - Reliably Estimation - Due to Past Events
If there is No - Not Recognised as Provision
Provision Includes Cost Excludes
Create Recognise Change Change Incurred to - - Shifting of staff
- NOT Probable Yes No
Provision Receivable - Sale the Business - Marketing Yes No future Outflow Recognise Don’t
Net of as Separate - Relocation of Business - New Investments Create Don’t - Possibility of Outflow is Asset Recognise
Convert Contign. Ignore
Reimbursement Income - Change in Management Provision Create NOT Remote Also No
Liab. into Provision Need to
(or) Structure - Reliably Measurable Obligation
Disclose
Reverse Provision
as the Case Maybe Yes No
Disclose CL Discloure

36