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    DocScanner 24-Feb-2024 12-06

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    DocScanner 24-Feb-2024 12-06

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    “ara 2.10 DISCLOSURE OF ACCOUNTING POLICIES 22 2.8-2. Substance: over form + It means that transaction should be : . al happening and econom accounted for in accordance ‘with actu: Like in hire purchaew< reality of the transactions not by its legal aa ) the hire burke af the assets are purchased on hire purchase by Sete goog fact | ae assets are shown in the books of hire purchesst ne ee Ui den the hire purchaser is not the legal owner of the, a8 owner only on de the hire purchase the purchaser, becomes | form of the transactig, Payment of last instalment. Therefore the we er its substance. cH is ignored and the transaction is accounte is lose all the ite: , 2.8-3 Materiality - Financial Statement tee p ilecisions of Weadeears facts which are sufficient enough to influence the i user of financial statement. Changes in Accounting Policies i 2.9 A change in accounting policies should be made in the following conditions : seat see Adoption of different accounting policies is required by statute or for compliance with an Accounting Standard. It is considered that change would result in more appropriate presentation of financial statement. If there is any change in accounting policies in preparation of financial statement from one period to subsequent period, and such change affects the state of affairs of balance sheet and profit and loss account of current period or such change affects the financial statement of later period, then such change must be disclosed in financial statement. The amount, by which the financial statement is affected should be disclosed to the extent ascertainable, Example : Consequent upon the issuance of mandatory Accounting Standard-2 (AS 2) by the Institute of Chartered Accountants of India, the company has revised its accounting policy relating to valuation of inventories to include applicable fixed Production overheads. The change has resulted in increase in value of inventory and profit before tax by Rs. 252.79 million. 2.10 Comparison of AS-1 with Ind AS-1 ae ‘Disclosure of Accounting | Ind AS-1 ‘Presentation of Financial olicies' Statements’ AS-1 deals with disclosure of | iad ASA deals with presentation of accounting policies financial statements, Scope is comparatively narrow, Scope is wider. No Such requirement Explicit statement in the financial state- ments of compliance with all the Indian Accounting Standards, Further, Ind AS-1 AS-1 ‘Disclosure of Accounting Policies’ Ind AS-1 ‘Presentation of Financial Statements’ allows deviation from a requirement of an accounting standard. Such bifurcation is not required However it is required as per the Schedule II of the Com- panies Act, 2013 Requires presentation and provides crite- ria for classification of Current/Non- Current assets/liabilities— No such prohibition. However AS-5S requires presentation of extraordinary item Prohibits presentation of any item as extraordinary Item in,the statement of | profit and loss or in the notes. No such requirement Requires disclosure of judgments made by management while framing of accounting policies. Also, it requires disclosure of key assumptions about the future and other sources of measurement uncertainty. ; No specific restriction. Requires classification of e presented based on nature of expenses. No such requirement Requires presentation of balance sheet as at the beginning of the earliest period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in the financial statements, or when it reclassifies items in its financial statements. No such requirement Requires the financial statements to includea Statement of Changes in ity to beshown sa part of the balance sheet. a ILLUSTRATIONS Company follows the following policy for retirement benefits: Contribution to pension fund is made based on actuarial valuation at the ‘year-end in respect of employees who have opted for pension scheme. Contribution to the gratuity fund is made based on actuarial valuation at the ‘year-end. Leave encashment is accounted for on Pay AS YOU GO Method. Comment. As per para 10(c) of AS-1 (refer point 2.5-3) : The “Accrual” is fundamental accounting assumptions, therefore, any accounting policy cannot be contrary to fundamental accounting assumption. Policy followed for leave encashment onthe basis of ‘PAY AS YOU GO’ is not in accordance with acct Therefore, the accounting policy as regards leave encashme fact it is contrary to AS-15 “Employee Benefits”, a ee rual assumptions. nt is not correct, in 3.14 Comparison of AS-2 with Ind AS-2 AS-2 ‘Valuation of Inventories’ Ind AS-2 ‘Inventories’ AS-2 does not contain such an | Explains that inventories do not include machinery spares which can be used only in connection with an item of fixed asset and whose use is expected to be irregular. | Does not contain the definition of fair value. explanation of service providers, Provides explanation with regard to in- ventories of service providers. Does not contain specific explanation in | respect of such Spares. Ind AS-2 defines fair value and provides an explanation in respect of distinction between ‘net realizable value’ and ‘fair value’. Does not deal with reversal of write-down. Provides detailed guidancein case of sub- sequent assessment of net realizable value. Also deals with the reversal of the write-down of inventories tonet realizable -value to the extent of the amount of original write-down, and the recognition and disclosure thereof in the financial statements Excludes from its scope the inventories held by producers of Agricultural and forest pro- ducts. Excludes from its scope only the measu- rement of inventories held by producers of agricultural and forest products, agri- cultural produce after harvest, and minerals and mineral products though it provides guidance on measurement of such inventories. Comparatively requires less disclosure Requires more disclosures Treatment of inter-divisional transfers 8.14 ICAI has announced that inter-divisional transfers/sales are not the revenue as per AS-9 “Revenue Recognition”. Since in case of inter-divisional transfers, risks and rewards remain within the enterprise and also there is no consideration from the point of view of the enterprise as a whole, the recognition criteria for revenue recognition are also not fulfilled in respect of inter-divisional transfers. 8.15 Comparison of AS-9 with Ind AS-18 AS-9 ‘Revenue Recognition’ Ind AS-18 ‘Revenue’ Revenue is gross inflow of cash, | Definition of ‘revenue’ is broad compared receivables or other considera- | to the definition of ‘revenue’ given in tion arising in the course of the | existing AS-9 because it covers all 189 ginary activities of an wr erprise from the sale of goods, ent the rendering of services, or rom the use by others of erprise resources Yielding rest, royalties and dividends, an ent intel pristing AS 9 does not exclude the specifically real estate development —

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