Accounting

for Managers.
Assignment 2 by Group 13
 Index
1. Introduction of Accounting Standards.
2. Valuation of Inventories (AS-2)
3. Revenue Recognition (AS-9).
4. Accounting for Depreciation and Fixed Assets (AS-10)
& (AS- 6).
5. Accounting for Investment (AS-13).
 Accounting Standards (AS) are principles of
accounting which are issued by the world’s
governing and accounting bodies so as to
ensure that all organizations follow a
uniform set of accounting rules. This will
further establish uniformity in the format
Introduction of followed by organization to prepare their
financial statements.

Accounting In India, the Institute of Chartered

Accountants of India (ICAI) issues the Indian
Standards. Accounting Standards (IAS). These
accounting standards are adapted from the
GAAP and modified accordingly with the
Indian economy. The nomenclature and
numbering of these standards bear
similarity with the IFRS. The Indian
Accounting Standards has a total of 32
standards.
 Valuation of Inventories (AS-2)
Inventories are assets that are held:

For sale in the ordinary course of business.

In the process of production of such sale

In the form of materials or supplies to be consumed in the production

process or in the rendering of the services. Such inventories are recorded
at either cost or net realisable value, whichever is lower.
 Valuation of Inventories (AS-2).
 Methods of Inventory Valuation
I. Specific Identification Method: In order to apply specific identification method, it is necessary
that each item sold and each item in closing inventory are easily identifiable. Such a method is
applicable only in cases where it is possible to physically differentiate the various purchases
made by the business.
II. First In First Out (FIFO): The First In First Out Method assumes that the goods are consumed in
the sequence in which they are purchased. That is to say the goods purchased first are
consumed first in a manufacturing concern and are sold first in case of a merchandising firm.
III. Weighted Average Cost Method (WAC): Under 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. Further, the units under costs of goods sold and the closing
inventory are taken at the average cost so calculated.
 Revenue Recognition (AS-9).

 AS 9- is concerned with premises on the basis of which revenue is recognized

in the statement of profit and loss of a business entity. This accounting
standard deals with the recognition of revenue arising in the course of
ordinary activities of the enterprise. Such a revenue stems from: Sale of goods
Rendering of services Use of business entity resources by others giving
interest, royalties and dividends in return Additionally, the weighted average
is calculated periodically or on the arrival of each new shipment as the case
may be.
 Accounting for Capital
Expenditure.
 A capital expenditure is the use of funds or assumption of a
liability in order to obtain or upgrade physical assets. The
intent is for these assets to be used for productive purposes for
at least one year. This type of expenditure is made in order to
expand the productive or competitive posture of a business.
Examples of capital expenditures are funds paid out for
buildings, computer equipment, machinery, office equipment,
vehicles, and software.
Accounting for Depreciation and Fixed Assets (AS-10) & (AS-
6)

AS 6 was withdrawn and it was merged in the AS 10. Revised AS-10 Is now known as Property
Plant & Equipment (PPE).

Accounting Standard 10 deals with Property, Plant and Equipment (PPE). The underlying purpose of this
standard is to lay down or specify accounting treatment for Property, Plant and Equipment. As per AS 10,
depreciation is nothing but a charge that is allocated to an asset systematically over its useful life. Thus,
the depreciable amount so charged for an asset in each period is typically recognized in the profit and loss
statement of the business entity.

Period Of Charging Depreciation

A business entity initiates to charge depreciation to an asset only when it is available for use. In other
words, assets are depreciated only when they are brought to the location and the condition essential for
making the asset operational in the manner in which it is planned by the management
 Accounting for Depreciation and Fixed Assets (AS-10)
& (AS-6)
 On the other hand, the business entity discontinues to depreciate an asset at a date earlier of:
 The date on which the asset is no longer actively used and is held for disposal.
 The date at which the asset is derecognized.
 Depreciation methods:-
1. Straight Line Method: This is a depreciation method under which the value of an asset is reduced
uniformly over the useful life of the asset. The depreciation expense is calculated by subtracting the
residual value of the asset from the cost of the asset and further dividing this difference with the
useful life of the asset.
2. Diminishing Balance Method: This method is also known as the written down value method or declining
balance method. As per this method, a fixed percentage of depreciation is charged in each accounting
period to the net balance of the fixed asset.
3. Units of Production Method:
 Under this method, depreciation charge is estimated based on the number of units produced by an
asset.
 Accounting for Investment(AS-13)
AS 13 deals with accounting for investments made by an enterprise in another enterprise and the disclosure of such
investments in the financial statements. The financial statement of an enterprise presents fixed assets, investments and
current assets into different categories. As far as investments are concerned, these are classified into long term investments
and current investments. (i) Current Investments - A current investment refers to an investment that is readily realizable
and is held for not more than one year from the date on which such an investment is made.

(ii) Long Term Investments - Long term investment refers to an investment other than the current investment even though
such investments are readily marketable. Disposal of Investments When an asset is disposed of, the difference between
proceeds received from disposal and the carrying amount of investment is recognized in the P&L statement. Such a
difference is also adjusted for any expenses incurred with respect to disposal of such investments. However, there are cases
where only a part of an individual investment is disposed of. In such a case, the carrying amount of a portion of such
investment is determined on the basis of the average carrying amount of the total investment.

Reclassification of Investments
Accounting for Investment(AS-13)

 Following are the ways in which investments can be reclassified.

 The first one relates to the case where long term investments are reclassified as current
investments. In such a case, investments are transferred at an amount that is lower of cost and
its carrying amount at the date of transfer.
 The second one relates to the case where current investments are reclassified as long term
investments. In such a case, investments are transferred at an amount that is lower of cost and
fair value at the date of transfer.
To – Dr. Akhilesh Shukla

 Made & Presented by,

 Rutvik Raval
 Ferin Patel
 Jeel Bosamiya
 Kunjan Shah
 Yash Chudasama
 Shivam Parihar
 Mishva Patel