INTERNATIONAL ACCOUNTING EMERGENCE OF ACCOUNTING STANDARDS

1. INTERNATIONAL ACCOUNTING EMERGENCE OF ACCOUNTING STANDARDS

2. Introduction “Standards” in accounting literature used to be generally known as principles a few years back. The term standard was introduced in England by setting up their Accounting Steering Committee at the end of 1969 in place of principles. However in America the term was used and became popular after the establishment of FASB in 1973 where as in India the term became popular with the formation of ASB by ICAI in 1977. Standardization improves the comparability of financial information, which in turn clear the current misunderstanding concerning the liability of foreign financial statements, thus eliminating one of the primary impediments to the flow of international investment. Accounting standards deal with mainly financial measurements and disclosures and can be considered as technical response for better financial accounting and reporting.

3. Objective

4. Scope

5. Merits of Accounting Standards

6. List of IFRS

7. List of IFRS (IAS)

8. List of IFRS (IAS)

9. List of IFRS (IAS)

10. Standard Setting In India The Council of Institute of Chartered Accountants of India constituted the accounting standards board on 21st April 1977 to harmonies the diverse accounting practices and policies at present. International developments in accounting literature has also compared Indian institutes develop accounting standards in India. ASB at present consist of 16 members representing company law board , industry, central board of direct taxes and SEBI. At present all the standards are of mandatory nature.

11. Working of IASB IFRS foundation Monitoring Board appoints appoints IFRS advisory committee IFRS interpretation committee IASB creates IFRS Approves trustees Reports to Monitors Reviews effectiveness Informs funds Creates

12. Accounting Standards(AS) • Disclosure of Accounting Policies(AS-1) Accounting policies refer to specific accounting principles and the method of applying those principles adopted by the enterprise in the preparation and presentation of financial statements. There are many areas which have more than one method of accounting treatment such as: i).Methods of depreciation ii).Valuation of inventories iii).Treatment of contingent liabilities

13. Complete set of financial statements

14. Fundamental Accounting Assumptions: It is generally assumed that financial statements are prepared on the basis of fundamental accounting assumptions. Assumptions are: i).Going concern concept-It means that enterprise had intension for continuing the operation in foreseeable future. ii).Consistency-It means same accounting policies are followed from one period to another iii).Accrual-It means that financial statement is prepared on mercantile system only. Under this system, the effects of transaction and other events are recognized when they occur and they are recorded in the accounting records and reported in the financial statements of the period to which they relate.

15. Major points considered for the purpose of selection and application of accounting policies:

16. Changes in the Accounting Policies • Adoption of different accounting policies is required by the statute or for compliance with an Accounting Standard • It is considered that change would result in more appropriate presentation of financial statement.

17. Comparative Information

18. Valuation of Inventories(AS-2) The objective of this standard is to formulate the method of computation of cost of inventories, determine the value of closing stock at which, the inventory is shown in balance sheet till it is not sold and recognized as revenue. Definition • Held for sale in the ordinary course of business(finished goods) • In the purpose of production of such sale(raw material and work in progress) • In the form of materials or supplies to be consumed in production process or in the rendering of services( stores, spares, raw materials ,consumables)

19. Measurement • Inventories should be valued at the lower of cost and net realizable value. The cost of inventories should comprise of all costs of purchase ,conversion and other cost incurred in bringing the inventories to their present location and condition. • Storage costs, Abnormal wastages ,administrative overhead and selling and distribution costs should not be included • Cost of inventories is valued by FIFO and Weighted Average Cost methods

20. Cash Flow Statement(AS-3) Cash flow statement exhibits the flow of incoming and outgoing cash. This statement assesses the ability of the enterprise to generate cash and to utilize cash .It is a tool for assessing the liquidity and solvency of the enterprise. Features: Cash flow statement explains cash movement under the following three different heads namely: i).Cash flow from operating activities ii).Cash flow from investing activities iii).Cash flow from financing activities

21. Contingencies and Events Occurring After the Balance Sheet Date(AS-4) Objectivesof this standard is to prescribe the accounting of contingencies and the event ,which takes place after the balance sheet date but before approval of balance sheet by board of directors. Contingency: i).Existing conditions or situation ii).Result of which is not known on the balance sheet date iii).Result of which would be known only on happening or non- happening of certain events in future. iv). Result may be either a gain or loss

22. Events Occurring After The Balance Sheet Date • Events which occur between the balance sheet date and date on which financial statements are approved by competent authority • These events are significant events and it may be favorable and unfavorable.

23. Net profit or loss for the period ,prior period items and change in accounting policies(AS-5) Theobjective of this standard is prescribing the criteria for the certain items in the profit and loss account so that comparability of the financial statement can be enhanced. This standard should be applied by an enterprise in: i).presenting profit/loss from ordinary activities, extraordinary items and prior period in profit/loss statement ii).Accounting for changes in accounting estimates iii).disclosure of changes in accounting policies

24. Depreciation Accounting (AS-6) Depreciation is a measure of wearing out, consumption or other loss of value of a depreciable asset arising from the use and passage of time .The method of depreciation selected should be adopted consistently from period to period to enable comparison of results of the operations of an enterprise over a period of time. Applicability of Accounting Standard: The standard is applicable to all depreciable assets except the following: i).Forests, Plantations ii).goodwill iii). Live stock- cattle, animal husbandry

25. Disclosure • Total cost of each cash of assets- historical and revalued cost • Total depreciation for the period of each class of assets • A change in the method of depreciation is treated as a change in accounting policy and is disclosed separately • Accumulated depreciation of each class of assets

26. Construction Contracts (AS-7) The standard prescribes the accounting treatment of revenue and costs associated with the construction contracts, in the financial statements of contractors. There are two ways to determine profit or loss: i)On year to year basis based on percentage of completion ii)On completion of the contract

27. Revenue Recognition (AS-9) • This standard deals with the basis for recognition in the income statement of an enterprise, of revenue arising of its ordinary activities from the sale of goods ,rendering of services and the use of enterprise resources by others yielding interest, dividend and royalties • This is mainly concerned with the timing of recognition of revenue in the income statement of an enterprise and assumes three fundamental accounting assumptions of going concern, consistency and accrual have been followed in the preparation ad presentation of financial statements • The performance should be measured either under the completed service contract or proportionate completion method, whichever relates the revenue to work accomplished

28. Accounting for Fixed Assets(AS-10) Fixed Asset is an asset, which is : • Held with intension of being used for the purpose of producing or providing goods and service • Not held for sale in the normal course of business • Expected to be used for more than one accounting period Fixed assets are shown in financial statement either at historical cost or revalued cost

29. Accounting for Government Grants(AS-12) Government grants are assistance by the government in the form of cash or kind to an enterprise in return for past or future compliance with certain conditions. Government grants are sometimes called such as subsidies ,cash incentive . Kinds of Govt. Grants: • Non- Monetary Govt. Grants- grants in a form of assets such as land, plant &machinery etc • Grants are given at concessional rate, then such assets are accounted at their acquisition cost • Grants are given free of cost, then assets are recorded at the nominal value.

30. ii) Monetary grants-Grants related to depreciable fixed assets There are two accounting treatments- • Grant is shown as deduction from the gross value of asset in arriving its book value. • Grants are treated as deferred income.

31. Accounting For Investments(AS-13) It is the assets held for earning income by way of dividend ,interest and rentals, for capital appreciation or for other benefits. SCOPE-The standard deal with the following aspects: Classification of investments Cost of investment Carrying amount/valuation of investment Disposal of investments

32. Classification of Investment:- Investments can be classified as long term and current investments. • Cost Of Investments:-It comprises of purchase price and acquisition charges such as brokerage, fees and duties etc • Carrying Amount Of Investments:- • Carrying amount of current investment is the lower of cost and realizable value. • In case of long term investment ,it is usually carried at cost.

33. Disposal Of Investment:-When an investment is disposed of the difference between the carrying amount and net sale proceed is recognized in the Profit and Loss A/C. • When only a part of total investment is disposed of the carrying amount of that part is determined on the basis of average carrying amount of total investment.

34. Accounting for Amalgamation (AS-14) • Amalgamation:- Means an amalgamation as per the provision of companies Act 1956 or any other law applicable to companies. • Types of Amalgamation :- (a) Amalgamation in the nature of Merger (b) Amalgamation in the nature of Purchase

35. Two Main Methods of Accounting i) Pooling interest method :- Line by line addition of assets and liabilities of transferor and transferee company should be made except for share capital. • The difference b/w purchase consideration paid by the transferee company to the transferor company and the amount of share capital of the transferor company should be adjusted with reserves. • If purchase consideration is more then the share capital of the transferor company then amount shall be debited to reserve and vise a versa

36. ii) Purchase Method :- According to the s method books of transferee company assets and liabilities shall be recorded at the value at which these assets and liabilities are taken over by the transferee company from the transferor company. • If purchase consideration exceeds the net assets taken over the difference is Debited to goodwill account. If purchase consideration is less than the net asset taken over, the difference is credited to capital reserve.

37. Borrowing Cost(AS-16) It Includes following cost and charges:- • Borrowing Cost defined as interest and other cost incurred relating to borrowing of funds. (a) Interest and commitment charges on borrowing (b) Amortization of discounts or premiums relating to borrowing (c ) Amortization of ancillary costs incurred in connection with arrangement. (d) Finance charges when the asset acquired under finance lease It does not deal with cost of owner’s equity including preference share capital.

38. Conditions for Capitalization for Borrowing cost • Those borrowing costs, which are directly attributable to the acquisition, construction or production of qualifying asset are eligible for capitalization. • Qualifying asset will give future economic benefit to the enterprise and the cost can be measured reliably.

39. Commencement of capitalization of borrowing cost • Borrowing cost is incurred • Activities which are essential to prepare the asset for its intended use, should be in progress • Expenditure for acquisition, construction or production or qualifying asset is being incurred.

40. Segment Reporting(AS-17) • Disclosure of information about multiple products/services and its operations in different geographical area is called segment reporting. Types of segments:- Business Segment – segment is made on the basis of products/services which are exposed, to different risks and returns. Geographical segment-segment is made on the basis of its operation in different geographical areas, which are exposed to different risk and returns.

41. DISCLOUSURE: Disclosure requirement of primary segments are as under:- • Revenue from external customer. • Revenue from transaction with other segments. • Cost to acquire tangible and intangible fixed assets. • Depreciation and amortization expenses.

42. Related Party Disclosures (AS-18) • Related Party are those party that controls or significantly influence the management or operating policies of the company during the reporting period. DISCLOSURE: • Related party relationship. • Transaction between reporting enterprise and its related parties. • Volume of transaction.

43. Accounting for Leases (AS-19) • Lease is an arrangement by which the lessor gives the right to use an asset for given period of time to the lessee on rent. Types of Lease 1. Finance Lease- It is a lease that transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee by the lesser but not the legal ownership. 2. Operating Lease-It is a lease that does not transfer substantially all the risk and reward incidental to ownership

44. Applicability:::Accounting treatment of Finance LeaseIn the books of lessee:- The transactions are recorded by substance and not by their legal form. Lessee becomes the owner.In the books of lesser:- The substance of finance lease is that the lesser sells leased assets to lessee. Accounting Treatment of Operating Lease • In the books of Lessee:- Lease payments should be recognized as an expense in the Profit and loss account on a straight line basis over the lease term. • In the books Lesser:- Lease income in Profit and Loss account using straight line basis.

45. Earning Per Share (AS-20) • Earning Per Share (EPS) is a financial ratio that gives the information regarding earning available to each equity share. • Types of Earning Per Share: • Basic EPS = Net Profit/Loss for the period attributable to equity shareholder Weighted Average No. of equity shares outstanding during the period Diluted EPS = Net Profit attributable to equity shareholder (after adjustment) Average No. of Weighted equity shares outstanding during the period (Assume the conversion of diluted potential equity shares)

46. Consolidated Balance Sheet(AS-21) • The objective of this statement is to present financial statement of a parent and a subsidiary as a single economic entity. • Parent :- A parent is an enterprise that has one or more subsidiaries. • Subsidiary:- It is an enterprise that is controlled by another enterprise known as parent. • DISCLOSURE • List of all subsidiaries. • Proportion of ownership interest. • Nature of relationship between parent and subsidiary . • Name of subsidiary of which reporting date are different. • The fact for different accounting policies applied for preparation of consolidated financial statements.

47. Accounting For Taxes On Income(AS-22) Objective: • The standard prescribes the accounting treatment for the taxes on income. • Amount of tax is determined on profit/loss computed as per in come tax laws. • Tax is determined on the principle of accrual concept Scope: • Taxes on income include all domestic and foreign taxes which are taxable income • Taxes on income exclude tax payable on distribution of dividends .

48. Recognition and Measurement: Tax expenses for the period to be recognized consist of: Current tax: • It is an amount of income tax determined to be payable (recoverable) in respect of taxable income(tax loss) for the period • It is measured at the amount expected to be paid to (recovered from)taxation authorities using applicable tax rules and tax laws Deferred Tax: • It is the difference between the tax expenses and current liability to be paid for the particular period . • It is measured using the rates and tax laws that have been enacted by the balance sheet date

49. Accounting for investments in Associates in Consolidated Financial Statements(AS-23) This standard is applicable for the investment in associates when the investor prepares consolidated financial statements. Accounting for Investments in Associate: Equity Method Accounting: The following procedure must be followed: • Investments is initially recorded at cost • Goodwill/capital reserve identified at the time of acquisition of investments should be included in the carrying amount investment in associate • Carrying amount is increased/decreased to recognize the investor’s share of profits and losses of the associate after the date of acquisition • Distributions received from associate should be reduced from the carrying amount

50. Unrealised profits and losses resulting from transactions between investor and associate should be eliminated to the extent of investor’s interest in the associate • Investors share in associates profits or losses should be commuted after adjusting dividend on the cumulative preference share whether or not dividend had been declared Disclosures: • Investment in associates accounted for using the equity method should be classified as long term investment • Difference in reporting dates of financial statements of associates and of the investor should be disclosed