Accounting Standards
IAS- after 2001- International
Financial Reporting Standards (
IFRS)- IASB, London(june,’73)
US GAAP- FASB
GAAP – OTHER COUNTRIES
INDIAN ACCOUNTING
STANDARD – ICAI
Convergence with IFRS-1/4/2011
Accounting Standards-WHY?
 To harmonise the diverse accounting
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practices and policies in use.
Understandability
Relevance
Reliability
Comparability
Acceptability
Indian Accounting Standards
 ASB set up on 21-4-77 by the ICAI
 ASB board include representatives from
ICSI/ICWAI/Industry Assns./RBI/SEBI/Controller
General of Accounts/CBEC/Financial
Insttns./Academic Instns.(2)
 Accounting Stds. – in all 29 released by ICAI to
be adopted.
 Draft AS-30-Financial Instruments-Recognition &
measurement ( w.e.f. 1-4-09)
 Draft AS-31-Financial Instruments-presentation
Indian Accounting Standards
Applicability
 Classification of Enterprises- Level-I
 all commercial, industrial and business enterprises
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having turnover of Rs. 50 crore and above in the Prev.
Year.
Having borrowings of over Rs. 10 crore in previous year.
Their holding and subsidiary companies.
Banks including copt. Banks
Financial Institutions
Enterprises whose securities or debt are listed in a stock
exchange.
Insurance business
Indian Accounting Standards
Applicability
Level-II
 All commercial, industrial and business enterprises with
turnover exceeding Rs. 40 lacs but not exceeding Rs. 50
crore in the previous year. Turnover does not include “
Other income”
 Having borrowings including public deposits of over Rs.
1 crore but not more than Rs. 10 crore.
 Holding and subsidiary cos. of the above.
Indian Accounting Standards
Applicability
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Level-III
Enterprises not covered under Level-I
and Level-II are Level-III enterprises
Applicable to all Levels:
AS-1/2/AS-4 to AS-16/AS-22 and AS-26
Exemptions for Level-II and Level-III
AS-3, AS-17, AS-18, AS-21. AS-23, AS-24
and AS-27 and partially AS-19, 20 and AS29
Indian Accounting Standards
Disclosure of Accounting Policies(AS-1)
 Disclose all significant accounting policies
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adopted in one place.
To reveal true and fair view of the financial
position
Major consideration for selection of acctg.
Polices- prudence, substance over form and
materiality
Disclosure of policies not a substitute for
accounting treatment
Deviations in fundamental accounting
assumptions to be disclosed.
Valuation of Inventories( AS-2)
Purpose: To formulate the method of valuation of
inventories on hand for Balance Sheet purposes.
Inventories include:
1) Finished goods held for sale in the ordinary course
of business.
2) Raw material/WIP in the process of production of
such sale.
3) Material and spares to be consumed for such
production( does not include machinery)
4) Spares which are used in common with all fixed
assets.
Valuation of Inventories( AS-2)
 Does not include:1) WIP directly related to construction
contract or service contracts.
2) WIP of service providers.
3) Financial instruments held as stock in
trade.
4) Producer’s inventories like livestock,
mineral oil, ore, gas etc.
Valuation of Inventories( AS-2)
 Cost of inventory includes:
1) Cost of purchases.
a) Purchase price
b) Duties and taxes
c) Freight inward
d) Other exp. Attributed to acquisition.
Less: a) duties /taxes recoverable from govt.
b) Trade discount ( c ) rebate
d) Duty draw back e) other similar items.
Valuation of Inventories( AS-2)
 Cost of Inventory includes:2) Cost of conversion1) Direct Labour/Material/expenses.
2) Fixed production overheads.( on normal capacity)
3) Variable production overheads.( on actual
production)
4) In case of joint products- rational and consistent
allocation
5) Scrap/by-product net realizable value deducted
from costs.
Valuation of Inventories( AS-2)
 Inclusion of excise duty in valuation of
finished goods- as applicable on the
balance sheet date. ( neutral effect)
 Care! Production for exports.
Valuation of Inventories( AS-2)
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Exclusions from cost of inventories:Abnormal costs, wastage etc.
Storage costs
Administrative overheads
S & D costs.
Interest & borrowing costs.
Valuation of Inventories( AS-2)
 Cost of inventories determined by:1)
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4)
Specific identification method.
FIFO or weighted average cost.
Standard cost.
Retail Method( target cost)
Valuation of Inventories( AS-2)
 Net Realisable Value (NRV)
Is the estimated selling price less
estimated cost of completion and
estimated cost necessary to make the
sale.
Calculated on each Balance Sheet date.
Valuation of Inventories( AS-2)
 Estimation of NRV:a) If finished product in which raw material and
supplies used is sold at or above the cost ,
then estimated NRV of Raw material and
supplies is shown at more than its cost.
b) If finished goods in which raw material and
supplies used is sold below the cost, then the
estimated NRV of raw material and supplies is
equal to replacement price of raw material and
supplies.
Valuation of Inventories( AS-2)
 MODVAT and now CENVAT
(wef-1-4-2000): For Income Tax purpose:- Inventory costs
include CENVAT paid on the item.
 For Balance Sheet purpose:- CENVAT
amount debited to separate account as
receivables.( AS-2)
Valuation of Inventories( AS-2)
IAS/US Gaap Vs. Indian AS
 IAS/US Gaap- only selling costs excluded.
 Indian AS – both selling & distribution costs
excluded.
 IAS/US Gaap- No stipulation on formula for
valuation of inventories. But to be uniformly
followed for all inventories of similar nature and
use.
 Indian AS- Only FIFO or WACC to be followed.
Depreciation Accounting ( AS-6)
Reduction in value of the asset on
account of usage and passage of time.
1) When used for more than one
accounting period.
2) Assets having limited useful life.
3) Held for use in production of goods or
services.
Depreciation Accounting ( AS-6)
 AS applicable to all depreciable assets
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except:Forests. Plantations.
Minerals and Natural gas
Exp. On R & D
Goodwill
Livestock
Depreciation Accounting ( AS-6)
 Cost of depreciable assets may change from
historic cost due to: Exchange fluctuations.
 Price adjustments
 Changes in duties.
 Revaluation
 Other similar reasons.
Depreciable amount is historic cost as adjusted as
above less residual value. This is allocated over the
useful life of the asset.
Depreciation Accounting ( AS-6)
 Methods– (1) SLM ( 2) WDV
 Changes in method- to calculate from the date
of acquisition and account for in books.
 Depreciation due to revaluation/increased useful
life/addition or extension of the asset etc. to be
charged on the residual life of the asset.
 When the asset is disposed of, the
surplus/deficiency is adjusted to P & L account
Contingencies/events after the
Balance Sheet date ( AS-4)
Based on accrual based and prudent accounting
policies.
Not applicable for:a) Liabilities of Life insurance and General
Insurance.
b) Obligations under Retirement benefit plan.
c) Commitments arising from long term lease
contracts.
Contingencies/events after the
Balance Sheet date ( AS-4)
 Contingencies means existing condition or
situation for which result is not known and
is dependent on certain happenings or
non-happenings and which may result into
profit or loss.
 Loss contingencies-e.g.
 Collection of receivables.
 Litigations, claims on assets for recovery
Contingencies/events after the
Balance Sheet date ( AS-4)
 Contingency Loss: Due to existing conditions/situations
 If probable- provision should be made(
depending on counter claim if any).
 If reasonably possible- disclosure to made.
 If remote- ignored.
 Due to conditions/situations after the
Balance Sheet date: No acctg .required
Contingencies/events after the
Balance Sheet date ( AS-4)
 Events occurring after the Balance Sheet date: Events relate to circumstances existing as on the date
of Balance Sheet
 Loss should be accounted and assets/liabilities adjusted.
 Proposed dividend to be adjusted in the books
New Events( not existing on Balance Sheet date)
Disclosure by way of notes to accounts only.
Events occurring after approval of accounts- show in Directors’
Report.
Un accounted contingent losses- by way of notes.