Important Definitions As Per As

Important Definitions as per AS AS 2 Valuation of Inventories
3. The following terms are used in this Statement with the meanings specified: Inventories are assets: (a) held for sale in the ordinary course of business; (b) in the process of production for such sale; or (c) in the form of materials or supplies to be consumed in the production process or in the rendering of services. et realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to ma!e the sale.
This Standard has been revised and titled as Construction Contracts. The revised Standard is published elsewhere in this Compendium.
3
Valuation of Inventories 49
4. Inventories encompass goods purchased and held for resale, for e ample, merchandise purchased b! a retailer and held for resale, computer software held for resale, or land and other propert! held for resale. Inventories also encompass finished goods produced, or wor" in progress being produced, b! the enterprise and include materials, maintenance supplies, consumables and loose tools awaiting use in the production process. Inventories do not include machiner! spares which can be used onl! in connection with an itemof fi ed asset and whose use is e pected to be irregular# suchmachiner! spares are accounted for in accordance with $ccounting Standard %$S& '(, $ccounting for )i ed $ssets4 .
AS 3 Cash Flow Statements

". The following terms are used in this Statement with the meanings specified: #ash comprises cash on hand and demand deposits with ban!s. #ash e$uivalents are short term% highly li$uid investments that are readily convertible into !nown amounts of cash and which are sub&ect to an insignificant ris! of changes in value. #ash flows are inflows and outflows of cash and cash e$uivalents. 'perating activities are the principal revenue(producing activities of the enterprise and other activities that are not investing or financing activities. Investing activities are the ac$uisition and disposal of long(term assets and other investments not included in cash e$uivalents. )inancing activities are activities that result in changes in the si*e and composition of the owners+ capital (including preference share capital in the case of a company) and borrowings of the enterprise.
Cash and Cash Equivalents

*. Cash e+uivalents are held for the purpose of meeting short,term cash commitments rather than for investment or other purposes. )or an investment to +ualif! as a cash e+uivalent, it must be readil! convertible to a "nown amount of cash and be sub-ect to an insignificant ris" of changes in value. Therefore, an investment normall! +ualifies as a cash e+uivalent onl! when it
has a short maturit! of, sa!, three months or less from the date of ac+uisition. Investments in shares are e cluded from cash e+uivalents unless the! are, in substance, cash e+uivalents# for e ample, preference shares of a compan! ac+uired shortl! before their specified redemption date %provided there is onl! an insignificant ris" of failure of the compan! to repa! the amount atmaturit!&.
Accounting Standard (AS) 4

(revised 1 !)
Contingencies and Events "ccurring After the #alance Sheet $ate

3. The following terms are used in this Statement with the meanings specified. 3.' $ contingency is a condition or situation, the ultimate outcome of which, gain or loss, will be "nown or determined onl! on the occurrence, or non,occurrence, of one or more uncertain future events. 3./ Events occurring after the balance sheet date are those significant events, both favourable and unfavourable, that occur between the balance sheet date and the date on which the financial statements are approved b! the 0oard of 1irectors in the case of a compan!, and, b! the corresponding approving authorit! in the case of an! other entit!. Two t!pes of events can be identified.
4
See footnote '.
84 AS 4 (revised 1995)
%a& those which provide further evidence of conditions that e isted at the balance sheet date# and %b& those which are indicative of conditions that arose subse+uent to the balance sheet date.
Accounting Standard (AS) !

(revised 1 %)
&et 'rofit or (oss for the 'eriod) 'rior 'eriod Items and Changes in Accounting 'olicies
,. The following terms are used in this Statement with the meanings specified: 'rdinary activities are any activities which are underta!en by an enterprise as part of its business and such related activities in which the enterprise engages in furtherance of% incidental to% or arising from% these activities. -.traordinary items are income or e.penses that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and% therefore% are not e.pected to recur fre$uently or regularly. /rior period items are income or e.penses which arise in the current period
Net Profit or Loss for the Period 93
as a result of errors or omissions in the preparation of the financial statements of one or more prior periods.
0ccounting policies are the specific accounting principles and themethods of applying those principles adopted by an enterprise in the preparation and presentation of financial statements.
Accounting Standard (AS) *

(revised 1 4)
$e+reciation Accounting
3. The following terms are used in this Statement with the meanings specified. 3.' Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable asset arising from use, efflu ion of time or obsolescence through technolog! and mar"et changes. 1epreciation is allocated so as to charge a fair proportion of the depreciable amount in each accounting period during the e pected useful life of the asset. 1epreciation includes amortisation of assets whose useful life is predetermined. 3./ Depreciable assets are assets which %i& are e pected to be used during more than one accounting period# and
102 AS 6 (revised 1994)
%ii& have a limited useful life# and %iii& are held b! an enterprise for use in the production or suppl! of goods and services, for rental to others, or for administrative purposes and not for the purpose of sale in the ordinar! course of business. 3.3 Useful life is either %i& the period over which a depreciable asset is e pected to be used b! the enterprise# or %ii& the number of production or similarunitse pectedtobeobtainedfromtheuseof theassetb!theenterprise. 3.4 Depreciable amount of a depreciable asset is its historical cost, or other amount substituted for historical cost/ in the financial statements, less the estimated residual value.
Accounting Standard (AS) %

(revised ,--,)
Construction Contracts
1. The following terms are used in this Statement with the meanings specified: 0 construction contract is a contract specifically negotiated for the construction of an asset or a combination of assets that are closely interrelated or interdependent in terms of their design% technology and function or their ultimate purpose or use. 0 fi.ed price contract is a construction contract in which the contractor agrees to a fi.ed contract price% or a fi.ed rate per unit of output% which
in some cases is sub&ect to cost escalation clauses. 0 cost plus contract is a construction contract in which the contractor is reimbursed for allowable or otherwise defined costs% plus percentage of these costs or a fi.ed fee. 3. $ construction contract ma! be negotiated for the construction of a single asset such as a bridge, building, dam, pipeline, road, ship or tunnel. $ construction contract ma! also deal with the construction of a number of assetswhich are closel! interrelated or interdependent in terms of their design, technolog! and function or their ultimate purpose or use# e amples of such contracts include those for the construction of refineries and other comple pieces of plant or e+uipment. 4. )or the purposes of this Statement, construction contracts include. %a& contracts for the rendering of services which are directl! related
Construction Contracts 111
to the construction of the asset, for e ample, those for the services of pro-ect managers and architects# and %b& contracts for destruction or restoration of assets, and the restoration of the environment following the demolition of assets. 2. Construction contracts are formulated in a number of wa!s which, for the purposes of this Statement, are classified as fi ed price contracts and cost plus contracts. Some construction contractsma! contain characteristics of both a fi ed price contract and a cost plus contract, for e ample, in the case of a cost plus contract with an agreed ma imum price. In such circumstances, a contractor needs to consider all the conditions in paragraphs // and /3 in order to determine when to recognise contract revenue and e penses.
Accounting Standard (AS)

(issued 1 .!)
/evenue /ecognition
4. The following terms are used in this Statement with the meanings specified. 4.' Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinar! activities of an enterprise* from the sale of goods, from the rendering of services, and from the use b! others of enterprise resources !ielding interest, ro!alties and dividends. 3evenue is measured b! the charges made to customers or clients for goods supplied and services rendered to them and b! the charges and rewards arising from the use of resources b! them. In an agenc! relationship, the revenue is the amount of commission and not the gross inflow of cash, receivables or other consideration. 4./ Completed service contract method is a method of accounting which recognises revenue in the statement of profit and loss onl!when the rendering of services under a contract is completed or substantiall! completed. 4.3 Proportionate completion method is a method of accounting which
recognises revenue in the statement of profit and loss proportionatel! with the degree of completion of services under a contract.
Accounting Standard (AS) 1(issued 1 .!)
Accounting for Fi0ed Assets
*. The following terms are used in this Statement with the meanings specified. *.l Fixed asset is an asset held with the intention of being used for the
The relevant re+uirements in this regard are omitted from this Standard pursuant to $S '*, 0orrowing Costs, becoming mandator! in respect of accounting periods commencing on or after '.4./(((.
4
144 AS 1 (issued 19!5)
purpose of producing or providing goods or services and is not held for sale in the normal course of business. *./ Fair market value is the price that would be agreed to in an open and unrestricted mar"et between "nowledgeable and willing parties dealing at arms length who are full! informed and are not under an! compulsion to transact. *.3 Gross book value of a fi ed asset is its historical cost or other amount substituted for historical cost in the boo"s of account or financial statements. 4hen this amount is shown net of accumulated depreciation, it is termed as net boo" value.

(revised ,--1)
2he Effects of Changes in Foreign E0change /ates

2. The following terms are used in this Statement with the meanings specified: 0verage rate is the mean of the e.change rates in force during a period. #losing rate is the e.change rate at the balance sheet date. -.change difference is the difference resulting from reporting the same number of units of a foreign currency in the reporting currency at different e.change rates. -.change rate is the ratio for e.change of two currencies. )air value is the amount for which an asset could be e.changed% or a liability settled% between !nowledgeable% willing parties in an arm+s
length transaction. )oreign currency is a currency other than the reporting currency of an enterprise.
Chan"es in #orei"n $%chan"e &ates 161
)oreign operation is a subsidiary, % associate" % &oint venture3 or branch of the reporting enterprise% the activities of which are based or conducted in a country other than the country of the reporting enterprise. )orward e.change contract means an agreement to e.change different currencies at a forward rate. )orward rate is the specified e.change rate for e.change of two currencies at a specified future date. Integral foreign operation is a foreign operation% the activities of which are an integral part of those of the reporting enterprise. 4onetary items are money held and assets and liabilities to be received or paid in fi.ed or determinable amounts of money. et investment in a non(integral foreign operation is the reporting enterprise+s share in the net assets of that operation. on(integral foreign operation is a foreign operation that is not an integral foreign operation. on(monetary items are assets and liabilities other than monetary items. 5eporting currency is the currency used in presenting the financial statements
Accounting Standard (AS) 1,

(issued 1 1)
Accounting for 3overnment 3rants

$efinitions
3. The following terms are used in this Statement with the meanings specified. 3.' Government refers to government, government agencies and similar bodies whether local, national or international. 3./ Government grants are assistance b! government in cash or "ind to an enterprise for past or future compliance with certain conditions. The! e clude those forms of government assistancewhich cannot reasonabl! have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the enterprise.
(issued 1 1)
Accounting for Investments

3. The following terms are used in this Statement with the meanings assigned. nvestments are assets held b! an enterprise for earning income b! wa! of dividends, interest, and rentals, for capital appreciation, or for other benefits to the investing enterprise. $ssets held as stoc",in,trade are not investments. $ current investment is an investment that is b! its nature readil! realisable and is intended to be held for notmore than one !ear fromthe date on which such investment is made. $ long term investment is an investment other than a current investment. $n investment property is an investment in land or buildings that are not intended to be occupied substantiall! for use b!, or in the operations of, the investing enterprise. Fair value is the amount for which an asset could be e changed between a "nowledgeable,willing bu!er and a "nowledgeable,willingseller in an arms length transaction. 5nder appropriate circumstances, mar"et value or net realisable value provides an evidence of fair value.
The Council of the Institute decided to ma"e the limited revision to $S '3 in /((3 pursuant to which the words and venture capital funds have been added in paragraph / %d& of $S '3. This revision comes into effect in respect of accounting periods commencing on or after ',4,/((/. %See The Chartered $ccountant, 6arch /((3, pp. 74'&.
4
190 AS 1' (issued 199')
!arket value is the amount obtainable from the sale of an investment in an open mar"et, net of e penses necessaril! to be incurred on or before disposal.

(issued 1 4)
Accounting for Amalgamations

The following terms are used in this statement with the meanings specified. %a& "malgamation means an amalgamation pursuant to the provisions of the Companies$ct, '72* or an! other statutewhich ma! be applicable to companies. %b& #ransferor company means the compan! which is amalgamated into another compan!. %c& #ransferee company means the compan! into which a transferor compan! is amalgamated. %d& Reserve means the portion of earnings, receipts or other surplus of an enterprise %whether capital or revenue& appropriated b! the management for a general or a specific purpose other than a provision for depreciation or diminution in the value of assets or for a "nown liabilit!. %e& "malgamation in the nature of merger is an amalgamation which satisfies all the following conditions. %i& $ll the assets and liabilities of the transferor compan! become, after amalgamation, the assets and liabilities of the
transferee compan!. %ii& Shareholders holding not less than 7(8of the face value of the e+uit! shares of the transferor compan! %other than the e+uit! shares alread! held therein, immediatel! before the amalgamation, b! the transferee compan! or its subsidiaries or their nominees& become e+uit! shareholders of the transferee compan! b! virtue of the amalgamation.
202 AS 14 (issued 1994)
%iii& The consideration for the amalgamation receivable b! those e+uit! shareholders of the transferor compan! who agree to become e+uit! shareholders of the transferee compan! is discharged b! the transferee compan!wholl! b! the issue of e+uit! shares in the transferee compan!, e cept that cash ma! be paid in respect of an! fractional shares. %iv& The business of the transferor compan! is intended to be carried on, after the amalgamation, b! the transferee compan!. %v& 9o ad-ustment is intended to be made to the boo" values of the assets and liabilities of the transferor compan! when the! are incorporated in the financial statements of the transferee compan! e cept to ensure uniformit! of accounting policies. %f& "malgamation in the nature of purchase is an amalgamation which does not satisf! an! one ormore of the conditions specified in sub,paragraph %e& above. %g& Consideration for the amalgamation means the aggregate of the shares and other securities issued and the pa!ment made in the form of cash or other assets b! the transferee compan! to the shareholders of the transferor compan!. %h& Fair value is the amount for which an asset could be e changed between a "nowledgeable, willing bu!er and a "nowledgeable, willing seller in an arms length transaction. %i& Pooling of interests is a method of accounting for amalgamations the ob-ect of which is to account for the amalgamation as if the separate businesses of the amalgamating companies were intended to be continued b! the transferee compan!. $ccordingl!, onl! minimal changes are made in aggregating the individual financial statements of the amalgamating companies.
Accounting Standard (AS) 1!

(revised ,--!)
Em+lo4ee #enefits
2. The following terms are used in this Statement with the meanings specified:
$()lo*ee +enefits 225
-mployee benefits are all forms of consideration given by an enterprise in e.change for service rendered by employees. Short(term employee benefits are employee benefits (other than
termination benefits) which fall due wholly within twelve months after the end of the period in which the employees render the related service. /ost(employment benefits are employee benefits (other than termination benefits) which are payable after the completion of employment. /ost(employment benefit plans are formal or informal arrangements under which an enterprise provides post(employment benefits for one or more employees. 6efined contribution plans are post(employment benefit plans under which an enterprise pays fi.ed contributions into a separate entity (a fund) and will have no obligation to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. 6efined benefit plans are post(employment benefit plans other than defined contribution plans. 4ulti(employer plans are defined contribution plans (other than state plans) or defined benefit plans (other than state plans) that: (a) pool the assets contributed by various enterprises that are not under common control; and (b) use those assets to provide benefits to employees of more than one enterprise% on the basis that contribution and benefit levels are determined without regard to the identity of the enterprise that employs the employees concerned. 'ther long(term employee benefits are employee benefits (other than post(employment benefits and termination benefits) which do not fall due wholly within twelve months after the end of the period in which the employees render the related service. Termination benefits are employee benefits payable as a result of either:
226 AS 15 (revised , 5)
(a) an enterprise+s decision to terminate an employee+s employment before the normal retirement date; or (b) an employee+s decision to accept voluntary redundancy in e.change for those benefits (voluntary retirement). 7ested employee benefits are employee benefits that are not conditional on future employment. The present value of a defined benefit obligation is the present value% without deducting any plan assets% of e.pected future payments re$uired to settle the obligation resulting from employee service in the current and prior periods. #urrent service cost is the increase in the present value of the defined benefit obligation resulting from employee service in the current period. Interest cost is the increase during a period in the present value of a defined benefit obligation which arises because the benefits are one period closer to settlement. /lan assets comprise: (a) assets held by a long(term employee benefit fund; and (b) $ualifying insurance policies. 0ssets held by a long(term employee benefit fund are assets (other than non(transferable financial instruments issued by the reporting enterprise) that: (a) are held by an entity (a fund) that is legally separate from the reporting enterprise and e.ists solely to pay or fund employee benefits; and (b) are available to be used only to pay or fund employee benefits%
are not available to the reporting enterprise+s own creditors (even in ban!ruptcy)% and cannot be returned to the reporting enterprise% unless either: (i) the remaining assets of the fund are sufficient to meet all the related employee benefit obligations of the plan or the reporting enterprise; or
$()lo*ee +enefits 227
(ii) the assets are returned to the reporting enterprise to reimburse it for employee benefits already paid. 0 $ualifying insurance policy is an insurance policy issued by an insurer that is not a related party (as defined in 0S 89 5elated /arty 6isclosures ) of the reporting enterprise% if the proceeds of the policy: (a) can be used only to pay or fund employee benefits under a defined benefit plan; and (b) are not available to the reporting enterprise+s own creditors (even in ban!ruptcy) and cannot be paid to the reporting enterprise% unless either: (i) the proceeds represent surplus assets that are not needed for the policy to meet all the related employee benefit obligations; or (ii) the proceeds are returned to the reporting enterprise to reimburse it for employee benefits already paid. )air value is the amount for which an asset could be e.changed or a liability settled between !nowledgeable% willing parties in an arm+s length transaction. The return on plan assets is interest% dividends and other revenue derived from the plan assets% together with realised and unrealised gains or losses on the plan assets% less any costs of administering the plan and less any ta. payable by the plan itself. 0ctuarial gains and losses comprise: (a) e.perience ad&ustments (the effects of differences between the previous actuarial assumptions and what has actually occurred); and (b) the effects of changes in actuarial assumptions. /ast service cost is the change in the present value of the defined benefit obligation for employee service in prior periods% resulting in the current period from the introduction of% or changes to% post(employment benefits
228 AS 15 (revised , 5)
or other long(term employee benefits. /ast service cost may be either positive (where benefits are introduced or improved) or negative (where e.isting benefits are reduced).
Accounting Standard (AS) 1*

(issued ,---)
#orrowing Costs
3. The following terms are used in this Statement with the meanings specified: :orrowing costs are interest and other costs incurred by an enterprise in connection with the borrowing of funds.
0 $ualifying asset is an asset that necessarily ta!es a substantial period of time3 to get ready for its intended use or sale. 4. 0orrowing costs ma! include. %a& interest and commitment charges on ban" borrowings and other short,term and long,term borrowings# %b& amortisation of discounts or premiums relating to borrowings# %c& amortisation of ancillar! costs incurred in connection with the arrangement of borrowings# %d& finance charges in respect of assets ac+uired under finance leases or under other similar arrangements# and %e& e change differences arising from foreign currenc! borrowings to the e tent that the! are regarded as an ad-ustment to interest costs4 . 2. : amples of +ualif!ing assets are manufacturing plants, power generation facilities, inventories that re+uire a substantial period of time to bring them to a saleable condition, and investment properties. ;ther investments, and those inventories that are routinel! manufactured or otherwise produced in large +uantities on a repetitive basis over a short period of time, are not +ualif!ing assets. $ssets that are read! for their intended use or sale when ac+uired also are not +ualif!ing assets.
Accounting Standard (AS) 1%

(issued ,---)
Segment /e+orting
The following terms are used in this Statement with the meanings specified: 0 business segment is a distinguishable component of an enterprise that is engaged in providing an individual product or service or a group of related products or services and that is sub&ect to ris!s and returns that are different from those of other business segments. )actors that should be considered in determining whether products or services are related include: (a) the nature of the products or services; (b) the nature of the production processes; (c) the type or class of customers for the products or services; (d) the methods used to distribute the products or provide the services; and (e) if applicable% the nature of the regulatory environment% for e.ample% ban!ing% insurance% or public utilities. 0 geographical segment is a distinguishable component of an enterprise that is engaged in providing products or services within a particular economic environment and that is sub&ect to ris!s and returns that are different from those of components operating in other economic environments. )actors that should be considered in identifying geographical segments include: (a) similarity of economic and political conditions; (b) relationships between operations in different geographical areas; (c) pro.imity of operations;
(d) special ris!s associated with operations in a particular area; (e) e.change control regulations; and
314 AS 1- (issued , )
(f) the underlying currency ris!s. 0 reportable segment is a business segment or a geographical segment identified on the basis of foregoing definitions for which segment information is re$uired to be disclosed by this Statement. -nterprise revenue is revenue from sales to e.ternal customers as reported in the statement of profit and loss. Segment revenue is the aggregate of (i) the portion of enterprise revenue that is directly attributable to a segment% (ii) the relevant portion of enterprise revenue that can be allocated on a reasonable basis to a segment% and (iii) revenue from transactions with other segments of the enterprise. Segment revenue does not include: (a) e.traordinary items as defined in 0S "% et /rofit or ;oss for the /eriod% /rior /eriod Items and #hanges in 0ccounting /olicies; (b) interest or dividend income% including interest earned on advances or loans to other segments unless the operations of the segment are primarily of a financial nature; and (c) gains on sales of investments or on e.tinguishment of debt unless the operations of the segment are primarily of a financial nature. Segment e.pense is the aggregate of (i) the e.pense resulting from the operating activities of a segment that is directly attributable to the segment% and (ii) the relevant portion of enterprise e.pense that can be allocated on a reasonable basis to the segment%
Se"(ent &e)ortin" 315
including e.pense relating to transactions with other segments of the enterprise. Segment e.pense does not include: (a) e.traordinary items as defined in 0S "% et /rofit or ;oss for the /eriod% /rior /eriod Items and #hanges in 0ccounting /olicies; (b) interest e.pense% including interest incurred on advances or loans from other segments% unless the operations of the segment are primarily of a financial nature,; (c) losses on sales of investments or losses on e.tinguishment of debt unless the operations of the segment are primarily of a financial nature; (d) income ta. e.pense; and (e) general administrative e.penses% head(office e.penses% and other e.penses that arise at the enterprise level and relate to the enterprise as a whole. <owever% costs are sometimes incurred at the enterprise level on behalf of a segment. Such costs are part of segment e.pense if they relate to the operating activities of the segment and if they can be directly attributed or allocated to the segment on a reasonable basis. Segment result is segment revenue less segment e.pense.
Segment assets are those operating assets that are employed by a segment in its operating activities and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis. If the segment result of a segment includes interest or dividend income% its segment assets include the related receivables% loans% investments% or other interest or dividend generating assets. Segment assets do not include income ta. assets.
See also $ccounting Standards Interpretation %$SI& // published elsewhere in this Compendium.
4
316 AS 1- (issued ,
Segment assets are determined after deducting related allowances= provisions that are reported as direct offsets in the balance sheet of the enterprise. Segment liabilities are those operating liabilities that result from the operating activities of a segment and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis. If the segment result of a segment includes interest e.pense% its segment liabilities include the related interest(bearing liabilities. Segment liabilities do not include income ta. liabilities. Segment accounting policies are the accounting policies adopted for preparing and presenting the financial statements of the enterprise as well as those accounting policies that relate specifically to segment reporting. *. The factors in paragraph 2 for identif!ing business segments and geographical segments are not listed in an! particular order. <. $ single business segment does not include products and services with significantl! differing ris"s and returns. 4hile there ma! be dissimilarities with respect to one or several of the factors listed in the definition of business segment, the products and services included in a single business segment are e pected to be similar with respect to a ma-orit! of the factors. =. Similarl!, a single geographical segment does not include operations in economic environments with significantl! differing ris"s and returns. $ geographical segment ma! be a single countr!, a group of two or more countries, or a region within a countr!. 7. The ris"s and returns of an enterprise are influenced both b! the geographical location of its operations %where its products are produced or where its service rendering activities are based& and also b! the location of its customers %where its products are sold or services are rendered&. The definition allows geographical segments to be based on either. %a& the location of production or service facilities and other assets of an enterprise# or
%b& the location of its customers. '(. The organisational and internal reporting structure of an enterprisewill normall! provide evidence of whether its dominant source of geographical ris"s results from the location of its assets %the origin of its sales& or the location of its customers %the destination of its sales&. $ccordingl!, an enterprise loo"s to this structure to determine whether its geographical segments should be based on the location of its assets or on the location of its customers. ''. 1etermining the composition of a business or geographical segment involves a certain amount of -udgement. Inma"ing that -udgement, enterprise management ta"es into account the ob-ective of reporting financial information b! segment as set forth in this Statement and the +ualitative
characteristics of financial statements as identified in the )ramewor" for the >reparation and >resentation of )inancial Statements issued b! the Institute of Chartered $ccountants of India. The +ualitative characteristics include the relevance, reliabilit!, and comparabilit! over time of financial information that is reported about the different groups of products and services of an enterprise and about its operations in particular geographical areas, and the usefulness of that information for assessing the ris"s and returns of the enterprise as a whole. '/. The predominant sources of ris"s affect how most enterprises are organised and managed. Therefore, the organisational structure of an enterprise and its internal financial reporting s!stem are normall! the basis for identif!ing its segments. '3. The definitions of segment revenue, segment e pense, segment assets and segment liabilities include amounts of such items that are directl! attributable to a segment and amounts of such items that can be allocated to a segment on a reasonable basis. $n enterprise loo"s to its internal financial reporting s!stem as the starting point for identif!ing those items that can be directl! attributed, or reasonabl! allocated, to segments. There is thus a presumption that amounts that have been identified with segments for internal financial reporting purposes are directl! attributable or reasonabl! allocable to segments for the purpose of measuring the segment revenue, segment e pense, segment assets, and segment liabilities of reportable segments. '4. In some cases, however, a revenue, e pense, asset or liabilit! ma! have been allocated to segments for internal financial reporting purposes on
318 AS 1- (issued , )
a basis that is understood b! enterprisemanagementbut that could be deemed arbitrar! in the perception of e ternal users of financial statements. Such an allocation would not constitute a reasonable basis under the definitions of segment revenue, segment e pense, segment assets, and segment liabilities in this Statement. Conversel!, an enterprise ma! choose not to allocate some itemof revenue, e pense, asset or liabilit! for internal financial reporting purposes, even though a reasonable basis for doing so e ists. Such an item is allocated pursuant to the definitions of segment revenue, segment e pense, segment assets, and segment liabilities in this Statement. '2. : amples of segment assets include current assets that are used in the operating activities of the segment and tangible and intangible fi ed assets. If a particular item of depreciation or amortisation is included in segment e pense, the related asset is also included in segment assets. Segment assets do not include assets used for general enterprise or head,office purposes. Segment assets include operating assets shared b! two or more segments if a reasonable basis for allocation e ists. Segment assets include goodwill that is directl! attributable to a segment or that can be allocated to a segment on a reasonable basis, and segment e pense includes related amortisation of goodwill. If segment assets have been revalued subse+uent to ac+uisition, then the measurement of segment assets reflects those revaluations. '*. : amples of segment liabilities include trade and other pa!ables, accrued liabilities, customer advances, productwarrant! provisions, and other claims relating to the provision of goods and services. Segment liabilities do not include borrowings and other liabilities that are incurred for financing rather than operating purposes. The liabilities of segments whose operations are not primaril! of a financial nature do not include borrowings and similar liabilities because segment result represents an operating, rather than a netof, financing, profit or loss. )urther, because debt is often issued at the headoffice
level on an enterprise,wide basis, it is often not possible to directl! attribute, or reasonabl! allocate, the interest,bearing liabilities to segments. '<. Segment revenue, segment e pense, segment assets and segment liabilities are determined before intra,enterprise balances and intra,enterprise transactions are eliminated as part of the process of preparation of enterprise financial statements, e cept to the e tent that such intra,enterprise balances and transactions are within a single segment. '=. 4hile the accounting policies used in preparing and presenting the financial statements of the enterprise as a whole are also the fundamental
segment accounting policies, segment accounting policies include, in addition, policies that relate specificall! to segment reporting, such as identification of segments,method of pricing inter,segment transfers, and basis for allocating revenues and e penses to segment
Accounting Standard (AS) 1.

(issued ,---)
/elated 'art4 $isclosures
8>. )or the purpose of this Statement% the following terms are used with the meanings specified: 5elated party ( parties are considered to be related if at any time during the reporting period one party has the ability to control the other party or e.ercise significant influence over the other party in ma!ing financial and=or operating decisions. 5elated party transaction ( a transfer of resources or obligations between related parties% regardless of whether or not a price is charged 3 . #ontrol ? (a) ownership% directly or indirectly% of more than one half of the voting power of an enterprise% or (b) control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise% or (c) a substantial interest in voting power and the power to direct% by
See also $ccounting Standards Interpretation %$SI& /3 published elsewhere in this Compendium.
*
352 AS 1! (issued ,
statute or agreement% the financial and=or operating policies of the enterprise. Significant influence ( participation in the financial and=or operating policy decisions of an enterprise% but not control of those policies. 0n 0ssociate ( an enterprise in which an investing reporting party has significant influence and which is neither a subsidiary nor a &oint venture of that party. 0 @oint venture ( a contractual arrangement whereby two or more parties underta!e an economic activity which is sub&ect to &oint control. @oint control ( the contractually agreed sharing of power to govern the financial and operating policies of an economic activity so as to obtain benefits from it.
Aey management personnel ( those persons who have the authority and responsibility for planning% directing and controlling the activities of the reporting enterprise. 5elative ? in relation to an individual% means the spouse% son% daughter% brother% sister% father and mother who may be e.pected to influence% or be influenced by% that individual in his=her dealings with the reporting enterprise. <olding company ( a company having one or more subsidiaries. Subsidiary ( a company: (a) in which another company (the holding company) holds% either by itself and=or through one or more subsidiaries% more than one(half in nominal value of its e$uity share capital; or (b) of which another company (the holding company) controls% either by itself and=or through one or more subsidiaries% the composition of its board of directors. )ellow subsidiary ( a company is considered to be a fellow subsidiary of another company if both are subsidiaries of the same holding company.
&elated Part* .isclosures 353
State(controlled enterprise ( an enterprise which is under the control of the #entral Bovernment and=or any State Bovernment(s). ''. )or the purpose of this Statement, an enterprise is considered to control the composition of %i& the board of directors of a compan!, if it has the power, without the consent or concurrence of an! other person, to appoint or remove all or a ma-orit! of directors of that compan!. $n enterprise is deemed to have the power to appoint a director if an! of the following conditions is satisfied. %a& a person cannotbe appointed as directorwithout the e ercise in his favour b! that enterprise of such a power as aforesaid# or %b& a persons appointment as director follows necessaril! from his appointment to a position held b! himin that enterprise# or %c& the director is nominated b! that enterprise# in case that enterprise is a compan!, the director is nominated b! that compan!?subsidiar! thereof. %ii& the governing bod! of an enterprise that is not a compan!, if it has the power, without the consent or the concurrence of an! other person, to appoint or remove all or a ma-orit! of members of the governing bod! of that other enterprise. $n enterprise is deemed to have the power to appoint a member if an! of the following conditions is satisfied. %a& a person cannot be appointed as member of the governing bod! without the e ercise in his favour b! that other enterprise of such a power as aforesaid# or %b& a persons appointment as member of the governing bod! follows necessaril! from his appointment to a position held b! him in that other enterprise# or %c& themember of the governing bod! is nominated b! that other enterprise.
354 AS 1! (issued , )
'/. $n enterprise is considered to have a substantial interest in another enterprise if that enterprise owns, directl! or indirectl!, /( per cent or more
interest in the voting power of the other enterprise. Similarl!, an individual is considered to have a substantial interest in an enterprise, if that individual owns, directl! or indirectl!, /( per cent or more interest in the voting power of the enterprise. '3. Significant influence ma! be e ercised in several wa!s, for e ample, b! representation on the board of directors, participation in the polic!ma"ing process, material inter,compan! transactions, interchange of managerial personnel, or dependence on technical information. Significant influence ma! be gained b! share ownership, statute or agreement. $s regards share ownership, if an investing part! holds, directl! or indirectl! through intermediaries<, /( per cent or more of the voting power of the enterprise, it is presumed that the investing part! does have significant influence, unless it can be clearl! demonstrated that this is not the case. Conversel!, if the investing part! holds, directl! or indirectl! through intermediaries< , less than /( per cent of the voting power of the enterprise, it is presumed that the investing part! does not have significant influence, unless such influence can be clearl! demonstrated. $ substantial or ma-orit! ownership b! another investing part! does not necessaril! preclude an investing part! fromhaving significant influence. '4. @e! management personnel are those persons who have the authorit! and responsibilit! for planning, directing and controlling the activities of the reporting enterprise. )or e ample, in the case of a compan!, the managing director%s&, whole time director%s&, manager and an! person in accordance with whose directions or instructions the board of directors of the compan! is accustomed to act, are usuall! considered "e! management personnel. =

(issued ,--1)
(eases
The following terms are used in this Statement with the meanings specified: 0 lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. 0 finance lease is a lease that transfers substantially all the ris!s and rewards incident to ownership of an asset.
Leases 363
0n operating lease is a lease other than a finance lease. 0 non(cancellable lease is a lease that is cancellable only: (a) upon the occurrence of some remote contingency; or (b) with the permission of the lessor; or (c) if the lessee enters into a new lease for the same or an e$uivalent asset with the same lessor; or (d) upon payment by the lessee of an additional amount such that% at inception% continuation of the lease is reasonably
certain. The inception of the lease is the earlier of the date of the lease agreement and the date of a commitment by the parties to the principal provisions of the lease. The lease term is the non(cancellable period for which the lessee has agreed to ta!e on lease the asset together with any further periods for which the lessee has the option to continue the lease of the asset% with or without further payment% which option at the inception of the lease it is reasonably certain that the lessee will e.ercise. 4inimum lease payments are the payments over the lease term that the lessee is% or can be re$uired% to ma!e e.cluding contingent rent% costs for services and ta.es to be paid by and reimbursed to the lessor% together with: (a) in the case of the lessee% any residual value guaranteed by or on behalf of the lessee; or (b) in the case of the lessor% any residual value guaranteed to the lessor: (i) by or on behalf of the lessee; or (ii) by an independent third party financially capable of meeting this guarantee.
364 AS 19 (issued , 1)
<owever% if the lessee has an option to purchase the asset at a price which is e.pected to be sufficiently lower than the fair value at the date the option becomes e.ercisable that% at the inception of the lease% is reasonably certain to be e.ercised% the minimum lease payments comprise minimum payments payable over the lease term and the payment re$uired to e.ercise this purchase option. )air value is the amount for which an asset could be e.changed or a liability settled between !nowledgeable% willing parties in an arm+s length transaction. -conomic life is either: (a) the period over which an asset is e.pected to be economically usable by one or more users; or (b) the number of production or similar units e.pected to be obtained from the asset by one or more users. Cseful life of a leased asset is either: (a) the period over which the leased asset is e.pected to be used by the lessee; or (b) the number of production or similar units e.pected to be obtained from the use of the asset by the lessee. 5esidual value of a leased asset is the estimated fair value of the asset at the end of the lease term. Buaranteed residual value is: (a) in the case of the lessee% that part of the residual value which is guaranteed by the lessee or by a party on behalf of the lessee (the amount of the guarantee being the ma.imum amount that could% in any event% become payable); and (b) in the case of the lessor% that part of the residual value which is guaranteed by or on behalf of the lessee% or by an independent third party who is financially capable of discharging the obligations under the guarantee.
Leases 365
Cnguaranteed residual value of a leased asset is the amount by which
the residual value of the asset e.ceeds its guaranteed residual value. Bross investment in the lease is the aggregate of the minimum lease payments under a finance lease from the standpoint of the lessor and any unguaranteed residual value accruing to the lessor. Cnearned finance income is the difference between: (a) the gross investment in the lease; and (b) the present value of (i) the minimum lease payments under a finance lease from the standpoint of the lessor; and (ii) any unguaranteed residual value accruing to the lessor% at the interest rate implicit in the lease. et investment in the lease is the gross investment in the lease less unearned finance income. The interest rate implicit in the lease is the discount rate that% at the inception of the lease% causes the aggregate present value of (a) the minimum lease payments under a finance lease from the standpoint of the lessor; and (b) any unguaranteed residual value accruing to the lessor% to be e$ual to the fair value of the leased asset. The lessee+s incremental borrowing rate of interest is the rate of interest the lessee would have to pay on a similar lease or% if that is not determinable% the rate that% at the inception of the lease% the lessee would incur to borrow over a similar term% and with a similar security% the funds necessary to purchase the asset. #ontingent rent is that portion of the lease payments that is not fi.ed in amount but is based on a factor other than &ust the passage of time (e.g.% percentage of sales% amount of usage% price indices% mar!et rates of interest).
366 AS 19 (issued , 1)
4. The definition of a lease includes agreements for the hire of an asset which contain a provision giving the hirer an option to ac+uire title to the asset upon the fulfillment of agreed conditions. These agreements are commonl! "nown as hire purchase agreements. Aire purchase agreements include agreements under which the propert! in the asset is to pass to the hirer on the pa!ment of the last instalment and the hirer has a right to terminate the agreement at an! time before the propert! so passes.
Accounting Standard (AS) ,(issued ,--1)
Earnings 'er Share
)or the purpose of this Statement% the following terms are used with the meanings specified: 0n e$uity share is a share other than a preference share. A preference share is a share carrying preferential rights to dividends and repayment of capital.
0 financial instrument is any contract that gives rise to both a financial asset of one enterprise and a financial liability or e$uity shares of another enterprise. A potential e$uity share is a financial instrument or other contract that entitles% or may entitle% its holder to e$uity shares.
$ccounting Standard %$S& /', BConsolidated )inancial StatementsB, specifies the re+uirements relating to consolidated financial statements.
*
$arnin"s Per Share 387
Share warrants or options are financial instruments that give the holder the right to ac$uire e$uity shares. )air value is the amount for which an asset could be e.changed% or a liability settled% between !nowledgeable% willing parties in an arm+s length transaction. 2. :+uit! shares participate in the net profit for the period onl! after preference shares. $n enterprise ma! have more than one class of e+uit! shares. :+uit! shares of the same class have the same rights to receive dividends. *. $ financial instrument is an! contract that gives rise to both a financial asset of one enterprise and a financial liabilit! or e+uit! shares of another enterprise. )or this purpose, a financial asset is an! asset that is %a& cash# %b& a contractual right to receive cash or another financial asset from another enterprise# %c& a contractual right to e change financial instruments with another enterprise under conditions that are potentiall! favourable# or %d& an e+uit! share of another enterprise. $ financial liabilit! is an! liabilit! that is a contractual obligation to deliver cash or another financial asset to another enterprise or to e change financial instruments with another enterprise under conditions that are potentiall! unfavourable. <. : amples of potential e+uit! shares are. %a& debt instruments or preference shares, that are convertible into e+uit! shares# %b& share warrants# %c& options including emplo!ee stoc" option plans under which emplo!ees of an enterprise are entitled to receive e+uit! shares as part of their remuneration and other similar plans# and
388 AS , (issued , 1)
%d& shares which would be issued upon the satisfaction of certain conditions resulting fromcontractual arrangements %contingentl! issuable shares&, such as the ac+uisition of a business or other assets, or shares issuable under a loan contract upon default of pa!ment of principal or interest, if the contract so provides.
Accounting Standard (AS) ,1

(issued ,--1)
Consolidated Financial Statements

)or the purpose of this Statement% the following terms are used
with the meanings specified: #ontrol!: (a) the ownership% directly or indirectly through subsidiary(ies)%
$ccounting Standard %$S& /3, $ccounting for Investments in $ssociates in Consolidated )inancial Statements, which came into effect in respect of accounting periods commencing on or after ',4,/((/, specifies the re+uirements relating to accounting for investments in associates in Consolidated )inancial Statements. 4 $ccounting Standard %$S& /<, )inancial 3eporting of Interests in Coint Dentures, which came into effect in respect of accounting periods commencing on or after ',4, /((/, specifies the re+uirements relating to accounting for investments in -oint ventures. 2 See also $ccounting Standards Interpretation %$SI& /4, published elsewhere in this Compendium. .
3
Consolidated #inancial State(ents 411
of more than one(half of the voting power of an enterprise; or (b) control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise so as to obtain economic benefits from its activities. 0 subsidiary is an enterprise that is controlled by another enterprise (!nown as the parent). 0 parent is an enterprise that has one or more subsidiaries. 0 group is a parent and all its subsidiaries. #onsolidated financial statements are the financial statements of a group presented as those of a single enterprise. -$uity is the residual interest in the assets of an enterprise after deducting all its liabilities. 4inority interest is that part of the net results of operations and of the net assets of a subsidiary attributable to interests which are not owned% directly or indirectly through subsidiary(ies)% by the parent. *. Consolidated financial statements normall!include consolidated balance sheet, consolidated statement of profit and loss, and notes, other statements and e planator! material that form an integral part thereof. Consolidated cash flow statement is presented in case a parent presents its own cash flow statement. The consolidated financial statements are presented, to the e tent possible, in the same format as that adopted b! the parent for its separate financial statements.*
Accounting Standard (AS) ,,

(issued ,--1)
Accounting for 2a0es on Income

,. )or the purpose of this Statement% the following terms are used with the meanings specified: 0ccounting income (loss) is the net profit or loss for a period% as reported in the statement of profit and loss% before deducting income ta. e.pense or adding income ta. saving. Ta.able income (ta. loss) is the amount of the income (loss) for a period%
determined in accordance with the ta. laws% based upon which income ta. payable (recoverable) is determined. Ta. e.pense (ta. saving) is the aggregate of current ta. and deferred ta. charged or credited to the statement of profit and loss for the period. #urrent ta. is the amount of income ta. determined to be payable (recoverable) in respect of the ta.able income (ta. loss) for a period. 6eferred ta. is the ta. effect of timing differences. Timing differences are the differences between ta.able income and accounting income for a period that originate in one period and are capable of reversal in one or more subse$uent periods. /ermanent differences are the differences between ta.able income and accounting income for a period that originate in one period and do not reverse subse$uently. 2. Ta able income is calculated in accordance with ta laws. In some circumstances, the re+uirements of these laws to compute ta able income differ fromthe accounting policies applied to determine accounting income. The effect of this difference is that the ta able income and accountingincome ma! not be the same.
Accountin" for /a%es on Inco(e 425
*. The differences between ta able income and accounting income can be classified into permanent differences and timing differences. >ermanent differences are those differences between ta able income and accounting income which originate in one period and do not reverse subse+uentl!. )or instance, if for the purpose of computing ta able income, the ta laws allow onl! a part of an item of e penditure, the disallowed amount would result in a permanent difference. <. Timing differences are those differences between ta able income and accounting income for a period that originate in one period and are capable of reversal in one or more subse+uent periods. Timing differences arise because the period in which some items of revenue and e penses are included in ta able income do not coincide with the period in which such items of revenue and e penses are included or considered in arriving at accounting income. )or e ample, machiner! purchased for scientific research related to business is full! allowed as deduction in the first !ear for ta purposes whereas the same would be charged to the statement of profit and loss as depreciation over its useful life. The total depreciation charged on the machiner! for accounting purposes and the amount allowed as deduction for ta purposes will ultimatel! be the same, but periods over which the depreciation is charged and the deduction is allowed will differ. $nother e ample of timing difference is a situation where, for the purpose of computing ta able income, ta laws allow depreciation on the basis of the written down value method, whereas for accounting purposes, straight line method is used. Some other e amples of timing differences arising under the Indian ta laws are given in $ppendi '. =. 5nabsorbed depreciation and carr! forward of losses which can be setoff against future ta able income are also considered as timing differences and result in deferred ta assets, sub-ect to consideration of prudence %see paragraphs '2,'=&

(issued ,--1)
Accounting for Investments in Associates in Consolidated Financial Statements
)or the purpose of this Statement% the following terms are used with the meanings specified: 0n associate is an enterprise in which the investor has significant influence and which is neither a subsidiary nor a &oint venture , of the investor. Significant influence is the power to participate in the financial and=or operating policy decisions of the investee but not control over those policies. #ontrol: (a) the ownership% directly or indirectly through subsidiary(ies)% of more than one(half of the voting power of an enterprise; or (b) control of the composition of the board of directors in the case of a company or of the composition of the corresponding governing body in case of any other enterprise so as to obtain economic benefits from its activities. 0 subsidiary is an enterprise that is controlled by another enterprise (!nown as the parent).
$ccounting Standard %$S& '3, $ccounting for Investments, is applicable for accounting for investments in associates in the separate financial statements of an investor. 4 $ccounting Standard %$S& /<, )inancial 3eporting of Interests in Coint Dentures, defines the term -oint venture and specifies the re+uirements relating to accounting for investments in -oint ventures.
3
Accountin" for Invest(ents in Associates 441
0 parent is an enterprise that has one or more subsidiaries. 0 group is a parent and all its subsidiaries. #onsolidated financial statements are the financial statements of a group presented as those of a single enterprise. The e$uity method is a method of accounting whereby the investment is initially recorded at cost% identifying any goodwill=capital reserve arising at the time of ac$uisition. The carrying amount of the investment is ad&usted thereafter for the post ac$uisition change in the investor+s share of net assets of the investee. The consolidated statement of profit and loss reflects the investor+s share of the results of operations of the investee." -$uity is the residual interest in the assets of an enterprise after deducting all its liabilities. 4. )or the purpose of this Statement, significant influence does not e tend to power to govern the financial and?or operating policies of an enterprise. Significant influencema! be gained b! share ownership, statute or agreement. $s regards share ownership, if an investor holds, directl! or indirectl! through subsidiar!%ies&, /(8ormore of the votingpower of the investee, it is presumed that the investor has significant influence, unless it can be clearl! demonstrated
that this is not the case. Conversel!, if the investor holds, directl! or indirectl! through subsidiar!%ies&, less than /(8of the voting power of the investee, it is presumed that the investor does not have significant influence, unless such influence can be clearl! demonstrated.* $substantial orma-orit! ownership b! another investor does not necessaril! preclude an investor from having significant influence. 2. The e istence of significant influence b! an investor is usuall! evidenced in one or more of the following wa!s. %a& 3epresentation on the board of directors or corresponding governing bod! of the investee#
See also $ccounting Standards Interpretation %$SI& '*, published elsewhere in this Compendium. * See also $ccounting Standards Interpretation %$SI& '=, published elsewhere in this Compendium.
2
442 AS ,' (issued ,
1)
%b& participation in polic! ma"ing processes# %c& material transactions between the investor and the investee# %d& interchange of managerial personnel# or %e& provision of essential technical information. *. 5nder the e+uit! method, the investment is initiall! recorded at cost, identif!ing an! goodwill?capital reserve arising at the time of ac+uisition and the carr!ing amount is increased or decreased to recognise the investors share of the profits or losses of the investee after the date of ac+uisition. 1istributions received from an investee reduce the carr!ing amount of the investment. $d-ustments to the carr!ing amount ma! also be necessar! for alterations in the investors proportionate interest in the investee arising from changes in the investees e+uit! that have not been included in the statement of profit and loss. Such changes include those arising from the revaluation of fi ed assets and investments, fromforeign e change translation differences and from the ad-ustment of differences arising on amalgamations.<

(issued ,--,)
$iscontinuing "+erations
$iscontinuing "+eration
3. 0 discontinuing operation is a component of an enterprise: (a) that the enterprise% pursuant to a single plan% is: (i) disposing of substantially in its entirety% such as by selling the component in a single transaction or by demerger or spin(off of ownership of the component to the enterpriseDs shareholders; or (ii) disposing of piecemeal% such as by selling off the componentDs assets and settling its liabilities individually; or (iii) terminating through abandonment; and (b) that represents a separate ma&or line of business or
geographical area of operations; and

452 AS ,4 (issued , ,)
(c) that can be distinguished operationally and for financial reporting purposes. 4. 5nder criterion %a& of the definition %paragraph 3 %a&&, a discontinuing operation ma! be disposed of in its entiret! or piecemeal, but alwa!s pursuant to an overall plan to discontinue the entire component. 2. If an enterprise sells a component substantiall! in its entiret!, the result can be a net gain or net loss. )or such a discontinuance, a binding sale agreement is entered into on a specific date, although the actual transfer of possession and control of the discontinuing operation ma! occur at a later date. $lso, pa!ments to the seller ma! occur at the time of the agreement, at the time of the transfer, or over an e tended future period. *. Instead of disposing of a component substantiall! in its entiret!, an enterprise ma! discontinue and dispose of the component b! selling its assets and settling its liabilities piecemeal %individuall! or in small groups&. )or piecemeal disposals, while the overall result ma! be a net gain or a net loss, the sale of an individual asset or settlement of an individual liabilit! ma! have the opposite effect. 6oreover, there is no specific date at which an overall binding sale agreement is entered into. 3ather, the sales of assets and settlements of liabilities ma! occur over a period of months or perhaps even longer. Thus, disposal of a component ma! be in progress at the end of a financial reporting period. To +ualif! as a discontinuing operation, the disposal must be pursuant to a single coordinated plan. <. $n enterprise ma! terminate an operation b! abandonment without substantial sales of assets. $n abandoned operation would be a discontinuing operation if it satisfies the criteria in the definition. Aowever, changing the scope of an operation or the manner in which it is conducted is not an abandonment because that operation, although changed, is continuing. =. 0usiness enterprises fre+uentl! close facilities, abandon products or even product lines, and change the siEe of their wor" force in response to mar"et forces. 4hile those "inds of terminations generall! are not, in themselves, discontinuing operations as that term is defined in paragraph 3 of this Statement, the! can occur in connection with a discontinuing operation.
.iscontinuin" 0)erations 453
7. : amples of activities that do not necessaril! satisf! criterion %a& of paragraph 3, but that might do so in combination with other circumstances, include. %a& gradual or evolutionar! phasing out of a product line or class of service# %b& discontinuing, even if relativel! abruptl!, several products within an ongoing line of business# %c& shifting of some production or mar"eting activities for a particular line of business from one location to another# and %d& closing of a facilit! to achieve productivit! improvements or other cost savings. $n e ample in relation to consolidated financial statements is selling a subsidiar! whose activities are similar to those of the parent or other subsidiaries.
'(. $ reportable business segment or geographical segment as defined in $ccounting Standard %$S& '<, Segment 3eporting, would normall! satisf! criterion %b& of the definition of a discontinuing operation %paragraph 3&, that is, it would represent a separate ma-or line of business or geographical area of operations. $ part of such a segment ma! also satisf! criterion %b& of the definition. )or an enterprise that operates in a single business or geographical segment and therefore does not report segment information, a ma-or product or service line ma! also satisf! the criteria of the definition. ''. $ component can be distinguished operationall! and for financial reporting purposes , criterion %c& of the definition of a discontinuing operation %paragraph 3& , if all the following conditions are met. %a& the operating assets and liabilities of the component can be directl! attributed to it# %b& its revenue can be directl! attributed to it# %c& at least a ma-orit! of its operating e penses can be directl! attributed to it.
454 AS ,4 (issued , ,)
'/. $ssets, liabilities, revenue, and e penses are directl! attributable to a component if the! would be eliminated when the component is sold, abandoned or otherwise disposed of. If debt is attributable to a component, the related interest and other financing costs are similarl! attributed to it. '3. 1iscontinuing operations, as defined in this Statement, are e pected to occur relativel! infre+uentl!. $ll infre+uentl! occurring events do not necessaril! +ualif! as discontinuing operations. Infre+uentl! occurring events that do not +ualif! as discontinuing operations ma! result in items of income or e pense that re+uire separate disclosure pursuant to $ccounting Standard %$S& 2, 9et >rofit or Foss for the >eriod, >rior >eriod Items and Changes in $ccounting >olicies, because their siEe, nature, or incidence ma"e them relevant to e plain the performance of the enterprise for the period. '4. The fact that a disposal of a component of an enterprise is classified as a discontinuing operation under this Statement does not, in itself, bring into +uestion the enterpriseBs abilit! to continue as a going concern.
Accounting Standard (AS) ,!

(issued ,--,)
Interim Financial /e+orting
The following terms are used in this Statement with the meanings specified: Interim period is a financial reporting period shorter than a full financial year. Interim financial report means a financial report containing either a complete set of financial statements or a set of condensed financial statements (as described in this Statement) for an interim period.
2. 1uring the first !ear of operations of an enterprise, its annual financial reporting period ma! be shorter than a financial !ear. In such a case, that shorter period is not considered as an interim period.
Accounting Standard (AS) ,*

(issued ,--,)
Intangi5le Assets
The following terms are used in this Statement with the meanings specified: 0n intangible asset is an identifiable non(monetary asset% without physical substance% held for use in the production or supply of goods or services% for rental to others% or for administrative purposes. 0n asset is a resource: (a) controlled by an enterprise as a result of past events; and (b) from which future economic benefits are e.pected to flow to the enterprise. 4onetary assets are money held and assets to be received in fi.ed or determinable amounts of money. on(monetary assets are assets other than monetary assets. 5esearch is original and planned investigation underta!en with the prospect of gaining new scientific or technical !nowledge and understanding. 6evelopment is the application of research findings or other !nowledge to a plan or design for the production of new or substantially improved materials% devices% products% processes% systems or services prior to the commencement of commercial production or use. 0mortisation is the systematic allocation of the depreciable amount of an intangible asset over its useful life. 6epreciable amount is the cost of an asset less its residual value.
508 AS ,6 (issued , ,)
Cseful life is either: (a) the period of time over which an asset is e.pected to be used by the enterprise; or (b) the number of production or similar units e.pected to be obtained from the asset by the enterprise. 5esidual value is the amount which an enterprise e.pects to obtain for an asset at the end of its useful life after deducting the e.pected costs of disposal. )air value of an asset is the amount for which that asset could be e.changed between !nowledgeable% willing parties in an armDs length transaction. 0n active mar!et is a mar!et where all the following conditions e.ist: (a) the items traded within the mar!et are homogeneous; (b) willing buyers and sellers can normally be found at any time; and
(c) prices are available to the public. 0n impairment loss is the amount by which the carrying amount of an asset e.ceeds its recoverable amount.2 #arrying amount is the amount at which an asset is recognised in the balance sheet% net of any accumulated amortisation and accumulated impairment losses thereon.
Accounting Standard (AS) ,%

(issued ,--,)
Financial /e+orting of Interests in 6oint Ventures
)or the purpose of this Statement% the following terms are used with the meanings specified: 0 &oint venture is a contractual arrangement whereby two or more parties underta!e an economic activity% which is sub&ect to &oint control. @oint control is the contractually agreed sharing of control over an economic activity. #ontrol is the power to govern the financial and operating policies of an economic activity so as to obtain benefits from it. 0 venturer is a party to a &oint venture and has &oint control over that &oint venture. 0n investor in a &oint venture is a party to a &oint venture and does not have &oint control over that &oint venture. /roportionate consolidation is a method of accounting and reporting whereby a venturerDs share of each of the assets% liabilities% income and e.penses of a &ointly controlled entity is reported as separate line items in the venturerDs financial statements.
Accounting Standard (AS) ,.

(issued ,--,)
Im+airment ofAssets
The following terms are used in this Statement with the meanings specified: 5ecoverable amount is the higher of an asset+s net selling price and its value in use. 7alue in use is the present value of estimated future cash flows e.pected to arise from the continuing use of an asset and from its disposal at the
end of its useful life.9

The Institute, in 9ovember /((2, considering that detailed cash flow pro-ections of Small and 6edium,siEed :nterprises %S6:s& are often not readil! available, has allowed such enterprises to measure the value in use on the basis of reasonable estimate thereof instead of computing the value in use b! present value techni+ue. Therefore, the definition of the term value in use in the conte t of S6:s would read as follows. E7alue in use is the present value of estimated future cash flows e.pected to arise from the continuing use of an asset and from its disposal at the end of its useful life% or a reasonable estimate thereofF. The above change in the definition of value in use implies that instead of using the present value techni+ue, a reasonable estimate of the value in use can be made. Conse+uentl!, if an S6: chooses to measure the value in use b! not using the present value techni+ue, the relevant provisions of $S /=, such as discount rate etc., would not be applicable to such S6:. )urther, such S6: need not disclose the information re+uired b! paragraph '/'%g& of the Standard. Sub-ect to this, the other provisions of $S /= would be applicable to S6:s. G)or full te t of the $nnouncement issued in this regard, reference ma! be made to the section titled $nnouncements of the Council regarding status of various documents issued b! the Institute of Chartered $ccountants of India appearing at the beginning of this Compendium.H
=
572 AS ,! (issued ,
,)
et selling price is the amount obtainable from the sale of an asset in an arm+s length transaction between !nowledgeable% willing parties% less the costs of disposal. #osts of disposal are incremental costs directly attributable to the disposal of an asset% e.cluding finance costs and income ta. e.pense. 0n impairment loss is the amount by which the carrying amount of an asset e.ceeds its recoverable amount. #arrying amount is the amount at which an asset is recognised in the balance sheet after deducting any accumulated depreciation (amortisation) and accumulated impairment losses thereon. 6epreciation (0mortisation) is a systematic allocation of the depreciable amount of an asset over its useful life.G 6epreciable amount is the cost of an asset% or other amount substituted for cost in the financial statements% less its residual value. Cseful life is either: (a) the period of time over which an asset is e.pected to be used by the enterprise; or (b) the number of production or similar units e.pected to be obtained from the asset by the enterprise. 0 cash generating unit is the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets. #orporate assets are assets other than goodwill that contribute to the future cash flows of both the cash generating unit under review and other cash generating units. 0n active mar!et is a mar!et where all the following conditions e.ist : (a) the items traded within the mar!et are homogeneous;
In the case of an intangible asset or goodwill, the term amortisation is generall! used instead of depreciation. 0oth terms have the same meaning.
7
I()air(ent of Assets 573
(b) willing buyers and sellers can normally be found at any time; and (c) prices are available to the public.
Accounting Standard (AS) ,
(issued ,--1)
'rovisions) Contingent (ia5ilities and Contingent Assets
The following terms are used in this Statement with the meanings specified: 0 provision is a liability which can be measured only by using a substantial degree of estimation. 0 liability is a present obligation of the enterprise arising from past events% the settlement of which is e.pected to result in an outflow from the enterprise of resources embodying economic benefits. 0n obligating event is an event that creates an obligation that results in an enterprise having no realistic alternative to settling that obligation. 0 contingent liability is: (a) a possible obligation that arises from past events and the e.istence of which will be confirmed only by the occurrence or non(occurrence of one or more uncertain future events not wholly within the control of the enterprise; or (b) a present obligation that arises from past events but is not recognised because: (i) it is not probable that an outflow of resources embodying economic benefits will be re$uired to settle the obligation; or (ii) a reliable estimate of the amount of the obligation cannot be made. 0 contingent asset is a possible asset that arises from past events the e.istence of which will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the enterprise.
Provisions1 Contin"ent Lia2ilities and Contin"ent Assets 643
/resent obligation ( an obligation is a present obligation if% based on the evidence available% its e.istence at the balance sheet date is considered probable% i.e.% more li!ely than not. /ossible obligation ( an obligation is a possible obligation if% based on the evidence available% its e.istence at the balance sheet date is considered not probable. 0 restructuring is a programme that is planned and controlled by management% and materially changes either: (a) the scope of a business underta!en by an enterprise; or (b) the manner in which that business is conducted. ''. $n obligation is a dut! or responsibilit! to act or perform in a certain wa!. ;bligations ma! be legall! enforceable as a conse+uence of a binding contract or statutor! re+uirement.;bligations also arise fromnormal business practice, customand a desire to maintain good business relations or act in an e+uitable manner. '/. >rovisions can be distinguished from other liabilities such as trade pa!ables and accruals because in the measurement of provisions substantial degree of estimation is involvedwith regard to the future e penditure re+uired in settlement. 0! contrast.
%a& trade pa!ables are liabilities to pa! for goods or services that have been received or supplied and have been invoiced or formall! agreed with the supplier# and %b& accruals are liabilities to pa! for goods or services that have been received or supplied but have not been paid, invoiced or formall! agreed with the supplier, including amounts due to emplo!ees. $lthough it is sometimes necessar! to estimate the amount of accruals, the degree of estimation is generall! much less than that for provisions. '3. In this Statement, the termcontingent is used for liabilities and assets that are not recognised because their e istence will be confirmed onl! b! the occurrence or non,occurrence of one or more uncertain future events not wholl! within the control of the enterprise. In addition, the term contingent liabilit! is used for liabilities that do not meet the recognition criteria.
Accounting Standard (AS) 1Financial Instruments7 /ecognition and 8easurement
The terms defined in $S 3', Financial nstruments$ Presentation are used in this Standard with the meanings specified in paragraph < of $S 3'. $S 3' defines the following terms. financial instrument financial asset financial liabilit! e+uit! instrument and provides guidance on appl!ing those definitions.
>age '<
9. The following terms are used in this Standard with the meanings specified: $efinition of a $erivative 9.8 0 derivative is a financial instrument or other contract within the scope of this Standard (see paragraphs 1(3) with all three of the following characteristics: (a) its value changes in response to the change in a specified interest rate% financial instrument price% commodity price% foreign e.change rate% inde. of prices or rates% credit rating or credit inde.% or other variable% provided in the case of a non(financial variable that the variable is not specific to a party to the contract (sometimes called the Hunderlying+); (b) it re$uires no initial net investment or an initial net investment that is smaller than would be re$uired for other types of contracts that would be e.pected to have a similar response to changes in mar!et factors; and (c) it is settled at a future date. $efinitions of Four Categories of Financial Instruments 9.1 0 financial asset or financial liability at fair value through profit or loss is a financial asset or financial liability that meets either of the following conditions. (a) It is classified as held for trading. 0 financial asset or financial liability is
classified as held for trading if it is: (i) ac$uired or incurred principally for the purpose of selling or repurchasing it in the near term; or (ii) part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short(term profit(ta!ing; or (iii) a derivative (e.cept for a derivative that is a financial guarantee contract or a designated and effective hedging instrument). (b) Cpon initial recognition it is designated by the entity as at fair value through profit or loss. 0n entity may use this designation only when permitted by paragraph 88% or when doing so results in more relevant information% because either (i) it eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as Han accounting mismatch+) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases (see 0ppendi. 0 paragraphs 08"(089); or
>age '=
(ii) a group of financial assets% financial liabilities or both is managed and its performance is evaluated on a fair value basis% in accordance with a documented ris! management or investment strategy% and information about the group is provided internally on that basis to the entity+s !ey management personnel (as defined in 0S 89% 5elated /arty 6isclosures)% its board of directors or similar governing body and its chief e.ecutive officer. This would normally be relevant in case of a venture capital organisation% mutual fund% unit trust or similar entity whose business is investing in financial assets with a view to profiting from their total return in the form of interest or dividends and changes in fair value (see also 0ppendi. 0 paragraphs 08G(011). 0ccounting Standard (0S) 31% )inancial Instruments: 6isclosures 14% re$uires the entity to provide disclosures about financial assets and financial liabilities it has designated as at fair value through profit or loss% including how it has satisfied these conditions. )or instruments $ualifying in accordance with (ii) above% that disclosure includes a narrative description of how designation as at fair value through profit or loss is consistent with the entity+s documented ris! management or investment strategy. Investments in e$uity instruments that do not have a $uoted mar!et price in an active mar!et% and whose fair value cannot be reliably measured (see paragraph "8(c) and 0ppendi. 0 paragraphs 08>> and 08>8)% should not be designated as at fair value through profit or loss. It should be noted that paragraphs "3% ",% "" and 0ppendi. 0 paragraphs 099( 08>1% which set out re$uirements for determining a reliable measure of the fair value of a financial asset or financial liability% apply e$ually to all items that are measured at fair value% whether by designation or otherwise% or whose fair value is disclosed. 9.3 <eld(to(maturity investments are non(derivative financial assets with fi.ed or determinable payments and fi.ed maturity that an entity has the positive intention and ability to hold to maturity (see 0ppendi. 0 paragraphs 033(0,") other than: (a) those that the entity upon initial recognition designates as at fair value through
profit or loss; (b) those that meet the definition of loans and receivables; and (c) those that the entity designates as available for sale. 0n entity should not classify any financial assets as held to maturity if the entity has% during the current financial year or during the two preceding financial years% sold
'4 $
separate $ccounting Standard %$S& 3/ on Financial nstruments$ Disclosures is being formulated.
>age '7
or reclassified more than an insignificant amount of held(to(maturity investments before maturity (more than insignificant in relation to the total amount of held(tomaturity investments) other than sales or reclassifications that: (i) are so close to maturity or the financial assetDs call date (for e.ample% less than three months before maturity) that changes in the mar!et rate of interest would not have a significant effect on the financial asset+s fair value; or (ii) occur after the entity has collected substantially all of the financial assetDs original principal through scheduled payments or prepayments; or (iii) are attributable to an isolated event that is beyond the entity+s control% is non(recurring and could not have been reasonably anticipated by the entity. 9., ;oans and receivables are non(derivative financial assets with fi.ed or determinable payments that are not $uoted in an active mar!et% other than: (a) those that the entity intends to sell immediately or in the near term% which should be classified as held for trading% and those that the entity upon initial recognition designates as at fair value through profit or loss; (b) those that the entity upon initial recognition designates as available for sale; or (c) those for which the holder may not recover substantially all of its initial investment% other than because of credit deterioration% which should be classified as available for sale. 0n interest ac$uired in a pool of assets that are not loans or receivables (for e.ample% an interest in a mutual fund or a similar fund) is not a loan or receivable. 9." 0vailable(for(sale financial assets are those non(derivative financial assets that are designated as available for sale or are not classified as (a) loans and receivables% (b) held(to(maturity investments% or (c) financial assets at fair value through profit or loss. $efinition of a financial guarantee contract 9.3 0 financial guarantee contract is a contract that re$uires the issuer to ma!e specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to ma!e payment when due in accordance with the original or modified terms of a debt instrument.
>age /(
$efinitions /elating to /ecognition and 8easurement 9.2 The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments% plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount% and minus any reduction (directly or through the use of an allowance account) for impairment or uncollectibility. 9.9 The effective interest method is a method of calculating the amortised cost of a
financial asset or a financial liability (or group of financial assets or financial liabilities) and of allocating the interest income or interest e.pense over the relevant period. 9.G The effective interest rate is the rate that e.actly discounts estimated future cash payments or receipts through the e.pected life of the financial instrument or% when appropriate% a shorter period to the net carrying amount of the financial asset or financial liability (see 0ppendi. 0 paragraphs 013(012). 9.8> 6erecognition is the removal of a previously recognised financial asset or financial liability from an entity+s balance sheet. 9.88 )air value is the amount for which an asset could be e.changed% or a liability settled% between !nowledgeable% willing parties in an arm+s length transaction 8". 9.81 0 regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms re$uire delivery of the asset within the time frame established generally by regulation or convention in the mar!etplace concerned. 9.83 Transaction costs are incremental costs that are directly attributable to the ac$uisition% issue or disposal of a financial asset or financial liability (see 0ppendi. 0 paragraph 033). 0n incremental cost is one that would not have been incurred if the entity had not ac$uired% issued or disposed of the financial instrument. $efinitions /elating to 9edge Accounting 9.8, 0 firm commitment is a binding agreement for the e.change of a specified $uantity of resources at a specified price on a specified future date or dates. 9.8" 0 forecast transaction is an uncommitted but anticipated future transaction. 9.83 )unctional currency is the currency of the primary economic environment in which the entity operates.
'2 >aragraphs
23,22 and $==,$'(/ of $ppendi $ contain re+uirements for determining the fair value of a financial asset or financial liabilit!.
>age /'
9.82 0 hedging instrument is (a) a designated derivative or (b) for a hedge of the ris! of changes in foreign currency e.change rates only% a designated non(derivative financial asset or non(derivative financial liability whose fair value or cash flows are e.pected to offset changes in the fair value or cash flows of a designated hedged item (paragraphs 98(93 and 0ppendi. 0 paragraphs 088,(0882 elaborate on the definition of a hedging instrument). 9.89 0 hedged item is an asset% liability% firm commitment% highly probable forecast transaction or net investment in a foreign operation that (a) e.poses the entity to ris! of changes in fair value or future cash flows and (b) is designated as being hedged (paragraphs 92(G, and 0ppendi. 0 paragraphs 0889(081" elaborate on the definition of hedged items). 9.8G <edge effectiveness is the degree to which changes in the fair value or cash flows of the hedged item that are attributable to a hedged ris! are offset by changes in the fair value or cash flows of the hedging instrument (see 0ppendi. 0 paragraphs 081G(0839)

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Important Definitions as per AS AS 2 Valuation of Inventories

AS 3 Cash Flow Statements

Cash and Cash Equivalents

Accounting Standard (AS) 4

Contingencies and Events "ccurring After the #alance Sheet $ate

See footnote '.

Accounting Standard (AS) !

Accounting Standard (AS) *

Accounting Standard (AS) %

Accounting Standard (AS)

Accounting Standard (AS) 1(issued 1 .!)

Accounting for Fi0ed Assets

144 AS 1 (issued 19!5)

Accounting Standard (AS) 11

2he Effects of Changes in Foreign E0change /ates

Accounting Standard (AS) 1,

Accounting for 3overnment 3rants

Accounting Standard (AS) 11

Accounting for Investments

190 AS 1' (issued 199')

Accounting Standard (AS) 14

Accounting for Amalgamations

Accounting Standard (AS) 1!

Accounting Standard (AS) 1*

Accounting Standard (AS) 1%

Accounting Standard (AS) 1.

/elated 'art4 $isclosures

Accounting Standard (AS) 1

Cnguaranteed residual value of a leased asset is the amount by which

Accounting Standard (AS) ,(issued ,--1)

Earnings 'er Share

$arnin"s Per Share 387

Accounting Standard (AS) ,1

Consolidated Financial Statements

Consolidated #inancial State(ents 411

Accounting Standard (AS) ,,

Accounting for 2a0es on Income

Accounting Standard (AS) ,1

Accounting for Investments in Associates in Consolidated Financial Statements

Accountin" for Invest(ents in Associates 441

442 AS ,' (issued ,

Accounting Standard (AS) ,4

geographical area of operations; and

Accounting Standard (AS) ,!

Interim Financial /e+orting

Accounting Standard (AS) ,*

Accounting Standard (AS) ,%

Financial /e+orting of Interests in 6oint Ventures

Accounting Standard (AS) ,.

end of its useful life.9

I()air(ent of Assets 573

Accounting Standard (AS) ,

'rovisions) Contingent (ia5ilities and Contingent Assets

Accounting Standard (AS) 1Financial Instruments7 /ecognition and 8easurement

separate $ccounting Standard %$S& 3/ on Financial nstruments$ Disclosures is being formulated.

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