ACCOUNTING STANDARDS

Introduction:
Accounting standards are written documents, policy documents issued by expert accounting
body or by government or other regulatory body covering the aspect of
recognition,measurement,treatment,presentation and disclosure of accounting transaction in the
financial statement.
Accounting standards in india are issued by ICAI.
Objective of accounting standards:
Objective of accounting standards is to standardize the diverse accounting policies and
practices.
Add reliability to the financial statements.
Compliance with AS:

The AS will be mandatory from the respective date mentioned in the AS.the mandatory status
of an AS implies that discharging their attest functions,it will be the duty of the institute to
examine whether the AS is complied with in the presentation of the financial statement covered
by their audit.
Ensuring compliance with the AS while preparing financial statements is the responsibility of
the management of the enterprise.
Financial statements cannot be described as complying with the AS unless they comply with all
the requirement of each standard.
ADVANTAGES OF AS:

Standards reduce; eliminate confusing variations in the accounting treatment use to
prepare financial statements.
There are certain area where important information need are not required by the law
to be disclosed, AS may call for disclosures beyond that required by the law.
It facilitates the comparison of financial statements of different companies situated at
different places.


DISADVANATAGES OF AS:

AS cant override the law.
The choice between better alternative accounting treatment in a particular situation is
eliminated.
Difference in AS are bound to be because of differences in the tradition and legal system from
one country to another.
There may be a trend towards rigidity and away from flexibility in applying AS.



VALUATION OF INVENTORIES: AS2
Objective:
To formulate the method of computation of cost of inventories/stock.
Determine the value of closing stock.

Definition:
Inventories consist of the following:
Finished goods.
Raw material and work in progress
Materials or supplies to be consumed in production process or in the rendering of
services.
Measurement of inventories:
Inventories should be valued at lower of cost and net realizable value.
Cost of inventories:
Cost of inventories include:
Cost of purchase.
Cost of conversion.
Other costs.

Cost of purchase:
Cost of purchase includes:
Purchase price
Duties and taxes
Freight inwards
Other expenditures directly attributable to the acquisition.
Less:
Duties and taxes recoverable by enterprises from taxing authorities.
Trade discount
Rebate
Duty drawbacks
Other similar items.
Cost of conversion:
It consists of the cost directly related to the units.+ systematic allocation of fixed and variable
production overheads that are incurred in converting the materials into finished goods.
Fixed production overhead: indirect cost of production that remains relatively constant
regardless by volume of production.
Variable production overhead: Indirect cost of production that varies directly or neatly directly
with the volume of production
Allocation of fixed production overhead: on actual production
In case of joint products: when the cost of conversion of each product is not separately identifiable,
total cost of conversion is allocated between the products on rational and consistent basis.
In case of by products: if by products scrap or waste material are not of material value they are
measured at net realizable value, then NRV is deducted from cost of conversion.
Other costs: costs incurred in bringing the inventories to their present location and condition.
Exclusion from cost of inventories:
Abnormal amount of wasted materials
Storage cost
Administrative overhead
Selling and distribution cost
Interest and burrowing cost

COST FORMULA:
Specific identification method for determining cost of inventories: it means directly linking the cost with
specific items of the inventories. Applicable in the following conditions:
In case of purchase of items specifically segregated for specific project and is not ordinarily
interchangeable.
In case of goods or services produced and segregated for specific projects.



Net realisable value:
It means the estimated selling price in ordinary course of business, less estimated cost of
completion and estimated cost necessary to make the sale.
Estimation of net realisable value:
If finished products in which raw material and supplies used is sold at cost or above cost then the
estimated realisable value of raw material is considered more than its cost therefore inventories
of raw material will be valued at cost.
If finished product in which raw material and supplies used is sold below cost then the estimated
realisable value of raw material and supplies is equal to replacement price and raw materials will
be valued at replacement price.
Disclosure:
The financial statements should disclose:
the accounting policies adopted in measuring inventories, including the cost formula
used;
the total carrying amount of inventories and its classification appropriate to the enterprise.





CASH FLOW STATEMENT: AS-3
Additional information to user of the financial statement.
This statement exhibits the flow of incoming and outgoing cash.
Assesses the ability of the enterprise to generate cash and to utilize the cash
One of the tool for assessing the liquidity and solvency of the enterprise.
FEATURES:
Cash Flow Statement explains cash movement under the following three heads namely:
Cash flow from operating activities.
Cash flow from investing activities.
Cash flow from financing actitvities.
Some of these three types of cash flows reflects net increase or decrease of cash and cash equivalents.

Operating activities:
Examples of Cash flow from operating activities are as follows:
Cash receipts from the sale of goods and the rendering of services;
Cash receipts from royalties, fees, commissions and other revenue;
Cash payments to suppliers for goods and services;
Cash payments to and on behalf of employees.
Inventory activities:
Cash payments to acquire fixed assets (including intangibles).These payments include
those relating to capitalized research and development costs and self-constructed fixed
assets;
Cash receipts from disposal of fixed assets (including intangibles);
Cash payments to acquire shares, warrants or debt instruments of other enterprises and
interests in joint ventures (other than payments for those instruments considered to be
cash equivalents and those held for dealing or trading purposes);
Cash receipts from disposal of shares, warrants or debt instruments of other enterprises
and interests in joint ventures (other than receipts from those instruments considered to
be cash equivalents and those held for dealing or trading purposes).


FINANCING ACTIVITIES:
These are the activities which result in change in size and composition of owners capital and
borrowing of the organization, It includes:
Sale of shares
Buy back of shares
Redemption of preference shares
Issue/redemption of debentures
Long term loan/payment thereof
Dividend/interest paid.
Cash flow from operating activities
It can be derived from either direct method or indirect method.
Direct method: in this method, gross receipts and gross payment of cash are disclosed.
Indirect method: in this method profit and loss accounts is adjusted for the effects of transaction
of non-cash nature.
INTEREST
Interest received
From investment. it is in investment activities.
From short term investment classified, as cash equivalents should be considered as cash
inflows from operating activities.
On trade advances and operating receivables should be in operating activities.
Interest Paid
On loans/debts is financing activities.
On working capital loans and any other loans taken to finance operating activities is in
operating activities.
DIVIDEND
Dividend received:
For financial enterprises-in operating activities
For other than financial enterprises -in investing activities.
Dividend paid: always classified as financing activities.
Cash Flows From Foreign Currency Transaction:
The effect of changes in exchange rates on cash and cash equivalents held in a foreign currency
should be reported as a separate part of the reconciliation of the changes in cash and cash
equivalents during the period.
Extraordinary Items
The cash flows associated with extraordinary items should be classified as arising from
operating, investing or financing activities as appropriate and separately disclosed.
Reporting Cash Flows on a Net Basis:
Cash flows arising from the following operating, investing or financing activities may be
reported on a net basis:
Cash receipts and payments on behalf of customers when the Cash flows reflect the
activities of the customer rather than those of the enterprise;
Cash receipts and payments for items in which the turnover is quick, the amounts are
large, and the maturities are short.
Cash Flow relating to Acquisitions and Disposals of Subsidiaries
Cash flows arising from acquisitions and from disposals of subsidiaries or other business
units should be presented separately and classified as investing activities.
the total purchase or disposal consideration;
the portion of the purchase or disposal consideration discharged by means of cash and
cash equivalents
Non-cash Transactions
Investing and financing transactions that do not require the use of cash or cash equivalents
should be excluded from a cash flow statement. Such transactions should be in the financial
statements. Examples of non cash transaction are:
the acquisition of assets by assuming directly related liabilities;
the acquisition of an enterprise by means of issue of shares;
the conversion of debt to equity.




Depreciation Accounting: AS-6

DEPRECIATION:

Depreciation is a measure of the wearing out, consumption or other loss of value of a depreciable
asset arising from use, effluxion of time or obsolescence through technology and market changes

Depreciable assets are assets which
are expected to be used during more than one accounting period;
have a limited useful life;
are held by an enterprise for use in the production or supply of goods and services, for
rental to others, or for administrative purposes and not for the purpose of sale in the
ordinary course of business.

Applicability:

It is applicable to all AS except the following items to which special considerations
apply:
forests, plantations and similar regenerative natural resources;
wasting assets including expenditure on the exploration for and extraction of minerals,
oils, natural gas and similar non-regenerative resources;
expenditure on research and development;
goodwill and other intangible assets;
live stock.

Calculation of depreciation:

Assessment of depreciation and the amount to be charged in respect thereof in an accounting
period are usually based on the following three factors:
historical cost or other amount substituted for the historical cost of the depreciable asset
when the asset has been revalued;
expected useful life of the depreciable asset; and
Estimated residual value of the depreciable asset.

Useful Life Of A Depreciable Asset:

The useful life of a depreciable asset is shorter than its physical life and is:
(i) pre-determined by legal or contractual limits, such as the expiry dates of related leases;
(ii) directly governed by extraction or consumption;
(iii) dependent on the extent of use and physical deterioration on account of wear and tear which
again depends on operational factors, such as, the number of shifts for which the asset is to be
used, repair and maintenance policy of the enterprise etc.;
(iv) reduced by obsolescence arising from such factors as:
(a) technological changes;
(b) improvement in production methods;
(c) change in market demand for the product or service output of the asset; or
(d) legal or other restrictions.



Factors affecting methods of allocating depreciation:

There are several methods of allocating depreciation over the useful life of the assets. Those
most commonly employed in industrial and commercial enterprises are the straight-line method
and the reducing balance method.
The management of a business selects the most appropriate method(s) based on various
important factors e.g.,
(i) Type of asset,
(ii) The nature of the use of such asset
(iii) Circumstances prevailing in the business.

A combination of more than one method is sometimes used. In respect of depreciable assets
which do not have material value, depreciation is often allocated fully in the accounting period in
which they are acquired.

Determination of residual value:

Determination of residual value of an asset is normally a difficult matter. If such value is
considered as insignificant, it is normally regarded as nil. On the contrary, if the residual value is
likely to be significant, it is estimated at the time of acquisition/installation, or at the time of
subsequent revaluation of the asset.

Change in method:

A change from one method of providing depreciation to another is made only if the adoption of
the new method is required by statute or for compliance with an accounting standard or if it is
considered that the change would result in a more appropriate preparation or presentation of the
financial statements of the enterprise. When such a change in the method of depreciation is
made, depreciation is recalculated in accordance with the new method from the date of the asset
coming into use. The deficiency or surplus arising from retrospective re-computation of
depreciation in accordance with the new method is adjusted in the accounts in the year in which
the method of depreciation is changed. In case the change in the method results in deficiency
in depreciation in respect of past years, the deficiency is charged in the statement of profit
and loss. In case the change in the method results in surplus, the surplus is credited to the
statement of profit and loss.

Revenue Recognition: AS-9
This Standard deals with the bases for recognition of revenue in the statement of profit and loss
of an enterprise. The Standard is concerned with the recognition of revenue arising in the course
of the ordinary activities of the enterprise from
the sale of goods,
the rendering of services, and
the use by others of enterprise resources yielding interest, royalties and dividends.
Definition:
Revenue is the gross inflow of cash, receivables or other consideration arising in the course of
the ordinary activities of an enterprise from the sale of goods, from the rendering of services, and
from the use by others of enterprise resources yielding interest, royalties and dividends. Revenue
is measured by the charges made to customers or clients for goods supplied and services
rendered to them and by the charges and rewards arising from the use of resources by them. In an
agency relationship, the revenue is the amount of commission and not the gross inflow of cash,
receivables or other consideration.
Revenue from Sale of Goods:
A key criterion for determining when to recognise revenue from a transaction involving the sale
of goods is that the seller has transferred the property in the goods to the buyer for a
consideration. The transfer of property in goods, in most cases, results in or coincides with the
transfer of significant risks and rewards of ownership to the buyer. However, there may be
situations where transfer of property in goods does not coincide with the transfer of significant
risks and rewards of ownership. Revenue in such situations is recognised at the time of transfer
of significant risks and rewards of ownership to the buyer. Such cases may arise where delivery
has been delayed through the fault of either the buyer or the seller and the goods are at the risk of
the party at fault as regards any loss which might not have occurred but for such fault. Further,
sometimes the parties may agree that the risk will pass at a time different from the time when
ownership passes.
At certain stages in specific industries, such as when agricultural crops have been harvested or
mineral ores have been extracted, performance may be substantially complete prior to the
execution of the transaction generating revenue. In such cases when sale is assured under a
forward contract or a government guarantee or where market exists and there is a negligible
riskof failure to sell, the goods involved are often valued at net realisable value. Such amounts,
while not revenue as defined in this Standard, are sometimes recognised in the statement of profit
and loss and appropriately.
Revenue from Rendering of Services:

Revenue from service transactions is usually recognised as the service is performed, either by the
proportionate completion method or by the completed service contract method.
Proportionate completion method
Performance consists of theexecution of more than one act. Revenue is recognised
proportionately by reference to the performance of each act. The revenue recognised under this
method would be determined on the basis of contract value, associated costs, number of acts or
other suitable basis. For practical purposes, when services are provided by an indeterminate
number of acts over a specific period of time, revenue is recognised on a straight line basis over
the specific period unless there is evidence that some other method better represents the pattern
of performance.

Completed service contract method
Performance consists of the execution of a single act. Alternatively, services are performed in
more than a single act, and the services yet to be performed are so significant in relation to the
transaction taken as a whole that performance cannot be deemed to have been completed until
the execution of those acts. The completed service contract method is relevant to these patterns
of performance and accordingly revenue is recognised when the sole or final act takes place and
the service becomes chargeable.

Revenue arising from the use by others of enterprise resources yielding interest, royalties and
dividends should only be recognised when no significant uncertainty as to measurability or
collectability exists. These revenues are recognised on the following bases:
(i) Interest : on a time proportion basis taking into account the amount outstanding and the
rate applicable.
(ii) Royalties : on an accrual basis in accordance with the terms of the relevant agreement.
(iii) Dividends from investment in shares: when the owners right to payment is established.


Effect of Uncertainties on Revenue Recognition:

Where the ability to assess the ultimate collection with reasonable certainty is lacking at the time
of raising any claim, e.g., for escalation of price, export incentives, interest etc., revenue
recognition is postponed to the extent of uncertainty involved. In such cases, it may be
appropriate to recognise revenue only when it is reasonably certain that the ultimate collection
will be made. Where there is no uncertainty as to ultimate collection, revenue is recognised at the
time of sale or rendering of service even though payments are made by instalments.

When the uncertainty relating to collectability arises subsequent to the time of sale or the
rendering of the service, it is more appropriate to make a separate provision to reflect the
uncertainty rather than to adjust the amount of revenue originally recorded.

When recognition of revenue is postponed due to the effect of uncertainties, it is considered as
revenue of the period in which it is properly recognised.

Disclosure:

In addition to the disclosures required by Accounting Standard 1 on Disclosure of Accounting
Policies (AS 1), an enterprise should also disclose the circumstances in which revenue
recognition has been postponed pending the resolution of significant uncertainties.


Accounting for Fixed Assets:AS-10

FIXED ASSETS:
Fixed asset is an asset held with the intention of being used for the purpose of producing or
providing goods or services and is not held for sale in the normal course of business.


APPLICABILITY:

In many enterprises these assets are grouped into various categories, such as:
land,
buildings,
plant and machinery,
vehicles,
furniture and fittings,
goodwill,
patents,
trademarks and designs

This standard does not deal with accounting for the following items to which special
considerations apply:
forests, plantations and similar regenerative natural resources;
wasting assets including mineral rights, expenditure on the
exploration for and extraction of minerals, oil, natural gas and similar
non-regenerative resources;
expenditure on real estate development; and
Livestock.

Non-monetary Consideration:

When a fixed asset is acquired in exchange for another asset, its cost is usually determined by
reference to the fair market value of the consideration given. It may be appropriate to consider
also the fair market value of the asset acquired if this is more clearly evident.

When a fixed asset is acquired in exchange for shares or other securities in the enterprise, it
is usually recorded at its fair market value, or the fair market value of the securities issued,
whichever is more clearly evident



Improvements and Repairs:

Only expenditure that increases the future benefits from the existing asset beyond its previously
assessed standard of performance is included in the gross book value, e.g., an increase in
capacity.

The cost of an addition or extension to an existing asset which is of a capital nature and which
becomes an integral part of the existing asset is usually added to its gross book value.


Retirements and Disposals:

An item of fixed asset is eliminated from the financial statements on disposal.

Items of fixed assets that have been retired from active use and are held for disposal are stated at
the lower of their net book value and net realisable value and are shown separately in the
financial statements.

Valuation of Fixed Assets in Special Cases:

In the case of fixed assets acquired on hire purchase terms, although legal ownership does
not vest in the enterprise, such assets are recorded at their cash value, which, if not readily
available, is calculated by assuming an appropriate rate of interest. They are shown in the
balance sheet with an appropriate narration to indicate that the enterprise does not have full
ownership thereof.

Where an enterprise owns fixed assets jointly with others (otherwise than as a partner in a
firm), the extent of its share in such assets, and the proportion in the original cost, accumulated
depreciation and written down value are stated in the balance sheet. Alternatively, the pro rata
cost of such jointly owned assets is grouped together with similar fully owned assets. Details of
such jointly owned assets are indicated separately in the fixed assets register.

Fixed Assets of Special Types

Goodwill, in general, is recorded in the books only when some consideration in money or
moneys worth has been paid for it. Whenever a business is acquired for a price (payable either
in cash or in shares or otherwise) which is in excess of the value of the net assets of the business
taken over, the excess is termed as goodwill. Goodwill arises from business connections, trade
name or reputation of an enterprise or from other intangible benefits enjoyed by an enterprise.

Disclosures:
gross and net book values of fixed assets at the beginning and end of an accounting
period showing additions, disposals, acquisitions and other movements;
expenditure incurred on account of fixed assets in the course of construction or
acquisition;
Revalued amounts substituted for historical costs of fixed assets, the method adopted to
compute the revalued amounts, the nature of any indices used, the year of any appraisal
made, and whether an external valuer was involved, in case where fixed assets are stated
at revalued amounts.


Accounting for Investments:AS-13
Investment:
Investments are assets held by an enterprise for earning income by way of dividends, interest,
and rentals, for capital appreciation, or for other benefits to the investing enterprise. Assets held
as stock-in-trade are not investments.

Scope and applicability:

This Standard deals with accounting for investments in the financial statements of enterprises
and related disclosure requirements.

This Standard does not deal with:
the bases for recognition of interest, dividends and rentals earned on investments which
are covered by Accounting Standard 9 on Revenue Recognition;
operating or finance leases;
investments of retirement benefit plans and life insurance enterprises;
mutual funds and venture capital funds and/or the related asset management companies,
banks and public financial institutions formed under a Central or State Government Act
or so declared under the Companies Act, 1956.

Definitions:

The following terms are used in this Standard with the meanings assigned:
Investments are assets held by an enterprise for earning income by way of dividends,
interest, and rentals, for capital appreciation, or for other benefits to the investing
enterprise. Assets held as stock-in-trade are not investments.

A current investment is an investment that is by its nature readily realisable and is
intended to be held for not more than one year from the date on which such investment is
made.

A long term investment is an investment other than a current investment.
An investment property is an investment in land or buildings that are not intended to be
occupied substantially for use by, or in the operations of, the investing enterprise.

Fair value is the amount for which an asset could be exchanged between a
knowledgeable, willing buyer and a knowledgeable, willing seller in an arms length
transaction. Under appropriate circumstances, market value or net realisable value
provides an evidence of fair value.

Market value is the amount obtainable from the sale of an investment in an open market,
net of expenses necessarily to be incurred on or before disposal.

Classification of Investments:

Enterprises present financial statements that classify fixed assets, investments and current assets
into separate categories. Investments are classified as long term investments and current
investments. Current investments are in the nature of current assets, although the common
practice may be to include them in investments.

Investments other than current investments are classified as long term investments, even though
they may be readily marketable.

Further classification of current and long-term investments should be as specified in the statute
governing the enterprise. In the absence of a statutory requirement, such further classification
should disclose, where applicable, investments in:
(a) Government or Trust securities
(b) Shares, debentures or bonds
(c) Investment properties
(d) Othersspecifying nature.

Cost of Investments:

The cost of an investment includes acquisition charges such as brokerage, fees and duties.

Carrying Amount of Investments:

Current I nvestments

The carrying amount for current investments is the lower of cost and fair value. In respect of
investments for which an active market exists, market value generally provides the best evidence
of fair value. The valuation of current investments at lower of cost and fair value provides a
prudent method of determining the carrying amount to be stated in the balance sheet.

Valuation of current investments on overall (or global) basis is not considered appropriate.
Sometimes, the concern of an enterprise may be with the value of a category of related current
investments and not with
each individual investment, and accordingly the investments may be carried at the lower of cost
and fair value computed category wise (i.e. equity shares, preference shares, convertible
debentures, etc.). However, the more
prudent and appropriate method is to carry investments individually at the lower of cost and fair
value.

For current investments, any reduction to fair value and any reversals of such reductions are
included in the profit and loss statement.

Long-term I nvestments

Long-term investments are usually carried at cost. However, when there is a decline, other than
temporary, in the value of a long term investment, the carrying amount is reduced to recognise
the decline.
Indicators of the value of an investment are obtained by reference to its market value, the
investees assets and results and the expected cash flows from the investment. The type and
extent of the investors stake in the
investee are also taken into account. Restrictions on distributions by the investee or on disposal
by the investor may affect the value attributed to the investment.

Long-term investments are usually of individual importance to the investing enterprise. The
carrying amount of long-term investments is therefore determined on an individual investment
basis.

Where there is a decline, other than temporary, in the carrying amounts of long term investments,
the resultant reduction in the carrying amount is charged to the profit and loss statement. The
reduction in carrying amount is reversed when there is a rise in the value of the investment, or if
the reasons for the reduction no longer exist.


Disposal of Investments:

On disposal of an investment, the difference between the carrying amount and the disposal
proceeds, net of expenses, is recognized in the profit and loss statement.

When disposing of a part of the holding of an individual investment, the carrying amount to be
allocated to that part is to be determined on the basis of the average carrying amount of the total
holding of the investment.

Reclassification of Investments:

Where long-term investments are reclassified as current investments, transfers are made at the
lower of cost and carrying amount at the date of transfer.
Where investments are reclassified from current to long-term, transfers are made at the lower of
cost and fair value at the date of transfer.

Disclosure:

The following information should be disclosed in the financial statements:
(a) the accounting policies for determination of carrying amount of investments;

(b) the amounts included in profit and loss statement for:
(i) interest, dividends (showing separately dividends from subsidiary companies), and rentals on
investments showing separately such income from long term and current investments.
Gross income should be stated, the amount of income tax deducted at source being included
under Advance Taxes Paid;
(ii) profits and losses on disposal of current investments and changes in the carrying amount of
such investments; and
(iii) profits and losses on disposal of long term investments and changes in the carrying amount
of such investments;

(c) significant restrictions on the right of ownership, realisability of investments or the remittance
of income and proceeds of disposal;
(d) the aggregate amount of quoted and unquoted investments, giving the aggregate market value
of quoted investments;
(e) other disclosures as specifically required by the relevant statute governing the enterprise.


Borrowing Costs:AS-16
Objective:
The objective of this Standard is to prescribe the accounting treatment for borrowing costs.

Borrowing costs:
Borrowing costs are interest and other costs incurred by an enterprise in connection with the
borrowing of funds.

Borrowing costs may include:

interest and commitment charges on bank borrowings and other short-term and long-term
borrowings;
amortization of discounts or premiums relating to borrowings;
amortisation of ancillary costs incurred in connection with the arrangement of
borrowings;
finance charges in respect of assets acquired under finance leases or under other similar
arrangements; and
Exchange differences arising from foreign currency borrowings to the extent that they are
regarded as an adjustment to interest costs.


Commencement of Capitalisation:

The capitalisation of borrowing costs as part of the cost of a qualifying asset should commence
when all the following conditions are satisfied:
expenditure for the acquisition, construction or production of a qualifying asset is being
incurred;
borrowing costs are being incurred; and
activities that are necessary to prepare the asset for its intended use or sale are in
progress.

Suspension of Capitalisation:

Capitalisation of borrowing costs should be suspended during extended periods in which active
development is interrupted.

Cessation of Capitalisation:

Capitalisation of borrowing costs should cease when substantially all the activities necessary to
prepare the qualifying asset for its intended use or sale are complete.


Disclosure:

The financial statements should disclose:
(a) the accounting policy adopted for borrowing costs; and
(b) the amount of borrowing costs capitalised during the period.

EARNINGS PER SHARE (AS-20):
Objective:
The objective of this Standard is to prescribe principles for the determination and presentation of
earnings per share which will improve comparison of performance among different enterprises
for the same period and among different accounting periods for the same enterprise.

SCOPE:

This Standard should be applied by all companies. However, a Small and Medium Sized
Company, as defined in the Notification, may not disclose diluted earnings per share

Definitions:

An equity share is a share other than a preference share.
A preference share is a share carrying preferential rights to dividends and repayment of capital.
A financial instrument is any contract that gives rise to both a financial asset of one enterprise
and a financial liability or equity shares of another enterprise.
A potential equity share is a financial instrument or other contract that entitles, or may entitle,
its holder to equity shares.
Share warrants or options are financial instruments that give the holder the right to acquire
equity shares.
Fair value is the amount for which an asset could be exchanged, or a liability settled, between
knowledgeable, willing parties in an arms length transaction.

Diluted Earnings Per Share:

For the purpose of calculating diluted earnings per share, the net profit or loss for the period
attributable to equity shareholders and the weighted average number of shares outstanding during
the period should be adjusted for the effects of all dilutive potential equity shares.

In calculating diluted earnings per share, effect is given to all dilutive potential equity shares that
were outstanding during the period, that is:

(a) the net profit for the period attributable to equity shares is:

(i) increased by the amount of dividends recognised in the period in respect of the dilutive
potential equity shares as adjusted for any attributable change in tax expense for the period;
(ii) increased by the amount of interest recognised in the period in respect of the dilutive
potential equity shares as adjusted for any attributable change in tax expense for the period; and
(iii) adjusted for the after-tax amount of any other changes in expenses or income that would
result from the conversion of the dilutive potential equity shares.


(b) the weighted average number of equity shares outstanding during the period is increased by
the weighted average number of additional equity shares which would have been outstanding
assuming the conversion of all dilutive potential equity shares.

Restatement:

If the number of equity or potential equity shares outstanding increases as a result of a bonus
issue or share split or decreases as a result of a reverse share split (consolidation of shares), the
calculation of basic and diluted earnings per share should be adjusted for all the periods
presented. If these changes occur after the balance sheet date but before the date on which the
financial statements are approved by the board of directors, the per share calculations for those
financial statements and any prior period financial statements presented should be based on the
new number of shares. When per share calculations reflect such changes in the number of shares,
that fact should be disclosed.
Disclosure:
An enterprise should disclose the following:
(i)where the statement of profit and loss includes extraordinary items (within the meaning of AS
5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies), the
enterprise should disclose basic and diluted earnings per share computed on the basis of earnings
excluding extraordinary items (net of tax expense);
(ii) (a) the amounts used as the numerators in calculating basic and diluted earnings per share,
and a reconciliation of those amounts to the net profit or loss for the period;
(b) the weighted average number of equity shares used as the denominator in calculating basic
and diluted earnings per share, and a reconciliation of these denominators to each other; and
(c) the nominal value of shares along with the earnings per share figures.




Consolidated Financial Statements:AS-21
Objective:
The objective of this Standard is to lay down principles and procedures for preparation and
presentation of consolidated financial statements.

DEFINITION:

Control:
(a) the ownership, directly or indirectly through subsidiary(ies), of more than one-half of the
voting power of an enterprise;

(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.

A subsidiary is an enterprise that is controlled by another enterprise (known as the parent).
A parent is an enterprise that has one or more subsidiaries.

A group is a parent and all its subsidiaries.

Consolidated financial statements are the financial statements of a group presented as those of
a single enterprise.

Equity is the residual interest in the assets of an enterprise after deducting all its liabilities.

Minority 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.

Scope of Consolidated Financial Statements

This Standard should be applied in the preparation and presentation of consolidated financial
statements for a group of enterprises under the control of a parent.
2. This Standard should also be applied in accounting for investments in subsidiaries in the
separate financial statements of a parent.

Consolidation Procedures:

In preparing consolidated financial statements, the financial statements of the parent and its
subsidiaries should be combined on a line by line basis by adding together like items of assets,
liabilities, income and expenses. In order that the consolidated financial statements present
financial information about the group as that of a single enterprise, the following steps should be
taken:
(a) the cost to the parent of its investment in each subsidiary and the parents portion of equity of
each subsidiary, at the date on which investment in each subsidiary is made, should be
eliminated;

(b) any excess of the cost to the parent of its investment in a subsidiary over the parents portion
of equity of the subsidiary, at the date on which investment in the subsidiary is made, should
be described as goodwill to be recognised as an asset in the consolidated financial statements;

(c) when the cost to the parent of its investment in a subsidiary is less than the parents portion of
equity of the subsidiary, at the date on which investment in the subsidiary is made, the
difference should be treated as a capital reserve in the consolidated financial statements;

(d) minority interests in the net income of consolidated subsidiaries for the reporting period
should be identified and adjusted against the income of the group in order to arrive at the net
income attributable to the owners of the parent; and

(e) minority interests in the net assets of consolidated subsidiaries should be identified and
presented in the consolidated balance sheet separately from liabilities and the equity of the
parents shareholders. Minority interests in the net assets consist of:

(i) the amount of equity attributable to minorities at the date on which investment in a subsidiary
is made; and
(ii) the minorities share of movements in equity since the date the parent-subsidiary relationship
came in existence.

Where the carrying amount of the investment in the subsidiary is different from its cost, the
carrying amount is considered for the purpose of above computations.


DISCLOSURE:

in consolidated financial statements a list of all subsidiaries including the name, country of
incorporation or residence, proportion of ownership interest and, if different, proportion of
voting power held;


ACCOUNTING FOR TAXES ON INCOME (AS-22)

OBJECTIVE:
The objective of this Standard is to prescribe accounting treatment for taxes on income.

Scope:

This Standard should be applied in accounting for taxes on income. This includes the
determination of the amount of the expense or saving related to taxes on income in respect of an
accounting period and the disclosure of such an amount in the financial statements.

Definitions:

Accounting income (loss) is the net profit or loss for a period, as reported in the statement of
profit and loss, before deducting income tax expense or adding income tax saving.

Taxable income (tax loss) is the amount of the income (loss) for a period, determined in
accordance with the tax laws, based upon which income tax payable (recoverable) is determined.

Tax expense (tax saving) is the aggregate of current tax and deferred tax charged or credited to
the statement of profit and loss for the period.

Current tax is the amount of income tax determined to be payable (recoverable) in respect of
the taxable income (tax loss) for a period.

Deferred tax is the tax effect of timing differences.

Timing differences are the differences between taxable income and accounting income for a
period that originate in one period and are capable of reversal in one or more subsequent periods.

Permanent differences are the differences between taxable income and accounting income for a
period that originate in one period and do not reverse subsequently.

Recognition:

Tax expense for the period, comprising current tax and deferred tax, should be included in the
determination of the net profit or loss for the period.

Measurement:

Current tax should be measured at the amount expected to be paid to (recovered from) the
taxation authorities, using the applicable tax rates and tax laws.

Deferred tax assets and liabilities should be measured using the tax rates and tax laws that have
been enacted or substantively enacted by the balance sheet date.

TRANSITIONAL PROVISIONS:

On the first occasion that the taxes on income are accounted for in accordance with this Standard, the
enterprise should recognise, in the financial statements, the deferred tax balance that has accumulated prior
to the adoption of this Standard as deferred tax asset/liability with a corresponding credit/charge to the revenue
reserves, subject to the consideration of prudence in case of deferred tax assets.The amount so credited/charged
to the revenue reserves should be the same as that which would have resulted if this Standard had been in
effect from the beginning.

Review of Deferred Tax Assets

The carrying amount of deferred tax assets should be reviewed at each balance sheet date. An
enterprise should write-down the carrying amount of a deferred tax asset to the extent that it is no
longer reasonably certain or virtually certain that sufficient future taxable income will be
available against which deferred tax asset can be realized. Any such write-down may be reversed
to the extent that it becomes reasonably certain or virtually certain, that sufficient future taxable
income will be available.

Presentation and Disclosure:

An enterprise should offset assets and liabilities representing current tax if the enterprise
has a legally enforceable right to set off the recognised amounts;
(b) Intends to settle the asset and the liability on a net basis.


Discontinuing Operations AS-24
Objective:
The objective of this Standard is to establish principles for reporting information about
discontinuing operations, thereby enhancing the ability of users of financial statements to make
projections of an enterprise's cash flows, earnings-generating capacity, and financial position by
segregating information about discontinuing operations from information about continuing
operations.
Discontinuing Operation
A 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 enterprise's
shareholders;

(ii) Disposing of piecemeal, such as by selling off the component's assets and settling its
liabilities individually;

(iii) Terminating through abandonment;
(b) That represents a separate major line of business or geographical area of operations; and
(c) That can be distinguished operationally and for financial reporting purposes.

Initial Disclosure Event
With respect to a discontinuing operation, the initial disclosure event is the occurrence of one of
the following, whichever occurs earlier:
(a) The enterprise has entered into a binding sale agreement for substantially all of the assets
attributable to the discontinuing operation;
(b) The enterprise's board of directors or similar governing body has both
(i) Approved a detailed, formal plan for the discontinuance
(ii) Made an announcement of the plan.
Presentation and Disclosure:
An enterprise should include the following information relating to a discontinuing operation in
its financial statements beginning with the financial statements for the period in which the initial
disclosure event occurs:
(a) A description of the discontinuing operation(s);
(b) The business or geographical segment(s) in which it is reported as per AS 17, Segment
Reporting;
(c) The date and nature of the initial disclosure event;
(d) The date or period in which the discontinuance is expected to be completed if known or
determinable;
(e) The carrying amounts, as of the balance sheet date, of the total assets to be disposed of and
the total liabilities to be settled;
(f) The amounts of revenue and expenses in respect of the ordinary activities attributable to the
discontinuing operation during the current financial reporting period;
(g) The amount of pre-tax profit or loss from ordinary activities attributable to the discontinuing
operation during the current financial reporting period, and the income tax expenses related
thereto;
(h) The amounts of net cash flows attributable to the operating, investing, and financing activities
of the discontinuing operation during the current financial reporting period
Recognition and Measurement:
An enterprise should apply the principles of recognition and measurement that are set out in
other Accounting Standards for the purpose of deciding as to when and how to recognize and
measure the changes in assets and liabilities and the revenue, expenses, gains, losses and cash
flows relating to a discontinuing operation.
Disclosure in Interim Financial Reports:
Disclosures in an interim financial report in respect of a discontinuing operation should be made
in accordance with AS 25, Interim Financial Reporting, including:
(a) Any significant activities or events since the end of the most recent annual reporting period
relating to a discontinuing operation; and
(b) Any significant changes in the amount or timing of cash flows relating to the assets to be
disposed or liabilities to be settled.
Updating the Disclosures:
An enterprise should include, in its financial statements, for periods subsequent to the one in
which the initial disclosure event occurs, a description of any significant changes in the amount
or timing of cash flows relating to the assets to be disposed or liabilities to be settled and the
events causing those changes.

Interim Financial Reporting AS-25
OBJECTIVE:
The objective of this Standard is to prescribe the minimum content of an interim financial report and to
prescribe the principles for recognition and measurement in a complete or condensed financial statement for an
interim period.

Definitions:

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 Standard) for an
interim period.

Content of an Interim Financial Report:
A complete set of financial statements normally includes:
(a) balance sheet;
(b) Statement of profit and loss;
(c) cash flow statement;
(d) Notes including those relating to accounting policies and other statements and explanatory
material that are an integral part of the financial statements

Minimum Components of an Interim Financial Report:

An interim financial report should include, at a minimum, the following components:
(a) Condensed balance sheet;
(b) Condensed statement of profit and loss;
(c) Condensed cash flow statement; and
(d) Selected explanatory notes.

Materiality:

In deciding how to recognise, measure, classify, or disclose an item for interim financial
reporting purposes, materiality should be assessed in relation to the interim period financial data.
In making assessments of materiality, it should be recognised that interim measurements may
rely on estimates to a greater extent than measurements of annual financial data.

Revenues Received Seasonally or Occasionally:

Revenues that are received seasonally or occasionally within a financial year should not be
anticipated or deferred as of an interim date if anticipation or deferral would not be appropriate at
the end of the enterprise's financial year.

Form and Content of Interim Financial Statements:

If an enterprise prepares and presents a complete set of financial statements in its interim
financial report, the form and content of those statements should conform to the requirements as
applicable to annual complete set of financial statements.

If an enterprise prepares and presents a set of condensed financial statements in its interim
financial report, those condensed statements should include, at a minimum, each of the headings
and sub-headings that were included in its most recent annual financial statements and the
selected explanatory notes as required by this Standard. Additional line items or notes should be
included if their omission would make the condensed interim financial statements misleading

If an enterprise's annual financial report included the consolidated financial statements in
addition to the parent's separate financial statements, the interim financial report includes both
the consolidated financial statements and separate financial statements, complete or condensed.

Change In Accounting Policy :

A change in accounting policy, other than one for which the transition is specified by an
Accounting Standard, should be reflected by restating the financial statements of prior interim
periods of the current financial year.

Costs Incurred Unevenly During the Financial Year:

Costs that are incurred unevenly during an enterprise's financial year should be anticipated or
deferred for interim reporting purposes if, and only if, it is also appropriate to anticipate or defer
that type of cost at the end of the financial year.