Accounting Standard Presentation of 19th July

Capsule on Accounting Standards
Conducted by
Young Members Empowerment Committee

jointly with Accounting Standards Board
Presented by
CA Manish C. Iyer, Deputy Director, Technical Directorate, ICAI
CAManishC.Iyer+911130110561
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Standardsinthismodule
AS1 Disclosureof PeriodItemsandChanges
AccountingPolicies inAccountingPolicies
AS3 CashFlow AS20 Earningsper
Statements Share
AS4 Contingenciesand AS24 Discontinuing
Eventsoccurringafterthe Operations
BalanceSheetDate AS2 Valuationof
AS5 NetProfitorLoss Inventories
forthePeriod,Prior
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AccountingStandard(AS)3
CashFlowStatements
(NotApplicabletoSMCs)
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DiscussionPoints
Definitions
PresentationofCashFlows
Disclosures
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Definitions
Cash
Cashonhandanddemanddeposits
CashEquivalents
Shortterm,highlyliquidinvestmentsthatare
readilyconvertibletoknownamountsofcashand
whicharesubjecttoaninsignificantriskof
changesinvalue
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Definitions
OperatingActivities
Principalrevenueproducingactivitiesoftheentityand
otheractivitiesthatarenotinvestingorfinancingactivities
InvestingActivities
Acquisitionanddisposaloflongtermassetsandother
investmentsnotincludedincashequivalents
FinancingActivities
Activitiesthatresultinchangesinthesizeandcomposition
ofthecontributedequityandborrowingoftheentity
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ClassificationofCashFlows
OperatingActivities
DirectMethod
IndirectMethod
InvestingActivities
Ongrossbasis
FinancingActivities
Ongrossbasis
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ReportingCashFlowsonNetbasis
Cashflowsarisingfromoperating,investingand
financingactivitiesthatmaybereportedonanet
basis:
Cashreceiptsandpaymentsonbehalfofcustomers
whenthecashflowsreflecttheactivitiesofthe
customerratherthanthoseoftheentity;and
Cashreceiptsandpaymentsforitemsinwhichthe
turnoverisquick,theamountsarelarge,andthe
maturitiesareshort
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ReportingCashFlowsonNetbasis
Cashflowsofafinancialinstitutionthatmaybe
reportedonanetbasis
Cashreceiptandpaymentsfortheacceptanceand
repaymentofdepositswithafixedmaturitydate
Theplacementofdepositswithandwithdrawalof
depositsfromotherfinancialinstitutions
Cashadvancesandloansmadetocustomersandthe
repaymentofthoseadvancesandloans
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Foreigncurrencycashflows
Exchangeratefortranslation
Foreignsubsidiarycashflows
Unrealisedgainsandlossesduetorestatement
Interest&Dividends
ClassificationofInterestpaidandInterest&Dividendsreceived
forfinancialinstitution
ClassificationofInterestpaidandinterest&dividendsreceived
forotherentities
ClassificationofDividendspaid
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TaxesonIncome
Classification
NoncashTransactions
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AcquisitionandDisposalsofbusiness
Classificationasinvestingactivities
Aggregatecashflowsarisingfromobtainingorlosingcontrolof
subsidiariesorotherbusiness
Disclosures
Totalconsiderationpaidorreceived
Portionoftheconsiderationconsistingofcashandcashequivalents
RequiredbyIAS7
Amountofcashorcashequivalentsinthesubsidiariesorother
businessesoverwhichcontrolisobtainedorlost
AmountofassetsandliabilitiesotherthanC&CEinthesubsidiariesor
otherbusinessesoverwhichcontrolisobtainedorlost
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Disclosures
ComponentsofCashandCashEquivalents
ReconciliationofamountsreportedinCash
FlowStatementwiththeequivalentitems
reportedintheBalanceSheet
Restrictiononuseofcashandcash
equivalentsheld
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RecommendedDisclosures
Amountofundrawnborrowingfacilitiesthatmay
beavailableforfutureoperatingactivitiesandto
settlecapitalcommitments,indicatingany
restrictionsontheuseofthesefacilities
Aggregateamountofcashflowsthatrepresent
increasesinoperatingcapacityseparatelyfrom
thosecashflowsthatarerequiredtomaintain
operatingcapacity
Cashflowsforeachsegment
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CaseStudies
1. Isatimedepositwithabankcashequivalent?
2. Areinvestmentsinequitysharescashequivalents?
3. ArebalancesinCashCreditAccountpartofOperating
Activities?
4. Howshouldchangesinownershipinterestinasubsidiary
thatdonotresultinalossofcontrolbeclassified?
5. Howshouldachangeinclassificationoffinancial
instrumentswouldbeeffectedinCashflowStatements?
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CaseStudies
RevisedScheduleVIrequirespresentationoflineitems,eitheron
faceorinthenotes,whicharedifferentvisvisthoserequired
underOldScheduleVI.Isitmandatoryforacompanytopresent
revisedlineitemsinthecashflowstatementsalso?
Aspartofworkingcapitalmovement,isitmandatorytopresenta
separatemovementforcurrentandnoncurrentcomponents?For
example,acompanyhassegregatedtradereceivablesintocurrent
andnoncurrentbasedonRevisedScheduleVIcriteria.Isit
mandatoryforthecompanytodisclosemovementincurrentand
noncurrenttradereceivablesseparately?
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CaseStudies
Whetherlongtermloansandadvancesareto
bepresentedasinvestingactivities?Ifyes,
whethertheamountsaretobereportedon
grossbasis?
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CaseStudies
ABCDLtd.hasadjusted`10lacasinterest
expenseand`5lacasinterestincometo
deriveCashFlowfromOperatingActivities
andhasshownthesameamountunder
FinancingactivitiesandInvestingActivities
respectively.Comment.
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CaseStudies
ABCDLtd.hasreported`20lacs asCashflows
duetorepaymentofborrowingsinthecurrent
yearand`30lacs asCurrentportionoflong
termborrowingsinthepreviousyear.
Comment.
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CaseStudy
WhiteLtd.acquiredanequipmentthroughfinance
leasefromBlackLtd.Thepresentvalueofminimum
leasepaymentswasRs.5lac whereasfairvalueofthe
equipmentattheinceptionoftheleasewasRs.5.25
lac.WhiteLtd.wouldberepayingRs.1.10lac eachyear
for5years.Thelifeoftheequipmentis5years.Show
theJournalentriestobepassedinWhiteLtd.s books
forfinanceleaseduringtheyearandanswerthe
questionsinnextslides:
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MultiplechoiceQuestion
Thepurchaseoftheequipmentthroughthe
financeleasewillbeclassifiedas
Operatingactivities
Investingactivities
Financingactivities
CashandCashEquivalents
Noneoftheabove
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MultipleChoiceQuestion
Theliabilityincurredattheacquisitionofthe
assetisclassifiedas
Operatingactivities
Investingactivities
Financingactivities
Noneoftheabove
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Thepaymentsmadetothelessor duringthe
yearincludinginterestisclassifiedas
Operatingactivities
Investingactivities
Financingactivities
Noneoftheabove
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Themovementinbankbalanceduetolease
transactionisclassifiedas
Operatingactivities
Investingactivities
Financingactivities
Noneoftheabove
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MultiplechoiceQuestion
DepreciationonLeaseEquipmentisclassified
as
Operatingactivities
Investingactivities
Financingactivities
Noneoftheabove
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MultipleChoiceQuestions
XLtd.purchaseabuildingandtheselleraccepts
paymentpartlyinequitysharesandpartlyin
debentureoftheentity.Thetransactionshould
betreatedinthecashflowstatementas:
1. Operating
2. Investing
3. Financing
4. NoneoftheAbove
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Selectthestatementsthatarecorrectwithrespecttodisclosureof
noncashtransactions
1. Suchtransactionsshouldbedisclosedinthefinancialstatements,
providingalltherelevantinformation
2. Suchtransactionshouldbeexcludedfromastatementofcashflows
3. Theacquisitionofanentitybymeansofanequityissueisan
exampleofanoncashtransaction
4. Aforeignexchangecontractcloseoutisanexampleofanoncash
transaction
5. Theconversionofdebttoequityisanexampleofanoncash
transaction
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Whichofthefollowingitemswouldbeclassifiedunder
operatingactivities
CashpaymenttopurchasePPE
Cashpaymentrelatedtoincometaxes
Cashreceiptsfromroyalties
Cashproceedsfromissuingshares
Cashpaymenttoinvestinasubsidiary
Cashpaymentsforfuturescontractsthatareheldfor
tradingpurposes
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Undertheindirectmethod,thenetcashfromoperatingactivitiesis
determinedbyadjustingnetprofitorlossfortheeffectsofwhichofthe
following
Changesduringtheperiodininventoriesandoperatingreceivablesand
payables
Cashreceiptsfromroyalties,feescommissionandotherrevenue
Noncashitemssuchasdepreciation,provisionsanddeferredtaxes
Allotheritemsincludedinprofitorlossforwhichthecasheffectsare
investingorfinancingcashflows
CashreceiptsandfromsalesofPPE
Cashpaymentstoacquireequityordebtinstrumentsofotherentitiesand
interestsinjointventures
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Whichofthefollowingcouldanentityclassify
underfinancingactivities
Cashreceiptsfromthesaleofintangibleassets
Interestpaymentsondaytodaytransactions
Proceedsfromissuingofshares
Cashreceiptsfromtherepaymentofanadvance
madetoapartyotherthanafinancialinstitution
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Whichofthecashflowswouldbeclassifiedunder
investingactivities
Cashpaymenttoacquireadebtinstrumentofanother
entity
Cashpaymentstoownerstoredeemtheentitysshares
Cashreceiptfromtherepaymentofadvancemadetoa
partyotherthanafinancialinstitution
Amortisation ofintangibleasset
Cashpaymentstosuppliersofgoods
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ContingenciesandEvents
occurringaftertheBalanceSheet
Date
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DateofendofReporting
EABSD
DateofauthorisationofFS
Period
RelatingtoConditionsexistingatthe NotRelatingtoConditionsexistingat
endoftheReportingPeriod theendoftheReportingPeriod
AdjustingEvents NonAdjustingEvents
AdjustFinancials
DiscloseinNotesifMaterial
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IFRSvisvisIndianGAAP
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CaseStudies
Whethersettlementofacourtcasethatconfirmsthattheentity
hadapresentobligationattheBSDateisanonadjustingevent?
WhetherbankruptcyofacustomerthatoccursaftertheBSDate
duetofireathisplaceaftertheBSDateisanonadjustingevent?
WhetherthesaleofinventoriesaftertheBSDateatbelowcostis
anonadjustingevent?
WhetherthedeterminationaftertheBSDateofthecostofassets
purchasedortheproceedsfromassetssoldisanonadjusting
event?
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CaseStudies
Whetherthedeterminationoftheamountofprofit
sharingorbonuspaymentsforwhichtheentityhasa
presentobligationattheBSDateasperAS15isan
adjustingevent?
WhetherdiscoveryoffraudorerrorsaftertheBSDate
thatshowthattheFSareincorrectisanadjustingevent?
WhetheramajorbusinesscombinationaftertheBSDate
isanadjustingevent?
Whetherannouncementofaplantodiscontinuean
operationaftertheBSDateisanadjustingevent?
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CaseStudies
Whetherdestructionofamajorproduction
plantbyfireaftertheBSDateisanadjusting
event?
Whetherannouncementorcommencement
oftheimplementationofamajor
restructuringisanadjustingevent?
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DisclosureofAccounting
Policies
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ObjectiveandScope
Topromotebetterunderstandingoffinancial
statementsbyestablishing
thedisclosureofaccountingpolicies
Mannerinwhichaccountingpoliciesaredisclosed
ThisisapervasiveAccountingStandard
Accountingpoliciesrefertothespecificaccounting
principlesandthemethodsofapplyingthoseprinciples
adoptedbytheenterpriseinthepreparationand
presentationoffinancialstatements
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SelectionofAccountingPolicies
Majorconsiderationsgoverningselectionand
applicationofaccountingpolicies:
Prudence
Substanceoverform
Materiality
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MainPrinciples
Allsignificantaccountingpoliciesadoptedin
thepreparationandpresentationoffinancial
statementsshouldbedisclosedatoneplace
andformpartofthefinancialstatements
Iffundamentalaccountingassumptionisnot
followed,thefactshouldbedisclosed
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Structure ofAccountingPolicy
Recognition
InitialMeasurement
SubsequentMeasurement
Includesretirements,hedgingetc.
Derecognition
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Whereshouldthestatementofsignificant
accountingpoliciesbedisclosedasabest
practicemeasure?
AfterIndependentAuditorsReport
Asafirstnotetothefinancialstatements
AspartofDirectorsReport
Afteralldisaggregations oflineitems
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SampleNote
NoteonBasisofPreparation:
Thefinancialstatementsarepreparedonaccrualbasisunderthehistoricalcost
convention,modifiedtoincluderevaluationofcertainassets,inaccordancewith
applicableAccountingStandards(AS)specifiedintheCompanies(Accounting
Standards)Rules,2006andpresentationalrequirementsoftheCompaniesAct,
1956.
All assets and liabilities have been classified as current or noncurrent as per the
Companys normal operating cycle and other criteria set out in the Revised
Schedule VI to the Companies Act, 1956. Based on the nature of activities and the
time between the acquisition of assets for processing and their realisation in cash
and cash equivalents, the Company has ascertained its operating cycle as twelve
months for the purpose of current/noncurrent classification of its assets and
liabilities.
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SampleNote
Useofestimates
The preparation of financial statements in conformity with generally
accepted accounting principles in India (GAAP) requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent liabilities on the
date of the financial statements and the results of operations during the
year. Differences between actual results and estimates are recognised in
the year in which the results are known or materialise. Examples of such
estimates are estimated useful life of assets, provision for doubtful debts,
etc. Actual results could differ from those estimates. Any revision to
accounting estimates is recognised prospectively in current and future
periods.
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Whencananentitybesaidtobenotagoing
concern?
Whentheentityreportslossescontinuouslyforfive
years
Whentheentitybecomesasickcompanyandis
referredtoBIFR
Whentheentityintendstoliquidateorceasesits
operationsorhasnootheralternativebuttodoso
Atwillofmanagement
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NetProfitorLossforthePeriod,
PriorPeriodItemsandDisclosureof
AccountingPolicies
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ObjectiveandScope
PresentProfitorlossfromordinaryactivities
Presentextraordinaryitems
Presentpriorperioditems
Presentmaterialitems
AccountingforChangesinAccountingEstimates
DisclosureofChangesinAccountingPolicies
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Whichitemofincomeorexpenseiscredited
ordebiteddirectlytoreserves?
ForeignExchangeGains/Losses
PreliminaryExpenses
Dividend
RevaluationofTangibleAssets
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CaseStudies
ABCDLtd.hasadjustedpreliminaryexpenses
toGeneralReservestocomplywithRevised
ScheduleVI.Whetherthetreatmentgivenis
inaccordancewithAccountingStandards?
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CaseStudies
ManagementofABCDLtd.wantstocreatea
contingencyreserve,soastomeetany
eventualitythatmightariseinfuture.Inthis
regard,youhavebeenrequestedtoopineon
theaccountingtreatmentforamountstobe
transferredtoandfromsuchreserve.
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CaseStudies
ABCDLtd.sdebenturetrustdeedrequiresitto
createDRRandinvestapartofDRRin
specifiedsecuritiesandcredittheinterestto
DRR.Theinterestonsuchspecifiedsecurities
hasbeendirectlycreditedtoDRR.Comment.
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Definitions
OrdinaryActivities
Activitiesundertakenaspartofbusinessandsuchrelated
activitiesinwhichtheenterpriseengagesinfurtheranceof,
incidentalto,orarisingfrom,theseactivities
Extraordinaryitems
Incomesorexpensesthatarisefromeventsortransactionsthat
areclearlydistinctfromtheordinaryactivitiesandtherefore,
arenotexpectedtorecurfrequentlyorregularly
Exceptionalitems?
NosuchdifferentiationinInd AS/IFRS
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CaseStudies
ABCDLtd.haspaid`50crores towards
voluntaryretirementschemewhichhasbeen
aggregatedwithSalariesandWages?
Comment.
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Definitions
PriorPeriodItems
Incomesorexpenseswhichariseinthecurrent
periodasaresultoferrorsoromissionsinthe
preparationofthefinancialstatementsofoneor
morepriorperiods
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CaseStudies
ABCDLtd.haspresentedaseparatelineitemPriorPeriod
ItemsonthefaceoftheStatementofProfitandLossafter
ProfitafterTax.Whetherthepresentationisproper?
ABCDPowerLtd.billsfuelsurchargeatprovisionalrates.
Finalbillforfuelsurchargeof`53lakhsfortheperiodApril
1toMarch31,2012hasbeenreceivedandpaidin
September2013byJackandJillLtd.whichhasbeen
aggregatedwithPowerandFuelpresentedunderOther
Expenses.Comment.
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CaseStudies
ABCDLtd.providedforwarrantyof`10crores
fortheyearended31March2012.Inthe
subsequentyear,itwasdeterminedthatthere
wasanexcessprovisiontotheextentof`7
crores.Theauditorhasaskedthe
managementtopresenttheexcessprovision
writtenbackaspriorperioditem.Comment.
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CaseStudies
Amajortheftofinventoryvaluedat`50lakhs
inthepreviousyearwasdetectedintheyear
endingon31March2013.Managementof
thecompanyseeksyouropinionon
presentingtheloss.
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CaseStudies
ABCDLtd.soldamachine(Tangibleasset)in
previousyeartobedeliveredinthecurrentyear
for`10lacs whichincludedprofitof`1lac.Inthe
currentyear,thebuyerhasrefusedtotake
deliveryandmakepaymentforthesame.The
managementhassquaredofftheReceivable
accountbydebiting`10lacs toMachineAccount.
Comment.
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CaseStudies
ABCDLtd.sellsitsentireproductiontoitsforeign
parentXYZatpricesdeterminedbyXYZ.The
financialyearofABCDendson31March.
Subsequenttothefinancialyearendingon31
March2013,ABCDreceivedadebitnotefrom
XYZinMay2013forreductioninsalespricesfor
theperiodJanuary2012toDecember2012.The
companyisnotinfavour ofpresentingthe
reductionasapriod perioditem.Comment.
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CaseStudies
ABCDLtd.hastakenalandonleasefromGIDC
intheyearendingon31March2012.
However,thelandhasbeenpresentedas
FreeholdLandandnotLeaseholdlandinthe
BalanceSheet.Managementhassoughtyour
opiniononrectificationoftheerror.
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CaseStudies
ABCDLtd.hadbyerrornotaccountedforbills
ofoneofitsdealersamountingto`10crores
intheyearendedon31March2012.The
companyseeksyouropiniononwhetherthe
amountof`10crores istobeconsideredfor
computationofmanagerialremuneration.
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AccountingEstimates
NotDefined
Theeffectofachangeinanaccountingestimate
shouldbeincludedinthedeterminationofprofit
orlossin
Theperiodofthechange,ifthechangeaffectsthe
periodonly;or
Theperiodofthechangeandfutureperiods,ifthe
changeaffectsboth
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CaseStudies
ABCDLtd.createsaprovisionof1%ofits
receivablesasapolicy.However,fortheyear
endingon31March2013,ithasestimateda
higherprovisionof4%ofitsreceivables.ABCD
Ltd.hassoughtyourhelpinpresentingthe
sameinfinancialstatementsfortheyear
endedon31March2013.
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CaseStudies
ABCDLtd.hadcreatedwarrantyprovisionof`10
crores intheyearendedon31March2012and
presentedthesameunderOtherExpenses.
However,duringtheyear,itobservedthat`2
crore excessprovisionwascreatedinthe
previousyearandhaspresentedthesameas
OtherIncome.Comment.
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AccountingPolicy
Requiredby NO NO
RequiredbyStd.or Formoreappropriate
Statute Interpretation presentation
Asprovidedinthe
Statute ApplyTransitional
Provisions Notspecified.Application
ofAS6provisionsby
analogy
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CaseStudies
ABCDLtd.hascomeunderthepurviewof
PaymentofGratuityActfromthisyearandhence
makesprovisiononactuarialbasis.Previously,it
usedtopayonadhoc basisandaccountedforthe
samewhenthedecisiontopaywastaken.ABCD
Ltd.hasdisclosedthesameaschangein
accountingpolicy.Comment.
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CaseStudies
ABCDLtd.allocatestheinitialdirectcostson
leaseovertheleaseterm.Itwantstochange
thesameandrecognise themasexpenseas
andwhenincurred.Whetherthechange
wouldbeachangeinaccountingpolicy?
Whetherthechangeistobeappliedto
existingleasesoronlytonewleases?
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ChangeinAccountingPolicy
Anychangeinaccountingpolicywhichhasmaterial
effectshouldbedisclosed
Impactof,andadjustmentresultingshouldbe
disclosed
Wheretheeffectisnotascertainable,thefactshould
beindicated
Ifnotmaterialincurrentperiodbutismaterialinlater
periods,thefactofsuchchangeshouldbedisclosedin
theperiodinwhichthechangeisadopted
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DiscontinuingOperations
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ObjectiveandScope
Toestablishprinciplesforreportinginformationabout
discontinuingoperations,therebyenhancingtheability
ofusersoffinancialstatementstomakeprojectionsof
anenterprisescashflows,earningsgeneration
capacity,andfinancialpositionbysegregating
informationaboutdiscontinuingoperationsfrom
informationaboutcontinuingoperations
Appliestoalldiscontinuingoperationsofanenterprise
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Definitions
Discontinuingoperationisacomponent
Thattheenterprise,pursuanttoasingleplanis;
DisposingoforTerminatingthroughabandonment
Thatrepresentsaseparatemajorlineofbusiness
orgeographicalareaofoperations;and
Thatcanbedistinguishedoperationallyandfor
financialreportingpurposes
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CaseStudies
Discontinuingoperationisacomponentofan
enterprise.Whatdoescomponentofan
enterprisemean?
Whetheradiscontinuingoperationhastobea
businessorgeographicalsegmentasdefined
inAS17,SegmentReporting?
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Presentation
DisclosuresrequiredbyAS24tobepresentedseparatelyfor
eachdiscontinuingoperation
Onlythefollowingneedstobepresentedonfaceofthe
StatementofProfitandLoss
Theamountofpretaxprofitorlossfromordinary
activitiesattributabletothediscontinuingoperation
duringthecurrentfinancialperiodandtheincometax
expenserelatedthereto;and
Theamountofpretaxgainorlossrecognised onthe
disposalofassetsorsettlementofliabilitiesattributableto
discontinuingoperation
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CaseStudies
ABCDLtd.presentsitsStatementofProfitand
Lossinthefollowingmanner:
Lossfortheperiod (XXX)
Less:LossfromDiscontinuingOperation (XXX)
ProfitfromContinuingOperation XXX
WhetherthepresentationisinaccordancewithAS24?
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CaseStudies
ABCDLtd.isSMC.Itdecidestodiscontinueitsmetals
businessinthecurrentfinancialyearendingon31
March2013.Whetheritisrequiredtopresent
discontinuingoperationseparatelyasperAS24?Ifyes,
whetherthepreviousyearfiguresalsoneedtobe
segregatedintocontinuinganddiscontinuing
operations?
ABCDLtd.haspresenteddiscontinuingoperationasan
extraordinaryitem.Comment.
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ComponentofEnterprise
Canbedistinguishedoperationallyandforfinancial
reportingpurposes
Operatingassetsandliabilitiescanbedirectlyattributedto
it;
Itsrevenuecanbedirectlyattributedtoit;and
Atleastamajorityofexpensescanbedirectlyattributedto
it.
WhencanAssets,Liabilities,RevenuesandExpensesbe
saidtobedirectlyattributabletoacomponent?
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InitialDisclosureEvent
Earlierof
Bindingsaleagreementforsubstantiallyallofthe
assetsattributabletothediscontinuingoperation;
or
Approvalofadetailedformalplanforthe
discontinuancebytheboardandannouncement
oftheplantothoseaffectedbyit
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DetailedformalPlan
Shouldidentifymajorassetstobedisposedof
Statetheexpectedmethodofdisposal
Expectedperiodforcompletionofthedisposal
Principallocationsaffected
Location,functionandapproximatenumberofemployees
whowillbecompensatedforterminatingtheirservices;
and
Theestimatedproceedsorsalvagetoberealised by
disposal
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InitialDisclosures
Descriptionofdiscontinuingoperation
RelatedSegment
Dateandnatureofinitialdisclosureevent
Periodbywhichthediscontinuanceisexpectedtobecompleted
Carryingamountsofthetotalassetstobedisposedoffandthetotalliabilitiestobe
settled
Amountofrevenueandexpenseinrespectoftheordinaryactivitiesattributabletothe
discontinuingoperationduringthecurrentfinancialreportingperiod
Amountofpretaxprofitorlossfromordinaryactivitiesattributabletodiscontinuing
operationduringthecurrentfinancialreportingperiod,andtheincometaxexpense
relatedthereto
Amountofnetcashflowsattributabletotheoperating,investingandfinancing
activitiesofthediscontinuingoperationduringthecurrentfinancialreportingperiod
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CaseStudies
ABCDLtd.announcedadetailedplanto
discontinueitsretailbusinesson15April2013.
Itsfinancialyearendson31March2013.The
financialstatementswereunderpreparation
whentheannouncementwasmade.Itseeksyour
opiniononwhethertherequirementofAS24as
regardsinitialdisclosurewillhavetobecomplied
withinthefinancialstatementsfortheyear
ended31March2013.
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OtherDisclosures
Ondisposalofassetsorsettlementofliabilitiesor
onenteringintobindingsaleagreement
Pretaxgainorlossandincometaxexpenserelating
tothegainorloss
NSPorRangeofNSPsasperbindingsaleagreements,
expectedtimingofreceiptofcashflowsandthe
carryingamountofthosenetassetsonthebalance
sheetdate
86
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UpdatingDisclosures
Discloseanysignificantchangesintheamountor
timingofcashflowsandtheeventscausingthose
changes
Onabandonmentorwithdrawalofplan,disclose
Thefact;
Reasonstherefor;and
Effectofsuchabandonmentorwithdrawal
87
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DisclosureinIFR
Anysignificantactivitiesoreventssincethe
endofthemostrecentannualreporting
periodrelatingtoadiscontinuingoperation;
and
Anysignificantchangesintheamountor
timingofcashflowsrelatingtotheassetsto
bedisposedorliabilitiestobesettled
88
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89
manish.iyer@icai.in
EarningsperShare
90
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ObjectiveandScope
Toprescribeprinciplesforthedetermination
andpresentationofearningspershare
therebyenhancingcomparabilityoffinancial
statementsquaperiodsandquaentities
FocusonDenominator
AppliestoallcompaniesexceptthatSMCs
neednotdiscloseDilutedEPS
91
manish.iyer@icai.in
Presentation
Presentationwithequalprominenceforallperiodspresented
BasicandDilutedEPS/LPSandnominalvaluepershare
BasedonProfitorLossoftheperiodattributabletoordinaryequityholdersof
theparententity
Onthefaceofthe
FromOrdinaryActivities FromTotalProfitorLoss
Statementof
includingextraordinary
ProfitandLoss
items
92
manish.iyer@icai.in
CaseStudies
ABCDLtd.has12%cumulativepreference
sharesoutstanding.Thecompanyprovidesfor
preferencedividendinannualaccounts.
Whethertheunrecognised preference
dividendwillhaveanyeffectinthecalculation
ofquarterlyEPS?
93
manish.iyer@icai.in
CaseStudies
CalculateBasicEPS
Profitattributabletoordinaryequityholdersof Rs.18,00,000
theparententityfor2009
Profitattributabletoordinaryequityholdersof Rs.60,00,000
theparententityfor2010
Ordinarysharesoutstandinguntil30/09/2010 20,00,000
Bonusissueon01/10/2010 2forone
94
manish.iyer@icai.in
CalculationofBasicEPSincaseofBonusIssue:
Comparative
2009 2010 of 2009
ProfitAttributabletoEquity
Holders 18,00,000.00 60,00,000.00 18,00,000.00
No.ofEquitySharesbeforebonus 20,00,000.00 20,00,000.00 20,00,000.00

BonusIssue 40,00,000.00 40,00,000.00
No.ofEquityShareafterBonus 60,00,000.00 60,00,000.00
BasicEPS 0.9 1 0.3
95
manish.iyer@icai.in
CaseStudies
CalculateBasicEPSfor2009,2010and2011
2009 2010 2011
Profitattributabletoordinaryequityholders Rs.1100000 Rs.1500000 Rs.1800000
oftheparententity
Sharesoutstandingbeforerightsissue 50000shares
Rightsissue,Lastdatetoexerciserights: Oneforfive,Exerciseprice:Rs.5.00, Dateof
01/03/2010 rightsissue:01/01/2010
Marketpriceofoneordinaryshare Rs.11.00
immediatelybeforeexerciseon01/03/2010
ReportingDate 31/12
96
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CalculationofBasicEPSincaseofRightsIssue:
Comparative Comparativeof
2009 2010 of2009 2011 2010
No.ofSharesoutstandingbeforeRights 50,000.00 50,000.00 50,000.00 50,000.00 50,000.00

RightsIssue 10,000.00 10,000.00 10,000.00
No.ofShareoutstandingafterRights 60,000.00 60,000.00 60,000.00
FairValueperShareimmediatelybeforeexercise 11.00 11.00
ExercisePrice 5.00 5.00
TheoreticalExRightsvalueperShare 10.00 10.00
BonusElementinRightsIssue 1.10 1.10
BonusSharesissued 5,000.00 5,000.00 5,000.00 5,000.00
No.ofSharesafterBonusIssue 55,000.00 55,000.00 55,000.00 55,000.00
Sharesissuedatfairvalue 5,000.00 5,000.00
WeightedAverageNo.ofSharesissuedatFair
Value 4,166.67 4,166.67
ProfitattributabletoEquityHolders 11,00,000.00 15,00,000.00 11,00,000.00 18,00,000.00 15,00,000.00
BasicEPS 22.00 25.35 20.00 30.00 25.35

97
manish.iyer@icai.in
CaseStudies
ALtd.haslossfromcontinuingoperations
attributabletotheparententityofRs.48lacs,
profitfromdiscontinuingoperationsattributable
totheparententityofRs.72lacs and2000
ordinarysharesand400potentialordinaryshares
areoutstanding.Thepotentialordinaryshares
hasnodilutiveeffectsonearnings.Calculate
BasicandDilutedEPS.
98
manish.iyer@icai.in
CaseStudies
CalculateDilutedEPS
ProfitattributabletoordinaryequityholdersoftheparententityforRs.12
theyear2010 lacs
Weightedaveragenumberofordinarysharesoutstandingduring 5lacs
theyear2010
Avg.Mkt.px.ofoneordinaryshareduringtheyear2010 Rs.20
Weightedavg.no.ofsharesunderoptionduringtheyear2010 1lac
Exercisepriceforshareunderoptionduringtheyear2010 Rs.15
99
manish.iyer@icai.in
CalculationofBasicandDilutedEPSincaseofOptions
ProfitattributabletoEquityHolders 12,00,000.00
WeightedNoofEquitySharesOutstanding 5,00,000.00
WeightedNo.ofSharesunderOptions 1,00,000.00
Avg.MarketPriceofequityshares 20.00
ExercisepriceperEquityShareunderOption 15.00
%ofSharesissuedforconsiderationatfairvalue 75.00
%ofsharesissuedfornoconsideration 25.00
No.ofSharesissuedfornoconsideration 25,000.00
WeightedAvg.No.ofSharesAfterDilutiveEffects 5,25,000.00
BasicEPS 2.40
DilutedEPS 2.29
100
manish.iyer@icai.in
CaseStudies
CalculateDilutedEPS
Profitattributabletoordinaryequityholdersoftheparent Rs1000000
entity
Ordinarysharesoutstanding 1000
Convertiblebonds 100000
Eachblockof10bondsisconvertibleintothreeordinaryshares
Interestexpenseforthecurrentyearrelatingtotheliability Rs.100000
componentoftheconvertiblebonds
Taxexpenserelatedtothatinterestexpense Rs.10000
101
manish.iyer@icai.in
CalculationofBasicandDilutedEPSincaseofConvertibleBonds:
ProfitattributabletoEquityHolders 10,00,000.00
WeightedNoofEquitySharesOutstanding 1,000.00
No.ofConvertibleBonds 1,00,000.00
No.ofSharesissuedonconversionofBonds 30,000.00
WeightedAvg.No.ofEquitySharesOutstandingafterConversion 31,000.00
InterestonConvertibleBonds 1,00,000.00
TaxSavingrelatedtoInterestExpense 10,000.00
Additionalprofitonconversion 90,000.00
ProfitattributabletoEquityHolderafterConversion 10,90,000.00
BasicEPS 1,000.00
DilutedEPS 35.16
102
manish.iyer@icai.in
CaseStudies
ABCDLtd.disclosesEBITDApershare.
However,ithasneitherdisclosedEBITDAasa
lineitemintheStatementofProfitandLoss
northeWANOShasbeenusedas
denominator.Comment.
103
manish.iyer@icai.in
Disclosures
Amountusedasnumeratorsincalculating
basicanddilutedEPSandareconciliationwith
netprofitorlossfortheperiod
WANOSusedasdenominatorincalculating
basicanddilutedEPSandreconciliationof
thesedenominatorstoeachother
104
manish.iyer@icai.in
105
manish.iyer@icai.in
ValuationofInventories
106
manish.iyer@icai.in
Objective
107
manish.iyer@icai.in
Scope
Appliestoallinventoriesexcept
WIParisingunderconstructioncontracts,includingdirectly
relatedservicecontracts
Shares,debenturesandotherFinancialInstrumentsheld
asStockinTrade
Producersinventoriesoflivestock,agriculturalandforest
products,andmineraloils,oresandgases
TotheextentthattheyaremeasuredatNRV
108
manish.iyer@icai.in
WhatareInventories
Heldforsaleintheordinarycourseof
business
Intheprocessofproductionforsuchsale
Intheformofmaterialsorsuppliestobe
consumedintheproductionprocess
MeasuredatlowerofCostorNRV
109
manish.iyer@icai.in
ComponentsofCost
CostofPurchase ConversionCosts OtherCosts
InvoicePrice+Directly Production Includedifincurred

relatedunrecoverable Overheads tobringinventories
dutiesandtaxes totheirpresent
Discounts,Rebates& locationand
DutyDrawbacks+Other condition
DirectExpenses
VariableOverheads FixedOverheads
110
manish.iyer@icai.in
Costsexcluded
Abnormalamountsofwastage
Storagecostsunlessincurringsuchcostsare
necessary
Administrativeoverheads
Sellingcosts
Financeelementininventoriespurchasedon
deferredsettlementterms
111
manish.iyer@icai.in
FixedOverheadsAbsorption
UnderAbsorption
ProductionlowerthanNormalProductionCapacity
FixedOverheadsAbsorbed=FixedOverheadsAbsorption
Rate(FOAR)*ActualProduction
OverAbsorption
Productionhigherthannormalcapacity
FixedOverheadsAbsorbed=FixedOverheadsAbsorption
Rate(FOAR)*NormalProductionCapacity
112
manish.iyer@icai.in
CostFormulas
Whethertheitemsofinventoriesarenotordinarily
interchangeable
YES NO
NO FolloweitherFirstin,
WhetherGoodandServices
producedaresegregatedfor FirstOut(FIFO)method
specificprojects orWeightedAverage
CostMethod(WACM)
YES
SpecificIdentificationMethod
113
manish.iyer@icai.in
SpecialCases
JointProducts
Costsallocatedonrelativesalesvalue
Byproducts
DetermineNRVofthebyproduct
Deductthedeterminedvaluefromcostofmainproduct
Scrap,WasteMaterials
AtNRV
DeductfromcostofFG/WIP
114
manish.iyer@icai.in
NetRealisable Value
NRVvisavisFMV
MannerofEstimation
NRVofMaterialheldforproductionprocess
Assessmentattheendofeachreportingperiod
NRVforFirmContracts
ContractedSales=Stock,Contractprice
ContractedSales>Stock,ContractPrice
ContractedSales<Stock
ContractpriceforContractedSales
BalanceatEstimates
115
manish.iyer@icai.in
ExpenseRecognition
Recognised asexpenseintheperiodinwhichrelated
revenueisrecognised
AmountofwritedowntoNRVandalllossestobe
recognised asanexpenseintheperiodofthewrite
downoroccurrenceofloss
Reversalofwritedowntoberecognised asan
expenseintheperiodinwhichthereversaloccurs
116
manish.iyer@icai.in
Disclosures
Accountingpolicyadoptedincludingthecostformulaadopted
Totalcarryingamountofinventories
Classificationofcarryingamountofinventories
AmountofinventoriescarriedatFVlesscoststosell
Amountofinventoriesrecognised asanexpenseintheperiod
Amountofwritedownofinventories
Amountofreversalofanywritedown
Thecircumstancesoreventsthatledtoreversalofwrite
down
Carryingamountofinventoriespledgedassecurities
117
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118
manish.iyer@icai.in
119
manish.iyer@icai.in

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Capsule on Accounting Standards

Young Members Empowerment Committee

No.ofEquitySharesbeforebonus 20,00,000.00 20,00,000.00 20,00,000.00

No.ofSharesoutstandingbeforeRights 50,000.00 50,000.00 50,000.00 50,000.00 50,000.00

ProfitattributabletoEquityHolders 11,00,000.00 15,00,000.00 11,00,000.00 18,00,000.00 15,00,000.00

BasicEPS 22.00 25.35 20.00 30.00 25.35

InvoicePrice+Directly Production Includedifincurred

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