This standard is applicable in accounting for inventories other than WIP arising under construction contracts, WIP of service providers, shares, debentures and securities held as stock in trade, producers’ inventories of livestock, agricultural and forest products and mineral oils, ores and gases to the extent measured at net realisable value in accordance with well established practices in those industries.

Nature of inventories are as they are held for sale in ordinary course of business, in the process of production of such sale, in form of materials to be consumed in production process or rendering of services.

Machinery spares which can be used with an item of fixed asset and whose use is irregular will not form part of inventories.

Stand-by equipment is a separate fixed asset in its own right and shall be depreciated like any other fixed asset.

Net realisable value is the estimated selling price less the estimated costs of completion and estimated costs necessary to make the sale.

Cost of inventories should comprise all cost of purchase and cost of conversion costs incurred for bringing the inventories to their present location and condition.

Inventories to be valued at lower of cost and net realisable value. Normally, weighted average cost or FIFO method is used in cases where goods are ordinarily interchangeable.

In case goods are not ordinarily interchangeable or have been segregated for specific projects Specific Identification Method to be used.

Disclosure of accounting policies followed including the cost formula used, total carrying amount of inventories and its classification.

Classification for cash flow statements should be done into operating, investing and financial activities for cash flows during the period.

All principal revenue producing activities of the enterprise other than investing or financing activities would be classified as operating activities.

Any acquisition and disposal of long-term assets will fall under investing activities.

Any changes in the size and composition of the owner’s capital and borrowings of the enterprise will fall under Financing activities.

Two methods available to prepare a cash flow statement the direct method or the indirect method.

Any transactions of cash flow in a foreign currency should be recorded in enterprise’s reporting currency by applying the exchange rate at the date of the cash flow.

An enterprise should disclose together with a commentary by the management the amount of significant cash and cash equivalent balances held by it that are not available for use.

A contingency is a condition or situation the ultimate outcome of which will be known or determined only on the occurrence or non-occurrence of uncertain future event/s.

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.

Amount of a contingent loss should be charged to P & L A/c if it is probable that future events will result in loss to an enterprise.

Adequate disclosure should be done if loss cannot be quantified.

Contingent gains if any, should not to be recognised in the financial statements.

Any material change in the position due to subsequent events requires an adjustment or disclosure.

In case any material event is occurred after balance sheet date that affect the going concern assumption and financial position adequate disclosure should be done in the accounts.

Disclosure with respect to nature of contingencies and events occurring after the balance sheet date and the impact of the financial effect of the same is required.

All items of income and expense, which are recognised in a period, should be included in determination of net profit or loss for the period, which will include extraordinary item and the effects in change in accounting policies.

Prior period and extraordinary items be disclosed separately, so that impact on current profit or loss can be perceived. Nature and amount of significant items be provided. Extraordinary items should be disclosed as a part of profit or loss for the period.

Effect of a change in the accounting estimate should be included in the determination of profit or loss of the period of change and also future periods if it is expected to affect future periods.

Accounting policy may be changed only if required by the statute or for compliance with an accounting standard or if the change would result in appropriate presentation of the financial statements.

Change in accounting policy (if material), should be disclosed. Also impact of the same on the financial statements and the adjustment done out of change should be disclosed in the period in which change is made. If there is no material impact on financial statements due to change in the current period but is expected to have a material effect in future periods then the fact should be disclosed.

Standard does not apply to depreciation in respect of forests, plantations and similar regenerative natural resources, wasting assets including expenditure on exploration and extraction of minerals, oils, natural gas and similar non-regenerative resources, expenditure on research and development, goodwill and livestock. Special considerations apply to these assets.

Depreciation should be charged on systematic basis to each accounting year over useful life of asset.

Useful life may be reviewed periodically after taking into consideration the expected physical wear and tear, obsolescence and legal or other limits on the use of the asset. Method of charging depreciation must be consistently followed and disclosed. Any change to be quantified and disclosed.

A change in method of depreciation should be made only if required by statute, for compliance with an accounting standard or for appropriate presentation of the financial statements. Revision in method of depreciation should be effected retrospectively.

Change in method of charging depreciation would amount to change in accounting policy hence should be quantified and disclosed appropriately.

In cases of addition or extension which is capital in nature depreciation to be provided on adjusted figure prospectively over the residual useful life of the asset or at the rate applicable to the asset.

If the cost of asset is changed due to fluctuation in exchange rate, price adjustment etc. depreciation on the revised unamortised amount should be provided over the balance useful life of the asset.

In case of revaluation of asset depreciation should be based on revalued amount over balance useful life.

Any excess or shortage in case of disposal, destruction, demolition etc. be disclosed separately, if material and to be charged to profit & loss account.

Historical cost, amount substituted for historical cost, depreciation for the year and accumulated depreciation be disclosed.

Depreciation method used should be disclosed. If rates applied are different from the rates specified in the governing statute then the rates and the useful life be also disclosed.

Basically two types of contracts i.e. Fixed price contract or cost plus contracts.

In case the contract covers number of assets, the construction of assets should be treated as separate contract provided proposals were submitted seperately for each asset and cost and revenues of each assets are identifiable otherwise the contract should be treated as single contact.

When the outcome of a construction contract can be estimated reliably, contract revenue and contract costs associated with the construction contract should be recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date.

An expected loss on the construction contract should be recognised as an expense immediately.

However when the outcome of a construction contract cannot be estimated reliably revenue should be recognised only to the extent of contract costs incurred of which recovery is probable; andcontract costs should be recognised as an expense in the period in which they are incurred.

Methods with respect to determining the contract revenue and stage of completion of contracts in progress should be disclosed.

In case of contracts at WIP stage on reporting amounts of cost and revenue recognised, advances received and retentions should be disclosed.

Gross amount due to and due from customers should be disclosed seperately.

Research and development cost will include salaries, wages, personnel costs, cost of materials and services, depreciation of building, amortisation cost of equipment and facilities which have alternative economic use which have no alternative economic use etc. related to research and development, payment to outside institutions, reasonable allocation of overhead costs and amortisation of patents and licenses.

All the above cost should be charged as an expense in the period in which they are incurred unless the product or process is clearly defined, the costs attributable to the product or process can be separately identified, technical and commercial feasibility is justified, there is intention to produce, market or use the product/service, there is indication that the future revenues will cover the current and future research and development cost and that there are adequate resources to complete the project. In such a case the costs may be deferred for allocation in future years on systematic basis and should be separately disclosed in balance sheet under the head ‘Miscellaneous Expenditure’.

Continuous review is required at end of each accounting period to ensure that criteria for deferment continue to be met.

Costs once written off in earlier period cannot be written back to research & development accounts.

Standard does not deal with revenue recognition aspects of revenue arising from construction contracts, hire-purchase and lease agreements, government grants and other similar subsidies and revenue of insurance companies from insurance contracts. Specific accounting standards are prescribed for such cases.

Revenue from sales and services should be recognised when all risks and rewards of ownership are transferred to the buyer and there is certainty about the collection of the amount.

Turnover should be disclosed gross of excise duty as well as net of excise duty on the face of statement of profit and loss account.

For recognizing of revenue in case of rendering of services it should be rendered either on completed service method or proportionate completion method by relating the revenue with work accomplished and certainty of consideration receivable.

Interest should be recognised on time basis, however for recognition of royalty’s accrual method of accounting to be followed and with respect to dividend it should be recognised when right to receive payment the payment is established.

Method of basis revenue recognition and circumstances in which revenue recognition has been postponed pending significant uncertainties should be disclosed.

Cost of assets will include purchase price and attributable costs of bringing asset to its working condition for the intended use. It includes financing cost for period up to the date of readiness for use.

Self-constructed assets are to be capitalised at actual cost incurred.

Fixed asset acquired in exchange or part exchange should be recorded at fair market value or net book value of asset given up adjusted for balancing payment, cash receipt, etc.

Revaluation, if any, should be of class of assets and not an individual asset and the basis of revaluation should be disclosed.

In case of upward revaluation the amount of revaluation should be credited to Revaluation Reserve while in case of downward revaluation it should be charged to P & L A/c.

Goodwill should be accounted only when paid for.

Assets acquired on hire purchase should be recorded at cash value to be shown with appropriate note about ownership of the same.

Gross and net book values at beginning and end of year showing additions, deletions, transfers, Capital work in progress and revalued amount if any be disclosed.

Assets should be eliminated from books on disposal/when of no utility value.

Any profit & loss on disposal/elimination should be charged to P & L statement.

Standard is applicable for transactions entered in foreign currencies and for translating financial statements of foreign operations and accounting of forward exchange contracts. 

Foreign operation is a subsidiary, associate, joint venture or a branch of the reporting enterprise, in the other country.

Foreign operation may be an integral foreign operation or non-integral foreign operation. 

Non integral foreign operation is such where the activities of the foreign operation are carried out with a significant degree of autonomy, transaction with the reporting currency are not a high proportion of the foreign operations activities and financing of the foreign operations is mainly through its operations and borrowings.

Generally Initial recognition of a foreign currency transaction shall be by applying the foreign currency exchange rate as on the date of transaction. 

All Monetary items denominated in foreign currency should be converted using closing rates unless there are restrictions on remittances or it is not possible to effect an exchange of currency at that rate.

All Non monetary items other than fixed assets which are carried in terms of historical cost in foreign currency should be converted at the exchange rate on the date of the transaction.

Treatment described in Schedule VI in respect of accounting of fixed assets will be in compliance with this standard, instead of stating it at historical cost.

Exchange differences arising on the settlement of monetary items or on restatement of monetary items on each balance sheet date shall be recognised as expense or income in the period in which they arise.

Exchange differences arising on monetary item which in substance, is net investment in a non integral foreign operation (long term loans) shall be credited to foreign currency translation reserve and shall be recognised as income or expense at the time of disposal of net investment.

In case of incorporation of non-integral foreign operation, revenue items should be translated at the exchange rates at the date of transactions. Monetary and Non-monetary assets and liabilities should be translated at the closing rate as on the balance sheet date. Exchange differences arising on such incorporation should be accumulated in the foreign currency translation reserve until the disposal of net investment.

Exchange difference arising on intra group monetary items continues to be recognised as income or expense in case of Consolidated Financial Statements, unless the same is in substance an enterprise’s net investment in non-integral foreign operation.

When the financial statements of non-integral foreign operations of a different date are used for CFS of the reporting enterprise, the assets and liabilities are translated at the exchange rate prevailing on the balance sheet date of the non-integral foreign operations. Further adjustments are to be made for significant movements in exchange rates upto the balance sheet date of the reporting currency.

Financial statements of an integral foreign operation shall be translated as if the transactions of the foreign operation had been those of the reporting enterprise; i.e., it is initially to be accounted at the exchange rate prevailing on the date of transaction.

Contracts not intended for trading or speculation purposes the premium or discount arising at the time of inception of the forward contract should be amortized as expense or income over the life of the contract, which shall be recognised in profit & loss.

Profit or loss arising on the renewal or cancellation of the forward contract and forward exchange contract intended for trading or speculation should be recognised as income or expense for the period.

Disclosure to be made for exchange difference included in Profit and Loss statement, Net exchange difference accumulated in Foreign Currency Translation Reserve.

Grants towards specific assets should be deducted from its gross value. Alternatively, it may be treated as deferred income and recognised in P & L A/c on rational basis over the useful life of the asset when asset is a depreciable asset.

Grants towards non-depreciable asset requiring fulfilment of any obligations should be recognised in P & L A/c during the year in which obligation is fulfilled till that time it should be treated as deferred income should be disclosed appropriately.

Grants in the nature of promoter’s contribution should be credited to Capital Reserve.

Grants in the form of non-monetary assets given at concessional rate should be accounted at net of grant received i.e. at their acquisition cost.

Grants receivable as compensation of losses/expenses incurred should be treated as revenue nature and should be disclosed in P & L A/c in the period in which it is receivable and would be qualified as extraordinary item.

Grants in the nature of revenue on becoming refundable be adjusted first against unamortised deferred income balance of the grant and then be charged to P & L A/c.

Grants against specific asset on becoming refundable be recorded by increasing the value of that asset or by reducing capital reserve or deferred income by the amount refundable.

Grant in the nature of promoters’ contribution when refundable be reduced from the capital reserve.

Accounting Policy adopted for grants including method of presentation, nature and extent of grant recognised in financial statements, accounting of non-monetary assets given at concession/free of cost should be disclosed.

Long term investments and Current investments should be disclosed separately with further sub-classification.

Acquisition charges such as brokerage, fees and duties would form part of Cost of Investments.

If an investment is acquired by the issue of shares or in exchange for another assets, the acquisition cost should be the fair value of the securities issued in case of shares issued and fair value of asset given up or fair value of investment acquired, if it is more clearly evident.

Current investments should be disclosed at lower of cost and fair value.

Long-term investments should be disclosed at cost. However provision for permanent diminution should be made individually for each investment if required which should be charged to P&L A/c.

Any profit or loss derived from disposal should be recognised in profit & loss a/c.

Accounting policy adopted for determining the carrying cost, classification of investments, income from investments, profit/loss on disposal, changes in carrying amount of such investment, aggregate amount of quoted and unquoted investments giving aggregate market value of quoted investments should be disclosed.

Two types of amalgamation pooling of interest method and purchase method.

In case amalgamation is in the nature of merger it should be accounted for under pooling of interest method and in case of nature is purchased it should be accounted for under purchase method.

In case amalgamation is in nature merger all the five conditions specified in the standard should be fulfilled.

All assets, liabilities and reserves of the transferor company should be recorded at existing carrying amount and in the same form as on the date of amalgamation under pooling of interest method.

If there is a difference between accounting policies followed between amalgamating and amalgamanted company a uniform policy be adopted on amalgamation.

Nor goodwill or capital reserve will arise under amalgamation in the nature of merger.

Under purchase method, all assets and liabilities of the transferor company be recorded at the existing carrying amount. The excess or shortfall of consideration above net value of assets acquired should be recognised as goodwill or capital reserve.

Goodwill arised in amalgamation by way of purchase method should be generally amortised in period less than five years.

In case, amalgamation is effected after the balance sheet date but before the issue of financial statements of either party, the event should be disclosed appropriately.

Contribution payable by employer towards retirement benefits of provident fund and other defined contribution schemes should be charged to P & L A/c.

For gratuity and other defined benefit schemes, accounting treatment will depend on the type of arrangements which the employer has made.

If payment for retirement benefits is made out of employer’s funds, appropriate charge to P & L A/c to be made through a provision for accruing liability calculated according to actuarial valuation.

If liability is funded through creation of trust or a scheme administered by an insurer, cost incurred should be determined by actuarially. Any difference between liability provided and as determined by actuarial should be charged to profit & loss a/c.

Any change in method followed by actuarial should be disclosed as required by AS 5.

Financial statements should disclose method by which retirement benefit costs have been determined.

This Statement should not be applied to actual or imputed cost of owner’s equity/preference capital.

Borrowing costs, which are directly attributable to the acquisition, construction or production of any qualifying asset (asset that takes a substantial period of time to get ready for its intended use or sale) should be capitalised.

Where funds are not borrowed for any specific assets and used for construction of a qualifying asset, borrowing cost to be capitalized is determined by applying capitalisation rate, which is weighted average of borrowing costs applicable to borrowings other than specific borrowings of the enterprise.

Any income from temporary investment of the borrowed funds should be reduced from borrowing costs.

If the difference between the interest on local currency and interest on foreign currency borrowings is equal to or more than the exchange difference on the amount of principal of the foreign currency borrowings, the entire amount of exchange difference is included as borrowing cost. 

The interest rate for the local currency borrowings should be considered as that rate at which the enterprise would have raised the borrowings locally had the enterprise not decided to raise the foreign currency borrowings.

Capitalisation of borrowing cost should commence from acquisition, construction or production of qualifying asset is commenced and the borrowing cost is also incurred.

Capitalisation of borrowing costs should be suspended during extended periods in which development is interrupted and capitalization should be ceased once the qualifying asset is substantial complete.

When construction of asset is done in parts, and completed part is capable of being used, capitalisation should cease.

Disclosure of accounting policies for borrowing cost and amount of borrowing cost should be disclosed in the financial statements.

Financial information about different types of products and services provided by an enterprise and different geographical areas in which it operates are to be reported.

An enterprise is required to identify its various business segments and geographical segment that would be distinguishable of an enterprise providing a product or service or group of products or services that is subject to risks and returns that are different from other business segments and geographical segment respectively.

For determination of Primary and secondary segment comparison should be done between business and geographic segment and should be selected on the basis of dominance of source and nature of risk and returns of an enterprise.

In case of an enterprise which has neither more than one business nor more than one geographical segment,such an enterprise need not disclose segment information

A business segment or geographical segment is a reportable segment if

• Revenue from sales to external customers and from transactions with other segments exceeds 10% of total revenues (external and internal) of all segments; or

• Segment result, whether profit or loss, is 10% or more of
  i. combined result of all segments in profit or
  ii. combined result of all segments in loss whichever is greater in absolute amount; or

• Segment assets are 10% or more of all the assets of all the segments.

If total external revenue attributable to reportable segments constitutes less than 75% of total revenues then additional segments should be identified.

Disclosure of external and internal segment revenue, segment result, amount of segment assets and liabilities, cost of fixed assets acquired, depreciation, amortisation of assets and other non cash expenses should be given under primary segment.

Interest expense relating to overdrafts and other operating liabilities should not be included as a part of the segment expense unless the operations of the financial segments are primarily of financial nature or unless the interest is included as a part of the cost of inventories and those inventories are a part of the segment assets of a particular segment.

Reconciliation should be given for between segment reporting and financial statements.

For secondary segment information about revenues, assets and cost of fixed assets acquired should be disclosed.

Disclosures are also required relating to intra-segment transfers and composition of the segment.

Standard deals with following related party relationships:

• Enterprises that directly or indirectly control or are controlled by or are under the common control with the reporting enterprise;

• Associates, joint ventures of the reporting entity; investing party or venturer in respect of which reporting enterprise is an associate or a joint venture;

• Individuals owning voting power giving control or significant influence;

• Key management personnel and their relatives; and

• Enterprises over which any of the persons in (iii) or (iv) are able to exercise significant influence.

Parties are considered related if one party has ability to control or exercise significant influence over the other party in making financial and/or operating decisions.

Following are not considered related parties:

• Two companies merely because of common director,

• Customer, supplier, franchiser, distributor or general agent merely by virtue of economic dependence; and

• Financier, trade unions, public utilities, government departments and bodies merely by virtue of their normal dealings with the enterprise.

• A non-executive director of the company should not be considered as a key management person unless he has the authority and responsibility of planning, directing and controlling the activities of the reporting enterprise.

Disclosure under the standard is not required

• If such disclosure conflicts with duty of confidentially under statute, cast by a regulator or a competent authority;

• In consolidated financial statements in respect of intra-group transactions; and

• In case of state-controlled enterprises regarding related party relationships and transactions with other state-controlled enterprises.

Relative (of an individual) means spouse, son, daughter, brother, sister, father and mother who may be expected to influence, or be influenced by, that individual in dealings with the reporting entity.

Related party transaction means transfer of resources or obligations between related parties regardless of whether or not price is charged.

Remuneration paid to key managerial personnel except in case of remuneration paid to non-executive directors should be considered as a related a party transaction.

Information with respect to: name of the related party, nature of relationship, nature of transaction and its volume (as an amount or proportion), other elements of transaction, if necessary, for understanding, amount or appropriate proportion outstanding pertaining to related parties, provision for doubtful debts from related parties, amounts written off or written back in respect of debts due from or to related parties should be disclosed where there are transactions between the related parties.

Names of the related party and nature of related party relationship to be disclosed where the controls exists immaterial of whether there are any transactions or not.

Items of similar nature may be disclosed in aggregate by type of related party but in doing so it should not obscure the importance of significant transactions say for e.g. purchase and sale of goods are not aggregated with the purchase and sale of fixed assets. Nor a material related party transaction with an individual party is clubbed in an aggregated disclosure.

Applies in accounting for all leases other than leases to explore for or use natural resources, licensing agreements for items such as motion pictures films, video recordings plays etc. and lease for use of lands. Does not apply to agreements that do not transfer the right to use assets.

Two types of leases viz. finance lease and operating lease.

In cases of leases where risks and rewards incident to ownership are transferred substantially it is a finance lease otherwise it is an operating lease.

Treatment in case of finance lease in the books of lessee:

• At inception, lease should be recognised as an asset and liability at lower of fair value of the leased asset and the present value of minimum lease payments.

• Lease payments should be bifurcated towards financial charges and principal amount i.e. lease amount which would reduce the liability towards lease.

• Depreciation should be provided on the basis given under AS6 and should be followed consistently. If there is uncertainty about the ownership at the end of lease term, asset should be fully depreciated over the lease term or its useful life, whichever is shorter.

• Disclosure requirements:
  Assets acquired under finance lease, net carrying amount at the balance sheet date, total minimum lease payments at balance sheet date, reconciliation between total minimum lease payments at balance sheet date and their present value, contingent rent recognised as income, total of future minimum sub lease payments expected to be received, general description of significant leasing arrangements.

Treatment in case of finance lease in the books of lessor

• Asset should be recognise at receivable equal to net investment in lease.

• Manufacturer/dealer lessor should recognise sales as outright sales. If artificially low interest rates quoted, profit should be calculated as if commercial rates of interest were charged. Initial direct costs should be recognised as expenses.

• Disclosure requirements:
  Total gross investment in lease and the present value of minimum lease payments at specified periods, reconciliation between total gross investment in lease and the present value of minimum lease payments, unearned finance income, unguaranteed residual value accruing to the lessor, accumulated provision for uncollectible minimum lease payments receivable, contingent rent recognised, accounting policy adopted in respect of initial direct costs, general description of significant leasing arrangements.

Treatment in case of operating lease in the books of the lessee:

• Lease payments should be charged to profit & loss account as an expense on straight line basis.

• Disclosure should be made of total future minimum lease payments for specified periods, total future minimum sub lease payments expected to be received at the balance sheet date, lease payments recognised in P & L A/c with separate amount of minimum lease payments and contingent rents, sub lease payments recognised in P & L A/c, general description of significant leasing arrangements.

Treatment in case of operating lease in the books of the lessor:

• Lessors should present an asset given on lease under fixed assets as if he is the owner of asset.

• Lease income should be considered as income in the period of receipt on a straight line basis.

• Costs including depreciation should be recognised as an expense.

• Initial direct costs are either deferred over lease term or recognised as expenses.

• Depreciation should be on same basis as required by AS6.

• Disclosure should be made of carrying amount of the leased assets, accumulated depreciation and impairment loss recognised or reversed for the period, future minimum lease payments in aggregate and for the specified periods, general description of the leasing arrangement and policy for initial costs.

Sale and leaseback transactions:

• Any excess or deficiency of sale proceeds over the carrying amount should be deferred or amortised over lease term in proportion to depreciation of the leased assets in case transactions results in to financial lease.

• Profit & loss should be recognised immediately if transaction of lease results in to operating lease.

• If sale price is below the fair value any profit or loss should be recognised immediately. However, the loss which is compensated by future lease payments should be deferred and amortised in proportion to the lease payments over the period for which asset is expected to be used. If the sales price is above the fair value the excess over the fair value should be so amortised.

• In a transaction resulting in an operating lease, if the fair value is less than the carrying amount of asset, the difference (loss) should be recognised immediately.

Basic E.P.S and Diluted E.P.S to be calculated for individual statements as well as for consolidated statements in case of enterprises presenting consolidated financial statements and to be disclosed on the face of Profit & Loss A/C.

Even negative E.P.S. is to be disclosed.

Every Company which is required to give information under Part IV of Schedule VI to the Companies Act 1956, should calculate and disclose earnings per share in accordance with AS 20,

Basic E.P.S. is calculated by dividing net profit or loss for the period attributable to equity shareholders by weighted average of equity shares outstanding during the period.

Profit or loss attributable to equity shareholders is derived after deducting the preference dividend for the period and the dividend tax thereon.

Weighted average number of shares is calculated after adjusting bonus issue, share split and consolidation of shares.

For calculating diluted E.P.S. net profit or loss attributable to equity shareholders and the weighted average number of shares are calculated after considering for dilutive potential equity shares (i.e. Potential equity shares are treated as dilutive when their conversion into equity).

Effect of anti-dilutive potential equity share is ignored in calculating diluted E.P.S.

While calculating diluted E.P.S. each issue of potential equity share is considered separately and in preference from the most dilutive to the least dilutive.

If the number of equity shares or potential equity shares outstanding increases or decreases on account of bonus, splitting or consolidation during the year or after the balance sheet date but before the approval of the financial statement, basic and diluted E.P.S. are recalculated for all periods presented. The fact is also disclosed.

Reconciliation between amount of profit considered for calculation of E.P.S and profit as considered in profit & loss account should be disclosed. Also, the reconciliation between weighted average number of equity shares used in calculating the basic E.P.S. and diluted E.P.S. is to be disclosed.

Nominal value of shares is disclosed along with E.P.S.

This standard requires preparation and presentation of consolidated financial statements for a group of parent and its subsidiaries that are controlled by the parent.

Control means the ownership of more than one-half of the voting power of an enterprise or control of the composition of the board of directors i.e. power to appoint or remove all or a majority of directors or such other governing body.

Consolidated financial statements to be presented in addition to separate financial statements.

Where an enterprise is controlled by two enterprises as per the definition of ‘control’ the first mentioned enterprise will be considered as a subsidiary of both the controlling enterprises, and therefore both the enterprises should consolidate the financial statements of that enterprise.

In case control is intended to be temporary or the subsidiary is operating under restrictions of non transfer of funds to its parent, in such case consolidation need not be done otherwise all subsidiaries, domestic and foreign to be consolidated.

Control shall be considered temporary in case majority of voting power is acquired by virtue of ownership and the shares are acquired either as stock-in-trade or for disposal in the near future. 

Consolidation to be done on a line by line basis by adding like items of assets, liabilities, income and expenses which involves:

• Cost of investment of the parent in the subsidiary and the parent’s portion of equity at the date of investment should be eliminated.

• Excess of cost over parent’s portion of equity to be shown as goodwill.

• Where cost to the parent is less than its portion of equity, difference to be shown as capital reserve.

• Minority interest in the net income to be adjusted against income of the group.

• Minority interest in net assets to be shown separately as a liability.

• Intra-group balances and intra-group transactions and resulting unrealised profits should be eliminated in full. Unrealised losses should also be eliminated unless cost cannot be recovered.

Tax expense to be shown in the consolidated financial statements should be the aggregate of the amounts of tax expense appearing in the financial statements of the parent and its subsidiaries.

Statement for immediately preceding period to be used if the financial statements of a subsidiary as on the date of investment are not available.

Where investments are made in a subsidiary for more then once, equity of the subsidiary to be generally determined on a step by step basis.

If case, reporting dates are different, adjustments for the effects of significant transactions / events between the two dates to be made however between reporting dates not to exceed six months.

While Consolidation same accounting policies should be used. If accounting policies followed are different, the fact should be disclosed together with proportion of such items.

Notes effecting true and fair view and that are material in relation to the information contained shall be included in consolidated financial statements.  Other notes not effecting true and fair view need not be disclosed.

Consolidation to be made upto date of cessation in the year in which parent subsidiary relationship ceases to exist.

Disclosure is to be made of all subsidiaries giving name, country of incorporation, residence, proportion of ownership and voting power if different, nature of relationship between parent and subsidiary, effect of the acquisition and disposal of subsidiaries on the financial position, names of the subsidiaries whose reporting dates are different than that of the parent.

This standards requires provision of deferred tax on income applying the matching concept.

Tax expense (tax saving) is aggregate of current tax and deferred tax.

Current tax is tax on taxable income where as Deferred tax is tax effect of timing difference.

Differences between taxable income and accounting income, which subsequently gets reversed future period is considered as timing differences.

In case, the enterprise is availing deduction under Sections 80-IA and 80-IB of the Income-tax Act, 1961 (or exemption under section 10A and 10B),Deferred tax in respect of timing differences which originate during the tax holiday period but reverse after the tax holiday period should be recognised in the year in which the timing differences originate.

Differences between taxable income and accounting income, which subsequently doesn’t gets reversed future period is considered as permanent differences.

Only timing difference are considered for the calculation of deferred tax and they are charged to profit & loss a/c and they should be provided at applicable tax rates and tax laws or tax rates and tax laws that have been enacted or substantively enacted by the balance sheet date.

Deferred tax asset is to be recognised only in case of reasonable certainty of future taxable income.

In case, when there is carried forward capital loss,  it should be recognised and carried forward only to the extent that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available under the head ‘Capital gains’ against which such loss can be set-off. In cases where there is a difference between the amounts of ‘loss’ recognised for accounting purposes and tax purposes because of cost indexation under in respect of long-term capital assets, the deferred tax asset should be recognised and carried forward on the amount which can be carried forward and set-off in future years.

At each balance sheet date, an enterprise should re-assess the unrecognised deferred tax assets and carrying amount of deferred tax assets.

Deferred tax assets and liabilities to be disclosed separately in balance sheet with disclosure of their major components in the notes.

On the applicability of the standard for the first time, accumulated deferred tax balance (asset or liability) prior to adoption of the standard is to be recognised with a corresponding credit/charge to the revenue reserves and computed as if the standard has been applied from the beginning.

An associate is an enterprise in which the investor has significant influence and which is neither a subsidiary nor a joint 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.

Control means the ownership, directly or indirectly through subsidiary(ies) of more than one-half of the voting power of an enterprise or control of the composition of the board of directors i.e. power to appoint or remove all or a majority of directors or such other governing body.

The potential equity shares of the investee held by the investor should not be taken into account for determining the voting power of the investor.

In case of Equity method of accounting investment is initially recorded at cost and any goodwill/capital reserve arising at the time of acquisition is identified and disclosed separately.

The carrying amount of the investment is adjusted for any post-acquisition change in the investor's share of net assets of the investee.

Investors share of the result of operations of the associate should be computed without taking into consideration the proposed dividend, as the same pending the approval of the shareholders in the General Meeting is not the present obligation of the company as at the balance sheet date.

In case control is intended to be temporary or the subsidiary is operating under restrictions of non transfer of funds to its investor As 13 should be followed otherwise Equity method to be followed for consolidating financial statements.

Moment investor ceases to have significant influence in an associate use of equity method should be discontinued and AS 13 to be followed.

While using equity method unrealised profits and losses arising from intra group transactions to be eliminated to the extent of investor's interest in the associate. Unrealised losses not to be eliminated if and to the extent the cost of the transferred asset cannot be recovered.

There has to be use of uniform accounting policies, for preparing Consolidating financial statements.

If different dates and different accounting policies of associates adjustments should be made and proper disclosures to be made where adjustments not possible.

In case of permanent diminution the carrying amount of each investment in an associate to be reduced to that extent.

Disclosure of share of contingencies, capital commitments, description of associate including proportion of ownership interest and voting power.

An enterprise is said to be discontinuing operations when it is substantially disposing off or disposing of the assets on piecemeal basis and settling the liabilities individually or terminating through abandonment a major line of business or geographical area of operations which was distinguished operationally and for financial reporting purposes.

Responsibility of disclosing of discontinuing operations initiates whenever a binding sale agreement alongwith the net selling price, the expected timing of receipt of cash flows and carrying amounts on balance sheet date is made or the board of directors has approved a plan for discontinuance and announced the same.

Description of the discontinuing operation, date and nature of the initial disclosure event, segment — business or geographical — which is being discontinued, the expected date of completion, the carrying amounts of assets and liabilities to be disposed, and the revenue, expenses, pre-tax profit, income tax and net cash flows of the discontinuing operation during the current financial period should be disclosed in initial disclosure.

Pre-tax gain or loss and tax expense to be disclosed for all assets and liabilities sold or settled.

Where the plan of discontinuing is abandoned or withdrawn, the fact, reasons and its effects are to be disclosed.

Pre-tax gain or loss arising from ordinary activities attributable to the discontinuing operation and pre tax gain or loss on disposal of assets or settlement of liabilities is to be disclosed on the face of profit and loss statement.

Prior period information to be segregated into continuing and discontinuing operations for comparison.

Interim financial reports to contain adequate disclosures about discontinuing operations.

Financial statements (complete or condensed) for on interim period that is shorter than a full financial year are Interim financial reports and they should be prepared using same accounting policies as used in preparing annual reports.

Minimum content of Interim financial report should be condensed balance sheet, condensed profit and loss statement, cash flow and selected explanatory notes and should at least each of the heading and sub headings that were included in the most recent annual financial statements along with EPS.

Notes to include a statement on uniform accounting policies or any change therein, any unusual items, and changes in estimates of amounts reported in prior interim periods/year, if material.\

Notes should also include issuances, buy-backs repayments and restructuring of debt, equity and potential equity shares, dividends, segment reporting (if any) any changes in composition of the enterprise, material changes in contingent liabilities.

Interim reports should include Balance sheet and statement of Profit & Loss along with cash flow statement as of the end of current interim period and a comparative and cumulative balance sheet and profit & loss as of the end of the preceding financial year.

No separate report for final interim period should be prepared as annual statements are presented.

Interim financial reporting should be based on the estimates and estimates to be measured in such a way that resulting information is reliable and all material information disclosed.

An 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 and this standard will not applicable to standards to whom other AS applies.

Impairment loss is the difference between recoverable amount and amount standing in balance sheet, any impairment losses to be recognised.

An intangible asset to be recognized only if future economic benefits will flow and the cost of the asset can be measured reliably and it should be measured at cost however intangible asset arising form research should not be recognised.

Internally generated goodwill, brands, mastheads, publishing titles etc. should not be recognised as an asset.

An intangible asset arising from development to be recognised if an enterprise can demonstrate its feasibility, ability to sell, generation of future economic benefits, intention and availability of resource for completion and ability to measure the expenditure.

Expenditure, on an intangible asset that cannot be treated as cost to be written of as expense and expenditure written off earlier as expense cannot be considered as part of cost of an intangible asset at a later date.

Subsequent expenditure to be added to cost only if is probable that the expenditure will generate future benefits in excess of the original estimates.

An intangible asset should be amortised over its useful life in suitable manner or straight line method and period for amortisation and recoverable amount should be reviewed at each financial year.

An intangible asset should be written off on disposal or when no future economic benefits are expected from its use and gain or loss recognised.

Disclosure for each class of intangibles, their useful lives, amortisation rate, amount and method, carrying amount (gross and net), any additions, retirements, impairment losses recognised or reversed and any other change and in case useful life of intangible exceeds ten reasons for the same to be disclosed.

A joint venture is a contract whereby two or more parties undertake an activity, which is subject to joint control and sharing of control is agreed between parties.

Power to govern the financial and operating policies is treated as control.

An investor in a joint venture is a party to a joint venture and does not have joint control over that joint venture.

Venturer’s share of each of the assets, liabilities, income and expenses of a jointly controlled entity is reported as separate line items in the venturer’s financial statements.

Venturer should also consider in individual and consolidated financial statements its share of assets, liabilities, incomes and expenses in the jointly controlled operations and also in jointly controlled assets.

An interest in a jointly controlled entity to be accounted as an investment in venturer’s separate financial statements.

In case interest is intended to be temporary or the jointly controlled entity is operating under restrictions of non transfer of funds to its parent, in such case consolidation need not be done otherwise all subsidiaries, domestic and foreign to be consolidated.

Moment the venturer ceases to have control in an jointly controlled entity proportionate consolidation should be discontinued and AS 13 to be followed.

In case of sale of assets by a venturer to the joint venture the effect to the extent of gain or loss as attributable to the interests of the other venturers should be considered by venturer. However if there are evidence of reduction in the net realisable value of current assets or on impairment loss full loss should be written off.

Separate disclosure with respect to contingent liabilities and capital commitments should be given by venturer, with respect to joint venture and should disclose list of all joint venture and interests in significant joint ventures.

Aggregate amounts of each of the assets, liabilities, income and expenses related to its interests in the jointly controlled entities should be disclosed.

Standard is not applicable to inventories, assets arising of construction contracts, deferred tax asset or investments because above items are covered under specific standards.

Standard applies to assets which are either carried at cost or revalued amount in accordance with other accounting standards applicable.

At each balance sheet date an assessment should be carried out for recoverable amount (i.e. higher of assets net selling price and value in use) if there is indication that assets needs to be impaired.

While assessing items to be considered are market value of assets, technology changes, economic & legal changes, interest rates and assets life.

Net selling price should be estimated on the assumption of arms length transactions.

Value in use should be calculated by estimating future inflow and outflow form using that asset other then future inflow and outflow of financing activities and assets disposal value applying appropriate pretax discount rate.

Any excess of recoverable amount over carrying amount of assets is an impairment loss.

Depreciation should be charged on the revised amount after making the provision of impairment loss.

If the recoverable amount of asset cannot be determined then the enterprise should determine recoverable amount of cash generating unit to which that asset belong.

In the process of testing cash generating unit for impairment an enterprise should identify that what any goodwill relating to that cash-generating unit is recognised in financial statements. If yes identify that goodwill can be allocated to that cash generating unit and then compare the recoverable amount of that unit which should include the value of goodwill allocated.

In testing a cash-generating unit for impairment, an enterprise should identify aii the corporate assets that relate to the cash-generating unit under review.

Impairment loss for cash generating unit should be calculated as calculated for individual assets i.e. excess of recoverable amount of cash generating unit above carrying amount of unit.

An enterprise should assess that at each balance sheet date whether there is any indication that an impairment loss recognised earlier no longer exist or has decreased. In such case the enterprise should estimate the recoverable amount again keeping in mind value of asset, technological changes, political changes etc.

The increased carrying amount after reversal of impairment loss should not exceed the carrying amount that would have been determined (net after amortisation or depreciation) had no impairment loss been recognised for the asset in prior accounting period.

Reversal of impairment in case of cash generating unit should be first allocated to assets other then goodwill and then to goodwill.

For each class of assets amount of provision of impairment and reversal of impairment under profit & loss and revaluation reserve should be disclosed.

Standard is applicable while accounting for provisions and contingent liabilities and deals with contingent assets, other than those resulting from financial instruments that are carried at fair value, those resulting from executory contracts, those arising in insurance enterprises from contracts with policy – holders and those covered by another Accounting Standard.

Provision is a liability, which can be measured only by using a substantial degree of estimation.

Liability is a present obligation arising from past events, the settlement of which is expected to result in an outflow of resources embodying economic benefits.

Contingent Liability is –

• a possible obligation that arises from past events and the existence 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

• a present obligation, but is not recognised because it is not probable that outflow of resources embodying economic benefits will be required (or is remote) for its settlement or a reliable estimate of the amount of the obligation cannot be made.

Contingent asset is a possible asset that arises from past events, the existence of which will be confirmed only by the occurrences or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise.

A provision should be recognised when –
an enterprises has a present obligation as a result of a past event; it is probable (more likely than not) that an outflow of resources will be required to settle the obligation; and a reliable estimate can be made of the amount of the obligation.

A contingent liability and contingent assets is not recognised in financial statements, however contingent liability is disclosed.

The amount recognised as a provision should be best estimate of the expenditure required to settle the present obligation at the balance sheet and should not be discounted to its present value.

While arriving at the best estimate of provision to avoid its under or over statement risks and uncertainties surrounding events and circumstances should be taken into account.

In measuring provisions, expected future events, which are likely to affect the amount required to settle an obligation shall be considered.

Gains on the expected disposal of assets should not be taken into account in measuring a provision, even if the expected disposal is closely linked with the item requiring provision.

Reimbursement of the expenditure relevant to a provision shall be recognised only on virtual certainty of its receipt. The reimbursement should should not exceed the amount of the provision. In the profitability statement, the expense relating to a provision may be presented net of the amount recognised for a reimbursement.

 Provisions should be reviewed at each balance sheet date and adjusted to reflect the current best estimate. The provision should be reversed, if it is no longer probable to result in a liability.

 A provision should be used only for expenditures for which the provision was originally recognised and not against a provision recognised for another purpose, so as not to conceal the impact of two different events.

Provision should not be recognised for future operating losses, since it is not a liability nor meet the crieteria for provisions.

Provision for restructuring costs should include only the direct expenditures, necessarily entailed by the restructuring and not associated with the ongoing activities of the enterprise.

Disclosure

• For each class of provision - the carrying amount at the beginning and end of the period; additional provisions made, amounts used and unused amounts reversed during the period.

• Also for each class of provision – description of the nature of the obligation, the expected timing of any resulting outflows of economic benefits, the uncertainties about those outflows and the amount of any expected reimbursement (also stating the amount of any asset recognised therefor)

• For each class of contingent liability – a brief description of its nature and where practicable, an estimate of its financial effect, the uncertainties relating to any outflow and the possibility of any reimbursement. If the information is not disclosed, being not practicable, the fact thereof is to be disclosed.

• Disclosure of any information can be expected to prejudice seriously the position of the enterprise in a dispute with other parties; in such cases the information need not be disclosed but, the fact and reason for such non–disclosure alongwith the general nature of dispute should be disclosed.