Deloitte. Deloitte Haskins & Sells ACCOUNTING STANDARDS November 30, 2008

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DeloitteDeloitteHaskins & SellsHaskins & Sells

ACCOUNTING STANDARDSACCOUNTING STANDARDS

November 30, 2008November 30, 2008

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Introduction to Accounting StandardsIntroduction to Accounting Standards

Applicable to commercial, industrial or Applicable to commercial, industrial or business enterprises.business enterprises.

Also applicable to sole proprietary concerns/ Also applicable to sole proprietary concerns/ individuals, partnership firms, societies, trusts, individuals, partnership firms, societies, trusts, HUF and association of persons carrying on HUF and association of persons carrying on commercial, industrial or business activities commercial, industrial or business activities and are subject to attest function of the and are subject to attest function of the members of ICAI.members of ICAI.

Enterprises are classified into three Enterprises are classified into three categories, viz., Level I, Level II and Level IIIcategories, viz., Level I, Level II and Level III

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Introduction to Accounting StandardsIntroduction to Accounting Standards

Section 211 (3A): every profit & loss account and Section 211 (3A): every profit & loss account and balance sheet of the company shall comply with the balance sheet of the company shall comply with the accounting standards.accounting standards.

Section 211 (3C): accounting standards means the Section 211 (3C): accounting standards means the standards of accounting recommended by ICAI.standards of accounting recommended by ICAI.

Section 227 (3)(d): auditors’ to report on compliance Section 227 (3)(d): auditors’ to report on compliance with accounting standards.with accounting standards.

Companies (Accounting Standard) Rules, 2006 Companies (Accounting Standard) Rules, 2006 issued by Government of India on 7.12.2006issued by Government of India on 7.12.2006

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SMALL AND MEDIUM COMPANIES (SMCs)SMALL AND MEDIUM COMPANIES (SMCs)

According to rule 2(f), a SMC is a company which satisfies all five conditions:According to rule 2(f), a SMC is a company which satisfies all five conditions:

Equity or debt securities not listed or in the process of listing on stock Equity or debt securities not listed or in the process of listing on stock exchange.exchange.

Not a bank or financial institution or insurance company;Not a bank or financial institution or insurance company;

Turnover (excluding other income) does not exceed rupees fifty crore. Turnover (excluding other income) does not exceed rupees fifty crore.

Does not have borrowings exceeding Rs. 10 crore. Does not have borrowings exceeding Rs. 10 crore.

Not a holding company or subsidiary of a non-SMC company.Not a holding company or subsidiary of a non-SMC company.

According to Rule 5, an existing non-SMC company which subsequently According to Rule 5, an existing non-SMC company which subsequently becomes an SMC shall not qualify for exemptions/relaxations in applicability becomes an SMC shall not qualify for exemptions/relaxations in applicability of Notified AS’s until the company remains an SMC for 2 consecutive of Notified AS’s until the company remains an SMC for 2 consecutive accounting periods.accounting periods.

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Relaxations:Relaxations:(AS) 3 “Cash Flow Statements” and (AS) 17 “Segment Reporting” are not mandatory for SMCs.

An SMC need not comply with paras 11 to 16 of AS-15 to the extent they deal with recognition and measurement of short-term accumulated compensating absences. [Proviso below Para 16 of AS-15]

An SMC need not discount amounts of contributions payable to a defined contribution plan that fall due after 12 months. [Proviso below Para 46 of AS-15]

An SMC need not discount amounts of termination benefits that fall due after 12 months. [Proviso below Para 139 of AS-15]

An SMC need not comply with disclosure requirements of paras 119 to 123 of AS-15 in respect of accounting for defined benefit plans.

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An SMC need not apply the measurement and recognition principles of Para 129 to 131 regarding accounting for other long-term employee benefits. [Proviso below Para 131 of AS-15]

An SMC is not required to disclose diluted EPS (both including and excluding extraordinary items).

An SMC need not comply with disclosure requirements of sub-paras (b) and (d) of Para 46 of AS-19 “Leases”.

An SMC can opt to measure ‘value in use’ for AS-28 purposes based on reasonable estimates instead of determining value in use by present value technique.

An SMC is exempt from the disclosure requirements of paragraphs 66 and 69 of AS-29

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Accounting Standard 1 – Disclosure Accounting Standard 1 – Disclosure of Accounting Policiesof Accounting Policies

Standard refers to disclosure of significant Standard refers to disclosure of significant accounting policies followed in preparing and accounting policies followed in preparing and presenting financial statements.presenting financial statements.

Fundamental accounting assumptions – going Fundamental accounting assumptions – going concern, consistency and accrual. If these are concern, consistency and accrual. If these are not followed, fact to be disclosed. not followed, fact to be disclosed.

Major considerations governing selection and Major considerations governing selection and application of accounting policies: prudence, application of accounting policies: prudence, substance over form and materiality.substance over form and materiality.

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Accounting Standard 1 – Disclosure Accounting Standard 1 – Disclosure of Accounting Policiesof Accounting Policies

Disclosures:Disclosures:

All significant policies.All significant policies.

Any change in accounting policies having a Any change in accounting policies having a material effect in the current period or future material effect in the current period or future periods to be disclosed. Amount to be periods to be disclosed. Amount to be disclosed. Where such amount is not disclosed. Where such amount is not ascertainable, the fact should be indicated.ascertainable, the fact should be indicated.

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Accounting Standard 2 – Valuation of Accounting Standard 2 – Valuation of InventoriesInventories

Not applicable to WIP under construction Not applicable to WIP under construction contracts, WIP of service providers, shares, contracts, WIP of service providers, shares, debentures and financial instruments held as debentures and financial instruments held as stock in trade, producers’ inventories of stock in trade, producers’ inventories of livestock, agricultural and forest products and livestock, agricultural and forest products and mineral oils, ores and gases.mineral oils, ores and gases.

Inventories are assets held for sale in Inventories are assets held for sale in ordinary course of business, in the process of ordinary course of business, in the process of production of such sale, or in the form of production of such sale, or in the form of materials to be consumed in production materials to be consumed in production process or rendering of services.process or rendering of services.

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Inventories do not include machinery spares Inventories do not include machinery spares which can be used with an item of fixed asset which can be used with an item of fixed asset and whose use is irregular. Such spares are to and whose use is irregular. Such spares are to be capitalised in accordance with AS10.be capitalised in accordance with AS10.

Cost of inventories should comprise of all Cost of inventories should comprise of all costs of purchase, costs of conversion and costs of purchase, costs of conversion and other costs incurred in bringing the inventories other costs incurred in bringing the inventories to their present location and condition.to their present location and condition.

Exclusions from cost of inventories: abnormal Exclusions from cost of inventories: abnormal wastage, storage costs, administrative wastage, storage costs, administrative overheads and selling & distribution costs.overheads and selling & distribution costs.

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Inventories should be valued at lower of cost Inventories should be valued at lower of cost and net realisable value. Cost is determined and net realisable value. Cost is determined on FIFO basis or weighted average basis. on FIFO basis or weighted average basis. Finished goods and WIP includes an Finished goods and WIP includes an allocation of fixed and variable production allocation of fixed and variable production overheads.overheads.

Net realisable value is the estimated selling Net realisable value is the estimated selling price less the estimated costs of completion price less the estimated costs of completion and estimated costs necessary to make the and estimated costs necessary to make the sale. An assessment is made of net realisable sale. An assessment is made of net realisable value at each balance sheet date.value at each balance sheet date.

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Accounting policies adopted in measuring Accounting policies adopted in measuring inventories including the cost formula used.inventories including the cost formula used.

The total carrying amount of inventories and The total carrying amount of inventories and its classification into raw materials and its classification into raw materials and components, work in progress, finished components, work in progress, finished goods, stores and spares and loose tools.goods, stores and spares and loose tools.

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Accounting Standard 4 – Contingencies Accounting Standard 4 – Contingencies and events occurring after the balance and events occurring after the balance sheet datesheet date

Contingency is a condition or situation the Contingency is a condition or situation the ultimate outcome of which will be known or ultimate outcome of which will be known or determined only on the occurrence or non-determined only on the occurrence or non-occurrence of uncertain future events.occurrence of uncertain future events.

Events occurring after the balance sheet date Events occurring after the balance sheet date are those significant events both favourable are those significant events both favourable and unfavourable that occur between the and unfavourable that occur between the balance sheet date and the date on which the balance sheet date and the date on which the financial statements are approved.financial statements are approved.

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Accounting Standard 4 – Contingencies Accounting Standard 4 – Contingencies and events occurring after the balance and events occurring after the balance sheet datesheet date Contingent loss should be provided for by a Contingent loss should be provided for by a

charge to P & L A/c if it is probable that future charge to P & L A/c if it is probable that future events will confirm that an asset has been events will confirm that an asset has been impaired or a liability has been incurred as at impaired or a liability has been incurred as at the balance sheet date the balance sheet date and a reasonable and a reasonable estimate of the amount of loss can be madeestimate of the amount of loss can be made..

Existence of a contingent loss should be Existence of a contingent loss should be disclosed in the financial statements if above disclosed in the financial statements if above conditions are not met, unless the possibility conditions are not met, unless the possibility of a loss is remote.of a loss is remote.

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Accounting Standard 4 – Contingencies Accounting Standard 4 – Contingencies and events occurring after the balance and events occurring after the balance sheet datesheet date Contingent gains if any, should not be recognised in Contingent gains if any, should not be recognised in

the financial statements.the financial statements.

Material changes in assets and liabilities due to Material changes in assets and liabilities due to events occurring after the balance sheet date that events occurring after the balance sheet date that relate to conditions existing as at the balance sheet relate to conditions existing as at the balance sheet date should be accounted or disclosed.date should be accounted or disclosed.

Dividends for the period which are proposed or Dividends for the period which are proposed or declared after the balance sheet date should be declared after the balance sheet date should be adjusted.adjusted.

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Accounting Standard 4 – Contingencies Accounting Standard 4 – Contingencies and events occurring after the balance and events occurring after the balance sheet datesheet date Material events occurring after the balance Material events occurring after the balance

sheet date affecting the going concern sheet date affecting the going concern assumption and financial position be assumption and financial position be appropriately dealt with in the accounts. appropriately dealt with in the accounts.


Events occurring after the balance sheet date Events occurring after the balance sheet date and an estimate of the financial effect or a and an estimate of the financial effect or a statement that such estimate cannot be statement that such estimate cannot be made.made.

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Accounting Standard 5 – Net Profit/ Accounting Standard 5 – Net Profit/ Loss for the period, Prior period items Loss for the period, Prior period items and changes in accounting policiesand changes in accounting policies All items of income and expenses, which are All items of income and expenses, which are

recognised in a period, should be included in recognised in a period, should be included in determination of net profit or loss for the period determination of net profit or loss for the period unless an accounting standard required or unless an accounting standard required or permits otherwise.permits otherwise.

The nature and amount of each prior period The nature and amount of each prior period and extraordinary items should be separately and extraordinary items should be separately disclosed in a manner that their impact on disclosed in a manner that their impact on current profit or loss can be perceived. current profit or loss can be perceived. Extraordinary items should be disclosed in the Extraordinary items should be disclosed in the profit and loss account as a part of net profit and loss account as a part of net profit/loss for the period.profit/loss for the period.

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Accounting Standard 5 – Net Profit/ Accounting Standard 5 – Net Profit/ Loss for the period, Prior period items Loss for the period, Prior period items and changes in accounting policiesand changes in accounting policies Accounting policy may be changed only if required by Accounting policy may be changed only if required by

statute or for compliance with an accounting standard statute or for compliance with an accounting standard or if the change would result in appropriate or if the change would result in appropriate presentation in the financial statements. presentation in the financial statements.

Any change in an accounting policy, which has a Any change in an accounting policy, which has a material effect, should be disclosed. The impact and material effect, should be disclosed. The impact and adjustment arising out of material change should be adjustment arising out of material change should be disclosed in the period in which such change is made. disclosed in the period in which such change is made. If it is impracticable to quantify the amount, this fact If it is impracticable to quantify the amount, this fact should be disclosed.should be disclosed.

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Accounting Standard 6 – Accounting Standard 6 – Depreciation AccountingDepreciation Accounting

Not applicable to depreciation in respect of forests, Not applicable to depreciation in respect of forests, plantations and similar regenerative natural plantations and similar regenerative natural resources, wasting assets including expenditure on resources, wasting assets including expenditure on exploration and extraction of minerals, oils, natural exploration and extraction of minerals, oils, natural gas and similar non-regenerative resources, gas and similar non-regenerative resources, expenditure on research and development, goodwill expenditure on research and development, goodwill and livestock.and livestock.

Depreciation is allocated so as to charge a fair Depreciation is allocated so as to charge a fair proportion of the depreciable amount in each proportion of the depreciable amount in each accounting period over the expected useful life of accounting period over the expected useful life of asset.asset.

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Useful life may be reviewed periodically after Useful life may be reviewed periodically after taking into consideration the expected taking into consideration the expected physical wear and tear, obsolescence and physical wear and tear, obsolescence and legal or other limits on the use of the asset.legal or other limits on the use of the asset.

Basis for providing depreciation must be Basis for providing depreciation must be consistently followed and disclosed. Any consistently followed and disclosed. Any change to be quantified and disclosed.change to be quantified and disclosed.

In case of addition or extension to an existing In case of addition or extension to an existing asset, depreciation is to be provided on the asset, depreciation is to be provided on the adjusted figure prospectively over the residual adjusted figure prospectively over the residual life of the asset.life of the asset.

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Revision in the method of depreciation should Revision in the method of depreciation should be made from the date of use. Change in the be made from the date of use. Change in the method of charging depreciation is a change method of charging depreciation is a change in accounting policy and its effect should be in accounting policy and its effect should be quantified and disclosed.quantified and disclosed.

Where historical cost undergoes a change Where historical cost undergoes a change due to price adjustments etc, the depreciation due to price adjustments etc, the depreciation on the revised unamortised amount should be on the revised unamortised amount should be provided over the balance useful life of the provided over the balance useful life of the asset.asset.

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On revaluation of assets, depreciation should On revaluation of assets, depreciation should be based on the revalued amount over the be based on the revalued amount over the balance useful life. In case the revaluation balance useful life. In case the revaluation has a material effect on the amount of has a material effect on the amount of depreciation, the same should be disclosed in depreciation, the same should be disclosed in the year in which revaluation is carried out.the year in which revaluation is carried out.

Deficiency or surplus in case of disposal, Deficiency or surplus in case of disposal, destruction, demolition etc should be destruction, demolition etc should be disclosed separately, if material.disclosed separately, if material.

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

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

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Accounting Standard 7 – Accounting Accounting Standard 7 – Accounting for Construction Contractsfor Construction Contracts

Applicable for construction contracts which may be Applicable for construction contracts which may be for construction of single/combination of interrelated for construction of single/combination of interrelated or interdependent assets.or interdependent assets.

In a contract covering a number of assets, each In a contract covering a number of assets, each asset is treated as a separate construction contract asset is treated as a separate construction contract when there are: when there are:

a)a) separate proposal; separate proposal;

b)b) each asset is subject to separate negotiations and each asset is subject to separate negotiations and the contractor and customer is able to accept/reject the contractor and customer is able to accept/reject that part of the contract; that part of the contract;

c)c) costs and revenues of each asset can be identified.costs and revenues of each asset can be identified.

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Contract revenue and contract costs should Contract revenue and contract costs should be recognised, when outcome of the be recognised, when outcome of the contract can be estimated reliably upto the contract can be estimated reliably upto the stage of completion at the reporting date.stage of completion at the reporting date.

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In fixed price contract, the outcome can be In fixed price contract, the outcome can be estimated reliably when all the following conditions estimated reliably when all the following conditions are satisfied; are satisfied;

a)a) total contract revenue can be measured reliably; total contract revenue can be measured reliably;

b)b) it is probable that economic benefits associated with it is probable that economic benefits associated with the contract will flow to the enterprise; the contract will flow to the enterprise;

c)c) both the contract cost to complete and the stage of both the contract cost to complete and the stage of completion can be measured reliably at the completion can be measured reliably at the reporting date; and reporting date; and

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d)d) contract costs can be clearly identified and contract costs can be clearly identified and measured reliably so that actual contract costs measured reliably so that actual contract costs incurred can be compared with prior estimates.incurred can be compared with prior estimates.

In cost plus contracts the outcome can be estimated In cost plus contracts the outcome can be estimated reliably when all the following conditions are reliably when all the following conditions are satisfied:satisfied:

a)a) it is probable that the economic benefits associated it is probable that the economic benefits associated with the contract will flow to the enterprise; and with the contract will flow to the enterprise; and

b)b) contract costs whether reimbursable or not can be contract costs whether reimbursable or not can be clearly identified and measured realiably.clearly identified and measured realiably.

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Contract revenue comprises of: Contract revenue comprises of:

a)a) the initial amount of revenue agreed in the the initial amount of revenue agreed in the contract; andcontract; and

b)b) variations in contract work, claims and variations in contract work, claims and incentive payments that will probably result incentive payments that will probably result in revenue and are capable of being reliably in revenue and are capable of being reliably measured.measured.

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When outcome of a contract cannot be When outcome of a contract cannot be estimated reliably; estimated reliably;

a)a) revenue should be recognised only to the revenue should be recognised only to the extent of contract costs recovery of which is extent of contract costs recovery of which is probable; probable;

b)b) contract cost should be recognised as an contract cost should be recognised as an expense in the period in which they are expense in the period in which they are incurred; and incurred; and

c)c) an expected loss should be recognised as an expected loss should be recognised as expense.expense.

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When it is probable that contract costs will When it is probable that contract costs will exceed total contract revenue, the expected exceed total contract revenue, the expected loss should be recognised as an expense loss should be recognised as an expense immediately.immediately.


contract revenue recognised in the period;contract revenue recognised in the period;

method used to determine contract revenue method used to determine contract revenue recognised in the period; andrecognised in the period; and

methods used to determine the stage of methods used to determine the stage of completion of contracts in progress.completion of contracts in progress.

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For contracts in progress an enterprise For contracts in progress an enterprise should disclose: should disclose:

a)a) the aggregate amount of costs incurred and the aggregate amount of costs incurred and recognised profits (less recognised losses) recognised profits (less recognised losses) up to the reporting date;.up to the reporting date;.

b)b) amount of advances received; and amount of advances received; and

c)c) amount of retention.amount of retention.

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An enterprise should present: An enterprise should present:

a)a) gross amount due from customers for gross amount due from customers for contract work as an asset; and contract work as an asset; and

b)b) the gross amount due to customers for the gross amount due to customers for contract work as a liability.contract work as a liability.

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Accounting Standard 9 – Revenue Accounting Standard 9 – Revenue RecognitionRecognition Standard does not deal with revenue arising Standard does not deal with revenue arising

from construction contracts, hire-purchase from construction contracts, hire-purchase and lease agreements, government grants and lease agreements, government grants and other similar subsidies and revenue of and other similar subsidies and revenue of insurance companies from insurance insurance companies from insurance contracts.contracts.

Revenue from sale and services should be Revenue from sale and services should be recognised on sale of goods or rendering of recognised on sale of goods or rendering of services if collection is reasonably certain; services if collection is reasonably certain; and when risks and rewards of ownership are and when risks and rewards of ownership are transferred to the buyer and when effective transferred to the buyer and when effective control of the seller as the owner is lost.control of the seller as the owner is lost.

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Accounting Standard 9 – Revenue Accounting Standard 9 – Revenue RecognitionRecognition In case of rendering of services, revenue In case of rendering of services, revenue

must be recognised either on completed must be recognised either on completed contract method or on proportionate contract method or on proportionate completion method by relating the revenue completion method by relating the revenue with the work accomplished and certainity of with the work accomplished and certainity of consideration receivable.consideration receivable.

Interest is recognised on time basis, royalties Interest is recognised on time basis, royalties on accrual basis and dividend when owner’s on accrual basis and dividend when owner’s right to receive payment is established.right to receive payment is established.

Disclose circumstances in which revenue Disclose circumstances in which revenue recognition has been postponed pending recognition has been postponed pending significant uncertainties.significant uncertainties.

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Accounting Standard 10 – Accounting Accounting Standard 10 – Accounting for Fixed Assetsfor Fixed Assets Fixed asset is an asset held for producing or Fixed asset is an asset held for producing or

providing goods and/or services and is not held providing goods and/or services and is not held for sale in the normal course of the business.for sale in the normal course of the business.

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

Self constructed assets are to be capitalised at Self constructed assets are to be capitalised at costs that are specifically related to the asset costs that are specifically related to the asset and those which are allocable to the specific and those which are allocable to the specific asset.asset.

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Accounting Standard 10 – Accounting Accounting Standard 10 – Accounting for Fixed Assetsfor Fixed Assets

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

Revaluation, if any, should be for class of Revaluation, if any, should be for class of assets and not an individual asset. Basis of assets and not an individual asset. Basis of revaluation should be disclosed. Increase in revaluation should be disclosed. Increase in value on revaluation be credited to value on revaluation be credited to revaluation reserve while the decrease should revaluation reserve while the decrease should be charged to P&L A/c.be charged to P&L A/c.

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Goodwill should be accounted only when paid Goodwill should be accounted only when paid for.for.

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

Profit/Loss on disposal of assets should be Profit/Loss on disposal of assets should be recognised in the P&L statement. recognised in the P&L statement.

Fixed assets acquired on hire purchase Fixed assets acquired on hire purchase should be recorded at their cash value, which should be recorded at their cash value, which if not readily available, should be calculated if not readily available, should be calculated by assuming an appropriate rate of interest. by assuming an appropriate rate of interest.

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Where several fixed assets are purchased Where several fixed assets are purchased for a consolidated price, the consideration for a consolidated price, the consideration should be apportioned to the various assets should be apportioned to the various assets on a fair basis as determined by competent on a fair basis as determined by competent valuers.valuers.


a)a) Gross and net book value of assets at the Gross and net book value of assets at the beginning and end of an accounting period beginning and end of an accounting period showing additions, disposals, acquisitions showing additions, disposals, acquisitions and other movements;and other movements;

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a)a) Expenditure incurred on account of fixed Expenditure incurred on account of fixed assets in the course of construction or assets in the course of construction or acquisition.acquisition.

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Accounting Standard 11 – The effect of Accounting Standard 11 – The effect of changes in Foreign Exchange Rateschanges in Foreign Exchange Rates Standard should be applied in accounting for Standard should be applied in accounting for

transactions in foreign currency, translating transactions in foreign currency, translating the financial statements of foreign operations the financial statements of foreign operations and accounting of forward exchange contract.and accounting of forward exchange contract.

Initial recognition of a foreign currency Initial recognition of a foreign currency transaction shall be by applying the foreign transaction shall be by applying the foreign currency exchange rate as on the date of the currency exchange rate as on the date of the transaction. In case of voluminous transaction. In case of voluminous transactions a weekly or a monthly average transactions a weekly or a monthly average rate is permitted, if fluctuation during the rate is permitted, if fluctuation during the period is not significant.period is not significant.

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Accounting Standard 11 – The effect of Accounting Standard 11 – The effect of changes in Foreign Exchange Rateschanges in Foreign Exchange Rates At each balance sheet date, foreign currency At each balance sheet date, foreign currency

monetary items shall be reported at the monetary items shall be reported at the closing exchange rates unless there are closing exchange rates unless there are restrictions on remittances. Such items should restrictions on remittances. Such items should be accounted at the amount at which it is be accounted at the amount at which it is likely to be realised in reporting currency.likely to be realised in reporting currency.

Non monetary items which are carried at Non monetary items which are carried at historical cost shall be reported at the historical cost shall be reported at the exchange rate on the date of transaction. Non exchange rate on the date of transaction. Non monetary items which are carried at fair value monetary items which are carried at fair value shall be reported at the exchange rate that shall be reported at the exchange rate that existed when the value was determined.existed when the value was determined.

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Accounting Standard 11 – The effect of Accounting Standard 11 – The effect of changes in Foreign Exchange Rateschanges in Foreign Exchange Rates Exchange difference arising on settlement of Exchange difference arising on settlement of

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

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

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Accounting Standard 11 – The effect of Accounting Standard 11 – The effect of changes in Foreign Exchange Rateschanges in Foreign Exchange Rates The financial statements of an integral The financial statements of an integral

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

For incorporation of non integral foreign For incorporation of non integral foreign operations:operations:

a)a) both monetary and non monetary assets and both monetary and non monetary assets and liabilities should be translated at the closing liabilities should be translated at the closing rate as on the date of the balance sheet date; rate as on the date of the balance sheet date;

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Accounting Standard 11 – The effect of Accounting Standard 11 – The effect of changes in Foreign Exchange Rateschanges in Foreign Exchange Ratesb)b) the income and expense should be translated at the the income and expense should be translated at the

exchange rates at the date of transactions; and exchange rates at the date of transactions; and

The resulting exchange differences should be The resulting exchange differences should be accumulated in foreign currency translation reserve accumulated in foreign currency translation reserve until the disposal on net investment. Any goodwill or until the disposal on net investment. Any goodwill or capital reserve on acquisition of non-integral capital reserve on acquisition of non-integral financial operation is translated at the closing rate.financial operation is translated at the closing rate.

In consolidated financial statement of the reporting In consolidated financial statement of the reporting enterprise, exchange difference arising on intra enterprise, exchange difference arising on intra group monetary items continues to be recognised as group monetary items continues to be recognised as income or expense, unless the same is in substance income or expense, unless the same is in substance an enterprise’s net investment in non integral foreign an enterprise’s net investment in non integral foreign operation.operation.

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Accounting Standard 11 – The effect of Accounting Standard 11 – The effect of changes in Foreign Exchange Rateschanges in Foreign Exchange Rates Exchange difference arising on translation shall be Exchange difference arising on translation shall be

considered for deferred tax in accordance with AS22.considered for deferred tax in accordance with AS22.

Forward exchange contracts not intended for trading Forward exchange contracts not intended for trading or speculation purposes – the premium or discount or speculation purposes – the premium or discount arising at the time of inception of the forward contract arising at the time of inception of the forward contract should be amortised as expense or income over the should be amortised as expense or income over the life of the contract. Exchange differences on forward life of the contract. Exchange differences on forward exchange contracts should be recognised in the P&L exchange contracts should be recognised in the P&L A/c in the reporting period in which there is a change A/c in the reporting period in which there is a change in the exchange rates.in the exchange rates.

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Accounting Standard 11 – The effect of Accounting Standard 11 – The effect of changes in Foreign Exchange Rateschanges in Foreign Exchange Rates Exchange difference on such contracts is the Exchange difference on such contracts is the

difference between exchange rate at the difference between exchange rate at the reporting date and exchange difference at the reporting date and exchange difference at the date of inception of the contract for the date of inception of the contract for the underlying currency .underlying currency .

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

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Accounting Standard 11 – The effect of Accounting Standard 11 – The effect of changes in Foreign Exchange Rateschanges in Foreign Exchange Rates Gain or loss on forward exchange contract Gain or loss on forward exchange contract

intended for trading or speculation should be intended for trading or speculation should be recognised in the profit and loss account for recognised in the profit and loss account for the period which is computed with reference the period which is computed with reference to the difference between forward rate on the to the difference between forward rate on the reporting date for the remaining maturity reporting date for the remaining maturity period of the contract and the contracted period of the contract and the contracted forward rate. This means that the forward forward rate. This means that the forward contract is marked to market.contract is marked to market.

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Accounting Standard 12 – Accounting Accounting Standard 12 – Accounting for Government Grantsfor Government Grants Grants can be in cash or in kind and may Grants can be in cash or in kind and may

carry certain conditions to be complied.carry certain conditions to be complied.

Grants should not be recognised unless Grants should not be recognised unless reasonably assured to be realised and the reasonably assured to be realised and the enterprise complies with the conditions enterprise complies with the conditions attached to the grant.attached to the grant.

Grants by way of promoters contribution is to Grants by way of promoters contribution is to be credited to capital reserve and considered be credited to capital reserve and considered as part of shareholders fundsas part of shareholders funds

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Accounting Standard 12 – Accounting Accounting Standard 12 – Accounting for Government Grantsfor Government Grants Grants towards specific assets should be Grants towards specific assets should be

deducted from its gross value. Alternatively, it deducted from its gross value. Alternatively, it can be treated as deferred income in the P&L can be treated as deferred income in the P&L A/c on rational basis over the useful life of the A/c on rational basis over the useful life of the depreciable asset.depreciable asset.

Grants related to non-depreciable assets Grants related to non-depreciable assets should be credited to capital reserve unless it should be credited to capital reserve unless it stipulates fulfilment of certain conditions. In stipulates fulfilment of certain conditions. In the later case the grant should be credited to the later case the grant should be credited to the P&L A/c over a reasonable period and the the P&L A/c over a reasonable period and the deferred income balance shown separately in deferred income balance shown separately in the financial statements.the financial statements.

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Accounting Standard 12 – Accounting Accounting Standard 12 – Accounting for Government Grantsfor Government Grants Grants in the form of non-monetary assets, Grants in the form of non-monetary assets,

given at concessional rates, shall be given at concessional rates, shall be accounted at their acquisition cost. Assets accounted at their acquisition cost. Assets given free of cost be recorded at nominal given free of cost be recorded at nominal value.value.

Grants of revenue nature to be recognised in Grants of revenue nature to be recognised in the P&L A/c over the period to match with the the P&L A/c over the period to match with the related cost, which are intended to be related cost, which are intended to be compensated. Such grants can be treated as compensated. Such grants can be treated as other income or can be reduced from related other income or can be reduced from related expense.expense.

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Accounting Standard 12 – Accounting Accounting Standard 12 – Accounting for Government Grantsfor Government Grants Grants receivable as compensation for Grants receivable as compensation for

losses/expenses incurred should be losses/expenses incurred should be recognised and disclosed in P&L A/c in the recognised and disclosed in P&L A/c in the year it is receivable and shown as year it is receivable and shown as extraordinary item, if material in amount.extraordinary item, if material in amount.

Grants when become refundable be shown as Grants when become refundable be shown as extraordinary item. Revenue grants when extraordinary item. Revenue grants when refundable should be first adjusted against refundable should be first adjusted against unamortised deferred credit balance of the unamortised deferred credit balance of the grant and the balance should be charged to grant and the balance should be charged to the P&L A/c.the P&L A/c.

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Accounting Standard 12 – Accounting Accounting Standard 12 – Accounting for Government Grantsfor Government Grants Grants against specific assets on becoming Grants against specific assets on becoming

refundable are recorded by increasing the refundable are recorded by increasing the value of the respective asset or by reducing value of the respective asset or by reducing capital reserve/deferred income balance of capital reserve/deferred income balance of the grant as applicable. Any increase in the the grant as applicable. Any increase in the value of the asset should be depreciated value of the asset should be depreciated prospectively over the remaining useful life prospectively over the remaining useful life of the asset.of the asset.


a)a) accounting policy adopted for grants accounting policy adopted for grants including method of presentation in the including method of presentation in the financial statements;financial statements;

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Accounting Standard 12 – Accounting Accounting Standard 12 – Accounting for Government Grantsfor Government GrantsDisclosures:Disclosures:

b)b) nature and extent of government grants nature and extent of government grants recognised in the financial statements, recognised in the financial statements, including grants of non-monetary assets including grants of non-monetary assets given at a concession rate or free of cost.given at a concession rate or free of cost.

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Accounting Standard 13 – Accounting Accounting Standard 13 – Accounting for Investmentsfor Investments Current investments and long term investments Current investments and long term investments

should be disclosed distinctly in the financial should be disclosed distinctly in the financial statements with further sub-classification into statements with further sub-classification into government or trust securities, shares, debentures or government or trust securities, shares, debentures or bonds, investment properties, others unless it is bonds, investment properties, others unless it is required to be classified in other manner as per required to be classified in other manner as per statute.statute.

Investment properties should be accounted for as Investment properties should be accounted for as long term investments.long term investments.

Cost of investments should include acquisition Cost of investments should include acquisition charges including brokerage, fees and duties.charges including brokerage, fees and duties.

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Accounting Standard 13 – Accounting Accounting Standard 13 – Accounting for Investmentsfor Investments If an investment is acquired by issue of If an investment is acquired by issue of

shares/securities or in exchange of an asset, the cost shares/securities or in exchange of an asset, the cost of the investment is the fair value of the securities of the investment is the fair value of the securities issued or the assets given up. Acquisition cost may issued or the assets given up. Acquisition cost may be determined considering the fair value of the be determined considering the fair value of the investments acquired. investments acquired.

Current investments should be carried at the lower of Current investments should be carried at the lower of cost and fair value determined either on an individual cost and fair value determined either on an individual investment basis or by category of investment but not investment basis or by category of investment but not on global basis.on global basis.

Long term investments should be carried at cost. Long term investments should be carried at cost. Provision for decline (other than temporary) should be Provision for decline (other than temporary) should be made for each investment individually.made for each investment individually.

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Accounting Standard 13 – Accounting Accounting Standard 13 – Accounting for Investmentsfor Investments Changes in the carrying amount and the difference Changes in the carrying amount and the difference

between the carrying amount and the net proceeds between the carrying amount and the net proceeds on disposal should be charged or credited to the on disposal should be charged or credited to the P&L A/c.P&L A/c.


a)a) accounting policy adopted; accounting policy adopted;

b)b) classification of investments; classification of investments;

c)c) Interest, dividends (showing separately dividends Interest, dividends (showing separately dividends from subsidiary companies), and rentals on from subsidiary companies), and rentals on investment showing separately such income from investment showing separately such income from long-term and current investments. long-term and current investments.

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Accounting Standard 13 – Accounting Accounting Standard 13 – Accounting for Investmentsfor InvestmentsDisclosures:Disclosures:

d)d) profit/loss on disposal and changes in profit/loss on disposal and changes in carrying amount of such investments; carrying amount of such investments;

e)e) aggregate amount of quoted and unquoted aggregate amount of quoted and unquoted investments together with aggregate market investments together with aggregate market value of quoted investments. value of quoted investments.

f)f) Significant restrictions on right of ownership, Significant restrictions on right of ownership, realisability of investments or the remittance realisability of investments or the remittance of income and proceeds of disposal.of income and proceeds of disposal.

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Accounting Standard 14 – Accounting Accounting Standard 14 – Accounting for Amalgamationsfor Amalgamations Amalgamations in the nature of merger should be Amalgamations in the nature of merger should be

accounted for under the pooling of interest method accounted for under the pooling of interest method and in the nature of purchase it should be and in the nature of purchase it should be accounted for under the purchase method.accounted for under the purchase method.

Under the pooling of interest method:Under the pooling of interest method:

a)a) assets, liabilities and reserves of the transferor assets, liabilities and reserves of the transferor company should be recorded at existing carrying company should be recorded at existing carrying amount and in the same form as it was appearing in amount and in the same form as it was appearing in the books of the transferor. the books of the transferor.

b)b) Shareholders holding not less than 90% of the face Shareholders holding not less than 90% of the face value of the equity shares become equity value of the equity shares become equity shareholders of the transferee company by virtue of shareholders of the transferee company by virtue of amalgamation.amalgamation.

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Accounting Standard 14 – Accounting Accounting Standard 14 – Accounting for Amalgamationsfor Amalgamations

c)c) The balance of the Profit and Loss Account of the The balance of the Profit and Loss Account of the transferee company should be aggregated with the transferee company should be aggregated with the corresponding balance of the transferee company or corresponding balance of the transferee company or transferred to the general reserve if any. transferred to the general reserve if any.

d)d) Difference between the amount recorded as share Difference between the amount recorded as share capital issued and the amount of capital of the capital issued and the amount of capital of the transferor company should be adjusted in reserves. transferor company should be adjusted in reserves.

e)e) In case of conflicting accounting policies, a uniform In case of conflicting accounting policies, a uniform policy should be adopted on amalgamation. Effect on policy should be adopted on amalgamation. Effect on financial statement of such change in policy should financial statement of such change in policy should be reported as per AS5.be reported as per AS5.

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Accounting Standard 14 – Accounting Accounting Standard 14 – Accounting for Amalgamationsfor Amalgamations Under purchase method:Under purchase method:

a)a) all assets and liabilities of the transferor company be all assets and liabilities of the transferor company be recorded at their existing carrying amount or recorded at their existing carrying amount or alternatively the consideration should be allocated to alternatively the consideration should be allocated to individual identifiable assets and liabilities on the individual identifiable assets and liabilities on the basis of fair values at the date of amalgamation. basis of fair values at the date of amalgamation.

b)b) The reserves of the transferor company shall lose its The reserves of the transferor company shall lose its identity. identity.

c)c) The excess or shortfall of consideration over the The excess or shortfall of consideration over the value of net assets should be recognised as goodwill value of net assets should be recognised as goodwill or capital reserve.or capital reserve.

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Accounting Standard 14 – Accounting Accounting Standard 14 – Accounting for Amalgamationsfor Amalgamationsd)d) The goodwill arising on amalgamation should be The goodwill arising on amalgamation should be

amortised to income on a systematic basis over its amortised to income on a systematic basis over its useful life not to exceed five years unless a useful life not to exceed five years unless a somewhat larger period can be justified. somewhat larger period can be justified.

Any non-cash item included in the consideration on Any non-cash item included in the consideration on amalgamation should be accounted at fair value.amalgamation should be accounted at fair value.

In case the scheme of amalgamation sanctioned In case the scheme of amalgamation sanctioned under the statute prescribes a treatment to be given under the statute prescribes a treatment to be given to the transferor company reserves on to the transferor company reserves on amalgamation, same should be followed. A amalgamation, same should be followed. A description of accounting treatment given to reserves description of accounting treatment given to reserves and the reasons for following a treatment different and the reasons for following a treatment different from that prescribed in the standard is to be givenfrom that prescribed in the standard is to be given..

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a)a) effective date of amalgamation for effective date of amalgamation for accounting; accounting;

b)b) method of accounting followed; method of accounting followed;

c)c) the particulars of the scheme sanctioned.the particulars of the scheme sanctioned.

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In case of amalgamation under pooling of In case of amalgamation under pooling of interest method: interest method:

a)a) the treatment given to the difference the treatment given to the difference between the consideration and the value of between the consideration and the value of the net identified assets acquired is to be the net identified assets acquired is to be disclosed. disclosed.

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In case of amalgamation under the purchase In case of amalgamation under the purchase method:method:

a)a) the consideration and the treatment given to the consideration and the treatment given to the difference compared to the value of the the difference compared to the value of the net identifiable assets acquired, and the net identifiable assets acquired, and the treatment thereof including the period of treatment thereof including the period of amortisation of any goodwill arising on amortisation of any goodwill arising on amalgamation.amalgamation.

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Accounting Standard 15 – Accounting Accounting Standard 15 – Accounting for Employees benefitsfor Employees benefits

Employee benefits are all forms of consideration Employee benefits are all forms of consideration given in exchange of services rendered by given in exchange of services rendered by employees. Employee benefits include those provided employees. Employee benefits include those provided under formal plan or as per informal practices which under formal plan or as per informal practices which give rise to an obligation or required as per legislative give rise to an obligation or required as per legislative requirements. These include performance bonus requirements. These include performance bonus (payable within 12 months) and non-monetary (payable within 12 months) and non-monetary benefits such as housing, car or subsidised goods or benefits such as housing, car or subsidised goods or services to current employees, post-employment services to current employees, post-employment benefits, deferred compensation and termination benefits, deferred compensation and termination benefits. Benefits provided to employees spouses, benefits. Benefits provided to employees spouses, children, dependents, nominees are also covered. children, dependents, nominees are also covered. Does not include employee share-based payments.Does not include employee share-based payments.

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Accounting Standard 15 –Accounting Accounting Standard 15 –Accounting for Employees benefitsfor Employees benefits

Short term employee benefits should be Short term employee benefits should be recognised as an expense without recognised as an expense without discounting, unless permitted by other AS to discounting, unless permitted by other AS to be included as a cost of an asset.be included as a cost of an asset.

Cost of accumulating compensated absences Cost of accumulating compensated absences is accounted on accrual basis and cost of is accounted on accrual basis and cost of non-accumulating compensated absences is non-accumulating compensated absences is accounted when the absences occur.accounted when the absences occur.

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Cost of profit sharing and bonus plans are Cost of profit sharing and bonus plans are accounted as an expense when the accounted as an expense when the enterprise has a present obligation to make enterprise has a present obligation to make such payments as a result of past events and such payments as a result of past events and a reliable estimate of the obligation can be a reliable estimate of the obligation can be made. While estimating, probability of made. While estimating, probability of payment at a future date is also considered.payment at a future date is also considered.

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Post employment benefits can either be defined Post employment benefits can either be defined contribution plans, under which enterprise’s contribution plans, under which enterprise’s obligation is limited to contribution agreed to be obligation is limited to contribution agreed to be made and investment returns arising from such made and investment returns arising from such contribution, or defined benefit plans under contribution, or defined benefit plans under which the enterprise’s obligation is to provide which the enterprise’s obligation is to provide the agreed benefits. Under the later plans if the agreed benefits. Under the later plans if actuarial or investment experience are worse actuarial or investment experience are worse then expected, obligation of the enterprise may then expected, obligation of the enterprise may get increased at subsequent dates.get increased at subsequent dates.

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If defined benefit cost cannot be reliably If defined benefit cost cannot be reliably estimated it should recognise cost as if it were estimated it should recognise cost as if it were a defined contribution plan, with certain a defined contribution plan, with certain disclosures.disclosures.

Cost of defined contribution plan should be Cost of defined contribution plan should be accounted as an expense on accrual basis. In accounted as an expense on accrual basis. In case contribution does not fall due within 12 case contribution does not fall due within 12 months from the balance sheet date, expense months from the balance sheet date, expense should be recognised for discounted liabilities.should be recognised for discounted liabilities.

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For balance sheet purpose, the amount to be For balance sheet purpose, the amount to be recognised as a defined benefit liability is the recognised as a defined benefit liability is the present value of the defined benefit present value of the defined benefit obligation reduced by obligation reduced by

a)a) past service cost not yet recognised; and past service cost not yet recognised; and

b)b) the fair value of the plan asset at the balance the fair value of the plan asset at the balance sheet date. sheet date.

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An enterprise should determine the present An enterprise should determine the present value of defined benefit obligations (through value of defined benefit obligations (through actuarial valuation at intervals not exceeding actuarial valuation at intervals not exceeding three years) and the fair value of plan assets three years) and the fair value of plan assets (on each balance sheet date) so that amount (on each balance sheet date) so that amount recognised in the financial statements do not recognised in the financial statements do not differ materially from the liability required. differ materially from the liability required.

In case the fair value of plan asset is higher In case the fair value of plan asset is higher than the liability required, the present value of than the liability required, the present value of excess should be treated as an asset.excess should be treated as an asset.

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An enterprise should use the projected unit An enterprise should use the projected unit credit method to determine the present value of credit method to determine the present value of its defined benefit obligations and the related its defined benefit obligations and the related current service cost and where applicable, past current service cost and where applicable, past service cost.service cost.

Actuarial gains/losses should be recognised in Actuarial gains/losses should be recognised in profit and loss account as income/expense.profit and loss account as income/expense.

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When enterprise adopts the revised standard When enterprise adopts the revised standard for the first time, additional charge on account for the first time, additional charge on account of change in a liability, compared to pre-revised of change in a liability, compared to pre-revised AS15 should be adjusted against revenue AS15 should be adjusted against revenue reserves and surplus.reserves and surplus.

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Accounting Standard 16 – Borrowing Accounting Standard 16 – Borrowing CostsCosts Statement does not deal with the actual or Statement does not deal with the actual or

imputed cost of owners equity/preference imputed cost of owners equity/preference capital.capital.

Borrowing costs that are directly attributable to Borrowing costs that are directly attributable to the acquisition, construction or production of the acquisition, construction or production of any qualifying asset should be capitalised any qualifying asset should be capitalised provided the assets takes a substantial period provided the assets takes a substantial period of time to get ready for its intended use or sale. of time to get ready for its intended use or sale. Generally a period of 12 months is considered Generally a period of 12 months is considered as a substantial period of time.as a substantial period of time.

Income on the temporary investment of the Income on the temporary investment of the borrowed funds should be deducted from borrowed funds should be deducted from borrowing costs.borrowing costs.

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Accounting Standard 16 – Borrowing Accounting Standard 16 – Borrowing CostsCosts In case of funds obtained generally and used In case of funds obtained generally and used

for obtaining a qualifying asset, the borrowing for obtaining a qualifying asset, the borrowing cost to be capitalised is determined by cost to be capitalised is determined by applying weighted average cost of borrowing applying weighted average cost of borrowing cost on outstanding borrowings, other than cost on outstanding borrowings, other than borrowings for obtaining a qualifying asset.borrowings for obtaining a qualifying asset.

Capitalisation of borrowing costs should be Capitalisation of borrowing costs should be suspended during extended periods in which suspended during extended periods in which development is interrupted. When the development is interrupted. When the expected cost of the qualifying asset exceeds expected cost of the qualifying asset exceeds its recoverable amount or net realisable its recoverable amount or net realisable value, the carrying amount is written down.value, the carrying amount is written down.

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Accounting Standard 16 – Borrowing Accounting Standard 16 – Borrowing CostsCosts Capitalisation should cease when activity is Capitalisation should cease when activity is

completed substantially or if completed in completed substantially or if completed in parts, in respect of that part, all the activities parts, in respect of that part, all the activities for its intended use or sale are complete.for its intended use or sale are complete.


a)a) accounting policy adopted for borrowing accounting policy adopted for borrowing cost; and cost; and

b)b) the amount of borrowing costs capitalised the amount of borrowing costs capitalised during the period.during the period.

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Accounting Standard 18 – Related Accounting Standard 18 – Related Party DisclosuresParty Disclosures

This statement should be applied in reporting This statement should be applied in reporting related party relationships and transactions between related party relationships and transactions between a reporting enterprise and its related parties. The a reporting enterprise and its related parties. The requirements of this statement apply to the financial requirements of this statement apply to the financial statements of each reporting enterprise as also to statements of each reporting enterprise as also to consolidated financial statements presented by a consolidated financial statements presented by a holding company. holding company.

The statement deals with following related party The statement deals with following related party relationships: relationships:

a)a) enterprises that directly or indirectly control (through enterprises that directly or indirectly control (through subsidiaries) or are controlled by or are under subsidiaries) or are controlled by or are under common control with the reporting enterprise; common control with the reporting enterprise;

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Accounting Standard 18 – Related Accounting Standard 18 – Related Party DisclosuresParty Disclosures

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

c)c) Individuals owning voting power giving them Individuals owning voting power giving them control or significant influence; control or significant influence;

d)d) key management personnel and their key management personnel and their relatives; and relatives; and

e)e) enterprises over which any of the persons in enterprises over which any of the persons in (c) or (d) are able to exercise significant (c) or (d) are able to exercise significant influence.influence.

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Accounting Standard 18 – Related Accounting Standard 18 – Related Party DisclosuresParty Disclosures Relative of an individual means spouse, son, Relative of an individual means spouse, son,

daughter, brother, sister, father and mother daughter, brother, sister, father and mother who may be expected to influence, or be who may be expected to influence, or be influenced by, that individual in dealings with influenced by, that individual in dealings with the reporting entity.the reporting entity.

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

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Accounting Standard 18 – Related Accounting Standard 18 – Related Party DisclosuresParty Disclosures Following are not considered related parties: Following are not considered related parties:

a)a) two companies merely because of common two companies merely because of common director; director;

b)b) customer, supplier, franchiser, distributor or customer, supplier, franchiser, distributor or general agent merely by virtue of economic general agent merely by virtue of economic independence; andindependence; and

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

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Accounting Standard 18 – Related Accounting Standard 18 – Related Party DisclosuresParty Disclosures Where there are transactions between the related Where there are transactions between the related

parties, following information is to be disclosed; parties, following information is to be disclosed;

a)a) name of the related party; name of the related party;

b)b) nature of relationships; nature of relationships;

c)c) nature of transactions and its volume (as an amount nature of transactions and its volume (as an amount or its proportion); or its proportion);

d)d) amount or appropriate provision outstanding amount or appropriate provision outstanding pertaining to related parties, provision for doubtful pertaining to related parties, provision for doubtful debts from related parties, amounts written off or debts from related parties, amounts written off or written back in respect of debts due from or to written back in respect of debts due from or to related parties.related parties.

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Accounting Standard 18 – Related Accounting Standard 18 – Related Party DisclosuresParty Disclosures Names of the related party and nature of related party Names of the related party and nature of related party

relationship to be disclosed even where there are no relationship to be disclosed even where there are no transactions but the control exists. transactions but the control exists.

Items of similar nature may be aggregated by type of Items of similar nature may be aggregated by type of the related party. The type of related party for the the related party. The type of related party for the purpose of aggregation of items of a similar nature purpose of aggregation of items of a similar nature implies related party relationships. Material implies related party relationships. Material transactions, i.e more than 10% of related party transactions, i.e more than 10% of related party transactions are not to be clubbed in an aggregated transactions are not to be clubbed in an aggregated disclosure. The related party transactions which are disclosure. The related party transactions which are not entered in the normal course of the business not entered in the normal course of the business would ordinarily be considered material.would ordinarily be considered material.

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Accounting Standard 18 – Related Accounting Standard 18 – Related Party DisclosuresParty Disclosures A non-executive director is not a key A non-executive director is not a key

management person for the purpose of this management person for the purpose of this standard unless he is in a position to exercise standard unless he is in a position to exercise significant influence by virtue of owning an significant influence by virtue of owning an interest in the voting power or he is interest in the voting power or he is responsible and has the authority for directing responsible and has the authority for directing and controlling the activities of the reporting and controlling the activities of the reporting enterprise. Mere participation in the policy enterprise. Mere participation in the policy decision making process will not attract AS18.decision making process will not attract AS18.

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Accounting Standard 19 – LeasesAccounting Standard 19 – Leases Applies in accounting for all leases other than Applies in accounting for all leases other than

leases to explore for or use natural resources, leases to explore for or use natural resources, licensing agreements for items such as licensing agreements for items such as motion picture films, video recordings plays motion picture films, video recordings plays etc and lease for use of lands.etc and lease for use of lands.

A lease is classified as a finance lease or as a A lease is classified as a finance lease or as a operating lease.operating lease.

A finance lease is one where risks and A finance lease is one where risks and rewards incident to the ownership are rewards incident to the ownership are transferred substantially; otherwise it is an transferred substantially; otherwise it is an operating lease.operating lease.

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Accounting Standard 19 – LeasesAccounting Standard 19 – LeasesTreatment of finance lease in books of lessee:Treatment of finance lease in books of lessee:

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

Lease payments should be appropriated Lease payments should be appropriated between finance charge and the reduction of between finance charge and the reduction of outstanding liability so as to produce a outstanding liability so as to produce a constant periodic rate of interest on the constant periodic rate of interest on the balance of the liability.balance of the liability.

Depreciation policy for leased asset should be Depreciation policy for leased asset should be consistent with that for other owned consistent with that for other owned depreciable assets and are to be calculated as depreciable assets and are to be calculated as per AS6.per AS6.

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Accounting Standard 19 – LeasesAccounting Standard 19 – LeasesTreatment of finance lease in books of lessor:Treatment of finance lease in books of lessor:

The lessor should recognise the asset as a The lessor should recognise the asset as a receivable equal to net investment in lease.receivable equal to net investment in lease.

Finance income should be based on pattern Finance income should be based on pattern reflecting a constant periodic return on net reflecting a constant periodic return on net investment in lease.investment in lease.

Manufacturing/dealer lessor should recognise Manufacturing/dealer lessor should recognise sales as outright sales. If artifically low sales as outright sales. If artifically low interest rates quoted, profit should be interest rates quoted, profit should be calculated as if commercial rates of interest calculated as if commercial rates of interest were charged. Initial direct costs should be were charged. Initial direct costs should be expensed.expensed.

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Accounting Standard 19 – LeasesAccounting Standard 19 – Leases

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

Lease payments should be recognised as Lease payments should be recognised as an expense on straight line basis or other an expense on straight line basis or other systematic basis, if appropriate.systematic basis, if appropriate.

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Accounting Standard 19 – LeasesAccounting Standard 19 – Leases

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

Lessor should present an asset given on Lessor should present an asset given on lease under fixed assets and lease income lease under fixed assets and lease income should be recognised on a straight-line basis should be recognised on a straight-line basis or other systematic basis, if appropriate.or other systematic basis, if appropriate.

Costs including depreciation should be Costs including depreciation should be recognised as an expense.recognised as an expense.

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

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Accounting Standard 20 – Earnings Accounting Standard 20 – Earnings per Shareper Share

To present basic and diluted EPS on the face To present basic and diluted EPS on the face of Profit and loss statement with equal of Profit and loss statement with equal prominence to all periods presented.prominence to all periods presented.

EPS required to be presented even when EPS required to be presented even when negative.negative.

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Accounting Standard 20 – Earnings Accounting Standard 20 – Earnings per Shareper Share Basic EPS is calculated by dividing net profit Basic EPS is calculated by dividing net profit

or loss for the period attributable to equity or loss for the period attributable to equity shareholders by weighted average number of shareholders by weighted average number of equity shares outstanding during the period. equity shares outstanding during the period. Basic & diluted EPS to be computed on the Basic & diluted EPS to be computed on the basis of earnings excluding extraordinary basis of earnings excluding extraordinary items (net of tax).items (net of tax).

Earnings attributable to equity shareholders Earnings attributable to equity shareholders are after the preference dividend for the are after the preference dividend for the period and the attributable tax.period and the attributable tax.

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Accounting Standard 20 – Earnings Accounting Standard 20 – Earnings per Shareper Share Weighted average number of shares is adjusted for Weighted average number of shares is adjusted for

bonus issue, share split and consolidation of shares. In bonus issue, share split and consolidation of shares. In case of rights issue at price lower than fair value, there is case of rights issue at price lower than fair value, there is an embedded bonus element for which adjustment is an embedded bonus element for which adjustment is made.made.

For calculating diluted EPS, net profit or loss attributable For calculating diluted EPS, net profit or loss attributable to equity shareholders and the weighted average number to equity shareholders and the weighted average number of shares are adjusted for the effects of dilutive potential of shares are adjusted for the effects of dilutive potential equity shares (i.e, assuming conversion into equity of all equity shares (i.e, assuming conversion into equity of all dilutive potential equity.dilutive potential equity.

Potential equity shares are treated as dilutive when their Potential equity shares are treated as dilutive when their conversion into equity would result in a reduction in profit conversion into equity would result in a reduction in profit per share from continuing operations.per share from continuing operations.

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Accounting Standard 20 – Earnings Accounting Standard 20 – Earnings per Shareper Share Effect of anti-dilutive potential equity share is Effect of anti-dilutive potential equity share is

ignored in calculating diluted EPS.ignored in calculating diluted EPS.

In calculating diluted EPS each issue of In calculating diluted EPS each issue of potential equity share is considered potential equity share is considered separately and in sequence from the most separately and in sequence from the most dilutive to the least dilutive. This is determined dilutive to the least dilutive. This is determined on the basis of earnings per incremental on the basis of earnings per incremental potential equity.potential equity.

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Accounting Standard 20 – Earnings Accounting Standard 20 – Earnings per Shareper Share If the number of equity shares or potential If the number of equity shares or potential

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

Nominal value of shares is disclosed along Nominal value of shares is disclosed along with EPS.with EPS.

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Accounting Standard 22 – Accounting Accounting Standard 22 – Accounting for Taxes on Incomefor Taxes on Income Differences between taxable income and Differences between taxable income and

accounting income to be classified into accounting income to be classified into permanent differences and timing differences.permanent differences and timing differences.

Permanent differences are those differences Permanent differences are those differences between taxable income and accounting between taxable income and accounting income, which originate in one period and do income, which originate in one period and do not get reversed subsequently.not get reversed subsequently.

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

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Accounting Standard 22 – Accounting Accounting Standard 22 – Accounting for Taxes on Incomefor Taxes on Income Deferred tax should be recognised for all Deferred tax should be recognised for all

timing differences, subject to the timing differences, subject to the consideration of prudence in respect of consideration of prudence in respect of deferred tax assets.deferred tax assets.

In case of carry forward losses, DTA is to be In case of carry forward losses, DTA is to be recognised only if there is virtual certainty recognised only if there is virtual certainty supported by convincing evidence of future supported by convincing evidence of future taxable income. Unrecognised DTA is taxable income. Unrecognised DTA is reassessed at each balance sheet date. reassessed at each balance sheet date. Virtual certainty refers to the fact that there is Virtual certainty refers to the fact that there is practically no doubt regarding the practically no doubt regarding the determination of availability of the future determination of availability of the future taxable income.taxable income.

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Accounting Standard 22 – Accounting Accounting Standard 22 – Accounting for Taxes on Incomefor Taxes on Income In respect of loss under capital gains, DTA In respect of loss under capital gains, DTA

shall be recognised only to the extent that shall be recognised only to the extent that there is a virtual certainty of sufficient future there is a virtual certainty of sufficient future taxable capital gain.taxable capital gain.

Tax expense of the period, comprises of Tax expense of the period, comprises of current tax and deferred tax.current tax and deferred tax.

Deferred tax assets and liabilities should be Deferred tax assets and liabilities should be measured using the tax rates and tax laws measured using the tax rates and tax laws that have been enacted or substantially that have been enacted or substantially enacted by the balance sheet date and enacted by the balance sheet date and should not be discounted to their present should not be discounted to their present value. value.

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Accounting Standard 22 – Accounting Accounting Standard 22 – Accounting for Taxes on Incomefor Taxes on Income Deferred tax assets and liabilities in respect of Deferred tax assets and liabilities in respect of

timing differences which originate during the timing differences which originate during the tax holiday period and reverse during the tax tax holiday period and reverse during the tax holiday period, should not be recognised to holiday period, should not be recognised to the extent deduction from the total income of the extent deduction from the total income of an enterprise is allowed during the tax holiday an enterprise is allowed during the tax holiday period. However, if timing differences reverse period. However, if timing differences reverse after the tax holiday period, DTA and DTL after the tax holiday period, DTA and DTL should be recognised in the year in which should be recognised in the year in which timing differences originate.timing differences originate.

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Accounting Standard 24 – Discontinuing Accounting Standard 24 – Discontinuing OperationsOperations

The standard requires an enterprise to The standard requires an enterprise to segregate information about discontinuing segregate information about discontinuing operations from continuing one and operations from continuing one and establishes principles for reporting establishes principles for reporting information about discontinuing operations.information about discontinuing operations.

A discontinuing operation is a part of an A discontinuing operation is a part of an enterprise:enterprise:

a)a) which is being disposed off or abandoned which is being disposed off or abandoned pursuant to a single coordinated plan; pursuant to a single coordinated plan;

b)b) it represents separate line of business or it represents separate line of business or geographical area of operations; and geographical area of operations; and

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c)c) can be distinguished operationally and for can be distinguished operationally and for financial reporting.financial reporting.

All these three conditions need to be satisfied All these three conditions need to be satisfied simultaneously. simultaneously.

The statement does not establish any The statement does not establish any recognition and measurement principles. It recognition and measurement principles. It requires enterprise to follow principles requires enterprise to follow principles establised in other accounting standard for establised in other accounting standard for the purpose of changes in assets, liabilities, the purpose of changes in assets, liabilities, revenue, expenses etc.revenue, expenses etc.

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An enterprise should give these information An enterprise should give these information in its financial statements beginning with the in its financial statements beginning with the financial period in which the ‘Initial disclosure financial period in which the ‘Initial disclosure event’ occurs: event’ occurs:

a)a) description of continuing operations;description of continuing operations;

b)b) segment in which it is reported as per AS17;segment in which it is reported as per AS17;

c)c) date and nature of initial disclosure event;date and nature of initial disclosure event;

d)d) time by which the discontinuation is time by which the discontinuation is expected to be completed;expected to be completed;

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a)a) the carrying amounts of the assets to be the carrying amounts of the assets to be disposed of;disposed of;

b)b) revenue, expenses, pre-tax profit/loss, revenue, expenses, pre-tax profit/loss, income-tax in relation to the ordinary income-tax in relation to the ordinary activities of identified discontinuing activities of identified discontinuing operations.operations.

On disposal of assets or settlement of On disposal of assets or settlement of liabilities, disclosure is required for gain/loss liabilities, disclosure is required for gain/loss recognised on disposal/settlement and recognised on disposal/settlement and income tax expenses thereto.income tax expenses thereto.

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On entering into a binding contract for sale of On entering into a binding contract for sale of assets, disclosure is required for net selling assets, disclosure is required for net selling price after deducting expected disposal cost, price after deducting expected disposal cost, the expected timing of cash flow and the the expected timing of cash flow and the carrying amount of assets on the balance carrying amount of assets on the balance sheet date.sheet date.

For period subsequent to initial disclosure For period subsequent to initial disclosure event period, description of any significant event period, description of any significant changes in amount or timing of cash flow is changes in amount or timing of cash flow is required to be disclosed.required to be disclosed.

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The disclosures to continue up to the period in which The disclosures to continue up to the period in which the discontinuance is completed; i.e, discontinuance the discontinuance is completed; i.e, discontinuance plan is substantially completed or abandoned.plan is substantially completed or abandoned.

In case discontinuance plan is abandoned, the In case discontinuance plan is abandoned, the disclosure is required of this fact, reason therefore disclosure is required of this fact, reason therefore and its effect on the financial statements.and its effect on the financial statements.

Disclosure of pre-tax profit/loss from ordinary Disclosure of pre-tax profit/loss from ordinary activities of the discontinuing operation, income tax activities of the discontinuing operation, income tax expenses related thereto, pre-tax gain/loss expenses related thereto, pre-tax gain/loss recognised on the disposal/settlement to be made on recognised on the disposal/settlement to be made on the face of profit and loss account. the face of profit and loss account.

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All disclosures should be separately All disclosures should be separately presented for each discontinuing operation.presented for each discontinuing operation.

Comparative information for prior periods to Comparative information for prior periods to be re-stated to seggregate discontinuing be re-stated to seggregate discontinuing operations.operations.

In the interim financial report, disclosure is In the interim financial report, disclosure is required for any significant activities or event required for any significant activities or event and any significant changes in the amount or and any significant changes in the amount or timing of cash flows relating to disposal/ timing of cash flows relating to disposal/ settlement. settlement.

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Accounting Standard 26 – Intangible Accounting Standard 26 – Intangible AssetsAssets Not applicable to intangibles covered by other Not applicable to intangibles covered by other

AS, financial assets, mineral rights/ AS, financial assets, mineral rights/ expenditure on exploration etc, intangible expenditure on exploration etc, intangible assets arising in insurance enterprises from assets arising in insurance enterprises from contracts with policy holders and also to contracts with policy holders and also to expenditure in respect of termination benefits.expenditure in respect of termination benefits.

An intangible asset is an identifiable non-An intangible asset is an identifiable non-monetary asset, without physical substance, monetary asset, without physical substance, held for use in the production or supply of held for use in the production or supply of goods or services, for rental to others, or for goods or services, for rental to others, or for administrative purposes. administrative purposes.

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Accounting Standard 26 – Intangible Accounting Standard 26 – Intangible AssetsAssets As asset is a resource controlled by an enterprise as As asset is a resource controlled by an enterprise as

a result of past events and from which future a result of past events and from which future economic benefits are expected to flow to the economic benefits are expected to flow to the enterprise.enterprise.

An intangible asset is to be recognised if, only if:An intangible asset is to be recognised if, only if:

a)a) future economic benefits will flow; and future economic benefits will flow; and

b)b) the cost of the asset can be measured reliably. the cost of the asset can be measured reliably.

An intangible asset should be measured initially at An intangible asset should be measured initially at cost. Probability of future economic benefits to be cost. Probability of future economic benefits to be assessed using reasonable and supportable assessed using reasonable and supportable assumptions.assumptions.

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Accounting Standard 26 – Intangible Accounting Standard 26 – Intangible AssetsAssets Internally generated goodwill, brands, publishing Internally generated goodwill, brands, publishing

titles etc should not be recognised as an asset.titles etc should not be recognised as an asset.

No intangible asset arising from research should be No intangible asset arising from research should be recognised and expenditure on research should be recognised and expenditure on research should be recognised as an expense, when incurred.recognised as an expense, when incurred.

An intangible asset arising from development to be An intangible asset arising from development to be recognised, if and only if, an enterprise recognised, if and only if, an enterprise demonstrates:demonstrates:

a)a) its feasibility to complete;its feasibility to complete;

b)b) intention and ability to use or sell;intention and ability to use or sell;

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Accounting Standard 26 – Intangible Accounting Standard 26 – Intangible AssetsAssets

c)c) generation of future economic benefits; andgeneration of future economic benefits; and

d)d) availability of resources for completion and ability to availability of resources for completion and ability to measure the expenditure.measure the expenditure.

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

An intangible asset should be carried at its cost less An intangible asset should be carried at its cost less any accumulated amortisation and accumulated any accumulated amortisation and accumulated impairment losses. Impairment loss is the amount impairment losses. Impairment loss is the amount by which the carrying amount exceeds its by which the carrying amount exceeds its recoverable amount.recoverable amount.

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Accounting Standard 26 – Intangible Accounting Standard 26 – Intangible AssetsAssets

An intangible asset should be amortised over An intangible asset should be amortised over its useful life on a systematic basis, to reflect its useful life on a systematic basis, to reflect the pattern in which the economic benefits are the pattern in which the economic benefits are consumed or if the pattern cannot be consumed or if the pattern cannot be determined reliably, on the straight line determined reliably, on the straight line method.method.

Useful life is period of time over which an Useful life is period of time over which an asset is expected to be used or the number of asset is expected to be used or the number of production units expected to be obtained from production units expected to be obtained from the asset.the asset.

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Accounting Standard 26 – Intangible Accounting Standard 26 – Intangible AssetsAssets There is a rebuttable presumption for useful life of an There is a rebuttable presumption for useful life of an

intangible asset will not exceeding ten years from the intangible asset will not exceeding ten years from the date it is available for use. In case of intangible date it is available for use. In case of intangible assets in the form of legal rights, the useful life is not assets in the form of legal rights, the useful life is not to exceed the period of the legal rights, unless to exceed the period of the legal rights, unless renewable, which is virtually certain.renewable, which is virtually certain.

The recoverable amount of each intangible asset to The recoverable amount of each intangible asset to be estimated at each year end.be estimated at each year end.

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

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Accounting Standard 26 – Intangible Accounting Standard 26 – Intangible AssetsAssetsDisclosures:Disclosures:

a)a) for each class of intangibles, their useful lives or the for each class of intangibles, their useful lives or the amortisation rates used;amortisation rates used;

b)b) Amortisation amount and methods used;Amortisation amount and methods used;

c)c) carrying amount (gross and net), any additions, carrying amount (gross and net), any additions, retirements, impairment losses recognised or retirements, impairment losses recognised or reversed and any other change. reversed and any other change.

d)d) In case of useful life of an intangible asset In case of useful life of an intangible asset exceeding ten years, proper disclosure of the exceeding ten years, proper disclosure of the reasons for the same should be given. reasons for the same should be given.

e)e) Research and development expenditure recognised Research and development expenditure recognised as as expense to be disclosed.as as expense to be disclosed.

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Accounting Standard 28 – Impairment Accounting Standard 28 – Impairment of Assetsof Assets Applicable for impairment of all assets other than:Applicable for impairment of all assets other than:

a)a) Inventories;Inventories;

b)b) assets arising from construction contracts;assets arising from construction contracts;

c)c) financial assets, including investments; andfinancial assets, including investments; and

d)d) deferred tax assets.deferred tax assets.

Impairment loss should be recognised for a cash Impairment loss should be recognised for a cash generating unit if, and only if, its recoverable amount generating unit if, and only if, its recoverable amount is less than its carrying amount. The impairment loss is less than its carrying amount. The impairment loss should be allocated to reduce the carrying amount of should be allocated to reduce the carrying amount of the assets of the unit in the following order: the assets of the unit in the following order:

a)a) first, to goodwill allocated to the cash-generating unit first, to goodwill allocated to the cash-generating unit (if any); and(if any); and

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Accounting Standard 28 – Impairment Accounting Standard 28 – Impairment of Assetsof Assetsa)a) then to the other assets of the unit on a pro-rata then to the other assets of the unit on a pro-rata

basis based on the carrying amount of each asset in basis based on the carrying amount of each asset in the unit.the unit.

Recoverable amount is the higher of an asset’s net Recoverable amount is the higher of an asset’s net selling price and its value in use.selling price and its value in use.

An impairment loss is the amount by which the An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable carrying amount of an asset exceeds its recoverable amount.amount.

Value in use is the present value of estimated future Value in use is the present value of estimated future cash flows expected to arise from the continuing cash flows expected to arise from the continuing use of an asset and from its disposal at the end of use of an asset and from its disposal at the end of its useful life.its useful life.

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Accounting Standard 28 – Impairment Accounting Standard 28 – Impairment of Assetsof Assets In measuring value in use: In measuring value in use:

a)a) cash flow projections should be based on cash flow projections should be based on assumptions that represent management’s best assumptions that represent management’s best estimate of the set of economic conditions that will estimate of the set of economic conditions that will exist over the remaining useful life of the asset. exist over the remaining useful life of the asset. Greater weight should be given to external evidence;Greater weight should be given to external evidence;

b)b) cash flow projections should be based on the most cash flow projections should be based on the most recent financial budgets/forecasts (maximum 5 recent financial budgets/forecasts (maximum 5 years unless longer period can be justified) that years unless longer period can be justified) that have been approved by management;have been approved by management;

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Accounting Standard 28 – Impairment Accounting Standard 28 – Impairment of Assetsof Assets

c)c) Cash flow projections beyond the period covered by Cash flow projections beyond the period covered by the most recent budgets/forecasts should be the most recent budgets/forecasts should be estimated by extrapolating the projections based on estimated by extrapolating the projections based on the budgets/forecasts using a steady or declining the budgets/forecasts using a steady or declining growth rate for subsequent years, unless an growth rate for subsequent years, unless an increasing rate can be justified. This growth rate increasing rate can be justified. This growth rate should not exceed the long-term average growth should not exceed the long-term average growth rate for the products, industries, or country or rate for the products, industries, or country or countries in which the enterprise operates, or for the countries in which the enterprise operates, or for the market in which the asset is used, unless a higher market in which the asset is used, unless a higher rate can be justified.rate can be justified.

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Accounting Standard 28 – Impairment Accounting Standard 28 – Impairment of Assetsof Assets Estimates of future cash flows should include: Estimates of future cash flows should include:

a)a) projections of cash inflows from the continuing use projections of cash inflows from the continuing use of the asset; of the asset;

b)b) projections of cash outflows that are necessarily projections of cash outflows that are necessarily incurred to generate the cash inflows from incurred to generate the cash inflows from continuing use of the asset (including cash outflows continuing use of the asset (including cash outflows to prepare the asset for use) and that can be to prepare the asset for use) and that can be directly attributed, or allocated on a reasonable and directly attributed, or allocated on a reasonable and consistent basis, to the asset; and consistent basis, to the asset; and

c)c) net cash flows if any to be received (or paid) for the net cash flows if any to be received (or paid) for the disposal of the asset at the end of its useful life.disposal of the asset at the end of its useful life.

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Accounting Standard 28 – Impairment Accounting Standard 28 – Impairment of Assetsof Assets Future cash flows should be estimated for the asset Future cash flows should be estimated for the asset

in its current condition. They should not include in its current condition. They should not include estimated future cash inflows or outflows that are estimated future cash inflows or outflows that are expected to arise from: expected to arise from:

a)a) a future restructuring to which the enterprise is not a future restructuring to which the enterprise is not yet committed; oryet committed; or

b)b) future capital expenditure that will improve or future capital expenditure that will improve or enhance the asset in excess of its originally enhance the asset in excess of its originally assessed standard of performance.assessed standard of performance.

Estimates of future cash flows should not include; Estimates of future cash flows should not include; (a) cash inflows or outflows from financing activities; (a) cash inflows or outflows from financing activities; or (b) income tax receipts or payments.or (b) income tax receipts or payments.

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Accounting Standard 28 – Impairment Accounting Standard 28 – Impairment of Assetsof Assets The estimate of net cash flows to be received (or The estimate of net cash flows to be received (or

paid) for the disposal of an asset at the end of its paid) for the disposal of an asset at the end of its useful life should be the amount that is expected to useful life should be the amount that is expected to be obtained from the disposal of the asset in an arm’s be obtained from the disposal of the asset in an arm’s length transaction between knowledgeable, willing length transaction between knowledgeable, willing parties, after deducting the estimated costs of parties, after deducting the estimated costs of disposal.disposal.

The discount rate should be a pre tax rate that reflect The discount rate should be a pre tax rate that reflect current market assessments of the time value of current market assessments of the time value of money and the risks specific to the asset and should money and the risks specific to the asset and should not reflect risks for which future cash flow estimates not reflect risks for which future cash flow estimates have been adjusted.have been adjusted.

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Accounting Standard 28 – Impairment Accounting Standard 28 – Impairment of Assetsof Assets An impairment loss should be recognised as an An impairment loss should be recognised as an

expense in the profit and loss account immediately. expense in the profit and loss account immediately. Impairment loss is the reduction in carrying amount of Impairment loss is the reduction in carrying amount of the assets to its recoverable amount.the assets to its recoverable amount.

If the estimated impairment loss is greater than the If the estimated impairment loss is greater than the carrying amount of the asset, recognise a liability if, carrying amount of the asset, recognise a liability if, and only if, required by another AS.and only if, required by another AS.

The depreciation/amortisation charge for the asset The depreciation/amortisation charge for the asset should be adjusted in future periods to allocate the should be adjusted in future periods to allocate the asset’s revised carrying amount, less its residual asset’s revised carrying amount, less its residual value on a systematic basis over its remaining useful value on a systematic basis over its remaining useful life.life.

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Accounting Standard 28 – Impairment Accounting Standard 28 – Impairment of Assetsof Assets A reversal of an impairment loss for an asset should A reversal of an impairment loss for an asset should

be recognised as income immediately in profit and be recognised as income immediately in profit and loss account. In case of revalued assets, the same loss account. In case of revalued assets, the same should be treated as a revaluation increase as per should be treated as a revaluation increase as per AS10.AS10.

After a reversal of an impairment loss, the After a reversal of an impairment loss, the depreciation (amortisation) charge for the asset depreciation (amortisation) charge for the asset should be adjusted in future periods to allocate the should be adjusted in future periods to allocate the asset’s revised carrying amount, less its residual asset’s revised carrying amount, less its residual value (if any) on a systematic basis over its remaining value (if any) on a systematic basis over its remaining useful life.useful life.

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Accounting Standard 29 – Provisions, Accounting Standard 29 – Provisions, Contingent Liabilities and Contingent Contingent Liabilities and Contingent AssetsAssets A provision should be recognised when:A provision should be recognised when:

a)a) an enterprise has a present obligation as a an enterprise has a present obligation as a result of a past event;result of a past event;

b)b) it is probably (more likely than not) that an it is probably (more likely than not) that an outflow of resources will be required to settle outflow of resources will be required to settle the obligation; andthe obligation; and

c)c) a reliable estimate can be made of the a reliable estimate can be made of the amount of the obligation.amount of the obligation.

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Accounting Standard 29 – Provisions, Accounting Standard 29 – Provisions, Contingent Liabilities and Contingent Contingent Liabilities and Contingent AssetsAssets A contingent liability is not recognised in the A contingent liability is not recognised in the

financial statements but is disclosed.financial statements but is disclosed.

A contingent asset is not recognised in A contingent asset is not recognised in financial statements.financial statements.

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

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Accounting Standard 29 – Provisions, Accounting Standard 29 – Provisions, Contingent Liabilities and Contingent Contingent Liabilities and Contingent AssetsAssets The risks and uncertainties that inevitably The risks and uncertainties that inevitably

surround many events and circumstances surround many events and circumstances should be taken into account in arriving at the should be taken into account in arriving at the best estimate of provision to avoid its under or best estimate of provision to avoid its under or over statement.over statement.

Expected future events, which are likely to Expected future events, which are likely to affect the amount required to settle an affect the amount required to settle an obligation, may be important in measuring obligation, may be important in measuring provisions.provisions.

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Accounting Standard 29 – Provisions, Accounting Standard 29 – Provisions, Contingent Liabilities and Contingent Contingent Liabilities and Contingent AssetsAssets In the statement of profit and loss, the expense In the statement of profit and loss, the expense

relating to a provision may be presented net of the relating to a provision may be presented net of the amount recognised for a reimbursement. amount recognised for a reimbursement.

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

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

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Thank YouThank You

Documents

Deloitte. Deloitte Haskins & Sells ACCOUNTING STANDARDS November 30, 2008