accounting standards ias- after 2001- international financial reporting standards ( ifrs)- iasb,...

Accounting StandardsAccounting Standards

IAS- after 2001- International IAS- after 2001- International Financial Reporting Standards Financial Reporting Standards ( IFRS)- IASB, London(june,’73)( IFRS)- IASB, London(june,’73)US GAAP- FASBUS GAAP- FASBGAAP – OTHER COUNTRIESGAAP – OTHER COUNTRIESINDIAN ACCOUNTING INDIAN ACCOUNTING STANDARD – ICAISTANDARD – ICAIConvergence with IFRS-1/4/2011Convergence with IFRS-1/4/2011

Accounting Standards-WHY?Accounting Standards-WHY?

To harmonise the diverse accounting To harmonise the diverse accounting practices and policies in use.practices and policies in use.

UnderstandabilityUnderstandability RelevanceRelevance ReliabilityReliability ComparabilityComparability AcceptabilityAcceptability

Indian Accounting StandardsIndian Accounting Standards

ASB set up on 21-4-77 by the ICAIASB set up on 21-4-77 by the ICAI ASB board include representatives from ASB board include representatives from

ICSI/ICWAI/Industry Assns./RBI/SEBI/Controller ICSI/ICWAI/Industry Assns./RBI/SEBI/Controller General of Accounts/CBEC/Financial General of Accounts/CBEC/Financial Insttns./Academic Instns.(2)Insttns./Academic Instns.(2)

Accounting Stds. – in all 29 released by ICAI to Accounting Stds. – in all 29 released by ICAI to be adopted.be adopted.

Draft AS-30-Financial Instruments-Recognition & Draft AS-30-Financial Instruments-Recognition & measurement ( w.e.f. 1-4-09)measurement ( w.e.f. 1-4-09)

Draft AS-31-Financial Instruments-presentationDraft AS-31-Financial Instruments-presentation

Indian Accounting StandardsIndian Accounting StandardsApplicabilityApplicability

Classification of Enterprises- Classification of Enterprises- Level-ILevel-I all commercial, industrial and business enterprises all commercial, industrial and business enterprises

having turnover of Rs. 50 crore and above in the Prev. having turnover of Rs. 50 crore and above in the Prev. Year.Year.

Having borrowings of over Rs. 10 crore in previous year.Having borrowings of over Rs. 10 crore in previous year. Their holding and subsidiary companies.Their holding and subsidiary companies. Banks including copt. BanksBanks including copt. Banks Financial InstitutionsFinancial Institutions Enterprises whose securities or debt are listed in a stock Enterprises whose securities or debt are listed in a stock

exchange.exchange. Insurance businessInsurance business


Level-IILevel-II All commercial, industrial and business enterprises with All commercial, industrial and business enterprises with

turnover exceeding Rs. 40 lacs but not exceeding Rs. 50 turnover exceeding Rs. 40 lacs but not exceeding Rs. 50 crore in the previous year. Turnover does not include “ crore in the previous year. Turnover does not include “ Other income”Other income”

Having borrowings including public deposits of over Rs. Having borrowings including public deposits of over Rs. 1 crore but not more than Rs. 10 crore.1 crore but not more than Rs. 10 crore.

Holding and subsidiary cos. of the above.Holding and subsidiary cos. of the above.


Level-IIILevel-III Enterprises not covered under Level-I Enterprises not covered under Level-I

and Level-II are Level-III enterprisesand Level-II are Level-III enterprises Applicable to all Levels:Applicable to all Levels: AS-1/2/AS-4 to AS-16/AS-22 and AS-26AS-1/2/AS-4 to AS-16/AS-22 and AS-26 Exemptions for Level-II and Level-IIIExemptions for Level-II and Level-III AS-3, AS-17, AS-18, AS-21. AS-23, AS-24 AS-3, AS-17, AS-18, AS-21. AS-23, AS-24

and AS-27 and partially AS-19, 20 and and AS-27 and partially AS-19, 20 and AS-29AS-29

Indian Accounting StandardsIndian Accounting StandardsDisclosure of Accounting Policies(AS-1)Disclosure of Accounting Policies(AS-1) Disclose all significant accounting policies Disclose all significant accounting policies

adopted adopted in one place.in one place. To reveal true and fair view of the financial To reveal true and fair view of the financial

positionposition Major consideration for selection of acctg. Major consideration for selection of acctg.

Polices- prudence, substance over form and Polices- prudence, substance over form and materialitymateriality

Disclosure of policies not a substitute for Disclosure of policies not a substitute for accounting treatmentaccounting treatment

Deviations in fundamental accounting Deviations in fundamental accounting assumptions to be disclosed.assumptions to be disclosed.

Valuation of Inventories( AS-2)Valuation of Inventories( AS-2)Purpose:Purpose: To formulate the method of valuation of To formulate the method of valuation of

inventories on hand for Balance Sheet purposes.inventories on hand for Balance Sheet purposes.Inventories include:Inventories include:1)1) Finished goods held for sale in the ordinary course Finished goods held for sale in the ordinary course

of business.of business.2)2) Raw material/WIP in the process of production of Raw material/WIP in the process of production of

such sale.such sale.3)3) Material and spares to be consumed for such Material and spares to be consumed for such

production( does not include machinery)production( does not include machinery)4)4) Spares which are used in common with all fixed Spares which are used in common with all fixed

assets.assets.

Valuation of Inventories( AS-2)Valuation of Inventories( AS-2)

Does not includeDoes not include:-:-

1)1) WIP directly related to construction WIP directly related to construction contract or service contracts.contract or service contracts.

2)2) WIP of service providers.WIP of service providers.

3)3) Financial instruments held as stock in Financial instruments held as stock in trade. trade.

4)4) Producer’s inventories like livestock, Producer’s inventories like livestock, mineral oil, ore, gas etc.mineral oil, ore, gas etc.


Cost of inventory Cost of inventory includes:includes:1)1) Cost of purchases.Cost of purchases.

a)a) Purchase pricePurchase priceb)b) Duties and taxesDuties and taxesc)c) Freight inwardFreight inwardd)d) Other exp. Attributed to acquisition.Other exp. Attributed to acquisition.Less: a) duties /taxes recoverable from govt.Less: a) duties /taxes recoverable from govt. b) Trade discount ( c ) rebate b) Trade discount ( c ) rebate d) Duty draw back e) other similar items.d) Duty draw back e) other similar items.


Cost of Inventory Cost of Inventory includes:-includes:-

2)2) Cost of conversion-Cost of conversion-1)1) Direct Labour/Material/expenses.Direct Labour/Material/expenses.

2)2) Fixed production overheads.( on normal capacity)Fixed production overheads.( on normal capacity)

3)3) Variable production overheads.( on actual Variable production overheads.( on actual production)production)

4)4) In case of joint products- rational and consistent In case of joint products- rational and consistent allocationallocation

5)5) Scrap/by-product net realizable value deducted Scrap/by-product net realizable value deducted from costs.from costs.


Inclusion of excise duty in valuation of Inclusion of excise duty in valuation of finished goods- as applicable on the finished goods- as applicable on the balance sheet date. ( neutral effect)balance sheet date. ( neutral effect)

Care! Production for exports.Care! Production for exports.


Exclusions from cost of inventoriesExclusions from cost of inventories:-:-

1)1) Abnormal costs, wastage etc.Abnormal costs, wastage etc.

2)2) Storage costsStorage costs

3)3) Administrative overheadsAdministrative overheads

4)4) S & D costs.S & D costs.

5)5) Interest & borrowing costs.Interest & borrowing costs.


Cost of inventories determined by:-Cost of inventories determined by:-

1)1) Specific identification method.Specific identification method.

2)2) FIFO or weighted average cost.FIFO or weighted average cost.

3)3) Standard cost.Standard cost.

4)4) Retail Method( target cost)Retail Method( target cost)


Net Realisable Value (NRV)Net Realisable Value (NRV)

Is the estimated selling price less Is the estimated selling price less estimated cost of completion and estimated cost of completion and estimated cost necessary to make the estimated cost necessary to make the sale. sale.

Calculated on each Balance Sheet date.Calculated on each Balance Sheet date.


Estimation of NRV:-Estimation of NRV:-a)a) If finished product in which raw material and If finished product in which raw material and

supplies used is sold at or above the cost , supplies used is sold at or above the cost , then estimated NRV of Raw material and then estimated NRV of Raw material and supplies is shown at more than its cost.supplies is shown at more than its cost.

b)b) If finished goods in which raw material and If finished goods in which raw material and supplies used is sold below the cost, then the supplies used is sold below the cost, then the estimated NRV of raw material and supplies is estimated NRV of raw material and supplies is equal to replacement price of raw material and equal to replacement price of raw material and supplies.supplies.


MODVAT and now CENVATMODVAT and now CENVAT

(wef-1-4-2000):-(wef-1-4-2000):- For Income Tax purpose:- Inventory costs For Income Tax purpose:- Inventory costs

include CENVAT paid on the item.include CENVAT paid on the item. For Balance Sheet purpose:- CENVAT For Balance Sheet purpose:- CENVAT

amount debited to separate account as amount debited to separate account as receivables.( AS-2)receivables.( AS-2)

Valuation of Inventories( AS-2) Valuation of Inventories( AS-2) IAS/US Gaap Vs. Indian ASIAS/US Gaap Vs. Indian AS

IAS/US Gaap-IAS/US Gaap- only selling costs excluded. only selling costs excluded. Indian ASIndian AS – both selling & distribution costs – both selling & distribution costs

excluded.excluded. IAS/US Gaap-IAS/US Gaap- No stipulation on formula for No stipulation on formula for

valuation of inventories. But to be uniformly valuation of inventories. But to be uniformly followed for all inventories of similar nature and followed for all inventories of similar nature and use.use.

Indian AS-Indian AS- Only FIFO or WACC to be followed. Only FIFO or WACC to be followed.

Depreciation Accounting ( AS-6)Depreciation Accounting ( AS-6)

Reduction in value of the asset on Reduction in value of the asset on account of usage and passage of time.account of usage and passage of time.

1)1) When used for more than one When used for more than one accounting period.accounting period.

2)2) Assets having limited useful life.Assets having limited useful life.

3)3) Held for use in production of goods or Held for use in production of goods or services.services.


AS applicable to all depreciable assets AS applicable to all depreciable assets except:-except:-

Forests. Plantations.Forests. Plantations. Minerals and Natural gasMinerals and Natural gas Exp. On R & DExp. On R & D GoodwillGoodwill LivestockLivestock


Cost of depreciable assets may change from Cost of depreciable assets may change from historic cost due to:-historic cost due to:- Exchange fluctuations.Exchange fluctuations. Price adjustmentsPrice adjustments Changes in duties.Changes in duties. RevaluationRevaluation Other similar reasons.Other similar reasons.

Depreciable amount is historic cost as adjusted as Depreciable amount is historic cost as adjusted as above less residual value. This is allocated over the above less residual value. This is allocated over the useful life of the asset.useful life of the asset.


Methods– (1) SLM ( 2) WDVMethods– (1) SLM ( 2) WDV Changes in method- to calculate from the date of Changes in method- to calculate from the date of

acquisition and account for in books.acquisition and account for in books. Depreciation due to revaluation/increased useful Depreciation due to revaluation/increased useful

life/addition or extension of the asset etc. to be life/addition or extension of the asset etc. to be charged on the residual life of the asset.charged on the residual life of the asset.

When the asset is disposed of, the When the asset is disposed of, the surplus/deficiency is adjusted to P & L accountsurplus/deficiency is adjusted to P & L account

Contingencies/events after the Contingencies/events after the Balance Sheet date ( AS-4)Balance Sheet date ( AS-4)

Based on accrual based and prudent accounting Based on accrual based and prudent accounting policies.policies.

Not applicable for:-Not applicable for:-

a)a) Liabilities of Life insurance and General Liabilities of Life insurance and General Insurance.Insurance.

b)b) Obligations under Retirement benefit plan.Obligations under Retirement benefit plan.

c)c) Commitments arising from long term lease Commitments arising from long term lease contracts.contracts.


Contingencies means existing condition or Contingencies means existing condition or situation for which result is not known and situation for which result is not known and is dependent on certain happenings or is dependent on certain happenings or non-happenings and which may result into non-happenings and which may result into profit or loss.profit or loss.

Loss contingencies-e.g.Loss contingencies-e.g. Collection of receivables.Collection of receivables. Litigations, claims on assets for recoveryLitigations, claims on assets for recovery


Contingency Loss:-Contingency Loss:- Due to existing conditions/situationsDue to existing conditions/situations If probable- provision should be If probable- provision should be

made( depending on counter claim if any).made( depending on counter claim if any). If reasonably possible- disclosure to made.If reasonably possible- disclosure to made. If remote- ignored.If remote- ignored. Due to conditions/situations after the Due to conditions/situations after the

Balance Sheet dateBalance Sheet date:: No acctg .required No acctg .required


Events occurring after the Balance Sheet date:-Events occurring after the Balance Sheet date:- Events relate to circumstances existing as on the date Events relate to circumstances existing as on the date

of Balance Sheetof Balance Sheet Loss should be accounted and assets/liabilities adjusted.Loss should be accounted and assets/liabilities adjusted. Proposed dividend to be adjusted in the booksProposed dividend to be adjusted in the books

New Events( not existing on Balance Sheet date)New Events( not existing on Balance Sheet date)

Disclosure by way of notes to accounts only.Disclosure by way of notes to accounts only.

Events occurring after approval of accounts- show in Directors’ Events occurring after approval of accounts- show in Directors’ Report.Report.

Un accounted contingent losses- by way of notes.Un accounted contingent losses- by way of notes.

accounting standards ias- after 2001- international financial reporting standards ( ifrs)- iasb,...

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accounting standards

accounting stds

diverse accounting practices

business enterprises

insurance business slide

valuation of inventories

turnover of rs

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