Concept of Accounting and Impact of Accounting

Parikshit Purandare FYMMSVIVA IMR

ObjectivesConcept of Accounting Explaining nine Accounting concepts A case study of Company DLF Ltd. Allegation

on company is impacting on Accounting Standards and balance sheet

What is Accounting Concept ?Accounting concept refers to the basic

assumptions and rules and principles which work as the basis of recording of business transactions and preparing accounts.

Accounting ConceptsBusiness entity conceptMoney measurement conceptGoing concern conceptAccounting period conceptAccounting cost conceptDuality aspect conceptRealization conceptAccrual conceptMatching concept

Business entity conceptThe business enterprise and its owners are

two separate independent entitiesThus, the business and personal transactions

of its owner are separate.

Money measurement conceptThe transactions which can be expressed in

terms of money are recorded in the books of accounts.

In our country such transactions are in terms of rupees.

Going concern conceptA business firm will continue to carry on its

activities for an indefinite period of time. Thus, it will not be dissolved in the near

future.This is an important assumption of

accounting, as it provides a basis for showing the value of assets in the balance sheet

Accounting period conceptAll the transactions are recorded in the books

of accounts on the assumption that profits on these transactions are to be ascertained for a specified period.

This concept requires that a balance sheet and profit and loss account should be prepared at regular intervals.

Accounting cost conceptAll assets are recorded in the books of

accounts at their purchase priceIt includes cost of acquisition, transportation

and installation and not at its market price

Duality aspect conceptIt can be expressed by equation

Assets = Liabilities + CapitalIt affects two accounts in their respective

opposite sides.

Realization conceptRevenue from any business transaction

should be included in the accounting records only when it is realized.

Revenue is said to have been realized when cash has been received.

Accrual conceptAn amount of money that is yet to be paid or

received at the end of the accounting period. Revenue is realized at the time of sale of

goods or services irrespective of the fact when the cash is received.

Matching conceptRevenue and the expenses incurred to earn

the revenues must belong to the same accounting period.

Once the revenue is realized, the next step is to allocate it to the relevant accounting period.

DLF LTD IPO in 2007May 7,2007 :Red Hearing Prospectus approval by SEBI July 18,2007 :Listed at BSE and NSEMr. Kimsuk Krishna Sinha filed complaints1)June 4,2007 : Sudipti Estates Private Limited ("Sudipti")

has duped him by Rs.34crore in transaction of land.2)July 19,2007: To SEBI about his first complain & take

actionApril 9, 2010 :Then Written petition to was given to

Honorable Delhi High Court in to investigate DLF Ltd. by SEBI

Related companies DLF Retail Developers Ltd. ("DRDL") DLF Home Developers Ltd. ("DHDL") DLF Estate Developers Ltd. ("DEDL")Sudipti Estates Private Limited ("Sudipti") Shalika Estate Developers Private

Limited("Shalika")Felicite Builders & Construction Pvt. Ltd.

("Felicite")

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ("SAST Regulations")

Accounting Standard-23 ("AS-23") : failed to disclose names of these subsidiary companies should have been disclosed in the RHP/Prospectus of DLF

Violated the provisions of clauses 6.2, 6.9.6.6., 6.10.2.3, 6.11.1.2, 6.15.2 and 9.1 of DIP Guidelines read with regulation 111 of ICDR Regulations and section 11 of the Securities and Exchange Board of India Act, 1992 ("SEBI Act")

Control over the composition of Board of directors of a company‟ prescribed by Section 4(2) of the Companies Act, 1956 and AS 21

Provisions of section 12 A(a), (b) and (c) of SEBI Act read with regulations 3 (a), (b), (c), (d), 4(1), 4 (2)(f) and (k) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ("PFUTP Regulations").

Key Management Personnel for the purposes of AS-18

1

Sudipti had entered into a development agreement during the year 2006 with DLF Commercial Projects Corporation (DCPC) a partnership firm of DLF. DCPC had provided performance deposit amounting to Rs45 crore during the year 2006-07 to Sudipti.

During the period Sep-Oct, 2006,Sudipti was funded by DLF‟s subsidiaries / associates through a series of transactions through an entity named Vikram Electric & Equipments Pvt. Ltd. ("Vikram"). These funds were used for purchase of land and creation of development rights on the land so acquired.

As per the annual accounts of Sudipti for the year 2011-12, this

amount is appearing is as liability even after 6 years of claimed dissociation.

Both Sudipti and Shalika did not account for any expenses on account of operations, cost of establishment/personnel, rent, electricity, telephone, property tax or salary in their books of accounts during the financial year 2006-07 and 2007-08. It has been alleged that some other entity was incurring /absorbing such costs.

Impact of 3years ban by SEBI on DLF Ltd.Before news of ban in Stock Market

Cont…After news of ban in Stock Market

Bibliography http://www.sebi.gov.in/cms/sebi_data/

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Applicationhttp://cms.sinhagad.edu/

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