Accounting Standard india

ACCOUTING STANDARDS CHECKLISTSA 2011-12

ACCOUNTING STANDARDS CHECKLIST

Please note that this is meant to be a checklist and work paper after the audit has been conducted by referring to the original standards/ASI /Announcements and nothing can substitute the same. Please refer to the full text of original standard/ ASI when doing audit or when in doubt.

Important changes are: (Read these carefully)

A. Applicability:1. Exemptions have been provided to SMC (small and medium sized company) which is:a) not a bank, financial institution or insurance co.b) a company whose equity/debt securities are not listed or are not in the process of listing on any recognised stock exchange in India or abroad.c) whose turnover (excluding other income) does not exceed Rs 50 cr in the preceding accounting year d) which does not have borrowings including public deposits in excess of Rs 10 Cr at any time during the preceding accounting year (Pl note main difference from earlier definitions in standards which said “… in excess of Rs. 10 crore at any time during the accounting period.)e) which is not a holding co. or subsidiary co. of a company which is not an SMC.

If an SMC does not disclose some information. pursuant to exemption/relaxation given to it, shall disclose by way of a note that it is an SMC and has complied with Accounting standards as applicable to SMC.

If SMC first check the applicability of standards as applicable to SMC and whether they want to follow the exemptions etc. For this refer to the announcement by ICAI council at its 236 th meeting. ( Annex-APPLICABILITY OF ACCOUNTING STANDARDS.doc)

The major things to note in SMC are:• 1. This note must be there: “The Company is a Small and Medium Sized Company

(SMC) as defined in the General Instructions in respect of Accounting Standards notified under the Companies Act, 1956. Accordingly, the Company has complied with the Accounting Standards as applicable to a Small and Medium Sized Company.”

• 2. Exempt standards: AS 3 cash flow and AS 17 Segment reporting- only – Related party exemption not there

• 3. Disclosure exceptions: AS 15, AS 19, AS 20, AS 28, AS 29

B. AS 11 revised:

Pl take care of ICAI announcement dated 29 Mar 08 regarding Derivatives. This continues to apply.

Government has given a notification dated Mar 31, 09 & Dec 29, 2011 and Circular dated Aug 09, 2012 giving an option to companies to capitalize long term forex differences related to depreciable assets, exchange differences arising from foreign currency borrowings to

PKF Sridhar & Santhanam 1


the extent regarded as an adjustment to interest costs and to defer such differences related to non depreciable monetary items.If the option is exercised ensure that the Notifications and ICAI FAQ issued in May 09 are clearly followed.Key things to note:

1. Applicable to long term forex differences only.2. The deferral if done has to be till Mar 31, 2020 only in respect of accounting

periods commencing on or after 7th Dec 2006 and ending on or before 31st March 2012. (There can’t be a carry forward beyond Mar 31, 2020).

3. In respect of accounting periods commencing on or after 1st Apr 2011, the deferral if done has to be over the balance period of such long term asset/liability.

4. Depreciable assets include intangibles which are amortised and assets acquired in India too

5. Covers forward exchange contracts and derivatives covered by AS 11 too. But does not cover contracts entered into to hedge the foreign currency risks of future transactions in respect of which firm commitments are made or which are highly probable forecast transactions –which are covered by AS 30.

6. Monetary items in non integral foreign operation are not covered.7. Option once exercised is not reversible8. In respect of accounting periods commencing on or after 1st April, 2011, such

option can be exercised by a company even if not previously opted; after that it becomes irreversible.

9. Note should be given and AS 5 complied with10. Foreign currency monetary items translation difference account shall be disclosed

separately like deferred tax assets/liabilities in BS.(i.e after investments /unsecured loans as the case may be)

11. Exchange differences covered by para 4(e) of AS 16 shall not apply. (i.e we need not see if any of the exchange differences are related to interest rate differential between a forex loan and Indian Re loan. Entire exchange diff. to be capitalised.)

12. After capitalization we should check for compliance of AS 28.13. Deferred tax if any shall be adjusted.



AS-1 : DISCLOSURE OF ACCOUNTING POLICIES

General:1. Have all significant accounting policies been disclosed?2. Have all accounting policies been disclosed in one place?3. Does the disclosure form part of the financial statements?4. Has any change in accounting policy which has a material effect in the current period or which is reasonably expected to have a material effect in later periods been disclosed?5. In the case of a change which has a material effect in the current period has the amount by which any item in the financial statements is affected by such change been disclosed to the extent ascertainable?Where the amount is not ascertainable, has the fact been indicated?6. Has disclosure been made if any of the fundamental accounting assumptions have not been followed viz.,a) Going concernb) Consistency and c) Accrual .7. Has major considerations governing the selection & application of accounting policies followed?a) Prudenceb) Substance over formc) Materiality

Check list for accounting policies:Clause 14 of AS:1. Methods of depreciation, depletion and amortization.2. Treatment of expenditure during construction.3. Conversion or translation of foreign currency items.4. Valuation of inventories.5. Treatment of goodwill.6. Valuation of investments.7. Treatment of retirement benefits.8. Recognition of profit on long term contracts.9. Valuation of fixed assets.10. Treatment of contingent liabilitiesOthers:11. Taxation and deferred taxation12. Recognition of income. 13. Valuation of intangibles incl. R&D14. Provisions and contingent liabilities

Disclosure:

a. Ensure for proper understanding of financial statements, all significant accounting policies adopted in the preparation and presentation of financial statements should be disclosed.

b. Has changes in an accounting policy which has a material effect disclosed. ?



Announcement in CA journal -Dec 05 (page 927):

An enterprise should disclose the criteria applied for recognition and measurement of the derivative instruments which are used by the enterprise for hedging or for other purposes and the criteria applied for recognition and measurement of income and expenses arising from such instruments.

The enterprise should at the minimum disclose the following:

category-wise quantitative data about the derivative instruments that are outstanding at the BS date;

the purpose viz. hedging or speculation for which such derivative instruments have been acquired and

the foreign currency exposures that are not hedged by a derivative instrument or otherwise.



AS-2 : VALUATION OF INVENTORIES

1. Are all Inventories valued at the lower of cost and net realisable value? (Net realisable Value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.)

2. Does the cost of inventories comprise all costs of purchase, cots of conversion and other costs incurred in bringing the inventories to their present location and condition?

3. Do the costs of purchase consist of the purchase price including duties and taxes (other than those subsequently recoverable by the enterprise from the taxing authorities), freight inwards and other expenditure directly attribute to the acquisition? Are Trade discounts, rebates, duty drawbacks and other similar items deducted in determining the costs of purchase?

4. Do the costs of conversion of inventories include costs directly related to the units of production, such as direct labour? Do they also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods?( Fixed production overheads are those indirect costs of production that remain relatively constant regardless of the volume of production, such as depreciation and maintenance of factory buildings and the cost of factory management and administration. Variable production overheads are those indirect costs of production that vary directly, or nearly directly, with the volume of production, such as indirect materials and indirect labour.)

5. Is the allocation of fixed production overheads for the purpose of their Inclusion in the costs of conversion based on the normal capacity of the production facilities? (Normal capacity is the production expected to be achieved on an average over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. The actual level of production may be used if it approximates normal capacity. The amount of fixed production overheads allocated to each unit of production is not increased as a consequence of low production or idle plant. Unallocated overheads are recognised as an expense in the period in which they are incurred. In periods of abnormally high production, the amount of fixed production overheads allocated to each unit of production is decreased so that inventories are not measured above cost. Variable production overheads are assigned to each unit of production on the basis of the actual use of the production facilities.)

6. When a production process results in more than one product being produced simultaneously . and when the costs of conversion of each product are not separately identifiable, are they allocated between the products on a rational and consistent basis? Are by-products as well as scrap or waste materials,which by their nature, are immaterial, measured at net realisable value and this value is deducted from the cost of the main product?

7. Are other costs included in the cost of inventories only to the extent that they are incurred in bringing the inventories to their present location and condition? (For example, it may be appropriate to include overheads other than production overheads or the costs of designing products for specific customers in the cost of inventories.)

8. Are Interest and other borrowing costs which are usually considered as not relating to bringing the inventories to their present location and condition not included in the cost of inventories?



9. In determining the cost of inventories have the following been excluded and recognised as expenses in the period in which they are incurred:

(a) abnormal amounts of wasted materials, labour, or other production costs;(b) storage costs, unless those costs are necessary in the production process prior

to further production stage;(c) administrative overheads that do not contribute to bringing the inventories to their

present location and condition; and(d) selling and distribution costs.

10. Have the cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects been assigned by specific identification of their individual costs?

11. Has specific identification of costs been adopted for items that are segregated for a specific project, regardless of whether they have been purchased or produced. (However, when there are large numbers of items of inventory which are ordinarily interchangeable, specific identification of costs is inappropriate since, in such circumstances, an enterprise could obtain predetermined effects on the net profit or loss for the period by selecting a particular method of ascertaining the items that remain in inventories.)

12. Has the cost of inventories, other than those dealt with in paragraph above, been assigned by using the first-in, first-out (FIFO), or weighed average cost formula? (The formula used should reflect the fairest possible approximation to the cost incurred in bringing the items of inventory to their present location and condition.) (Formula other than FIFO/Weighted average is not allowed now)

13. Where techniques for the measurement of the cost of inventories, such as the standard cost method or the retail method, have been used for convenience, do the results approximate the actual cost? (Standard costs take into account normal levels of consumption of materials and supplies, labour, efficiency and capacity utilisation. They are regularly reviewed and, if necessary, revised in the light of current conditions.)

14. Where the cost of inventories may not be recoverable (because those inventories are damaged or if they have become wholly or partially obsolete, or if their selling prices have declined or if the estimated costs of completion or the estimated costs necessary to make the sale have increased) has the company written down inventories below cost to net realisable value consistent with the view that assets should not be carried in excess of amounts expected to be realised from their sale or use?

15. Have Inventories been written down to net realisable value on an item-by-item basis? If not, do the circumstances justify grouping similar or related items, for instance:for items of inventory relating to the same or related items or items of inventory relating to the same product line that have similar purposes or end users and produced and marketed in the same geographical area and cannot be practicably evaluated separately from other items in that product line?

16. Are estimates of net realisable value based on the most reliable evidence available at the time the estimates are made as to the amount the inventories are expected to realise and do these estimates take into consideration fluctuations of price or cost directly relating to



events occurring after the balance sheet date to the extent that such events confirm the conditions existing at the balance sheet date?

17. Do estimates of net realisable value also take into consideration the purpose for which the inventory is held? (For example, the net realisable value of the quantity of inventory held to satisfy firm sales or service contracts is based on the contract price. If the sales contracts are for less than the inventory quantities held, the net realisable value of the excess inventory is based on general selling prices. Contingent losses on firm sales contracts in excess of inventory quantities held and contingent losses on firm purchase contracts are dealt with in accordance with the principles enunciated in Accounting Standard ( AS) 4, Contingencies And Events Occurring After The Balance Sheet Date.)

18. Are materials and other supplies held for use in the production of inventories not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost? (However, when there has been a decline in the price of materials and it is estimated that the cost of finished products will exceed net realisable value, the materials are written down to net realisable value. In such circumstances, the replacement cost of the materials may be the best available measure of their net realisable value.)

19. Is an assessment made of net realisable value as at each balance sheet date?

Disclosure:

20. Whether the financial statements disclose:

(i) The accounting policies adopted in measuring inventories?(ii) Cost formula used in measuring inventories?(iii) Total carrying amount of inventories?(iv) Classification of inventories appropriate to the enterprise (such as raw materials and components, work-in-progress, finished goods, stores and spares, loose tools)?(v) Carrying amount of each classification of inventories?



AS-3 : CASH FLOW STATEMENTS

Applicability:

1. WEF 1.4.2001 :Applicable to all listed /about to be listed companies and all other commercial, industrial and

business reporting enterprises, whose turnover for the accounting period exceeds Rs.50 crores.2. Ensure that the Revised form of audit report prescribed in CA Journal Dec 2002 is used for all such enterprises by us.

Cash flow statement:

1. Have cash flows from operating activities been drawn up using Direct or indirect method? ( S&S would like clients to present Cash flow using Indirect method usually followed; for listed companies indirect method only to be followed)

2. Has cash flow been presented for current as well as previous year?3. Have cash on hand and demand deposits with banks been shown as cash?4. Have short term, highly liquid investments that are readily convertible into known

amounts of cash and which are subject to an insignificant risk of changes in value, been shown as cash equivalents?

5. Have you ensured that cash equivalents have a short maturity period –three months or less?

6. Are cash flows during the period classified by operating, investing and financing activities?

7. Are cash flows from operating activities primarily derived from the principal revenue-producing activities of the enterprise?

8. Have cash flows relating to expenditures made for resources intended to generate future income and cash flows been shown as cash flows of investing activities? (purchase and sale of fixed assets (including intangibles), investing in and sale of investments and advances (unless that is the main business of the enterprise), futures. options etc.)

9. Have cash flows related to providers of funds (both capital and borrowings) to the enterprise been taken as financing activities?

10. Has netting of cash flows been done only under following circumstances: 1) Cash flows arising from the following operating, investing or financing activities may be reported on a net basis: (a) cash receipts and payments on behalf of customers when the cash flows reflect the activities of the customer rather than those of the enterprise; and (b) cash receipts and payments for items in which the turnover is quick, the amounts are large, and the maturities are short. 2) Cash flows arising from each of the following activities of a financial enterprise may be reported on a net basis: (a) cash receipts and payments for the acceptance and repayment of deposits with a fixed maturity date; (b) the placement of deposits with and withdrawal of deposits from other financial enterprises; and (c) cash advances and loans made to customers and the repayment of those advances and loans.

11. In all other cases have cash flows been shown gross?12. Have Cash flows arising from transactions in a foreign currency been recorded in the

enterprise's reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the cash flow. (A rate that approximates the actual rate may be used if the result is substantially the same as would arise if the rates at the dates of the cash flows were used. The effect of changes in exchange rates on cash and cash equivalents held in a foreign currency should be reported as a separate part of the reconciliation of the changes in cash and cash equivalents during the period.)

13. Have the cash flows associated with extraordinary items been classified as arising from operating, investing or financing activities as appropriate and separately disclosed?



14. Have Cash flows from interest and dividends received and paid been disclosed separately?

15. Have Cash flows arising from interest paid and interest and dividends received in the case of a financial enterprise been classified as cash flows arising from operating activities?

16. In the case of other enterprises a) have cash flows arising from interest paid been classified as cash flows from financing activities? b) Have interest and dividends received classified been as cash flows from investing activities?

17. Have dividends paid been classified as cash flows from financing activities?18. Have Cash flows arising from taxes on income been separately disclosed and classified

as cash flows from operating activities unless they can be specifically identified with financing and investing activities?

19. Has the investor restricted its reporting to the cash flows between itself and the investee/JV , when accounting for an investment in an associate or a subsidiary or a joint venture, for example, cash flows relating to dividends and advances? (In stand alone FS)

20. Have the aggregate cash flows arising from acquisitions and from disposals of subsidiaries or other business units been presented separately and classified as investing activities?

21. Has the enterprise disclosed, in aggregate, in respect of both acquisition and disposal of subsidiaries or other business units during the period each of the following: (a) the total purchase or disposal consideration; and(b) the portion of the purchase or disposal consideration discharged by means of cash and cash equivalents?

22. Have Investing and financing transactions that do not require the use of cash or cash equivalents been excluded from a cash flow statement? Have such transactions been disclosed elsewhere in the financial statements in a way that provides all the relevant information about these investing and financing activities? (for instance: acquisition of enterprise by issue of shares; conversion of debt into equity etc.)

23. Has the enterprise disclosed the components of cash and cash equivalents and presented a reconciliation of the amounts in its cash flow statement with the equivalent items reported in the balance sheet?

24. Has the enterprise disclosed together with a commentary by management, the amount of significant cash and cash equivalent balances held by the enterprise that are not available for use by it?



AS-4 (REVISED): CONTINGENCIES AND EVENTS OCCURRING AFTER THE B/S DATE

CONTINGENCIES:1. Have all contingent losses been provided for if:

a) it is probable that future events will confirm after taking into a/c any related probable

recovery, an asset has been impaired or a liability has been incurred as at the B/S date

and

b) a reasonable estimate of the amount of the recurring loss can be made.

2.a) Has the existence of contingent loss been disclosed if either of the conditions stated above not met?b) If not, is the possibility of a loss remote?3. Have we confirmed that contingent gains have not been recognized in the financial statements?

EVENTS OCCURRING AFTER THE B/S DATE:4. Do the events occurring after the B/S date a) provide additional evidence to assist the estimation of amounts relating to conditions existing at the B/S date ?b) indicate that the fundamental accounting assumption of going concern is inappropriate?If yes, whether the assets and liabilities have been adjusted for this?5. Have dividends in respect of the period covered by the financial statements which are proposed to be declared after the B/S date but before approval of financial statements been provided for?( Check AGM notice also)6. Does the Board report include events occurring after the B/S date that represent material changes and commitments affecting the financial position of the enterprise? Does the Report include information on a) the nature of event;b) an estimate of the financial effect or a statement that such an estimate can’t be made.

Disclosure:

Are the contingencies or events affecting the financial position to a material extent? If yes, are following disclosed in respect of contingencies:

(a) the nature of the contingency;(b) the uncertainties which may affect the future outcome;(c) an estimate of the financial effect, or a statement that such an estimate cannotbe made.

Note: AS 4 will continue to apply for impairment of assets like receivables till a new AS is developed for financial instruments (Announcement AS 4-29)



AS – 5 (REVISED) : NET PROFIT OR LOSS FOR THE PERIOD, PRIOR PERIOD ITEMS AND CHANGES IN ACCOUNTING POLICIES

1. Have all items of income and expenses which are recognized in a period been included in the determination of the net profit or loss unless an AS requires or permits otherwise?2. Does the net profit or loss for the period comprise the following which have been disclosed on the face of the statement of profit and loss:a) profit or loss from ordinary activities ( activities which are undertaken by an enterprise as part of its business and such related activities in which the enterprise engages in furtherance of, incidental to , or arising from these activities)b) extra-ordinary items (income or expense that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and therefore, not expected to recur frequently or regularly.)3. Have extra-ordinary items been disclosed in the statement of profit and loss as a part of net profit or loss for the period? Have the nature and amount of each extra ordinary item been separately disclosed in the statement of profit and loss in a manner that its impact on current profit or loss can be perceived?Example: loss sustained as a result of earthquake -(except in the case of an insurance company arising from policy holders.); attachment of property of the enterprise etc.4. When items of income and expense within profit or loss from ordinary activities are of such size, nature or incidence that their disclosure is relevant to explain the performance of the enterprise for the period, has the nature and amount of such item been disclosed separately?Examples:a) Write down of inventories to NRV as well as reversal of such write downsb) Restructuring of activities and reversal of any provision for costs of restructuringc) disposal of items of fixed assetsd) disposal of long-term investmentse) legislative changes having retrospective applicationf) litigation settlementsg) other reversals of provisions5. Have the nature and amount of prior period items( income or expenses which arise in the current period as a result of errors or omissions in the preparation of financial statements of one or more prior periods) been disclosed separately in the statement of profit and loss in a manner that their impact on the current profit or loss can be perceived?6. Has it been ensured that the following are not treated as prior period items?

Adjustments necessitated by circumstances which though related to prior period are determined in the current period-like arrears payable to workers as a result of retrospective wage revisions

Revisions of accounting estimates which need to be revised based on additional information received7. Where it is difficult to distinguish between a change in an accounting estimate and a change in an accounting policy, has the change been treated as a change in accounting estimate with appropriate disclosure?8. Has the effect of a change in an accounting estimate been included in the determination of net profit or loss in:a) the period of change, if the change affects the period only;(e.g. estimate of bad debts) or b) the period of change and future periods if the change affects both.( e.g. change in useful life of an asset)9. Has the effect of a change in an accounting estimate been classified using the same classification in the statement of profit and loss as was used previously for the estimate?10. Has the nature and amount of a change in an accounting estimate which has a material effect in the current period or which is expected to have a material effect in the future, been disclosed?If it is impracticable to quantify the amount, has this fact been disclosed?11. Has a change in accounting policy been made only if the adoption of a different accounting policy is required by statute or for compliance with an accounting standard or if it is considered



that the change would result in a more appropriate presentation of the financial statements of the enterprise?12. Has it been ensured that the following are not treated as a change in accounting policy?:a) adoption of an accounting policy for events or transactions that differ in substance from previously accruing events or transactions- e.g. introduction of a formal retirement gratuity scheme by an employer in place of an adhoc ex-gratia payments to employees on retirementb) adoption of new accounting policy for events or transactions which did not occur previously or that were immaterial?13. Has any change in an accounting policy which has a material effect been disclosed?14. Has the impact of and the adjustments resulting from such change, if material been shown in the financial statements of the period in which such change is made, to reflect the effect of such change?15. Where the effect of such change is not ascertainable, wholly or in part, has the fact been

indicated?16. Where a change is made in the accounting policies which has no material effect on the financial statements for the current period but which is reasonably expected to have a material effect in later periods, has the fact of such change been appropriately disclosed in the period in which the change is adopted?17. Where there is a change in accounting policy consequent on adoption of an accounting standard, has it been accounted for in accordance with the specific transitional provisions if any contained in that accounting standard?Has disclosure for such a change (arising due to adoption of an AS) been made in accordance with 13 to 16 above (Para 32 of AS-5) unless alternative disclosures are required as per transitional provisions of any other AS? (revised effective accounting periods commencing on or after 1.4.01)



AS-6 : DEPRECIATION ACCOUNTING

1. Has the depreciable amount (Cost less residual value estimated) of a depreciable asset been allocated on a systematic basis to each accounting period over the useful life of the asset?2. Has the useful life been estimated considering:I) expected physical wear and tearii) obsolescenceiii) legal or other limits on the use of the asset.Check especially for all second hand assets. 3. Has the depreciation method been applied consistently from period to period.4. If there is a changeA) Has it been made:a) As required by statute or b) For complying with an Accounting standard or c) To result in a more appropriate preparation /presentation of financial statements.B) Has depreciation been re-calculated in accordance with the new method from the date of asset coming into use?C) Has the deficiency/surplus arising from retrospective recomputation been adjusted in the P&L account in the year of change?D) Has the effect of the change been quantified and disclosed?5.a) Is the useful life of major assets /classes of assets reviewed periodically?When was it last reviewed?b) If there is a revision of estimated useful life, has the unamortised depreciable amount been charged over the revised remaining useful life?6. Have any additions/extensions which become an integral part of the existing asset been depreciated a) over the remaining useful life of that asset? OR b) at the rate applied to the existing asset?OR c) at a rate based on useful life if the addition/extension retains a separate identity and is capable of being used after the existing asset is disposed of.7. Where cost of depreciable asset has undergone a change due to increase/decrease in a) long term liability on a/c of exchange fluctuationsb) price adjustmentsc) changes in duties etc.,Has the depreciation been provided prospectively over the residual life of the asset.8. Where assets revalued,a) has depreciation been provided based on the revalued amount and on the estimate of the remaining useful life of the assets?b) In case revaluation has a material effect on the amount of depreciation, has the same been disclosed separately in the year of revaluation?9. If asset disposed of, discarded, demolished or destroyed, has the net surplus/ deficiency been disclosed if material?

Disclosure:10 Has the following been disclosed?a) The historical cost or other amount substituted of each. class of depreciable assetb) Total depreciation for the period for each class of assets.c) The related accumulated depreciation.11. Have the following accounting policies been disclosed?a) depreciation method usedb) depreciation rates or useful life of assets if different from rates prescribed in the statute.



AS-7 (REVISED) : CONSTRUCTION CONTRACTS

(Applicable for all contracts entered into during accounting periods commencing on or after 1.4.03)

1. When a contract covers a number of assets, has the construction of each asset been treated as a separate construction contract when:

separate proposals have been submitted for each asset;

each asset has been subject to separate negotiation and the contractor and customer have been able to accept or reject that part of the contract relating to each asset; and

the costs and revenues of each asset can be identified.

2. Has a group of contracts, whether with a single customer or with several customers, been treated as a single construction contract when:

a. the group of contracts is negotiated as a single package;

b. the contracts are so closely interrelated that they are, in effect, part of a single project with an overall profit margin; and

c. the contracts are performed concurrently or in a continuous sequence.

3. Has the construction of the additional asset been treated as a separate construction contract when:

the asset differs significantly in design, technology or function from the asset or assets covered by the original contract; or

the price of the asset is negotiated without regard to the original contract price.

4. Does the contract revenue comprise:

the initial amount of revenue agreed in the contract; and

variations in contract work, claims and incentive payments:

to the extent that it is probable that they will result in revenue; and

they are capable of being reliably measured.

5. Does the contract costs comprise:

a. costs that relate directly to the specific contract;

b. costs that are attributable to contract activity in general and can be allocated to the contract; and



c. such other costs as are specifically chargeable to the customer under the terms of the contract.

6. In the case of a fixed price contract, the outcome of a construction contract can be estimated reliably when all the following conditions are satisfied:

a. total contract revenue can be measured reliably;

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

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

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

Check if these are complied with? If yes see 8. Else see 9

7. In the case of a cost plus contract, the outcome of a construction contract can be estimated reliably when all the following conditions are satisfied:

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

b. the contract costs attributable to the contract, whether or not specifically reimbursable, can be clearly identified and measured reliably.

Check if these are complied with? If yes, see 8. Else see 9

8. When the outcome of a construction contract can be estimated reliably (see 7 and 8 below), have the contract revenue and contract costs associated with the construction contract been recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date?

9. When the outcome of a construction contract cannot be estimated reliably: is

a. revenue recognised only to the extent of contract costs incurred of which recovery is probable; and

b. contract costs recognised as an expense in the period in which they are incurred.

10. Has any expected loss on the construction contract been recognised as an expense immediately in accordance with paragraph 35 of AS-7 (rev)?

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

12. When the uncertainties that prevented the outcome of the contract being estimated reliably no longer exist, revenue and expenses associated with the construction contract should be



recognised in accordance with paragraph 21 of AS (see 8 above) rather than in accordance with paragraph 31 of AS (see 9 above).

13. Have the following been disclosed?

a. the amount of contract revenue recognised as revenue in the period;

b. the methods used to determine the contract revenue recognised in the period; and

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

d. for contracts in progress at the reporting date:

the aggregate amount of costs incurred and recognised profits (less recognised losses) upto the reporting date;

the amount of advances received; and

the amount of retentions.

14. Has the enterprise presented:

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

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

ASI 29 (18.7.05):

Is the amount of contract revenue recognized as revenue in the statement of P&L as per AS 7 considered as Turnover? (This is not in New Accounting standards Rules and is being issued as a guidance note)

Others (i.e contracts pre-existing on 31.3.03):

Construction Contracts1. Whether the company uses either percentage of completion method or completed contract method for accounting?2. Whichever method is followed, whether the same method is followed for all other contracts which meet the same criteria?3. a) When the percentage of completion method is used, can the outcome of the contract be reliably estimated?b) in case of fixed price contracts are the following conditions satisfied to make such reliable estimation possible:i) Total contract revenue can be estimated;ii) both the costs to complete the contract and stage of contract performance completed at the reporting date can reasonably be estimated;iii) costs attributable to the contract be clearly identified so that actuals can be compared with prior estimates.c) In the case of cost plus contracts are the following conditions satisfied to make such reliable estimation possible?I) Costs attributable to the contract can be clearly identifiedii) Costs other than that are specifically reimbursable under the contract can reliably be estimated.



4. Has profit in fixed price contracts been recognized only if contract has progressed to a reasonable extent?5. Where profit is recognized under percentage completion method , has an appropriate allowance been made either on specific or percentage basis for future unforseeable factors?6. The costs included in the amount at which construction work is stated should comprise I) costs directly attributable to a specific contract and ii) costs attributable to contract activity in general and can be allocated to specific contracts.7. Has a foreseeable loss on the contract been provided for irrespective of work done/ method of accounting followed? Disclosure:8. I) the amount of construction WIPii) progress payments received and advances and retentions on a/c of contracts included in construction WIPiii) the amount receivable in respect of income accrued under cost plus contracts not included in construction WIP.This information is required separately for amounts attributable to contracts accounted under each method viz., Completed contracts method and percentage completion method.9. Have disclosures been made of changes if any in accounting policy used for construction contracts?If a contractor changes the method from percentage completion to completed contract method, has disclosure been made of the amounts of attributable profits reported in prior years in respect of contracts in progress at the beginning of the year?



AS-8 : RESEARCH & DEVELOPMENTStands withdrawn after 1.4.03/1.4.04 after AS-26 becomes applicable.



AS-9 : REVENUE RECOGNITION

Revenue recognition

1. In respect of revenue from sales or service transactions which have been accrued, is it reasonable to expect ultimate collection at the time of performance or raising of claim?2. If not, has the recognition been postponed?3. In sales, are following condition satisfied:a) Has the seller of goods transferred to the buyer the property in the goods?orb) Have all significant risks and rewards of ownership been transferred to the buyer? andThe seller retains no effective control of the goods transferred to a degree usually associated with ownership?c) Does no significant uncertainty exist regarding the amount of the consideration that will be derived from the sale of goods4. In a transaction involving service:I) Is the performance measured either undera) Completion of service contract method orb) Proportionate completion methodwhichever relates the revenue to the work accomplished?ii) Does no significant uncertainty exist regarding the amount of consideration that will be received from rendering the service?5. Interest:a) Is interest accounted on a time proportion basis taking into account the amount outstanding and the rate applicable?b) Does no significant uncertainty exist as to measurability or collectability ?6. Royalties:a) Is royalty accrued in accordance with the relevant agreement?b) Does no significant uncertainty exist as to measurability or collectability ?7. Dividends:a) Is dividend accrued when the owner’s right to receive payment is established?b) Does no significant uncertainty exist as to measurability or collectability?

Disclosure:

8. Whether the enterprise has disclosed the circumstances in which revenue recognition has been postponed pending the resolution of significant uncertainties?

9. Has the amount of turnover been disclosed in the following manner on the face of the statement of profit and loss: Turnover (Gross) XX Less: Excise Duty XX Turnover (Net) XX

The amount of excise duty to be shown as deduction from turnover as above should be the total excise duty for the year except the excise duty related to the difference between the closing stock and opening stock. The excise duty related to the difference between the closing stock and opening stock should be recognised separately in the statement of profit and loss, with an explanatory note in the notes to accounts to explain the nature of the two amounts of excise duty.

(Revised ASI 14)



Some examples of revenue recognition:Sales:1. Delivery delayed at buyer’s request and buyer takes title and accepts billing

Revenue should be recognized so long as there is every expectation that delivery will be made.Item must be on hand, identified and ready for delivery to the buyer.

2. Delivered subject to conditions:a) on installation and inspection Unless the installation process is very simple,

recognition on customer accepting delivery and installation.

b) on approval Recognition on formal acceptance by the buyer oron buyer doing an act adopting transaction ortime period for rejection has elapsed orreasonable time has elapsed.

c) unlimited right of return(guaranteed) Recognition as per substance of agreement.If retail sale, if appropriate provision made based on past experience.If otherwise, treat as consignment sale.

d) consignment sale Recognition on sale to a third party.e) cash on delivery Recognition on receipt of cash by seller or his

agent.3. Sale when purchaser makes a series of installment payments to the seller and seller delivers goods only when final payment is received.

If experience indicates that most such sales have consummated, recognition when a significant deposit is received.Else, on delivery of goods.

4. Special order and shipments (where payment is received for goods not presently held in stock)

Recognition on manufacture, identification of goods which should be ready for delivery to the buyer by the third party.

5. Sale/repurchase agreements (seller agrees to repurchase the goods at later date)

No recognition.

6. Sales to intermediate parties:distributors, dealers etc.,

If buyer is agent treat as consignment sale.Else, recognition if significant risks of ownership have passed.

7. Subscription for publications If items delivered very in value from period to period then based on sale value of item delivered in relation to the total sale value of all items covered by subscription.Else, recognized on straight line basis over time.

8. Installment Sale Revenue attributable to the sales price exclusive of interest should be recognized .Interest should be recognized proportionately to the unpaid balance due to the seller.

9. Trade discounts and volume rebates Should be deducted in determining revenue.

SERVICES:1. Installation fees When equipment is installed and accepted by

customer unless incidental to sale of product.2. Advertising and insurance agency commission

Recognition when service is completed.For Ad agencies, media commissions, when related ad or commercial appears before the public and the necessary intimation is received



by the agency.For production commission, when project is completed.Insurance agency commission, on effective commencement or renewal dates of the related policies.

3. Financial service commission Commission for arranging or granting a loan should be recognized when a binding obligation entered into.Commitment, facility, or loan management fees should be recognized over the life of the loan having regard to the amount of obligation O/S, the nature of services provided and the timing of the costs relating thereto.

4. Admission fees Revenue from artistic performances when the event takes place.When the subscription is for a no. of events, then fee should be allocated on a systematic and rational basis.

5. Tuition fees Recognition over the period of instruction.6. Entrance and membership fees Entrance fee normally capitalized.

If membership fee permits only membership and all other services are paid for separately the fee is recognized when received.If membership fee entitles members to services and publications during the year, it should be recognized on a systematic and rational basis.



AS-10 : ACCOUNTING FOR FIXED ASSETS

1. Are items included under fixed asset only assets held with the intention of being used for the purpose of producing or providing goods or services and are not held for sale in the ordinary course of business?2 a)Does the cost of fixed asset comprise its purchase price and any directly attributable cost of bringing the asset to its working condition for its intended use?b) Are trade discounts and rebates are deducted in arriving at the purchase price ?3 & 4 corresponding to para 9.2 and 20 of old standard relating to borrowing costs deleted after AS-16 wef 1.4.005. Does the cost of self-constructed asset comprise those costs that relate directly to the specific asset and those costs that are attributable to the construction activity in general?6. Where a fixed asset is acquired in exchange or in part exchange for any other asset, is the cost of the asset recorded either at the fair value(of the asset given up or asset acquired whichever is more clearly evident) or at the net book value of the asset given up adjusted for any balancing payment or receipt of cash or other consideration?7. Where a fixed asset is acquired in exchange for shares or other securities in the enterprise, has it been recorded at its fair market value or the fair market value of the securities issued whichever is more clearly evident?8. a) Are indirect expenses like Expenditure relating to start up & commissioning included in the cost of asset ?b) Has subsequent expenditure related to a fixed asset been added to its book value only if it increases the future benefits from the existing asset beyond its previously assessed standard of performance?9. Have material items retired from active use and held for disposal been treated at lower of their book value and NRV and shown separately?10. Have fixed assets from which no further benefits are expected from use or disposal or which have been disposed off been eliminated from the financial statements?11. Have losses arising from retirement or gains/losses arising from disposal been recognized in the P&L?Revaluation:12. a) Where assets are revalued, has an entire class of assets been revalued?Or has the selection of assets for revaluation been made on a systematic basis?b) Has it been ensured that the revaluation of a class of assets has not resulted in net book value being greater than the recoverable amount of assets in that class?c) On revaluation has it been ensured that accumulated depreciation is not credited to P&L.d) Is increase in net book value on revaluation related to and not greater than a decrease arising on revaluation previously charged to P&L?

I) If yes, has it been credited to P&L?ii) If not, has it been credited to revaluation reserve?

e) Has any decrease in net book value arising on revaluation been charged to P&L (unless the decrease relates to an increase which was previously recorded as credit to revaluation reserve which has not been used or reversed , in which case it can be charged to that a/c)f) On disposal of a revalued asset, has the difference between net disposal proceeds and the net book value been charged or credited to the P&L a/c?

H.P Assets:Deleted wef 1.4.01 in view of AS-19 Leases.

Joint ownership assets:15.Is pro rata cost of such jointly owned assets grouped together with other assets with appropriate disclosure?orIs the extent of company’s share in such assets, proportion of original cost, accumulated depreciation and W.D.V stated in the B/S?



16. Where several assets are purchased at a consolidated value, has the consideration been split between various assets based on competent valuer’s report?17. Is goodwill recorded in the books only if some consideration is paid in money or money’s worth?18. Whenever a business is acquired for a price which is in excess of the value of net assets of the business taken over, has the excess been termed as goodwill?

The portions related to Patents and Know how etc.are now covered by AS-26 and hence Paras 16.3 to 16.7 , 37 and 38 of the AS are not applicable after AS-26 has come into force.

Disclosure:

22.a) Gross and net book values of fixed assets at the beginning and end of the accounting period showing additions, disposals , acquisitions and other movements.b) Expenditure incurred on a/c of fixed assets in the course of construction or acquisition.c) revalued amount substituted for historical costs of fixed assets, the method adopted to compute the revalued amounts, the nature of indices used, the year of any appraisals made and whether an external valuer involved? Note: ASI 2 Accounting for Machinery Spares (Re. AS 2 and AS 10) – This has not been included in the Notified Act (The Companies Accounting Standard Rules 2006).



AS-11 (REVISED 2003) : THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES

Applicable in respect of accounting periods commencing on or after 1-4-2004.

1. Have all foreign currency transactions been recorded, on initial recognition in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction?

2. Have all foreign currency monetary items (money held and assets and liabilities to be received or paid in fixed or determinable amounts of money) been reported using the closing rate unless the closing rate does not reflect with reasonable accuracy the amount in reporting currency that is likely to be realised from, or required to disburse, a foreign currency monetary item at the balance sheet date, e.g., where there are restrictions on remittances or where the closing rate is unrealistic and it is not possible to effect an exchange of currencies at that rate at the balance sheet date?

3. If the closing rate may not reflect with reasonable accuracy the amount in reporting currency that is likely to be realised from, or required to disburse, a foreign currency monetary item at the balance sheet date is the relevant monetary item reported in the reporting currency at the amount which is likely to be realised from, or required to disburse, such item at the balance sheet date?

4. Are non-monetary items which are carried in terms of historical cost denominated in a foreign currency reported using the exchange rate at the date of the transaction?

5. Are non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency reported using the exchange rates that existed when the values were determined?

6. Are exchange differences arising on a monetary item that, in substance, forms part of an enterprise's net investment in a non-integral foreign operation accumulated in a foreign currency translation reserve in the enterprise's financial statements until the disposal of the net investment, at which time they should be recognised as income or as expenses in accordance with paragraph 31 of AS.

7. Are all other exchange differences arising on the settlement of monetary items or on reporting an enterprise's monetary items at rates different from those at which they were initially recorded during the period, or reported in previous financial statements, recognised as income or as expenses in the period in which they arise (except for long term monetary assets/liabilities – see page 1)?

8. Are the financial statements of an integral foreign operation (foreign operation, the activities of which are an integral part of those of the reporting enterprise) translated using the principles and procedures in paragraphs 8 to 16 of the AS (see above) as if the transactions of the foreign operation had been those of the reporting enterprise itself?

9. In translating the financial statements of a non-integral foreign operation for incorporation in its financial statements, has the reporting enterprise used the following procedures:

a. the assets and liabilities, both monetary and non-monetary, of the non-integral foreign operation should be translated at the closing rate;



b. income and expense items of the non-integral foreign operation should be translated at exchange rates at the dates of the transactions; and

c. all resulting exchange differences should be accumulated in a foreign currency translation reserve until the disposal of the net investment.

10. On the disposal of a non-integral foreign operation, has the cumulative amount of the exchange differences which have been deferred and which relate to that operation been recognised as income or as expenses in the same period in which the gain or loss on disposal is recognized?

11. When there is a change in the classification of a foreign operation, have the translation procedures applicable to the revised classification been applied from the date of the change in the classification?

12. Has the premium or discount arising at the inception of a forward exchange contract which is not intended for trading or speculation purposes, been amortised as expense or income over the life of the contract? Have the exchange differences on such a contract been recognised in the statement of profit and loss in the reporting period in which the exchange rates change? Has any profit or loss arising on cancellation or renewal of such a forward exchange contract been recognised as income or as expense for the period?

13. Has the gain or loss in respect of forward contracts entered into for trading/speculation been computed by multiplying the foreign currency amount of the forward exchange contract by the difference between the forward rate available at the reporting date for the remaining maturity of the contract and the contracted forward rate (or the forward rate last used to measure a gain or loss on that contract for an earlier period). The gain or loss so computed should be recognised in the statement of profit and loss for the period. The premium or discount on the forward exchange contract is not recognised separately.

14. Have the following been disclosed:

a. the amount of exchange differences included in the net profit or loss for the period; and

b. net exchange differences accumulated in foreign currency translation reserve as a separate component of shareholders’ funds, and a reconciliation of the amount of such exchange differences at the beginning and end of the period.

c. When the reporting currency is different from the currency of the country in which the enterprise is domiciled, the reason for using a different currency

d. The reason for any change in the reporting currency



2 Dec 05 announcement: Enterprises should make the following disclosures regarding Derivative Instruments in their financial statements:

a. category-wise quantitative data about derivative instruments that are outstanding at the balance sheet date,

b. the purpose, viz., hedging or speculation, for which such derivative instruments have been acquired, and

c. the foreign currency exposures that are not hedged by a derivative instrument or otherwise.

15. When there is a change in the classification of a significant foreign operation, has the enterprise disclosed:

a. the nature of the change in classification;

b. the reason for the change;

c. the impact of the change in classification on shareholders' funds; and

the impact on net profit or loss for each prior period presented had the change in classification occurred at the beginning of the earliest period presented

16. On the first time application of this Statement, if a foreign branch is classified as a non-integral foreign operation in accordance with the requirements of this Statement, has the accounting treatment prescribed in paragraphs 33 and 34 of the Statement in respect of change in the classification of a foreign operation been applied? (See 11 above)



Clarification of ICAI Jan 06: Pending the issuance of the proposed Accounting Standard on ‘Financial Instruments: Recognition and Measurement’, which is under formulation, exchange differences arising on the forward exchange contracts entered into to hedge the foreign currency risks of a firm commitment or a highly probable forecast transaction should be recognised in the statement of profit and loss in the reporting period in which the exchange rate changes. Any profit or loss arising on renewal or cancellation of such contracts should be recognised as income or expense for the period. (This Announcement would be applicable in respect of accounting period(s) commencing on or after April 1, 2007.)

Derivatives clarification dated 29 Mar 08:• AS 30 can be followed by the entities, as the earlier adoption of a standard is always

encouraged.• In case an entity does not follow AS 30, the entity should mark-to-market all the

outstanding derivative contracts on the balance sheet date.• The resulting mark-to-market losses should be provided for keeping in view the principle

of prudence as enunciated in AS 1, Disclosure of Accounting Policies. • The entity needs to disclose the policy followed with regard to accounting for derivatives

in its financial statements. In case AS 30 is followed by the entity, a disclosure of the amounts recognised in the financial statements should be made.

• In case AS 30 is not followed, the losses provided for as suggested in paragraph 3 above should be separately disclosed by the entity.

• The auditors should consider making appropriate disclosures in their reports if the aforesaid accounting treatment and disclosures are not made.

• This clarificatory announcement applies to financial statements for the period ending March 31, 2008, or thereafter.



AS-12 : ACCOUTING FOR GOVERNMENT GRANTS

1. Has company accrued any Govt. grants?2. If yes, is there reasonable assurance that:I) the enterprise will comply with conditions attached to the grants?ii) the grant will be received.

Capital Grants:3. Is company following method of crediting specific grants to asset value?4. If yes,a) Is the grant equal to or virtually equals the cost of asset?

a) If yes, then is asset shown at nominal value?b) If no, is the grant deducted from the gross value of fixed assets concerned?

5. If company follows the method of treating grant relating to specific assets as deferred income?A) Is grant related to a non-depreciable asset?

a) If yes, does it require fulfillment of certain obligations?i) If yes, is the grant credited to income over the same period over which the cost

of meeting the obligations is charged to income?b) If no, is the grant credited to Capital reserve?

B) If grant related to depreciable assets:a) is grant allocated to income over the period and in the proportion in which depreciation

on these assets is charged?C) Is the deferred income balance separately shown in the financial statements?

Revenue Grants:6. Are govt.grants related to revenue recognized in P&L over the periods necessary to match them with the related costs which they are intended to compensate? Promoters’ Contribution: 7. Are Grants in the nature of Promoters’ Contribution credited to Capital Reserve?Non-Monetary assets given at concessional rate:8. Are grants in the form of non-monetary assets given at a concessional rate accounted based on acquisition cost?9. Is non-monetary asset given free of cost, recorded at nominal value?Govt. grants relating to previous year etc.,10. Are grants receivable as compensation for expenses/losses incurred in previous years with no further related costs, recognized in the P&L a/c.11. Is it necessary to disclose the same as an extra ordinary expense?

Govt. grant to be refunded:12. Is grant which has become refundable a/cted as extra ordy. item?13. If refund in respect of grant related to revenue,A) Has it been first applied against any unamortized deferred credit remaining.B) If amount refundable exceeds unamortized deferred credit, has the amount been charged to P&L.14. If refund relates to a grant for a specific asset,A) Has it been recorded by increasing the book value of asset?

i) Has depreciation on the revised book value been provided prospectively over the residual useful life of the asset?OrB) Has it been recorded by adjusting the Capital reserve or reducing the deferred income as appropriate?15. If refund related to Grant in the nature of Promoters’ Contribution reduced from capital reserve?16. Check following disclosure:a) Accounting policy adopted for Govt. grants.b) Nature and extent of Govt. grants recognized in the financial statements.



AS 13: ACCOUNTING FOR INVESTMENTS

1. Have investments been classified into long term (NOT CURRENT) and current (a. by nature readily realisable and b. intended to be held for not more than a year from date of investment)?Does the Board Resolution of the Company clearly state whether the Investment is long term or current or inventory?2. Does cost include acquisition charges such as brokerage, fees and duties?3. a) Has the investment been acquired by issue of shares and other securities?

b) If yes, is the acquisition cost the fair value of the securities issued?(The amount for which the asset could be exchanged between a knowledgeable, willing seller/buyer in an arm’s length transaction.)4. a) Has the investment been acquired in exchange or part exchange for another asset?

b) If yes, is the acquisition cost determined w.r.t the fair value of the asset given up or the fair value of the investment acquired?5. Where unpaid interest has accrued before acquisition, has the subsequent receipt of interest been allocated between pre-acquisition and post acquisition periods and the pre-acquisition interest portion deducted from cost?6. a) In case of shares, do dividends clearly represent a recovery of a part of the cost?

b) If yes, has the cost of investment been reduced by dividends receivable declared from pre-acquisition profits?7. In case of rights,

a) has the cost of rights been added to the carrying amount of the original holding?If rights are sold:

a) Were investments acquired on cum-rights basis and the market value of investments immediately on becoming ex-rights lower than the cost of acquisition?

b) If yes, then have the sale proceeds of rights been applied for reducing the cost to the market value?

c) in other cases, have the sale proceeds been taken to the P&L Account?Valuation of Current Investments:8. Have the Current Investments been valued at lower of cost and market value?9. a) Have the Current Investments been valued individually at lower of cost and fair value?

b) If not, have the investments been at least carried at lower of cost and fair value computed category wise?( like Equity, Preference, Debentures etc,)10. Have the reductions to fair value and reversals of such reductions in the case of current investments been taken to P&L Account?11. Valuation of Long Term Investments:

a) Assess the value of the individual investment by considering:Market Value, Investee’s assets and results, Expected cash flow from the investment, Extent of Investor’s stake in the Investee, Restrictions on disposal.

a) Has there been a decline other than temporary in the value?(State the 52 week high and low price in the case of quoted securities.Check whether the investee company has gone into liquidation or been referred to BIFR or has gone out of core business etc., to determine whether the reduction in value is temporary or not.)

b) If yes, has the carrying amount been reduced to recognize the decline?Has the resultant reduction been charged to the P&L Account?

c) If there has been a rise in the value of the investment for which the write down was effected, then has the reduction been reversed.?12. Investment Properties:Is there any investment in co-operative societies or companies which is directly related to the right to hold the investment property, has it been added to the cost of investment property?13. Sale of Investments:a) On disposal, has the difference between carrying amount and disposal proceeds net of expenses recognized in P&L Account?b) If a part of an investment has been sold, has the carrying amount been allocated on the basis of average carrying amount of the total holding of the investment?



Note:Please note the position for taxation as clarified by CBDT in its circular 704 dated 28.4.95.1. It is the date of the brokers’ note that should be treated as the date of transfer in cases of sale transactions of securities provided they are followed by delivery of shares.2. For purchase of securities the holding period shall be reckoned from the date of the brokers’ note for purchase.3. Where securities are acquired in several lots at different points of time FIFO method shall be adopted to reckon period of holding. 14. Reclassification:a) Has transfer of long term investments to current investments been made at lower of cost and carrying amount at date of transfer?b) Has transfer of current investment to long term been made at the lower of cost and fair value at the date of transfer?15. Disclosure:a) Accounting policy for the determination of carrying amount of investments.b) Amounts included in P&L for:I. Interest, dividends (showing separately dividends from subsidiaries), rentals from long term investments.(Gross)ii. Interest, dividends, rentals from current investments.(Gross)iii. Profits and losses on disposal of current investments and changes in carrying amount of such investments.iv. Profits and losses on disposal of long term investments and changes in carrying amount of such investments.v. Significant restrictions on the right of ownership, realisability of investments or the remittance of income and proceeds of disposal.vi. Aggregate amount of quoted and unquoted investments vii. Aggregate market value of quoted investments.



AS-14 : ACCOUTING FOR AMALGAMATIONS

1. Are the following conditions satisfied?I) All assets and liabilities of the transferor company become the assets and liabilities of the transferee company/ii) Shareholders holding not less than 90% of the face value of equity shares of the transferor company (other than equity shares already held therein) become equity shareholders of the transferee company by virtue of the amalgamation.iii) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is wholly discharged by the issue of equity shares in the transferee company, except that cash can be paid for any fractional shares.iv) The business of the transferor company is intended to be carried on after the amalgamation by the transferee company.v) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in the financial statements of the transferee company except to ensure uniformity of accounting policies.

2. If all the above conditions are satisfied then the amalgamation is an amalgamation in the nature of merger.

3. If any condition above is not satisfied then it is amalgamation in the nature of purchase.

4. If amalgamation in the nature of merger then is it accounted under the pooling of interest method?

5. If amalgamation in the nature of purchase then is it accounted using the purchase method?

Disclosure:Disclosures in the first financial statement following the amalgamation:6. General:i) names and general nature of business of amalgamating cos.ii) effective date of amalgamationiii) method of accounting used to reflect the amalgamation.iv) particulars of scheme sanctioned under the statute.

7. Amalgamation a/cted under pooling of interest method:I) description of no. of shares issued together with percentage of each CO’s equity shares exchanged to effect the amalgamation.ii) amount of any difference between consideration and the value of net identifiable assets acquired and treatment thereof.

8. Amalgamations a/cted under purchase method:I) consideration for amalgamation and a description of the consideration paid or contingently payable.ii) amount of any difference between the consideration and the value of net identifiable assets acquired and the treatment thereof including the period of amortization of any goodwill arising on amalgamation.

9. When the amalgamation is effected after the B/S date but before the issuance of the financial statements of either party to the amalgamation has disclosure been made in accordance with AS 4 but the amalgamation not incorporated in the financial statements?



10. Limited revision to AS 14 (effective for years beginning on or after 1.4.04):

In some cases, the scheme of amalgamation sanctioned under a statute may prescribe a different treatment to be given to the reserves of the transferor company after amalgamation as compared to the requirements of this Statement that would have been followed had no treatment been prescribed by the scheme. In such cases, the following disclosures are made in the first financial statements following the amalgamation:

(a) A description of the accounting treatment given to the reserves and the reasons for following the treatment different from that prescribed in this Statement.

(b) Deviations in the accounting treatment given to the reserves as prescribed by the scheme of amalgamation sanctioned under the statute as compared to the requirements of this Statement that would have been followed had no treatment been prescribed by the scheme.

(c) The financial effect, if any, arising due to such deviation.”



AS-15 (REVISED) : EMPLOYEE BENEFITS

(Paras referred to are in Standard)

(This is applicable wef 1.4.07) 1.1. When an employee has rendered service to an enterprise during an accounting period, has

the enterprise recognised the undiscounted amount of short-term employee benefits

expected to be paid in exchange for that service:

(a) as a liability (accrued expense), after deducting any amount already paid. If the

amount already paid exceeds the undiscounted amount of the benefits, an

enterprise should recognise that excess as an asset (prepaid expense) to

the extent that the prepayment will lead to, for example, a reduction in

future payments or a cash refund; and

(b) as an expense, unless another Accounting Standard requires or permits the

inclusion of the benefits in the cost of an asset (see, for example, AS 10

Accounting for Fixed Assets).

(examples are: LTC. Annual leave which can be c/f but has to be taken within 12 months etc;.)

1.2. Has the enterprise recognized the expected cost of short-term employee benefits in the

form of compensated absences as follows:

a. in the case of accumulating compensated absences, when the employees render

service that increases their entitlement to future compensated absences; and

b. in the case of non-accumulating compensated absences, when the

absences occur.

1.3. Has the enterprise measured the expected cost of accumulating compensated

absences as the additional amount that the enterprise expects to pay as a result of the unused

entitlement that has accumulated at the balance sheet date?

Profit-sharing and Bonus Plans

1.4 Has the enterprise recognized the expected cost of profit-sharing and bonus payments

when and only when:

(a) the enterprise has a present obligation to make such payments as a result

of past events; and

(b) a reliable estimate of the obligation can be made.

A present obligation exists when, and only when, the enterprise has no realistic

alternative but to make the payments.

Multi-employer PlansAre there any multi employer plans?

If yes,

2.1 Has the enterprise classified a multi-employer plan as a defined contribution plan or a

defined benefit plan under the terms of the plan (including any obligation that goes beyond the



formal terms). Where a multi-employer plan is a defined benefit plan, has the enterprise:

a. accounted for its proportionate share of the defined benefit

obligation, plan assets and cost associated with the plan

in the same way as for any other defined benefit plan;

and

b. disclosed the information required by paragraph 119 and

120 .

2.2 When sufficient information is not available to use defined benefit accounting for a

multi-employer plan that is a defined benefit plan, has the enterprise:

(a) accounted for the plan under paragraphs 45-47 as if it were a

defined contribution plan;

(b) disclosed:

(i) the fact that the plan is a defined benefit plan; and

(ii) the reason why sufficient information is not available to enable the

enterprise to account for the plan as a defined benefit plan; and

(c) to the extent that a surplus or deficit in the plan may affect the amount of

future contributions, disclosed in addition:

(i) any available information about that surplus or deficit;

(ii) the basis used to determine that surplus or deficit; and

(iii) the implications, if any, for the enterprise.

State plans:

2.3 Has the enterprise accounted for a state plan in the same way as for a multi-employer

plan?

Insured Benefits

2.4 Does the enterprise pay insurance premiums to fund a post-employment benefit

plan? Has the enterprise treated such a plan as a defined contribution plan unless the

enterprise will have (either directly, or indirectly through the plan) an obligation to either:

(a) pay the employee benefits directly when they fall due; or

(b) pay further amounts if the insurer does not pay all future employee

benefits relating to employee service in the current and prior periods.

If the enterprise retains such an obligation, has the

enterprise treated the plan as a defined benefit plan?

Post employment –defined contribution:

2.5 When an employee has rendered service to the enterprise during a period, has the

enterprise recognised the contribution payable to a defined contribution plan in exchange for



that service:

(a) as a liability (accrued expense), after deducting any contribution already paid. If

the contribution already paid exceeds the contribution due for service before the

balance sheet date, an enterprise should recognise that excess as an asset

(prepaid expense) to the extent that the prepayment will lead to, for example, a

reduction in future payments or a cash refund; and

(b) as an expense, unless another Accounting Standard requires or permits the

inclusion of the contribution in the cost of an asset (see, for example, AS 10,

Accounting for Fixed Assets).

2.6 Where contributions to a defined contribution plan do not fall due wholly within twelve

months after the end of the period in which the employees render the related

service,have they been discounted using the discount rate specified in paragraph 78 of

Standard?

2.7 Has the enterprise disclosed the amount recognised as an expense for defined

contribution plans?

Post employment –defined benefits:

2.8 Has the enterprise accounted not only for its legal obligation under the formal terms of a

defined benefit plan, but also for any other obligation that arises from the enterprise’s

informal practices. Informal practices give rise to an obligation where the enterprise has

no realistic alternative but to pay employee benefits. An example of such an obligation is

where a change in the enterprise’s informal practices would cause unacceptable

damage to its relationship with employees?

2.9 Is The amount recognised as a defined benefit liability the net total of the following

amounts:a. the present value of the defined benefit obligation at the balance

sheet date (see paragraph 65);b. minus any past service cost not yet recognised (see paragraph 94);c. minus the fair value at the balance sheet date of plan assets

(if any) out of which the obligations are to be settled directly (see paragraphs 100-102)

2.10 Deos the enterprise determine the present value of defined benefit obligations and the

fair value of any plan assets with sufficient regularity that the amounts recognised in

the financial statements do not differ materially from the amounts that would be determined

at the balance sheet date?

2.11 If the amount determined under paragraph 55 (see 2.9 above) is negative (an asset) then

does the enterprise measure the resulting asset at the lower of:

a. the amount determined under paragraph 55; andb. the present value of any economic benefits available in the

form of refunds from the plan or reductions in future contributions to the plan. The present value of these economic



benefits should be determined using the discount rate specified in paragraph 78.

2.12 Does the enterprise recognise the net total of the following amounts in the statement of

profit and loss, except to the extent that another Accounting Standard requires or permits their

inclusion in the cost of an asset:

(a) current service cost (see paragraphs 64-91);

(b) interest cost (see paragraph 82);

(c) the expected return on any plan assets (see paragraphs 107-109) and on

any reimbursement rights (see paragraph 103);

(d) actuarial gains and losses (see paragraphs 92-93);

(e) past service cost to the extent that paragraph 94 requires an enterprise to

recognise it;

(f) the effect of any curtailments or settlements (see paragraphs 110 and 111); and

the effect of the limit in paragraph 59 (b), i.e., the extent to which the amount

determined under paragraph 55 (if negative) exceeds the amount

determined under paragraph 59 (b).

2.13 Has the enterprise used the Projected Unit Credit Method to determine the present

value of its defined benefit obligations and the related current service cost and, where

applicable, past service cost? (Obtain confirmation from actuary on this)

2.14 In determining the present value of its defined benefit obligations and the related

current service cost and, where applicable, past service cost, has the enterprise

attributed benefit to periods of service under the plan’s benefit formula. However, if an

employee’s service in later years will lead to a materially higher level of benefit than in earlier

years, has the enterprise attributed benefit on a straight-line basis from:

(a) the date when service by the employee first leads to benefits under the plan

(whether or not the benefits are conditional on further service); until

(b) the date when further service by the employee will lead to no material amount of

further benefits under the plan, other than from further salary increases.

2.15 Are Actuarial assumptions comprising demographic assumptions and financial

assumptions unb iased and mutually compatible? Are Financial assumptions based on

market expectations, at the balance sheet date, for the period over which the obligations

are to be settled.

2.16 Is the rate of discount used to discount post-employment benefit obligations (both

funded and unfunded) determined by reference to market yields at the balance sheet

date on government bonds. Are the currency and term of the government bonds consistent

with the currency and estimated term of the post-employment benefit obligations?2.17 Are Post-employment benefit obligations measured on a basis that reflects:

(a) estimated future salary increases;



(b) the benefits set out in the terms of the plan (or resulting from any obligation

that goes beyond those terms) at the balance sheet date; and

(c) estimated future changes in the level of any state benefits that affect the benefits

payable under a defined benefit plan, if, and only if, either:

(i) those changes were enacted before the balance sheet date; or

(ii) past history, or other reliable evidence, indicates that those state benefits

will change in some predictable manner, for example, in line with future

changes in general price levels or general salary levels.

2.18 Do assumptions about medical costs take account of estimated future changes in the

cost of medical services, resulting from both inflation and specific changes in medical

costs.

2.19 Are Actuarial gains and losses recognised immediately in the statement of profit and loss

as income or expense?

2.20 In measuring its defined benefit liability , has the enterprise recognised past service

cost as an expense on a straight-line basis over the average period until the benefits become

vested. To the extent that the benefits are already vested immediately following the

introduction of, or changes to, a defined benefit plan, has the enterprise recognized past

service cost immediately.

2.21 When, and only when, it is virtually certain that another party will reimburse some or all of

the expenditure required to settle a defined benefit obligation, has the enterprise

recognised its right to reimbursement as a separate asset. Has the enterprise measured

the asset at fair value. In all other respects, has the enterprise treated that asset in the same

way as plan assets. In the statement of profit and loss, the expense relating to a

defined benefit plan may be presented net of the amount recognised for a reimbursement.

2.22 Is the expected return on plan assets a component of the expense recognised in the

statement of profit and loss. Is the difference between the expected return on plan assets and

the actual return on plan assets treated as an actuarial gain or loss.

2.23 Has the enterprise recognised gains or losses on the curtailment or settlement of a

defined benefit plan when the curtailment or settlement occurs. The gain or loss on a

curtailment or settlement should comprise:

(a) any resulting change in the present value of the defined benefit obligation;

(b) any resulting change in the fair value of the plan assets;

(c) any related past service cost that, under paragraph 94, had not previously been

recognized2.24 Before determining the effect of a curtailment or settlement, has the enterprise remeasured the obligation (and the related plan assets, if any) using current actuarial assumptions (including current market interest rates and other current market prices).2.25 Has the enterprise offset an asset relating to one plan against a liability relating to

another plan when, and only when, the enterprise:

(a) has a legally enforceable right to use a surplus in one plan to settle obligations

under the other plan; and

(b) intends either to settle the obligations on a net basis, or to realise the surplus in



one plan and settle its obligation under the other plan simultaneously.

Disclosure-defined benefit scheme:

2.26 Has the enterprise disclosed following in defined benefit scheme:(a) the enterprise’s accounting policy for recognising actuarial gains and losses. ;

(b) a general description of the type of plan. ;

(c) a reconciliation of opening and closing balances of the present value of the

defined benefit obligation showing separately, if applicable, the effects during

the period attributable to each of the following:

(i) current service cost,

(ii) interest cost,

(iii) contributions by plan participants,

(iv) actuarial gains and losses,

(v) foreign currency exchange rate changes on plans measured in a

currency different from the enterprise’s reporting currency,

(vi) benefits paid,

(vii) past service cost,

(viii) amalgamations,

(ix) curtailments, and

(x) settlements.

(d) an analysis of the defined benefit obligation into amounts arising from plans

that are wholly unfunded and amounts arising from plans that are wholly or

partly funded.

(e) a reconciliation of the opening and closing balances of the fair value of plan

assets and of the opening and closing balances of any reimbursement right

recognised as an asset in accordance with paragraph 103 showing separately, if

applicable, the effects during the period attributable to each of the following:

(i) expected return on plan assets,

(ii) actuarial gains and losses,

(iii) foreign currency exchange rate changes on plans measured in a

currency different from the enterprise’s reporting currency,

(iv) contributions by the employer,

(v) contributions by plan participants,

(vi) benefits paid,



(vii) amalgamations, and

(viii) settlements.

(f ) a reconciliation of the present value of the defined benefit obligation in (c) and

the fair value of the plan assets in (e) to the assets and liabilities recognised in

the balance sheet, showing at least:(i) the past service cost not yet recognised in the balance sheet (see

paragraph 94);

(ii ) any amount not recognised as an asset, because of the limit in

paragraph 59(b);

(iiii ) the fair value at the balance sheet date of any reimbursement right

recognised as an asset under in accordance with paragraph 103 (with abrief description of the link between the reimbursement right and the

related obligation); and

(i v) the other amounts recognised in the balance sheet. ;

(g) the total expense recognised in the statement of profit and loss for each of thefollowing, and the line item(s) of the statement of profit and loss in which they are

included:

(i) current service cost;

(ii) interest cost;

(iii) expected return on plan assets;

(iv) expected return on any reimbursement right recognised as an asset under

in accordance with paragraph 103;

(v) actuarial gains and losses;

(vi) past service cost;

(vii) the effect of any curtailment or settlement; and

(viii) the effect of the limit in paragraph 59 (b), i.e., the extent to which the amount

determined in accordance with under paragraph 55 (if negative)

exceeds the amount determined in accordance with under paragraph 59

(b).

(h) for each major category of plan assets, which should include, but is not limited to, equity instruments, debt instruments, property, and all other assets, the actual return on plan assets, as well as the actual return on any reimbursement right recognised as an asset under in accordance with

paragraph 103. ; and

(i ) the principal actuarial assumptions used as at the balance sheet date, including,

where applicable:

(i) the discount rates;

(ii) the expected rates of return on any plan assets for the periods presented in the

financial statements;



(iii) the expected rates of return for the periods presented in the financial

statements on any reimbursement right recognised as an asset in

accordance with under paragraph 103;

(iv) the expected rates of salary increases (and of changes in an index or

other variable specified in the terms of a plan as the basis for future

benefit increases);

( v ) medical cost trend rates; and

(vi) any other material actuarial assumptions used.

(j) An enterprise should disclose each actuarial assumption in absolute terms (forexample, as an absolute percentage) and not just as a margin between different

percentages or other variables.

(l) Apart from the above actuarial assumptions, an enterprise should include an

assertion under the actuarial assumptions to the effect that estimates of future salary

increases, considered in actuarial valuation, take account of inflation, seniority,

promotion and other relevant factors, such as supply and demand in the employment

market.

(m) the effect of an increase of one percentage point and the effect of a decrease of

one percentage point in the assumed medical cost trend rates on:

(i) the aggregate of the current service cost and interest cost components of

net periodic post-employment medical costs; and

(ii) the accumulated post-employment benefit obligation for medical costs.

For the purposes of this disclosure, all other assumptions should be held

constant. For plans operating in a high inflation environment, the disclosure should

be the effect of a percentage increase or decrease in the assumed medical cost trendrate of a significance similar to one percentage point in a low inflation environment.

(n) the amounts for the current annual period and previous four annual periods of:

(i) the present value of the defined benefit obligation, the fair value of the

plan assets and the surplus or deficit in the plan; and

(ii) the experience adjustments arising on:

(A) the plan liabilities expressed either as (1) an amount or (2) a

percentage of the plan liabilities at the balance sheet date, and

(B) the plan assets expressed either as (1) an amount or (2) a

percentage of the plan assets at the balance sheet date.

(o) the employer’s best estimate, as soon as it can reasonably be determined, of

contributions expected to be paid to the plan during the annual period

beginning after the balance sheet date.



A general description of the type of plan is required. Such a description distinguishes, for example, flat salary pension plans from final salary pension plans and from post-employment medical plans. The description of the plan should include informal practices that give rise to other obligations included in the measurement of the defined benefit obligation in accordance with paragraph 53. Further detail is not required.

When an enterprise has more than one defined benefit plan, disclosures may be made in total, separately for each plan, or in such groupings as are considered to be the most useful. It may be useful to distinguish groupings by criteria such as the following:

(a) the geographical location of the plans, for example, by distinguishing

domestic plans from foreign plans; or

(b) whether plans are subject to materially different risks, for example, by

distinguishing flat salary pension plans from final salary pension plans and from

post-employment medical plans.

When an enterprise provides disclosures in total for a grouping of plans, such disclosures are

provided in the form of weighted averages or of relatively narrow ranges.

Paragraph 30 requires additional disclosures about multi-employer defined benefit plans that are treated as if they were defined contribution plans.

Where required by AS 18 Related Party Disclosures an enterprise discloses

information about:

(a) related party transactions with post-employment benefit plans; and

(b) post-employment benefits for key management personnel.

Where required by AS 29 Provisions, Contingent Liabilities and Contingent Assets an enterprise discloses information about contingent liabilities arising from post-

employment benefit obligations.

3. Other long term employee benefits:

3.1 Is the amount recognised as a liability for other long-term employee benefits

the net total of the following amounts:

(a) the present value of the defined benefit obligation at the balance sheet date (see

paragraph 65);

(b) minus the fair value at the balance sheet date of plan assets (if any) out

of which the obligations are to be settled directly (see paragraphs 100-102).

In measuring the liability, an enterprise should apply paragraphs 49-91, excluding

paragraphs 55 and 61. An enterprise should apply paragraph 103 in recognising and

measuring any reimbursement right.

3.2 For other long-term employee benefits, has the enterpr ise recognized the nettotal of the following amounts as expense or (subject to paragraph 59) income, except to the

extent that another Accounting Standard requires or permits their inclusion in the cost of an

asset:(a) current service cost (see paragraphs 64-91);



(b) interest cost (see paragraph 82);

(c) the expected return on any plan assets (see paragraphs 107-109) and on

any reimbursement right recognised as an asset (see paragraph 103);

(d) actuarial gains and losses, which should all be recognised immediately;

(e) past service cost, which should all be recognised immediately; and

(f) the effect of any curtailments or settlements (see paragraphs 110 and 111).Termination benefits:

3.3 Has the enterprise recognised terminat ion benefits as a l iabi l i ty and an

expense when, and only when:

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

(b) it is probable that an outflow of resources embodying economic benefits will be

required to settle the obligation; and

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

3.4 Where termination benefits fall due more than 12 months after the balancesheet date, have they been discounted using the discount rate specified?

Transitional provisions:Employee Benefits other than Defined Benefit Plans and Termination Benefits

4.1 Where an enterprise first adopts this Statement for employee benefits, has the

difference (as adjusted by any related deferred tax expense ) between the liability in respect ofemployee benefits other than defined benefit plans and termination benefits, as per this

Statement, existing on the date of adopting this Statement and the liability that would

have been recognised at the same date, as per the pre-revised AS 15 under the enterprise’s

previous

accounting policy, been adjusted against opening balance of revenue reserves and

surplus?

Defined Benefit Plans

4.2 On first adopting this Statement,has the enterprise determined its transitional liability for defined benefit plans at that date as:

(a) the present value of the obligation (see paragraph 65) at the date of adoption;

(b) minus the fair value, at the date of adoption, of plan assets (if any) out of which

the obligations are to be settled directly (see paragraphs 100-102);

(c) minus any past service cost that, under paragraph 94, should be recognised in

later periods.

4.3 Has the difference (as adjusted by any related deferred tax expense ) between the

transitional liability and the liability that would have been recognised at the same date, as per

the pre-revised AS 15 under the enterprise’s previous accounting policy, been adjusted

immediately, against opening balance of revenue reserves and surplus.



Note for staff:

AS 15 revised is pretty complicated; Pl pay specific attention to following and discuss with partner concerned specifically:

Self managed PF and other trusts

Gratuity covered by Insurance (eg. LIC)

Leave to be considered as short term benefit.

Whether PF, SA are included when providing for an expense under this standard.

Treatment of casuals, temps etc.

Whether actuary’s certificate covers all disclosures required to be made and confirm whether

PUC (projected unit credit method) is used.

Pl read the ICAI ASB guidance on AS 15 (revised) without fail.

In respect of Gratuity and other LT benefits the Actuary provides all the information required for

disclosure and hence it can be taken from his report after checking.

We need to test check data supplied to Actuary as that is the basis of preparation of his report.



AS –16 : BORROWING COSTS

1. Confirm that actual or imputed cost of owners’ equity, including preference share capital not classified as a liability (what can be Preference Capital classified as a liability is not clear! Are we talking of Overdue redeemable preference shares?) is not considered for capitalization as that is not covered by AS-16. (Though this seems to mean that interest u/s 208 is not to be considered for capitalization, S 208 itself requires ‘charging of the sum so paid by way of interest to capital as part of cost of construction of the work or building’ –I understand that Tirupur Water Development Company has paid such interest after CG approval) . (para 2)

2. Is the asset in respect of which interest is capitalized/inventorised is a qualifying asset i.e one which necessarily takes a substantial period of time to get ready for its intended use or sale? (Para 3.2)

Explanation: (This has been included in the Standard previously explained in ASI 1)

What constitutes a substantial period of time primarily depends on the facts and circumstances of each case. However, ordinarily, a period of twelve months is considered as substantial period of time unless a shorter or longer period can be justified on the basis of facts and circumstances of the case. In estimating the period, time which an asset takes, technologically and commercially, to get it ready for its intended use or sale is considered.

3. Does borrowing cost includes any of the Following :

Interest and commitment charges on bank borrowings and other short-term and long-term borrowings;

Amortization of discounts or premiums relating to borrowings; Amortization of ancillary costs incurred in connection with the arrangement of borrowings; Finance charges in respect of assets acquired under finance leases or under other similar

arrangements; and Exchange differences arising from foreign currency borrowings to the extent that they are

regarded as an adjustment to interest costs.

Explanation: (ASI 10 – Now included in Para 4(e)) Exchange differences arising from foreign currency borrowings and considered as borrowing costs are those exchange differences which arise on the amount of principal of the foreign currency borrowings to the extent of the difference between interest on local currency borrowings and interest on foreign currency borrowings. Thus, the amount of exchange difference not exceeding the difference between interest on local currency borrowings and interest on foreign currency borrowings is considered as borrowings costs to be accounted for under this Standard and the remaining exchange difference, if any, is accounted for under AS 11, The Effects of Changes in Foreign Exchange Rates. For this purpose, the interest rate for the local currency borrowings is considered as that rate at which the enterprise would have raised the borrowings locally had the enterprise not decided to raise the foreign currency borrowings.

4. In respect of following, is no borrowing cost added?

A) inventories that are routinely manufactured or otherwise produced in large quantities on repetitive basis over a short period of time;



B) assets that are ready for intended use or sale when acquired? (para 5) ( i.e if an asset can be put to use immediately on receipt like a lathe or a computer, no interest can be capitalized on the same; Pl note that As-2 only states that interest ..is not USUALLY included in cost; where interest is incurred to bring the inventory to the present location and condition it can be capitalized.)

5. Does borrowing cost as taken by the enterprise include:

a) interest and CC ;

b) amortization of discounts and premiums relating to borrowings;

c) amortisation of ancillary costs incurred in connection with the arrangement of borrowings;

(d) finance charges in respect of assets acquired under finance leases or under other similar arrangements; (post AS –19 on leases, this would qualify in the books of lessee; hp finance charges would qualify; however as per para 11 of AS-19 one should remember that the asset should be shown at fair value or PV of minimum lease payments whichever is lower) and

(e) exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs? (para 4) (Not applicable for Companies which have adopted clause 46-A of AS 11 rev – See Page 1)

(Have you looked at accounts such as legal fees, bank charges, deferred revenue charges written off etc. to ensure there are no charges which would come under the definition of borrowing costs have been omitted to be taken? Possible costs which may need to be included under borrowing costs: loan syndication fee; documentation charges; charges for creation of security; front end fees; interest cap charges; interest conversion charges (fixed to variable etc.); penal interest and premature repayment costs may not be considered borrowing cost. Interest on Unpaid purchase consideration would be borrowing cost and can be capitalized in case of qualifying assets)

6. Have borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset been capitalised as part of the cost of that asset? (para 6) Have only those borrowing costs been capitalised as part of the cost of a qualifying asset where it is probable that they will result in future economic benefits to the enterprise and the costs can be measured reliably? (para 7)

7. Have the other borrowing costs been recognised as an expense in the period in which they are incurred. (para 6/7) (i.e it seems no borrowing costs can be treated as deferred revenue expenditure; Of course there seems to be divided opinion here as Jindal Iron has quoted AS-16 and written off ancillary costs in P&L, L&T has quoted same AS and treated premium paid on prepayment of loans as DRE over tenor of loan in YE 31.3.01! Also we have to see treatment accorded to existing DRE in the accounts too; if a company chooses to write off interest (like Japanese cos do) even if it qualifies for capitalization, then we may have to say that AS-16 has not been followed, even though the AS is worded as if it is an option-it talks of eligibility for capitalization.)

8. Are the borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset, those borrowing costs that would have been avoided if the expenditure on the qualifying asset had not been made?

9. Has the enterprise borrowed funds specifically for the purpose of obtaining a particular qualifying asset? In such a case has borrowing cost been identified as the actual borrowing costs during the period less any income on the temporary investment of those



borrowings? (para 8/10) This interest received should be net of tax paid if any. Also check if Income tax if any paid on such income, adjusted for latest applicable rate of tax, has been treated as a deferred tax asset? (AS-22)

10. To the extent that funds are borrowed generally and used for the purpose of obtaining a qualifying asset, has the amount of borrowing costs eligible for capitalisation been determined by applying a capitalisation rate to the expenditure on that asset? Is the capitalisation rate the weighted average of the borrowing costs applicable to the borrowings of the enterprise that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset? (para 12) (here one moot question is whether the debt: equity ratio should be considered? AS does not prescribe that. Or should FIFO or some other applied when promoters have brought in funds first?)

11. Ensure if the amount of borrowing costs capitalised during the period does not exceed the amount of borrowing costs incurred during that period (para 12) (of course you can take only interest on qualifying loans here; working capital loans cannot be taken; by their very nature short term loans also would not qualify)

12. If provided by other AS, if the carrying amount or the expected ultimate cost of the qualifying asset exceeds its recoverable amount or net realisable value, the carrying amount is written down or written off in accordance with the requirements of such other Accounting Standards. (para 13) (In the case of AS-11 there is a requirement: such adjustment (for forex fluctuation) should not result in the net book value of a class of revalued fixed assets exceeding the recoverable amount of assets of that class, the remaining amount of the increase in liability, if any, being debited to the revaluation reserve, or to the profit and loss statement in the event of inadequacy or absence of the revaluation reserve. In such a case one has to carefully see if Interest capitalization is also done and whether adjustment is required; See note reg para 11 of AS-19 above; Per AS-2 one has to value inventories at lower of cost and NRV; Till such other AS like Impairment of assets come into effect, this can otherwise be ignored)

13. Has the capitalisation of borrowing costs as part of the cost of a qualifying asset commenced only when all the following conditions are satisfied:

(a) expenditure for the acquisition, construction or production of a qualifying asset is being incurred;

(b) borrowing costs are being incurred (that means loan must already be in place); and(c) activities that are necessary to prepare the asset for its intended use or sale are in

progress. (para 14) (A ticklish issue is whether interest attributable to advances paid would qualify for capitalization; here too if the asset is an off-the-shelf item, it would not certainly qualify; if the asset is a qualifying asset i.e one which necessarily takes a substantial period of time to get ready for its intended use or sale, then we have to see if all the above 3 conditions are fulfilled. Per para 16 if it can be said that no production or development that changes the asset’s condition is taking place, then capitalization is not possible. Normally we can assume that on advances no interest would be capitalized)

14. Do the activities necessary to prepare the asset for its intended use or sale encompass more than the physical construction of the asset (including technical and administrative work prior to the commencement of physical construction, such as the activities associated with obtaining permits prior to the commencement of the physical construction) (para 16)?

15. Do such activities exclude the holding of an asset when no production or development that changes the asset’s condition is taking place? For example, borrowing costs incurred while land is under development are capitalised during the period in which activities related to the development are being undertaken. However, borrowing costs incurred while land acquired for



building purposes is held without any associated development activity do not qualify for capitalisation. (para 16)

16. Does expenditure on a qualifying asset include only such expenditure that has resulted in payments of cash, transfers of other assets or the assumption of interest-bearing liabilities? (para 15)

17. Has such expenditure been reduced by any progress payments received and grants received in connection with the asset (see Accounting Standard 12, Accounting for Government Grants). (para 15)

18. Has the enterprise used the average carrying amount of the asset during a period, including borrowing costs previously capitalised,as a reasonable approximation of the expenditure to which the capitalisation rate is applied in that period? (para 15) If not, what method has been used?

19. Has capitalisation of borrowing costs been suspended during extended periods in which active development is interrupted? (Para 17) (examples could be strike, fire, flood etc.)

20 . Have costs of holding partially completed assets not been considered for capitalization? (para 18)

21. Has capitalisation of borrowing costs not been suspended during a period when substantial technical and administrative work is being carried out? (para 18)

22. Has Capitalisation of borrowing costs not been suspended when a temporary delay is a necessary part of the process of getting an asset ready for its intended use or sale? For example, capitalisation continues during the extended period needed for inventories to mature or the extended period during which high water levels delay construction of a bridge, if such high water levels are common during the construction period in the geographic region involved. (para 18)

23. Has capitalisation of borrowing costs ceased when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete? (para 19) (i.e capitalization cannot routinely be upto date of commercial production as the project may be complete but CP is postponed due to extraneous reasons)

24. Have assets whose physical construction or production is complete even though routine administrative work might still continue been considered as assets which are ready for their intended use or sale? Similarly have assets where minor modifications, such as the decoration of a property to the user’s specification, are all that are outstanding, been taken as assets where substantially all the activities are complete? (para 20)

25. When the construction of a qualifying asset is completed in parts and a completed part is capable of being used while construction continues for the other parts, has capitalisation of borrowing costs in relation to a part ceased when substantially all the activities necessary to prepare that part for its intended use or sale are complete? (para 21) A business park comprising several buildings, each of which can be used individually, is an example of a qualifying asset for which each part is capable of being used while construction continues for the other parts. An example of a qualifying asset that needs to be complete before any part can be used is an industrial plant involving several processes which are carried out in sequence at different parts of



the plant within the same site, such as a steel mill. (para 22) Another example can be a fertilizer complex where let us say Ammonia plant is ready and can start manufacturing and urea plant, which utilizes Ammonia, is under construction still. Here if ammonia is manufactured and sold as a separate item even though Urea plant is under construction, then interest capitalization ceases for Ammonia plant. If Ammonia is produced by the Project only for making urea and no production of ammonia commences since Urea plant is under construction, then it should not be treated as complete project and interest capitalization can continue.

26. Check the tax treatment of the Interest; though this has no bearing on accounting, it is necessary to know the arguments put forth for treating interest as revenue expenditure for tax. The following table provided below is useful in this regard:

Sl.no. Situation AS IT 1 Acquiring qualifying

assets before commencement of business

Capitalize Capitalize

2 Acquiring qualifying assets after commencement of business

Capitalise Capitalise (after Finance Act 2003)

3 Acquiring non-qualifying assets before commencement of production

Write off Capitalise

4 Acquiring non qualifying assets after commencement of business

Write off Capitalise (After Finance Act 2003)

5 Net interest income earned in capitalization?

Capitalise . Create Deferred tax asset

No capitalisation. Offer to tax

6 Period when related activities were halted should be excluded?

Yes No.

27. Do the financial statements disclose:

(a) the accounting policy adopted for borrowing costs; and(b) the amount of borrowing costs capitalised during the period?

Note: GC 14 ASI 22: interest added to inventories as per AS-16 should be considered as a segment expense. The clause excluding the interest expense in the definition of ‘segment expense’ does not cover such interest. (Included as Point (b) of the definition of ‘Segment Expense’ under paragraph 5.6 of Accounting Standard (AS) 17- Segment Reporting in the Companies (Accounting Standards) Rules 2006)



AS-17: SEGMENT REPORTING

0. Basics:

Is AS-17 applicable? i.e is it either a listed company or a Company about to make an IPO as per Board resolution or an enterprise with turnover (per Guidance note on Tax audit) exceeding Rs 50 Cr? (If Turnover is in border line or was over Rs 50 Cr.last year, bring to the attention of a partner)

If CFS (Consolidated Financial Statement) is presented, is Segment info given in relation to CFS only? For this purpose we have to get Segment info from any subsidiaries we do not audit, for consolidation, even if the Subsidiary is unlisted or has turnover less than Rs 50 Cr.

The organisational structure of an enterprise and its internal financial reporting system are normally the basis for identifying its segments. (12)

But AS-17 also requires one to go beyond that if needed, and for this purpose the Business Segment checklist is very important part of the Standard. See Business Segment Checklist The key concept is ‘differing risks and returns’.

Revenue (Turnover), expenses, assets and liabilities of the segment should be determined on the same basis as used in the Enterprise financial statement.

1. Business and Geographical segments definition: (5)

Check if the selected business segment is a distinguishable component of an enterprise that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segment

Check if the selected geographical segment is a distinguishable component of an enterprise that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments.

2. Primary and secondary segment reporting formats (19,20):

Check the Internal organizational and management structure of an enterprise and its internal financial reporting system to the Board and CEO.

o If this structure and reporting system are based on individual products or services or groups of related products and services, then the Primary segment reporting format would be Business segment and Secondary will be Geographical.

o If this structure and reporting system is based on both individual products or services or groups of related products/services and geographical areas (Matrix approach), then also Business segment would be the Primary format.

o If this structure and reporting system is based on geographical areas, then Geographic segment would be the Primary format.

In the above three cases: Business and geographical segments of an enterprise for external reporting purposes should be those organisational units for which information is reported to the board of directors and to the chief executive officer for the purpose of evaluating the unit's performance and for making decisions about future



allocations of resources.(24) –At this stage if the segments have been determined, skip the balance and go to 3- Reportable segments .

o If the Organizational and management structure and system of internal financial reporting are based neither on individual products or services or groups of related products/services nor on geographical areas, the directors and management of the enterprise should determine whether the risks and returns of the enterprise are related more to the products and services it produces or to the geographical areas in which it operates and should, accordingly, choose business segments or geographical segments as the primary segment reporting format of the enterprise, with the other as its secondary reporting format. (Ensure the Board passes a resolution in this regard)

In such event, determine business segments and geographical segments for external reporting purposes based on the factors in the definitions in paragraph 5 BSC of the AS, rather than on the basis of its system of internal financial reporting to the board of directors and chief executive officer, consistent with the following:

(a) if one or more of the segments reported internally to the directors and management is a business segment or a geographical segment based on the factors in the definitions in paragraph 5 (see below) but others are not, sub-paragraph (b) below should be applied only to those internal segments that do not meet the definitions in paragraph 5 (that is, an internally reported segment that meets the definition should not be further segmented);

(b) for those segments reported internally to the directors and management that do not satisfy the definitions in paragraph 5 (see below), management of the enterprise should look to the next lower level of internal segmentation that reports information along product and service lines or geographical lines, as appropriate under the definitions in paragraph 5(see below); and

(c) if such an internally reported lower-level segment meets the definition of business segment or geographical segment based on the factors in paragraph 5 (see below), the criteria for identifying reportable segments (in 27) should be applied to that segment. (25)

Business segment checklist (5):Check if products and services included in a single business segment are similar with respect to a majority of the following factors: (7)

a) the nature of the products or services;

(b) the nature of the production processes;

(c) the type or class of customers for the products or services;

(d) the methods used to distribute the products or provide the services; and



(e) if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities. (5)

If there is a tie (i.e it is a 50:50 situation), bring to the attention of partner.

In a Automobile company for instance Lorries and buses will be a segment different from passenger cars in view of differing risks and returns;(Telco seems to have taken a different stand) in a Factory which includes say Caustic soda as well as Cement, Cement will be a separate segment even if it uses lot of common raw materials or the product of another process and even if it gets power etc. allocated after it is primarily made available to the PVC plant and hence largely dependent on the other product for its production.

Geographical segment (5): Check if a single geographical segment does not include operations in economic environments with significantly differing risks and returns. (8)

Check factors for Identifying geographical segments:

(a) similarity of economic and political conditions;

(b) relationships between operations in different geographical areas;

(c) proximity of operations;

(d) special risks associated with operations in a particular area;

(e) exchange control regulations; and

(f) the underlying currency risks.

(under this J&K State may qualify as separate geographical segment ; but Europe may be one)

Geographical segments may be based on either:

(a) the location of production or service facilities and other assets of an enterprise; or

(b) the location of its customers.Check Internal reporting to determine which.

3. Reportable segments: (27-32)

Identification of a reportable business or geographical segment:

i) Revenue: Add revenue from revenue/sale to external customers and sale between segments inter se. (A) Calculate the % of revenue/sale of the individual segment to the total i.e A.

ii) Results * (Segment revenue less segment expenses): Take combined result of all segments in Profit. (B)

Take combined result of all segments in Loss and take the absolute amount i.e remove the minus figure (C)



Find out which of the totals (B) or (C) is higher. (D)

Calculate the % of individual segment results (absolute amounts) to D. (Note that total may not be 100)* not called profits –please note

iii) Assets: Calculate the % of individual segment assets to Total of all segment assets.

Reportable segments:

Segment revenue % calculated as in i) above If 10% or moreSegment result % calculated as in ii) above If 10% or more Segment assets % calculated as in iii) above If 10% or more Reportable segments of previous period based on revenue, result or asset

If 10% or more in the last period as per calculations in i) ii) iii) in last period

For all reportable segments which are over 10% threshold in current period, previous period figs to be provided, even if in previous period the threshold was not reached.

Calculate the Segment revenues of all reportable segments arrived at as above.Check % of total reportable segment revenue to Total Enterprise revenue. (E)

If E is less than 75%, then identify additional reportable Segments till total segment revenue at least equals 75% of Enterprise revenue.

Non reportable segments may be either:a) Chosen by management for presentation as separate segment orb) Included unallocated reconciling item

Note: Non reportable segments cannot be combined and reported.

4. Accounting Policy:

Has segment information been prepared in conformity with the accounting policies adopted for preparing and presenting the financial statements of the enterprise as a whole? (33)Have assets and liabilities that relate jointly to two or more segments been allocated to segments if, and only if, their related revenues and expenses also are allocated to those segments? (36)In case of additional segment info presented on basis other than the accounting policies of the enterprise, a) is this info provided to the Board /CEO as part of Internal reporting and b) is the basis of measurement clearly described? (35)

5. Inclusions/exclusions under segment revenue, expenses and assets and liabilities (5):

Is segment revenue the aggregate of:I) the portion of enterprise revenue that is directly attributable to a segment,

(ii) the relevant portion of enterprise revenue that can be allocated on a reasonable basis to a segment, and

(iii) revenue from transactions with other segments of the enterprise?



Confirm segment expense does not include:(a) extraordinary items as defined in AS 5, Net Profit or Loss for the Period, Prior

Period Items and Changes in Accounting Policies;

(b) interest expense, including interest incurred on advances or loans from other segments, unless the operations of the segment are primarily of a financial nature; (This means that in non financial companies, loans will not be Segment liabilities) (GC 14: interest added to inventories as per AS-16 should be considered as a segment expense. The clause excluding the interest expense in the definition of ‘segment expense’ does not cover such interest.)

(c) losses on sales of investments or losses on extinguishment of debt unless the operations of the segment are primarily of a financial nature;

(d) income tax expense; and

(e) general administrative expenses, head-office expenses, and other expenses that arise at the enterprise level and relate to the enterprise as a whole. However, costs are sometimes incurred at the enterprise level on behalf of a segment. Such costs are part of segment expense if they relate to the operating activities of the segment and if they can be directly attributed or allocated to the segment on a reasonable basis

Are Segment assets those operating assets that are employed by a segment in its operating activities and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis.

If the segment result of a segment includes interest or dividend income,do its segment assets include the related receivables, loans, investments, or other interest or dividend generating assets?

Confirm Segment assets do not include income tax assets.

Are Segment assets are determined after deducting related allowances/provisions that are reported as direct offsets in the balance sheet of the enterprise.

One has to look carefully at Inter segment assets and liabilities; if they are not cash settled, they will not represent the true asset or liability and hence disclosure of these assets and liabilities as part of segment assets/liabilities may be misleading.

Are Segment liabilities those operating liabilities that result from the operating activities of a segment and that either are directly attributable to the segment or can be allocated to the segment on a reasonable basis. If the segment result of a segment includes interest expense, do its segment liabilities include the related interest-bearing liabilities?.(in non financial companies will not be included)

Confirm segment liabilities do not include income tax liabilities.

Check if the basis of allocation of revenue, expenses, assets and liabilities are reasonable, consistent and not arbitrary. (37)



6. Disclosures: The following is in the AS itself and provides a condensed picture of Disclosure and can be used as a checklist directly.

Summary of Required Disclosure

Figures in parentheses refer to paragraph numbers of the relevant paragraphs in the text.

PRIMARY FORMAT ISBUSINESSSEGMENTS

PRIMARY FORMAT IS

GEOGRAPHICALSEGMENTS BY LOCATIONOF ASSETS

PRIMARY FORMAT IS

GEOGRAPHICAL SEGMENTS BY LOCATION OF CUSTOMERS

Required Primary Disclosures



Revenue from external customers by business segment [40(a)]

Revenue from external customers by location of assets [40(a)]

Revenue from external customers by location of customers [40(a)]

Revenue from transactions with other segments by business segment [40(a)]

Revenue from transactions with other segments by location of assets [40(a)]

Revenue from transactions with other segments by location of customers [40(a)]

Segment result by business segment [40(b)]

Segment result by location of assets [40(b)]

Segment result by location of customers [40(b)]

Carrying amount of segment assets by business segment [40(c)]

Carrying amount of segment assets by location of assets [40(c)]

Carrying amount of segment assets by location of customers [40(c)]

Segment liabilities by business segment [40(d)]

Segment liabilities by location of assets [40(d)]

Segment liabilities by location of customers [40(d)]

Cost to acquire tangible and intangible fixed assets by business segment [40(e)]

Cost to acquire tangible and intangible fixed assets by location of assets [40(e)]

Cost to acquire tangible and intangible fixed assets by location of customers [40(e)]

Depreciation and amortisation expense by business segment [40(f)]

Depreciation and amortisation expense by location of assets[40(f)]

Depreciation and amortisation expense by location of customers[40(f)]

Non-cash expenses other than Depreciation and amortisation by business segment [40(g)]

Non-cash expenses other than Depreciation and amortisation by location of assets [40(g)]

Non-cash expenses other than Depreciation and amortisation by location of customers [40(g)]

Reconciliation of revenue, result, assets, and liabilities by business segment [46]

Reconciliation of revenue, result, assets, and liabilities [46]

Reconciliation of revenue, result, assets, and liabilities [46]



PRIMARY FORMAT ISBUSINESS SEGMENTS

PRIMARY FORMAT IS GEOGRAPHICALSEGMENTS BY LOCATIONOF ASSETS

PRIMARY FORMAT IS GEOGRAPHICAL SEGMENTS BY LOCATIONOF CUSTOMERS

Required Secondary Disclosures



Revenue from external customers by location of customers [48]

Revenue from external customers by business segment [49]

Revenue from external customers by business segment [49]

Carrying amount of segment assets by location of assets [48]

Carrying amount of segment assets by business segment [49]

Carrying amount of segment assets by business segment [49]

Cost to acquire tangible and intangible fixed assets by location of assets [48]

Cost to acquire tangible and intangible fixed assets by business segment [49]

Cost to acquire tangible and intangible fixed assets by business segment [49]

Revenue from external customers by geographical customers if different from location of assets [50]

Carrying amount of segment assets by location of assets if different from location of customers [51]

Cost to acquire tangible and intangible fixed assets by location of assets if different from location of customers [51]

Other Required Disclosures



Basis of pricing inter-segment transfers and any change therein [53]



Changes in segment accounting policies [54]



Types of products and services in each business segment [58]



Composition of each geographical segment [58]





Note: A Matrix form of presentation including both business and geographical segments as Primary segment reporting formats is not required but is not prohibited.

GC 11 ASI 20 : (included as Explanation for Para 38) in New Rules 2006)By applying these definitions, if it is concluded that there is neither more than one business segment nor more than one geographical segment,ensure segment information as per AS 17 is not disclosed but the fact that there is only one business segment and one geographical segment is disclosed by way of note.

GC 14 ASI 22: (included as Explanation for Para 5.6(b) in New Rules 2006) interest added to inventories as per AS-16 should be considered as a segment expense. The clause excluding the interest expense in the definition of ‘segment expense’ does not cover such interest.

Background Paper:

Q 1: Products and services included in a single business segment may be dissimilar with respect to one or several factors listed in Para 5 of AS but are expected to be similar with respect to majority of the factors.

Q 2 & 3: Single geographical segment should not include operations in economic environments with significantly differing risks and returns. This applies also to segments within the country.

Q 4: Products included in a single business segment which are related and not subject to differing risks/returns should be included in a single business segment and should not be identified as separate reportable segment even though individually a product constitutes over 10% of the total segmental revenue.

Q 5: For 10% limit, percentage of segment revenue to total segment revenue (internal or external) should be considered and not the percentage of segment revenue to total revenue (including unallocated revenue).

Q 7: Partnership firm with turnover over Rs 50 Cr also needs to present Segment info.

Q 9/10/12: Interest expense/finance lease finance charge directly related to a segment should also not be included as segment expense. However in addition to disclosing segment result as defined in AS 17, an enterprise could disclose performance of each segment after financing costs. Similar is the case with Income tax identifiable with a segment.

Q 11: Operating lease payments are a charge related to the use of an asset and should be included in Segment expenses.

Q 13: Allocation basis should be reasonable as understood by external users and cannot be used just because it is used in internal reporting. If this condition is not met, relevant item to be shown as unallocated.

Q 14: If expenses /revenue related to common assets are allocated to segments on a reasonable basis. the common asset should also be allocated on reasonable basis.

Q 15: Freehold land is to be allocated to segments on reasonable basis.



Q 16/17/18 : Significant accounting policies should include accounting policies such as identification of segments, method of pricing inter segment transfers and bases for allocation of revenue/expenses to segments. Accounting policies adopted for preparation of segment info should be in conformity with enterprise accounting policies. Changes having material effect also need to be disclosed.

Q 21: There is no rule that a subsidiary would constitute a separate reportable segment.

Q 22: Segment info. for associates/JV : see page 52 of Background paper which gives modified requirements based on IAS 14.

Q 23: It is not acceptable to omit certain or all of the requirements of segment disclosures on the basis that the information is commercially sensitive or potentially detrimental to the enterprise in the views of the management.



AS-18 : RELATED PARTY DISCLOSURES

Area Remarks AS para1 Applicability

This AS should be applied in reporting related party relationships and transactions between a reporting enterprise and its related parties.

This is mandatory from accounting periods commencing from 1.4.2001.

Applicable to all listed /about to be listed companies and all other commercial, industrial and business reporting enterprises, whose turnover for the accounting period exceeds Rs.50 crores. (As per ICAI Council's decision dated 8-10th March 2002)

Para 1

2 Disclosure requirements:-

Related party relationships and transactions between a reporting enterprise and its related parties.

3 Disclosure is required to be made by both the concerned parties. If there is control (i.e. Control, control by or under common control), disclosure required of related party relationship even if there are no transactions; if there is no control, disclosure is required only if there are transactions.e.g If X holds 51% of Y disclosure of this relationship required even if there are no transactions between X & Y; however if X holds only 49% of Y, then no disclosure required unless there are transactions between X & Y.

4 Disclosure requirement regarding related party relationships where control exists whether or not there is any transaction;

a Parent and subsidiary company relationship Explanation for Para 13: Names of all subsidiaries; companies with over 50% of voting power.Names of all companies which are subsidiaries of direct subsidiaries since indirect holding is also covered.

Para 3(a)

b Controls composition of board or governing body Para 10(b)c Controls over 20% interest in voting power combined

with power to direct financial and/or operating policy by statute or agreement for all

Para 10(c)

5 Disclosure requirements of transactions between



Area Remarks AS pararelated parties- checking who is covered:

a Are they related because both the enterprises have common key management personnel?

Para 3(a) and 10

b Are they related as joint venture? Para 3(b) and 10

c Are they related because both the enterprises are under common control?

Para 3(a)

d Are there key management personnel or relative of key management personnel?(e.g: A CFO, not otherwise related, will not be considered as KMP unless otherwise proved whereas a CEO would be, if he is a person with authority to plan, direct and control the activities of the Company)

Explanation for Para 14:A non-executive director, merely by virtue of his being a director, will not be covered under key management personnel (GC: 15 ASI 23) This has not been included in the New Rules 2006. This will be a Guidance note.

Para 3(d)

e Are there relatives (Spouse, son, daughter, brother, sister, father and mother only) of an individual who controls as per clause 4 above or as per 5(a),(b),(c) and (d)

f Is there relationship because the enterprise is owned by directors / major shareholders of the other enterprise or because there is common key management personnel?

Significant influence means participation in the financial and/or operating policy decisions of an enterprise but not control of those policies. Significant influence is presumed if an investing party holds directly or indirectly 20% or more of the voting powers of an enterprise.

Disclosure to be made as per para 23 of AS 18 where there is transaction between related parties during the existence of a related party relationship.

1Name of the transacting related party

2 A description of the relationship between the parties.

3 A description of the nature of transactions

4 Volume of the transactions either as an amount or as an appropriate proportion

5 Any other elements of the related party transaction necessary for an understanding of the financial statements

6 Amount or appropriate proportion of outstanding items pertaining to related parties at the balance sheet date and provisions for doubtful debts due from such parties on that date.

7 Amounts written off or written back in the period, of



debts due from or to related parties. Examples as given in para 24 of AS 18Purchase and sale of goodsPurchase and sale of assetsRendering or receiving of servicesAgency arrangementsLeasing or hire purchase arrangementsTransfer of research and developmentLicence agreementsGuarantees and collaterals etc.

8. Non disclosure:a) No disclosure is required if providing such disclosures would conflict with the reporting enterprise's duties of confidentiality as specifically required in terms of a statute or by any regulator or similar competent authority. State clearly the relevant provision of statute or order etc. of the regulator.

b) No disclosure is required in the financial statements of state-controlled enterprises (Central or State) as regards related party relationships with other state-controlled enterprises and transactions with such enterprises. Applicable to Govt audits/ bank audits for such transactions. Confirm other disclosure like Key management personnel remuneration is disclosed in such enterprises also.

9. Check following reg. disclosure:a) The disclosure as per this AS

is applicable even if a single transaction took place when the relationship exists and the relationship need not be continued till the end date of the accounting year

b) Disclosure is required even if the transactions are done on arm’s length basis.c) Even when there is no price charged, disclosure required. For inst. use of logo, provision of managerial staff, use of office space or sharing of services, providing guarantee or security, waivers etc. d) disclosure of contingent liabilities is not called for but may be made if Company wants to make disclosuree) where aggregation takes place ensure aggregation is of similar types of related parties and similar types of transactions. For instance all loans given to all associates can be clubbed; loans to associates cannot be clubbed with loans to subsidiaries; also loans given cannot be clubbed with guarantees or netted against loans



received.

10. A related party transaction the amount of which is in excess of 10% of total related party transaction of the same type (say purchases) is to be shown separately and not clubbed in the aggregate. ASI 13 (GC2)

.

In respect of corporate entities, this standard is to be followed in addition to adherence to the provisions of section 297, 299, 300, 301 of the Companies Act, 1956.

These sections deal with disclosure by directors of their interest in transactions with parties where they are interested.

Such disclosures and approvals at the board meetings are required to be maintained in a separate register u/s 301 of the Companies Act, 1956. Check the registers.

This standard is applicable to consolidated financial statements excluding intra group transactions.

General Clarification (GC): 2 (ASI 13) - Included as Explanation for Para 13 (Interpretation of the term intermediaries)

The manner of disclosures required by paragraphs 23 and 26 of AS 18 is illustrated as below. It may be noted that the format given below is merely illustrative in nature and is not exhaustive. Hold

ing Company

Subsidiaries

Fellow Subsidiaries

Associates

Key Management Personnel

Relatives of Key Management Personnel

Total

Purchases of goods

Sale of goods

Purchase of fixed assets

Sale of fixed assets

Rendering of services

Receiving of services

Agenc



y arrangementsLeasing or hire purchase arrangements

Transfer of research and development

Licence agreements

Finance (including loans and equity contributions in cash or in kind)

Guarantees and collaterals

Management contracts including for deputation of employees

Note:

Names of related parties and description of relationship:

1. Holding Company A Ltd.

2. Subsidiaries B Ltd. and C (P) Ltd.

3. Fellow Subsidiaries D Ltd. and Q Ltd.



4. Associates X Ltd., Y Ltd. and Z (P) Ltd.

5. Key Management Personnel Mr. Y and Mr. Z

6. Relatives of Key Management Personnel

Mrs. Y (wife of Mr. Y), Mr. F (father of Mr. Z)



AS – 19 : LEASES

Area Remarks As para1 This AS is applicable for all leases entered on

or after 1.4.2001 other than lease agreements to explore for or use natural resources such as oil, gas, timber, metals, etc. licensing agreements for items such as motion picture films, video recordings, plays, patents and copyrights and agreements to use lands.

Para 1

2 This AS is applicable for lease as well as hire purchase transactions

3 Leases to be classified as financial lease and operating lease

Financial lease is a lease that transfers substantially all the risks and rewards incident to ownership of an asset and operating lease is a lease other than a financial lease.

Para 3

4 Financial leases-In the books of lessorTo recognise the net investment value as receivables

Para 26

To recognise the finance charges on implicit rate of return on investment only

Para 28

To allocate financial income over the lease term on a systematic basis.

Para 29

To allocate lease payments to principal and finance charges

Para 29

To review unguaranteed residual value on a regular basis. Any shortfall is to be recognised and excess cannot be recognised

Para 30

Unguaranteed residual value is the amount by which residual value exceeds the guaranteed residual value.

Guaranteed residual value is that part of residual value guaranteed by or on behalf of lessee to discharge the obligations of the lease in taking back the asset at that value on termination of the lease.

Para 3

To charge off or allocate against the finance income over the lease period all initial costs like commission, legal fees incurred by lessors.

Para 31

Lessors to disclose the following in their annual accounts:5 Reconciliation of total gross investment and

the present value of minimum lease payments (MLP) receivable at the balance sheet date

Para 37-a

Gross investment in lease and present value of MLP divided into:- leases not later than 1 year, over 1 but less than 5 years and later than 5 years

Para 37-a

Value of unearned finance income Para 37-bValue of unguaranteed residual value accruing to the benefit of lessor

Para 37-c



Area Remarks As paraAccumulated provision for unallocable minimum lease payments receivable

Para 37-d

Contingent rent recognised in profit & loss account

Para 37-e

Description of significant leasing arrangements

Para 37-f

Accounting policy for treatment of initial direct costs

Para 37-g

6 Operating leases-in the books of lessorLessors to present assets given under operating lease under fixed assets in balance sheet

Para 39

To follow AS 10-accounting for fixed assets and AS 6-depreciation accounting

Para 46

Initial direct costs incurred to earn revenue from an operating lease are either deferred and allocated to income over the lease term or are recognised as an expense in the year in which it is incurred

Para 42

To check impairment of assets Para 46To disclose assets on lease as fixed assets including impaired assets

Para 46

To disclose non cancellable operating lease of future rentals receivable

Para 46

Description of significant leasing arrangementsAccounting policy for treatment of initial direct costs

Para 46

7 Financial leases-in the books of lesseeTo capitalise assets at lower of present value of minimum lease payments or at fair value or cost.Discounting is to be done at implicit rate or at incremental market borrowing rate to the lessee

Para 11

To show liability for leased assets under current liability or a long term liability as the case may be and not to deduct the value of assets

Para 14

To include initial direct costs like insurance, commission, legal fees etc. incurred by lessee in the costs of the assets if it is directly attributable to activities of lessee

Para 15

To apportion lease payments as finance charges and reduction in outstanding liability and allocate finance charge over the lease term

Para 16

To charge depreciation in the books in accordance with AS 6-depreciation accounting

Para 18

To treat impaired leased asset in accordance with new AS on Impairment of assets

Para 21

8 Lessees to disclose the following in their annual accountsIn addition to AS 10 accounting for fixed



Area Remarks As paraassets and AS 6 depreciation accounting, lessees to disclose the following:Segregation of owned assets and leases assets

Para 22-aFor each class of assets, net carrying costs at the balance sheet dateReconciliation between the total minimum lease payments at the balance sheet date and the present value for each of the following periods, leases not later than 1 year, over 1 but less than 5 years and later than 5 years.

Para 22-b

Contingent rent recognised as income in the profit and loss account for the period

Para 22-d


Para 22-f

9 Operating leases-in the books of lesseeLease payments under an operating lease should be recognised as an expense in the profit & loss account on a straight line basis over the lease period unless there is any other systematic basis.

Para 23

To disclose total of future minimum lease payments under non cancellable operating leases for following period, leases not later than 1 year, over 1 but less than 5 years and later than 5 years.

Para 25

Total of future minimum sub lease payments expected to be received under non cancellable sub leases at the balance sheet date

Para 25


Para 25

10Sale and lease back transactions

Sale of an asset by the vendor and leasing the same back to the vendor

11If it is finance lease

Not to immediately recognise the excess or deficiency of sale proceeds over the carrying amount as income or loss in the financial statements of a seller leassee.

Para 48

Such excess is to be deferred and amortised over the lease period inproportion to depreciation of the leases assets.

Para 49

12 If it is operating leaseTo recognise profit or loss immediately if the transaction is established to fair value

Sale below fair value

To recognise profit or loss if the loss is not compensated by future rentals.To defer and amortise loss if the loss is compensated by future rentals.

Para 50



Area Remarks As para

Sale price below fair value

To defer and amortise the excess over the period the asset is expected to be used.

Back ground material of ICAI:

Area Remarks13. For applying AS 22 the lease transaction as a whole

should be considered and not individual items such as finance income, depreciation.

Question 7

14. AS-19 would not be applicable to renewals of earlier lease agreements commenced prior to April 1, 2001.

Question 2

15. If after 1.4.01 the terms of an agreement are changed in a manner that results in a different classification of the lease, the revised agreement would be considered as a new agreement over its revised term and AS 19 would apply.

Question 3

16. Costs incurred for installation etc. by lessee should be capitalised by him as per para 9.1 of AS 10. (To also consider impact of AS-26 and AS-28)

Question 4

17. Minimum lease payments should not include penal interest and default payment charges.

Question 5

18. Disclosure of lease receivables:Finance lease receivable (secured)Accrued and due fir over 6 monthsConsidered goodConsidered doubtfulOther accrued and due finance receivablesConsidered goodConsidered doubtful

Accrued but not due

Less: provision for fl doubtful of recovery

Question 8

19. Lessee and not lessor of a FL should include the leased assets in fixed assets register.

Question 9



AS – 20 : EARNINGS PER SHARE

Area Remarks AS para1

Applicability

Is the company’s share listed in a Stock exchange?

Do you disclose EPS voluntarily, if so standard has to be complied in full.

1

2Do you publish consolidated financial statement (CFS) if so EPS to be presented based on CFS

2 & 3

3Basic and diluted EPS are to be shown on the face of the statement of profit and loss with equal prominence for all periods presented

8

4EPS should be presented even if the result is loss

9

5Basic EPS:

Net Profit or loss attributable to equity shareholder less preference dividends

Weighted average number of equity shares

10

6All items of income and expenses including tax expense and extraordinary items are included in the determination of net profits or loss.

12

7Weighted average number of equity shares:-

It is the number of equity shares outstanding at the beginning of the period adjusted by the number of equity shares bought back or issued multiplied by the time weighting factor

16

8If the shares are partly paid up, they are treated as a fraction of an equity share to the extent that they were entitled to participate in dividends relative to a fully paid up equity share during the reporting period.

19

9Preference dividends includes dividend declared on non cumulating preference shares and dividend payable on cumulative preference shares, whether declared or not.

13

10Issue of bonus shares:- shares split/revenue split:- Adjustment is to be made for the proportionate change in the number of equity shares outstanding as of the event had occurred at the beginning of the year for all periods presented.

22 & 23



Area Remarks AS para11

Computation of weighted average number of equity shares in case of a rights issue during the period and also prior period to be done

25 & annexure IV

12Reporting enterprises are also to report diluted EPS

Net profit or loss attributable to equity shareholders and the average number of shares outstanding should be adjusted for all effects of all diluted potential equity shares

For calculating diluted earnings per share, an enterprise should assess the exercise of options and diluted potential equity shares.

Effect of diluted earnings in case of convertible debentures, share options are all to be given and diluted EPS to be calculated. Suitable adjustments to be made to profit including tax thereon.

26

35

29

13Potential equity shares should be treated as diluting only if on conversion would decrease EPS per share

39

14A reconciliation of net profit or loss used for calculating basic and diluted EPS are to be reconciled with net profit or loss for the period is to be disclosed

48-a

15A reconciliation of weighted average number of shares used for calculating basic and diluted EPS is to be reconciled and disclosed.

48-b

16Nominal value of shares is also to be disclosed along with EPS figure.

48-c

Background material

17 Net profit includes prior period expenses/revenue

Q 1

18 Amounts appropriated to mandatory reserves are attributable to equity shareholders and hence should not be deducted.

Q 2

19If options are yet to be exercised, they should not be included for Basic EPS.

However all options granted (not only vested options) to be included for calculating Diluted EPS. (See Q 13 for calculations)

Q 4

20 Buy back of shares at a value different from fair value is the converse of a rights issue involving a

Q 5



Area Remarks AS para

bonus element and treated accordingly.

Contract for buy back of shares not yet concluded should be considered for Diluted EPS.

Q 10

21In the case of more than one class of equity shares, percentage of each class‘s holding in the equity capital should be included.

Q 7

22Shares which are partly paid up on which certain calls have not been paid will be included for Basic EPS to the extent paid up if they are entitled to a dividend to the extent paid up.

Q 12

23Diluted EPS can be higher than Basic EPS as potential equity shares are to be treated as dilutive only when their conversion to equity would decrease net profit from continuing ordinary operations.

Q 14

Limited revision to AS 20 effective for years beginning on or after 1.4.04: This has not been included in the New Rules 2006.Additional disclosure:

(i) where the statement of profit and loss includes extraordinary items (within the meaning of AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies), the enterprise should disclose basic and diluted earnings per share computed on the basis of earnings excluding extraordinary items (net of tax expense);



AS – 21 : CONSOLIDATED FINANCIAL STATEMENTS (CFS)

S.No. Area Remarks As para1 This standard comes into effect on or after

01 04 2001 An enterprise which prepares CFS voluntarily or under a regulation has to comply with this standard

2 Applicability:Have you ensued that the statement deals with preparation and presentation of CFS for group of enterprises under the control of parent and accounting for investments in subsidiaries in financial statements of parent except:(i) accounting for amalgamations(ii) accounting for investments in joint

ventures and associates

Para 1 & 2

Para 43 Is the Holding Company with subsidiaries

hold more than 50% of voting power or control the composition of Board of directors in companies or governing body in case of others. If yes, control exists

Para 5

4 Have you ensured that all subsidiaries including foreign subsidiaries are consolidated?

Para 9

5 Is control intended to be temporary or subsidiary operates under severe long-term restrictions?- Exclude subsidiary from consolidation

Para 11

6 Have you ensured that the CFS is prepared by combining financial statements of parent and its subsidiaries on line by line basis by adding like items of assets, liabilities, income and expenses

Para 13

7 Whether the following are eliminated?Cost of investment in subsidiary (A)Share of equity in subsidiary (B)Recognise if:(A) > (B) = Goodwill(A) < (B) = Capital Reserve

8 Determine parent’s portion of equity in subsidiary on investment date of basis of information in financial statements of subsidiary. If financial statements of subsidiary on date of investment not available-Use financial statements for immediately preceding period Ensure that adjustments are made for significant transactions occuring between date of financial statements and investment date

Para 14

Minority Interests (MI)9 Whether the MI is adjusted in the net

income of subsidiaries against income of group to arrive at net income attributable to



S.No. Area Remarks As paraowners of parent?

10 Have you ensured that MI in net assets of subsidiaries is presented in liabilities side of Consolidated Balance Sheet

11 Whether losses applicable to minority exceeds minority interest in equity of subsidiary:If yes, adjust the excess against majority interest, if there is no binding obligation to make good the losses. Subsequent profits are allocated to majority until minority’s losses absorbed by majority gets recovered.

12 Have you ensured that CFS is presented only from date of Holding-Subsidiary relationship if investments are made at different dates?

Para 14

13 Determine equity of subsidiary at the date of investment if two or more investments are made over a period of time.

Whether small investments are made over period of time and then an investment made results in control? Consider date of latest investment as date of investment

14 Have you ensured that intragroup balances and unrealised profits/losses from intragroup transactions eliminated in full?

Para 16

15 Draw financial statements used in consolidation upto same reporting date. Whether the subsidiaries have different reporting dates? If yes, make suitable adjustments for significant transactions that occur between those dates. Ensure that the difference in dates is not more than six months.

Para 18 & 19

16 Have you ensured that CFS is prepared using uniform accounting policies for like transactions? If no, disclose the fact together with proportions of items to which different policies have been applied.

Para 20

17 Ensure that the results of operations of subsidiary are included in CFS upto the date of cessation of holding-subsidiary relationship.

Para 22

18 Have you recognised profit/loss on disposal of investment in subsidiary? Profit/Loss = Sale Proceeds (-) {Carrying amount of assets – Liabilities} – Less Profit/Loss as per above point 17

19 Account for investment in enterprise in accordance with AS 13 from the date of cessation of holding-subsidiary relationship

Para 23

20 Have you disclosed the following in CFS: Para 29



S.No. Area Remarks As paraa) List of all subsidiaries including name,

country of incorporation or residence, proportion of ownership interest or voting power

b) Where Applicable:

(i) Reasons for not consolidating a subsidiary

(ii) Nature of relationship between parent and subsidiary where parent does not own along with subsidiaries more than 50% of the voting power

(iii) Name of subsidiaries having different reporting dates and the quantum of difference

(iv) Effect of acquisition and disposal of subsidiaries on the financial position at the reporting date, results for reporting period and corresponding amounts for preceding period.

21 Except for the first occasion present comparative figures for the previous period in CFS

Para 30

22 If an enterprise by a contractual arrangement establishes joint control over an entity which is a subsidiary of that enterprise within the meaning of Accounting Standard (AS) 21, Consolidated Financial Statements. In such cases, is the entity not consolidated under AS 21, but treated as a joint venture as per AS 27? Background paper

22 If a company controls a partnership firm is the firm also consolidated in the CFS?

Question 4

23 Is the Company obtaining economic benefits from an enterprise whose composition of governing body is controlled by the Company? (Then only CFS applies)

Question 6

24 The requirements of approval of board, filing etc. are not applicable to CFS.

Question 7

25 If a company has four subsidiaries each holding 25% of the equity of another, the latter has to be consolidated.

Question 9

26 Goodwill and capital reserve arising on consolidation of different subsidiaries can be netted off, provided the figures are disclosed in notes.

Question 11

27 It is appropriate to test the goodwill for impairment at every BS date.

Question 11

28 When further investments are made in a subsidiary after the date it became a subsidiary, accounting for additional

Question 13



S.No. Area Remarks As parainvestment should be done in the same manner as done for the initial investment.

29 Any adjustment to opening balances consequent to applying uniform accounting policies to the entities in the group can be adjusted to opening balance of reserves.

Question 15

30 Provisions of As 21 apply to an enterprise which was a parent at any time during the reporting period.

Question 16

31 It is appropriate for parent to compute its share of profits and losses after adjusting for subsidiary’s cumulative preference share dividends whether profits are available or dividends have been declared.

Question 19

32 When sale is made by parent to subsidiary, entire sale/purchase transaction would be eliminated and unrealized profit in inventory would be eliminated from CFS. Downstream) When sale is made by subsidiary to parent, entire transaction of sale/purchase would be eliminated and unrealized profit in inventory would be adjusted proportionately against share of profits of parent/minority interest based on equity holding. (Upstream)

Question 20

33 In the case of cross holdings (by subsidiary in parent u/s 42) effect of cross holding would need to be eliminated and minority interest determined accordingly.

Question 21



Explanation for Para 6 of AS 21- Notes that need not be included in CFS:

i. need not be included in the consolidated financial statements:

Source from which bonus shares are issued, e.g., capitalisation of profits or Reserves or from Share Premium Account.

Disclosure of all unutilised monies out of the issue indicating the form in which such unutilised funds have been invested.

The name(s) of the small scale industrial undertaking(s) to whom the company owes a sum exceeding Rs. 1 lakh which is outstanding for more than 30 days.

A statement of investments (whether shown under “Investment” or under “Current Assets” as stock-in-trade) separately classifying trade investments and other investments, showing the names of the bodies corporate (indicating separately the names of the bodies corporate under the same management) in whose shares or debentures, investments have been made (including all investments, whether existing or not, made subsequent to the date as at which the previous balance sheet was made out) and the nature and extent of the investment so made in each such body corporate.

Quantitative information in respect of sales, raw materials consumed, opening and closing stocks of goods produced/traded and purchases made, wherever applicable.

A statement showing the computation of net profits in accordance with section 349 of the Companies Act, 1956, with relevant details of the calculation of the commissions payable by way of percentage of such profits to the directors (including managing directors) or manager (if any).

In the case of manufacturing companies, quantitative information in regard to the licensed capacity (where licence is in force); the installed capacity; and the actual production.

Value of imports calculated on C.I.F. basis by the company during the financial year in respect of :-

raw materials;

components and spare parts;

capital goods

Expenditure in foreign currency during the financial year on account of royalty, know-how, professional and consultation fees, interest, and other matters;

Value of all imported raw materials, spare parts and components consumed during the financial year and the value of all indigenous raw materials, spare parts and components similarly consumed and the percentage of each to the total consumption;

The amount remitted during the year in foreign currencies on account of dividends, with a specific mention of the number of non-resident shareholders, the number of shares held by them on which the dividends were due and the year to which the dividends related;



Earnings in foreign exchange classified under the following heads, namely:-

1. export of goods calculated on F.O.B. basis;

2. royalty, know-how, professional and consultation fees;

3. interest and dividend;

other income, indicating the nature thereof.

GC 16 (ASI 24) :(Now included as Explanation under Para 10 – Definition of Control.)In case an enterprise is controlled by two enterprises; one controls by virtue of ownership of majority of the voting power of that enterprise and the other controls, by virtue of an agreement or otherwise, then ensure that both the enterprises consolidate the financial statements of that enterprise as per the requirements of AS 21.

GC 17 (ASI 25) :(Now included as Explanation (a) to Para 11 - Exclusion of a subsidiary from consolidation)

Where an enterprise owns majority of voting power by virtue of ownership of the shares of another enterprise and all the shares held as ‘stock-in-trade’ are acquired and held exclusively with a view to their subsequent disposal in the near future, the control by the first mentioned enterprise would be considered to be temporary within the meaning of paragraph 11(a) and hence has it been excluded from consolidation.

GC 18 (ASI 26):(Now included as Explanation (a) to Para 13 Accounting for taxes on income in the consolidated financial statements.)

The tax expenses appearing in the separate financial statements of parent and subsidiaries do not require any adjustment for the purpose of consolidated financial statements. In view of this, while preparing consolidated financial statements, ensure that the tax expense shown in the consolidated financial statements is the aggregate of the amounts of tax expenses appearing in the separate financial statements of the parent and its subsidiaries.



ASI 8: (Now Included in the Standard itself as Explanation (b) to Paragraph 11 of Accounting Standard (AS) 21, ‘ Consolidated Financial Statements’, Paragraph 7 of Accounting Standard (AS) 23, ‘ Accounting for Investments in Associates in Consolidated Financial Statements’ and Paragraph 28 of Accounting Standard (AS) 27, ‘ Financial Reporting of Interests in Joint Ventures’. )

Paragraph 11 of AS 21, paragraph 7 of AS 23 and paragraph 29 of AS 27 use the words ‘near future’ in the context of exclusions from consolidation, application of the equity method and application of the proportionate consolidation method, respectively.

The issue as to what period of time should be considered as near future for the purposes of AS 21, AS 23 and AS 27 primarily depends on the facts and circumstances of each case. However, ordinarily, the meaning of the words ‘near future’ should be considered as not more than twelve months from acquisition of relevant investments unless a longer period can be justified on the basis of facts and circumstances of the case.

ASI 7: (Now included as Explanation to Paragraph 30 - Disclosure of deferred tax assets and deferred tax liabilities.)

In the case of a company, deferred tax assets should be disclosed on the face of the balance sheet separately after the head ‘Investments’ and deferred tax liabilities should be disclosed on the face of the balance sheet separately after the head ‘Unsecured Loans’.

Check for this disclosure.

Limited revision to AS 27 effective for all years beginning on or after 1.4.04:In some exceptional cases, an enterprise by a contractual arrangement establishes joint control over an entity which is a subsidiary of that enterprise within the meaning of Accounting Standard (AS) 21, Consolidated Financial Statements. In such cases, the entity is consolidated under AS 21 by the said enterprise, and is not treated as a joint venture as per this Statement. The consolidation of such an entity does not necessarily preclude other venturer(s) treating such an entity as a joint venture.”



AS – 22 : ACCOUNTING FOR TAXES ON INCOME

S.No. Area Remarks As para1 This Standard comes into effect in respect

of accounting periods commencing on or after 01 04 2001

2 The Standard is mandatory in nature for:

a Is your equity or debt securities listed or will be listed on a recognised stock exchange in India as evidenced by Board of Directors’ resolution?Whether the parent of group enterprises present Consolidated financial statementsIf yes to both the questions, this AS is mandatory for all the accounting periods commencing on or after 01 04 2001

b The AS is mandatory for all accounting periods commencing on or after 01 04 2002 in respect of companies not covered by Point 2(a)

c Mandatory for all other enterprises for all accounting periods commencing on or after 01 04 2003

Objective:Prescribe accounting treatment for taxes on incomeMatching concept – Taxes on income should be accrued in the same period as the revenue and expenses to which they relate address the divergence between taxable income and accounting incomeApplicability:

3 Have you ensured that the statement determines amount of expense or saving related to taxes on income in respect of an accounting period and does not specify the treatment of taxes payable on distribution of dividends and other distributors?

Para 1

4 Due to tax laws, taxable income and accounting income differs.Such differences are classified into Timing and Permanent differencesExamplesHigher rates of depreciation as per tax laws-Deferred tax liabilityExpense under section 43B allowed in a subsequent year – Deferred tax assetWhether the differences between accounting and taxable income originating in one period can be reversed subsequently?- If yes, such difference is timing difference else permanent difference

Para 5

5 Have you included tax expense (Current Para 9



S.No. Area Remarks As paraTax + Deferred Tax) in determination of net profit or loss?

6 Have you recognised Deferred Tax for all the timing differences subject to the following:

Whether future taxable income will be available against which deferred tax assets can be realised?

Para 13

Para 15

7 Have you ensured that future taxable income will be available to realise deferred tax assets i.e. unabsorbed depreciation or carry forward of losses under tax laws?If yes, recognise deferred tax assets and carry forward only to such extent.

Para 17

8 Re-assess unrecognised deferred tax assets at each balance sheet date and recognise if it is certain that future taxable income will be available to realise such assets

Para 19

Measurement:9 Have you measured Current tax at the

amount expected to be paid to (recovered from) the taxation authorities?

Para 20

10 Measure Deferred tax assets and liabilities using the tax rates and laws that have been substantially enacted on the balance sheet date

Para 21

11 Whether tax rates and laws announced by the Government have substantive effect of actual enactment?If yes, measure deferred tax assets and liabilities using such ratesWhether different tax rates apply to different levels of taxable income? If so, measure using average rates.

Para 23

12 Ensure that deferred tax assets and liabilities are not discounted to their present value

Para 24

13 Have you ensured that only difference of deferred tax asset/liability between opening and closing balance sheet is taken as deferred tax for the current year?

14 Have you ensured that provision for tax as per books (not as per return as there will be difference in treatment books and return) is considered for deferred tax asset/liabilityReview of Deferred Tax Assets:

15 Review at each Balance-sheet dateWhether sufficient future taxable income will be available to realise deferred tax asset?If no, reduce carrying amount of deferred tax asset to such extent Reverse such write-down to the extent that

Para 26



S.No. Area Remarks As parait becomes certain that future taxable income will be availablePresentation and Disclosure:

16 Is your intention to settle asset and liability on net basis? If so, Offset assets and liabilities representing current tax if you have legally enforceable right to set off recognised amounts

Para 27

17 Whether deferred tax assets and liabilities relate to taxes on income levied by same governing taxation laws?If yes, offset deferred tax assets and liabilities if the enterprise has legally enforceable right to set off except Foreign tax liability and Indian tax asset shall not be offset.

Para 29

18 Have you distinguished Deferred tax assets and liabilities from assets and liabilities representing current tax for the period?

Para 30

19 Have you ensured that Deferred tax assets and liabilities are disclosed under a separate heading in the Balance Sheet and separately from current assets and current liabilities?

20 Make sure that you have disclosed the break-up of deferred tax assets and liabilities in notes to accounts

Para 31

21 If an enterprise has unabsorbed depreciation or carry forward of losses under tax laws – Disclose nature of evidence supporting recognition of deferred tax assets

Para 32

22 Do you account taxes on income in accordance with this statement for the first time? If so-Recognise deferred tax balance that has accumulated prior to adoption of this statement as deferred tax/liabilityCorresponding credit/charge to be given to Revenue Reserves subject to para 15-18 of the statement

23 Disclosure of deferred taxes is mandatory in nature in respect of unaudited interim results (quarterly results) to be published as per clause 41 of the listing agreement in cases of listed companies.Background paper

24 Deferred tax credit can be considered for declaring dividends. (Question 2)

25 Has diminution in value of investments been considered as a timing difference? (Question 3)

26 If opening balance of reserves are inadequate to absorb the deferred tax liability, is the difference unadjusted shown



S.No. Area Remarks As paraas ‘debit balance in P&L account’ in BS? (Question 4)

27 Profit on sale of assets which is recognized for accounts but not for tax (due to block method) gives rise to a timing difference for which a deferred tax liability is to be provided. (Question 7)

28 No deferred tax would be recognized on upward revaluation of fixed assets when the increase in net book value is directly credited to revaluation reserve. (Question 8)

29 In the case of a loss making company , in respect of tax losses which can be carried forward as at BS date, deferred tax asset can be recognized to the extent that reversal of deferred tax liability will give rise to sufficient future taxable income against which such deferred tax asset can be realized. (Question 9-ii)

30 Where tax holiday period is chosen at the option of the company (say 10 out of 15 years etc.) deferred tax in respect of timing differences which originate prior to the commencement of the tax holiday period and reverse during the tax holiday period should not be recognized to the extent enterprises’ GTI is subject to the deduction during tax holiday period. (Question 12)

Note:In the case of deferred tax assets or liabilities arising from Balance sheet, (for instance: if an amount of expenditure is directly debited to opening reserves as it happened in the case of Provision for leave wages in banks in 2002-03) there is no clarity and in such cases refer the issue to a partner.

ASI 3 (revised 18.7.05):( Included as explanation to Para 13 of the standard situations of Tax Holiday under Sections 80-IA and 80-IB of the Income-tax Act, 1961)

Have the deferred tax in respect of timing differences which reverses during the tax holiday period not been recognized to the extent the enterprise’s gross total income is subject to the deduction during the tax holiday period as per the requirements of IT act?

Has deferred tax in respect of timing differences which reverse after the tax holiday period been recognized in the year in which the timing differences originate?

In case of recognition of deferred tax asset is it subject to the consideration of prudence as laid down in paras 15 to 18 of AS 22?



ASI 4 (revised 14 Dec 05):

(Now Included as explanation to Para 17 of the standard – Loss under Capital Gains.)

In respect of such ‘loss’ under the head Capital gains, is deferred tax asset recognised and carried forward subject to the consideration of prudence?

Accordingly, in respect of such ‘loss’, is deferred tax asset recognised and carried forward only to the extent that there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available under the head ‘Capital gains’ against which the loss can be set-off as per the provisions of the Act.

Is any deferred tax asset created under pre-revised ASI 4 considering reasonable certainty and not virtual certainty, written off to revenue reserves?

ASI 5:(Now included as Explanation to Para 13 - Situations of Tax Holiday under Sections 10A and 10B ofthe IT Act.)

Has the deferred tax in respect of timing differences which originate during the tax holiday period and reverse during the tax holiday period, not been recognised to the extent deduction from the total income of an enterprise is allowed during the tax holiday period as per the provisions of sections 10A and 10B of the Act?

Has deferred tax in respect of timing differences which originate during the tax holiday period but reverse after the tax holiday period been recognised in the year in which the timing differences originate? However, recognition of deferred tax assets should be subject to the consideration of prudence as laid down in paragraphs 15 to 18 of AS 22?

ASI 6:

(Now included as Explanation to Paragraph 21 - Section 115JB of the IT Act.)

In a period in which a company pays tax under section 115JB of the Act, have the deferred tax assets and liabilities in respect of timing differences arising during the period, tax effect of which is required to be recognised under AS 22, been measured using the regular tax rates and not the tax rate under section 115JB of the Act?

ASI 9:

(Now included as Explanation to Para 17 - Virtual certainty for recognition of deferred tax asste in respect of accumulated losses/depreciation)

Determination of virtual certainty that sufficient future taxable income will be available is a matter of judgement and will have to be evaluated on a case to case basis. Virtual certainty refers to the



extent of certainty, which, for all practical purposes, can be considered certain. Virtual certainty cannot be based merely on forecasts of performance such as business plans.

Virtual certainty is not a matter of perception and it should be supported by convincing evidence. Evidence is a matter of fact. To be convincing, the evidence should be available at the reporting date in a concrete form, for example, a profitable binding export order, cancellation of which will result in payment of heavy damages by the defaulting party. On the other hand, a projection of the future profits made by an enterprise based on the future capital expenditures or future restructuring etc., submitted even to an outside agency, e.g., to a credit agency for obtaining loans and accepted by that agency cannot, in isolation, be considered as convincing evidence.



AS – 23 : Accounting for investments in associates in CFS

(Applicable only when CFS is prepared; Skip if no CFS is prepared)

1. Is an investment in an associate accounted for in consolidated financial statements under the equity method except when:

(a) the investment is acquired and held exclusively with a view to its subsequent disposal in the near future; or

(b) the associate operates under severe long-term restrictions that significantly impair its ability to transfer funds to the investor.

2. Is an investment falling under above exception accounted for using Accounting Standard (AS) 13?

3. Has the investor discontinued the use of the equity method from the date that:

(a)it ceases to have significant influence in an associate but retains, either in whole or in part, its investment; or

(b)the use of the equity method is no longer appropriate because the associate operates under severe long-term restrictions that significantly impair its ability to transfer funds to the investor.

4. From the date of discontinuing the use of the equity method, are investments in such associates accounted for in accordance with Accounting Standard (AS) 13?

5. Is the Goodwill/capital reserve arising on the acquisition of an associate by an investor included in the carrying amount of investment in the associate?

6. In using equity method for accounting for investment in an associate, have unrealised profits and losses resulting from transactions between the investor (or its consolidated subsidiaries) and the associate been eliminated to the extent of the investor’s interest in the associate?

7. Confirm unrealised losses are not eliminated if and to the extent the cost of the transferred asset cannot be recovered.

8. Is the carrying amount of investment in an associate reduced to recognise a decline, other than temporary, in the value of the investment, such reduction being determined and made for each investment individually?

9. On the first occasion when investment in an associate is accounted for in consolidated financial statements in accordance with this Statement, has the carrying amount of investment in the associate been brought to the amount that would have resulted had the equity method of accounting been followed as per this Statement since the acquisition of the associate and the corresponding adjustment in this regard made in the retained earnings in the consolidated financial statements?

10. Disclosure requirements:

a. Reason for not applying equity method for an investment in an associate



b. Goodwill/capital reserve arising on the acquisition of an associate by an investor which is included in the carrying amount of investment

c. an appropriate listing and description of associates including the proportion of ownership interest and, if different, the proportion of voting power held

d. Investments in associates accounted for using the equity method to be classified as long-term investments and disclosed separately in the consolidated balance sheet.

e. The investor’s share of the profits or losses of investments in associates separately in the consolidated statement of profit and loss.

f. The investor’s share of any extraordinary or prior period items g. The name(s) of the associate(s) of which reporting date(s) is/are different from

that of the financial statements of an investor and the differences in reporting dates

h. In case an associate uses accounting policies other than those adopted for the consolidated financial statements for like transactions and events in similar circumstances and it is not practicable to make appropriate adjustments to the associate’s financial statements, the fact along with a brief description of the differences in the accounting policies.

GC 6 (ASI 16) :(Now included as Explanation to Para 6 - Treatment of Proposed Dividend)

In case the associate has made a provision for proposed dividend in its financial statements, has the investor’s share of the results of operations of the associate been computed without taking into consideration the proposed dividend?

GC 7 (ASI 17) :(Now included as Explanation to Para 6 - Adjustments to the Carrying Amount of Investment arising from Changes in Associate’s Equity not Included in the Statement of Profit and Loss)

Have adjustments to the carrying amount of investment in an associate arising from changes in the associate’s equity that have not been included in the statement of profit or loss been directly adjusted in the carrying amount of investment without routing it through the consolidated statement of profit and loss? Has the corresponding debit/credit been made in the relevant head of the equity interest in the consolidated balance sheet? (For example, in case the adjustment arises because of revaluation of fixed assets by the associate, apart from adjusting the carrying amount of investment to the extent of proportionate share of the investor in the revalued amount, the corresponding amount of revaluation reserve should be shown in the consolidated balance sheet.)

GC 8 (ASI 18):(Now included as Explanation to Para 4 - Potential Equity Shares for Determining whether an Investee is an Associate)

Have potential equity shares of the investee held by the investor not been taken into account for determining the voting power of the investor? In other words, has the voting power been determined on the basis of the current outstanding securities with voting rights?



Background paper:

Q 1: When investment is acquired in stages, Goodwill /capital reserve is calculated as provided in AS-21 (CFS)?

Q 2: Goodwill/capital reserve arising on acquisition of an associate needs to be included in carrying amount of the investment and disclosed separately. It would be appropriate to carry goodwill at the value determined at the time of acquisition. However the carrying amount of investment in associate should be reduced to recognize permanent decline in value, including any decline in value of goodwill.

Q 3: Elimination of investor’s share of unrealized profits: The elimination would be similar ( i.e eliminate to the extent of investor’s interest in associate) in upstream (associate to subsidiary) or downstream (subsidiary to associate) transactions in so far as it relates ti adjustment in carrying amount of the investment in Consolidated BS.

Q 4: Goodwill/capital reserve appearing in CFS of the associate will form integral part of the net assets of the associates.

Q 5: If 60% of equity of a company is held and 20% is to be disposed off shortly as per a documented plan, the equity method is to be applied on 40% only. Consolidation does not apply as holding of 20% is temporary.

Q 8: Elimination of unrealized profits will give rise to a timing difference and deferred tax applies.



AS-24 : DISCONTINUING OPERATIONS

1. Is there a discontinuing operation which falls within the definition as follows:

a component of an enterprise

a. that the enterprise, pursuant to a single plan, is :

i. disposing of substantially in its entirety, such as by selling the component in a single transaction or by demerger or spin-off of ownership of the component to the enterprise's shareholders; or

ii. disposing of piecemeal, such as by selling off the component's assets and settling its liabilities individually; or

iii. terminating through abandonment; and

b. that represents a separate major line of business or geographical area of operations; andc. that can be distinguished operationally and for financial reporting purposes.

2. With respect to a discontinuing operation, has the initial disclosure event occurred? i.e has any of one of the following, whichever occurs earlier occurred:

a. the enterprise has entered into a binding sale agreement for substantially all of the assets attributable to the discontinuing operation (date of agreement: With: ) ; or

b. the enterprise’s board of directors or similar governing body has both (i) approved a detailed, formal plan for the discontinuance (date and reference )and (ii) made an announcement of the plan (date and mode )?

3. Has the enterprise applied the principles of recognition and measurement that are set out in other Accounting Standards for the purpose of deciding as to when and how to recognise and measure the changes in assets and liabilities and the revenue, expenses, gains, losses and cash flows relating to a discontinuing operation?

4. Has the enterprise included the following information relating to a discontinuing operation in its financial statements beginning with the financial statements for the period in which the initial disclosure event (as defined in paragraph 15 of AS –see 2 above) occurs:

a description of the discontinuing operation(s);

the business or geographical segment(s) in which it is reported as per AS 17, Segment Reporting;

the date and nature of the initial disclosure event;

the date or period in which the discontinuance is expected to be completed if known or determinable;

the carrying amounts, as of the balance sheet date, of the total assets to be disposed of and the total liabilities to be settled;



the amounts of revenue and expenses in respect of the ordinary activities attributable to the discontinuing operation during the current financial reporting period;

the amount of pre-tax profit or loss from ordinary activities attributable to the discontinuing operation during the current financial reporting period, and the income tax expense related thereto; and

the amounts of net cash flows attributable to the operating, investing, and financing activities of the discontinuing operation during the current financial reporting period. (notes on accounts)

5. When the enterprise disposes of assets or settles liabilities attributable to a discontinuing operation or enters into binding agreements for the sale of such assets or the settlement of such liabilities, has it included, in its financial statements, the following information when the events occur:

a. for any gain or loss that is recognised on the disposal of assets or settlement of liabilities attributable to the discontinuing operation, (i) the amount of the pre-tax gain or loss and (ii) income tax expense relating to the gain or loss; and

b. the net selling price or range of prices (which is after deducting expected disposal costs) of those net assets for which the enterprise has entered into one or more binding sale agreements, the expected timing of receipt of those cash flows and the carrying amount of those net assets on the balance sheet date. (notes on accounts)

6. In addition to the disclosures in paragraphs 20 and 23 of AS (see 4 and 5 above) , has the enterprise included, in its financial statements, for periods subsequent to the one in which the initial disclosure event occurs, a description of any significant changes in the amount or timing of cash flows relating to the assets to be disposed or liabilities to be settled and the events causing those changes? (notes on accounts)

7. Disclosures:

a. Are any disclosures required by AS -24 presented separately for each discontinuing operation (notes on accounts)

b. If an enterprise abandons or withdraws from a plan that was previously reported as a discontinuing operation, that fact, have the reasons therefor and its effect been disclosed. (notes on accounts)

c. Are the disclosures required by paragraphs 20, 23 and 26 of AS ( see 4, 5 and 6 above) continued in financial statements for periods up to and including the period in which the discontinuance is completed? ( A discontinuance is completed when the plan is substantially completed or abandoned, though full payments from the buyer(s) may not yet have been received.)

d Are the following shown on the face of the statement of profit and loss:



the amount of pre-tax profit or loss from ordinary activities attributable to the discontinuing operation during the current financial reporting period, and the income tax expense related thereto (paragraph 20 (g)); and

the amount of the pre-tax gain or loss recognised on the disposal of assets or settlement of liabilities attributable to the discontinuing operation (paragraph 23 (a)).

e Is comparative information for prior periods that is presented in financial statements prepared after the initial disclosure event restated to segregate assets, liabilities, revenue, expenses, and cash flows of continuing and discontinuing operations in a manner similar to that required by paragraphs 20, 23, 26, 28, 29, 31 and 32 of AS (See 4,5,6, 7 a to c above) (for instance in Prospectus etc.)

f Are disclosures in an interim financial report in respect of a discontinuing operation made in accordance with AS 25, Interim Financial Reporting, including:

a. any significant activities or events since the end of the most recent annual reporting period relating to a discontinuing operation?



AS – 25 : INTERIM FINANCIAL REPORTING (required to be filled up for all quarterly/half yearly financial statements)

If an enterprise is required or elects to prepare and present an interim financial report, has it complied with this Statement?

If a statute governing an enterprise or a regulator requires an enterprise to prepare and present certain information at an interim date which may be different in form and/or content as required by this Statement (like SEBI. RBI), have the recognition and measurement principles as laid down in this Statement been applied in respect of such information, unless otherwise specified in the statute or by the regulator? (Thus in listed companies only the SEBI format is to be used and not the AS 25 format; however recognition and measurement principles are applicable for all enterprises)

Does an interim financial report include, at a minimum, the following components:

condensed balance sheet;

condensed statement of profit and loss;

condensed cash flow statement; and

selected explanatory notes.

If an enterprise prepares and presents a complete set of financial statements in its interim financial report, do the form and content of those statements conform to the requirements as applicable to annual complete set of financial statements?

If an enterprise prepares and presents a set of condensed financial statements in its interim financial report, do those condensed statements include, at a minimum, each of the headings and sub-headings that were included in its most recent annual financial statements and the selected explanatory notes as required by this Statement? Are additional line items or notes included if their omission would make the condensed interim financial statements misleading?

If an enterprise presents basic and diluted earnings per share in its annual financial statements in accordance with Accounting Standard (AS) 20, Earnings Per Share, have basic and diluted earnings per share been presented in accordance with AS 20 on the face of the statement of profit and loss, complete or condensed, for an interim period?

Has the enterprise included the following information, as a minimum, in the notes to its interim financial statements, if material and if not disclosed elsewhere in the interim financial report:

a. a statement that the same accounting policies are followed in the interim financial statements as those followed in the most recent annual financial statements or, if those policies have been changed, a description of the nature and effect of the change;

b. explanatory comments about the seasonality of interim operations;



c. the nature and amount of items affecting assets, liabilities, equity, net income, or cash flows that are unusual because of their nature, size, or incidence (see paragraphs 12 to 14 of Accounting Standard (AS) 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies);

d. the nature and amount of changes in estimates of amounts reported in prior interim periods of the current financial year or changes in estimates of amounts reported in prior financial years, if those changes have a material effect in the current interim period;

e. issuances, buy-backs, repayments and restructuring of debt, equity and potential equity shares;

f. dividends, aggregate or per share (in absolute or percentage terms), separately for equity shares and other shares;

g. segment revenue, segment capital employed (segment assets minus segment liabilities) and segment result for business segments or geographical segments, whichever is the enterprise?s primary basis of segment reporting (disclosure of segment information is required in an enterprise’s interim financial report only if the enterprise is required, in terms of AS 17, Segment Reporting, to disclose segment information in its annual financial statements);

h. material events subsequent to the end of the interim period that have not been reflected in the financial statements for the interim period; (Limited revision to AS 25 effective for years beginning on or after 1.4.04)

i. the effect of changes in the composition of the enterprise during the interim period, such as amalgamations, acquisition or disposal of subsidiaries and long-term investments, restructurings, and discontinuing operations; and

j. material changes in contingent liabilities since the last annual balance sheet date.

Is the above information reported on a financial year - to - date basis. Has the enterprise also disclosed any events or transactions that are material to an understanding of the current interim period?

Do interim reports include interim financial statements (condensed or complete) for periods as follows:

a. balance sheet as of the end of the current interim period and a comparative balance sheet as of the end of the immediately preceding financial year;

b. statements of profit and loss for the current interim period and cumulatively for the current financial year to date, with comparative statements of profit and loss for the comparable interim periods (current and year-to-date) of the immediately preceding financial year;

c. cash flow statement cumulatively for the current financial year to date, with a comparative statement for the comparable year-to-date period of the immediately preceding financial year.



In deciding how to recognise, measure, classify, or disclose an item for interim financial reporting purposes, is materiality assessed in relation to the interim period financial data. In making assessments of materiality, is it recognised that interim measurements may rely on estimates to a greater extent than measurements of annual financial data?

If an estimate of an amount reported in an interim period is changed significantly during the final interim period of the financial year but a separate financial report is not prepared and presented for that final interim period, is the nature and amount of that change in estimate disclosed in a note to the annual financial statements for that financial year?

Does the enterprise apply the same accounting policies in its interim financial statements as are applied in its annual financial statements, except for accounting policy changes made after the date of the most recent annual financial statements that are to be reflected in the next annual financial statements. However as the frequency of an enterprise’s reporting (annual, half-yearly, or quarterly) should not affect the measurement of its annual results, are measurements for interim reporting purposes made on a year-to-date basis?

Are revenues that are received seasonally or occasionally within a financial year not anticipated or deferred as of an interim date if anticipation or deferral would not be appropriate at the end of the enterprise’s financial year?

Are costs that are incurred unevenly during an enterprise’s financial year anticipated or deferred for interim reporting purposes if, and only if, it is also appropriate to anticipate or defer that type of cost at the end of the financial year?

Are the measurement procedures to be followed in an interim financial report so designed to ensure that the resulting information is reliable and that all material financial information that is relevant to an understanding of the financial position or performance of the enterprise is appropriately disclosed? (While measurements in both annual and interim financial reports are often based on reasonable estimates, the preparation of interim financial reports generally will require a greater use of estimation methods than annual financial reports)

Is a change in accounting policy, other than one for which the transition is specified by an Accounting Standard, reflected by restating the financial statements of prior interim periods of the current financial year?

Note: As regards Tax provision check if Guidance note issued by ICAI followed.



AS- 26 : INTANGIBLE ASSETS

1. Are the following not treated as intangible assets covered by AS-26?

intangible assets that are covered by another Accounting Standard treated as per the relevant AS (viz; intangibles held for sale in oridnary course of business (As-2 & 7); deferred tax assets (As-22); leases (As-19); Goodwill arsing on amalgamation (AS 14) and goodwill arising on consolidation (As-21))

financial assets;

mineral rights and expenditure on the exploration for, or development and extraction of, minerals, oil, natural gas and similar non-regenerative resources; and

intangible assets arising in insurance enterprises from contracts with policyholders.

2. Is an intangible asset (an identifiable non-monetary asset, without physical substance, held for use in the production or supply of goods or services, for rental to others, or for administrative purposes) recognised if, and only if:

a. it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise; and

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

3. Does the enterprise should assess the probability of future economic benefits using reasonable and supportable assumptions that represent best estimate of the set of economic conditions that will exist over the useful life of the asset?

4. Is an intangible asset measured initially at cost?

5. Is internally generated goodwill not recognised as an asset?

6. Is no intangible asset arising from research (or from the research phase of an internal project) recognized? Is expenditure on research (or on the research phase of an internal project) recognised as an expense when it is incurred?

7. Is an intangible asset arising from development (or from the development phase of an internal project) recognised if, and only if, an enterprise can demonstrate all of the following:

a. the technical feasibility of completing the intangible asset so that it will be available for use or sale;

b. its intention to complete the intangible asset and use or sell it;

c. its ability to use or sell the intangible asset;

d. how the intangible asset will generate probable future economic benefits. Among other things, the enterprise should demonstrate the existence of a market for the output of the intangible asset or the intangible asset itself or, if it is to be used internally, the usefulness of the intangible asset;



e. the availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

f. its ability to measure the expenditure attributable to the intangible asset during its development reliably.

8. Are internally generated brands, mastheads, publishing titles, customer lists and items similar in substance not recognised as intangible assets?

9. Is expenditure on an intangible item recognised as an expense when it is incurred unless:

a. it forms part of the cost of an intangible asset that meets the recognition criteria (see paragraphs 19-54 of AS –see above); or

b. the item is acquired in an amalgamation in the nature of purchase and cannot be recognised as an intangible asset. If this is the case, this expenditure (included in the cost of acquisition) should form part of the amount attributed to goodwill (capital reserve) at the date of acquisition (see AS 14, Accounting for Amalgamations).

10. Is expenditure on an intangible item that was initially recognised as an expense by a reporting enterprise in previous annual financial statements or interim financial reports not recognised as part of the cost of an intangible asset at a later date?

11. Is subsequent expenditure on an intangible asset after its purchase or its completion recognised as an expense when it is incurred unless:

a. it is probable that the expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standard of performance; and

b. the expenditure can be measured and attributed to the asset reliably.

i. If these conditions are met, is the subsequent expenditure added to the cost of the intangible asset.

12. Is an intangible asset carried at its cost less any accumulated amortisation and any accumulated impairment losses, after its initial recognition?

13. Is the depreciable amount of an intangible asset allocated on a systematic basis over the best estimate of its useful life?

14. As there is a rebuttable presumption that the useful life of an intangible asset will not exceed ten years from the date when the asset is available for use, have we ascertained tha actual useful life used?

15. Has amortisation commenced when the asset is available for use?16. If control over the future economic benefits from an intangible asset is achieved

through legal rights that have been granted for a finite period, does the useful life of the intangible asset not exceed the period of the legal rights unless:

a. the legal rights are renewable; and

b. renewal is virtually certain?17. Does the amortisation method used reflect the pattern in which the asset's economic

benefits are consumed by the enterprise? If that pattern cannot be determined reliably, is the straight-line method used.

18. Is the amortisation charge for each period recognised as an expense unless another Accounting Standard permits or requires it to be included in the carrying amount of another asset?

19. Is the residual value of an intangible asset assumed to be zero unless:



a. there is a commitment by a third party to purchase the asset at the end of its useful life; or

b. there is an active market for the asset and:

i. residual value can be determined by reference to that market; and

ii. it is probable that such a market will exist at the end of the asset's useful life.

20. Are the amortisation period and the amortisation method reviewed at least at each financial year end? If the expected useful life of the asset is significantly different from previous estimates, is the amortisation period changed accordingly. If there has been a significant change in the expected pattern of economic benefits from the asset, is the amortisation method changed to reflect the changed pattern. Are such changes accounted for in accordance with AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies.

21. In addition to the requirements of Accounting Standard on Impairment of Assets, does the enterprise estimate the recoverable amount of the following intangible assets at least at each financial year end even if there is no indication that the asset is impaired:

a. an intangible asset that is not yet available for use; and

b. an intangible asset that is amortised over a period exceeding ten years from the date when the asset is available for use.

22. Is the recoverable amount determined under Accounting Standard on Impairment of Assets and impairment losses recognised accordingly?

23. Is an intangible asset derecognised (eliminated from the balance sheet) on disposal or when no future economic benefits are expected from its use and subsequent disposal?

24. Are gains or losses arising from the retirement or disposal of an intangible asset determined as the difference between the net disposal proceeds and the carrying amount of the asset and recognised as income or expense in the statement of profit and loss?

25. Disclosures: Do the financial statements disclose the following for each class of intangible assets, distinguishing between internally generated intangible assets and other intangible assets:

a. the useful lives or the amortisation rates used;

b. the amortisation methods used;

c. the gross carrying amount and the accumulated amortisation (aggregated with accumulated impairment losses) at the beginning and end of the period;

d. a reconciliation of the carrying amount at the beginning and end of the period showing:

e. additions, indicating separately those from internal development and through amalgamation ;

f. retirements and disposals;



g. impairment losses recognised in the statement of profit and loss during the period (if any);

h. impairment losses reversed in the statement of profit and loss during the period (if any);

i. amortisation recognised during the period; and

j. other changes in the carrying amount during the period. k. if an intangible asset is amortised over more than ten years, the reasons why

it is presumed that the useful life of an intangible asset will exceed ten years from the date when the asset is available for use. In giving these reasons, the enterprise should describe the factor(s) that played a significant role in determining the useful life of the asset;

l. a description, the carrying amount and remaining amortisation period of any individual intangible asset that is material to the financial statements of the enterprise as a whole;

m. the existence and carrying amounts of intangible assets whose title is restricted and the carrying amounts of intangible assets pledged as security for liabilities; and

n. the amount of commitments for the acquisition of intangible assets. o. the aggregate amount of research and development expenditure recognised

as an expense during the period.

26. Transitional provisions:

Where, on the date of this Statement coming into effect, an enterprise is following an accounting policy of not amortising an intangible item or amortising an intangible item over a period longer than the period determined under paragraph 63 of AS (see para 13) and the period determined under paragraph 63 has expired on the date of this AS coming into effect, has the carrying amount appearing in the balance sheet in respect of that item been eliminated with a corresponding adjustment to the opening balance of revenue reserves?

In the event the period determined under paragraph 63 has not expired on the date of this Statement coming into effect and :

if the enterprise is following an accounting policy of not amortising an intangible item, the carrying amount of the intangible item should be restated, as if the accumulated amortisation had always been determined under this AS, with the corresponding adjustment to the opening balance of revenue reserves. The restated carrying amount should be amortised over the balance of the period as determined in paragraph 63.

If the remaining period as per the accounting policy followed by the enterprise:

a. is shorter as compared to the balance of the period determined under paragraph 63, the carrying amount of the intangible item should be amortised



over the remaining period as per the accounting policy followed by the enterprise,

b. is longer as compared to the balance of the period determined under paragraph 63, the carrying amount of the intangible item should be restated, as if the accumulated amortisation had always been determined under this AS, with the corresponding adjustment to the opening balance of revenue reserves. The restated carrying amount should be amortised over the balance of the period as determined in paragraph 63.

Note: See Illustration in AS for Internal Use Computer Software and Website Costs.

27. Clarification on Transitional provisions Oct 03:

In respect of the balances of the expenditure incurred on intangible items before the date AS 26 became/becomes mandatory, appearing in the balance sheet as on 1-4-2003 or 1-4-2004, as the case may be, paragraphs 99 and 100 of AS 26 are applicable.

In view of the above, it would not be proper to adjust the balances of such items against the revenue reserves as on 1-4-2003 or 1-4-2004, as the case may be, and such items should continue to be expensed over a number of years as originally contemplated, since as per the accounting principles relevant for deferred revenue expenditure in India, such expenditure is spread over a period which is normally less than the period contemplated in paragraph 63 of AS 26.

In case an enterprise has already adjusted the above referred balances of the intangible items appearing in the balance sheet as on 1-4-2003 against the opening balance of revenue reserves as on 1-4-2003, it should rectify the same on the basis of the above requirements

28. Note: AS 26 Limited revision:

AS 26 should not be applied to expenditure in respect of termination benefits also. So it is not applicable to VRS.



AS-27 : FINANCIAL REPORTING OF INTERESTS IN JOINT VENTURES

1. Joint ventures: Is this AS applied in accounting for interests in joint ventures and the reporting of joint venture assets, liabilities, income and expenses in the financial statements of venturers and investors, regardless of the structures or forms under which the joint venture activities take place?

2. Does the joint venture fall under the definition viz.: is it a contractual arrangement whereby two or more parties undertake an economic activity, which is subject to joint control? ( contractually agreed sharing of control (power to govern the financial and operating policies of an economic activity so as to obtain benefits from it) over an economic activity)

3. In respect of its interests in jointly controlled operations, does the venturer recognise in its separate financial statements and consequently in its consolidated financial statements:

i. the assets that it controls and the liabilities that it incurs; and

ii. the expenses that it incurs and its share of the income that it earns from the joint venture.

4. In respect of its interest in jointly controlled assets, does the venturer recognise, in its separate financial statements, and consequently in its consolidated financial statements:

i. its share of the jointly controlled assets, classified according to the nature of the assets;

ii. any liabilities which it has incurred;

iii. its share of any liabilities incurred jointly with the other venturers in relation to the joint venture;

iv. any income from the sale or use of its share of the output of the joint venture, together with its share of any expenses incurred by the joint venture; and

v. any expenses which it has incurred in respect of its interest in the joint venture.

5. In a venturer's separate financial statements, is interest in a jointly controlled entity accounted for as an investment in accordance with Accounting Standard (AS) 13, Accounting for Investments?

6. In its consolidated financial statements, does a venturer report its interest in a jointly controlled entity using proportionate consolidation except

a. an interest in a jointly controlled entity which is acquired and held exclusively with a view to its subsequent disposal in the near future; and

b. an interest in a jointly controlled entity which operates under severe long-term restrictions that significantly impair its ability to transfer funds to the venturer.

Interest in such a jointly controlled entity should be accounted for as an investment in accordance with Accounting Standard (AS) 13, Accounting for Investments.

7. Does the venturer discontinue the use of proportionate consolidation from the date that: i. it ceases to have joint control over a jointly controlled entity but retains, either in

whole or in part, its interest in the entity; or



ii. the use of the proportionate consolidation is no longer appropriate because the jointly controlled entity operates under severe long-term restrictions that significantly impair its ability to transfer funds to the venturer.

8. From the date of discontinuing the use of the proportionate consolidation, interest in a jointly controlled entity should be accounted for:

i. in accordance with Accounting Standard (AS) 21, Consolidated Financial Statements, if the venturer acquires unilateral control over the entity and becomes parent within the meaning of that Standard; and

ii. in all other cases, as an investment in accordance with Accounting Standard (AS) 13, Accounting for Investments, or in accordance with Accounting Standard (AS) 23, Accounting for Investments in Associates in Consolidated Financial Statements, as appropriate. For this purpose, cost of the investment should be determined as under:

1. the venturer’s share in the net assets of the jointly controlled entity as at the date of discontinuance of proportionate consolidation should be ascertained, and

2. the amount of net assets so ascertained should be adjusted with the carrying amount of the relevant goodwill/capital reserve (see paragraph 37 of AS) as at the date of discontinuance of proportionate consolidation.

9. When a venturer contributes or sells assets to a joint venture, does recognition of any portion of a gain or loss from the transaction reflect the substance of the transaction? While the assets are retained by the joint venture, and provided the venturer has transferred the significant risks and rewards of ownership, does the venturer recognise only that portion of the gain or loss which is attributable to the interests of the other venturers? Does the venturer recognise the full amount of any loss when the contribution or sale provides evidence of a reduction in the net realisable value of current assets or an impairment loss?

10. When a venturer purchases assets from a joint venture, does the venturer not recognise its share of the profits of the joint venture from the transaction until it resells the assets to an independent party? Does a venturer recognise its share of the losses resulting from these transactions in the same way as profits except that losses are recognised immediately when they represent a reduction in the net realisable value of current assets or an impairment loss?

11. In case of transactions between a venturer and a joint venture in the form of a jointly controlled entity, are the requirements of paragraphs 41 and 42 of AS (see paras 8 & 9 above) applied only in the preparation and presentation of consolidated financial statements and not in the preparation and presentation of separate financial statements of the venturer?

12. Does an investor in a joint venture, which does not have joint control, report its interest in a joint venture in its consolidated financial statements in accordance with Accounting Standard (AS) 13, Accounting for Investments, Accounting Standard (AS) 21, Consolidated Financial Statements or Accounting Standard (AS) 23, Accounting for Investments in Associates in Consolidated Financial Statements, as appropriate?

13. In the separate financial statements of an investor, are the interests in joint ventures accounted for in accordance with Accounting Standard (AS) 13, Accounting for Investment?

14. Do operators or managers of a joint venture account for any fees in accordance with Accounting Standard (AS) 9, Revenue Recognition?



15. Disclosure required in Separate as well as Consolidated Financial statements:1. A venturer should disclose the aggregate amount of the following contingent liabilities,

unless the probability of loss is remote, separately from the amount of other contingent liabilities:

i. any contingent liabilities that the venturer has incurred in relation to its interests in joint ventures and its share in each of the contingent liabilities which have been incurred jointly with other venturers;

ii. its share of the contingent liabilities of the joint ventures themselves for which it is contingently liable; and

iii. those contingent liabilities that arise because the venturer is contingently liable for the liabilities of the other venturers of a joint venture.

A venturer should disclose the aggregate amount of the following commitments in respect of its interests in joint ventures separately from other commitments:

i. any capital commitments of the venturer in relation to its interests in joint ventures and its share in the capital commitments that have been incurred jointly with other venturers; and

ii. its share of the capital commitments of the joint ventures themselves.

2. A venturer should disclose a list of all joint ventures and description of interests in significant joint ventures. In respect of jointly controlled entities, the venturer should also disclose the proportion of ownership interest, name and country of incorporation or residence.

3. A venturer should disclose, in its separate financial statements, the aggregate amounts of each of the assets, liabilities, income and expenses related to its interests in the jointly controlled entities.

16. Limited revision to AS 27 effective for all years beginning on or after 1.4.04:In some exceptional cases, an enterprise by a contractual arrangement establishes joint control over an entity which is a subsidiary of that enterprise within the meaning of Accounting Standard (AS) 21, Consolidated Financial Statements. In such cases, the entity is consolidated under AS 21 by the said enterprise, and is not treated as a joint venture as per this Statement. The consolidation of such an entity does not necessarily preclude other venturer(s) treating such an entity as a joint venture.”

17. ASI 28(Now included as Explanation to Para 32 - Disclosure of parent’s/venturer’s shares in post- acquisition reserves of a subsidiary/jointly controlled entity)While applying proportionate consolidation method , the venturer's share in post acquisition reserves of the jointly controlled entity should be shown separately under the relevant reserves in the consolidated financial statements.



AS -28 : Impairment of Assets

Impairment of all assets other than the following covered under this AS:

a. inventories (see AS 2, Valuation of Inventories);

b. assets arising from construction contracts (see AS 7, Accounting for Construction Contracts)

c. financial assets, including investments that are included in the scope of AS 13, Accounting for Investments; and

d. deferred tax assets (see AS 22, Accounting for Taxes on Income).

1. Does the enterprise assess at each balance sheet date whether there is any indication that an asset may be impaired? If any such indication exists, has the enterprise estimated the recoverable amount of the asset?

2. In assessing whether there is any indication that an asset may be impaired, an enterprise should consider, as a minimum, the following indications:External sources of information

(a) during the period, an asset's market value has declined significantly more than would be expected as a result of the passage of time or normal use;


The Impairment Diagram No Yes

No

Yes

Impairment Conditions exist

No Impairment Review

Identify asset/cash generating unit

Determine Net Recoverable Amount Greater of

Net Selling Price

Value in use Carrying Value > net Recoverable Amount

Determined by

Determined by

Binding Sale

Active Market

Best Estimate

Cash Flow

Impairment Provision = Carrying Value – Net Recoverable Amount

Follow up with Annual Impairment Review

Discount Rate

No Impairment Provision


(b) significant changes with an adverse effect on the enterprise have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the enterprise operates or in the market to which an asset is dedicated;

(c) market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset's value in use and decrease the asset's recoverable amount materially;

(d) the carrying amount of the net assets of the reporting enterprise is more than its market capitalisation;Internal sources of information

(e) evidence is available of obsolescence or physical damage of an asset;

(f) significant changes with an adverse effect on the enterprise have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used. These changes include plans to discontinue or restructure the operation to which an asset belongs or to dispose of an asset before the previously expected date; and

Evidence is also available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected.

3. In measuring value in use:

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

(b) are cash flow projections based on the most recent financial budgets/forecasts that have been approved by management. Projections based on these budgets/forecasts should cover a maximum period of five years, unless a longer period can be justified; and

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

4. Do estimates of future cash flows include:

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

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

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



5. Are future cash flows estimated for the asset in its current condition? Do estimates of future cash flows not include estimated future cash inflows or outflows that are expected to arise from:

(a) a future restructuring to which an enterprise is not yet committed; or

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

6. Do estimates of future cash flows not include:

(a) cash inflows or outflows from financing activities; or

(b) income tax receipts or payments.

7. Is the estimate of net cash flows to be received (or paid) for the disposal of an asset at the end of its useful life, the amount that an enterprise expects to obtain from the disposal of the asset in an arm's length transaction between knowledgeable, willing parties, after deducting the estimated costs of disposal?

8. Are the discount rate(s) used pre-tax rate(s) that reflect(s) current market assessments of the time value of money and the risks specific to the asset? Do the discount rate(s) not reflect risks for which future cash flow estimates have been adjusted?

9. If the recoverable amount of an asset is less than its carrying amount, has the carrying amount of the asset been reduced to its recoverable amount. (That reduction is an impairment loss.)

10. When the amount estimated for an impairment loss is greater than the carrying amount of the asset to which it relates, Does the enterprise recognise a liability if, and only if, that is required by another Accounting Standard? (State which AS)

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

12. If there is any indication that an asset may be impaired, is the recoverable amount estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, does the enterprise determine the recoverable amount of the cash-generating unit to which the asset belongs (the asset's cash-generating unit)?

13. If an active market exists for the output produced by an asset or a group of assets, has this asset or group of assets been identified as a separate cash-generating unit, even if some or all of the output is used internally? If this is the case, is the management's best estimate of future market prices for the output used:

(a) in determining the value in use of this cash-generating unit, when estimating the future cash inflows that relate to the internal use of the output; and

(b) in determining the value in use of other cash-generating units of the reporting enterprise, when estimating the future cash outflows that relate to the internal use of the output.

14. Are cash-generating units identified consistently from period to period for the same asset or types of assets, unless a change is justified?



15. Is the carrying amount of a cash-generating unit determined consistently with the way the recoverable amount of the cash-generating unit is determined?

16. In testing a cash-generating unit for impairment, Does the enterprise identify whether goodwill that relates to this cash-generating unit is recognised in the financial statements. If this is the case, does the enterprise:

(a) perform a 'bottom-up' test, that is, does the enterprise:

(i) identify whether the carrying amount of goodwill can be allocated on a reasonable and consistent basis to the cash-generating unit under review; and

(ii) then, compare the recoverable amount of the cash-generating unit under review to its carrying amount (including the carrying amount of allocated goodwill, if any) and recognise any impairment loss in accordance with paragraph 87 of AS.

Does the enterprise perform the step at (ii) above even if none of the carrying amount of goodwill can be allocated on a reasonable and consistent basis to the cash-generating unit under review; and

(b) if, in performing the 'bottom-up' test, the enterprise could not allocate the carrying amount of goodwill on a reasonable and consistent basis to the cash-generating unit under review, does the enterprise also perform a 'top-down' test, that is, does the enterprise:

(i) identify the smallest cash-generating unit that includes the cash-generating unit under review and to which the carrying amount of goodwill can be allocated on a reasonable and consistent basis (the 'larger' cash-generating unit); and

(ii) then, compare the recoverable amount of the larger cash-generating unit to its carrying amount (including the carrying amount of allocated goodwill) and recognise any impairment loss in accordance with paragraph 87 of the AS.

17. In testing a cash-generating unit for impairment, does an enterprise identify all the corporate assets that relate to the cash-generating unit under review. For each identified corporate asset, does an enterprise then apply paragraph 78 of A (para 16 above) , that is:

(a) if the carrying amount of the corporate asset can be allocated on a reasonable and consistent basis to the cash-generating unit under review, an enterprise should apply the 'bottom-up' test only; and

(b) if the carrying amount of the corporate asset cannot be allocated on a reasonable and consistent basis to the cash-generating unit under review, an enterprise should apply both the 'bottom-up' and 'top-down' tests.

18. Is an impairment loss recognised for a cash-generating unit if, and only if, its recoverable amount is less than its carrying amount? Is the impairment loss allocated to reduce the carrying amount of the assets of the unit in the following order:

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

(b) then, to the other assets of the unit on a pro-rata basis based on the carrying amount of each asset in the unit.



Are these reductions in carrying amounts treated as impairment losses on individual assets and recognised in accordance with paragraph 58.

19. In allocating an impairment loss under paragraph 87 (see para 18 above), is the carrying amount of an asset not reduced below the highest of:

(a) its net selling price (if determinable);

(b) its value in use (if determinable); and

(c) zero?

Is the amount of the impairment loss that would otherwise have been allocated to the asset allocated to the other assets of the unit on a pro-rata basis?

20. Does the enterprise assess at each balance sheet date whether there is any indication that an impairment loss recognised for an asset in prior accounting periods may no longer exist or may have decreased. If any such indication exists, does the enterprise estimate the recoverable amount of that asset?

21. In assessing whether there is any indication that an impairment loss recognised for an asset in prior accounting periods may no longer exist or may have decreased, does the enterprise consider, as a minimum, the following indications:

External sources of information

(a) the asset's market value has increased significantly during the period;

(b) significant changes with a favourable effect on the enterprise have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the enterprise operates or in the market to which the asset is dedicated;

(c) market interest rates or other market rates of return on investments have decreased during the period, and those decreases are likely to affect the discount rate used in calculating the asset's value in use and increase the asset's recoverable amount materially;

Internal sources of information

(d) significant changes with a favourable effect on the enterprise have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, the asset is used or is expected to be used. These changes include capital expenditure that has been incurred during the period to improve or enhance an asset in excess of its originally assessed standard of performance or a commitment to discontinue or restructure the operation to which the asset belongs; and

(e) evidence is available from internal reporting that indicates that the economic performance of the asset is, or will be, better than expected

22. Is an impairment loss recognised for an asset in prior accounting periods reversed if there has been a change in the estimates of cash inflows, cash outflows or discount rates used to determine the asset's recoverable amount since the last impairment loss was recognized? If this is the case, is the carrying amount of the asset increased to its



recoverable amount (That increase is a reversal of an impairment loss)? See exception in para 28 below

23. Does the increased carrying amount of an asset due to a reversal of an impairment loss not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior accounting periods?

24. Is a reversal of an impairment loss for an asset recognised as income immediately in the statement of profit and loss, unless the asset is carried at revalued amount in accordance with another Accounting Standard (see Accounting Standard (AS) 10, Accounting for Fixed Assets) in which case any reversal of an impairment loss on a revalued asset should be treated as a revaluation increase under that Accounting Standard?

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

26. Is a reversal of an impairment loss for a cash-generating unit allocated to increase the carrying amount of the assets of the unit in the following order:

(a) first, assets other than goodwill on a pro-rata basis based on the carrying amount of each asset in the unit; and

(b) then, to goodwill allocated to the cash-generating unit (if any), if the requirements in paragraph 108 are met.

Are these increases in carrying amounts treated as reversals of impairment losses for individual assets and recognised in accordance with paragraph 103 (see para 24)?

27. In allocating a reversal of an impairment loss for a cash-generating unit under paragraph 106 (see 26 above),is the carrying amount of an asset not increased above the lower of:

(a) its recoverable amount (if determinable); and

(b) the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior accounting periods?

Is the amount of the reversal of the impairment loss that would otherwise have been allocated to the asset allocated to the other assets of the unit on a pro-rata basis?

28. As an exception to the requirement in paragraph 98 (see para 22 above), is an impairment loss recognised for goodwill not reversed in a subsequent period unless:

(a) the impairment loss was caused by a specific external event of an exceptional nature that is not expected to recur; and

(b) subsequent external events have occurred that reverse the effect of that event?

29. Disclosure:



29.1 For each class of assets, do the financial statements disclose:

(a) the amount of impairment losses recognised in the statement of profit and loss during the period and the line item(s) of the statement of profit and loss in which those impairment losses are included;

(b) the amount of reversals of impairment losses recognised in the statement of profit and loss during the period and the line item(s) of the statement of profit and loss in which those impairment losses are reversed;

(c) the amount of impairment losses recognised directly against revaluation surplus during the period; and

(d) the amount of reversals of impairment losses recognised directly in revaluation surplus during the period.

29.2 Does an enterprise that applies AS 17, Segment Reporting, disclose the following for each reportable segment based on an enterprise's primary format (as defined in AS 17):

(a) the amount of impairment losses recognised in the statement of profit and loss and directly against revaluation surplus during the period; and

(b) the amount of reversals of impairment losses recognised in the statement of profit and loss and directly in revaluation surplus during the period.

29.3 If an impairment loss for an individual asset or a cash-generating unit is recognised or reversed during the period and is material to the financial statements of the reporting enterprise as a whole, an enterprise should disclose:

(a) the events and circumstances that led to the recognition or reversal of the impairment loss;

(b) the amount of the impairment loss recognised or reversed;

(c) for an individual asset:

(i) the nature of the asset; and

(ii) the reportable segment to which the asset belongs, based on the enterprise's primary format (as defined in AS 17, Segment Reporting);

(d) for a cash-generating unit:

(i) a description of the cash-generating unit (such as whether it is a product line, a plant, a business operation, a geographical area, a reportable segment as defined in AS 17 or other);

(ii) the amount of the impairment loss recognised or reversed by class of assets and by reportable segment based on the enterprise's primary format (as defined in AS 17); and

(iii) if the aggregation of assets for identifying the cash-generating unit has changed since the previous estimate of the cash-generating unit's recoverable amount (if any), the



enterprise should describe the current and former way of aggregating assets and the reasons for changing the way the cash-generating unit is identified;

(e) whether the recoverable amount of the asset (cash-generating unit) is its net selling price or its value in use;

(f) if recoverable amount is net selling price, the basis used to determine net selling price (such as whether selling price was determined by reference to an active market or in some other way); and

(g) if recoverable amount is value in use, the discount rate(s) used in the current estimate and previous estimate (if any) of value in use.

29.4 If impairment losses recognised (reversed) during the period are material in aggregate to the financial statements of the reporting enterprise as a whole, does the enterprise disclose a brief description of the following:

(a) the main classes of assets affected by impairment losses (reversals of impairment losses) for which no information is disclosed under paragraph 121; and

(b) the main events and circumstances that led to the recognition (reversal) of these impairment losses for which no information is disclosed under paragraph 121.(see 29.3)



30. Transitional provisions:

On the date of this Statement becoming mandatory, does the enterprise assess whether there is any indication that an asset may be impaired (see paragraphs 5-13)? If any such indication exists, does the enterprise determine impairment loss, if any, in accordance with this Statement? Is the impairment loss, so determined, adjusted against opening balance of revenue reserves being the accumulated impairment loss relating to periods prior to this Statement becoming mandatory unless the impairment loss is on a revalued asset? Is an impairment loss on a revalued asset recognised directly against any revaluation surplus for the asset to the extent that the impairment loss does not exceed the amount held in the revaluation surplus for that same asset? If the impairment loss exceeds the amount held in the revaluation surplus for that same asset, is the excess adjusted against opening balance of revenue reserves?

Is any impairment loss arising after the date of this Statement becoming mandatory recognised in accordance with this Statement (i.e., in the statement of profit and loss unless an asset is carried at revalued amount. An impairment loss on a revalued asset should be treated as a revaluation decrease)?



AS – 29 : Provisions, Contingent liabilities and Contingent assets

1. Is the statement applied for provisions and contingent liabilities /contingent assets except: a) financial instruments carried at fair valueb) those resulting from executory contracts except where the contract is onerous (LIMITED REVISION)c) those arising from insurance enterprises from contracts with policy holdersd) those covered by other AS (1)

2. Is a provision recognised when a) enterprise has a present obligation as aresult of past event b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and c) a reliable estimate can be made of the amount of obligation.(14)

3. If above conditions are not met is it ensured no provision is recognized?

4. Is it ensured that the enterprise has not recognised a contingent liability? (26)

5. Is it ensued that the enterprise has not recognised a contingent asset? (30)

6. Is the amount recognised as provision the best estimate of the expenditure required to settle the present obligation at Balance sheet date? is it ensured that the provision is not discounted to its present value? (35)

7. Have the risks and uncertainties surrounding many events and circumstances been taken into account in reaching the best estimate of provision? (38)

8. Are future events that may affect the amount required to settle an obligation reflected in the amount of provision where there is sufficient objective evidence that they will occur. (41)

9. Is it ensured that gains from expected disposal of assets are not taken into account in making a provision? (44)

10. Has any expected reimbursement by another party of the expenditure required to settle a provision been recognized only when it is virtually certain that reimbursement will be received? Is the reimbursement treated as separate asset?Is the amount recognised for reimbursement less than amount of provision? (46)

11. In P&L is provision presented net of amount recognised for reimbursement? (47)

12. Are provisions reviewed at each BS date and adjusted to reflect the current best estimate? If it is no longer possible that economic benefits will be required to settle the obligation, is the provision reversed? (52)

13. Is a provision used only for expenditure for which provision was originally recognised? (53)

14. Is it ensured that no provision is recognised for future operating losses? (55)

15. Is a provision made for restructuring costs only when the recognition criteria set out in para 14 are met? (see 2 above) (59)

16. Is it clear that no obligation arises for sale of an operation until the enterprise is committed to the sale i.e there is a binding sale agreement? (60)

17. Does restructuring provision include only direct expenditure arising from restructuring which are those that are both: a) necessarily entailed by restructuring and b) not associated with ongoing activities of the enterprise? (62)



18. Is disclosure made as below?Provision: For each class of provision, is carrying amount at beginning and end of period, additional provisions including increases in existing provisions , amount used and amounts reversed during the period shown? (66)

For each class of provision is following disclosed? (67) a) brief description of nature of obligation and expected timing of

resulting outflows of economic benefits; b) an indication of uncertainties about the inflows; and where necessary

major assumptions made concerning future eventsc) amount of any expected reimbursement stating the amount of asset

recognized

Contingent liability:Unless possibility of settlement is remote has enterprise disclosed for each class of contingent liability brief description of nature of contingent liability and where practicable: a) estimate of financial effect b) indication of uncertainties relating to outflows and c) possibility of reimbursement?

19. Where any information is not disclosed because it is not practicable, is the fact mentioned?

20. In rare cases where disclosure of information can prejudice the enterprise seriously, is disclosure made of general nature of dispute and reason why information has not been disclosed?

Applicability: Level 1 in entirety Level 2 all except para 67 others: except para 66 and 67

ASI 30 (14 Dec 05):(Now included as Explanation under Para 1(b) of the Standard)

If an enterprise has a contract that is onerous (i.e unavoidable costs of meeting the obligation under the contract exceeds the economic benefit expected to be received under it), is the present obligation under the contract recognized as a provision as per AS 29?

Is the provision made without any discounting?



Complete list of ASI

Name of the Accounting Standard Interpretation

Date of Issue

Place of Inclusion in the Companies (AS) Rules, 2006

ASI 1, Substantial Period of Time (Re.: AS 16)

17.05.2002 Paragraph 3.2 of Accounting Standard(AS) 16, ‘Borrowing Costs’

ASI 2, Accounting for Machinery Spares (Re.: AS 2 and AS 10) **

20.11.2002

ASI 3, Accounting for Taxes on Income in the situations of Tax Holiday under Sections 80-IA and 80-IB of the Income-tax Act, 1961 (Re.: AS 22)

20.11.2002Revised18.7.2005

Paragraph 13 of Accounting Standard (AS) 22,

ASI 4, Losses under the head Capital Gains (Re.: AS 22)

20.11.2002Revised14.12.2005

Explanation 2 to paragraph 17 ofAccounting Standard (AS) 22,‘Accounting for Taxes on Income’

ASI 5, Accounting for Taxes on Income in the situation of Tax Holiday under Sections 10A and 10B of the Income-tax Act, 1961 (Re.: AS 22)

20.11.2002 Paragraph 13 of Accounting Standard(AS) 22, ‘Accounting for Taxes onIncome’

ASI 6, Accounting for Taxes on Income in the context of Section 115JB of the Income-tax Act, 1961 (Re.: AS 22)


ASI 7, Disclosure of deferred tax assets and deferred tax liabilities in the balance sheet of a company (Re.: AS 22)


ASI 8, Interpretation of the term ‘Near Future’ (Re.: AS 21, AS 23 and AS 27)

14.10.2003 Explanation (b) to paragraph 11 ofAccounting Standard (AS) 21,‘Consolidated Financial Statements’Paragraph 7 of Accounting Standard(AS) 23, ‘Accounting for Investmentsin Associates in ConsolidatedFinancial Statements’Paragraph 28 of Accounting Standard(AS) 27, ‘Financial Reporting ofInterests in Joint Ventures’

ASI 9, Virtual certainty supported by convincing evidence (Re.: AS 22)

14.10.2003 Explanation 1 to paragraph 17 ofAccounting Standard (AS) 22,‘Accounting for Taxes on Income’

ASI 10, Interpretation of paragraph 4(e) 14.10.2003 Paragraph 4(e) of Accounting


http://www.icai.org/resource/asi_as10.html

























Date of Issue


of AS 16 (Re.: AS 16) Standard(AS) 16, ‘Borrowing Costs’

ASI 11, Accounting for Taxes on Income in case of an Amalgamation (Re.: AS 22) **

14.10.2003

ASI 12, Applicability of AS 20 (Re.: AS 20) **

14.02.2004

ASI 13, Interpretation of paragraphs 26 and 27 of AS 18 (Re.: AS 18)

14.02.2004 Paragraphs 26 and 27 of AccountingStandard (AS) 18, ‘Related PartyDisclosures’

ASI 14, Disclosure of Revenue from Sales Transactions (Re.: AS 9)

14.02.2004 Paragraph 10 of Accounting Standard(AS) 9, ‘Revenue Recognition’

ASI 15, Notes to the Consolidated Financial Statements (Re.: AS 21)

14.02.2004 Paragraph 6 of Accounting Standard(AS) 21, ‘Consolidated FinancialStatements’

ASI 16, Treatment of Proposed Dividend under AS 23 (Re.: AS 23)

14.02.2004 Explanation (b) to paragraph 6 ofAccounting Standard (AS) 23,‘Accounting for Investments inAssociates in Consolidated FinancialStatements’

ASI 17, Adjustments to the Carrying Amount of Investment arising from Changes in Equity not Included in the Statement of Profit and Loss of the Associate (Re.: AS 23)

14.02.2004 Explanation (a) to Paragraph 6 ofAccounting Standard (AS) 23,‘Accounting for Investments inAssociates in Consolidated FinancialStatements’

ASI 18, Consideration of Potential Equity Shares for Determining whether an Investee is an Associate under AS 23 (Re.: AS 23)

14.02.2004 Paragraph 4 of Accounting Standard(AS) 23, ‘Accounting for Investmentsin Associates in ConsolidatedFinancial Statements’

ASI 19, Interpretation of the term ‘intermediaries’ (Re.: AS 18)

14.02.2004 Paragraph 13 of Accounting Standard(AS) 18, ‘Related Party Disclosures’

ASI 20, Disclosure of Segment Information (Re.: AS 17)

14.02.2004 Paragraph 38 of Accounting Standard(AS) 17, ‘Segment Reporting’

ASI 21, Non-Executive Directors on the Board - whether related parties (Re.: AS

14.02.2004 Paragraph 14 of Accounting Standard


http://www.icai.org/resource/ASI21GC13.pdf



























Date of Issue


18) (AS) 18, ‘Related Party Disclosures’

ASI 22, Treatment of Interest for determining Segment Expense (Re.: AS 17)

14.02.2004 Point (b) of the definition of ‘SegmentExpense’ under paragraph 5.6 ofAccounting Standard (AS) 17,‘Segment Reporting’

ASI 23, Remuneration paid to key management personnel - whether a related party transaction (Re.: AS 18) **

14.02.2004

ASI 24, Definition of ‘Control’ (Re.: AS 21)

14.02.2004 Paragraph 10 of Accounting Standard(AS) 21, ‘Consolidated FinancialStatements’

ASI 25, Exclusion of a subsidiary from consolidation (Re.: AS 21)

14.02.2004 Explanation (a) to paragraph 11 ofAccounting Standard (AS) 21,‘Consolidated Financial Statements’

ASI 26, Accounting for taxes on income in the consolidated financial statements (Re.: AS 21)

14.02.2004 Explanation (a) to paragraph 13 ofAccounting Standard (AS) 21,‘Consolidated Financial Statements’

ASI 27, Applicability of AS 25 to Interim Financial Results (Re.: AS 25) **

14.02.2004

ASI 28, Disclosure of parent’s/venturer’s shares in post-acquisition reserves of a subsidiary/jointly controlled entity (Re.: AS 21 and AS 27)

14.02.2004 Explanation (b) to paragraph 13 ofAccounting Standard (AS) 21,‘Consolidated Financial Statements’Paragraph 32 of Accounting Standard(AS) 27, ‘Financial Reporting ofInterests in Joint Ventures’

ASI 29: Turnover in the case of contractors (Re: AS 7 revised) **

18.07.2005

ASI 30: Applicability of AS 29 to onerous contracts (Re: AS 29)

14.12.2005 Paragraph 1(b) of Accounting Standard(AS) 29, ‘Provisions, ContingentLiabilities and Contingent Assets’

Except for the ASI marked ** others are part of accounting standards now as per Accounting standards rules 2006. These marked ** except for ASI 2, ASI 11 are being issued as Guidance notes.


http://www.icai.org/resource/ASI28.pdf



















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