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Us  Gaap Vs Indian Gaap
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Us Gaap Vs Indian Gaap



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  • 1. Major differences between US GAAP and Indian GAAP
        • Underlying assumptions
        • Format/ Presentation of financial statements
        • Cash flow statement
        • Depreciation
        • Long term debts
        • Consolidation of subsidiary accounts
        • Investments
        • Foreign Currency transactions
        • Expenditure during construction period
        • Research and Development expenditure
    Amit Gilra
  • 2. Major differences between US GAAP and Indian GAAP
        • Revaluation reserve
        • Extraordinary items , prior period items and changes in accounting policies
        • Goodwill
        • Capital issue expenses
        • Preoperative expenses
        • Employee benefits
        • Loss on extinguishment of debt
  • 3. Underlying assumptions
    • In Indian GAAP financial statements are prepared in accordance with the principal of conservatism
    • Which means that “ Anticipate no profits and provide for all possible losses “
    • Where as under US GAAP conservatism is not considered – Revenue is recognised as and when it is earned or realised or realizable
    • Example :
    • Generally, organisations provides provision for bad debts regarding account receivables but provision for gain on account of non collection of money from us by creditors will not be provided
    • Provision for discount on debtors and provision for discount on creditors
  • 4. Format/ Presentation of financial statements
    • In Indian GAAP, financial statements are prepared in accordance with the presentation requirements of Schedule VI to the companies Act, 1956
    • Where as in US GAAP financial statements are not required to be prepared under any specific format as long as they comply with the disclosure requirements of US GAAP
    • There is no prescribed presentation requirement.
  • 5. Cash flow statement
    • Indian GAAP mandates cash flow statement only for listed companies and other companies whose turn over for the accounting period exceeds Rs.50 crore
    • Thus, unlisted companies escapes the burden of providing cash flow statements as part of their financial statements.
    • Where as in US GAAP every company whether it is listed or not is required to prepare cash flow statement for 3 years –
      • Current year and
      • 2 immediately preceding years
  • 6. Depreciation Accounting
    • In India depreciation is provided based on the rates prescribed in Schedule XIV of Companies Act,1956.
    • However the rates prescribed in the schedule are the minimum rates and the company has the option to provide depreciation higher than that rate.
    • Where as in US GAAP depreciation is provided over the use life of the asset and there are no specific rates mentioned there in.
    • Example :
    • If the cost of the plant & machinery is 1,00,000$ (Scrap -10,000$) and estimated use life of the asset is 10years.
    • Depreciation = (1,00,000-10,000) / 10
    • = 9,000$
  • 7. Depreciation Accounting
    • Change in Depreciation Method:
    • If a company wants to change its method of depreciation, then as per Indian GAAP retrospective re-computation of depreciation is made and any excess or deficit arising on such re-computation is required to be adjusted in the period in which such change is effected
    • Where as in US GAAP the effect of change in method of depreciation is to be given prospectively
  • 8. Long term Debts
    • Under US GAAP current portion of long term debt is classified as current liability
    • In Indian GAAP there is no such requirement with regards to principal portion of long term debt.
    • When comes to interest portion of long term debt the treatment depends upon the situation-
    • 1) Interest accrued but not due- In this situation the interest is shown under long term loan by adding the same to respective LT loan.
    • 2) Interest accrued and due for payment- In this situation the o/s interest is shown as current liability.
  • 9. Consolidation of subsidiary accounts
    • Under Indian GAAP consolidation of subsidiary companies is not mandatory.
    • But if the company want to present its consolidated financial statements to the users it must follow AS-21
    • Where as in US GAAP preparation of consolidated financial statements are mandatory.
  • 10. Investments
    • Under Indian GAAP, investments are classified as-
      • Current Investment
      • Long term Investment and
      • Investment Property
      • Where as in US GAAP , investments are classified as-
        • Held to maturity
        • Trading security and
        • Available for sale
        • and these are further segregated as current or non-current investments on individual basis
  • 11. Foreign Currency transactions
    • In US GAAP translation difference is taken to comprehensive income.
    • Where as in Indian GAAP, separate treatment was prescribed for integral and non-integral operations.
      • Integral Operations:
      • Exchange difference arising on the translation of the financial statement of integral foreign operation should be charged to profit and loss account.
      • Non-integral Operations:
      • Resulting exchange difference should be accumulated in a “foreign currency translation reserve”.
  • 12. Expenditure during construction period
    • Under Indian GAAP all incidental expenditure on construction of assets during project stage are accumulated and allocated to the cost of the asset on completion of the project.
    • Where as per US GAAP , such expenditure are divided into two heads- Direct and Indirect
    • While, direct expenditure is accumulated and allocated to the cost of asset, indirect expenditure are charged to revenue.
    • Example: portion of attributable supervisors salary
  • 13. Research and development expenditure
    • In Indian GAAP, R&D expenditure is charged to P&L except equipment and machinery which are to be capitalized and depreciated.
    • In US GAAP all R&D costs are expenses except intangible assets purchased from others and Tangible assets that have alternative future uses
  • 14. Revaluation Reserve
    • In Indian GAAP , an enterprise can revalue its assets and the unrealized gain is transferred to “ Revaluation reserve “.
    • The incremental depreciation arising out of higher book value may be adjusted against the Revaluation Reserve
    • Where as US GAAP does not allow revaluing its assets.
  • 15. Extraordinary items, prior period items and changes in accounting policies
    • In Indian GAAP , extraordinary items, prior period items and changes in accounting policies are disclosed with out netting off for tax effects.
    • Where as per US GAAP, adjustments for tax effects are required to be made while reporting the prior period items.
  • 16. Good will
    • In Indian GAAP , goodwill is capitalized and charged to earnings over 5 to 10 years period.
    • Where as in US GAAP, goodwill and intangible assets that have indefinite useful lives are not amortized, but they are tested at least annually for impairment.
  • 17. Capital issue expenses
    • In Indian GAAP , capital issue expenses are amortized over a period of time.
    • Where as in US GAAP, capital issue expenses are required to be written off as when incurred against proceeds of capital.
  • 18. Preoperative expenses
    • In Indian GAAP, direct revenue expenditure during construction period like preliminary expenses, project related expenditure are allowed to be capitalized.
    • Further, indirect revenue expenditure incidental and related to construction are also permitted to be capitalized.
    • Other indirect revenue expenditure not related to construction, but incurred during construction period are treated as deferred revenue expenditure and classified as miscellaneous expenditure in b/s and written off over a period of 3 to 5 years.
    • Where as in US GAAP the concept of preoperative expenses itself doesn’t exist.
    • All the start up costs should be expensed.
  • 19. Employee benefits
    • When comes to employee benefits in Indian GAAP-
      • Provision for leave encashment is accounted based on actuarial valuation
      • Compensation for VRS is amortized over 60months
    • Where as in US GAAP-
      • Leave encashment is accounted on actual basis
      • VRS is charged in the year in which the employees accept the offer
  • 20. Loss on extinguishment of debt
    • In Indian GAAP, debt extinguishment premiums are adjusted against securities premium account.
    • Where as in US GAAP, premium for early extinguishment of debts are expensed as incurred.
  • 21.