Us Gaap Vs Indian Gaap


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Us Gaap Vs Indian Gaap

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