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Accounting standards with reference to Genting Lanco Power (India) Pvt.Ltd.

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Introduction of Accounting standards .AS 1, AS 2, AS 10

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Accounting standards with reference to Genting Lanco Power (India) Pvt.Ltd.

  1. 1. INDEX 1. Introduction to Accounting standards 2. Accounting standards 1,2 and 10 3. Introduction to Genting Lanco power (India) Pvt. Ltd 4. Financial Statement 5. As 1,2and 10 of Genting Lanco 6. Bibliography
  2. 2. Accounting standards Accounting is considered as the language of business. Each language has certain set of rules. Similarly accounting has certain rules to be observed by the accountants so that it is understood by all in the same sense these set of rules become accounting standards. Thus accounting standards are certain set of rules and guidance based on the principles and methods of accounting to be followed to have uniformity in terminology approach and presentation of results. ICAI Accounting Standards in India are issued By the Institute of Chartered Accountants of India (ICAI). At present there are 3 Accounting Standards issued by ICAI. They are:  AS 1 Disclosure of accounting policies  AS 2 Valuation Of Inventories:  AS 3 Cash Flow Statements  AS 4 Contingencies and events Occurring after the Balance sheet Date  AS 5 Net Profit or loss For the period, Prior period items and Changes in accounting Policies.  AS 6 Depreciation accounting.  AS 7 Construction Contracts.  AS 8 Accounting for Research and Development  AS 9 Revenue Recognition  AS 10 Accounting for Fixed Assets  AS 11 The Effects of Changes in Foreign Exchange Rates  AS 12 Accounting for Government Grants  AS 13 Accounting for Investments  AS 14 Accounting for Amalgamations  AS 15 Employee Benefits  AS 16 Borrowing Costs  AS 17 Segment Reporting  AS 18 Related Party Disclosures  AS 19 Leases  AS 20 Earnings Per Share  AS 21 Consolidated Financial Statements  AS 22 Accounting for Taxes on Income.  AS 23 Accounting for investments in Associates in Consolidated Financial Statements  AS 24 Discontinuing Operations  AS 25 Interim Financial Reporting  AS 26 Intangible Assets  AS 27 Financial Reporting of Interests in Joint Ventures  AS 28 Impairment of Assets  AS 29 Provisions,Contingent Liabilities and Contingent Assets  AS 30 Financial Instruments: Recognition and Measurement and Limited Revisions to AS 2, AS 11 revised 2003, AS 21, AS 23, AS 26, AS 27, AS 28 and AS 29  AS 31 Financial Instruments: Presentation  AS 32 Financial Instruments: Disclosures, and limited revision to Accounting Standard
  3. 3. Objective of Accounting Standards  Standardize the diverse accounting policies  Add the reliability to the financial statement  Eradicate baffling variation in treatment of accounting aspects  Facilitate inter -firm and intra-firm comparison Evaluation of accounting standard Accounting standard Initiation AS 1 to 15 1979 -1995 As 16 to 29 2000-2007 AS 30 to 31 later part of 2007
  4. 4. AS 1: DISCLOSURE OF ACCOUNTING POLICIES  Accounting polices refer to those principles and methods applied in the preparation and of fiancial statements.  They promote the better understanding of the financial statements and their true and fair presentation.  The state of affairs and p&l are significantly affected by accounting policies hence their disclosure is necessary for better understanding.  The is no pre-quoted list of accounting polices applicable in all circumstances.  The suitability of the policies varies from entity to entity.  The choice of accounting polices and their application is the responsibility of the management. For, the responsibility for preparation and presentation of the financial statements is on the management.  The ICAI has recommended the following considerations to be taken on notice for the selection of the policies. Considerations: Prudence Substanceover form Materiality
  5. 5. AS 2:VALUATIONOF INVENTORY  AS 2 Standard Specifies: a. What cost of Inventory should consist b. How Net Realisable value is determined  Valuation of Inventories was first issued in June 1981 which was then revised and made mandatory for all enterprises commencing business on or after April 1999.  Costs incurred in an organization form a major part to account and vouch for in financial statements of any concern. Cost of closing stock , cost of work in progress , cost of finished goods are costs which are incurred in current accounting period and carried forward to the next accounting period. Similarly cost of opening Inventory which was incurred in previous accounting year is brought forward in the current accounting year.  As assets are classified as resources which will enable cash inflow and economic growth to the enterprise, costs form inseparable part of the assets. Costs to be included in Inventory costs are those costs which are expected to generate future economic benefits to the enterprise. Such costs include 1. Cost of acquisition 2. Cost of Change in location of the Inventory 3. Costs incurred in transforming the raw material into finished goods  costs incurred in maintaining the inventory do not generate any economic benefits to the enterprise and hence are not included in the inventory costs. It becomes important to value Inventory as it considerably impacts profit and loss for an accounting period. Higher the value of closing stock, lower is the cost of goods sold, consequently high profits.  The Principle of prudence says that no profit should be booked while all foreseeable losses should be recognised. Thus if net realisable value of inventory is less than inventory cost, inventory is valued at net realisable value to reduce the booked profit in anticipation of loss and on the contrary if net realisable value of the inventory is more than inventory cost, the anticipated profit is ignored and inventory is valued at cost. Hence, Inventory is valued at cost or net realisable value whichever is less.  Measurement of Inventories: Net realisable value is the estimated selling price in normal/ordinary course of business less estimated costs of completion and required costs to make the sale. The Valuation of Inventory is based on the very fact that no assets should be carried at a value which is in excess of the value realisable by its use or sale or both.
  6. 6. AS 10: ACCOUNTING FOR FIXED ASSETS  Relevant definitions fixed asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business.  Elements of cost: the cost of a purchased fixed asset should consist of its purchase price including import duties and other non-refundable taxes and levies and any directly attributable cost of bringing the asset to its working condition for its intended use.  Self constructed fixed assets: The cost of a self-constructed fixed asset should comprise those costs that relate directly to the specific asset and those that are attributable to the construction activity in general and can be allocated to the specific asset.  Non monetary consideration: When a fixed asset is acquired in exchange or in part exchange for another asset, the cost of the asset acquired should be recorded either at fair market value or at the net book value of the asset given up , adjusted for any balance payment or receipt of cash or other consideration.for this purpose fair market value may be determined by reference either to the asset given up or to the asset acquired , whichever is more clearly evident.  Other considerations: Assets acquired on hire purchase : recorded at their cash value with a suitable disclosure, that the enterprise does not have full ownership thereof.subsequent expenditures related to an item of fixed asset should be added to its book value only if it increases the future benefits from the existing asset beyond its previously assessed standard of performance.  When a revaluation is made, either an entire class of assets should be revalued, or the selection of assets should be made on a systematic basis. The basis should be disclosed.the revaluation in financial statements of a class of assets should not result in the net book value of that class being greater than the recoverable amount of assets of that class.when a fixed asset is revalued upwards, any accumulated depreciation existing at the date of the revaluation should not be credited to the profit and loss account  Any profit/loss arising from retirement or disposal of fixed assets should be dealt as below: 1. losses arising from retirement or gains/losses arising from disposal of a fixed asset which is carried at cost should be recognised in the profit and loss account. 2. where a revalued item of fixed asset is disposed off, any loss or gain should be charged or credited to the profit and loss account. However, to the extent that such loss is related to an upward revaluation which has not been subsequently reversed or utilised, it may be charged directly to that account.  Goodwill: Goodwill needs to be accounted for only when some consideration in money or money’s worth has been paid for it.  Disclosur : Gross and net book values of fixed assets at the beginning and end of an accounting period along with additions, disposals, acquisitions and other movements during the year. Expenditure incurred in the course of construction or acquisition. Revalued amounts substituted for historical costs of fixed assets, the method adopted for revaluation, the nature of indices used, the year of any appraisal made and whether an external value was involved in carrying out the revaluation.
  7. 7. Balance sheet as on 31st march 2014 (In cr.) PARTICULAR Mar '14 Sources Of Funds Total Share Capital 239.24 Equity Share Capital 239.24 Share Application Money 0.00 Preference Share Capital 0.00 Reserves 2,434.65 Revaluation Reserves 0.00 Networth 2,673.89 Secured Loans 5,657.66 Unsecured Loans 0.00 Total Debt 5,657.66 Total Liabilities 8,331.55 Mar '14 12 mths Application Of Funds Gross Block 1,033.25 Less: Accum. Depreciation 0.00 Net Block 1,033.25 Capital Work in Progress 3.76 Investments 8,295.61 Inventories 1,422.44 Sundry Debtors 1,700.87 Cash and Bank Balance 122.63 Total Current Assets 3,245.94 Loans and Advances 6,603.01 Fixed Deposits 0.00 Total CA, Loans & Advances 9,848.95 Deferred Credit 0.00 Current Liabilities 10,754.07 Provisions 95.95 Total CL & Provisions 10,850.02 Net Current Assets -1,001.07 Miscellaneous Expenses 0.00 Total Assets 8,331.55 Contingent Liabilities 18,688.21 Book Value (Rs) 11.11
  8. 8. Profit and loss a/c for the year ended on 31st march 2014 (In cr.) PARTICULARS Mar '14 Income Sales Turnover 2,236.40 Excise Duty 0.00 Net Sales 2,236.40 Other Income 102.07 Stock Adjustments 151.47 Total Income 2,489.94 Expenditure Raw Materials 1,798.46 Power & Fuel Cost 0.00 Employee Cost 185.60 Other Manufacturing Expenses 481.09 Selling and Admin Expenses 0.00 Miscellaneous Expenses 239.81 Preoperative Exp Capitalised 0.00 Total Expenses 2,704.96 Operating Profit -317.09 PBDIT -215.02 Interest 627.73 PBDT -842.75 Depreciation 117.24 Other Written Off 0.00 Profit Before Tax -959.99 Extra-ordinary items 0.00 PBT (Post Extra-ord Items) -959.99 Tax 0.00 Reported Net Profit -959.99 Total Value Addition 906.50 Preference Dividend 0.00 Equity Dividend 0.00 Corporate Dividend Tax 0.00 Per share data (annualised) Shares in issue (lakhs) 24,078.05 Earning Per Share (Rs) -3.99 Equity Dividend (%) 0.00 Book Value (Rs) 11.11
  9. 9. As 1 Summary of significant accounting policies 1. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting period. Although these estimates are based upon management’s best knowledge of current events and actions, actual results could differ from these estimates. 2. Revenue Recognition Revenue is recognized based on the nature of activity to the extent it is probable that the economic benefits will flow to the Company and revenue can be reliably measured. The company collects service tax, sales taxes and value added taxes (VAT) on behalf of the government and, therefore, these are not economic benefits flowing to the company. Hence, they are excluded from revenue. The following specific recognition criteria must also be met before revenue is recognised. 3. EPC and Construction Services For EPC and construction contracts, contract prices are either fixed or subject to price escalation clauses. Revenues are recognised on a percentage of completion method measured on the basis of stage of completion which is as per joint surveys and work certified by the customers. Profit is recognised in proportion to the value of work done (measured by the stage of completion) when the outcome of the contract can be estimated reliably. The estimates of contract cost and the revenue thereon are reviewed periodically by management and the cumulative effect of any changes in estimates in proportion to the cumulative revenue is recognised in the period in which such changes are determined. When the total contract cost is estimated to exceed total revenues from the contract, the loss is recognised immediately. Amounts due in respect of price escalation claims and/or variation in contract work are recognized as revenue only if the contract allows for such claims or variations and/or there is evidence that the customer has accepted it and are capable of being reliably measured. Liquidated Damages / Penalty as per the contracts / Additional Contract Claims under the contract entered into with Vendors and Contractors are recognised at the end of the contract or as agreed upon. 4. Sale of Power Revenue from sale of energy is recognized on the accrual basis in accordance with the provisions of Power Purchase Agreement. Claims for delayed payment charges and any other claims, which the company is entitled to under the Power Purchase Agreement, are accounted for in the year of acceptance. 5. Sale of Coal Revenue from the sale of coal is recognized when the substantial risks and rewards of ownership are transferred to the buyer as per the respective agreements and revenue can be reliably measured. 6. Carbon Credits Revenue from sale of Verified Emission Reductions (VERs) and Certified Emission Reductions (CERs) is recognized on sale of eligible credits.
  10. 10. 7. Insurance Claims Insurance claims are recognized on actual receipt / acceptance of the claim. 8. Management Consultancy Income from project management / technical consultancy is recognized as per the terms of the agreement on the basis of services rendered. 9. Interest Revenue is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable. 10. Dividends Revenue is recognised when the shareholders’ right to receive payment is established by the Balance sheet date.
  11. 11. AS 2: Inventories Inventories Construction materials, raw materials, Consumables, Stores and Spares and Finished Goods are valued at lower of cost and net realizable value. Cost is determined on weighted average cost method. Construction Work-in-progress related to project works is valued at lower of cost or net realizable value, where the outcome of the related project is estimated reliably. Cost includes cost of materials, cost of borrowings and other related overheads. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale. In case of LHTPPL, Development Work-in-progress related to project works is valued at cost or estimated net realizable value whichever is lower, till such time the outcome of the related project is ascertained reliably and at contractual rates thereafter. Cost includes cost of land, cost of materials, cost of borrowings to the extent it relates to specific project and other related project overheads. Raw Materials (including Stock in transit ` 0.05 (March 31,2013 : ` 15.68)) Crores 258.14 Construction/Development Work In Progress 2638.88 Finished Goods 12.05 Consumables, Stores and Spares (including Stock in transit ` 0.15 (March 31,2013 : ` 0.09)) Crores 212.27 3121.34 Details of Closing Inventory Raw Materials Naptha 40.98 Oil - (HFO, LDO & HSD) 105.97 86 Material in Transit & Under Inspection 13.29 Coal 32.62 Semi Finished Goods 0.33 Cells & other Solar Equipments 4.85 Steel 45.51 Inventory Others 14.59 258.14 Finished Goods Solar Modules 1.38 Coal 10.67 12.05 AS 10: Accounting For Fixed Assets 1. Tangible Fixed Assets
  12. 12. Tangible assets are stated at cost, less accumulated depreciation and impairment losses if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use. Borrowing costs relatingtoacquisitionof tangible assetswhichtakessubstantial periodof time togetreadyfor itsintendeduse are alsoincludedtothe extenttheyrelate tothe periodtill suchassetsare ready to be put to use. Assets under installation or under construction as at the Balance Sheet date are shown as Capital Work in Progress. The activities necessary to prepare an asset for its intended use or sale extend to more than just physical construction of the asset. It may also include technical (DPR,environmental,planning,Landacquisitionandgeological study)andadministrative work such as obtaining approvals before the commencement of physical construction. The company adjusts exchange differences arising on translation/settlement of long term foreign currency monetary items pertaining to the acquisition of a depreciable asset to the cost of the asset and depreciates the same over the remaining life of the asset. 2. Intangible Fixed Assets Intangible assetsare recognizedwhenitisprobable thatthe future economicbenefits that are attributable to the asset will flow to the enterprise and the cost of the asset can be measured reliably. 3. Impairment of Assets The carrying amountsof assetsare reviewed at each balance sheet date if there is any indication of impairment based on internal / external factors. An impairment loss is recognized wherever the carrying amount of an asset exceeds its recoverable amount.The recoverable amountisthe greaterof the asset’snetsellingprice andvalue in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pretax discount rate that reflectscurrent market assessments of the time value of money and risks specific to the asset. Net selling price is the amountobtainable fromthe sale of anassetin an arm’slengthtransactionbetweenknowledgeable,willingparties, less the costs of disposal. After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life. 1. Tangible Assets 2. Intangible Assets Bibliography  http://www.lancogroup.com/pdf/annual/Annual%20Report%201314.pdf Particulars Lease hold land Freehold land Building Plant and equipment furniture and fixtures vehicle mine properties office equipment As on 31st march 2014 6.05 - 296.81 3912.43 45.75 15.58 308.15 33.95 Particulars Computer software Other intangible assets Total As non 31st march 2014 6.00 45.58 51.58
  13. 13.  http://en.wikipedia.org/wiki/Indian_Accounting_Standards  http://www.icaiknowledgegateway.org/littledms/folder1/as-1-disclosure-of-accounting- policies.pdf

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