To establish the principles for reportingfinancial information about thedifferent types of products and servicesan enterprises produces and differentgeographical areas in which it operates
• To better understand the performance of the enterprise• To better assess the risks & returns of the enterprise• To make more informed judgement about the enterprises as a whole .
Business Segment:• It is distinguishable component of an enterprise• It is engaged in providing an individual product or services• It is subject to risk & returns that are different from those of other business segment .
Geographical Segment:•Distinguishable component of an enterprise•Engaged in providing products or services within aparticular economic environment•That is subject to risks and returns that aredifferent from those of components operating inother economic environments
Sometimes business transactionsbetween related parties lose thefeature and character of the armslength transaction.
• Holding companies(a company having one or more subsidiaries), Subsidiaries & Fellow subsidiaries(a company is considered to be fellow susidiary of another company if both are susidiaries of the self holding company)• Associates(an enterprise in which an investing reporting party has significant influence and which is neighter an subsidiary nor a joint venture of that party) & Joint venture(The cooperation of two or more individuals or businessness in which each agrees to share profit,loss and control in a specific enterprise)• Individuals owing , directly or indirectly interest in the voting power
• Relative of such individual –Spouse, son, daughter, mother, father, brother, sister.. Key management personnel(those personswho have the authority and resposibility forplanning, directing and controlling theactivities of the reporting enterprise) &relative of such personnel
• Related party relationship• Transactions between a reporting enterprises and its related parties
• Control by ownership (directly or indirectly more than 50% of the voting power• Control over composition of BOD or other governing body• Control of substantial interest in the voting power & power to direct the financial or operating policies of the enterprise
• By representation of the Board of Directors• Participation in policy-making process• Material inter-company transactions• Inter-charge of management personnel• Dependence on technical information
• Two companies have a director in common dealing between the companies• A Single customer or supplier or distributor• Provider of finance• enterprises.
• Trade union• Govt. department & agencies• State controlled enterprises with other State controlled enterprises.
• Purchase/Sales of goods• Purchase/Sales of fixed assets• Rendering /receiving of services• Leasing or hire purchase arrangements
• Transfer of research and development• License agreement• Finance (incl. loan & equity)• Guarantees & collateral• Management contracts of deputation employees
• Name of the related party should be disclosed• Nature of the related party relationship should be disclosed
• Name of the related party• Description of related party• Description of the nature of transaction• Volume of the transactions either as an amount or as an appropriate proportion
• Any other element of the transaction, which is essential for understanding the financial statements• Amount or appropriate proportion of outstanding items & provision for doubtful debts• Amount written off or written back in the period in respect of debts due from doubtful debts.
To prescribed the accounting for – Provisions Contingent liabilities Contingent assets Provision for restructuring cost
Provision is liabilityWhat is liability• Liability is a present obligation• Arising from past events• Settlement of which result in outflow of resources
What is Present Obligation An obligation is present obligationif based on evidence available itsexistence in the balance sheet dateis considered probable i.e., morelikely than not.
Onerous Contract A contact in which the unavoidablecosts of meeting the obligationunder the contract exceed theeconomic benefits expected to berecovered under it.
Recognition of Provision• Present probable obligation as a result of a past obligating event• An outflow of resources embodying economic benefits in settlement• A reliable estimate• Number of similar obligations – to consider the outflow of resources ‘probable’ obligation as a whole to be considered
Measurement of provision• Best estimate of the expenditure required• No discounting• No tax effect• Additional evidence after balance sheet to be considered• Re-imbursement of expenditure• Review of provision
Contingent Liability• Possible obligation (not probable) as a result of past event.• Existence of which will be confirmed only by the occurrence or non-occurrence of future event.• Future event not wholly within the control of the . enterprises
Contingent Liability Contingent liability is a possible obligation however itmay also be a present obligation• Probability of outflow of resources is very low.• Reliable estimate of the amount of the presentobligation cannot be made.
What is Contingent Assets?• Possible asset as a result of past events.• Existence of contingent assets is to be confirmed by the occurrence & non-occurrence of one or more future events.• Future event not wholly within the control of the enterprise .
Recognition Principles ofContingent Asset• An enterprise should not recognise a contingent asset• No disclosure is required of contingent asset
Provision for Restructuring Cost• AS-29 deals with provision of restructuring cost• AS-29 does not prescribe the accounting of restructuring cost
What is Restructuring ?• Sale or termination of line of business.• Relocation of business activities from one country or region to another.
What is Restructuring ?• Change in management structure• Fundamental re-organization that has material effect on the nature & focus of the enterprise operations
Restructuring does not include• Retraining or relocating continuing staff• Marketing• Investment in new system & distribution networks
What is Restructuring Cost?Provision for restructuring cost shouldinclude only the direct expenditurearising from restructuring & notassociated with the ongoing activitiesof the enterprises.
Financial Instrument carried at Fair Value. Resulting from Executory Contract. Insurance Enterprise Those covered under another Accounting Standards.. A.S-7, A.S-15, A.S-19, A.S-22.