AccountingStandards Presented by -Nirooj Fidin -Priha Jha -Amrita Kumari
Importance of ASO Smooth operations.O Protect investorsO Promotes transparencyO Assess business performance
Accounting Standard 10O Deals with accounting of fixed assets so that users of the financial statements can discern information about a business’s investment in its property, plant and equipment and the changes in such investment.O Does not cover assets held for sale, biological assets for agricultural activity, livestock, expenditure on real estate development, minerals and non- regenerative resources, and govt. grants, subsidies and assets under leasing.
TerminologyO Fixed Asset: 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.O Fair Market Value: It is the price agreed between knowledgeable and willing parties in an open and unrestricted market.O Gross Book Value: It is the historical cost or the amount substitutes for historical cost. It is termed net book value, when shown as net of accumulated depreciation.
Identification of fixed assetsO Individually insignificant items may be aggregated for their value.O Am item may be expensed even if it could have been included as fixed asset.O Spares are usually credited to P/L statement unless only used in connection with the fixed asset.O To improve accounting, items of fixed assets are treated separately, provided they are separable and has independent useful life.
Components of costO Consist of all the cost attributed to the asset in order to bring it to working condition for the intended purpose.O Administration and other general overload expenses are excluded.O All expenses incurred between completion of setting up asset and actual usage of asset for production are charged to P/L account.O However, it is also referred sometimes as deferred revenue and is to be amortized within 3-5 years after commencement
Non-monetary considerationO When a fixed asset is acquired in exchange of another asset, fair value of the asset which is more evident is to be considered.O Similarly, the same is applicable in case of a fixed asset acquired in exchange of shares or securities of the business.
Improvement and repairsO Confusion whether repair expenses ought to be added to the gross book value or P/L account.O Only expenses that increases the benefits accrued from the asset is included in the gross book value.O Also, the cost of addition or extension to an existing asset, which becomes integral to the asset is to be included in the gross book value.O Any addition, which has a separate identity is to be accounted separately.
Amount substituted for historical costsO Some costs of assets are valued in substitution for the historical costs.O Usually done by appraisal and reference to current price.O Either restate both gross book value and accumulated depreciation.O Or restate the net book value by adding the net increase.O Different methods for different items.O Increase is credited to owners’ interest as revaluation reserves. Decrease is credited in P/L account.
Retirement and DisposalO Retired items are state at their lower net book value and net realizable value and are shown separately.O Gains or losses incurred on disposal is shown in the P/L statement.O Difference between net disposal proceeds and net book value is credited to P/L statement in case of loss or transferred to general reserve in case of gain.
Special Assets and Cases O Goodwill O Jointly owned fixed assets O Fixed Assets on hire DisclosureO Gross and net book value, including acquisitions, disposal and other movements.O Expenditure incurred in course of construction or acquisition.O Revalued amounts, method used, whether outsourced.
ObjectiveO To set principles for the determination & presentation of EPS.O To improve comparison of performance amongst enterprises for the same period and amongst different accounting periods for the same enterprise.
ApplicabilityO Enterprises whose equity shares or potential equity share are listed on Recognized Stock Exchange.O Other enterprises which disclose earnings per share in financial statements.O In the case of consolidated financial statements it should be determined & presented based on consolidated information
Presentation Requirements (Disclosures)An enterprise should present on the face of P&L Account. O Basic EPS w.r.t. equity shares O Diluted EPS w.r.t. potential equity sharesPotential equity share: A financial instrument or contract that entitles or may entitle, its holder to equity share e.g. O Convertible debentures or preference shares O Share warrants or options O Shares issuable upon satisfaction of certain conditions
Presentation Requirements (Disclosures)O Disclosure to be made for all periods presented.O Both the amounts to be disclosed with equal prominence.O The information is to be presented even if the amount disclosed are negative (a loss per share).
MeasurementBasic EPS = Net profit or loss for the periodattributable to equityshareholders(A)/Weighted average no ofequity share outstanding (B).(A) = Net profit or loss for the period afterdeducting preference dividend & tax.(B) = Number of equity shares outstanding at the beginning of the period, adjusted by theshares bought back or issued during theperiod multiplied by the time weightingfactor.O Time weighting factor is the number of days for which the specific shares are outstanding as a proportion to total number of days in the period.
MeasurementDiluted EPS = Diluted net profit or loss forthe period attributable to equity shareholders(C) /theweighted average no of equity shares includingshares issued on conversion of all the dilutive potential equity shares outstanding during the period (D).
Measurement of Diluted EPS(C)= Net profit or loss attributable to equityshares adjusted for the following net of tax: any dividend on dilutive potential equity shares which has been deducted in arriving profit/loss. any interest relating to dilutive potential equity shares any other change in expense or income that would result from the conversion of dilutive potential equity shares.
Measurement of Diluted EPS(D) = Aggregate of (B) and the weighted average number of equity shares which would be issued on the conversion of all the dilutive potential equity shares into equity shares at the beginning of the period. (If issuedduring the period, from the date of issue).O Dilutive Potential Equity shares shall be treated as such only when their conversion to equity shares would decrease net profits per shares from continuing ordinary operations.O It shall be presumed that exercise of dilutive options shall be exercised. It shall also be assumed that issue of shares shall be at fair value and assumed proceeds shall be received.
ASI 12Every company, required to give information underpart IV of schedule VI to the Companies Act, 1956 tocalculate and disclose EPS in accordance with AS20, even if otherwise not applicable to it.
Accounting Standard 26 (accounting for Intangible Assets)
IntroductionO The Institute of Chartered Accountants of India (ICAI) has issued an accounting standard for intangible assets which will be mandatory for listed companies and for companies planning an initial public offer. As per the guideline, companies will have to report in their financial statements on expenses incurred on research and development, intellectual property rights, customer relations and brand development activities.O Called AS 26, the accounting standard came into effect from April 1, 2003.
DefinitionDefinition of Intangible AssetsIntangible assets is:O Identifiable non monetary assetsO Without physical substanceO Held for use in production or supply of goods or servicesO Examples: Licenses, Intellectual property rights, Brand names, publishing titles, Computer software, Patents, copy rights, Motion picture licenses, Customers lists, Franchises, Mortgage services rights, Import quotas, Customer supplier relationships, Customer loyalty, Market share and marketing right
ObjectiveO The objective of this Statement is to prescribe the accounting treatment for intangible assets that are not dealt with specifically in another Accounting Standard.O This Statement requires an enterprise to recognize an intangible asset if, and only if, certain criteria are met.O The Statement also specifies how to measure the carrying amount of intangible assets and requires certain disclosures about intangible assets.
ScopeThis Statement should be applied by all enterprisesin accounting for intangible assets, except:- Intangible assets that are covered by anotherAccounting Standard- Financial assets; mineral rights and expenditureon the exploration for, or development andextraction of, minerals, oil, natural gas and similarnon-regenerative resources; and intangible assetsarising in insurance enterprises from contracts withpolicyholders.
Conditions for RecognitionO Identifiability : O Control : Distinguishable from Power to obtain future goodwill. economic benefits. Legal rights over the use of Enterprise can rent, sale, assets. exchange or distribute the future economic benefits O Future economic benefits from assets without : disposing the same Revenue, cost savings or other benefits flowing from the assets.
Cost of Intangible AssetsO Recognize if, and only if, Probability of flow of future economic benefits Cost can be reliably measuredO Intangible Assets should be recognized only at cost.O Separate acquisition : Recognize at cost of acquisitionO Cost of acquisition includes: Purchase price (net of any discounts, rebates etc) Non recoverable import duties and other taxes Direct expenses to make assets ready for intended use Internally Generated Intangible Assets :O Goodwill : Not to be recognized as Intangible Asset as; Not an identifiable resource controlled by the entity.O cost can not be measured reliably.
Internally Generated Intangible AssetsOthers• Internal generation of Intangible Assets classified into two phases: Research Phase• Recognize expenditure incurred during Research phase as an expense. Development Phase• Recognize Intangible Assets if entity can demonstrate all the following conditions:• Technical feasibility to complete the Intangible Assets so that it will be available for use.• Intention and Availability of adequate technical, financial and other resources to complete the assets.• Ability to use / sell it.• Demonstration of probable future economic benefits.• Ability to measure reliably the expenditure attributable to Intangible Assets.
Cost: Cost of Internally generated Intangible Assets is calculated from the time when the Intangible Assets first meet the recognition criteria till the asset becomes ready for use. Amortisation : the systematic allocation of the depreciable amount of an intangible asset over its useful life.O Period :O Amortise over the best estimated useful life of the asset.O Rebuttable presumption is that useful life can not exceed more than 10 years.O Persuasive evidence required to justify useful life of more than 10 years.O Straight Line Method is considered as most appropriate.
Disclosure RequirementO Disclose for each class & separately for internally generated and others:O Useful lives or amortization rate; Amortization method;O Gross carrying amount & accumulated amortization.O Reconciliation of carrying amount showing: Additions/ retirement and disposals; Impairment losses recognized/ reversed, if any Amortization recognized; Other changes in the carrying amount. Changes in accounting policy as per AS 5.
contd.O Where useful life is more than ten years, the reasons thereof.O Description, carrying amount and remaining period for an Intangible Assets of material amount.O Details of Intangible Assets that are pledged or have other restrictions.O Commitments for acquisition of Intangible Assets.O Research and Development expenses recognised as expenses.O The entity is encouraged to give description of fully amortized Intangible Assets, still in use.