Accounting Standards 1 15


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Accounting Standards 1 15

  1. 1. Accounting Standards 1-15 Presentation by Dr. Rana Singh Professor of Finance
  2. 2. January 30, 2015 2 AS-1 Disclosure of Accounting Policies Fundamental Accounting Assumptions Criteria for Selection of Accounting Policies Presentation of accounting significant accounting policies Change in accounting policies
  3. 3. January 30, 2015 3 AS-2 Valuation of Inventories Basic Principles Meaning of cost and Net Realisable Value Cost Formulae
  4. 4. January 30, 2015 4 Valuation of Inventories What is purchase price? Should borrowing cost be included in cost? How much of the fixed overhead be included? Should administrative cost be included? Depreciation? Selling cost?
  5. 5. January 30, 2015 5 Century Textiles & Inds. Ltd. i) Raw materials, Materials in process, Construction work in progress, Finished Goods, Goods for Trade and Property - Commercial Units are valued at cost or Net Realisable value whichever is lower. ii) Stores, spares etc. are valued at cost or at cost less amounts written off. iii) Trial Run products are valued at estimated realisable value. iv) Goods in transit are valued at cost to date. v) 'Cost' comprises all cost of purchase, cost of conversion and other costs incurred in bringing the inventory to their present location and condition.
  6. 6. January 30, 2015 6 Century Textiles & Inds. Ltd. March Cost formulae used is either `first in first out', `Specific identification' or the `Average cost', as applicable. vi) Due allowances are made for obsolete items based on technical estimates made by the Company. vii) Inter -divisional transfers are valued at works/factory costs of the transferor unit/division or at sales price, plus transport and other charges.
  7. 7. January 30, 2015 7 Rallis India Ltd. March (i) Stores and spare parts are valued at cost. (ii) Raw Materials are valued at cost. (iii) Work in progress is valued at aggregate of raw material cost and production overheads up to the stage of completion. (iv) Finished stocks are valued at lower of cost or net realisable value except for by-products which are valued at the net realisable value and finished stock of technical material at factories intended for captive consumption which is valued at cost.
  8. 8. January 30, 2015 8 AS-3 Cash Flow Reporting Who will prepare and present cash flow statement as part of financial statements ? Only listed companies Should a holding company prepare and present consolidated cash flow statement? If the parent company is a listed company , its financial statements include cash flow statement as per 1(a).So as per AS – 21 it should prepare consolidated cash flow statement. What should be the accounting period ? Prepare Cash flow statement for the same accounting period for which profit and loss account , and balance sheet are prepared.
  9. 9. January 30, 2015 9 AS-3 Cash Flow Reporting How should the cash flow items be classified ? To be classified into three types : - Cash flow from operating activities - Cash flow from investing activities - Cash flow from financing activities
  10. 10. January 30, 2015 10 AS-3 Cash Flow Reporting What are operating activities? Principal revenue producing activities other than financing and investing What are the methods of preparing operating cash flow ? Two methods : (i) direct method and (ii) indirect method. Which method should be followed? Follow direct Method.
  11. 11. January 30, 2015 11 AS-3 Cash Flow Reporting What are investment activities? Acquisition and disposal of long term assets and other investments which do not form part of cash and cash equivalents What are financing activities ? Activities that result in changes in size and composition of owners’ capital and borrowed capital.
  12. 12. January 30, 2015 12 AS-3 Cash Flow Reporting When should you report cash flow on net basis ? -Cash acceptance and repayments of deposit with fixed maturity, for example, public deposit - Deposit made and withdrawal thereof ,e.g , if a company place money for a period of one year or less , then only the finance income portion will be reflected in the cash flow statement. - Cash advances and loans made to the customers and repayment of such loans
  13. 13. January 30, 2015 13 AS-3 Cash Flow Reporting Reconciliation Reconcile cash and cash equivalents as appear in the cash flow statement with equivalent item reported in the balance sheet Disclosure Amount of cash flow not available for use.
  14. 14. January 30, 2015 14 AS-4 Contingencies and Events Occurring After the Balance Sheet Date What is a contingency ? Is a demand for income tax contested a contingency? Should it be provided for ? - A condition or situation , the ultimate outcome of which will be known at a future date. This outcome may be gain or loss. - It may be required by law to deposit the tax and contest the demand. Still it is a contingency as it is characterized by a condition that ultimate outcome will be known at a future date. - In case it is likely that the enterprise will suffer loss , i.e. the decision of the appeal is expected to be against the enterprise, the enterprise should create a provision to the maximum amount of expected loss.
  15. 15. January 30, 2015 15 Contingency There is a business risk that demand for the product will decline. Is it a contingency to be provided for? This may lead to impairment of cash flow of the related project and impairment of the value of related assets. There may arise impairment loss. But this is not covered by AS-4
  16. 16. January 30, 2015 16 Contingent Gain A loss making enterprise is analyzing the possibility of getting interest concession from its lenders. This is of course pending as a part of revival package submitted to the BIFR. Should the enterprise recognize possible interest write back as an income ? No. It is contingent gain depending upon the outcome of the BIFR decision. It should not be accounted for.
  17. 17. January 30, 2015 17 When should you provide for contingent loss ? Para 10 of AS-4 : (i) If it is probable that future events will confirm that , after taking into account any probable recovery , any asset has been impaired or liability has been created , and (ii) there is a reasonable estimate of the amount of the resulting loss can be made.
  18. 18. January 30, 2015 18 Provisioning Or Disclosure? Is it sufficient to disclose the existence of the contingency with out creating a provision? Para 11 of AS-4 : If conditions stated in Para 10 of AS-4 are not fulfilled , a disclosure of the existence of contingency is sufficient. Of course, if the possibility of loss is remote , then disclosure is not required.
  19. 19. January 30, 2015 19 Disclosure of contingency When disclosure is necessary as per 11 of AS-4, disclose – (i) Nature of contingency , (ii) uncertainty which may affect future outcome and (iii) estimate of the financial effect or a statement that such estimate cannot be made.
  20. 20. January 30, 2015 20 Events Occurring After the Balance Sheet Date? What is the range for considering Events Occurring After the Balance Sheet Date? Balance sheet date and the date on which the Board of Director approve the annual financial statements. Should there be any materiality test? Yes. Events must be significant either favourable and unfavourable. A company entered into a contract after the balance sheet date for which no condition was prevailing on the balance sheet date. The enterprise suffered loss in this contract. Should the asset and liability of the enterprise be adjusted to recognize this loss? No. Para 13 of AS-4.Disclose in the Director’s Report.
  21. 21. January 30, 2015 21 Events Occurring After the Balance Sheet Date? What would happen if this loss is so significant that going concern status of the enterprise is questionable ? Yes. Para 13 of AS-4. Also cover in the Director’s Report A subsidiary is sold after the balance sheet date for which no indication was available on the balance sheet date. Should the assets and liabilities of the enterprise be adjusted? No. Para 13 of AS-4. Disclose in the Director’s report. Dividend is proposed or declared after the balance sheet ? Should it be recognized ? Yes. Para 14 of AS-4. Disclose in the Director’s Report as well.
  22. 22. January 30, 2015 22 Disclosure of Events Occurring After the Balance Sheet Date When to disclose ? Check : Is there any material change of financial position of the enterprise after the balance sheet date ? Yes. Then disclose as per Para 17 of AS-4 : (i) the nature of the event ; (ii) the financial effect.
  23. 23. January 30, 2015 23 Disclosure of Events Occurring After the Balance Sheet Date How to identify material change ? A significant loss ( say fire or accident not properly insured) affected the financial viability of the enterprise. In a knowledge based business a key person left the organization. Emergence of a new competitor resulting in a serious threat to the business and future cash flow.
  24. 24. January 30, 2015 24 AS-5 :Net Profit or Loss For the Period, Prior Period Items , Changes in Accounting Policies Extraordinary Items Prior Period Items Change in Accounting Policies Change in Accounting Estimates
  25. 25. January 30, 2015 25 Deepak Fertilisers & Petrochemicals Corpn. Ltd. March Extraordinary items include - Payment on account of roll back of interest concessions by Financial Institutions and Banks Rs.277 lacs (Previous Year: Rs. Nil). Provision of Rs.426.05 lacs made towards unrealised insurance claim lodged with overseas underwriters towards DAP imported during 1998, as a prudent measure, in view of the protracted nature of the legal proceedings involved.
  26. 26. January 30, 2015 26 Chennai Petroleum Corpn. Ltd. March Income and expenditure are disclosed as prior period items only when the value exceeds Rs.10,000 in each case.
  27. 27. January 30, 2015 27 AS-6 Depreciation Accounting Depreciable amount Depreciation methods Useful life Estimated residual life Change in depreciation policy Repairs – Revenue or capital expenditure?
  28. 28. January 30, 2015 28 Bharat Heavy Electricals Ltd. March (i) Depreciation on fixed assets (other than those used abroad under contract) is charged on straight- line method as per the rates prescribed in Schedule XIV of the Companies Act, 1956, except where deprecation is charged at rates shown hereunder :- Single Double Triple Shift Shift Shift General Plant & Machinery 8% 12% 16% Automatic/Semi-Automatic Machines 10% 15% 20% Erection Equipment, Tools & Tackles 20% Township Buildings - Second Class 2.5% - Third Class 3.5% Railway Sidings 8% Locomotives & Wagons 8% Electrical Installations 8% Office & Other Equipments 8% Drainage, Sewerage & Water supply 3.34% In respect of additions to/deductions from the fixed assets, depreciation is charged on pro-rata monthly basis.
  29. 29. January 30, 2015 29 AS-7 Accounting For Construction Contracts Percentage of Completion Method Completed Contract Method
  30. 30. January 30, 2015 30 BREAK
  31. 31. January 30, 2015 31 AS-8 : Research and Development Research : Original and planned investigation with the hope of gaining new scientific or technical knowledge and understanding Development : Translation of research findings or other knowledge into a plan or design for the production of new of new or substantially improved materials, devices, products , processes, systems or services prior to the commencement of commercial production
  32. 32. January 30, 2015 32 Research and development costs Salaries , wages and other related costs of personnel engaged in research and development Costs of material and services consumed in research and development Depreciation Amortisation Overhead costs Other costs
  33. 33. January 30, 2015 33 Expensing or deferral Consider five conditions Sated in Para 9 of AS-8 Product or process is clearly defined and costs attributable to products or process can be separately identified. Technical feasibility of products or process is demonstrated Management has the intention to produce and market or use , the product or process Cash flow matching Adequacy of resource
  34. 34. January 30, 2015 34 Expensing or deferral Defer if conditions are fulfilled Expense otherwise
  35. 35. January 30, 2015 35 Corporate Accounting Policies Associated Cement Cos. Ltd. March Research and Development : Revenue expenditure on Research and Development is charged out in the year in which it is incurred. Expenditure which results in creation of assets is included in Fixed Assets and depreciation is provided on such assets as applicable. Kochi Refineries Ltd. March Research and Development Expenditure : All revenue expenditure on research and development are charged to the Profit & Loss Account. Fixed Assets used for research and development are capitalised.
  36. 36. January 30, 2015 36 Corporate Accounting Policies Hindustan Petroleum Corpn. Ltd. March Research and Development : All expenditure other than on capital account, on research and development are charged to Profit and Loss Account. Iccon Oil & Specialities Ltd. March Research and Development Expenditure : Expenditure incurred is written off over period of five years. India Cements Ltd. March Research and Development expenses not resulting in any tangible property/equipment are charged to revenue.
  37. 37. January 30, 2015 37 AS –9 Revenue Recognition Basic revenue recognition criteria Performance : Transfer of property in goods from the seller to the buyer No uncertainty as regards consideration It is not unreasonable to expect ultimate collection
  38. 38. January 30, 2015 38 Revenue recognition of services Completed service contract method Proportionate completion method
  39. 39. January 30, 2015 39 Revenue Recognition Policy Infosys Technologies Ltd. March Revenue recognition : Revenue from software development on time-and-materials contracts is recognized based on software developed and billed to clients as per the terms of specific contracts. On fixed-price contracts, revenue is recognized based on milestones achieved as specified in the contracts on the proportionate-completion method on the basibs of the work completed. Revenue from rendering Annual Technical Services (“ATS") is recognized proportionately over the period in which services are rendered. Revenue from the sale of licenses for the use of software applications is recognized on transfer of the title in the user license.
  40. 40. January 30, 2015 40 Revenue Recognition Policy Bharti Telenet Ltd. March REVENUE RECOGNITION AND RECEIVABLES : Billing revenue from telephony and Internet service, and revenue from sale of goods, is recognised on completion of provision of services and despatch of goods respectively. Provision for doubtful debts is made for dues outstanding more than 90 days in case of active subscribers and dues from customers who have been deactivated, other than those covered by security deposits or in specific cases where management is of the view that the amounts are recoverable.
  41. 41. January 30, 2015 41 Revenue Recognition Policy Indian Oil Corpn. Ltd. March Claims on Oil Coordination Committee/Government arising on account of Administered Pricing Mechanism are booked on acceptance in principle thereof. Such claims and provisions are booked on the basis of available instructions/clarifications subject to final adjustment as per separate audit.
  42. 42. January 30, 2015 42 Revenue Recognition Policy Chambal Fertilisers & Chemicals Ltd. March REVENUE RECOGNITION : i) Fertiliser Division Revenue in respect of sale of products including Retention Price Support receivable from the Government of India under the Retention Price Scheme is recognised on raising of invoices on the basis of release orders duly receipted by the customers or their agents, deliveries of which may, in some cases, be effected at a later date.
  43. 43. January 30, 2015 43 Revenue Recognition Policy Oil & Natural Gas Corpn. Ltd. March As per Accounting Policy {2(iv)}, Producing Properties are created in respect of areas when commercial production commences. Company has not defined `Commercial Production' either with respect of their recoverable hydrocarbon reserves or actual financial / commercial practices. This has resulted in creation of Producing Properties during the years 1995-96 to 2000-01, amounting to Rs. 273.49 millions in respect of areas where production was nil or negligible (below 2000 MT per year). Under the Successful Efforts Method of accounting begin followed by the company, a policy has been framed to create producing area as soon as commercial productions commences therein irrespective of the quantum of production involved. The includes cost of all development wells and successful exploratory wells. As per consistent practice being followed out of company, commercial production is considerable as production is considered as productions which can be sold in the ordinary course of business. Further the company has system of reviewing such properties on regular basis and based on such review, properties, which are not producing for a period of 3 years or more, are being fully depleted.
  44. 44. January 30, 2015 44 Revenue Recognition Policy Indo Count Inds. Ltd. March Revenue Recognition : Export sales are accounted for on the basis of the date of bill of lading/airway bill. Other sales are accounted for ex- factory on despatch. Sales are inclusive of excise duty and net of rebates and discounts. Kandagiri Spinning Mills Ltd. March Sales are recognised on despatch to customers and include excise duty, sales tax, Textile Committee Cess and Textile Export Promotion Council charges recovered and sale proceeds of export entitlement licence.
  45. 45. January 30, 2015 45 Revenue Recognition Policy Global Boards Ltd. March a) During the year 1993, the Company had imported Plant and Machinery of total value Rs. 1065.43 Lakh under Export Promotion Capital Goods Scheme (EPCG) at concessional rate of 15% Customs Duty as against then prevailing rate of 35%, resulting in to a saving of Rs. 213.09 Lakhs in Project Cost. As per the EPCG Scheme the Company was required to fulfil Export obligation equal to 4 times the value of Imports within a period of 5 years. However the Company could not complete Export obligation due to recession in Paper Industry. Therefore during the year the Director General of Foreign Trade (DGFT) has raised demand for the Duty saved with 24% interest per annum as per the EPCG Scheme.
  46. 46. January 30, 2015 46 Revenue Recognition Policy Panacea Biotec Ltd. March Export incentives are accounted on accrual basis and include the estimated value of export receivable under the Duty Entitlement Pass Book Scheme and the Duty Drawback Scheme. Raptakos, Brett & Co. Ltd. March Export Incentives : Benefit on account of entitlement to import duty- free materials under the "Duty Exemption Pass Book Scheme" and duty drawback are accounted as and when admitted.
  47. 47. January 30, 2015 47 Revenue Recognition Policy Carrier Aircon Ltd. March PRODUCT WARRANTY EXPENSES : Warranty costs are determined on the basis of past experience and provided for in the year of sale. Honda Siel Power Products Ltd. March Warranty costs : Warranty costs are provided on accrual basis on the total sales made during the year, based on past experience of claims. Indo Matsushita Appliances Co. Ltd. March Product Warranty : The company has warranty obligations on the products manufactured and sold by it. Provision for warranty is made based on past experience. Kirloskar Systems Ltd. March Provision is made for product warranty claims on the basis of Management estimates.
  48. 48. January 30, 2015 48 AS-10 :Accounting For Fixed Assets Distinction between tangible and intangible asset Carrying amount Exchange Fluctuation loss Borrowing costs
  49. 49. January 30, 2015 49 Accounting For Fixed Assets Capital Work In Progress to Capitalization Improvement and repairs Retirement and disposal Revaluation
  50. 50. January 30, 2015 50 Accounting Policy Malanpur Steel Ltd. Sept 2000 Interest on the funds borrowed and allocated to capital projects along with other related expenses, payments to contractors etc. from time to time is capitalised as per the allocation made in this regard by the Management. Capital Work-in-Progress includes machinery in transit, machinery to be installed, advance for construction and erection materials, machinery, consultation fee and project pre- operative expenses pending allocation
  51. 51. January 30, 2015 51 Accounting Policy Hindustan Motors Ltd. March (a) Fixed Assets are stated at cost of acquisition inclusive of duties (net of modvat/cenvat), taxes, incidental expenses, erection/ commissioning expenses, technical know-how fees and interest etc. up to the date the asset is put to use. In case of revaluation of fixed assets the original cost as written up by the valuer, is considered in the accounts and the differential amount is transferred to capital reserve. (b) Machinery spares which can be used only in connection with an item of fixed assets and whose use as per technical assessment is expected to be irregular, are capitalised and depreciated over the residual useful life of the respective assets.
  52. 52. January 30, 2015 52 Accounting Policy Tata Engineering & Locomotive Co. Ltd. March Fixed Assets are stated at cost of acquisition or construction less depreciation. All costs relating to the acquisition and installation of fixed assets are capitalised and include financing costs relating to borrowed funds attributable to construction or acquisition of fixed assets, up to the date the asset is put to use, net of charges on foreign exchange contracts and adjustments arising from exchange rate variations relating to specific borrowings, attributable to those fixed assets.
  53. 53. January 30, 2015 53 Accounting Policy Mahindra & Mahindra Ltd. March (a) (i) All Fixed Assets are carried at cost less depreciation except as stated in (ii) below. Cost includes financing cost relating to borrowed funds attributable to the construction or acquisition of fixed assets upto the date the asset is ready for use. In case of borrowed funds and liabilities in foreign currencies for the acquisition of fixed assets, the exchange differences are adjusted to the cost of such asset. When an asset is scrapped or otherwise disposed off, the cost and related depreciation are removed from the books of account and resultant profit (including capital profit) or loss, if any, is reflected in the Profit and Loss Account. ii) Land and Buildings, had been revalued as at 31st October, 1984 at depreciation replacement values on the basis of a valuation made by a firm of Chartered Surveyors & Valuers The indices, if any, used are not stated in the valuation.
  54. 54. January 30, 2015 54 Accounting Policy Vidula Chemicals & Mfg. Inds. Ltd. March (a) The Assets mentioned below were revalued as on 31st March, 1997 by an approved valuer at Current replacement value resulting in increase by - Land Rs. 77,78,994/-, Building Rs. 37,05,264/-, Plant & Machinery Rs. 1,86,93,595/- and Electrical Installation Rs 7,40,421/-. The resultant increase of Rs. 3,09,18,274/- has been transferred to Revaluation Reserve. (b) Depreciation on Fixed Assets items covered by re-evaluation referred to in 3(a) above is calculated on their respective revalued amounts at rates considered applicable by the valuers on straight line method as against the methods/rates/bases which would have otherwise adopted for the purpose of the annual accounts of the company and accordingly includes additional depreciation charge An amount equivalent to the aforesaid additional depreciation charge is transferred to the credit of Profit & Loss Account from Capital Reserve Revaluation of Fixed Assets, such transfer, according to an authoritative professional view being acceptable for the purpose of the Company's annual accounts.
  55. 55. January 30, 2015 55 AS –11 Accounting For the Effects of Changes in Foreign Exchange Rates Monetary and Non – monetary Items Initial Recognition Valuation at the balance sheet date Forward exchange contract
  56. 56. January 30, 2015 56 Accounting Policy Grasim Industries Ltd. March Foreign currency assets and liabilities covered by forward contracts are stated at the forward contract rates while those not covered are restated at year end rate. Exchange differences relating to fixed assets are adjusted in the cost of the asset. Any other exchange difference is dealt with in the profit and loss account. Premium in respect of forward contracts is recognised over the life of contracts. Transactions relating to overseas offices have been converted as under: i) Net revenues at the average rate for the year. ii) Fixed assets at rates prevailing on the dates of addition. Depreciation is accounted for at the same rate at which assets are converted. iii) Other current assets and liabilities, at rates prevailing at the end of the year.
  57. 57. January 30, 2015 57 Accounting Policy Reliance Industries Ltd. March a. Transactions denominated in foreign currencies are normally recorded at the exchange rate prevailing at the time of the transaction. b. Monetary items denominated in foreign currencies at the year end and not covered by forward exchange contracts are translated at year end rates and those covered by forward exchange contracts are translated at the rate ruling on the date of transaction as increased or decreased by the proportionate difference between the forward rate and exchange rate on the date of transaction, such difference having been recognised over the life of the contract. c. Non monetary foreign currency items are carried at cost. d. Branch income and expenses are translated at average rate. Branch monetary assets and liabilities are translated at year-end rates. Non monetary items are translated at the rates on the date of transaction. e. Any income or expense on account of exchange difference either on settlement or on translation is recognised in the profit and loss account except in cases where they relate to acquisition of fixed assets in which case they are adjusted to the carrying cost of such assets.
  58. 58. January 30, 2015 58 AS-12 : Accounting For Government Grants Capital approach vs. Income Approach Revenue grants Grants related to specific fixed assets Grants in the nature of promoter’s contribution
  59. 59. January 30, 2015 59 When to follow Capital Approach Is the Government Grant in the nature of Promoters’ Contribution ? Is it linked to any particular asset creation ? Is it in the nature of capital subsidy ? If yes , then follow capital approach. The grant should be treated as subsidy reserve or any other similar reserve.
  60. 60. January 30, 2015 60 How to apportion subsidy reserve? If a government grant is linked to any tangible or intangible asset , then how to apportion the amount of subsidy reserve ? This should be apportioned in the ratio of depreciation charge of the asset or any other systematic basis. The basic principle is that grant should be linked to life of the related asset in a systematic manner.
  61. 61. January 30, 2015 61 Government Grants Net approach Gross approach
  62. 62. January 30, 2015 62 How to recognise revenue grant if the grant is of revenue nature like raw material subsidy , cost subsidy, export incentive , etc. income approach should be followed. By this grant should apportioned over the periods in which an enterprise recognizes expenses related to the grant.
  63. 63. January 30, 2015 63 Accounting policy C M C Ltd. March Grants-in-aid : (I) Grants-in-aid received for capital expenditure incurred, are included in “Capital Reserve”. (ii) Grants received in kind are recognized at notional value and the corresponding amount is credited to “Capital Reserve”. (iii) Grants-in-aid received for revenue expenditure is recognized at rates agreed with the grantor and included in other revenue. Corresponding expenditure is included under revenue expenditure. Unutilised grants are shown under other liabilities. (iv) Sharing of revenues from sale of technologies developed with grants received from Government of India are accounted in the year of sale of such technologies and finalisation of such sharing arrangements
  64. 64. January 30, 2015 64 AS –13 Accounting For Investments Investments in subsidiary Investments in Associates Investments in Joint Venture Other Investments
  65. 65. January 30, 2015 65 Investment Classification Current Investments : - Investments which are readily realizable and - Intended to be sold within a period of one year. Not necessarily the quoted investments are only readily realizable investments. Investments in unquoted securities can also classified as current if there is evidence that they are readily realizable.
  66. 66. January 30, 2015 66 Long term investments Investments other than current investments
  67. 67. January 30, 2015 67 Cost of investments If acquired in cash :Purchase price, brokerage , duties , etc. If acquired by issue securities :- -At fair value of securities issued and related other expenses - Fair value securities need not be its nominal value If acquired by exchange of another asset :- -At fair value of asset exchanged and related other expenses; or - At fair value of asset exchanged which is more evident.
  68. 68. January 30, 2015 68 Carrying Amount Para 31 : Current investments - Present in financial statements at lower of the cost or fair value; - Cost and fair value should be determined on individual investment basis or by category of investments; - These should not be valued on overall basis.
  69. 69. January 30, 2015 69 Carrying Amount Para 32 : Long term Investments - At cost - Provision for diminution in value of investments should be recognized which are other than temporary. - Diminution should be computed on individual investment basis .
  70. 70. January 30, 2015 70 Accounting Policy Monica Electronics Ltd. March INVESTMENTS : Investments are stated at cost. Bharat Bijlee Ltd. March Investments : Investments are carried at cost of acquisition. Birla Yamaha Ltd. March Investments : Investments (Long Term) are stated at cost. Carbon Everflow Ltd. March INVESTMENTS : Investments are stated at cost. Income from investments are accounted for when received. Carrier Aircon Ltd. March INVESTMENTS : Long Term Investments are stated at cost.
  71. 71. January 30, 2015 71 Accounting Policy Eveready Industries (India) Ltd. March Investments : Investments have been classified as Long Term and Current Investments in accordance with the Accounting Standard 13 issued by the Institute of Chartered Accountants of India. Long Term Investments are stated at cost or below. Current Investments are valued at lower of cost and fair value. Reclassification of investments from Long Term to Current is made by the Management at the lower of cost and carrying amount on the date of transfer. Gains/losses on disposal of investments are recognised as income/expenditure. Dividends are accounted for when received.
  72. 72. January 30, 2015 72 Accounting Policy Ballarpur Industries Ltd. June 2000 (a) Investments made by the Company in various securities are primarily meant to be held over long term period. (b) (i) Holding of certain Investments are of Strategic importance to the Company and therefore, the Company does not consider it necessary to provide for decrease in the Book Value of such Investments, till continuation of the relationship of Strategic Importance with the Investee Company, say that of a Subsidiary, Associate, Company under the same management, Foreign Joint Ventures and/or Company associated with Thapar Group. (ii) However, appropriate provisions are made to recognise decrease in the Book Value of Investments in companies of Strategic importance also, as and. when the Investee Company is either wound up or goes into liquidation or where the operations cease or are taken over by Receiver by Operation of Law. (c) Investments in Government Securities are shown at cost and Investments, other than that of Strategic Importance to the Company are shown in the books at lower of the cost or fair market value. (d) As a conservative and prudent policy, the Company does not provide for increase in the Book Value of individual investments held by it on the date of Balance Sheet.
  73. 73. January 30, 2015 73 AS-15 : Accounting For Retirement Benefits in the Financial Statements of Employees Defined Contribution schemes Amounts to be paid as contribution is known . Contribution may a fixed amount or a fixed percentage of salary . Example : Contribution to provident fund , gratuity fund , superannuation fund , pension fund , etc. Defined Benefit schemes Benefit is defined and charge on the enterprise is not defined. Gratuity to be paid on retirement based on last salary to be drawn. Pension to be paid with reference to last salary to be drawn during the retired life of the employee.
  74. 74. January 30, 2015 74 Accounting Treatment for Charge on account of Defined Contribution Schemes Contribution payable during the current year Any shortfall / excess in contribution for any previous year is prior period item as it relates to past service cost. Amount paid for the current year is less than contribution payable during the year : create provision for outstanding contribution. Amount paid for the current year is more than contribution payable during the year : Charge only current year’s contribution and excess is shown as prepayments.
  75. 75. January 30, 2015 75 Accounting treatment for defined benefit schemes If the enterprise decided to create its own managed funds: - Decide the accrued liability on the basis actuarial valuation. - Debit appropriate charge so determined in the Profit and Loss Account - Gratuity Fund will appear in the balance sheet under the head reserves and surplus but clearly distinguishing from free reserves. - Investments made outside the business against such fund should separately disclosed under the head Investments. A small enterprise which employs only few employees may ascertain the accruing liability under defined benefit schemes applying any suitable method. Actuarial method may not used.
  76. 76. January 30, 2015 76 Accounting treatment for defined benefit schemes If the employer creates a trust: -Decide the accrued liability on the basis actuarial valuation. Such actuarial assessment should be carried at least once in every three years. - Where actuarial valuation is not conducted annually , the actuary’s report should specify annual contribution to be made by the employer during the inter – valuation period. - Debit appropriate charge so determined in the Profit and Loss Account. - Any shortfall in contribution should be provided for and any excess contribution should be treated as prepayments
  77. 77. January 30, 2015 77 Accounting treatment for defined benefit schemes If the contribution to defined benefit scheme is funded through scheme administered by an insurer: - Obtain an actuarial certificate or confirmation from the insurer about the appropriate contribution to the scheme which reflects the liability of the current year. - Any shortfall in contribution should be provided for and any excess contribution should be treated as prepayments
  78. 78. January 30, 2015 78 Accounting Policy Calcutta Chemical Co. Ltd. March (a) Contributions towards retirement benefits (excluding gratuity and employees pension scheme) are made on a monthly basis to the Trustees of the respective funds. Contribution to gratuity fund is made annually on the basis of actuarial valuation and contribution to employees pension scheme is made to the Government authorities. All funds are administered by independent Board of Trustees. (b) Leave encashment liability towards employees is accounted for on accrual basis. Detergents India Ltd. Mar a) The company has an arrangement with M/s Life Insurance Corporation of India to administer its Superannuation and Gratuity schemes. The premium paid / payable are accounted on accrual basis. Provision for leave encashment has been made on accrual basis. b) Voluntary Retirement payment made during the year has been treated as Deferred Revenue expenditure and the amount is amortised over a period of 10 years.
  79. 79. January 30, 2015 79 Accounting Policy Vashisti Detergents Ltd. March Retirement Benefits (i) The Company has taken a Group Gratuity Policy with the Life Insurance Corporation of India (LIC), for its permanent employees and liability has been accrued based on LIC's actuarial valuation. (ii) Provision for Leave Encashment has been made on the basis of actual calculation as per Company policy.
  80. 80. January 30, 2015 80 THANK YOU