Accounting standard 10, 20 and 26

1. Accounting
Standards
Presented by
-Nirooj Fidin
-Priha Jha
-Amrita Kumari

2. Importance of AS
O Smooth operations.
O Protect investors
O Promotes transparency
O Assess business performance

3. Accounting Standard 10
O 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.

4. Terminology
O 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.

5. Identification of fixed assets
O 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.

6. Components of cost
O 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

7. Non-monetary consideration
O 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.

8. Improvement and repairs
O 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.

9. Amount substituted for
historical costs
O 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.

10. Retirement and Disposal
O 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.

11. Special Assets and Cases
O Goodwill
O Jointly owned fixed assets
O Fixed Assets on hire
Disclosure
O 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.

12. Accounting Standard 20
Earnings per share

13. Objective
O 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.

14. Applicability
O 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

15. 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 shares
Potential 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

16. 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).

17. Measurement
Basic EPS = Net profit or loss for the period
attributable to equity
shareholders(A)/Weighted average no of
equity share outstanding (B).
(A) = Net profit or loss for the period after
deducting preference dividend & tax.
(B) = Number of equity shares outstanding at the
beginning of the period, adjusted by the
shares bought back or issued during the
period multiplied by the time weighting
factor.
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.

18. Measurement
Diluted EPS = Diluted net profit or loss for
the period attributable to equity
shareholders(C) /the
weighted average no of equity
shares including
shares issued on
conversion of all the dilutive
potential equity shares outstanding
during the period (D).

19. Measurement of Diluted EPS
(C)= Net profit or loss attributable to equity
shares 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.

20. 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 issued
during 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.

21. ASI 12
Every company, required to give information under
part IV of schedule VI to the Companies Act, 1956 to
calculate and disclose EPS in accordance with AS
20, even if otherwise not applicable to it.

22. Accounting Standard 26
(accounting for Intangible Assets)

23. Introduction
O 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.

24. Definition
Definition of Intangible Assets
Intangible assets is:
O Identifiable non monetary assets
O Without physical substance
O Held for use in production or supply of goods or
services
O 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

25. Objective
O 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.

26. Scope
This Statement should be applied by all enterprises
in accounting for intangible assets, except:
- Intangible assets that are covered by another
Accounting Standard
- Financial assets; mineral rights and expenditure
on the exploration for, or development and
extraction of, minerals, oil, natural gas and similar
non-regenerative resources; and intangible assets
arising in insurance enterprises from contracts with
policyholders.

27. Conditions for Recognition
O 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.

28. Cost of Intangible Assets
O Recognize if, and only if, Probability of flow of future economic
benefits
Cost can be reliably measured
O Intangible Assets should be recognized only at cost.
O Separate acquisition : Recognize at cost of acquisition
O 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.

29. Internally Generated Intangible Assets
Others
• 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.

30.  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.

31. Disclosure Requirement
O 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.

32. 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.

33. Thank You
That’s all folks.