Accounting standards are written policy documents issued by expert accounting bodies that provide guidance on recognition, measurement, treatment, presentation and disclosure of accounting transactions in financial statements. They apply to both corporate and non-corporate entities depending on their size. Key standards include those related to cash flow statements, inventories, revenue recognition, property plant and equipment, foreign exchange rates, and government grants. Disclosures are required regarding accounting policies, changes in estimates, extraordinary and prior period items.

1. By
-ANMOL JAIN
-MAYANK KARWA
-PIYUSH RAKECHA

2. Accounting Standards
Accounting Standards are written policy documents issued by expert
accounting body or by the government or other regulatory body covering the aspects
of recognition, measurement, treatment, presentation, and disclosure of accounting
transactions in financial statements.
Applicability of
AS
Corporate
Entity
All AS are
compulsory
Non-
Corporate
Entity
Level I
Enterprises
1. Listed
2. Bank, Financial Institution,
Insurance Co.
3.Turnover > 50 crore
4. Borrowing >10 crores.
Level II
Enterprises
1. 1 crore< Turnover<
50 crore.
2. 1 crore<
Borrowing< 10 crore.
Level III
Enterprises
Other non
corporate
entity

3. Applicability of Accounting Standards

5.  Note 1- Cash Flow Statement is required to be included as a
part of financial statements of a company except in case of
One Person Company, small company and dormant company.
 Note 2:- AS 21, AS 23 and AS 27 (to the extent these
standards relate to preparation of consolidated financial
statements) are required to be complied with by a non-
corporate entity if the non- corporate entity, pursuant to the
requirements of a statute/regulator or voluntarily, prepares
and presents Consolidated Financial Statements.

6. AS 1 : Disclosure of Accounting Policies
Disclosure:
 Accounting policies and method used for preparation of financial statements.
 Whether these accounting policies are in accordance with GAAP and other
accounting standards.
 Any change in an accounting policy which has a material effect should be
disclosed. The amount by which any item in the financial statements is
affected by such change should also be disclosed to the extent ascertainable.
Where such amount is not ascertainable, wholly or in part, the fact should
be indicated
 If the fundamental accounting assumptions (Going Concern, Consistency
and Accrual) are followed in financial statements, specific disclosure is not
required. If a fundamental accounting assumption is not followed, the fact
should be disclosed.
 Auditors can check the signs that indicates that going concern concept is
affected such as:
 Delay in repayment of monthly loan instalment
 Continual Losses
Note: due to covid-19, going concern concept may be affected so, if not
followed then proper disclosure is required.

7. AS 2: Valuation of Inventories
 Inventories as assets held:
 for sale in the ordinary course of business [Finished Goods] or
 in the process of production for such sale [WIP] or
 for consumption in the production of goods or services [Raw Materials]
Inventories
Raw Materials
At Cost (if finished goods
are sold at or above cost)
otherwise, at replacement
cost
Finished Goods
and WIP
Lower of
following
Cost
Cost of
Purchase
1. Purchase price
2. Duties & Taxes (GST)
3. Freight Inwards and
other expenditure
Conversion
Cost
1. Fixed overheads
2. Variable
production
overheads
Other
Cost
Cost of bringing
materials to
present
location
Net Realisable
Value
Estimated Selling
Price
(-)Selling Expense
(–) Estimated cost
of Completion

8. Exclusions:
Abnormal wastage
Storage costs (unless necessary in the production process prior to a
further production stage)
Selling and Distribution costs
Administrative overheads that do not contribute to bringing the
inventories to their present location and condition
Auditor should check whether valuation done at cost or NRV and while
valuation of inventory, only eligible cost are included so as to ensure that no
over reporting of stock to inflate the profits.
Disclosure:
If valuation at Cost ,Method of valuation of inventories:
FIFO Method(First in- First Out)
WAC Method (Weighted average cost)
Specific identification cost
Classification of Inventory in financial statements:
Raw material,
finished goods,
WIP,
Store spares
Note: Due to covid-19, inventories may have been written down on NRV, so
assessment regarding valuation of inventories are to be taken care off.

9. Impact of Covid-19:
Q1. Whether the fixed overheads incurred during lockdown can be
included in the inventory valuation?
Q2. Whether any downfall in inventory prices post-balance sheet
date needs to be considered for determination of Net Realizable
Value (NRV) for the purpose of inventory valuation?

10. AS 3: Cash Flow Statements
 This Accounting Standard is not mandatory for Small and Medium Sized
Companies and non-corporate entities falling in Level II and Level III
enterprises.
Disclosure:
 Method used for preparing cash flow statements.
 the indirect method, whereby net profit or loss is adjusted for the
effects of transactions of a non-cash nature, any deferrals or accruals
of past or future operating cash receipts or payments, and items of
income or expense associated with investing or financing cash flows.
 the direct method, whereby major classes of gross cash receipts and
gross cash payments are disclosed
 As per entity’s nature of business, basis of segregation of activities
into-
 operating,
 investing and
 financing activities.
(NOT MANDATORY FOR SME ,LEVEL-II AND LEVEL-III )

11. AS 4 Contingencies and Events Occurring After
the Balance Sheet Date
Contingencies are situations or conditions, the eventual outcome of which, profit
or loss, would be determined or known only on happening, or non- happening, of an
uncertain future event(s).
Q. What are the events occurring after the date of balance sheet?
 Events occurring after the balance sheet date are those noteworthy events,
favourable as well as unfavourable, which occurs between balance sheet date
and date on which such financial statements are considered and approved by
the BOD (Board of Directors) in case of companies, and, by equivalent
approving authorities in case of other entities.
Events
occurring after
the B/S date
Condition exist on B/S date and
additionally Information that
substantially affect the asset &
liabilities
Provision for such affect
is required in FS
Adjusting Events
Condition does not exist on
B/S date
No effect
Non- Adjusting
Events

12.  A Contingent gain should not be recognized in the financial statements as
their recognition could result in recognition of revenue that might never be
realized. When the realization of gain is certain and not contingent
anymore, the gain can be accounted in the books of accounts.
 Adjusting events needs to be incorporated in financial statements while no
disclosures are to be given in financial statements.
 Pursuant to AS 29, Provisions, Contingent Liabilities and Contingent
Assets, becoming mandatory, all paragraphs of AS 4 that deal with
contingencies stand withdrawn
Disclosure:
 Nature of event & impact on financial statements or statement that
impact of future financial effect cannot be measured .
 Contingent losses if any provided.
Note: Due to covid-19, there may be many adjusting events which are to be
disclosed in financial statements. Also going concern concept may enter
which could be adjusting events. But, proper assessment of going concern
concept assumption is a challenging task for management and auditor as
well.

13. EXAMPLES:
1.Provision for Doubtful Debts:
 Condition existed on balance sheet date (Creation of debtors
@ 5%, but after b/s date, entity came to know about insolvency
of one of the debtors) and this information affects debtors
balance. Hence, provision is required.
2.Loss of fixed assets due to fire:
Condition does not exist on B/S date and if loss occur after
b/s date then only disclosure is required.
3.Proposed dividend
Though no condition exist on B/S date but as per statute,
disclosure is required in NTA. No effect or provision is required.
4.Going Concern
In case of Bankruptcy or Ex- senior fraud, proper disclosure is
required.

14. AS 5: Net Profit or Loss for the Period, Prior
Period Items and Changes in Accounting Policies
Disclosures:
 Statement of profit or loss should be presented as profit or loss
from:
 Ordinary activities,
 Extraordinary items(i.e. earthquake, tsunami, loss by fire) and
 Prior period items in the statement of profit and loss, in
accounting for changes in accounting estimates, and in
disclosure of changes in accounting policies.
 Any change in an accounting policy which has a material effect
should be disclosed separately. The impact of, and the adjustments
resulting from, such change, if material, should be shown in the
financial statements of the period in which such change is made, to
reflect the effect of such change.
 If changes in accounting policies have material effect on ordinary
activities then, it should be disclosed in ordinary activities otherwise in
extraordinary activities.

15. EXCEPTIONAL ITEMS
 When items of income and expense within profit or loss from
ordinary activities are of such size, nature or incidence that
their disclosure is relevant to explain the performance of the
enterprise for the period, the nature and amount of such
items should be disclosed separately.
EXAMPLES:
 Write down of assets to NRV.
 Profit or Loss on sale of fixed assets.
Impact of Covid-19:
Q1. Whether the costs incurred during lock-down period can be
presented as exceptional item?
 The circumstances wherein plants are under lock-down and
companies are incurring their regular costs and are also
making payments for contract labour without any
production, companies may present costs, including fixed
and recurring costs, as exceptional.

16. AS 7: Construction Contracts
Contract costs
Direct Cost of
Contract
1. site labour costs
2. costs of
materials
General cost
allocated to cost
1. insurance
2. costs of design
3. technical
assistance
Other cost chargeable
to customer
1. general administration
costs
2. development costs for
which reimbursement is
specified
Contract revenue should comprise:
the initial amount of revenue agreed in the contract; and
variations in contract work, claims and incentive payments

17. Contract revenue should be recognized on basis of completion.
Stage of completion should be measured by following methods:
Report by surveyor & other experts.
Proportionate cost method, etc.
Disclosures:
the methods used to determine the contract revenue recognized
in the period; and
the methods used to determine the stage of completion of
contracts in progress.
the amount of advances received from customers; and
the amount of retentions by customers.

18. AS 9: Revenue Recognition
Recognition of revenue arising from
THE SALE OF GOODS
When
significant risks
and rewards of
ownership are
transferred to
the buyer
Disclosures:
Sales & purchases are
recorded on gross or
net basis.
THE RENDERING OF
SERVICES
Proportionate
completion method-
when revenue is
recognized as per
percentage of
completion of service
Disclosures:
Method of
recognizing
revenue.
Completed service
contract method-
revenue is
recognized when
complete services
are rendered
RESOURCES USED FOR
YIELDING INTEREST,
ROYALTIES AND DIVIDENDS
Interest:-
Charges for the
use of cash
resources or
amounts due to
the enterprise
Revenue is
recognized on
time basis
Royalties:-
charges for the
use of such
assets as know-
how, patents,
trademarks and
copyrights.
Revenue is
recognized on
accrual basis
Dividends:-
rewards from
the holding of
investments in
shares.
Revenue is
recognized
when owner
has the right to
receive dividend
usually on cash
basis

19.  At the time of making sales, if there is uncertainty regarding
collection of revenue then. Revenue recognizition has to be
postponed and to be considered as revenue of the period in
which it is properly recognised.
 However, there is rare chances of happening of this event as a
rational businessman will not sell the goods when there is
uncertainty of collection of revenue from customer.
Notes:
 However if uncertainty arises at time after making sales then
revenue should be recognized & treatment of uncertainty
should be made under AS-29 “Provisions, Contingent
Liabilities and Contingent Assets”
 Due to covid-19, uncertainty may arises at time of making
sales regarding collection of payment then revenue
recognized should be postponed till time when certainty
arises.

20. AS 10: Property, Plant and Equipment
Fixed Assets
At initial measurement
measured at cost
Subsequent period
[choose either]
Cost model
Value of assets= cost
of asset (-) any
accumulated
depreciation (-) any
impairment losses
Revaluation model
Revalue assets= Fair value at
date of revaluation (-) any
subsequent depri (-) any
subsequent impairment
losses

22. Examples of Directly Attributable Costs:
 Costs of employee benefits arising directly from the construction
or acquisition of the item of PPE
 Costs of site preparation
 Initial delivery and handling costs
 Installation and assembly costs
 Professional fees
 Costs of testing whether the asset is functioning properly , after
deducting the net proceeds from selling any items produced
while bringing the asset to that location and condition (such as
samples produced when testing equipment)
Exclusions:
Administration and other general overhead costs
Costs of opening a new facility or business, such as, inauguration
costs
Costs of introducing a new product or service (including costs of
advertising and promotional activities)
Costs of conducting business in a new location or with a new
class of customer (including costs of staff training)

23.  Depreciation on fixed assets is to be allocated on methodical basis
over useful life of assets. Residual value & useful life of assets
must be reviewed at end of each financial year & in case, there is
any changes then difference arising due to such differences should
be accounted as per AS-5 i.e. change in accounting estimates.
Disclosures:
 Method of valuation of fixed assets [cost model or revaluation
model]. The method that is usually followed by entity is cost
model.
 the depreciation methods and the depreciation rates used
 a reconciliation of the carrying amount at the beginning and end of
the period showing:
 additions;
 assets retired from active use and held for disposal;
 acquisitions through business combinations;
Note: Due to covid-19, there may be change in residual value and
useful life of assets then, proper treatment of differences arises is
to be given as per AS-5

24. AS 11: The Effects of Changes in Foreign
Exchange Rates
Foreignexchangetransactions
at initial recognition
at exchange rate on date
of the transaction.
on subsequent balance sheet
date
monetary items
Transactionsare
recorded at closing
exchange rate
[Average rate can also
be used]
non- monetary
items
transactionsare
recorded at
exchange rate on
date oftransaction

25.  Exchange differences arising on the settlement of monetary items or on
reporting an enterprise’s monetary items at rates different from those
at which they were initially recorded during the period, or reported in
previous financial statements, should be recognised as income or as
expenses in profit & loss account
Disclosures:
 the amount of exchange differences included in the net profit or loss
for the period; and
 When there is a change in the classification of a significant foreign
operation, an enterprise should disclose:
 the nature of the change in classification;
 the reason for the change;
 In case of monetary items, Closing rate and average rate at which
transactions are recorded and in non monetary terms ,the exchange
rate on the date of transaction.
 Exchange rate to be taken from site fbil.org

26. AS 12 – Accounting for Government Grants
Refund of
Government
Grants
Capital
Grants
Added to deferred
income or reserve
& surplus
Refund amount
should be added to
the block of assets
Revenue
Grants
Refund amount should be
subtracted from deferred
reserve if, created
Government
Grants
Capital
Grants
Defer & on
systematic basis in
P&L
Reduce from
Block of assets
Revenue
Grants
Amount of Grants is to
be defer separately in
P&L

27. Recognition of Gov. grant
If conditions are satisfied-
1.Reasonable assurance that conditions will fully complied if exist
2.Benefits have been earned and its ultimate collection will be made
Note:
Government grants that are receivable should be recognized and
disclosed in the Statement of Profit and Loss of the period in which they
are receivable, as an extraordinary item if appropriate as per AS 5.
Disclosure:
 The accounting policy adopted for government grants, including the
methods of presentation in the financial statements;
 The nature and extent of government grants recognised in the
financial statements, including grants of non-monetary assets given at
a concessional rate or free of cost.
 Auditors should ensure that grants received are used for that purpose
only.
Impact of Covid-19:
Q1. If an entity opts for the loan moratorium, is it a government grant?

28. AS 13: Accounting for Investments
Investments
Long term
Investments
Valued at Cost Provision of diminution
shall be made to recognise,
when it is permanent
Current
Investments
Valued at cost or fair
value [whichever is lower]
Any income (interest, dividend, royalty,etc.) arising out of such
investments should be credited to P&L account on accrual basis.

29. Disclosures:
 Classification of investments.
 Income arising of such investments.
 Profit or loss on sale of any such investments
Auditors responsibility:
 Valuation of Investments.
 Whether classification of investments is as per companies
act,2013?
 If there is any reduction in value of investment due to any
extra ordinary event, then provision has been made for
same or not?

30. AS -14 AMALGAMATION
APPLICABILITY (to all)
Transferee Co.
 Where acquired company is dissolved and separate entity ceased to exist.
Conditions:
• All the assets and liabilities of the transferor company become, after
amalgamation, the assets and liabilities of the transferee company.
• Shareholders holding not less than 90% of face value of equity shares of the
transferor company become equity shareholders of the transferee company.
• Consideration to equity shareholders of the transferor company is discharged by
the transferee company wholly by the issue of equity shares, except that cash
may be paid in respect of any fractional shares.
• Intention of the transferee company is to continue the business of the
transferor company.
• Transferred assets and liabilities are recorded in the books of the transferee
company at book values of the transferor company except to ensure uniform
accounting policies

31. Do you know:
Goodwill arises due to amalgamation should be amortize in period not
exceeding 5 years though AS26 say for 10 years.
DISCLOSURES
Names and general nature of business of the amalgamating companies.
 Effective date of amalgamation for accounting purposes.
 Method of accounting used to reflect the amalgamation.
 Particulars of the scheme sanctioned under a statute.
Amount of any difference between the consideration and the value of net
identifiable assets acquired, and the treatment thereof.
Additional Disclosures
Pooling Of Interests Method
Description and number of shares
issued, together with the percentage of
each company’s equity shares
exchanged to effect the amalgamation;
Purchase method
1. Consideration for the amalgamation and
a description of the consideration paid or
contingently payable.
2. The period of amortization of any
goodwill arising on amalgamation.

32. AS -15 EMPLOYEE BENEFITS
DISCLOSURES:
 Short term employees benefits like salary ,paid leave, bonus ,non-monetary
benefits, etc falling due within 12 months are recognized as an expense at
undiscounted amount in profit and loss account for the year in which the
related service is rendered.
 Other employee benefits Gratuity liability is accounted as and when paid.
 Other employee benefits as measured on undiscounted basis recorded pon
accrual basis
Treatment in case of Post employee benefits
1. defined contribution plan (e.g.PF, ESIC) –Accrual Basis
2.defined benefit plan (e.g. gratuity ,leave encashment)
[make calculations :As per Actuarial Estimates]
(Further at time Of changes in such estimates ,do accounting for
remeasurement gain/loss and actuarial gain /loss in period it relates via
profit n loss Account)
Auditors Responsibility:
 Whether provisions for gratuity/super-annuation fund/provident fund are
made or not?
 Accounting for short term /post employee benefits are properly accounted or
not?

33. AS-16 BORROWING COST
Borrowing Cost Includes:
 Interest and commitment charges on borrowings.
 Amortization of discounts or premiums relating to borrowings.
 Amortization of ancillary costs incurred in connection with the
arrangement of borrowings
 Exchange difference arising from borrowings to the extent it amounts
to interest costs.
Commencement of capitalization only if all three
conditions are satisfied:
 Expenditure for the acquisition of a qualifying asset is being incurred.
 Borrowing costs are being incurred
 Activities that are necessary to prepare the asset for its intended use
or sale are in progress.
(Capitalization of borrowing costs should be suspended during
extended periods in which active development is interrupted)

34. DISCLOSURES
 Borrowing Costs in ordinary course of business are recognized as an
expense in the period in which these are incurred.
 Borrowing costs that are attributable to the manufacture, acquisition
or construction of qualifying assets, are included as part of the cost of
such assets up to the date the assets are ready for their intended use.
A qualifying asset is one that necessarily takes more than twelve
months to get ready for intended use or sale.
(As per AS – 16, if any interest cost is not capitalized during the period
then no disclosure will be required)
Auditors Responsibility
 Check whether the company is planning to have some capital project
or not?
 Is a project satisfied the conditions of being an qualifying asset?
 Is it project will going to take more than 12 months or not?
Q1. Whether interest capitalization on capital work in process (CWIP) need
to be suspended during the period, when active development of a
qualifying asset has been suspended due to lockdown?

35. AS-18 RELATED PARTIES
In relation to an individual, means the spouse, son, daughter, brother,
sister, father and mother.
Related in other cases if ability to control or exercise significant
influence:
 ownership, directly or indirectly, of more than one half of the voting power of
an enterprise, or (a) Enterprises that directly, or indirectly through one or
more intermediaries, control, or are controlled by, or are under common
control with, the reporting enterprise
Hence, all companies are related party.
A ltd. (Holding
Co.)
B ltd.
(Subsidiary
Co.)
P ltd.
(Subsidiary of
B Ltd.)
Q ltd.
(Subsidiary of
B ltd.)
C ltd.
(Subsidiary Co.)
R ltd.
(Subsidiary Of
C ltd.)
S ltd.
(Subsidiary
Of C ltd.)

36.  Associates and joint ventures of the reporting enterprise and the investing
party or venturer in respect of which the reporting enterprise is an associate or
a joint venture
A ltd.
(Holding Co.)
B ltd.
(Subsidiary
Co.)
Q ltd.
(Associate of B
ltd.)
C ltd.
(Subsidiary
Co.)
S ltd.
(Associate of C
ltd.)
A ltd.
X ltd. (Joint
Venture)
Y ltd.
(Associate)
X ltd. (Investor)
A ltd.
(Associate of X ltd.)
Significant
Influence
A ltd.
(Reporting
entity)
X ltd.
(Joint
Venturer)
Y ltd.
(Joint
Venturer)

37. (C) Individuals owning, directly or indirectly, an interest in the voting
power of the reporting enterprise that gives them control or significant
influence over the enterprise, and relatives of any such individual
(d) KMP and their relatives
Both B & C ltd. are related parties as they have common KMP.
Mr. A &
relatives
B ltd.
Significant
influence/ Joint
Control
KMP & its relatives
B ltd.
Provide function of directing &
planning in policy making

38.  (e) Enterprises over which any person described in (c) or (d) is
able to exercise significant influence.
S I C/JC/S I
Disclosure:
 Here it is not possible for auditor to check every related parties and
their transaction so it is recommended to ask client for written
representation.
Sr
No.
Name Relation Transaction Amount Due
to
Due
from
Mr. X/KMP
(pt. C/ D)
F ltd. D ltd.

39. AS-20 EARNING PER SHARES

40. Disclosures
 where the statement of profit and loss includes extraordinary
items (within the meaning of AS 5), the enterprise should
disclose basic and diluted earnings per share computed on
the basis of earnings excluding extraordinary items (net of tax
expense); and
 the amounts used as the numerators in calculating basic and
diluted earnings per share, and a reconciliation of those
amounts to the net profit or loss for the period;
 the weighted average number of equity shares used as the
denominator in calculating basic and diluted earnings per
share, and a reconciliation of these denominators to each
other; and
 the nominal value of shares along with the earnings per share
figures.
Small and Medium Sized Companies and Level II and Level III
non-corporate entities are exempted from disclosing diluted EPS
Level III non-corporate entities are exempted from the disclosure
of all disclosures req. under this AS except for BASIC EPS

41. AS -21 CONSOLIDATED FINANCIAL STATEMENTS
Things to consider while consolidation that intra-group transactions are
to be eliminated and profits too

42. AS-22 ACCOUNTING FOR TAXES ON INCOME

44. Particulars Year 1 Year 2 Year 3
Profit before tax (A) 100,000 200,000 180,000
Depreciation as per
Companies Act (B)
25,000 25,000 25,000
Accounting income
(A-B)
75,000 175,000 125,000
Depreciation as per
Income tax Act (C)
50,000 0 10,000
Taxable income (A-C) 50,000 200,000 170,000
Timing difference (D) 25,000 -25,000 -15,000
Current tax @ 30% 15,000 60,000 51,000
Deferred tax (D *
30%)
7,500 (Liability) -7,500 (Asset) -4,500 (Asset)
Total tax expense 22,500 52,500 46,500
Profit after tax 52,500 122,500 78,500
Example of Deferred Tax Asset & Deferred Tax Liability

45. Particulars Year 1 Year 2 Year 3
Opening balance
of timing
difference
0 25,000 0
Addition 25,000 0 15,000
Deletion 0 25,000 0
Closing balance
of timing
difference
25,000 0 15,000
Deferred tax @
30%
7,500 7,500 4,500
DTA/DTL Creation of DTL Reversal of DTL Creation of DTA
Journal Entry P&L A/c Dr.
To DTL
DTL Dr.
To P&L A/c
DTA Dr.
To P&L A/c
Deferred Tax Computation

46. DISCLOSURES
 Current Tax is determined as the amount of tax payable in
respect of taxable income for the year.
 the company has recognized deferred taxes which results from
timing difference between the Book Profit and Tax Profits that
originate in one period and are capable of reversal in one or
more subsequent period.
 Deferred Tax Assets are not recognized on unabsorbed
depreciation and carry forward losses unless there is a
reasonable certainty that sufficient future Taxable income will
be available against which such deferred tax assets can be
realized.
Auditors Responsibility:
1. Does the taxable income and accounting income vary?
2. Is the difference raised is of timing difference?
3. Is DTA/DTL calculated as per MAT rate or at normal rates?

47. AS-26 Intangible Assets
Definition:
Intangible assets is an non physical non monetary asset which
is held for use in the production or supply of goods and
services, or rentals to others.
I.E. : Patents ,Trademarks Etc
Recognition
 Future benefits will flow to entity.
 Cost can be measured reliably
Important points:
 Internally generated goodwill not to be recognized in books
unless separately purchased and then at cost.
 Amortization over economic life OR over 10 years (WEL) *OVER
SLM GENERALLY*

48. Disclosures (for each IA separately)
 Useful life
 Carrying amount
 Amortization period
 Addition during the year
 Disposal if any
Auditors responsibility
 Are goodwill and preliminary expenses recognized as
intangible assets?
 Are these assets amortized equally over its best estimate of its
useful life?

49. AS -28 IMPAIRMENT OF ASSETS
 Indicators of recognizing impairment loss
1.External factors (e.g.. change in technology etc.)
2. Internal factors (e.g.. Physical damage)
 Impairment loss to be recognized only if carrying amount* of asset is more
than its recoverable amount. It is to be taken to profit & loss account.
*Carrying amount = Book value of asset
 Recoverable amt can be value in use* or NRV(WEH)
*value in use means Present Value of estimated Cash flows OR Market value
(whichever higher)
Treatment Of Impairment Loss
 If it relates to revalued assets then reduce from revaluation reserve
Otherwise through Profit and Loss Account.
 Calculate depreciation for subsequent years after reducing imp. Loss from
carrying value of assets if it is expensed
 Treatment of REVERSAL of Imp. loss is given through Profit and loss
account unless it related to revalued assets

50. Disclosures
Impairment loss recognized and reversed for each class of
assets
 Amount of impairment loss set off against PNL/revaluation
reserve and amount of reversal of impairment loss credited to
PNL/revaluation reserve.
 Calculation of Revaluation Amount of each class of assets
Assumptions used in the calculation of Recoverable Amount
 Events that lead to impairment
Auditors responsibility
 Has been there any markable decline in market value of
assets?
 Is there any such assets which has become obsolete or have
faced any physical damage?
 Is the market value of assets of net assets in books is more
than its market capitalization?

51. AS -29 Provisions ,Contingent liabilities and
Contingent Assets
 Provisions
 A provision is an amount set aside for the probable, but uncertain, economic
obligations of an enterprise.
 Example: Provision of income tax.
Recognition
 a present obligation as a result of past event and
 Probable outflow of resources
These are reviewed at each balance sheet date and adjusted to reflect the
current best estimate.
 A contingent liability is a liability that may occur depending on the outcome
of an uncertain future event. A contingent liability is recorded if the contingency
is likely and the amount of the liability can be reasonably estimated
 Recognition of contingent liability:
 Only disclosures if outflow is likely possible

52. A contingent asset is a possible asset that arises from past
events, and whose existence will be confirmed only by the.
occurrence or non-occurrence of one or more uncertain future
events not wholly within the control of the entity
[NO RECOGNITION(CONSERVATISM CONCEPT)]
Auditors responsibility
Auditors should be check that-
There is no provision made in respect of guarantee given
which does not lead to any kind of liability?
There is no provisions made for court case where the
company /firm will not be found liable?
There are no contingent assets shown in books?

53. Sr.
No.
Particulars As at 31st
March, 2019
As at 31st
March, 2018
(I) Contingent Liabilities
(A) Claims against the company/disputed liabilities not
acknowledged as debts
(i) Demand raised by Income Tax Department for Income
Tax Demand for the period A.Y. 2010-11 pending in
CIT Appeal [Note No. (a)]
(ii) Demand raised by Income Tax Department for Income
Tax Demand for the period A.Y. 2013-14 pending in
CIT Appeal [Note No. (b)]
80.56
61.59
80.56
61.59
(A) Guarantees to Banks and Financial Institutions
against loan facilities for which FDR is kept with
Standard Chartered Bank
80.00 -
Example Of Presentation
Contingent Liabilities And Commitments
(To The Extent Not Provided For)

54. Contingent Liabilities
The Company has filed appeal with CIT Appeal for the Income Tax demand of
80,56,210/- for the period A.Y. 2010-11, disputed by the companies which are still
pending in the appeals.
The Company has filed appeal with CIT Appeal for the Income Tax demand of
61,58,970/- for the period A.Y. 2013-14, disputed by the companies which are still
pending in the appeals.
Impact of Covid-19:
Q1. A company makes an announcement of making donation/ contribution to the
Government/ Society for fighting Covid-19. Does it need to make a provision for the
same in its financial statements?

55. QUIZ TIME
1. As-4 and As-29 difference in contingency and contingent liability?
2. As Per As -10 ,Treatment of Sale Of Fixed Assets If Fall Within The
Block (in case of partnership/prop. concern)?`
3. As Per 22, it is also Required to account DTA/DTL in case of
partnership and proprietorship concern as well. So what are the
reasons we are not recognizing such DTL/DTA?
4. Timing difference arise due to additional depreciation –treatment as
per AS-22?( In case of partnership and Prop. concern)
5. If investment income (interest/dividend) is accruing every year but
not accounted for last two years then what treatment will you give in
this year if you notice such omission as per as-5?
6. Whether two company is related party if, they have common
directors?