Conversion Ind AS (the converged IFRS standards) in India

ADACEMIC STUDY
INDIAN
ACCOUNTING STANDARDS
WITH IFRS
Dr Biswa Dev

Centre for Business &
Accounting Research
www.cbar.in

Technical Support
B Dash & Co
Chartered Accountants
www.bdashco.com

 Certain rules procedures and conventions have
been developed by the accountants all over the
world.
 International Accounting Standards Committee
was set on 29 th June 1973 to maintain
uniformity.
 The objective was to formulate and publish in
the public interest standards .

 To support standards promulgated by the
committee.
 To use their best endeavours.
 To ensure that appropriate action is taken in
respect of auditors.
 To seek to secure similar general acceptance
and observance of these standards.

 The committee makes a choice of the subjects.
 Prepares draft of standard practice in respect of
financial information.
 Final draft is approved by INTERNATIONAL
FEDERATION OF ACCOUNTANTS ( IFAC).
 They donot acquire a compulsiveness
associated with legislation.

 Keeps in view local regulations and customs.
 Takes note of standards already issued.
 Brings uniformity in diverse accounting
standards.
 To produce reliable acc. Information so that the
users can rely upon.
 But in practice the accounting practice has
failed to give the true state of affairs.

 Used in developing countries such as
Pakistan ,Malaysia ,Malawi , Singapore and
Zimbabwe.
 Researched in India, Yugoslavia, Egypt , Nigeria
and Kenya.
 Board set up a special Steering Committee in
March, 1987 to find ways of direction.
 New name is INTERNATIONAL FINANACIAL
REPORTING STANDARD ( IFRS).

 IAS 1 – Presentation of Financial Statements
 IAS 2- Inventories
 IAS3- No longer effective
 IAS4- Withdrawn
 IAS5- No longer effective
 IAS7- Cash flow Statements
 IAS 8- P & L , Fundamental Errors and
Changes in Acc policies

 IAS 9- Research & Development Costs
 IAS 10- Events after the Balance Sheet Date
 IAS 11 – Construction Contracts
 IAS 12- Income Taxes
 IAS 13- No longer effective
 IAS 14- Segment Reporting
 IAS 15- Information reflecting change in prices
 IAS 16- Property, Plant & Equipment
 IAS 17- Leases
 IAS 18- Revenue
 IAS 19- Employment Benefits
 IAS 20- Acc for Govt Grants & Disclosure of Govt
Assistance

 IAS 21- The effects of changes is foreign exchange
rates
 IAS 22- Business Combinations
 IAS 23- Borrowing Costs
 IAS 24- Related party disclosures
 IAS 25- Accounting for Investments
 IAS 26- Accounting 7 Reporting by Retirement
Benefit Plans
 IAS 27- Consolidated Financial Statements & Acc
for Investments in Subsidiaries
 IAS 28- Acc. for Investment in Associates
 IAS 29- Financial Reporting in hyper inflationary
economies

 IAS 30- Disclosures in Financial Statements of
Bank & similar Financial Institutions
 IAS 31- Financial Reporting of interests in Joint
Ventures
 IAS 32- Financial Instruments : Disclosure &
Presentation
 IAS 33- Earning per Share
 IAS 34- Interim Financial Reporting
 IAS 35- Discontinuing Operations
 IAS 36- Impairment of Assets
 IAS 37-Provisions, contingent liabilities &
contingent assets

 IAS 38- Intangible assets
 IAS 39- Financial instruments. Recognition &
measurement.
 IAS 40- Investment Property
 IFRS 1- First time adoption of international
reporting standards.
 IFRS 2- Share-based payment
 IFRS 3- Business combinations
 IFRS 4- Insurance contacts
 IFRS 5- Non current assets held for sale &
discontinued operations.
 IFRS 6- Exploration for & Evaluation of Mineral
Resources
 IFRS7- Financial Instruments : Disclosures
 IFRS8- Operating Segments

 Institute of Chartered Accountants of India
has :
 Improved its accounting & auditing Standards.
 Many statements have been issued from time
to time of acc matters.
 Set up Accounting Standards Board in
1977(formulation of acc standards).
 Keeps in view of the customs, usages,
applicable laws & the business environments.

 Accounting Standards Board seeks views &
guidance of Industrial concerns, govt & other
interested parties.
 Also there would be recommendatory period
of 3 yrs for issue of these standards.
 To formulate & harmonise acc . Practices ASB
marked a commendable effort.
 Played a important role in improving corporate
practices.
 But not come upto expectations of users of Acc
information.

 In India, the ICAI, being a
premier accounting body in
the country, took upon itself
the leadership role by
constituting the accounting
standards board on 21st
April
1997

 To concieve and suggest areas in which accounting
standard need to be developed
 To formulate accounting standard with a view of
assisting the council of ACAI and evolving accounting
standard in India
 To revive, at regular interval the accounting standard
 To provide time to time interpretation of accounting
standard

 Accounting standard board will keep in view the
purpose and limitation of financial statements
 ASB will clarify the term commonly used in financial
statements
 The term ‘‘general purpose financial statements”
includes balance sheet, statement of profit and loss ,
cash flow statement
 Responsibility for the preparation of financial
statements and for adequate disclosure is that of
management of enterprise

 Efforts will be made to issue accounting standard which are in
conformity with the provision of applicable law, custom and
usage
 Accounting standard can not override the local regulation which
govern the preparation of financial statement
 Accounting standard are intended to apply only two items which
are material
 The Institute will use its best endeavours to persuade the
government , appropriate authority to adopt the accounting
standard in order to achieve uniformity
 Accounting standard emphasis on laying down accounting
policies and not detailed rules for applications

 Standard reduced to a reasonable extent confusing
variations in accounting treatment
 Standard may call for disclosure beyond that required
by law
 Facilitates comparison of different balance sheet
 Remove conflict between different groups of society

 Choice between different alternative accounting treatment became
difficult
 Accounting standards are sometimes rigid and sometimes flexible
 Accounting standard can not override the statute

 This standard is related with disclosure requirement of accounting
policies followed in preparing financial statements
 The true and fair state of affairs and the financial results of an entity is
significantly effected by accounting policies
 The area in which different accounting policies can be followed are
accounting for depreciation , revaluation of inventories ,valuation of fixed
assets
 Any change in the accounting policies which has material effect should be
disclosed
 If any fundamental accounting assumptions is not followed in financial
statements, the fact should be specifically disclose

AS-2 deals with determination of the values at which inventories
are carried in the financial statements until the related revenues
are recognised.
According to AS-2 inventories are assets:
held for sale in ordinary course of business
in the process of production for sale
in the form of materials to be consumed in the
process of production
Spares which are specific and can be used only to particular item of fixed asset and
whose use is irregular and is of the nature of capital spares. Such spares should be
accounted for in accordance with AS-10,"accounting for Fixed Assets" and not in AS-2.
AS-2 states that inventories should be valued at cost or net realisable value whichever is
lower. The cost of inventories should include:
• costs of production
• costs of conversion
• costs incurred in bringing inventories in their present condition.

While ascertaining the costs, the following costs should not be included:
 abnormal amounts
 storage costs
 administrative overheads
 selling and distribution costs
The costs of inventories should be assigned by using first-in and first-out (FIFO) or
weighted average cost formula.
When it is impractical to calculate cost,standard cost retail method may be
used.under this the cost is ascertained by reducing the approximete percentage of
gross profit from sale value of inventory.
As per AS-2, the financial statements should disclose the accounting policies
adopted in valuing inventories, cost formula,total carrying amount of inventories
and its classification appropriate to the enterprise.

Accounting standard 3-
Cash Flow Statements
As per AS-3 an enterprise should prepare a cash flow
statement for each period for which financial
statements are presented becauseusers of financial
statements are interested to know how the enterprise generates and
uses cash and cash equivalents.Some of the terms used have beeen defined as:
Cash comprises cash on hand and demand deposit with banks.
Cash equivalents are short term,highly liquid investments that are readily
convertible into known amounts of cash and which are subject to an insignificant
risk of changes in value.
Cash flows are inflows and outflows of cash and cash equivalents.
Operating activities are the principal revenue-producing activities of the
enterprise.
Investing activities are the acquisition and disposal of long-term assets and other
investements not included in cash equivalents.
Financing activites are activities that result in changes in the size and
composition of the owners capital and borrowings of the enterprise.

As per AS-3, cash flows asociated with extraordinary items should be
classified as arising from operating,invsting or financial activities and
separately disclosed.
Cash flow arising from acquisition and from disposal of subsidiaries or other
business units shoud be disclosed separately and classified as investing
activites. Investing and financial activities that not involve the use of cash and
cash equivalents should be excluded from a cash flow statement.
Cash flows from interest and dividends received and paid and taxes on income
should each be disclosed separately.
An enterprise should disclose the components of cash and cash equivalents and
should present a reconciliation of the amounts in its cash flow statement with
the equivalent items reported in the balance sheet.
An enterprise should disclose together with a commentary by management,
the amount of significant cash and cash equivalent balances held by the
enterprise that are not available for use by it.

Contingencies and events occuring after
the balance sheet date
AS-4 deals with the treatment in financial statements of contingencies and events
occuring after the balance sheet date. Following subjects, which may result in
contingencies, are excluded from the scope of this standard:
 Liabilities of life insurance and general insurance enterprises arising from
policies isued.
 Obligations under retirement benefit plans.
 Commitments arising from log-term lease contracts.
As per-4, a contingentcy is a condition or situatiion, the ultimate outcome of
which, will be determined only on the occurrence, or non-occurrence, of one or
more uncertain future events. Events occurring after the balance sheet are those
significant events that occur between the balance sheet date and the date on
which the financial statements are approved by the board of directors.
If a contingency is likely to result in a loss to the enterprise, the estimate of that
loss should be made by the management. Contingent gains are not to be
recognised in financial statements because their recognition may result in the
recognition of revenue which may never be realised

Assets and liabilities should be adjusted for events occurring after the balance
sheet date that provide additional information materially affecting the
determination of the amounts relating to conditions existing at the balance sheet
date.
Assets and liabilities should not be adjusted for events occurring after the
balance sheet date not related to circumstances existing on balance sheet date
example- Insolvency of a customer. Dividends proposed or declared by the
enterprise after the balance sheet date but before approval of the financial
statements and pertaining to the period covered by the financial statements,
should be adjusted.
Events occurring after the balance sheet date which do not affect the figures
stated in the financial statements would not normally require disclosure in the
financial statements.Events occurring after the balance sheet date that represent
material changes and commitments affecting the financial position of the
enterprise should be disclosed.

In this disclosure the following information should be provided:
 The nature of the event.
 An estimate of the financial effect, the followig information should
be provided in made.
In case of disclosure of contingencies, the following information should
be provided in the financial statements:
 The nature of the contingency.
 The uncertainties which may affect the future outcome.
 The estimate of the financial effect, or a statement that such
an estimate cannot be made.

Net profit or loss for the period,Prior
period itemsand changes in accounting
policies
The objective of AS-5 is to describe the classification and disclosure of certain items
in the statement of profit and loss so that all enterprises prepeare such statements on
a uniform basis for exchancing comparability of the financial statements of an
enterprise over time and with that of other enterprises.This standard deals with
disclosure of profit or loss from ordinary activities, extraordinary items and prior
period items in the statement of profit or loss, accounting for changes in
accounting estimates and disclosure of changes in accounting policies.
AS-5 defines ordinary activities as activities undertaken by an enterprise as part of
their business and activities which are incidental or arising from these
activities.When items from these activities are
of nature that their disclosure is relevant,
they should be separately disclosed.

Extra ordinary items are income or expenses which do not arise from
ordinary activities and therefore are not expected to occur frequently or
regularly.
Prior period items have been defined as income and expenditure arising in
current period as result of errors and omission in preparation of financial
statements.These should be separately disclosed so that their impact on
profit and loss can be perceived.
The nature and amount of each extraordinary item should be separately
disclosed so that their impact on profit and loss can be perceived.
AS-5 states that the nature and amount of of a change in accounting estimate
having material effect in current or subsequent period should be disclosed.
As per this standard, any change in accounting policy should be made only
if the adoption of a different accounting policy is required be statue or for
compliance with an accounting standard or if it is considered that the change
would result in a more appropriate presentation of the financial statements.

Depreciation accounting
AS-6 deals with depreciation accounting and applies to
all depriciable assets except the following:
 forests,plantations and similar regenerative
natural resources
 Wasting assets
 Goodwill
 Livestock
 Expenditure on research and development
The amount of depreciation to be charged in an accounting period isbased on
following factors:
 Historical cost
 Expected useful life of asset
 Estimated residual value of the depreciable asset
Cost of a depreciable asset is the total cost spent in connection with its
acquisition,installation,commisining,improvement.

As per AS-6,any addition to an existing asset of capital nature which becomes
an integral part of existing asset is to depreciate over the remaining useful life
of asset.
The method of depreciation followed is applied consistently to provide
comparability of results from.A change from one method should be made if
adoption of new method is required by statute or if it is considered that change
would result in more appropriate presentation of financial staements.
If an asset is disposed or destroyed, the net surplus or deficiency should be
disclosed separately.
Following information should be disclosed:
 Historical cost
 Total depreciation
 Related accumulated depreciation
Depreciation methods used depreciation rates if different from those specified
in statute governing the enterprise should be disclosed along with other
accounting policies.

Accounting standard 7 (revised)-
Construction contract
AS-7 deals with accounting for construction contracts in the financial statements of
contractors.The standard does not apply to contractees and construction projects
undertaken by enterprise commercial venture in nature of production activities.Among
the two methods used for construction contracts i.e- percentage of completion method
and completed contract method, the second method has been eliminated under the
standard.
As per standard,profit in case of fixed price contracts is not recognised unless the
work isprogressed to a reasonable extent.
The costs included in the amount of construction contract work is stated should
comprise those costs that relate directly to a specific contract and those that are
attributable to the contract activity in general and can be allocated to specific
contracts.
A foreseeable loss on the entire contract shoulde be provided for in the financial
statements irrespective of the amount of work done and the method of accounting

An enterprise should disclose :
• The amount of contract revenue recognised as revenue of the period
• The methods used to determine the contract revenue recognised
• The methods used to determine the stage of completion of contract in
progress.
• An enterprise should also disclose contracts in the progress at the
reporting date
• The aggregate amount of costs incurred ,recognised
profits,retentions.
• The amount of advances received

Revenue recognition
AS-9 deals with bases for recognition of revenue in the statement of profit and loss of
an enterprise. The standard is concerned eith the recognition of revenue arising in the
course of ordinary activities of the enterprise from the sale of goods, the rendering of
the services and the use by others of enterprise resources yeilding interest, royalties ans
dividends. This standard doesn not deal with the followinf aspects:
 Revenue arising from construction contracts.
 Revenue arising from hire-purchase and lease agreements.
 Revenue arising from government grants and other
similar subsidies.
 Revenue of insurance companies arising from insurance contracts.
As per AS-9, following items are not included:
 Realised gains resulting from the disposal of fixed assests and unrealised gains
resulting from the holding of fixed assets by appreciation in their values.
 Unrealised holding gains resulting from the change in the value of current assets and
the natural increases in herds and agriculture and forest products.
 Realised or unrealised gains resulting from changes in foreign exchange rates .

 Realised gains resulting from thedischarge of an obligation at less than its
carrying amount.
 Unrealised gain resulting from the restatement of the carrying amount of an
obligation.
Revenue from sales transactions should be recognised only when :
 the seller of goods has transferred to the buyer the property in goods for certain
price and seller retains no effective control of the goods transfered
 no significant uncertainity exists regarding the amount of consideration that will
be derived from sale of goods
Revenue arising from the use by others of enterprise resources yielding interest ,
royalties and dividends should only be recognised when no significant uncertainity
as to measureability exists.dividends from investment in shares are not recognised
in statement of proft and loss until a right to receive payment is established.
When interest ,royalties and dividends from foreign countrie require exchange
permission and uncertainity in remittance is anticipated ,revenue recognition may
need to be postponed.The circumstances in which it is postponed should be
disclosed.When revenue is postponed it is considered as revenue of the period in
which it is properly recognised.

Accounting for fixed assets
AS-10 deals with accounting for fixed assets.The gross book value of a fixed asset
should be either historical cost or a revaluation computed in accordance with this
standard .The cost of a fixed asset should include its purchase price ,attributable
costs of bringing the asset to its working condition. Fixed asset should be
eliminated from the financial statements on disposal. Losses arising from the
retirement or gains or losses arising from disposal of fixed asset should be
recognised in the profit and loss statement.
An increase in net book value arising on account of revaluation should be credited
to owners interest under the head of revaluation reserve. A decrease in net book
value arising on account of revaluation should be charged directly to profit and loss
statement. acquiring it.
When several fixed assets are purchased for a consolidated price, the amount
should be apportioned to various assets on a fair basis.
Goodwill should be recorded in books only when some considration in money or
money's worth has been paid for acquiring it.The direct costs incurred in
developing the patents should be capitalised and written off over their legal term of
validity or over their working life, whichever is shorter.

As per AS-10,the following information should be disclosed in the financial
statements:
gross and net book values of fixed assets at the beginning and end of an accounting
period showing additions, disposals, acquistions and other movements;
expenditure incurred on account of fixed assets in the course of construction or
acquistion; and
revalued amount subsituted for historical costs of fixed assets, the method adopted
to compute the revalued amounts, the nature of indices used, the year of any
appraisal made, and whether an external valuer was involved, in case where fixed
assets are stated at revalued amount.

AS-11 is applied by an enterprise in accounting for transactions in
foreign currencies and in translating the financial statements of
foreign branches for the inclusion in financial statements of the
enterprise.
The financial statements of a foreign branch should
be translated using the procedure as given below:-
(i) Revenue items, expect opening and closing inventories and
depreciation, should be translated into reporting currency of the
reporting enterprise at average rate.
(ii) Monetary items should be translated using the closing rate .
(iii) Non-Monetary items other than inventories and fixed assets
should be translated using the exchange rate at the date of the
transactions
(iv) Contingent liabilities should be translated into the reporting
currency of enterprise at the closing rate.

(v) Fixed assets should be translated using the exchange rate at the date
of the transaction. Where has been increase or decrease in the liability
of the enterprise by applying the closing rate, for making payment
towards the whole or a part of the cost of the fixed asset, the amount
by which the liability is so increased or decreased during the year,
should be added to or reduced from the historical cost of the fixed
asset concerned.
(vi) Balance in the head office account should be reported at the amount
of the balance in the branch account in the books of the head office
after adjusting for unresponded transactions.
(vii) The net exchange difference resulting from the translating of the
financial statements of a foreign branch into head office currency
should be recognized as income or expense for the period.
An enterprise should disclose the following in the financial
statements:-
(i) The amount of exchange differences included in the net profit or loss of
the period;
(ii) The amount of exchange differences adjusted in the carrying amount
of fixed assets during the accounting period; and
(iii) The amount of exchange differences in respect of forward exchange
contracts to be recognized in the profit & loss for one or more
subsequent accounting period.

Accounting Standard 12-
Accounting for Government Grants
AS-12 deals with accounting for govt. grants such as subsidies, cash
incentives, duty drawbacks etc. and has come into force with effects
from April, 1992.According to AS-12, government grants should not
be recognized until there is reasonable assurance that the enterprise
will comply with the conditions attached to them and the grants will
be received. Mere receipt to the grant has been or will be fulfilled.
Govt. grants related to specific fixed assets should be presented in the
balance sheet. Government grants related to revenue should be
recognized on a systematic basis in the profit and loss statement. If
govt. grants take the form of non-monetary assets, such as land or
other resources given at concessional rates, then such assets as per
this standard should be recorded at their acquisition cost. Non-
monetary assets given free of cost should be recorded at nominal at
value.
Following information should be disclosed in financial statements:-
(a) Accounting policy adopted for govt. grants including the methods of
presentation in the financial statements.
(b) Nature & extent of govt. govt. recognized in the financial statements.

Accounting for
investments AS-13 deals with
accounting for investments in the financial statements of enterprises and related
disclosure requirementsAS-13 defines investments as follows : “investments are
assets held by an enterprise for earning income by the way of dividends , interest
and rentals , for capital appreciation, or for other benefits to the investing
enterprise. Assets held as stock –in –trade are non –investments
according to AS-13, an enterprise should
disclose current investments distinctly in its financial statements
current investments should be
carried in the financial statements at the lower of cost and fair value
determined on an individual investments basis or by category of investments,
but not on overall basis . Long term investments should be carried in the
financial statements at cost .on sale of an investment, the difference between
the carrying amount and net disposal proceeds should be charged or credited
to the profit and loss statement.
Following information should be disclosed in the financial
investments (a) accounting policies for determination of carrying amount of
investments.(b) classification of investments in current and long term as specified
in the statute governing the enterprise. In the absence of statutory requirements,
investments may be classified as -
(i) government or trust securities ,
(ii)shares, debentures or bonds,
(iii) investment properties, and (iv)others – specifying nature

AS-14 deals with accounting for amalgamations. According to this
standard, an amalgamation may be either an amalgamation in the
nature of merger or an amalgamation in the nature of purchase. An
amalgamation is considered to be an amalgamation in the nature of
merger or when all the following conditions are satisfied :-
(i) All the assets
and liabilities of the transfer or company become ,after amalgamation,
the assets and liability of the transferee company.
(ii) Shareholders holding not less than 90% of the face
value of the equity shares of the transferee company become equity
shareholders of the transferee company by virtue of the amalgamation
. (iii) The
business of the transferor company is intended to be carried on, after
the amalgamation, by the transferee company.
(iv) No adjustment is intended to be made to the book values of the
assets and liabilities of the transferor company when they are
incorporated in the financial statements of the company except to
ensure uniformity of accounting policies.

Pooling of interests methods is applied in case of
amalgamation in the nature of merger and purchase
method is case of amalgamation in the nature of
purchase.
For all amalgamations, the following disclosures should
be made in the first financial statements following
the amalgamation:-
(a) Names and general nature of business of the
amalgamating companies;
(b) Effective date of amalgamation for accounting
purposes;
(c) The method of accounting used to reflect the
amalgamation; and
(d) Particulars of the scheme sanctioned under a statue.

AS-15 deals with accounting for retirement benefits and is mandatory in
nature. According to this standard, retirement benefits usually include
provident fund, pension gratuity, leave encashment benefit on retirement,
post retirement health and welfare schemes and other retirement benefits,
and termination benefits. As per this standard, an enterprise should
recognize expected cost of profit sharing and bonus payments. Post-
employment benefit plans are classified as defined benefit plans.
The amount recognized as a defined benefit liability should be the net total of
the following amounts:-
(a) The present value of the defined benefit obligation at the balance sheet
date;
(b) Minus any past service cost not yet presented;
(c) Minus the fair value at the balance sheet date of plan assets out of the
which the obligations are to be settled directly.
An enterprise should recognize the net total of the following amounts in the
statement of profit and loss:-
(a) Current service cost;
(b) Interest cost;
(c) The expected return on any plan assets & on any reimbursement rights;

The objective of this standard is to prescribe the accounting treatment
for borrowing costs. This standard covers the borrowing costs.
This standard covers the borrowing costs for borrowing of funds
for the qualifying assets i.e., assets that necessarily take a
substantial period of time to get ready for their intended use or
sale. Examples of qualifying assets are manufacturing plants,
power generation facilities inventories that require a substantial
period to a saleable condition, & investment properties. The
amount of borrowing costs capitalized during a period should not
exceed the amount of borrowing costs incurred during that
period.
The financial statements should disclose:-
(a) The accounting policy adopted for borrowing costs; and
(b) The amount of borrowing costs capitalized during this period.

This standard comes into effect with effect from 1-4-2001 & is mandatory
in nature. The objective of this standard is to establish principles for
reporting financial information about the different types of products
and services an enterprises produces and the different geographical
areas in which it operates.
According to this standard, a business segment or geographical
segment should be identified as reportable segment if:-
(a) Its revenue from sales to external customers & from transactions
with other segments is 10% or more of the total revenue, external &
internal, of all segments; or
(b) Its segment result, whether profit or loss, is 10% or more of the
combined result of all segments in profits or the combined result of
all segments in loss, whichever is greater in absolute amount; or
(c) Its segment assets are 10% or more of the total assets of all segments.

An enterprise should disclose the following for each
reportable segment:-
(a) Segment revenue ;
(b) Segment result
(c) Total carrying amount of segment assets and liabilities ;
(d) Total cost incurred during the period to acquire segment
tangible and intangible fixed assets ;
(e) Total amount of expense included in the segment result
for depreciation and amortisation in respect of segment
assets for the period and other significant non-cash
expenses.
An enterprise that reports the amount of cash flows arising
from operating, investment and financing activities of a
segment need disclose depreciation and amortisation
expense and non-cash expenses of such segment.

AS-18 comes into effect in respect of accounting periods commencing on or
after 1-4-2001 and is mandatory in nature. The objective of this standard is
to establish requirements for disclosure of related party relationships and
transactions between a reporting enterprise and its related parties.
According to this standard, if there have been transactions between related
parties, during the existence of a related party relationship, the
reporting enterprise should disclose the following:-
(a) Name of the transacting part.
(b) A description between the parties.
(c) A description of the nature of transaction.
(d) Volume of the transactions.
(e) An other elements of the related transactions necessary for an
understanding of the financial statements.
(f) Amounts or appropriate proportions of outstanding items pertaining to
related parties at the balance sheet date and provisions for doubtful debts
due from such parties at that date.
(g) Amounts written off or written back in the period in respect of debts due
from or related parties.

AS-19 for leases comes into effect in respect of all assets leased during
accounting periods commencing on or after 1-4-2001 and is
mandatory in nature. The objective this standard is to prescribe,
for lessees and lessors, the appropriate accounting policies and
disclosures in relation to finance leases and operating.
(a) The lessor should present an asset given under operating lease in
the balance sheet under fixed assets.
(b) As per AS-19, if a sale and leaseback transaction results in a
finance lease, an excess or deficiency of sales over the carrying
amount should not be immediately recognized as income or loss
in the financial statements of a seller-lessee.

AS-20 comes into effect in respect of accounting period
commencing on or after 1-4-2001 and is mandatory in
nature.
The objective of this standard is to prescribe principles for
the determination and presentation of earnings per
share.
According to this standard, an enterprise should present
basic and diluted earnings per share, even if the
amounts disclosed are negative.

63
Accounting Standard (AS)
Principles that govern current accounting practices
In India Accounting Standards are issued by ICAI
Central Government notifies AS u/s 211(3C) of Companies
Act,1956
Purpose is to –
Recognize
Measure
Present
Disclose
Enables Comparability, Consistency, Transparency, Uniformity

64
Need for AS on Financial
Instrument
Globalization of Indian Economy
Increasing sophistication of financial products and markets
No comprehensive standard before
Diverse practice has made comparability of performance difficult

65
•AS 30 - Financial Instruments:
Recognition and Measurement
Presentation
Disclosures

66
Deals with accounting of Financial instruments
Issued by ICAI in 2007
Not yet notified by Central Government
Framed in accordance with global standards
Recommendatory in nature for initial 2 years
Mandatory from 1st April,2011 to all entities except to Small and
Medium-sized Entity
Salient features of AS 30,31 and 32

67
Objective
To establish principles for recognizing and measuring financial assets,
financial liabilities and some contracts to buy or sell non-financial items
To present and classify financial assets and financial liabilities
To provide disclosures in financial statements so that users can
evaluate –
The significance of financial instruments for the entity’s financial
position and performance and
The nature and extent of risks arising from financial instruments to
which the entity is exposed during the period and at the reporting date,
and how the entity manages those risks

68
Financial Instruments
A legal document entered between 2 parties
Enforcement to receive Financial Asset and to pay Financial Liability
Right for one party to receive money or liquid asset & Obligation for
other party to pay money or liquid asset
To be recognized when the parties entered into contract

69
Financial Assets
Cash;
Equity instrument of another entity;
A contractual right to receive cash or financial asset;
Exchange of financial assets or financial liabilities with another entity
under conditions that are potentially favorable to the entity;
Contract which will or may be settled in entities own equity instruments
that is–
A non-derivative instrument where the entity is obliged to receive variable
number of entity’s own equity instruments; or
A derivative instrument that will or may be settled other than by exchange
of a fixed amount of cash or financial asset for a fixed number of entity’s
own equity instruments

70
Financial Liabilities
 A contractual obligation to deliver cash or another financial asset to
another entity;
 Exchange of financial assets or financial liabilities with another
entity under conditions that are potentially unfavorable to the entity;
 A contract that will or may be settled in entity’s own equity
instruments and is a non-derivative instrument. Also the entity is
oblige to issue variable number of equity instruments of the entity;
 A derivative instrument that will be settled other than by exchange
of fixed amount of cash or financial asset against fixed number of
entity’s own equity instrument.

71
Classification
1. Financial Assets
 Fair value through Profit or Loss [FVTPL]
 Held to maturity [HTM]
 Loans and Receivables [LR]
 Available for sale [AFS]
2. Financial Liabilities
 Fair value through Profit or Loss [FVTPL]
 Financial liabilities at amortized cost [FLAC]

72
Re-Classification of Financial Asstes
From FVTPL to any category
From HTM to AFS
From LR to FVTPL
From AFS to FVTPL

73
Measurement of Financial Assets
Category Initial Measurement Subsequent Measurement
1. Fair value through Profit
or Loss [FVTLP]
Record at fair value on acquisition date
and transaction cost is to be debited to P &
L A/c
Change in fair value between two
reporting date, whether gain or loss, is be
recognized in P & L A/c
2. Held to maturity [HTM] Record at fair value on acquisition date
and transaction cost is to be included in the
same
By applying Amortized cost method-
Effective Interest Rate (i.e. IRR/YTM)
3. Loans & Receivables
[LR]
(a) Short term loan (not more than 1
year):
At original invoice value
(b) All other :
Fair value + Transaction cost
year):
Continue to be recorded at original
invoice value
(b) All other :
Effective Interest Rate (IRR/YTM)
4. Available for sale
[AFR]
Record at fair value on acquisition date
and transaction cost is to be included in the
same
Change in Fair value between reporting
date, whether gain or loss, shall be
transferred to investment revaluation
reserve or fair value reserve

74
Measurement of Financial Liabilities
Category Initial Measurement Subsequent Measurement
1. Fair value through
Profit or Loss
Record at fair value on acquisition
date and transaction cost is to be
debited to P & L A/c
Change in fair value between two
reporting date, whether gain or loss,
is be recognized in P & L A/c
2. Financial liabilities at
amortized cost
year):
At original invoice value
(b) All other :
Fair value + Transaction cost
year):
Continue to be recorded at original
invoice value
(b) All other :
Effective Interest Rate
(IRR/YTM)

75
Derivatives
If all 3 conditions are satisfied then the instrument can be called as
Derivative –
Underlying items
No or small initial investment
Settlement at Future date
E.g. :- Forwards, Swaps, Futures, Options
Derivatives are always recorded at Marked to Market value

76
Embedded Derivatives
A component of hybrid instrument
Non-derivative contract with derivative element included
The contract in which they are embedded is known as Host contract
E.g. :- ABC ltd. holds convertible debentures of XYZ ltd.
Host contract = Debenture
Embedded derivative = Conversion option
Derivative once separate out is compulsory is classified as FVTPL
After Separation Host contract shall be classified as HTM/ LR / AFS
on the basis of its independently features

77
Hedging
The risk management tool aiming to reduce the impact of future
potential loss
Classification of Hedge Accounting :
Fair value hedge
Cash flow hedge
Hedges of a net investment in an overseas operation
Recognition & Measurement depend on classification of hedged
instrument

78
Following are the indicators for Impairment –
Significant Financial Difficulties of their issuer;
Default on interest or principal;
Loss of active market;
High probability of bankruptcy of issuer or debtors;
Granting of concession to a borrowed which would not be offer under
business conditions
Impairment of Financial Assets

79
Continued….
Category Formula
1. Fair value through Profit or Loss Impairment loss provision is not required
2. Held to maturity Amortized cost on date of Impairment
Less: PV of future expected benefits * Discounted rate issued is effective
interest rate (IRR) used for amortized cost schedule
3. Loans & Receivables (a) Short term loan (not more than 1 year) –
Carrying Amount - Undiscounted future Excepted Cash flow
(a) All other –
Amortized cost on date of Impairment
Less: PV of future expected benefits * Discounted rate issued is effective
interest rate (IRR) used for amortized cost schedule
4. Available for sale FV on Preceding Reporting date
Less: FV on date of Impairment

80
De-recognition
 Financial Assets –
 Contractual rights to receive cash flows have expired; or
 Financial assets have been transferred
 Financial Liabilities –
 Obligation specified in the contract is expired

81
INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS)
 BY- MONAPARA PARESHKUMAR (P.NARI)
 MBA TRIMISTER-4
 EN NO,12SOEBA21021
 SUB-GLOBAL CROSS FUCTIONAL
MANAGEMENT,
 R.K.UNIVERSITY-RAJKOT

82
INTERNATIONAL FINANCIAL
REPORTING STANDARDS (IFRS)
 Meaning
 International Financial Reporting Standards (IFRS) are
designed as a common global language for business
affairs so that company accounts are understandable and
comparable across international boundaries.
 They are a consequence of growing international
shareholding and trade and are particularly important
for companies that have dealings in several countries.
 The rules to be followed by accountants to maintain
books of accounts which is comparable, understandable,
reliable and relevant as per the users internal or external.

83
HISTORY
 IAS were issued between 1973 and 2001 by the Board
of the International Accounting Standards
Committee(IASC).
 On 1 April 2001, the new International Accounting
Standards Board took over from the IASC the
responsibility for setting International Accounting
Standards.
 The IASB has continued to develop standards calling
the new standards International Financial Reporting
Standards (IFRS).

84
OBJECTIVE OF FINANCIAL STATEMENTS
 A financial statement should reflect a true and fair
view of the business affairs of the organization.
 As statements are used by various constituents of the
society / regulators, they need to reflect a true view of
the financial position of the organization, and they are
very helpful to check the financial position of the
business for a specific period.

85
QUALITATIVE CHARACTERISTICS OF FINANCIAL
STATEMENTS
 Comparability
 Verifiability
 Timeliness
 Understandability

86
ELEMENTS OF FINANCIAL
STATEMENTS
 Statement of Financial Position. The elements
include:
 Asset: An asset is a resource controlled by the enterprise
as a result of past events from which future economic
benefits are expected to flow to the enterprise.
 Liability: A liability is a present obligation of the
enterprise arising from the past events, the settlement of
which is expected to result in an outflow from the
enterprise' resources, i.e., assets.
 Equity: Equity is the residual interest in the assets of the
enterprise after deducting all the liabilities under the
Historical Cost Accounting model.
 Equity is also known as owner's equity.

87
 Statement of Comprehensive Income(income state
mentor profit and loss account). The elements of an
income statement or the elements that measure the
financial performance are as follows:
 Revenues: increases in economic benefit during an accounting
period in the form of inflows or enhancements of assets, or
decrease of liabilities that result in increases in equity.
 However, it does not include the contributions made by the
equity participants, i.e., proprietor, partners and shareholders.
 Expenses: decreases in economic benefits during an
accounting period in the form of outflows, or depletions of
assets or incurrence's of liabilities that result in decreases in
equity.

88
MEASUREMENT OF THE ELEMENTS OF FINANCIAL
STATEMENTS
 (a) Historical cost.
 Assets are recorded at the amount of cash or cash
equivalents paid or the fair value of the consideration
given to acquire them at the time of their acquisition.
 Liabilities are recorded at the amount of proceeds
received in exchange for the obligation, or in some
circumstances (for example, income taxes), at the
amounts of cash or cash equivalents expected to be paid
to satisfy the liability in the normal course of business.

89
 (b) Current cost.
 Assets are carried at the amount of cash or cash
equivalents that would have to be paid if the same or an
equivalent asset was acquired currently.
 Liabilities are carried at the undiscounted amount of cash
or cash equivalents that would be required to settle the
obligation currently.

90
 (c) Realizable (settlement) value.
 Assets are carried at the amount of cash or cash
equivalents that could currently be obtained by selling
the asset in an orderly disposal.
 Assets are carried at the present discounted value of the
future net cash inflows that the item is expected to
generate in the normal course of business.
 Liabilities are carried at the present discounted value of
the future net cash outflows that are expected to be
required to settle the liabilities in the normal course of
business.

91
REQUIREMENTS OF IFRS
 a Statement of Financial Position
 a Statement of Comprehensive Income separate
statements comprising an Income Statement and
separately a Statement of Comprehensive Income, which
reconciles Profit or Loss on the Income statement to total
comprehensive income
 a Statement of Changes in Equity (SOCE)
 a Cash Flow Statement or Statement of Cash Flows

92
ADOPTION OF IFRS
 IFRS are used in many parts of the world, including the
European Union, India, Hong Kong, Australia, Malaysia,
Pakistan, GCC countries, Russia, Chile, South Africa,
Singapore and Turkey.
 As more than 113 countries around the world, including
all of Europe, currently require or permit IFRS reporting
and 85 require IFRS reporting for all domestic, listed
companies, according to the U.S. Securities and Exchange
Commission.

 It requires limited improvements to
accounting by insurer’s for
insurance contract.
 It applies to all insurance contracts.
 If the assessment shows any
deficiency in respect of the
estimated future cash flow should
be recognised in profit & loss a/c
 An insurer should disclose all
information that can help the user
to understand.

IFRS-5 requires :-
 Held for sale- assets held for
sale to be measured at the lower
of carrying amount & fair value
less than cost to sell.
 Disposable group-assets held
for sale within disposable group
to be separately shown in
balance sheet.
 Discontinued operations-
results to be shown separately
in comprehensive statement.

 As per as ifrs-6 exploration
& evaluation assets to be
measured at cost.
 if carrying amount of
exploration & evaluation
may exceeds its
recoverable amount then
the entity shall measure
& disclose any
impairment loss.

 It deals with disclosure
requirements in relation
to all risks arsing from
financial instruments.
 There are 3 types of
risks:
credit risk
market risk
liquidity risk

 It requires entity to report
certain information about the
following :
(a) their products & services
(b) the geometric areas in
which they operate
(c) their major customers
( it requires an entity to give inf
 It applies to all entities-
(a) whose debt or equity
instruments are traded in
market
(b)that files with
securities commission
for the purpose of
issuing any class of
instruments in a public
market.
about the reported
Segmented liabilities)

100
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