This document provides an overview of accounting standards in India. It discusses the need for and objectives of accounting standards, which are to bring uniformity in accounting methods, improve reliability of financial statements, and simplify accounting information. It summarizes some key Indian Accounting Standards (Ind AS), including Ind AS 1 on disclosure of accounting policies, Ind AS 2 on valuation of inventories, and Ind AS 101 on first-time adoption of accounting standards. Ind AS 2 specifies that inventories should be measured at the lower of cost and net realizable value. The document also outlines the phases for adoption of Ind AS for companies in India based on their net worth.

1. INTRODUCTION AND
RELEVANCE OF ACCOUNTING
STANDARDS
Chapter 2

2. CONTENTS
 Overview of Accounting Standards in India-
 Need, Importance and Scope.
 Indian Accounting Standards relating to
 Ind AS 101: First Time Adoption of Accounting Standards
 Ind AS 2: Inventories
 Understanding how are these Ind AS reflected in Financial
Statements.

3. ACCOUNTING STANDARDS
 A common set of principles, standards and procedures that
define the basis of financial accounting policies and
practices.
 The written statements consisting of rules and guidelines,
issued by the accounting institutions, for the preparation of
uniform and consistent financial statements and also for
other disclosures affecting the different users of accounting
information.

4. OBJECTIVES
 For bringing uniformity in accounting
methods
 For improving the reliability of the financial
statements
 Simplify the accounting information
 Prevents frauds and manipulations

5. AS 1 DISCLOSURE OF ACCOUNTING POLICIES (ISSUED IN
1979)
• All significant accounting policies should be disclosed.
• Such disclosure form part of financial statements.
• All disclosures should be made at one place.
• Specific disclosure for the adoption of fundamental accounting assumptions is not required.
• Assumptions:
• Going concern
• Consistency
• Accrual

6. AS 2 VALUATION OF INVENTORIES (ISSUED IN 1981)
 Objective: To formulate the method of computation of cost of inventories/stock, to determine
the value of closing stock/ inventory at which, the inventory is to be shown in balance sheet till
its’ sale and recognition as revenue.
 Not applicable: WIP arising under construction contract, WIP arising in ordinary course of
business for service providers, Financial Instrument and Producer's inventories.
 Inventories should be valued at lower of cost and net realisable value.
 Steps for valuation of Inventories
1. Determination of cost of inventories;
2. Determination of net realisable value;
3. Comparison between the cost and net realisable value.
 Net Realisable Value
 The estimated selling price in ordinary course of business, less estimated cost of completion
and estimated cost necessary to make the sale.
 It is estimate on the basis of most reliable evidence at the time of valuation.

7. Development of Indian Accounting
Standards: Indian AS: An Introduction
 International Accounting Standards Board (IASB) issues the IFRS.
 The purpose of the ICAI to shift towards the IFRS is to increase
the acceptability and transparency of the financial statements of
the Indian corporates on the global platform.
 The Central Government of India issued Indian Accounting
Standards in consultation with the National Advisory Committee
on Accounting Standards (NACAS).

8. CONTD.
 It did this under the supervision and control of the Accounting
Standards Board (ASB) of ICAI.
 The Ministry of Corporate Affairs (MCA), in 2015, had notified the
Companies (Indian Accounting Standards (IND AS)) Rules 2015,
which stipulated the adoption and applicability of IND AS in a
phased manner beginning from the Accounting period 2016-17.

9. PHASE I
 Mandatory applicability of IND AS to all companies from
1st April 2016, provided:
 It is a listed or unlisted company
 Its Net worth is greater than or equal to Rs. 500 crore*
 *Net worth shall be checked for the previous three
Financial Years (2013-14, 2014-15, and 2015-16).

10. PHASE II
 Mandatory applicability of IND AS to all companies from 1st April 2017,
provided:
 it is a listed company or is in the process of being listed (as on 31.03.2016)
 its net worth is greater than or equal to rs. 250 crore but less than Rs. 500
crore (for any of the below mentioned periods).
 Net worth shall be checked for the previous four financial years (2014-14,
2014-15, 2015-16, and 2016-17).

11. PHASE III
 Mandatory applicability of IND AS to all Banks, NBFCs, and
Insurance companies from 1st April 2018, whose:
 Net worth is more than or equal to INR 500 crore with effect
from 1st April 2018.
 IRDA (Insurance Regulatory and Development Authority) of India
shall notify the separate set of IND AS for Banks & Insurance
Companies with effect from 1st April 2018. NBFCs include core
investment companies, stock brokers, venture capitalists, etc. Net
Worth shall be checked for the past 3 financial years (2015-16,
2016-17, and 2017-18).

12. PHASE IV
 All NBFCs whose Net worth is more than or equal to
INR 250 crore but less than INR 500 crore shall have
IND AS mandatorily applicable to them with effect
from 1st April 2019.

13. Net Worth Calculation
 Net worth will be determined based on the stand-alone accounts of
the company as on 31st March 2014, or the first audited period
ending after that date. Net Worth is the total of Paid-up share
Capital and all reserves out of profit & securities premium account,
after deducting accumulated losses, deferred expenditure, and
miscellaneous expenditure not written off.

14. Ind AS – 101 First time adoption of
Indian Accounting Standards
(IND-AS)

15. INTRODUCTION
 For companies covered in phase I, the transition date would be: 1 April 2015
 Ind AS will apply to both consolidated as well as standalone financials of the company.
 Ind AS once adopted either voluntarily or mandatorily can not be revoked in prospective
years even in case of net worth goes down from specified limit or any other criteria given in
roadmap.
 As part of Ind AS transition process, companies covered in first phase will have to
 Opening Ind AS Balance sheet as at 1 April 2015.
 Equity reconciliation b/w Ind AS and Indian GAAP on 1 April 2015 & 31 Mar 2016.
 Income Reconciliation b/w Ind AS and Indian GAAP for the year ending 31 Mar 2016.

16. CONTD.
• As part of Ind AS transition process, companies covered in first phase will have to prepare:
• Ind AS financial statements as at and for the year ending 31 Mar 2016 for comparative.
• Ind AS Financial statements as at and for year ending 31 Mar 2017.
• Equity reconciliation b/w Ind AS and Indian GAAP on 1 April 2015 & 31 Mar 2016.
• The net worth shall be calculated in accordance with thestand-alone financial statements,31st
statements,31st March, 2014 of the company as on stand-alone financial statements, 31st
March, 2014 or the first audited financial statements for accounting period which ends after
that date.

17. Indian Accounting Standard
(Ind AS) 2
Inventories

18. Introduction
 Prescribes the accounting treatment for inventories, such as,
measurement of inventories, recognition of inventories as
expense and disclosure etc.

19. Measurement of Inventories
 Inventories shall be measured at the lower of cost and NRV.
 Cost comprise – cost of purchase, cost of conversion and
other costs incurred in bringing the inventories to their
present location and condition.

20. Contd.
Costs excludes:
 Abnormal amount of wasted material, labour or other
production costs;
 Storage cost, unless necessary in the production process
a further production stage;
 Administrative overheads
 Selling costs (includes distribution costs also)

21. Non Applicability
1. Financial instruments
2. Biological assets (Ind AS 41 – Agriculture) related to
agricultural activity and produce at the point of harvest

22. SAMPLE MCQ QUESTIONS

23. FIB
A B and C are partners in 3:2:1. Their capital Amount are respectively Rs. 12,000 (Cr.),
Rs.60,000 (Cr.) and Rs.120,000 (Cr.) The maximum loss is Rs. 60,000. A becomes insolvent.
Then as per Garner Vs. Murray-
 B & C will bring Cash 4,000 and 8,000 respectively
 A & B will bring Cash Rs.12,000 each
 B brings 8,000 and C brings 4,000
 B&C will together bring cash Rs.60,000 in 1:2
The objective of -------- is to prescribe the manner in which value of inventory is to be
determined by an enterprise.
 AS 6
 AS 4
 AS 2
 AS 1

24. MCQ
Accounting in India is governed by the
 Institute of Chartered Accountants of India
 Income Tax Department
 Company Law Board
 Reserve Bank of India
Bank Overdraft 10, 000, Partners’ Loan: X Loan 10, 000, Y Loan 10,000. Cash available is 15,000.
How would you distribute?
 Pay Bank overdraft 10,000, Balance 2,500 each to X loan and Y loan.
 Pay all three 5,000 each
 Pay 10,000 Bank overdraft and Rs. 5,000 to X loan
 Pay 10,000 Bank overdraft and Rs. 5,000 to Y loan

25. TRUE OR FALSE
In case of insolvency of a partner, his capital deficiency should be borne by
the other solvent partners in their profit sharing ratio.
 True
 False
In India, Accounting Standards are issued by Accounting Standard Board.
 True
 False

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