Accounting Standard-10 Accounting For Fixed Assets(Key Points)

1).The cost of a fixed asset should comprise its purchase price and any attributable cost of bringing the asset to

its working condition for its intended use.

2).Self-constructed asset shall be accounted at cost.

3).In case of exchange of asset, fair value of asset acquired or the net book value of asset given up whichever is

more clearly evident shall be considered.

4).Revaluation is permitted provided it is done for the entire class of assets. The basis of revaluation should be

disclosed.

5).Increase in value on revaluation shall be credited to Revaluation Reserve while the decrease should be

charged to Profit and Loss Account.

6).Goodwill to be accounted only when paid for.

7).Assets acquired on hire purchase shall be recorded at its fair value.

8).Gross and net book values at beginning and end of year showing additions, deletions and other movements is

required to be disclosed.

10).Assets should be eliminated from books on disposal or when of no utility value.

11).Profit/loss on disposal be recognised on disposal to Profit and Loss Account.

12).Machinery spares that can be used only in conjunction of specific asset shall be capitalised.

Accounting Standard-9 Revenue Recognition (Key Points)

1).Revenue from sales or service transactions should be recognised when the requirements as to performance as

set out are satisfied, provided that at the time of performance it is not unreasonable to expect ultimate

collection. If at the time of raising of any claim it is unreasonable to expect ultimate collection, revenue

recognition should be postponed.

2).In a transaction involving the sale of goods, performance should be regarded as being achieved when the

following conditions have been fulfilled:

 (i) the seller of goods has transferred to the buyer the property in the goods for a price or all significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership; and

(ii) no significant uncertainty exists regarding the amount of the consideration that will be derived from the

sale of the goods.

3).In a transaction involving the rendering of services, performance should be measured either under the

completed service contract method or under the proportionate completion method, whichever relates the

revenue to the work accomplished.

4).Such performance should be regarded as being achieved when no significant uncertainty exists regarding the

amount of the consideration that will be derived from rendering the service.

5).Revenue arising from the use of other enterprise resources yielding interest, royalties and dividends should

only be recognised when no significant uncertainty as to measurability or collectability exists. These revenues

are recognised on the following bases:

(i) Interest: on a time proportion basis taking into account the amount outstanding and the rate applicable.

(ii) Royalties: on an accrual basis in accordance with the terms of the relevant agreement.

(iii) Dividends from investments in shares: when the owner’s right to receive payment is established.

Disclosure

1).In addition to the disclosures required by Accounting Standard 1 on ‘Disclosure of Accounting Policies’

(AS-1), an enterprise should also disclose the circumstances in which revenue recognition has been

postponed pending the resolution of significant uncertainties.

2).In cases where revenue cycle of the entity involves collection of excise duty the enterprise is required to

disclose revenue at gross as reduced by excise amount thereby finally arriving net sales on the face of the

profit and loss account.

3).The standard is followed by an appendix that though is not part of the Standard, illustrate the application of

the Standard to a number of commercial situation deals with various situations in an endeavour to assist in

clarifying application of the Standard.

Accounting Standard-7 Accounting For Construction Contracts (Key Points)

1).It may be mentioned that the standard is applicable in accounting of contracts in the books of the contractor.

    It is not applicable for construction project undertaken by the entity on behalf of its own, for example, a

    builder constructing flats to be sold.

2). It is also not applicable to Service Contracts which are not related to the construction of asset.

3).According to AS-7 (Revised) the enterprise should follow only percentage completion method.

4).Where in case the contract revenue or the stage of completion cannot be determined reliably, the cost incurred

on the contract may be carried forward as work-in-progress.

5). All foreseen losses must be fully provided for.

6).Under percentage of completion method, appropriate allowance for future contingencies shall be made.

WIP, receipt of progressive payments, advances, retentions, receivables and certain other items are required

to be disclosed.

Accounting Standard-6 Depreciation Accounting (Key points)

1).Allocate depreciable amount of a depreciable assets on systematic basis to each accounting year over useful

life of asset, useful life may be reviewed periodically.

2).Basis must be consistently followed and disclosed. Any change to be quantified and disclosed.

3).Rates of depreciation should be disclosed.

4).A change in method followed be made only if required by the statute, compliance to Accounting Standard,

appropriate preparation or presentation of the financial statement.

3).In cases of extension, revaluation or exchange fluctuation, depreciation to be provided on adjusted figure

prospectively over the residual useful life of the asset.

4).Deficiency or surplus in case of transfer/change in method be disclosed.

5).Historical cost, depreciation for the year and accumulated depreciation be disclosed.

6).Revision in method of depreciation be made from date of use. Change in method of charging depreciation is

change in accounting policy be disclosed.

Accounting Standard-5 Net Profit/Loss for the period,Prior period items & changes in Accounting policies (Key Points)

Definitions:

1).Ordinary activities are any activities which are undertaken by an enterprise as part of its business and such related activities in which the enterprise engages in furtherance of, incidental to, or arising from, these activities.

2).Extraordinary items are income or expenses that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and, therefore, are not expected to recur frequently or regularly.

3).Prior period items are income or expenses which arise in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods.

4).Accounting policies are the specific accounting principles and the methods of applying those principles adopted by an enterprise in the preparation and presentation of financial statements.

Accounting treatment and disclosures

1).OrdinaryActivities :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.

2).Extraordinary Items should be disclosed in the statement of profit and loss as a part of net profit or loss for

the period. The nature and the amount of each extraordinary item should be separately disclosed in the

statement of profit and loss in a manner that its impact on current profit or loss can be perceived.

3.).Prior Period : The nature and amount of prior period items should be separately disclosed in the statement of

profit and loss in a manner that their impact on the current profit or loss can be perceived.

4).Accounting Estimate : The effect of a change in an accounting estimate should be included in the

determination of net profit or loss in;

 (a) the period of the change, if the change affects the period only; or

 (b) the period of the change and future periods, if the change affects both.

5).Accounting Policy : Any change in an accounting policy which has a material effect should be disclosed.

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. Where the effect

of such change is not ascertainable, wholly or in part, the fact should be indicated.

6). If a change is made in the accounting policies which has no material effect on the financial statements for the current period but which is reasonably expected to have a material effect in later periods, the fact of such change should be appropriately disclosed in the period in which the change is adopted.

7)A change in accounting policy consequent upon the adoption of an Accounting Standard should be accounted

for in accordance with the specific transitional provisions, if any, contained in that Accounting Standard.

However, disclosures required by paragraph 32 of the Statement should be made unless the transitional

provisions of any other Accounting Standard require alternative disclosures in this regard.

8).Where any policy was applied to immaterial items in any earlier period but the item is material in the current

period, the change in accounting policy, if any, shall not be treated as a change in accounting policy and

accordingly no disclosure is required e.g., gratuity booked on cash basis in earlier period for relatively

insignificant number of employees which in current period has become material and thus provided on basis of

report of Actuary.

Accounting Standard-4 Contingencies & Events Occuring after the Balance Sheet date (Key points)

Contingencies

1).The amount of a contingent loss should be provided for by a charge in the statement of profit and loss if it is

probable that future events will confirm that, after taking into account any related probable recovery, an asset

has been impaired or a liability has been incurred as at the balance sheet date, and a reasonable estimate of

the amount of the resulting loss can be made.

2).The existence of a contingent loss should be disclosed in the financial statements if either of the conditions in

above paragraph is not met, unless the possibility of a loss is remote.

3).Contingent gains should not be recognised in the financial statements.

Events occurring after the Balance Sheet Date

1).Assets and liabilities should be adjusted for events occurring after the balance sheet date that provide

additional evidence to assist the estimation of amounts relating to conditions existing at the balance sheet date

or that indicate that the fundamental accounting assumption of going concern (i.e., the continuance of

existence or substratum of the enterprise) is not appropriate.

2).Dividends stated to be in respect of the period covered by the financial statements, which are proposed or

declared by the enterprise after the balance sheet date but before approval of the financial statements, should

be adjusted.

3).Disclosure should be made in the report of the approving authority of those events occurring after the balance

sheet date that represent material changes and commitments affecting the financial position of the enterprise.

Disclosure

1).If disclosure of contingencies is required by paragraph 11 of the Statement, the following information should

be provided: the nature of the contingency, the uncertainties which may affect the future outcome, an estimate

of the financial effect, or a statement that such an estimate cannot be made.

2).If disclosure of events occurring after the balance sheet date in the report of the approving authority is

required by the Standard then it shall disclose; the nature of the event, an estimate of the financial effect, or a

statement that such an estimate cannot be made.

Accounting Standard-3 Cash Flow Statements(Key Points)

1).The standard sets out the requirement that where the cash flow statement is presented, it shall disclose a

movement in "cash and cash equivalents" segregating various transactions into operating, investing and

financing activity.

2). It requires certain specific items to be addressed in the cash flows and certain supplemental

disclosures for non-cash transactions.

3).Cash comprises cash on hand and demand deposits with banks.

4).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.

5).Cash flows are inflows and outflows of cash and cash equivalents.

6).Operating activities are the principal revenue-generating activities of the enterprise and other activities that

are not investing or financing activities. Examples, cash receipts from the sale of goods and the rendering of

services; cash receipts from royalties, fees, commissions and other revenue; cash payments to suppliers for

goods and services; cash payments to and on behalf of employees.

7).Investing activities are the acquisition and disposal of long-term assets and other investments not included in

cash equivalents. Examples, cash payments to acquire fixed assets (including intangibles). These payments

include those relating to capitalised research and development costs and self-constructed fixed assets; cash

receipts from disposal of fixed assets (including intangibles); cash payments to acquire shares, warrants or

debt instruments of other enterprises and interests in joint ventures (other than payments for those

instruments considered to be cash equivalents and those held for dealing or trading purposes).

8).Financing activities are activities that result in changes in the size and composition of the owners’ capital

(including preference share capital in the case of a company) and borrowings of the enterprise. Example, cash

proceeds from issuing shares or other similar instruments; cash proceeds from issuing debentures, loans,

notes, bonds, and other short- or long-term borrowings; and cash repayments of amounts borrowed.

Additionally certain items are required to be disclosed separately, like Income Tax, Dividends, etc.

9).The enterprise can choose either direct method or indirect method for presentation of its cash flows.

10).Cash flows arising from transactions in a foreign currency should be recorded in an enterprise’s reporting

currency by applying to the foreign currency amount the exchange rate between the reporting currency and

the foreign currency at the date of the cash flow. A rate that approximates the actual rate may be used if the

result is substantially the same as would arise if the rates at the dates of the cash flows were used. The effect

of changes in exchange rates on cash and cash equivalents held in a foreign currency should be reported as a

separate part of the reconciliation of the changes in cash and cash equivalents during the period.

Accounting Standard -2 Valuation Of Inventories (Key Points)

1).The cost of inventories should comprise all costs of purchase, costs of conversion and other costs incurred
 in bringing the inventories to their present location and condition.

2). Inventories are valued at lower of cost or net realisable value.

3). Specific identification method is required when goods are not ordinarily interchangeable. In other circumstances, the enterprise may adopt either weighted average cost method or FIFO methods whichever approximates the fairest possible approximisation of cost incurred.

4).Standard Costing Method or Retail Inventory Method can be adopted only as a techniques of

measurement provided where the results of these measurements approximates the results that would be

arrived at after adopting specific identification method or weighted average method or FIFO method as may

be applicable to the circumstances.

5).The financial statements should disclose:

(a) the accounting policies adopted in measuring inventories,including the cost formula used; and

 (b) the total carrying amount of inventories and its classification appropriate to the enterprise.

Accounting Standard-1 Disclosures Of Accounting Policies (Key Points)

1).Significant Accounting Policies followed in preparation of accounts be disclosed at one place along with the

financial statements.

2).Any change and financial impact of such change should be disclosed.

3).If fundamental assumptions (going concern, consistency and accrual) are not followed, the fact to be

disclosed.

4). Going concern assumption is assessed for a foreseeable period of one year.

5).Accounting Policies adopted by the enterprise should represent true and fair view of the state of affairs of the

financial statements.

6).Major considerations governing selection and application of accounting policies are: i) Prudence, ii)

Substance over form and iii) Materiality.

Note — In relation to derivative contracts (e.g. foreign exchange forward contracts) the Institute interpreted

on the principles of prudence that the loss (net), if any on each reporting date shall be provided through the

statement of profit and loss account.

Hey Guys, I will post summary of all other accounting standards soon.So please stay connected.

GST IN INDIA-AN OVERVIEW

One of the biggest taxation reforms in India -- the Goods and Service Tax (GST) -- is all set to integrate State economies and boost overall growth.

GST will create a single, unified Indian market to make the economy stronger.

Finance Minister Pranab Mukherjee while presenting the Budget on July 6, 2009, said that GST would come into effect from April 2010.

(Goods and Services Tax in India is set to be implemented from 01/04/2016.)

The implementation of GST will lead to the abolition of other taxes such as octroi, Central Sales Tax, State-level sales tax, entry tax, stamp duty, telecom licence fees, turnover tax, tax on consumption or sale of electricity, taxes on transportation of goods and services, et cetera, thus avoiding multiple layers of taxation that currently exist in India.

But just what is GST all about and how will it impact you?

What is GST?

Goods and Services Tax -- GST -- is a comprehensive tax levy on manufacture, sale and consumption of goods and services at a national level.

Through a tax credit mechanism, this tax is collected on value-added goods and services at each stage of sale or purchase in the supply chain.

The system allows the set-off of GST paid on the procurement of goods and services against the GST which is payable on the supply of goods or services. However, the end consumer bears this tax as he is the last person in the supply chain.

Experts say that GST is likely to improve tax collections and boost India's economic development by breaking tax barriers between States and integrating India through a uniform tax rate.

What are the benefits of GST?

Under GST, the taxation burden will be divided equitably between manufacturing and services, through a lower tax rate by increasing the tax base and minimizing exemptions.

It is expected to help build a transparent and corruption-free tax administration. GST will be is levied only at the destination point, and not at various points (from manufacturing to retail outlets).

Currently, a manufacturer needs to pay tax when a finished product moves out from a factory, and it is again taxed at the retail outlet when sold.

How will it benefit the Centre and the States?

It is estimated that India will gain $15 billion a year by implementing the Goods and Services Tax as it would promote exports, raise employment and boost growth. It will divide the tax burden equitably between manufacturing and services.

What are the benefits of GST for individuals and companies?

In the GST system, both Central and State taxes will be collected at the point of sale. Both components (the Central and State GST) will be charged on the manufacturing cost. This will benefit individuals as prices are likely to come down. Lower prices will lead to more consumption, thereby helping companies.