Accounting Standard-15 Accounting For Employee Benefits (Key Points)

1).The method of accounting of retirement benefits depends on the nature of retirement benefits and in practice

it may not be incorrect to say that it also depends on the mode of funding.

2).On the basis of nature, a retirement benefit scheme can be classified either as defined benefit plan or defined

contribution plan.

3).Defined contribution schemes are schemes where the amounts to be paid as retirement benefits are

determined by contributions to a fund together with earnings thereon; e.g., provident fund schemes.

4). Defined benefit schemes are retirement benefit schemes under which amounts to be paid as retirement benefits are determinable usually by reference to employee’s earnings and/or years of service; e.g., gratuity schemes.

5).For defined contribution schemes, contribution payable by employer is charged to Profit & Loss Account.

For defined benefit schemes, accounting treatment will depend on the type of arrangements which the

employer has made.

6).If payment for retirement benefits is made out of employers funds, appropriate charge to Profit & Loss

Account to be made through a provision for accruing liability, calculated according to actuarial valuation.

If liability for retirement benefit is funded through creation of trust, the excess/shortfall of contribution paid

against amount required to meet accrued liability as certified by actuary is treated as pre-payment or charged

to Profit & Loss Account.

7).If liability for retirement benefit is funded through a scheme administered by an insurer, an actuarial

certificate or confirmation from insurer is obtained. The excess/shortfall of the contribution paid against the

amount required to meet accrued liability as confirmed by insurer is treated as pre-payment or charged to

Profit & Loss Account.

8).Any alteration in the retirement benefit cost should is charged or credited to Profit & Loss Account and

change in actuarial method is to be disclosed.

9).Financial statements to disclose method by which retirement benefit cost have been determined.

The institute has issued AS-15 which is broadly on lines of IFRS-19. It is applicable for accounting periods

commencing after December 7, 2007. The Standard improves the existing practices mainly in the following

areas.

— It is broad in its applicability as it covers all short-term and long term employee benefits. For example,

annual paid leave (though not encashable), long-term service rewards, subsidised goods or services, etc. are

also covered

— Additional disclosures are required in relation to any defined benefits plans including:

(i) The reconciliation of (opening to closing) of Projected Benefit Obligation.

(ii) The reconciliation of (opening to closing) of Fair Value of Plan Assets.

(iii) The reconciliation of (opening to closing) of Net Liability/Prepaid Asset.

(iv) Components of charge during the year.

(v) Principal actuarial assumptions.

Accounting Standard-14 Accounting For Amalgamation (Key Points)

1).The Accounting Standard is applicable only where it is made in pursuant to a scheme sanctioned by statute.

2).The accounting method to be adopted depends whether the amalgamation is in the nature of merger or not as

defined in para 3(e) of the Standard. The definitions list out five criteria, all of which must be satisfied for an

amalgamation to be accounted on the basis of "Pooling of Interest Method".

3). If any criterion is not met then the amalgamation is accounted on by using "Purchase Method".

4).It may be mentioned that these criteria relates to mode of payment of consideration of merger, shareholding pattern pre and Post Merger, intention to carry-on business after the merger, pooling of all assets and liabilities after the merger and an intention to continue to carry the carrying amounts of assets and liability after the merger.

5).Under Purchase Method, all assets and liabilities of the transferor company is recorded either at existing

carrying amount or consideration is allocated to individual identifiable assets and liabilities on basis of its fair

values at date of amalgamation. The excess or shortfall of consideration over value of net assets is recognised

as goodwill or capital reserve.

6).Under the Pooling of Interest Method, assets, liabilities and reserves of the transferor company be recorded at

existing carrying amount and in the same form as on date of amalgamation. In case of conflicting accounting

policies existing in transferor and transferee company a uniform policy be adopted on amalgamation, as per

AS-5.

7).Certain specific disclosures are required to be made in financial statements after amalgamation. In case of amalgamation effected after Balance Sheet date but before issue of financial statements of either party, the event be only specifically disclosed and not given effect in such statements.

Accounting Standard-13 Accounting For Investments

1).Current investments and long-term investments shall be disclosed distinctly with further sub-classification.

2).Cost of investment to include acquisition charges, e.g., brokerage, fees and duties.

3).Current investments shall be disclosed at lower of costs and fair value.

4Long-term investments shall be disclosed at cost.

5).Provision for decline (other than temporary) to be made.

6).Adequate disclosure is required for: the accounting policy adopted — classification of investments — income

from investments, profit/loss on disposal and changes in carrying amount of such investment — aggregate

amount of quoted and unquoted investments giving aggregate market value of quoted investments.

7).Significant restrictions on right of ownership, realisation of investment and remittance of income and

proceeds of disposal thereof be disclosed.

Accounting Standard -12 Accounting for Government Grants (Key Points)

1).Grants should not be recognised unless reasonably assured to be realised.

2). Grants towards specific assets be presented as deduction from its gross value. Alternatively, be

     treated as deferred income in Profit & Loss Account on rational basis over the useful life

     of the asset when depreciable. For non-depreciable asset requiring fulfilment of any obligations, it be credited        to Profit & Loss Account during the concerned period to fulfil obligations.

3). Balance of deferred income be disclosed appropriately as to promoter’s contribution, be credited to capital

     reserves and considered as shareholders’ funds

4).Grants in the form of non monetary assets given at concessional rate be accounted at their acquisition cost.

5).Asset given free of cost be recorded at nominal value.

6).Grants receivable as compensation of losses/expenses incurred be recognised and disclosed in Profit & Loss

    Account in the year it is receivable and shown as extraordinary item if appropriately read with AS-5.

7).Contingency related to grant be treated in accordance with AS-4. Grants when become refundable, be shown

    as extraordinary item read with AS-5.

8).Grants related to revenue on becoming refundable be adjusted first against unamortised deferred credit

    balance of the grant and then be charged to Profit & Loss Account.

9).Grants against specific assets on becoming refundable be recorded by increasing the value of the respective

     assets or by reducing Capital Reserve/Deferred Income balance of the grant.

10).Grant to promoter’s contribution when refundable be reduced from the Capital Reserve.

11).Accounting policy adopted for grants including method of presentation, extent of recognition in financial

      statements, at concession/free of cost be disclosed.

Accounting Standard 11 -ACCOUNTING FOR EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES (Key Points)

1).Applicable to all enterprises for which accounting period commences on or after 1-4-2004. It is applicable to

transactions in foreign currency and translating financial statements of foreign subsidiary/branches.

2).Monetary items denominated in Foreign Currency shall be reported using closing rates.

   Non monetary items carried in terms of historical cost in foreign currency shall be reported at the exchange

   rate on the date of the transaction.

3).Exchange differences shall be recognised as income/expenses in the period in which they arise except in case

   of fixed assets and differences on account of forward contracts

4).Translation of foreign exchange transaction of revenue items except opening/closing inventories and

depreciation shall be made by applying rate at the date of the transactions. For convenience purposes an

average rate or weighted average rate may be used, provided it approximates the rate of exchange.

5). Opening and closing inventories shall be translated at rates prevalent on opening and closing dates, respectively and depreciation amount shall be converted by applying the rate used for translation of the asset.

6).Translation gains and losses for branches/subsidiaries forming integral part of operations of the entity shall be

accounted as stated in above. However translation gains and losses for non-integral operations shall be

directly credited to reserves. It may be mentioned that that the method of arriving translation gains or losses

shall be different from that stated above; i.e., all assets and liabilities are converted at closing rates and

revenue items are converted at average rates, where it approximates the rates at the date of transactions.

7).Integral foreign operation is a foreign operation, the activities of which are an integral part of those of the reporting enterprise.

8).Exchange differences arising on repayment of liabilities incurred for purchase of fixed assets shall be

expensed through profit and loss account. {Note, in case of a Company (read as required by Schedule VI),

where the fixed asset is purchased from outside India, the related exchange gains and loss, if any, are required

to be capitalized}. Also in case of a company, other exchange differences arising out of long-term monetary

items can be initially deferred and later amortized over the period up to March 31, 2012 or the life of the

related long-term monetary asset whichever is lower with corresponding adjustments in balance sheet

through "Foreign Currency Monetary Item Translation Difference Account".

9).Gains or losses on accounting of forward contracts is recognised through profit and loss account (unless it

relates to fixed assets as described in above for a Company).However, measurement of gains or losses on forward contract depends upon the intention for which it is taken. Where it is not for trading or speculative purposes the premium/discount is amortised over the term of the contracts. Where these are held for either speculative or trading purposes, the gain or loss is arrived at each reporting date after comparing the FAIR VALUE of contract for its remaining term of maturity with the carrying amount at the reporting date.

10).Profit/Loss on cancellation or renewal of forward exchange contract shall be recognised as income/expenses

of the respective period (unless it relates to fixed assets as described in above for a Company).

11).Amount of exchange difference included in Profit & Loss Account adjusted in carrying forward or amount of

fixed assets or due to forward contracts recognised in Profit & Loss Account for one or more accounting

period must be disclosed.