AS-Book Summary

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CA - INTERMEDIATE
Accounting Policies : Major points considered for selection and application of Accounting policies
refer to specific accounting
principles and method of
applying those principles
Adopted by the enterprise in
the preparation and Secondary Criteria:
Primary Criteria :
presentation of the Financial Select a policy which
statements. gives a true&fair view of
profit and loss statement
Substance over form: Materiality:

Prudence:
Transactions and other FS Should disclose all
When can you change Provision should be
events should be material items i.e. the
Accounting policy ? created for all known
accounted for and items the knowledge of
1. Required by statute/ liabilities and losses (even
presented in accordance which might influence
Compliance with and AS though only a best
with their substance and the user of financial
2. It is considered that change estimate can be made )
financial reality and not statement. ( They can be
would result in more both quantitative or
appropriate presentation of merely by their legal form
qualitative).
financial statement.
What are fundamental

Accounting
Disclosures: Assumptions??
Disclose the following only when these are
Where to disclose ? -> Financial statements -> Notes to account not followed by the entity , it is generally
What to disclose ? -> Any deviation from accounting policies 1. Going Concern
deemed that these are always followed in
How to disclose ? -> At one place 2. Consistency
preparation of FS.
3. Accrual
AS 1 : Disclosure of Accounting Policies
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CA KARTHIK MANIKONDA PAGE 1
Inventories AS-2
(Summary)
Definition of Inventory :
Inventory is an Asset :
1. Held for sale in the ordinary course of Scope:
Measurement of
business (FG) Objective: Not applicable to -
inventories:
2. in the process of production of such sale Determination of -> Construction contract
Lower of COST or
(WIP) cost and realizable ->Financial Instruments
NET REALIZABLE
3. in the form of materials or supplies to be Value -> Biological assets
VALUE (NRV)
consumed in the production process or -> WIP of services
rendering of services. (RM)
CA KARTHIK MANIKONDA
Net Realizable Value:
Cost: =
Estimated Selling Price
1.Cost of Purchase LESS
2.Cost of conversion Estimated Cost of
3.Bringing Cost Completion
LESS
Cost Necessary to make
the sale.
Cost of purchase includes:

1. Purchase price Cost of conversion:
2. Duties and Taxes ( Non-refundable) 1. Direct Material and labour
3. Freight inward cost Exclusions from
Bringing Cost:
4.Other expenses directly attributable to the 2. Production Overhead Cost:
Cost of Purchase: Cost incurred to
acquisition ( VOH -> Based on Actual 1. Interest cost
Purchase cost* LESS bring Inventory to
until the goods reach the factory/godown. production 2. Storage cost
Trade discounts/ Present location and
LESS FOH -> Based on Normal 3. SOH
rebates condition.
5. Duties and taxes ( Refundable) Production) 4. Abnormal cost
6. Trade discount
7. Rebate
8.Other Similar items
Cost Formula
1. FIFO
2. Weighted Cost
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Cost in Certain Cases:
Few Concepts
1. Inventory of service provider : Disclosures:
PAGE 3
1. Machinery spares(Read with
AT COST 1. Classification of Inventories
AS10)
2. Cost of agriculture produce 2. Carrying Value
2. Concept of Cost of RM when
harvested : Fair value LESS cost to 2. Cost Formula
Cost of FG Falls below Cost.
sell
AS 3 Cash flow statement
Classification of Cash flow Activities
Operating Activities Investing Activities Financing Activities

Represent the extent to which expenditures
These are primarily derived from the principal These are activities that result in changes in the
have been made for resources intended to
revenue generating activities of the enterprise. size and composition of the owner’s capital
generate future income and cash flows, i.e. they
These activities are essential to support the (Including Preference share capital) and
relate to acquisition and disposal of long term
working capital of the enterprise. borrowing’s of the enterprise (Only Direct
assets and Investments not included in cash
(Direct or Indirect Method) Method)
equivalents. (Only Direct Method)
• Cash receipts from sale of goods/ rendering • Cash payments to acquire Property, plant • Cash proceeds from issuing shares or other
of services and equipment (Including intangible assets). equity instruments (eg : warrants)
• Cash payment to supplier for goods/ Payments in relating to capitalised R&D • Cash payments to owners to acquire or
services. costs and self constructed fixed assets. redeem the entity’s shares. (Eg : Buy back)
• Cash receipts and payments of taxes unless • Cash receipts from sale of PPE, intangibles • Cash proceeds from issuing debentures,
they can be specifically identified with and other long term investments. loans, notes, bonds, mortgages and other
Investing/Financing activities. • Cash receipts/ payments from derivative short-term or long term borrowings.
• Cash receipts and payments in relation to contracts except when such derivative • Cash repayments of amounts borrowed (eg:
derivate contracts when such contracts are contracts are held for trading/speculative Bank loan, debentures etc)
held for trading / speculative purpose. purposes (i.e. held for investment) or when • Cash payments by lessee in a finance lease
• Cash flow arising from dealing in securities such receipts/ payments are classified as against outstanding liability
financing activities.
STEPS TO SOLVE A SUM IN AS 3 – Use format as prescribed in AS 3

1. First, read through the problem and identify and classify all activities into the above three buckets.
2. Second, In direct method remember that all you have to do is prepare a vertical cash account classifying all transactions into receipts and payments to identify how much cash was
received in the business and how much was used and how much is left ( Opening cash + Receipts – Payments = Closing cash balance).
3. Third, In Indirect method, what we do here is we start from Net profit and make all logical adjustments to arrive at the cash generated, i.e. we know that Net profit is not equal to
cash earned from operating items because of various non-cash items (Eg : Depreciation and other items present in the Pnl), then we make necessary adjustments for changes in working
capital from BS and arrive at cash generated from operations. We are basically moving from Net profit for the year into arriving at cash generated from operating activities for the year.
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AS 4 Contingencies and Events occurring after the balance sheet date
Events OCCURING the after

balance sheet date
“ Events Occurring after the balance
sheet date are those events both
favourable and unfavourable that
occur between the balance sheet
date and the date on which financial
statements are approved by the
competent authority. “
Non – Adjusting Events

Adjusting Events New Events relating to Assets (or)
Events which give additional evidence of Liabilities on Balance sheet date
a condition (or) situation of Assets (or)
(Eg : Fire after 31st march, new merger
Liabilities on balance sheet date deal after 31st march etc)
Accounting Treatment
Accounting Treatment No Adjustment in Financial Statements,
Adjust Corresponding Assets / Liabilities However, if the amount (or) transaction is
as on balance sheet date material and involves financial commitment,
then disclose in the report of the approving
authority (i.e. Director’s Report)
When Non – Adjusting

Event will become an Proposed Dividend
Adjusting Event? adjustment
When the Event is so material Proposed dividend is a

that it affects Going Concern of Non – adjusting event,
the Business. (i.e. Fundamental disclose only in Notes
Accounting Assumption is to Account.
Affected)
AS 4
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AS 5 Net profit for the period , Prior period Items From www.castudynotes.com
, Change in Accounting Estimates and change in Accounting Policies.
CA - INTERMEDIATE
Ordinary Change in
Extraordinary Prior Period
Activities Accounting
Items Items
Estimate
They are activities that are carried Prior period items are income or Accounting estimates are amounts
on by the enterprise as part of it’s Items that arise from activities expenses which arise in the current determined where reliable
business and all related activities which are other than ordinary period as a result of errors or measurement cannot be made.
which are carried on in furtherance activities. These items are usually omissions in the preparation of Acc. Estimate may change due to ;
of OR incidental to OR arising from non-recurring in nature. financial statements of one or 1. Result of new information
business. more prior periods. 2. Change in circumstances.
Disclose Separately in the Disclose separately in the Disclose separately in the

statement of Profit and loss statement of profit and loss in a statement of profit an loss in a Quantify the effect and disclose;
every item of manner that their impact on the manner that their impact on the 1. Effect on current year profits.
income/Expense whose nature current profit or loss can be current profit or loss can be 2. Effect on future profits.
is different AND size is material perceived. perceived.
Examples :
Examples : Examples : Examples :
1. Arithmetical errors
1. Profit on sale of Inventory 1. Attachment of property of 1. Change of useful life for an
2. Misinterpretation of facts
2. Loss on sale of unsold enterprise asset. (Depreciation)
3. mistakes in applying
inventory at the year end 2. Earthquake 2. Provision for Bad debts.
accounting policies.
Quantify effect of change and

Change in What is an Accounting policy AND Examples :
disclose;
Accounting when can you change and 1. WDV To SLM method
1. Impact on current year profits.
Policy accounting policy – AS 1. 2. FIFO to Weighted
2. Impact on Future profits. average.
(Refer to AS 1)

AS 7 Construction Contracts
Construction Contract Types of Construction contracts
It is a contract for construction of an asset (or) group of assets
which are closely interrelated in terms of design and function.
Applicability: It is applicable only in the books of contractor for Fixed price contract Cost plus contract
measuring revenue, expenses, assets and liabilities.
(also includes contracts for destruction/restoration of an asset)
Disclosures
A. Revenue recognised
Contract Revenue includes Accounting for both to be done using percentage of
B. method of arriving % of completion 1. Basic contract price completion method ONLY.
C. cost incurred D. any advance billing
E. progress payment received 2. Claims/ reimbursements
F. Amount due/from customers 3. Variations
(contract costs + recognised profit – recognised loss) – (progress
payments received + progress payment to be received) 4. Incentives
Revenue Cost
Segmentation of Contracts vs Combination of Contracts

1. Generally the profit/loss arising from a contract is to be computed for each A. Cost to Cost Method No % of completion method
contract individually, whether the work is done individually or together; 1. compute percentage of for accounting costs, costs to
A. separate proposals for each asset B. cost and revenue for each asset can be be accounted as and when it
identified C. each asset has been to separate negotiation and the contractor and
completion (cost to date /
customer have been able to accept/reject that part of the contract relating to cumulative cost incurred + is incurred.
each asset. (segmentation of contracts) estimated cost to complete)
* 100 Contract costs includes the following;
2. In certain cases the profit/loss from a contract may be calculated in
combination of two or more contracts or group of combined contracts for 1. Expenses incurred directly attributable to the
accounting purpose because in substance these contracts are part of a single
2. Current revenue = contract net of incidental income if any.
Contract price * percentage (eg : site labour costs, cost of materials used,
project with an overall profit margin (Combination of contracts). depreciation of Machinery used in site, costs of
of completion – previously
design and technical assistance etc)
recorded revenue
Provision for expected losses
2. General OH allocated on a reasonable basis,
B. Survey method interest subject to AS 16.
Architect/engineer to provide a Costs does not include;
certificate stating amount of work 1. Admin OH
Forceable losses Enforceable losses certified. 2. Finance costs
To be recognised in full Provision should NOT be
3. any penalty paid
irrespective of stage of the made C. Physical measurement method
contract. (actually measure the amount of
work completed) AS 7
AS 9 Revenue recognition
Definition – Revenue
Revenue means GROSS inflow of

• Cash Record Such
• Receivables Revenue at
• Other consideration, “ Invoice Value”
From, Sale of goods, rendering of services, use by others of
enterprise resources yielding interest, dividend & Royalty, in
the ordinary course of business.
Recognition Criteria
General Conditions Specific Conditions
1. No uncertainty in Amount Use by others of

Enterprise Resource
Rendering of services Sale of Goods
2. No uncertainty in Ultimate
Collection
(if there is uncertainty? – deffer to the
extent of uncertainty) When the seller has
transferred the
property to the
buyer for
1. Dividend –> When Service involves
right to receive is Service involving consideration.
single Act Multiple Acts
established (Percentage of
(i.e. when declared) (Completed Service
Method) completion method)
2. Interest –> On eg : Wedding events
eg : Swiggy delivery
accrual based on time contract
And transfers
3. Royalty -> as per
term’s of agreement
significant Risk &
Rewards to the buyer
Special Cases
1. In case of Agency business revenue should be recognized for “commission” only
2. In case of consignment sale, risk an rewards are transferred only after goods are sold to third party.
3. In case of sale on approval basis, revenue should not be recognized until goods until goods have been
formally accepted by the buyer or buyer has done an act which amounts to acceptance
(including not responding withing reasonable time where time is mentioned)
4. for warranty sales, sales should be recognised immidiately but provision should be made to cover the
unexpired warranty.
5. Special orders and shipments,revenue to be recognised when goods are identified and ready for delivery
6. Inter divisional sales/ Transfers are not Revenue as per AS-9.

AS 10 Property, Plant & Equipment
What are Bearer plants? (Eg : Oak trees in
Definition of PPE 1. Biological Assets Tea estate)
(eg : Living animals & plants) • It is used in production (or) supply of
A. Used in production (or) supply of goods (or) services, AS 10 N.A to except bearer plants. agricultural produce.
B. for rental to others, • It is expected to bear produce for more
C. for administrative purposes, 2. Wasteful assets than 12 months.
D. Expected to be used for more than one period (Natural resources like iron • Has a remote likelihood of being sold
E. Not held for sale in ordinary course of business. ores) as agricultural produce except for
incidental scrap sale.
Cost of an Item of PPE
Includes Excludes
Purchase Price
It includes price paid to Any directly attributable costs • Cost of opening a new facility
vendor for purchase of PPE
Decommissioning,
(Cost necessary to bring the Asset Restoration and or business.
(Including Non-refundable (inauguration costs)
to the present condition and
duties and Taxes and similar liabilities • Cost of introducing a new
location, necessary for it to operate
excludes trade discounts and (i.e. estimated cost to product or service (including
the way in which management
rebates) intended it to operate) dismantle the asset) costs of advertising and
promotional activities)
• Cost of conducting business in
a new location or with a new
Includes Excludes class of customer (including
1. Cost of employee benefits (i.e. direct labour costs) 1. Cost incurred while an item capable of staff training costs)
2. Cost of site preparation operating in the manner intended by • Administrative and other
3. Initial delivery and handling costs, installation & assembly costs. management has yet to be brought into use or is general overhead
4. professional fees operated at less than full capacity.
6. cost of testing whether the asset is functioning properly, after 2. Initial operating losses
deducting the net proceeds from selling any items produced while 3. Cost of relocating or reorganising part or all of
bringing that asset to that location & condition
Measurement of cost of an Item of PPE in various cases
A. If payment is deferred beyond B. PPE acquired in exchange for a Non-Monetary asset (or) C. PPE Purchased for a D. Cost for
normal credit terms or a combination of monetary and Non-monetary assets consolidated price / Composite finance Lease
- The excess of payment made consideration and Govt Grant
over the cash price equivalent is Measure PPE at Fair value ± cash Unless (Lump sum payment for multiple transactions are
recognised as interest expense A. Exchange lacks commercial substance (future cash flows assets, eg: Slump sale) dealt in
over the period of credit unless of the entity are not expected to change) accordance with
such interest is allowed to be B. fair value of the asset given up (or) received is not “The consideration should be AS 19 & AS 12
capitalised as per AS 16. reliably measurable allocated among individual assets
(In cases A & B, measure PPE at Carrying amount of Asset in the ratio of FV of individual
given up) assets”
E. Cost of Self Constructed Assets Recognition of an item of PPE

• An Entity must record cost of self
constructed assets at COST,
abnormal items of wastage should
Initial Recognition Subsequent Recognition “A class of PPE is
not be included in this cost. a grouping of
• Interest can be capitalized subject (Measurement after recognition) assets of similar
to AS 16. The initial recognition of an item of PPE The entity should choose either nature & use in
must be done using Cost model only. • Cost Model (or) operations of an
enterprise”
[Cost – Any Accumulated depreciation – • Revaluation Model,
(eg: Land, P&M,
Any Accumulated impairment losses] as it’s accounting policy and should apply F&F, office
that policy to an entire class of PPE. equipment etc)
Revaluation Model
-> an asset whose fair value can be reliably measured should be carried at
revalued amount. [FV on the date of revaluation – any subsequent
accumulated depreciation – any subsequent accumulated impairment losses]

Frequency of Revaluation Accounting treatment on Revaluation
Revaluation Results in
Items of PPE experience Items of PPE experience insignificant INCREASE DECREASE

significant & volatile changes in changes in Fair Value – Credit to revaluation surplus Charged to Statement of profit
Fair Value – under owner’s interest and loss account
“ Carry Revaluation every year” “ carry Revaluation once in 3-5 years”
Exception Exception
when the PPE is subsequently when the PPE is subsequently
increased after it was initially decreased after it was initially
decreased, recognise the increased, recognise the decrease in
When can balance in Revaluation reserve be transferred to revenue reserve? increase in statement of Profit Revaluation reserve to the extent of
and loss account to the extent of initial increase and debit the balance
initial decrease. in statement of profit & loss account.
When the Item of PPE is; Some of the surplus may be transferred
• Retired when the asset is used by the
• Disposed enterprise –> Amount transferable De - Recognition of an asset (The carrying amount of an item of
would be ; PPE should be derecognised) – i.e. removing from the books
[Depreciation based on revalued
amount – depreciation based on
original cost]
On disposal of asset by means of; When no Future economic
• Sale benefits are expected from it’s
• Entering into a finance lease use (or) disposal
Retirement of an Asset (or)
“Items of PPE retired from active use and held for disposal should • Donation
be stated at the lower of Carrying Amount (or) NRV”
Compensation from 3rd Parties for items of PPE that were impaired, lost of given up
“ It is Included in determining profit or loss when it becomes determinable”

AS 11 The effects of changes in Foreign Exchange Rates CA - INTERMEDIATE
Foreign Currency Forward Exchange

Foreign Operations
Transactions Contracts
Any transaction
denominated in foreign Types of Foreign Not intended for
Intended for trading
currency Operations ; trading purpose or
purpose or
1. Integral Foreign speculation. ( i.e.
speculation
Operations Hedging)
( Dependent Branches )
2. Non-Integral Foreign
Operations. Premium or discount
(Independent Branches ) Premium or discount
arising at the
arising on the
Recognition ( i.e. Measurement (i.e. at inception of such
contract is ignored.
when will I record in what value will I forward contract
At each BS date the
the books) record the same?) should be amortized
contract is marked to
as income or expense
market and loss/gain
over the life of the
is recognized in P&L.
contract
Measure using
Recognize on “Date Initial Recognition
“exchange rate on
of transaction”
date on transaction”
On Balance sheet Measure using Exchange difference

* If the transaction is not
Subsequent likely to be settled at
Date Closing rate * arising on
Recognition closing rate subsequent
Subsequent
Measure using (Monetary Items recognition must be at
Recognition ->
On settlement date “exchange rate on Only) the ER at which the
CHARGED TO P&L
date of settlement” transaction is likely to be
settled

CA - INTERMEDIATE
Important Definitions
Exchange rate (ER) Home currency per unit of foreign currency
Transitional Provisions :
Whenever there is a long term foreign currency borrowing
Home Currency Currency in which FS are prepared for the purpose of a depreciable asset the exchange gain/
loss on such borrowing can either be ;
1. Charged to P&l
(or)
2. Adjusted with the cost of the asset.
Foreign currency Other than home currency
Option once exercised is IRRECOVECABLE.
Period of borrowing : 6/12/07 to 31/3/20
Closing rate ER on Balance sheet date In other cases

( i.e. Borrowing not used for Depreciable asset ) then the
exchange difference can be accumulated in “ foreign
currency monetary item translation difference (FCMITD)
Average Rate (Closing rate + Opening rate) / 2 Account.
Are money held and assets and liabilities to be

received or paid in fixed or determinable
Monetary Items amounts of money.
(Trade receivables , Trade payables , BR/BP ,
Bank loan etc. )
Assets and liabilities than monetary items

(E.g. : FA , Investments , Inventories)
Non-Monetary items
1. Carried at either historical Value (or) Fair
value

Government Includes: Grant does not include:
Grant Definition: 1. State and central government 1. Assistance in form other than grants (eg: Tax
“ Refers to any Assistance from government in cash 2. government department and agencies Exemptions)
(or) in kind 3. other similar bodies whether , local , National (or) 2. Government participation in ownership of
International. enterprise
Types of grant
Non-Monetary
Debit : BANK Monetary Grant (Cash)
Grant(Kind)
Grant in the nature of Revenue Grant: Concessional Grant: Free of cost

promoter’s Contribution Grant for Specific Fixed DEBIT : Asset DEBIT : Asset
Asset CREDIT : P&L Account (or) CREDIT : BANK CREDIT : Capital Reseve
CREDIT : Capital Reserve Reduce from Expense (At concessional value ) ( At Nominal Value )
Refund of Grant :
DEBIT whatever was Conditions for Accounting
CREDITED Earlier , Balance 1. Reasonable assurance
Non-Depreciable Fixed to be credited to Income that enterprise will comply
Depreciable Fixed Asset: statement. with the conditions
Asset:
CREDIT : Cost of Fixed Note : Post refund , attaching to it.
CREDIT : Capital reserve
Asset provide depreciation 2. the Grant will be
(or)
(or) PROSPECTIVELY received
CREDIT : Cost of Fixed
Deffered income method
Asset
AS 12 : Accounting for Government Grants

AS 13 Accounting for Investments
Types of Investments
Current Investment Long Term Investment. Investment Property

Such investments are readily realisable and is intended It is an investment in land or building that is not intended to be occupied
Investment Other than Current
to be held for not more than one year from the date on substantially for use by or in their operation of the investing enterprise.
investment
which such investment is made. (Eg : an enterprise is purchasing a Land or Building for capital appreciation or
earning rental income, but not used for its operations) – Investment property is
accounted in accordance with the Cost model as prescribed in AS 10.
Cost of Investment Carrying amount of Investment (BV)

Cost of Investment comprises of Purchase price and other charges such as
brokerage, fees and duties, Different scenarios are as under
Current Investment
Long term Investments
Lower of Cost or Realisable Value
Usually carried at COST.
Note: Decline in value of investment
Case Cost of Investment Note: Any reduction in realisable
which is not temporary -> reduce
value is debited to profit and loss
Investment is acquired by issue of shres or Purchase price is the Fair value of account, if realisable value is
carrying amount of investment,
other securities securities issued Reverse such reduction when
increased subsequently, such
investment value increases and such an
Cost of investment is Fair value of asset increase to the extent of cost is
increase should not be temporary.
credited to Pnl.
Investment acquired in exchange of given up (or) Fair value of Investment
another asset received, whichever is more clearly
evident.
Deduct such interest from cost of Whenever any investment is disposed of, the difference between the
investment at the time of receipt of such carrying amount and net sale proceeds is recognised in the PnL Account
Pre-acquisition interest
interest whenever such interest was part
of cost of investment
Deduct from cost of investment when Reclassification of Reclassification of
Dividend dividend is declared from pre-acquisition investment from Long investment from
term to Current Current to long term AS 13 N.A to Banks,
profits. Investment Investment Mutuals funds, PFI,
if investment is purchased at Cum-Rights Transfers are made at Transfers are made at Venture capital funds,
insurance companies,
and later on such investments become Ex- lower of cost of lower of cost or Fair AS 19 & AS 15 cases
Rights shares carrying amount at the Value at the date of
rights, reduce the amount received on date of transfer. transfer.
sale of rights.
Definition of Additional
Definition of Capitalize the Borrowing
Borrowing Cost Qualifying Conditions of
Borrowing Cost Cost
Asset Capitalization
YES YES Then
Borrowing Cost includes:

1. Interest General Conditions :
2. Commitment charges Definition of Qualifying Asset: 1. There should be future economic benefits
3. Amortization of premium or Qualifying asset means an asset 2. Cost should be reliably measured
discounting charges which necessarily takes substantial Specific Conditions :
4. Finance charges in a finance lease period of time to get ready for 1. Borrowing cost should be incurred
5. exchange difference on foreign intended use (or) sale. 2. Expenditure should be incurred
currency borrowing to the extent 3. There should be activity on the qualifying asset
attributable to interest
Measurement of Suspension of Borrowing

Borrowing Cost Cost
Cessastion
General Cease capitlisation when asset is
Specific substantially ready. Disclosure:
Borrowings :
Borrowing : Where borrowing cost comprises A. Total Borrowing cost incurred
Capitalize at Avoidable Suspension:
Capitalize Actual of multiple assets and where some B. LESS: Borrowing cost capitalized
WACB (Weighted BC Should NOT be
borrowing cost assets are ready and capable of C. Borrowing cost recognized as
average cost of capitalized
incurred independent use stop expense (A-B)
borrowing). Unavoidable Suspension:
Should be capitalized capitalisation for assets which are
ready for use.
Note : Reduce income from short term

investments
Entry For capitalisation :

Dr -> Relavent Asset ( Eg : Building )
PAGE 37
AS 16 Borrowing Costs Cr-> Bank
CA - INTERMEDIATE
AS 17 Segment Reporting
How many of these

How to identify number Identification of Apply Test for Reportable
identified segments are
of segments for an entity Reportable segments Segments
to be reported ?
5 Tests
1. Revenue test (10%)
2. Asset Test (10%)
3. Result test (10%)
Business Segment Geographical Segment 4. Discretionary test
5. 75 % External revenue
test
Other Concepts
Distinguishable component of 1. Goodwill
an enterprise , engaged in Component of an enterprise 2. Interest on borrowings
providing individual product providing goods and services in 3. Comparatives
(or) service (or) group of an economic environment 4. Matrix Reporting
related product (or) service whose risk and rewards are
which is DISTINCT from other DISTINCT from other economic
components of the enterprise environments in which the
based on risk and rewards. entity operates Segment Policies :
A) Enterprise policies
AND
B) Policies specific to preparation of segment report.
1. Basis of allocation of common items
2. Inter-segment transfer pricing.
Basis of Classification
Basis of identification ;
1. Currency risk
1. Nature of products and
2. Exchange control regulations
services
3. Similarity of political and
2. Method of Production Secondary Reporting :
economic environment
3. Method of Distribution 1. Revenue greater than 10% from EXTERNAL Customers
4. special risk associated with
4. Class of customers 2. segment assets greater than 10% of total segment
operating in specific areas
5. Regulatory requirements assets.
5. proximity of operations.
3. Additions to assets.

CA - INTERMEDIATE
Segment Revenue Segment Expenses
Excludes : Includes :
Includes : Excludes :
1. Extraordinary items as 1. Expenses incurred
1. External Revenue 1. Extraordinary items as
per AS 5 through external
2. Internal revenue per AS 5
2. Interest , Dividend etc. transactions
3. Common revenue 2. Interest , Dividend etc.
unless operations are of 2. Expenses incurred
allocated on a reasonable unless operations are of
Financial Nature through internal
basis Financial Nature
( E.g. : Banks ) Transaction
( E.g. : Banks )
3. Common expenses
3. Income tax (Corporate
allocated on a reasonable
item )
basis
Segment Assets Segment Liabilities
Includes : Includes :
1. Assets which are 1. Liabilities arising from Excludes :
Excludes :
directly identifiable with external transactions 1. Corporate items ( E.g. :
1. Income Tax ( e.g. :
the segment directly attributable to provision for tax ,
Advance tax , Outside
2. Common assets business ( E.g. : RM dividends , Debentures
investments )
allocated on a reasonable Payables ) etc. )
basis. 2. Common liabilities
allocated on a reasonable
basis

AS 18 Related Party Disclosures
What to report in AS 18 ? What are the reporting requirements?
Exemptions from Disclosures in AS 18
1. Intra – Group relationships/ transactions in the case of consolidated
financial statements.
2. Transactions between 2 state controlled enterprises
“ All Related party All Related Party Transactions 3. where law permits confidentiality ( Eg : Banking regulation Act)
Relationships where
there is Control ”
Disclose what?
• Name of Party Deemed NOT to be related parties ( AS 18 – N.A)
• Nature of Relationship (I.e. transactions that look like a transaction with control but AS 18
Disclose what ? • Nature of Transaction says otherwise)
• Amount – Either value (or) • 2 Companies merely having a common director unless such a
• Name of the Related proportion. director is influencing policies in both the companies in their
Party • Amount O/s (Receivable/payable) mutual dealings
• Nature of relationship • Amount written off (or) written • Sole supplier, Sole customer, Sole franchisee with whom the
back enterprise has a significant volume of business
Note: Disclose even if there • Any other material information • Providers of finance, trade unions, public utility providers,
are ZERO transactions for better understanding of government departments & agencies including government
financial statements. sponsored bodies.
Entity (B)
where people mentioned in
SET M and SET N have KMP of entity (A) It’s Associate
Control or significant and their Relatives (or) Joint Venture
influence over entity (B), (SET N) (for associate / JV,
then Entity A and B are
related parties
Entity (A) the investing party
(or) party exercising
[Related
joint control is
parties for an a related party)
Entity]
1. Individuals AND
their Relatives,
having control or • Holding company of Entity A
significant Influence • Subsidiary company of Entity A
in Entity (A) • Fellow subsidiaries of Entity A
(SET M) AS 18
AS 18 Related Party Disclosures
Key Definitions
Related Party Relationships Joint Venture

A party is related to another, if when at any point of time, there was Entity which is Jointly controlled by two or more parties through a
either control (or) significant influence. CONTRACTUAL ARRANGEMENT.
Control
• Voting power of more than half of nominal share capital, either
directly or indirectly.
• Controlling the Composition of Board of directors.
• Substantial interest, together with the power to direct affairs of TEST FOR SIGNIFICANT INFLUENCE
the enterprise arising from Statute (or) agreement.
TEST 1
Substantial interest in voting power( 20% and
above), it is presumed to give rise to significant
Significant Influence influence, Unless demonstrated otherwise.
Participation in the Financial (or) operating policies of the enterprise,
but NOT control over the policies.
TEST 2
Absence of substantial interest, voting power of
less than 20%, it is presumed that there is no
Key Managerial Personnel significant influence unless demonstrated
KMP are personnel who have BOTH authority AND responsibility for otherwise.
planning and control of affairs of the enterprise.
Relatives
Spouse, parents, brothers, sisters and children who MAY BE EXPECTED
to influence (or) be influenced.
AS 19 Accounting for Leases
Finance Lease Lease is an agreement which
conveys “Right to use” an asset Operating Lease
A lease where substantial risk
(tangible (or) intangible) to another A lease which is NOT a finance
and rewards are transferred party for a payment or series of lease
to the lessee payment for an agreed period.
A price at which an asset is

exchanged (or) liabilities
Indicators of a Finance Lease settled between
Fair Value
1. the present value of lease payments is substantially knowledgeable parties,
equal to fair value of the asset. willingly parties in an arm’s
2. the lease period is almost equal to the economic life length transaction
of the asset.
3. the lessee has the option to buy the asset at the end Value at which asset is recorded in the
of the lease period at less than FAIR VALUE. books of lessee at the inception of lease,
4. the nature of the asset is a specific purpose asset.
however record at other than FV where
5. the RISK associated with the asset is borne by the
lessee during the lease period. PV of MLP from stand point of lessee is
6. the lease is generally non-cancellable, however they less than the Fair value (FV)
are cancellable by mutual consent. This is the rate at which the present
value (PV) of MLP from standpoint of
Depreciation Interest rate lessor + UGRV is equal to the FV of the
Depreciation is provided in the books of the lessee in
Implicit on Lease asset. (lessee to use this rate for
case of a finance lease & in the books of the lessor in
case of a operating lease. discounting when IRR is known at the
inception of the lease_
In case of a Finance lease
Depreciation has to be provided based on the life of Rate at which the lessee can borrow a
the asset (not lease period), however if lessee is not Incremental similar amount, for a similar period for
expected to take ownership of the asset at the end of borrowing rate security of a similar asset. (use this rate
the lease period, depreciation should be computed when IRR is not known)
based on the lease period.
AS 19 Accounting for Leases
Residual Value Minimum Lease payments (MLP)
Guaranteed Residual Unguaranteed Residual MLP From

MLP From
Value Value (UGRV) standpoint of Lessor
Amount agreed to be paid Difference Between
standpoint of Lessee
Aggregate of payments
at the end of the lease Residual value (RV) and Aggregate of payments
during the lease period
period either by lessee (or) Guaranteed residual value during the lease period
and GRV from lessee (or)
a third party. (GRV) and GRV from lessee
any third party
Accounting for Profit/Loss on Sale and

Gross Investment in lease (GIL) – PV of
Unearned Finance Income Lease back Transactions (SLB)
Gross investment in lease (PV of MLP
(UFI) from standpoint of lessor + PV of UGRV)
SLB transactions SLB transactions results in a

Gross investment in Lease (GIL) = results in a Finance Operating Lease
Gross Investment in Lease MLP from standpoint of lessor + lease
1. Profit / Loss should be recognised
The profit/Loss should be
(GIL) unguaranteed Residual value treated as Revaluation
in PnL Account.
(UGRV) 2. However, if the sale is at other
profit/Loss and should
NOT be recognised in Pnl than fair value then;
Account. A. Profit/Loss upto FV –> Should be
The Gain/Loss should be recognised in PnL Account
Gross Investment in lease (GIL) – deferred and amortised
Unearned Finance Income (UFI) over the lease period in B. Profit/Loss beyond FV –> Should
Net Investment in Lease (NIL) [ Value at which asset is recorded in the same proportion of be deferred and amortised over the
depreciation lease period.
books of lessor at the inception of lease]

Summary notes for AS 20 Earnings per share CA - INTERMEDIATE
Part - I
Computation of Basic EPS
Profit available to Equity shareholders ( Note 1 )

EPS =
Weighted average number of equity shares Outstanding
Note 1
Particulars Amount
Profit available to Equity shareholders:- XX
1. Net profit after tax ( PAT ) XX
2. Less : Appropriation towards preference divident (#) (XX)
3. Profit available for Equity Shareholders (1-2) XX
(#)
Cummulative preference shares - Deduct whether divident is declared or not
Non - Cummulative preference shares - Deduct only if divident is declared.
Note 2
1. WANES can be computed either on a cummulative basis or individual level.
WANES in case of partly paid up shares - Compute equivalent number of shares

WANES in case of different paid up value - Compute equivalent value of shares
Different cases which requires adustments.
1. Change in number of shares without change in Shareholders Funds

(Eg : Bonus issue/ Share split / Consolidation of shares)
The number of equity shares outstanding before the before making such issue (Eg : Bonus ) is adjusted for
propotionate number of equity shares outstanding as if such issue (Eg bonus) had occurred at the beginning of the
earliest period reported.
2. Change in number of shares with corresponding change in shareholders funds at other than face value
( Rights issue )
1. Compute theoretical ex-rights price
Aggregate fair value of shares Proceeds from exercise of rights ( rights

+
immidiately prior to exercise of shares * issue price )
Number of shares outstanding immidiately after the rights issue
2. Ascertain rights adjustment factor
Fair value prior to rights

Theoretical ex-rights price
3. Apply rights adjustment factor to the opening shares
4. Compute WANES

Summary notes for AS 20 Earnings per share CA - INTERMEDIATE
Part - I I
Computation of Diluted EPS
Profit available to Equity shareholders

Diluted ( After adjustment for diluted earnings ) [ Note 1 ]
EPS =
Average number of weighted equity shares outstanding during the period
(assuming the conversion of diluted potential equity shares)
[ Note 2 ]
Note 1
Particulars Amount
1. Net proft as computed under Basic earnings of shares XX
2. Add : Interest on convertibles XX
3. Less : Tax impact on above interest (XX)
4. Add : Divident of preference shares of convertibles XX
5. Add: Divident distribution Tax XX
5. Any other item XX
6. Numerator for Diluted EPS XX
Note 2
WANES for Diluted EPS
Particulars Amount
1. WANES as per Basic EPS XX
2. Add : Potential equity shares (##) XX
##
Potential Equity shares
1. Convertibles ( Convertible preference shares / Convertible debentures )
2. Options and warrants ( ESOP )
3. Contingently issuable shares

CA - INTERMEDIATE
Summary Notes for AS 22 – Accounting for Taxes on Income
Items
contributing
to DTA
MAT
TAX Holiday
1. Mat is in the nature of Penal
Timing difference reversing in
tax
Holiday period – IGNORE 1. Unabsorbed
2. Payment of a higher amount
where Normal tax is Nil or Zero Depreciation or
Timing difference originating 1. Other items ->
3. Deferred Tax should be Carried forward
and reversing in period other Create DTA if
computed only on the basis of business loss ->
than holiday period – Create reasonable certainty
Normal Tax and not on the Create DTA only if
DTL/DTA exists
basis on MAT virtual certainty
exists

AS 24 Discontinuing Operations
Discontinuing operation is a Component of the enterprise, that the enterprise pursuant to a single
plan is;
A. Disposing off “Substantially in its

entirety” the component through a
B. Disposing off the component
single sale transaction by demerger
assets in a piecemeal manner and C. Termination by abandonment
(or) spin off (or) hive off the
settling the liabilities individually.
component to the enterprise
shareholder.
That represents a Major line of business (or) geographical area of operations AND that is identified
separately for operating AND financial Reporting purpose.
Key disclosures
Initial Disclosure event (IDE) – Trigger • A description of the nature of discontinuing operation.
Examples of activities that do not necessarily • Nature and date of IDE
satisfy criteria A. of the definition, but that might when AS 24 applies
• Period in which discontinuance is expected to be completed
do so in combination with other circumstances • Carrying amounts of the Assets to be disposed off and
include the following EARLIER OF liabilities to be settled as on balance sheet date
• Amount of revenue and expenses attributable towards DCO.
Board approval of • Amount of pre-tax profit and tax attributable towards DCO.
• Amount of net cash flows attributable towards DCO (break up
• Gradual or evolutionary phasing out Formal plan of Enterprise entering
towards Operating, Investing and Financing activities)
of a product line or class of service. discontinuance into a Binding sale
• Discontinuing, even if relatively AND public agreement
abruptly, several products within an announcement
Important Notes
ongoing business 1. All items below PBT(including PBT has
• Shifting of production facilities to be broken down into continuing and
discontinuing operations
• Closing of a facility to achieve Withdrawal of plan of discontinuance
2. updating disclosures have to be
provided every year until the year of sale
productivity improvements or other -> Disclose reason for withdrawal of discontinuance 3. if there are Multiple DCO information
cost savings. and stop disclosure as per AS 24 must be given for each DCO.
CA CS Karthik Manikonda (75501 37279) for The CA classroom & Incite Commerce studies PAGE 56
AS 26 Intangible Assets
Asset Intangible Asset
Asset is a resource arising from it is an IDENTIFYABLE non-monetary
Recognition criteria (measure initially at cost)
past events which is controlled by asset without physical substance held
1. There should be future economic benefits
the enterprise from which future for use in production of goods,
2. The costs should be reliably measured
economic benefits are expected rendering of services (or) administrative
(Higher income, savings in cost or both) purpose and not for sale
Internally generated Internally Generated Goodwill

Intangible asset –
It is not recognised as an asset in
Research and Development Classify into R&D Phase
the books as it is not an
identifiable resource controlled
by the enterprise that can be
measured reliably at cost.
Research Phase Development Phase
Original Planned investigation for Application of existing knowledge Intangible Items
gaining new scientific knowledge, of knowledge gained from Intangible items are ficticious assets,
design, process etc research for deriving commercial these have to be immidiately debited to
(eg :Activities aimed at obtaining new benefit/future economics benefit Pnl Account unless they form part of
knowledge, search for alternatives etc) cost of an intangible asset (Eg :
Advertisement, preliminary expenses )
Accounting Treatment
Recognise as Expense, because Capitalize Subject to the Following;

while the expenditure is spent we 1. The Development is technically feasible, so that it can be sold later.
are uncertain about 2. cost should be reliably measured
development, subsequent 3. there should be future economic benefits
success of research will not 4. entity should have intent to putting it to commercial use
influence the accounting 5. there should be availability of technical, financial and other resources
treatment 6. ability to use and sell the intangible asset
(eg : design, construction, testing of pre-production or pre-use prototypes or models,
designing of jigs, moulds & dies involving new technology etc, operation of pilot plant, testing
of chosen alternatives for new and improved systems, processes, materials and products.

AS 26 Intangible Assets
Amortisation Residual Value Cost of an Internally generated Asset
The depreciable amount of The residual value of an It is the sum of expenditure incurred from the time when
an intangible asset should be Intangible asset is ZERO, the intangible asset first meets the recognition criteria.
1. Expenditure on materials and services used or consumed
allocated on a systematic unless there is a
in generating the intangible asset.
basis over the best estimate commitment by third party 2. the salaries, wages and other employment related costs
of the useful life (review to purchase the asset at the or person engaged in generating the asset.
amortisation period and end of the useful life (or) 3. any expenditure that is directly attributable to generating
method annual) there is an active market for the asset (eg : legal fees to register the asset with registry)
that asset and the RV can be 4. OH that are necessary to generate the asset and allocated
on a reasonable basis.
determined with reference
Usually the presumption is to that market
EXCLUSIONS FROM COST
that useful life of an
• SOH, AOH & other general OH unless these expenses can
intangible asset does not be directly attributable to making the asset ready for use
exceed 10 Years. However, • Expenditure on staff training to operate the asset
the same is rebuttable • Initial operating losses before asset achieves planned
(debatable) performance
Subsequent Expenditure on Concepts present in AS 26 i.e.

Intangible asset same as the concepts provided in
If there is evidence that Subsequent expenditure onMethods of AS 10.
useful life is longer than 10
Intangible asset after it’s purchase or
Amortisation – • Exchange of asset
completion should be debited to Pnl
First choice – SLM, • Retirements and disposals
years, the same can be Exception
other options -> WDV
Expenditure can be measured and • Different methods of
applied, however the entity (or) Units of
attributed to the asset and it results Amortisation ( Depreciation in
has to validate the production method
in generation of future economic AS 10)
recoverable amount every benefits excess of originally assessed
standards
year to check for any
impairment loss. Join Us on Telegram http://t.me/canotes_ipcc AS 26
AS 29 Provisions, Contingent liabilities & Contingent Assets
Provisions Contingent Liability – Disclose in Notes to

Accounts
There is a present The settlement of A reliable estimate

obligation arising liability is likely to Possible obligation
can be made Present obligation
from past events result in outflow of arising from past
arising from past
resources embodying events, the
events for which
economic benefits settlement of which
EITHER
is based on
1. Provision is a liability which involves substantial degree of estimation “occurrence or non-
2. Provisions are NOT Accruals. occurrence” of one
3. Debit Profit and Account and Create a liability. or more future
There will be NO Reliable
uncertain events, not
outflow of resources Estimate
wholly within the
embodying economic CANNOT be
Contingent Assets benefits made.
control of the
enterprise.
Possible asset which may occur due to Accounting

past events, of which realisation depends Recognise as an asset Reimbursements
on occurrence or non-occurrence of one only on receipt, until 1. An enterprise with a present obligation may be able to seek
or more future events not wholly within receipt, disclose in reimbursement of part or all of the expenditure from another party
the control of the enterprise Director’s report. (eg : Insurance contract / warranty provided by supplier)
2. Accounting: The reimbursement is treated as a separate asset and
such a reimbursement should be recognised only when it is virtually
Restructuring Costs certain that such amount will be received after settlement of the
obligation. The provision will be accounted for separately.
Restructuring is a program planned and controlled by the Does not Include Onerous Contracts
>
enterprise and materially changes either scope or business or • cots of retaining or B.Economic
A. Compare cost of fulfilling an onerous contract
manner in which business is undertaken. relocating staff benefits to
(e.g: sale/termination of line of business,closurere/location of • Marketing costs
(i.e. unavoidable cost of fulfilling a contract) (or)
be
business in a country or region, change in management structure) • Investment in new compensation to exit it. choose the lower of these two.
recovered
Accounting: Provision for restructuring cost is recognised only system or distribution
when it meets the criteria for recognition of a provision, it should • Expected loss on sale of
include only the DIRECT EXPENDITURE arising from restructuring assets due to
& not associated with ongoing activities of the enterprise If A > B, Create a provision, otherwise ignore
restructuring. AS 29

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Substance over form: Materiality:

What are fundamental

AS 1 : Disclosure of Accounting Policies

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Cost of purchase includes:

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Classification of Cash flow Activities

Operating Activities Investing Activities Financing Activities

STEPS TO SOLVE A SUM IN AS 3 – Use format as prescribed in AS 3

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AS 4 Contingencies and Events occurring after the balance sheet date

Events OCCURING the after

Non – Adjusting Events

When Non – Adjusting

When the Event is so material Proposed dividend is a

Disclose Separately in the Disclose separately in the Disclose separately in the

Quantify effect of change and

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Segmentation of Contracts vs Combination of Contracts

Revenue means GROSS inflow of

General Conditions Specific Conditions

1. No uncertainty in Amount Use by others of

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E. Cost of Self Constructed Assets Recognition of an item of PPE

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Frequency of Revaluation Accounting treatment on Revaluation

Items of PPE experience Items of PPE experience insignificant INCREASE DECREASE

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Foreign Currency Forward Exchange

On Balance sheet Measure using Exchange difference

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Exchange rate (ER) Home currency per unit of foreign currency

Closing rate ER on Balance sheet date In other cases

Are money held and assets and liabilities to be

Assets and liabilities than monetary items

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Grant in the nature of Revenue Grant: Concessional Grant: Free of cost

AS 12 : Accounting for Government Grants

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Current Investment Long Term Investment. Investment Property

Cost of Investment Carrying amount of Investment (BV)

Borrowing Cost includes:

Measurement of Suspension of Borrowing

Note : Reduce income from short term

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Entry For capitalisation :

How many of these

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Segment Revenue Segment Expenses

Segment Assets Segment Liabilities

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Related Party Relationships Joint Venture

A price at which an asset is

Guaranteed Residual Unguaranteed Residual MLP From

Accounting for Profit/Loss on Sale and

SLB transactions SLB transactions results in a

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Profit available to Equity shareholders ( Note 1 )

WANES in case of partly paid up shares - Compute equivalent number of shares