Finance and Accounting for Managers

1.0 Introduction
Every individual performs some kind of economic activity. All economic activities are
performed
through ‘transaction and events’.
Transaction is used to mean a business, performance of an act, an agreement while event is
used to mean a happening as a consequence of transaction(s) as a result.
E.g.: A municipal corporation got government grant of Rs 500 lacs, for adult education; it
spent Rs 250 lacs for purchasing literacy kits; paid Rs 200 lacs to the tutors and is left with
Rs
50 lacs.
The transactions here are
Getting a government grant of Rs. 500 lacs, Purchasing literacy kits for Rs 250 lacs
Paying Rs 200 lacs to the tutors, The event in the above example being, having a surplus of
Rs
50 lacs.
As everybody wants to keep records of all transaction s and events to have adequate
information
about the economic activity as an aid to decision making, accounting as a discipline has
been developed to carter to this need of individuals.
1.1 Accounting:
Accountancy is the analysis and interpretation of book-keeping records. It includes not
only
the maintenance of accounting records but also the preparation of financial and economic
information which involves the measurement of transactions and other events relating to
the
entity.
1.2 Definition
According to the Institute of Chartered Accountants of India, “Accounting is an art of
recording,
classifying and summarizing in a significant manner and in terms of money, transactions
and
events which are, in a part at least, of a financial character, and interpreting the results
thereof”
As per the American Institute of Certified Public Accountants “ Accounting is the art of
classifying,
analyzing, recording and summarizing the available financial information for the purpose
of passing on the results of these exercises to the business managers and to the
management.
Importance of studying accounting for managers:
A simple answer that you can give is – since it is in the curriculum, it is inevitable. But that
is
not the actual answer expected by you. Some of the reasons which makes it sensible are:
A manager has to analyze financial reports and make critical business decisions based on
them.
Start-up entrepreneurs should know financial accounting so that they can manage the
accounting
and finance function of their business.
The law requires the CEO to certify the financial statements. At the least the CEO should
know
the meaning of the various items appearing in the statements.
Accounting provides information that is useful in making business and economic decisions
by the manager. It is a principal means of communicating financial information to owners,
lenders, managers and any others who have an interest in an enterprise. Accounting is not
an
end in itself. In fact in this book you will understand how accounting serves as an
information
system that supports economic decision making.
1.3 Procedural aspect of accounting
The procedural aspect of accounting can be explained as follows:
• Generating financial information
• Recording
• Classifying
• Summarizing
• Analyzing
• Interpreting
• Communicating
• Using financial information
1.4 The Accounting Cycle
The accounting cycle is explained as under
Transactions
It refers to performance of an act, an agreement while event is used to mean a happening as
a
consequence of transaction(s).
Journal Entries
The process of recording the business transactions in a chronological order in the journal
after
analyzing, classifying and identifying them as ‘Debit’ and ‘Credit’ is called ‘Entry’.
Posting
After recording of transaction in journal the recorded entries are classified and grouped
into
various accounts and a separate book for each head is made which contains all set of
accounts
namely personal, real and nominal, is known as ledger. Thus ledger is a principle book of
account
in which account wise balance of each account is determined.
Trial Balance
Preparation of trial balance is the third phase in accounting process. After posting the
accounts
in ledger, a statement is prepared to show separately the debit and credit balances such
a statement is known as trial balance.
Worksheet
Informal document in which an accountant or auditor records the information for adjusting
trial balances prior to preparing financial statements, or to substantiate his or her opinion
regarding an account balance or a transaction. Unfortunately, many times your first
calculation
of the trial balance shows that the books aren’t in balance. If that’s the case, you look for
errors and make corrections called adjustments, which are tracked on a worksheet.
Adjusting Journal entries
Bookkeeping entries posted at the end of an accounting period (the balance sheet date) to
assign
expenses to the period in which they were incurred, and revenue to the period in which
it was earned. Adjusting entries are used also to correct entries that could not be accurately
made earlier are also known as correcting entries.
Financial Statements
The financial statements of an organization made up at the end of an accounting period,
usually
the fiscal year. The final accounts consist of (1) Trading Account, (2) Profit And Loss
Account,
(3) Profit And Loss Appropriation Account and (4) Balance Sheet. Together, these
accounts show the gross profit, net income, and distribution of net income figures and the
current standing in terms of asset and liabilities of the company.
Closing the books
You close the books for the revenue and expense accounts and begin the entire cycle again
with zero balances in those accounts. As a businessperson, you want to be able to gauge
your
profit or loss on month by month, quarter by quarter, and year by year bases. To do that,
Revenue
and Expense accounts must start with a zero balance at the beginning of each accounting
period. In contrast, you carry over Asset, Liability, and Equity account balances from cycle
to
cycle.
1.5 Objectives of Accounting
• Systematic recording of transaction
• Ascertainment of results of recorded transactions
• Ascertainment of the financial position of business
• Providing information to the users for rational decision making
• Knowing the solvency position
1.6 Branches of Accounting
In order to satisfy the needs of different people interested in accounting information,
different
branches of accounting have been developed. They can be broadly classified in to two
categories.
  Financial accounting
 Management accounting

Financial Accounting
It is the original form of accounting. It is mainly confined to the preparation of financial
statements for the use of outsiders like shareholders, debenture holders, creditors, banks
and financial institutions. The financial statements i.e the Profit & Loss A/c and the Balance
Sheet show them the manner in which operations of the business have been conducted
during a specified period.
Management Accounting
It is accounting for the management which provides necessary information to the
management
for discharging its functions. It facilitates the managerial decision making. Management
Accounting covers various areas such as cost accounting, budgetary control, inventory
control,
statistical methods, internal auditing etc.
1.7 Accounting as an information system:
The definition given by AICPA in 1970 clearly defines Accounting as an service activity and
the
scope of Accounting is not restricted only to recording & classifying the data. It is viewed as
input provider for decision making. Accounting is being considered as an Information
System.

The business transactions and events are used as the inputs for
the information system. Those inputs are processed by applying various accounting
principles, standards, laws etc., The result of processing will be the outcome of various
accounting records like Trading & Profit & Loss A/c, Balance Sheet, Cash Flow Statements
etc., These financial reports will be viewed by many categories of persons like employees,
bankers, creditors, tax authorities, general public, government etc.
Accounting information is useful in making a number of decisions that affect the income or
wealth of individuals and organizations. Accounting reports are designed to meet the
information needs of most decision makers. Examples of decisions that are based on
accounting information include the following:
a) Decide when to buy, hold or sell an equity investment
b) Assess the performance of the management
c) Assess the ability of the enterprise to pay and provide other benefits to its employees.
d) Assess the security of amounts lent to the enterprise
e) Determine the taxation policies
f) Determine distributable profits and dividends
g) Regulate the activities of the enterprises
The information given in a language can be useful only to persons who understand that
language.
In the same way a decision maker who intends to use accounting information should
have a fair understanding of business and economic activities. So being a manager one
should
know the language of accounting.
1.8 Users of Accounting Reports
In the last unit we discussed accounting as an information system. There we saw that there
are
many categories of people who are interested in the accounting information. Let us discuss
the
information needs of each category of people.
Shareholders or investors are considered as the real owners of the business. They invest
their money into the business obviously they will be interested in the overall functioning of
the business. Their main focus will be on the profit earning capacity of the business and the
position of assets and liabilities.
Managers are the people who really run the show. Because they are the one who manages
the
business. To run the business, may decisions have to be taken for taking such decisions
managers
look in to the financial reports. The accounting disclosures greatly help them in knowing
about what has happened and what should be done to improve the profitability and
financial
position of the enterprise in the period to come.
Creditors / Suppliers are the one who has extended credit to the company. They are
interested
in the financial statements because these will help them in ascertaining whether the
enterprise will be in a position to meet its commitments towards them – both regarding the
payment of interest and of the principal
Prospective investors are those who are interested in investing the money into the
business.
They would be interested in knowing about the profitability and financial position of the
business.
A study of the financial statements will help them in this regard.
Government will be interested in the financial statements of a business enterprise on
account
of taxation, labour and corporate laws. If necessary, the government may ask its officials to
examine the accounting records of a business.
Employees are interested in the financial reports on account of various profit sharing and
bonus schemes. Their interest may further increase in case they purchase shares of the
companies
in which they are employed.
General public may be interested in the accounting records of the institution with which he
comes in contact in his daily life e.g. bank, temple, public utilities such as gas, transport,
electricity
companies etc.
1.9 Accounting Concepts
Accounting concepts define the assumptions on the basis of which financial statements of
business entity are prepared. Certain concepts are perceived, assumed and accepted in
accounting
to provide unifying structure and internal logic of accounting process. The concept
means idea or notion which has universal application.
The following are widely accepted accounting concepts:
1. Separate entity concept
2. Going concern concept
3. Money measurement concept
4. Cost concept
5. Dual aspect concept
6. Accounting period Concept
7. Matching concept or accrual concept
8. Realization concept
Let us discuss these concepts in detail.
1. Separate entity concept in accounting business is considered to be a separate
entity from the owners. All transactions and events are recorded in the books of account
from
the point of view of business not the owner. If a person invests Rs.1000 into the business, it
will be deemed that the proprietor has given that much of money to the business which will
be
shown as a liability in the books of the business.
2. Going concern concept according to this concept it is assumed that the business
will continue for a fairly long period of time. On the basis of this concept business charges
depreciation
on fixed assets, evaluates the investment proposals etc.
3. Money measurement concept this concept says that in books of accounts only
those transactions are recorded which can be expressed in terms of money. Non-monetary
transactions have no place in the books of accounts. Ex. purchase of goods for Rs.1000 can
be
recorded in the books because it is a monetary transaction. If a person just asks for a
catalog
of products, it cannot be recorded in the books, because there is no any monetary
transaction.
4. Cost concept this concept says that in books of accounts, the fixed assets of the
company should be shown at their original cost not at market value. Ex. If a business man
purchases
land for Rs.200000, next year if the land value becomes Rs.300000, in books of account
he cannot show his asset as Rs.300000 worth.
The cost concept does not mean that the asset will always be shown at cost. It has been
stated
above that cost becomes the basis for all further accounting for the asset. The value of the
fixed assets may be systematically reduced by way of depreciation. But there is no scope
for
appreciation.
5. Dual aspect concept this concept says that each and every transaction has
two aspects of equal value viz. receiving of benefit and giving of that benefit. In the books of
account of any business, at any moment of time, Assets = Capital + Liabilities

6. Accounting period concept To measure the financial results of business the

working life of the business split into convenient periods of time, i.e. accounting period.
Usually
an accounting period is one year. It aims at disclosing the periodical financial results.
7. Matching concept or accrual concept Match the expenses with revenues to find
out the income of particular period
Profit = Revenues > Expenses
Loss = Revenues <Expenses . It leads to preparation of Profit and loss account for the
period.
8. Realization conceptExample:1st December,1999-an order for supply of goods was
received,1st January, 2000- goods are transferred to customer, 1st March, 2000-payment
received
,Revenue should be recognized on neither on 1st December,1999 nor on 1st March,
2000, but only on 1st January, 2000
1.10 Accounting Conventions
These emerge out of the accounting practices, commonly known as accounting principles,
adopted
by various organizations over a period of time. These conventions are derived by usage
and practice. The accounting bodies can change these conventions anytime to improve the
quality of accounting information. These need not have universal application. They include
• Convention of Full Disclosure
• Convention of Materiality
• Convention of Consistency
• Convection of Conservatism
Convention of Materiality: this convention says that, in the books of account more
importance
should be given to more material transactions. That means significant information and
amount should be reported in books of account in detail. A detailed record is to be made of
transactions which are material. Ex. Purchase of machinery for Rs.500000 and purchase of
a
pencil for office use for Rs.5 cannot be treated similarly. A more detailed account has to be
kept
for machinery, which means machinery account has to be opened; every year depreciation
has
to be calculated. Whereas this purchase of pencil, pen etc. can be treated as petty expense
and
recorded in stationery account.
Convention of Conservatism:the gist of this convention is “anticipate no profit, but provide
for all possible losses”. A business man should be conservative in anticipating the profits of
the
business. Ex. If a land is purchased for Rs.100000 last year, and the market value is
Rs.200000
today, the business man can not anticipate the land value as Rs.300000 next year and show
the
same in his books of account. But at the same time he can reduce his asset value
systematically
through depreciation. Provision for bad debts, depreciation etc. are created on the basis of
this
convention only.
Convention of consistency:according to this convention, accounting practices should
remain
unchanged form one period to another. For example, if stock is valued at “cost or markets
price
whichever is less” this principle should be followed year after year. Similarly depreciation
is
charged on fixed assets according to diminishing balance method; it should be done year
after
year. This is necessary for purposes of comparison. However consistency does not mean
inflexibility.
If the situation forces to change the methods of valuation, a note to that effect should
be given in the financial statements.

Convention of full disclosure:according to this convention, accounting reports should

disclose
fully and fairly the information they purport to represent. They should be honestly
prepared
and sufficiently disclose information which is of material interest to proprietors, to
present and potential creditors and to investors. Because of gap between ownership &
management
this convention is getting more prominence. This convention says that the financial
reports should disclose a true and fair picture of the company.
1.11 Accounting Principles
These are the body of doctrines commonly associated with the theory and procedures of
accounting
serving as an explanation of current practices and as a guide for selection of conventions
or procedures where alternatives exists. The accounting principles are based on GAAP.
(a) GAAP
The Generally Accepted Accounting Principles (GAAP) include standard conventions, fair
set of guidelines that an individual or an entity should follow when maintaining or
reporting
a financial picture of an individual or an entity ensuring that the published reports, be it
audit
statements, profit reports, financial statements, expense reports or any other outgoing
official
statements of account, are fair from manipulation, accurate and objectively impartial. GAAP
rules are very similar across countries, although slight nuances do exist. For this reason,
many
countries are transitioning to International Financial Reporting Standards (IFRS).
(b) Fundamental Accounting Assumptions
• Going concern
• Consistency
• Accrual
1.12 Accounting Standards
Accounting standards are written policy documents issued by expert accounting body or
government
or other regulatory body covering the aspects of recognition, treatment, measurement,
presentation and disclosure of accounting transactions and events in financial statements.
The harmonization of accounting policies and practices is needed at national level as well
as
international level. To tackle the problem at national level, the institute of chartered
accountants
of India (ICAI) issues accounting standards (called AS’s) formulated by the accounting
standards boards(ASB). At international level, international accounting standards
committee
(IASC) issues international accounting standards (called IAS’s). The objective of the IASC in
terms of standard setting is “to work generally for the improvement and harmonization of
regulations,
accounting standards and procedures relating to the presentation of financial statements”.
The institute of chartered accountants of India is a member of IASC and has a tacit
understanding with the IASC that it would adopt the accounting standards issued by IASC
after
due recognition of the conditions and practices prevailing in India. At the international
level,
IASC has issued 32 international accounting standards. At the national level, ICAI has
issued
27 accounting standards on various issues of accounting.
1.13 Accounting Standards – ICAI and ASB
The institute of chartered accounts of India, fully recognizing the need of harmonizing the
diverse
accounting policies and practices established ‘Accounting Standards Board’ on 21 st April
1977 so that accounting as a language could develop along the right lines. Accounting
Standard
Board’s (ASB) main function is to formulate accounting standards to be issued under the
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Finance and Accounting for Managers
authority of the council of the institute. Accounting standards provide rules and criteria of
accounting
measurement. However the rules/criteria are intended to be used in a social system
and hence are never intended to be rigid as in case of physical sciences. At the same time,
they
are intended to remove irrational and diverse accounting practices.
Constitution of ASB: the constitution of ABS gives adequate representation to all interested
parties, at present; it consists of members of the council and representative of industry,
banks,
company law board, Central Board of Direct Taxes and the Comptroller of Auditor General
of
India, Security Exchange Board of India etc.
Functions of ASB
The following are the functions performed by ASB:
• To formulate accounting standards which the council of ICAI in India may establish.
• To propagate the accounting standards and persuade the parties concerned to adopt them
in the preparation and presentation of financial statements.
• To issue guidance notes on the Accounting Standards and give clarifications on issues
arising
there from.
• To review the accounting Standards at periodical intervals.
• To specify the date of effect of each standard and the class of enterprises to which it will
apply. Unless otherwise stated, no standard will have retrospective application.
1.13 (a) Objectives of Accounting Standards
• To eliminate the non-comparability of financial statements and thereby improving the
reliability of financial statements.
• To provide for a set of standard accounting policy, valuation norms and disclosure
requirements.
1.13 (b) Accounting Standards given by ICAI
The following is the list of accounting standards issued by the institute of chartered
accountants
of India along with their status:
• AS 1 Disclosure of Accounting Policies
• AS 2 Valuation of Inventories
• AS 3 Cash Flow Statements
• AS 4 Contingencies and Events Occurring after the Balance Sheet Date
• AS 5 Net Profit or Loss for the period, Prior Period Items and Changes in Accounting
Policies
• AS 6 Depreciation Accounting
• AS 7 Construction Contracts (revised 2002)
• AS 9 Revenue Recognition
• AS 10 Accounting for Fixed Assets
• AS 11 The Effects of Changes in Foreign Exchange Rates (revised 2003),
• AS 12 Accounting for Government Grants
• AS 13 Accounting for Investments
• AS 14 Accounting for Amalgamations
• AS 15 Employee Benefits (revised 2005)
• AS 16 Borrowing Costs
11
• AS 17 Segment Reporting
• AS 18 Related Party Disclosures
• AS 19 Leases
• AS 20 Earnings Per Share
• AS 21 Consolidated Financial Statements
• AS 22 Accounting for Taxes on Income.
• AS 23 Accounting for Investments in Associates in Consolidated Financial Statements
• AS 24 Discontinuing Operations
• AS 25 Interim Financial Reporting
• AS 26 Intangible Assets
• AS 27 Financial Reporting of Interests in Joint Ventures
• AS 28 Impairment of Assets
• AS 29 Provisions, Contingent` Liabilities and Contingent Assets
• AS 30 Financial Instruments: Recognition and Measurement
• AS 31, Financial Instruments: Presentation
• Accounting Standard (AS) 32, Financial Instruments: Disclosures
A brief summary of the contents and purpose of the accounting standards issued by the
institute
of chartered accounts of India are as follows:
Accounting Standard 1: It deals with the disclosure in the financial statements of
significant
accounting policies followed in the preparation and presentation of such statements. The
purpose of this standard is to promote better understanding of financial statements by
such
disclosure. Compliance of this standards helps in facilitating a more meaningful
comparison
between financial statements of two different enterprises.
Accounting Standard 2: It deals with the principles of valuing inventories. Presently, the
standard is recommendatory in nature. The standard intends that the methods of inventory
valuation as far as possible should be practicable, logical and consistently followed. The
standard
lays down the various methods of valuation in respect of different types of inventories. It
also described the elements of cost that are to be considered in eh valuation of the
inventory.
The standard also requires disclosure in respect of policies of stock valuation and whether
they have been consistently followed. Whether such policies are fair and proper and in
accordance
with the normally accepted accounting policies and are consistently followed year after
year. Any deviation in the method of valuation of inventory as compared to the earlier year
is
also required as a disclosure under this standard.
Accounting Standard 3: It deals with the preparation of an additional statement. Which
summaries for a given period, the sources and application of funds of an enterprise. Such a
statement is desired by the standards to be attached with the Balance sheet and profit and
loss account of each year. This statement is either in the form of fund flow statement or
cash
flow statement and is helpful in providing information relating to movements of funds of
the
enterprise during the period for which the financial statements are prepared. This
statement
summaries the effect of funds and their flow of the financial results of an enterprise. In
India,
12
Finance and Accounting for Managers
though there is no legal requirement to publish a statement of changes in financial position
along with balance sheet, yet there is a growing practice of publish such a statement along
with financial statements in line with the standards.

Accounting standard 4: It deals with the treatment in financial statements of contingencies

and events occurring after the balance sheet date. Contingencies are events whose outcome
will be known only on their occurrence. Let us say a case in High Court, penalty
proceedings
under law etc. are events whose outcome will be known only on their occurrence. Events
occurring
after the balance sheet date are events which confirm a particular position existing
on the balance sheet date. Let us say, insolvency of a debtor, recovery from whom was
contingencies
must be provided if the loss due to it can be reasonably estimated. The standard also
states that assets and liabilities should be adjusted for events occurring after the balance
sheet
date if they establish the conditions existing on the balance sheet date.
Accounting Standard-5: It deals with the treatment in the financial statements of prior
period
and extraordinary items and changes in accounting policies. Prior period items are debits
or credits which arise in the accounts of current year as a result of a mistake or omission in
the preparation of financial statement of one or more earlier years. Extraordinary items are
unusual items distinct from the day to day activities of an entity. The standard also lays
down
that any change in the accounting policy used in preparation of financial statement should
be
reported and its impact on the profit or loss of the entity should also be reported, let us say,
an
entity changes its method of accounting from cash system to mercantile system. In such
cases,
the standard lays down that not only the change should be stated in the financial statement
but the effect of such change on the profit/loss depicted by the profit and loss account of
that
year must also be stated.
Accounting Standard 6: it deals with the accounting for depreciation and the disclosure
requirements
in connection there with. It suggests various methods of depreciation in respect
of various types of fixed assets. It states that the depreciation method should be selected
carefully,
systematically and consistently applied from year to year. It also lists the factors which
affect depreciation and the treatment to be given if a method of depreciation is changed the
standard also lays down treatment in case of revaluation of assets.
Accounting Standard 7: It deals with the accounting for construction Contracts. Contract
accounting
is complicated because the contract period exceeds a single year in most cases. This
poses serious accounting problems relating to revenue, treatment of advances received,
workin-
progress etc. in the financial statements. The standard recognizes two methods of
accounting
for construction contract, namely, the percentage of completing method and the completed
contract method. The standard explains the relevance of both the methods of accounting
and
the method which is more appropriate under a given set of circumstances. It states the
essential
ingredients of these two methods and also deals with the disclosures to be made in this
regard.
Accounting Standard 8: It deals with the treatment of costs incurred on research and
development
of a product or a service by an entity in the financial statements of the year of such
research and development and the subsequent accounting years. The Standards identifies
items of cost which should form part of research and development costs. It also lays done
the
conditions under which research and development costs may be deferred i.e. written off in
accounts
over a specified number of years. It also states that specific disclosures should be made
regarding research and development costs that are incurred and their treatment in
financial
statements.
13
Accounting Standard 9: It deals with the basis for recognition of revenue i.e. income and
the
time when income can be said to have arisen. It also states the quantum of income to be
credited
to profit and loss account. The statement also shows how revenue is to be recognized from
the various activities carried on by the enterprise. Let us say, from sale of goods, rendering
of
services, and use by others of enterprise resources yielding interest, royalties, and
dividends
etc.
Accounting Standard 10: It deals with the accounting for fixed assets and specifies the
disclosures
to be made in the financial statement in relation thereto. It lays down the elements of
cost that should form a part of the book value in respect of a particular asset purchased and
used by an enterprise. It also states when the fixed assets should be written off and
treatment,
if any, on revaluation of fixed assets.
Accounting Standard 11: It deals with accounting for transaction in foreign currencies in
the financial statements prepared by an enterprise and with translation of the financial
statements
of foreign branches prepared in foreign currency into Indian rupees for the purpose
of including them in the financial statements of the head office in India. Rules with respect
to foreign currency translation (conversion) and difference arising, if any, from conversion
of
foreign currency into Indian rupees is also dealt with the standard.
Accounting Standard 12: It deals with accounting for Government grants received grants
received
by an entity and how should such grants be presented in the financial statement. Such
grants may be in the form of subsidies, cash incentives etc. the various approaches to the
grant
as suggested by the Standard would depend upon the purpose for which the grant is
received
and conditions that have to be fulfilled to obtain and enjoy the grant. Treatment of
withdrawal
of grants is also laid down in the standard.
Accounting Standard13: It deals with accounting for investments made by an entity and
their presentation in the financial statement. The standard defines current and long term
investments,
it is also applicable to shares, debentures and other securities held as stock-intrade,
with suitable modification as specified in the standard itself. The standards lays down
the criteria for bifurcation between current and long term investments and how they are to
be classified as such.
Accounting Standard 14: It deals with accounting for amalgamation and the treatment of
any resultant good will or reserves in the books of accounts, arising out of such
amalgamation
transaction. Amalgamation means formation of a new company to take over the existing
business of two or more companies. The standard does not deal with cases of acquisitions,
whereby the acquired company is not dissolved and its separate entity continues to exist.
The
standard lays down the methods of amalgamation and the accounting adjustment under
each
method.
Accounting Standard 15: It deals with accounting for retirement benefits provided to
employees
in the financial statements of employers. Retirement benefits would include provident
fund, superannuation/pension, and gratuity; leave encashment, post-retirement health and
welfare schemes. This statement does not apply to those retirement benefits for which the
employer’s obligations cannot be reasonably estimated.
Accounting Standard 16:It deals with the accounting treatment for borrowing costs.
According
to this standard the financial statements should disclose: The accounting policy for
borrowing
costs. The amount of borrowing costs capitalized during the period.
Accounting Standard 17: It deals with the accounting for reporting financial information
about the different types of products and services an enterprise produces and the different
geographical areas in which it operates.
Accounting Standard 18: It deals with the accounting requirements for disclosure of
related
party relationship and transactions between a reporting enterprise and its related parties.
The statutes governing an enterprise often require disclosure in financial statements of
transaction
with certain categories of related parties like directors or key management personnel
of an enterprise especially their remuneration and borrowings due to their fiduciary nature
of
the relationship with the enterprise.
Accounting Standard 19: It deals with the accounting for lessees and leasers, the
appropriate
accounting policies and disclosures in relation to finance leases and operating leases.
Accounting Standard 20: It deals with the accounting for the determination and
presentation
of earnings per share, which will improve comparison of performance among different
enterprises
for the same period and among different accounting periods for the same enterprise.
Accounting Standard 21:It deals with the accounting for preparation and presentation of
consolidated financial statements.
Accounting Standard-22: It deals with the accounting for treatment of taxes on income.
Accounting Standard 23: It deals with the accounting for recognizing in the consolidated
financial statements.
Accounting Standard 24: It deals with the accounting for reporting information about
discontinuing
operations thereby enhancing the ability of users of financial statements to make
projections of an enterprise’s cash flows, earnings-generation capacity, and financial
position
by segregating information about discontinuing operations from information about
continuing
operations. The standard is recommendatory in nature at present.
Accounting Standard 25: It deals with the accounting for minimum content of an interim
financial report and also the principles for recognition and measurement in the financial
statements
for an interim period. According to this standard an interim period is a financial reporting
period shorter than a full financial year. Interim financial report means a financial report
containing either a complete set of financial statements (Balance Sheet, profit & Loss
Account,
Cash Flow Statement and required notes) or a set of condensed financial
statements(Condensed
Balance Sheet, Condensed Profit and Loss Account, Condensed Cash Flow Statement
and Selected explanatory notes). Condensed statements should include, at a minimum, each
of
the headings and sub-headings of the recent annual financial statements along with
necessary
information.
Accounting Standard 26: It deals with the accounting treatment for intangible assets that
are
not dealt with especially in another Accounting Standard. The standard requires an
enterprise
to recognize an intangible asset subject to fulfillment of certain conditions.
Accounting Standard 27: It deals with the accounting for interests in joint ventures and
reporting
of joint venture assets, liabilities, income and expenses in the financial statements of
ventures and investors.
Ethics and Accounting
After going through the entire accounting process, its uses, the wide area of coverage that
accounting has and the implication of accounting one must really understand the
importance
accountant enjoy in a business. As many things are at stake, and the business is answerable
to its stakeholders an accountant assumes a predominant role. Hence it is extremely
important
for accounting professionals to be ethical in their practices due to the very nature of their
profession. The nature of accountants’ work puts them in a special position of trust in
relation
to their clients, employers and general public, who rely on their professional judgment and
guidance in making decisions. These decisions in turn affect the resource allocation process
of
an economy. The accountants are relied upon because of their professional statues and
ethical
standards. Thus, the key to maintaining confidence of clients and the public is professional
and
ethical conduct. The word ‘ethics’ is derived from the Greek word ‘ethos’ (character) and
Latin
word ‘moras’ (customs). Taken together these two words define how individuals choose to
interact with one another. Thus, ethics is about choices. It signifies how people act in order
to
make the ‘right’ choice and produce ‘good’ behaviour. It encompasses the examination of
principles,
values and norms, the consideration of available choices to make the right decision and
the strength of character to act in accordance with the decision. Hence, ethics, as a practical
discipline, demands the acquisition of moral knowledge and the skills to properly apply
such
knowledge to the problems of daily life.