Accounting Standards

ACCOUNTING
STANDARDS
INTRODUCTION
Indian Accounting Standard (abbreviated as Ind-AS) is the
Accounting standard adopted by companies in India and issued
under the supervision of Accounting Standards Board (ASB)
which was constituted as a body in the year 1977. ASB is a
committee under Institute of Chartered Accountants of India
(ICAI) which consists of representatives from government
department, academicians, other professional bodies viz. ICAI,
representatives from ASSOCHAM, CII, FICCI, etc. ICAI is an
independent body formed under an act of parliament.
• 1.Disclosure of Accounting Policies: Accounting Policies refer to specific
accounting principles and the method of applying those principles adopted
by the enterprises in preparation and presentation of the financial
statements.
• 2.Valuation of Inventories: The objective of this standard is to formulate the

method of computation of cost of inventories / stock, determine the value of
closing stock / inventory at which the inventory is to be shown in balance
sheet till it is not sold and recognized as revenue.
• 3.Cash Flow Statements: Cash flow statement is additional information to

user of financial statement. This statement exhibits the flow of incoming and
outgoing cash.
This statement assesses the ability of the enterprise to generate cash and to
utilize the cash. This statement is one of the tools for assessing the liquidity
and solvency of the enterprise.
• 4. Contigencies and Events occurring after the balance sheet date: In
preparing financial statement of a particular enterprise, accounting is done
by following accrual basis of accounting and prudent accounting policies to
calculate the profit or loss for the year and to recognize assets and liabilities
in balance sheet. While following the prudent accounting policies, the
provision is made for all known liabilities and losses even for those liabilities /
events, which are probable. Professional judgment is required to classify the
like hood of the future events occurring and, therefore, the question of
contingencies and their accounting arises.
“Objective of this standard is to prescribe the accounting of contingencies
and the events, which take place after the balance sheet date but before
approval of balance sheet by Board of Directors.
The Accounting Standard deals with Contingencies and Events occurring
after the balance sheet date.
• 5.Net Profit or Loss for the Period, Prior Period items and change in
Accounting Policies : The objective of this accounting standard is to
prescribe the criteria for certain items in the profit and loss account so that
comparability of the financial statement can be enhanced. Profit and loss
account being a period statement covers the items of the income and
expenditure of the particular period.
This accounting standard also deals with change in accounting policy,
accounting estimates and extraordinary items.
• 6. Depreciation Accounting : It is a measure of wearing out, consumption or

other loss of value of a depreciable asset arising from use, passage of time.
Depreciation is nothing but distribution of total cost of asset over its Useful
life.
• 7.Construction Contracts : Accounting for long term construction
contracts involves question as to when revenue should be
recognized and how to measure the revenue in the books of
contractor. As the period of construction contract is long, work of
construction starts in one year and is completed in another year or
after 4-5 years or so. Therefore question arises how the profit or loss
of construction contract by contractor should be determined.
There may be following two ways to determine profit or loss: On
year-to-year basis based on percentage of completion or On
completion of the contract.
.
• 8.Revenue Recognition : The standard explains as to when the
revenue should be recognized in profit and loss account and also
states the circumstances in which revenue recognition can be
postponed. Revenue means gross inflow of cash, receivable or other
consideration arising in the course of ordinary activities of an
enterprise such as:- The sale of goods, Rendering of Services, and
Use of enterprises resources by other yielding interest, dividend and
royalties. In other words, revenue is a charge made to customers /
clients for goods supplied and services rendered.
.
9.Accounting for Fixed Assets: It is an asset, which is:- Held with intention of being
used for the purpose of producing or providing goods and services. Not held for
sale in the normal course of business. Expected to be used for more than one
accounting period.
10.The Effects of changes in Foreign Exchange Rates: Effect of Changes in Foreign

Exchange Rate shall be applicable in Respect of Accounting Period commencing
on or after 01-04-2004 and is mandatory in nature. This accounting Standard
applicable to accounting for transaction in Foreign currencies in translating in the
Financial Statement Of foreign operation Integral as well as non- integral and also
accounting for forward exchange. Effect of Changes in Foreign Exchange Rate, an
enterprises should disclose following aspects:
Amount Exchange Difference included in Net profit or Loss;
Amount accumulated in foreign exchange translation reserve;
Reconciliation of opening and closing balance of Foreign Exchange
translation reserve;
11. Accounting for Government Grants : Government Grants are
assistance by the Govt. in the form of cash or kind to an enterprise in
return for past or future compliance with certain conditions.
Government assistance, which cannot be valued reasonably, is
excluded from Govt. grants,. Those transactions with Government,
which cannot be distinguished from the normal trading transactions
of the enterprise, are not considered as Government grants.
12.Accounting for Investments: It is the assets held for earning

income by way of dividend, interest and rentals, for capital
appreciation or for other benefits.
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Accounting Standards

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ACCOUNTING

• 2.Valuation of Inventories: The objective of this standard is to formulate the

• 3.Cash Flow Statements: Cash flow statement is additional information to

• 6. Depreciation Accounting : It is a measure of wearing out, consumption or

10.The Effects of changes in Foreign Exchange Rates: Effect of Changes in Foreign

12.Accounting for Investments: It is the assets held for earning

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