CA Inter Group 1

Accounting Standards Summary

“Isko Padh Dala Toh AS Hogaya Lala”

- CA Avinash Sancheti
 Past Exam Analysis

Nov-20 Jan-21 July-21 Dec-21 May-22

AS-12 AS-2
AS-10 AS-11 AS-12
1(a) (Calculate Depreciation)
(Amount of dep and
grant)
(Valuation of
Inventory)
(Exchange Difference) (Acing for Grant)

AS-13 AS-10
AS-12 AS-3 AS-2
1(b) (Refund of grant)
(Reclassification of
Investments)
(Amount to be
Capitalized)
(Cash Flow Statement) (FIFO valuation)

AS-13
AS-13 AS-10
(Valuation and AS-2 AS-12
1(c) treatment of (Valuation of Inventory) (Treatment of Grants)
(Classification of
Investments)
(Revaluation loss &
Disposal)
investments)
AS-1
AS-3 AS-16
AS-16 AS-11 (Disclosure
1(d) (Treatment of Interest) (Accounting Treatment)
(Cash Flow Statement)
Requirements of change
(Borrowing cost to be
capitalised)
in Accounting Policy )
AS-1 Introduction to AS AS-1
6 (FS assuming not going
concern)
(Criteria for
classification)
- - (Fundamental
Accounting assumption)

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 Topic Important areas for Exam

AS-1

AS-2

AS-10

AS-11

AS-12

AS-16

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 AS-1 Disclosure of Accounting Policies
[Case Study/Numerical Based | Easy | Less Frequent]

The accounting policies refer to the specific accounting principles and the methods of
applying those principles adopted by the enterprise in the preparation and presentation of
financial statements

01 02 03

Applicability Objective Coverage

This AS is applicable to all Deals with the disclosure of  Disclosure of significant
entities significant accounting A/cing policies
policies followed by an entity  Fundamental A/cing
assumptions
 Disclosure of changes in
A/cing policies

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 FUNDAMENTAL A/CING CHANGES IN A/CING
ACCOUNTING POLICY
ASSUMPTIONS POLICIES

Areas where diff. A/cing Going Concern

Reasons of Change in
policies are allowed as Enterprise will continue its A/cing Policies [AS-5]:
per AS: operations in the foreseeable a) Change in Law;
a) Cost formula for future b) Change in AS;
Inventory;
c) Better presentation of
b) Measurement of PPE; Consistency FS.
c) A/cing for Govt Grants.
Practice of using same
accounting policies for similar
Selection of A/cing transactions in all accounting Disclosure of Change in
Policies: periods A/cing Policies:
a) True & Fair View; a) Fact of Change – New
b) Materiality; Accrual & Old Policy;
c) Substance over Form; b) Reason of Change;
d) Prudence. Transactions are recognized c) Effect of Change.
as soon as they occur, whether
or not cash or cash equivalent
is actually received or paid
Disclosure of A/cing
If change is expected to
Policies: If FAAs followed: have material effect on
a) All significant policies No separate disclosure required
shall be disclosed at future period:
one place; a) Fact of Change – New
b) They shall form part of If FAAs not followed: & Old Policy;
FS – Notes to A/cs Separate disclosure is required b) Reason of Change.

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 AS-2 Valuation of Inventories
[Numerical Based | Technical | Frequent]

Applicability

Disclosures
Objectives

Exclusions
01 02 03 04
This AS is applicable a) Value of Inventory a) A/cing policy & Cost a) WIP of Construction
to all entities b) Cost of Inventory formula used in valuation Contracts & Service
c) Writing down to NRV b) Total carrying amount of Providers
inventory b) Shares or deb held as
stock in trade
c) Producer’s inventory of
livestock or agricultural
I Finished Held for sale in ordinary produce
N Goods course of business
V
E Held for production of such
N RM & WIP goods
T
O Held for being consumed in
R Consumables production process
Y

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 COST OF INVENTORY

Cost Includes Concepts related to Cost Valuation of Cl. Stock Cost Formulas

Cost of Raw Material

Purchase Price – Trade
Discounts + Non refundable
Effect of Normal & Abnormal loss
NL is included in the Cost of
Raw Material
Normally valued at cost
But if FG are being sold
1 Specific Identification
method
taxes + Exp for purchases Inventory below cost due to decline in
𝑇𝑜𝑡𝑎𝑙 𝑐𝑜𝑠𝑡 price of materials then RM
Cost of Inv. = 𝑇𝑜𝑡𝑎𝑙 𝑢𝑛𝑖𝑡𝑠 −𝑁𝐿 𝑢𝑛𝑖𝑡𝑠
Conversion Cost
Labour + Factory O/h
Ab Loss not included in cost of
Inventory. It is charged to P/L.
shall be valued at NRV
[Replacement cost]
2 Historical Cost Formulas
FIFO & Weighted
(fixed* + variable)
*absorbed on the basis of FG & WIP- Average
normal capacity Cost of Joint & By-product Cost or NRV; whichever

Other Cost
• By product valued at NRV and
their value is rdeducted
Cost from total
cost to get cost of main product
is lower
[Item by Item Basis] 3 Non Historical Cost
Formulas
Related to bring the inventory to Standard Cost &
its present location & condition • Total cost of Joint products shall be
Retail Method
rationally apportioned b/w JPs
Net Realizable Value
Exclusions from Cost  FG: (Estimated SP (-) cost Retail Inventory Method
 Available for retail
Ab loss, Storage Cost, to make sell) business
Selling & Distribution Cost,  WIP: (Estimated SP (-) est.  Cost of cl. stock =
General Admin cost, cost of completion (-) Est Est. SP of closing
Interest & borrowing cost. cost to sell) stock (-) avg GP
margin
They are directly
charged to P/L

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 AS-10 Property, Plant & Equipment
[Numerical Based | Lengthy | Frequent]

Applicability Coverage Exclusions

1 2 3
This AS is applicable to Initial recognition of PPE; a) Biological Assets;
all entities Subsequent exp.; b) Wasting Assets.
Measurement at B/S Date;
Depreciation & Impairment;
Sale of PPE.

Property, Plant & Equipment (PPE)

These are tangible items held for use in the business and are expected to be used for more
than 12 months

(1) Bearer Plant is a plant: Following are not

a) Used for production of Bearer Plants:
(1) Biological Assets agricultural produce a) Plants grown for
(Living plants & animals) b) Expected to bear produce for wood;
except Bearer plants Excludes more than 12months b) Annual crops;
Includes c) Remote likelihood of selling the c) Plants having
plant as agricultural produce more than
(2) Assets used to operate or remote likelihood
(2) Wasting Assets like of selling them as
maintain biological assets or
Mines agri. Produce.
wasting assets

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 Initial Recognition of PPE De-Recognition
• On sale of PPE
• If no FEBs are expected
Any P/L on derecognition
Recognition Criteria: shall be charged to P/L
a) FEBs will flow to entity;
b) Cost can be reliably measured.

Recognition basis:
Cost

Purchased for Cash Self-Constructed PPE in Exchange of Other

Purchased at
Purchase Price (net of trade All expenses (material, labor, Assets
discount) construction exp.) necessary
Consolidated Price
(+) Non-refundable taxes to make the PPE ready for Consideration paid shall be
Transaction has rationally apportioned
(+) Exp. Incurred to bring PPE intended use Commercial Substance
to its intended use Except: among all PPEs acquired in
FV of asset given up or ratio of their respective FVs
(+) PV of Decommissioning & • Interdepartmental profits asset acquired
restoration costs • Abnormal wastages

Exclusions from Cost Transaction has NO

• Initial Operating losses Commercial Substance
• Cost of relocating the business or FV is not ascertainable
• Cost of introducing a new product BV of asset given up
• Cost of opening a new facility
• General Administrative & Selling
Costs
• Cost of reorganizing the business

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Subsequent Expenditure Carrying Amount Accounting for Revaluation

Day to Day operational & Entity shall choose any of the

First time
Upward Revaluation
maintenance cost two models as its accounting Downward Revaluation
Profit credited to
Charged to P/L policy and apply it Loss charged to P/l A/c
Revaluation reserve
consistently to entire class of
PPE
Exp which increases FEBs of
PPE Cost Model Downward
Capitalized to cost of PPE Upward Revaluation
Closing WDV = Cost (-) Revaluation

Subsequently
Profit shall be 1st credited
Acc. Dep (-) Impairment Loss shall be 1st
to P/l to the extent of loss
Loss charged to bal. of
Major Replacement/ booked earlier and any
Revaluation reserve
Inspection Revaluation Model and any excess loss
excess gain shall be trfd to
• Capitalized to Cost if it Closing WDV = FV on Revaluation reserve
shall be trfd to P/l
increases FEBs Revaluation Date (-)
subsequent Dep

When the Entire class of PPE shall be Treatment of Rev. Reserve

subsequent exp. is revalued
capitalized, any
amt previously Revaluation shall be done with Option 2
capitalized shall sufficient regularity. Option 1 Trfd to Revenue
be derecognized a) Significant changes in FV – Trfd fully to Revenue reserves every year to
Annually revalued reserves when the asset compensate excess
b) Insignificant changes in FV – is derecognized depn due to upward
Once in 3 to 5 years revaluation

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 Depreciation of PPE

Component Approach Basic Concepts Accounting treatment Review of factors

PPE shall be depreciated If used for construction of  Factors like useful life,
Commencement residual value, method
using component approach
When asset is ready for
other asset
where each component Depn. of PPE shall be shall be reviewed every
intended use. year
shall be depreciated as per capitalized on cost of new
Actual use is not necessary  Any significant change
its own useful life asset
shall be considered and
effect of such change
Method Otherwise shall be given
A Component is a:
• SLM,WDV, Production Depn. of PPE shall be prospectively (change
• Significant part of asset
units charged to P/l as an in a/cing estimate)
• Having significant cost
• To be selected based on Expense for the period  Remaining BV shall be
• Having different useful life
pattern of consumption depreciated using new
or pattern of use from
of FEBs estimates over balance
other parts
useful life

Cessation
• Scrap value equals or
exceeds Book value
• Asset is derecognized or
retired from active use &
held for disposal

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AS-11 The Effects of Changes in Forex rates
[Numerical Based | Technical | Frequent]

1 Applicability
This AS is applicable to
all entities.
2 Coverage
1. Accounting &
measurement of
3 Disclosures
1. Amount of exchange
difference included in
Foreign currency P/l;
transactions; 2. Exchange difference
2. Treatment of Exchange accumulated in FCTR;
Difference; 3. Change in
3. Translation of Trial classification of
balance of Foreign Foreign operation with
Operations; reason & impact.
4. Forward Contracts.

Reporting currency
Foreign Currency Currency in which financial
Transaction statements are being prepared
A transaction denominated in
or requires settlement in
Foreign Currency
foreign currency
Any currency other than reporting
currency

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 Foreign Currency Transactions

Initial Recognition Settlement Reporting at B/S Date Exchange Difference

Initially recorded in If settled at a rate FC Monetary Items arising on

reporting currency other than the rate Reported at Closing settlement/reporting
using exchange rate at which initially Exchange rate shall be treated as
on the date of recognized, income/loss of the
transaction exchange period in which they
difference shall be FC Non Monetary Items arise & trnsfd to P/L.
recognized Reported at Original
Exchange rate
FC Monetary Items
It includes FC Cash bal, bank Exception Para 46A
Contingent liabilities Exchange difference
bal & receivables or payables
which are to be realised or Reported at Closing arising on long term
settled in fixed or Exchange rate FCMIs treated as:
determinable amount of
money
In case of Depreciable Fixed Asset In other cases
FC Non Monetary Items Adjusted to the cost/carrying Exchange difference is
Items other than FCMIs like amount of fixed asset. accumulated in “FCMITD A/c” &
Fixed Assets, Inventory, Such exchange difference will be amortized to P/L over period of
Prepaid expenses depreciated over useful life loan

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 Foreign Operations
Subsidiary, Associate, JV or Branch operating in a foreign country

Integral FO Non-Integral FO
It is an extension of It works
the entity’s business independently using
on foreign country its own resources

AS-11 provides rules for translation of FC Trial balance of

Foreign Operation to Reporting currency for the purpose of Change in
Change in
preparation of final a/cs of entity classification from
classification from
Non-Integral to
Integral to Non-
Integral:
Integral:
Item Integral FO Non Integral FO Translated amount
All FC Non
of FC Non
monetary item shall
monetary items at
be restated using a. Assets & Liabilities: the date of change
exchange rate on
FCMI Closing Rate Closing Rate shall be taken as
date of
cost of the assets as
reclassification and Rate on date of
FC Non MI
transaction
Closing Rate on date of
exchange
reclassification.
difference shall be b. Income & Expenses Avg Rate Avg Rate
Balance in FCTR till
accumulated in
c. Depreciation Rate of FA Purchase Closing Rate date shall not be
FCTR A/c
d. Exchange Difference Trfd to P/L Trfd to FCTR A/c
reversed

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 Forward Contract in FC
A contract to buy or sell FC at a future date
at a predetermined rate

Forward Contract for Forward Contract for

Hedging Speculation
Hedging means to secure Speculation means to
itself against risk on any earn profit from a future
existing exposure price belief

Initial premium or discount Initial premium or discount

on forward contract shall on forward contract is
be treated as income or ignored
expense over the period
of contract
The forward contract is
marked to market and
Initial premium or discount: exchange difference is
(Spot rate on date of treated as P/L in the year
contract less Forward rate) in which it arises

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 AS-12 Government Grants
[Numerical Based | Easy | Frequent]

Government Grants are

Applicability
Assistance by Government This AS is applicable to all
entities

In cash or kind

For past or future compliance

Objective
with certain conditions Prescribes A/cing treatment
for Government Grants

Recognition Disclosures
When 2 conditions are satisfied a) A/cing policy adopted;
b) Amount of Government
2 Grant Recognized;
1 c) Amount of grant refunded.
Reasonable assurance Reasoanble certainity
that entity will comply about ultimate collection
with conditions of grant

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 A/cing for Grant

Related to Revenue For Fixed Asset In Nature Of Promoter’s Contribution

• For expenses - trfd to P/L systematically Credited to capital reserve
to match with the expenses. Shown as
‘Other Income’ or ‘deduction from Non-Monetary Grant
expense’. (Asset received as Grant)
• For losses - trfd to P/L immediately and • Concessional rates -
disclosed as extraordinary item. recorded at acquisition
cost
• Free of cost - recorded at
nominal value
For Depreciable Fixed Asset
For Non-Depreciable Fixed
Option 1- Reduced from cost of FA to get
Asset
Monetary Grant net book value. Depreciation charged on
Option 1- Reduced from cost
(Grant received in cash net book value
of asset.
for purchase of FA) Option 2 – Treated as Deferred Income
Option 2 - Credited to capital
and amortized to P/L over the useful life of
reserve
asset in proportion of depreciation

Depreciation
A/cing treatment Presentation
Refund of Grant Reverse the treatment Disclosed separately in
If Book Value of FA
(If conditions attached to changes, Depn shall
made at the time of FS as extraordinary
Grant are not fulfilled) be calculated on
recognition of Grant item
revised Book Value

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 AS-16 Borrowing Costs
01
Borrowing Cost includes

Interest & Commitment [Numerical Based | Technical | Frequent]

Charges

Applicability

02
This AS is applicable to all
Amortisation of Discounts
entities
& Premiums on Borrowings

03
Amortisation of ancillary
costs related to Objective
arrangement of borrowings Prescribes A/cing treatment
for Borrowing costs

04
Finance charges in
respect of asset acquired
under Finance lease
Disclosures
a) A/cing policy adopted;

05
Exchange difference b) Borrowing costs capitalized
arising on foreign during the year.
currency borrowings Exchange difference to be treated as B. Cost to the extent of:
(Interest if funds where borrowed in India – Actual interest on
FC Borrowing)

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 BORROWING COST

Capitalisation of Borrowing Computation of Borrowing

Treatment of Borrowing cost
cost cost to be capitalised

Conditions: Specific Borrowing

a) B. Cost is directly (Amount borrowed
B. Cost related to QA attributable to QA; specifically for QA)
b) QA will provide
shall be Capitalized FEBs; Borrowing cost to be
c) Cost of QA can be capitalised
reliably measured. =
(Actual B.Cost incurred less
Other B. Cost shall be Commencement Cessation any income from temporary
charged to P/l a) Exp. on QA is Cap. shall cease investment of such funds)
being incurred; when substantially
b) B. Cost is being all the activities
A qualifying asset (QA) is General Borrowing
incurred; necessary to
an asset that necessarily c) Activities are in prepare the QA are (Amount borrowed
takes a substantial progress. complete. generally for business and
period of time to get a part used for QA)
ready for its intended use Suspension
or sale. Cap. Shall be suspended Borrowing cost to be
temporarily when activities are capitalised based on WACR.
Investments, inventories interrupted. WACR is weighted average
routinely manufactured or However, if interruption is necessary interest rate on all general
assets ready for use when for construction then cap. Shall
continue
borrowings.
purchased are not QA

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 Space for Self Notes

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