ACCOUNTING STANDARDS

ACCOUNTING STANDARD-1

 AS-1 focuses on the Disclosure of Accounting Policies. It establishes fundamental

principles for disclosing significant accounting policies that a company follows while
preparing its financial statements. Here are the key provisions:
1. Purpose of AS-1: AS-1 aims to promote transparency and comparability by
ensuring that companies disclose all significant accounting policies they
adopt. This enables users of financial statements to understand how financial
information is prepared.
2. Selection and Application of Accounting Policies:
 The standard emphasizes that accounting policies should be selected
based on prudence (cautiousness), substance over form and
materiality.
 Policies should reflect the true substance of transactions rather than
their legal form, especially when financial results may appear different
in legal versus substantive (considerable/meaningful) terms.
3. Consistency: AS-1 requires consistency in the application of accounting
policies across periods. If a change is necessary (e.g. due to new accounting
standards or a more appropriate method), the effect should be disclosed and
justified.
4. Disclosure of changes in Accounting Policies: Any change in accounting
policy must be disclosed, including the reason for the change and its financial
impact on current and prior periods if practicable.
5. Fundamental Accounting Assumptions: AS-1 identifies three fundamental
accounting assumptions:
 Going Concern: The assumption that the business will continue to
operate in the foreseeable future.
 Consistency: Accounting policies should remain consistent across
periods.
 Accrual Basis: revenues and expenses are recognized when they are
earned or incurred, not necessarily when cash transactions occur.
If any of these assumptions are not followed, it must be disclosed
explicitly.
6. Disclosure Requirements:
 All significant accounting policies must be disclosed at one place in
the financial statements to give a clear understanding of the basis of
preparation.
 Companies should avoid overly technical language and provide a
description that allows easy understanding.
 7. Materiality: AS-1 also underlines that immaterial items do not require
detailed disclosure, as they do not significantly influence the user’s
understanding of financial statements.
These provisions are designed to enhance comparability, clarity and
transparency, allowing users to make informed decisions based on the
financial statements.

ACCOUNTING STANDARD-2 (revised)

 AS-2 (revised) is the accounting standard related to the Valuation of inventories. This
standard provides guidance on determining the cost of inventories and the required
disclosures. Here are the key provisions:
1. Scope: AS-2 applies to all inventories except for specific items like work in
progress (related to construction contracts, services and financial
instruments) and shares, debentures, and other financial instruments held as
stock-in-trade.
2. Definition of inventory: inventory includes assets that are held for sale in the
ordinary course of business, in the process of production for such sale, or in
the form of materials or supplies to be consumed in production.
3. Measurement of inventory:
 Inventories should be measured at the lower of cost and net
realizable value (NRV).
 Cost includes all costs of purchase, costs of conversion and other costs
incurred in bringing the inventory to its present location and
condition.
 Net Realizable Value (NRV) is the estimated selling price in the
ordinary course of business, less estimated costs of completion and
selling costs.
4. Cost Formula:
 AS-2 allows two main cost formulae to assign costs to inventory:
o First-in first-out (FIFO)
o Weighted Average Cost Method
 Last –in First-out (LIFO) method is not permitted.
5. Cost of purchase and conversion:
 The cost of purchase includes the purchase price, import duties and
other taxes (excluding refundable taxes), as well as transport and
handling costs.
 The cost of conversion includes direct labour, direct expenses and an
allocation of fixed and variable overheads.
6. Exclusions from cost: Abnormal wastage (wastage occurred due to
unexpected events), storage costs (unless necessary for production), selling
 and distribution costs, and administrative overheads (cost of management
and administration) that do not relate to production are excluded.
7. Disclosures:
 The accounting policy adopt for inventories, including the cost
formula, must be disclosed.
 The total carrying amount of inventories and the classification of
inventories (e.g. raw materials, work in progress and finished goods)
should be disclosed.
 Any amount of inventories recognized as an expense should be
disclosed if it is significant.
8. NRV and write-downs:
 Inventories must be written down to NRV if it is lower than cost.
 If the circumstances that previously led to the write-down of
inventories to NRV no longer exist, the amount of the write-down can
be reversed.
These provisions ensure accurate valuation of inventory, provide
transparency in financial reporting and enable comparability across
companies.
ACCOUNTING STANDARD-3 (revised)
 AS-3 focuses on ‘cash flow statements’. It was established by the Institute of Chartered
Accountants of India (ICAI) to provide guidelines on how companies should report cash
flows, which are essential for assessing the liquidity, solvency and financial flexibility of
a business. Here are the key provisions of AS-3 (revised):
1. Classification of cash flows:
AS-3 classifies cash flows into three categories:
 Operating activities: These includes the principal revenue-generating
activities of the business, such as cash receipts from customers, cash
payments to suppliers and other cash expenses related to core
business functions.
 Investing activities: Cash flows related to the acquisition and disposal
of long-term assets and investments, like buying or selling property,
plant, and equipment or investment securities.
 Financing activities: cash flows from transactions that alter the equity
capital and borrowings of the business, such as issuing shares,
repaying loans or paying dividends.
2. Direct and indirect methods:
 Direct method: This method discloses major classes of gross cash
receipts and payments. It provides a more detailed view of cash flows
from operating activities.
 Indirect method: This method adjusts net profit for the effects of non-
cash transactions, changes in working capital and other items to arrive
 at cash flows from operating activities. It starts with net profit before
tax and adjusts for non-cash items like depreciation, gains and losses
on sale of assets, and working capital changes.
3. Foreign currency cash flows:
 Cash flows arising from foreign currency transactions should be
recorded in the entity’s functional currency (the currency in which it
records and measures its transactions, and is usually the currency of
the primary economic environment in which it operates) using the
exchange rate on the transaction date.
 Gains and losses due to foreign exchange rate changes on cash and
cash equivalents (cash and other short-term investments that can be
converted to cash) should be reported separately.
4. Interest and dividend treatment:
 Interest and dividends received: Cash flows from interest and
dividends received are classified based on the company’s nature. For
financial companies, it falls under operating activities; for others, it
may fall under investing activities.
 Interest and dividends paid: Cash outflows for interest paid are
generally classified under financing activities, while dividends paid are
also under financing.
5. Taxes on income: AS-3 requires that cash flows related to taxes on income
should be classified as operating activities unless they can be specifically
identified with financing or investing activities.
6. Disclosure of non-cash transactions: Non-cash transactions, such as
acquisitions of assets by assuming liabilities or through an issue of shares,
should not be included in the cash flow statement but should be disclosed
separately in the notes to the financial statements.
7. Components of cash and cash equivalents: cash equivalents short-term,
highly liquid investments that are readily convertible to known amounts of
cash and subject to an insignificant risk of changes in value. The standard
requires entities to disclose the components of cash and cash equivalents and
present a reconciliation of amounts in the cash flow statement with
equivalent items in the balance sheet.
AS-3 aims to provide transparency and consistency in reporting cash flows,
helping stakeholders understand the entity’s cash position and assess its
liquidity, financial health and risk.

ACCOUNTING STANDARD-4(revised)

Accounting Standard -4 (AS-4) revised, titled Contingencies and Events Occurring

after the Balance sheet date, outlines how to handle and disclose specific types of
 events and contingencies related to financial statements. Here are the key provisions
of AS-4 (revised): contingencies related to financial statements. Here are the key
provisions of AS-4 (revised). Here are the key provisions of AS-4 (revised):
1. Definition of contingencies: A contingency is a condition or situation with an
uncertain outcome, which may impact assets or liabilities depending on a future
event. AS-4 requires organizations to disclose material contingencies, except those
where the likelihood of occurrence is remote.
2. Events occurring after the balance sheet date: AS-4 defines two types of events
occurring after the balance sheet date:
 Adjusting Events: These events provide additional evidence of
conditions that existed on the balance sheet date. Adjusting events
require adjustments of financial statements to reflect the new
information. Examples include bankruptcy of a debtor post-balance
sheet date or settlement of a court case confirming an existing
obligation.
 Non-adjusting Events: These events indicate conditions that arose after
the balance sheet date. They do not require adjustments to the financial
statements but must be disclosed if they are significant. Examples
include major asset acquisitions, losses due to natural disasters, and
significant changes in market value.
3. Recognition and disclosure of contingent losses:
 If the probability of a contingent loss is high and the amount can be
reasonably estimated, it should be recognized in the financial
statements.
 If the probability is lower or the amount cannot be estimated, the
contingency should be disclosed but not recognized in the financial
statements.
4. Dividends: AS-4 states that dividends proposed or declared after the balance sheet
date should not be recorded as a liability in that period. Instead, such dividends
should be disclosed in the notes to the financial statements, as they are non-
adjusting events.
5. Disclosure of Events and Contingencies: Material events and contingencies that
could influence the economic decisions of users must be disclosed. This included the
nature and estimated financial impact of events that occurred after the balance
sheet date.
6. Consistency with other Standards: AS-4 emphasizes the importance of alignment
with other accounting standards, such as AS-29, which covers specific provisions,
contingent liabilities and contingent assets.
These provisions help ensure that financial statements are prepared transparently
and inform users of all relevant, material events and uncertainties that could affect the
financial position and performance of the company.

ACCOUNTING STANDARD-5(REVISED)
AS-5 (revised), titled “net profit or loss for the period, prior period items and changes in
accounting policies”, provides guidelines for the disclosure and treatment of certain types of
income and expenses to ensure transparency and consistency in financial statements. Here
are the key provisions:
 1. Net profit or loss for the period: AS-5 requires that the net profit or loss for a period
should be disclosed on the face of the income statement. All incomes and expenses
related to the financial year are taken into account, excluding items of extraordinary
nature and prior period items.
2. Extraordinary items: these are gains or losses that are distinct from the ordinary
business activities, both in type and frequency (income or expenses that are not part
of a company's regular business operations. They are infrequent, unusual, and
unlikely to happen again in the near future). AS-5 mandates that extraordinary items
must be disclosed separately in the profit and loss statement, along with their nature
and amount, to highlight their non-recurring nature.
3. Prior Period items: Prior items refer to income and expenses arising in the current
period due to errors or omissions in previous periods. AS-5 requires that these items
are shown separately from the normal income and expenses for the period. This
disclosure helps in maintaining accurate information and comparability.
4. Changes in accounting estimates: when changes in accounting (like useful life of
assets, allowance for doubtful debts, etc) occur, AS-5 allows them to be adjusted in
the current and future periods. It prohibits retrospective (looking again at the past)
application, meaning that the financial statements of prior periods should not be
adjusted for such changes.
5. Changes in accounting policies:
 AS-5 allows changes in accounting policies only if:
 Required by law
 Required by an accounting standard, or
 It leads to a more appropriate presentation of financial statements.
 When there is a change, its impact should be disclosed separately, with an explanation
for the change, its amount, and its effect on current and prior periods.
6. Disclosure requirements: AS-5 mandates disclosures for extraordinary items, prior
period items and changes in accounting policies. These disclosures help users of
financial statements better understand the components of the net profit or loss and
any significant deviations from previous practices.
By focusing on transparency and consistent treatment, AS-5 aims to improve
comparability of financial statements across periods, enabling better decision-
making by users.

ACCOUNTING STANDARD-6(REVISED)
 AS-6(revised), Depreciation Accounting, provided guidance on how to account for
depreciation of assets in financial statements. Although AS-6 was withdrawn when AS-
10 (revised) on property, plant and equipment became mandatory, understanding As-6
remains helpful for historical context in financial reporting. Here are the key provisions
that AS-6 contained:
1. Definition of depreciation: AS-6 defined depreciation as a measure of the wear and
tear, usage, or obsolescence of an asset over time. Depreciation was considered an
allocation of the depreciable amount, not an asset valuation.
2. Applicability: AS-6 applied to all depreciable assets, except for those covered by
other standards (e.g. forests, livestock, goodwill). This includes tangible assets like
building, machinery and equipment.
3. Methods of depreciation:
  AS-6 allowed two main methods of depreciation: the straight line method and
the written down value method (WDV).
 Entities could choose the method that best reflected the asset’s usage and
economic benefits.
4. Change in methods:
 If there was a change in the depreciation method, AS-6 required that it be
accounted for as a change in accounting policy.
 Any impact from changing the method had to be applied retrospectively to
previous financial periods and disclosed in the financial statements.
5. Depreciable amount:
 AS-6 emphasized that the depreciable amount was the asset’s original cost
minus the residual or scrap value.
 The depreciable amount was to be allocated over the useful life of the asset.
6. Residual value: any revision in an asset’s useful life or residual value required an
adjustment to the depreciation calculation. The change had to be treated
prospectively, affecting the depreciation charge from the period in which the
revision occurred.
7. Disclosure requirements: AS-6 required entities to disclose:
 Depreciation methods used
 Total depreciation for the period
 Gross and net amounts of depreciable assets
 Accumulated depreciation for each class of assets
 Changes in depreciation methods or rates, with their financial impact.
8. Revaluation of assets: if an asset was revalued, AS-6 to requires depreciation to be
based on the revalued amount. The revaluation surplus was to transferred to a
revaluation reserve.
These provisions helped standardize how companies reported depreciation,
providing clarity and comparability across financial statements.

ACCOUNTING STANDARD-7(REVISED)
Accounting standard-7 (revised), construction contracts, provides guidance on
accounting for revenue and costs associated with construction contracts. This
standard primarily applies to long-term contracts for the construction of assets like
buildings, infrastructure, and specialised equipment. Here are the important
provisions of AS-7 (revised):
1. Applicability: AS-7 applies to construction contracts in which the work is performed
over more than one accounting period. This includes contracts for construction,
engineering and other project-based work.
2. Types of contracts: AS-7 classifies contracts into two types:
 Fixed price contracts: contracts where the contractor agrees to a fixed
contract price, possibly with incentives for early completion or cost savings.
 Cost plus contracts: contracts where the contractor is reimbursed for
allowable costs plus a percentage of these costs or a fixed fee.
3. Revenue and cost recognition:
 AS-7 adopts the percentage of completion method as the primary method of
revenue recognition. This methods of recognizes revenue and costs in line
with the completion level of the contract.
  Revenue and costs are recognized when it is probable that they will be
collected, and the stage of completion can be reliably estimated.
 The completed contract method can be used if it is difficult to estimate the
stage of completion or the collectability of revenue is uncertain.
4. Determining the stage of completion: the standard provides guidance for
determining the stage of completion using:
 Surveys of work performed
 Costs incurred to date as a proportion of total estimated costs
 Completion of a physical proportion of the contract work’
5. Contract revenue: contract revenue includes:
 The initial contract amount
 Variations, claims and incentive payments if that can be reliably measured
and will likely be collected.
6. Contract costs: contract costs consist of:
 Direct costs: costs directly attributable to specific contracts, like materials,
labour and subcontractor charges.
 Attributable overheads: costs that are necessary to the contract activity but
may not be directly tied to the contract.
 Other costs: costs specifically chargeable to the customer under the contract.
7. Expected losses: if a contract is expected to result in a loss, the standard mandates
recognizing the entire loss as an expense immediately, regardless of the contract’s
stage of completion.
8. Changes in estimates: any changes in the estimated contract revenue or costs are
accounted for in the period in which the change is determined, impacting future
periods.
9. Disclosure requirements: AS-7 requires disclosure of:
 The amount of contract revenue recognized in the period
 The methods used to determine the stage of completion
 The gross amount due from or to customers, based on contracts in progress
 Any recognizes loss on contracts
AS-7 (revised) ensures that revenue and costs related to long-term
construction contracts are recognized in a way that reflects the progress of
the contract, providing a more accurate and timely picture of the
contractor’s financial performance.

ACCOUNTING STANDARD-8 withdrawn- included in AS-26

ACCOUNTING STANDARD-9
 AS-9, Revenue recognition, provides guidance on recognizing revenue in financial
statements, covering how and when revenue should be recognized. It applies to all
enterprises and is relevant for revenue arising from the sale of goods, the rendering of
services, and the use of enterprise resources by others such as interest, royalties and
dividends). Here are the important provisions of AS-9:
1. Scope: AS-9 applies to revenue recognition for:
 Sale of goods: revenue from the sale of goods should be recognized when
significant risks and rewards of ownership are transferred to the buyer.
  Rendering of services: revenue from services should be recognized based on
the stage of completion or on the percentage completion method.
 Use of enterprise resources by others: this includes interest, royalties, and
dividends. Revenue from these should be recognized when there is a
reasonable certainty of its collection.
2. Exclusions: AS-9 does not apply to:
 Revenue associated with construction contracts ( covered by AS-7)
 Revenue arising from government grants (covered by AS-12)
 Revenue related to insurance contracts (covered by regulatory requirements)
 Special cases requiring a separate standard, such as lease agreements
3. Conditions for revenue recognition: revenue is recognized only if;
 It is probable that the economic benefits associated with the transaction will
flow to the enterprise
 The revenue amount can be measured reliably
4. Timing of revenue recognition:
 Revenue should be recognized when it is earned and realized or realizable.
 For sale of goods, revenue is recognizes when:
o The seller has transferred the significant risks and rewards of
ownership to the buyer
o There is no significant uncertainty about the amount of consideration
or the collectability of revenue.
For services, revenue is recognized by referring to the completion stage
or on a time proportion basis, depending on the nature of the contract.
5. Interest, royalties and dividends:
 Interests: recognized on a time proportion basis, considering the effective
yield on the asset.
 Royalties: recognized on an accrual basis as per the terms of the relevant
agreement.
 Dividends: recognized when the right to receive payment is established, which
is usually when the dividend is declared.
6. Revenue recognition in special situations:
 Uncertainties: if the amount of revenue cannot be measured reliably,
revenue recognition should be postponed until uncertainty is resolved.
 Instalment sales: revenue may be recognized at the time of sale if the
collection can be reasonably estimated; otherwise, it is recognized as
instalments collected.
 Sale with the right to return: revenue should only be recognized when the
buyer accepts delivery and has no right to return, or the return period has
expired.
7. Disclosure requirements: AS-9 requires disclosure of:
 The accounting policies adopted for recognizing revenue
 The timing of revenue recognition for each type of revenue
 Any instances of deferred revenue due to uncertainties in measurement or
collection.
These provisions in AS-9 ensure that revenue is recognized in a consistent
and comparable manner across entities, providing users of financial
statements with a clear view of an entity’s revenue-generating activities.
 ACCOUNTING STANDARD-10
 AS-10 "Accounting for Fixed Assets" provides guidelines on how companies should
account for their fixed assets, which include tangible items such as land, buildings,
machinery, and vehicles. Here are the key provisions:
1. Recognition of Fixed Assets:
 Fixed assets should be recognized only when it is probable that future economic
benefits associated with the asset will flow to the enterprise, and the cost of the
asset can be measured reliably.
 All costs necessary to bring the asset to its intended working condition, like
installation, delivery charges, and professional fees, should be included in the asset's
cost.
2. Components of Cost:
 The cost of a fixed asset includes the purchase price, import duties, and non-
refundable taxes after deducting trade discounts and rebates.
 Any directly attributable cost that brings the asset to its working condition should
also be included.
 Interest on borrowed funds specifically for acquiring or constructing fixed assets
should be included in the cost of the asset until it is ready for use.
3. Subsequent Expenditure:
 Expenditures incurred after the asset is in use should only be capitalized if they
provide additional benefits.
 Ordinary repairs and maintenance costs should be expensed as they are incurred.
4. Revaluation of Fixed Assets:
 If a company revalues its fixed assets, the entire class of assets must be revalued, not
just individual assets.
 Any increase in asset value due to revaluation is credited to the Revaluation Reserve,
while any decrease is debited to the Profit and Loss account, except in certain cases
where it can be offset against any existing credit in the Revaluation Reserve.
5. Depreciation:
 Depreciation is applied systematically over the useful life of the asset.
 The method of depreciation should reflect the pattern in which the asset’s future
economic benefits are expected to be consumed.
6. Retirement and Disposal of Fixed Assets:
 Upon retirement or disposal of a fixed asset, the asset’s carrying amount and
accumulated depreciation should be removed from the books.
 Any gain or loss arising from the disposal should be recognized in the profit or loss
account.
7. Disclosure Requirements:
 Companies must disclose the gross and net book values of fixed assets at the
beginning and end of the period.
 The methods and rates of depreciation, along with revaluation details if applicable,
should be disclosed.
 Companies should also disclose any revaluation of fixed assets, including the basis of
revaluation, the effective date, and who conducted the revaluation.
These provisions ensure that fixed assets are reported accurately, transparently, and in line
with the economic reality, providing stakeholders with a clear picture of an entity's financial
health.
ACCOUNTING STANDARD-11(REVISED)
 AS-11 (Revised), "The Effects of Changes in Foreign Exchange Rates," provides
guidelines for accounting transactions involving foreign currency and the translation of
financial statements of foreign operations. Here are the key provisions:
1. Scope of AS-11:
 AS-11 applies to the accounting of foreign currency transactions and the translation
of financial statements for entities with foreign operations.
 It covers transactions such as buying and selling goods or services, borrowing or
lending funds, and asset acquisitions in foreign currency.
2. Foreign Currency Transactions:
 A foreign currency transaction should be recorded on initial recognition at the
exchange rate on the date of the transaction.
 Any difference between the exchange rate on the transaction date and the payment
date should be recognized as either income or expense in the period in which it
arises.
3. Exchange Differences on Settlement:
 When foreign currency transactions are settled, exchange differences should be
recognized in the profit and loss account.
 If the settlement occurs after the balance sheet date, the exchange difference should
be accounted for based on the exchange rate at the settlement date.
4. Translation of Foreign Operations:
 The financial statements of foreign operations should be translated into the
reporting currency of the parent company for consolidation purposes.
 For non-integral foreign operations (independent foreign operations), assets and
liabilities are translated at the closing rate, while income and expenses are
translated at the exchange rates on the dates of transactions or an average rate for
the period.
 For integral foreign operations, the monetary items are translated at the closing
rate, and non-monetary items are translated at the historical rate.
5. Exchange Differences on Monetary Items:
 Monetary items, such as foreign currency loans, are reported using the closing
exchange rate at the balance sheet date.
 Exchange differences on monetary items are usually recognized in profit and loss in
the period in which they arise.
 For long-term monetary items related to the acquisition of fixed assets, exchange
differences can be adjusted in the cost of the asset if they are within the terms
allowed by relevant laws, like the Companies Act.
6. Exchange Differences on Forward Exchange Contracts:
 For forward exchange contracts, any premium or discount should be amortized as
expense or income over the life of the contract.
 Any exchange difference on the contract should be recognized in profit or loss,
except when it is related to the acquisition of fixed assets, in which case it may be
adjusted in the asset’s cost.
7. Disclosure Requirements:
 Companies should disclose the amount of exchange differences in the profit and loss
account.
  They should also disclose the amount of exchange differences adjusted in the cost of
fixed assets, if applicable.
 Disclosure of the nature and amount of outstanding forward exchange contracts is
also required.
These provisions under AS-11 ensure accurate accounting for foreign currency transactions
and the impact of exchange rate fluctuations, offering transparency in financial statements
and maintaining consistency in reporting financial results for companies involved in
international business.

ACCOUNTING STANDARD-12
 Accounting Standard 12 (AS 12) deals with "Accounting for Government Grants" and is
issued by the Institute of Chartered Accountants of India (ICAI). It provides guidelines
on how organizations should recognize and account for government grants, subsidies,
and other financial aids from the government. Here are the key provisions:
1. Definition of Government Grants:
 AS 12 defines government grants as financial aids provided by the government to an
enterprise, which is often conditional and aimed at supporting specific objectives or
costs, such as promoting economic activities or helping businesses during
downturns.
2. Recognition of Government Grants:
 Grants should be recognized only when there is reasonable assurance that the
conditions attached to them will be met and the grants will be received.
 Recognition should not occur until both the receipt of the grant and compliance with
its conditions are certain.
3. Types of Government Grants:
 Capital Grants: For acquisition of fixed assets. Recognized either by reducing the cost
of the asset or as deferred income.
 Revenue Grants: For offsetting expenses. Recognized in the profit and loss
statement as other income or credited to specific expenses.
4. Presentation of Grants Related to Fixed Assets:
 Reduced Asset Cost Method: The grant amount is deducted from the cost of the
asset, reducing depreciation expenses.
 Deferred Income Method: The grant is recorded as deferred income and amortized
over the useful life of the asset.
5. Presentation of Revenue Grants:
 Revenue grants are typically credited to the profit and loss account under the "Other
Income" section or directly credited to the expense they offset.
6. Refund of Government Grants:
 If a grant becomes repayable due to non-compliance with conditions, it is treated as
an extraordinary item in the profit and loss account. If it was initially deducted from
an asset, its refund is added to the asset cost.
7. Disclosure Requirements:
 The financial statements must disclose the accounting policy adopted for
government grants, the nature and extent of grants recognized, and any
contingencies attached to them.
These provisions ensure clarity and consistency in reporting government assistance, helping
users of financial statements understand the impact of such support on the financial
position and performance of an organization.

ACCOUNTING STANDARD-13
 Accounting Standard 13 (AS 13) provides guidelines for "Accounting for Investments"
and covers the classification, recognition, and valuation of investments in an
organization's financial statements. Here are the essential provisions of AS 13:
1. Classification of Investments:
 Current Investments: Investments intended to be held for less than a year and are
readily realizable.
 Long-term Investments: Investments intended to be held for more than a year and
not expected to be realized in the short term.
2. Cost of Investment:
 The cost of investment includes the purchase price, brokerage fees, stamp duty, and
any other related expenses.
 If investments are acquired in exchange for shares or other assets, the fair value of
the asset given or the investment acquired, whichever is more determinable, is
considered the cost.
3. Valuation of Investments:
 Current Investments: Valued at the lower of cost or fair value (market value) on an
individual or aggregate basis, depending on the nature of the investment. Any
reduction in value is recognized as a loss.
 Long-term Investments: Valued at cost. However, if there is a permanent decline in
value, a provision for diminution should be made in the profit and loss statement.
4. Transfer of Investments Between Categories:
 Transfers from long-term to current investments should be done at the lower of cost
or fair value.
 Transfers from current to long-term investments should be carried at the lower of
cost or fair value on the date of transfer.
5. Income from Investments:
 Income such as dividends, interest, or rentals is recognized in the profit and loss
account only when the right to receive payment is established.
 Dividends are recognized when the right to receive payment is declared. For
example, interim dividends are recognized upon declaration by the investee
company.
6. Disposal of Investments:
 On disposal of an investment, the difference between the carrying amount and the
sale proceeds is recognized in the profit and loss statement.
 The cost of the investment sold is calculated on a first-in, first-out (FIFO) basis unless
another method, like weighted average, is more appropriate.
7. Disclosure Requirements:
 The classification of investments into current and long-term categories.
 The significant accounting policies for investments.
 The basis for determining cost, valuation method, and any income earned from
investments.
 Any significant decline in value that is not temporary should be disclosed.
These provisions ensure transparent and consistent reporting, helping users of financial
statements to understand the organization’s investment strategy, its valuation approach,
and its financial position with respect to investments.

ACCOUNTING STANDARD-14
Accounting Standard 14 (AS 14) relates to "Accounting for Amalgamations" and provides
guidelines for accounting treatment in the case of amalgamations, including mergers and
acquisitions. It also covers the method for presenting the financial statements of
amalgamated companies and provides clarity on the treatment of reserves, goodwill, and
assets. Here are the main provisions:
1. Types of Amalgamations:
 Amalgamation in the Nature of Merger: When two companies combine to form a
new entity with an intention to continue operations, preserving much of the original
shareholders' interest and assets. All assets, liabilities, and reserves are pooled
without adjustments to fair values.
 Amalgamation in the Nature of Purchase: When one company acquires another,
where the assets and liabilities are transferred at fair values. The acquiring company
typically gains control over the acquired company’s business.
2. Methods of Accounting for Amalgamations:
 Pooling of Interests Method: Used for amalgamations in the nature of mergers.
o All assets, liabilities, and reserves of the amalgamating companies are
recorded at their existing book values.
o The identity of the reserves, such as general reserves, is maintained.
o No goodwill or capital reserve is recognized, as assets and liabilities are not
revalued.
 Purchase Method: Used for amalgamations in the nature of purchase.
o The acquired assets and liabilities are recorded at their fair values as on the
acquisition date.
o If the purchase consideration exceeds the net assets, the difference is
recognized as goodwill. If it is lower, a capital reserve is created.
o Reserves, other than statutory reserves, are not carried forward.
3. Consideration for Amalgamation:
 The purchase consideration is the agreed-upon price for the amalgamation. It may
be in the form of cash, shares, or other assets. The consideration paid is compared to
the fair value of net assets acquired to determine goodwill or capital reserve.
4. Treatment of Reserves:
 Statutory Reserves: Specific statutory reserves of the transferor company must be
maintained by the transferee company until they are no longer required.
 General Reserves: In a merger, reserves are preserved in their original form under
the pooling of interests method. In a purchase, only statutory reserves are
transferred.
5. Goodwill and Capital Reserve:
 Goodwill: If the purchase consideration exceeds the fair value of net assets acquired,
the difference is recognized as goodwill and amortized systematically.
 Capital Reserve: If the fair value of net assets exceeds the purchase consideration,
the difference is recognized as a capital reserve.
6. Treatment of Assets and Liabilities:
  All assets and liabilities of the transferor company are transferred to the transferee
company.
 Under the pooling of interests method, they are taken over at book values, while
under the purchase method, they are recorded at fair values.
7. Disclosure Requirements:
 The nature and method of accounting used in the amalgamation (merger or
purchase).
 Description of consideration paid and the assets and liabilities taken over.
 Information about goodwill or capital reserve arising from the amalgamation.
 Disclosure of any changes in the accounting treatment due to amalgamation and any
expenses related to the amalgamation.
These provisions of AS 14 help in ensuring that amalgamations are accounted for
consistently, providing clarity to stakeholders on the financial position and
performance of the resulting company.

ACCOUNTING STANDARD-15 ( revised)

 Accounting Standard 15 (Revised 2005), or AS 15 (Revised), provides comprehensive
guidance on “Employee Benefits”. The revised standard includes more rigorous
provisions on the measurement, recognition, and disclosure of employee benefits. It
covers various types of benefits including short-term, post-employment, long-term,
and termination benefits, emphasizing actuarial valuation and detailed disclosures.
Here are the key provisions of AS 15 (Revised):
1. Scope and Types of Employee Benefits Covered:
 AS 15 (Revised) applies to all forms of employee benefits, which include:
o Short-term Employee Benefits: Benefits expected to be settled within 12
months, such as wages, bonuses, and paid leave.
o Post-employment Benefits: Benefits payable after employment ends,
including pensions, gratuity, and provident fund contributions.
o Other Long-term Employee Benefits: Benefits that are not due within 12
months, like long-service leave or long-term disability benefits.
o Termination Benefits: Payments made when employment is terminated,
such as severance pay.
2. Recognition and Measurement of Short-term Benefits:
 Short-term benefits are recognized as an expense in the period when the employees
render the related service.
 These benefits are measured at an undiscounted amount and include short-term
compensated absences and bonuses.
3. Post-employment Benefits Classification:
 Defined Contribution Plans: Under these plans, an employer’s obligation is limited
to the agreed contributions to a fund. The contributions are recognized as an
expense in the period in which the employee provides the service. Example:
Employee Provident Fund.
 Defined Benefit Plans: Here, the employer’s obligation is to provide a specified
benefit (e.g., gratuity, pension) to the employee. The amount of benefit depends on
actuarial assumptions and calculations, making it a complex obligation for the
employer.
4. Actuarial Valuation for Defined Benefit Plans:
  For defined benefit plans, AS 15 (Revised) mandates actuarial valuations to
determine the present value of the defined benefit obligation and the fair value of
plan assets.
 Actuarial valuation must consider factors like employee turnover, discount rate,
inflation, and expected future salary increases.
 Actuarial gains and losses, arising from changes in assumptions or actual experience
differing from expectations, can be recognized immediately in the profit and loss
account or amortized over future periods.
5. Projected Unit Credit Method:
 AS 15 (Revised) specifies the use of the Projected Unit Credit (PUC) method for
measuring defined benefit obligations and the cost of services. This method projects
future salaries and calculates the present value of benefits.
6. Other Long-term Benefits:
 Similar to defined benefit plans, other long-term employee benefits require actuarial
valuation. However, actuarial gains and losses and past service costs are recognized
immediately in the profit and loss account, without amortization.
7. Termination Benefits:
 Termination benefits are recognized as a liability and an expense when the employer
has a clear obligation to pay, usually due to restructuring or early retirement
schemes.
 Recognition occurs when the employee has accepted the offer, or the company has a
defined plan that cannot be withdrawn.
8. Treatment of Actuarial Gains and Losses:
 Companies have the option to either recognize actuarial gains and losses
immediately in the profit and loss account or spread them over future periods, which
affects how volatility is managed in financial reporting.
9. Past Service Costs:
 Past service cost arises when a defined benefit plan is introduced or changed. These
costs are recognized in the profit and loss account over the period until the benefits
become vested.
10. Disclosure Requirements:
 AS 15 (Revised) requires comprehensive disclosures to ensure transparency:
o The type and characteristics of each benefit plan.
o The amounts recognized in the profit and loss account and balance sheet for
each category of benefit.
o For defined benefit plans, detailed disclosure of actuarial assumptions,
changes in the present value of defined benefit obligations, fair value of plan
assets, and reconciliation of actuarial gains and losses.
o A sensitivity analysis, if applicable, showing the impact of significant actuarial
assumptions.
The provisions in AS 15 (Revised) ensure that organizations account for employee benefits in
a consistent, transparent, and fair manner, reflecting the true financial impact of these
obligations on the organization’s financial position.

ACCOUNTING STANADARD-16
 Accounting Standard (AS) 16, titled Borrowing Costs, provides guidance on the
treatment of borrowing costs in financial statements. It sets out when and how
 borrowing costs can be capitalized as part of the cost of qualifying assets. Here are the
important provisions of AS-16:
1. Scope and Definition of Borrowing Costs:
 Borrowing Costs: Defined as interest and other costs incurred by an entity related to
borrowing funds.
 Examples include interest expense, amortization of discounts or premiums on
borrowings, finance charges on finance leases, and exchange differences related to
foreign currency borrowings (to the extent they are regarded as an adjustment to
interest costs).
2. Qualifying Assets:
 Definition: A qualifying asset is one that takes a substantial period of time to get
ready for its intended use or sale. Typical examples include assets like real estate
developments, large manufacturing plants, or infrastructure projects.
 Capitalization Requirement: Borrowing costs can only be capitalized if they are
directly attributable to the acquisition, construction, or production of a qualifying
asset.
3. Recognition of Borrowing Costs:
 Capitalization: Borrowing costs directly attributable to qualifying assets should be
capitalized as part of the cost of that asset.
 Non-Capitalization: Borrowing costs not directly related to the acquisition or
production of qualifying assets should be expensed in the period they are incurred.
4. Commencement of Capitalization:
 Capitalization of borrowing costs begins when:
o Expenditures for the asset are being incurred,
o Borrowing costs are being incurred, and
o Activities necessary to prepare the asset for its intended use or sale are in
progress.
5. Suspension of Capitalization:
 If there are extended periods when active development of the qualifying asset is
interrupted, capitalization should be suspended during those periods.
 However, short interruptions do not require suspension.
6. Cessation of Capitalization:
 Capitalization of borrowing costs ceases when substantially all activities to prepare
the qualifying asset for its intended use or sale are complete.
 For assets that are completed in parts and each part can be used while other parts
are under construction, capitalization ends when the specific part is ready for use.
7. Disclosure Requirements:
 Financial statements should disclose the amount of borrowing costs capitalized
during the period and the capitalization rate used.
These provisions ensure consistency in the treatment of borrowing costs and help provide
more accurate financial information regarding asset costs.

ACCOUNTING STANDARD-17
 Accounting Standard (AS) 17, titled Segment Reporting, provides guidance on reporting
financial information about the different business segments of an enterprise, enabling
stakeholders to understand better the performance, risks, and returns of various
segments. Here are the key provisions of AS-17:
1. Objective of Segment Reporting:
 The primary objective is to disclose information that enables users to evaluate the
enterprise’s performance in various segments, the nature of its operations, and the
economic environment in which it operates.
2. Scope and Applicability:
 AS-17 applies to enterprises whose equity or debt securities are listed on a
recognized stock exchange in India or are in the process of listing.
 It also applies to enterprises with a turnover exceeding ₹50 crore in the preceding
financial year, a borrowings base of ₹10 crore or more, or a paid-up capital of ₹5
crore or more.
 Small and medium-sized enterprises (SMEs) are generally exempt from AS-17.
3. Definitions and Key Terms:
 Business Segment: A distinguishable component of an enterprise that provides a
product or service or a group of related products or services with risks and returns
different from other segments.
 Geographical Segment: A distinguishable component of an enterprise operating
within a particular economic environment, which is subject to risks and returns
different from other environments.
4. Identification of Reportable Segments:
 Segments can be identified as either business or geographical.
 Reportable segments are those whose revenue, profit/loss, or assets constitute 10%
or more of the total revenue, profit/loss, or assets of all segments.
5. Primary and Secondary Segments:
 Primary Segment: The dominant source of risks and returns, which could be
business or geographical, depending on the nature of the enterprise.
 Secondary Segment: The less dominant source of risks and returns.
 An enterprise must determine which of its business or geographical segments
represents its primary and secondary segments for reporting purposes.
6. Segment Revenue, Segment Expenses, Segment Assets, and Segment Liabilities:
 Segment Revenue: Revenue directly attributable to the segment, including both
external and inter-segment revenue.
 Segment Expenses: Expenses directly attributable to the segment or that can be
allocated on a reasonable basis.
 Segment Assets: Operating assets directly attributable to the segment or reasonably
allocable to the segment.
 Segment Liabilities: Operating liabilities that are directly attributable to the segment
or reasonably allocable to the segment.
 Inter-segment transactions should be priced on an arm’s length basis.
7. Disclosure Requirements:
 Primary Segment Disclosure:
o Segment revenue (external and inter-segment), segment results, and
segment assets and liabilities.
o The basis of inter-segment pricing and a reconciliation of segment revenue,
results, assets, and liabilities to enterprise totals.
 Secondary Segment Disclosure:
o Disclosure of revenue, assets, and costs attributable to each geographical
segment if geographical segments are the secondary reporting format.
  Unallocated Items: Disclosures must separately identify revenue, expenses, assets,
and liabilities that are not allocated to segments.
8. Segment Accounting Policies:
 Segment accounting policies should be the same as those used in the enterprise’s
consolidated financial statements.
 If different policies are used, the impact on segment information must be disclosed.
9. Inter-Segment Transfers:
 Transfers between segments should be measured on the basis that the enterprise
actually uses to price inter-segment transactions.
 This pricing basis must be disclosed to provide transparency in segment reporting.
These provisions ensure transparency and consistency in segment information, allowing
stakeholders to make more informed decisions based on the segmented performance of
different parts of the business.

ACCOUNTING STANDARD-18
 Accounting Standard (AS) 18, titled Related Party Disclosures, provides guidelines for
reporting transactions and relationships with related parties. This standard aims to
enhance transparency and ensure that stakeholders are aware of potential conflicts of
interest that might affect financial statements. Here are the important provisions of
AS-18:
1. Objective of AS-18:
 The primary purpose of AS-18 is to disclose the nature and impact of transactions
with related parties, which may affect the financial position and performance of an
enterprise. This transparency is intended to inform stakeholders of any conflicts of
interest or risks arising from relationships with related parties.
2. Scope of AS-18:
 AS-18 applies to all enterprises preparing financial statements that follow Indian
Generally Accepted Accounting Principles (GAAP), particularly focusing on companies
and other entities with significant third-party relationships.
 It is applicable to both the consolidated and standalone financial statements.
3. Definition of Related Party:
 Related Party: An individual or enterprise that can control or significantly influence
the other party in making financial or operating decisions.
 Related Parties include:
o Subsidiaries, associates, and joint ventures.
o Individuals with significant influence, such as key management personnel.
o Relatives of key management personnel.
o Enterprises over which key management personnel or their relatives have
control or significant influence.
o Holding companies, fellow subsidiaries, and investing parties.
4. Control and Significant Influence:
 Control: The power to govern financial and operating policies, typically through
ownership, voting rights, or contractual arrangements.
 Significant Influence: The power to participate in financial and operating policy
decisions without full control, typically exercised through shareholding, board
positions, or agreements.
5. Related Party Transactions:
  Related party transactions include transfers of resources, services, or obligations
between related parties. Examples are:
o Purchases or sales of goods or property.
o Rendering or receiving services.
o Leasing arrangements.
o Loans, guarantees, or collateral.
o Transfer of research and development.
o Settlement of liabilities on behalf of the entity or another related party.
6. Disclosure Requirements:
 Nature of Relationships: The identity of related parties and the nature of their
relationship with the enterprise must be disclosed.
 Details of Transactions: Disclosure of significant related party transactions, including
their volume, terms, and outstanding balances, is required. Specifically:
o The nature of the transaction.
o Amounts involved in each transaction.
o Any outstanding balances, including terms, conditions, and guarantees
related to those balances.
 Control Relationships: Where one entity has control over the other, the nature of
the control relationship must be disclosed, even if no transactions have occurred.

7. Materiality and Aggregation of Transactions:

 Materiality: Only significant or material transactions need to be disclosed.
 Aggregation: Similar types of related party transactions can be aggregated by type
(e.g., all sales transactions with related parties). However, disclosures should avoid
obscuring material information by excessive aggregation.
8. Exceptions to AS-18:
 Intra-group Transactions: Transactions within a group, provided that consolidated
financial statements are prepared, do not require disclosure in consolidated
accounts.
 Compensation to Key Management Personnel: Direct remuneration of key
management personnel is often disclosed separately, not within the related party
transactions.
9. Key Management Personnel (KMP) Disclosures:
 Disclosure of transactions with key management personnel and their relatives, as
these individuals have significant influence over the enterprise’s policies.
 Key management personnel include directors, senior executives, and others who
control or participate significantly in decision-making.
10. Disclosure of Outstanding Balances:
 Disclose the outstanding balances at the balance sheet date in respect of
transactions with related parties, including terms and conditions, and any
guarantees provided or received.
These provisions ensure that the financial effects of relationships with related parties are
transparent to users of financial statements, reducing the risk of bias and enabling
stakeholders to make more informed decisions based on a clearer view of potential conflicts
or dependencies.

ACCOUNTING STANDARD-19
  Accounting Standard (AS) 19, titled Leases, provides guidelines for accounting and
reporting leases in the financial statements of lessees and lessors. The standard's
objective is to ensure that lease arrangements are disclosed transparently, reflecting
the rights and obligations of both parties. Here are the important provisions of AS-19:
1. Objective of AS-19:
 AS-19 aims to provide guidance on the recognition, measurement, and disclosure of
leases, ensuring that users of financial statements understand the impact of leasing
arrangements on a company's financial position and performance.
2. Scope of AS-19:
 AS-19 applies to all lease agreements, with the exception of certain leases, such as:
o Leases for the exploration or extraction of natural resources.
o Licensing agreements for items such as films, patents, copyrights, and
trademarks.
 The standard applies to both lessees (those who use the asset) and lessors (those
who provide the asset) in all sectors, including commercial, industrial, and financial
sectors.
3. Classification of Leases:
 Leases are classified into two primary types:
o Finance Lease: A lease that transfers substantially all the risks and rewards of
ownership to the lessee. Examples include long-term leases where the lessee
has the option to purchase the asset at a favourable price.
o Operating Lease: A lease that does not transfer substantially all the risks and
rewards of ownership to the lessee. In such leases, the lessor retains
ownership, and the lessee only has the right to use the asset for a period.
4. Accounting for Finance Leases:
 For Lessees:
o The lessee should recognize a finance lease as an asset and a liability at the
inception of the lease.
o The amount recorded as an asset and liability is the lower of the fair value of
the leased asset or the present value of minimum lease payments.
o Depreciation: The leased asset is depreciated over its useful life or the lease
term, whichever is shorter.
o Finance Charges: The lease payments are split between finance charges and
the reduction of the outstanding liability. Finance charges are recognized in
the income statement over the lease term.
 For Lessors:
o The lessor should recognize the leased asset as a receivable at an amount
equal to the net investment in the lease.
o Income: Lease income is recognized based on a pattern reflecting a constant
rate of return on the lessor's net investment.
5. Accounting for Operating Leases:
 For Lessees:
o Lease payments are recognized as an expense in the income statement on a
straight-line basis over the lease term unless another systematic basis is more
representative of the benefits received.
 For Lessors:
 o The lessor retains the leased asset on its balance sheet and depreciates it
over its useful life.
o Lease income is recognized on a straight-line basis or another systematic
basis over the lease term.
6. Initial Direct Costs:
 Initial direct costs incurred by lessors are accounted for differently:
o For finance leases, they are included in the net investment in the lease.
o For operating leases, they are either recognized as an expense in the period
incurred or deferred and allocated over the lease term.
7. Lease Term and Minimum Lease Payments:
 Lease Term: The lease term includes the non-cancellable period of the lease along
with any renewal periods that are reasonably certain to be exercised.
 Minimum Lease Payments: Minimum lease payments are the payments over the
lease term that the lessee is required to make, excluding certain costs like contingent
rent, costs for services, and taxes to be paid by the lessor.
8. Sale and Leaseback Transactions:
 Finance Leaseback: If a sale and leaseback transaction results in a finance lease, any
excess of sales proceeds over the carrying amount is deferred and amortized over
the lease term.
 Operating Leaseback: If the transaction results in an operating lease and the sale
price is at fair value, any profit or loss should be recognized immediately. If it is
below or above fair value, adjustments should be made accordingly.
9. Disclosure Requirements for Lessees
 For finance leases:
o Details of the asset, gross carrying amount, and accumulated depreciation.
o A reconciliation between the total minimum lease payments and their
present value.
o Total future minimum lease payments with a breakdown by period (within
one year, one to five years, and beyond five years).
 For operating leases:
o Total future minimum lease payments with a breakdown by period.
o Lease payments recognized as an expense in the period.
10. Disclosure Requirements for Lessors
 For finance leases:
o Breakdown of the total gross investment in the lease and its present value.
o Total unearned finance income.
o Information on contingent rents recognized as income.
 For operating leases:
o The gross carrying amount of the leased assets and accumulated
depreciation.
o Lease income recognized in the period.
o Details of minimum future lease payments under non-cancellable leases.
These provisions ensure that leases are reported transparently, providing clear insight into
the financial obligations and benefits associated with leased assets.

ACCOUNTING STANDARD-20
Accounting Standard (AS) 20, titled Earnings Per Share (EPS), provides guidance on the
calculation and presentation of earnings per share to enhance comparability and
transparency for users of financial statements. EPS is a key metric for evaluating a
company's profitability and performance per share. Here are the important provisions of AS-
20:
1. Objective of AS-20:
 The objective of AS-20 is to prescribe the principles for determining and presenting
earnings per share (EPS), helping users to assess the performance of an enterprise
and make comparisons across companies and periods.
2. Scope of AS-20:
 AS-20 applies to enterprises whose equity shares or potential equity shares are
publicly traded or in the process of being issued to the public.
 It is applicable to both consolidated and standalone financial statements.
3. Types of EPS:
 AS-20 requires the calculation and disclosure of two types of EPS:
o Basic EPS: Earnings available to equity shareholders divided by the weighted
average number of equity shares outstanding during the period.
o Diluted EPS: Reflects the potential dilution of earnings per share if
convertible securities, options, or warrants were exercised or converted into
equity shares.
4. Calculation of Basic EPS:
 Net Profit or Loss: The profit or loss attributable to equity shareholders, adjusted for
any dividends on preference shares (if any), is used as the numerator.
 Weighted Average Number of Shares: Basic EPS is calculated by dividing the profit
or loss by the weighted average number of equity shares outstanding during the
period.
o The weighted average accounts for shares issued, bought back, or other
changes in share count during the period.
Basic EPS=Net Profit or Loss for Equity ShareholdersWeighted Average Number of Equity Sh
ares\text{Basic EPS} = \frac{\text{Net Profit or Loss for Equity Shareholders}}{\text{Weighted
Average Number of Equity
Shares}}Basic EPS=Weighted Average Number of Equity SharesNet Profit or Loss for Equity S
hareholders
5. Calculation of Diluted EPS:
 Potential Equity Shares: Diluted EPS includes potential equity shares (e.g.,
convertible debentures, stock options, warrants) that could dilute earnings per
share.
 Adjusted Earnings: The net profit or loss is adjusted to reflect any interest,
dividends, or other impacts if potential equity shares were converted into actual
shares.
 Adjusted Weighted Average Shares: The weighted average number of shares is
adjusted to include the potential shares that could be issued.
Diluted EPS=Adjusted Net Profit for Equity ShareholdersAdjusted Weighted Average Numbe
r of Equity Shares\text{Diluted EPS} = \frac{\text{Adjusted Net Profit for Equity
Shareholders}}{\text{Adjusted Weighted Average Number of Equity
Shares}}Diluted EPS=Adjusted Weighted Average Number of Equity SharesAdjusted Net Pro
fit for Equity Shareholders
6. Earnings Adjustments:
 Preference Dividends: If there are any cumulative preference dividends or arrears,
these must be deducted from net profit for calculating EPS.
 Extraordinary Items: Net profit or loss should be adjusted for extraordinary items to
determine the earnings attributable to ordinary shareholders.
7. Weighted Average Number of Shares:
 Time Weighting: Shares are weighted by the portion of the period they were
outstanding, ensuring accuracy in the average number of shares.
 Bonus Shares and Stock Splits: For issues such as bonus shares or stock splits,
retrospective adjustments are made for all periods presented, as if the additional
shares were issued at the beginning of the earliest period reported.
8. Treatment of Potential Equity Shares in Diluted EPS:
 Convertible Securities: Convertible debentures, preference shares, or other
instruments that can be converted into equity shares are considered for calculating
diluted EPS.
 Stock Options and Warrants: If options or warrants could be exercised, they are
included in diluted EPS if they have a dilutive effect, meaning they reduce the EPS
when converted.
 Anti-Dilutive Instruments: If any potential equity shares would increase EPS (i.e.,
they are anti-dilutive), they are excluded from the calculation of diluted EPS.
9. Disclosure Requirements:
 Basic and Diluted EPS: Both basic and diluted EPS should be disclosed on the face of
the income statement for each period presented.
 Reconciliation: A reconciliation of the numerators and denominators used in
calculating basic and diluted EPS is required if these figures differ.
 Continuing and Discontinued Operations: If there are earnings from discontinued
operations, basic and diluted EPS for both continuing and discontinued operations
must be presented separately.
 Changes in Capital Structure: If there is a significant change in the capital structure
after the balance sheet date but before the issuance of the financial statements, this
should be disclosed along with the potential impact on EPS.
10. Retrospective Adjustments:
 Adjustments to prior periods’ EPS are necessary for events like stock splits, bonus
issues, and similar changes that affect the number of shares. This ensures
consistency and comparability across reporting periods.
These provisions ensure that EPS information is presented consistently and transparently,
providing a clear picture of a company's earnings performance both with and without
potential dilution effects.

ACCOUNTING STANDARD-21
 Accounting Standard (AS) 21, titled Consolidated Financial Statements, provides
guidance on the preparation and presentation of consolidated financial statements
(CFS) for a parent company and its subsidiaries. The purpose is to present the financial
performance and position of a group of entities as if they were a single economic
entity. Here are the important provisions of AS-21:
1. Objective of AS-21:
  The main objective of AS-21 is to set out principles for the preparation and
presentation of consolidated financial statements, ensuring that stakeholders have a
comprehensive view of the financial position and performance of a parent and its
subsidiaries collectively.
2. Scope of AS-21:
 AS-21 applies to companies that are required by law or otherwise choose to present
consolidated financial statements.
 It applies when an entity has one or more subsidiaries and prepares CFS to provide a
single view of the economic group.
 It does not apply to investments in associates or joint ventures, which are covered by
AS-23 and AS-27, respectively.
3. Definitions:
 Parent: An entity that controls one or more subsidiaries.
 Subsidiary: An entity that is controlled by another entity (the parent).
 Control: The power to govern the financial and operating policies of an entity to
obtain benefits. Control is usually presumed when a parent holds more than 50% of
the voting power of the subsidiary, either directly or indirectly.
4. Consolidation of Subsidiaries:
 All subsidiaries of the parent company should generally be consolidated, regardless
of whether they are located domestically or internationally.
 Certain subsidiaries may be excluded from consolidation if they are temporarily held
for sale or have severe restrictions that prevent the parent from exercising control.
5. Methods of Consolidation:
 Line-by-Line Consolidation: All assets, liabilities, income, and expenses of the
subsidiary are combined with those of the parent on a line-by-line basis.
 Elimination of Intragroup Transactions: Any intragroup transactions, balances,
income, and expenses should be eliminated in full to avoid double-counting.
 Uniform Accounting Policies: The financial statements of the parent and subsidiaries
must be prepared using uniform accounting policies for similar transactions. If there
are differences in policies, adjustments should be made to align them.
6. Minority Interest (Non-Controlling Interest):
 Definition: Minority interest refers to the equity in a subsidiary not attributable,
directly or indirectly, to the parent company.
 Disclosure: Minority interests should be presented in the consolidated balance sheet
within equity, separately from the parent shareholders' equity.
 Income Statement: The share of profit or loss attributable to minority interest
should be separately disclosed in the consolidated income statement.
7. Goodwill or Capital Reserve on Consolidation:
 Goodwill: If the cost of acquisition is more than the parent’s share in the fair value of
the identifiable net assets of the subsidiary, the difference is recorded as goodwill in
the consolidated balance sheet.
 Capital Reserve: If the cost of acquisition is less than the parent’s share in the fair
value of identifiable net assets, the difference is recognized as a capital reserve.
 Amortization: Goodwill arising from consolidation is typically amortized over its
useful life, subject to periodic impairment testing.
8. Date of Financial Statements:
  The financial statements of the parent and its subsidiaries used in the consolidation
must be prepared as of the same date.
 If this is not practicable, adjustments must be made for significant transactions or
events that occur between the date of the subsidiary’s financial statements and the
date of the parent’s financial statements.
9. Deferred Tax on Consolidation Adjustments:
 AS-21 requires recognition of deferred tax on temporary differences arising on
consolidation adjustments, ensuring compliance with the deferred tax accounting
standard (AS-22).
10. Disclosure Requirements:
 List of Subsidiaries: A list of all subsidiaries, along with the proportion of ownership
and voting power held, should be disclosed.
 Minority Interests: Disclose minority interests in subsidiaries and how they are
presented in the consolidated financial statements.
 Basis of Consolidation: Disclose the basis for consolidating subsidiaries, including the
methods of accounting for intra-group balances and transactions.
 Changes in Subsidiaries: Any acquisitions or disposals of subsidiaries and their
impact on the financial statements should be disclosed.
11. Presentation and Reporting:
 Presentation as a Single Economic Entity: CFS should present the parent and its
subsidiaries as a single economic entity.
 Segment Reporting: If applicable, segment information should also be presented for
the consolidated group.
 Comparative Information: Comparative figures should be presented for all periods
disclosed, ensuring comparability over time.
12. Exemptions from Consolidation:
 AS-21 allows exemptions from consolidating a subsidiary under specific
circumstances:
o If control is intended to be temporary, and the subsidiary is acquired
exclusively with a view to its subsequent disposal within twelve months.
o If the subsidiary operates under severe long-term restrictions that
significantly impair its ability to transfer funds to the parent.
These provisions ensure that consolidated financial statements present an accurate and
complete picture of the financial health and performance of a corporate group, providing
useful information to stakeholders for decision-making.

ACCOUNTING STANDARD-22
 Accounting Standard (AS) 22), titled Accounting for Taxes on Income, provides
guidelines on how to account for taxes on income. The standard aims to harmonize the
reporting of taxes on income with the matching principle, ensuring that tax expenses
are aligned with the period in which the corresponding income or expense arises. Here
are the important provisions of AS-22:
1. Objective of AS-22:
 The objective of AS-22 is to provide guidance on accounting for taxes on income to
ensure that financial statements accurately reflect the impact of income taxes on the
financial performance and position of an entity.
2. Scope of AS-22:
  AS-22 applies to all enterprises for accounting income taxes, specifically focusing on
deferred taxes arising from timing differences between accounting income and
taxable income.
 The standard does not cover tax treatments that do not involve timing differences,
such as permanent differences (e.g., tax-free income).
3. Key Concepts and Definitions:
 Current Tax: The amount of income tax payable or recoverable on the taxable
income for the current period, as per the tax laws.
 Deferred Tax: Tax effects of timing differences; it is the future tax payable or
recoverable due to differences between accounting income and taxable income that
arise in one period but reverse in a subsequent period.
 Timing Differences: Differences between taxable income and accounting income
that originate in one period and reverse in one or more future periods. These lead to
deferred tax assets or liabilities.
 Permanent Differences: Differences between taxable income and accounting income
that arise but do not reverse in the future (e.g., expenses disallowed for tax
purposes).
4. Recognition of Deferred Tax Assets and Liabilities:
 Deferred Tax Liability: Recognized for all taxable timing differences, which will result
in a future tax outflow when reversed.
 Deferred Tax Asset: Recognized for all deductible timing differences to the extent
that there is a reasonable certainty that future taxable income will be available
against which these assets can be utilized.
o If there is a history of recent losses, deferred tax assets are recognized only
when there is convincing evidence of sufficient future taxable income.
5. Measurement of Deferred Tax:
 Deferred tax assets and liabilities are measured using the tax rates and laws that
have been enacted or substantively enacted by the balance sheet date.
 Deferred taxes should reflect the tax consequences of recovering or settling the
carrying amount of assets and liabilities in the financial statements.
6. Review and Reassessment of Deferred Tax Assets:
 Deferred tax assets are reviewed at each balance sheet date. If it is no longer
reasonably certain that sufficient future taxable income will be available, the
carrying amount of deferred tax assets should be reduced accordingly.
 If conditions improve and there is a higher level of certainty about future taxable
income, previously unrecognized deferred tax assets may be recognized in
subsequent periods.
7. Accounting Treatment in Financial Statements:
 Balance Sheet Presentation: Deferred tax assets and liabilities are shown under the
non-current assets and non-current liabilities sections, respectively.
 Income Statement Presentation: Current tax and deferred tax are presented as
separate line items in the income statement.
 Adjustments for Deferred Tax: Adjustments to deferred tax assets and liabilities are
recognized in the income statement, except when they relate to items directly
recognized in equity, in which case the deferred tax effect is also recognized in
equity.
8. Tax Effects of Other Comprehensive Income:
  Deferred taxes arising from items directly recognized in other comprehensive
income (e.g., revaluation surplus, foreign currency translation reserves) should be
accounted for in the relevant section of equity or reserves.
9. Revaluation of Assets:
 If an asset is revalued, any deferred tax related to the revaluation is recognized
directly in equity, not in the income statement.
10. Changes in Tax Rates and Legislation:
 When tax rates or tax laws change, deferred tax assets and liabilities should be re-
measured to reflect the new tax rates or laws.
 The resulting impact on deferred tax is recognized in the income statement or
equity, depending on where the original timing difference was recognized.
11. Disclosures Required by AS-22:
 Deferred Tax Liability and Asset: The deferred tax liabilities and deferred tax assets
should be disclosed separately in the balance sheet.
 Major Components of Deferred Tax: An enterprise must disclose the nature of
timing differences giving rise to deferred tax liabilities and assets.
 Unrecognized Deferred Tax Assets: If there are any deferred tax assets that have not
been recognized due to uncertainty, this fact and the amount should be disclosed.
 Tax Reconciliation: Reconciliation of the relationship between accounting profit and
the tax expense for the period, with details on deferred and current tax components.
These provisions in AS-22 ensure that enterprises provide a transparent view of their tax
obligations and deferred taxes, promoting consistency and comparability across financial
statements.

ACCOUNTING STANDARD-23
 Accounting Standard (AS) 23, titled Accounting for Investments in Associates in
Consolidated Financial Statements, provides guidelines for the recognition,
measurement, and disclosure of investments in associates in a parent company's
consolidated financial statements. The main purpose of AS-23 is to ensure that the
influence a parent company has on its associates is properly reflected in its
consolidated financial statements. Here are the important provisions of AS-23:
1. Objective of AS-23:
 AS-23 provides guidance on how a parent company should account for its
investments in associates when preparing consolidated financial statements,
ensuring that the influence the parent has over associates is reflected in the
consolidated results.
2. Scope of AS-23:
 AS-23 applies to investments in associates that are included in consolidated financial
statements of an investor that has significant influence but not control or joint
control over the associate.
 It does not apply to standalone financial statements or to joint ventures, which are
covered under separate accounting standards.
3. Key Definitions:
 Associate: An entity over which the investor has significant influence but not control
or joint control. Significant influence is typically assumed when an investor holds
between 20% and 50% of the voting power.
  Significant Influence: The power to participate in the financial and operating policy
decisions of an investee but not control or jointly control those policies.
4. Equity Method of Accounting:
 Recognition: AS-23 requires that investments in associates be accounted for using
the equity method in the consolidated financial statements. Under the equity
method:
o The investment is initially recognized at cost.
o The carrying amount of the investment is subsequently adjusted to recognize
the investor’s share of the associate’s profits or losses.
 Share of Profit or Loss: The investor’s share of the associate’s profit or loss is
recognized in the investor’s income statement.
 Adjustments: Adjustments to the carrying amount may be necessary to reflect
changes in the investor’s share of the net assets of the associate, such as additional
investments or dividends received.
5. Recognition of Goodwill and Capital Reserve:
 Goodwill: If the cost of the investment exceeds the investor's share of the fair value
of the identifiable net assets of the associate at the acquisition date, the difference is
recognized as goodwill. Goodwill related to the associate is included in the carrying
amount of the investment.
 Capital Reserve: If the investor’s share of the fair value of identifiable net assets
exceeds the cost of the investment, the difference is recognized as a capital reserve
in the consolidated financial statements.
6. Impairment Testing:
 If there is objective evidence of impairment in the associate, the carrying amount of
the investment in the associate must be assessed for impairment.
 Any impairment loss is recognized in the consolidated income statement, reducing
the carrying amount of the investment.
7. Intra-Group Transactions:
 Elimination of Profits and Losses: Unrealized profits and losses resulting from
transactions between the investor and associate are eliminated to the extent of the
investor’s interest in the associate.
 This ensures that only realized profits or losses are recognized in the consolidated
financial statements.
8. Changes in Ownership Interest:
 Increase in Ownership: If the investor acquires additional shares in the associate, the
investment should be remeasured at cost, and the equity method should continue to
apply.
 Loss of Significant Influence: If the investor loses significant influence over the
associate, it should discontinue using the equity method, and the investment should
be accounted for as per AS-13 (Accounting for Investments).
9. Equity Method Discontinuation:
 If the associate incurs continuous losses and the carrying amount of the investment
is reduced to zero, further losses are not recognized unless the investor has incurred
legal or constructive obligations or has made payments on behalf of the associate.
 If the associate returns to profitability, the investor resumes recognizing its share of
profits only after its share of unrecognized losses is recovered.
10. Uniform Accounting Policies:
  The associate’s financial statements should be prepared using uniform accounting
policies consistent with those of the investor.
 If the associate uses different accounting policies, adjustments should be made to
align with the investor’s policies for consolidation purposes.
11. Date of Financial Statements:
 The financial statements of the associate should ideally be prepared as of the same
reporting date as the investor. If this is not practicable, adjustments are made for
significant transactions or events between the reporting dates of the associate and
the investor.
12. Disclosures Required by AS-23:
 Ownership Percentage: Disclose the percentage ownership interest held by the
investor in the associate.
 Method Used: Disclose the method used for accounting (i.e., equity method) and
any reasons for exceptions.
 Carrying Amount: Disclose the carrying amount of investments in associates.
 Share of Profits or Losses: The investor’s share of the associate’s profits or losses
should be disclosed in the income statement.
 Significant Influence Details: If significant influence is obtained or lost during the
reporting period, this fact and its impact should be disclosed.
These provisions ensure that an investor's financial statements provide a fair view of its
financial relationships with associates, enhancing the relevance and reliability of
consolidated financial reporting.

ACCOUNTING STANDARD-24
 AS-24, titled "Discontinuing Operations," is an Accounting Standard issued by the
Institute of Chartered Accountants of India (ICAI). It provides guidance on how to
identify, present, and disclose discontinuing operations in financial statements. This
standard is relevant for organizations that are ceasing certain operations or
segments of their business. Here are the key provisions:
1. Scope and Applicability:
 AS-24 applies to discontinuing operations that represent a significant part of a
business. It covers operations being sold, abandoned, or wound down and which
meet specific criteria outlined in the standard.
 It does not cover changes in operations that do not qualify as discontinuing
operations, like routine shutdowns for maintenance or seasonal closures.
2. Definition of Discontinuing Operation:
 A discontinuing operation is a separate major line of business or geographical area
that the company has decided to discontinue, and that can be distinguished
operationally and for financial reporting purposes.
 For an operation to qualify, the discontinuation should be planned and expected to
have a material impact on the business.
3. Recognition Criteria:
 The standard specifies when an operation should be classified as "discontinuing."
This occurs when the enterprise has:
o A formal plan to discontinue the operation.
o Announced the decision publicly or started implementing the plan.
o Begun efforts to locate a buyer if selling or winding down is involved.
4. Presentation and Disclosure Requirements:
 Separate Disclosure: Discontinuing operations should be presented separately in the
financial statements. This allows users to distinguish between continuing and
discontinuing parts of the business.
 Disclosure of Gains/Losses: Any gain or loss arising from the discontinuation, along
with other income and expenses, should be disclosed.
 Details of Discontinuation: The standard mandates detailed disclosures about the
discontinuing operation, including:
o A description of the discontinuing operation.
o The reasons for the discontinuation.
o Expected completion date.
o Financial impact, including revenues, expenses, pre-tax profits or losses, and
related cash flows for the period.
 Assets and Liabilities: Disclose the carrying amounts of the assets and liabilities
associated with the discontinuing operation, distinguishing them from continuing
operations.
5. Impact on Financial Statements:
 Discontinuing operations are shown as a separate line item on the income
statement.
 The cash flows from these operations are presented separately in the cash flow
statement to provide a clear picture of financial changes associated with the
discontinuation.
6. Timely Updates and Reporting:
 When discontinuing operations span multiple reporting periods, AS-24 requires
updates to be included in each financial report until the process is complete.
Summary of AS-24's Purpose:
AS-24 aims to provide clarity and transparency for stakeholders about a company's major
business changes. By isolating discontinuing operations, it helps investors and other users
better understand how such changes impact the overall financial health of the business.
These provisions help ensure accurate, consistent reporting and support well-informed
decision-making.

ACCOUNTING STANDARD-25
 AS-25, titled "Interim Financial Reporting," is an Accounting Standard issued by the
Institute of Chartered Accountants of India (ICAI) to provide guidance on preparing
and presenting interim financial reports. Interim reports cover a period shorter than
a full financial year, typically a quarter or half-year, and offer stakeholders timely
information on an entity's performance and financial position. Here are the key
provisions of AS-25:
1. Scope and Applicability:
 AS-25 applies to entities required or electing to prepare and present interim financial
reports. It does not mandate the frequency of interim reporting but provides a
framework for those who issue interim financial statements.
 This standard is particularly useful for publicly listed companies and other entities
that report their financial results on a quarterly or half-yearly basis.
2. Minimum Components of Interim Financial Statements:
AS-25 specifies that interim financial reports should include, at a minimum:
  Condensed Balance Sheet as of the end of the interim period and comparable
figures as of the previous financial year-end.
 Condensed Statement of Profit and Loss for the interim period and cumulative year-
to-date figures, with comparatives for the corresponding periods in the prior year.
 Condensed Cash Flow Statement for the cumulative year-to-date period, with a
comparative for the previous year’s corresponding period.
 Selected Explanatory Notes to provide insights into significant changes since the last
annual financial report.
3. Recognition and Measurement Principles:
 AS-25 requires that interim financial statements be prepared using the same
accounting policies and methods as those applied in the entity’s most recent annual
financial statements.
 Revenue and Expense Recognition: The same accounting treatments for revenue
and expense recognition used in annual reports should apply to interim reports.
Expenses are not anticipated or deferred if that would not be appropriate at the end
of the financial year.
 Materiality Consideration: Judgments about materiality should consider the interim
period, as interim statements are less detailed but still require relevant and
significant disclosures.
4. Timely Recognition of Income and Expenses:
 Income and expenses should be recognized in the interim periods in which they
occur, rather than smoothing them over the entire year. This is to provide an
accurate reflection of each period’s performance.
 Seasonality and Cyclicality: If the business is seasonal or cyclical, the interim report
should reflect these trends rather than averaging out results.
5. Disclosure Requirements:
 Comparative Information: Each interim period should present comparatives for both
the current interim period and the cumulative year-to-date figures, as well as
comparative information for corresponding prior-year periods.
 Changes in Accounting Policies: Any changes in accounting policies that affect
interim financial statements should be disclosed, along with the nature and impact
of the change.
 Significant Events and Transactions: Disclose any significant events or transactions
that have occurred since the last annual report, including business acquisitions,
divestitures, or changes in estimates.
 Seasonal and Cyclical Business Information: For businesses with seasonal or cyclical
patterns, additional information should be provided to explain these effects on
performance.
6. Estimation Techniques:
 Estimations in interim financial reporting may be based on simplified approaches
compared to the more comprehensive techniques used at year-end. AS-25 allows for
some relaxation in estimation precision to facilitate timely reporting.
7. Consistency in Reporting:
 Interim financial statements should ensure consistency with annual financial
statements, maintaining the same accounting policies and principles. However, if the
entity changes its policies during the year, the impact of this change on the interim
results must be disclosed and explained.
8. Application of the Same Accounting Framework as Annual Reports:
 AS-25 emphasizes that the interim report should apply the same framework and
standards as those used in annual financial statements to ensure comparability and
reliability across reporting periods.
Summary of AS-25's Purpose:
AS-25 aims to enhance the relevance and reliability of interim financial reporting, ensuring
that interim reports provide users with an up-to-date understanding of a company’s
financial position and performance. By following AS-25, entities can offer consistent,
transparent interim information that complements annual reports and aids stakeholders in
making timely, informed decisions.
In summary, AS-25 provides a structured framework for the consistent preparation,
presentation, and disclosure of interim financial information, supporting transparency and
comparability in financial reporting across interim periods.
ACCOUNTING STANDARD-26
 AS-26, titled "Intangible Assets," is an Accounting Standard issued by the Institute of
Chartered Accountants of India (ICAI) that provides guidance on the identification,
recognition, measurement, and disclosure of intangible assets. Intangible assets,
unlike tangible assets, lack physical substance and include items such as patents,
copyrights, trademarks, and goodwill. Here are the key provisions of AS-26:
1. Scope and Applicability
 AS-26 applies to all intangible assets, except those covered by other standards, like
goodwill arising from amalgamations (AS-14) or financial assets.
 It applies to intangible assets acquired or developed internally, as long as they meet
the criteria for recognition in the financial statements.
2. Definition and Identification of Intangible Assets
 An intangible asset is an identifiable, non-monetary asset without physical substance
that provides future economic benefits.
 Key characteristics include:
o Identifiability: The asset can be separated from the entity and sold,
transferred, or licensed.
o Control: The entity has control over the asset and can restrict others from
accessing its benefits.
o Future Economic Benefits: The asset is expected to generate future
economic gains for the business.
3. Recognition Criteria
 An intangible asset should be recognized only if:
o It is probable that future economic benefits attributable to the asset will flow
to the entity.
o The cost of the asset can be reliably measured.
 Intangible assets acquired separately or from a business combination are generally
recognized, whereas internally generated goodwill is not recognized as an asset.
4. Measurement of Intangible Assets
 Initial Measurement: Intangible assets should be initially measured at cost. This
includes the purchase price, any directly attributable cost of preparing the asset for
its intended use, and costs directly associated with creating or acquiring the asset.
 Subsequent Measurement: Intangible assets are subsequently carried at cost less
accumulated amortization and impairment losses, if any.
  Amortization of Intangible Assets:
o If the intangible asset has a finite useful life, it should be amortized over that
life using a systematic method, usually the straight-line method.
o If the useful life is indefinite, the asset is not amortized but is tested for
impairment at least annually.
5. Internally Generated Intangible Assets
 Research and Development Costs: AS-26 divides these into two phases:
o Research Phase: All costs incurred during the research phase must be
expensed as they do not meet the criteria for recognition as an asset.
o Development Phase: Costs incurred in the development phase can be
capitalized if certain criteria are met, such as the technical and commercial
feasibility of the product, intention to complete and use/sell the asset, and
the ability to measure related costs reliably.
 Other Internally Generated Assets: Goodwill, brand names, mastheads, and similar
items generated internally are not recognized as assets.
6. Amortization and Useful Life
 AS-26 requires that the useful life of an intangible asset be assessed and amortized
over this period.
 The amortization period and method should be reviewed at least annually, and any
changes are treated as changes in accounting estimates.
 Residual Value: Unless there is an agreement for disposal at the end of its useful life,
or if there’s an active market, the residual value of an intangible asset is assumed to
be zero.
7. Impairment Testing
 For intangible assets with finite useful lives, impairment is assessed whenever events
indicate that the carrying amount may not be recoverable.
 For intangible assets with indefinite useful lives, impairment testing is mandatory at
least once a year. If an asset's carrying amount exceeds its recoverable amount, an
impairment loss is recognized.
8. Derecognition of Intangible Assets
 An intangible asset should be derecognized on disposal or when no future economic
benefits are expected from its use or disposal.
 Any gain or loss on derecognition is determined as the difference between the net
disposal proceeds and the carrying amount, and is recognized in the profit or loss
account.
9. Disclosure Requirements
 The following disclosures are required under AS-26:
o The useful lives or amortization rates used for intangible assets.
o The amortization methods used.
o Gross carrying amount and accumulated amortization (aggregated with
accumulated impairment losses) at the beginning and end of the period.
o A reconciliation of the carrying amount at the beginning and end of the
period, with additions, disposals, amortization, and impairment losses.
o For intangible assets with indefinite useful lives, disclose the carrying amount
and reasons for the indefinite useful life assessment.
Summary of AS-26's Purpose
AS-26 aims to standardize the accounting treatment of intangible assets, enhancing
transparency and comparability in financial reporting. By setting guidelines on recognizing,
measuring, amortizing, and disclosing intangible assets, it ensures that companies report
intangible assets accurately, providing stakeholders with a clear view of these assets' value
and impact on financial health.
In essence, AS-26 helps entities capture the economic value of intangible assets while
maintaining accountability and clarity in financial reporting.

ACCOUNTING STANDARD-27
 AS-27, titled "Financial Reporting of Interests in Joint Ventures," is an Accounting
Standard issued by the Institute of Chartered Accountants of India (ICAI). This
standard provides guidance on accounting and reporting for joint ventures and the
investor’s interest in joint ventures. AS-27 aims to ensure transparency, consistency,
and comparability in reporting joint ventures in financial statements. Below are the
essential provisions of AS-27:
1. Scope and Applicability:
 AS-27 applies to accounting for interests in joint ventures and the reporting of
assets, liabilities, income, and expenses of joint ventures in financial statements.
 The standard covers three types of joint ventures:
o Jointly Controlled Operations
o Jointly Controlled Assets
o Jointly Controlled Entities
 AS-27 does not apply to ventures solely under joint control or to investments made
purely for investment purposes without shared control.
2. Types of Joint Ventures and Accounting Treatments:
AS-27 categorizes joint ventures based on the structure and type of control involved, with
specific accounting treatments for each type:
 Jointly Controlled Operations:
o In these operations, each venturer uses its own resources in a joint operation
and incurs its own expenses and liabilities, recording income earned and
expenses incurred.
o Each venturer should recognize its share of assets it controls, its liabilities,
and its share of revenue and expenses in its financial statements.
 Jointly Controlled Assets:
o In jointly controlled assets, venturers share joint ownership of assets
contributed or acquired for the joint venture.
o Each venturer recognizes in its books:
 Its share of the jointly controlled assets.
 Any liabilities incurred jointly.
 Its share of income and expenses arising from the joint asset.
 Any liabilities directly associated with the asset.
 Jointly Controlled Entities:
o A jointly controlled entity is a separate legal entity where venturers jointly
control the entity's financial and operating policies.
o Accounting treatment:
  Consolidated Financial Statements: The venturer should use the
proportionate consolidation method, recognizing its share of the
jointly controlled entity's assets, liabilities, income, and expenses.
 Separate Financial Statements: In separate financial statements, a
venturer should account for its interest in a jointly controlled entity as
an investment using the equity method or as per AS-13 (Accounting
for Investments).
3. Recognition and Measurement of Interests:
 Each venturer’s share of joint venture assets, liabilities, income, and expenses is
recognized based on its contractual share as per the joint venture agreement.
 Proportionate consolidation allows venturers to reflect their share of the joint
venture's financials, offering a transparent view of the venture’s contributions to its
performance and position.
4. Disclosure Requirements:
 AS-27 specifies the following disclosures for joint ventures:
o General Description: Nature, type, and extent of joint venture arrangements.
o Accounting Method: Method of accounting for joint ventures, including the
use of proportionate consolidation or equity method.
o Summary Financial Information: Summarized financial information of the
joint ventures, particularly for jointly controlled entities.
o Contingent Liabilities and Capital Commitments: Disclose contingent
liabilities and capital commitments related to joint ventures.
o Separate Financial Statements Disclosure: For jointly controlled entities, if
not included in consolidated financial statements, the reasons for exclusion
should be stated.
5. Elimination of Inter-Company Transactions:
 In proportionate consolidation, any intra-venture balances, transactions, and
unrealized profits or losses arising from transactions between the venturer and the
joint venture should be eliminated to prevent double counting.
 This adjustment ensures that only the venturer's share of the joint venture's assets,
liabilities, revenue, and expenses is reflected in the consolidated accounts.
6. Accounting for Losses in Joint Ventures:
 Losses incurred in a joint venture are allocated to the venturers according to their
share in the joint venture.
 If a venturer’s share of losses exceeds its interest in the joint venture, AS-27 requires
stopping recognition of further losses unless the venturer has a legal or constructive
obligation to cover additional losses.
7. Impairment of Joint Venture Interests:
 If there is an indication that the carrying amount of an investment in a joint venture
may not be recoverable, it should be tested for impairment in accordance with AS-
28, "Impairment of Assets."
 Any impairment loss identified must be recognized and disclosed.
8. Changes in Joint Control:
 If joint control ceases, the investment in the joint venture should be accounted for as
per AS-13, "Accounting for Investments," or other applicable standards.
  The venturer should derecognize its proportionate share of assets, liabilities, income,
and expenses from the jointly controlled entity and recognize any resultant gain or
loss in profit or loss.
9. Separate Financial Statements:
 In an investor’s separate financial statements, interest in joint ventures can be
reported as investments. This is generally done using the equity method or in line
with AS-13’s provisions for investments.
Summary of AS-27's Purpose:
AS-27 provides a consistent and standardized method for recognizing, measuring, and
disclosing joint venture interests. It aims to reflect the venturer’s share in joint ventures
accurately, offering clarity for stakeholders by providing a comprehensive view of joint
ventures’ contributions to the business's financial performance and position.
In summary, AS-27 ensures that joint ventures are accounted for transparently and
accurately, offering users insight into how these collaborations impact a company's financial
standing.

ACCOUNTING STANDARD-28
 AS-28, titled "Impairment of Assets," is an Accounting Standard issued by the
Institute of Chartered Accountants of India (ICAI) to guide the identification,
measurement, and reporting of impairment losses on assets. This standard ensures
that assets are not carried at more than their recoverable amounts, which is the
higher of their net selling price and their value in use. Here are the important
provisions of AS-28:
1. Scope and Applicability:
 AS-28 applies to most assets, including tangible fixed assets, intangible assets, and
investments in subsidiaries, associates, and joint ventures.
 However, it does not apply to inventories, deferred tax assets, financial assets
covered by AS-13, and assets arising from construction contracts or employee
benefits.
2. Key Definitions:
 Impairment Loss: The amount by which the carrying amount of an asset exceeds its
recoverable amount.
 Carrying Amount: The amount at which an asset is recognized in the balance sheet
after deducting accumulated depreciation and accumulated impairment losses.
 Recoverable Amount: The higher of an asset’s net selling price and its value in use.
o Net Selling Price: The amount obtainable from the sale of an asset in an
arm's-length transaction between knowledgeable, willing parties, less costs
of disposal.
o Value in Use: The present value of future cash flows expected to be derived
from an asset's continuing use and its disposal at the end of its useful life.
3. Identification of Impairment:
 AS-28 requires entities to assess at each reporting date if there is any indication that
an asset may be impaired. Internal and external indicators should be considered:
o External Indicators: Significant declines in asset value, market or economic
changes, technological obsolescence, changes in the legal or regulatory
environment.
 o Internal Indicators: Physical damage to an asset, idle assets, performance of
the asset worse than expected, or planned restructuring/disposal of an asset.
 If any indication of impairment exists, the recoverable amount of the asset should be
estimated.
4. Measurement of Recoverable Amount:
 The recoverable amount is the higher of an asset’s net selling price and value in use.
 Estimating Net Selling Price: Based on the asset's fair value in an active market, less
disposal costs, or recent similar transactions.
 Calculating Value in Use: This involves:
o Estimating future cash flows expected from the asset.
o Discounting these cash flows to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and
asset-specific risks.
5. Recognition and Allocation of Impairment Loss:
 When the recoverable amount of an asset is less than its carrying amount, an
impairment loss should be recognized.
 The impairment loss should be recognized in the profit and loss statement for assets
carried at cost.
 If an asset is revalued, the impairment loss is first set off against any revaluation
surplus in equity, with the excess recognized in profit or loss.
 Cash-Generating Units (CGU): If it is not possible to estimate the recoverable
amount of an individual asset, AS-28 requires calculating it for the smallest group of
assets (CGU) that generates cash inflows largely independent of other assets.
6. Reversal of Impairment Loss:
 AS-28 allows for the reversal of previously recognized impairment losses if there are
indications that the impairment no longer exists or has decreased.
 Reversal should be limited to the amount that restores the carrying amount to what
it would have been if no impairment had been recognized.
 Any reversal of an impairment loss is recognized immediately in profit or loss, unless
it relates to a revalued asset where it is treated as a revaluation increase.
7. Disclosure Requirements:
AS-28 has comprehensive disclosure requirements to provide users with insight into
impairment testing and related decisions:
 For Each Class of Assets:
o The amount of impairment losses recognized or reversed during the period
and the financial statement line items affected.
o Circumstances or events that led to the recognition or reversal of
impairment.
 For Individual Assets and Cash-Generating Units:
o Description of the CGU and reasons for impairment or reversal.
o Description of how the recoverable amount was determined (net selling price
or value in use).
 Key Assumptions for Estimating Value in Use: Disclose discount rates and growth
rates used, especially if these are significant for cash flow estimates.
8. Special Provisions for Goodwill:
 Goodwill impairment testing is mandatory and must be performed annually,
irrespective of any indication of impairment.
  Goodwill acquired in a business combination should be allocated to each of the
acquiring entity’s CGUs or groups of CGUs expected to benefit from the combination.
 Impairment losses on goodwill cannot be reversed in subsequent periods.
9. Impairment of Corporate Assets:
 Corporate assets, like head office facilities, may not independently generate cash
flows. AS-28 requires these to be allocated to CGUs that benefit from the corporate
asset to test for impairment.
 If a corporate asset cannot be allocated on a reasonable basis, it should be tested for
impairment as part of the entity as a whole.
Summary of AS-28's Purpose:
AS-28 ensures that assets are not carried in the financial statements at values exceeding
their recoverable amounts, promoting accuracy in reporting and preventing overstated
assets. The standard’s guidance on identifying, measuring, and disclosing impairment helps
in presenting a realistic view of a company’s financial health.
In summary, AS-28 provides a structured approach for recognizing, measuring, and
disclosing impairment losses, allowing stakeholders to better assess an entity’s assets and
performance.

ACCOUNTING STANDARD-29
 AS-29, titled "Provisions, Contingent Liabilities, and Contingent Assets," is an
Accounting Standard issued by the Institute of Chartered Accountants of India (ICAI).
AS-29 provides guidelines for recognizing, measuring, and disclosing provisions,
contingent liabilities, and contingent assets, promoting transparency and consistency
in financial reporting. Here are the key provisions of AS-29:
1. Scope and Applicability:
 AS-29 applies to accounting for provisions, contingent liabilities, and contingent
assets in financial statements, except where other standards provide more specific
guidance, such as in employee benefits, insurance, and leases.
 It is relevant for any entity that may have future obligations or assets with uncertain
timing or amount.
2. Definitions:
 Provision: A liability of uncertain timing or amount. A provision is recognized when
there is a present obligation resulting from a past event, an outflow of resources is
probable, and the amount can be reliably estimated.
 Contingent Liability: A possible obligation arising from past events, which will only
be confirmed by future events not wholly within the control of the entity. A
contingent liability is not recognized in the financial statements but disclosed, if
certain criteria are met.
 Contingent Asset: A possible asset that arises from past events, whose existence will
be confirmed only by uncertain future events. Contingent assets are generally not
recognized in financial statements but are disclosed when the inflow of economic
benefits is probable.
3. Recognition of Provisions:
 A provision should be recognized when:
o There is a present obligation (legal or constructive) as a result of a past
event.
 o It is probable that an outflow of resources will be required to settle the
obligation.
o The amount of the obligation can be reliably estimated.
 Provisions are created only for obligations that are clear and measurable, helping to
avoid over- or under-estimation of liabilities.
4. Measurement of Provisions:
 Provisions are measured at the best estimate of the expenditure required to settle
the present obligation at the reporting date.
 Management should use judgment, experience, and professional knowledge to
estimate the amount, considering risks and uncertainties surrounding the obligation.
 Discounting: If the effect of the time value of money is material, the provision should
be measured at the present value of the expenditures expected to settle the
obligation.
 Future Events: Expected future events (such as changes in law or technology) that
may affect the amount of the provision should be factored in if there is sufficient
objective evidence that they will occur.
5. Use of Provisions:
 Provisions should be used only for expenditures for which the provision was
originally recognized.
 If a provision is no longer needed (e.g., the obligation is settled or the need for the
provision has lapsed), it should be reversed in the profit and loss statement.
6. Onerous Contracts:
 An onerous contract is one in which the costs of fulfilling the contract exceed the
economic benefits expected to be received. AS-29 requires recognizing a provision
for onerous contracts to cover the unavoidable costs of meeting contractual
obligations.
 The provision should be based on the lower of the cost of fulfilling the contract or
the penalties for failing to fulfil it.
7. Contingent Liabilities:
 Contingent liabilities are not recognized in the financial statements because they
depend on uncertain future events that may not occur. Instead, they are disclosed in
the financial statements if there is a possible obligation whose existence depends on
the outcome of future events.
 Disclosure should include:
o A brief description of the nature of the contingent liability.
o An estimate of the financial effect, or a statement that an estimate cannot be
made.
o Any potential uncertainties regarding the timing of cash outflows.
8. Contingent Assets:
 Contingent assets are not recognized in financial statements due to the risk of
recognizing revenue prematurely. However, they should be disclosed if the inflow of
economic benefits is probable.
 When the realization of income is virtually certain, the asset is no longer considered
contingent and is then recognized in the financial statements.
9. Reimbursements:
 If an entity expects that some or all of the expenses related to a provision will be
reimbursed by a third party (e.g., through an insurance claim), the reimbursement
 can be recognized as an asset only if it is virtually certain that it will be received upon
settlement of the provision.
 The reimbursement amount should not exceed the related provision. The provision
and the reimbursement should be reported separately, without netting them against
each other.
10. Disclosure Requirements:
 For Provisions:
o The amount of each provision at the beginning and end of the period.
o Additional provisions made, amounts used, and unused amounts reversed
during the period.
o A description of the nature of the obligation, expected timing of outflows,
and any uncertainties or reimbursement possibilities.
 For Contingent Liabilities:
o A brief description of each contingent liability.
o An estimate of its financial effect or a statement indicating that the estimate
cannot be made.
o Uncertainties about timing and amounts, as well as any reimbursement
possibilities.
 For Contingent Assets:
o Disclose only if the inflow of economic benefits is probable.
o Nature of the contingent asset and, when practicable, an estimate of the
financial effect.
11. Review and Adjustments:
 Provisions and contingent liabilities should be reviewed at each reporting date and
adjusted to reflect the current best estimate.
 If it is determined that an outflow of resources is no longer probable, the provision
should be reversed, and any contingent liability that becomes probable should be
reclassified as a provision.
Summary of AS-29's Purpose:
AS-29 ensures that provisions, contingent liabilities, and contingent assets are recognized,
measured, and disclosed accurately. This provides stakeholders with a realistic view of an
entity’s liabilities and potential obligations, enhancing transparency and helping prevent
overstatement of assets or understatement of liabilities.
In essence, AS-29 provides a framework for handling uncertain financial obligations and
potential assets, promoting prudent accounting and protecting stakeholders' interests by
ensuring accurate and complete disclosure.

NOTE:
1) AS-21, AS-23, AS-27 (relating to consolidated financial statement) are required to be
complied with by an enterprise, if the enterprise pursuant to the requirements of a
statute regulator or voluntarily, prepares and presents consolidated financial
statements.
2) (AS-3, AS-17, AS-18, AS-20, AS-2 and AS-24) Accounting standards are mandatory for
enterprises whose securities are listed on a recognised stock exchange in India or in
the process of listing and all the other commercial, industrial and business reporting
enterprises, whose turnover exceeds Rs. 50 crores for the accounting period.