A Presentation on ACCOUNTING STANDARDS 17 th JUN 2018 -CA Rishi K Agrawal Agra M.No. 9027488853,9219889904 1 7/17/2018
AS- 1 Disclosure of Accounting Policies AS- 2 Valuation of Inventories AS- 4 Contingencies and Events occurring after the Balance Sheet Date AS- 5 Net Profit or Loss for the period, prior period items and changes in accounting policies 2 7/17/2018 CA Rishi K Agrawal, Agra
AS- 1: Disclosure of Accounting Policies 7/17/2018 CA Rishi K Agrawal, Agra 3
AS-1 DISCLOSURE OF ACCOUNTING POLICIES Object of the Standard :- • To promote better understanding of financial statements through – disclosure of Significant accounting policies and – the manner in which such policies should be disclosed. 7/17/2018 CA Rishi K Agrawal, Agra 4
AS-1 DISCLOSURE OF ACCOUNTING POLICIES ACCOUNTING POLICY - Meaning:- • Specific accounting principles and • Methods of applying those principles. adopted by the enterprise in the preparation and presentation of financial statements. 7/17/2018 CA Rishi K Agrawal, Agra 5
AS-1 DISCLOSURE OF ACCOUNTING POLICIES MAJOR RECOMMENDATIONS:- • Accounting Policy selected should represent true and fair view of state of affairs of the enterprises and Profit or loss of the period and also contain the following three elements:- – Prudence – Substance over Form e.g Sale and Buy Back, Interest Ballooning, Interest in case of Zero Coupon Bond, Total Return Swap etc. – Materiality 7/17/2018 CA Rishi K Agrawal, Agra 6
AS-1 DISCLOSURE OF ACCOUNTING POLICIES MAJOR RECOMMENDATIONS:- • All significant accounting policies adopted in the preparation and presentation of financial statements should be disclosed and disclosure should be done, so far as possible , at one place. (All these policies are shown in the notes to accounts.) 7/17/2018 CA Rishi K Agrawal, Agra 7
AS-1 DISCLOSURE OF ACCOUNTING POLICIES MAJOR RECOMMENDATIONS:- • The disclosure should form part of the financial statements . 7/17/2018 CA Rishi K Agrawal, Agra 8
AS-1 DISCLOSURE OF ACCOUNTING POLICIES MAJOR RECOMMENDATIONS:- • In case of change in accounting policy, its disclosure is required, if such change has material effect in the current year or is expected to have material effect in future periods. • Also Disclose the financial effect of such change on Profitability and financial position of enterprise. • If amount is not ascertainable, wholly or in part, the fact of non-ascertainment should also be disclosed. [ Note :- As per AS-5, The effect of such change should be a part of the profit or loss of period under consideration and the change should be applied normally prospectively] 7/17/2018 CA Rishi K Agrawal, Agra 9
AS-1 DISCLOSURE OF ACCOUNTING POLICIES MAJOR RECOMMENDATIONS:- • There is no need to disclose fundamental accounting assumptions, if they are followed. These assumptions are as under:- – Going Concern – Consistency – Accruality also known as mercantile concept [based on matching principle of accounting] • In case of violation of any of above assumptions, a specific disclosure is required 7/17/2018 CA Rishi K Agrawal, Agra 10
AS-1 DISCLOSURE OF ACCOUNTING POLICIES MAJOR RECOMMENDATIONS:- The disclosure of wrong accounting treatment is not remedy . 7/17/2018 CA Rishi K Agrawal, Agra 11
AS-1 DISCLOSURE OF ACCOUNTING POLICIES AS – 1 V COMPANIES ACT • Cash V. Accrual System :- Sec 128(1) of the Companies Act 2013 also required use of accrual basis accounting and double entry system in the preparation and presentation of financial statements as one of the pre conditions for truth and fairness of such statements. Accordingly, there is no option available to corporate management to finalise accounts on cash basis. 7/17/2018 CA Rishi K Agrawal, Agra 12
AS-1 DISCLOSURE OF ACCOUNTING POLICIES AS – 1 V COMPANIES ACT • BOD Report :- U/s 134 (3)(c) read with sec 134(5) of the Act, the directors have to give a responsibility statement in its report to the effect that they have selected such accounting policies and applied them consistently and made such judgments and estimates as are reasonable and prudent, so as to give a true and fair view of the State of Affairs of the Company at the end of the financial year and of the Profit or Loss of the company for that period and the accounts have been prepared as per Going Concern approach. AS-1 does not require such type of disclosure neither in BOD Report not in AFS. 7/17/2018 CA Rishi K Agrawal, Agra 13
AS-1 DISCLOSURE OF ACCOUNTING POLICIES Order of Presentation in “Notes to Accounts” • a statement of compliance with AS followed and exemptions availed; • a summary of significant accounting policies applied, including: – the measurement basis (or bases) used in preparing the financial statements; and – the other accounting policies used that are relevant to an understanding of the financial statements. • Supporting information for items presented in the balance sheet, Statement of Profit and Loss and of cash flows, in the order in which each statement and each line item is presented; and • other disclosures, including: – contingent liabilities and unrecognised contractual commitments; and – Non-financial disclosures, such as the entity's foreign currency risk management objectives and policies. 7/17/2018 CA Rishi K Agrawal, Agra 14
AS- 2:- VALUATION OF INVENTORIES 7/17/2018 CA Rishi K Agrawal, Agra 15
AS-2: VALUATION OF INVENTORIES NON APPLICABILITY:- WIP covered by AS-7 WIP arising in the ordinary course of business of service providers. Shares, debentures etc. held as stock in trade. Producer’s inventories of livestock, agricultural and forest products and mineral oils, ores and gases to the extent that they are measured at NRV in accordance with well established practice in those industries 7/17/2018 CA Rishi K Agrawal, Agra 16
AS-2: VALUATION OF INVENTORIES INVENTORIES- Meaning:- Inventories are assets • held for sale in the ordinary course of business i.e. Finished goods and trading goods . • In the process of production for such sale i.e. WIP. • In the form of materials or supplies to be consumed in the production process or in the rendering of services i.e. raw materials, spare parts, consumable stores and loose tools etc. 7/17/2018 CA Rishi K Agrawal, Agra 17
AS-2: VALUATION OF INVENTORIES NRV- Meaning:- FINISHED GOODS, • Sale Value – Expected selling cost. TRADING GOODS & RAW MATERIALS: • Sales Value – Expected selling cost – FOR WIP : Expected further cost of completion. • If inventory is held to satisfy “Firm Sales [forward sales]”, the NRV should be based on the contract price. Notes: • If inventory is not covered under forward agreement, NRV should be based on general selling Price. 7/17/2018 CA Rishi K Agrawal, Agra 18
AS-2: VALUATION OF INVENTORIES MEASUREMENT OF INVENTORIES :- Finished goods and WIP :- Lower of Cost and NRV. [Comparison will be done on individual basis or category basis but not on global basis.] 7/17/2018 CA Rishi K Agrawal, Agra 19
AS-2: VALUATION OF INVENTORIES MEASUREMENT OF INVENTORIES :- Valued at NRV, if both conditions are satisfied :- • NRV of RM < Cost of RM Normally at cost . • Expected NRV of Finished goods to be produced from such RM < Expected COP of Such finished goods. Raw Materials etc. :- 7/17/2018 CA Rishi K Agrawal, Agra 20
AS-2: VALUATION OF INVENTORIES MEASUREMENT OF COST OF INVENTORIES :- Cost of Purchase Conversion Cost Cost incurred in bringing the inventory to its present condition and location. 7/17/2018 CA Rishi K Agrawal, Agra 21
AS-2: VALUATION OF INVENTORIES COST OF PURCHASE :- It covers It excludes Purchase price, duties, Trade discount, rebates, taxes, freight inwards & duty drawbacks and the other exps. directly incurred exps. subsequently in connection with purchase recoverable e.g. ITC of GST. 7/17/2018 CA Rishi K Agrawal, Agra 22
AS-2: VALUATION OF INVENTORIES CONVERSION COST:- Labour Overheads Factory Overheads Adm. Overheads connection with Production. 7/17/2018 CA Rishi K Agrawal, Agra 23
AS-2: VALUATION OF INVENTORIES CONVERSION COST:- Variable Fixed cost cost FC/unit decided as under: VC/unit directly considered Total Fixed Cost ------------------------------------------------- Higher of normal and actual Output. 7/17/2018 CA Rishi K Agrawal, Agra 24
AS-2: VALUATION OF INVENTORIES COST OF INVENTORIES–Limit on Overheads:- • Cost incurred in bringing the inventories to its present conditions and locations. • E.g. the cost of “designing of product” to meet the specific requirement of a customer. 7/17/2018 CA Rishi K Agrawal, Agra 25
AS-2: VALUATION OF INVENTORIES COST TECHNIQUE :- Not • Marginal Costing allowed • Absorption Allowed Costing. 7/17/2018 CA Rishi K Agrawal, Agra 26
AS-2: VALUATION OF INVENTORIES JOINT PRODUCTS & BY PRODUCTS:- • Joint cost can be apportioned on the basis of reasonable and rational methods as permitted in cost accounting e.g. – Reverse cost method. – Sales Value at split off Point Method etc. 7/17/2018 CA Rishi K Agrawal, Agra 27
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