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BBA/BCOM 2 All right are reserved with CU-IDOL Basic Accounting Course Code: BBA101/BCM101 Semester: First e-Lesson: 4 SLM Unit: 4 www.cuidol.in Unit-4(BBA101/BCM-101)

BASIC ACCOUNTING 33 OBJECTIVES INTRODUCTION To familiarize with the concept of In this unit we are going to learn Accounting Standards. about the Introduction of Accounting Standards. To know about the accounting standard in different countries. Under this you will be able to understand Types of Accounting To known about the formulation of Standards Accounting standards. www.cuidol.in Unit-4(BBA101/BCM-101) INSTITUTE OF DISTANACEll ArNigDhtOaNrLeINreEsLeErAvRedNIwNiGth CU-IDOL

TOPICS TO BE COVERED 4 Introduction of Accounting Standards Objectives of Accounting Standards Types of Accounting Standards Formulation of Accounting Standards www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

Introduction 5  Written Documents issued by Government or Regulatory Body  In India, issued by ICAI on 21st April,1977  Initiated by Kumar Mangalam Birla, chairman committee of Corporate Governance for Financial Disclosures www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

Accounting Standard Board 6  The council of Institute of Chartered Accountant of India(ICAI) constitute the Accounting Standard Board (ASB) in April 1977,which performs the function of preparation of the accounting standard in India.  The ASB comprises representative from Industries, The Central Board of Direct taxes, the Company Law board, the Comptroller and auditor General www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

Meaning of Accounting 7 Standard  Accounting is considered as the language of business.  Each language has certain set of rules. similarly accounting has certain rules to be observed by the accountants so that it is understood by all in the same sense these set of rules become accounting standards.  Thus accounting standards are certain set of rules and guidance based on the principles and methods of .accounting to be followed to have uniformity in terminology approach and presentation of results www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

Objectives 8  Standardise the diverse Accounting Policies  Add the reliability to the Financial Statement  Eradicate baffling variation in treatment of accounting aspects  Facilitate inter-firm and intra-firm comparison www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

Accounting Standards in 9 Different Nations  In India, 32 Accounting Standards as IAS under NACAS  As per International, there are 41 Accounting Standards called as IFRS  Adopted by 8 countries in the world  70 to 80 countries planning to adhere IFRS  Clause 50 added to the listing agreement mandatory www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

Evolution and Types of AS 10 Accounting Standards Initiation 1. AS 1 to AS 15 1979 to 1995 2. AS 16 to AS 29 2000 to 2007 3. AS 30 to AS 32 Later part of 2007 www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 1-Disclosure of Accounting 11 Policies Specific policies adapted to prepare FS Should be disclosed at one place Purpose :- Better understanding of FS Better comparison analysis Mostly needed w.r.t Depreciation www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 2- Accounting for Inventories 12 Used for computation of Cost of inventories and to show in BS till it is sold Consists of :- 1. Raw Materials 2. Work in progress 3. Finished goods 4. Spares, etc www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

Measurements of Inventories 13 Determination of Cost of Inventories Cost of purchase (Purchase price, duties & taxes, freight inwards) Cost of conversion Determination of Net realisable value Comparison of cost and net realisable www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 3- Cash Flow Statements 14 Incoming and outgoing of cash Act as barometer to judge surplus and deficit Explain Cash flow under 3 heads :- Cash flow from operating activities Cash flow from financing activities Cash flow from investing activities www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 4- Contingencies and events 15 occurring after BS date  For maintaining Provision of Bad debts  Generally uses Conservative concepts of Accounting like Bankruptcy, frauds & errors. www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 5- Net profit or loss for the 16 period, prior period items and change in Accounting policies Ascertain certain criteria for certain items Include income and expenditures of Financial year Consists of 2 component 1. Profit and loss of ordinary activities 2. Profit and loss of extra ordinary activities www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 6- Accounting for 17 Depreciation A non-cash expenditure Distribution of total cost to its useful life Occurs due to obsolescence Different methods of computation 1. Straight line method ( SLM ) 2. Written-down value or diminishing value (WDV) www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 7- Construction Contract 18 Contract specifically negotiated for construction of Asset or combination of Assets closely inter-related www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 8- Accounting for R&D 19 To deal with treatment of Cost of research and development in the financial statements, identify items of cost which comprise R&D costs lays down condition R&D cost may be deferred and requires specific .disclosures to be made regarding R&D costs www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 9- Revenue Recognition 20 Means gross inflow of cash and other consideration like arising out of :- 1. Sale of goods 2. Rendering services 3. Use of enterprise resources by other yielding interest, dividend and royalties. www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 10- Accounting for Fixed 21 Assets  Called as Cash generating Assets  Expected to used for more than a Accounting period like land, building, P/M, etc  Shown at either Historical or Revalued value www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 11- Effect of change in 22 FOREX Rates Classification for Accounting treatment:- 1. Category I: Foreign currency transactions: a) buying and selling of goods or services b) lending and borrowing in foreign currency c) Acquisition and disposition of assets 2. Category II: Foreign operations: a) Foreign branch b) Joint venture c) Foreign Subsidiary 3. Category III: Foreign Exchange contracts: a) For managing Risk/hedging b) For trading and Speculation www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 12- Accounting for Govt. 23 Grants Assistance provided by Govt. in cash or in kind like 1. Grants of Assets like P/M, Land,etc 2. Grants related to depreciable FA 3. Tax exemptions in notified area www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 13- Accounting for 24 Investments Assets held for earning incomes like dividend, interest, rental for capital appreciation, etc It involves:- 1. Classification of Investment 2. Cost of Investment 3. Valuation of Investment 4. Reclassification of Investment 5. Disposal of Investment 6. Disclosure of Investment in FS www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 14- Accounting for 25 Amalgamation Section 391 to 394 of Companies Act, 1956 governs the provision of amalgamation. Disclosures: 1. Names and nature of amalgamating companies 2. Effective date of amalgamation 3. Method of Accounting used 4. Particulars of scheme sanctioned under a statute www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 15- Employees Benefits 26 All forms of consideration given by enterprise directly to the employees or their spouses, children or other .dependants, to other such as trust, insurance companies in exchange of services rendered www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 16- Borrowing Costs 27 Interest and cost incurred by an enterprise in connection to the borrowed funds. Availed for acquiring building, installed FA to make it useable and saleable. www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 17- Segment Reporting 28 • It consists of 2 segment:- 1. Business segment 2. Geographical segment • Information and different risk and return reporting. www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 18- Related party disclosure 29 Related party are those party that controls or significantly influence the management or operating policies of the company during reporting period Disclosure: 1. Related party relationship 2. Transactions between a reporting enterprises and its related parties. 3. Volume of transactions 4. Amt written off in the period in respect of debts www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 19- Accounting for Leases 30 • Agreement between Lessor And Lessee • Two types of leases: 1. Operating lease 2. Finance lease • Different from Sale • Classification to be made at the inception www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 20- Earning per share 31  Earning capacity of the firm  Assessing market price for share  AS gives computational methodology for determination and presentation of EPS www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 21- Consolidated Balance 32 Sheet • Accounting for Parent and Subsidiary company in single entity • Disclosure:- 1. List of all subsidiaries 2. Proportion of ownership interest 3. Nature of relation whether direct or indirect www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 22- Accounting for taxes and 33 income • Tax accounted for period in which are accounted • It should be accrued and not liability to pay • Deals in 2 measurements:- 1. Current tax 2. Deferred tax www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 23- Accounting for 34 investments in Associates in CFS • Objectives to set out principles and procedures for recognizing the investment associates in CFS of the investors, so that effect of investments in associates on financial position of group is indicated. www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 24- Discontinuing operations 35  Establishes principles for reporting information about discontinuing operations  Covers discontinuing operations rather than discontinued operation www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 25-Interim Financial 36 Reporting (IFR)  Reporting for less than a year i.e. 3 months  Clause 41 says publish financial results on quarterly basis  Objective is to provide frequently and timely assessment www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 26- Intangible Assets 37 • No physical existence • Can not be seen or even touched • 3 featured as per AS 1. Identifiable 2. Non-monetary assets 3. Without physical substance www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 27- Financial Reporting of 38 interest in Joint Venture  What is joint venture?  Three types of JV in case of Financial reporting www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 28- Impairment of Assets 39  Weakening of Assets value  Occurs when carrying cost more than recoverable amt  Carrying cost = Cost of assets –Accumulated Depreciation www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

AS 29- Provision, contingent 40 liabilities and assets • Provisions:- It is a Liability Settlement should result in outflow Liability is result of obligating event • Contingent liabilities:- Obligation arises of past event Existence confirmed when actually occurred of uncertain future • Contingent Asset Same as Contingent liability www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

Financial Instruments 41  AS 30 – Recognition and Measurement  AS 31 – Presentation  AS 32 – Disclosures  Has not been made mandatory (expected in 2009) www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

Multiple Choice Questions 42 1.) Profit or Loss =? a) Expenses + Revenue b) Revenue ? Expenses c) Both d) None 2) Increases in Income or Profits are? a)Debits b) Credits c) Both d) None 3) Accounting Standards refers to specific accounting : a) Principles b) Methods of applying those principles c) Both (a) and (b) d) None Answers: 1.b) 2. b) 3. c) www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

Summary 43  Accounting Standards are written policy documents issued by expert accounting body or by the government or other regulatory body covering the aspects of recognition, measurement, treatment, presentation, and disclosure of accounting transactions in financial statements.  Benefits of Accounting Standards .Accounting standard helps in eliminating variations in accounting treatment to prepare financial statements, Accounting standard may call for disclosures of certain information which may not be required by law, but such information might be useful for general public, investors and creditors . Accounting standard facilitate comparability between financial statements of inter and intra companies. www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

FAQ’S 44 Q.1)Explain the disclosure requirements of AS-1? Ans:All significant accounting policies adopted in the preparation and presentation of financial statements should be disclosed. The disclosure of the significant accounting policies as such should form part of the financial statements and the significant accounting policies should normally be disclosed in one place.Any change in the accounting policies which has a material effect in the current period or which is reasonably expected to have a material effect in later periods should be disclosed. Q.2 ) Objective of Accounting Standards Ans:-Objective of Accounting Standards is to standarize the diverse accounting policies and practices with a view to eliminate to the extent possible the non-comparability of financial statements and the reliability to the financial statements. The institute of Chatered Accountants of India, recognizing the need to harmonize the diversre accounting policies and practices, constituted at Accounting Standard Board (ASB) on 21st April, 1977. Q.3 How many accounting standards are there? Ans :Presently there as 31 Accounting standards in force. Earlier there were 32 Accounting standards. But due to merger of AS 8 and AS 26, there are 31 AS in force right now. www.cuidol.in Unit-4(BBA101/BCM-101) All right are reserved with CU-IDOL

REFERENCES 45 1. Gupta, R.L., Radhaswamy,M.(2012). Advanced Accountancy. New Delhi: Sultan Chand&Sons. 2. Maheswari S.N.,(2018). Introduction to Accounting.New Delhi: Vikas Publishing House. 3. Shukla, M.C.,Grewal, T.S.,Gupta S.C.(2007). Advanced Accounts.New Delhi:S.Chandand Company Ltd. www.cuidol.in Unit-4(BBA101 BCM101) All right are reserved with CU-IDOL

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