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Saturday, February 4, 2012

AS 29 TO AS 32

Provisions, Contingent Liabilities And Contingent Assets AS 29 : Objective of this standard is to prescribe the accounting for Provisions, Contingent Liabilitites, Contingent Assets, Provision for restructuring cost. Provision: It is a liability, which can be measured only by using a substantial degree of estimation. Liability: A liability is present obligation of the enterprise arising from past events the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. Financial Instrument AS 30: Recognition and Measurement, issued by The Council of the Institute of Chartered Accountants of India, comes into effect in respect of Accounting periods commencing on or after 1-4-2009 and will be recommendatory in nature for An initial period of two years. This Accounting Standard will become mandatory in respect of Accounting periods commencing on or after 1-4-2011 for all commercial, industrial and business Entities except to a Small and Medium-sized Entity. The objective of this Standard is to establish principles for recognizing and measuring Financial assets, financial liabilities and some contracts to buy or sell non-financial items. Requirements for presenting information about financial instruments are in Accounting Standard. Financial Instrument presentation AS 31 : The objective of this Standard is to establish principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and financial liabilities. It applies to the classification of financial instruments, from the perspective of the issuer, into financial assets, financial liabilities and equity instruments; the classification of related interest, dividends, losses and gains; and the circumstances in which financial assets and financial liabilities should be offset. The principles in this Standard complement the principles for recognising and measuring financial assets and financial liabilities in Accounting Standard Financial Instruments: Financial Instruments, Disclosures and Limited revision to accounting standardsAS 32: The objective of this Standard is to require entities to provide disclosures in their financial statements that enable users to evaluate: the significance of financial instruments for the entity’s financial position and performance; and the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the reporting date, and how the entity manages those risks.

AS 28

Simplified Accounting Standard 28 - AS 28 – Impairment of Assets According to Accounting standard 28 (AS 28) , when a businessman has utilized any asset and after it becoming useless , then it is the duty to calculate the difference between its sale value and its current carrying cost and this will be loss and these assets are become impaired and this impairment loss should mention in the statements of company . In this AS, there is no need to recognize the impaired loss of inventories, construction contracts, financial assets and deferred tax assets because, these are already mentioned in other accounting standards . Formula for Calculating Impaired loss =Carrying Amount of Asset – Net Selling Price Carrying amount is that amount which can be recognized in balance sheet after deducting any accumulated depreciation. This impairment loss should be recognized as an expense in statement of profit and loss. Related : Steps of Calculating Impairment Loss of Goodwill

AS 27

Unsophisticated Explanation of Financial Reporting of Interests in Joint Ventures ( AS 27) Accounting standard 27 explains the joint venture and its accounting treatment. ICAI has defines joint venture, venturer and joint control and control in this standard. Joint venture means the contract between two or more parties for doing economic activity. Control on the business activities by both is called joint control. For making financial statement of joint venture , joint venture can be divide into two different aspects :- Ist When Joint Venture treated as joint operation:- In this aspect, there is not existence of any new corporate. Venturer join in the venture just for completing any project and uses their own assets, so there is no need to make separate financial statements. But in the books of venture, treated as investment and profit from joint venture will show as return on the joint venture investment. 2nd When joint venture treated as separated entity:- If the partners of joint venture create a corporate and do written agreement for doing specific project for earning profit. Then all financial books must be maintained due to separate entity of joint venture and financial statements are made just like other business organization’s financial statements.

AS 26

Intangible Assets in Accounting Standard 26 Accounting standard 26 (AS 26) in Indian GAAP defines intangible assets and provide rule for calculation of cost intangible assets and showing it in financial statement. AS 26 states that any asset can include intangible asset if we can touch physically but these have future economic benefits. Goodwill is one of main examples of intangible asset. Except this many other intangible assets like technical know how and other trademarks but do not include any asset which are included any other accounting standard. How to calculate the cost of intangible asset:- Generally, if intangible asset is purchase from outside, hen its purchase price will be the cost of intangible asset and will be the part of total asset of financial statement. Making and publishing of website is exception case in AS 26. According to AS 26, it is not included in this standard but include fixed accounting standard. But if we see overall the balance sheet it will goes to the asset side and other general expenses for maintaining website will goes to profit and loss account.

AS 25

Accounting Standard 25 - Interim financial Reporting Interim financial reporting means all financial statement which is related to the financial result of company less than one year . ICAI has given power to make financial statement for quarter or monthly basis or half yearly and show his performance to creditors, investors and shareholders for more close connection with them. But ICAI has made rules regarding this reporting and it is included in accounting standard 25. Any company who want to show or publish his interim financial reporting, it is very necessary to include following statements in these interim financial reporting. 1. Balance sheet 2. Profit and loss statement 3. Extra ordinary reports regarding new accounting and company policies. Many companies have different nature and their business must be updated before financial statement and to provide knowledge to interested party is also very important. So , this AS will guide CA to check interim financial reports .

AS 24

Accounting Standard 24 ( AS 24 ) - Discontinuing Operations When, I have read this accounting standard, I find this accounting standard more interesting than other accounting standards. Because, ICAI gives some guidelines to auditors who check the financial statements of company. 1. To see the net profit or loss of discontinuing operations upto the date of dispose off, is mentioned in financial statement. 2 . To check the effect of discontinuing operation on financial statement especially in balance sheet. Before going to deepness of AS 24 we just discuss simple meaning of discontinuing operations and its accounting treatment under AS 24. Meaning of discontinuing operations A company starts many operations in same time and finds that one or some of these operations are not profitable, so company can stop to do activities in these operations. All these operation which is stopped by company is called discontinuing operations. But one more important thing is to know: Before closing any operation company has already purchased some asset and taken some loan for operating such operation, so proper accounting for this necessary. In accounting treatment of discontinuing operation, company should sell its all assets and paid its all liabilities and balance amount should add in capital or reserve of company. If time period to dispose off of discontinuing operation is more than one year then calculate its net annual profit or loss and show it in financial statement like other active operation.

AS 23

Simple Explaination of Accounting Standard 2 Accounting for investment in associates in consolidated financial statements This accounting standard 23 ( AS 23 under Indian GAAP ) is very helpful to cooperate type investors. In this standard, the simple rule is that investor must record all investment in associates. Here, I want to explain associates. It is not subsidiary company but if an investor invests his fund‘s 20% or more in any other company then it becomes his associate. There are two methods to record investment in associate. Ist method: - Equity method:- Under this method, investment in associate is record on the real cost of investment. Equity means total assets minus liabilities and it is very simple to understand for accountant because what amount is paid for getting investment in associate will only recorded in books of investor. 2nd method - Non equity method:- After 1 June 2008, non equity method is also adopted, it is related with inflation accounting and if any fluctuation arise between the time of recording and the time of actual purchase, then this will also be recorded . Showing it in consolidated balance sheet If you have studied other accounting standard regarding subsidiary and holding company. You can understand what is consolidated balance sheet. Here, I brief introduction consolidated balance sheet shows all assets and liabilities of both holding and subsidiary company and showing investment relating to associate in consolidated balance sheet is not difficult. When you have recorded these type of investment its balance become automatically asset and this will go to asset side of balance sheet consolidated.