Accounting Standards 1-29 - Seth & Associates

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(condensed or complete) for the following periods in its interim financial report for the second quarter ending 30 September 2001: Balance Sheet : As at 30 September 2001 31 March 2001 30 September 2000 Statement of Profit and Loss : 6 months ending 30 September 2001 30 September 2000 3 months ending 12 months ending 30 September 2001 30 September 2000 30 September 2001 30 September 2000 Cash Flow Statement : 6 months ending 30 September 2001 30 September 2000 12 months ending Appendix 3 30 September 2001 30 September 2000 Examples of Applying the Recognition and Measurement Principles This Appendix, which is illustrative and does not form part of the <strong>Accounting</strong> Standard, provides examples of applying the general recognition and measurement principles set out in paragraphs 27-38 of this Standard. The purpose of the appendix is to illustrate the application of the <strong>Accounting</strong> Standard to assist in clarifying its meaning. Gratuity and Other Defined Benefit Schemes 1. Provisions in respect of gratuity and other defined benefit schemes for an interim period are calculated on a year-to-date basis by using the actuarially determined rates at the end of the prior financial year, adjusted for significant market fluctuations since that time and for significant curtailments, settlements, or other significant one-time events. Major Planned Periodic Maintenance or Overhaul 2. The cost of a major planned periodic maintenance or overhaul or other seasonal expenditure that is expected to occur late in the year is not anticipated for interim reporting purposes unless an event has caused the enterprise to have a present obligation. The mere intention or necessity to incur expenditure related to the future is not sufficient to give rise to an obligation. Provisions 3. This Statement requires that an enterprise apply the same criteria for recognising and measuring a provision at an interim date as it would at the end of its financial year. The existence or nonexistence of an obligation to transfer economic benefits is not a function of the length of the reporting period. It is a question of fact subsisting on the reporting date. Year-End Bonuses 4. The nature of year-end bonuses varies widely. Some are earned simply by continued
employment during a time period. Some bonuses are earned based on monthly, quarterly, or annual measure of operating result. They may be purely discretionary, contractual, or based on years of historical precedent. 5. A bonus is anticipated for interim reporting purposes if, and only if, (a) the bonus is a legal obligation or an obligation arising from past practice for which the enterprise has no realistic alternative but to make the payments, and (b) a reliable estimate of the obligation can be made. Intangible Assets 6. An enterprise will apply the definition and recognition criteria for an intangible asset in the same way in an interim period as in an annual period. Costs incurred before the recognition criteria for an intangible asset are met are recognised as an expense. Costs incurred after the specific point in time at which the criteria are met are recognised as part of the cost of an intangible asset. “Deferring” costs as assets in an interim balance sheet in the hope that the recognition criteria will be met later in the financial year is not justified. Other Planned but Irregularly Occurring Costs 7. An enterprise’s budget may include certain costs expected to be incurred irregularly during the financial year, such as employee training costs. These costs generally are discretionary even though they are planned and tend to recur from year to year. Recognising an obligation at an interim financial reporting date for such costs that have not yet been incurred generally is not consistent with the definition of a liability. Measuring Income Tax Expense for Interim Period 8. Interim period income tax expense is accrued using the tax rate that would be applicable to expected total annual earnings, that is, the estimated average annual effective income tax rate applied to the pre-tax income of the interim period. 9. This is consistent with the basic concept set out in paragraph 27 that the same accounting recognition and measurement principles should be applied in an interim financial report as are applied in annual financial statements. Income taxes are assessed on an annual basis. Therefore, interim period income tax expense is calculated by applying, to an interim period’s pretax income, the tax rate that would be applicable to expected total annual earnings, that is, the estimated average annual effective income tax rate. That estimated average annual effective income-tax rate would reflect the tax rate structure expected to be applicable to the full year’s earnings including enacted or substantively enacted changes in the income tax rates scheduled to take effect later in the financial year. The estimated average annual effective income tax rate would be re-estimated on a year-to-date basis, consistent with paragraph 27 of this Statement. Paragraph 16(d) requires disclosure of a significant change in estimate. 10. To the extent practicable, a separate estimated average annual effective income tax rate is determined for each governing taxation law and applied individually to the interim period pre-tax income under such laws. Similarly, if different income tax rates apply to different categories of income (such as capital gains or income earned in particular industries), to the extent practicable a separate rate is applied to each individual category of interim period pre-tax income. While that degree of precision is desirable, it may not be achievable in all cases, and a weighted average of rates across such governing taxation laws or across categories of income is used if it is a reasonable approximation of the effect of using more specific rates. 11. As illustration, an enterprise reports quarterly, earns Rs. 150 lakhs pre-tax profit in the first quarter but expects to incur losses of Rs 50 lakhs in each of the three remaining quarters (thus having zero income for the year), and is governed by taxation laws according to which its estimated average annual effective income tax rate is expected to be 35 per cent. The following table shows the amount of income tax expense that is reported in each quarter:
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TABLE OF CONTENTS DISCLOSURE OF ACC
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Explanation Fundamental Accounting
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21. Examples of matters in respect
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Definitions 3. The following terms
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(b) storage costs, unless those cos
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27. Information about the carrying
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performance by different enterprise
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15. The separate disclosure of cash
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22. Cash flows arising from the fol
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34. Cash flows arising from taxes o
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The appendix is illustrative only a
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Interest expense (400) Interest inc
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Interest expense 400 Operating prof
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31,850 Less : Sundry debtors at the
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Short-term funds (650) Deposits hel
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not contingencies as defined in par
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8.6 Events occurring after the bala
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Accounting Standard (AS) 5 Net Prof
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financial statements in understandi
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gratuity scheme by an employer in p
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(ii) expected useful life of the de
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19. A change in the method of depre
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Accounting Standard 7 (REVISED) Con
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8. A group of contracts, whether wi
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a. costs that relate directly to th
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estimated reliably when all the fol
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of which recovery is probable; and
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defects have been rectified. Progre
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incurred for work performed upto th
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calculated as follows: (amount in R
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4.3 Proportionate completion method
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the time of raising of any claim it
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should be based on the sales value
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Accounting Standard (AS) 10 Account
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9.3 Administration and other genera
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14.4 On disposal of a previously re
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either to the asset given up or to
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Accounting Standard (AS) 11 (Revise
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Reporting currency is the currency
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Classification of Foreign Operation
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. income and expense items of the n
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historical cost for those items in
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Appendix Note: This Appendix is not
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Accounting Treatment of Government
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8.1 Grants related to specific fixe
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(The Accounting Standard comprises
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Accounting Standard (AS) 13 Account
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fair value provides a prudent metho
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31. Investments classified as curre
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(v) No adjustment is intended to be
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Treatment of Reserves on Amalgamati
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(a) consideration for the amalgamat
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41. Where the scheme of amalgamatio
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Accounting Standard (AS) 16 Borrowi
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orrowings made specifically for the
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Accounting Standard (AS) 17 Segment
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statement of profit and loss. Segme
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segments for internal financial rep
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24. Business and geographical segme
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calculation done in applying a part
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Secondary Segment Information 47. P
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segment, both primary and secondary
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REVENUE External sales Intersegment
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101 90 Assets and additions to tang
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and intangible fixed assets by loca
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4. In the context of this Statement
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(c) the director is nominated by th
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(iii) a description of the nature o
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1. upon the occurrence of some remo
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5. The classification of leases ado
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Rs.2,27,805. As this amount is lowe
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f. a general description of the les
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commencement of the lease term is t
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48. If a sale and leaseback transac
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AS 20 Earnings Per Share (In this A
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c. options including employee stock
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merger is the aggregate of the weig
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29. For the purpose of calculating
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41. Potential equity shares are ant
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Note: These appendices are illustra
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EPS for the year 20X0 as originally
Page 214 and 215: Convertible Preference Shares Incre
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Page 218 and 219: the consolidated financial statemen
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Page 222 and 223: Accounting Standard (AS) 22 ACCOUNT
Page 224 and 225: accounting purposes, straight line
Page 226 and 227: (a) has a legally enforceable right
Page 228 and 229: 6. If for any reason the recognitio
Page 230 and 231: Deferred tax A/c Dr. 20,000 To Prof
Page 232 and 233: Accounting Standard (AS) 23 Account
Page 234 and 235: (b) the associate operates under se
Page 236 and 237: Disclosure 22. In addition to the d
Page 238 and 239: . that represents a separate major
Page 240 and 241: infrequently. All infrequently occu
Page 242 and 243: g. the amount of pre-tax profit or
Page 244 and 245: 35. Appendix 2 illustrates applicat
Page 246 and 247: The following is Note 5 to Delta Co
Page 248 and 249: III. Financial Statements for 20X3
Page 250 and 251: 2 A separate Accounting Standard on
Page 252 and 253: 6. A complete set of financial stat
Page 254 and 255: g. segment revenue, segment capital
Page 256 and 257: 29. To illustrate: a. the principle
Page 258 and 259: Accounting Standard to assist in cl
Page 260 and 261: 1. Basic Earnings Per Share 2.Dilut
Page 262 and 263: provisions for employees (b) Other
Page 266 and 267: 1st Quarter 2nd Quarter 3rd Quarter
Page 268 and 269: Accounting for the Effects of Chang
Page 270 and 271: a. intangible assets that are cover
Page 272 and 273: ecoverable amount.4 Carrying amount
Page 274 and 275: supportable assumptions that repres
Page 276 and 277: Therefore, in addition to complying
Page 278 and 279: titles, customer lists and items si
Page 280 and 281: Past Expenses not to be Recognised
Page 282 and 283: The enterprise amortises the right
Page 284 and 285: assets, how it determines the recov
Page 286 and 287: e. copyrights, and patents and othe
Page 288 and 289: Appendix A This Appendix, which is
Page 290 and 291: aforesaid and expensed in an earlie
Page 292 and 293: without physical substance held for
Page 294 and 295: Application and Infrastructure Deve
Page 296 and 297: On 1-4-2003, the remaining period o
Page 298 and 299: Accounting Standard 27 Financial Re
Page 300 and 301: The arrangement identifies those de
Page 302 and 303: the assets; c. its share of any lia
Page 304 and 305: separately as part of the inventory
Page 306 and 307: 44 In case of transactions between
Page 308 and 309: Accounting Standard (AS) 28 Impairm
Page 310 and 311: 4. The following terms are used in
Page 312 and 313: e. evidence is available of obsoles
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15. It is not always necessary to d
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ate can be justified. This growth r
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38. A restructuring is a programme
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. the enterprise’s incremental bo
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generate cash inflows from continui
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determined excluding cash flows tha
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esult from synergy between the iden
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88. In allocating an impairment los
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paragraphs 106 to 107 and for goodw
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102. Any increase in the carrying a
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a. if the enterprise sells the disc
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ased on the enterprise’s primary
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EXAMPLE 3- EXAMPLE 4- EXAMPLE 5- EX
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determining value in use of both X
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Total 10,000 7,000 3,000 A24. T use
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of the asset for tax purposes is Rs
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Gross carrying amount 1,000 2,000 3
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in forecasting cash flows. This res
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Schedule 1. Calculation of the plan
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Schedule 5. Summary of the carrying
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End of 20X4 A B C Goodwill Z Carryi
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in Rs. lakhs) Year Future cash flow
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Accounting Standard (AS) 29 Provisi
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The objective of this Statement is
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settle the obligation; or ii. a rel
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17. Financial statements deal with
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may result in the recognition of in
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warranties). The other party may ei
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expenditures are recognised on the
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It does not form part of the Accoun
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paragraphs 14 and 21). Example 3: O
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2005, the enterprise's lawyers advi
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an onerous contract as a contract i
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Accounting Standards 1-29 - Seth & Associates

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