ACCOUNTANT STANDARDS _ www.bit.ly/taiho123

ACCOUNTANT STANDARDS ISSUED BY ICAI WITH
REFERENCE TO ITS RELEVANCE TO BANKERS IN
ANALYSIS AND INTERPRESENTATION OF FINANCIAL
STATEMENTS AND CRITICAL DATA

Presented By :
CA Pranav Shah
1


Meaning of Accounting Standards
Accounting Standards relate to the codification of generally
accepted accounting principles.
These are the norms of accounting policies and practices by
way of codes or guidelines to direct as to how the items
which go to make up the financial statements should be dealt
with in accounts and presented in the annual accounts.
The main purpose of standards is to provide information to
the users as to the basis on which the accounts have been
prepared.
Disclosure of accounting policies enables the users to
interpret the reported information.
Standards may consist of detailed rules to be adopted for
accounting treatment of various items before the
presentation of financial statements.

2


List of Accounting Standards :
Disclosure of Accounting Policies

AS-1

Valuation of Inventories

AS-2

Cash flow Statement

AS-3

Contingencies & events occurred
after the Balance Sheet Date

AS-4

Depreciation Accounting

AS-6

Revenue Recognition

AS-9

Fixed Assets

AS-10

3

Accounting for the effects of changes in
Foreign Exchange Rates

AS-11

Accounting for Investments

AS-13

Related Parties Disclosure

AS-18

Earning per Share

AS-20

Accounting for taxes of Income

AS-22

Provisions Contingent Liabilities &
Contingent Assets.

AS-29

4

AS-1: Disclosure of Accounting
Policies
Significant Accounting Policies followed in
preparation of accounts be disclosed at one place
along with the financial statements.
Any change & financial impact of such change of
Accounting Policies should be disclosed.
If Fundamental Assumptions (going Concern,
consistency & accrual ) are not followed , the fact
must be disclosed.
Accounting policies adopted by the enterprise
should represent true & Fair view of the state of
affairs of the financial statements.
5


Reference of Annual Report of
Micro inks Ltd.for financial year
Dec.2006
Financial Statement have been prepared
under Historical cost convention on an
accrual basis & in accordance with the
generally accepted accounting policies issued
by ICAI referring to in Sec 211 (3C) of the
companies Act ,1956.

6


BANKER’S CONCERN :AS -1

The impact of any change in Accounting Policies
shall effect on the profitability of the company. It
should be construed with reference to the existing
policies & new policies adopted by the company &
how far it is justified & acceptable to bank. For e.g.
Change in valuation method from Weighted
Average to FIFO may have impact on the
profitability.

7


AS-2 : Valuation of Inventories
Valued at the lower of cost & Net realisable value.
It is Sum of the Cost of purchase, cost of conversion
& other cost.
This AS is not applicable to Construction Contract,
Service providers ,Financial Instruments &
Livestock
Determination of costa) Specific Identification method for determining cost
of inventories means directly linking the cost with
specific item of inventories.
b) Specific Identification method for determining cost
of inventories when not applicable then use FIFO
and Weighted average method.
8


Reference of Annual Report of
Micro inks Ltd. for financial

yearDec.2006
The finished & semi finished inventories are valued
at lower of cost on absorption basis & Net realisable
value.
Raw material & packing material are valued at
lower of cost & Net realisable value. However
,materials & other items held for use in production
of finished goods are not written down below cost if
the product in which they will be incorporated are
expected to be sold at or above cost.
Cost is determined on a transactional weighted
average basis, net of CENVET benefits availed by
the companies.
9


Damaged , unserviceable & inert stocks are
depreciated.
Excise duty & custom duty payable on goods
held in the bonded warehouse are provided in
valuation of inventories .
Consumables & other spares, tools , etc. are
valued at lower of cost( transactional
weighted average cost ,net of CENVAT
benefits availed by the companies) & net
realisable value.
10


BANKER’S CONCERN : AS-2

Non compliance of AS-2 relating to valuation of
inventories would result in the true & unfair view of
the state of affairs of the company & it would
ultimately has an impact on profitability and all the
accounting ratios which affects assessment of the
proposal of the banker.

11


AS-3 Cash Flow Statement
Tool of assessing the liquidity & solvency position of the
enterprise.
Applicable to enterprise those turnover is more than Rs. 50
crores.
These are divided in 3 heads :
From operating activities
From investing activities
From financing activities
Cash flow includes - Cash + Cash equivalent i.e. short term
liquid investment having maturity less than 3 months

12


BANKER’S CONCERN : AS - 3
By studying the cashflow Statement the
banker would be in a position to make out as
to whether the profit/cash accruals earned by
the company is from operating activities ,

investing activities & financial activities
which would assist in appraisal of future
cashflows of the company.

13


AS-4 : Contingencies & events occurring after
the date of Balance Sheet date
Contingencies means result not known on B/s date &
depends on happening & non happening of the events in
future.
Contingencies loss should be provided for by a charge in the
statement of P/L ,if probable future event confirm it.
Contingencies gain should not be recognised in the financial
statement.
Events after B/S date means which occur between B/S date
& date of which financial Statement are approved by
competent authority.
They are significant & may be favorable & unfavorable.
Accounting Treatment for events after B/S date loss should
be accounted in the accounts & Assets –Liabilities are
adjusted .OR Disclosure by way of Notes to accounts only .
14


BANKER’S CONCERN : AS- 4
Any contingency / event which happens
after the Balance Sheet date for e.g.
Breaking out of a fire in the company’s

factory which an inadequate insurance
would cause a huge loss to the company
which will be reflected in the Books of
Accounts of next financial year but it can be
assessed by the bankers referring to Notes of
Accounts wherein the compliance of AS 4 is
disclosed.
15


AS-6 : Depreciation Accounting
Measure of value of a depreciable asset arising from use,
passage of time.
Applicable to assets used for period more than one year.
Calculated by 2 methods – Straight line method (SLM ) &
Written Down Balance Method (WDBM)
In case of extension, revaluation or exchange fluctuation
,deprecation is provided on adjusted figure .
16


Reference of Annual Report of
Micro inks Ltd. for financial year
Dec.2006
Depreciation is provided on SLM basis on all
assets at the rate prescribed in Schedule XIV
of the companies Act,1956
Depreciation on the assets not owned by the
company’s included in Gross Block is
provided over the estimated period of the

economic life of the assets.
Depreciation is charged on pro rata basis for
the assets purchased/Sold during the year.

17


BANKER’S CONCERN : AS - 6
Change in method of depreciation should be based
on some sound acceptable reasoning & its effect
must be incorporated with retrospective effect i.e.
the date on which assets is put to use.

18


AS-9 : Revenue Recognition
It explains when revenue is recognized in P/L account & when
postponed.
Revenue is gross inflow of cash,receivable or other consideration
arising in course of ordinary activities of an enterprise.
In case of sale of goods revenue is recognised when 3 conditions
are fulfilled as
Goods transfer from seller to buyer for a price
Seller does not retain any effective control on transferred
goods.
No uncertainty in collection of the amount of consideration.
In case of rendering of Services 2 methods are applicable
Completed Service Contract Method
Proportionate completion Method

19


Reference of Annual Report of
Micro inks Ltd. for financial year
Dec.2006
Domestic sales are recognised at time of
despatch to the customer, on the basis of
invoice. Export sales are recognised on the
basis of dates of bills of lading.
Gross sales include excise duty but exclude
custom duty ,education cess, sales tax, other
recoveries set off against the respective
expenditure heads & are net of trade
discount.
20


BANKER’S CONCERN : AS- 9
Revenue recognition is particularly
important when goods are transferred
through sales invoice to a Sister concern
where generally the company is not having
business terms with that Sister Concern .
Only to book the profit the goods have shown
to be sold & then returned back after 1st
April in the new financial year .You may also
refer to AS 18 which will be discussed later
on.

21


AS-10 : Accounting For Fixed Assets
Cost comprise of its Purchase price & any attributable to
the asset to its working conditions.
Self-Construction assets shall be accounted at cost.
Assets on Hire basis should be recorded at fair value.
Gross & net values at the beginning & end of year showing
additions, deletions and other improvements is required to
be disclosed.

22


Reference of Annual Report of
Micro inks Ltd. For Dec.2006
Fixed Assets are stated at historical cost of
acquisition or construction less accumulated
depreciation/ amortisation.
All cost relating to acquisition & installation
of fixed assets are capitalised.The cost
excludes the duty benefits admissible against
installation of the specific assets.

.
23


In respect of loan’s & suppliers credit

arrangement for purchase assets repayable
in foreign currencies, the net increase in the
Company’s liability for repayment
consequent upon realignment in rupee value
is capitalised
Advances payment for
acquisition/construction & cost of assets
which are not put to use as at reporting date
are disclosed under capital WIP
24


BANKER’S CONCERN : AS -10
Whether the Fixed Assets have been
purchased from long term funds or short
term funds have been used to finance the
purchase of Fixed Assets as it would badly
affect the working capital cycle of the
company further the interest paid for
acquisition of Fixed Assets prior to
commercial production should be
capitalised.
25