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Objectives
Objective of Accounting Standards is to standardise the diverse accounting policies and practices with a view to eliminate to the extent possible the noncomparability of financial statements and the reliability to the financial statements. The institute of Chartered Accountants of India, recognizing the need to harmonize the diverse accounting policies and practices, constituted at Accounting Standard Board (ASB) on 21st April, 1977
(1) ASB determines the broad areas requiring formulation of Accounting Standards and lists them according to priority (2) An exposure draft is prepared with the help of study group constituted for this purpose. Views of government, public sector undertakings, industry and other organisations are also before formulating the Exposure Draft (ED) (3) Exposure Draft (ED) comprises following (i) A statement of concepts and fundamental accounting principles relating to the standards. (ii) Definition of the term used in the standards. (iii) The manner in which the accounting principles have been applied for formulating the standards. (iv) The presentation and disclosure requirements in complying with the standards. (v) Class of enterprises to which the standard will apply. (vi) Date from which the standard will be effective (4) The Exposure Draft will be published in the professional journals and circulated otherwise to obtain views and comments. ASB after revising standards submits the same to the council. (5) The council will consider and, if necessary, amend the standard after consulting the ASB, then in its final form the council issues the standard under its authority.
Disclosure of Accounting policies Valuation of Inventories Cash flow statement 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 AS-6 Depreciation Accounting AS-7 Accounting for construction contracts AS-8 Accounting for research and Development AS-9 Revenue Recognition ASAccounting for fixed assets 10 ASAccounting for the effects of changes 11 in Foreign exchange rates ASAccounting for government grants 12 ASAccounting for investment 13 ASAccounting for Amalgamations 14 ASAccounting for retirement Benefits in 15 the financial statements of employers Notes:
Yes No No No No Yes No No No No
Recommendatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory Mandatory
(2) AS-5 Prior to revision was titled as Prior Period and Extraordinary items and changes in Accounting policies
Accounting Policies refer to specific accounting principles and the method of applying those principles adopted by the enterprises in preparation and presentation of the financial statements.
Contingencies and Events occurring after the balance sheet date: In preparing financial statement of a particular enterprise, accounting is
done by following accrual basis of accounting and prudent accounting policies to calculate the profit or loss for the year and to recognize assets and liabilities in balance sheet
Net Profit or Loss for the Period, Prior Period Items and change in Accounting Policies: The objective of this accounting
standard is to prescribe the criteria for certain items in the profit and loss account so that comparability of the financial statement can be enhanced. Profit and loss account being a period statement covers the items of the income and expenditure of the particular period
Depreciation is nothing but distribution of total cost of asset over its useful life.
(1) IAS-11 suggets only the percentage of completion method as it serves better the cause of transparency by linking the activities to results. AS-2 on the other hand recomments both percentage of completion method and completed contract method for reveue recognition of construction contracts. (2) IAS-2 suggests FIFO method as the bench mark for inventory valuation as it reflects currents value of inventory better. The Indian standards gives a wide choice. Again while the international standard suggests absorption costing for valuing inventory,the Indian standard suggest both absorption costing as well as direct costing. Valuing inventory on the basis of direct costing results in deflation inventory as well as profits. (3) IAS-20 requires vauation of Government grants in the form of non monetary assets at fair value. AS-12 suggests showing them at acquisition cost if obtained at a concessional rate and at a normal value if obtained free. By following the Indian standard companis would report better profits if the grants relate to raw material, fees, technical services and other related items which are charged to profit and lossaccount. (4) IAS-8 has defined the prior items as fundemental errors and recommends the adjustment of such fundemental errors to retained earnings. AS-5 (revised) requires the disclosure of such items in the
profit and loss account, althrough seprately. It is preferable to follow the international standard in this regard.
References
Advanced Accountancy by R.L.GUPTA & M RADHASWAMY Through net