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| Date: Nov 04, 2011 | |
| Payment of Cheques/Drafts/Pay Orders/Banker’s Cheques | |
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Saturday, 12 November 2011
Payment of Cheques/Drafts/Pay Orders/Banker’s Cheques
Indian Accounting Standards
Accounting is the art of
recording transactions in the best manner possible, so as to enable the
reader to arrive at judgments/come to conclusions, and in this regard it
is utmost necessary that there are set guidelines. These guidelines are
generally called accounting policies. The intricacies of accounting
policies permitted Companies to alter their accounting principles for
their benefit. This made it impossible to make comparisons. In order to
avoid the above and to have a harmonised accounting principle, Standards
needed to be set by recognised accounting bodies. This paved the way
for Accounting Standards to come into existence.
Accounting
Standards in India are issued By the Institute of Chartered Accountanst
of India (ICAI). At present there are 30 Accounting Standards issued by
ICAI.
Objective of Accounting Standards
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.
Compliance with Accounting Standards issued by ICAI
Sub
Section(3A) to section 211 of Companies Act, 1956 requires that every
Profit/Loss Account and Balance Sheet shall comply with the Accounting
Standards. 'Accounting Standards' means the standard of accounting
recomended by the ICAI and prescribed by the Central Government in
consultation with the National Advisory Committee on Accounting
Standards(NACAs) constituted under section 210(1) of companies Act,
1956.
Accounting Standards Issued by the Institute of Chatered Accountants of India are as below:
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Cash Flow Statements:
Cash flow statement is additional information to user of financial
statement. This statement exhibits the flow of incoming and outgoing
cash. This statement assesses the ability of the enterprise to generate
cash and to utilize the cash. This statement is one of the tools for
assessing the liquidity and solvency of the enterprise.
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Contigencies and Events occuring 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. While following the prudent
accounting policies, the provision is made for all known liabilities and
losses even for those liabilities / events, which are probable.
Professional judgement is required to classify the likehood of the
future events occuring and, therefore, the question of contingencies and
their accounting arises.
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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. This accounting standard also deals with
change in accounting policy, accounting estimates and extraordinary
items.
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Construction Contracts :
Accounting for long term construction contracts involves question as to
when revenue should be recognized and how to measure the revenue in the
books of contractor. As the period of construction contract is long,
work of construction starts in one year and is completed in another year
or after 4-5 years or so. Therefore question arises how the profit or
loss of construction contract by contractor should be determined. There
may be following two ways to determine profit or loss: On year-to-year
basis based on percentage of completion or On cpmpletion of the
contract.
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Revenue Recognition :
The standard explains as to when the revenue should be recognized in
profit and loss account and also states the circumstances in which
revenue recognition can be postponed. Revenue means gross inflow of
cash, receivable or other consideration arising in the course of
ordinary activities of an enterprise such as:- The sale of goods,
Rendering of Services, and Use of enterprises resources by other
yeilding interest, dividend and royalties. In other words, revenue is a
charge made to customers / clients for goods supplied and services
rendered.
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The Effects of changes in Foreign Exchange Rates :
Effect of Changes in Foreign Exchange Rate shall be applicable in
Respect of Accounting Period commencing on or after 01-04-2004 and is
mandatory in nature. This accounting Standard applicable to accounting
for transaction in Foreign currencies in translating in the Financial
Statement Of foreign operation Integral as well as non- integral and
also accounting for For forward exchange.Effect of Changes in Foreign
Exchange Rate, an enterprises should disclose following aspects:
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Accounting for Government Grants :
Governement Grants are assistance by the Govt. in the form of cash or
kind to an enterprise in return for past or future compliance with
certain conditions. Government assistance, which cannot be valued
reasonably, is excluded from Govt. grants,. Those transactions with
Governement, which cannot be distinguished from the normal trading
transactions of the enterprise, are not considered as Government grants.
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Accounting for Amalgamation :
This accounting standard deals with accounting to be made in books of
Transferee company in case of amalgamtion. This accounting standard is
not applicable to cases of acquisition of shares when one company
acquires / purcahses the share of another company and the acquired
company is not dissolved and its seperate entity continues to exist. The
standard is applicable when acquired company is dissolved and seperate
entity ceased exist and purchasing company continues with the business
of acquired company
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Borrowing Costs :
Enterprises are borrowing the funds to acquire, build and install the
fixed assets and other assets, these assets take time to make them
useable or saleable, therefore the enterprises incur the interest (cost
on borrowing) to acquire and build these assets. The objective of the
Accounting Standard is to prescribe the treatment of borrowing cost
(interest + other cost) in accounting, whether the cost of borrowing
should be included in the cost of assets or not.
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Segment Reporting :
An enterprise needs in multiple products/services and operates in
different geographical areas. Multiple products / services and their
operations in different geographical areas are exposed to different
risks and returns. Information about multiple products / services and
their operation in different geographical areas are called segment
information. Such information is used to assess the risk and return of
multiple products/services and their operation in different geographical
areas. Disclosure of such information is called segment reporting.
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Related Paty Disclosure :
Sometimes business transactions between related parties lose the
feature and character of the arms length transactions. Related party
relationship affects the volume and decision of business of one
enterprise for the benefit of the other enterprise. Hence disclosure of
related party transaction is essential for proper understanding of
financial performance and financial position of enterprise.
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Accounting for leases :
Lease is an arrangement by which the lesser gives the right to use an
asset for given period of time to the lessee on rent. It involves two
parties, a lessor and a lessee and an asset which is to be leased. The
lessor who owns the asset agrees to allow the lessee to use it for a
specified period of time in return of periodic rent payments.
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Earning Per Share :Earning
per share (EPS)is a financial ratio that gives the information
regarding earning available to each equiy share. It is very important
financial ratio for assessing the state of market price of share. This
accounting standard gives computational methodology for the
determination and presentation of earning per share, which will improve
the comparison of EPS. The statement is applicable to the enterprise
whose equity shares or potential equity shares are listed in stock
exchange.
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Consolidated Financial Statements :
The objective of this statement is to present financial statements of a
parent and its subsidiary (ies) as a single economic entity. In other
words the holding company and its subsidiary (ies) are treated as one
entity for the preparation of these consolidated financial statements.
Consolidated profit/loss account and consolidated balance sheet are
prepared for disclosing the total profit/loss of the group and total
assets and liabilities of the group. As per this accounting standard,
the conslidated balance sheet if prepared should be prepared in the
manner prescribed by this statement.
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Accounting for Taxes on Income :
This accounting standard prescribes the accounting treatment for taxes
on income. Traditionally, amount of tax payable is determined on the
profit/loss computed as per income tax laws. According to this
accounting standard, tax on income is determined on the principle of
accrual concept. According to this concept, tax should be accounted in
the period in which corresponding revenue and expenses are accounted. In
simple words tax shall be accounted on accrual basis; not on liability
to pay basis.
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Accounting for Investments in Associates in consolidated financial statements : The
accounting standard was formulated with the objective to set out the
principles and procedures for recognizing the investment in associates
in the cosolidated financial statements of the investor, so that the
effect of investment in associates on the financial position of the
group is indicated.
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Discontinuing Operations : The
objective of this standard is to establish principles for reporting
information about discontinuing operations. This standard covers
"discontinuing operations" rather than "discontinued operation". The
focus of the disclosure of the Information is about the operations which
the enterprise plans to discontinue rather than dsclosing on the
operations which are already discontinued. However, the disclosure about
discontinued operation is also covered by this standard.
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Financial Reporting of Interest in joint ventures : Joint Venture is defined as a contractual arrangement whereby two or more parties carry on an economic activity under 'joint control'.
Control is the power to govern the financial and operating policies of
an economic activity so as to obtain benefit from it. 'Joint control' is
the contractually agreed sharing of control over economic activity.
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Impairment of Assets :
The dictionary meanong of 'impairment of asset' is weakening in value
of asset. In other words when the value of asset decreases, it may be
called impairment of an asset. As per AS-28 asset is said to be impaired
when carrying amount of asset is more than its recoverable amount.
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Provisions, Contingent Liabilities And Contingent Assets :
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. |
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Financial Instrument:
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.
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Financial Instrument: presentation : 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:
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Financial Instruments, Disclosures and Limited revision to accounting standards: The
objective of this Standard is to require entities to provide
disclosures in their financial statements that enable users to evaluate:
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