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NOTICE INVITING COMMENTS ON THE DRAFT COMPANIES (ACCOUNTING STANDARDS) AMENDMENT RULES 2016

News and Press Release - Dated:- 17-2-2016 - GOVERNMENT OF INDIA Ministry of Corporate Affairs Dated the 16th February, 2016 1. The draft Companies (Accounting Standards) Amendment Rules, 2016 has been placed on the Ministry s website at www.mca.gov.in. It has been decided to invite suggestions/comments on the above draft. 3. Suggestions/comments on above mentioned draft along with justification in brief may be sent latest by 1st March, 2016 through email at cas@mca.gov.in. It is requested that .....

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of the Companies Act, 1956 (1 of 1956), the Central Government, in consultation with National Advisory Committee on Accounting Standards, hereby makes the following rules, which shall supersede the Companies (Accounting Standards) Rules, 2006 to the extent specified in these rules namely:- 1. Short title and commencement.- (1) These rules may be called the Companies (Accounting Standards) Rules, 2016. (2) They shall come into force on the date of their publication in the Official Gazette. 2. De .....

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f) Small and Medium Sized Company (SMC) means, a company- (i) whose equity or debt securities are not listed or are not in the process of listing on any stock exchange, whether in India or outside India; (ii) which is not a bank, financial institution or an insurance company; (iii) whose turnover (excluding other income) does not exceed rupees fifty crore in the immediately preceding accounting year; (iv) which does not have borrowings (including public deposits) in excess of rupees ten crore at .....

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herein are satisfied as at the end of the relevant accounting period. (2) Words and expressions used herein and not defined in these rules but defined in the Act shall have the same meaning respectively assigned to them in the Act. 3. Accounting Standards.- (1) The Accounting Standards AS 2, AS 4, AS 10, AS 14, AS 21 and AS 29 as specified in Annexure to these Rules, in supersession of the corresponding Accounting Standards with the same number and nomenclature specified in Companies (Accounting .....

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ds and its auditor(s) shall comply with the Accounting Standards in the manner specified in Annexure to these rules. (2) The Accounting Standards shall be applied in the preparation of General Purpose Financial Statements. 5. An existing company, which was previously not a Small and Medium Sized Company (SMC) and subsequently becomes an SMC, shall not be qualified for exemption or relaxation in respect of Accounting Standards available to an SMC until the company remains an SMC for two consecuti .....

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applicable to a company earlier becomes applicable to the company for the first time. 2. The reference to Accounting Standard (AS) 6, Depreciation Accounting or/and Accounting Standard (AS) 10, Accounting for Fixed Assets shall be read as Accounting Standard (AS) 10, Property, Plant and Equipment. 3. The reference to Schedule VI or Companies Act, 1956 shall mutatis mutandis mean Schedule III and Companies Act, 2013 , respectively. 4. SMCs shall follow the following instructions while complying w .....

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he Companies Act, 2013. Accordingly, the Company has complied with the Accounting Standards as applicable to a Small and Medium Sized Company. 5.2 Where a company, being an SMC, has qualified for any exemption or relaxation previously but no longer qualifies for the relevant exemption or relaxation in the current accounting period, the relevant standards or requirements become applicable from the current period and the figures for the corresponding period of the previous accounting period need n .....

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.4 If an SMC desires to disclose the information not required to be disclosed pursuant to the exemptions or relaxations available to the SMCs, it shall disclose that information in compliance with the relevant accounting standard. 5.5 An SMC may opt for availing certain exemptions or relaxations from compliance with the requirements prescribed in an Accounting Standard: Provided that such a partial exemption or relaxation and disclosure shall not be permitted to mislead any person or public. 5. .....

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t in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. An individual accounting standard shall be read in the context of the objective, if stated, in that accounting standard and in accordance with these General Instructions. B. Accounting Standards Accounting Standard (AS) 2 Valuation of Inventories (This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs i .....

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nventories and any write-down thereof to net realisable value. Scope 1. This Standard should be applied in accounting for inventories other than: (a) work in progress arising under construction contracts, including directly related service contracts (see Accounting Standard (AS) 7, Construction Contracts); (b) work in progress arising in the ordinary course of business of service providers; (c) shares, debentures and other financial instruments held as stock-in-trade; and (d) producers inventori .....

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r a government guarantee, or when a homogenous market exists and there is a negligible risk of failure to sell. These inventories are excluded from the scope of this Standard. Definitions 3. The following terms are used in this Standard with the meanings specified: 3.1 Inventories are assets: (a) held for sale in the ordinary course of business; (b) in the process of production for such sale; or (c) in the form of materials or supplies to be consumed in the production process or in the rendering .....

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e enterprise and include materials, maintenance supplies, consumables and loose tools awaiting use in the production process. Inventories do not include spare parts, servicing equipment and standby equipment which meet the definition of property, plant and equipment as per AS 10, Property, Plant and Equipment. Such items are accounted for in accordance with Accounting Standard (AS) 10, Property, Plant and Equipment. Measurement of Inventories 5. Inventories should be valued at the lower of cost .....

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de discounts, rebates, duty drawbacks and other similar items are deducted in determining the costs of purchase. Costs of Conversion 8. The costs of conversion of inventories include costs directly related to the units of production, such as direct labour. They also include a systematic allocation of fixed and variable production overheads that are incurred in converting materials into finished goods. Fixed production overheads are those indirect costs of production that remain relatively consta .....

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ion facilities. Normal capacity is the production expected to be achieved on an average over a number of periods or seasons under normal circumstances, taking into account the loss of capacity resulting from planned maintenance. The actual level of production may be used if it approximates normal capacity. The amount of fixed production overheads allocated to each unit of production is not increased as a consequence of low production or idle plant. Un allocated overheads are recognised as an exp .....

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ts are produced or when there is a main product and a by-product. When the costs of conversion of each product are not separately identifiable, they are allocated between the products on a rational and consistent basis. The allocation may be based, for example, on the relative sales value of each product either at the stage in the production process when the products become separately identifiable, or at the completion of production. Most by-products as well as scrap or waste materials, by their .....

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production overheads or the costs of designing products for specific customers in the cost of inventories. 12. Interest and other borrowing costs are usually considered as not relating to bringing the inventories to their present location and condition and are, therefore, usually not included in the cost of inventories. Exclusions from the Cost of Inventories 13. In determining the cost of inventories in accordance with paragraph 6, it is appropriate to exclude certain costs and recognise them a .....

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dinarily interchangeable and goods or services produced and segregated for specific projects should be assigned by specific identification of their individual costs. 15. Specific identification of cost means that specific costs are attributed to identified items of inventory. This is an appropriate treatment for items that are segregated for a specific project, regardless of whether they have been purchased or produced. However, when there are large numbers of items of inventory which are ordina .....

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approximation to the cost incurred in bringing the items of inventory to their present location and condition. 17. A variety of cost formulas is used to determine the cost of inventories other than those for which specific identification of individual costs is appropriate. The formula used in determining the cost of an item of inventory needs to be selected with a view to providing the fairest possible approximation to the cost incurred in bringing the item to its present location and condition. .....

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ated on a periodic basis, or as each additional shipment is received, depending upon the circumstances of the enterprise. Techniques for the Measurement of Cost 18. Techniques for the measurement of the cost of inventories, such as the standard cost method or the retail method, may be used for convenience if the results approximate the actual cost. Standard costs take into account normal levels of consumption of materials and supplies, labour, efficiency and capacity utilisation. They are regula .....

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own to below its original selling price. An average percentage for each retail department is often used. Net Realisable Value 20. The cost of inventories may not be recoverable if those inventories are damaged, if they have become wholly or partially obsolete, or if their selling prices have declined. The cost of inventories may also not be recoverable if the estimated costs of completion or the estimated costs necessary to make the sale have increased. The practice of writing down inventories b .....

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same geographical area and cannot be practicably evaluated separately from other items in that product line. It is not appropriate to write down inventories based on a classification of inventory, for example, finished goods, or all the inventories in a particular business segment. 22. Estimates of net realisable value are based on the most reliable evidence available at the time the estimates are made as to the amount the inventories are expected to realise. These estimates take into considerat .....

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tory quantities held, the net realisable value of the excess inventory is based on general selling prices. Contingent losses on firm sales contracts in excess of inventory quantities held and contingent losses on firm purchase contracts are dealt with in accordance with the principles enunciated in Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date. 24. Materials and other supplies held for use in the production of inventories are not written down below c .....

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t each balance sheet date. Disclosure 26. The financial statements should disclose: (a) the accounting policies adopted in measuring inventories, including the cost formula used; and (b) the total carrying amount of inventories and its classification appropriate to the enterprise. 27. Information about the carrying amounts held in different classifications of inventories and the extent of the changes in these assets is useful to financial statement users. Common classifications of inventories ar .....

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ld be read in the context of the General Instructions contained in part A of the Annexure to the Notification.) Introduction 1. This Standard deals with the treatment in financial statements of (a) contingencies, and (b) events occurring after the balance sheet date. 2. The following subjects, which may result in contingencies, are excluded from the scope of this Standard in view of special considerations applicable to them: (a) liabilities of life assurance and general insurance enterprises ari .....

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events, both favourable and unfavourable, that occur between the balance sheet date and the date on which the financial statements are approved by the Board of Directors in the case of a company, and, by the corresponding approving authority in the case of any other entity. Two types of events can be identified: (a) those which provide further evidence of conditions that existed at the balance sheet date; and (b) those which are indicative of conditions that arose subsequent to the balance sheet .....

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he fact that an estimate is involved does not, of itself, create the type of uncertainty which characterises a contingency. For example, the fact that estimates of useful life are used to determine depreciation, does not make depreciation a contingency; the eventual expiry of the useful life of the asset is not uncertain. Also, amounts owed for services received are not contingencies as defined in paragraph 3.1, even though the amounts may have been estimated, as there is nothing uncertain about .....

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ontingencies are determined by the judgement of the management of the enterprise. This judgement is based on consideration of information available up to the date on which the financial statements are approved and will include a review of events occurring after the balance sheet date, supplemented by experience of similar transactions and, in some cases, reports from independent experts. 5. Accounting Treatment of Contingent Losses 5.1 The accounting treatment of a contingent loss is determined .....

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ture of the contingency. 5.4 A potential loss to an enterprise may be reduced or avoided because a contingent liability is matched by a related counter-claim or claim against a third party. In such cases, the amount of the provision is determined after taking into account the probable recovery under the claim if no significant uncertainty as to its measurability or collectability exists. Suitable disclosure regarding the nature and gross amount of the contingent liability is also made. 5.5 The e .....

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Contingent Gains Contingent gains are not recognised in financial statements since their recognition may result in the recognition of revenue which may never be realised. However, when the realisation of a gain is virtually certain, then such gain is not a contingency and accounting for the gain is appropriate. 7. Determination of the Amounts at which Contingencies are included in Financial Statements 7.1 The amount at which a contingency is stated in the financial statements is based on the inf .....

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tances of each situation considered in the determination of the amount of the contingency. A substantial legal claim against the enterprise may represent such a contingency. Among the factors taken into account by management in evaluating such a contingency are the progress of the claim at the date on which the financial statements are approved, the opinions, wherever necessary, of legal experts or other advisers, the experience of the enterprise in similar cases and the experience of other ente .....

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usually incurred frequently and experience provides a means by which the amount of the liability or loss can be estimated with reasonable precision although the particular transactions that may result in a liability or a loss are not identified. Provision for these costs results in their recognition in the same accounting period in which the related transactions took place. 8. Events Occurring after the Balance Sheet Date 8.1 Events which occur between the balance sheet date and the date on whic .....

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is confirmed by the insolvency of a customer which occurs after the balance sheet date. 8.3 Adjustments to assets and liabilities are not appropriate for events occurring after the balance sheet date, if such events do not relate to conditions existing at the balance sheet date. An example is the decline in market value of investments between the balance sheet date and the date on which the financial statements are approved. Ordinary fluctuations in market values do not normally relate to the c .....

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cisions. 8.5 There are events which, although they take place after the balance sheet date, are sometimes reflected in the financial statements because of statutory requirements or because of their special nature. For example, if dividends are declared after the balance sheet date but before the financial statements are approved for issue, the dividends are not recognised as a liability at the balance sheet date because no obligation exists at that time unless a statute requires otherwise. Such .....

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of going concern in the preparation of the financial statements. 9. Disclosure 9.1 The disclosure requirements herein referred to apply only in respect of those contingencies or events which affect the financial position to a material extent. 9.2 If a contingent loss is not provided for, its nature and an estimate of its financial effect are generally disclosed by way of note unless the possibility of a loss is remote (other than the circumstances mentioned in paragraph 5.5). If a reliable esti .....

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t future events will confirm that, after taking into account any related probable recovery, an asset has been impaired or a liability has been incurred as at the balance sheet date, and (b) a reasonable estimate of the amount of the resulting loss can be made. 11. The existence of a contingent loss should be disclosed in the financial statements if either of the conditions in paragraph 10 is not met, unless the possibility of a loss is remote. 12. Contingent gains should not be recognised in the .....

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shareholders after the balance sheet date, the enterprise should not recognise those dividends as a liability at the balance sheet date unless a statute requires otherwise. Such dividends should be disclosed in notes. 15. Disclosure should be made in the report of the approving authority of those events occurring after the balance sheet date that represent material changes and commitments affecting the financial position of the enterprise. Disclosure 16. If disclosure of contingencies is requir .....

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b) an estimate of the financial effect, or a statement that such an estimate cannot be made. Accounting Standard (AS) 10 Property, Plant and Equipment (This Accounting Standard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of the General Instructions contained in part A of the Annexure to the Notification.) Objective 1. The objective of thi .....

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Scope 2. This Standard should be applied in accounting for property, plant and equipment except when another Accounting Standard requires or permits a different accounting treatment. 3. This Standard does not apply to: (a) biological assets related to agricultural activity other than bearer plants. This Standard applies to bearer plants but it does not apply to the produce on bearer plants; and (b) wasting assets including mineral rights, expenditure on the exploration for and extraction of min .....

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f the transfer of risks and rewards. However, in such cases other aspects of the accounting treatment for these assets, including depreciation, are prescribed by this Standard. 5. Investment property, as defined in AS 13, Accounting for Investments, should be accounted for only in accordance with the cost model prescribed in this standard. Definitions 6. The following terms are used in this Standard with the meanings specified: Agricultural Activity is the management by an enterprise of the biol .....

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les. The following are not bearer plants: (i) plants cultivated to be harvested as agricultural produce (for example, trees grown for use as lumber); (ii) plants cultivated to produce agricultural produce when there is more than a remote likelihood that the entity will also harvest and sell the plant as agricultural produce, other than as incidental scrap sales (for example, trees that are cultivated both for their fruit and their lumber); and (iii) annual crops (for example, maize and wheat). W .....

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other consideration given to acquire an asset at the time of its acquisition or construction or, where applicable, the amount attributed to that asset when initially recognised in accordance with the specific requirements of other Accounting Standards. Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual value. Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. Enterprise -specific value is the pres .....

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d accumulated impairment losses. An impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount. Property, plant and equipment are tangible items that: (a) are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes; and (b) are expected to be used during more than a period of twelve months. Recoverable amount is the higher of an asset s net selling price and its value in use. The residual value .....

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m of property, plant and equipment should be recognised as an asset if, and only if: (a) it is probable that future economic benefits associated with the item will flow to the enterprise; and (b) the cost of the item can be measured reliably. 8. Items such as spare parts, stand-by equipment and servicing equipment are recognised in accordance with this Standard when they meet the definition of property, plant and equipment. Otherwise, such items are classified as inventory. 9. This Standard does .....

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ropriate to aggregate individually insignificant items, such as moulds, tools and dies and to apply the criteria to the aggregate value. An enterprise may decide to expense an item which could otherwise have been included as property, plant and equipment, because the amount of the expenditure is not material. 10. An enterprise evaluates under this recognition principle all its costs on property, plant and equipment at the time they are incurred. These costs include costs incurred: (a) initially .....

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ets used for selling and distribution, finance and accounting, personnel and other functions of an enterprise. Items of property, plant and equipment may also be acquired for safety or environmental reasons. The acquisition of such property, plant and equipment, although not directly increasing the future economic benefits of any particular existing item of property, plant and equipment, may be necessary for an enterprise to obtain the future economic benefits from its other assets. Such items o .....

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le to manufacture and sell chemicals. The resulting carrying amount of such an asset and related assets is reviewed for impairment in accordance with AS 28, Impairment of Assets. Subsequent Costs 12. Under the recognition principle in paragraph 7, an enterprise does not recognise in the carrying amount of an item of property, plant and equipment the costs of the day-today servicing of the item. Rather, these costs are recognised in the statement of profit and loss as incurred. Costs of day-to-da .....

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veral times during the life of the airframe. Similarly, major parts of conveyor system, such as, conveyor belts, wire ropes, etc., may require replacement several times during the life of the conveyor system. Items of property, plant and equipment may also be acquired to make a less frequently recurring replacement, such as replacing the interior walls of a building, or to make a non-recurring replacement. Under the recognition principle in paragraph 7, an enterprise recognises in the carrying a .....

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parts of the item are replaced. When each major inspection is performed, its cost is recognised in the carrying amount of the item of property, plant and equipment as a replacement if the recognition criteria are satisfied. Any remaining carrying amount of the cost of the previous inspection (as distinct from physical parts) is derecognised. 15. The derecognition of the carrying amount as stated in paragraphs 13-14 occurs regardless of whether the cost of the previous part / inspection was iden .....

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ecognition as an asset should be measured at its cost. Elements of Cost 17. The cost of an item of property, plant and equipment comprises: (a) its purchase price, including import duties and non -refundable purchase taxes,, after deducting trade discounts and rebates. (b) any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. (c) the initial estimate of the costs of dismantling, removi .....

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ction or acquisition of the item of property, plant and equipment; (b) costs of site preparation; (c) initial delivery and handling costs; (d) installation and assembly costs; (e) costs of testing whether the asset is functioning properly, after deducting the net proceeds from selling any items produced while bringing the asset to that location and condition (such as samples produced when testing equipment); and (f) professional fees. 19. An enterprise applies AS 2, Valuation of Inventories, to .....

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are: (a) costs of opening a new facility or business, such as, inauguration costs; (b) costs of introducing a new product or service( including costs of advertising and promotional activities); (c) costs of conducting business in a new location or with a new class of customer (including costs of staff training); and (d) administration and other general overhead costs. 21. Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the locat .....

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nitial operating losses, such as those incurred while demand for the output of an item builds up; and (c) costs of relocating or reorganising part or all of the operations of an enterprise. 22. Some operations occur in connection with the construction or development of an item of property, plant and equipment, but are not necessary to bring the item to the location and condition necessary for it to be capable of operating in the manner intended by management. These incidental operations may occu .....

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s of income and expense. 23. The cost of a self-constructed asset is determined using the same principles as for an acquired asset. If an enterprise makes similar assets for sale in the normal course of business, the cost of the asset is usually the same as the cost of constructing an asset for sale (see AS 2). Therefore, any internal profits are eliminated in arriving at such costs. Similarly, the cost of abnormal amounts of wasted material, labour, or other resources incurred in self-construct .....

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ion in this Standard should be read as covering activities that are necessary to cultivate the bearer plants before they are in the location and condition necessary to be capable of operating in the manner intended by management . Measurement of Cost 25. The cost of an item of property, plant and equipment is the cash price equivalent at the recognition date. If payment is deferred beyond normal credit terms, the difference between the cash price equivalent and the total payment is recognised as .....

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easured at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset(s) received nor the asset(s) given up is reliably measurable. The acquired item(s) is/are measured in this manner even if an enterprise cannot immediately derecognise the asset given up. If the acquired item(s) is/are not measured at fair value, its/their cost is measured at the carrying amount of the asset(s) given up. 27. An enterprise determines whether an exchange t .....

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of the exchange; (c) and the difference in (a) or (b) is significant relative to the fair value of the assets exchanged. For the purpose of determining whether an exchange transaction has commercial substance, the enterprise -specific value of the portion of operations of the enterprise affected by the transaction should reflect post-tax cash flows. In certain cases, the result of these analyses may be clear without an enterprise having to perform detailed calculations. 28. The fair value of an .....

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asset received is more clearly evident. 29. Where several items of property, plant and equipment are purchased for a consolidated price, the consideration is apportioned to the various items on the basis of their respective fair values at the date of acquisition. In case the fair values of the items acquired cannot be measured reliably, these values are estimated on a fair basis as determined by competent valuers. 30. The cost of an item of property, plant and equipment held by a lessee under a .....

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nition as an asset, an item of property, plant and equipment should be carried at its cost less any accumulated depreciation and any accumulated impairment losses. Revaluation Model 34. After recognition as an asset, an item of property, plant and equipment whose fair value can be measured reliably should be carried at a revalued amount, being its fair value at the date of the revaluation less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations shou .....

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t and the item is rarely sold, except as part of a continuing business, an enterprise may need to estimate fair value using an income approach (for example, based on discounted cash flow projections) or a depreciated replacement cost approach which aims at making a realistic estimate of the current cost of acquiring or constructing an item that has the same service potential as the existing item. 37. The frequency of revaluations depends upon the changes in fair values of the items of property, .....

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five years. 38. When an item of property, plant and equipment is revalued, the carrying amount of that asset is adjusted to the revalued amount. At the date of the revaluation, the asset is treated in one of the following ways: (a) the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount of the asset. For example, the gross carrying amount may be restated by reference to observable market data or it may be restated proportionately to the ch .....

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e with paragraphs 42 and 43. 39. If an item of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs should be revalued. 40. A class of property, plant and equipment is a grouping of assets of a similar nature and use in operations of an enterprise. The following are examples of separate classes: (a) land; (b) land and buildings; (c) machinery; (d) ships; (e) aircraft; (f) motor vehicles; (g) furniture and fixtures; (h) office eq .....

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ying amount of an asset arising on revaluation should be credited directly to owners interests under the heading of revaluation surplus However, the increase should be recognised in the statement of profit and loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in the statement of profit and loss. 43. A decrease in the carrying amount of an asset arising on revaluation should be charged to the statement of profit and loss. However, the decrease shou .....

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e transferred as the asset is used by an enterprise. In such a case, the amount of the surplus transferred would be the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on its original cost. Transfers from revaluation surplus to the revenue reserves are not made through the statement of profit and loss. Depreciation 45. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of th .....

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ame as the useful life and the depreciation method of another significant part of that same item. Such parts may be grouped in determining the depreciation charge. 48. To the extent that an enterprise depreciates separately some parts of an item of property, plant and equipment, it also depreciates separately the remainder of the item. The remainder consists of the parts of the item that are individually not significant. If an enterprise has varying expectations for these parts, approximation te .....

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rge for a period is usually recognised in the statement of profit and loss. However, sometimes, the future economic benefits embodied in an asset are absorbed in producing other assets. In this case, the depreciation charge constitutes part of the cost of the other asset and is included in its carrying amount. For example, the depreciation of manufacturing plant and equipment is included in the costs of conversion of inventories (see AS 2). Similarly, the depreciation of property, plant and equi .....

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nge in an accounting estimate in accordance with AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies. 54. Depreciation is recognised even if the fair value of the asset exceeds its carrying amount, as long as the asset s residual value does not exceed its carrying amount. Repair and maintenance of an asset do not negate the need to depreciate it. 55. The depreciable amount of an asset is determined after deducting its residual value. 56. The residual va .....

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he asset is retired from active use and is held for disposal and the date that the asset is derecognised. Therefore, depreciation does not cease when the asset becomes idle or is retired from active use (but not held for disposal) unless the asset is fully depreciated. However, under usage methods of depreciation, the depreciation charge can be zero while there is no production. 58. The future economic benefits embodied in an asset are consumed by an enterprise principally through its use. Howev .....

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factors such as the number of shifts for which the asset is to be used and the repair and maintenance programme, and the care and maintenance of the asset while idle. (c) technical or commercial obsolescence arising from changes or improvements in production, or from a change in the market demand for the product or service output of the asset. Expected future reductions in the selling price of an item that was produced using an asset could indicate the expectation of technical or commercial obso .....

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ied in the asset. Therefore, the useful life of an asset may be shorter than its economic life. The estimation of the useful life of the asset is a matter of judgement based on the experience of the enterprise with similar assets. 60. Land and buildings are separable assets and are accounted for separately, even when they are acquired together. With some exceptions, such as quarries and sites used for landfill, land has an unlimited useful life and therefore is not depreciated. Buildings have a .....

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anner that reflects the benefits to be derived from it. Depreciation Method 62. The depreciation method used should reflect the pattern in which the future economic benefits of the asset are expected to be consumed by the enterprise. 63. The depreciation method applied to an asset should be reviewed at least at each financial year-end and, if there has been a significant change in the expected pattern of consumption of the future economic benefits embodied in the asset, the method should be chan .....

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set does not change. The diminishing balance method results in a decreasing charge over the useful life. The units of production method results in a charge based on the expected use or output. The enterprise selects the method that most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. That method is applied consistently from period to period unless there is a change in the expected pattern of consumption of those future economic benefits .....

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nges in sales volumes and prices. The price component of revenue may be affected by inflation, which has no bearing upon the way in which an asset is consumed. Changes in Existing Decommissioning, Restoration and Other Liabilities 66. The cost of property, plant and equipment may undergo changes subsequent to its acquisition or construction on account of changes in liabilities, price adjustments, changes in duties, changes in initial estimates of amounts provided for dismantling, removing, resto .....

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y exceeds the carrying amount of the asset, the excess should be recognised immediately in the statement of profit and loss. (c) if the adjustment results in an addition to the cost of an asset, the enterprise should consider whether this is an indication that the new carrying amount of the asset may not be fully recoverable. If it is such an indication, the enterprise should test the asset for impairment by estimating its recoverable amount, and should account for any impairment loss, in accord .....

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tatement of profit and loss; (ii) an increase in the liability should be recognised in the statement of profit and loss, except that it should be debited directly to revaluation surplus in the owners interest to the extent of any credit balance existing in the revaluation surplus in respect of that asset. (b) in the event that a decrease in the liability exceeds the carrying amount that would have been recognised had the asset been carried under the cost model, the excess should be recognised im .....

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should be revalued. 69. The adjusted depreciable amount of the asset is depreciated over its useful life. Therefore, once the related asset has reached the end of its useful life, all subsequent changes in the liability should be recognised in the statement of profit and loss as they occur. This applies under both the cost model and the revaluation model. Impairment 70. To determine whether an item of property, plant and equipment is impaired, an enterprise applies AS 28, Impairment of Assets. A .....

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and equipment, related claims for or payments of compensation from third parties and any subsequent purchase or construction of replacement assets are separate economic events and are accounted for separately as follows: (a) impairments of items of property, plant and equipment are recognised in accordance with AS 28; (b) derecognition of items of property, plant and equipment retired or disposed of is determined in accordance with this Standard; (c) compensation from third parties for items of .....

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regard should be recognised immediately in the statement of profit and loss. Derecognition 74. The carrying amount of an item of property, plant and equipment should be derecognised (a) on disposal; or (b) when no future economic benefits are expected from its use or disposal. 75. The gain or loss arising from the derecognition of an item of property, plant and equipment should be included in the statement of profit and loss when the item is derecognised (unless AS 19, Leases, requires otherwise .....

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Revenue Recognition. 77. The disposal of an item of property, plant and equipment may occur in a variety of ways (e.g. by sale, by entering into a finance lease or by donation). In determining the date of disposal of an item, an enterprise applies the criteria in AS 9 for recognising revenue from the sale of goods. AS 19, Leases, applies to disposal by a sale and leaseback. 78. If, under the recognition principle in paragraph 7, an enterprise recognises in the carrying amount of an item of prope .....

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of an item of property, plant and equipment should be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item. 80. The consideration receivable on disposal of an item of property, plant and equipment is recognised in accordance with the principles enunciated in AS 9. Disclosure 81. The financial statements should disclose, for each class of property, plant and equipment: (a) the measurement bases (i.e., cost model or revaluation model) used for .....

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amount at the beginning and end of the period showing: (i) additions; (ii) assets retired from active use and held for disposal; (iii) acquisitions through business combinations ; (iv) increases or decreases resulting from revaluations under paragraphs 34, 42 and 43 and from impairment losses recognised or reversed directly in revaluation surplus in accordance with AS 28; (v) impairment losses recognised in the statement of profit and loss in accordance with AS 28; (vi) impairment losses reverse .....

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unt of expenditure recognised in the carrying amount of an item of property, plant and equipment in the course of its construction; (c) the amount of contractual commitments for the acquisition of property, plant and equipment; (d) if it is not disclosed separately on the face of the statement of profit and loss, the amount of compensation from third parties for items of property, plant and equipment that were impaired, lost or given up that is included in the statement of profit and loss; and ( .....

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sclose: (a) depreciation, whether recognised in the statement of profit and loss or as a part of the cost of other assets, during a period; and (b) accumulated depreciation at the end of the period. 84. In accordance with AS 5, an enterprise discloses the nature and effect of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in subsequent periods. For property, plant and equipment, such disclosure may arise from changes in estimates with .....

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ich fair values of the items were determined directly by reference to observable prices in an active market or recent market transactions on arm s length terms or were estimated using other valuation techniques; and (e) the revaluation surplus, indicating the change for the period and any restrictions on the distribution of the balance to shareholders. 86. In accordance with AS 28, an enterprise discloses information on impaired property, plant and equipment in addition to the information requir .....

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pment retired from active use and not held for disposal. Transitional Provisions 88. Where an entity has in past recognized an expenditure in the statement of profit and loss which is eligible to be included as a part of the cost of a project for construction of property, plant and equipment in accordance with the requirements of paragraph 9, it may do so retrospectively for such a project. The effect of such retrospective application of this requirement, should be recognised net-of-tax in reven .....

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requirements of this Standard, should be capitalised at their respective carrying amounts. The spare parts so capitalised should be depreciated over their remaining useful lives prospectively as per the requirements of this Standard. 91. The requirements of paragraph 32 and paragraphs 34 - 44 regarding the revaluation model should be applied prospectively. In case, on the date of this Standard becoming mandatory, an enterprise does not adopt the revaluation model as its accounting policy but the .....

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andard includes paragraphs set in bold italic type and plain type, which have equal authority. Paragraphs in bold italic type indicate the main principles. This Accounting Standard should be read in the context of the General Instructions contained in part A of the Annexure to the Notification.) Introduction 1. This Standard deals with accounting for investments in the financial statements of enterprises and related disclosure requirements.1 2. This Standard does not deal with: (a) the bases for .....

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g terms are used in this Standard with the meanings assigned: 3.1 Investments are assets held by an enterprise for earning income by way of dividends, interest, and rentals, for capital appreciation, or for other benefits to the investing enterprise. Assets held as stock-in-trade are not investments . 3.2 A current investment is an investment that is by its nature readily realisable and is intended to be held for not more than one year from the date on which such investment is made. 3.3 A long t .....

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evidence of fair value. 3.6 Market value is the amount obtainable from the sale of an investment in an open market, net of expenses necessarily to be incurred on or before disposal. Explanation Forms of Investments 4. Enterprises hold investments for diverse reasons. For some enterprises, investment activity is a significant element of operations, and assessment of the performance of the enterprise may largely, or solely, depend on the reported results of this activity. 5. Some investments have .....

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me are tangible, such as certain investments in land or buildings. 6. For some investments, an active market exists from which a market value can be established. For such investments, market value generally provides the best evidence of fair value. For other investments, an active market does not exist and other means are used to determine fair value. Classification of Investments 7. Enterprises present financial statements that classify fixed assets, investments and current assets into separate .....

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rtly acquired, by the issue of shares or other securities, the acquisition cost is the fair value of the securities issued (which, in appropriate cases, may be indicated by the issue price as determined by statutory authorities). The fair value may not necessarily be equal to the nominal or par value of the securities issued. 11. If an investment is acquired in exchange, or part exchange, for another asset, the acquisition cost of the investment is determined by reference to the fair value of th .....

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e included in the price paid for the investment, the subsequent receipt of interest is allocated between pre-acquisition and post-acquisition periods; the preacquisition portion is deducted from cost. When dividends on equity are declared from preacquisition profits, a similar treatment may apply. If it is difficult to make such an allocation except on an arbitrary basis, the cost of investment is normally reduced by dividends receivable only if they clearly represent a recovery of a part of the .....

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proceeds of rights to reduce the carrying amount of such investments to the market value. Carrying Amount of Investments Current Investments 14. The carrying amount for current investments is the lower of cost and fair value. In respect of investments for which an active market exists, market value generally provides the best evidence of fair value. The valuation of current investments at lower of cost and fair value provides a prudent method of determining the carrying amount to be stated in th .....

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nvestments individually at the lower of cost and fair value. 16. For current investments, any reduction to fair value and any reversals of such reductions are included in the profit and loss statement. Long-term Investments 17. Long-term investments are usually carried at cost. However, when there is a decline, other than temporary, in the value of a long term investment, the carrying amount is reduced to recognise the decline. Indicators of the value of an investment are obtained by reference t .....

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vestment basis. 19. Where there is a decline, other than temporary, in the carrying amounts of long term investments, the resultant reduction in the carrying amount is charged to the profit and loss statement. The reduction in carrying amount is reversed when there is a rise in the value of the investment, or if the reasons for the reduction no longer exist. Investment Properties 20. An investment property is accounted for in accordance with cost model as prescribed in Accounting Standard (AS) 1 .....

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vestment, the carrying amount to be allocated to that part is to be determined on the basis of the average carrying amount of the total holding of the investment.3 Reclassification of Investments 23. Where long-term investments are reclassified as current investments, transfers are made at the lower of cost and carrying amount at the date of transfer. 24. Where investments are reclassified from current to long-term, transfers are made at the lower of cost and fair value at the date of transfer. .....

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ducted at source being included under Advance Taxes Paid; (ii) profits and losses on disposal of current investments and changes in carrying amount of such investments; (iii) profits and losses on disposal of long-term investments and changes in the carrying amount of such investments; (c) significant restrictions on the right of ownership, realisability of investments or the remittance of income and proceeds of disposal; (d) the aggregate amount of quoted and unquoted investments, giving the ag .....

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ation should disclose, where applicable, investments in: (a) Government or Trust securities (b) Shares, debentures or bonds (c) Investment properties (d) Others-specifying nature. Cost of Investments 28. The cost of an investment should include acquisition charges such as brokerage, fees and duties. 29. If an investment is acquired, or partly acquired, by the issue of shares or other securities, the acquisition cost should be the fair value of the securities issued (which in appropriate cases ma .....

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evident. Investment Properties 30. An enterprise holding investment properties should account for them in accordance with cost model as prescribed in AS 10, Property, Plant and Equipment. Carrying Amount of Investments 31. Investments classified as current investments should be carried in the financial statements at the lower of cost and fair value determined either on an individual investment basis or by category of investment, but not on an overall (or global) basis. 32. Investments classifie .....

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disposal of an investment, the difference between the carrying amount and net disposal proceeds should be charged or credited to the profit and loss statement. Disclosure 35. The following information should be disclosed in the financial statements: (a) the accounting policies for determination of carrying amount of investments; . (b) classification of investments as specified in paragraphs 26 and 27 above; (c) the amounts included in profit and loss statement for: (i) interest, dividends (showi .....

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s; (d) significant restrictions on the right of ownership, realisability of investments or the remittance of income and proceeds of disposal; (e) the aggregate amount of quoted and unquoted investments, giving the aggregate market value of quoted investments; (f) other disclosures as specifically required by the relevant statute governing the enterprise. Accounting Standard (AS) 14 Accounting for Amalgamations (This Accounting Standard includes paragraphs set in bold italic type and plain type, .....

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. This standard does not deal with cases of acquisitions which arise when there is a purchase by one company (referred to as the acquiring company) of the whole or part of the shares, or the whole or part of the assets, of another company (referred to as the acquired company) in consideration for payment in cash or by issue of shares or other securities in the acquiring company or partly in one form and partly in the other. The distinguishing feature of an acquisition is that the acquired compan .....

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d) Reserve means the portion of earnings, receipts or other surplus of an enterprise (whether capital or revenue) appropriated by the management for a general or a specific purpose other than a provision for depreciation or diminution in the value of assets or for a known liability. (e) Amalgamation in the nature of merger is an amalgamation which satisfies all the following conditions. (i) All the assets and liabilities of the transferor company become, after amalgamation, the assets and liabil .....

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ree to become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity shares in the transferee company, except that cash may be paid in respect of any fractional shares. (iv) The business of the transferor company is intended to be carried on, after the amalgamation, by the transferee company. (v) No adjustment is intended to be made to the book values of the assets and liabilities of the transferor company when they are incorporated in .....

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value is the amount for which an asset could be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm s length transaction. (i) Pooling of interests is a method of accounting for amalgamations the object of which is to account for the amalgamation as if the separate businesses of the amalgamating companies were intended to be continued by the transferee company. Accordingly, only minimal changes are made in aggregating the individual financial statements .....

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re that the resultant figures of assets, liabilities, capital and reserves more or less represent the sum of the relevant figures of the amalgamating companies. In the second category are those amalgamations which are in effect a mode by which one company acquires another company and, as a consequence, the shareholders of the company which is acquired normally do not continue to have a proportionate share in the equity of the combined company, or the business of the company which is acquired is .....

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the transferee company even to the extent that it should not be possible to identify any one party as dominant therein. This belief is based in part on the view that the exchange of control of one company for an insignificant share in a larger company does not amount to a mutual sharing of risks and benefits. 6. Others believe that the substance of an amalgamation in the nature of merger is evidenced by meeting certain criteria regarding the relationship of the parties, such as the former indep .....

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g of interests method is confined to circumstances which meet the criteria referred to in paragraph 3(e) for an amalgamation in the nature of merger. 9. The object of the purchase method is to account for the amalgamation by applying the same principles as are applied in the normal purchase of assets. This method is used in accounting for amalgamations in the nature of purchase. The Pooling of Interests Method 10. Under the pooling of interests method, the assets, liabilities and reserves of the .....

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r Loss for the Period, Prior Period Items and Changes in Accounting Policies. The Purchase Method 12. Under the purchase method, the transferee company accounts for the amalgamation either by incorporating the assets and liabilities at their existing carrying amounts or by allocating the consideration to individual identifiable assets and liabilities of the transferor company on the basis of their fair values at the date of amalgamation. The identifiable assets and liabilities may include assets .....

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te the creation of specific provisions for the expected costs, e.g. planned employee termination and plant relocation costs. Consideration 14. The consideration for the amalgamation may consist of securities, cash or other assets. In determining the value of the consideration, an assessment is made of the fair value of its elements. A variety of techniques is applied in arriving at fair value. For example, when the consideration includes securities, the value fixed by the statutory authorities m .....

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date of amalgamation, it is included in the calculation of the consideration. In all other cases, the adjustment is recognised as soon as the amount is determinable [see Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date]. Treatment of Reserves on Amalgamation 16. If the amalgamation is an amalgamation in the nature of merger , the identity of the reserves is preserved and they appear in the financial statements of the transferee company in the same form .....

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dividend before the amalgamation would also be available for distribution as dividend after the amalgamation. The difference between the amount recorded as share capital issued (plus any additional consideration in the form of cash or other assets) and the amount of share capital of the transferor company is adjusted is reserves in the financial statements of the transferee company. 17. If the amalgamation is an amalgamation in the nature of purchase , the identity of the reserves, other than th .....

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reated by the transferor company pursuant to the requirements of, or to avail of the benefits under, the Income-tax Act, 1961; for example, Development Allowance Reserve, or Investment Allowance Reserve. The Act requires that the identity of the reserves should be preserved for a specified period. Likewise, certain other reserves may have been created in the financial statements of the transferor company in terms of the requirements of other statutes. Though, normally, in an amalgamation in the .....

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algamations where the requirements of the relevant statute for recording the statutory reserves in the books of the transferee company are complied with. In such cases the statutory reserves are recorded in the financial statements of the transferee company by a corresponding debit to a suitable account head (e.g., Amalgamation Adjustment Reserve ) which is presented as a separate line item. When the identity of the statutory reserves is no longer required to be maintained, both the reserves and .....

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riate to amortise goodwill over a period not exceeding five years unless a somewhat longer period can be justified. 20. Factors which may be considered in estimating the useful life of goodwill arising on amalgamation include: (a) the foreseeable life of the business or industry; (b) the effects of product obsolescence, changes in demand and other economic factors; (c) the service life expectancies of key individuals or groups of employees; (d) expected actions by competitors or potential compet .....

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n the nature of purchase , the balance of the Profit and Loss Account appearing in the financial statements of the transferor company, whether debit or credit, loses its identity. Treatment of Reserves Specified in A Scheme of Amalgamation 23.* The scheme of amalgamation sanctioned under the provisions of the Companies Act, 2013 or any other statute may prescribe the treatment to be given to the reserves of the transferor company after its amalgamation. Where the treatment is so prescribed, the .....

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es and the reasons for following the treatment different from that prescribed in this Standard. (b) Deviations in the accounting treatment given to the reserves as prescribed by the scheme of amalgamation sanctioned under the statute as compared to the requirements of this Standard that would have been followed had no treatment been prescribed by the scheme. (c) The financial effect, if any, arising due to such deviation. Disclosure 24. For all amalgamations, the following disclosures are consid .....

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atements following the amalgamation: (a) description and number of shares issued, together with the percentage of each company s equity shares exchanged to effect the amalgamation; (b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof. 26. For amalgamations accounted for under the purchase method, the following additional disclosures are considered appropriate in the first financial statements following the amalgam .....

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er party to the amalgamation, disclosure is made in accordance with AS 4, Contingencies and Events Occurring After the Balance Sheet Date , but the amalgamation is not incorporated in the financial statements. In certain circumstances, the amalgamation may also provide additional information affecting the financial statements themselves, for instance, by allowing the going concern assumption to be maintained. Main Principles 28. An amalgamation may be either - (a) an amalgamation in the nature o .....

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immediately before the amalgamation, by the transferee company or its subsidiaries or their nominees) become equity shareholders of the transferee company by virtue of the amalgamation. (iii) The consideration for the amalgamation receivable by those equity shareholders of the transferor company who agree to become equity shareholders of the transferee company is discharged by the transferee company wholly by the issue of equity shares in the transferee company, except that cash may be paid in r .....

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n any one or more of the conditions specified in paragraph 29 is not satisfied. 31. When an amalgamation is considered to be an amalgamation in the nature of merger, it should be accounted for under the pooling of interests method described in paragraphs 33-35. 32. When an amalgamation is considered to be an amalgamation in the nature of purchase, it should be accounted for under the purchase method described in paragraphs 36-39. The Pooling of Interests Method 33. In preparing the transferee co .....

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ansferor and the transferee companies have conflicting accounting policies, a uniform set of accounting policies should be adopted following the amalgamation. The effects on the financial statements of any changes in accounting policies should be reported in accordance with Accounting Standard (AS) 5 Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies. 35. The difference between the amount recorded as share capital issued (plus any additional consideration in .....

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es (whether capital or revenue or arising on revaluation) of the transferor company, other than the statutory reserves, should not be included in the financial statements of the transferee company except as stated in paragraph 39. 37. Any excess of the amount of the consideration over the value of the net assets of the transferor company acquired by the transferee company should be recognised in the transferee company s financial statements as goodwill arising on amalgamation. If the amount of t .....

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rves of the transferor company should be recorded in the financial statements of the transferee company. The corresponding debit should be given to a suitable account head (e.g., Amalgamation Adjustment Reserve ) which should be presented as a separate line item. When the identity of the statutory reserves is no longer required to be maintained, both the reserves and the aforesaid account should be reversed. Common Procedures 40. The consideration for the amalgamation should include any noncash .....

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uture events, the amount of the additional payment should be included in the consideration if payment is probable and a reasonable estimate of the amount can be made. In all other cases, the adjustment should be recognised as soon as the amount is determinable [see Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date]. Treatment of Reserves Specified in A Scheme of Amalgamation 42. * Where the scheme of amalgamation sanctioned under a statute prescribes the .....

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gamation: (a) A description of the accounting treatment given to the reserves and the reasons for following the treatment different from that prescribed in this Standard. (b) Deviations in the accounting treatment given to the reserves as prescribed by the scheme of amalgamation sanctioned under the statute as compared to the requirements of this Standard that would have been followed had no treatment been prescribed by the scheme. (c) The financial effect, if any, arising due to such deviation .....

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sclosures should be made in the first financial statements following the amalgamation: (a) description and number of shares issued, together with the percentage of each company s equity shares exchanged to effect the amalgamation; (b) the amount of any difference between the consideration and the value of net identifiable assets acquired, and the treatment thereof. 45. For amalgamations accounted for under the purchase method, the following additional disclosures should be made in the first fina .....

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ce of the financial statements of either party to the amalgamation, disclosure should be made in accordance with AS 4, Contingencies and Events Occurring After the Balance Sheet Date , but the amalgamation should not be incorporated in the financial statements. In certain circumstances, the amalgamation may also provide additional information affecting the financial statements themselves, for instance, by allowing the going concern assumption to be maintained. Accounting Standard (AS) 21 Consoli .....

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al statements. Consolidated financial statements are presented by a parent (also known as holding enterprise) to provide financial information about the economic activities of its group. These statements are intended to present financial information about a parent and its subsidiary (ies) as a single economic entity to show the economic resources controlled by the group, the obligations of the group and results the group achieves with its resources. Scope 1. This Standard should be applied in th .....

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s and their effects on consolidation, including goodwill arising on amalgamation (see AS 14, Accounting for Amalgamations); (b) accounting for investments in associates (at present governed by AS 13, Accounting for Investments2 ); and (c) accounting for investments in joint ventures (at present governed by AS 13, Accounting for Investments3 ). Definitions 5. For the purpose of this Standard, the following terms are used with the meanings specified: 5.1 Control: (a) the ownership, directly or ind .....

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a parent and all its subsidiaries. 5.5 Consolidated financial statements are the financial statements of a group presented as those of a single enterprise. 5.6 Equity is the residual interest in the assets of an enterprise after deducting all its liabilities. 5.7 Minority interest is that part of the net results of operations and of the net assets of a subsidiary attributable to interests which are not owned, directly or indirectly through subsidiary(ies), by the parent. 6. Consolidated financi .....

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separate financial statements of the parent enterprise and its subsidiaries need not be included in the notes to the consolidated financial statements. For preparing consolidated financial statements, the following principles may be observed in respect of notes and other explanatory material that form an integral part thereof: (a) Notes which are necessary for presenting a true and fair view of the consolidated financial statements are included in the consolidated financial statements as an int .....

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nancial statements. (c) Additional statutory information disclosed in separate financial statements of the subsidiary and/or a parent having no bearing on the true and fair view of the consolidated financial statements need not be disclosed in the consolidated financial statements. An illustration of such information in the case of companies is attached to the Standard. Presentation of Consolidated Financial Statements 7. A parent which presents consolidated financial statements should present t .....

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enterprise without regard to the legal boundaries of the separate legal entities. Scope of Consolidated Financial Statements 9. A parent which presents consolidated financial statements should consolidate all subsidiaries, domestic as well as foreign, other than those referred to in paragraph 11. Where an enterprise does not have a subsidiary but has an associate and/or a joint venture such an enterprise should also prepare consolidated financial statements in accordance with Accounting Standard .....

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han one-half of the voting power of an enterprise. Control also exists when an enterprise controls the composition of the board of directors (in the case of a company) or of the corresponding governing body (in case of an enterprise not being a company) so as to obtain economic benefits from its activities. An enterprise may control the composition of the governing bodies of entities such as gratuity trust, provident fund trust etc. Since the objective of control over such entities is not to obt .....

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llowing conditions is satisfied: (a) a person cannot be appointed as director without the exercise in his favour by that enterprise of such a power as aforesaid; or (b) a person s appointment as director follows necessarily from his appointment to a position held by him in that enterprise; or (c) the director is nominated by that enterprise or a subsidiary thereof. (ii) the governing body of an enterprise that is not a company, if it has the power, without the consent or the concurrence of any o .....

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by him in that other enterprise; or (c) the member of the governing body is nominated by that other enterprise. Explanation: It is possible that an enterprise is controlled by two enterprises - one controls by virtue of ownership of majority of the voting power of that enterprise and the other controls, by virtue of an agreement or otherwise, the composition of the board of directors so as to obtain economic benefits from its activities. In such a rare situation, when an enterprise is controlled .....

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ew to its subsequent disposal in the near future; or (b) it operates under severe long-term restrictions which significantly impair its ability to transfer funds to the parent. In consolidated financial statements, investments in such subsidiaries should be accounted for in accordance with Accounting Standard (AS) 13, Accounting for Investments. The reasons for not consolidating a subsidiary should be disclosed in the consolidated financial statements. Explanation: (a) Where an enterprise owns m .....

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owever, ordinarily, the meaning of the words near future is considered as not more than twelve months from acquisition of relevant investments unless a longer period can be justified on the basis of facts and circumstances of the case. The intention with regard to disposal of the relevant investment is considered at the time of acquisition of the investment. Accordingly, if the relevant investment is acquired without an intention to its subsequent disposal in near future, and subsequently, it is .....

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d that its business activities are dissimilar from those of the other enterprises within the group is not justified because better information is provided by consolidating such subsidiaries and disclosing additional information in the consolidated financial statements about the different business activities of subsidiaries. For example, the disclosures required by Accounting Standard (AS) 17, Segment Reporting, help to explain the significance of different business activities within the group. C .....

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s portion of equity of each subsidiary, at the date on which investment in each subsidiary is made, should be eliminated; (b) any excess of the cost to the parent of its investment in a subsidiary over the parent s portion of equity of the subsidiary, at the date on which investment in the subsidiary is made, should be described as goodwill to be recognised as an asset in the consolidated financial statements; (c) when the cost to the parent of its investment in a subsidiary is less than the par .....

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ubsidiaries should be identified and presented in the consolidated balance sheet separately from liabilities and the equity of the parent s shareholders. Minority interests in the net assets consist of: (i) the amount of equity attributable to minorities at the date on which investment in a subsidiary is made; and (ii) the minorities share of movements in equity since the date the parentsubsidiary relationship came in existence. Where the carrying amount of the investment in the subsidiary is di .....

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ance sheet, is not required to be disclosed separately in the consolidated balance sheet keeping in view the objective of consolidated financial statements to present financial information of the group as a whole. In view of this, the consolidated reserves disclosed in the consolidated balance sheet are inclusive of the parent s share in the post-acquisition reserves of a subsidiary. 14. The parent s portion of equity in a subsidiary, at the date on which investment is made, is determined on the .....

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t transactions or other events that occur between the date of such financial statements and the date of investment in the subsidiary. 15. If an enterprise makes two or more investments in another enterprise at different dates and eventually obtains control of the other enterprise, the consolidated financial statements are presented only from the date on which holding-subsidiary relationship comes in existence. If two or more investments are made over a period of time, the equity of the subsidiar .....

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ransactions should also be eliminated unless cost cannot be recovered. 17. Intragroup balances and intragroup transactions, including sales, expenses and dividends, are eliminated in full. Unrealised profits resulting from intragroup transactions that are included in the carrying amount of assets, such as inventory and fixed assets, are eliminated in full. Unrealised losses resulting from intragroup transactions that are deducted in arriving at the carrying amount of assets are also eliminated u .....

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case, the difference between reporting dates should not be more than six months. 19. The financial statements of the parent and its subsidiaries used in the preparation of the consolidated financial statements are usually drawn up to the same date. When the reporting dates are different, the subsidiary often prepares, for consolidation purposes, statements as at the same date as that of the parent. When it is impracticable to do this, financial statements drawn up to different reporting dates ma .....

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atements, that fact should be disclosed together with the proportions of the items in the consolidated financial statements to which the different accounting policies have been applied. 21. If a member of the group uses accounting policies other than those adopted in the consolidated financial statements for like transactions and events in similar circumstances, appropriate adjustments are made to its financial statements when they are used in preparing the consolidated financial statements. 22. .....

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ssets less liabilities as of the date of disposal is recognised in the consolidated statement of profit and loss as the profit or loss on the disposal of the investment in the subsidiary. In order to ensure the comparability of the financial statements from one accounting period to the next, supplementary information is often provided about the effect of the acquisition and disposal of subsidiaries on the financial position at the reporting date and the results for the reporting period and on th .....

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ties and the equity of the parent s shareholders. Minority interests in the income of the group should also be separately presented. 26. The losses applicable to the minority in a consolidated subsidiary may exceed the minority interest in the equity of the subsidiary. The excess, and any further losses applicable to the minority, are adjusted against the majority interest except to the extent that the minority has a binding obligation to, and is able to, make good the losses. If the subsidiary .....

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inancial Statements 28. In a parent s separate financial statements, investments in subsidiaries should be accounted for in accordance with Accounting Standard (AS) 13, Accounting for Investments. Disclosure 29. In addition to disclosures required by paragraph 11 and 20, following disclosures should be made: (a) in consolidated financial statements a list of all subsidiaries including the name, country of incorporation or residence, proportion of ownership interest and, if different, proportion .....

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ii) the names of the subsidiary(ies) of which reporting date(s) is/are different from that of the parent and the difference in reporting dates. Transitional Provisions 30. On the first occasion that consolidated financial statements are presented, comparative figures for the previous period need not be presented. In all subsequent years full comparative figures for the previous period should be presented in the consolidated financial statements. Illustration Note: This illustration does not form .....

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of the issue indicating the form in which such unutilised funds have been invested. (iii) The name(s) of small scale industrial undertaking(s) to whom the company owe any sum together with interest outstanding for more than thirty days. (iv) A statement of investments (whether shown under Investment or under Current Assets as stock-in-trade) separately classifying trade investments and other investments, showing the names of the bodies corporate (indicating separately the names of the bodies cor .....

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the computation of net profits in accordance with section 198 of the Companies Act, 2013, with relevant details of the calculation of the commissions payable by way of percentage of such profits to the directors (including managing directors) or manager (if any). (vii) In the case of manufacturing companies, quantitative information in regard to the licensed capacity (where licence is in force); the installed capacity; and the actual production. (viii) Value of imports calculated on C.I.F. basis .....

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of each to the total consumption. (xi) The amount remitted during the year in foreign currencies on account of dividends, with a specific mention of the number of non-resident shareholders, the number of shares held by them on which the dividends were due and the year to which the dividends related. (xii) Earnings in foreign exchange classified under the following heads, namely: (a) export of goods calculated on F.O.B. basis; (b) royalty, know-how, professional and consultation fees; (c) intere .....

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this Accounting Standard coming into effect, all paragraphs of Accounting Standard (AS) 4, Contingencies and Events Occurring After the Balance Sheet Date, that deal with contingencies (viz., paragraphs 1 (a), 2, 3.1, 4 (4.1 to 4.4), 5 (5.1 to 5.6), 6, 7 (7.1 to 7.3), 9.1 (relevant portion), 9.2, 10, 11, 12 and 16), stand withdrawn except to the extent they deal with impairment of assets not covered by other Indian Accounting Standards. Objective The objective of this Standard is to ensure that .....

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a) those resulting from financial instruments9 that are carried at fair value; (b) those resulting from executory contracts, except where the contract is onerous; Explanation : (i) An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Thus, for a contract to qualify as an onerous contract, the unavoidable costs of meeting the obligation under the contract should exceed the econ .....

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Illustration C attached to the Standard. (c) those arising in insurance enterprises from contracts with policy-holders; and (d) those covered by another Accounting Standard. 2. This Standard applies to financial instruments (including guarantees) that are not carried at fair value. 3. Executory contracts are contracts under which neither party has performed any of its obligations or both parties have partially performed their obligations to an equal extent. This Standard does not apply to execu .....

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ntracts (see AS 7, Construction Contracts); (b) taxes on income (see AS 22, Accounting for Taxes on Income); (c) leases (see AS 19, Leases) . However, as AS 19 contains no specific requirements to deal with operating leases that have become onerous, this Statement applies to such cases; and (d) retirement benefits (see AS 15, Accounting for Retirement Benefits in the Financial Statements of Employers). 6. Some amounts treated as provisions may relate to the recognition of revenue, for example wh .....

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e context of items such as depreciation, impairment of assets and doubtful debts: these are adjustments to the carrying amounts of assets and are not addressed in this Standard. 8. Other Accounting Standards specify whether expenditures are treated as assets or as expenses. These issues are not addressed in this Standard. Accordingly, this Standard neither prohibits nor requires capitalisation of the costs recognised when a provision is made. 9. This Standard applies to provisions for restructur .....

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ed to result in an outflow from the enterprise of resources embodying economic benefits. 10.3 An obligating event is an event that creates an obligation that results in an enterprise having no realistic alternative to settling that obligation. 10.4 A contingent liability is: (a) a possible obligation that arises from past events and the existence of which will be confirmed only by the occurrence or non occurrence of one or more uncertain future events not wholly within the control of the enterpr .....

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in the control of the enterprise. 10.6 Present obligation - an obligation is a present obligation if, based on the evidence available, its existence at the balance sheet date is considered probable, i.e., more likely than not. 10.7 Possible obligation - an obligation is a possible obligation if, based on the evidence available, its existence at the balance sheet date is considered not probable. 10.8 A restructuring is a programme that is planned and controlled by management, and materially chang .....

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bilities such as trade payables and accruals because in the measurement of provisions substantial degree of estimation is involved with regard to the future expenditure required in settlement. By contrast: (a) trade payables are liabilities to pay for goods or services that have been received or supplied and have been invoiced or formally agreed with the supplier; and (b) accruals are liabilities to pay for goods or services that have been received or supplied but have not been paid, invoiced or .....

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, the term contingent liability is used for liabilities that do not meet the recognition criteria. Recognition Provisions 14. A provision should be recognised when: (a) an enterprise has a present obligation as a result of a past event; (b) it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and (c) a reliable estimate can be made of the amount of the obligation. If these conditions are not met, no provision should be recognised. Pre .....

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cludes any additional evidence provided by events after the balance sheet date. On the basis of such evidence: (a) where it is more likely than not that a present obligation exists at the balance sheet date, the enterprise recognises a provision (if the recognition criteria are met); and (b) where it is more likely that no present obligation exists at the balance sheet date, the enterprise discloses a contingent liability, unless the possibility of an outflow of resources embodying economic bene .....

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e incurred to operate in the future. The only liabilities recognised in an enterprise s balance sheet are those that exist at the balance sheet date. 18. It is only those obligations arising from past events existing independently of an enterprise s future actions (i.e. the future conduct of its business) that are recognised as provisions. Examples of such obligations are penalties or clean-up costs for unlawful environmental damage, both of which would lead to an outflow of resources embodying .....

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ry). Because the enterprise can avoid the future expenditure by its future actions, for example by changing its method of operation, it has no present obligation for that future expenditure and no provision is recognised. 19. An obligation always involves another party to whom the obligation is owed. It is not necessary, however, to know the identity of the party to whom the obligation is owed - indeed the obligation may be to the public at large. 20. An event that does not give rise to an oblig .....

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actment usually make it impossible to specify a single event that would make the enactment of a law virtually certain. In many cases it will be impossible to be virtually certain of the enactment of a law until it is enacted. Probable Outflow of Resources Embodying Economic Benefits 22. For a liability to qualify for recognition there must be not only a present obligation but also the probability of an outflow of resources embodying economic benefits to settle that obligation. For the purpose of .....

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product warranties or similar contracts) the probability that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Although the likelihood of outflow for any one item may be small, it may well be probable that some outflow of resources will be needed to settle the class of obligations as a whole. If that is the case, a provision is recognised (if the other recognition criteria are met). Reliable Estimate of the Obligation 24. The use of esti .....

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e estimate can be made, a liability exists that cannot be recognised. That liability is disclosed as a contingent liability (see paragraph 68). Contingent Liabilities 26. An enterprise should not recognise a contingent liability. 27. A contingent liability is disclosed, as required by paragraph 68, unless the possibility of an outflow of resources embodying economic benefits is remote. 28. Where an enterprise is jointly and severally liable for an obligation, the part of the obligation that is e .....

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fits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognised in accordance with paragraph 14 in the financial statements of the period in which the change in probability occurs (except in the extremely rare circumstances where no reliable estimate can be made). Contingent Assets 30. An enterprise should not recognise a contingent asset. 31. Contingent assets usu .....

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sset and its recognition is appropriate. 33. A contingent asset is not disclosed in the financial statements. It is usually disclosed in the report of the approving authority (Board of Directors in the case of a company, and, the corresponding approving authority in the case of any other enterprise), where an inflow of economic benefits is probable. 34. Contingent assets are assessed continually and if it has become virtually certain that an inflow of economic benefits will arise, the asset and .....

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ount rate (or rates) should be a pre-tax rate (or rates) that reflect(s) current market assessments of the time value of money and the risks specific to the liability. The discount rate(s) should not reflect risks for which future cash flow estimates have been adjusted. Periodic unwinding of discount should be recognised in the statement of profit and loss. 36. The estimates of outcome and financial effect are determined by the judgment of the management of the enterprise, supplemented by experi .....

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the best estimate of a provision. 39. Risk describes variability of outcome. A risk adjustment may increase the amount at which a liability is measured. Caution is needed in making judgments under conditions of uncertainty, so that income or assets are not overstated and expenses or liabilities are not understated. However, uncertainty does not justify the creation of excessive provisions or a deliberate overstatement of liabilities. For example, if the projected costs of a particularly adverse .....

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vision where there is sufficient objective evidence that they will occur. 42. Expected future events may be particularly important in measuring provisions. For example, an enterprise may believe that the cost of cleaning up a site at the end of its life will be reduced by future changes in technology. The amount recognised reflects a reasonable expectation of technically qualified, objective observers, taking account of all available evidence as to the technology that will be available at the ti .....

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lation is taken into consideration in measuring an existing obligation when sufficient objective evidence exists that the legislation is virtually certain to be enacted. The variety of circumstances that arise in practice usually makes it impossible to specify a single event that will provide sufficient, objective evidence in every case. Evidence is required both of what legislation will demand and of whether it is virtually certain to be enacted and implemented in due course. In many cases suff .....

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he Accounting Standard dealing with the assets concerned. Reimbursements 46. Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement should be recognised when, and only when, it is virtually certain that reimbursement will be received if the enterprise settles the obligation. The reimbursement should be treated as a separate asset. The amount recognised for the reimbursement should not exceed the amount of the provision .....

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remain liable for the whole of the amount in question so that the enterprise would have to settle the full amount if the third party failed to pay for any reason. In this situation, a provision is recognised for the full amount of the liability, and a separate asset for the expected reimbursement is recognised when it is virtually certain that reimbursement will be received if the enterprise settles the liability. 50. In some cases, the enterprise will not be liable for the costs in question if .....

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o longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision should be reversed. Use of Provisions 53. A provision should be used only for expenditures for which the provision was originally recognised. 54. Only expenditures that relate to the original provision are adjusted against it. Adjusting expenditures against a provision that was originally recognised for another purpose would conceal the impact of two different event .....

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rd (AS) 28, Impairment of Assets. Restructuring 58. The following are examples of events that may fall under the definition of restructuring: (a) sale or termination of a line of business; (b) the closure of business locations in a country or region or the relocation of business activities from one country or region to another; (c) changes in management structure, for example, eliminating a layer of management; and (d) fundamental re-organisations that have a material effect on the nature and fo .....

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ll be able to change its mind and indeed will have to take another course of action if a purchaser cannot be found on acceptable terms. When the sale of an operation is envisaged as part of a restructuring, the assets of the operation are reviewed for impairment under Accounting Standard (AS) 28, Impairment of Assets. 62. A restructuring provision should include only the direct expenditures arising from the restructuring, which are those that are both: (a) necessarily entailed by the restructuri .....

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ntifiable future operating losses up to the date of a restructuring are not included in a provision. 65. As required by paragraph 44, gains on the expected disposal of assets are not taken into account in measuring a restructuring provision, even if the sale of assets is envisaged as part of the restructuring. Disclosure 66. For each class of provision, an enterprise should disclose: (a) the carrying amount at the beginning and end of the period; (b) additional provisions made in the period, inc .....

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s; (b) an indication of the uncertainties about those outflows. Where necessary to provide adequate information, an enterprise should disclose the major assumptions made concerning future events, as addressed in paragraph 41; and (c) the amount of any expected reimbursement, stating the amount of any asset that has been recognised for that expected reimbursement. Provided that a Small and Medium-sized Company, as defined in the Notification, may not comply with paragraph 67 above. 68. Unless the .....

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form a class, it is necessary to consider whether the nature of the items is sufficiently similar for a single statement about them to fulfill the requirements of paragraphs 67 (a) and (b) and 68 (a) and (b). Thus, it may be appropriate to treat as a single class of provision amounts relating to warranties of different products, but it would not be appropriate to treat as a single class amounts relating to normal warranties and amounts that are subject to legal proceedings. 70. Where a provisio .....

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y the position of the enterprise in a dispute with other parties on the subject matter of the provision or contingent liability. In such cases, an enterprise need not disclose the information, but should disclose the general nature of the dispute, together with the fact that, and reason why, the information has not been disclosed. Transitional Provisions 73. All the existing provisions for decommissioning, restoration and similar liabilities (see paragraph 35) should be discounted prospectively, .....

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r livestock meeting the definition of Property, Plant and Equipment, will be covered as per AS 10 (Revised), Property, Plant and Equipment. 1 Shares, debentures and other securities held as stock-in-trade (i.e., for sale in the ordinary course of business) are not investments as defined in this Standard. However, the manner in which they are accounted for and disclosed in the financial statements is quite similar to that applicable in respect of current investments. Accordingly, the provisions o .....

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