AS 11 to AS 29

As per AS 18, if there have been transactions between related parties, an enterprise should disclose the following:

1. Name of the related party relationship: For example, parent-subsidiary, joint venture, key management personnel, etc.
2. Nature of the related party relationship: A description of the relationship.
3. Nature of transactions: A description of the nature of the transactions (e.g., sale of goods, purchase of services, loan given/taken, rent paid/received, guarantees given/received).
4. Volume of transactions: The amount of the transactions.
5. Outstanding balances: The amount of outstanding balances (receivables/payables) at the balance sheet date and their terms and conditions, including whether they are secured or unsecured, and the nature of the consideration to be provided in settlement.
6. Provisions for doubtful debts: Any provisions for doubtful debts related to the outstanding balances.
7. Expense recognized: Any expense recognized during the period in respect of bad or doubtful debts due from related parties.
   These disclosures are required irrespective of whether a price is charged for the transaction. If there are no transactions, only the related party relationship needs to be disclosed (e.g., parent-subsidiary relationship).

Recognition of a Provision: A provision should be recognized when all three of the following conditions are met:

1. An enterprise has a present obligation (legal or constructive) as a result of a past event.
2. It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.
3. A reliable estimate can be made of the amount of the obligation.
   Distinction between Provision and Contingent Liability:

• Provision: Meets all three recognition criteria. It is recognized in the balance sheet as a liability.
• Contingent Liability:
  • A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise; OR
  • A present obligation that arises from past events but is not recognized because: (i) it is not probable that an outflow of resources will be required to settle the obligation; or (ii) the amount of the obligation cannot be measured with sufficient reliability.
    Contingent liabilities are not recognized in the financial statements but are disclosed in the notes to accounts, unless the possibility of an outflow of resources is remote.
    Contingent Assets: A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise.
• Non-Recognition: Contingent assets are never recognized in the financial statements because this might result in the recognition of income that may never be realized. However, when the realization of income is virtually certain, then the related asset is not a contingent asset and its recognition is appropriate. Contingent assets are disclosed in the notes to accounts if an inflow of economic benefits is probable.

As per AS 28, an asset is considered impaired when its carrying amount (book value) exceeds its 'recoverable amount'. An enterprise should assess at each balance sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the enterprise should estimate the recoverable amount of the asset.
Indications of Impairment can be external (e.g., significant decline in market value, adverse changes in technology, market, economic or legal environment) or internal (e.g., physical damage, obsolescence, asset becoming idle, worse-than-expected economic performance).
The 'recoverable amount' of an asset is the higher of its:

1. Net Selling Price: The amount obtainable from the sale of an asset in an arm's length transaction between knowledgeable, willing parties, less the costs of disposal.
2. Value in Use: The present value of the estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life.
   If the carrying amount of an asset is greater than its recoverable amount, an impairment loss is recognized immediately in the profit and loss statement. The carrying amount of the asset is reduced to its recoverable amount.

As per AS 11, exchange differences on monetary items should normally be recognized as income or expense in the period in which they arise. However, for companies not applying Ind AS, a specific option is available under the Companies (Accounting Standards) Rules, 2006 (as amended by MCA Notification G.S.R. 225(E) dated 31.03.2009 and subsequent amendments). Exchange differences arising on a long-term foreign currency monetary item (e.g., long-term foreign currency loan) are permitted to be adjusted to the cost of the depreciable asset or capital work-in-progress if the loan relates to the acquisition of such an asset. For other long-term monetary items, these differences can be accumulated in a "Foreign Currency Monetary Item Translation Difference Account" and amortized over the balance period of such a monetary item. This option is a deviation from the core principle of AS 11 but is allowed by the Ministry of Corporate Affairs for specific entities.

As per AS 12, government grants should not be recognized until there is reasonable assurance that: (a) the enterprise will comply with the conditions attached to the grant; and (b) the grants will be received.
For a grant related to a specific depreciable asset, AS 12 provides two methods of accounting:

1. Reduce the cost of the asset: The grant is deducted from the gross value of the asset in arriving at its book value. The depreciation is then charged on the reduced cost of the asset.
2. Treat as deferred income: The grant is treated as deferred income, which is recognized in the profit and loss statement on a systematic and rational basis over the useful life of the asset. This is typically done by crediting it to the profit and loss statement over the periods and in the proportions in which depreciation on the asset is charged.
   Both methods are acceptable, and the choice should be applied consistently.

An intangible asset is an identifiable non-monetary asset without physical substance. It must be identifiable, controlled by the enterprise, and expected to generate future economic benefits (e.g., patents, copyrights, software). Internally generated goodwill cannot be recognized.

AS 19 classifies leases based on the extent to which risks and rewards incident to ownership of an asset lie with the lessor or the lessee.

• Finance Lease: A lease that transfers substantially all the risks and rewards incident to ownership of an asset. Title may or may not eventually be transferred. Indicators include: the lease term covers the major part of the asset's economic life, the present value of minimum lease payments amounts to substantially all of the fair value of the leased asset, the lessee has the option to purchase the asset at a price expected to be significantly lower than fair value, etc.
  • Lessee's Accounting: The lessee recognizes the leased asset and a corresponding liability (finance lease liability) in the balance sheet at the inception of the lease. The asset is depreciated over its useful life or the lease term, whichever is shorter. Lease payments are bifurcated into finance charge (interest expense) and reduction of the outstanding liability.
• Operating Lease: A lease other than a finance lease. It does not transfer substantially all the risks and rewards incident to ownership.
  • Lessee's Accounting: Lease payments are recognized as an expense in the profit and loss statement on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern of the user's benefit. The leased asset is not recognized in the lessee's balance sheet.

• Deferred Tax Asset (DTA): Represents the future tax benefits arising from deductible temporary differences, carryforward of unused tax losses, and carryforward of unused tax credits. It means that in future periods, the company will pay less tax than it otherwise would have, due to these differences.
• Deferred Tax Liability (DTL): Represents the future tax payable arising from taxable temporary differences. It means that in future periods, the company will pay more tax than it otherwise would have, due to these differences.
  Temporary Differences are differences between the carrying amount of an asset or liability in the balance sheet and its tax base. They arise because accounting profit and taxable profit may differ due to differences in the timing of recognition of income and expenses.
• Taxable Temporary Differences lead to DTL. Example: Depreciation allowed for tax purposes is higher than accounting depreciation, leading to a lower tax base for the asset than its carrying amount. This means higher accounting profit now, but lower taxable profit, which will reverse in future.
• Deductible Temporary Differences lead to DTA. Example: Provision for doubtful debts recognized in accounts but allowed for tax only when written off. This means lower accounting profit now, but higher taxable profit, which will reverse in future.
  AS 22 requires the recognition of DTA and DTL to reflect the tax consequences of these temporary differences.

Borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset should be capitalized as part of the cost of that asset. A qualifying asset is one that necessarily takes a substantial period of time to get ready for its intended use or sale.

As per AS 20, Basic Earnings Per Share (EPS) is calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period.
Formula: Basic EPS = (Net Profit / (Loss) for the period attributable to equity shareholders) / (Weighted average number of equity shares outstanding during the period)
Adjustments for Bonus Issues or Share Splits:
When a bonus issue or a share split occurs, it increases the number of equity shares outstanding without a corresponding change in resources. To ensure comparability, AS 20 requires a retrospective adjustment:

• The weighted average number of equity shares outstanding for all periods presented (current and comparative) should be adjusted for the bonus issue or share split as if the event had occurred at the beginning of the earliest period reported.
• This means that the number of shares outstanding before the bonus issue/split is increased by the bonus factor (e.g., for a 1:1 bonus, multiply by 2). This adjustment is made for both current and prior period EPS calculations.
• Similarly, for a share consolidation (reverse split), the number of shares is retrospectively reduced.
  This retrospective adjustment ensures that the EPS figures for different periods are comparable, reflecting the change in the capital structure as if it had always been in effect.

A provision is recognized 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.

AS 14 classifies amalgamations into two types:

1. Amalgamation in the Nature of Merger: This occurs when all five conditions specified in AS 14 are met, primarily implying a pooling of resources and continuation of businesses. Key conditions include: all assets and liabilities of the transferor company become assets and liabilities of the transferee company; shareholders holding 90% or more of the equity shares of the transferor company (other than those held by the transferee company) become equity shareholders of the transferee company; the business of the transferor company is intended to be carried on by the transferee company; and consideration is discharged by issue of equity shares (except for fractional shares).
   • Accounting Implication: Accounted for using the Pooling of Interests Method. Assets, liabilities, and reserves of the transferor company are incorporated at their existing book values. The difference between the consideration paid and the share capital of the transferor company is adjusted in reserves (e.g., General Reserve).
2. Amalgamation in the Nature of Purchase: This is an amalgamation that does not satisfy any one or more of the five conditions specified for an amalgamation in the nature of merger. It essentially involves one company acquiring another.
   • Accounting Implication: Accounted for using the Purchase Method. Assets and liabilities of the transferor company are incorporated at their fair values. The difference between the consideration paid and the net assets acquired (at fair values) is recognized as Goodwill (if consideration > net assets) or Capital Reserve (if consideration < net assets).

As per AS 16, borrowing costs can be capitalized if they are directly attributable to the acquisition, construction, or production of a 'qualifying asset'. The conditions for capitalization are:

1. Probable Future Economic Benefits: It is probable that they will result in future economic benefits to the enterprise.
2. Reliable Measurement: The costs can be measured reliably.
3. Commencement of Capitalization: Capitalization commences when expenditures for the asset are being incurred, borrowing costs are being incurred, and activities that are necessary to prepare the asset for its intended use or sale are in progress.
4. Suspension/Cessation: Capitalization should be suspended during extended periods when active development is interrupted and ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.
   A 'qualifying asset' is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. Examples include manufacturing plants, power generation facilities, intangible assets under development, and investment properties under construction. Assets that are ready for their intended use or sale when acquired, or assets produced in large quantities on a repetitive basis, are generally not qualifying assets.

As per AS 26, an intangible asset should be recognized if, and only if:

1. It is probable that the future economic benefits that are attributable to the asset will flow to the enterprise.
2. The cost of the asset can be measured reliably.
   Additionally, the asset must be identifiable (separable or arises from contractual/legal rights) and controlled by the enterprise.
   Differentiation for Recognition:

• Purchased Intangible Assets: When an intangible asset is acquired separately, its cost can usually be measured reliably. Therefore, if it meets the probable future economic benefits criterion, it is recognized at cost.
• Internally Generated Intangible Assets: These are more challenging. AS 26 distinguishes between the research phase and the development phase:
  • Research Phase: Expenditure on research activities (original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding) is always expensed as incurred. It cannot be capitalized because the probability of future economic benefits is too uncertain.
  • Development Phase: Expenditure on development activities (application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems, or services before the start of commercial production or use) can be capitalized only if the enterprise can demonstrate all of the following:
    • Technical feasibility of completing the intangible asset.
    • Intention to complete and use/sell the asset.
    • Ability to use/sell the asset.
    • How the asset will generate probable future economic benefits.
    • Availability of adequate technical, financial, and other resources.
    • Ability to measure the expenditure reliably.
      Specific internally generated items like brands, mastheads, publishing titles, customer lists, and items similar in substance are never recognized as intangible assets.

Grants related to specific fixed assets can be shown as a deduction from the gross value of the asset or treated as deferred income. Grants related to revenue should be recognized in the P&L statement over the periods necessary to match them with the related costs.