Mastering Accounting Standards AS 11 to AS 29: Comprehensive Guide for CA Intermediate

AS 11 to AS 29 represent the specialized layer of accounting standards that move beyond basic bookkeeping into complex financial reporting scenarios. For a CA Intermediate student, these standards are high-yield topics in the Advanced Accounting paper, often appearing in descriptive questions and complex numerical problems.

This guide provides a structured breakdown of each standard, essential formulas, and critical exam-oriented insights.

Quick Summary Table for Revision

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1. AS 11: The Effects of Changes in Foreign Exchange Rates

AS 11 is critical for companies engaged in import/export. The distinction between Monetary and Non-Monetary items is the most frequent exam trap.

Key Classifications

• Monetary Items: Assets/liabilities to be received/paid in fixed amounts (e.g., Cash, Debtors, Creditors, Bank Overdrafts).
• Non-Monetary Items: Items that do not involve a fixed amount of money (e.g., Inventory, Fixed Assets, Prepaid Expenses).

Accounting Treatment

1. Monetary Items: Must be restated using the Closing Rate at the balance sheet date. The resulting exchange difference goes to the Profit & Loss A/c.
2. Non-Monetary Items:
   • If carried at Historical Cost: Use the exchange rate on the date of transaction.
   • If carried at Fair Value: Use the exchange rate on the date the fair value was determined.

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2. AS 12: Accounting for Government Grants

Recognition Criteria

Grants should not be recognized until there is reasonable assurance that:

1. The entity will comply with the conditions attached.
2. The grant will actually be received.

Measurement & Presentation

• Grants related to Assets: Can be shown as Deferred Income (Liability) or by reducing the carrying amount of the asset.
• Grants related to Income: Recognized in the P&L in the period in which the related costs are incurred.

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3. AS 16: Borrowing Costs

This standard is a favorite for numerical problems involving interest capitalization.

The Concept of Qualifying Asset

A Qualifying Asset is an asset that necessarily takes a substantial period of time (usually 12 months or more) to get ready for its intended use or sale (e.g., a large manufacturing plant or a real estate development).

Formula for Capitalization

During the construction period, the amount to be capitalized is:

$$\text{Capitalized Cost} = \text{Actual Interest Incurred} - \text{Income on temporary investment of borrowed funds}$$

Note: Capitalization must cease when the asset is substantially complete.

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4. AS 20: Earnings Per Share (EPS)

Basic EPS

Basic EPS measures the profit available to equity shareholders relative to the number of shares they hold.

$$\text{Basic EPS} = \frac{\text{Net Profit/Loss attributable to Equity Shareholders}}{\text{Weighted Average Number of Equity Shares Outstanding}}$$

Diluted EPS

Diluted EPS considers the impact of all potential equity shares (like convertible debentures or stock options) that could increase the number of shares.

$$\text{Diluted EPS} = \frac{\text{Adjusted Net Profit (after adjusting for dilutive effects)}}{\text{Weighted Average Number of Shares (including dilutive potential shares)}}$$

Exam Tip: If a potential share is anti-dilutive (increases EPS), it is ignored in the Diluted EPS calculation.

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5. AS 28: Impairment of Assets

Impairment occurs when an asset's value in the books is higher than what can actually be recovered through use or sale.

The Impairment Test

An asset is impaired if:

$$\text{Carrying Amount} > \text{Recoverable Amount}$$

Determining Recoverable Amount

The Recoverable Amount is the higher of:

1. Fair Value less costs to sell (What you get if you sell it today).
2. Value in Use (The present value of future cash flows expected from using the asset).

$$\text{Recoverable Amount} = \max(\text{Fair Value less costs to sell}, \text{Value in Use})$$

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Practice Questions for CA Intermediate

Conceptual Questions

Q1. Distinguish between Monetary and Non-Monetary items under AS 11. Give two examples of each.
Model Answer: Monetary items are assets/liabilities to be received/paid in fixed amounts (e.g., Cash, Debtors). Non-monetary items are those not involving fixed amounts (e.g., Inventory, Land).

Q2. When should the capitalization of borrowing costs be discontinued under AS 16?
Model Answer: Capitalization should cease when substantially all activities necessary to prepare the qualifying asset for its intended use or sale are complete.

Numerical Problems

Q3. (AS 20) XYZ Ltd. reported a net profit of ₹10,00,000. It has 1,00,000 equity shares outstanding. It also has 10,000 convertible debentures (convertible at 1:1) which are dilutive. Calculate Basic and Diluted EPS.
Solution:

• Basic EPS = ₹10,00,000 / 1,00,000 = ₹10 per share.
• Diluted EPS = ₹10,00,000 / (1,00,000 + 10,000) = ₹9.09 per share.

Q4. (AS 28) A machine has a carrying amount of ₹5,00,000. Its fair value less costs to sell is ₹4,20,000 and its value in use is ₹4,50,000. Calculate the impairment loss.
Solution:

• Recoverable Amount = $\max(4,20,000, 4,50,000) = ₹4,50,000$.
• Impairment Loss = Carrying Amount - Recoverable Amount = ₹5,00,000 - ₹4,50,000 = ₹50,000.

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Final Exam Tips for Advanced Accounting

1. Read the 'Applicability' carefully: Some standards apply to specific industries.
2. Keywords Matter: In descriptive answers, use terms like "Qualifying Asset", "Recoverable Amount", and "Weighted Average" to score full marks.
3. Show Working Notes: For AS 16 and AS 20, the working notes for interest or share count are often worth more marks than the final answer.
4. Watch for 'Dilution': In EPS questions, always check if the potential shares are actually dilutive before including them.