1. ACCOUNTING
STANDARD
By Prof Veena

2. MEANING
 Accounting standards are written documents,
policy documents issued by expert accounting
body or by Government or other regulatories
body covering the aspects of recognition,
measurement, treatment, presentation and
disclosure of accounting transaction in the
financial statement.
 Accounting standards in India are issued by the
Institute of Chartered Accountants of India
(ICAI).

3. OBJECTIVES OF ACCOUNTING
STANDARDS
 Standardize the diverse accounting policies.
 Reliability of financial statements

4. ADVANTAGES OF ACCOUNTING
STANDARDS
 FACILITATES COMPARISION
 REDUCTION OF VARIATIONS
 DISCLOSURE OF FACTS
 MEASURING EFFICIENCY
 CONSISTENCY AND COMPARABILITY

5. DISADVANTAGES OF
ACCOUNTING STANDARDS
 Rigid
 Away from Flexibility
 Differences in accounting standards due to
differences in tradition and legal systems
from one country to another.

6. DISCLOSURE OF
ACCOUNTING POLICIES(AS-1)
 Accounting policies refer to specific
accounting principles and the method of
applying those principles adopted by the
enterprise in preparation and presentation of
financial statements.
 All significant policies adopted in preparation
of financial statements should be disclosed.
 Any change in accounting policies which has
material effect in current period or in later
period should be disclosed.

7. Need for Disclosure
 For proper and better understanding
 For valuation
 For investors guidance

8. Example
 Page 111

9. VALUATION OF
INVENTORIES(AS-2)
 The objective of this standard is to formulate
the method of computation of cost of
inventories, determine the value of closing
stock/inventory at which, the inventory is to
be shown in balance sheet till it is not sold
and recognized as revenue.

10.  Deals with determination of value at which
inventories are carried/valued
 Inventories to be valued at lower of cost or
net realisable value.
 Net realisable value= estimated selling price
– estimated cost of completion and estimated
cost necessary to make the sale
 Average cost or FIFO methods are permitted
in case where goods are interchangeable.

11. CASH FLOW STATEMENT(AS-3)
 The flow of incoming and outgoing cash
 The tool of assessing the liquidity and
solvency of the enterprise.
 Cash movement under the three heads
cash flow from operating activities
cash flow from investing activities
cash flow from financing activities

12. Example
 Cash flow statement A B
opening balance 18000 20000
Cash from operating activity
Recepit from sale of goods 5000 30000
Cash from investing activities
Sale of fixed assets 20000 3000
Cash from financing activities
Amount borrowed 20000 2000
Closing balance 63000 55000

13. Example
 Page 98

14. TREATMENT OF CONTINGENCIES AND EVENTS IN FINANCIAL
STATEMENTS AS -4
 EG. CASES IN HIGH COURT OR PENALTY PROCEEDINGS UNDER LAW.
 CONTINGENCIES MUST BE PROVIDED IF LOSSES CAN BE ESTIMATED.
 EVENTS AFTER BALANCESHEET DATE AND BEFORE APPROVAL OF
BOARD OF DIRECTORS SHOULD BE APPROPRIATELY ADJUSTED IN
VALUE OF ASSETS AND LIABILITIES AND LOSS SHOULD BE ACCOUNTED
IN THE ACCOUNTS.
 SUPPOSE THERE WAS A FIRE IN COMPANY PLANT ON 27TH JULY2002,
WHICH DESTROYED PLANT WORTH Rs. 10 crores AND BALANCESHEET
DATE IS 31ST March 2002, and B.O.D. APPROVED THE ACCOUNTS ON 30TH
AUG. 2002
 IF EVENTS ARE NOT RELATED TO CIRCUMSTANCE EXISTING ON THE
BALANCESHEET DATE. IN THAT CASE DISCLOSURE BY WAY OF NOTES
TO ACCOUNTS ONLY, NO ADJUSTMENT IN ACCOUNTS.
 CONTINGENT GAINS ARE NOT DOCUMENTED.

15. Depreciation accounting- AS-6
 It is a measure of wearing out, consumption or other loss of value of a depreciable
asset arising from use and passage of time. It is nothing but distribution of total
cost of assets over its useful life.
 Depreciable assets are those
 1. expected to be used for more than one accounting period
 2. Have a limited useful life
 3. are held for use in production of goods and services
 Calculation of depreciation
1. Historical cost
 2 Estimated useful life of depreciable asset
 3. Estimated residual/ scrap value of depreciable asset
 Dep. = cost- scrap value at the end of useful life
 Estimated useful life in No. of years
 Method of Depreciation
 Straight line method (SLM)
 Written Down Value Method (WDV)

16.  Changes in Depreciation Method
 1. for compliance of statute
 2. for compliance of Accounting standard
 3. for more appropriate presentation of financial status
 Procedure to be followed in case of change in method
 Depreciation charged on addition/extension to an existing asset
 When depreciable asset is disposed of, discarded, demolished or
destroyed
 Net surplus or deficiency is credited to profit and loss account.