BUSINESS ACCOUNTING

ASSIGNMENT

SUBMITTED BY: AKASH YADAV

COURSE: BMS 1ST YEAR
ROLL No. : 6538
 Q1: Explain the convergence and harmonizations of International
Financial Reporting Standards and Indian Accounting Standards
issued by IASB. Also discuss the obstacles in convergence of the
two.

Convergence of IFRS and Indian AS

Indian Accounting Standards are formulated by the Accounting
Standard Board (ASB) of the ICAI as notified by the Ministry of
Corporate Affair. These standards are framed keeping in mind the
economic environment and practices of India. They are made to suit
the Indian companies and the disclosure requirements of the Indian
government.
The IFRS, on the other hand, are made keeping global standards and
environment in mind. Convergence would mean bridging the gap
between the two, i.e. the IFRS and the India AS. Convergence will
involve alignment of the two sets of standards. The compromise is
done by adopting the policies of the IFRS either fully or at least
partially.

Benefits of Convergence

1] Beneficial to the Economy

If the accounting standards are converged it will promote
international business and increase the influx of capital into the
country. This will help India’s economy grow and expand.
International investing will also mean more capital for domestic
companies as well.
2] Beneficial to Investors
Convergence is a boon for investors who wish to invest in foreign
markets or economies. It makes it much easier for them to study and
compare the financial statements of foreign companies. Since the
financial statements are made using the same set of standards it is
also easier for the investors to understand and analyse them.
3] Beneficial to the Industry
With globally accepted standards the industry can also surge ahead.
So, convergence is important for the industry as well. It will allow the
industry to lower the cost of foreign capital. If companies are not
burned by adopting two different set of standards it will allow them
easier entry into the market.

4] More Transparency
Convergence will benefit the users of the financial statements as
well. It will make it easier for them to understand the financial
statements. And this will generate better transparency and raise the
confidence of the investors to invest funds.

5] Cost Saving
Firstly, it will exempt companies from maintaining separate
accounting books according to separate standards. This will save a lot
of work hours and money for the finance department. And also
planning and executing auditing will also become easier.
It will be especially helpful for those companies that have
subsidiaries in many countries. And the cost of capital will also
reduce since capital would be more accessible and easily available.

Difficulties in convergence
There are some significant challenges of converging the IFRS and the
Indian AS. Some of them are as follows,
• Other than the Accounting Standards, India has many rules and
regulations to implement them. These rules will have to be updated
as well.

Accounting is done via software these days, like Tally, Oracle etc.

Convergence with IFRS means this software will have to be updated
at great costs.
•Also, there is a lack of trained and efficient personnel. The
accountants, auditors etc will have to undergo training and learning
programmes for the updated standards.
Q2: Explain Any 5 Accounting Standards and their salient features
(IAS)

1) AS-3 Cash Flow Statements:

The applicability of Cash flow statement has been defined under the
Companies Act, 2013. As per the definition in the act, a financial
statement includes the following:
i. Balance sheet
ii. Profit and loss account / Income and expenditure account
iii. Cash flow statement
iv. Statement of changes in equity
v. Explanatory notes
Thus, cash flow statements are to be prepared by all companies but
the act also specifies a certain category of companies which are
exempted from preparing the same. Such companies are One Person
Company (OPC), Small Company and Dormant Company.
OPC means a company which has only one single person as its
member.

A Small Company is a private company with a maximum paid up

capital of Rs. 50 lakhs and a maximum turnover of Rs. 2 crores. A
Dormant Company is an inactive company which is formed for some
future projects or only to hold an asset and has no significant
transactions.
2. Cash and Cash Equivalents
Cash equivalents are held by an enterprise for meeting its short-term
cash commitments instead of the purpose of investment or such
other purposes. Hence, an investment would qualify to be a cash
equivalent only when such an investment has a short maturity of
three months or less from its acquisition date.
AS 3 Cash Flow Statements states that cash flows should exclude the
movements between items which forms part of cash or cash
equivalents as these are part of an enterprise’s cash management
rather than its operating, financing and investing activities.
Cash management consists of the investment of excess cash in the
cash equivalents.
A cash flow statement must depict the cash flows within the period
classifying them as
A. Operating activities
B. Investing
C. Financing activities
Companies must prepare and present cash flows from operating,
financing as well as investing activities in such manner that is apt to
their business.
Grouping the activities provide information which enables the users
in assessing the impact of such activities on the overall financial
position of an enterprise and also assess the value of the cash and
cash equivalents.

2) AS-9 Revenue Recognition:

Revenue has to be measured by the amount charged to the clients

for the sale of goods and services.
However, in the case of the agency relationship, the revenue has to
be measured by the amount charged for commission and not on the
gross inflow of the cash, receivables or other consideration.
There are few exceptions to the above-mentioned statement where
the special consideration applies: –
1. Revenue arising from Construction Contracts
2. Revenue arising from hire-purchase, lease agreements
3. Revenue arising from government grants and other similar
subsidies
4. Revenue of Insurance companies arising from insurance contracts

Features
This standard was issued by ICAI in the year 1985 and in the initial
years, it was re-commendatory for only Level I enterprises and but
was made mandatory for all other enterprises from April 01, 1993.
As per ICAI, “Enterprise means a company as defined in section 3 of
the Companies Act, 1956”.
Level I enterprises are those enterprises whose turnover for the
immediately preceding accounting year exceeds 50 crores. The
turnover here does not include other income and is applicable for
holding as well as subsidiary companies.
Explanation:
1. Revenue recognition emphasizes on the timing of recognition of
revenue in the statement of profit and loss of an enterprise
2. The amount of revenue arising from a transaction is usually
determined by an agreement between the parties involved in the
transaction
3. When uncertainties arise regarding the determination of the
amount or its associated costs, these uncertainties may influence the
timing of the revenue
3) AS-10 Accounting for Fixed Assets:

AS 10 Accounting for Fixed Assets prescribes the accounting

treatment for properties, P&E (Plant and Equipment) so that the
users of financial statements could recognize and appreciate the
information about the investment made by any enterprise in
property, P&E and the also understand the changes made in such
investments.
AS 10 is to be applied in accounting for property, P&E (Plant and
Equipment) and this standard are not applicable to:
(a) biological assets which are related to agricultural activities except
for bearer plants. The Standard is applicable to bearer plants;
however, it doesn’t apply to the produce on bearer plants; and
(b) wasting assets which include mineral rights, expenses related to
exploration for and extraction of oil, minerals, natural gas and other
non-regenerative resources.
The cost of property and P&E should be recognized as an asset only
if:
(i) it is apparent that the future economic benefits related to such
asset would flow to the business; and
(ii) the cost of such asset could be reliably measured.

4) AS-16 Borrowing Costs

This Notified accounting standard is mandatorily applicable to all

enterprises. It is specifically stated that this accounting standard is
only related to External Borrowings and does not deal with the cost
of raising Equity or Convertible Preference Shares.
As per ICAI “Borrowing Costs are interest and other costs incurred by
an enterprise in connection with the borrowing of funds”
The following points should be taken into consideration for
borrowing costs:
a. Interest on short term loans or long-term debts should be included
as part of borrowing cost. Ex: Interest paid to financial institutions for
loan taken to acquire the asset.
b. If an enterprise has incurred any discounts or premiums related to
the borrowing cost, then it will also be amortised. Ex: Amount paid to
the financial institutions as loan processing cost
c. If an enterprise has incurred any finance/ancillary cost in
connection with the borrowings, then it will also be amortised. Ex:
Amount to the professionals for preparation of project reports, etc.
d. If an enterprise has acquired any asset under finance lease or any
other similar arrangement, then those finance cost will also be
amortised. Ex: Leasing cost paid to the lessor every year.
If an enterprise has taken any borrowing in foreign currency, then
the exchange rate fluctuation will also be amortised to the extent
they are regarded as an adjustment of interest costs. Ex: An
enterprise has taken a loan from foreign financial institutions when
the rate of US $ was 64, while at the end of the financial year the
rate of US $ was 65. The rate difference of US $ 1 will be treated as
Borrowing Cost.

Features
The following conditions should be satisfied for capitalization of
borrowing costs:
a. Those borrowings costs which are directly attributable to the
acquisition, construction or production of qualifying asset, are
eligible for capitalization. Directly attributable costs are those costs
which would have been avoided if the expenditure on the qualifying
assets has not been made.
b. Qualifying assets will give future benefit to the enterprises and the
cost can be measured reliably.
5) AS-17 Segment Reporting

The objective of this Standard is to establish principles for reporting

financial information, about the different types of products and
services an enterprise produces and the different geographical areas
in which it operates. Such information helps users of financial
statements: (a) better understand the performance of the
enterprise; (b) better assess the risks and returns of the enterprise;
and (c) make more informed judgements about the enterprise as a
whole. Many enterprises provide groups of products and services or
operate in geographical areas that are subject to differing rates of
profitability, opportunities for growth, future prospects, and risks.
Information about different types of products and services of an
enterprise and its operations in different geographical areas – often
called segment information – is relevant to assessing the risks and
returns of a diversified or multi-locational enterprise but may not be
determinable from the aggregated data. Therefore, reporting of
segment information is widely regarded as necessary for meeting the
needs of users of financial statements.

Features
1. This Standard should be applied in presenting general purpose
financial statements. 2. The requirements of this Standard are also
applicable in case of consolidated financial statements. 3. An
enterprise should comply with the requirements of this Standard
fully and not selectively. 4. If a single financial report contains both
consolidated financial statements and the separate financial
statements of the parent, segment information need be presented
only on the basis of the consolidated financial statements. In the
context of reporting of
segment information in consolidated financial statements, the
references in this Standard to any financial statement items should
construed to be the relevant item as appearing in the consolidated
financial statements.