C.V.O. CA's News & Views > Update On AS / SAP / GN / USGAAP / IAS

C.V.O. Chartered & Cost Accountants' Association

Update On AS / SAP / GN / USGAAP / IAS

Contributed by : Shri Ketan D. Saiya, C.A.

Page 1

Since the last News and Views, ICAI has pronounced four Accounting Standards i.e. AS - 24 on "Discontinuing Operations", AS - 25 on "Interim Financial Reporting", AS - 26 on "Intangible Assets", AS - 27 on "Financial Reporting of Interests in Joint Ventures".

I Accounting Standard (AS) - 24, "Discontinuing Operations"

AS 24 is recommendatory in nature. This AS is applicable to all discontinuing operations of an enterprise.

It is establishing principles for reporting information about discounting operation.

Discontinuing operation is a component of an enterprise that is:

• that enterprise, pursuant to a single plan
  • disposing of substantially in its entirety
    or
  • disposing of piecemeal
    or
  • terminating through abandonment; and
• that represents a separate major line of business or geographical area of operations;
• that can be distinguished operationally and for financial reporting purposes.

Initial Disclosure Event

Occurrence of one of following event will determine discontinuing operation

• If it entered into a binding sale agreement for substantially all of the assets

or

• board of directors or similar governing body has both ;
  (i) approved a detailed, formal plan for the discontinuance and
  (ii) made an announcement of the plan.

Initial Disclosure:

An enterprise should include the following information relating to a discontinuing operation in its financial statements beginning with the financial statements for the period in which the initial disclosure event occurs:

• Description of the discontinuing operation(s);

• the business or geographical segment(s)

• the date and nature of the initial disclosure event;

• the date or period in which the discontinuance is expected to be completed if known or determinable;

• the carrying amounts, as of the balance sheet date, of the total assets to be disposed of and the total liabilities to be settled;

• the amounts of revenue and expenses in respect of the ordinary activities attributable to the discontinuing operation during the current financial reporting period;

• the amount of pre-tax profit or loss from ordinary activities attributable to the discontinuing operation during the current financial reporting period, and the income tax expense related thereto.

This is to be disclosed on the face of profit and loss account. and

• the amounts of net cash flows attributable to the operating, investing, and financing activities of the discontinuing operation during the current financial reporting period.

When Assets are disposed:

• Disclose pre tax gain or loss recognized

• Income tax expense relating to gain or loss

This is to be disclosed on the face of profit and loss account.

When binding sale agreement is entered:

• Net selling price or range of prices

• Expected timing receipt

• Carrying amount of those net assets on the balance sheet date

Subsequent financial statement:

• Disclose a description of any significant change in timing of receipt of cash flow relating to assets to be disposed off.

• Event causing such changes

• Disclosure will continue till discontinuance is completed.

• If an enterprise abandons or withdraws from a plan that was previously reported as a discontinuing operation, that fact, reasons therefor and its effect should be disclosed.

• Any disclosures required by this Statement should be presented separately for each discontinuing operation.

• Disclosures in an interim financial report in respect of a discontinuing operation should be made in accordance with AS 25, Interim Financial Reporting,

All above disclosures will be applicable to previous year figures also and previous year's related figures will have to be restated.

Illustrative disclosures are being given in the AS.

II Accounting Standard (AS) - 25, "Interim Financial Reporting"

As 25 comes into effect from on or after 1-4-2002. It should be complied by an enterprise that is required or elects to prepare and present an interim financial report.

Objective of AS is to prescribe minimum content of an interim financial statement.

Minimum, components of IFR

• condensed balance sheet;

• condensed statement of profit and loss;

• condensed cash flow statement; and

• Selected explanatory notes.

If complete set of financial statement is presented then it should confirm to the requirements as applicable to annual complete set of financial statement.

Minimum notes in IFR

• l Statement that accounting policies are same as in most recent statements

• If policies are changed than nature and effect of such change.

• Explanatory comment about the seasonality of interim operations.

• Issuances, buy-backs, repayments and restructuring of debt, equity and potential equity shares

• Dividends, aggregate or per share , separately for equity shares and other shares

• Disclosure of segment information if the enterprise is required to disclose in its annual financial statements

• The effect of changes in the composition such as amalgamations, acquisition or disposal of subsidiaries and long-term investments, restructuring and discon-tinuing operations

• Material changes in contingent liabilities since last BS date.

In deciding how to recognize, measure, classify or disclose any item for interim financial reporting purpose, materiality should be assessed in relation to the interim period financial data.

An enterprise should apply the same accounting policies in its interim financial statement as are applied in its annual financial statement.

III Accounting Standard (AS) - 26, "Intangible Assets"

AS - 26 comes into effect in respect of expenditure incurred on intangible items during accounting periods commencing on or after 1-4-2003 and is mandatory in respect of following:

• An enterprises whose equity or debt securities are listed on a recognised stock exchange in India, and enterprises that are in the process of issuing equity or debt securities that will be listed on a recognised stock exchange in India

• All other commercial, industrial and business reporting enterprises, whose turnover for the accounting period exceeds Rs. 50 Crores.

In respect of other enterprises it will come into force from on and after 1-4-2004 and is mandatory in nature from that date.

It should be applied by all enterprises in accounting for intangible assets, except;

• intangible assets that are covered by another Accounting Standard,

• financial assets,

• minerals, oil, natural gas and similar non-regenerative resources,

• Intangible assets arising in insurance enterprises from contracts with policyholders.

An intangible asset is an identifiable non-monetary asset, without physical substance, held for use in the production or supply of goods or services, for rental

to others, or for administrative purposes.

An intangible asset should be recognised if, and only if:

It is probable that the future economic benefits that are attributable to the asset will flow to the enterprise using reasonable & supportable assumptions; and the cost of the asset can be measured reliably.

An intangible asset should be measured initially at cost.

Internally generated goodwill should not be recognised as an asset.

Intangible asset arising from research should not be recognised but treated as expense when it is incurred.

An intangible asset arising from development should be recognised if, and only if, all the criteria prescribed in AS for recognising intangible assets are met.

Internally generated goodwill, brands, mastheads, publishing titles, customer lists and items similar in substance should not be recognised as intangible assets.

Expense on Intangible asset should be recognised as expense unless

• It forms part of cost of an intangible asset

• The item acquired in an amalgamation in nature of purchase.

After initial recognition, an intangible asset should be carried at its cost less any accumulated amortization and any accumulated impairment losses.

Amortisation method should reflect the pattern in which the asset's economic benefits are consumed by the enterprise.

If such pattern cannot be determined reliably, the straight-line method should be used.

Residual value of an intangible assets should be assumed to zero except there is a commitment by a third party to purchase the asset at the end of its useful life or there is active market for the asset.

Disclosures : Continue

C.V.O. CA's News & Views

Vol.5 No. 4 mar. - Apr. 2002