Accounting

Capital expenditure refers to the expenses incurred by a company for acquiring, improving, or extending its fixed assets, which are expected to provide benefits over multiple accounting periods. These expenditures are capitalized on the balance sheet and are typically large in nature. Examples of capital expenditures include the purchase of property, plant, and equipment (PP&E), …

Difference between capital expenditure and revenue expenditure along with examples and with case study Read More »

In the case of export of goods, the recognition of revenue follows certain principles and guidelines outlined in accounting standards. Revenue from export sales is typically recognized when the following criteria are met: 1. Identification of the contract: The existence of a legally enforceable contract between the exporter and the customer is essential. The contract …

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1. Financial Performance: This involves assessing the company’s financial statements, including the balance sheet, income statement, and cash flow statement, to understand the company’s profitability, liquidity, and financial health. 2. Business Operations: The annual report provides insights into the company’s core business operations, including its products or services, market presence, and competitive position. It may …

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Estimating the Net Realizable Value (NRV) involves assessing the expected selling price of an item less any estimated costs necessary to make the sale. When a competitor is selling the same product at a lower price, it does not directly affect NRV. However, if there is a significant difference, it may be an indication that …

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The valuation of raw materials under the relevant Indian Accounting Standards (Ind AS) follows the principle of “lower of cost and net realizable value” (LCNRV). This principle is similar to the “lower of cost or market” (LCM) principle under the previous Indian Generally Accepted Accounting Principles (GAAP). According to Ind AS 2, Inventories, raw materials …

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Deferred Tax Assets (DTAs) are recognized under both the previous Indian Accounting Standards (AS) and the current Indian Accounting Standards (Ind AS), but there are some differences in the criteria for their recognition. Under AS, DTAs were recognized only to the extent that there was virtual certainty of sufficient future taxable income against which the …

What are the DTA creation criteria’s as per Ind AS and how they are different from AS? Read More »

Ensuring the completeness and accuracy of financial statements is crucial to maintain the integrity of financial reporting. Here are some key measures that can be taken to achieve this: 1. Robust Internal Controls: Implementing strong internal controls is essential to ensure the completeness and accuracy of financial statements. This includes segregation of duties, proper authorization …

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Financial statements are key financial documents that provide an overview of a company’s financial performance and position. The main components of financial statements include: 1. Income Statement: Also known as the statement of operations or statement of comprehensive income, the income statement shows the company’s revenues, expenses, gains, and losses over a specific period. It …

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Goodwill impairment occurs when the value of a company’s goodwill asset on the balance sheet is determined to be lower than its recorded amount. The impairment is recognized when there is a significant decline in the company’s business or when the fair value of the reporting unit carrying the goodwill falls below its carrying value. …

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Accounts receivable and deferred revenue are both important financial concepts related to revenue recognition, but they represent different aspects of a company’s financial transactions: Accounts Receivable: Accounts receivable (AR) represents the money owed to a company by its customers for goods or services that have been delivered but not yet paid for. It arises when …

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The time it takes to collect accounts receivable can vary depending on various factors such as industry practices, company policies, customer payment terms, and the efficiency of the company’s credit and collection processes. In general, the collection period for accounts receivable is measured in days and is commonly referred to as the “Days Sales Outstanding” …

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LIFO (Last-In, First-Out) and FIFO (First-In, First-Out) are two commonly used inventory valuation methods. They differ in how they assign costs to inventory and calculate the cost of goods sold (COGS): LIFO: Under the LIFO method, it is assumed that the most recently purchased or produced inventory is sold first, and the cost of goods …

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Usually, the shareholders of the target prefer getting Cash rather than equity. The acquirer prefers issuing shares. The acquire should issue shares in case the purchase consideration is same in all cases – this is the least risky option. However if there is excess cash and no investment opportunity, cash may be used The method …

Which method would company use to buy other company – cash, stock or debt. Assuming all else is equal. Read More »

In general, the treatment of excise duty paid in deferred tax follows the principles of temporary differences between the carrying amount of an asset or liability for accounting purposes and its tax base. If there is a temporary difference that results in taxable or deductible amounts in future periods related to the excise duty paid, …

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The treatment of land in deferred tax depends on the accounting policies followed by the company and the applicable tax laws in the jurisdiction. Generally, land is considered a non-depreciable asset, and its value does not change over time for accounting purposes. However, for tax purposes, land may be subject to certain tax rules and …

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The Comparable Uncontrolled Price (CUP) method is a transfer pricing technique used to determine the arm’s length price for transactions between related entities. It involves comparing the price of a controlled transaction with the price of a similar transaction between unrelated parties (uncontrolled transaction). The goal is to ensure that the pricing of intercompany transactions …

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A Deferred Tax Liability is an entry on a company’s balance sheet, in accordance with Indian Accounting Standard (Ind AS) 12, signifying taxes that are payable in the future due to timing differences between their accrual and actual payment. The deferral arises from the contrasting timing of tax recognition and payment. Notably, a common instance …

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Goodwill is only charged to the profit and loss (P&L) statement when there is an indication that its carrying value may be impaired, i.e., when the value of goodwill has decreased due to a loss in its revenue-generating capacity or some other adverse effect. If a company’s revenue-generating potential remains intact and there is no …

When should a company charge goodwill to the profit and loss (P&L) statement? If a company’s revenue-generating potential remains strong and there is no indication of deterioration, would goodwill continue to appear on the balance sheet indefinitely? Read More »

To record the construction, demolition, and relocation of the tower, the following steps should be taken: Record the initial construction of the tower: Debit the Property, Plant, and Equipment (PPE) account for the cost of construction, which is 5 lakhs. Credit the Cash/Bank account for the same amount. Record the depreciation of the tower: Debit …

Suppose we build a tower and spent 5 lakhs to construct and its useful life is 10 years, after two years the government ordered to demolish the tower , so we have extracted the tower and placed it at the nearby location , and the expenditure for this relocation would come to 1 lakh. How to record all of these? Read More »

Under Indian Accounting Standards (Ind AS), cash discounts are generally considered a reduction of the purchase cost of inventory and are deducted from the cost of the inventory rather than added to it. Reference: Ind AS 2, “Inventories” Paragraph 11 of Ind AS 2 states that the cost of inventory should include all costs of …

Suppose there is an inventory costing 100, cash discount is 2, will it be added to cost? Read More »

The Insolvency and Bankruptcy Code (IBC) was introduced in India to address the pressing need for a comprehensive and efficient framework for dealing with insolvency and bankruptcy matters. It aimed to streamline and expedite the resolution process of distressed companies and individuals, promote a culture of entrepreneurship, enhance credit availability, and protect the interests of …

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In this condition, we have to capitalize it along with the project, we cannot separately classify it, the reason for this is any expenditure that is necessary to bring your asset to the location and condition necessary for the intended use by the management that we should capitalize , and it is directly attributable expenditure …

Suppose we are having a factory and that factory has no proper road connection to that factory, so we approached to the government requesting them to build the road, the answer was negative and they said we can build a road by our own on their land but there is only one condition that the road will be accessible by public so it will be the public road. How to account for this? Read More »

PPE should be derecognised (removed from PPE) either on disposal or when no future economic benefits are expected from its use or disposal. A gain or loss on disposal is recognised as the difference between the disposal proceeds and the carrying amount of the asset at the date of disposal. Favorite

Minority Interest also referred to as non-controlling interest (NCI), is the share of ownership in a subsidiary’s equity that is not owned or controlled by the parent corporation. The parent company has a controlling interest of 50 to less than 100 percent in the subsidiary and reports financial results of the subsidiary consolidated with its …

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Divestiture refers to the process of selling or disposing of assets, business units, or subsidiaries by a company. It involves the deliberate decision to divest or exit certain operations or investments in order to streamline the business, focus on core activities, reduce costs, or improve financial performance. Divestiture can take various forms, including selling off …

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Accounts payable (AP) and accounts receivable (AR) are two types of financial transactions that businesses engage in. Accounts payable (AP) represents the amount of money a company owes to its suppliers or vendors for the goods or services they have provided. In other words, it is the amount of money that a business owes to …

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Accruals refer to expenses or revenues that have been recognized in the accounting records before they have been paid or received, respectively. They are recorded to reflect the economic activity of a business accurately, even if the cash transactions have not yet taken place. There are two types of accruals: Accrued expenses (Accrued liabilities): These …

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Prepaid expenses are future expenses that have been paid in advance. You can think of prepaid expenses as costs that have been paid but have not yet been used up or have not yet expired. The amount of prepaid expenses that have not yet expired are reported on a company’s balance sheet as an asset. …

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Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life. It is NOT to reduce the value of the asset due to wear and tear. It is an allocation of Historical Cost ONLY. Similarly it is not bringing down an asset to its market value. Similarly, obsolescence is …

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A cash flow hedge is a risk management strategy used by businesses to mitigate the potential impact of future cash flow fluctuations. It involves entering into a financial derivative contract, such as a forward contract, futures contract, or swap, to offset the variability in cash flows arising from specific risks. The objective of a cash …

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The following items are added to the cost of inventory: 1.Purchase price of goods 2.Direct labor costs incurred to bring the goods to their present location and condition 3.Direct overhead costs, such as rent, utilities, insurance, and depreciation of plant and equipment used in the production process 4.Freight-in or transportation costs incurred to acquire the …

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An operating segment is a component of an entity: (a) that engages in business activities from which it may earn revenues and incur expenses (b) whose operating results are regularly reviewed by the entity’s chief operating decision maker (CODM) to make decisions about resources to be allocated to the segment and assess its performance; and …

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Ind AS 36 “Impairment of Assets” deals with the testing of assets for impairment. It requires companies to evaluate their assets, including goodwill, to assess if there is any impairment in their value. If there is a significant decline in the recoverable amount of an asset, then it needs to be written down to its …

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Actuarial goodwill arises when the purchase price of an entity exceeds the fair value of its net identifiable assets, and the excess cannot be attributed to any specific asset or liability. This excess represents the value of intangible assets, such as brand recognition, customer relationships, and intellectual property. In such a situation, an actuary can …

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A stock split is a corporate action in which a company increases the number of its outstanding shares by issuing additional shares to current shareholders, while maintaining the same overall value of the company. For example, in a 2-for-1 stock split, shareholders would receive two shares for every one share they currently own, effectively halving …

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A rights issue, also known as a rights offering, is a type of corporate fundraising method in which a company offers its existing shareholders the right to purchase additional shares in proportion to their current shareholding. The new shares are typically offered at a discounted price compared to the market price. The purpose of a …

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Accumulated depreciation is the total amount of the depreciation expenditure allocated to a particular asset since the asset was used. It is a contra asset account, i.e. a negative asset account that offsets the balance in the asset account with which it is usually linked. The accumulated balance of depreciation increases over time, adding the …

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Provision Provision liability reduces an asset’s value because of a present obligation arising out of a past event The event which can result in a provisional liability may or may not occur. The estimated amount of the provisional liability is not certain Any increase or decrease in provision liability gets recorded in the Profit and …

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Ind AS 102, Share-based Payment, provides guidance on the accounting treatment for transactions in which an entity issues equity instruments as part of its employee compensation arrangements or in exchange for goods or services. Under Ind AS 102, share-based payment transactions are recognized as expenses in the financial statements based on their fair value at …

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Ind AS 101, First-time Adoption of Indian Accounting Standards, provides guidance on how entities should prepare and present their financial statements when transitioning from previous accounting practices to Indian Accounting Standards (Ind AS). Under Ind AS 101, entities are required to apply Ind AS retrospectively, meaning that financial statements must be restated as if Ind …

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Ind AS 41, Agriculture, provides guidance on the recognition, measurement, and disclosure of agricultural activities and agricultural produce. The standard applies to entities that engage in agricultural activities, which involve the management of biological transformation and the harvest of biological assets for sale or for conversion into agricultural produce. Under Ind AS 41, biological assets …

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Ind AS 38, Intangible Assets, provides guidance on the recognition, measurement, and disclosure of intangible assets. Intangible assets are identifiable non-monetary assets without physical substance that are controlled by an entity and have the potential to generate future economic benefits. Under Ind AS 38, an intangible asset is recognized if it meets certain criteria, including …

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Ind AS 40, Investment Property, outlines the accounting treatment and disclosure requirements for investment properties, which are properties held to earn rental income, capital appreciation, or both. The standard applies to all entities that hold investment properties, regardless of whether the properties are owner-occupied or leased out to others. Under Ind AS 40, investment properties …

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Ind AS 36, Impairment of Assets, provides guidelines for assessing and recognizing impairment losses on assets. The standard applies to all assets, except for certain financial assets and assets covered by other Ind AS standards. Under Ind AS 36, entities are required to test their assets for impairment whenever there is an indication of potential …

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Ind AS 34, Interim Financial Reporting, sets out the requirements for preparing and presenting interim financial statements, which provide condensed financial information for an entity’s financial performance, position, and cash flows during a shorter reporting period such as a quarter or half-year. The standard requires entities to prepare interim financial statements that include, at a …

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Ind AS 33, Earnings per Share (EPS), sets out the principles for calculating and presenting earnings per share, which is an important financial indicator used by investors and analysts to assess the profitability of a company on a per-share basis. The standard requires entities to calculate basic EPS and, if applicable, diluted EPS. Basic EPS …

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Ind AS 23, Borrowing Costs, provides guidance on the accounting treatment of borrowing costs incurred by an entity. The standard aims to ensure that borrowing costs directly attributable to the acquisition, construction, or production of qualifying assets are appropriately capitalized. According to Ind AS 23, borrowing costs that are directly attributable to the acquisition, construction, …

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Ind AS 8, Accounting Policies, Changes in Accounting Estimates, and Errors, provides guidance on the selection and application of accounting policies, as well as the treatment of changes in accounting estimates and correction of errors. The standard aims to enhance the reliability and comparability of financial statements by ensuring consistent and appropriate accounting practices. Ind …

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Ind AS 7, Statement of Cash Flows, provides guidance on the presentation and disclosure of cash flows from operating, investing, and financing activities in the financial statements. The standard aims to enhance the usefulness and comparability of financial statements by providing users with information about an entity’s liquidity, solvency, and financial adaptability. Ind AS 7 …

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Ind AS 2, Inventories, provides guidance on the accounting treatment and valuation of inventories. It applies to all entities that hold inventories for sale, production, or use in the ordinary course of business. The standard defines inventories as assets held for the purpose of being sold, used in production, or consumed in the process of …

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Ind AS 1, Presentation of Financial Statements, sets the guidelines for the preparation and presentation of financial statements in accordance with the Indian Accounting Standards. This standard serves as a comprehensive framework to ensure that financial statements provide relevant, reliable, comparable, and understandable information to users. Ind AS 1 begins by establishing the overall framework …

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Accounts payable (AP) and accounts receivable (AR) are two types of financial transactions that businesses engage in. Accounts payable (AP) represents the amount of money a company owes to its suppliers or vendors for the goods or services they have provided. In other words, it is the amount of money that a business owes to …

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Accruals refer to expenses or revenues that have been recognized in the accounting records before they have been paid or received, respectively. They are recorded to reflect the economic activity of a business accurately, even if the cash transactions have not yet taken place. There are two types of accruals: Accrued expenses (Accrued liabilities): These …

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Prepaid expenses are expenses that have been paid in advance but have not yet been used or consumed. They represent costs that are paid for upfront but will be recognized as expenses over a future period. Examples of prepaid expenses include: Rent: If a company pays rent for the next six months in advance, it …

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The principles of accounting are the basic guidelines and concepts that underlie the preparation and presentation of financial statements. These principles include the accrual basis of accounting, the consistency principle, the materiality principle, the going concern principle, the entity principle, the historical cost principle, the matching principle, the full disclosure principle, the conservatism principle, and …

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Accounting concepts are ideas, assumptions and conditions based on which a business entity records its financial transactions and organises its bookkeeping. It helps a business interpret and integrate a financial transaction into the accounting process. There are several accounting concepts that are important to understand: Entity concept: This concept states that the business entity should …

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Clarify from the interviewer what they mean. Are they asking you for specific directions of Ind AS 108, or a general discussion on policies. If the former, check the detailed answer on Ind AS 108. Else use this answer. As per Ind AS 108, the accounting policies used for segment reporting should be consistent with …

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Impairment of an asset occurs when the carrying amount of an asset on the balance sheet exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. Impairment indicates that the asset’s value has declined significantly and may not be recoverable in …

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Accounting conventions are standards, customs or guidelines associated with the practical application of accounting principles, and are aimed at bringing about consistency in the maintenance of accounts. Accounting conventions are generally accepted principles and are not considered legally binding. Here are some common accounting conventions along with examples: Conservatism Convention: This convention suggests that accountants …

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Cash equivalents are highly liquid short-term investments that are readily convertible into known amounts of cash and have a very short maturity period, typically three months or less from the date of acquisition. They are considered to be highly secure and easily marketable, allowing companies to maintain liquidity and meet short-term cash needs. The technical …

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The process involves the following steps: 1.Identify the subsidiaries to be included in the consolidation and gather their financial statements. 2.Adjust the subsidiary financial statements to conform to the accounting policies of the parent company, such as depreciation methods, inventory valuation, and revenue recognition. 3.Eliminate any intercompany transactions and balances between the parent and subsidiary …

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To make a reconciliation statement, follow these general steps: Identify the items to be reconciled: Determine the two sets of data or accounts that need to be reconciled. For example, it could be bank statements, intercompany balances, or accounts receivable/payable. Gather the relevant data: Collect the necessary information, such as the balances or transactions for …

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The classification of deferred tax liability as current or non-current depends on the timing of the reversal of the underlying temporary differences that gave rise to the deferred tax liability. If the underlying temporary differences are expected to reverse within 12 months from the end of the reporting period, then the deferred tax liability is …

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Yes, LLP (Limited Liability Partnership) can be a subsidiary under Ind AS, provided that it meets the definition of a subsidiary as per Ind AS 110. Ind AS 110 defines a subsidiary as an entity that is controlled by another entity (the parent), which is a shareholder or group of shareholders who have the power …

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Under Ind AS 23, borrowing costs that are directly attributable to the acquisition, construction, or production of a qualifying asset are required to be capitalized as part of the cost of that asset. A qualifying asset is an asset that takes a substantial period of time to get ready for its intended use or sale. …

What is the substantial period under Ins As for capitalizing borrowing cost w.r.t qualifying assets? Read More »

Conditions for recognizing revenue over time: 1.The customer simultaneously receives and consumes the benefits of the seller’s performance. 2.The seller’s performance creates or enhances an asset that the customer controls. 3.The seller can measure the progress of the performance obligation towards completion. 4.The customer consumes the benefits of the seller’s performance as it is performed. …

What are the conditions of recognizing revenue over point in time and satisfied over time? Read More »

As per Ind AS 115, Revenue from Contracts with Customers, volume-based discounts should be accounted for as variable consideration, which means that the discount should be estimated at the time of sale based on the expected volume of goods or services to be purchased by the customer. The expected discount amount should then be subtracted …

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Ind AS 2, “Inventories,” provides guidance on the valuation of inventory in an entity’s financial statements. Inventory, also known as stock, refers to goods held by a company for the purpose of resale, production, or supply in the normal course of business. The standard outlines how to determine the cost of inventory and the subsequent …

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The concept of Component Accounting under Ind AS 16, “Property, Plant and Equipment,” allows entities to account for significant components of an item of property, plant, and equipment separately when those components have different useful lives. This approach recognizes that certain assets are made up of distinct parts or components that may have varying economic …

IND AS 16 : What is the concept of Component accounting as per Ind AS 16 ? Why Component Accounting is used ? Read More »

Ind AS 16, “Property, Plant and Equipment,” is an accounting standard that provides guidance on the recognition, measurement, depreciation, and disclosure of property, plant, and equipment in an entity’s financial statements. The “deemed cost exemption” is a provision in Ind AS 16 that allows entities to measure an item of property, plant, and equipment at …

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To record a share-based payment transaction under IndAS 102 in your books: Determine Fair Value: Calculate the fair value of the equity instruments being granted at the grant date. This is usually done using valuation methods like the Black-Scholes model for options or other appropriate techniques. Recognize Expense: Recognize the fair value of the equity …

Ind As 102 ( share based payment ) : how you will record share based payment in books, what other implications of shared based payment would be possible? Read More »

The controller is intricately involved in the company accounting process. And in many cases, they will do a lot of accounting day to day. But in larger finance teams, there’s a clear distinction between the two. Accounting Accounting is the act of recording the company’s transaction data. This includes money coming both in and out …

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