Accounting Standard (AS)

9-11

By: chandan kumar

Revenue Recognition
Accounting Standard (AS)
9
 Introduction
This standard deals with the bases for recognition
of revenue in the statement of profit and loss of an
enterprise.

• The sale of goods

• Rendering the services
• Use of the enterprises resources by other yielding
interest, dividend and royalties
 Non - Applicability
• Revenue arising from construction
contracts.
• Revenue arising from hire-purchase, lease
agreements.
• Revenue arising from government grants
and other similar subsidies.
• Revenue of insurance companies arising
from insurance contracts.
 Revenue from Sale of Goods
• Seller has transferred the ownership of
goods to buyer for a price.
• Seller does not retain any effective control
of ownership of the transferred goods.
• There is no significant uncertainty in
collection of the amount of consideration.
 Rendering of the Services
• Completed service contract method
recognize revenue only when rendering of
services under a
contract is completed or substantially completed.

• Proportionate completion method

recognize revenue proportionately with the
degree of
completion of services under a contract.
Revenue from interest, dividend and
royalties

• Interest accrues, in most circumstances, on

the time basis determined by the amount
outstanding and the rate applicable.
• Royalties accrue in accordance with the
terms of the relevant agreement.
• Dividend accrues, when the declaring
company declares dividend.
Application to Commercial situation
Sale of Goods
 Delivery is delayed at buyer’s request and buyer takes
title and accepts billing.
 Delivered subject to conditions
(i) installation and inspection
(ii)sales on approval
(iii)guaranteed sales
(iv)consignment sales
(v)cash on delivery sales

 Instalment sales
interest should be recognized proportionately to the unpaid
balance
 Application ……….
Rendering of services
 Installation fees
 Advertising commission
 Admission fee
 Tuition fees
 Entrance and Membership fees
 Disclosure
• In addition to the disclosures required by
Accounting Standard 1 on ‘Disclosure of
Accounting Policies’ (AS 1) , an enterprise
should also disclose the circumstances in
which revenue recognition has been
postponed pending the resolution of
significant uncertainties.
Accounting for Fixed
Assets
Accounting Standard (AS)
10
 Introduction
Fixed assets are-
• Held with the intention of being used for the
purpose of producing or providing goods and
services.
• Not held for sale in the normal course of
business.
• Expected to be used for more than one
accounting period.
Examples
• Goodwill
• Land
• Building
• Plant & machinery
• Furniture & fitting etc.
 Non - Applicability
• Forests ,plantations and similar
regenerative natural resources.
• Wasting assets like minerals, oil and
natural gas.
• Real state development.
• The treatment of government grants and
subsidies.
Fixed assets in Financial Statement

• Historical cost
• Revalued price
Historical cost of acquired fixed
assets
• Purchase price
• Import duties and other non- refundable
taxes
• Site preparation
• Delivery and handling cost
• Installation cost
• Professional fees
 Cost of self constructed fixed
assets
• All cost which are directly related to the
specific asset.
• All costs that are attributable to the
construction activity should be allocated to
the specific assets.
• Any internal profit included in the cost
should be eliminated.
 Non-Monetary Consideration
• Fixed assets exchanged not similar.
assets acquired should be recorded either at fair market value of
asset given up or fair market value of asset acquired ,if this is
more clearly evident.
• Fixed assets exchanged are similar
assets acquired should be recorded either at fair market value of
asset given up or fair market value of asset acquired ,if this is
more clearly evident or net book value of the asset given up.

• Fixed assets acquired in exchange of share or

other securities
assets should be recorded at either fair market value of assets
purchased
or fair market value of share or securities.
 Revalued Price
• By re – stating the gross book value and
accumulated depreciation.
• By re - stating net book value adding
there in the net increase on account of
revaluation.

Revaluation of fixed assets should be

restricted to the net recoverable amount
of fixed asset.
 Improvement and Repairs
• Expected future benefits from fixed assets
do not change. The expenses are charged
to profit & loss account.
• Expected future benefits from fixed assets
will increase beyond the previously
assessed standard performance. Expenses
are included in the gross book value of
asset.
 Retirement and Disposals
• Fixed asset are deleted from the financial
statement either on disposal or on
expected economic benefit.
• Gains or losses arising on disposal are
generally recognized in profit & loss
account.
The Effects of Changes in
Foreign Exchange Rates
Accounting Standard (AS)
11
 Introduction
This Statement should be applied:
• In accounting for transactions in foreign
currencies.
• In translating the financial statements of
foreign operations.
 Definition
• Exchange rate is the ratio for exchange of
two currencies.
• Average rate is the mean of the exchange
rates in force during a period.
• Closing rate is the exchange rate at the
balance sheet date.
• Monetary items are money held and assets
and liabilities to be received or paid in fixed
or determinable amounts of money.
• Fair value is the amount for which an asset could be
exchanged, or a liability settled, between knowledgeable,
willing parties in an arm’s length transaction.
• Foreign currency is a currency other than the reporting
currency of an enterprise.
• Reporting currency is the currency used in presenting the
financial statements.
• Forward rate is the specified exchange rate for exchange
of two currencies at a specified future date.
• Forward exchange contract means an agreement to
exchange different currencies at a forward rate.
 Initial Recognition
• Buys or sells goods or services whose price
is denominated in a foreign currency.
• Borrows or lends funds when the amounts
payable or receivable are denominated in a
foreign currency.
• Otherwise acquires or disposes of assets, or
incurs or settles liabilities, denominated in a
foreign currency.
 Recognition of Exchange
Differences
• Exchange differences arising on the
settlement of monetary items or on
reporting an enterprise’s monetary items
at rates different from those at which they
were initially recorded during the period, or
reported in previous financial statements,
should be recognized as income or as
expenses in the period in which they arise.
 Reporting at Subsequent
Balance Sheet Dates
• Foreign currency monetary items should
be reported using the closing rate.
• Non-monetary items which are carried in
terms of historical cost denominated in a
foreign currency should be reported using
the exchange rate at the date of the
transaction.
 Translation of financial statements
of foreign branches
• Opening inventories: exchange rate
prevailing at the commencement of the
year.
• Closing inventories: exchange rate at the
balance sheet date.
• Depreciation: exchange rate applicable for
the translation of the fixed asset.
 Accounting for
Government Grants
Accounting Standard (AS)
12
 Introduction
• This Statement deals with accounting for
government grants.

• Government grants are sometimes called

by other names such as subsidies, cash
incentives etc.
 Non- Applicability
• Government participation in the ownership of
the enterprise.
• Government assistance other than in the form
of government grants.
 Recognition of Government
Grants
• The enterprise will comply with the
conditions attached to them
• The grants will be received
 Accounting treatment of
government grants
• Grant is shown as deduction from the gross
value of asset in arriving its book value. When
the grants equals to the cost of assets, the asset
should be shown in the balance sheet at the
nominal value.
• Grants are treated as deferred income. The
deferred income is recognized in profit & loss
account on a systematic and rational basis over
the useful life of assets.
 Grants related to revenue

• Grants should be recognized in profit & loss

account over the period necessary to match them
with related cost which they are intended to
compensate . Such grants should either be shown
as other income or be deducted from the related
expenses.
• A grant received as compensation for expenses or
losses already incurred should be recognized in the
profit & loss account of the period in which it
becomes receivable as extraordinary items.