Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: VAT Audit :: Central Excise rule to resale the machines to a new company :: form 3cd :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: ACCOUNTING STANDARD :: TAX RATES - GOODS TAXABLE @ 4% :: empanelment :: TDS :: cpt :: list of goods taxed at 4% :: ARTICLES ON INPUT TAX CREDIT IN VAT :: VAT RATES :: ACCOUNTING STANDARDS :: articles on VAT and GST in India :: due date for vat payment
 
 
News Headlines »
 Directions under section 119 of the Income-tax Act, 1961
 Securities excluded from GST ambit in revised Bill
 GST dilemma: Hope fades for new tax regime
 5nance.com launches tax investment platform
 Is government tapping your phone?
 Income tax department to use analytics to look for discrepancies in bank accounts
 GST Council fails to break deadlock over indirect tax regime, next meet on Dec 11 and 12 to hammer out differences
 Invoking Writ Jurisdiction For Income Tax Matters
 How to file income-tax returns online
 How Income Tax Returns Are Scrutinised
 All About New Income Disclosure Scheme to make Demonetisation successful

IAS 36 and Cost-Accounting Interface
April, 02nd 2012

The need for a historical model and fair-value measurements being embedded into the International Financial Reporting Standards (IFRS) framework is presenting very interesting challenges for professional accountants to handle.

The issues, in particular, caused by the issuance of Cost Accounting Standards (CAS) by the Institute of Cost Accountants of India (ICAI), along with the Generally-Accepted Cost Accounting Principles (GACAP), are worth mentioning.

ASSETS

Some of the standards and principles in GACAP have excellent synergies with the principles contained in the International Accounting Standard 36 (IAS 36) which is applicable for impairment of assets covered under IAS 16, as well as the intangible assets. IAS 36 prescribes that when cash flows cannot be identified with individual assets, they may be grouped, in order to permit an assessment of future cash flows.

This grouping is called as cash-generating unit (CGU). To comply with IFRS, the extent of aggregation must be the minimum amount necessary to develop cash flow information for impairment assessment and not greater.

The Product Grouping Standard (under exposure) of ICAI will also prescribe the base level at which costs and revenues need to be matched in a historical model. A reporting entity applying this test under IAS 36, and also coming under CAS, will be necessarily matching costs and revenues at an asset level or CGU level, as if it isn't done, it will become non-compliant.

This would mean that such companies should prefer the tracing of materials, labour and overheads as per CAS to the asset or the CGU, so that there is no potential conflict later, under any due diligence process.

The standard provides that if goodwill is acquired in a business combination having several operating segments as per IFRS 8, the goodwill amount should be allocated to the various CGUs, and not at a segment level, before testing for impairment.

ACCOUNTING

The identification and valuation of the synergy across CGUs offers a very interesting opportunity for cost and management accounting principles. The synergy could be in the form of customer asset base CGU-wise, or potential net cash flows which can be estimated in the process of determining value in use. In performing this assessment of synergy, inevitably, the reporting entity will have to apply the cause-and-effect' principle espoused in GACAP.

Can the value representing the result of impairment of assets covered by IAS 16 itself be a part of the cost? As a result of the impairment exercise, if the carrying amount is found to be in excess of the value in use, the standard provides for an accounting treatment, and charging of the difference in the Consolidated Income Statements, if this can be treated as an unusual depreciation and be built into the product cost in the CAS. CAS doesn't specifically deal with impairment values.

However, a plain reading of IAS 36 would reveal that in the case of assets covered by IAS 16, the impaired value can be reversed in subsequent years, when the value in use goes up due to market dynamics.

If the Cost Auditor finds such fundamental differences in the financial results of the reporting entity between the Generally Accepted Accounting Principles (GAAP) framework and the GACAP framework, he or she will have to make a detailed submission in Part III of the Cost Audit Report.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - About Us

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions