Accounting Standards:
Quick Referencer

for Micro Non-company entities

The Institute of Chartered Accountants of India

(Set up by an Act of Parliament)
New Delhi
© The Institute of Chartered Accountants of India

All rights reserved.

No part of this publication may be reproduced, stored in a retrieval system, or
transmitted, in any form, or by any means, electronic, mechanical,
photocopying, recording, or otherwise without prior permission, in writing, from
the publisher.

DISCLAIMER:

While utmost care has been taken in bringing out this publication, this is not
an alternative to the full text of the Accounting Standards. It is pertinent to note
that the full text of Accounting Standards should be referred for comprehensive
knowledge on the subject. Also, occasionally, there may be limited as well as
complete revisions to the existing Accounting Standards. Hence, the summary
given in this publication may have to be updated in the light of subsequent
developments. This publication has been prepared for ease of reference by
various stakeholders and not a substitute to the authoritative pronouncements
of the ICAI or its committees. Also, every effort is made to avoid errors or
omissions in this publication, errors or mistakes, if any, are unintentional. In
case of any divergence between the material of this publication and the
relevant authoritative pronouncements, the latter should be considered as the
authoritative version.

First Edition : May 2021
Accounting Standards Board
Committee/Department : asb@icai.in
www.icai.org
E-mail : Rs.150/-

Website : The Publication Department on behalf of
the Institute of Chartered Accountants of
Price : India, ICAI Bhawan, Post Box No. 7100,
Indraprastha Marg, New Delhi - 110 002.
ISBN No :

Published by :
Background

Accounting Standards (AS) issued by the Institute of Chartered Accountants
of India (ICAI) are applicable to Non-company entities to whom Ind AS are not
applicable. For applicability of AS, the ICAI in 2004, prescribed the criteria
classifying entities as Level I, Level II and Level III, wherein subsequently
minor revisions were made. Level II and Level III non-company entities were
classified as Small and Medium sized Entities (SME) to whom certain
exemptions/relaxations were provided.

In July 2020, the threshold limits for classification of Micro, Small and Medium
Enterprises (MSMEs) under the Micro, Small and Medium Enterprises
Development (MSMED) Act, 2006, had been substantially revised.
Considering this change, the inflation, and that the criteria for classification of
Non-company entities was laid down long back, the Accounting Standards
Board (ASB) of ICAI considered, through due process, including outreach, the
revision the criteria to achieve simplification and ease of doing business by
Micro and Small non-company entities. The ICAI has issued an Announcement
revising the criteria for classification of Non-company entities into four Levels,
viz., Level I, Level II, Level III and Level IV which is applicable in respect of
accounting periods commencing on or after April 1, 2020. Level IV, Level III
and Level II entities are referred to as Micro, Small and Medium size entities
(MSMEs). The Announcement includes details of exemptions/relaxations to
MSMEs and the guidance on transitioning between levels. The Announcement
has been included as Appendix 1 of this Publication.

In accordance with the Announcement, following is the list of Accounting
Standards that are generally applicable to Level IV entities, viz., Micro Non -
company entities (MiNCE)) for the accounting periods beginning on or after
April 1, 2020:

AS 1, Disclosure of Accounting AS 2, Valuation of Inventories
Policies

AS 4, Contingencies and Events AS 5, Net Profit or Loss for the Period,

Occurring After the Balance Sheet Prior Period Items and Changes in

Date Accounting Policies

AS 7, Construction Contracts AS 9, Revenue Recognition
AS 10, Property, Plant and AS 11, The Effects of Changes in

Equipment Foreign Exchange Rates

(Applicable with disclosures (Applicable with disclosures

exemption) exemption)

AS 12, Government Grants AS 13, Accounting for Investments

(Applicable with disclosures
exemption)

AS 15, Employee Benefits AS 16, Borrowing Costs

(Applicable with exemptions)

AS 19, Leases AS 22, Accounting for Taxes

(Applicable with disclosures (Applicable only for current tax related

exemption) provisions)

AS 26, Intangible Assets AS 29, Provisions, Contingent
Liabilities and Contingent Assets
(Applicable with disclosures (Applicable with disclosures
exemption) exemption)

This Publication has two Parts, viz, Part I and Part II. Part I provides an
overview of recognition and measurement related provisions prescribed in AS
applicable to MiNCE and Part II include Disclosures Checklist under AS
applicable to these entities. It is pertinent to note that the full text of ASs should
be referred for comprehensive knowledge on the subject.

This Publication covers recognition, measurements and disclosure
requirements under above stated AS. Certain other AS, namely, AS 14,
Accounting for Amalgamations, AS 21, Consolidated Financial Statements, AS
23, Accounting for Investments in Associates in Consolidated Financial
Statements, AS 25, Interim Financial Statements, AS 27, Financial Reporting
for Interests in Joint Ventures, are not covered in the Publication since in case
of micro non-company entities generally there are no such transactions.
However, if there are such transactions covered under these standards, the
entities shall apply the requirements of these standards. Further, AS 3, Cash
Flow Statements, AS 17, Segment Reporting, AS 18, Related Party
Disclosures, AS 20, Earnings Per Share, AS 24, Discontinued Operations, AS
28, Impairment of Assets, are also not covered in this Publication since these
are not applicable to MiNCE. Also, references to these AS, which are not
applicable to MiNCE, have not been included in the AS applicable to these
entities, e.g., requirements regarding impairment of assets referred in AS 10,
reference to intangible assets acquired in amalgamation transactions referred
in AS 26, etc. have not been included. AS 22, Accounting for Incomes Taxes,
shall apply to MNCE for Current tax requirements only.

For the complete text of the applicable/relevant ASs mentioned in above
paragraph, please refer publications of the Accounting Standards Board;
Compendium of Accounting Standards, Accounting Standards: Quick
Referencer and Accounting Standards: Disclosure Checklist (Revised
February 2020).
Foreword

Small and Medium Entities (SMEs) represent over 90% of total entities in many
countries worldwide and contribute significantly to the respective national
economies through investment, employment generation, production of goods
and services, etc. Similarly, SMEs in India also have always been the
backbone of the Indian economy. In view of their significance in the economy,
good quality financial reporting by such entities is called for.

The quality of financial reporting primarily depends on the twin towers of
recognition & measurement principles and disclosure & presentation of
relevant information. Accounting Standards establish the sound principles for
recognition, measurement, presentation and disclosures of information in the
financial statements.

For the purpose of applicability of Accounting Standards, entities are classified
into companies and non-company entities. The Accounting Standards
prescribed by the Institute of Chartered Accountants of India (ICAI) are
applicable to Non-company entities. In order to ensure that the relevant
Accounting Standards are effectively implemented by various entities, the ICAI
had categorised non-company entities into Level I, Level II and Level III for
applicability of Accounting Standards. Level II and Level III non-company
entities were further classified as Small and Medium Sized Entities and certain
exemptions/relaxations were provided to these entities.

In view of various developments taken place over the time, such as, threshold
limits for classification of Micro, Small and Medium Enterprises (MSMEs)
under the Micro, Small and Medium Enterprises Development (MSMED) Act,
2006, and substantial revisions in the same, and considering that the criteria
for classification of Non-company entities was laid down long back, the ICAI
had revised the criteria for classification of Non-company entities. In this
regard, the ICAI has recently issued an Announcement revising the criteria for
classification of Non-company entities into four Levels, viz., Level I, Level II,
Level III and Level IV which is applicable in respect of accounting periods
commencing on or after April 1, 2020. Level IV, Level III and Level II entities
are referred to as Micro, Small and Medium size entities (MSMEs).

For ease of Micro Non-company entities (Level IV), the Accounting Standards
Board (ASB) has come out with this Publication bringing, at one place, the
recognition, measurement and disclosure requirements under Accounting
Standards applicable for such entities.

I congratulate the Accounting Standards Board in taking this initiative and
coming out with this Publication.

I appreciate CA. M.P. Vijay Kumar, Chairman, ASB, CA. (Dr.) Sanjeev Kumar
Singhal, Vice-chairman, ASB, and all members of the ASB who have made
invaluable contribution in the various activities of the ASB and coming out with
this Publication.

I am confident that this Publication would be extremely helpful to the Micro
Non-company entities for preparing their financial statements and members of
the ICAI while discharging their professional duties.

May 19, 2021 CA. Nihar N Jambusaria
New Delhi President, ICAI
Preface

Accounting Standards issued by the ICAI are applicable to Non-company
entities to whom Ind AS are not applicable. Small and Medium sized Non-
company entities have been provided certain exemptions so that relevant
accounting requirements are made applicable to such entities and effective
compliance can be achieved. In this regard, for applicability of Accounting
Standards, the ICAI in 2004, prescribed the criteria for classification of entities
into level I, Level II and Level III, wherein subsequently minor revisions were
made. Level II and Level III non-company entities were classified as Small and
Medium sized Entities (SME) and exemptions/relaxations were available to
such entities.

The Ministry of Micro, Small and Medium Enterprises has made substantial
revisions in the threshold limits for classification of Micro, Small and Medium
Enterprises (MSMEs) vide Notification dated June 1, 2020, under the Micro,
Small and Medium Enterprises Development (MSMED) Act, 2006. The
Government, in the recent past, has increased focus on ease of doing business
for MSME and is also evaluating reducing compliance reporting /
requirements.

In view of the above, the Accounting Standards Board (ASB) of the ICAI
undertook the task of revision in the criteria for classification of Non-company
entities. The ASB also considered the inflation, other developments taken
place and the insights obtained from the outreach conducted in recent past for
simplification of Accounting Standards, and recommended the revision in the
criteria for classification of SMEs.

Accordingly, the Council of the ICAI after considering recommendations of the
ASB issued an Announcement revising the criteria for classification of Non-
company entities into four Levels, viz., Level I, Level II, Level III and Level IV
which is applicable in respect of accounting periods commencing on or after
April 1, 2020. Level IV, Level III and Level II entities are referred to as Micro,
Small and Medium size entities (MSMEs). The Announcement has provided
certain additional exemptions/relaxations to MSMEs.

The Accounting Standards Board (ASB) had earlier come out with Publications
on ‘Accounting Standards: Quick Referencer (As on April 1, 2019)’ providing a
quick guide of the key recognition and measurement provisions of the
Accounting Standards and ‘Accounting Standards (AS): Disclosures Checklist
(Revised February, 2020) providing all the Accounting Standards disclosures
at one place. Taking those publications as base, this publication has been
brought out for level IV, i.e., Micro Non-company entities (MiNCE) for the ease
of reference and understanding by such entities. This Publication is bifurcated
in two Parts; Part I provides an Overview of Accounting Standards applicable
to MiNCE and Part II includes Disclosures Checklist under AS applicable to
these entities. This Publication summarizes the Accounting Standards in a
lucid language to address the need of a concise book for micro-size entities to
be used as ready referencer. This Publication does not include disclosure
requirements under other regulatory requirements applicable to such entities.
This Publication has been prepared for ease of reference by relevant
stakeholders, however, the readers are encouraged to refer the full text of
Accounting Standards for comprehensive knowledge on the subject.

I would like to convey my sincere gratitude to our Honourable President, CA.
Nihar N. Jambusaria, who had conceptualized the thought of developing a
simple guide for MiNCE for their ease of understanding, reference and
guidance on the Accounting Standards. This Publication was possible only
because of his continuous motivation to bring out this publication in simple
language.

I am very thankful to the Vice President, CA. (Dr.) Debashis Mitra, for providing
us opportunity of bringing out this Publication as a useful tool for compliance
with relevant requirements of Accounting Standards by MiNCE and by the
Accounting professionals. I place on record my sincere thanks to the Vice
Chairman, ASB, CA. (Dr) Sanjeev Singhal, for championing the initiative of
revision of thresholds for classification of Non-company entities and simplifying
the accounting requirements for MSMEs by providing certain additional
exemptions to such entities to enhance compliance. CA. (Dr) Sanjeev Singhal
has been extremely passionate in piloting this initiative. I am thankful to all the
Council colleagues for their guidance and unanimous support to the proposal
of revising the threshold and defining exemptions/ relaxations. My thanks are
due to the members of the ASB for their valuable contribution in all the
activities of the ASB.

I also sincerely appreciate the contributions made by Staff of the ASB in
preparing this Publication.

May 15, 2021 CA. M.P. Vijay Kumar
New Delhi Chairman, Accounting Standards Board
About the Accounting Standards Board

The Institute of Chartered Accountants of India (ICAI) being the premier
accounting body in the country had set up the Accounting Standards Board
(ASB) on 21st April, 1977, with key objective of formulating Accounting
Standards (AS/ASs) to harmonise varied accounting practices. ICAI, being the
associate member of the International Accounting Standards Committee and
full-fledged member of the International Federation of Accountants decided to
consider the International Accounting Standards while formulating Accounting
Standards and try to integrate them to the extent possible in the light of the
local laws and regulations. Apart from playing sheet anchor role in standard -
setting in the country, the ASB plays an active role in international standard -
setting by participating in various international accounting forums.

The AS which at present are applicable to the entities not following Ind AS, are
nearly more than 20 years old and many of them are more than 30 years old.
Though these are well established in the country, in order to ensure that the
ASs capture the contemporary business reporting needs and are in line with
the economic developments of the country, the same need to be reviewed and
revised from time to time. Further, our country’s economy has grown over the
period of time and there are aspirations to become US$ 5 trillion economy in
a few years. It is well recognised fact that Micro, Small and Medium Entities
(MSMEs) have got a significant role to play in the economic growth and
development of the country, which calls for sound financial reporting by such
entities. Therefore, to meet the growing financial reporting needs of the
MSMEs, these existing Accounting Standards are being revised considering
the developments in financial reporting arena internationally. While doing so,
considering these Accounting Standards would be applicable to Micro entities,
there would be lesser use of fair values and time value of money and optimal
disclosures would be required. Accordingly, certain Accounting Standards in
their entirety and certain disclosure requirements have been exempted to
Micro Non-Company entities.
Part –I An Overview of Accounting Standards
Applicable to Micro Non-company Entities

Contents

AS 1, Disclosure of Accounting Policies 1

AS 2, Valuation of Inventories 3

AS 4, Contingencies and Events Occurring After the Balance

Sheet Date 5

AS 5, Net Profit or Loss for the Period, Prior Period Items and

Changes in Accounting Policies 7

AS 7, Construction Contracts 10

AS 9, Revenue Recognition 13

AS 10, Property, Plant and Equipment 16

AS 11, The Effects of Changes in Foreign Exchange Rates 21

AS 12, Accounting for Government Grants 26

AS 13, Accounting for Investments 30

AS 15, Employee Benefits 33

AS 16, Borrowing Costs 38

AS 19, Leases 40

AS 22, Accounting for Taxes on Income 44

AS 26, Intangible Assets 45

AS 29, Provisions, Contingent Liabilities and Contingent Assets 48
Part–II Disclosures Checklist under
Accounting Standards– Applicable to Micro
Non-company Entities

Contents

GUIDE TO USE THE CHECKLIST 53

AS 1, Disclosure of Accounting Policies 55

AS 2, Valuation of Inventories 57

AS 4, Contingencies and Events Occurring After the Balance

Sheet Date 58

AS 5, Net Profit or Loss for the Period, Prior Period Items and

Changes in Accounting Policies 61

AS 7, Construction Contracts 65

AS 9, Revenue Recognition 67

AS 10, Property, Plant and Equipment 68

AS 11, The Effects of Changes in Foreign Exchange Rates 72

AS 12, Accounting for Government Grants 74

AS 13, Accounting for Investments 76

AS 15, Employee Benefits 79

AS 16, Borrowing Costs 82

AS 19, Leases 83

AS 22, Accounting for Taxes on Income 86

AS 26, Intangible Assets 87

AS 29, Provisions, Contingent Liabilities and Contingent Assets 90

General 92

Appendix 1 93
Part –I An Overview of Accounting Standards
Applicable to Micro Non-company Entities

AS 1, Disclosure of Accounting Policies

This Standard deals with the disclosure of significant accounting policies which
are followed in preparing and presenting financial statements.
Disclosure of Accounting Policies
To ensure proper understanding of financial statements, it is necessary that
all significant accounting policies adopted in the preparation and presentation
of financial statements should be disclosed. Such disclosure should form part
of the financial statements.

Accounting Policies refer to the specific accounting principles and
methods of applying those principles adopted by the enterprise in the
preparation and presentation of financial statements.

Disclosure of accounting policies or of changes therein cannot
remedy wrong or inappropriate treatment of the item in the books of
accounts.

Consideration Primary Consideration-Financial statements should
in Selection of represent true and fair view
Accounting
Policies Major considerations in achieving the primary consideration-
Prudence, Substance over form, Materiality

Fundamental Going Concern
Accounting Consistency
Assumptions Accrual
- Disclose if
not followed

Change in an Accounting Policy

Disclose change which has material effect in the current period or is
reasonably expected to have material impact in later periods.

1
AS 1, Disclosure of Accounting Policies
In case of change which has material effect in the current period,
disclose, to the extent ascertainable, the amount by which any item in
the financial statements is affected by such change.
If not ascertainable, wholly or in part, indicate the fact.

2
AS 2, Valuation of Inventories

This Standard deals with the determination of value at which inventories are
carried in the financial statements, including the ascertainment of cost of
inventories and any write-down thereof to net realisable value.

Excluded work in progress arising under construction contracts
inventories
work in progress arising in the ordinary course of business
(not dealt with of service providers
by AS 2)
shares, debentures and other financial instruments held as
stock-in-trade

producers’ inventories of livestock, agricultural and forest
products, and mineral oils, ores and gases to the extent
that they are measured at net realisable value in
accordance with well-established practices in those
industries.
Inventories are assets:

held for sale in the ordinary course of business;

in the process of production for such sale; or

in the form of materials or supplies to be consumed in the
production process or in the rendering of services.

Do not include spare parts, servicing equipment and standby
equipment which meet the definition of PPE as per AS 10.

Measurement- lower of cost and net realisable value

Net Estimated selling price less the estimated costs of
realisable completion and the estimated costs necessary to make
value the sale

Assessment to be made at each balance sheet date

Cost of Cost of inventories comprise all costs of purchase, costs of
Inventories conversion and other costs incurred in bringing the inventories

to their present condition and location.

3
AS 2, Valuation of Inventories

Costs of purchase
Purchase price excluding trade discounts, rebates, etc.
Duties and taxes other than refundable duties and taxes
Freight inwards
Other expenditure directly attributable to the acquisition

Costs of conversion
Allocation of fixed production overheads based on
normal capacity
Variable production overheads assigned to each unit of
production on the basis of the actual use of production
facilities

Exclusions
Abnormal wastage
Storage costs unless necessary in the production
process prior to a further production stage
Selling and Distribution costs
Administrative overheads that do not contribute to
bringing the inventories to their present location and
condition
Unallocated overheads

Exception- Materials and other supplies held for use in the production of
inventories are not written down below cost if the finished products in which
they will be incorporated are expected to be sold at or above cost.

Cost Formulas:
The cost of inventories of items that are not ordinarily interchangeable
and goods or services produced and segregated for specific projects
should be assigned by specific identification of their individual costs.
For other inventories, cost can be assigned by using the first-in, first-out
(FIFO), or weighted average cost formula, whichever reflects the fairest
possible approximation to the cost incurred in bringing the inventories
to their present location and condition.

4
AS 4, Contingencies and Events Occurring
After the Balance Sheet Date

This Standard deals with the treatment of contingencies and events occurring
after the balance sheet date.

A contingency is a condition or situation, the ultimate outcome of
which, gain or loss, will be known or determined only on the
occurrence or non-occurrence, of one or more uncertain future
events.
Events occurring after the balance sheet date are those significant
events, both favourable and unfavourable, that occur between the
balance sheet date and the date on which the financial statements are
approved by the Board of Directors in the case of a company and, by
the corresponding approving authority in the case of any other entity.
Two types of events can be identified:

Adjusting events: those which provide further evidence of
conditions that existed at the balance sheet date; and
Non-adjusting events: those which are indicative of conditions
that arose subsequent to the balance sheet date.

Accounting Treatment

Contingencies
Contingent gains should not be recognised in the financial statements.
Contingent loss should be provided for by a charge in the Statement of
Profit and Loss if:
a) it is probable that future events will confirm that, after taking into
account any related probable recovery, an asset has been impaired
or a liability has been incurred as at the balance sheet date, and
b) a reasonable estimate of the amount of the resulting loss can be
made.
If either of the above conditions is not met, the existence of a contingent
loss should be disclosed in the financial statements, unless the
possibility of the loss is remote.

5
AS 4, Contingencies and Events Occurring After the Balance Sheet Date
Requirements relating to contingencies are applicable only to the extent
not covered by other Accounting Standards. For example, impairment
of financial assets such as, impairment of receivables (commonly known
as provisions for bad and doubtful debts) is governed by this Standard.

Events occurring after the Balance Sheet Date
Adjusting Events

Assets and liabilities should be adjusted for events occurring after the
balance sheet date that provide additional evidence to assist the
estimation of amounts relating to conditions existing at the balance
sheet date or that indicate that the fundamental accounting assumption
of going concern (i.e., the continuance of existence or substratum of the
enterprise) is not appropriate.
Non-Adjusting Events
Disclosure should be made in the report of the approving authority of
those events occurring after the balance sheet date that represent
material changes and commitments affecting the financial position of
the enterprise.
Proposed Dividend
If dividend is declared after the balance sheet date, such dividends will
not be recognised as a liability at the balance sheet date unless a Statue
requires otherwise. Such dividends should be disclosed in the notes.

6
AS 5, Net Profit or Loss for the Period, Prior
Period Items and Changes in Accounting
Policies

This Standard should be applied by an enterprise in presenting profit or loss
from ordinary activities, extraordinary items and prior period items in the
Statement of Profit and Loss, in accounting for changes in accounting
estimates, and in disclosure of changes in accounting policies.

Ordinary activities are any activities which are undertaken by an
enterprise as part of its business and such related activities in which the
enterprise engages in furtherance of, incidental to, or arising from, these
activities.

Extraordinary items are income or expenses that arise from events or
transactions that are clearly distinct from the ordinary activities of the
enterprise and, therefore, are not expected to recur frequently or
regularly.

Prior period items are income or expenses which arise in the current
period as a result of errors or omissions in the preparation of the
financial statements of one or more prior periods.

Net Profit or Loss for the period

All items of income and expense which are recognised in a period should
be included in the determination of net profit or loss for the period unless
an Accounting Standard requires or permits otherwise.

The net profit or loss for the period comprises the following components,
each of which should be disclosed on the face of the Statement of Profit
and Loss:

a) profit or loss from ordinary activities; and

b) extraordinary items.

Extraordinary items

Extraordinary items should be disclosed in the Statement of Profit and Loss as
a part of net profit or loss for the period. The nature and the amount of each
extraordinary item should be separately disclosed in the Statement of Profit

7
AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes
…
and Loss in a manner that its impact on current profit or loss can be perceived.
Example, attachment of property of the enterprise, or an earthquake.

Profit or loss from ordinary activities

When items of income and expense within profit or loss from ordinary activities
are of such size, nature or incidence that their disclosure is relevant to explain
the performance of the enterprise for the period, the nature and amount of
such items should be disclosed separately.

Prior period items

The nature and amount of prior period items should be separately disclosed in
the Statement of Profit and Loss in a manner that their impact on the current
profit or loss can be perceived.

Prior period items are normally included in the determination of net profit or
loss for the current period. An alternative approach is to show such items in
the statement of profit and loss after determination of current net profit or loss.
In either case, the objective is to indicate the effect of such items on the current
profit or loss.

Changes in Accounting Policy

A change in an accounting policy should be made only if the adoption of
a different accounting policy is required by statute or for compliance with
an Accounting Standard or if it is considered that the change would result
in a more appropriate presentation of the financial statements of the
enterprise.

Refer AS 1 for disclosures with respect to changes in accounting policies .

Changes in Accounting Estimates

Use of estimates is essential for preparation of financial statements.
Estimates may have to be revised if changes occur regarding the
circumstances on which the estimates were made or as a result of new
information, more experience or subsequent developments.

The effect of a change in an accounting estimate should be included in
the determination of net profit or loss in:

a) the period of the change, if the change affects the period only; or

b) the period of the change and future periods, if the change affects both.

8
AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes
…

The nature and amount of a change in an accounting estimate which has
a material effect in the current period, or which is expected to have
material effect in subsequent periods, should be disclosed. If it is
impracticable to quantify the amount, this fact should be disclosed.

Whenever it is difficult to distinguish between change in an
accounting policy and change in an accounting estimate, the change is treated
as change in an accounting estimate.

9
AS 7, Construction Contracts

This Standard prescribes the accounting for construction contracts in the
financial statements of contractors.

A construction contract is a contract specifically negotiated for the
construction of an asset or a combination of assets that are closely
interrelated or interdependent in terms of their design, technology and
function or their ultimate purpose or use.

Contract revenue
Contract revenue should comprise:
a) the initial amount of revenue agreed in the contract; and
b) variations in contract work, claims and incentive payments:

i. to the extent that it is probable that they will result in revenue; and
ii. they are capable of being reliably measured.
Contract costs
Contract costs comprises:
a) costs that relate directly to the specific contract, e.g., site labour costs,
cost of materials used in construction, etc.;
b) costs that are attributable to contract activity in general and can be
allocated to the contract, e.g., insurance, construction overheads,
borrowing costs as per AS 16, Borrowing Costs, etc.; and
c) such other costs as are specifically chargeable to the customer under
the terms of the contract, e.g., general administration costs and
development costs for which reimbursement is specified in the terms of
contract.
Exclusions-Costs of a construction contract exclude costs that cannot
be attributed to contract activity or cannot be allocated to a contract,
e.g.,
(i) general administration costs for which reimbursement is not

specified in the contract;

10
AS 7, Construction Contracts

(ii) selling costs;
(iii) depreciation of idle plant and equipment that is not used on a

particular contract;
(iv) research and development costs for which reimbursement is not

specified in the contract.
Recognition of Contract Revenue and Expenses

Outcome of the contract estimated

reliably

Yes N

o

Apply percentage completion Recognise the revenue only to
method, ie, recognise the the extent of such contract costs
revenue and expenses having incurred, the recovery of which
regard to the stage of is probable. Further, contract
completion of the contract costs are to be treated as period
activity at the reporting date expense

Determination of stage of completion- Examples of methods (depends on
nature of the contract)

Costs incurred to Survey method Physical evaluation
estimated total method
contract costs method

Treatment of contract costs relating to future activity

Recognised as an asset provided it is probable that they will be recovered.
Such costs represent an amount due from the customer and are often
classified as contract work-in-progress. Example: uninstalled material, etc.

Treatment of expected loss on the contract

When it is probable that total contract costs will exceed total contract revenue,
the expected loss on the contract should be immediately recognised as an
expense.

11
AS 7, Construction Contracts
Uncertainty regarding collectability of an amount
When an uncertainty arises about the collectability of an amount already
included in contract revenue, and already recognised in the Statement of Profit
and Loss, the uncollectable amount or the amount in respect of which recovery
has ceased to be probable is recognised as an expense rather than as an
adjustment to the amount of contract revenue.

12
AS 9, Revenue Recognition

This Standard deals with the bases for recognition of revenue in the Statement
of Profit and Loss of an enterprise. The Standard is concerned with the
recognition of revenue arising in the course of the ordinary activities of the
enterprise from:

a) Sale of goods

b) Rendering of services

c) Interest, royalties and dividends

Revenue is the gross inflow of cash, receivables or other consideration
arising in the course of the ordinary activities of an enterprise from the sale
of goods, from the rendering of services, and from the use by others of
enterprise resources yielding interest, royalties and dividends.

Measurement

Revenue is measured by the charges made to customers or clients for
goods supplied and services rendered to them and by the charges and
rewards arising from the use of resources by them.

In an agency relationship, the revenue is the amount of commission and
not the gross inflow of cash, receivables or other consideration.

Recognition criteria

S.no. Revenue Recognition criteria

arising from

1. Sale of a) Property in goods or significant risks and

goods rewards of ownership have been transferred

b) No effective control is retained in the goods
transferred by the seller to a degree usually
associated with ownership

c) No significant uncertainty exists regarding
the amount of the consideration

At the time of performance it should

13
AS 9, Revenue Recognition

not be unreasonable to expect ultimate
collection.

2. Rendering of a) Performance should be measured either under

services the completed service contract method or

under the proportionate completion method,

whichever relates the revenue to the work

accomplished.

b) No significant uncertainty exists regarding the
amount of the consideration

At the time of performance it should
not be unreasonable to expect ultimate
collection.

3. Revenue Recognise revenue when no significant

arising from uncertainty as to measurability or collectability

the use by exists. Revenue should be recognised on the

others of following basis:

enterprise

resources

yielding:

• Interest Time proportionate basis

• Royalty Accrual basis (consider terms of agreement)

• Dividend When right to receive dividend is established

Completed service contract method is a method of accounting which
recognises revenue in the Statement of Profit and Loss only when the
rendering of services under a contract is completed or substantially
completed.

Proportionate completion method is a method of accounting which
recognises revenue in the Statement of Profit and Loss
proportionately with the degree of completion of services under a
contract.

14
AS 9, Revenue Recognition

Uncertainties w.r.t collection

Uncertainty Effect

At the time of Postpone revenue recognition to the extent of
raising claim uncertainty

Recognise revenue when ultimate collection is
reasonably certain

Subsequent to Revenue already recognised should not be
adjusted
sale of Make separate provision to reflect uncertainty

goods/rendering

of services

15
AS 10, Property, Plant and Equipment

The objective of this Standard is to prescribe the accounting treatment for
property, plant and equipment (PPE).

PPE are tangible items that:
are held for use in the production or supply of goods or services,
for rental to others, or for administrative purposes; and
are expected to be used during more than a period of twelve
months.

Recognition
The cost of an item of PPE should be recognised as an asset if, and only if:
(a) it is probable that future economic benefits associated with the item will

flow to the enterprise; and
(b) the cost of the item can be measured reliably.
Measurement at recognition
At the time of recognition, an item of PPE that qualifies for recognition as an
asset should be measured at its cost.

Recognition of costs ceases when the item is in the location and condition
necessary for it to be capable of operating in the manner intended by management.

16
AS 10, Property, Plant and Equipment

Examples of Directly Attributable Costs:
• Costs of employee benefits arising directly from the construction or

acquisition of the item of PPE
• Costs of site preparation
• Initial delivery and handling costs
• Installation and assembly costs
• Professional fees
• Costs of testing whether the asset is functioning properly, after

deducting the net proceeds from selling any items produced while
bringing the asset to that location and condition (such as samples
produced when testing equipment)
Exclusions:
• Administration and other general overhead costs
• Costs of opening a new facility or business, such as, inauguration costs
• Costs of introducing a new product or service (including costs of
advertising and promotional activities)
• Costs of conducting business in a new location or with a new class of
customer (including costs of staff training)
PPE acquired in exchange for a non-monetary asset or assets, or a
combination of monetary and non-monetary assets
The cost of such an item of PPE is measured at fair value unless:
(a) the exchange transaction lacks commercial substance; or
(b) the fair value of neither the asset(s) received nor the asset(s) given up
is reliably measurable.
The acquired item(s) is/are measured in this manner even if an enterprise
cannot immediately derecognise the asset given up. If the acquired item(s)
is/are not measured at fair value, its/their cost is measured at the carrying
amount of the asset(s) given up.

17
AS 10, Property, Plant and Equipment

Deferred Payment Plan

If an item of PPE is acquired under deferred payment plan, the difference of
cash price equivalent and total payment is recognised as interest over the
period of credit unless such interest is capitalised as per AS 16, Borrowing
Costs.

Measurement after recognition

An enterprise should choose either the cost model or the revaluation model as
its accounting policy and apply that policy to an entire class of PPE.

Cost Model Revaluation
Model

Cost less any Whose fair value can be measured reliably should be
accumulated carried at a revalued amount less any subsequent
depreciation accumulated depreciation.

With sufficient regularity
For entire class of PPE to which an asset

which is revalued belongs

Accounting for Revaluations
Increase in an asset’s carrying amount as a result of a revaluation is
credited directly to owners’ interests under the heading of revaluation
surplus. However, the increase should be recognised in the Statement
of Profit and Loss to the extent it reverses a revaluation decrease of the
same asset previously recognised in the Statement of Profit and Loss.

18
AS 10, Property, Plant and Equipment

Decrease in an asset’s carrying amount as a result of a revaluation is
recognised in the Statement of Profit and Loss. However, the decrease
should be debited directly to owners’ interests under the heading of
revaluation surplus to the extent of any credit balance existing in the
revaluation surplus in respect of that asset.

Depreciation

Each part of an item of PPE with a cost that is significant in relation to
the total cost of the item should be depreciated separately.

The depreciable amount should be allocated on a systematic basis over
its useful life.

Depreciation charge for each period should be recognised in the
Statement of Profit and Loss unless it is included in the carrying amount
of another asset.

Residual value & useful life to be reviewed at each balance sheet date.
Any change is accounted for as change in an accounting estimate as
per AS 5.

Depreciation method used should reflect the pattern in which the asset’s
future economic benefits are expected to be consumed by the
enterprise.

Depreciation method to be reviewed at least at each financial year end.
Any change is accounted for as change in an accounting estimate as
per AS 5.

Depreciation methods include SLM, WDV & Units of Production method.

Retirements

Items of PPE retired from active use and held for disposal should be stated at
the lower of their carrying amount and net realisable value. Any write-down
should be recognised immediately in the Statement of Profit and Loss.

Derecognition

The carrying amount of an item of PPE should be derecognised on
disposal or when no future economic benefits are expected from its use
or disposal.

19
AS 10, Property, Plant and Equipment
Gain/loss on derecognition should be recognised in Statement of Profit
and Loss (unless AS 19 requires otherwise in a sale and leaseback) and
should not be classified as revenue.
Gain/loss on derecognition is the difference between net disposal
proceeds, if any, and the carrying amount of the derecognised item of
PPE.

20
AS 11, The Effects of Changes in Foreign
Exchange Rates

Activities involving foreign exchange

Accounting for Translating the
transactions in financial statements
foreign currencies of foreign operations

Forward exchange
contracts

AS 11 lays down principles of accounting for foreign currency transactions and
foreign operations, i.e., which exchange rate to use and how to recognise in
the financial statements the financial effect of changes in exchange rates.

number of units of a foreign currency in the reporting currency at
different exchange rates.

Foreign currency is a currency other than the reporting currency of an
enterprise.

Foreign operation is a subsidiary, associate, joint venture or branch of
the reporting enterprise, the activities of which are based or conducted
in a country other than the country of the reporting enterprise.

Forward exchange contract means an agreement to exchange different
currencies at a forward rate.

Reporting currency is the currency used in presenting the financial
statements.

Monetary items are money held and assets and liabilities to be
received or paid in fixed or determinable amounts of money.

Non-monetary items are assets and liabilities other than monetary
items.

21
AS 11, The Effects of Changes in Foreign Exchange Rates

Exchange difference is the difference resulting from reporting the same
Foreign currency transactions

A foreign currency transaction should be recorded, on initial recognition in the
reporting currency, by applying to the foreign currency amount the exchange
rate between the reporting currency and the foreign currency at the date of the
transaction.

For practical reasons, a rate that approximates the actual rate at
the date of the transaction is often used, for example, an average rate for a
week or a month might be used for all transactions in each foreign currency
occurring during that period.

If exchange rates fluctuate significantly, the use of the average
rate for a period is unreliable.

At each balance sheet date, various items are to be stated using the following
rates:

Item Exchange Rate

Foreign currency monetary items Closing rate with an exception
where the closing rate may not
reflect the amount likely to be
realised or disbursed

Non-monetary items which are Exchange rate prevailing on the
carried in terms of historical cost date of transaction
denominated in a foreign currency

Non-monetary items which are Exchange rates prevailing at the
carried at fair value or other similar time values were determined
valuation, eg, net realisable value
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 recognised as income or as expenses in the period in
which they arise, with the following exception:

22
AS 11, The Effects of Changes in Foreign Exchange Rates

Exchange differences arising on a monetary item that, in substance, forms part
of an enterprise’s net investment in a non-integral foreign operation should be
accumulated in a foreign currency translation reserve in the enterprise’s
financial statements until the disposal of the net investment, at which time they
should be recognised as income or as expenses.
Foreign Operations

Foreign Operations

Integral Operation- A foreign Non-Integral Operation- A foreign
operation, the activities of which are operation that is not an integral
integral part of those of the reporting operation

enterprise

Translation of Integral Operations

Item Translation

Individual items Translated as if all the integral foreign operation’s
transactions had been entered into by the reporting
enterprise itself

Cost and Rate at the date of purchase of asset
Rate that existed on the date of valuation
depreciation of

tangible fixed assets

or,

if the asset is carried
at fair value

Costs of inventories Rate existing on the date when the cost was incurred

Recoverable Rate existing on the date when the recoverable

amount or realisable amount or net realisable value was determined

value of an asset

23
AS 11, The Effects of Changes in Foreign Exchange Rates

Translation of Non-Integral Operations

Item Translation
Assets and Liabilities (both Closing Rate
monetary and non-monetary)
Income and expense items Rate at the date of transactions. For
practical reasons, a rate that
Contingent liability disclosed in the approximates the actual rate (e.g., an
financial statements average rate for a period) is often
used
Closing Rate

Recognition of exchange differences

Integral Operations- Same as prescribed for foreign currency
transactions

Non-integral operations- Accumulated in a foreign currency translation
reserve until the disposal of the net investment

Relaxation given vide paragraph 46A

Option given to account for exchange differences arising on reporting
of long-term foreign currency monetary items:

• Relating to the acquisition of a depreciable capital asset- Added to
or deducted from the cost of the asset and depreciated over the
balance life of the asset

• Other cases- Accumulated in a “Foreign Currency Monetary Item
Translation Difference Account” in the enterprise’s financial
statements and amortised over the balance period of such long-term
asset/liability.

Forward Exchange Contracts
AS 11 is not applicable to exchange difference arising on forward
exchange contracts entered into to hedge the foreign currency risk of

24
AS 11, The Effects of Changes in Foreign Exchange Rates
future transactions in respect of which firm commitments are made or
which are highly probable forecast transactions.
Contract not intended for trading or speculation purposes
The premium or discount arising at the inception of such a forward
exchange contract should be amortised as expense or income over the
life of the contract.
Exchange differences on such a forward exchange contract should be
recognised in the Statement of Profit and Loss in the reporting period in
which the exchange rates change.
Any profit or loss arising on cancellation or renewal of such a forward
exchange contract should be recognised as income or expense for the
period.
Other Contracts
A gain or loss should be computed by multiplying the foreign currency
amount of the forward exchange contract by the difference between the
forward rate available at the reporting date for the remaining maturity of
the contract and the contracted forward rate (or the forward rate last
used to measure again or loss on that contract for an earlier period).
The gain or loss so computed should be recognised in the Statement of
Profit and Loss for the period.
The premium or discount on the forward exchange contract is not
recognised separately.

25
AS 12, Accounting for Government Grants

This Standard deals with accounting for government grants. Government
grants are sometimes called by other names such as subsidies, cash
incentives, duty drawbacks, etc.

Government grants are assistance by government in cash or kind to
an enterprise for past or future compliance with certain conditions.

Exclusions:

Forms of government assistance which cannot reasonably have
a value placed upon them

Transactions with government which cannot be distinguished
from the normal trading transactions of the enterprise

Recognition
Government grants should not be recognised until there is reasonable
assurance that:
(i) the enterprise will comply with the conditions attached to them, and
(ii) the grants will be received.
Government grant types and their accounting treatment

S. Nature of Grant Treatment for receipt Treatment if grant
No. becomes
refundable

1 Non-monetary Recorded at a nominal Not applicable
assets given value.
free of cost

2 Monetary Grants

Grants given for Option 1: Book value of asset
depreciable
fixed assets Grant to be deducted from to be increased by
gross value of asset and
depreciation to be the amount
provided on net value
refundable to

26
AS 12, Accounting for Government Grants

(Where the grant equals Government and
the whole or virtually the
whole of the cost of the depreciation to be
asset, show the asset at
the nominal value). provided on revised

book value

prospectively over

the remaining useful

life.

Option 2: Amount refundable
to be reduced from
Treated as deferred unamortised
income which is deferred income
recognised in the balance.
Statement of Profit and
Loss on a systematic and Excess amount to be
rational basis over the charged to the
useful life of the asset. Statement of Profit
and Loss.

Grants given for When the grant does not Amount refundable
non-depreciable require fulfillment of to be reduced from
assets certain obligations: Capital Reserve.

Credited to capital
reserve.

When the grant requires Amount refundable
fulfillment of certain to be reduced from
obligations: unamortised
deferred income
Credited to income over balance.
the same period over
which cost of meeting Excess amount to be
such obligation is charged charged to the
to income. Statement of Profit
and Loss.

27
AS 12, Accounting for Government Grants

3 Grants related Recognised on a Unamortised

to revenue systematic basis in the deferred credit of

Statement of Profit and grant to be first

Loss over the periods utilised.

necessary to match the Excess amount to be
grants with related costs charged to the
they are intended to Statement of Profit
compensate. and Loss.

Presentation:

Option 1:

Shown separately under
“other income”.

Option 2:

Deducted in reporting
related expenses.

4 Grants of the Credited to capital Amount refundable

nature of reserve. to be reduced from

promoters’ Capital Reserve.

contribution

(They are given

with reference to

the total

investment in an

undertaking or

by way of

contribution

towards its total

capital outlay

and no

repayment is

ordinarily

expected in the

case of such

grants.)

5 Government grants that are receivable as compensation for

28
AS 12, Accounting for Government Grants
expenses or losses incurred in a previous accounting period or
for the purpose of giving immediate financial support to the
enterprise with no further related costs, should be recognised and
disclosed in the Statement of Profit and Loss of the period in which
they are receivable, as an extraordinary item if appropriate as per AS
5.

29
AS 13, Accounting for Investments

This Standard deals with accounting for investments in the financial
statements of enterprises and related disclosure requirements.

Scope Recognition of interest, dividends and rentals earned on
Exclusions investments covered by AS 9

Operating or finance leases

Investment of retirement benefit plans and life insurance
enterprises

Mutual funds and venture capital funds and/or the related
asset management companies, banks and public financial
institutions formed under a Central or State Government Act
or so declared under the Companies Act, 2013

Shares, debentures and other securities held as stock-in-trade (i.e.,
for sale in the ordinary course of business) are not ‘investments’ as defined in
this Standard. However, the manner in which they are accounted for and
disclosed in the financial statements is quite similar to that applicable in respect
of current investments. Accordingly, the provisions of this Standard, to the
extent that they relate to current investments, are also applicable to shares,
debentures and other securities held as stock-in-trade, with suitable
modifications as specified in this Standard.

Investments are assets held by an enterprise for earning income by
way of dividends, interest, and rentals, for capital appreciation, or for
other benefits to the investing enterprise. Assets held as stock-in-
trade are not ‘investments’.

Fair value is the amount for which an asset could be exchanged
between a knowledgeable, willing buyer and a knowledgeable willing
seller. Under appropriate circumstances, market value or net
realisable value provides an evidence of fair value.

30
AS 13, Accounting for Investments

Carrying Value- Lower of cost Carried at cost
and fair value*.
In case of decline, other than
Reduction to fair value or any temporary, carrying amount is
reversals of such reductions reduced to recognise the
are included in Statement of decline- Resultant reduction
Profit and Loss and any reversal thereof are
included in the Statement of
Profit and Loss

*Determined either on an individual investment basis or by category of
investment, but not on an overall (or global) basis.

Cost of an investment

Cost of an investment includes acquisition charges such as brokerage, fees
and duties.

Mode of acquisition of investment Acquisition cost

By actual cash payment Actual cash price

By issue of shares or other Fair value of the securities issued. In

securities appropriate cases, this may be

indicated by the issue price as

determined by statutory authorities

In exchange for another asset Fair value of the asset given up or
fair value of the investment
acquired, whichever is more clearly
evident

Pre-acquisition dividend or interest- Deducted from the purchase
price

31
AS 13, Accounting for Investments

Right shares- When right shares offered are subscribed for, the cost of
the right shares is added to the carrying amount of the original holding.
If rights are not subscribed for but are sold in the market, the sale
proceeds are taken to the Statement of Profit and Loss.
Investment acquired on cum-right basis- Where the investments are
acquired on cum-right basis and the market value of investments
immediately after their becoming ex-right is lower than the cost for which
they were acquired then, it may be appropriate to apply the sale
proceeds of rights to reduce the carrying amount of such investments to
the market value.
Investment property
An investment property is an investment in land or buildings that are
not intended to be occupied substantially for use by, or in the
operations of, the investing enterprise.

Accounted for in accordance with cost model as prescribed in AS 10
above.
Disposal of an investment
Difference between the carrying amount and net disposal proceeds
should be charged or credited to the Statement of Profit and Loss.
When disposing of a part of the holding of an individual investment, the
carrying amount to be allocated to that part is determined on the basis
of the average carrying amount of the total holding of that investment.
Reclassification of investments
Current to Long-term- Transfer at lower of cost and fair value at the date
of transfer
Long-term to current- Transfer at lower of cost and carrying amount at
the date of transfer.

32
AS 15, Employee Benefits

The objective of this Standard is to prescribe the accounting treatment and
disclosure for employee benefits in the books of employer except employee
share-based payments. It does not deal with accounting and reporting by
employee benefit plans.

Employee benefits are all forms of consideration given by an
enterprise in exchange for service rendered by employees.

Employee benefits include:

Short-term Post-employment Other long- Termination
employee benefits term employee benefits
benefits
benefits

Short-term employee benefits

Short-term employee benefits are employee benefits (other than
termination benefits) which fall due wholly within twelve months after
the end of the period in which the employees render the related
service.

Recognise the undiscounted amount of short-term employee benefits
expected to be paid in exchange for the service rendered by the employee
during an accounting period:

(a) as a liability (accrued expense), after deducting any amount already
paid; and

(b) as an expense, unless another AS requires or permits the inclusion of
the benefits in the cost of an asset.

Post-employment benefits

Post-employment benefits are employee benefits (other than
termination benefits) which are payable after the completion of
employment.

33
AS 15, Employee Benefits

Post-employment benefit plans are formal or informal arrangements
under which an enterprise provides post-employment benefits for one
or more employees.

Defined Defined Benefit
Contribution Plans Plans

Defined contribution plans are post-employment benefit plans under
which an enterprise pays fixed contributions into a separate entity (a
fund) and will have no obligation to pay further contributions if the
fund does not hold sufficient assets to pay all employee benefits
relating to employee service in the current and prior periods.

Defined benefit plans are post-employment benefit plans other than
defined contribution plans.

Accounting for defined contribution plans

Enterprise’s obligation is limited to the amount that it agrees to
contribute to the fund.

Actuarial risk (that benefits will be less than expected) and investment
risk (that assets invested will be insufficient to meet expected benefits)
fall on the employee.

Obligations are measured on an undiscounted basis, except where they
do not fall due wholly within twelve months after the end of the period in
which the employees render the related service.

Enterprise should recognise the contribution payable to a defined
contribution plan in exchange for the service provided by the employee:

❖ as a liability (accrued expense), after deducting any contribution
already paid; and

❖ as an expense, unless another Accounting Standard requires or
permits the inclusion of the contribution in the cost of an asset
(see, for example, AS 10, Property, Plant and Equipment).

34
AS 15, Employee Benefits

Micro Non-company entities may not discount contributions that fall due
more than 12 months after the balance sheet date.

Accounting for defined benefit plans
Enterprise’s obligation is to provide the agreed benefits to current and
former employees.
Actuarial risk (that benefits will cost more than expected) and
investment risk fall, in substance, on the enterprise.
Accounting by an enterprise for defined benefit plans involves the
following steps:
❖ using actuarial techniques to make a reliable estimate of the
amount of benefit that employees have earned in return for their
service in the current and prior periods.
❖ discounting that benefit using the Projected Unit Credit Method in
order to determine the present value of the defined benefit
obligation and the current service cost
❖ determining the fair value of any plan assets
❖ determining the total amount of actuarial gains and losses
❖ where a plan has been introduced or changed, determining the
resulting past service cost; and
❖ where a plan has been curtailed or settled, determining the
resulting gain or loss
Actuarial gains and losses should be recognised immediately in the
Statement of Profit and Loss as income or expense.

Other long-term employee benefits
Other long-term employee benefits are employee benefits (other than
post-employment benefits and termination benefits) which do not fall
due wholly within twelve months after the end of the period in which
the employees render the related service.

The amount recognised as a liability for other long-term employee benefits
should be the net total of the following amounts:

35
AS 15, Employee Benefits

(a) the present value of the defined benefit obligation at the balance sheet
date

(b) minus the fair value at the balance sheet date of plan assets (if any) out
of which the obligations are to be settled directly

For other long-term employee benefits, an enterprise should recognise the net
total of the following amounts as expense or (subject to paragraph 59 of AS
15) income, except to the extent that another Accounting Standard requires or
permits their inclusion in the cost of an asset:
(a) current service cost
(b) interest cost
(c) the expected return on any plan assets and on any reimbursement right

recognised as an asset
(d) actuarial gains and losses, which should all be recognised immediately
(e) past service cost, which should all be recognised immediately
(f) the effect of any curtailments or settlements.

In case of micro non-company entities, recognition and measurement
principles in respect of accounting for defined benefit plans and other
long-term employee benefits are not mandatory and any other rational
method may be used for calculation and accounting of the accrued
liability.

Termination Benefits
Termination benefits are employee benefits payable as a result of either:
a) an enterprise’s decision to terminate an employee’s employment

before the normal retirement date; or
b) an employee’s decision to accept voluntary redundancy in

exchange for those benefits (voluntary retirement).

An enterprise should recognise termination benefits as a liability and an
expense when, and only when:
(a) the enterprise has a present obligation as a result of a past event;

36
AS 15, Employee Benefits
(b) it is probable that an outflow of resources embodying economic benefits

will be required to settle the obligation; and
(c) a reliable estimate can be made of the amount of the obligation.

Micro non-company entities may not discount contributions that fall due
more than 12 months after the balance sheet date as required in para
46 and 139 of the Standard.

37
AS 16, Borrowing Costs

This Standard should be applied in accounting for borrowing costs. This
Standard does not deal with the actual or imputed cost of owners’ equity,
including preference share capital not classified as a liability.

Borrowing costs are interest and other costs incurred by an
enterprise in connection with the borrowing of funds.
Inclusions:

Interest and commitment charges on borrowings
Amortisation of discounts and premiums related to borrowings
Amortisation of ancillary costs incurred in connection with
arrangement of borrowings
Finance charges in respect of assets acquired under finance lease
Exchange differences arising from foreign currency borrowings to
the extent they are regarded as adjustment to interest costs

Exchange differences on foreign currency borrowings to the extent of the
difference between the interest on local currency borrowings and the interest
on foreign currency borrowings are considered to be borrowing costs under
this Standard.
Accounting of Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or
production of a qualifying asset should be capitalised as part of the cost of that
asset. Other borrowing costs should be recognised as an expense in the period
in which they are incurred.

A qualifying asset is an asset that necessarily takes a substantial
period of time to get ready for its intended use or sale.

Ordinarily, a period of 12 months is considered as substantial
period of time unless a shorter or longer period can be justified on the
basis of facts and circumstances of the case.

Computation of Amount to be capitalised in case funds are borrowed

38
AS 16, Borrowing Costs

Generally Specifically

Capitalisation rate (weighted Actual Borrowing Costs less
average of the borrowing costs Income on temporary
outstanding during the period, other investment of these
than specific borrowings) should be borrowings.
applied to the expenditure on
qualifying assets.

Amount capitalised should not
exceed borrowing costs incurred
during that period.

Commencement of Suspension of Cessation of
Capitalisation of Capitalisation Capitalisation of
Borrowing costs of Borrowing Borrowing costs

costs

All the following During extended When substantially all
conditions to be satisfied: periods in which the activities necessary
active to prepare the qualifying
expenditure for the development is asset for its intended
interrupted. use or sale are
acquisition, complete.

construction or

production of a

qualifying asset is When the construction

being incurred; of a qualifying asset is

borrowing costs are completed in parts and
being incurred; and
a completed part is

activities that are capable of being used
necessary to prepare
the asset for its while construction
intended use or sale
are in progress. continues for the other

parts, capitalisation of

borrowing costs in

relation to a part should

cease when

substantially all the

activities necessary to

prepare that part for its

intended use or sale are

complete.

39
AS 19, Leases

The objective of this Standard is to prescribe, for lessees and lessors, the
appropriate accounting policies and disclosures in relation to finance leases
and operating leases.

Scope lease agreements to explore for or use natural resources,
Exclusions such as oil, gas, timber, metals and other mineral rights

licensing agreements for items such as motion picture films,
video recordings, plays, manuscripts, patents and copyrights

lease agreements to use lands

A lease is an agreement whereby the lessor conveys to the lessee in
return for a payment or series of payments the right to use an asset
for an agreed period of time.
A finance lease is a lease that transfers substantially all the risks and
rewards incident to ownership of an asset.
An operating lease is a lease other than a finance lease.

Accounting Treatment in the Financial Statements of Lessees
Finance Leases

When to recognise? What to recognise? What next ?

• Inception of the • An asset and a • Finance Charge -
lease liability at an amount part of lease
equal to lower of payment
fair value and the
present value of the • Depreciation on
minimum lease leased asset
payments from the
standpoint of the
lessee

40
AS 19, Leases
For calculating present value of minimum lease payments, discount rate
implicit in the lease or, if is not practicable to determine the same, the
lessee’s incremental borrowing rate should be used.
Finance charge should be allocated to periods during the lease term so
as to produce a constant periodic rate of interest on the remaining
balance of the liability for each period.
Initial direct costs are included as part of the amount recognised as an
asset under the lease.
Depreciation policy for a leased asset should be consistent with that for
depreciable assets owned.
If there is no reasonable certainty that the lessee will obtain ownership
by the end of the lease term, the asset should be fully depreciated over
the lease term or its useful life, whichever is shorter.
Operating Leases

Lease payments exclude costs for services such as insurance and
maintenance.
Accounting Treatment in the Financial Statements of Lessors
Finance Leases

The lessor should recognise assets given under a finance lease in its
balance sheet as a receivable at an amount equal to the net investment
in the lease.
Finance income is allocated over the lease term in a manner that return
on net investment outstanding for various periods is constant.

41
AS 19, Leases

Lease payments are reduced from both principal and unearned finance
income.

Initial direct costs are either recognised immediately in the Statement of
Profit and Loss or allocated against the finance income over the lease
term.

Operating Leases

The lessor should present an asset given under operating lease in its
balance sheet under fixed assets and recognise associated costs,
including depreciation, as expense. Depreciation of leased assets
should be on a basis consistent with normal depreciation policy of the
lessor for similar assets.

Lease income from operating leases (excluding receipts for services
provided such as insurance and maintenance) should be recognised in
the Statement of Profit and Loss on a straight line basis over the lease
term, unless another systematic basis is more representative of the time
pattern in which benefit derived from the use of the leased asset is
diminished.

Initial direct cost incurred specifically to earn revenues from an
operating lease are either deferred and allocated to income over the
lease term in proportion to the recognition of rent income or are
recognised as an expense in the Statement of Profit and Loss in the
period in which they are incurred.

Sale and Leaseback Transactions

A sale and leaseback transaction involves the sale of an asset by the vendor
and the leasing of the same asset back to the vendor.

Sale and leaseback transaction resulting in a finance lease

Any excess or deficiency of sales proceeds over the carrying amount
should be deferred and amortised over the lease term in proportion to
the depreciation of the leased asset.

Sale and leaseback transaction resulting in an operating lease

❖ Sale price = Fair value: Profit or loss is recognised immediately.

❖ Sale price > Fair value: Excess amount is deferred and amortised
over expected period of use of the asset.

42
AS 19, Leases
❖ Sale price < Fair value: If loss is compensated by future lease

payments at below market price, then it is deferred and amortised
in proportion to lease payments over the expected period of use,
otherwise, it should be recognised immediately.
❖ If the fair value at the time of a sale and leaseback transaction is
less than the carrying amount of the asset, a loss equal to the
amount of the difference between the carrying amount and fair
value should be recognised immediately.

43
AS 22, Accounting for Taxes on Income

Micro Non-company entities (Level IV entities) shall apply AS 22 for
Current tax requirements only (definition as per paragraph 4.4,
recognition as per paragraph 9, measurement as per paragraph 20,
and presentation and disclosure as per paragraphs 27-28).

Current tax is the amount of income tax determined to be payable
(recoverable) in respect of the taxable income (tax loss) for a period.

Recognition
Current tax, should be included in the determination of the net profit or
loss for the period.

Measurement
Current tax should be measured at the amount expected to be paid to
(recovered from) the taxation authorities, using the applicable tax rates
and tax laws.

Presentation
An enterprise should offset assets and liabilities representing current
tax if the enterprise has a legally enforceable right to set off the
recognised amounts and intends to settle the asset and the liability on
a net basis.

Transitional requirements

On the first occasion when a Non-company entity gets classified as
Micro non-company entity (Level IV), the accumulated deferred tax
asset/liability appearing in the financial statements of immediate
previous accounting period, shall be adjusted against the opening
revenue reserves.

44
AS 26, Intangible Assets

AS 26 prescribes the accounting treatment for intangible assets.

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.

Scope Financial assets
Exclusions Intangible assets covered by other AS

Intangible assets arising in insurance enterprises from contracts
with policy holders

Mineral rights and expenditure on the exploration for, or
development and extraction of, minerals, oil, natural gas and
similar non-regenerative resources

Expenditure in respect of termination benefits

Initial Recognition

An intangible asset should be recognised in the financial statements as an
intangible asset if it meets the definition of intangible asset and it meets the
recognition criteria as specified in the Standard.

Recognition Probable that future economic benefits will flow to the
Criteria enterprise

Costs can be reliably measured

Measurement

An intangible asset should be measured initially at cost.

Direct Purchase Purchase price, including non-refundable import
duties and other taxes, net of any trade discounts
and rebates, and any directly attributable
expenditure on making the asset ready for its
intended use

Exchange of asset In accordance with AS 10 as above

Issue of securities Fair value of securities issued or of asset acquired

45
AS 26, Intangible Assets

whichever is clearly evident

Acquisition by Nominal value or acquisition cost as per AS 12 plus

way of any expenditure that is directly attributable making

government grant the asset ready for its intended use

Research & Research expenses- Expensed off in P/L
Development Development expenses- Capitalise if certain criteria
expenses are met

Internally Not to be recognised
generated
Goodwill

Recognition as Expense

Expenditure on an intangible item should be recognised as an expense when
it is incurred unless:

a) it forms part of the cost of an intangible asset that meets the recognition
criteria.

Expenditure on an intangible asset that was initially recognised as an expense
in previous annual financial statements should not be recognised as part of
the cost of an intangible asset at a later date.

Subsequent expenditure

An expenditure that has been incurred on an intangible asset subsequent to
its purchase or completion may be added to the cost of the asset provided:

it is probable that the expenditure will enable the asset to generate
future economic benefits in excess of its originally assessed standard
of performance

the expenditure can be measured and attributed to the asset reliably.

Subsequent Measurement

After recognition, an intangible asset should be carried at its cost less any
accumulated amortisation.

Amortisation:
The depreciable amount should be allocated on a systematic basis over
the best estimate of its useful life. Method of amortisation should be

46
AS 26, Intangible Assets

based on the pattern of consumption of asset’s economic benefits.
There is a rebuttable presumption that the useful life of an intangible
asset will not exceed ten years.
Amortisation should commence when the asset is available for use.
If control over future economic benefits from an intangible asset is
achieved through legal rights that have been granted for a finite period,
the useful life of the intangible asset should not exceed the period of
legal rights, unless (a) the legal rights are renewable and (b) renewal is
virtually certain.
Amortisation period & method should be reviewed at least at each
financial year end. Changes should be accounted for in accordance with
AS 5.
The residual value of an intangible asset should be assumed to be zero
unless:
(a) there is a commitment by a third party to purchase the asset at

the end of its useful life; or
(b) there is an active market for that asset and:

(i) residual value can be determined by reference to that
market; &

(ii) it is probable that such a market will exist at the end of the
asset’s useful life.

Retirements and Disposals
An intangible asset should be derecognised on disposal or when no
future economic benefits are expected from its use and subsequent
disposal.
Gain or loss arising from the retirement or disposal is the difference
between the net disposal proceeds and the carrying amount of the
asset.
Gain or loss should be recognised as income or expense in the
Statement of Profit and Loss.

47
AS 29, Provisions, Contingent Liabilities and
Contingent Assets

The objective of AS 29 is to ensure that appropriate recognition criteria and
measurement bases are applied to provisions and contingent liabilities and
that sufficient information is disclosed in the notes to the financial statements
to enable users to understand their nature, timing and amount. The objective
of this Standard is also to lay down appropriate accounting for contingent
assets.

Scope

AS 29 prescribes accounting for provisions and contingent liabilities and in
dealing with contingent assets, except:

Scope those resulting from financial instruments that are carried at fair
Exclusi value
ons
those resulting from executory contracts, except where the
contract is onerous
those covered by another AS

those arising in insurance enterprises from contracts with policy
holders

Provision is a liability which can be measured only by using
substantial degree of estimation.
Liability is a present obligation of the enterprise arising from
past events, the settlement of which is expected to result in an
outflow from the enterprise of resources embodying economic
benefits.
Contingent Liability is
• a possible obligation arising from past events and the existence
of which will be confirmed only by the occurrence or non-
occurrence of one or more uncertain future events not wholly
within the control of the enterprise; or
• a present obligation that arises from past events but is not
recognised because it is not probable that an outflow of

48
AS 29, Provisions, Contingent Liabilities and Contingent Assets

resources embodying economic benefits will be required to
settle the obligation or a reliable estimate of the amount of
obligation cannot be made.

Contingent Asset is a possible asset that arises from past events
the existence of which will be confirmed only by the occurrence
or non-occurrence of one or more uncertain future events not
wholly within the control of the enterprise.

Present obligation- An obligation is a present obligation if,
based on the evidence available, its existence at the balance
sheet date is considered probable, i.e., more likely than not.

An obligation is a possible obligation if, based on the evidence
available, its existence at the balance sheet date is considered
not probable.

Provisions, Contingent Assets & Liabilities-Recognition, Measurement
and Review

Recognition Measurement Review

Provision A provision Best estimate of Reviewed
at each
should be the expenditure balance
sheet date
recognised required to settle and
adjusted to
when: the present reflect the
current best
a) Enterprise obligation at the estimate.

has a Balance Sheet Reversed, if
appropriate.
present date

obligation as

a result of a Other factors for
consideration
past event

b) It is probable a) Risks and
that an
outflow of uncertainties
resources
embodying should be
economic
benefits will considered.
be required
to settle the b) Future events

should be

considered when

there is sufficient

objective evidence

49
AS 29, Provisions, Contingent Liabilities and Contingent Assets

obligation that they will occur

c) Reliable c) No discounting

estimate can except in the case

be made of of

the amount decommissioning,

of the restoration and

obligation similar liabilities

that are

recognised as cost

of PPE

d) Gains from

expected disposal

of assets should

not be considered.

e) Reimbursements

by another party

should be

considered if it is

virtually certain

that

reimbursement will

be received if the

enterprise settles

the obligation

f) The
reimbursement
should be treated
as a separate
asset.

g) Amount
recognised for the
reimbursement
should not exceed
the amount of
provision

h) In the Statement of
Profit and Loss,

50
AS 29, Provisions, Contingent Liabilities and Contingent Assets

the expense

relating to a

provision may be

presented as net

of the amount

recognised for

reimbursement.

Contingent Not to be - Assessed
Liabilities recognised.
Only continually to
Contingent disclosure is
Assets required, determine
unless the
possibility of whether an
an outflow of
resources outflow of
embodying
economic resources
benefits is
remote. embodying

Not to be economic
recognised.
benefits has
Disclosure is
usually become
made in the
report of the probable. If it
approving
authority becomes
when an
inflow of probable,
economic
benefits is contingent

liability is

recognised as

provision.

- Assessed

continually and

if it has become

virtually certain

that an inflow of

economic

benefits will

arise, the asset

and the related

income are

recognised.

51
AS 29, Provisions, Contingent Liabilities and Contingent Assets
probable
and not in
the financial
statements.

A provision should be used only for expenditures for which the
provision was originally recognised.

52
Part–II Disclosures Checklist under
Accounting Standards – Applicable to Micro
Non-company Entities

GUIDE TO USE THE CHECKLIST

The following points may please be noted before using the Checklist:

1. This is only a Disclosure Checklist.

2. The Checklist contains disclosure requirements of the following
pronouncements of the Institute of Chartered Accountants of India:

(i) Accounting Standards

(ii) Announcements on Accounting Standards so far as
disclosure requirements are concerned.

The above categories have been appropriately mentioned in the
Checklist.

3. The Checklist may be used to assist in considering compliance with
the disclosure requirements of the relevant pronouncements. It is not
a substitute for an understanding of the relevant pronouncements
themselves and the exercise of judgement.

4. Users of the Checklist are presumed to have a thorough
understanding of the relevant pronouncements and should refer to the
text of the pronouncements, as necessary, in considering particular
items in the Checklist.

5. The Checklist points generally require a “Yes”, “No” or “N/A”
response. Depending on the response, further action may be needed.
A “Yes” response does not necessarily result in full compliance with
the relevant pronouncement.

6. The disclosure checklist table provides reference of the paragraph
number of the respective Accounting Standard providing that
disclosure requirement. Example, 1.26 indicates paragraph 26 of AS
1, etc.

7. Effective date of applicability of the relevant pronouncements should

53
Part–II Disclosures Checklist under Accounting Standards – Applicable
…

be kept in mind while using the Checklist.
8. The Checklist may require modifications/additions/deletions in the

light of subsequent developments taking place from time to time such
as new accounting standards, new professional pronouncements and
new legal requirements relevant for Micro Non-company entities.
While utmost care has been taken in preparing this Checklist, it is intended for
general guidance only. It is stressed that the original pronouncements must be
referred to for the exact and complete requirements. The ICAI does not accept
any responsibility for loss occasioned to any person acting or refraining from
action as a result of any material contained in this Checklist.

54
AS 1 (1979) – Disclosure of Accounting
Policies

S. Ref. Disclosure Yes No N/A
No.
1 1.24 Whether all the significant accounting
policies adopted in the preparation and
2 1.25 presentation of financial statements
3 1.25 have been disclosed?
4 1.26
5 1.26 Whether the disclosure of the
significant accounting policies as such
6 1.26 forms part of the financial statements?

Whether all the significant accounting
policies have been disclosed at one
place?

Whether the change in the accounting
policies which has a material effect in
the current period has been disclosed?

Where the change in the accounting
policies is reasonably expected to
have a material effect in later periods,
whether the fact of such change has
been appropriately disclosed in the
period of adoption of change?

In the case of a change in accounting
policies which has a material effect in
the current period:

(i) Whether the amount by which any
item in the financial statements is
affected by such change has
been ascertained and disclosed?

(ii) Where such amount is not
ascertainable, wholly or in part,

55
AS 1 (1979) – Disclosure of Accounting Policies
whether such fact has been
indicated?

7 1.27 (i) Where the fundamental
accounting assumption of ‘going
concern’ has not been followed,
whether the fact has been
disclosed?

(ii) Where the fundamental
accounting assumption of
‘consistency’ has not been
followed, whether the fact has
been disclosed?

(iii) Where the fundamental
accounting assumption of
‘accrual’ has not been followed,
whether the fact has been
disclosed?

56
AS 2 (revised 2016) – Valuation of Inventories

S. Ref. Disclosure Yes No N/A
No.
Whether the financial statements
1. 2.26 disclose:
&
2.27 (i) The accounting policies adopted
in measuring inventories?

(ii) Cost formula used in measuring
inventories?

(iii) Total carrying amount of
inventories?

(iv) Classification of inventories
appropriate to the enterprise
(such as raw materials and
components, work-in-progress,
finished goods, stores and
spares, loose tools)?

(v) Carrying amount of each
classification of inventories?

(vi) Extent of the changes in the
assets held in different
classifications?

57
AS 4 (revised 2016) - Contingencies and
Events Occurring After the Balance Sheet
Date

S. Ref. Disclosure Yes No N/A
No.

1 Contingencies

4.5.3 (i) If there is conflicting or insufficient
evidence for estimating the
amount of a contingent loss,
whether the disclosure has been
made of the existence and nature
of the contingency?

4.5.4 (ii) A potential loss to an enterprise
may be reduced or avoided
because a contingent liability is
matched by a related counter-
claim or claim against a third party.
In such cases, the amount of the
provision is determined after
taking into account the probable
recovery under the claim if no
significant uncertainty as to its
measurability or collectability
exists. Whether a suitable
disclosure regarding the nature
and gross amount of the
contingent liability has been
made?

4.5.5 (iii) Whether the existence and
amount of guarantees, obligations
arising from discounted bills of
exchange and similar obligations
undertaken by an enterprise have
been disclosed in financial

58
AS 4 (revised 2016) - Contingencies and Events Occurring After the…

` statements by way of note, even

though the possibility that a loss to

the enterprise will occur, is

remote?

4.16 (iv) If disclosure of contingencies is
required by paragraph 11 of this

Standard, whether the following

information has been provided:

(a) the nature of the contingency?

(b) the uncertainties which may
affect the future outcome?

(c) an estimate of the financial
effect, or a statement that
such an estimate cannot be
made?

2 Events occurring after the balance

sheet date

4.15 (i) Whether disclosure has been
made in the report of the
approving authority of those
events occurring after the balance
sheet date that represent material
changes and commitments
affecting the financial position of
the enterprise?

4.17 (ii) If disclosure of events occurring
after the balance sheet date in the
report of the approving authority is
required as mentioned in (i) above,
whether the following information
has been provided:

(a) the nature of the event?

(b) an estimate of the financial
effect, or a statement that
such an estimate cannot be
made?

59
AS 4 (revised 2016) - Contingencies and Events Occurring After the…
4.14 (iii) Whether the dividends declared
after balance sheet date but
before the financial statements are
approved for issue have been
disclosed in notes as per the
provisions of paragraph 14?
Note: As per an Announcement of the
ICAI on Applicability of AS 4 to
impairment of assets not covered by
present Indian Accounting Standards,
impairment of assets not covered by
other accounting standards is covered
by AS 4. For example, provision for
bad and doubtful debts. However,
there is no specific disclosure
requirement under AS 4 for such
provisions. Other provisions are
covered by AS 29, ‘Provisions,
Contingent Liabilities and Contingent
Assets’.

60
AS 5 (revised 1997)- Net Profit or Loss for the
Period, Prior Period Items and Changes in
Accounting Policies

S. Ref. Disclosure Yes No N/A
No.
1 Net profit or loss for the period:

5.7 Whether the following components
have been disclosed on the face of the
2 5.8 statement of profit and loss:

3 (i) profit or loss from ordinary
5.12 activities?

(ii) extraordinary items?

Extraordinary items:

(i) Whether extraordinary items
have been disclosed in the
statement of profit and loss as
part of net profit or loss for the
period?

(ii) Whether the nature and the
amount of each extraordinary
item have been separately
disclosed in the statement of
profit and loss in a manner that its
impact on current profit or loss
can be perceived?

Profit or loss from ordinary
activities:

When the items of income and
expense within profit or loss from
ordinary activities are of such size,
nature or incidence that their
disclosure is relevant to explain the

61
AS 5 (revised 1997)- Net Profit or Loss for the Period, Prior Period Items
…

performance of enterprise for the
period, whether the nature and amount
of such items have been disclosed
separately (e.g. disposals of items of
fixed assets, litigation settlements
etc.)?

4 Prior period items:

5.15 Whether the nature and amount of
prior period items have been
separately disclosed in the statement
of profit and loss in a manner that their
impact on the current profit or loss can
be perceived?

5 Change in accounting estimates:

5.27 (i) Whether the nature and the
amount of a change in an
accounting estimate which has a
material effect in the current
period;

(a) have been disclosed? or

(b) if it is impracticable to
quantify the amount, whether
that fact has been disclosed?

5.27 (ii) Whether the nature and amount of
a change in an accounting
estimate which is expected to
have a material effect in
subsequent periods:

(a) have been disclosed? or

(b) if it is impracticable to
quantify the amount, whether
that fact has been disclosed?

5.22 (iii) If an item of change is treated as a
change in accounting estimate

when it is difficult to distinguish

62
AS 5 (revised 1997)- Net Profit or Loss for the Period, Prior Period Items
…

between a change in accounting
policy and a change in accounting
estimate, whether it has been
appropriately disclosed?

(iv) Whether the effect of a change in

5.25 accounting estimate has been

classified using the same

classification in the statement of

profit and loss as was used

previously for the estimate?

6 Change in accounting policies:

5.32 (i) Whether the change in an
accounting policy which has a
material effect has been
disclosed?

(ii) Whether the impact of and the
adjustments resulting from such
change, if material, have been
shown in the financial statements
of the period in which such change
is made, to reflect the effects of
such change?

(iii) Where the effects of such change
are not ascertainable, wholly or in
part, whether such fact has been
indicated?

(v) If a change is made in the
accounting policies which has no
material effect on the financial
statements for the current period
but which is reasonably expected
to have a material effect in later
periods, whether the fact of such
change has been appropriately
disclosed in the periods in which
the change is adopted?

63
AS 5 (revised 1997)- Net Profit or Loss for the Period, Prior Period Items

…

(vi) Wherever a change in accounting

5.33 policy consequent upon the

adoption of an Accounting

Standard has been made, whether

disclosure of information required

by (i) – (iv) above has been made

unless the transitional provisions

of any other Accounting Standard

require alternative disclosures in

this regard?

64
AS 7 (revised 2002) - Construction Contracts

S. Ref. Disclosure Yes No N/A
No.
1 7.38 General:

2 Whether the enterprise has disclosed
7.39 the following:

3 (i) the amount of contract/project
7.41 revenue recognised as revenue in
the period?

(ii) the methods used to determine the

contract/project revenue

recognised in the period?

(iii) the methods used to determine the
stage of completion of
contracts/projects in progress?

Contracts in progress at the
reporting date:

Whether the enterprise has disclosed
the following for contracts-in-progress
at the reporting date:

(i) the aggregate amount of costs
incurred and recognised profits
(less recognised losses) up to the
reporting date?

(ii) the amount of advance received?
and

(iii) the amount of retentions?

Due to/from customers:

Whether the enterprise has disclosed
the following assets:

(i) the gross amount due from
customers for contract work as an

65
AS 7 (revised 2002) - Construction Contracts

asset? And

(ii) the gross amount due to
customers for contract work as a
liability?

4 Contingencies:

7.44 Whether the enterprise has disclosed
any contingencies in accordance with
AS 29, ‘Provisions, Contingent
Liabilities and Contingent Assets’.
e.g., warranty costs, penalties or
possible losses?

66
AS 9 (1985) - Revenue Recognition

S. Ref. Disclosure Yes No N/A
No.
1 9.14 Whether the enterprise has disclosed
the circumstances in which revenue
2 9.14 recognition has been postponed
pending the resolution of significant
3 9.10 uncertainties?

Whether significant accounting
policies relating to recognition of
revenue have been disclosed in
accordance with AS 1, ‘Disclosure of
Accounting Policies’?

(i) Whether the amount of turnover has
been disclosed in the following
manner on the face of the
statement of profit and loss:

Turnover (Gross) XX

Less: Excise Duty XX

Turnover (Net) XX

(ii) Whether a note has been given in
the Notes to accounts to explain
the nature of two excise duty
amounts viz. excise duty deducted
from turnover and excise duty
appearing as an expense in the
statement of profit and loss (may
be positive or negative)
representing excise duty related to
increase/decrease of finished
goods.

67
AS 10 (revised 2016) - Property, Plant and
Equipment

S. Ref. Disclosure Yes No N/A
No.

1 10.81 For each class of property, plant and
equipment, whether the entity has
disclosed:

(i) The measurement bases (i.e.,
cost model or revaluation model)
used for determining the gross
carrying amount?

(ii) The depreciation methods used?

(iii) The useful lives or the
depreciation rates used?

In case the useful live or the
depreciation rates used are
different from those specified in
the statute governing the
enterprise, whether a specific
mention of that fact has been
made?

(iv) The gross carrying amount and
the accumulated depreciation at
the beginning and end of the
period?

(v) A reconciliation of the carrying
amount at the beginning and end
of the period showing:

(a) Additions?

(b) Assets retired from active
use and held for disposal?

(c) Increase or decrease
resulting from revaluation

68
AS 10 (revised 2016) - Property, Plant and Equipment

recognised or reserved
directly in revaluation
surplus?
(d) Depreciation?
(e) the net exchange
differences arising on the
translation of the financial
statements of a non-
integral foreign operation
in accordance with AS 11?
(f) Other changes?

2 10.82 Whether the following information has
been disclosed in Financial
Statements:
(i) The existence and amounts of
restrictions on title, and property,
plant and equipment pledged as
security for liabilities?
(ii) The amount of expenditures
recognised in the carrying amount
of an item of property, plant and
equipment in the course of its
construction?
(iii) The amount of contractual
commitments for the acquisition of
property, plant and equipment?
(iv) If it is not disclosed separately in
the statement of profit and loss,
the amount of compensation from
third parties for items of property,
plant and equipment that were,
lost or given up that is included in
statement of profit and loss?
(v) The amount of assets retired from
active use and held for disposal?

69
AS 10 (revised 2016) - Property, Plant and Equipment

3 10.83 Whether the following information has
been disclosed in Financial
Statements:
(i) Depreciation whether recognised
in the statement of profit and loss
or as a part of the cost of other
assets during a period?
(ii) Accumulated depreciation at the
end of the period?

4 10.84 In accordance with AS 5, an
enterprise discloses the nature and
effect of a change in an accounting
estimate that has an effect in the
current period or is expected to have
an effect in subsequent periods.
Whether the disclosures arising from
changes in estimate with respect to
following, have been given:
(i) Residual value?
(ii) the estimated cost of dismantling,
removing or restoring items of
property, plant and equipment?
(iii) Useful lives?
(iv) Depreciation methods?

5 10.85 If items of property, plant and
equipment are stated at revalued
amounts, whether the following have
been disclosed:
(i) The effective date of the
revaluation?
(ii) Whether an independent valuer
was involved?
(iii) The methods and significant
assumptions applied in
estimating fair values of the

70
AS 10 (revised 2016) - Property, Plant and Equipment
items?

(iv) The extent to which fair values
of the items were determined
directly by reference to
observable prices in an active
market or recent market
transaction on arm’s length
terms or were estimated using
other valuation techniques?

(v) The revaluation surplus,
indicating the change for the
period and any restriction on the
distribution of the balance to
shareholders?

71
AS 11 (revised 2003) - The Effects of Changes
in Foreign Exchange Rates

S. Ref. Disclosure Yes No N/A
No.

1 11.40 Whether the enterprise disclosed the
following

(i) the amount of exchange
differences included in the net
profit or loss for the period in
accordance with AS 11?

(ii) the net exchange differences
accumulated in foreign currency
translation reserve as a separate
component of shareholders’
funds in accordance with AS 11?

(iii) reconciliation of the amount of
exchange differences mentioned
at (ii) above at the beginning of
the period and end of the period?

2 11.41 Where the reporting currency is
different from the currency of the
country in which the enterprise is
domiciled, whether–

(i) the reason for using a different
currency has been disclosed?

(ii) the reason for any change in the
reporting currency has also been
disclosed?

3 11.42 When there is a change in the
classification of a significant foreign
operation, whether the enterprise has
disclosed:

(i) the nature of the change in

72
AS 11 (revised 2003) - The Effects of Changes in Foreign Exchange
Rates

classification?
(ii) the reason for the change?
(iii) the impact of change in

classification on shareholders’
funds?
(iv) the impact on net profit or loss for
each prior period presented had
the change in classification
occurred at the beginning of the
earlier period presented?

4 11.46 For an enterprise, which has exercised
the option under paragraph 46 of AS
11 (i.e., to defer/capitalise certain
exchange differences arising on
reporting of long-term foreign currency
monetary items), whether the following
disclosures have been made:
(i) the fact of such exercise of such
option?
(ii) the amount remaining to be
amortized in the financial
statements of the period in which
such option is exercised and in
every subsequent period so long
as any exchange difference
remains unamortized?

5 11.43 Whether the effect on foreign currency
monetary items or on the financial
statements of a foreign operation of a
change in exchange rates occurring
after the balance sheet date is
disclosed in accordance with AS 4,
‘Contingencies and Events Occurring
After the Balance Sheet Date’?

73
AS 12 (1991) - Accounting For Government
Grants

S. Ref. Disclosure Yes No N/A
No.

1 12.12 Whether the following has been
disclosed:

(i) The accounting policy adopted for
government grants including the
methods of presentation in the
financial statements?

(ii) (a) the nature of government grants
recognised?

(b) the extent of government grants
recognised, including the grants
of non-monetary assets given at
a concessional rate or free of
cost?

2 12.18 Whether the government grants that
are receivable as compensation for
expenses or losses incurred in a
previous accounting period or for the
purpose of giving immediate financial
support to the enterprise with no
further related costs has been
disclosed in the statement of profit and
loss for the period in which they are
receivable as an extraordinary item, if
appropriate, in accordance with AS 5,
‘Net Profit or Loss for the Period, Prior
Period Items and Changes in
Accounting Policies’?

3 12.14 If a grant related to a non-depreciable

74
AS 12 (1991) - Accounting For Government Grants
asset requires the fulfilment of certain
obligations and the grant is credited to
income over the same period over
which the cost of meeting such
obligations is charged to income,
whether such deferred income balance
has been separately disclosed in the
financial statements?

75
AS 13 (revised 2016) - Accounting for
Investments

S. Ref. Disclosure Yes No N/A
No.

1 13.35 Accounting policy:

Whether the accounting policies for
the determination of carrying
amount of investments have been
disclosed?

2 Classification of investments:

13.26 (i) Whether the enterprise has

13.27 disclosed the investments

classified into current

investments and long-term

13.27 investments distinctly in its
financial statements?

(ii) Whether the current and long-
term investments have been
further classified as specified in
the statute governing the
enterprise?

(iii) In the absence of a statutory

requirement, whether

investments have been further

classified and disclosed, where

applicable, as investments in –

(a) Government or Trust
securities?

(b) Shares, debentures or
bonds?

(c) Investment properties?

(d) Others (specifying nature)?

76
AS 13 (revised 2016) - Accounting for Investments

3 Statement of Profit and Loss:

13.35 (i) Whether gross income by way of
(c) interest, dividends, and rentals on
investments has been stated
separately for

(a) long-term investments?

(b) current investments?

(iv) Whether income tax deducted at
source, if any, has been included
under ‘Advance Taxes Paid’?

(v) Whether the profits and losses
with regard to investments have
been disclosed as under:

(a) profits and losses on disposal
of current investments?

(b) profits and losses on changes
in the carrying amount of
current investments?

(c) profits and losses on disposal
of long-term investments?

(d) profits and losses on changes
in the carrying amount of long-
term investments?

4 13.35 Significant restrictions:

(d) Whether significant restrictions of the

following with regard to investments

have been disclosed:

(i) right of ownership of
investments?

(ii) realizability of investments?

(iii) remittance of income on
investments?

(iv) remittance of proceeds of
disposals?

77
AS 13 (revised 2016) - Accounting for Investments
5 13.35 Quoted and unquoted Investments:
(e) (i) Whether the aggregate amount of
quoted investments has been
disclosed?
(ii) Whether the aggregate market
value of quoted investments has
been disclosed?
(iii) Whether the aggregate amount of
unquoted investments has been
disclosed?

78
AS 15 (revised 2005) Employee Benefits

S. Ref. Disclosure Yes No N/A
No.

1 15.23 Short–term Employee Benefits:

Where other Accounting Standards
require disclosure, whether such
disclosures have been made?

2 Defined Contribution Plans:

15.47 Whether the enterprise has disclosed
the amount recognised as an
expense for defined contribution
plans?

3 Defined Benefit Plans:

15.120 Whether the enterprise has disclosed
the following information about
defined benefit plans:

(l) the principal actuarial assumptions
used as at the balance sheet date,
including, where applicable:

(a) the discount rates?

(b) the expected rates of return on
any plan assets for the periods
presented in the financial
statements?

(c) the expected rates of return for
the periods presented in the
financial statements on any
reimbursement right recognised
as an asset under paragraph 103
of AS 15)?

(d) medical cost trend rates?

(e) any other material actuarial

79
AS 15 (revised 2005) Employee Benefits

assumptions used?

(f) an assertion under the actuarial
assumptions to the effect that
estimates of future salary
increases, considered in
actuarial valuation, take account
of inflation, seniority, promotion
and other relevant factors such
as supply and demand in the
employment market?

4 15.125 When required by AS 29, ‘Provisions,

Contingent Liabilities and Contingent

Assets’, whether the enterprise

discloses information about

contingent liabilities arising from

post–employment benefit

obligations?

5 15.132 Other Long-term Employees
Benefits:

Where other accounting standards
require specific disclosures about
other long-term employee benefits,
whether such disclosures have been
made? (e.g., AS 5 , Net Profit or Loss
for the Period, Prior Period Items and
Changes in Accounting Policies,).

6 Termination benefits:

15.140 (a) Where there is uncertainty
about the number of employees
who will accept an offer of
termination benefit, whether the
enterprise has disclosed
information about the contingent
liability unless the possibility of
outflow in settlement is remote?
(AS 29, ‘Provisions, Contingent

80
AS 15 (revised 2005) Employee Benefits

15.141 Liabilities and Contingent
Assets’)

(b) Where termination benefit is of
such size, nature or incidence
that its disclosure is relevant to
explain the performance of the
enterprise for the period,
whether termination benefits
have been disclosed
appropriately? (AS 5, ‘Net Profit
or Loss for the Period, Prior
Period Items and Changes in
Accounting Policies’)?

81
AS 16 (2000) - Borrowing Costs

S. Ref. Disclosure Yes No N/A
No.

1 16.23 Whether the financial statements have
disclosed the accounting policy
adopted for borrowing costs?

2 16.23 Whether the amount of borrowing
costs capitalised during the period has
been disclosed in the financial
statements?

82
AS 19 (2001)- Leases

S. Ref. Disclosure Yes No N/A
No.

1 Lessee: Finance leases:

19.22 (i) Whether the lessee, in addition to
the requirements of AS 10, ‘Property,
Plant and Equipment’ and the
governing statue, has made the
following disclosures for a finance
lease including assets acquired on
hire-purchase basis:

(a) assets acquired under finance
lease as segregated from the
assets owned?

(b) for each class of assets, the net
carrying amount at the balance
sheet date?

(c) contingent rents recognised as
expense in the statement of profit
and loss for the period?

19.14 (ii) Whether the lessee has presented
separately the liability for the leased
asset as a current liability or long-term
liability as the case may be, without
deducting the same from leased
asset?

2 Lessee: Operating leases:

19.25 Whether the lessee has made the
following disclosures for operating
leases?

(i) lease payments recognised in the
statement of profit and loss for the
period, with separate amounts for

83
AS 19 (2001)- Leases

minimum lease payments and
contingent rents?

(ii) sub-lease payments received (or
receivable) recognised in the
statement of profit and loss for the
period?

3 Lessor: Finance leases:

19.37 Whether the lessor has made the
following disclosures for finance
leases:

(i) unearned finance income?

(ii) the unguaranteed residual values
accruing to the benefit of the
lessor?

(iii) the accumulated provision for
uncollectible minimum lease
payments receivable?

(iv) contingent rents recognised in the
statement of profit and loss for the
period?

4 Lessor: Operating leases:

19.39 (i) Whether the lessor has presented
an asset given under operating
lease in its balance sheet under
fixed assets?

19.46 (ii) Whether the lessor, in addition to
the requirements of AS 10,
‘Property, Plant and Equipment’
and the governing statute, has
made the following disclosures for
operating leases:

(a) for each class of assets, the
gross carrying amount, and
the accumulated depreciation
at the balance sheet date; and

84
AS 19 (2001)- Leases

(b) the depreciation recognised in
the statement of profit and
loss for the period?

(c) total contingent rents
recognised as income in the
statement of profit and loss for
the period?

5 Sale and leaseback: Lessor:

19.54 Whether the disclosure requirements
for normal leases are made for sale
and leaseback transactions?

6 Sale and leaseback: Lessee:

19.54 Whether the disclosure requirements
for normal leases are made for sale
and leaseback transactions?

7 Useful disclosures (Non-

mandatory):

19.38 Gross investment less unearned
income in new business added during
the accounting period, after deducting
the relevant amounts for cancelled
leases.

85
AS 22 (2001) – Accounting for Taxes on
Income

S. Ref. Disclosure Yes No N/A
No.

1 22.27 (i) Where the enterprise has a legally
enforceable right to set off current tax
assets and current tax liabilities and
intends to settle those assets and
liabilities on a net basis, whether the
enterprise has offset those assets and
liabilities in the balance sheet?

86
AS 26 (2002)- Intangible Assets

S. Ref. Disclosure Yes No N/A
No.

1 26.90 Whether the financial statements have
disclosed the following for each class
of intangible assets, distinguishing
between internally generated
intangible assets and other intangible
assets:

(i) the useful lives or the amortisation
rates used?

(ii) the amortisation methods used?

(iii) the gross carrying amount and the
accumulated amortisation at the
beginning and the end of the
period?

(iv) a reconciliation of the carrying
amount at the beginning and the
end of the period showing:

(a) additions, indicating

separately those from internal

development?

(b) retirements and disposals?

(c) amortisation recognised
during the period? And

(d) other changes in the carrying
amount during the period?

2 26.93 Whether the change in an accounting
estimate or accounting policy such as
that arising from changes in the
amortisation method, the amortisation
period or estimated residual values, in
accordance with AS 5, Net Profit or

87
AS 26 (2002)- Intangible Assets

Loss for the Period, Prior Period Items
and Changes in Accounting Policies,
have been disclosed by the
enterprise?

3 26.94 Whether the financial statements also
disclosed the following:

(i) (a) if an intangible asset is
amortised over more than ten
years, the reasons why it is
presumed that the useful life
of an intangible asset will
exceed ten years from the
date when the asset is
available for use?

(b) in giving the reasons
mentioned in (a) above,
whether the enterprise has
described the factor(s) that
played a significant role in
determining the useful life of
the asset?

(ii) a description, the carrying amount
and remaining amortisation period
of any individual intangible asset
that is material to the financial
statements of the enterprise as a
whole?

(iii) the existence and carrying
amounts of intangible assets
whose title is restricted and the
carrying amounts of intangible
assets pledged as security for
liabilities? and

(iv) the amount of commitment for the
acquisition of intangible assets?

4 26.96 Whether the financial statements have

88
AS 26 (2002)- Intangible Assets
disclosed the aggregate amount of
research and development
expenditures recognised as an
expense during the period?

89
AS 29 (revised 2016) - Provisions, Contingent
Liabilities and Contingent Assets

S. Ref. Disclosure YES NO N/A
No.

1 29.68 Unless the possibility of any outflow in
settlement is remote, whether the
enterprise has disclosed for each class
of contingent liability at the balance
sheet date a brief description of the
nature of the contingent liability and,
where practicable:

(i) an estimate of its financial effect,
measured under paragraphs 35-
45 of AS 29?

29.69 (ii) an indication of the uncertainties
relating to any outflows? and

(iii) the possibility of any
reimbursement?

Note: In determining which contingent
liabilities may be aggregated to form a
class, it is necessary to consider
whether the nature of the item is
sufficiently similar for a single
statement about them to fulfill the
requirements of (i) and (ii) above.

2 29.70 Where a provision and a contingent
liability arise from the same set of
circumstances whether the enterprise
has made the disclosures in para
29.68in a way that shows the link
between the provision and the
contingent liability?

3 29.71 Where any of the information required

90
AS 29 (revised 2016) - Provisions, Contingent Liabilities and
Contingent…

by para 29.68 is not disclosed because
it is not practicable to do so, whether
that fact has been stated?
4 29.72 In extremely rare cases, where
disclosure of some or all of the
information required by para 29.68 can
be expected to prejudice seriously the
position of the enterprise in a dispute
with other parties on the subject matter
of the provision or contingent liability
and accordingly no disclosure of same
is made, whether the enterprise has
disclosed the following:
(i) general nature of the dispute?
(ii) the fact that the information has

not been disclosed?
(ii) the reason why the information

has not been disclosed?

91
General

S. Ref. Disclosure Yes No N/A
No.

1 Announcement on Disclosures in

cases where a Court/Tribunal makes

an order sanctioning an accounting

treatment which is different from that

prescribed by an Accounting

Standard

If an item in the financial statements is
treated differently pursuant to an Order
made by the Court/Tribunal, as
compared to the treatment required by
an AS, whether the following
disclosures have been made in the
financial statements of the year in which
different treatment has been given:

(i) A description of the accounting
treatment made along with the
reason that the same has been
adopted because of the
Court/Tribunal Order?

(ii) Description of the difference
between the accounting treatment
prescribed in the Accounting
Standard and that followed by the
Company?

(iii) The financial impact, if any, arising
due to such a difference?

Notes: (i) The above disclosures are
recommended for non-corporate
entities also.

92
Appendix 1

Announcement

Criteria for classification of Non-company entities for
applicability of Accounting Standards

The Council, at its 400th meeting, held on March 18-19, 2021, considered the
matter relating to applicability of Accounting Standards issued by The Institute
of Chartered Accountants of India (ICAI), to Non-company entities
(Enterprises). The scheme for applicability of Accounting Standards to Non -
company entities shall come into effect in respect of accounting periods
commencing on or after April 1, 2020.

1. For the purpose of applicability of Accounting Standards, Non-company
entities are classified into four categories, viz., Level I, Level II, Level III
and Level IV.

Level I entities are large size entities, Level II entities are medium size
entities, Level III entities are small size entities and Level IV entities are
micro entities. Level IV, Level III and Level II entities are referred to as
Micro, Small and Medium size entities (MSMEs). The criteria for
classification of Non-company entities into different levels are given in
Annexure 1.

The terms ‘Small and Medium Enterprise’ and ‘SME’ used in Accounting
Standards shall be read as ‘Micro, Small and Medium size entity’ and
‘MSME’ respectively.

2. Level I entities are required to comply in full with all the Accounting
Standards.

3. Certain exemptions/relaxations have been provided to Level II, Level III
and Level IV Non-company entities. Applicability of Accounting
Standards and exemptions/relaxations to such entities are given in
Annexure 2.

4. This Announcement supersedes the earlier Announcement of the ICAI
on ‘Harmonisation of various differences between the Accounting
Standards issued by the ICAI and the Accounting Standards
notified by the Central Government’ issued in February 2008, to the

93
Appendix 1
extent it prescribes the criteria for classification of Non-company entities
(Non-corporate entities) and applicability of Accounting Standards to
non-company entities, and the Announcement ‘Revision in the criteria
for classifying Level II non-corporate entities’ issued in January
2013.

5. This Announcement is not relevant for Non-company entities who may
be required to follow Ind AS as per relevant regulatory requirements
applicable to such entities.

6. The changes arising from this Announcement will be incorporated in the
Accounting Standards while publishing the updated Compendium of
Accounting Standards.

94
Appendix 1

Annexure 1
Criteria for classification of Non-company Entities as
decided by the Institute of Chartered Accountants of
India

Level I Entities

Non-company entities which fall in any one or more of the following
categories, at the end of the relevant accounting period, are classified as
Level I entities:

(i) Entities whose securities are listed or are in the process of listing on any
stock exchange, whether in India or outside India.

(ii) Banks (including co-operative banks), financial institutions or entities
carrying on insurance business.

(iii) All entities engaged in commercial, industrial or business activities,
whose turnover (excluding other income) exceeds rupees two-fifty crore
in the immediately preceding accounting year.

(iv) All entities engaged in commercial, industrial or business activities
having borrowings (including public deposits) in excess of rupees fifty
crore at any time during the immediately preceding accounting year.

(v) Holding and subsidiary entities of any one of the above.

Level II Entities

Non-company entities which are not Level I entities but fall in any one or more
of the following categories are classified as Level II entities:

(i) All entities engaged in commercial, industrial or business activities,
whose turnover (excluding other income) exceeds rupees fifty crore but
does not exceed rupees two-fifty crore in the immediately preceding
accounting year.

(ii) All entities engaged in commercial, industrial or business activities
having borrowings (including public deposits) in excess of rupees ten
crore but not in excess of rupees fifty crore at any time during the
immediately preceding accounting year.

(iii) Holding and subsidiary entities of any one of the above.

95
Appendix 1

Level III Entities

Non-company entities which are not covered under Level I and Level II but
fall in any one or more of the following categories are classified as Level III
entities:

(i) All entities engaged in commercial, industrial or business activities,
whose turnover (excluding other income) exceeds rupees ten crore but
does not exceed rupees fifty crore in the immediately preceding
accounting year.

(ii) All entities engaged in commercial, industrial or business activities
having borrowings (including public deposits) in excess of rupees two
crore but does not exceed rupees ten crore at any time during the
immediately preceding accounting year.

(iii) Holding and subsidiary entities of any one of the above.

Level IV Entities

Non-company entities which are not covered under Level I, Level II and Level
III are considered as Level IV entities.

Additional requirements

(1) An MSME which avails the exemptions or relaxations given to it shall
disclose (by way of a note to its financial statements) the fact that it is
an MSME, the Level of MSME and that it has complied with the
Accounting Standards insofar as they are applicable to entities falling in
Level II or Level III or Level IV, as the case may be.

(2) Where an entity, being covered in Level II or Level III or Level IV, had
qualified for any exemption or relaxation previously but no longer
qualifies for the relevant exemption or relaxation in the current
accounting period, the relevant standards or requirements become
applicable from the current period and the figures for the corresponding
period of the previous accounting period need not be revised merely by
reason of its having ceased to be covered in Level II or Level III or Level
IV, as the case may be. The fact that the entity was covered in Level II
or Level III or Level IV, as the case may be, in the previous period and
it had availed of the exemptions or relaxations available to that Level of
entities shall be disclosed in the notes to the financial statements. The
fact that previous period figures have not been revised shall also be
disclosed in the notes to the financial statements.

96
Appendix 1

(3) Where an entity has been covered in Level I and subsequently, ceases
to be so covered and gets covered in Level II or Level III or Level IV, the
entity will not qualify for exemption/relaxation available to that Level,
until the entity ceases to be covered in Level I for two consecutive years.
Similar is the case in respect of an entity, which has been covered in
Level II or Level III and subsequently, gets covered under Level III or
Level IV.

(4) If an entity covered in Level II or Level III or Level IV opts not to avail of
the exemptions or relaxations available to that Level of entities in
respect of any but not all of the Accounting Standards, it shall disclose
the Standard(s) in respect of which it has availed the exemption or
relaxation.

(5) If an entity covered in Level II or Level III or Level IV opts not to avail
any one or more of the exemptions or relaxations available to that Level
of entities, it shall comply with the relevant requirements of the
Accounting Standard.

(6) An entity covered in Level II or Level III or Level IV may opt for availing
certain exemptions or relaxations from compliance with the
requirements prescribed in an Accounting Standard:
Provided that such a partial exemption or relaxation and disclosure shall
not be permitted to mislead any person or public.

(7) In respect of Accounting Standard (AS) 15, Employee Benefits,
exemptions/ relaxations are available to Level II and Level III entities,
under two sub-classifications, viz., (i) entities whose average number of
persons employed during the year is 50 or more, and (ii) entities whose
average number of persons employed during the year is less than 50.
The requirements stated in paragraphs (1) to (6) above, mutatis
mutandis, apply to these sub-classifications.

97
Appendix 1

Annexure 2

Applicability of Accounting Standards to Non-company
Entities

The Accounting Standards issued by the ICAI, as on April 1, 2020, and such
standards as issued from time-to-time are applicable to Non-company entities
subject to the relaxations and exemptions in the announcement. The
Accounting Standards issued by ICAI as on April 1, 2020, are:

AS 1 Disclosure of Accounting Policies
AS 2 Valuation of Inventories
AS 3 Cash Flow Statements
AS 4 Contingencies and Events Occurring After the Balance Sheet
Date
AS 5 Net Profit or Loss for the Period, Prior Period Items and
Changes in Accounting Policies
AS 7 Construction Contracts
AS 9 Revenue Recognition
AS 10 Property, Plant and Equipment
AS 11 The Effects of Changes in Foreign Exchange Rates
AS 12 Accounting for Government Grants
AS 13 Accounting for Investments
AS 14 Accounting for Amalgamations
AS 15 Employee Benefits
AS 16 Borrowing Costs
AS 17 Segment Reporting
AS 18 Related Party Disclosures
AS 19 Leases
AS 20 Earnings Per Share
AS 21 Consolidated Financial Statements

98
Appendix 1

AS 22 Accounting for Taxes on Income
AS 23 Accounting for Investments in Associates in Consolidated
Financial Statements
AS 24 Discontinuing Operations
AS 25 Interim Financial Reporting
AS 26 Intangible Assets
AS 27 Financial Reporting of Interests in Joint Ventures
AS 28 Impairment of Assets
AS 29 Provisions, Contingent Liabilities and Contingent Assets

(1) Applicability of the Accounting Standards to Level 1 Non-
company entities.

Level I entities are required to comply in full with all the Accounting Standards.

(2) Applicability of the Accounting Standards and
exemptions/relaxations for Level II, Level III and Level IV Non-
company entities

(A) Accounting Standards applicable to Non-company entities

AS Level II Entities Level III Entities Level IV Entities
AS 1 Applicable
AS 2 Applicable Applicable Applicable
AS 3 Not Applicable
AS 4 Applicable Applicable Applicable
AS 5 Applicable
AS 7 Applicable Not Applicable Not Applicable
AS 9 Applicable
AS 10 Applicable Applicable Applicable

Applicable Applicable

Applicable Applicable

Applicable Applicable

Applicable with Applicable with

disclosures exemption disclosures

exemption

99
Appendix 1

AS 11 Applicable Applicable with Applicable with

AS 12 disclosures exemption disclosures
AS 13
exemption
AS 14
AS 15 Applicable Applicable Applicable
AS 16
AS 17 Applicable Applicable Applicable with
AS 18 disclosures
AS 19 exemption

AS 20 Applicable Applicable Not Applicable
AS 21 (Refer note 2(C))
AS 22
Applicable with Applicable with Applicable with
AS 23 exemptions exemptions exemptions
AS 24
AS 25 Applicable Applicable Applicable
AS 26
Not Applicable Not Applicable Not Applicable

Applicable Not Applicable Not Applicable

Applicable with Applicable with Applicable with

disclosures exemption disclosures exemption disclosures

exemption

Not Applicable Not Applicable Not Applicable

Not Applicable Not Applicable Not Applicable
(Refer note 2(D)) (Refer note 2(D)) (Refer note 2(D))

Applicable Applicable Applicable only for
current tax related
provisions

(Refer note 2(B)(vi))

Not Applicable Not Applicable Not Applicable
(Refer note 2(D)) (Refer note 2(D)) (Refer note 2(D))

Applicable Not Applicable Not Applicable

Not Applicable Not Applicable Not Applicable
(Refer note 2(D)) (Refer note 2(D)) (Refer note 2(D))

Applicable Applicable Applicable with
disclosures
exemption

100
Appendix 1

AS 27 Not Applicable Not Applicable Not Applicable
(Refer notes 2(C) (Refer notes 2(C) (Refer notes 2(C)
AS 28
AS 29 and 2(D)) and 2(D)) and 2(D))

Applicable with Applicable with Not Applicable

disclosures exemption disclosures exemption

Applicable with Applicable with Applicable with

disclosures exemption disclosures exemption disclosures

exemption

(B) Accounting Standards in respect of which relaxations/exemptions
from certain requirements have been given to Level II, Level III and Level
IV Non-company entities:

(i) Accounting Standard (AS) 10, Property, Plant and Equipment

Paragraph 87 relating to encouraged disclosures is not applicable to
Level III and Level IV Non-company entities.

(ii) AS 11, The Effects of Changes in Foreign Exchange Rates (revised
2018)

Paragraph 44 relating to encouraged disclosures is not applicable to
Level III and Level IV Non-company entities.

(iii) AS 13, Accounting for Investments

Paragraph 35(f) relating to disclosures is not applicable to Level IV Non-
company entities.

(iv) Accounting Standard (AS) 15, Employee Benefits (revised 2005)

(1) Level II and Level III Non-company entities whose average number
of persons employed during the year is 50 or more are exempted
from the applicability of the following paragraphs:

(a) paragraphs 11 to 16 of the standard to the extent they deal
with recognition and measurement of short-term
accumulating compensated absences which are non-vesting
(i.e., short-term accumulating compensated absences in
respect of which employees are not entitled to cash payment
for unused entitlement on leaving);

(b) paragraphs 46 and 139 of the Standard which deal with

101
Appendix 1

discounting of amounts that fall due more than 12 months
after the balance sheet date;

(c) recognition and measurement principles laid down in
paragraphs 50 to 116 and presentation and disclosure
requirements laid down in paragraphs 117 to 123 of the
Standard in respect of accounting for defined benefit plans.
However, such entities should actuarially determine and
provide for the accrued liability in respect of defined benefit
plans by using the Projected Unit Credit Method and the
discount rate used should be determined by reference to
market yields at the balance sheet date on government
bonds as per paragraph 78 of the Standard. Such entities
should disclose actuarial assumptions as per paragraph
120(l) of the Standard; and

(d) recognition and measurement principles laid down in
paragraphs 129 to 131 of the Standard in respect of
accounting for other long-term employee benefits. However,
such entities should actuarially determine and provide for
the accrued liability in respect of other long-term employee
benefits by using the Projected Unit Credit Method and the
discount rate used should be determined by reference to
market yields at the balance sheet date on government
bonds as per paragraph 78 of the Standard.

(2) Level II and Level III Non-company entities whose average
number of persons employed during the year is less than 50 and
Level IV Non-company entities irrespective of number of
employees are exempted from the applicability of the following
paragraphs:

(a) paragraphs 11 to 16 of the standard to the extent they deal
with recognition and measurement of short-term
accumulating compensated absences which are non-vesting
(i.e., short-term accumulating compensated absences in
respect of which employees are not entitled to cash payment
for unused entitlement on leaving);

(b) paragraphs 46 and 139 of the Standard which deal with
discounting of amounts that fall due more than 12 months

102
Appendix 1

after the balance sheet date;

(c) recognition and measurement principles laid down in
paragraphs 50 to 116 and presentation and disclosure
requirements laid down in paragraphs 117 to 123 of the
Standard in respect of accounting for defined benefit plans.
However, such entities may calculate and account for the
accrued liability under the defined benefit plans by reference
to some other rational method, e.g., a method based on the
assumption that such benefits are payable to all employees
at the end of the accounting year; and

(d) recognition and measurement principles laid down in
paragraphs 129 to 131 of the Standard in respect of
accounting for other long-term employee benefits. Such
entities may calculate and account for the accrued liability
under the other long-term employee benefits by reference to
some other rational method, e.g., a method based on the
assumption that such benefits are payable to all employees
at the end of the accounting year.

(v) AS 19, Leases

(a) Paragraphs 22 (c),(e) and (f); 25 (a), (b) and (e); 37 (a) and (f); and
46 (b) and (d) relating to disclosures are not applicable to Level II
Non-company entities.

(b) Paragraphs 22 (c),(e) and (f); 25 (a), (b) and (e); 37 (a), (f) and (g);
and 46 (b), (d) and (e) relating to disclosures are not applicable to
Level III Non-company entities.

(c) Paragraphs 22 (c),(e) and (f); 25 (a), (b) and (e); 37 (a), (f) and (g);
38; and 46 (b), (d) and (e) relating to disclosures are not applicable
to Level IV Non-company entities.

(vi) AS 22, Accounting for Taxes on Income

(a) Level IV Non-company entities shall apply the requirements of AS
22, Accounting for Taxes on Income, for Current tax defined in
paragraph 4.4 of AS 22, with recognition as per paragraph 9,
measurement as per paragraph 20 of AS 22, and presentation and
disclosure as per paragraphs 27-28 of AS 22.

103
Appendix 1

(b) Transitional requirements

On the first occasion when a Non-company entity gets classified
as Level IV entity, the accumulated deferred tax asset/liability
appearing in the financial statements of immediate previous
accounting period, shall be adjusted against the opening revenue
reserves.

(vii) AS 26, Intangible Assets

Paragraphs 90(d)(iii); 90(d)(iv) and 98 relating to disclosures are not
applicable to Level IV Non-company entities.

(viii) AS 28, Impairment of Assets

(a) Level II and Level III Non-company entities are allowed to measure
the ‘value in use’ on the basis of reasonable estimate thereof
instead of computing the value in use by present value technique.
Consequently, if Level II or Level III Non-company entity chooses
to measure the ‘value in use’ by not using the present value
technique, the relevant provisions of AS 28, such as discount rate
etc., would not be applicable to such an entity. Further, such an
entity need not disclose the information required by paragraph
121(g) of the Standard.

(b) Also, paragraphs 121(c)(ii); 121(d)(i); 121(d)(ii) and 123 relating to
disclosures are not applicable to Level III Non-company entities.

(ix) AS 29, Provisions, Contingent Liabilities and Contingent Assets (revised
2016)

Paragraphs 66 and 67 relating to disclosures are not applicable to Level
II, Level III and Level IV Non-company entities.

(A) In case of Level IV Non-company entities, generally there are no
such transactions that are covered under AS 14, Accounting for
Amalgamations, or jointly controlled operations or jointly controlled
assets covered under AS 27, Financial Reporting of Interests in
Joint Ventures. Therefore, these standards are not applicable to
Level IV Non-company entities. However, if there are any such
transactions, these entities shall apply the requirements of the
relevant standard.

(B) AS 21, Consolidated Financial Statements, AS 23, Accounting for

104
Appendix 1
Investments in Associates in Consolidated Financial Statements,
AS 27, Financial Reporting of Interests in Joint Ventures (to the
extent of requirements relating to Consolidated Financial
Statements), and AS 25, Interim Financial Reporting, do not
require a Non-company entity to present consolidated financial
statements and interim financial report, respectively. Relevant AS
is applicable only if a Non-company entity is required or elects to
prepare and present consolidated financial statements or interim
financial report.