Disclosure of Accounting Policies

Disclosure of accounting policies
Presented By
Viji S
Accounting policies refer to specific accounting
principles and the methods of applying those
principles in the preparation and presentation of
financial statements.
The objective of issuing this standard(AS 1) is to
promote a better understanding of financial
statements by a proper disclosure of significant
policies.
The choice of accounting policies depends on the
judgement of management.
Different Accounting Policies are…
Conversion or Translation of foreign currency .
Methods of depreciation, depletion and
amortisation.
Recognition of profit on long-term contracts.
Treatment of goodwill.
Treatment of contingent liabilities.
Treatment of retirement benefits.
Valuation of fixed assets.
Valuation of inventories.
Valuation of investments.
Main Accounting Standards are…
All significant accounting policies adopted for the
preparation of the financial statements should be
disclosed.
Disclosure should form a part of the financial
statements and the significant policies should be
disclosed at one place.
Any change in an accounting policy, having a
material effect on the financial statement of the
current year, should be disclosed and the amount
be ascertained . If not, the fact should be disclosed.
The basic assumption underlying the presentation
of financial statements such as going concern,
consistency, and accrual, are to be followed . If
these basic assumptions are not followed, then the
facts are required to be disclosed.
The management should select its policies on the
following grounds:
a) Prudence
b) Substance over form
c) Materiality
Significant Accounting Policies
a) Basis of Accounting
 The financial statements are prepared under the
historical cost convention, on accrual basis of
accounting, in conformity with the accounting
principles generally accepted in India and comply
with the accounting standards referred to in
Section 211(3C) of the Companies Act,1956 of
India.
b) Fixed Assets
 Fixed assets are started at cost less accumulated
depreciation. The Company capitalises all direct costs
relating to the acquisition and installation of fixed assets,
interest on borrowed funds if any, used to finance the
acquisition of fixed assets, is capitalised up to the date the
assets are ready for commercial use. Under-utilized/idle
assets are recorded at estimated realisable value.
 Intangible assets like goodwill and other assets are
amortised over the useful life of the assets, not exceeding
10 years.
 Tangible assets, lease hold land is being amortised over
the period of lease.
Depreciation is provided pro-rata to the period of use
on straight-line method based on the estimated useful
lives of the assets, as started below :
Assets Useful Lives
Residencial & Office Building 40 years
Factory Building 20 years
Plant & Machinery 7 years & 21 years
Dies & Moulds 3 years
Furniture & Fixtures 5 years
Office Equipment 5 years
Computers 5 years
Vehicles 5 years
In respect of building acquired, estimated useful
life is considered from the date of completion of
construction.
Impairment
At each Balance Sheet date, the company reviews
the carrying value of tangible and intangible assets
for any possible impairment. An impairment
loss is recognised when the carrying amount of an
asset exceeds its recoverable amount. For the
purpose of assessing impairment, assets are
grouped at the levels for which there are separately
identifiable cash flows(cash generating unit).
c) Investments
Long term investments are valued at cost.
Current investment as on the date of the Balance
Sheet. The company provides for diminution in
value of investments, other than temporary in
nature.
d) Inventories
Inventories of raw and packing materials, work-
in progress and finished goods are valued at
lower cost and net realisable value. Cost is
determined using standard cost method that
approximates actual cost.
e) Revenue Recognition
Sales are recognised upon delivery of goods and
are recorded net of trade discounts, rebates, sales
tax/value added tax ad excise duty on own
manufactured and outsourced products.
f) Provision and Contingent Liabilities
It is recognised when the company has a legal
and constructive obligation as a result of a past
event, for which it is probable that a cash outflow
will be required and a reliable estimate can be
made of the amount of the obligation.
g) Expenditure
Advertising expenses are consistently accrued
and recognised in the year in which the related
activities are carried out.
The company has defined benefit plan
comprising of gratuity fund and pension scheme.
The company contributes to the gratuity fund
which is recognised by income tax authorities
and administered through its trustees.
Actuarial gains and losses comprise experience
adjustments and the effect of changes in the
actuarial assumptions and are recognised
immediately in the profit & loss account as income or
expense.
Expenditure on voluntary retirement scheme is charged
to the profit & loss account in the year in which it is
incurred.
h) Foreign Currency Transactions

Transactions in foreign currencies are recognised at the
prevailing exchange rates on the transaction dates.
Realised gains and losses on settlement of foreign
currency transaction are recognised in the P&L account.
i) Taxation
Current tax is determined as the amount of tax
payable in respect of taxable income for the year.
Deferred tax for timing differences between the
income as per financial statement and income as
per income tax act 1961 is accounted for using
the tax rates and laws that have been enacted or
substantially enacted as of the balance sheet date.
Example…
• Amrit food limited prepares its accounts, in
which the depreciation is calculated as per
schedule xiv of the companies act 1956. The
management of the company is of the opinion
that since schedule xiv is followed for the
calculation of depreciation, there is no need to
disclose this fact. Comment on it.
 It should be disclosed as the AS-1 requires that
all the significant policies followed by a company
are to be disclosed. Further, the
disclosure should form a part of financial
statements and normally, all the accounting
policies should be disclosed at one place.
THANK YOU

Disclosure of Accounting Policies

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h) Foreign Currency Transactions

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