Page 14 - DCOM409_CONTEMPORARY_ACCOUNTING

Unit 1: Accounting Standards

(b) Different accounting policies for depreciation are adopted by different enterprises. Notes
Disclosure of accounting policies for depreciation followed by an enterprise is
necessary to appreciate the view presented in the financial statements of the
enterprise.
7. AS-7 – Accounting for construction contracts: Construction Contracts (Revised proved
reserves contracts) are basically of two types:
(a) Fixed price contracts: the contractor gets a fixed price or rate.
(b) Cost plus contracts: the contractor is reimbursed for allowable costs plus a fee is paid
to the contractor.
Para 2 of AS-7 defines construction contract as a “contract specifically negotiated for the
construction of an asset or a combination of assets that are closely interrelated or
independent in terms of their design, technology and function or their ultimate purpose
or use”. Construction contracts also include services rendered by project managers and
architects which are directly related to the construction of asset.
8. AS-8 – Accounting for research and development: Research is an original and planned
investigation to gain new scientific or technical knowledge, whereas development is the
utilisation of research results to produce new or substantially improved materials, devices,
products, processes, etc., prior to the commencement of commercial production.
Thus, the sequence can be shown as below:
Step Step Step
1 2 3
Research Development Commercial
Production

If, after step 1, no viable outcome is found, steps 2 and 3 are not undertaken. Similarly, if
step 2 does not result in any positive outcome, step 3 is not initiated. Thus, the use of each
step depends on the result of the preceding step. However, in India, we do not distinguish
between costs incurred for research and development. We use the phrase ‘costs of research
and development.’
9. AS-9 – revenue recognition: Para 4.1 of AS-9 states “Revenue is the gross inflow of cash,
receivable or other consideration arising in the course of 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.” Thus, revenue from
ordinary activities may arise under three situations:
(a) by sale of goods;
(b) by rendering of services; and

(c) by allowing others to use enterprise resources yielding interest, royalties and
dividends.
Revenue recognition is concerned with the timing of recognition of revenue in the profit
and loss statement.
10. AS-10 – Accounting for fixed assets: The following is the text of the Accounting Standard
10 (AS 10) issued by the Institute of Chartered Accountants of India on ‘Accounting for
Fixed Assets’.
In the initial years, this accounting standard will be recommendatory in character. During
this, this standard is recommended for use by companies listed on a recognised stock

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