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Contemporary Accounting

Notes exchange and other large commercial, industrial and business enterprises in the public
and private sectors.

(a) Financial statements disclose certain information relating to fixed assets. In many
enterprises these assets are grouped into various categories, such as land, buildings,
plant and machinery, vehicles, furniture and fittings, goodwill, patents, trademarks
and designs. This statement deals with accounting for such fixed assets except as
described in paragraphs 2 to 5 below.
(b) This statement does not deal with the specialised aspects of accounting for fixed
assets that arise under a comprehensive system reflecting the effects of changing
prices but applies to financial statements prepared on historical cost basis.

(c) This statement does not deal with accounting for the following items to which
special considerations apply:

(i) forests, plantations and similar regenerative natural resources;
(ii) wasting assets including mineral rights, expenditure on the exploration for
and extraction of minerals, oil, natural gas and similar non-regenerative
resources;
(iii) expenditure on real estate development; and

(iv) livestock.
Expenditure on individual items of fixed assets used to develop or maintain the
activities covered in (i) to (iv) above, but separable from those activities, are to be
accounted for in accordance with this statement.
(d) This statement does not cover the allocation of the depreciable amount of fixed
assets to future periods since this subject is dealt with in Accounting Standard 6 on
‘Depreciation Accounting’.

(e) This statement does not deal with the treatment of government grants and subsidies,
and assets under leasing rights. It makes only a brief reference to the capitalization
of borrowing costs and to assets acquired in an amalgamation or merger. These
subjects require more extensive consideration than can be given within this Statement.

11. AS-11 – The effects of changes in foreign exchange rates: This standard was revised in 2003
and is made mandatory with effect from 1st April 2004. Originally, this accounting standard
was titled “Accounting for the effects of changes in foreign exchange rates”. AS-11 discusses
how to recognize the financial effect of changes in foreign exchange rates in the financial
statements of the reporting entity. Two currencies are involved in determining an exchange
rate–foreign currency and reporting currency. The reporting currency for business entities
in India is INR (Indian Rupee) and hence the foreign currency is any currency other than
INR. AS-11 is applicable in accounting for foreign currency transactions and in translating
the financial statements of foreign operations. Thus, accounting for transaction exposure
and translation exposure in foreign currency is dealt with in AS-11.
12. AS-12 – Accounting for government grants: Government grants are assistance by
government in cash or kind to an enterprise for past or future compliance with certain
conditions.

Para 13 of AS-12 states that “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.”

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