Page 16 - DCOM409_CONTEMPORARY_ACCOUNTING

Unit 1: Accounting Standards

Government grants can essentially be of four types: Notes
(a) Grants related to specific fixed assets.
(b) Grants related to revenue items.
(c) Grants in the nature of promoters’ contribution.

(d) Grants as compensation for expense or losses incurred in a previous accounting
period.
13. AS-13 – Accounting for investments: There are two types of investment—current and
long-term. These two follow different valuation principles. Current investments are valued
at lower of cost and fair value, whereas long-term investments are valued mainly at cost.
Reclassification of current investments into long-term investments and vice versa is allowed.
Where long-term investments are reclassified as current investments, transfers are made
at the lower of cost and carrying amount at the date of transfer. Where current investments
are reclassified as long-term investments, transfers are made at the lower of cost and fair
value at the date of transfer.
14. AS-14 – Accounting for amalgamations: Para 43 of AS-14 states “For all amalgamation,
the following disclosures should be made in the first financial statements following the
amalgamation:
(a) names and general nature of business of the amalgamating companies;

(b) effective date of amalgamation for accounting purposes;
(c) the method of accounting used to reflect the amalgamation; and
(d) Particulars of the scheme sanctioned under a statute.”
15. AS-15 – Accounting for retirement benefits in the financial statements of employers:
Retirement benefits usually consist of:
(a) Provident fund
(b) Superannuation (pension)

(c) Gratuity
(d) Leave encashment benefit on retirement
(e) Post-retirement health and welfare schemes
(f) other benefits.

Accounting for retirement benefits depends on the nature of the benefit schemes.
Retirement benefit schemes are classified into two broad categories: (a) defined contribution
schemes; and (b) defined benefit schemes. In case of the former, only the contribution of
the employer (as well as that of employee, if any) is certain and the ultimate benefits,
which would accrue to the employees, would depend on the prevailing interest rates and
other market factors. The benefits under the defined contribution schemes are in no way
related to the factors like, employees salary at the time of retirement, number of years of
service rendered, etc. The obligation of the employer in these schemes is limited to periodic
and timely contribution to the funds/trust managing the schemes. Whereas, in case of
defined benefit schemes, the benefits are linked to certain defined criteria and are
determinable usually by reference to employee’s earnings and/or years of service. The
employer, in these schemes, has to ensure that retiring employees get these defined benefits
as per entitlements. Provident fund is an example of a benefit under defined contribution
scheme. Pension and gratuity benefits are examples of defined benefit schemes.

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