Page 18 - DCOM409_CONTEMPORARY_ACCOUNTING

Unit 1: Accounting Standards

(e) amounts written off or written back in the period in respect of debts due from or to Notes
related parties; and
(f) any other matter.
19. AS-19 – Leases: There are broadly two types of lease transactions- finance lease and operating
lease. In case of finance lease, the lessee should recognise the lease as an asset and a
liability in the Balance sheet. Hence, lessee claims depreciation too. The lessor has to
recognise assets given under finance lease in its balance sheet as receivables. In case of
operating lease, the lessor shows the asset given on lease as its asset in the balance sheet
and claims depreciation. However, Income Tax laws in India still allows tax benefit on
depreciation to the lessor for assets under finance lease. Hence, there is a contradiction
between the accounting treatment of finance lease suggested in AS-19 and the provisions
of Income Tax Act.
20. AS-20 – Earning per share: The traditional method of calculating has been done away
with. AS-20 prescribes that the profit available for equity shareholders should be divided
by weighted average number of shares instead of closing number of shares.
For the purpose of calculating basic earnings per share, the net profit or loss for the period
attributable to equity shareholders should be the net profit or loss for the period after
deducting preference dividends and any attributable tax thereto for the period. All items
of income and expense which are recognised in a period, including tax expense and
extraordinary items are included in the determination of the net profit or loss for the
period unless an Accounting Standard requires or permits otherwise. The amount of
preference dividends and any attributable tax thereto for the period is deducted from the
net profit for the period (or added to the net loss for the period) in order to calculate the net
profit or loss for the period attributable to equity shareholders.
For the purpose of calculating basic earnings per share, the number of equity shares
should be the weighted average number of equity shares outstanding during the period.
The weighted average number of equity shares outstanding during the period reflects the
fact that the amount of shareholders' capital may have varied during the period as a result
of a larger or lesser number of shares outstanding at any time. It is the number of equity
shares outstanding at the beginning of the period, adjusted by the number of equity shares
bought back or issued during the period multiplied by the time-weighting factor. The
time-weighting factor is the number of days for which the specific shares are outstanding
as a proportion of the total number of days in the period; a reasonable approximation of
the weighted average is adequate in many circumstances.
21. AS-21 – Consolidated financial statements: A holding company is now required (although
not legally mandatory) to prepare consolidated financial statements, under certain
circumstances, portraying the financial performance of the group in addition to its
individual and separate financial statements.
Consolidated financial statements normally include consolidated balance sheet,
consolidated statement of profit and loss, and notes, other statements and explanatory
material that form an integral part thereof. Consolidated cash flow statement is presented
in case a parent presents its own cash flow statement. The consolidated financial statements
are presented, to the extent possible, in the same format as that adopted by the parent for
its separate financial statements.
Users of the financial statements of a parent are usually concerned with, and need to be
informed about, the financial position and results of operations of not only the enterprise
itself but also of the group as a whole. This need is served by providing the users:
(a) separate financial statements of the parent; and
(b) consolidated financial statements, which present financial information about the
group as that of a single enterprise without regard to the legal boundaries of the
separate legal entities

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