Accounting Standards and Guidance Notes
These questions test whether you know which standard governs a situation and what it requires, not the full text. The Accounting Standards Board (ASB) of ICAI issues Accounting Standards; the Companies (Accounting Standards) Rules, 2021 make them applicable to companies. Ind AS, converged with IFRS, apply to listed companies and companies with net worth of ₹500 crore or more, together with their holding, subsidiary, associate and joint-venture companies.
Standards you must know
- AS 1 - disclose significant accounting policies; going concern, consistency and accrual are fundamental assumptions, disclosed only when not followed.
- AS 2 - inventory at lower of cost and net realisable value, applied item by item; FIFO or weighted average cost; excludes construction-contract work-in-progress, shares and livestock.
- AS 9 - revenue when risks and rewards pass, the amount is measurable and collection is reasonably certain; no revenue on own-use goods or consignment stock.
- AS 10 (revised) - property, plant and equipment, component accounting, dismantling costs, cost or revaluation model.
- AS 26 - intangible assets amortised over useful life, with a rebuttable presumption of not more than ten years.
- AS 29 - a provision is recognised only for a present obligation, probable outflow and reliable estimate; a contingent liability is merely disclosed.
Worked example
Closing inventory of 1,000 units costs ₹200 each; net realisable value is ₹180 each. Under AS 2 the inventory is carried at ₹1,80,000 and ₹20,000 is written down. If NRV later rises to ₹220, the reversal is capped at original cost of ₹2,00,000 - inventory is never carried above cost.
Traps
Treating a contingent asset as a receivable; netting a loss on one product against profit on another instead of writing down item-wise; confusing AS and Ind AS numbering (AS 9 versus Ind AS 115); and describing ICAI Guidance Notes as mandatory when they are only persuasive.