Accounting Standards and Contemporary Issues
This domain tests selected Accounting Standards, the AS/Ind AS framework and current reporting issues. Expect applicability, recognition and measurement, and practical differences between old AS and Ind AS.
Core rules
- AS are notified under the Companies (Accounting Standards) Rules, 2006; Ind AS under the Companies (Indian Accounting Standards) Rules, 2015. Ind AS applies broadly to listed companies and companies above prescribed net-worth thresholds; other companies continue with AS.
- AS 2 values inventories at the lower of cost and net realisable value. Cost includes purchase, conversion and necessary overheads; abnormal waste and selling costs are excluded.
- Ind AS 115 uses five steps: identify the contract, identify performance obligations, determine transaction price, allocate it to obligations, and recognise revenue when each obligation is satisfied.
- Ind AS 116 requires a lessee to recognise a right-of-use asset and lease liability, with exemptions for short-term and low-value leases.
- CSR under Section 135 of the Companies Act 2013 applies to companies meeting size/profit thresholds; the prescribed spend is 2% of average net profits of the preceding three financial years.
Worked example
A contract has a transaction price of ₹1,20,000 and two performance obligations with standalone selling prices of ₹80,000 and ₹40,000. Total standalone price = ₹1,20,000, so allocation is ₹80,000 and ₹40,000. If only the first obligation is satisfied, revenue recognised is ₹80,000; the balance is a contract liability.
Traps
Do not apply Ind AS merely because a company wants to. Do not include GST in revenue. Do not expense all lease payments under Ind AS 116 for a lessee. Do not value inventory above NRV. Do not treat CSR spend as a voluntary expense without disclosure.