Important Question and Answers on Accounting Standards (Part-II)

--> Describe the factors for determination of “Reportable Segments” as per AS-17.
           Paragraphs 27 to 29 of AS 17 on SegmentReporting deals with reportable segments.

Paragraph 27 requires that a business segment or geographical segment should be identified as a reportable segment if :
(i)          its revenue from sales to external customers and from transactions with other segments is 10 percent or more of the total revenue, external and internal, of all segments; or
(ii)         its segment result, whether profit or loss, is 10 percent or more of-

(a)        the combined result of all segments in profit, or

(b)        the combined result of all segments in loss, whichever is greater in absolute amount; or

(iii)        its segment assets are 10 percent or more of the total assets of all segments.

A business segment or a geographical segment which is not a reportable segment as per paragraph 27, may be designated as a reportable segment despite its size at the discretion of the management of the enterprise. If that segment is not designated as a reportable segment, it should be included as an unallocated reconciling item.

If total external revenue attributable to reportable segments constitutes less than 75% of the total enterprise revenue, additional segments should be identified as reportable segments, even if they do not meet the 10 percent thresholds specified in paragraph 27 of the standard, until at least 75 percent of the total enterprise revenue is included in reportable segments.


Briefly describe the disclosure requirements for related party transactions as per Accounting Standard 18.
          Paragraph 23 of AS 18 on Related Party Disclosures requires that if there have been transactions between related parties, during 
        the existence of the a related party relationship, the reporting enterprise should disclose the following :

(i)          the name of the transacting related party;

(ii)         a description of the relationship between the parties;

(iii)        a description of the nature of transactions;

(iv)       volume of the transactions either as an amount or as an appropriate proportion;
 (v)        any other elements of the related party transactions necessary for an understanding of the financial statements;
(vi)       the amounts or appropriate proportions of outstanding items pertaining to related parties at the balance sheet date and provisions for doubtful debts due from such parties at that date;
(vii)        amounts written off or written back in the period in respect of debts due from or to related parties.

       Point (v) requires disclosure of ‘any other elements of the related party transactions necessary for an understanding of the financial statements. An example of such a disclosure would be an indication that the transfer of a major asset had taken place at an amount materially different from that obtainable on normal commercial terms.
     

State the different types of Leases contemplated in Accounting Standard 19 and discuss briefly.

           AccountingStandard 19 has divided the lease into two types viz. (i) Finance Lease and (ii) Operating Lease.
Finance Lease : A lease is classified as a finance lease if it transfers substantially all the risks and rewards incident to ownership. title may or may not eventually be transferred. At the inception of a finance lease, the lessee should recognise the lease as an asset and a liability. Such recognition should be at an amount equal to the fair value of the leased asset at the inception of the lease. However, if the fair value of the leased asset exceeds the present value of the minimum lease payments from the standpoint of the lessee, the amount recorded as an asset and liability should be the present value of the minimum lease payments from the standpoint of the lessee.
Operating Lease : A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incident to ownership. Lease payments under an operating lease should be recognised as an expense in the statement of profit and loss on a straight line basis over the lease term unless another systematic basis is more representative of the time pattern of the user’s benefit. 



When Capitalisation of borrowing cost should cease as per Accounting Standard 16?
        Capitalisation of borrowing costs should cease when substantially all the activities necessary to prepare the qualifying asset for its 
         intended use or sale are complete.
An asset is normally ready for its intended use or sale when its physical construction or production is complete even though routine administrative work might still continue. If minor modifications such as the decoration of a property to the user’s specification, are all that are outstanding, this indicates that substantially all the activities are complete.

When the construction of a qualifying asset is completed in parts and a completed part is capable of being used while construction continues for the other parts, capitalisation of borrowing costs in relation to a part should cease when substantially all the activities necessary to prepare that part for its intended use or sale are complete.


 Define a "Business Segment" and a "Geographical Segment" as per Accounting Standard 17. 
        A Business Segment: A business segment is a distinguishable component of an enterprise that is engaged in providing an 
        individual product or service or a group of related products or services and that is subject to risks and returns that are different from
        those of other business segments. Factors that should be considered in determining whether products or services are related 
       include:
         (a)       the nature of the products or services;

(b)       the nature of the production processes;

(c)       the type or class of customers for the products or services;

(d)       the methods used to distribute the products or provide the services and

if applicable, the nature of the regulatory environment, for example, banking, insurance or public utilities. 

       A geographical segment: A geographical segment is a distinguishable component of an enterprise that is engaged in providing
      product or services within a particular economic environment and that is subject to risks and returns that are different from those of 
      components operating in other economic environments. Factors that should be considered in identifying geographical segments 
      include:

(a)       similarity of economic and political conditions;

(b)       relationships between operations in different geographical areas;

(c)       proximity of operations;

(d)       special risks associated with operations in a particular area;

(e)       exchange control regulations; and

(f)         the underlying currency risks. 


Briefly describe, how do you calculate "Diluted Earnings per Share" as per Accounting Standard 20.
        For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equity shareholders and 
        the weighted average number of shares outstanding during the period should be adjusted for the effects of all dilutive potential equity 
        shares.

The amount of net profit or loss for the period attributable to equity shareholders should be adjusted, after taking into account any attributable change in tax expense for the period.
The number of equity shares should be the aggregate of the weighted average number of equity shares (as per paragraphs 15 and 22 of AS 20) and the weighted average number of equity shares which would be issued on the conversion of all the dilutive potential equity shares into equity shares. Dilutive potential equity shares should be deemed to have been converted into equity shares at the beginning of the period or, if issued later, the date of the issue of the potential equity shares.

An enterprise should assume the exercise of dilutive options and other dilutive potential equity shares of the enterprise. The assumed proceeds from these issues should be considered to have been received from the issue of shares at fair value. The difference between the number of shares issuable and the number of shares that would have been issued at fair value should be treated as an issue of equity shares for no consideration. 
--> Important Question and Answers on Accounting Standards (Part-I)
        Important Question and Answers on Accounting Standards (Part-III)
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