PHOTOS OF EFFORTS SEMINAR

Dear friends,

The photos of seminar organised by Efforts, at Ambedkar Hall, Sector-12, Gandhinagar on 16th February, are now available online.

To view the album, Click here.

Yes, We have done it. Efforts CS Final Result 100 %.

Team Efforts is extremely pleased to share with all that Efforts first CS Final Batch Result is 100 %. Overall result of India is around 9 % and Ahmedabad Chapter result is around 13 %. This great achievement is a result of dedicated hard work of team members of Efforts.

Efforts is always committed to deliver the best. This is just a beginning. There is a lot to come.

Treatment Of Prior Period Item under Indian Accounting Standard and IFRS- By CA. Brijesh Thakar

As per AS-5, Prior Period Item has been defined as,

“Prior period items are income or expenses which arise in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods.”

AS-5 requires separate disclosure of prior period item in financial statements of current year, whereas as per IFRS we have to restate comparative figure of prior period in case of prior period item.

Lets take an example to understand the treatment under Indian accounting standard and IFRS.

X ltd is having monthly salary expenditure of Rs. 10000. However due to omission it did not provide for salary expense of March, 2008. This omission was detected in 2008-09. Hence as per Indian Accounting standard, salary expense will be shown in financial statement as

2007-08
Salary Expense 110000 (10000*11)
2008-09
Salary Expense 120000(10000*12)
Prior Period Item 10000

Under IFRS instead of showing Rs. 10000 as prior period item, we will restate the comparative figure of 2007-08. Hence we will show salary expenses of Rs. 120000 in 2008-09 and related comparative figure of 2007-08 will be made Rs. 120000.

Treatment of Extra-ordinary items in case of EPS- By CA. Brijesh Thakar

Many times a question has been asked by students that when there is an extraordinary item in the statement of profit and loss account, whether Earning Per Share should be disclosed including extra ordinary item or excluding extra ordinary item?

This question is of significant importance because profit or loss arising from extra ordinary items may affect investors decision making. Let me explain the significance of this question with the help of an example

Profit/loss attributable to equity share holders 1,000,000 ( 2005-06) 1,500,000(2006-07) 1,575,000 (2007-08)
(before extraordinary item)

Loss due to fire (Extra-ordinary item) - - 1,000,000 (2007-08)

Profit/loss attributable to equity share holders
(after extraordinary item) 1,000,000 ( 2005-06) 1,500,000 (2006-07) 575,000 (2007-08)

Weighted Average No of Shares Outstanding 100,000( 2005-06) 100,000 (2006-07) 100,000 (2007-08)

EPS 10( 2005-06) 15(2006-07) 5.75(2007-08)

In the above mentioned example, EPS in 2007-08 is significantly lower in comparison to previous years. This has happened because of loss due to fire which is an extra ordinary item, which is not expected to recur again. Hence Showing EPS including extra-ordinary item may show a misleading picture.

Here, I wish to mention two para of AS- 20. First is Para 12 which says that 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. Hence EPS should be shown including Extra- ordinary item. Second is para 48 which says that “In addition to disclosures as required by paragraphs 8, 9 and 44 of this Statement, an enterprise should disclose the following:
(i) where the statement of profit and loss includes extraordinary items (within the meaning of AS 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies), the enterprise should disclose basic and diluted earnings per share computed on the basis of earnings excluding extraordinary items (net of tax expense);

Hence whenever there is an extra ordinary item, EPS should be disclosed including extra ordinary item and excluding extra-ordinary item also.
In the above mentioned example, during the year 2007-08, EPS of Rs. 5.75 (including Extra-ordinary item) as well as EPS of Rs. 15.75 (Exluding Extra-ordinary item) both will be disclosed.

Note: In case of IFRS, this question will not arise because under IFRS concept of Extra-ordinary item is not there.

Accounting of Machine Spares- By CA. Brijesh Thakar

According to Accounting Standard Interpratation-2, there are two types of machine spares. First are those which cannot be used as in connection with a particular item of a fixed asset and whose use is not irregular. This kind of spares are called revenue spares and they should be treated as inventories as per AS-2. The second type of spares are those which can be used only in connection with particular item of fixed asset and whose use is expected to be irregular. Such spares should be accounted for as per AS-10. These spares are called capital spares.

Capital spares should be capitalized separately, whether purchased along with principal fixed asset or purchased subsequently. Depreciation should be charged on these spares on a systematic basis over a period not exceeding the useful life of the asset to which they relate.

Now , here I wish to mention a very specific point raised by recent EAC opinion. In case of accounting for machine spares in addition to para 4 of AS-2 and para 8.2 of AS-10, para- 23 of AS-10 also plays a significant role. According to this para, Subsequent expenditures related to an item of fixed asset should be added to its book value only if they increase the future benefits from the existing asset beyond its previously assessed standard of performance.

Hence, whenever capital spare replaces the worn out part part of particular asset the written down value of the capital spare at the date of replacement should be immediately written off. This is done because replacement of the spare does not increase the future benefits from the existing asset beyond its previously assessed standard of performance.

Let me explain the whole treatment with the help of an example.

X ltd purchased some capital spares on 1st January, 2005 for Rs. 200000. These spares can be used with an item of fixed asset whose outstanding useful life on 1/1/2005 is 10 years. Till 1/1/2008 this spare was not used in the fixed asset. Now suppose on 1/1/2008 this spare was used to replace a worn out part of fixed asset.

In the above mentioned example we can clearly see that annual depreciation on capital spare will be Rs. 20000 (200000/10years). Hence every year X ltd will write off Rs. 20000 to profit and loss account. On 1/1/2008 this spare is used to replace a worn out part in fixed asset. 3 years depreciation on this spare will be Rs 60000 ( 20000*3) On 1/1/2008 WDV of the spare will be Rs. 140000 (200000-60000). This WDV of Rs. 140000 should be written off to profit and loss account on the date on which the capital spare replaces the worn out part i.e. on 1/1/2008. This is done because replacement of the spare does not increase the future benefits from the existing asset beyond its previously assessed standard of performance.

Important Announcement from ICAI

Following Announcement has been made by the ICAI on its web site regarding CA Examination to be held in the month of May 2009: Since the Elections to the Lok Sabha and Legislative Assemblies of some States are likely to be held in the months April and May, 2009, it has been decided to hold the next Chartered Accountants PE-II, PCE, Final (Old and New course), IRM, MAC (Part I), TMC (Part I), CMC (Part I), ITL & WTO Examinations tentatively from 1st to 15th June, 2009 instead of May, 2009. Similarly, the next Common Proficiency Test (CPT) in paper-pencil mode is likely to be held tentatively on Sunday, the 28th June, 2009. The detailed Examination Notification containing the exact date schedule for the various examinations and the examination Centres will be issued shortly and hosted on the Institute's website.