Module-3
Measurement Based on Accounting
Policies
IND AS 8
Scope
This Standard shall be applied in selecting and applying
accounting policies, and accounting for changes in
accounting policies, changes in accounting estimates and
corrections of prior period errors.
Accounting Policies
Accounting policies are the specific principles, bases,
conventions, rules and practices applied by an entity in
the preparing and presenting financial statements.
• Principles are the guidelines which are required to be
followed while preparing the financial statements.
• Bases are the methods in which accounting principles
my be applied to financial transactions. Ex: Method used
to depreciate an asset. Cash bases, accrual bases, etc.
• Conventions refer to the practices that arise from
practical application of accounting principles. They are
designed to help the accountants in overcoming
practical problems that arise while reporting financial
transactions.
Sometimes, there is not a definitive guideline in the accounting
standards that govern a specific situation. In such cases, accounting
conventions can be referred to.
• Rules refer to the rules of debit and credit in
accounting.
• Practices refer to the ways in which its accounting
policies are implemented and adhered to on a regular
bases.
Changes in accounting policies
An accounting policy can be changed only if:
• The change is required as per an Ind AS. Change in that
case becomes mandatory.
• The changes results in providing reliable and more
relevant information about the transaction on the
company’s financial statement.
Accounting estimates
Because of various uncertainties inherent in business and
business activities, several items in the financial
statements cannot be measured exactly but they can
only be estimated. Estimates are usually made for the
following:
• Bad debts
• Obsolescence
• Warrant obligations
• Fair value of financial assets or financial liabilities
• Useful life of depreciable assets.
Changes in Accounting
estimates
It is an adjustment of the carrying amount of an asset or
liability or the amount of the periodic consumption of an
asset, that results from the assessment of the present
status and expected future benefits and obligations
associated with assets and liabilities.
Change in accounting estimates result from new
information or new development are not correction of
errors.
Accounting treatment of change in
accounting estimates
• The period of the change, if the change affect that
period only.
• The period of the change and future period if that
change effect both.
Any change in accounting estimate may affect the profit
or loss either current year or both current and future
periods.
Disclosures relating to changes in
accounting estimates
• The nature and amount of a change in an accounting estimate
that has an effect in the current period or is expected to have
an effect in future periods.
• If the amount of the effect in future periods is not disclosed
because estimating it is impracticable, an entity shall disclose
that fact.
Errors
Errors are mistakes that have taken place in the past, but
were not discovered then. So when they are discovered in the
future, it becomes necessary to correct them in the financial
statements so that the financial statements presented after
the discovery of error are relevant and reliable.
Common types of errors:
• Mathematical errors
• Mistakes in applying policies
• Misinterpretation of facts
• Omissions
• Frauds
• Mathematical error: These are errors which occur as a
result of taking a wrong figure. Errors of commission,
carryforward of wrong figures or balances, wrong totaling and
wrong calculations are examples of mathematical error.
• Mistakes in applying policies: It is generally the case that
specific standards prescribe specific policies for particular
types of transactions. Suppose an amount receivable from an
entity and payable to the entity are offset against each other
without any currently existing, legally enforceable right to set
off the said amounts, it will be a case of applying a wrong
policy.
• Misinterpretation of Facts: Misinterpretation is the act of
forming a wrong understanding of something that is said or
done. Sometimes, the judgement of the Management may
result into in misinterpretation of facts.
• Omissions: An error of omission occurs when an entry has
not been recorded although a transaction has occurred
during that period. In other words, errors of omission take
place when an accountant forgets to record a particular
transaction in the books of account. Omissions are mistakes
that occur because of oversight.
• Frauds: A fraud is a misleading conduct by someone with
the aim of procuring an illegal advantage or to harm the
rights of someone else. The errors mentioned above may
occur while recognising the transactions or while presenting
them in financial statements or while making the
disclosures.
Events After
Reporting Period
IND AS 10
Events after the reporting
period
Events after the reporting period are those events,
favorable and unfavorable, that occur between the end of
the reporting period and the date when the financial
statements are approved by the Board of Directors in
case of a company, and, by the corresponding approving
authority in case of any other entity for issue.
Two types of events can be identified:
• Adjusting events: Those events which provide evidence
of conditions that existed at the end of the reporting
period.
• Non-Adjusting events: Those events that are indicative
of conditions that arose after the reporting period.
Scope
This Standard shall be applied in the accounting for, and
disclosure of, events after the reporting period.
OBJECTIVES
• Circumstances when an entity should adjust its financial
statements for events after the reporting period; and
• Disclosures which an entity has to give about the date
when the financial statements were approved for issue
and about events after the reporting period.
OBJECTIVES
• Circumstances when an entity should adjust its financial
statements for events after the reporting period; and
• Disclosures which an entity has to give about the date
when the financial statements were approved for issue
and about events after the reporting period.
Fair Value Measurement
(Ind as 113)
SCOPE
This Ind AS applies when another Ind AS requires
or permits fair value measurements or disclosures
about fair value measurements
Definition of fair value
This IAS defines fair value as the price that would be
received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at
the measurement date.
A fair value measurement is for a particular asset or liability.
Therefore, when measuring fair value an entity shall take into
account the characteristics of the asset or liability if market
participants would take those characteristics into account
when pricing the asset or liability at the measurement date.
Such characteristics include, for example, the following:
(a)The condition and location of the asset; and
(b)Restrictions, if any, on the sale or use of the asset.
The transaction
• A fair value measurement assumes that the asset or
liability is exchanged in an orderly transaction between
market participants to sell the asset or transfer the
liability at the measurement date under current market
conditions. A fair value measurement assumes that the
transaction to sell the asset or transfer the liability takes
place either:
(a) in the principal market for the asset or liability; or
(b) in the absence of a principal market, in the most
advantageous market for the asset or liability.
Market participants
An entity shall measure the fair value of an
asset or a liability using the assumptions
that market participants would use when
pricing the asset or liability, assuming that
market participants act in their economic
best interest.
Fair value measurement
Valuation Techniques
• The market approach
• The cost approach
• The income approach
