FINANCIAL ACCOUNTING
PGDM –Ist TRIMESTER

• Concepts
• Terms
• Adjustments

BASIC CONCEPTS & QUES.
• WHAT IS ACCOUNTING?
• NEED FOR ACCOUNTING?
• DOUBLE ENTRY BOOK KEEPING SYSTEM

• Accounting is the art of recording ,classifying
and summarizing in a systematic manner and
in terms of money, transactions and events
which are, in part at least , of financial
character and interpreting the results thereof.
American Institute of certified public Accountants

PARTS OF ACCOUNTING
ACCOUNTING
JOURNAL LEDGER TRIAL BAL. FINAL A/C RATIOS CFS & FFS

GAAP
CONCEPTS CONVENTIONS
SEPARATE ENTITY CONSERVATISM
GOING CONCERN FULL DISCLOSURE
MONEY MEASUREMENT CONSISTENCY
DUAL ASPECT MATERIALITY
ACCOUNTING PERIOD TIMELINESS
HISTORICAL COST
MATCHING
REALIZATION

GOLDEN RULES
• PERSONAL A/C
• REAL A/C
• NOMINAL A/C
• REVENUE EXPENSES & INCOMES
• CAPITAL EXPENSES & INCOMES

CLASSIFICATION OF ITEMS
• ASSETS
• LIABILITY
• EXPENSES & LOSSES
• INCOMES & GAINS
• RESERVES
• PROVISIONS

FINAL A/C
• TRADING A/C
• PROFIT & LOSS A/C
• BALANCE SHEET

Benefits of IFRS
• Comparability of financial statements of
companies belonging of one or more countries
• Facilitate consolidation of financial statement
• To bring harmony in the efforts of country
specific standard setters
• Cutting down the cost of formulation and
implementation of AS
• Facilitate entry and working of multinational
companies across the gross without any
accounting hindrance.

IFRS -1- FIRST TIME ADOPTION OF IFRS
• It contains the details about the first time
adoption of IFRS and transition from GAAP to
IFRS. It specifies the plan about transition from
respective GAAP to IFRS.
• Main Provisions:
 Recognition of all assets and liabilities as per IFRS
 Derecognition of all assets and liabilities not
permitted IFRS
 Reclassification of assets and liabilities as per IFRS

IFRS-2 – SHARE BASED PAYMENT
• It specifies the parameters about reporting and
disclosure of share-based payment transaction in the
financial statement. It requires a business entity to
report in the P&L A/C and in the financial position the
effect of share- based payment transactions, such as
option granted to employees or other parties to be
settled in cash , other assets and equity instrument.
 Share – based payment for the goods and services
 Cash settled share based payment transaction
 Transaction of purchase of goods and services for
which settlement is to be done either in cash or in
equity instrument of business entity.

• Measurement Issues
Measure the goods and services procured at
the fair value of these goods or services, if the
value of good and services cannot be
established then fair value of equity
instrument
Fair value of equity can be estimated at
market price

IFRS – 3 BUSINESS COMBITIONS
• How acquirer should report – recognize and
measure different assets acquired and liabilities
assumed. It require in which manner
consolidated financial statement of acquirer
/investor should report
• All assets and liabilities should be recorded at fair
market value at the acquired date and minority
interest should also be at market value
• Exception to this – Items in lease aggreement

IFRS-4 INSURANCE CONTRACT
• It deals about the accounting provision regarding the
reporting and disclosure of insurance policies and
related assets and liabilities.
 Only the provisions for claims that exist at the date of
reporting date should be disclosed and not for
expected claim
 An adequacy test for the insurance liabilities should be
assumed
 Liabilities should be disclosed until these are
discharged
 Insurance liabilities should be measure at current
market price

DIFFERENCES B/W AS AND IFRS
POINTS IFRS INDIAN GAAP
COMPONENTS OF 1. STATEMENT OF 1. B/S
FINANCIAL STATEMENTS FINANCIAL POSITION 2. P&L A/C
2. COMPREHENSIVE 3. CFS
INCOME 4. NOTES TO A/C
3. CFS
4. ST. OF CHANGE IN
EQUITY
5. NOTES TO A/C
FORMAT NO SPECIFIC SCH VI
INCOME STATEMENT SPECIFIC FROMAT SCH VI
CFS MANDATORY EXEMPTED
EXTRA ORDINARY ITEM PROHIBITS THE MANDATORY
PRESENTATION
GOODWILL SUBJECT TO ANNUAL AMORTIZED IN 5 YRS
IMPAIRMENT

INTANGIBLE ASSETS MEASURED AT FAIR VALUE AT COST
CHANGE IN DEP. METHOD Prospective effect RETROSPECTIVE
LEASE OF LAND & CONTAINS PROVISIONS DOES NOT CONTAIL
BUILDING
INCEPTION AND DIFFERENTIATE DOES NOT
COMMENCEMENT DATE

IFRS – 5 Non Current Assets Held for
Sale and Discontinued Operations
• It include assets like Financial instrument and
Investment Property
Main Provisions
Assets held for sale must be reported in annual
a/cs:
1. Cost or Fair Value which ever is less
2. Cost of sell or depreciation should be adjusted
in from the reported amount
3. These assets should be reported separately

4. Assets related to discontinued operation
should be reported separately
Disclosure:
Criteria of identification of assets should
disclosed

IFRS 6 – EXPLORATION FOR AND
EVALUATION OF MINERAL RESOURCES
• It is related to exploration expenditure incurred
by companies in relation to technical feasibility of
mining of mineral resources .This IFRS is about
recognition and measurement of exploration
expenditure
1. A business entity should determine suitable
accounting policy for classifying exploration
assets as cash generating units
2. Policy for Impairment test for the assets
acquired under exploration activities

• If carrying amount of exploration assets
exceeds its recoverable amount then it should
be impaired so as to have true presentation of
FS and impairment loss should be recognised

IFRS – 7 FINANCIAL INSTRUMENT
• It requires the disclosure of different financial
instrument in the financial statements
Main Provisions:
1. It should disclose the criteria for qualitative and
quantitative for the classification of Financial
Instruments, financial assets , financial liability
and Equity instrument.
2. Disclosure of Risk management practices for
financial instrument and their impact on
financial position

IFRS- 8 OPERATING SEGMENT
• Disclosure :
1. Information about different operating
segments
2. Information about different products
, services , geographical areas and major
customers
3. P&L from all segments
4. Impact of business conditions concerning
different segments

EPS
• RETEROSPECTIVE EPS
ADJUSTED EPS= EQUITY SHAREHOLDERS EARNING/
WEIGHTED AVEG NO. OF EQ. SH
ILL: X LIMITED IS HAVING 1,00,000 EQ SH ON I APR
2010 . DURING THE YEAR IT ISSUE 20000 SH ON 1
JULY 2010 AND ON 1 JAN 2011 30000 MORE SH .
WEIGTED AVG SH = 100000X 3/12 + 120000 X 6/12
+ 150000 X 3/12 = 122500

FINANCIAL RATIO’S