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TABLE OF CONTENTS

Statements of Accounting Standards (AS 1)..........................................................................4

Statements of Accounting Standards (AS 2) Revised...........................................................8

Statements of Accounting Standards (AS 3) Revised.........................................................13

Statements of Accounting Standards (AS 4) Revised.........................................................31Statements of Accounting Standards (AS 5) Revised.........................................................37



Statements of Accounting Standards (AS 8)........................................................................59

Statements of Accounting Standards (AS 9)........................................................................63

Statements of Accounting Standards (AS 1)......................................................................7

Statement of Accounting Standards (AS 11) (Revised 23).............................................79

Statements of Accounting Standards (AS 11) !"d A##"ica$"e #rior to %arc& 31' 24. 89



Statements of Accounting Standards (AS 14)....................................................................14



................................................................................................................................................123






Statements of Accounting Standards (AS 22)....................................................................189Statements of Accounting Standards (AS 23)....................................................................21


Statements of Accounting Standards (AS 25)

................................................................................................................................................219


Statements of Accounting Standards (AS 27)

................................................................................................................................................26



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Summary of All General Clarifications, Accounting Standard Interpretations and Limited e!isions

GeneralClarificationNo"

AccountingStandardInterpretation

Num#er $

Limitede!isions

AccountingStandardto %&ic& it

pertains

'escription

ASI 1 AS 16 Meaning of Substantial Period of time

ASI 2 AS 10 Accounting for Machinery Spares

ASI 3 AS 22 Accounting for Taes on Income in the situationsof Ta !oliday under Sections "0#IA and "0#I$ ofthe Income#ta Act% 1&61

ASI ' AS 22 (osses under the head )apital *ains

ASI + AS 22 Accounting for Taes on Income in the situationsof Ta !oliday under Sections 10A and 10$ ofthe Income#ta Act% 1&61

ASI 6 AS 22 Accounting for Taes on Income in the contet ofSection 11+,$ of the Income#ta Act% 1&61

ASI - AS 22 .isclosure of deferred ta assets and deferred ta

liabilities in the balance sheet of a companyASI " AS 21% 23%

2-Interpretation of the term /ear uture

ASI & AS 22 irtual certainty supported by con4incinge4idenceAccounting Standard 5AS 22% Accounting forTaes on Income

ASI 10 AS 16 Interpretation of paragraph '5e of AS 16

ASI 11 AS 22 Accounting for Taes on Income in case of anAmalgamation

*) 1 ASI 12 AS 20 Applicability of AS 20

*) 2 ASI 13 AS 1" Interpretation of Paragraph 2- and 2" of AS 1"

*) 3 ASI 1' AS & .isclosure of 7e4enue from Sales Transactions

*) ' (7 to AS1' Para'2 and 23incorporating *) '

AS 1' Accounting for Amalgamation

*) + ASI 1+ AS 21 otes to )onsolidated inancial Statements

*) 6 ASI 16 AS 23 Treatment of Proposed .i4idend under AS 23

*) - ASI 1- AS 23 Ad8ustments to the carrying amount of In4estmentarising from changes in 9:uity not included in thestatement of Profit and (oss of the Associate

*) " ASI 1" AS 23 )onsideration of Potential 9:uity Shares fordetermining ;hether an in4estee is an Associate

*) & ASI 1& AS 1" Interpretation of the term Intermediaries*) 10 (7 < Para

'" and +1incorporating *) 10

AS 20 .isclosure of 9arnings Per Share figures in caseof 9traordinary Items

*) 11 ASI 20 AS 1- .isclosure of Segment Information < ot morethan one segment

*) 12 )o#op Applicability of Accounting Standards to )o#operati4e Societies

*) 13 ASI 21 AS 1" on#eecuti4e directors% ;hether related parties

*) 1' ASI 22 AS 1- Treatment of Interest for determining Segment9penses

*) 1+ ASI 23 AS 1" 7emuneration paid to =ey Management

Personnel*) 16 ASI 2' AS 21 .efinition of )ontrol

*) 1- ASI 2+ AS 21 9clusion of Subsidiary from )onsolidation

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*) 1" ASI 26 AS 21 Accounting for taes on Income in )S

ASI 2- AS 2+ Applicability of AS 2+ to Interim inancial 7esults

ASI 2" AS 21 > 2- .isclosure of parents?4enturers shares in post#ac:uisition reser4es of a subsidiary?8ointlycontrolled entity

(7 < toinclude

4enturecapital

AS 13 Accounting for In4estments

(7 toincorporate para 2-and epl@To Para26

AS 1" 7elated party .isclosures < by type of relatedparty transaction

Incorporation of Para16 5h

AS 2+ Material e4ents subse:uent to the end of InterimPeriod

(7# AS 2- AS 2- ,ointly controlled entity to be consolidated ;ithboth the entities

A(T)OITATI*E STAT(S OF T)E CLAIFICATIONS, ASIs AN' LI+ITE' E*ISIONS

The authority of this ASI is the same as that of the Accounting Standard to ;hich it relates@ Thecontentsof this ASI are intended for the limited purpose of the Accounting Standard to ;hich it relates@ ASI isintended to apply only to material items@

$ursuant to t&e issuance of Accounting Standards Interpretations -ASIs. /0 to 01 and t&ereface to t&e Statements of Accounting Standards -re!ised 0223., General Clarifications-GCs. / to 4, 5 to 6 and // to /7, issued #y t&e Accounting Standards Board in 0220, stand%it&dra%n -lease see section on 8esources 9 Accounting Standards Interpretations: and8esources 9 Accounting Standards:." T&e General Clarifications -GC. 9 3;0220 and /2;0220 %ill

stand %it&dra%n in respect of accounting periods commencing on or after /9390223, pursuantto t&e limited re!isions to AS /3, Accounting for Amalgamations and AS 02, Earnings erS&are, coming into effect from t&at date"

/" Applica#ility of AS 3 to impairment of assets not co!ered #y present IndianAccounting Standards"

0" Announcement 9 Status of certain pro!isions of AS /2, Accounting for Fi?ed Assets,pursuant to t&e issuance of AS /6, Leases and AS /1, Borro%ing Costs

3. Announcement on Treatment of e?c&ange difference under Accounting Standard -AS. //-re!ised 0224., T&e Effects of C&anges in Foreign E?c&ange ates !is9a9!is Sc&edule *I tot&e Companies Act, /651

3" 'isclosure of corresponding pre!ious year figures in t&e first year of application of AS /@

5" Applica#ility of AS /7, elated arty 'isclosures

6. Clarification on accounting standard -as. 00

7. Accounting Standard -AS. 03, 'iscontinuing Operations

7" Applica#ility of AS 01, Intangi#le Assets, to intangi#le items

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Statements of Accounting Standards -AS /.

'isclosure of Accounting olicies

The follo;ing is the tet of the Accounting Standard 5AS 1 issued by the Accounting Standards$oard% the Institute of )hartered Accountants of India on .isclosure of Accounting Policies@ The

Standard deals ;ith the disclosure of significant accounting policies follo;ed in preparing andpresenting financial statements@

In the initial years% this accounting standard ;ill be recommendatory in character@ .uring this period%this standard is recommended for use by companies listed on a recognised stocB echange and otherlarge commercial% industrial and business enterprises in the public and pri4ate sectors@

Introduction

1@ This statement deals ;ith the disclosure of significant accounting policies follo;ed in preparingand presenting financial statements@

2@ The 4ie; presented in the financial statements of an enterprise of its state of affairs and of theprofit or loss can be significantly affected by the accounting policies follo;ed in the preparationand presentation of the financial statements@ The accounting policies follo;ed 4ary fromenterprise to enterprise@ .isclosure of significant accounting policies follo;ed is necessary if the4ie; presented is to be properly appreciated@

3@ The disclosure of some of the accounting policies follo;ed in the preparation and presentation ofthe financial statements is re:uired by la; in some cases@

'@ The Institute of )hartered Accountants of India has% in Statements issued by it% recommended thedisclosure of certain accounting policies% e@g@% translation policies in respect of foreign currencyitems@

+@ In recent years% a fe; enterprises in India ha4e adopted the practice of including in their annualreports to shareholders a separate statement of accounting policies follo;ed in preparing and

presenting the financial statements@

6@ In general% ho;e4er% accounting policies are not at present regularly and fully disclosed in allfinancial statements@ Many enterprises include in the otes on the Accounts% descriptions ofsome of the significant accounting policies@ $ut the nature and degree of disclosure 4aryconsiderably bet;een the corporate and the non#corporate sectors and bet;een units in thesame sector@

-@ 94en among the fe; enterprises that presently include in their annual reports a separatestatement of accounting policies% considerable 4ariation eists@ The statement of accountingpolicies forms part of accounts in some cases ;hile in others it is gi4en as supplementaryinformation@

"@ The purpose of this Statement is to promote better understanding of financial statements byestablishing through an accounting standard the disclosure of significant accounting policies andthe manner in ;hich accounting policies are disclosed in the financial statements@ Suchdisclosure ;ould also facilitate a more meaningful comparison bet;een financial statements ofdifferent enterprises@

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E?planation

Fundamental Accounting Assumptions

&@ )ertain fundamental accounting assumptions underlie the preparation and presentation offinancial statements@ They are usually not specifically stated because their acceptance and useare assumed@ .isclosure is necessary if they are not follo;ed@

10@ The follo;ing ha4e been generally accepted as fundamental accounting assumptionsCD

a" Going Concern

The enterprise is normally 4ie;ed as a going concern% that is% as continuing in operation for theforeseeable future@ It is assumed that the enterprise has neither the intention nor the necessity ofli:uidation or of curtailing materially the scale of the operations@

#" Consistency

It is assumed that accounting policies are consistent from one period to another@

c" Accrual

7e4enues and costs are accrued% that is% recognised as they are earned or incurred 5and not asmoney is recei4ed or paid and recorded in the financial statements of the periods to ;hich theyrelate@ 5The considerations affecting the process of matching costs ;ith re4enues under theaccrual assumption are not dealt ;ith in this Statement@

Nature of Accounting olicies

11@ The accounting policies refer to the specific accounting principles and the methods of applyingthose principles adopted by the enterprise in the preparation and presentation of financialstatements@

12@ There is no single list of accounting policies ;hich are applicable to all circumstances@ The

differing circumstances in ;hich enterprises operate in a situation of di4erse and compleeconomic acti4ity maBe alternati4e accounting principles and methods of applying thoseprinciples acceptable@ The choice of the appropriate accounting principles and the methods ofapplying those principles in the specific circumstances of each enterprise calls for considerable8udgement by the management of the enterprise@

13@ The 4arious statements of the Institute of )hartered Accountants of India combined ;ith theefforts of go4ernment and other regulatory agencies and progressi4e managements ha4ereduced in recent years the number of acceptable alternati4es particularly in the case ofcorporate enterprises@ Ehile continuing efforts in this regard in future are liBely to reduce thenumber still further% the a4ailability of alternati4e accounting principles and methods of applyingthose principles is not liBely to be eliminated altogether in 4ie; of the differing circumstancesfaced by the enterprises@

Areas in &ic& 'iffering Accounting olicies are Encountered

1'@ The follo;ing are eamples of the areas in ;hich different accounting policies may be adopted bydifferent enterprises@

Methods of depreciation% depletion and amortisation

Treatment of ependiture during construction

)on4ersion or translation of foreign currency items

aluation of in4entories

Treatment of good;ill

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aluation of in4estments

Treatment of retirement benefits

7ecognition of profit on long#term contracts

aluation of fied assets

Treatment of contingent liabilities@

1+@ The abo4e list of eamples is not intended to be ehausti4e@

Considerations in t&e Selection of Accounting olicies

1@ The primary consideration in the selection of accounting policies by an enterprise is that thefinancial statements prepared and presented on the basis of such accounting policies shouldrepresent a true and fair 4ie; of the state of affairs of the enterprise as at the balance sheet dateand of the profit or loss for the period ended on that date@

2@ or this purpose% the ma8or considerations go4erning the selection and application of accountingpolicies areCD

a" rudence

In 4ie; of the uncertainty attached to future e4ents% profits are not anticipated but recognised only;hen realised though not necessarily in cash@ Pro4ision is made for all Bno;n liabilities andlosses e4en though the amount cannot be determined ;ith certainty and represents only a bestestimate in the light of a4ailable information@

#" Su#stance o!er Form

The accounting treatment and presentation in financial statements of transactions and e4entsshould be go4erned by their substance and not merely by the legal form@

c" +ateriality

inancial statements should disclose all FmaterialF items% i@e@ items the Bno;ledge of ;hich mightinfluence the decisions of the user of the financial statements@

'isclosure of Accounting olicies

3@ To ensure proper understanding of financial statements% it is necessary that all significantaccounting policies adopted in the preparation and presentation of financial statements should bedisclosed@

'@ Such disclosure should form part of the financial statements@

+@ It ;ould be helpful to the reader of financial statements if they are all disclosed as such in oneplace instead of being scattered o4er se4eral statements% schedules and notes@

6@ 9amples of matters in respect of ;hich disclosure of accounting policies adopted ;ill be re:uiredare contained in paragraph 1'@ This list of eamples is not% ho;e4er% intended to be ehausti4e@

-@ Any change in an accounting policy ;hich has a material effect should be disclosed@ The amountby ;hich any item in the financial statements is affected by such change should also be disclosedto the etent ascertainable@ Ehere such amount is not ascertainable% ;holly or in part% the factshould be indicated@ If a change is made in the accounting policies ;hich has no material effecton the financial statements for the current period but ;hich is reasonably epected to ha4e amaterial effect in later periods% the fact of such change should be appropriately disclosed in theperiod in ;hich the change is adopted@

"@ .isclosure of accounting policies or of changes therein cannot remedy a ;rong or inappropriatetreatment of the item in the accounts@

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ACCO(NTING STAN'A'

(The Accounting Standard comprises paragraphs 2427 of this Statement. The Standard should beread in the context of paragraphs 123 of this Statement and of the !reface to the Statements ofAccounting Standards."

9. All significant accounting policies adopted in the preparation and presentation of financialstatements should be disclosed.

10. The disclosure of the significant accounting policies as such should form part of thefinancial statements and the significant accounting policies should normally be disclosedin one place.

11. Any change in the accounting policies which has a material effect in the current period orwhich is reasonably expected to have a material effect in later periods should bedisclosed. In the case of a change in accounting policies which has a material effect in thecurrent period, the amount by which any item in the financial statements is affected bysuch change should also be disclosed to the extent ascertainable. here such amount isnot ascertainable, wholly or in part, the fact should be indicated.

1!. If the fundamental accounting assumptions, vi". #oing $oncern, $onsistency and Accrualare followed in financial statements, specific disclosure is not re%uired. If a fundamentalaccounting assumption is not followed, the fact should be disclosed.

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'@ In4entories encompass goods purchased and held for resale% for eample% merchandisepurchased by a retailer and held for resale% computer soft;are held for resale% or land and otherproperty held for resale@ In4entories also encompass finished goods produced% or ;orB inprogress being produced% by the enterprise and include materials% maintenance supplies%consumables and loose tools a;aiting use in the production process@ In4entories do not include

machinery spares ;hich can be used only in connection ;ith an item of fied asset and ;hoseuse is epected to be irregularG such machinery spares are accounted for in accordance ;ithAccounting Standard 5AS 10% Accounting for ied Assets@

+easurement of In!entories

). #n%entories should be %alued at the loer of cost and net realisable %alue.

Cost of In!entories

. The cost of inventories should comprise all costs of purchase, costs of conversion andother costs incurred in bringing the inventories to their present location and condition.

Costs of urc&ase

-@ The costs of purchase consist of the purchase price including duties and taes 5other than thosesubse:uently reco4erable by the enterprise from the taing authorities% freight in;ards and otherependiture directly attributable to the ac:uisition@ Trade discounts% rebates% duty dra;bacBs andother similar items are deducted in determining the costs of purchase@

Costs of Con!ersion

"@ The costs of con4ersion of in4entories include costs directly related to the units of production%such as direct labour@ They also include a systematic allocation of fied and 4ariable productiono4erheads that are incurred in con4erting materials into finished goods@ ied productiono4erheads are those indirect costs of production that remain relati4ely constant regardless of the4olume of production% such as depreciation and maintenance of factory buildings and the cost of

factory management and administration@ ariable production o4erheads are those indirect costsof production that 4ary directly% or nearly directly% ;ith the 4olume of production% such as indirectmaterials and indirect labour@

&@ The allocation of fied production o4erheads for the purpose of their inclusion in the costs ofcon4ersion is based on the normal capacity of the production facilities@ ormal capacity is theproduction epected to be achie4ed on an a4erage o4er a number of periods or seasons undernormal circumstances% taBing into account the loss of capacity resulting from plannedmaintenance@ The actual le4el of production may be used if it approimates normal capacity@ Theamount of fied production o4erheads allocated to each unit of production is not increased as aconse:uence of lo; production or idle plant@ Hnallocated o4erheads are recognised as anepense in the period in ;hich they are incurred@ In periods of abnormally high production% theamount of fied production o4erheads allocated to each unit of production is decreased so that

in4entories are not measured abo4e cost@ ariable production o4erheads are assigned to eachunit of production on the basis of the actual use of the production facilities@

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10@ A production process may result in more than one product being produced simultaneously@ This isthe case% for eample% ;hen 8oint products are produced or ;hen there is a main product and aby#product@ Ehen the costs of con4ersion of each product are not separately identifiable% they areallocated bet;een the products on a rational and consistent basis@ The allocation may be based%for eample% on the relati4e sales 4alue of each product either at the stage in the productionprocess ;hen the products become separately identifiable% or at the completion of production@Most by#products as ;ell as scrap or ;aste materials% by their nature% are immaterial@ Ehen this

is the case% they are often measured at net realisable 4alue and this 4alue is deducted from thecost of the main product@ As a result% the carrying amount of the main product is not materiallydifferent from its cost@

Ot&er Costs

11@ ther costs are included in the cost of in4entories only to the etent that they are incurred inbringing the in4entories to their present location and condition@ or eample% it may beappropriate to include o4erheads other than production o4erheads or the costs of designingproducts for specific customers in the cost of in4entories@

12@ Interest and other borro;ing costs are usually considered as not relating to bringing thein4entories to their present location and condition and are% therefore% usually not included in the

cost of in4entories@

E?clusions from t&e Cost of In!entories

13@ In determining the cost of in4entories in accordance ;ith paragraph 6% it is appropriate to ecludecertain costs and recognise them as epenses in the period in ;hich they are incurred@ 9amplesof such costs areC

5a abnormal amounts of ;asted materials% labour% or other production costsG

5b storage costs% unless those costs are necessary in the production process prior to a furtherproduction stageG

5c administrati4e o4erheads that do not contribute to bringing the in4entories to their present location

and conditionG and

5d selling and distribution costs@

Cost Formulas

/3" T&e cost of in!entories of items t&at are not ordinarily interc&angea#le and goods orser!ices produced and segregated for specific proects s&ould #e assigned #y specificidentification of t&eir indi!idual costs"

1+@ Specific identification of cost means that specific costs are attributed to identified items of

in4entory@ This is an appropriate treatment for items that are segregated for a specific pro8ect%regardless of ;hether they ha4e been purchased or produced@ !o;e4er% ;hen there are largenumbers of items of in4entory ;hich are ordinarily interchangeable% specific identification of costsis inappropriate since% in such circumstances% an enterprise could obtain predetermined effectson the net profit or loss for the period by selecting a particular method of ascertaining the itemsthat remain in in4entories@

1. The cost of inventories, other than those dealt with in paragraph 12, should be assignedby using the first-in, first-out (3I34), or weighted average cost formula. The formula usedshould reflect the fairest possible approximation to the cost incurred in bringing the itemsof inventory to their present location and condition.

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1-@ A 4ariety of cost formulas is used to determine the cost of in4entories other than those for ;hichspecific identification of indi4idual costs is appropriate@ The formula used in determining the costof an item of in4entory needs to be selected ;ith a 4ie; to pro4iding the fairest possibleapproimation to the cost incurred in bringing the item to its present location and condition@ TheI formula assumes that the items of in4entory ;hich ;ere purchased or produced first areconsumed or sold first% and conse:uently the items remaining in in4entory at the end of the periodare those most recently purchased or produced@ Hnder the ;eighted a4erage cost formula% the

cost of each item is determined from the ;eighted a4erage of the cost of similar items at thebeginning of a period and the cost of similar items purchased or produced during the period@ Thea4erage may be calculated on a periodic basis% or as each additional shipment is recei4ed%depending upon the circumstances of the enterprise@

Tec&niues for t&e +easurement of Cost

1"@ Techni:ues for the measurement of the cost of in4entories% such as the standard cost method orthe retail method% may be used for con4enience if the results approimate the actual cost@Standard costs taBe into account normal le4els of consumption of materials and supplies% labour%efficiency and capacity utilisation@ They are regularly re4ie;ed and% if necessary% re4ised in thelight of current conditions@

1&@ The retail method is often used in the retail trade for measuring in4entories of large numbers ofrapidly changing items that ha4e similar margins and for ;hich it is impracticable to use othercosting methods@ The cost of the in4entory is determined by reducing from the sales 4alue of thein4entory the appropriate percentage gross margin@ The percentage used taBes into considerationin4entory ;hich has been marBed do;n to belo; its original selling price@ An a4erage percentagefor each retail department is often used@

Net ealisa#le *alue

20@ The cost of in4entories may not be reco4erable if those in4entories are damaged% if they ha4ebecome ;holly or partially obsolete% or if their selling prices ha4e declined@ The cost of in4entoriesmay also not be reco4erable if the estimated costs of completion or the estimated costsnecessary to maBe the sale ha4e increased@ The practice of ;riting do;n in4entories belo; cost

to net realisable 4alue is consistent ;ith the 4ie; that assets should not be carried in ecess ofamounts epected to be realised from their sale or use@

21@ In4entories are usually ;ritten do;n to net realisable 4alue on an item#by#item basis@ In somecircumstances% ho;e4er% it may be appropriate to group similar or related items@ This may be thecase ;ith items of in4entory relating to the same product line that ha4e similar purposes or enduses and are produced and marBeted in the same geographical area and cannot be practicablye4aluated separately from other items in that product line@ It is not appropriate to ;rite do;nin4entories based on a classification of in4entory% for eample% finished goods% or all thein4entories in a particular business segment@

22@ 9stimates of net realisable 4alue are based on the most reliable e4idence a4ailable at the timethe estimates are made as to the amount the in4entories are epected to realise@ Theseestimates taBe into consideration fluctuations of price or cost directly relating to e4ents occurringafter the balance sheet date to the etent that such e4ents confirm the conditions eisting at thebalance sheet date@

23@ 9stimates of net realisable 4alue also taBe into consideration the purpose for ;hich the in4entoryis held@ or eample% the net realisable 4alue of the :uantity of in4entory held to satisfy firm salesor ser4ice contracts is based on the contract price@ If the sales contracts are for less than thein4entory :uantities held% the net realisable 4alue of the ecess in4entory is based on generalselling prices@ )ontingent losses on firm sales contracts in ecess of in4entory :uantities held andcontingent losses on firm purchase contracts are dealt ;ith in accordance ;ith the principlesenunciated in Accounting Standard 5AS '% )ontingencies and 94ents ccurring After the$alance Sheet .ate@

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2'@ Materials and other supplies held for use in the production of in4entories are not ;ritten do;nbelo; cost if the finished products in ;hich they ;ill be incorporated are epected to be sold at orabo4e cost@ !o;e4er% ;hen there has been a decline in the price of materials and it is estimatedthat the cost of the finished products ;ill eceed net realisable 4alue% the materials are ;rittendo;n to net realisable 4alue@ In such circumstances% the replacement cost of the materials may

be the best a4ailable measure of their net realisable 4alue@

2+@ An assessment is made of net realisable 4alue as at each balance sheet date@

'isclosure

!. The financial statements should disclose'

(a) the accounting policies adopted in measuring inventories, including the cost formulaused and

(b) the total carrying amount of inventories and its classification appropriate to theenterprise.

2-@ Information about the carrying amounts held in different classifications of in4entories and theetent of the changes in these assets is useful to financial statement users@ )ommonclassifications of in4entories are ra; materials and components% ;orB in progress% finished goods%stores and spares% and loose tools@

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Statements of Accounting Standards -AS 4. e!ised

Cas& Flo% Statements

(#n this Accounting Standard$ the standard portions ha%e been set in bold italict&pe. These should

be read in the context of the bac'ground material hich has been set in normal t&pe$ and in thecontext of the !reface to the Statements of Accounting Standards."

The follo;ing is the tet of the re4ised Accounting Standard 5AS 3% )ash lo; Statements% issuedby the )ouncil of the Institute of )hartered Accountants of India@ This Standard supersedesAccounting Standard 5AS 3% )hanges in inancial Position% issued in ,une% 1&"1@5Applicabilityre4ised by )ouncil in its meeting held on September 11#13% 2000

In the initial years% this accounting standard ;ill be recommendatory in character@ .uring this period%this standard is recommended for use by companies listed on a recognised stocB echange and othercommercial% industrial and business enterprises in the public and pri4ate sectors@

O#ecti!e

Information about the cash flo;s of an enterprise is useful in pro4iding users of financial statements;ith a basis to assess the ability of the enterprise to generate cash and cash e:ui4alents and theneeds of the enterprise to utilise those cash flo;s@ The economic decisions that are taBen by usersre:uire an e4aluation of the ability of an enterprise to generate cash and cash e:ui4alents and thetiming and certainty of their generation@

The Statement deals ;ith the pro4ision of information about the historical changes in cash and cashe:ui4alents of an enterprise by means of a cash flo; statement ;hich classifies cash flo;s during theperiod from operating% in4esting and financing acti4ities@

Scope

1. An enterprise should prepare a cash flow statement and should present it for each period

for which financial statements are presented.

2@ Hsers of an enterprises financial statements are interested in ho; the enterprise generates anduses cash and cash e:ui4alents@ This is the case regardless of the nature of the enterprisesacti4ities and irrespecti4e of ;hether cash can be 4ie;ed as the product of the enterprise% as maybe the case ;ith a financial enterprise@ 9nterprises need cash for essentially the same reasons%ho;e4er different their principal re4enue#producing acti4ities might be@ They need cash toconduct their operations% to pay their obligations% and to pro4ide returns to their in4estors@

Benefits of Cas& Flo% Information

3@ A cash flo; statement% ;hen used in con8unction ;ith the other financial statements% pro4idesinformation that enables users to e4aluate the changes in net assets of an enterprise% its financial

structure 5including its li:uidity and sol4ency and its ability to affect the amounts and timing ofcash flo;s in order to adapt to changing circumstances and opportunities@ )ash flo; informationis useful in assessing the ability of the enterprise to generate cash and cash e:ui4alents andenables users to de4elop models to assess and compare the present 4alue of the future cashflo;s of different enterprises@ It also enhances the comparability of the reporting of operatingperformance by different enterprises because it eliminates the effects of using differentaccounting treatments for the same transactions and e4ents@

'@ !istorical cash flo; information is often used as an indicator of the amount% timing and certaintyof future cash flo;s@ It is also useful in checBing the accuracy of past assessments of future cashflo;s and in eamining the relationship bet;een profitability and net cash flo; and the impact ofchanging prices@

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'efinitions

5. The following terms are used in this &tatement with the meanings specified'

$ash comprises cash on hand and demand deposits with ban*s.

$ash e%uivalents are short term, highly li%uid investments that are readily convertible into

*nown amounts of cash and which are sub6ect to an insignificant ris* of changes in value.

$ash flows are inflows and outflows of cash and cash e%uivalents.

4perating activities are the principal revenue-producing activities of the enterprise and otheractivities that are not investing or financing activities.

Investing activities are the ac%uisition and disposal of long-term assets and other investmentsnot included in cash e%uivalents.

3inancing activities are activities that result in changes in the si"e and composition of theowners capital (including preference share capital in the case of a company) and borrowingsof the enterprise.

Cas& and Cas& Eui!alents

6@ )ash e:ui4alents are held for the purpose of meeting short#term cash commitments rather thanfor in4estment or other purposes@ or an in4estment to :ualify as a cash e:ui4alent% it must bereadily con4ertible to a Bno;n amount of cash and be sub8ect to an insignificant risB of changes in4alue@ Therefore% an in4estment normally :ualifies as a cash e:ui4alent only ;hen it has a shortmaturity of% say% three months or less from the date of ac:uisition@ In4estments in shares areecluded from cash e:ui4alents unless they are% in substance% cash e:ui4alentsG for eample%preference shares of a company ac:uired shortly before their specified redemption date 5pro4idedthere is only an insignificant risB of failure of the company to repay the amount at maturity@

-@ )ash flo;s eclude mo4ements bet;een items that constitute cash or cash e:ui4alents becausethese components are part of the cash management of an enterprise rather than part of its

operating% in4esting and financing acti4ities@ )ash management includes the in4estment ofecess cash in cash e:ui4alents@

resentation of a Cas& Flo% Statement

7. The cash flow statement should report cash flows during the period classified byoperating, investing and financing activities.

&@ An enterprise presents its cash flo;s from operating% in4esting and financing acti4ities in amanner ;hich is most appropriate to its business@ )lassification by acti4ity pro4ides informationthat allo;s users to assess the impact of those acti4ities on the financial position of the enterpriseand the amount of its cash and cash e:ui4alents@ This information may also be used to e4aluatethe relationships among those acti4ities@

10@ A single transaction may include cash flo;s that are classified differently@ or eample% ;hen theinstalment paid in respect of a fied asset ac:uired on deferred payment basis includes bothinterest and loan% the interest element is classified under financing acti4ities and the loan elementis classified under in4esting acti4ities@

Operating Acti!ities

11@ The amount of cash flo;s arising from operating acti4ities is a Bey indicator of the etent to ;hichthe operations of the enterprise ha4e generated sufficient cash flo;s to maintain the operatingcapability of the enterprise% pay di4idends% repay loans and maBe ne; in4estments ;ithoutrecourse to eternal sources of financing@ Information about the specific components of historicaloperating cash flo;s is useful% in con8unction ;ith other information% in forecasting futureoperating cash flo;s@

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12@ )ash flo;s from operating acti4ities are primarily deri4ed from the principal re4enue#producingacti4ities of the enterprise@ Therefore% they generally result from the transactions and other e4entsthat enter into the determination of net profit or loss@ 9amples of cash flo;s from operatingacti4ities areC

5a cash receipts from the sale of goods and the rendering of ser4icesG

5b cash receipts from royalties% fees% commissions and other re4enueG

5c cash payments to suppliers for goods and ser4icesG

5d cash payments to and on behalf of employeesG

5e cash receipts and cash payments of an insurance enterprise for premiums and claims%annuities and other policy benefitsG

5f cash payments or refunds of income taes unless they can be specifically identified ;ithfinancing and in4esting acti4itiesG and

5g cash receipts and payments relating to futures contracts% for;ard contracts% option contractsand s;ap contracts ;hen the contracts are held for dealing or trading purposes@

13@ Some transactions% such as the sale of an item of plant% may gi4e rise to a gain or loss ;hich isincluded in the determination of net profit or loss@ !o;e4er% the cash flo;s relating to suchtransactions are cash flo;s from in4esting acti4ities@

1'@ An enterprise may hold securities and loans for dealing or trading purposes% in ;hich case theyare similar to in4entory ac:uired specifically for resale@ Therefore% cash flo;s arising from thepurchase and sale of dealing or trading securities are classified as operating acti4ities@ Similarly%cash ad4ances and loans made by financial enterprises are usually classified as operatingacti4ities since they relate to the main re4enue#producing acti4ity of that enterprise@

In!esting Acti!ities

1+@ The separate disclosure of cash flo;s arising from in4esting acti4ities is important because thecash flo;s represent the etent to ;hich ependitures ha4e been made for resources intended togenerate future income and cash flo;s@ 9amples of cash flo;s arising from in4esting acti4itiesareC

5a cash payments to ac:uire fied assets 5including intangibles@ These payments include thoserelating to capitalised research and de4elopment costs and self#constructed fied assetsG

5b cash receipts from disposal of fied assets 5including intangiblesG

5c cash payments to ac:uire shares% ;arrants or debt instruments of other enterprises and interestsin 8oint 4entures 5other than payments for those instruments considered to be cash e:ui4alentsand those held for dealing or trading purposesG

5d cash receipts from disposal of shares% ;arrants or debt instruments of other enterprises andinterests in 8oint 4entures 5other than receipts from those instruments considered to be cashe:ui4alents and those held for dealing or trading purposesG

5e cash ad4ances and loans made to third parties 5other than ad4ances and loans made by afinancial enterpriseG

5f cash receipts from the repayment of ad4ances and loans made to third parties 5other thanad4ances and loans of a financial enterpriseG

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5g cash payments for futures contracts% for;ard contracts% option contracts and s;ap contractsecept ;hen the contracts are held for dealing or trading purposes% or the payments are classifiedas financing acti4itiesG and

5h cash receipts from futures contracts% for;ard contracts% option contracts and s;ap contracts

ecept ;hen the contracts are held for dealing or trading purposes% or the receipts are classifiedas financing acti4ities@

16@ Ehen a contract is accounted for as a hedge of an identifiable position% the cash flo;s of thecontract are classified in the same manner as the cash flo;s of the position being hedged@

Financing Acti!ities

1-@ The separate disclosure of cash flo;s arising from financing acti4ities is important because it isuseful in predicting claims on future cash flo;s by pro4iders of funds 5both capital andborro;ings to the enterprise@ 9amples of cash flo;s arising from financing acti4ities areC

5a cash proceeds from issuing shares or other similar instrumentsG

5b cash proceeds from issuing debentures% loans% notes% bonds% and other short or long#termborro;ingsG and

5c cash repayments of amounts borro;ed@

eporting Cas& Flo%s from Operating Acti!ities

17. An enterprise should report cash flows from operating activities using either'

(a) the direct method, whereby ma6or classes of gross cash receipts and grosscash payments are disclosed or

(b) the indirect method, whereby net profit or loss is ad6usted for the effects of

transactions of a non-cash nature, any deferrals or accruals of past or futureoperating cash receipts or payments, and items of income or expense associated withinvesting or financing cash flows.

1&@ The direct method pro4ides information ;hich may be useful in estimating future cash flo;s and;hich is not a4ailable under the indirect method and is% therefore% considered more appropriatethan the indirect method@ Hnder the direct method% information about ma8or classes of gross cashreceipts and gross cash payments may be obtained eitherC

5a from the accounting records of the enterpriseG or

5b by ad8usting sales% cost of sales 5interest and similar income and interest epenseand similar charges for a financial enterprise and other items in the statement of profit andloss forC

i changes during the period in in4entories and operating recei4ables andpayablesG

ii other non#cash itemsG and

iii other items for ;hich the cash effects are in4esting or financing cash flo;s@

20@ Hnder the indirect method% the net cash flo; from operating acti4ities is determined by ad8ustingnet profit or loss for the effects ofC

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5a changes during the period in in4entories and operating recei4ables and payablesG

5b non#cash items such as depreciation% pro4isions% deferred taes% and unrealised foreignechange gains and lossesG and

5c all other items for ;hich the cash effects are in4esting or financing cash flo;s@

Alternati4ely% the net cash flo; from operating acti4ities may be presented under the indirectmethod by sho;ing the operating re4enues and epenses ecluding non#cash items disclosed inthe statement of profit and loss and the changes during the period in in4entories and operatingrecei4ables and payables@

eporting Cas& Flo%s from In!esting and Financing Acti!ities

!1. An enterprise should report separately ma6or classes of gross cash receipts and grosscash payments arising from investing and financing activities, except to the extent thatcash flows described in paragraphs !! and !2 are reported on a net basis.

eporting Cas& Flo%s on a Net Basis

!!. $ash flows arising from the following operating, investing or financing activities may be

reported on a net basis'

(a) cash receipts and payments on behalf of customers when the cash flowsreflect the activities of the customer rather than those of the enterprise and

(b) cash receipts and payments for items in which the turnover is %uic*, the amounts arelarge, and the maturities are short.

23@ 9amples of cash receipts and payments referred to in paragraph 225a areC

5a the acceptance and repayment of demand deposits by a banBG

5b funds held for customers by an in4estment enterpriseG and

5c rents collected on behalf of% and paid o4er to% the o;ners of properties@

9amples of cash receipts and payments referred to in paragraph 225b are ad4ances made for%and the repayments ofC

5a principal amounts relating to credit card customersG

5b the purchase and sale of in4estmentsG and

5c other short#term borro;ings% for eample% those ;hich ha4e a maturity period of three monthsor less@

!2. $ash flows arising from each of the following activities of a financial enterprise may be

reported on a net basis'

(a) cash receipts and payments for the acceptance and repayment of deposits witha fixed maturity date

(b) the placement of deposits with and withdrawal of deposits from other financialenterprises and

(c) cash advances and loans made to customers and the repayment of thoseadvances and loans.

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Foreign Currency Cas& Flo%s

!5. $ash flows arising from transactions in a foreign currency should be recorded in anenterprises reporting currency by applying to the foreign currency amount the exchangerate between the reporting currency and the foreign currency at the date of the cash flow.A rate that approximates the actual rate may be used if the result is substantially the sameas would arise if the rates at the dates of the cash flows were used. The effect of changes

in exchange rates on cash and cash e%uivalents held in a foreign currency should bereported as a separate part of the reconciliation of the changes in cash and cashe%uivalents during the period.

26@ )ash flo;s denominated in foreign currency are reported in a manner consistent ;ith AccountingStandard 5AS 11% Accounting for the 9ffects of )hanges in oreign 9change 7ates@ Thispermits the use of an echange rate that approimates the actual rate@ or eample% a ;eighteda4erage echange rate for a period may be used for recording foreign currency transactions@

2-@ Hnrealised gains and losses arising from changes in foreign echange rates are not cash flo;s@!o;e4er% the effect of echange rate changes on cash and cash e:ui4alents held or due in aforeign currency is reported in the cash flo; statement in order to reconcile cash and cashe:ui4alents at the beginning and the end of the period@ This amount is presented separately from

cash flo;s from operating% in4esting and financing acti4ities and includes the differences% if any%had those cash flo;s been reported at the end#of#period echange rates@

E?traordinary Items

!7. The cash flows associated with extraordinary items should be classified as arising fromoperating, investing or financing activities as appropriate and separately disclosed.

2&@ The cash flo;s associated ;ith etraordinary items are disclosed separately as arising fromoperating% in4esting or financing acti4ities in the cash flo; statement% to enable users tounderstand their nature and effect on the present and future cash flo;s of the enterprise@ Thesedisclosures are in addition to the separate disclosures of the nature and amount of etraordinaryitems re:uired by Accounting Standard 5AS +% et Profit or (oss for the Period% Prior PeriodItems and )hanges in Accounting Policies@

Interest and 'i!idends

/0. $ash flows from interest and dividends received and paid should each be disclosedseparately. $ash flows arising from interest paid and interest and dividends received inthe case of a financial enterprise should be classified as cash flows arising from operatingactivities. In the case of other enterprises, cash flows arising from interest paid should beclassified as cash flows from financing activities while interest and dividends receivedshould be classified as cash flows from investing activities. 8ividends paid should beclassified as cash flows from financing activities.

31@ The total amount of interest paid during the period is disclosed in the cash flo; statement;hether it has been recognised as an epense in the statement of profit and loss or capitalised in

accordance ;ith Accounting Standard 5AS 10% Accounting for ied Assets@

32@ Interest paid and interest and di4idends recei4ed are usually classified as operating cash flo;s fora financial enterprise@ !o;e4er% there is no consensus on the classification of these cash flo;sfor other enterprises@ Some argue that interest paid and interest and di4idends recei4ed may beclassified as operating cash flo;s because they enter into the determination of net profit or loss@!o;e4er% it is more appropriate that interest paid and interest and di4idends recei4ed areclassified as financing cash flo;s and in4esting cash flo;s respecti4ely% because they are cost ofobtaining financial resources or returns on in4estments@

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33@ Some argue that di4idends paid may be classified as a component of cash flo;s from operatingacti4ities in order to assist users to determine the ability of an enterprise to pay di4idends out ofoperating cash flo;s@ !o;e4er% it is considered more appropriate that di4idends paid should beclassified as cash flo;s from financing acti4ities because they are cost of obtaining financialresources@

Ta?es on Income

/2. $ash flows arising from taxes on income should be separately disclosed and should beclassified as cash flows from operating activities unless they can be specifically identifiedwith financing and investing activities.

3+@ Taes on income arise on transactions that gi4e rise to cash flo;s that are classified asoperating% in4esting or financing acti4ities in a cash flo; statement@ Ehile ta epense may bereadily identifiable ;ith in4esting or financing acti4ities% the related ta cash flo;s are oftenimpracticable to identify and may arise in a different period from the cash flo;s of the underlyingtransactions@ Therefore% taes paid are usually classified as cash flo;s from operating acti4ities@!o;e4er% ;hen it is practicable to identify the ta cash flo; ;ith an indi4idual transaction that

gi4es rise to cash flo;s that are classified as in4esting or financing acti4ities% the ta cash flo; isclassified as an in4esting or financing acti4ity as appropriate@ Ehen ta cash flo; are allocatedo4er more than one class of acti4ity% the total amount of taes paid is disclosed@

In!estments in Su#sidiaries, Associates and Doint *entures

/. hen accounting for an investment in an associate or a subsidiary or a 6oint venture, aninvestor restricts its reporting in the cash flow statement to the cash flows between itselfand the investee6oint venture, for example, cash flows relating to dividends andadvances.

Acuisitions and 'isposals of Su#sidiaries and Ot&er Business (nits

/+. The aggregate cash flows arising from ac%uisitions and from disposals of subsidiaries or

other business units should be presented separately and classified as investing activities.

/7. An enterprise should disclose, in aggregate, in respect of both ac%uisition and disposal ofsubsidiaries or other business units during the period each of the following'

(a) the total purchase or disposal consideration and

(b) the portion of the purchase or disposal consideration discharged by means ofcash and cash e%uivalents.

3&@ The separate presentation of the cash flo; effects of ac:uisitions and disposals of subsidiariesand other business units as single line items helps to distinguish those cash flo;s from othercash flo;s@ The cash flo; effects of disposals are not deducted from those of ac:uisitions@

Non9cas& Transactions

20. Investing and financing transactions that do not re%uire the use of cash or cashe%uivalents should be excluded from a cash flow statement. &uch transactions should bedisclosed elsewhere in the financial statements in a way that provides all the relevantinformation about these investing and financing activities.

'1@ Many in4esting and financing acti4ities do not ha4e a direct impact on current cash flo;s althoughthey do affect the capital and asset structure of an enterprise@ The eclusion of non#cashtransactions from the cash flo; statement is consistent ;ith the ob8ecti4e of a cash flo;statement as these items do not in4ol4e cash flo;s in the current period@ 9amples of non#cashtransactions areC

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5a the ac:uisition of assets by assuming directly related liabilitiesG

5b the ac:uisition of an enterprise by means of issue of sharesG and

5c the con4ersion of debt to e:uity@

Components of Cas& and Cas& Eui!alents

2!. An enterprise should disclose the components of cash and cash e%uivalents and shouldpresent a reconciliation of the amounts in its cash flow statement with the e%uivalentitems reported in the balance sheet.

'3@ In 4ie; of the 4ariety of cash management practices% an enterprise discloses the policy ;hich itadopts in determining the composition of cash and cash e:ui4alents@

''@ The effect of any change in the policy for determining components of cash and cash e:ui4alentsis reported in accordance ;ith Accounting Standard 5AS +% et Profit or (oss for the Period% PriorPeriod Items and )hanges in Accounting Policies@

Ot&er 'isclosures

25. An enterprise should disclose, together with a commentary by management, the amountof significant cash and cash e%uivalent balances held by the enterprise that are notavailable for use by it.

'6@ There are 4arious circumstances in ;hich cash and cash e:ui4alent balances held by anenterprise are not a4ailable for use by it@ 9amples include cash and cash e:ui4alent balancesheld by a branch of the enterprise that operates in a country ;here echange controls or otherlegal restrictions apply as a result of ;hich the balances are not a4ailable for use by theenterprise@

'-@ Additional information may be rele4ant to users in understanding the financial position and

li:uidity of an enterprise@ .isclosure of this information% together ;ith a commentary bymanagement% is encouraged and may includeC

5a the amount of undra;n borro;ing facilities that may be a4ailable for future operatingacti4ities and to settle capital commitments% indicating any restrictions on the use of thesefacilitiesG and

5b the aggregate amount of cash flo;s that represent increases in operating capacityseparately from those cash flo;s that are re:uired to maintain operating capacity@

'"@ The separate disclosure of cash flo;s that represent increases in operating capacity and cashflo;s that are re:uired to maintain operating capacity is useful in enabling the user to determine;hether the enterprise is in4esting ade:uately in the maintenance of its operating capacity@ Anenterprise that does not in4est ade:uately in the maintenance of its operating capacity may bepre8udicing future profitability for the saBe of current li:uidity and distributions to o;ners@

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A::;8I< I

Cas& Flo% Statement for an Enterprise ot&er t&an a Financial Enterprise

The appendix is illustrati%e onl& and does not form part of the accounting standard. The purpose ofthis appendix is to illustrate the application of the accounting standard.

1@ The eample sho;s only current period amounts@

2@ Information from the statement of profit and loss and balance sheet is pro4ided to sho; ho; thestatements of cash flo;s under the direct method and the indirect method ha4e been deri4ed@either the statement of profit and loss nor the balance sheet is presented in conformity ;ith thedisclosure and presentation re:uirements of applicable la;s and accounting standards@ The;orBing notes gi4en to;ards the end of this appendi are intended to assist in understanding themanner in ;hich the 4arious figures appearing in the cash flo; statement ha4e been deri4ed@These ;orBing notes do not form part of the cash flo; statement and% accordingly% need not bepublished@

3@ The follo;ing additional information is also rele4ant for the preparation of the statement of cashflo;s 5figures are in 7s@000@

5a An amount of 2+0 ;as raised from the issue of share capital and a further 2+0 ;as raisedfrom long term borro;ings@

5b Interest epense ;as '00 of ;hich 1-0 ;as paid during the period@ 100 relating to interestepense of the prior period ;as also paid during the period@

5c .i4idends paid ;ere 1%200@

5d Ta deducted at source on di4idends recei4ed 5included in the ta epense of 300 for theyear amounted to '0@

5e .uring the period% the enterprise ac:uired fied assets for 3+0@ The payment ;as made incash@

5f Plant ;ith original cost of "0 and accumulated depreciation of 60 ;as sold for 20@

5g oreign echange loss of '0 represents the reduction in the carrying amount of a short#termin4estment in foreign#currency designated bonds arising out of a change in echange ratebet;een the date of ac:uisition of the in4estment and the balance sheet date@

5h Sundry debtors and sundry creditors include amounts relating to credit sales and creditpurchases only@

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Balance S&eet as at 4/"/0"/661

-s" 222.

1**+ 1**)

Assets

)ash on hand and balances ;ith banBs 200 2+

Short#term in4estments 6-0 13+

Sundry debtors 1%-00 1%200

Interest recei4able 100

-a. interest and commitment c&arges on #an= #orro%ings and ot&er s&ort9term andlong9term #orro%ingsH

-#. amortisation of discounts or premiums relating to #orro%ingsH

-c. amortisation of ancillary costs incurred in connection %it& t&e arrangement of#orro%ingsH

-d. finance c&arges in respect of assets acuired under finance leases or under

ot&er similar arrangementsH and

-e. e?c&ange differences arising from foreign currency #orro%ings to t&e e?tentt&at t&ey are regarded as an adustment to interest costs"

5" E?amples of ualifying assets are manufacturing plants, po%er generation facilities,in!entories t&at reuire a su#stantial period of time to #ring t&em to a salea#le condition,and in!estment properties" Ot&er in!estments, and t&ose in!entories t&at are routinelymanufactured or ot&er%ise produced in large uantities on a repetiti!e #asis o!er a s&ortperiod of time, are not ualifying assets" Assets t&at are ready for t&eir intended use orsale %&en acuired also are not ualifying assets"

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ecognition

. =orrowing costs that are directly attributable to the ac%uisition, construction orproduction of a %ualifying asset should be capitalised as part of the cost of that asset. Theamount of borrowing costs eligible for capitalisation should be determined in accordance

with this &tatement. 4ther borrowing costs should be recognised as an expense in theperiod in which they are incurred.

@" Borro%ing costs are capitalised as part of t&e cost of a ualifying asset %&en it ispro#a#le t&at t&ey %ill result in future economic #enefits to t&e enterprise and t&e costscan #e measured relia#ly" Ot&er #orro%ing costs are recognised as an e?pense in t&eperiod in %&ic& t&ey are incurred"

Borro%ing Costs Eligi#le for Capitalisation

"@ The borro;ing costs that are directly attributable to the ac:uisition% construction or production of a:ualifying asset are those borro;ing costs that ;ould ha4e been a4oided if the ependiture on the:ualifying asset had not been made@ Ehen an enterprise borro;s funds specifically for thepurpose of obtaining a particular :ualifying asset% the borro;ing costs that directly relate to that:ualifying asset can be readily identified@

&@ It may be difficult to identify a direct relationship bet;een particular borro;ings and a :ualifyingasset and to determine the borro;ings that could other;ise ha4e been a4oided@ Such a difficultyoccurs% for eample% ;hen the financing acti4ity of an enterprise is co#ordinated centrally or ;hena range of debt instruments are used to borro; funds at 4arying rates of interest and suchborro;ings are not readily identifiable ;ith a specific :ualifying asset@ As a result% thedetermination of the amount of borro;ing costs that are directly attributable to the ac:uisition%construction or production of a :ualifying asset is often difficult and the eercise of 8udgement isre:uired@

10. To the extent that funds are borrowed specifically for the purpose of obtaining a %ualifyingasset, the amount of borrowing costs eligible for capitalisation on that asset should be

determined as the actual borrowing costs incurred on that borrowing during the periodless any income on the temporary investment of those borrowings.

11@ The financing arrangements for a :ualifying asset may result in an enterprise obtaining borro;edfunds and incurring associated borro;ing costs before some or all of the funds are used forependiture on the :ualifying asset@ In such circumstances% the funds are often temporarilyin4ested pending their ependiture on the :ualifying asset@ In determining the amount ofborro;ing costs eligible for capitalisation during a period% any income earned on the temporaryin4estment of those borro;ings is deducted from the borro;ing costs incurred@

1!. To the extent that funds are borrowed generally and used for the purpose of obtaining a%ualifying asset, the amount of borrowing costs eligible for capitalisation should bedetermined by applying a capitalisation rate to the expenditure on that asset. The

capitalisation rate should be the weighted average of the borrowing costs applicable tothe borrowings of the enterprise that are outstanding during the period, other thanborrowings made specifically for the purpose of obtaining a %ualifying asset. The amountof borrowing costs capitalised during a period should not exceed the amount ofborrowing costs incurred during that period.

9cess of the )arrying Amount of the Rualifying Asset o4er 7eco4erable Amount

13@ Ehen the carrying amount or the epected ultimate cost of the :ualifying asset eceeds itsreco4erable amount or net realisable 4alue% the carrying amount is ;ritten do;n or ;ritten off inaccordance ;ith the re:uirements of other Accounting Standards@ In certain circumstances% theamount of the ;rite#do;n or ;rite#off is ;ritten bacB in accordance ;ith those other AccountingStandards@

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Commencement of Capitalisation

12. The capitalisation of borrowing costs as part of the cost of a %ualifying asset shouldcommence when all the following conditions are satisfied'

(a) expenditure for the ac%uisition, construction or production of a %ualifying asset isbeing incurred

(b) borrowing costs are being incurred and

(c) activities that are necessary to prepare the asset for its intended use or sale are inprogress.

/5" E?penditure on a ualifying asset includes only suc& e?penditure t&at &as resulted inpayments of cas&, transfers of ot&er assets or t&e assumption of interest9#earinglia#ilities" E?penditure is reduced #y any progress payments recei!ed and grants recei!edin connection %it& t&e asset -see Accounting Standard /0, Accounting for Go!ernmentGrants." T&e a!erage carrying amount of t&e asset during a period, including #orro%ingcosts pre!iously capitalised, is normally a reasona#le appro?imation of t&e e?penditure to%&ic& t&e capitalisation rate is applied in t&at period"

/1" T&e acti!ities necessary to prepare t&e asset for its intended use or sale encompass moret&an t&e p&ysical construction of t&e asset" T&ey include tec&nical and administrati!e%or= prior to t&e commencement of p&ysical construction, suc& as t&e acti!itiesassociated %it& o#taining permits prior to t&e commencement of t&e p&ysicalconstruction" )o%e!er, suc& acti!ities e?clude t&e &olding of an asset %&en noproduction or de!elopment t&at c&anges t&e asset:s condition is ta=ing place" Fore?ample, #orro%ing costs incurred %&ile land is under de!elopment are capitalised duringt&e period in %&ic& acti!ities related to t&e de!elopment are #eing underta=en" )o%e!er,#orro%ing costs incurred %&ile land acuired for #uilding purposes is &eld %it&out anyassociated de!elopment acti!ity do not ualify for capitalisation"

Suspension of Capitalisation

1+. $apitalisation of borrowing costs should be suspended during extended periods in whichactive development is interrupted.

/7" Borro%ing costs may #e incurred during an e?tended period in %&ic& t&e acti!itiesnecessary to prepare an asset for its intended use or sale are interrupted" Suc& costs arecosts of &olding partially completed assets and do not ualify for capitalisation" )o%e!er,capitalisation of #orro%ing costs is not normally suspended during a period %&ensu#stantial tec&nical and administrati!e %or= is #eing carried out" Capitalisation of#orro%ing costs is also not suspended %&en a temporary delay is a necessary part of t&eprocess of getting an asset ready for its intended use or sale" For e?ample, capitalisationcontinues during t&e e?tended period needed for in!entories to mature or t&e e?tended

period during %&ic& &ig& %ater le!els delay construction of a #ridge, if suc& &ig& %aterle!els are common during t&e construction period in t&e geograp&ic region in!ol!ed"

Cessation of Capitalisation

19. $apitalisation of borrowing costs should cease when substantially all the activitiesnecessary to prepare the %ualifying asset for its intended use or sale are complete.

02" An asset is normally ready for its intended use or sale %&en its p&ysical construction orproduction is complete e!en t&oug& routine administrati!e %or= mig&t still continue" Ifminor modifications, suc& as t&e decoration of a property to t&e user:s specification, areall t&at are outstanding, t&is indicates t&at su#stantially all t&e acti!ities are complete"

!1. hen the construction of a %ualifying asset is completed in parts and a completed part iscapable of being used while construction continues for the other parts, capitalisation ofborrowing costs in relation to a part should cease when substantially all the activitiesnecessary to prepare that part for its intended use or sale are complete.

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00" A #usiness par= comprising se!eral #uildings, eac& of %&ic& can #e used indi!idually, isan e?ample of a ualifying asset for %&ic& eac& part is capa#le of #eing used %&ileconstruction continues for t&e ot&er parts" An e?ample of a ualifying asset t&at needs to#e complete #efore any part can #e used is an industrial plant in!ol!ing se!eral processes%&ic& are carried out in seuence at different parts of t&e plant %it&in t&e same site, suc&as a steel mill"

'isclosure

!/. The financial statements should disclose'

(a) the accounting policy adopted for borrowing costs and

-#. the amount of borrowing costs capitalised during the period.

Accounting Standards Interpretation -ASI. /

+eaning of Su#stantial eriod of Time

Accounting Standards Interpretation 5ASI 10Interpretation of aragrap& 3-e. of AS /1

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Statements of Accounting Standards -AS /@.

Segment eporting

(#n this Accounting Standard$ the standard portions ha%e been set inbold italict&pe. These shouldbe read in the context of the bac'ground material hich has been set in normal t&pe$ and in the

context of the !reface to the Statements of Accounting Standards."

The follo;ing is the tet of Accounting Standard 1-% Segment 7eporting% issued by the )ouncil of theInstitute of )hartered Accountants of India@ This Standard comes into effect in respect of accountingperiods commencing on or after 1@'@2001 and is mandatory in nature% from that date% in respect of thefollo;ingC

5i 9nterprises ;hose e:uity or debt securities are listed on a recognised stocB echange in India%and enterprises that are in the process of issuing e:uity or debt securities that ;ill be listed on arecognised stocB echange in India as e4idenced by the board of directors resolution in thisregard@

5ii All other commercial% industrial and business reporting enterprises% ;hose annual turno4er is

more than 7s@ +0 crores@

O#ecti!e

The ob8ecti4e of this Statement is to establish principles for reporting financial information% about thedifferent types of products and ser4ices an enterprise produces and the different geographical areasin ;hich it operates@ Such information helps users of financial statementsC

5a better understand the performance of the enterpriseG

5b better assess the risBs and returns of the enterpriseG and

5c maBe more informed 8udgements about the enterprise as a ;hole@

Many enterprises pro4ide groups of products and ser4ices or operate in geographical areas that aresub8ect to differing rates of profitability% opportunities for gro;th% future prospects% and risBs@Information about different types of products and ser4ices of an enterprise and its operations indifferent geographical areas # often called segment information # is rele4ant to assessing the risBs andreturns of a di4ersified or multi#locational enterprise but may not be determinable from the aggregateddata@ Therefore% reporting of segment information is ;idely regarded as necessary for meeting theneeds of users of financial statements@

Scope

1. This &tatement should be applied in presenting general purpose financial statements.

2@ The re:uirements of this Statement are also applicable in case of consolidated financial

statements@

/. An enterprise should comply with the re%uirements of this &tatement fully and notselectively.

2. If a single financial report contains both consolidated financial statements and theseparate financial statements of the parent, segment information need be presented onlyon the basis of the consolidated financial statements. In the context of reporting ofsegment information in consolidated financial statements, the references in this&tatement to any financial statement items should construed to be the relevant item asappearing in the consolidated financial statements.

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'efinitions

5. The following terms are used in this &tatement with the meanings specified'

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 andthat is sub6ect to ris*s and returns that are different from those of other businesssegments. 3actors that should be considered in determining whether products or servicesare 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

(e) if applicable, the nature of the regulatory environment, for example, ban*ing,

insurance, or public utilities.

A geographical segment is a distinguishable component of an enterprise that is engaged inproviding products or services within a particular economic environment and that is sub6ect toris*s and returns that are different from those of components operating in other economicenvironments. 3actors that should be considered in identifying geographical segmentsinclude'

a. similarity of economic and political conditionsH

#. relations&ips #et%een operations in different geograp&ical areasH

c. pro?imity of operationsH

d. special ris=s associated %it& operations in a particular areaH

e. e?c&ange control regulationsH and -f. t&e underlying currency ris=s"

A reporta#le segment is a #usiness segment or a geograp&ical segment identified on t&e #asisof foregoing definitions for %&ic& segment information is reuired to #e disclosed #y t&isStatement"

Enterprise re!enue is re!enue from sales to e?ternal customers as reported in t&e statement ofprofit and loss"

Segment re!enue is t&e aggregate of

-i. t&e portion of enterprise re!enue t&at is directly attri#uta#le to a segment,

-ii. t&e rele!ant portion of enterprise re!enue t&at can #e allocated on a reasona#le #asisto a segment, and

-i!. re!enue from transactions %it& ot&er segments of t&e enterprise"

Segment e?pense does not include>

a. e?traordinary items as defined in AS 5, Net rofit or Loss for t&e eriod, rior eriod Itemsand C&anges in Accounting oliciesH

#. interest e?pense, including interest incurred on ad!ances or loans from ot&er segments,unless t&e operations of t&e segment are primarily of a financial natureH

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c. losses on sales of in!estments or losses on e?tinguis&ment of de#t unless t&e operationsof t&e segment are primarily of a financial natureH

d. income ta? e?penseH and

e. general administrati!e e?penses, &ead9office e?penses, and ot&er e?penses t&at arise att&e enterprise le!el and relate to t&e enterprise as a %&ole" )o%e!er, costs are sometimes

incurred at t&e enterprise le!el on #e&alf of a segment" Suc& costs are part of segmente?pense if t&ey relate to t&e operating acti!ities of t&e segment and if t&ey can #e directlyattri#uted or allocated to t&e segment on a reasona#le #asis

Segment result is segment re!enue less segment e?pense"

Segment assets are t&ose operating assets t&at are employed #y a segment in its operatingacti!ities and t&at eit&er are directly attri#uta#le to t&e segment or can #e allocated to t&esegment on a reasona#le #asis"

If t&e segment result of a segment includes interest or di!idend income, its segment assetsinclude t&e related recei!a#les, loans, in!estments, or ot&er interest or di!idend generatingassets"

Segment assets do not include income ta? assets"

Segment assets are determined after deducting related allo%ances;pro!isions t&at arereported as direct offsets in t&e #alance s&eet of t&e enterprise"

Segment lia#ilities are t&ose operating lia#ilities t&at result from t&e operating acti!ities of asegment and t&at eit&er are directly attri#uta#le to t&e segment or can #e allocated to t&esegment on a reasona#le #asis" If t&e segment result of a segment includes interest e?pense,its segment lia#ilities include t&e related interest9#earing lia#ilities"

Segment lia#ilities do not include income ta? lia#ilities"

Segment accounting policies are t&e accounting policies adopted for preparing and presentingt&e financial statements of t&e enterprise as %ell as t&ose accounting policies t&at relatespecifically to segment reporting"

6@ The factors in paragraph + for identifying business segments and geographical segments are notlisted in any particular order@

-@ A single business segment does not include products and ser4ices ;ith significantly differing risBsand returns@ Ehile there may be dissimilarities ;ith respect to one or se4eral of the factors listedin the definition of business segment% the products and ser4ices included in a single businesssegment are epected to be similar ;ith respect to a ma8ority of the factors@

"@ Similarly% a single geographical segment does not include operations in economic en4ironments

;ith significantly differing risBs and returns@ A geographical segment may be a single country% agroup of t;o or more countries% or a region ;ithin a country@

&@ The risBs and returns of an enterprise are influenced both by the geographical location of itsoperations 5;here its products are produced or ;here its ser4ice rendering acti4ities are basedand also by the location of its customers 5;here its products are sold or ser4ices are rendered@The definition allo;s geographical segments to be based on eitherC

5a the location of production or ser4ice facilities and other assets of an enterpriseG or

5b the location of its customers@

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10@ The organisational and internal reporting structure of an enterprise ;ill normally pro4ide e4idenceof ;hether its dominant source of geographical risBs results from the location of its assets 5theorigin of its sales or the location of its customers 5the destination of its sales@ Accordingly% anenterprise looBs to this structure to determine ;hether its geographical segments should bebased on the location of its assets or on the location of its customers@

11@ .etermining the composition of a business or geographical segment in4ol4es a certain amount of8udgement@ In maBing that 8udgement% enterprise management taBes into account the ob8ecti4e ofreporting financial information by segment as set forth in this Statement and the :ualitati4echaracteristics of financial statements as identified in the rame;orB for the Preparation andPresentation of inancial Statements issued by the Institute of )hartered Accountants of India@The :ualitati4e characteristics include the rele4ance% reliability% and comparability o4er time offinancial information that is reported about the different groups of products and ser4ices of anenterprise and about its operations in particular geographical areas% and the usefulness of thatinformation for assessing the risBs and returns of the enterprise as a ;hole@

12@ The predominant sources of risBs affect ho; most enterprises are organised and managed@Therefore% the organisational structure of an enterprise and its internal financial reporting systemare normally the basis for identifying its segments@

13@ The definitions of segment re4enue% segment epense% segment assets and segment liabilitiesinclude amounts of such items that are directly attributable to a segment and amounts of suchitems that can be allocated to a segment on a reasonable basis@ An enterprise looBs to its internalfinancial reporting system as the starting point for identifying those items that can be directlyattributed% or reasonably allocated% to segments@ There is thus a presumption that amounts thatha4e been identified ;ith segments for internal financial reporting purposes are directlyattributable or reasonably allocable to segments for the purpose of measuring the segmentre4enue% segment epense% segment assets% and segment liabilities of reportable segments@

1'@ In some cases% ho;e4er% a re4enue% epense% asset or liability may ha4e been allocated tosegments for internal financial reporting purposes on a basis that is understood by enterprisemanagement but that could be deemed arbitrary in the perception of eternal users of financial

statements@ Such an allocation ;ould not constitute a reasonable basis under the definitions ofsegment re4enue% segment epense% segment assets% and segment liabilities in this Statement@)on4ersely% an enterprise may choose not to allocate some item of re4enue% epense% asset orliability for internal financial reporting purposes% e4en though a reasonable basis for doing soeists@ Such an item is allocated pursuant to the definitions of segment re4enue% segmentepense% segment assets% and segment liabilities in this Statement@

1+@ 9amples of segment assets include current assets that are used in the operating acti4ities of thesegment and tangible and intangible fied assets@ If a particular item of depreciation oramortisation is included in segment epense% the related asset is also included in segmentassets@ Segment assets do not include assets used for general enterprise or head#officepurposes@ Segment assets include operating assets shared by t;o or more segments if areasonable basis for allocation eists@ Segment assets include good;ill that is directly attributable

to a segment or that can be allocated to a segment on a reasonable basis% and segment epenseincludes related amortisation of good;ill@ If segment assets ha4e been re4alued subse:uent toac:uisition% then the measurement of segment assets reflects those re4aluations@

16@ 9amples of segment liabilities include trade and other payables% accrued liabilities% customerad4ances% product ;arranty pro4isions% and other claims relating to the pro4ision of goods andser4ices@ Segment liabilities do not include borro;ings and other liabilities that are incurred forfinancing rather than operating purposes@ The liabilities of segments ;hose operations are notprimarily of a financial nature do not include borro;ings and similar liabilities because segmentresult represents an operating% rather than a net#of#financing% profit or loss@ urther% because debtis often issued at the head#office le4el on an enterprise#;ide basis% it is often not possible todirectly attribute% or reasonably allocate% the interest#bearing liabilities to segments@

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1-@ Segment re4enue% segment epense% segment assets and segment liabilities are determinedbefore intra#enterprise balances and intra#enterprise transactions are eliminated as part of theprocess of preparation of enterprise financial statements% ecept to the etent that such intra#enterprise balances and transactions are ;ithin a single segment@

1"@ Ehile the accounting policies used in preparing and presenting the financial statements of the

enterprise as a ;hole are also the fundamental segment accounting policies% segment accountingpolicies include% in addition% policies that relate specifically to segment reporting% such asidentification of segments% method of pricing inter#segment transfers% and basis for allocatingre4enues and epenses to segments@

Identifying eporta#le Segments

rimary and Secondary Segment eporting Formats

/6" T&e dominant source and nature of ris=s and returns of an enterprise s&ould go!ern%&et&er its primary segment reporting format %ill #e #usiness segments or geograp&icalsegments" If t&e ris=s and returns of an enterprise are affected predominantly #ydifferences in t&e products and ser!ices it produces, its primary format for reporting

segment information s&ould #e #usiness segments, %it& secondary information reportedgeograp&ically" Similarly, if t&e ris=s and returns of t&e enterprise are affectedpredominantly #y t&e fact t&at it operates in different countries or ot&er geograp&icalareas, its primary format for reporting segment information s&ould #e geograp&icalsegments, %it& secondary information reported for groups of related products andser!ices"

02" Internal organisation and management structure of an enterprise and its system of internalfinancial reporting to t&e #oard of directors and t&e c&ief e?ecuti!e officer s&ould normally#e t&e #asis for identifying t&e predominant source and nature of ris=s and differing ratesof return facing t&e enterprise and, t&erefore, for determining %&ic& reporting format isprimary and %&ic& is secondary, e?cept as pro!ided in su#9paragrap&s -a. and -#. #elo%>

-a. if ris=s and returns of an enterprise are strongly affected #ot& #y differences in t&eproducts and ser!ices it produces and #y differences in t&e geograp&ical areas in%&ic& it operates, as e!idenced #y a Mmatri? approac&M to managing t&e company andto reporting internally to t&e #oard of directors and t&e c&ief e?ecuti!e officer, t&en t&eenterprise s&ould use #usiness segments as its primary segment reporting format andgeograp&ical segments as its secondary reporting formatH and

-#. if internal organisational and management structure of an enterprise and its system ofinternal financial reporting to t&e #oard of directors and t&e c&ief e?ecuti!e officer are#ased neit&er on indi!idual products or ser!ices or groups of related products;ser!ices nor on geograp&ical areas, t&e directors and management of t&e enterprises&ould determine %&et&er t&e ris=s and returns of t&e enterprise are related more tot&e products and ser!ices it produces or to t&e geograp&ical areas in %&ic& it

operates and s&ould, accordingly, c&oose #usiness segments or geograp&icalsegments as t&e primary segment reporting format of t&e enterprise, %it& t&e ot&er asits secondary reporting format"

21@ or most enterprises% the predominant source of risBs and returns determines ho; the enterpriseis organised and managed@ rganisational and management structure of an enterprise and itsinternal financial reporting system normally pro4ide the best e4idence of the predominant sourceof risBs and returns of the enterprise for the purpose of its segment reporting@ Therefore% ecept inrare circumstances% an enterprise ;ill report segment information in its financial statements onthe same basis as it reports internally to top management@ Its predominant source of risBs andreturns becomes its primary segment reporting format@ Its secondary source of risBs and returnsbecomes its secondary segment reporting format@

22@ A matri presentation ## both business segments and geographical segments as primarysegment reporting formats ;ith full segment disclosures on each basis ## ;ill often pro4ide usefulinformation if risBs and returns of an enterprise are strongly affected both by differences in the

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products and ser4ices it produces and by differences in the

14as final

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