The following are some areas where different accounting treatments can be adopted :
- Method of Depreciation
- Depreciation can be calculated either by Straight Line Method or Written Down Value Method.
- Treatment of Expenditure during Construction
- It can be written off or capitalised or deferred.
- Conversion or Translation of Foreign Currency Items
- Foreign currency items can be converted by adopting average rate method or TT buying rate method.
- Valuation of Inventories
- Inventories may be valued by the different methods such as FIFO, Weighted Average, Standard Cost or Retail method.
- Valuation of Investment
- Valuation of investment can be done depending on the classification of investment. Investment is classified as long-term investment and current investment. Cost of investment comprises purchase price & acquisition charges such as brokerage, fees and duties etc. For the purpose of Balance Sheet, carrying amount of investment can be valued in different manner depending on the type of investment.
- Current Investment: Carrying amount of each current investment is the lower of cost and realisable value.
- Long-term Investment: It is usually carried / valued at cost.
- Investment Properties: The cost of shares held in co-operative society is added to cost of investment properties if the shares in such societies are necessary to acquire the investment properties. An enterprise, which holds investment properties, should account for them as long-term investment.
- Thus, investment can be given different accounting treatment in different cases.
- Treatment of Retirement Benefits
- There are several accounting treatments to be given to the retirement benefits to the employees. It depends on the several labour laws and the retirement benefit plans adopted by the enterprise.
- Valuation of Fixed Assets
- Fixed assets can be shown in financial statement either at historical cost or revalued price. Moreover, the type of fixed assets also matters in the valuation method. Examples of fixed assets are land, freehold building, leasehold building, plant & machinery, furniture & fittings etc. This account treatment in valuation of fixed asset is determined by laws, types of assets and the special cases etc.
- Treatment of Contingent Liability
- Here also, an enterprise can follow different accounting treatments in recognition and disclosure of contingent liability.
Illustrations of Accounting Policies
- Depreciation
- Depreciation on fixed assets is provided for on Straight Line Method at the rates prescribed under Schedule XIV to the Companies Act, 1956 as amended.
- Basis of Preparation of Financial Statements
- The financial statements have been prepared under the historical cost convention in accordance with the Generally Accepted Accounting principles in India and the provisions of the Companies Act, 1956, except for certain fixed assets, which have been revalued.
- Inventories
- Inventories are stated at lower of cost or net realisable value. In case of fuel, stores and spares 'cost' means weighted average cost. Unserviceable/damaged stores and spares are identified and written down based on technical evaluation.
