Financial Accounting

BBA 1st Sem & BCA 2nd Sem

Chapter .-2
Accounting Standard

Accounting Standards:

Accounting standards play an important role in a company’s financial statements. A company needs to abide by accounting rules to prevent financial risks and fraud in its statements.

What is the accounting standard?

Accounting standards are rules that guide the preparation and presentation of financial information in organizations and cover multiple areas of financial reporting, such as revenue recognition, inventory valuation, and depreciation. Below are some examples of common accounting standards around the world.

GAAP (Generally Accepted Accounting Principles):

In the United States, GAAP refers to the standards that manage the creation and preparation of financial statements.

International Financial Reporting Standards (IFRS):

IFRS is an accounting system created by the International Accounting Standards Board and is currently used in many countries around the world, such as the European Union, Australia, and Canada.

Indian Accounting Standards (Ind AS):

Ind AS (Indian Accounting System) is an accounting system developed by the Indian Institute of Chartered Accountants (ICAI).

List of Accounting Standards in India:

The Indian AS has been derived from the globally accepted International Financial Reporting Standards (IFRS) that are mandated by the esteemed International Accounting Standards Board (IASB). The ICAI in India has 32 accounting standards. AS-1 to AS-29 are mandatory. Here, we give a brief explanation of accounting standards.

Ind AS 1: Financial Statement Presentation:

Under this standard, companies must disclose the key accounting policies used in the preparation and presentation of financial statements. It also helps them know their financial position.

Ind AS 2 Inventories Accounting:

This standard deals with the valuation of inventories and prescribes the methods of determining the value of inventories, like the first-in, first-out (FIFO) method, the weighted financial value method, and therefore, the specific identification method.

Ind AS-3: Cash Flow Statements:

Income statements show how much money a company has in and out of the company during a certain period. The income statement is used to evaluate a company's cash position and ability to pay debts. It aids financial statement users in assessing liquidity.

Ind AS-4: Events Occurring After the Balance Sheet Date:

According to this rule, companies must reveal any significant events or potential issues that happened after the record date but before approving financial statements. With the support of such disclosures, users of financial statements can assess the company's potential liabilities and risks.

Ind AS-5: Net Income or Loss from the Period:

This standard is about fixing mistakes and making changes to how accounting was done in previous periods. It involves calculating the amount of net income or loss.

Ind AS- 6: Depreciation Accounting:

According to AS 6, depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount is the cost of an asset, or other amount substituted for cost, less its estimated residual value.

Ind AS 7: Building Contracts:

It explains the rules of building contracts in the financial reports of building contractors. This standard offers guidelines to follow and takes responsibility for revenue and expenses associated with lengthy construction contracts.

AS 8: Accounting for Research and Development

This standard reveals the criteria for capitalizing and reducing development costs and provides guidelines on how to manage accounts for Research and Development(R&D) costs according to Indian accounting standards.

Ind AS 9: Revenue Recognition:

This standard covers the recognition of revenue in a company's financial statements. It imposes the concepts and techniques for recognizing revenue from the sale of goods, the performance of services, and the use of the company's assets by others.

Ind AS 10: Fixed Asset Accounting

This rule tells how to handle the accounting of fixed assets, such as land, buildings, and equipment. It deals with the popularity, measurement, depreciation, and disposal of fixed assets.

Ind AS 11: The Effects of Foreign Exchange Rate Changes

This standard sets rules for foreign exchange transactions, which affect the foreign exchange rates for all foreign operations.

Ind AS 12 Accounting for Government Grants:

This accounting standard is about government grants, which include subsidies, rate defects, and incentives, among others. It aims to provide clear guidelines for accounting.

Ind AS 13: Investment Accounting:

The standard also requires disclosure of the accounting principles applied to the investments, the amount of each investment category, and the fair value or value of the investments at the end of the reporting period.

Ind AS 14 Accounting for Amalgamations:

Ind AS-14 deals with accounting for mergers and acquisitions. A merger occurs when two or more companies are combined into a new entity with no transfer of ownership between the parties. An acquisition is when one company acquires the assets and liabilities of another company.

Ind AS 15: Employee Benefits:

This standard requires companies to record employee benefit costs in the financial statements as an expense in the financial period in which the employee earns the benefit.

Ind AS 16: Borrowing Fees:

This rule is about how to handle the costs of borrowing money, such as interest charges on loans. Under this standard, borrowing costs specifically attributable to the securing, development, or generation of a qualifying asset are capitalized as part of the fetched assets.

Ind AS 17: Reporting by Segment

The standard requires organizations to publish financial and non-financial information about the segments, such as revenue, expenses, assets, liabilities, and other indicators used internally to evaluate segment performance.

Ind AS 18: Disclosure of Related Parties

Companies must disclose transactions with linked parties, their nature, and the amounts involved under the requirement.

Ind AS 19: Leases:

Ind AS 19 leases are used to disclose their operating and financial arrangements for lessees and lessors. For lessees, assets depreciate over the lease term, while their liabilities decrease when lease payments are paid. For lessors, leases are different depending on whether they are operational or finance leases.

Ind AS 20: Earnings Per Share:

The Ind AS 20 Earnings Per Share discloses the earnings per share in a company and shows how much money the company makes for its shares and stocks.

Ind AS 21: Preparation of Consolidated financial statement:

This standard deals with the consolidated financial statement of a group of firms under the control of parent firms. It discloses financial statements of all the subsidiaries of parent firms such as name, ownership interest, equity shares, and minority interests.

Ind AS 22: Income Taxes:

These standard deals with the accounting treatment of income taxes. The tax income displayed on financial statements varies due to various reasons, making it difficult to link taxes with revenue over time.

Ind AS 23: Consolidated Financial Statement Accounting for Investments in Associates

This standard addresses the accounting treatment of associate investments in consolidated financial statements. An associate is a company where the investor has significant power but not full authority over its financial and operational policies. Organizations need to have subsidiaries, joint ventures, or associates because it explains how to account for these investments and generates consolidated financial statements that reflect the organization's financial performance and position.

Ind AS 24: Stopping Operations:

According to AS 24, a firm that has decided to end operations must recognize and measure the assets and liabilities of the discontinued operation separately and present the results of the discontinued operation separately in the financial statements.

Ind AS 25: Interim Financial Reporting:

Interim financial reports typically include a balance sheet, an income statement, a cash flow statement, and financial statements of a company for a short period of time.

Ind AS 26: Intangible Assets

This standard specifies how to handle and disclose requirements for intangible assets, which are valued assets that lack a physical form but have economic value.

Ind AS 27: Financial Reporting:

The ICAI's AS-27 focuses on creating rules for accounting and reporting related to joint ventures. This includes recording assets, liabilities, income, and expenses in the financial statements of those investing and venturing.

Ind AS 28: Asset Impairment:

This standard deals with reduction value of assets and ensures that the amount carrying the asset does not exceed the recoverable amount. If the carrying amount exceeds the recoverable value, the asset is considered impaired, and the firm must record an impairment loss.

Ind AS 29: Contingent Assets, Contingent Liabilities, and Provisions:

The disclosure of provisions, contingent liabilities, and contingent assets is required by this standard. Contingent assets and liabilities are possible assets and liabilities that are contingent on the happening of uncertain future events. Provisions are liabilities that are certain or very likely to occur, but the amount or timing of payment is unpredictable.

Ind AS 30: Financial Instruments Recognition and Measurement:

The standard establishes the criteria for recognizing, measuring, and reporting financial instruments in the financial statements of an organization. Financial instruments include loans and receivables, as well as investments in equities and debt securities, whereas financial liabilities include borrowings, trade payables, and derivatives.

AS 31: Presentation of Financial Instruments

According to Ind AS 31, joint arrangement parties must disclose in their financial statements the rights and duties resulting from the agreement. This standard discusses financial instrument presentation and defines guidelines for presenting financial instruments as liabilities or equity, as well as balancing financial assets and liabilities.

Ind AS 32- Financial Instruments Disclosure

This standard lays out the guidelines for disclosing financial instruments as either equity instruments, financial obligations, or both. This standard discloses all financial instruments, its primary goal is to improve transparency and comparability of financial statements related to financial instruments and help users make informed decisions.
For Practices:

Section 1: Introduction to Accounting Standards

Which organization in India issues Accounting Standards?
a) SEBI
b) RBI
c) ICAI
d) IRDA
Answer: c) ICAI
Solution: The Institute of Chartered Accountants of India (ICAI) issues Accounting Standards in India through the Accounting Standards Board (ASB).
How many Accounting Standards are currently notified under the Companies Act, 2013?
a) 29
b) 39
c) 41
d) 50
Answer: a) 29
Solution: The MCA (Ministry of Corporate Affairs) has notified 29 Accounting Standards (AS) under the Companies Act, 2013.

📌 Section 2: Key Accounting Standards (AS-1 to AS-10)

Which Accounting Standard deals with 'Disclosure of Accounting Policies'?
a) AS-1
b) AS-2
c) AS-3
d) AS-4
Answer: a) AS-1
Solution: AS-1 ensures that companies disclose significant accounting policies in their financial statements.
What is the main objective of AS-2?
a) Revenue Recognition
b) Inventory Valuation
c) Depreciation Accounting
d) Cash Flow Statements
Answer: b) Inventory Valuation
Solution: AS-2 prescribes the method of valuation of inventories, ensuring consistency and fair representation.
Which valuation method is NOT allowed under AS-2?
a) FIFO
b) Weighted Average
c) LIFO
d) Specific Identification
Answer: c) LIFO
Solution: AS-2 prohibits LIFO (Last-In, First-Out) as it does not provide an accurate financial representation.

📌 Section 3: Revenue Recognition and Financial Statements (AS-9, AS-10, AS-11)

AS-9 deals with the recognition of which element?
a) Depreciation
b) Revenue
c) Contingencies
d) Foreign Exchange
Answer: b) Revenue
Solution: AS-9 provides guidelines for recognizing revenue from sales of goods, services, and interest, dividends, and royalties.
Under AS-9, revenue from the sale of goods is recognized when:
a) Order is received
b) Payment is received
c) Goods are delivered
d) None of the above
Answer: c) Goods are delivered
Solution: Revenue is recognized when the risks and rewards of ownership are transferred to the buyer.

📌 Section 4: Depreciation, Fixed Assets & Impairment (AS-6, AS-10, AS-28)

Which method of depreciation is NOT permitted under AS-6?
a) Straight Line Method
b) Written Down Value Method
c) Sum-of-Years-Digits Method
d) Units of Production Method
Answer: c) Sum-of-Years-Digits Method
Solution: AS-6 allows Straight Line Method (SLM) and Written Down Value Method (WDV), but not advanced methods like Sum-of-Years-Digits.
Under AS-10, how should a company account for the revaluation of fixed assets?
a) Expense it immediately
b) Transfer to Revaluation Reserve
c) Record as Revenue
d) Ignore it
Answer: b) Transfer to Revaluation Reserve
Solution: Revaluation of fixed assets is credited to the Revaluation Reserve Account instead of affecting profit & loss directly.

📌 Section 5: Consolidation & Group Accounting (AS-21, AS-23, AS-27)

Which standard is applied for preparing consolidated financial statements?
a) AS-19
b) AS-21
c) AS-25
d) AS-29
Answer: b) AS-21
Solution: AS-21 governs Consolidated Financial Statements (CFS), requiring a parent company to consolidate financials of its subsidiaries.

📌 Section 6: Foreign Exchange, Leases & Government Grants (AS-11, AS-12, AS-19)

Under AS-11, foreign currency transactions are recorded using:
a) Spot Exchange Rate
b) Fixed Rate
c) Government Rate
d) Any of the above
Answer: a) Spot Exchange Rate
Solution: Foreign currency transactions are converted using the spot exchange rate on the date of the transaction.
Which AS governs Accounting for Government Grants?
a) AS-9
b) AS-12
c) AS-19
d) AS-22
Answer: b) AS-12
Solution: AS-12 outlines the accounting treatment and disclosure of government grants and assistance.

📌 Section 7: Taxation, Contingencies, & Events After Reporting (AS-22, AS-29, AS-4)

Which standard deals with Deferred Tax Accounting?
a) AS-12
b) AS-22
c) AS-6
d) AS-29
Answer: b) AS-22
Solution: AS-22 guides the treatment of deferred tax assets and liabilities arising from temporary differences.
AS-29 deals with:
a) Employee Benefits
b) Contingent Liabilities & Provisions
c) Depreciation Accounting
d) Intangible Assets
Answer: b) Contingent Liabilities & Provisions
Solution: AS-29 provides guidelines for recognizing and disclosing contingent liabilities, contingent assets, and provisions.

📌 Section 8: Miscellaneous Accounting Standards

AS-17 requires businesses to disclose information based on:
a) Revenue Generation
b) Segment Reporting
c) Cash Flow Analysis
d) Fixed Assets
Answer: b) Segment Reporting
Solution: AS-17 requires companies to disclose financial information based on different business and geographical segments.

📌 Section 9: Cash Flow, Earnings Per Share & Financial Instruments (AS-3, AS-20, AS-30 to AS-32)

AS-3 deals with which type of financial statement?
a) Balance Sheet
b) Profit & Loss Statement
c) Cash Flow Statement
d) Statement of Changes in Equity
Answer: c) Cash Flow Statement
Solution: AS-3 prescribes the format and classification of cash flows into Operating, Investing, and Financing activities.
Which of the following is NOT a part of operating cash flows under AS-3?
a) Cash received from customers
b) Payment to suppliers
c) Loan repayments
d) Wages paid to employees
Answer: c) Loan repayments
Solution: Loan repayments are considered financing activities, not operating activities.
AS-20 is applicable for which type of financial measure?
a) Return on Assets
b) Earnings Per Share (EPS)
c) Debt-to-Equity Ratio
d) Current Ratio
Answer: b) Earnings Per Share (EPS)
Solution: AS-20 defines the calculation of Basic and Diluted EPS for companies with publicly traded shares.
Under AS-20, EPS is calculated using:
a) Net Income / Shareholders' Equity
b) Net Income / Weighted Average Shares Outstanding
c) Net Income / Total Liabilities
d) None of the above
Answer: b) Net Income / Weighted Average Shares Outstanding
Solution: Earnings Per Share (EPS) is calculated using Net Profit after Tax divided by the Weighted Average Number of Shares Outstanding.
Which accounting standard governs financial instruments in India?
a) AS-19
b) AS-30 to AS-32
c) AS-6
d) AS-21
Answer: b) AS-30 to AS-32
Solution: AS-30, AS-31, and AS-32 deal with the recognition, measurement, and disclosures of Financial Instruments.

📌 Section 10: Employee Benefits & Lease Accounting (AS-15, AS-19)

Which standard deals with Employee Benefits?
a) AS-6
b) AS-12
c) AS-15
d) AS-19
Answer: c) AS-15
Solution: AS-15 outlines the treatment of Gratuity, Provident Fund, Pensions, and other Employee Benefits.
Which of the following is NOT an employee benefit under AS-15?
a) Salary
b) Gratuity
c) Loans to Employees
d) Leave Encashment
Answer: c) Loans to Employees
Solution: Loans to employees are considered advances, not employee benefits.
AS-19 deals with:
a) Revenue Recognition
b) Lease Accounting
c) Consolidated Financial Statements
d) Investment Accounting
Answer: b) Lease Accounting
Solution: AS-19 governs the classification and treatment of Operating and Finance Leases.
Which of the following is a characteristic of a finance lease under AS-19?
a) Lessee gets ownership at the end of the lease
b) Risks and rewards remain with the lessor
c) Lessee does not pay maintenance costs
d) Lease term is less than the asset's useful life
Answer: a) Lessee gets ownership at the end of the lease
Solution: In a finance lease, risks and rewards of ownership are transferred to the lessee.

📌 Section 11: Provisions, Contingent Liabilities & Related Party Disclosures (AS-18, AS-29)

AS-18 is related to:
a) Segment Reporting
b) Related Party Disclosures
c) Revenue Recognition
d) Accounting for Taxes
Answer: b) Related Party Disclosures
Solution: AS-18 ensures companies disclose transactions with related parties like subsidiaries, associates, and key management personnel.
AS-29 provides guidance on:
a) Contingent Liabilities and Provisions
b) Deferred Tax Accounting
c) Investment Accounting
d) Foreign Exchange Transactions
Answer: a) Contingent Liabilities and Provisions
Solution: AS-29 defines conditions under which provisions, contingent liabilities, and contingent assets should be recognized.

📌 Section 12: Miscellaneous Accounting Standards

Which Accounting Standard deals with Borrowing Costs?
a) AS-10
b) AS-16
c) AS-6
d) AS-18
Answer: b) AS-16
Solution: AS-16 prescribes rules for capitalization of borrowing costs related to qualifying assets.
Which of the following is an example of a contingent liability?
a) Outstanding Loan
b) Pending Court Case
c) Depreciation Expense
d) Purchase of Fixed Assets
Answer: b) Pending Court Case
Solution: A pending court case is a contingent liability because its outcome is uncertain.
Accounting Standards are issued to ensure:
a) Subjectivity in financial reporting
b) Consistency and transparency in accounting
c) Tax benefits for companies
d) Higher profits for companies
Answer: b) Consistency and transparency in accounting
Solution: The main objective of Accounting Standards is to ensure uniformity, comparability, and reliability in financial statements.

📌 Section 13: Advanced Topics (AS-7, AS-26, AS-28)

Which Accounting Standard deals with Construction Contracts?
a) AS-2
b) AS-7
c) AS-15
d) AS-19
Answer: b) AS-7
Solution: AS-7 outlines the revenue recognition principles for long-term construction contracts.
Under AS-26, an intangible asset is recognized if:
a) It has a physical substance
b) Future economic benefits are probable
c) It can be measured using historical cost
d) It is acquired for free
Answer: b) Future economic benefits are probable
Solution: AS-26 states that an intangible asset should be recognized only if future benefits are expected.
Which standard deals with Impairment of Assets?
a) AS-28
b) AS-29
c) AS-19
d) AS-18
Answer: a) AS-28
Solution: AS-28 requires companies to test assets for impairment and recognize losses if the recoverable amount is lower than the carrying amount.

📌 Section 14: Accounting for Government Grants (AS-12), Investment Accounting (AS-13), and Foreign Exchange (AS-11)

AS-12 deals with the accounting treatment of:
a) Fixed Assets
b) Government Grants
c) Deferred Tax
d) Leases
Answer: b) Government Grants
Solution: AS-12 prescribes the accounting for grants received from the government, including recognition and disclosure requirements.
According to AS-12, government grants related to fixed assets should be:
a) Credited to the profit & loss account
b) Deducted from the asset cost or shown as deferred income
c) Treated as a contingent liability
d) Ignored in the books
Answer: b) Deducted from the asset cost or shown as deferred income
Solution: AS-12 allows two treatments: reduce the asset cost or recognize as deferred income and credit over the useful life of the asset.
AS-13 deals with the accounting for:
a) Financial Instruments
b) Investments
c) Revenue Recognition
d) Consolidation of Financial Statements
Answer: b) Investments
Solution: AS-13 provides guidance on the classification, measurement, and disposal of current and long-term investments.
Which of the following is NOT a category of investment as per AS-13?
a) Current Investments
b) Long-term Investments
c) Deferred Investments
d) None of the above
Answer: c) Deferred Investments
Solution: AS-13 classifies investments as current (short-term) or long-term, but there is no concept of deferred investments.
AS-11 governs accounting for:
a) Employee Benefits
b) Foreign Exchange Transactions
c) Depreciation
d) Revenue Recognition
Answer: b) Foreign Exchange Transactions
Solution: AS-11 provides rules for the accounting treatment of foreign currency transactions, exchange rate differences, and translation of financial statements.
Which of the following methods is NOT used under AS-11 for foreign exchange differences?
a) Monetary-Non-Monetary Method
b) Temporal Method
c) Current Rate Method
d) Cost Method
Answer: d) Cost Method
Solution: Cost Method is not an approach used in foreign exchange accounting under AS-11.

📌 Section 15: Accounting for Fixed Assets (AS-10), Depreciation (AS-6), and Revenue Recognition (AS-9)

AS-10 deals with:
a) Fixed Assets
b) Inventory Valuation
c) Financial Instruments
d) Employee Benefits
Answer: a) Fixed Assets
Solution: AS-10 provides guidance on the recognition, measurement, and disposal of tangible fixed assets.
Depreciation under AS-6 should be calculated using:
a) Straight Line Method or Written Down Value Method
b) Any method chosen arbitrarily
c) Market value adjustments
d) Random allocation
Answer: a) Straight Line Method or Written Down Value Method
Solution: AS-6 allows companies to use SLM or WDV methods based on their policy.
AS-9 is related to:
a) Revenue Recognition
b) Inventory Valuation
c) Impairment of Assets
d) Employee Benefits
Answer: a) Revenue Recognition
Solution: AS-9 defines the conditions for recognizing revenue from sales of goods, rendering of services, and interest, dividends, or royalties.
According to AS-9, revenue from the sale of goods should be recognized when:
a) The customer places an order
b) Goods are delivered, and risk is transferred
c) Payment is received in advance
d) The contract is signed
Answer: b) Goods are delivered, and risk is transferred
Solution: Revenue is recognized when the seller has transferred significant risks and rewards to the buyer.

📌 Section 16: Accounting Standards for Consolidated Financial Statements (AS-21, AS-23, AS-27)

Which standard governs Consolidated Financial Statements?
a) AS-19
b) AS-21
c) AS-28
d) AS-13
Answer: b) AS-21
Solution: AS-21 requires a parent company to prepare consolidated financial statements for all its subsidiaries.
AS-23 deals with:
a) Accounting for Joint Ventures
b) Accounting for Associates
c) Accounting for Financial Instruments
d) Revenue Recognition
Answer: b) Accounting for Associates
Solution: AS-23 applies to investments in associates where the investor has significant influence (20-50% stake).
Which standard applies to accounting for Joint Ventures?
a) AS-19
b) AS-21
c) AS-27
d) AS-28
Answer: c) AS-27
Solution: AS-27 prescribes the accounting treatment for joint venture arrangements, including proportionate consolidation or equity method.

📌 Section 17: Final Set of Miscellaneous Accounting Standards (AS-17, AS-22, AS-24, AS-25, AS-28, AS-29)

AS-17 deals with:
a) Leases
b) Segment Reporting
c) Financial Instruments
d) Government Grants
Answer: b) Segment Reporting
Solution: AS-17 requires disclosure of business and geographical segments in financial statements.
AS-22 governs:
a) Deferred Tax Accounting
b) Accounting for Associates
c) Earnings Per Share
d) Related Party Disclosures
Answer: a) Deferred Tax Accounting
Solution: AS-22 provides guidance on accounting for deferred tax assets and liabilities due to temporary differences.
AS-24 deals with:
a) Discontinuing Operations
b) Consolidation of Accounts
c) Inventory Valuation
d) Fixed Assets Accounting
Answer: a) Discontinuing Operations
Solution: AS-24 mandates disclosures when a company discontinues a business operation.
AS-25 deals with:
a) Interim Financial Reporting
b) Segment Reporting
c) Financial Instruments
d) Government Grants
Answer: a) Interim Financial Reporting
Solution: AS-25 sets guidelines for quarterly and half-yearly financial reports.
AS-28 is applicable for:
a) Earnings Per Share
b) Impairment of Assets
c) Deferred Tax Accounting
d) Related Party Transactions
Answer: b) Impairment of Assets
Solution: AS-28 requires companies to assess asset impairment when the carrying amount exceeds recoverable value.

📌 Section 18: Accounting for Financial Instruments, Earnings Per Share, and Related Disclosures

AS-29 deals with the accounting treatment of:
a) Contingent Liabilities and Provisions
b) Employee Benefits
c) Financial Instruments
d) Investments
Answer: a) Contingent Liabilities and Provisions
Solution: AS-29 prescribes rules for recognizing, measuring, and disclosing provisions, contingent liabilities, and contingent assets.
According to AS-29, a provision should be recognized when:
a) There is a present obligation as a result of past events
b) The obligation is contingent upon a future event
c) The company has no obligation
d) It is purely voluntary
Answer: a) There is a present obligation as a result of past events
Solution: A provision is recognized when a present obligation exists, an outflow of resources is probable, and it can be reliably estimated.
AS-20 deals with:
a) Earnings Per Share
b) Investment Accounting
c) Segment Reporting
d) Consolidation of Financial Statements
Answer: a) Earnings Per Share
Solution: AS-20 provides guidance on calculating and presenting Basic and Diluted EPS in financial statements.
Basic Earnings Per Share (EPS) is calculated as:
a) Net Profit ÷ Weighted Average Number of Equity Shares
b) Net Profit ÷ Total Assets
c) Net Profit ÷ Market Value of Shares
d) Net Profit ÷ Total Liabilities
Answer: a) Net Profit ÷ Weighted Average Number of Equity Shares
Solution: Basic EPS is calculated using net profit after tax divided by the weighted average number of equity shares.
AS-18 is related to:
a) Related Party Disclosures
b) Cash Flow Statements
c) Leases
d) Financial Instruments
Answer: a) Related Party Disclosures
Solution: AS-18 mandates disclosure of transactions with related parties like subsidiaries, associates, directors, and key management personnel.
Which of the following transactions is covered under AS-18?
a) Sale of goods to a subsidiary
b) Payments to suppliers
c) Employee salary payments
d) Cash deposits in a bank
Answer: a) Sale of goods to a subsidiary
Solution: Related party transactions include those between a parent company and its subsidiaries, associates, or key personnel.

📌 Section 19: Cash Flow Statements, Financial Reporting, and Accounting Policies

Which AS governs Cash Flow Statements?
a) AS-3
b) AS-9
c) AS-11
d) AS-18
Answer: a) AS-3
Solution: AS-3 provides guidance on the preparation, presentation, and classification of cash flows into operating, investing, and financing activities.
As per AS-3, interest received should be classified under:
a) Operating Activities
b) Investing Activities
c) Financing Activities
d) Equity Activities
Answer: b) Investing Activities
Solution: Interest received is classified under investing activities unless it is part of an entity’s main operations.
AS-5 deals with:
a) Net Profit or Loss for the Period, Prior Period Items, and Changes in Accounting Policies
b) Inventory Valuation
c) Depreciation Accounting
d) Foreign Exchange Transactions
Answer: a) Net Profit or Loss for the Period, Prior Period Items, and Changes in Accounting Policies
Solution: AS-5 provides guidance on the treatment and disclosure of prior period items, extraordinary items, and changes in accounting policies.
AS-1 provides the framework for:
a) Disclosure of Accounting Policies
b) Revenue Recognition
c) Inventory Valuation
d) Depreciation Accounting
Answer: a) Disclosure of Accounting Policies
Solution: AS-1 requires companies to clearly disclose accounting policies used in preparing financial statements.

📌 Section 20: Financial Instruments, Business Combinations, and Fair Value Measurement

AS-30 to AS-32 relate to:
a) Financial Instruments
b) Fixed Assets
c) Consolidated Financial Statements
d) Depreciation Accounting
Answer: a) Financial Instruments
Solution: AS-30 to AS-32 provide guidance on recognition, measurement, and presentation of financial instruments.
AS-14 deals with:
a) Business Combinations
b) Leases
c) Employee Benefits
d) Cash Flow Statements
Answer: a) Business Combinations
Solution: AS-14 governs the accounting treatment of mergers and acquisitions.
Under AS-14, which method is used for accounting for amalgamations?
a) Pooling of Interest Method and Purchase Method
b) Historical Cost Method
c) Net Asset Value Method
d) Equity Method
Answer: a) Pooling of Interest Method and Purchase Method
Solution: AS-14 allows companies to use the Pooling of Interest Method for mergers and the Purchase Method for acquisitions.

📌 Section 21: Remaining MCQs (Final 37 Questions)

Under AS-7 (Construction Contracts), revenue is recognized using:
a) Percentage of Completion Method
b) Cash Basis Accounting
c) Straight-Line Method
d) Historical Cost Method
Answer: a) Percentage of Completion Method
AS-16 deals with:
a) Borrowing Costs
b) Inventory Valuation
c) Depreciation Accounting
d) Business Combinations
Answer: a) Borrowing Costs
AS-19 is applicable to:
a) Lease Transactions
b) Revenue Recognition
c) Related Party Disclosures
d) Inventory Valuation
Answer: a) Lease Transactions
Under AS-19, a finance lease is a lease that:
a) Transfers substantial risk and rewards of ownership
b) Is cancellable anytime
c) Is purely based on rental payments
d) Has no financial impact
Answer: a) Transfers substantial risk and rewards of ownership
AS-26 is related to:
a) Intangible Assets
b) Depreciation
c) Leases
d) Financial Reporting
Answer: a) Intangible Assets
AS-8 was withdrawn and merged with:
a) AS-26 (Intangible Assets)
b) AS-10 (Fixed Assets)
c) AS-19 (Leases)
d) AS-18 (Related Party Disclosures)
Answer: a) AS-26 (Intangible Assets)

📌 Section 22: Intangible Assets, Consolidation, and Government Grants

Which of the following is NOT covered under AS-26 (Intangible Assets)?
a) Goodwill acquired in a business combination
b) Research & Development costs
c) Patents and Trademarks
d) Land and Building
Answer: d) Land and Building
Solution: AS-26 applies to intangible assets such as patents, trademarks, and goodwill (excluding internally generated goodwill) but does NOT apply to tangible assets like land and buildings.
Which AS deals with consolidated financial statements?
a) AS-21
b) AS-22
c) AS-23
d) AS-24
Answer: a) AS-21
Solution: AS-21 lays down principles for preparing and presenting consolidated financial statements (CFS) when a company has subsidiaries.
Under AS-22, deferred tax liability arises when:
a) Taxable income is lower than accounting income
b) Accounting income is equal to taxable income
c) There is no difference in income tax calculations
d) Taxable income is higher than accounting income
Answer: a) Taxable income is lower than accounting income
Solution: Deferred tax liability arises when accounting income exceeds taxable income due to temporary differences.
Which accounting standard applies to government grants?
a) AS-12
b) AS-16
c) AS-19
d) AS-26
Answer: a) AS-12
Solution: AS-12 deals with the treatment and recognition of government grants in financial statements.

📌 Section 23: Foreign Exchange, Employee Benefits, and Depreciation

AS-11 applies to:
a) Foreign Exchange Transactions
b) Depreciation Accounting
c) Revenue Recognition
d) Cash Flow Statements
Answer: a) Foreign Exchange Transactions
Solution: AS-11 deals with accounting for foreign exchange gains/losses and the valuation of foreign currency transactions.
Under AS-11, monetary items should be recorded at:
a) Closing exchange rate
b) Historical cost
c) Fair market value
d) Amortized cost
Answer: a) Closing exchange rate
Solution: Monetary assets/liabilities denominated in foreign currency must be translated at the closing rate at the balance sheet date.
AS-15 applies to:
a) Employee Benefits
b) Intangible Assets
c) Borrowing Costs
d) Depreciation
Answer: a) Employee Benefits
Solution: AS-15 governs the accounting treatment of employee benefits like pensions, gratuities, and leave encashments.
As per AS-15, which of the following is NOT a long-term employee benefit?
a) Provident Fund
b) Bonus
c) Pension Plan
d) Gratuity
Answer: b) Bonus
Solution: Bonuses are short-term benefits, whereas gratuity, pension, and provident fund are considered long-term benefits.
Which accounting standard governs depreciation?
a) AS-6 (withdrawn and merged with AS-10)
b) AS-12
c) AS-22
d) AS-29
Answer: a) AS-6 (withdrawn and merged with AS-10)
Solution: AS-6 was withdrawn and merged into AS-10 (Property, Plant, and Equipment), which now provides guidance on depreciation.
Which depreciation method is NOT allowed under AS-10?
a) Straight-Line Method
b) Written Down Value (WDV) Method
c) Revaluation Method
d) Sinking Fund Method
Answer: d) Sinking Fund Method
Solution: AS-10 allows SLM and WDV but does NOT recognize sinking fund as a depreciation method.

📌 Section 24: Revenue Recognition, Segment Reporting, and Leases

AS-9 deals with:
a) Revenue Recognition
b) Cash Flow Statements
c) Related Party Disclosures
d) Investments
Answer: a) Revenue Recognition
Solution: AS-9 provides guidance on recognizing revenue from the sale of goods, services, and interest income.
AS-17 deals with:
a) Segment Reporting
b) Consolidated Financial Statements
c) Cash Flow Statements
d) Depreciation Accounting
Answer: a) Segment Reporting
Solution: AS-17 requires disclosure of segment revenue, profit, and assets/liabilities for business/geographical segments.
AS-19 classifies leases into:
a) Finance Lease and Operating Lease
b) Direct Lease and Indirect Lease
c) Fixed Lease and Variable Lease
d) Capital Lease and Short-Term Lease
Answer: a) Finance Lease and Operating Lease
Solution: A finance lease transfers substantial ownership risks/rewards, whereas an operating lease does not.

📌 Section 25: Final 18 MCQs (Taxation, Investments, and Financial Disclosures)

AS-23 is applicable to:
a) Accounting for Investments in Associates
b) Accounting for Consolidation
c) Accounting for Depreciation
d) Accounting for Employee Benefits
Answer: a) Accounting for Investments in Associates
AS-13 governs:
a) Accounting for Investments
b) Financial Instruments
c) Fixed Assets
d) Cash Flow Statements
Answer: a) Accounting for Investments
AS-27 applies to:
a) Joint Ventures
b) Employee Benefits
c) Related Party Transactions
d) Earnings Per Share
Answer: a) Joint Ventures
As per AS-28, an asset is impaired when:
a) Carrying amount > Recoverable amount
b) Carrying amount < Market price
c) Recoverable amount > Net profit
d) Revenue is declining
Answer: a) Carrying amount > Recoverable amount
AS-25 applies to:
a) Interim Financial Reporting
b) Segment Reporting
c) Deferred Taxes
d) Borrowing Costs
Answer: a) Interim Financial Reporting
Which accounting standard was merged into AS-10?
a) AS-6 (Depreciation)
b) AS-14 (Amalgamations)
c) AS-19 (Leases)
d) AS-22 (Taxes)
Answer: a) AS-6 (Depreciation)
AS-31 is related to:
a) Financial Instruments
b) Earnings Per Share
c) Government Grants
d) Foreign Exchange
Answer: a) Financial Instruments
Which AS applies to deferred tax assets and liabilities?
a) AS-22
b) AS-26
c) AS-15
d) AS-3
Answer: a) AS-22
Which AS applies to revaluation of fixed assets?
a) AS-10
b) AS-11
c) AS-13
d) AS-18
Answer: a) AS-10

📌 Section 26: Advanced Accounting Standards (Financial Instruments, Disclosures, and Risk Management)

Which accounting standard governs the revaluation of fixed assets?
a) AS-10
b) AS-11
c) AS-13
d) AS-18
Answer: a) AS-10
Solution: AS-10 (Property, Plant, and Equipment) provides guidelines for the revaluation of fixed assets and their subsequent treatment.
AS-30 deals with which of the following?
a) Financial Instruments: Recognition and Measurement
b) Business Combinations
c) Depreciation Accounting
d) Segment Reporting
Answer: a) Financial Instruments: Recognition and Measurement
Solution: AS-30 provides principles for recognizing, measuring, and classifying financial instruments like derivatives, bonds, and investments.
Which AS applies to financial instruments presentation?
a) AS-31
b) AS-22
c) AS-17
d) AS-9
Answer: a) AS-31
Solution: AS-31 (Financial Instruments: Presentation) deals with how financial instruments should be presented in financial statements.
AS-32 focuses on which area of financial reporting?
a) Financial Instruments: Disclosures
b) Borrowing Costs
c) Related Party Transactions
d) Interim Financial Reporting
Answer: a) Financial Instruments: Disclosures
Solution: AS-32 requires organizations to disclose financial risks, liquidity risks, and credit risks associated with financial instruments.
Which accounting standard deals with Earnings Per Share (EPS)?
a) AS-20
b) AS-21
c) AS-22
d) AS-23
Answer: a) AS-20
Solution: AS-20 (Earnings Per Share) requires disclosure of basic and diluted EPS in financial statements.
Which AS applies to discontinued operations?
a) AS-24
b) AS-25
c) AS-26
d) AS-27
Answer: a) AS-24
Solution: AS-24 provides accounting treatment and disclosure requirements for businesses that discontinue a part of their operations.
Which AS governs joint ventures?
a) AS-27
b) AS-28
c) AS-29
d) AS-30
Answer: a) AS-27
Solution: AS-27 lays down the accounting principles for jointly controlled entities, assets, and operations.
AS-29 applies to:
a) Provisions, Contingent Liabilities, and Contingent Assets
b) Depreciation Accounting
c) Accounting for Government Grants
d) Related Party Disclosures
Answer: a) Provisions, Contingent Liabilities, and Contingent Assets
Solution: AS-29 guides when and how to recognize provisions, disclose contingent liabilities, and record contingent assets.
Which AS is applicable to cash flow statements?
a) AS-3
b) AS-7
c) AS-11
d) AS-12
Answer: a) AS-3
Solution: AS-3 specifies how businesses should prepare and present cash flow statements, classifying cash flows into operating, investing, and financing activities.

Accounting Standard