Accounts Notes

The Foreign Exchange Management Act (FEMA), 1999

vkkumar48@gmail.com (Kiran kumar) — Thu, 23 Feb 2012 23:10:01 PST

The Foreign Exchange Management Act (FEMA), 1999

authorised in this behalf by the Central Government in such manner as may be prescribed. However, no contravention shall be compounded unless the amount involved in such contravention is quantifiable. Where a contravention has been compounded, no proceeding can continue or be initiated against the person in respect of the contravention so compounded.

Q28. Mr. G., an Indian national desires to obtain Foreign Exchange on current account transactions for the following purposes:
(i) Payment of commission on exports made towards equity investment in wholly
owned subsidiary abroad of an Indian company.
(ii) Remittance of hiring charges of transponder. (iii) Remittance for use of trade mark in India.
Advise G whether he can obtain Foreign Exchange and, if so, under what
conditions? fC.A. (Final) Nov. 2001J
.9Lns. Under Section 5 of the Foreign Exchange Management Act, 1999, certain Rules have been framed for drawal of foreign exchange on current account. According to the said rules, drawal of foreign exchange for certain transactions is prohibited. In respect of certain transactions drawal of foreign exchange is permissible with the prior approval of the Central Government. In respect of some of the transactions, prior permission of RBI is necessary for drawal of foreign exchange.
(i) In respect of item No.1, Le., payment of commission on exports made towards equity investment in wholly owned subsidiary abroad of an Indian company is prohibited.
(m Orawal of foreign exchange for remittance of hiring charges of transponder,
can be made with the prior approval of the Central Government.
(iii) So far as remittance for use of Trade Mark in India is concerned, the necessary
foreign exchange can be obtained with the prior permission of the Reserve
Bank of India.
In the case of (ii) and (iii) above, approval of concerned authority is not required if the payment is made out of funds held in Resident Foreign Currency (RFC) Account or Exchange Earner's Foreign Currency (EEFC) Account of the remitter. Alternatively, foreign exchange can be drawn from an authorised person.

The ,Securities and ExchaI.ge Board of India (SEBI) Act, 1992

vkkumar48@gmail.com (Kiran kumar) — Thu, 23 Feb 2012 23:09:09 PST

The ,Securities and ExchaI).ge Board of India (SEBI) Act, 1992
8-67

17. What is the specific advantage of Book-building process in connection with issue of securities by a company? State the guidelines issued by SEBI in this regard in respect of the following matters:
(i) Deteqnination of issue price and that of successful bidders. (ii) Reservation for individual investors who have not participated in the
bidding process and basis of allotment to such investors.
[May, 2000]
18. What are the Securities and Exchange Board of India's important guidelines
regarding pricing of first issue of equity shares of new companies?
[November, 2000]
19. What provision has been made under Section 15G of the SEBI Act, 1992, in
connection with penalty for insider trading? [November, 2000]
20. State, what is Employees Stock Option Scheme. Are promoters and the part-time
directors entitled to receive securities under the Scheme? Give Reasons.

Corporate Laws & Secretarial Practice

vkkumar48@gmail.com (Kiran kumar) — Thu, 23 Feb 2012 23:08:14 PST

two Directors one of whom must be the Managing Di~ttor, if there is one. However, in case there is only one Director present for the time-being in India, he can sign the Board's Report provided he attaches a statement explaining the reason as to why it

~
cou~not be signed by at least two Directors.
A 12. The company of which you are the Secretary has adopted the calendar year
as its accounting year. Annual general meetings are usually held in the month of June
'-" each year. This year the audit of accounts has not been completed. Your Directors intend to hold the annual general meeting in the month of June, as usual, to transact the business other than the consideration of the accounts and to adjourn the meeting to a later date for the purpose of adoption of the an[lual accounts. They ask you whether this would be in order. State your views.
5tns. In case annual accounts are not ready for laying at the appropriate annual general m~ting, it is open to the company concerned to adjourn the said annual general meeting to a subsequent date when the annual accounts are expected to be ready for laying. Since consideration of accounts is only one of the matters to be dealt with at an AGM, Directors are under a statutory obligation to hold the meeting. The proper cour~shall ~ t Department of Company Affirirs communique dt, 2nd Feb, 1974). - --
The adjourned meeting must, however, be held within the maximum time limit allowed under Section 166 [Subal Dutta & Sons Pvt. Ltd. V s. Asstt. Registrar of Companies
W.B. (1986)].
..........
~ \
Q: '13. Discuss the provisions of the Companies Act relating to determination of net
pr6fits. .
5tns. The Companies Act provides that 'Net Profit' for the purposes of calculating managerial remuneration shall be computed in accordance with the provisions of Sees. 349 and 350 of the Act.
The provisions of the above Sections require that in computing net profits of a company in any financial year for the purpose of calculating managerial remuneration, the following points should be considered:

1. Credit shall be Given for
Bounties and subsidies received from any Government or any public authority constituted or authorised in this behalfby the Government unless the Central Government otherwise directs.

2. Credit Shall Not be Given for the Following
(a) profits, by way of premium, on shares or debentures of the company which
are issued or sold by the company;
(b) profit on sales by the company of forfeited shares;
(c) profits of capital nature including profits from the sale of the undertaking or
any of the undertakings of the company, or any part thereof; and
(d) profits from the sale of any immovable property or fixed assets of a capital

Report of Board of Directors

vkkumar48@gmail.com (Kiran kumar) — Thu, 23 Feb 2012 23:07:21 PST

AII-12

Coroorate Laws & Secretarial Practice

(a) a copy of the balance sheet of the subsidiary;

(b) a copy of its Directors' report;

(d) a copy of its Auditor's report;

(e) a statement containing the following particulars:

(i) extent of holding company's interest in the subsidiary at the end of last

financial year; and "

(ii) the net aggregate amount of profits and losses of the subsidiary, whether

dealt with or not in the holding company's accounts;

if) a statement containing the following:

(i) details of any change in holding company's interest in the subsidiary

between the end of financial year of the subsidiary company and the end

of the financial year of holding company, and

(ii) details of any material changes since last financial year in respect of:

. the subsidiary's fixed assets,

. its investments,

. the moneys lent by it, and

. the moneys borrowed by it for every purpose other than that of

meeting current liabilities;

(g) where Directors of the holding company are unable to obtain"the necessary

information for any of the matters required to be specified by sub-section (4),

then a report in writing to that effect should be attached.

Where the financial year of the subsidiary company does not coincide with that of the holding company, the financial year of the subsidiary shall not end on a day which precedes the day on which the holding company's financial year ends by more than six months.

The documents referred to in (e), if), (g) above shall be signed by the persons by

whom the balance sheet of the holding company is required to be signed.

Q 10. "There shall be attached to every balance sheet laid before a company in general meeting a report by its Board of Directors." What are the matters which are required by law to be mentioned in the Director's Report?

As a Secretary of a public limited company, what methods would you include while preparing a report on behalf of the Board of Directors of your company, to be attached to the Balance Sheet of the company so that the report meets the disclosure require

ments as required under the Companies Act, 1956? [CA. (Final) May, 1996]

Yl.ns .

Report of Board of Directors

Section 217 provides that there shall be attached to every balance sheet laid before a company in a general meeting (in practice, the annual general meeting), a report by its Board of Directors, with respect to :

(a) the state of the company's affairs;

(b) the amounts, if any, which it proposes to carry to any reserves in such balance

sheet;

vkkumar48@gmail.com (Kiran kumar) — Sun, 19 Feb 2012 17:30:25 PST

google97c0c3c4d6e80756.html

What is mutual funds

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 03:39:41 PST

MUTUAL FUNDS: It means "collects the savings from small
investors and invest them according to certain investment
objectives"

Classification of Errors as per Accounting

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 03:38:07 PST

Error of ommission 
Error of commission 
Error of dulplication
Error of principle

what is cash profit and how to define it ?

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 03:36:20 PST

U know about accural basis and monetary basis. accural basis means every transaction which are done 1 financial year are entered and cash basis means every sales which are form in cash are enter. book profit means profit which are earned in 1 financial yera (accural basis) and cash profit means profit earned on the basis of cash basis. book profit are shown in the profit and loss a\c for the purpose of income tax and cash pofit are for bussiness men with help of this they known about what the standard of cash inflow and outflow.

AND

IT is profit after tax plus depreciation

Service Tax List of Services

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 03:28:31 PST

Sl.N	Service Category	Date Of introduction

1	Advertising	01.11.1996
2	Air Travel Agent	01.07.1997
3	Airport Services	10.09.2004
4	Architect	16.10.1998
5	Asset management (by other than Banking company)	01.06.2007
6	ATM Operations, Management or Maintenance	01.05.2006
7	Auctioneers' service, other than auction of property under directions or orders of a count of or auction by Central Govt.	01.05.2006
8	Authorised Service Station	16.07.2001
9	Auxiliary to General Insurance / Life Insurance	16.07.2001 / 16.08.2002
10	Banking & Other Financial Services	16.07.2001
11	Beauty Parlour	16.08.2002
12	Broadcasting	16.07.2001
13	Business Auxiliary Services	01.07.2003
14	Business Exhibition Service	10.09.2004
15	Business Support Service	01.05.2006
16	Cable Operator	16.08.2002
17	Cargo Handling	16.08.2002
18	Chartered Accountant	16.10.1998
19	Cleaning Service	16.06.2005
20	Clearing & Forwarding Agent	16.07.2001
21	Clubs and Associations	16.06.2005
22	Commercial or Industrial Construction	10.09.2004
23	Commercial Training or Coaching	01.07.2003
24	Company Secretary	16.10.1998
25	Construction of Complex	16.06.2005
26	Consulting Engineer	07.07.1997
27	Convention Centre	16.07.2001
28	Cost Accountant	16.10.1998
29	Courier	01.11.1996
30	Credit Card, Debit Card, Charge Card or other payment card related services	01.05.2006
31	Credit Rating Agency	16.10.1998
32	Custom House Agent	15.06.1997
33	Design Services	01.06.2007
34	Development & Supply of Content	01.06.2007
35	Dredging	16.06.2005
36	Dry Cleaning	16.08.2002
37	Erection, Commissioning or Installation	01.07.2003
38	Event Management	16.08.2002
39	Fashion Designer	16.08.2002
40	Forward Contract Services	10.09.2004
41	Franchise Service	01.07.2003
42	General Insurance	01.07.1994
43	Health Club & Fitness Centre	16.08.2002
44	Intellectual Property Service	10.09.2004
45	Interior Decorator	16.10.1998
46	Internet Café	01.07.2003
47	Internet Telephony Service	01.05.2006
48	Life Insurance	10.09.2004
49	Mailing List Compilation and Mailing	16.06.2005
50	Management Consultant	01.07.1997
51	Management, Maintenance or Repair Service	01.07.2003
52	Mandap Keeper	16.10.1998
53	Manpower Recruitment or Supply Agency	07.07.1997
54	Market Research Agency	16.10.1998
55	Mining of Mineral, Oil or Gas	01.06.2007
56	On-line Information & Database Access or Retrieval Service	16.07.2001
57	Opinion Poll Service	10.19.2004
58	Outdoor Caterer	10.09.2004
59	Packaging Service	16.06.2005
60	Pandal or Shamiyana Services	10.09.2004
61	Photography	16.07.2001
62	Port Service	16.07.2001
63	Public Relations service	01.05.2006
64	Rail Travel Agent	16.08.2002
65	Real Estate Agent / Consultant	16.10.1998
66	Recovery Agent	01.05.2006
67	Registrar to an Issue	01.05.2006
68	Rent - a - Cab Operator	16.07.1997
69	Renting of Immovable Property	01.06.2007
70	Sale of space or time for Advertisement, other than print media	01.05.2006
71	Scientific or Technical Consultancy	16.07.2001
72	Security Agency	16.10.1998
73	Share Transfer Agent	01.05.2006
74	Ship Management service	01.05.2006
75	Site Preparation	16.06.2005
76	Sound Recording	16.07.2001
77	Sponsorship service provided to any body corporate or firm, other than sponsorship of sports event	01.05.2006
78	Steamer Agent	15.06.1997
79	Stock Broker	01.07.1994
80	Storage & Warehousing	16.08.2002
81	Survey & Exploration of Minerals	10.09.2004
82	Survey and Map Making	16.06.2005
83	T.V. & radio Program Production Services	10.09.2004
84	Technical Testing & Analysis Agency / Technical Inspection & Certification Agency	01.07.2003
85	Telecommunication Service	1.6.20007
86	Tour Operator	01.09.1997
87	Transport of goods by Air	10.09.2004
88	Transport of goods by Road	01.01.2005
89	Transport of goods in Containers by rail by any person other than Government railway	01.05.2006
90	Transport of goods other than water, through Pipeline or other conduit	16.06.2005
91	Transport of passengers Embarking on international journey by air, other than economy class passengers	01.05.2006
92	Transport of persons by cruise ship	01.05.2006
93	Travel Agent other than Air & Rail Travel	10.09.2004
94	Underwriter	16.10.1998
95	Video Tape Production	16.07.2001
96	Works Contract	01.06.2007

Service Tax Rules and Forms

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 03:26:47 PST

Service Tax Rule:

Every person liable for paying the service tax shall make an application, in FormST-1 for registration within a period of 30 days from the date on which the service tax is levied.

Every assessee shall submit the half yearly return in form ST-3, or ST-3A with the copy of G.A.R.7, in triplicate for the months covered in the half yearly return.
Every assessee shall submit the half yearly return by the 25th of the month following the particular half-year.
A large tax payer, on demand, ma be required to make available the financial, stores and Cenvat credit records in electronic media, such as, CD for the purpose of carrying out any scrutiny and verification, as may be necessary.

Special cases:

An assessee may submit a revised return, in Form ST-3, in triplicate, to correct a mistake or omission, within a period of 60 days from the day of submission of the original return.

Service Tax Forms:
The various forms in Service Tax are:

Application form for registration under Section 69 of the Finance Act, 1994 (32 of 1994) -> ST1
Original / Revised Filing -> ST-3
Provisional return of Service Tax -> ST-3A
Form of Appeal to collector of central excise -> ST-4
Form of Appeal to the Appellate to Tribunal -> ST-5
Form of memorandum of Cross objection -> ST-6
For Payment Of Service Tax (Challan) (Original) -> Form TR-6/ G.A.R7

Service Tax Filing of Returns

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 03:25:54 PST

Returns a service tax assessee has to file:
ST-3 Return – For all the registered assessee, including Input Service Distributors.

Procedure for e-filing:

File of an application to the jurisdictional Asst./Deputy Commissioner of Service Tax, specifying –
- 15-digit PAN based registration number (STP Code)
- Valid e-mail address - so that the Department can send them their User ID and password to help them file their Return.
Log on to the Service Tax e-filing home page by typing the address http://servicetaxefiling.nic.in in the address bar of the browser.
Upon entering the Service Tax code, user ID and password, you will be permitted to access the e-filing facility.
Follow the instructions given therein for filing the Returns electronically.

Due dates to file return:
ST-3 Return is required to be filed twice in a financial year – half yearly.
Return for half year ending 30th September and 31st March are required to be filed by 25th October and 25th April, respectively.

If a person fails to furnish the ST-3 Return within the due date [25th October and 25th April every year] he shall be liable to penalty which may extend to an amount not exceeding one thousand rupees (Section 77 of the Act)

Mandatory Penalty for Late filing of ST-3 Return under Rule 7C of Service Tax Rules, 1994

Sl. No.	Period of Delay from the prescribed date	Penalty
1	15 days	Rs.500/-
2	Beyond 15 days but not later than 30 days	Rs.1000/-
3	Beyond 30 days	Rs.1000/- plus Rs. 100/- for every day from the thirty first day till the date of furnishing the said return

Statutes governing the taxation relating to Service Tax:
The Statutes governing the levy of Service Tax are as follows:

The Finance Act, 1994 - Chapter V - Section 64 to 96 I. (referred to as ‘Act’ in this book) This chapter extends to the whole of India except the State of Jammu and Kashmir.
The Finance Act, 2004 Chapter VI - for levy of Education Cess @ 2% on the Service Tax.
The Service Tax Rules, 1994. (Referred to as ‘Rules’ or STR, 1994 in this book)
The CENVAT Credit Rules, 2004.
The Export of Service Rules, 2005
The Service Tax (Registration of Special categories of persons) Rules, 2005.
The Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 (with effect from 19th April, 2006) – Notification No. 11/2006-ST dated 19.4.2006.
The Service Tax (Determination of Value) Rules, 2006 (with effect from 19th April 2006) – Notification No. 12/2006-ST dated 19.4.2006.
Works Contract (Composition Scheme for Payment of Service Tax) Rules, 2007-
Notification No. 32/2007-Service Tax dated 22nd May, 2007.
In addition to the above, certain provisions of the Central Excise Act, 1944 are also made applicable for Service Tax matters (Section 83 of the Finance Act, 1994).

Service Tax Books of Accounts and Records to be maintained

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 03:24:27 PST

Under every tax law, there is necessity to maintain proper books, records and accounts that will facilitate the assessment and collection of duty as stipulated under the law.

Every person providing taxable service shall issue an invoice, a bill, or as the case may be a challan, signed by such person.

The Bill/ Invoice/ Challan should be issued within 14 days from the date of completion of such taxable service or receipt of any payment towards the value of such taxable service

Records normally maintained under other laws acceptable:

An assessee registered as a company under the Companies Act, is required to maintain proper books of accounts and records as specified in Companies Act.
An assessee, who is required to pay income tax, is also required to maintain certain books, and records under the Income-tax Act. (Cash book, Journal, Ledger, Bills, etc.)
According to Sales Tax Law, Labor Law, certain books, records, registers, accounts and returns have to be maintained.

Some of the other major records to be maintained are:

Correspondence files with the customers/ Client
Correspondence files/ records with the supplier.
Files containing agreements
Files containing bills raised on, receipts issued to customers/clients.
Files containing Challans.
Crédit notes, Débit notes etc.

The importance of doing all the above are:

Whether all the taxable services has been properly accounted.
Whether all the tax has been properly calculated.
Whether the value of taxable service has been properly arrived.
Whether Service Tax so calculated has been paid to be credit of government

Service Tax - Billing and Payment

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 03:23:01 PST

Billing:
Issue of Invoice/Bill by a Service Tax assessee is mandatory as per Rule 4A of the STR, 1994. The same should be issued within 14 days from the date of completion of taxable service or receipt of payment towards the service, whichever is earlier.

The invoice/bill should contain the following information (Rule 4A of the STR, 1994):
i. Serial number.
ii. Name, address and registration no. of the service provider.
iii. Name and address of the service receiver.
iv. Description, classification and value of taxable service being rendered.
v. The amount of Service Tax payable (Service Tax and Education Cess should be shown
separately)

Note: If the service provider is a Banking company, the details at Sl.No (i) and (iii) are not necessary

Payment:

Service Tax can be paid through G.A.R.7 (previously known as TR6 Challan) in the specified branches of the designated banks. The details of such Banks and branches may be obtained from the nearest Central Excise Office/Service Tax Office. Service Tax can also be paid electronically, called e-payment facility.

Where an assessee provides multiple services, he can use separate challans for each service. He can also use single challans, but in this case amounts attributable to each category of service along with the concerned accounting code should be mentioned clearly.

e-Payment is a payment mode through which a Taxpayer can remit his tax dues to CBEC using Internet Banking Service. It is an additional facility being offered by the banks besides conventional procedure.

Due date for payment?
For individual or a proprietary or partnership firm – Quarterly-by the 5th day of the month following each quarter and by the 6th day of the month following each quarter if the duty is deposited electronically through internet banking. For example, Service Tax for the quarter ending 30th of June is to be paid by 5th or 6th of July as the case may be.

Illustration: A practicing Chartered Accountant renders taxable services for which he receives payments for the months of Apr, May and Jun which constitutes a quarter, the service tax so received by him during that quarter shall be paid before 5th of Jul

For all other categories (Company, Society, Trust etc.) - Monthly- by the 5th day of the succeeding month and by the 6th day of the succeeding month if the duty is deposited electronically through internet banking;

Exception: For the month of March or quarter ending March, all assessees have to pay by 31st of March of the Calendar year (Rule 6(1) of the STR, 1994).

Services exempted from Service Tax

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 03:21:47 PST

Services exempted from Service Tax:
Some general exemptions are provided in respect of:

Services provided to the United Nations;
Services to units in and developers of Special Economic Zones;
Services rendered free of cost; and
Services prior to the effective date of the service being included as a taxable service, even if payments are realized later

Exemptions available for small service providers:
Service Tax is fully exempted in respect of the taxable services of aggregate value not exceeding eight lakhs rupees in any financial year.
The above-mentioned exemption based on the turnover is not available to the persons who are liable to pay Service Tax but are not the service providers. For example:

The recipient of services from an overseas service provider who has no registered office in India
A company incurring the Transportation charges for availing the services from Goods Transport Agencies, for transportation of goods by Road.
Whether the service charges were received for the services provided or to be provided.

In case the service provided by a person falls within the scope of the taxable services and if such service is not fully exempted, the service tax is payable on the value of the taxable service received subject to the eligible abatements, if any.

Abatements:
Abatement refers to the portion of value of taxable service, which is exempt in terms of a notification.

Value of Taxable Services in service tax

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 03:20:55 PST

Value of taxable service:

The "value of taxable service" means, the grossamountreceived by the service provider for the taxable service provided or to be provided by him.

The valuation of taxable service is to be done in respect of the service provided or to be provided also.

For certain services, a specified percentage of abatement or reduction in value of taxable service is allowed from the gross amount collected for rendering the services, subject to certain conditions

That Cenvat Credit has not been availed by the service provider

And cost of goods sold in the process of providing the subject service is not deducted in terms of Notification No. 12/2003-ST dated 20.6.2003.

Provide list of services under abatement

Cenvat Credit:

Cenvat credit is a mechanism in which the amount Cenvat /Service Tax paid on input is allowed to be deducted from the Output Cenvat/Service Tax Payable. The purpose and objective of Service Tax Credit scheme is to enable the person providing maintenance services to take credit of the Service Tax charged by the service provider and then pay only the net amount of Service Tax to the government. The Service Tax Credit scheme is thus intended to provide relief in form of Service Tax credit where any taxable input service has been used for rendering of output service.

Cenvat credit is dealt with under the Cenvat Credit Rules, 2004 (Cenvat Rules). The Cenvat Rules apply to all taxable services, irrespective of the category of taxable services. Cenvat credit is applicable to a manufacturer who produces taxable goods and to a service provider who provides a taxable output service. A service provider is eligible to claim Cenvat credit on the duty paid on inputs and capital goods, and service tax paid on input services used for providing output services. The Cenvat credit cannot be claimed in cases where the service is not a taxable service, or is exempted. It therefore follows, if some one is availing general exemption, Credit is not available.

Illustration: The Maintenance service provider raises a bill of Rs.1000. At the same time he utilizes the services of Consulting Engineer in relation to the maintenance service, the consulting engineer charges in his bill Service Tax of Rs.750. Now the maintenance service provider can take this Rs.750 of Service Tax paid by him as credit in his account and pay to the Government only the net amount of Rs.250 only in cash. In other words, the consulting engineering service becomes the input service for the maintenance service provider. Since the maintenance service provider, which is an output service, the credit is allowed to be taken on the input service by the output service, uses the input service provided.

Service Tax inclusive of Service Tax:

The service provided is inclusive of Service Tax payable, the value of such taxable service shall be such amount as with the addition of tax payable is equivalent to the gross amount charged.

Illustration: If the service provider charges Rs.225000 as the consideration for rendering a particular service inclusive of service tax of 12% and Education Cess of 3%, then the value of service tax would be 225000*100/112.36 = 200249

Service Provider and a Service Receiver

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 03:19:00 PST

Service Provider and a Service Receiver:

One who provides services or one who renders service to others is Service Provider, and one who receives services from these service providers is called a Service Receiver.

Input Service Distributor:

An office of the manufacturer or provider of output service who receives invoices for the procurement of input services and issues invoices for the purpose of distributing the credit of Service Tax paid to such manufacturer or provider of output service is an “Input Service Distributor”. Input Service Distribution is a mechanism to transfer input services credit to the premises where output services (taxable services) are provided.

Deciding whether Service Tax is payable or not:

If you are engaged in providing service to your customer, please check:-

Whether the service rendered by you is falling under the scope of any of the taxable services as per the list

Whether there is a general or specific exemption available for the category of service provided under any notification.

Whether you are entitled to the value based exemption available for small service providers as explained below.

Liability to pay Service Tax?

Generally, the ‘person’ who provides the taxable service on receipt of service charges is responsible for paying the Service Tax to the Government (Sec.68 (1) of the Act),

Threshold Limit:

Threshold limit is the limit up to which no service tax is payable even for the services that are taxable in the normal case. This is referred to as General Exemption

Service tax is payable on amount received against service rendered. Hence, when service provider’s receipts exceed Rs. 8 lakhs for the financial year then he has to pay service tax. When the receipts touch Rs.7 lakhs he has to get registered under Service tax, if service provider’s receipts exceed 8 lakhs then he has to pay service tax.

As per theFinance Act 2008, threshold limit of exemption for small service providers increased from Rs. 8 lakhs per year to Rs. 10 lakh per year

Registration By a Service Provider

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 03:17:44 PST

Registration under Service Tax law

Every person providing a taxable service of value exceeding Rs. 7 lakhs, is required to register with the central excise or service tax office having jurisdiction over the office of such service provider.

The ‘Input Service Distributors’ also require registering themselves.

Centralized Registration

An assessee providing taxable services can obtain the centralized registration of that premises or office which has centralized billing system or centralized accounting system. It’s the assessee’s option to register one of the premises as centrally registered.

Illustration: If a consulting Architect is rendering service from Bangalore Office, and has 3 branch offices in other parts of Karnataka (Branch office could be other parts of India also), he can take centralized Registration in respect of all the different premises at Bangalore. Only one registration will thus suffice for all the premises located in different places.

Time period to obtain registration:

When a person commences business of providing an existing taxable service, he is required to register himself within 30 days of such commencement.

In case a new taxable service is introduced, an existing service provider must register himself, unless he is eligible for exemption under any notification, within a period of 30 days from the date of new levy.

The word "Person" shall include any company or association or body of individuals, whether incorporated or not. Thus this expression includes any individual, HUF, proprietary firm or partnership firm, company, trust, institution, society etc.

Procedure for Registration under Service Tax

An application in Form ST-1 (in duplicate) has to be filed before the jurisdictional Central Excise/Service Tax officer.

To provide a copy of PAN card, proof of address of business premise(s), constitution of the business [proprietorship, firm, company, trust, institute etc.]

The Registration certificate would be issued within a period of seven days from the date of submission of application ST-1 along with all relevant details/documents.

Only one Registration certificate is to be taken even if the person provides more than one service from the same premises for which registration is sought.

If there is centralized registration, only one registration certificate is required for services provided from different premises, declared in the application for centralized registration.

Failure of registration may attract a penalty up to Rs.1000/ - under Section 77 of the Finance Act, 1994.

Note:

Service Tax Code (Registration Number) 15-digit number (Based on PAN of the assessee).

Ex: STC No+ PAN+ ST+ 001 Ex: ABXFC1234AST001

Premise Details:

Address of Premises for which Registration is sought / registered. Here, name of the premise, location of the premise, Block, Taluk, Sub-division, town/ city etc has to be mentioned. More than one premise can be registered for an assessee

Service Tax - Registration By a Service Provider

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 03:15:42 PST

Registration under Service Tax law

Every person providing a taxable service of value exceeding Rs. 7 lakhs, is required to register with the central excise or service tax office having jurisdiction over the office of such service provider.
The ‘Input Service Distributors’ also require registering themselves.

Centralized Registration
An assessee providing taxable services can obtain the centralized registration of that premises or office which has centralized billing system or centralized accounting system. It’s the assessee’s option to register one of the premises as centrally registered.

Illustration: If a consulting Architect is rendering service from Bangalore Office, and has 3 branch offices in other parts of Karnataka (Branch office could be other parts of India also), he can take centralized Registration in respect of all the different premises at Bangalore. Only one registration will thus suffice for all the premises located in different places.

Time period to obtain registration:
When a person commences business of providing an existing taxable service, he is required to register himself within 30 days of such commencement.

In case a new taxable service is introduced, an existing service provider must register himself, unless he is eligible for exemption under any notification, within a period of 30 days from the date of new levy.

The word "Person" shall include any company or association or body of individuals, whether incorporated or not. Thus this expression includes any individual, HUF, proprietary firm or partnership firm, company, trust, institution, society etc.

Procedure for Registration under Service Tax

An application in Form ST-1 (in duplicate) has to be filed before the jurisdictional Central Excise/Service Tax officer.
To provide a copy of PAN card, proof of address of business premise(s), constitution of the business [proprietorship, firm, company, trust, institute etc.]
The Registration certificate would be issued within a period of seven days from the date of submission of application ST-1 along with all relevant details/documents.
Only one Registration certificate is to be taken even if the person provides more than one service from the same premises for which registration is sought.
If there is centralized registration, only one registration certificate is required for services provided from different premises, declared in the application for centralized registration.
Failure of registration may attract a penalty up to Rs.1000/ - under Section 77 of the Finance Act, 1994.

Note:
Service Tax Code (Registration Number) 15-digit number (Based on PAN of the assessee).
Ex: STC No+ PAN+ ST+ 001 Ex: ABXFC1234AST001

Premise Details:
Address of Premises for which Registration is sought / registered. Here, name of the premise, location of the premise, Block, Taluk, Sub-division, town/ city etc has to be mentioned. More than one premise can be registered for an assessee

Service Tax - Rates

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 03:14:49 PST

At present, the rate of Service Tax is 12%, payable on the "gross value of taxable service". In addition to this, Education Cess is payable at the rate of 3% on the Service Tax amount. (2% P.EC & 1% H.EC). The rate of tax may change during Annual Budget by a Finance Act.

Services covered under Service Tax

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 03:13:39 PST

Service Tax:

It is a tax levied on the transaction of certain specified services by the Central Government under the Finance Act, 1994. It is an indirect tax, in which normally the service provider pays the tax and recovers the amount from the recipient of service.

Service Tax was first levied on General Insurance Services, Stock Broking and telephone and Pager services. The Central Excise Department administers the Service Tax Law.

Services covered under Service Tax:

101 types of services are covered under the service tax. As per the annual budget 2008-09, 4 more services are added to the present list. Click here for the list of Services Covered.

introduction of service tax in india

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 03:06:11 PST

Service tax is a tax levied on service providers in India, except the State of Jammu and Kashmir.

For a complete study on Service Tax the following are available:

Introduction to Service Tax in India

Present rates of Service Tax
Registration under Service tax
Service Provider/Receiver/Distributor
What is Value Of Taxable service?
Services exempted from Service Tax
Billing & Payment under Service Tax
Books & Records to be maintained under Service Tax Rule
Filing of Service Tax Returns
Service Tax rules and Forms
List Of Services

Central Board of Excise and Customs(CBEC):

The responsibility of collecting the tax lies with the Central Board of Excise and Customs(CBEC). Central Board of Excise and Customs (CBEC) is a part of the Department of Revenue under the Ministry of Finance, Government of India. It deals with the tasks of formulation of policy concerning levy and collection of Customs and Central Excise duties, prevention of smuggling and administration of matters relating to Customs, Central Excise and Narcotics to the extent under CBEC's purview. The Board is the administrative authority for its subordinate organizations, including Custom Houses, Central Excise Commissionerates and the Central Revenues Control Laboratory.

The way till now on Service Tax:

The provisions relating to Service Tax were brought into force with effect from 1st July 1994. The services, brought under the tax net in the year 1994-95 ,are as below: (1) Telephone (2) Stockbroker (3) General Insurance

The Finance Act (2) 1996 enlarged the scope of levy of Service Tax covering three more services, viz., (4) Advertising agencies, (5) Courier agencies (6) Radio pager services. But tax on these services was made applicable from 1st November, 1996.

The Finance Acts of 1997 and 1998 further extended the scope of service tax to cover a larger number of services rendered by the following service providers, from the dates indicated against each of them. (7) Consulting engineers (7th July, 1997) (8) Custom house agents (15th June, 1997) (9) Steamer agents (15th June, 1997) (10) Clearing & forwarding agents (16th July, 1997) (11) Air travel agents --- (1st July, 1997) (12) Tour operators (exempted up to 31.3.2000 Notification No.52/98, 8th July, 1998, reintroduced w.e.f. 1.4.2000) (13) Rent-a-Cab Operators (exempted up to 31.3.2000 Vide Notification No.3/99 Dt.28.2.99, reintroduced w.e.f. 1.4.2000) (14) Manpower recruitment Agency (1st July, 1997) (15) Mandap Keepers (1st July, 1997)

The services provided by goods transport operators, out door caterers and pandal shamiana contractors were brought under the tax net in the budget 1997-98, but abolished vide Notification No.49/98, 2nd June,1998.

Government of India has notified imposition of service Tax on twelve new services in 1998-99 union Budget. These services listed below were notified on 7th October, 1998 and were subjected to levy of Service Tax w.e.f. 16th October, 1998. (16) Architects (17) Interior Decorators (18) Management Consultants (19) Practicing Chartered Accountants (20) Practicing Company Secretaries (21) Practicing Cost Accountants (22) Real Estates Agents/Consultants (23) Credit Rating Agencies (24) Private Security Agencies (25) Market Research Agencies (26) Underwriters Agencies

In case of mechanized slaughter houses, since exempted, vide Notification No.58/98 dtd. 07.10.1998, the rate of Service Tax was used to be a specific rate based on per animal slaughtered. In the Finance Act’2001, the levy of service tax has been extended to 14 more services, which are listed below. This levy is effective from 16.07.2001. (27) Scientific and technical consultancy services (28) Photography (29) Convention (30) Telegraph (31) Telex (32) Facsimile (fax) (33) Online information and database access or retrieval (34) Video-tape production (35) Sound recording (36) Broadcasting (37) Insurance auxiliary activity (38) Banking and other financial services (39) Port (40) Authorised Service Stations (41) Leased circuits Services

In the Budget 2002-2003, 10 more services have been added to the tax net which are listed below. This levy is effective from 16.08.2002. (42) Auxiliary services to life insurance (43) Cargo handling (44) Storage and warehousing services (45) Event Management (46) Cable operators (47) Beauty parlours (48) Health and fitness centres (49) Fashion designer (50) Rail travel agents. (51) Dry cleaning services. and these services have been notified on 1-8-2002 and were subject to levy of Service Tax w.e.f. 16-8-2002. It is expected that in view of more & more services brought under the Service Tax net, the service tax revenue would now form a major part in Govt. Revenue earnings. In the Budget 2003-04 seven more services along with extension to three existing services have been added to the tax net which are listed below. The levy of service tax on these services is effective from 1st July, 2003. (52). Commercial vocational institute, coaching centres and private tutorials (53). Technical testing and analysis (excluding health & diagnostic testing) technical inspection and certification service. (54). Maintenance & repair services (55). Commission and Installation Services (56). Business auxiliary services, namely business promotion and Support services (excluding on information technology services) (57). Internet café (58). Franchise Services The rate of Service Tax was increased from 5% to 8% on all the taxable services w.e.f. 14.5.2003.

In the Budget 2004-05, 10 more services have been introduced in the service tax net along with reintroduction of three existing services as follows: (59) Transport of goods by road (earlier Goods Transport Operators service re- introduced). (60) Out door Caterer’s service (re-introduced) (61) Pandal or Shamiana service (re-introduced) (62) Airport Services (63) Transport of Goods by Air Services (64) Business Exhibition Services (65) Construction Services in relation to Commercial or Industrial BuildingConstruction Services in relation to Commercial or Industrial Building The levy of service tax on these services is effective from 10th September, 2004 and the rate of service tax has been enhanced to 10% from 8%. Besides this 2% Education Cess on the amount of service tax has also been introduced. Thereafter Service Tax is increased up to 12.24% and now currently the effective service tax rate is 12.36% including Education Cess.

In the Budget 2005-06, 9 more services have been introduced in the service tax net as follows with effect from 16.06.2005: (66) Intellectual Property Services (67) Opinion Poll Services (68) TV or Radio Programme Services (69) Survey and Exploration of Minerals Services (70) Travel Agent’s Services other than Rail and Air travel agents (71) Forward Contract Services (72) Transport of goods through pipe line or other conduit Services. (73) Site preparation & clearance Services (74) Dredging Services (75) Survey & Mapmaking Services (76) Cleaning Services (77) Membership of Clubs & Associations (78) Packaging Services (79) Mailing list compilation & Mailing Services (80) Construction Services in relation to Residential Complexes.

Future Proposals:

The Finance Minister of India, Mr. P. Chidambaram in his Budget speech has indicated the government's intent of merging all taxes like Service Tax, Excise and VAT into a common Goods and Service Tax by the year 2010. To achieve this objective, the rate of Central Excise and Service Tax will be progressively altered and brought to a common rate.

Indian Accounting Standards

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 03:03:35 PST

Accounting is the art of recording transactions in the best manner possible, so as to enable the reader to arrive at judgments/come to conclusions, and in this regard it is utmost necessary that there are set guidelines. These guidelines are generally called accounting policies. The intricacies of accounting policies permitted Companies to alter their accounting principles for their benefit. This made it impossible to make comparisons. In order to avoid the above and to have a harmonised accounting principle, Standards needed to be set by recognised accounting bodies. This paved the way for Accounting Standards to come into existence.

Accounting Standards in India are issued By the Institute of Chartered Accountanst of India (ICAI). At present there are 30 Accounting Standards issued by ICAI.

Objective of Accounting Standards

Objective of Accounting Standards is to standarize the diverse accounting policies and practices with a view to eliminate to the extent possible the non-comparability of financial statements and the reliability to the financial statements.

The institute of Chatered Accountants of India, recognizing the need to harmonize the diversre accounting policies and practices, constituted at Accounting Standard Board (ASB) on 21st April, 1977.

Compliance with Accounting Standards issued by ICAI

Sub Section(3A) to section 211 of Companies Act, 1956 requires that every Profit/Loss Account and Balance Sheet shall comply with the Accounting Standards. 'Accounting Standards' means the standard of accounting recomended by the ICAI and prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards(NACAs) constituted under section 210(1) of companies Act, 1956.

Accounting Standards Issued by the Institute of Chatered Accountants of India are as below:

Disclosure of accounting policies:

Valuation Of Inventories:

Cash Flow Statements

Contingencies and events Occurring after the Balance sheet Date

Net Profit or loss For the period, Prior period items and Changes in accounting Policies.

Depreciation accounting.

Construction Contracts.

Revenue Recognition.

Accounting For Fixed Assets.

The Effect of Changes In Foreign Exchange Rates.

Accounting For Government Grants.

Accounting For Investments.

Accounting For Amalgamation.

Employee Benefits.

Borrowing Cost.

Segment Reporting.

Related Party Disclosures.

Accounting For Leases.

Earning Per Share.

Consolidated Financial Statement.

Accounting For Taxes on Income.

Accounting for Investment in associates in Consolidated Financial Statement.

Discontinuing Operation.

Interim Financial Reporting.

Intangible assets.

Financial Reporting on Interest in joint Ventures.

Impairment Of assets.

Provisions, Contingent, liabilities and Contingent assets.

Financial instrument.

Financial Instrument: presentation.

Financial Instruments, Disclosures and Limited revision to accounting standards.

Disclosure of Accounting Policies: Accounting Policies refer to specific accounting principles and the method of applying those principles adopted by the enterprises in preparation and presentation of the financial statements.

Valuation of Inventories: The objective of this standard is to formulate the method of computation of cost of inventories / stock, determine the value of closing stock / inventory at which the inventory is to be shown in balance sheet till it is not sold and recognized as revenue.

Cash Flow Statements: Cash flow statement is additional information to user of financial statement. This statement exhibits the flow of incoming and outgoing cash. This statement assesses the ability of the enterprise to generate cash and to utilize the cash. This statement is one of the tools for assessing the liquidity and solvency of the enterprise.

Contigencies and Events occuring after the balance sheet date: In preparing financial statement of a particular enterprise, accounting is done by following accrual basis of accounting and prudent accounting policies to calculate the profit or loss for the year and to recognize assets and liabilities in balance sheet. While following the prudent accounting policies, the provision is made for all known liabilities and losses even for those liabilities / events, which are probable. Professional judgement is required to classify the likehood of the future events occuring and, therefore, the question of contingencies and their accounting arises.

Objective of this standard is to prescribe the accounting of contigencies and the events, which take place after the balance sheet date but before approval of balance sheet by Board of Directors. The Accounting Standard deals with Contingencies and Events occuring after the balance sheet date.

Net Profit or Loss for the Period, Prior Period Items and change in Accounting Policies : The objective of this accounting standard is to prescribe the criteria for certain items in the profit and loss account so that comparability of the financial statement can be enhanced. Profit and loss account being a period statement covers the items of the income and expenditure of the particular period. This accounting standard also deals with change in accounting policy, accounting estimates and extraordinary items.

Depreciation Accounting : It is a measure of wearing out, consumption or other loss of value of a depreciable asset arising from use, passage of time. Depreciation is nothing but distribution of total cost of asset over its useful life.

Construction Contracts : Accounting for long term construction contracts involves question as to when revenue should be recognized and how to measure the revenue in the books of contractor. As the period of construction contract is long, work of construction starts in one year and is completed in another year or after 4-5 years or so. Therefore question arises how the profit or loss of construction contract by contractor should be determined. There may be following two ways to determine profit or loss: On year-to-year basis based on percentage of completion or On cpmpletion of the contract.

Revenue Recognition : The standard explains as to when the revenue should be recognized in profit and loss account and also states the circumstances in which revenue recognition can be postponed. Revenue means gross inflow of cash, receivable or other consideration arising in the course of ordinary activities of an enterprise such as:- The sale of goods, Rendering of Services, and Use of enterprises resources by other yeilding interest, dividend and royalties. In other words, revenue is a charge made to customers / clients for goods supplied and services rendered.

Accounting for Fixed Assets : It is an asset, which is:- Held with intention of being used for the purpose of producing or providing goods and services. Not held for sale in the normal course of business. Expected to be used for more than one accounting period.

The Effects of changes in Foreign Exchange Rates : Effect of Changes in Foreign Exchange Rate shall be applicable in Respect of Accounting Period commencing on or after 01-04-2004 and is mandatory in nature. This accounting Standard applicable to accounting for transaction in Foreign currencies in translating in the Financial Statement Of foreign operation Integral as well as non- integral and also accounting for For forward exchange.Effect of Changes in Foreign Exchange Rate, an enterprises should disclose following aspects:

Amount Exchange Difference included in Net profit or Loss;

Amount accumulated in foreign exchange translation reserve;

Reconciliation of opening and closing balance of Foreign Exchange translation reserve;

Accounting for Government Grants : Governement Grants are assistance by the Govt. in the form of cash or kind to an enterprise in return for past or future compliance with certain conditions. Government assistance, which cannot be valued reasonably, is excluded from Govt. grants,. Those transactions with Governement, which cannot be distinguished from the normal trading transactions of the enterprise, are not considered as Government grants.

Accounting for Investments : It is the assets held for earning income by way of dividend, interest and rentals, for capital appreciation or for other benefits.

Accounting for Amalgamation : This accounting standard deals with accounting to be made in books of Transferee company in case of amalgamtion. This accounting standard is not applicable to cases of acquisition of shares when one company acquires / purcahses the share of another company and the acquired company is not dissolved and its seperate entity continues to exist. The standard is applicable when acquired company is dissolved and seperate entity ceased exist and purchasing company continues with the business of acquired company

Employee Benefits : Accounting Standard has been revised by ICAI and is applicable in respect of accounting periods commencing on or after 1st April 2006. the scope of the accounting standard has been enlarged, to include accounting for short-term employee benefits and termination benefits.

Borrowing Costs : Enterprises are borrowing the funds to acquire, build and install the fixed assets and other assets, these assets take time to make them useable or saleable, therefore the enterprises incur the interest (cost on borrowing) to acquire and build these assets. The objective of the Accounting Standard is to prescribe the treatment of borrowing cost (interest + other cost) in accounting, whether the cost of borrowing should be included in the cost of assets or not.

Segment Reporting : An enterprise needs in multiple products/services and operates in different geographical areas. Multiple products / services and their operations in different geographical areas are exposed to different risks and returns. Information about multiple products / services and their operation in different geographical areas are called segment information. Such information is used to assess the risk and return of multiple products/services and their operation in different geographical areas. Disclosure of such information is called segment reporting.

Related Paty Disclosure : Sometimes business transactions between related parties lose the feature and character of the arms length transactions. Related party relationship affects the volume and decision of business of one enterprise for the benefit of the other enterprise. Hence disclosure of related party transaction is essential for proper understanding of financial performance and financial position of enterprise.

Accounting for leases : Lease is an arrangement by which the lesser gives the right to use an asset for given period of time to the lessee on rent. It involves two parties, a lessor and a lessee and an asset which is to be leased. The lessor who owns the asset agrees to allow the lessee to use it for a specified period of time in return of periodic rent payments.

Earning Per Share :Earning per share (EPS)is a financial ratio that gives the information regarding earning available to each equiy share. It is very important financial ratio for assessing the state of market price of share. This accounting standard gives computational methodology for the determination and presentation of earning per share, which will improve the comparison of EPS. The statement is applicable to the enterprise whose equity shares or potential equity shares are listed in stock exchange.

Consolidated Financial Statements : The objective of this statement is to present financial statements of a parent and its subsidiary (ies) as a single economic entity. In other words the holding company and its subsidiary (ies) are treated as one entity for the preparation of these consolidated financial statements. Consolidated profit/loss account and consolidated balance sheet are prepared for disclosing the total profit/loss of the group and total assets and liabilities of the group. As per this accounting standard, the conslidated balance sheet if prepared should be prepared in the manner prescribed by this statement.

Accounting for Taxes on Income : This accounting standard prescribes the accounting treatment for taxes on income. Traditionally, amount of tax payable is determined on the profit/loss computed as per income tax laws. According to this accounting standard, tax on income is determined on the principle of accrual concept. According to this concept, tax should be accounted in the period in which corresponding revenue and expenses are accounted. In simple words tax shall be accounted on accrual basis; not on liability to pay basis.

Accounting for Investments in Associates in consolidated financial statements : The accounting standard was formulated with the objective to set out the principles and procedures for recognizing the investment in associates in the cosolidated financial statements of the investor, so that the effect of investment in associates on the financial position of the group is indicated.

Discontinuing Operations : The objective of this standard is to establish principles for reporting information about discontinuing operations. This standard covers "discontinuing operations" rather than "discontinued operation". The focus of the disclosure of the Information is about the operations which the enterprise plans to discontinue rather than dsclosing on the operations which are already discontinued. However, the disclosure about discontinued operation is also covered by this standard.

Interim Financial Reporting (IFR) : Interim financial reporting is the reporting for periods of less than a year generally for a period of 3 months. As per clause 41 of listing agreement the companies are required to publish the financial results on a quarterly basis.

Intangible Assets : An Intangible Asset is an Identifiable non-monetary Asset without physical substance held for use in the production or supplying of goods or services for rentals to others or for administrative purpose

Financial Reporting of Interest in joint ventures : Joint Venture is defined as a contractual arrangement whereby two or more parties carry on an economic activity under 'joint control'. Control is the power to govern the financial and operating policies of an economic activity so as to obtain benefit from it. 'Joint control' is the contractually agreed sharing of control over economic activity.

Impairment of Assets : The dictionary meanong of 'impairment of asset' is weakening in value of asset. In other words when the value of asset decreases, it may be called impairment of an asset. As per AS-28 asset is said to be impaired when carrying amount of asset is more than its recoverable amount.

Provisions, Contingent Liabilities And Contingent Assets : Objective of this standard is to prescribe the accounting for Provisions, Contingent Liabilitites, Contingent Assets, Provision for restructuring cost.

Provision: It is a liability, which can be measured only by using a substantial degree of estimation.

Liability: A liability is present obligation of the enterprise arising from past events the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.

Financial Instrument: Recognition and Measurement, issued by The Council of the Institute of Chartered Accountants of India, comes into effect in respect of Accounting periods commencing on or after 1-4-2009 and will be recommendatory in nature for An initial period of two years. This Accounting Standard will become mandatory in respect of Accounting periods commencing on or after 1-4-2011 for all commercial, industrial and business Entities except to a Small and Medium-sized Entity. The objective of this Standard is to establish principles for recognizing and measuring Financial assets, financial liabilities and some contracts to buy or sell non-financial items. Requirements for presenting information about financial instruments are in Accounting Standard.

Financial Instrument: presentation : The objective of this Standard is to establish principles for presenting financial instruments as liabilities or equity and for offsetting financial assets and financial liabilities. It applies to the classification of financial instruments, from the perspective of the issuer, into financial assets, financial liabilities and equity instruments; the classification of related interest, dividends, losses and gains; and the circumstances in which financial assets and financial liabilities should be offset. The principles in this Standard complement the principles for recognising and measuring financial assets and financial liabilities in Accounting Standard Financial Instruments:

Financial Instruments, Disclosures and Limited revision to accounting standards: The objective of this Standard is to require entities to provide disclosures in their financial statements that enable users to evaluate:

the significance of financial instruments for the entity’s financial position and performance; and

the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the reporting date, and how the entity manages those risks.

Straight Line Depreciation

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 02:59:41 PST

Under the straight line depreciation method, recognize depreciation expense evenly over the estimated useful life of the asset.

Formula:

a. Compute the straight-line depreciation rate as

1
-------------------------
Estimated useful life

b. Multiply the depreciation rate by the cost less estimated salvage value.

Straight Line Depreciation Example

ABC Company purchases a machine for $100,000. It has an estimated salvage value of $10,000 and a useful life of five years. The straight-line depreciation calculation is:

Step 1: 1 / 5 years = 20% depreciation per year

Step 2: 20% x ($100,000 cost - $10,000 salvage value) = $18,000 annual depreciation

Depletion Method or diminishing method

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 02:58:19 PST

Depletion is the annual charge for the use of natural resources. In order to compute depletion, it is first necessary to establish a depletion base, which is the amount of the depletable asset.

The depletion base includes the following elements:

Acquisition costs—The cost to obtain the property rights through purchase or lease, royalty payments to the property owner,
Exploration costs—Typically, these costs are expenses as incurred; however in certain circumstances in the oil and gas industry, they may be capitalized,
Development costs—Intangible development costs such as drilling costs, tunnels, shafts, and wells,
Restoration costs—The costs of restoring the property to its natural state after extraction of the natural resources has been completed.

The amount of the depletion base, less its estimated salvage value is charged to depletion expense each period using a depletion rate per unit extracted, or unit depletion rate that is computed using the following formula:

1

×

Depletion base

×

Units extracted

Total expected recoverable units

The unit depletion rate is revised frequently due to the uncertainties surrounding the recovery of natural resources. The revision is made prospectively; the remaining undepleted cost is allocated over the remaining expected recoverable units.

Overview of Depreciation

vkkumar48@gmail.com (Kiran kumar) — Sat, 04 Feb 2012 02:56:52 PST

Depreciation is the systematic reduction in the recorded cost of a fixed asset. Examples of fixed assets that can be depreciated are buildings, furniture, leasehold improvements, and office equipment. The only exception is land, which is not depreciated. The reason for using depreciation is to match a portion of the cost of a fixed asset to the revenue that it generates; this is mandated under the matching principle, where you record revenues with their associated expenses in the same reporting period in order to give a complete picture of the results of a revenue-generating transaction.

It is very difficult to directly link a fixed asset with a revenue-generating activity, so we do not try - instead, we incur a steady amount of depreciation over the useful life of each fixed asset, so that the remaining cost of the asset on the company's records at the end of its useful life is only its salvage value.

There are three factors to consider in the calculation of depreciation, which are:

Useful life. This is the time period over which the company expects that the asset will be productive. Past its useful life, it is no longer cost-effective to continue operating the asset, so it is expected that the company will dispose of it. Depreciation is recognized over the useful life of an asset.
Salvage value. When a company eventually disposes of an asset, it may be able to sell it for some reduced amount, which is the salvage value. Depreciation is calculated based on the asset cost, less any estimated salvage value. If salvage value is expected to be quite small, then it is generally ignored for the purpose of calculating depreciation.
Depreciation method. You can calculate depreciation expense using an accelerated depreciation method, or evenly over the useful life of the asset. The advantage of using an accelerated method is that you can recognize more depreciation early in the life of a fixed asset, which defers some income tax expense recognition into a later period. The advantage of using a steady depreciation rate is the ease of calculation. Examples of accelerated depreciation methods are the declining balance and sum-of-the-years digits methods. The primary method for steady depreciation is the straight-line method.

If, midway through the useful life of an asset, you expect its useful life or the salvage value to change, you should incorporate the alteration into the calculation of depreciation over the remaining life of the asset; do not retrospectively change any depreciation that has already been recorded.

Depreciation Journal Entries

When you record depreciation, it is a debit to the Depreciation Expense account, and a credit to the Accumulated Depreciation account. The Accumulated Depreciation account is a contra account, which means that it appears on the balance sheet as a deduction from the original purchase price of an asset.

Once you dispose of an asset, you credit the Fixed Asset account in which the asset was originally recorded, and debit the Accumulated Depreciation account, thereby flushing the asset out of the balance sheet.

Other Depreciation Issues

Depreciation has nothing to do with the market value of a fixed asset, which may vary considerably from the net cost of the asset at any given time.

Depreciation is a major issue in the calculation of a company's cash flows, because it is included in the calculation of net income, but does not involve any cash flow. Thus, a cash flow analysis calls for the inclusion of net income, with an add-back for any depreciation recognized as expense during the period.