Accounting
is the process of identifying, measuring, and communicating
economic information to permit informed judgment and decision
by users of the information. It may be defined as the process
of recording, classifying summarizing, analyzing, and interpreting
financial transactions and communicating the result thereof
to the person interested in such information. The greater
degree of uniformity covering the aspect of recognition, measurement,
treatment, presentation and disclosure of accounting in the
financial statement is brought by the accounting standards.
Thus accounting standards lay down the rules for measurement
and presentation of accounting information by different enterprises.
Recently issued AS 28 for impairment of assets is applicable
from the accounting period commencing on or after April 1,
2004 for business entity whose turnover exceeds Rs. 50 cr
and/or whose equity shares are listed in stock exchange or
in the process of listing. For all others the standard is
effective from April 1, 2005 and is mandatory in nature. In
this article an attempt has been made to simplify the steps
required for compliance of AS 28.
At
each balance sheet date the enterprise should list out all the assets except inventories
(covered by AS 2), assets arising from construction contracts (covered by AS 7),
Financial Assets covered by AS 13 and contractual right to receive cash like debtors,
etc., deferred tax assets (covered by AS 22), contingent assets (covered by AS
29), and assets like derivatives for investment and hedging purpose, as no action
is required for these assets under AS 28 and the enterprise should assess whether
any indication of impairment exists. By impairment of assets, generally, we mean
weakening in value of assets i.e., when the value of asset decreases we call it
impairment of asset. An asset is said to be impaired, as per AS 28, when carrying
amount is more than its recoverable amount. Before AS 28 came into force, the
carrying amount (i.e., an amount at which asset is shown in balance sheet) is
the cost of asset less accumulated depreciation/amortization, but as per AS 28
the carrying amount is cost of asset less accumulated depreciation/amortization
and impairment loss. The recoverable amount of an asset is defined as net selling
price or value in use, whichever is higher. The net selling price is sale price
of an asset less cost of disposal. The value in use of asset is present value
of estimated future cash flow arising from the use of an asset plus residual (scrap)
price at the end of its useful life. |
