ChartAcc

Hope the previous sharepoint on XBRL in layman's language was helpful in giving basic purpose of bringing XBRL to business.

Before going forward lemme again elaborate XBRL in short detail as follows:
MP3 files are music files in specific format which can be created and played on most devices or softwares.
Same way XBRL is a universal coding format for Financial Information which can be instantly and easily converted and shared in any country reporting format.

Now, lemme go on a bit "Definition-wise" side of XBRL...

• What?
• Why?
• How?

-----

What is XBRL?

It's a coding language for sharing Financial Information in electronic form. It's like Extensible Markup Language (XML) where XML is for any type of data and XBRL is specifically for Financial Reporting.


e.g. Electronic data format of "Statement of Financial Position" from one software can't be uploaded in any other software unless coding for report is same for both.

-----

Why XBRL is required?

To furnish or compare, electronic data of Financial Information in easily readeable format. In some cases it will be compulsory to report under XBRL format for filing data with Govt. departments.

So it has following reasons of adoption:
 - Efficiency in reporting and Time and Cost saving
 - Legal requirement


e.g. U.S. Securities and Exchange Commission (SEC) rules require some Public companies to submit their financial statements in the XBRL interactive data format for the fiscal periods ending on or after 15 June 2009.

-----

How to use XBRL?

Third party softwares and utility tools are available to convert data from normal format to XBRL format. Even any existing accounting software can be modified or upgraded to produce XBRL reports.

e.g. XBRL programmers will usually provide technical support or guidance for those taking part in XBRL adoption.

-----

Wait for my next sharepoint to elaborate on followings:

How IFRS is related to XBRL?
How to Join XBRL?
What are Taxonomies and Jurisdictions?
What are the technicalities required thereof?

1. Names Sarbanes-Oxley Act of 2002,
   SOX or Sarbox,
   PCARIPA 2002…
   (Public Company Accounting Reform and Investor Protection Act 2002)
2. Enactment Date 30th July 2002
3. OriginUnited States federal law
4. Sponsors
   > Senator Paul Sarbanes (Democratic Party – Maryland, US)
   > Representative Michael G. Oxley (Republican Party – Ohio)
5. Signed as Law byPresident George W. Bush
6. Reason
   Avoidance of corporate and accounting scandals
   e.g. Enron, Tyco International, Adelphia, Peregrine Systems and WorldCom
7. Non-applicability
   Privately held companies
8. Revelation from
   IAS (International Accounting Standards) & UK GAAP being “Principles-based” approach as against US GAAP which is a “Rules-based” approach.
9. Contents
   11 Section/Titles
10. Issues Covered
    > Auditor Independence
    > Corporate Governance
    > Internal Control Assessment
    > Enhanced Financial Disclosure

Sr. No - Title - (Total Sections covered)

1. PCAOB (Public Company Accounting Oversight Board), also known as PeeKaBoo (9)
2. Auditor Independence (9)
3. Corporate Responsibility (8)
4. Enhanced Financial Disclosures (9)
5. Analyst Conflicts of Interest (1)
6. Commission Resources and Authority (4)
7. Studies and Reports (5)
8. Corporate and Criminal Fraud Accountability (7)
9. White Collar Crime Penalty Enhancement (2)
10. Corporate Tax Returns (1)
11. Corporate Fraud Accountability (7)

Hint

(continued...)

from last post, you would have got the funda of Loyalty Points.
Now comes the recognition and measurement part.

Let's do it with following example:

In 2011, A customer buys goods worth Rs. 10,000.
Entity offers 1 Special Value Point per Rupee.
5 Points carry a value of Re. 1.
Points can be redeemed by discount in next purchase within 3 years.
It is estimated that 80% points are generally redeemed within 3 years.

Now Fair Value of Deferred Revenue is to be determined.

Let's decode the example as per IFRIC 13:

Total Value is Rs. 10000
Loyalty Points earned are 10,000
Value of Loyalty points is 10,000/5 = Rs. 2,000
Only 80% points are redeemed so obligation arises is Rs. 2,000 x 80% = Rs. 1,600

Accounting entries go as follows:

Year End 2011 - Initial Sale

Dr. Cash/Bank - Rs. 10,000
Cr. Deferred Revenue - Rs.  1,600
Cr. Revenue - Rs. 8,400


Year End 2012

Suppose 2000 points were redeemed during the year.
The value is 2000 / 5 = Rs. 400


Dr. Deferred Revenue - Rs. 400
Cr. Revenue - Rs. 400

Year End 2013

Suppose further 3000 points were redeemed during the year.
Moreover management expects redemption of 70% instead of 80% as earlier estimated.

Here a revisit to Deferred revenue is to be considered as follows:

Initial Obligation to be created as per revised estimate = 10,000 points x 70% = 7,000 points

Total points redeemed till Year End 2013 = 2,000 + 3,000 = 5,000

Revenue to be recognised till Year End 2013 = Rs. 1,600 x 5,000 / 7,000 = Rs. 1,143
Already recognised = Rs. 400
Balance to be recognised = Rs. 743

Dr. Deferred Revenue - Rs. 743
Cr. Revenue - Rs. 743


Year End 2013

Balance of 2,000 points, whether redeemed or not, are to be recognised as revenue:

Value to be recognised = Rs. (1,600 - 400 - 743) = Rs. 457

Dr. Deferred Revenue - Rs. 457
Cr. Revenue - Rs. 457

Due to busy season, I was almost unable to continue posting articles...
Now onwards i ll make sure u people get at least 1 every week...

Hereunder goes the hint...

Hint:

IFRIC 13 talks about Customer Loyalty Programmes

Generalised
Before going to hardcore definition lets generalise the concept...

You would have heared about following incentives awarded to customers by entities:

• "Air Miles" by Airlines
• "Petro Points" on Petrol Card
• "Credit voucher" for valued customers
• "Cash Back" for use of Credit or Debit (ATM) cards

These all are Loyalty points that are awarded to customer on purchase of goods or services.

These points are:

• awarded by entity or a third party, and
• can be redeemed by customers immidiately, or after specific limit,
• in form of free or discounted goods or services from the entity or at third party.

Now issue arises that how to consider Revenue in such cases under IAS 18.

Financial
Para 13 of IAS 18, Revenue Recongnition says to recognise Revenue in two parts:

• Revenue - Sale portion, which forms part of Income
• Deferred Revenue - Sale portion related to credit points, which is regarded as Liability

Here Deferred Revenue is to be considered as liability being entity is liable to pay to customers, in indirect cash or kind e.g. discounted or free services, in future.

Technical
Technicality arises in measurement of Deferred Revenue.

Deferred revenue should be fair value of Loyalty points awarded which is:

• Equivalent to market value of goods or services awarded under Loyalty Points
• Reduced by value of Loyalty Points expected as not to be redeemed...

More details on Loyalty Points will be covered in next article... (continued...)

Hint

As per IFRS 7, Fair Valuation of Financial Instruments has following hierarchy:

• Level 1
  
  - in Active Markets
  
  - for identical assets or liabilities or instruments
  - Valued using Quoted Prices (unadjusted)
  e.g. Listed instruments
• Level 2
  
  - Valued by reference to inputs that are observable:
      > Direct (prices), or
      > Indirect (derived from prices)
  - other than quoted prices included within Level 1
  e.g. derivatives such as interest rate swaps or forward currency contracts where inputs are mostly observable and OTC (Over-the-counter) securities
• Level 3
  
  - using inputs that are based on unobservable market data
  
  - Valued by reference to valuation techniques
  e.g. Unquoted private equity or venture capital holdings
  

Disclosure requirement for the hierarchy is as follows:

• Levels
  The levels in the fair value hierarchy into which the fair value measurements are categorised
• Transfers (between Level 1 and 2)
  - significant transfers between Level 1 and Level 2, if any, and
  - the reasons for those transfers
• Reconciliation (Level 3)
  
  - a reconciliation for fair value measurements in Level 3
     >  from the beginning balances to the ending balances,
     >  highlighting purchases, sales, and gains and losses,
     >  identify transfers into or out of Level 3, and
  - the reasons for such transfers.

NOTE:

Disclosure of fair values is not required (just information is quoted) in following cases:

• when the carrying value is reasonable approximation of fair value,
  such as short-term trade receivables and payables, or
• for instruments whose fair value cannot be measured reliably

Hint:

• Profit and Loss Account = "Income Statement" or a "Statement of Comprehensive Income"
• Balance Sheet = "Statement of Financial Position"
• Cash Flow Statement = "Statement of Cash Flows"
• Stock = "Inventory"
• Debtors = "Receivables"
• Creditors = "Payables"

Other than above IFRS also requires followings:

• "Statement of Changes in Equity"
• Components of comprehensive income may not be presented in the statement of changes in equity
• Present all non-owner changes in equity (i.e., "Comprehensive income")
  - either in one statement of comprehensive income or
  - in two statements (a separate income statement and a statement of comprehensive income).

Before stating the hint lemme disclose the fact that countries like Australia, Belgium, China, Europe, Germany, Italy, Japan, Korea, Netherlands, Singapore, South Africa, Spain, Sweden, United Kingdom, United States of America are already on the projects of XBRL for Financial reporting.

Hint:

IFRS - International Financial Reporting Standards
XBRL - Extensible Business markup Language

Before going further let's have a look at a simpler approach...

Let's imagine if the whole world has just one language. Is it beneficial?

I think u said a big yess...


again, Let's imagine if the whole world has just one Currency. Is it beneficial?

woop, I kno u said big nope..., even I don't want it, else we professional will av to jump to other jobs. LOL


NOW, let's concentrate on the first case, Uniformity in Language...

see following benefits we gonna reap out of it due to ease in communication...

• Efficiency
• Speed
• Economy

Moving back to technical terms, if we elaborate in easy definition these are as follows:

• IFRS - Presenting financial statements controlled universal regulation
• XBRL - Coding Financial Data for easy conversion from one Reporting to other

XBRL is the like universal language in which Financial Data can be coded and read by different softwares.
Lemme elaborate XBRL lil more...
U know HTML (Hyper Text Markup Language)?
No?
ok, U know XML (Extensible Markup Language)?
No?
ok, ok, wait.....
...
...
U kno Excel? yesss... It's coding of data in presentable format.
We can open Notepad files in excel b'coz excel can read them, but Excel files, if opened in Notepad, will look weird.
Same way XML/HTML is a language which is specific coding of data in understandable format which can be read by programmers and layman too. Web sites are coded in XML/HTML. See how good websites look (like this one) though one look at XML file will screw a non-programmer.
XBRL is a form of XML which is specific coding of Financial Data for easy understanding of data by different Accounting and Auditing softwares. It's an open data standard for financial reporting. It's like universal language of Financial Dictionary.
XBRL is internationally promoted by a non-profit consortium of agencies and companies.
More about XBRL, like who is developing the standards and Taxonomies, when and how it was started, I'll elaborate in next post...

Hint:

IAS 32 - Financial Instruments : Presentation

Financial instrument:

• It's a contract...
• that gives rise to...
• "Financial Asset" of one entity and...
• "Financial Liability" or "Equity Instrument" of other entity

where...

"Financial Assets" are.....

• Cash,
• "Equity Instrument" of another entity,
• "Contractual Right" to.....
  - receive cash or another "Financial Asset"
  - exchange "Financial Assets/Liabilities" under potentially favorable conditions

"Financial Liability" is contractual obligation to...

• deliver cash or another "Financial Asset"
• exchange "Financial Assets/Liabilities"
• under potentially favorable conditions

"Equity Instrument" refers to...

• Any contract...
• that evidences residual interest
• in the asset of an entity
• after deducting all of its liabilities

Hint:

• Disclosure standards :
  IFRS 1- First time adoption of IFRS
  IFRS 4- Insurance contracts
  IFRS 8- Operating segments
  IAS 7- Cash flow statements
  IAS 14- Segment reporting
  IAS 24- Related party disclosures
  IAS 30- Disclosures in the statements of banks and similar financial institutions
  IAS 33- Earnings per share
  IAS 34- Interim financial reporting
  
• Presentation and profit :
  IAS 1- Presentation of financial statements
  IAS 8- Accounting policies, changes in accounting estimates and errors
  IAS 18- Revenue
  
• Asset recognition and measurement :
  IAS 2- Inventories
  IFRS 5- Non-current assets held for sale and discontinued operations
  IFRS 6- Exploration for and evaluation of mineral resources
  IFRS 7- Disclosure
  IAS 11- Construction contracts
  IAS 16- Property, plant and equipment
  IAS 17- Leases
  IAS 20- Accounting for government grants and disclosure of government assistance
  IAS 23- Borrowing costs
  IAS 32- Financial instruments - presentation
  IAS 36- Impairment of assets
  IAS 38- Intangible assets
  IAS 39- Financial instruments - recognition and measurement
  IAS 40- Investment Property
  IAS 41- Agriculture
  
• Accounting for liabilities :
  IFRS 2- Share-based payment
  IAS 10- Events after the balance sheet date
  IAS 12- Income taxes
  IAS 19- Employee benefits
  IAS 37- Provisions, contingent liabilities and contingent assets
  
• Group accounting :
  IAS 21- The effects of changes in foreign exchange rates
  IAS 27- Consolidated financial statements and accounting for investment in subsidiaries
  IAS 29- Financial reporting in hyperinflationary economies
  IAS 28- Accounting for investments in associates
  IAS 31- Joint ventures

Hint:

INTERNATIONAL ACCOUNTING STANDARD 23
BORROWING COSTS

Definition:
"Borrowing costs" are interest and other costs that an entity incurs in connection with the borrowing of funds.


Types of borrowing costs:

• To be capitalised:
  - directly attribuatble to
  - the acquisition, construction or production
  - of a "Qualifying Asset (QA*)"
  
• To be Expensed:
  - other than above

* Qualifying Assets (QA):

• takes a substantial period of time
• to get ready
• for its intended use or sale
  

IAS 23 not applicable to:

1. Cost of equity:
   - actual or imputed (including preferred capital not classified as a liability)
2. A qualifying asset:
   - measured at fair value (e.g. a biological asset)
3. Inventories:
   - that are manufactured, or otherwise produced,
   - in large quantities
   - on a repetitive basis
   

RULES OF CAPITALISATION:

• Conditions:
  - it is probable
  - that costs incurred will result in future economic benefits to the entity
  - and the costs can be measured reliably
  
• Commencement from date when following all conditions are met:
  - expenditures is incurred for the asset,
  - it incurres Borrowing Cost; and
  - it undertakes activities that are necessary to prepare the asset for its intended use or sale.
  
• Suspension of capitalisation:
  - when active development of a QA* is suspended .
  - Suspension of active development excludes:
  - - - carying out of substantial technical and administrative work
  - - - temporary delay that is a necessary part of the development of QA*
  
• Cessation of capitalisation:
  - substantially all the activities of development of QA* are complete
  - if development of QA* is in parts, then each part is treated as QA*

DISCLOSURE:

1. The amount of borrowing costs capitalised during the period; and
2. The capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation.

• December 2003
  

• Financial Year beginning on or after 1 January 2005

1. How to incorporate “Foreign Currency Transactions” and “Foreign Operations” in the financial statements of an entity and
2. How to translate financial statements into a “Presentation Currency”.
   

1. Determine functional currency
2. Translate all foreign currency items into its functional currency
3. Report the effects of such translation in accordance with [IAS 21. 20-37 and 50]
   

1. Which exchange rate(s) to use and
2. How to report the effects of changes in exchange rates in the financial statements
   

Not applicable to:

1. Foreign currency derivatives and hedge accounting of foreign currency items covered by IAS 39 (Financial Instruments: Recognition and Measurement)
2. Presentation of a cash flow statement of cash flows arising from transactions in a foreign currency, or to the translation of cash flows of a foreign operation as per IAS 7 (Cash Flow Statements)

Hint: Reply as per Requirement under Different Laws :-

Companies Act, 1956
> A company is required to maintain its books of account and vouchers for a period of 8 years
immediately preceding the current year.
> Licenced Companies u/s 25 of The Companies Act, 1956 is required to maintain its books of account and vouchers for a period of not less than 4 years.
> The books and papers of the Amalgamated/Transferor Company must be not be disposed of without the prior permission of the Central Government.
> The books and papers of a company which has been wound-up and of its liquidator shall not be destroyed for a period of 5 years from the date of its dissolution. They may be destroyed earlier with prior Central Government permission.
> Every company (not being an NBFC) accepting public deposits must maintain a Register of Deposits for 8 calendar years from the financial year in which the latest entry is made in the Register.
> The Register and Index of Members must be maintained permanently.
> The Register and Index of Debenture-Holders must be maintained for 15 years after the redemption of debentures.
> The copies of all Annual Returns and Certificates annexed thereto must be maintained for 8 years from date of filing with the ROC.


NBFC Directions
> Every NBFC accepting public deposits must maintain a Register of Deposits for each branch and a consolidated Register for 8 calendar years following the financial year in which the latest repayment/renewal entry is made in the Register.


Income-tax Act, 1961
> Assessees are required to preserve the specific books of account for a period of 6 years from the end of the relevant assessment year, i.e., for a total period of 8 previous years. Thus, accounts must be maintained for PY 1997-98 and onwards and accounts up to 31st March, 1997 (PY 1996-97) need not be maintained for Income-tax purposes.
> Transfer Pricing documents and Information specified under Rule 10 D must be maintained for a period of 8 years from the end of the relevant assessment year , i.e., for a total period of 10 previous years.
> Central Excise
> Daily stock Account of goods produced must be maintained for 5 years immediately after the
financial year to which such records pertain.
> Service Tax
> Records maintained under various other laws in force from time to time would be acceptable.
> SEBI Regulations
> Under the SEBI Regulations for Stock Brokers, Merchant Bankers, Portfolio Managers, Underwriters, Debentures Trustees, FIIs, Custodian of Securities and Depository Participants the Records prescribed by SEBI under relevant Regulations must be maintained for a minimum period of 5 years.
Under the SEBI Regulations for Venture Capital Funds and Mutual Funds the records prescribed by
SEBI under relevant Regulations must be maintained for a minimum period of 8 years.
> SEBI regulations for Registrar & Transfer Agents and Bankers to an Issue the records prescribed by
SEBI under relevant Regulations must be maintained for a minimum period of 3 years.


ICAI- Council’s decision of 1957
> CAs should preserve records relating to audit and other work done by them, routine
correspondence and other papers for a minimum period of 10 years.


*courtesy : www.taxguru.com

Recent - Case Laws

Income Tax - 2009 - TMI - 34117 - HC Bad Debts :-
Revenue contended that the loss have been shown as bad debt for the financial year 1993-94 and not for the assessment year 1999-2000 - the amount became irrecoverable when the assessee wrote it off in its books of account and that, therefore, the assessee was entitled to claim the amount - even if duty drawback was available for the previous assessment year, what will be relevant was when the same is treated as bad debt by the assessee in his books of account – the fact that there was no income in the course of assessment year 1999-2000 would not disentitle the assessee from claiming the business expenditure in the said assessment year – claim of bad debts allowed. *

Income Tax - 2009 - TMI - 34116 - HC Export :–
Negative export profits - Undoubtedly, section 80HHC has been incorporated with a view to provide incentive to export houses. Even though a liberal interpretation has to be given to such a provision, interpretation has to be as per the wording of the section. If the wording of the section is clear, then the benefits which are not available under the section can not be conferred by ignoring or misinterpreting words in the section - negative export profits can not be ignored when aggregating the total turnover including other export by not taking into consideration the specific definition adduced in section 80HHC read with section 80AB of the Act for the purpose of computing deduction under section 80HHC of the Act – decided in favor of revenue – tribunal order is not correct. *

Customs - 2009 - TMI - 34115 - Tri Import of goods Valuation :–
The evidence relied upon by the Commissioner for loading of value was not made available to the importers - the impugned order set aside – matter remitted for fresh decision in accordance with law after furnishing copy of the Bill of Entry and after extending a reasonable opportunity to the appellants of being heard in their defence. *

Central Excise - 2009 - TMI - 34114 - Tri Import of goods – valuation :–
value based on sale price in India – since no other value available, the deductive valuation method adopted by the department upheld. *

Customs - 2009 - TMI - 34113 - Tri Confiscation of unmanifested goods and imposition of penalty :-
The submission of the appellants is that they had applied for amendment of the IGM as per Section 30 of the Customs Act and there is no finding that there was any fraudulent intention on their part and, therefore, amendment should have been permitted so as to include the unmanifested goods and confiscation and penalty should not have been ordered/imposed – contention is not acceptable – confiscation and penalty upheld. *

Central Excise - 2009 - TMI - 34112 - Tri Adjustment of demand with the refund :- Excess duty has been paid in one unit which is equivalent to the differential duty demanded in respect of the second unit - Both the units belong to the same manufacturer - The appellant explained the reasons by mistake in deposit excess duty in one unit and less duty in another unit - We find the duty paid in excess in one unit is to be adjusted against the deemed differential duty and against the other unit of the assessee – adjustment allowed but appellant can not apply for refund after adjustment. *

Central Excise - 2009 - TMI - 34111 - Tri Appeal filed in wrong form :–
EA-3 form versus ST-5 form - regarding denial of Cenvat credit on input services - an appeal filed in ST-5 format appears to be maintainable more-so when an appeal in ST-4 form was admitted by Commissioner (Appeals). The show cause notices are therefore discharged. It is however made clear that no view is being expressed on the merits of the case as to whether a demand relating to denial of credit on input services is required to be raised under Section 11A of Central Excise Act, 1944 or Section 73 of the Finance Act, 1994 appeal is maintainable. *

Central Excise - 2009 - TMI - 34110 - HC Duty paid under protest :–
marking on Invoice and ER-1 return - refund claimed - during the period in dispute, the relevant invoices and ER-1 returns filed would show that they were marked with the endorsement “duty paid under protest” - ground of non-forwarding of a letter as contended by the Department would not be of any significance - It does not mean that the claim for refund is ex facie not maintainable - refund is allowed subject to the provision of unjust enrichment. *

Service Tax - 2009 - TMI - 34109 - Tri Demand and Recovery :–
Waiver of penalty - The demand of service tax along with interest has already been paid after receipt of the show cause notice. The contention of applicant is that in para ‘13’ of the adjudication order, the adjudicating authority admitted that applicants were regularly filing half yearly service tax return in the form of ST-3 to the Jurisdictional Superintendent, wherein they were showing the availment and utilization of Cenvat credit for monthly payment of Service Tax and also the Service Tax paid by way of challan. Adjudicating authority also held that there is no evidence that the assessee had hidden any detail/information from the department – pre-deposit of penalty waived. *

Service Tax - 2009 - TMI - 34108 - Tri Value of Free Supply :–
Abatement of 67% under notification no. 15/2004 ST - The applicants are providing the service of commercial and industrial construction. As per the notification No. 15/04-ST. the applicants are entitled for abatement of 67% from the gross amount. The dispute in the present case is in respect of the gross amount charged. The revenue wants to add the value of free supply of cement and steel which was used in the construction - pre-deposit of duty and penalty is waived. *

Service Tax - 2009 - TMI - 34107 - Tri Recovery of Refund of service tax granted earlier :–
Revision of refund order - department cannot insist on implementation of a Circular dated 27-7-05 issued later on when the impugned period is January 2005 to March, 2005 - department has merely passed the order-in-revision and has not issued any demand notice for the amount refunded earlier by the original authority. The appellants have also clarified that they have got refund only in respect of such cases where they have obtained certificate from the GTA and produced before the original authority. – revision order set aside. *

Service Tax - 2009 - TMI - 34106 - Tri Interior Decorator Service :–
Applicability of service tax on planting of trees, garden plants, grassy lawn, etc. - Prima facie, there is a merit in the appellant’s submission that the activity of gardening under Horticulture activities, such as planting of trees, garden plants, grassy lawn etc. does not fall within the scope of “Interior Decorators” – stay granted. *

Service Tax - 2009 - TMI - 34105 - Tri Mining Services :-
It is the case of the Appellants that the nature of activities undertaken by them relates to mining of mineral namely, coal and they do not come under the Entry relating to site formation and clearance, excavation and earth moving and demolition for the period prior to 1-6-2007 – pre-deposit waived. *

*courtesy www.taxmanagementindia.com

Hint:

PERSONAL INCOME TAX

 Exemption limit raised for :-
> Senior citizens – from Rs. 2.25 lakhs to Rs.2.40 lakhs
> Women – from Rs. 1.80 lakhs to Rs. 1.90 lakhs
> Other Individual tax payers – from Rs. 1.50 lakhs to Rs. 1.60 lakhs

 10% surcharge on personal income tax phased out

 Deduction u/s 80DD Rs.75,000 to Rs.1 lacs in respect of maintenance, including medical treatment, of a dependent who is a person with severe disability.


CORPORATE TAX

 No change in corporate tax

 Abolished :-
> FBT (Fringe Benefit Tax) w.e.f. AY 2010
> Commodity Transaction Tax

 Basic Limit increased :-
> MAT (Minimum Alternate Tax) hiked from 10% to 15% and Tax credit carry forward raised form 7 to 10 years
> Advance Tax exemption from Rs.5,000/- to Rs.10,000/-
> Wealth Tax exemption from Rs. 15 lacs to Rs. 30 lacs.
> Transportation Tax rate from Rs. 3,500 to 5,000 for Heavy Goods Vehicle Rs. 3150 to Rs. 4500 for Light Goods Vehicle.
> Sun-set clauses for deduction u/s 10A and 10B in respect of export profits extended by one more year i.e. for the financial year 2010-11.

 TDS Rates reduced :-

> Rent u/s 194I on use of :-
• machinery or plant or equipment reduced from 10% to 2%
• land, building, furniture, fittings reduced to 10%

> Contract u/s 194C for payment to :-
• to an individual or HUF to be 1%
• to other than above to be 2%

 What’s more :-
> New Pension System Trust exempted from STT, DDT
> Tax holiday on petro sector extended to natural gas
> IT returns to be made simpler
> LLP (Limited Liability Partnership) included in the definition of Firm

Hint - Inventory is the Stock and it is the Closing Stock which requires Valuation.

RULE - Inventory is valued at lower of Cost or Market Value.

Where
Cost = Purchase + conversion + Other Costs
and
Market Value = NRV (Net Realisable Value i.e. Selling Price – Costs of Completion/Sale)

But…
Above rule doesn’t apply to followings because these are valued at NRV only :-

i) Crops
ii) Mineral Ore
iii) Waste Material (like Non-reusable waste or Re-usable waste for which reprocessing facilities do not exist)

Here point i) and ii) given above are valued at NRV only if sale is assured as under :-
a) Forward Contract
b) Government Guarantee
c) Market Exists and there is negligible risk of failure to sell

STAUTORY COMPLIANCE :-

Followings are give different aspects for Inventory Valuation :-
1. Accounting Standard – 2
2. Income Tax Act – 1961 (Section 145A)
3. Companies Act – 1956 (Schedule VI, Part I)

Hereunder are the above aspects in detail :-


As per AS – 2

Definition
Goods purchased and held for resale excluding Financial instruments like Share/Debentures
Finished goods held for sale excluding Livestock, agro/forest products
WIP (Work in Progress) excluding Construction or service contracts

Valuation
Cost (as defined above) excluding Excise Duty for which Credit is to be availed

Classification
(i) Raw materials and components
(ii) WIP
(iii) Finished goods
(iv) Stores and spares and Loose tools.



As per Income Tax Act – 1961 (Section 145A)

Valuation
Cost (as defined above) including Excise Duty for which Credit is to be availed

NOTE
1. Here it is to be noted that CenVAT Credit on Input Material is also to be added in Stock Valuation.
2. Stock Valuation can be different for Tax purpose and Balance Sheet Purpose



As per Companies Act – 1956 (Schedule VI, Part I)

Valuation
as per AS-2

Classification
(i) Stores and spares
(ii) Loose tools
(iii) Stock-in-trade
(iv) WIP

Hint - The Big 4 Auditors, sometimes written as the Big Four Auditors or also known as Final Four, are the four largest international accountancy and professional services firms, which handle the vast majority of audits for publicly traded companies as well as many private companies. The Big Four firms are shown below, with their latest publicly available data* :-

Year - - Revenue - - People - - - Firm
2008 - - $27.4bn - - 1,65,000 - - Deloitte Touche Tohmatsu
2007 - - $25.2bn - - 1,46,700 - - PricewaterhouseCoopers
2007 - - $21.1bn - - 1,30,000 - - Ernst & Young
2007 - - $19.8bn - - 1,23,000 - - KPMG

None of the Big Four accounting firms is a single firm. Each is a network of firms, owned and managed independently, which have entered into agreements with other member firms in the network to share a common name, brand and quality standards. Each network has established an entity to co-ordinate the activities of the network. In two cases (KPMG and Deloitte Touche Tomatsu), the co-ordinating entity is Swiss, and in two cases (PricewaterhouseCoopers and Ernst & Young) the co-ordinating entity is a UK limited company. Those entities do not themselves practise accountancy, and do not own or control the member firms.
In most cases each member firm practises in a single country, and is structured to comply with the regulatory environment in that country. However, in 2007 KPMG announced a merger of four member firms (in the United Kingdom, Germany, Switzerland and Liechtenstein) to form a single firm. The figures in this article refer to the combined revenues of each network of firms.
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• C. C. Chokshi & Co., S. B. Billimoria Co, A. F. Ferguson & Co, Fraser & Ross, MCA & Co P. C. Hansotia and Deloitte Haskins & Sells - affiliates of Deloitte Touche Tohmatsu
• Bharat S. Raut & Co (BSR & Co) - affiliate of KPMG
• Price Waterhouse, Price Waterhouse & Co, Lovelock & Lewes & RSM & Co.,Dalal & Shah - affiliates of PricewaterhouseCoopers
• S.R. Batliboi & Co, S.R. Batliboi & Associates - affiliate of Ernst & Young
• Walker Chandiok & Co - affiliate and member firm of Grant Thornton LLP

History :-

Big 8 (until 1989)
The firms were called the Big 8 for most of the 20th century, reflecting the international dominance of the eight largest accountancy firms:

1. Arthur Andersen
2. Arthur Young & Company
3. Coopers & Lybrand
4. Ernst & Whinney (until 1979 Ernst & Ernst in the US and Whinney Murray in the UK)
5. Deloitte Haskins & Sells (until 1978 Haskins & Sells in the US and Deloitte Plender Griffiths in the UK)
6. Peat Marwick Mitchell, later Peat Marwick
7. Price Waterhouse
8. Touche Ross

Big 6 (1989-1998)
Competition among these public accountancy firms intensified and the Big 8 became the Big 6 in 1989 when Ernst & Whinney merged with Arthur Young to form Ernst & Young in June, and Deloitte, Haskins & Sells merged with Touche Ross to form Deloitte & Touche in August.

Big 5 (1998-2002)
The Big 6 became the Big 5 in July 1998 when Price Waterhouse merged with Coopers & Lybrand to form PricewaterhouseCoopers.

Big 4 (2002-till date)
The Enron collapse and ensuing investigation prompted scrutiny of their financial reporting, which was audited by Arthur Andersen, which eventually was indicted for obstruction of justice for shredding documents related to the audit in the 2001 Enron scandal. The resulting conviction, since overturned, still effectively meant the end for Arthur Andersen. Most of its country practices around the world have sold to members of what is now the Big Four, notably Ernst & Young globally and Deloitte & Touche in the UK.

Big 4 are sometimes referred as "Final Four" due to widely held perception that authority is unlikely to allow further concentration of accounting industry and that the fifth biggest accounting firm, BDO International, is unlikely to grow to comparable size of Big 4. Another widely held belief is that, if something similar to Enron/Arthur-Andersen occurs, the authority is unlikely to punish the remaining Big 4 in a manner which destroy the firm itself like U.S. authority did with Arthur Andersen.
2002 also saw the passage of the Sarbanes-Oxley Act into law, providing strict compliance rules to both businesses and the auditors.

Hint - The 123 agreement between India and USA refers to Sec. 123 of the U.S. Atomic Energy Act. There is a ban on transfer of nuclear technology to other countries under this Act. The Hyde Act was passed by U.S.A to make an exception for India, to enable transfer of technology for civil nuclear energy. The 123 Agreement is the terms of engagement which operationalizes the treaty agreement between india and u.s.a for transfer of civil nuclear technology. The next step is to enter into agreement with the IAEA ( international atomic energy agency) for safegaurds of the civil nuclear reactors to be set up under the 123 agreement and to enter into an agreement with the NSG ( nuclear suppliers group) for supply of nuclear fuel i.e uranium for the civil nuclear reactors. Once India completes the agreements with IAEA and NSG, then the U.S. Congress will vote on the 123 agreement. Once it is approved by the U.S. Congress, then the deal is complete and India and U.S.A can enter into nuclear commerce i.e supply of nuclear reactors, transfer of technology, supply of nuclear fuel etc.