CA Vivekanand Pote
Sec. 145 (2) of Income tax Act empowers Central Government to issue Accounting Standards for computation of income.Earlier the Ministry of Finance has notified two accounting standards ‘Disclosure of Accounting Policies’ and ‘ Disclosure of Prior Period Items and Extraordinary Items and Changes in Accounting Policies’. In order to bring clarity on computation of taxable income CBDT constituted Accounting Standard Committee in December 2010.
Ministry of Finance has issued 14 Draft TAS.
Significant points under TAS
1. Prudence is the basic concept in mercantile accounting. The whole edifice of accounting is based on prudence. The TAS clearly eliminates the concept of prudence and disallows recognition of expected losses or mark to market losses unless specifically permitted by any other TAS.
Valuation of Inventories
Events occurring after the end of previous year
Prior Period Expenses
5. In line with current practice prior period expenses shall not be allowed as deduction in current year while prior period income is subject to tax in the current year.
6. As per TAS on Revenue Recognition in case of sale of goods, the revenue shall be recognised when the seller has transferred to the buyer property in goods for a price and all significant risks and rewards of ownership have been transferred to the buyer and the seller retains no effective control. When there is no reasonable certainty at the time of raising any claim for escalation of price and export incentives, recognition in respect of the claim shall be postponed to the extent of uncertainty involved.
Effects of changes in foreign exchange rates
8. TAS requires exchange differences on translation of non-integral foreign operations to be recognised as income or expense, instead of recognition in the foreign currency translation reserve.
9. Any premium or discount arising at the inception of a forward exchange contract shall be amortised as expense or income over the life of the contract. Exchange differences on such a contract shall be recognised as income or as expense in the previous year in which the exchange rates change. Any profit or loss arising on cancellation or renewal shall be recognized as income or as expense for the previous year. Unlike AS 11, income on account of exchange differences is also recognised.
11. As per TAS intangible assets shall be recognised as per the criteria specified in existing AS. Intangible asset shall be recognised at actual cost. Depreciation shall be determined in accordance with the Act. TAS prescribes specific disclosures w.r.t. intangible asset.
Provisions, contingent liabilities and contingent assets
Legal Status of TAS
These are draft Tax Accounting Standards.
(Author is Working as Finance Professional in Automobile Industry and can be contacted at firstname.lastname@example.org )