A STUDY ON INDIAN ACCOUNTING STANDARDS AND

ITS APPLICATION

Accounting is the language of Business

Warren Buffett
Abstract: Accounting is the art of recording, classifying, summarizing and interpreting the
financial data and communicating it to the users. This paper studies the accounting standards,
list of accounting standard, importance and limitations of accounting standard, list of
International Financial Reporting Standard, it also studies the problems on journal entries.
This paper concludes by giving solution to the problem.

Introduction
The role of accounting have changed over the years with the change in economic
development and increasing in social demand.
According to Burman and Derbin “ Accounting may be defined as identifying, measuring,
recording and communicating of financial information”.
Accounting is recording day to day financial transaction of the business, it records only
monetary transaction, analysis the transaction, interpret the transaction and communicates the
information to the users.
Modern accounting has undergone considerable changes over the, years. Today it is capable
of playing an important role in exciting new areas, such as forensic accounting, e-commerce,
financial planning, environmental accounting etc.
Objective of Accounting
 Account facilitates the systematic management of records of the transaction and other
financial data.
 To ascertain the results.
 To ascertain the financial position of the business.
 To communicate the information to the users.
 Accounting contributes the biggest to the organization by preventing fraud and
prevents profit risk.

Accounting Standards
The generally accepted accounting principle (GAAPs), no doubt, have been accepted by
the accounting profession to achieve uniformity and comparability in financial statements
or accounting information.
Accounting standard is a common set of principle, procedure that defines the basis of
financial accounting policies and practices. They are policy documents or written
statements issued, from time to time, by an apex expert accounting body in relation to
various aspects of measurement, treatment and disclosure of accounting information and
ensuring uniformity and consistency in account ting practices and reporting.
Importance of accounting standards
 It brings transparency by enhancing the international comparability and quality of
financial information, enabling investors and other market participants to make
informed economic decisions.
 Accounting Standards strengthen accountability by reducing the information gap
between the providers of capital and the people to whom they have entrusted their
money.
 They also contribute to economic efficiency by helping investors to identify
opportunities and risks across the world, thus improving capital allocation.
 Assists Auditor
 Avoids fraud and manipulation

Indian Accounting standard is a written policy document issued by the Institute of Chartered
Accountants of India (ICAI) in order to maintain uninformative across the country, it is only
applicable in India.

List of Indian Accounting Standards

 IND AS 1: Preparation of financial statement
 IND AS 2: Valuation of inventories
 IND AS 7: Cashflow statement
 IND AS 8: Accounting policies, change in accounting errors and estimates
 IND AS 10: Events occurring after accounting period
 IND AS 11: Construction contract
 IND AS 12: Income tax
 IND AS 16: Property, plant and equipment
 IND AS 17: Leases
 IND AS 18: Revenue
 IND AS 19: Employee benefit
 IND AS 20: Government grants
 IND AS 21: Foreign exchange
 IND AS 23: Borrowing cost
 IND AS 24: Related party disclosure
 IND AS 27: Consolidated and separate financial statement
 IND AS 28: Investment associates
 IND AS 29: Financial reporting in hyper inflationary economics
 IND AS 31: Interests joint venture
 IND AS 32: Financial instruments: Presentation
 IND AS 33: Earning pre share
 IND AS 34: In-term financial reporting
 IND AS 36: Impairment of assets
 IND AS 37: Provision on contingent liabilities and contingent assets
 IND AS 38: Intangible assts
 IND AS 39: Financial instrument: Recognition and Measurement
 IND AS 40: Investment property
 IND AS 41: Agricultural accounting
Limitation of Accounting Standards
 Lack of flexibility and rigidity: Accounting standards basically establish all
principles and rules for accounting treatment. Every company is required to follow the
same principles constantly. Therefore, all companies are required to fit themselves
into guidelines of accounting standards. Every company goes through different
situations & have different financial transactions. Sometimes it becomes difficult for
them to follow the same guidelines.
 Restricted scope: The accounting standards are followed in accordance with
prevailing laws & statutes. Accounting standards cannot override the statutes & laws.
Using these standards as per the prevailing laws can limit & restricts their scope.

 Difficult to choose among alternatives: Accounting standards provides many

options for treatment of the same accounting concept. It becomes difficult for
companies to decide which one is best for them. Accounting standard does not clearly
state that which one is the appropriate choice.
 Time consuming: Implementation of accounting standards requires many steps to be
followed to prepare financial report. It makes the process of preparing financial
statements complex & time-consuming.
 Involves high cost: Implementing accounting standards in your accounting standards
is too costly. Company needs to change their entire procedures, upgrade their systems
& provide their employee’s training accordingly. Companies need to monitor whether
employees are correctly following standards. All these activities require large costs
for bringing change

International Financial Reporting Standards (IFRS)

IFRS are globally accepted accounting standards developed by International Accounting
Standard Board (IASB)

The objective of IFRS: Is to facilitate international comparison for true and fair valuation of a
business enterprise.

Benefits of IFRS

Unifies business transactions: One of the major aims of the International Financial
Reporting Standards is simply to place each person in the whole world on one level when it
comes to making financial statements.

Saves cost: Because many different companies are now adopting IFRS, this is going to be a
great advantage for companies with foreign operations. IFRS enables internal consistency
with regards to preparing financial reports.

Provides consistency: The best thing about IFRS is the fact that it allows companies having
different subsidiaries to streamline their training, auditing, reporting standards and operation
standards as well as development standards. Whether global or domestic, their offices could
possibly adapt the same reporting techniques and standards providing consistent and precise
reporting and company records.
List of IFRS

 IFRS 1: First time adoption of International Financial Reporting Standards

 IFRS 2: Share based payments
 IFRS 3: Business combination
 IFRS 4: Insurance contracts
 IFRS 5: Non- current assets held for sale and discontinued operations
 IFRS 6: Exploration for and evolution of mineral resources
 IFRS 7: Financial instrument: Disclosure
 IFRS 8: Operating segments
 IFRS 9: Financial instruments
 IFRS 10: Consolidated financial statements
 IFRS 11: Joint arrangements
 IFRS 12: Disclosure of interest in other entities
 IFRS 13: Fair value measurement
 IFRA 14: Regulatory deferral account
 IFRS 15: Revenue from contract
 IFRS 16: Lease account
 IFRS 17: Insurance contract

Journal Entry

Journal entries are records of financial transactions flowing in and out of your business. These
transactions all get recorded in the company book, called the general journal.

Journal entries are the very first step in the accounting cycle. The main thing you need to know
about journal entries in accounting is that they all follow the double-accounting method.

Advantage

 Chronological Record: Journal book records transactions as and when it happens.

Therefore, it is possible to get day-to-day information.
 Minimizing the possibility of errors: The nature of the transaction and its effect on the
financial position of the business is ascertained by recording and analysing into debit and
credit aspect.
 Narration: It means the explanation of every recorded transaction.
 Helps to finalize the accounts: It is the basis of ledger posting and the ultimate Trial
Balance.

Disadvantages

 Bulky and voluminous: Journal is a main book of original entry which records all
business transactions. Sometimes, it becomes so bulky and voluminous that it cannot
be handled easily.
  Information in scattered form: In this book, all information is recorded on daily
basis and scattered form; hence it is very difficult to locate a particular transaction
unless one remembers the date of occurrence of that transaction.
 Time consuming: Unlike posting from subsidiary books, posting the transactions
from journal to ledger accounts take too much time because every time one has to
post the transactions in different ledger accounts.
 Lack of internal control: Unlike other books of original entries like subsidiary books
and cash book, journal does not facilitate the internal control, because in journal only
transactions are recorded in chronological order. However, subsidiary books and cash
book gives a clear picture of special type of transactions recorded therein.

Format of Journal Entry

Journal

Date Particular L.F DR rs CR rs

Problems in journal entries

On April 01, 2016 Anees started business with Rs. 100,000 and other transactions for the
month are:
2. Purchase Furniture for Cash Rs. 7,000.
8. Purchase Goods for Cash Rs. 2,000 and for Credit Rs. 1,000 from Khalid Retail Store.
14. Sold Goods to Khan Brothers Rs. 12,000 and Cash Sales Rs. 5,000.
18. Owner withdrew of worth Rs. 2,000 for personal use.
22. Paid Khalid Retail Store Rs. 500.
26. Received Rs. 10,000 from Khan Brothers.
30. Paid Salaries Expense Rs. 2,000
Conclusion: Today, accounting is used by everyone and a good understanding of it is
beneficial to all. Accountancy act as a language of finance. To understand accounting
efficiently. Every functioning body that operates, needs a defined guideline so as to maintain
the procedure and the standards of the operations of its own business. The rules make the
policies common for organizations that operate in similar fields. Thus, it is important for the
business to follow the accounting standards. The purpose of issuing the IFRS was to have a
common accounting language to increase transparency in the presentation of financial
information. journal entries are the first step in the recording process. So, you’ll eventually need
them to prepare other financial statements. The income statement, cash flow, balance sheet, all of
them are based on the initial recordings of journal entries.
Reference
 R L Gupta, M Radhaswamy, Advanced Accountancy, Volume 1, Sultan Chand &
Sons
 https://prgc.ac.in
 https://www.investopedia.com/terms/a/accounting-standard.asp
 https://commercecemates.com/meaning-importance-of-accounting-standards/
 https://www.ifrs.org/