TYBMS SEM 5 : Financial Accounting (Q.P. November 2023 with Solution)

 Paper/Subject Code: 46012/Finance: Financial Accounting

TYBMS SEM 5

Financial Accounting

(Q.P. November 2023 with Solution)

(1) All Questions are compulsory with Internal Choice.

(2) Each Questions carries equal marks.

(3) Use of Simple C Calculator is allowed.

Q.1 A) State whether the following statements are True or False: (Any 8)    (08)

1) Dividend can be paid to lenders of funds.

Ans: False

2) R.D.D. is usually estimated as percentage of debtors.

Ans: True

3) Trade Receivables are always shown under current Liabilities.

Ans: False

4) Shareholders funds are always non-current.

Ans: True

5) Capital profit realized in cash can be used for paying dividend.

Ans: True

6) The underwriting commission can be more than 10%.

Ans: False

7) Unmarked applications are known as direct applications.

Ans: True

8) Inventory is a non-monetary item.

Ans: True

9) Foreign currency is a currency other than home currency.

Ans: True

10) Dividend is always calculated on Market Value of the security.

Ans: False

Q.1 B) Match the following: (Any 7).                (07)

Column A	Column B
1. 10% Debentures	a. Ethics
2. Goodwill	b. Laws
3. Marked Applications	c. Accounting of Foreign Currency
4. Underwriting Commission	d. Reporting Currency
5. Ex-Interest	e. Added to cost
6. Brokerage on Purchase	f. Excluding interest
7. Home Currency	g. Maximum 5% in case of shares
8. AS-11	h. Bears stamp of underwriters
9. Rules that must be followed by all	i. Intangible Assets
10. Rules expected to be followed by all	j. Long Term Borrowings

Q.2 From the following particulars of Urvashi Ltd., prepare Profit and Loss statement for 31-3-2022 as per revised schedule.                15

Particulars	Amount
Opening stock of Finished Goods	1,50,000
Closing stock of Finished Goods	30,000
Cost of Materials Consumed	1,75,000
Sales	5,00,000
Interest Received	25,000
Depreciation	5.000
General Expenses	10,000
Salaries and Wages	50.000
Interest on Debentures	5,000
Provision for Taxation.	50,000
Transfer to General Reserve	10.000

OR

Q.2. Tejpal Ltd exported goods to Happy Ltd from USA worth US $ 50,000 on 15th February 2021 when exchange rate was 65 per US $. 15

The payment was received in installments as under:

Date	Amount of Installment US $	Exchange Rate per US $
10/1/21	10,000 (Advance)	₹66
15/3/21	20,000	₹67
10/4/21	15,000	₹66
10/5/21	5,000	₹64

Tejpal Ltd closes its books every year on 31st March. On 31st March 2021, the exchange rate was Rs. 68 per US $.

You are required to pass Journal Entries in the books of Tejpal Ltd. for the year ended 31st March, 2021 and 31st March, 2022. Also prepare Foreign Exchange Fluctuation account in the books of Tejpal Ltd.

Q3. Manish Ltd has authorized capital of 1,00,000 equity shares of 10 each. Company issued 60,000 shares at a premium of 2 each. The entire issue was underwritten by Jay. Ajay and Vijay in the ratio of 5:3:2 respectively.                                15

Applications were received for 48,000 shares out of which marked applications were as follows:

Jay	24000 Shares
Ajay	8550 Shares
Vijay	12450 Shares

Underwriters are entitled to get 5% commission on issue price.

You are required to:

a) Find out the net liability of underwriters

b) Pass Journal Entries in the books of Manish Ltd.

OR

Q3. From the following is the trial balance of Vikas Ltd., prepare the Balance Sheet of the company as on 31st March 2021 as per Schedule III of the Companies Act.

Trial Balance as on 31st March 2021

Debit	Rs.	Credit	Rs.
Advances to employees	3,00,000	Equity Share Capital	52,00,000
Cash at Bank	3,64,320	Capital Reserve	60.000
8% Govt. Bonds	3,36,000	Loan from SBI	8,00,000
Premises	48,59,940	Provision for Tax	7,64,000
Patents	10,00,000	Bills Payable	1,85,120
Discount on issue of shares (unwritten off)	25,000	Short term loan from bank	4,90,200
Trade Receivables	3,66,240	Unpaid dividend	64,800
Stock in trade	3,55,600	Profit & Loss A/c	42,980
	76,07,10		76,07,10

Q.4. During the year ended 31 March 2021 Mr. Virat bought and sold the following 12% Debentures of ₹100 each of Cherry Ltd. Interest being payable on 1 April and 1" October each year.

Date	Particulars
1 June, 2020	Bought 300 Debentures at ₹92 Ex-interest
1 September.2020	Bought 100 Debentures at ₹94 Cum-Interest
1 December, 2020	Sold 200 Debentures at 295 Ex-interest
1 February, 2021	Bought 150 Debentures at 298 Cum-Interest

Books are closed on 31 March every year. You are required to prepare Investment in 12% Debentures in Cherry Ltd. Account for the year ended 31 March, 2021 in the books of Virat (Apply AS-13).

OR

Q.4 A) Prepare Investments Accounts in the books of Miss Neena for the following transactions:     08

12/04/2021	Purchased 1,00,000 Equity Shares of ₹10 each in ABC Ltd, For ₹ 50,00,000
15/05/2021	ABC Ltd. Issued bonus shares of 3 Shares for every 2 Shares held.
30/06/2021	Neena Sold 1,25,000 Bonus shares for 220 each

Q.4 B) XL limited issued 40,000 shares of Rs 10 each. These shares were underwritten as by P and Q in the ratio of 3:2. The public applied for 38,000 shares which included marked applications from the underwriters as follows: P-5,000 shares; Q-3,000 shares. Determine the net liability of the underwriters. (07)

Q.5) a) What do you mean by Ethics? Describe its Scope.

At its core, ethics is the philosophical study of moral principles that govern a person's or group's behavior. It's about systematically examining fundamental questions concerning what is morally good and bad, and morally right and wrong. It seeks to provide a framework for individuals and societies to make decisions and navigate dilemmas, aiming to guide human conduct towards what "ought to be" rather than merely describing "what is."

• Moral Principles: Ethics deals with the underlying principles, values, and standards that determine what actions are deemed acceptable, beneficial, just, or virtuous.
• Right and Wrong: It explores concepts of right and wrong, good and evil, duty, responsibility, and fairness.
• Rational Inquiry: Ethics is a rational and systematic inquiry, meaning it relies on reason and logic to understand and justify moral judgments, rather than solely on feelings, traditions, or religious dogma.
• Human Conduct: While ethics can apply to broader systems, its primary focus is on human actions, decisions, and the character traits that lead to them.
• "Ought" vs. "Is": Ethics is a normative science. It is concerned with what should be done (prescriptive) rather than just describing what people actually do (descriptive).

In simpler terms, ethics is the compass that helps us navigate the moral landscape of life, asking:

• How should we live?
• What responsibilities do we have?
• What makes an action good or bad?
• What kind of person should I be?

Scope of Ethics

The scope of ethics is vast and multifaceted, extending to virtually every aspect of human existence where choices involve moral considerations. It addresses individual behavior, interpersonal relationships, societal structures, and even humanity's relationship with the environment and technology.

The traditional way to describe the scope of ethics is by dividing it into three main branches:

1. Meta-ethics:

   • Focus: This branch is concerned with the nature of moral judgments and concepts. It asks fundamental questions about ethics itself.
   • Questions it addresses:
     • What does "good" or "right" mean? Are moral statements objective truths or subjective opinions?
     • Do moral facts exist independently of human minds?
     • Where do moral values come from (e.g., God, reason, society)?
     • How do we know what is right or wrong?
   • Example: Debating whether morality is universal or culturally relative.

2. Normative Ethics:

   • Focus: This branch seeks to establish a set of general principles, rules, or theories that tell us how we ought to act and what makes actions morally right or wrong. It's about providing a framework for moral decision-making.
   • Questions it addresses:
     • What duties do we have?
     • What are the criteria for judging an action as morally right?
     • What kind of character traits should we cultivate?
   • Major Theories/Approaches:
     • Deontology (Duty-based ethics): Focuses on duties or rules. Actions are right or wrong in themselves, regardless of their consequences (e.g., telling the truth is always right). Immanuel Kant's categorical imperative is a famous example.
     • Consequentialism (Teleological ethics): Judges the morality of an action based on its outcomes or consequences. The most well-known form is Utilitarianism, which aims for the greatest good for the greatest number.
     • Virtue Ethics: Focuses on the character of the moral agent rather than specific actions or consequences. It asks what a virtuous person would do in a given situation and emphasizes the development of moral virtues (e.g., honesty, courage, compassion).

3. Applied Ethics:

   • Focus: This branch takes the theories and principles from normative ethics and applies them to specific, real-world, often controversial, moral issues and dilemmas. It bridges the gap between ethical theory and practical problems.
   • Questions it addresses:
     • Is abortion morally permissible?
     • Should euthanasia be legal?
     • What are the ethical responsibilities of businesses?
     • How should we treat animals?
     • What are our moral obligations regarding climate change?
   • Sub-fields (Examples):
     • Bioethics: Medical ethics, genetic engineering, end-of-life care.
     • Business Ethics: Corporate social responsibility, fair trade, employee rights, advertising ethics.
     • Environmental Ethics: Animal rights, conservation, climate justice.
     • Media Ethics: Truthfulness in reporting, privacy, censorship.
     • Professional Ethics: Codes of conduct for lawyers, doctors, engineers, teachers.
     • Computer Ethics/AI Ethics: Data privacy, algorithmic bias, responsibility of AI.

Beyond these main branches, the scope of ethics also involves:

• Individual Ethics: How an individual makes moral choices in their personal life, guided by their values and principles.
• Social Ethics: Deals with moral principles that govern the collective behavior of groups, communities, and societies, addressing issues like justice, equality, and human rights.
• Cultural Context: Recognizing that moral norms and values can vary across different cultures and societies, while still seeking universal ethical principles.
• Interdisciplinary Nature: Ethics interacts heavily with other fields like psychology (moral development), sociology (social norms), law (legal vs. moral), politics (justice systems), and religion (moral codes).

Q.5) b) Explain the types of Underwriting.

Underwriting play a crucial role in the financial world, as an individual or institution evaluates the risk of a potential client’s loan-worthiness and takes on that risk in exchange for a fee. "It's very similar to how you assess someone's credit risk or eligibility when providing a product or service."

Types of underwriting:

1. Securities Underwriting : This type of underwriting is most commonly seen in the capital markets, especially during Initial Public Offerings (IPOs) or other new issuances of stocks, bonds, or other securities. Investment banks act as securities underwriters.

Pricing: Based on their assessment, they help the issuing company determine the optimal offer price for the new securities.

Risk analysis: The underwriter (investment bank) performs significant due diligence on the issuing company's financials, business model, management, and the overall market conditions.

Guarantee : the underwriter guarantees the sale the entire issue of the public. That means that they are “purchasing” the securities from the company at a set price and then selling them to investors for more, making a profit on the difference (the “underwriting spread”).

Risk Absorption: If the securities don't sell at the predetermined price, the underwriter is obligated to purchase the unsold portion, thus absorbing the risk.

2. Insurance Underwriting

• What it is: Insurance underwriting involves assessing the risk of insuring an individual, property, or asset to determine whether to provide coverage and at what premium.
• • Risk Evaluation: Insurance underwriters analyze various factors depending on the type of insurance (e.g., age, medical history, lifestyle, occupation for life/health insurance; property value, location, security features for home insurance; driving record for auto insurance).
  • Decision: They determine if an applicant meets the insurer's criteria and if issuing a policy would be profitable.
  • Premium Setting: Based on the assessed risk, they set the appropriate premium amount and policy terms (e.g., coverage limits, deductibles).
  • Risk Mitigation: They aim to balance the insurer's potential payouts against the premiums collected to ensure profitability and solvency.

3. Loan Underwriting (including Mortgage Underwriting)

• What it is: Loan underwriting is the process of assessing an individual's or business's creditworthiness and financial eligibility for receiving debt financing (loans). Mortgage underwriting is a specialized form of loan underwriting focused on home loans.
• • Credit Assessment: Underwriters review financial documents such as income statements, tax returns, bank statements, credit reports, and debt-to-income ratios.
  • Collateral Evaluation (for secured loans): For loans like mortgages or car loans, the underwriter assesses the value and quality of the collateral offered (e.g., property appraisal for mortgages).
  • Repayment Capacity: They determine the borrower's ability to repay the loan by analyzing their income stability, existing liabilities, and cash flow.
  • Decision & Terms: Based on this review, they approve or reject the loan application and, if approved, set the loan's terms, including the interest rate, repayment schedule, and loan amount.

Aspects of Underwriting Across Types:

• Risk Assessment: At its core, underwriting is about identifying, evaluating, and quantifying financial risk.
• Decision-Making: Underwriters make critical decisions on whether to accept or reject an application, and on what terms.
• Pricing: They play a crucial role in determining the appropriate price for the financial product (premium, interest rate, offer price) that reflects the level of risk.
• Due Diligence: The process involves thorough research and verification of information provided by the applicant.
• Automation vs. Human Expertise: While automated underwriting systems are increasingly common for straightforward cases, human underwriters are still essential for complex or high-risk situations that require nuanced judgment.
• Protecting Financial Institutions: Underwriting is vital for the stability and profitability of banks, insurance companies, and investment firms by helping them manage their exposure to risk.

OR

Q.5) Write a Short notes (Any Three):                (15)

i) Contingent Liabilities

Contingent liabilities are potential obligations that may arise in the future depending on the outcome of an uncertain event. Unlike regular liabilities, which are definite obligations, contingent liabilities have an element of uncertainty regarding their existence, amount, or timing.

Characteristics:

• Uncertainty: The defining characteristic is that the liability's existence, amount, or timing is not certain and depends on a future event that is not entirely within the entity's control.
• Past Event: Even though the outcome is uncertain, the potential obligation must arise from a past event or transaction.
• Potential Outflow of Resources: If the uncertain future event occurs, it is expected to result in an outflow of economic benefits (e.g., cash, assets).

Accounting Treatment (Based on Likelihood and Estimability):

Accounting standards (like GAAP in the US and IFRS internationally) classify contingent liabilities into three main categories, which dictate their financial statement treatment:

1. Probable:

   • Definition: The future event is likely to occur (generally considered to have a high probability, often 50% or more, or "more likely than not" under IFRS).
   • Estimable: The amount of the loss can be reasonably estimated.
   • Accounting Treatment: If both conditions are met, the contingent liability is recognized and recorded on the balance sheet as a liability and an expense on the income statement. This is often done by creating a "provision" or "accrued liability."

2. Possible:

   • Definition: The future event's occurrence is not probable but also not remote (i.e., there's a reasonable possibility).
   • Accounting Treatment: The contingent liability is not recognized on the balance sheet but disclosed in the footnotes to the financial statements. The disclosure should describe the nature of the contingency and, if possible, an estimate of the financial effect or a statement that such an estimate cannot be made.

3. Remote:

   • Definition: The future event is unlikely to occur.
   • Accounting Treatment: The contingent liability is neither recognized nor disclosed in the financial statements.

Examples of Contingent Liabilities:

• Pending Lawsuits/Litigation: A company being sued, where the outcome and potential damages are uncertain.
• Product Warranties: The potential cost of repairing or replacing defective products under warranty.
• Guarantees: A company guaranteeing the debt or performance of another entity. If the primary debtor defaults, the company may be obligated to pay.
• Environmental Liabilities: Potential costs for environmental clean-up or remediation due to past operations or pollution.
• Disputed Tax Liabilities: When a company is disputing a tax assessment from authorities, and the final outcome is uncertain.
• Recalls: The potential cost of recalling a product due to safety concerns or defects.

Importance of Contingent Liabilities:

• Financial Reporting Accuracy: Proper accounting for contingent liabilities ensures that financial statements provide a true and fair view of a company's financial position and performance.
• Informed Decision-Making: Disclosure of contingent liabilities allows investors, creditors, and other stakeholders to understand the potential risks and obligations a company faces, which is crucial for making informed decisions.
• Risk Management: Companies track contingent liabilities to assess and prepare for potential future outflows, aiding in better risk management and financial planning.

ii) Five Fundamental Principles of IFAC

The IFAC (International Federation of Accountants) Code of Ethics for Professional Accountants is a globally recognized framework that sets out the ethical requirements for professional accountants. It is developed and issued by the International Ethics Standards Board for Accountants (IESBA), which is an independent standard-setting board supported by IFAC.

The Code's fundamental principles establish the standard of behavior expected of all professional accountants and reflect the profession's recognition of its public interest responsibility. These principles are the bedrock upon which the entire ethical framework for accountants is built.

There are five fundamental principles in the IFAC Code:

1. Integrity:

   • Meaning: To be straightforward and honest in all professional and business relationships.
   • In Practice: This means acting with honesty, fairness, and truthfulness, even when facing pressure or potential adverse consequences. It requires a professional accountant to not knowingly be associated with information that contains materially false or misleading statements, or that omits or obscures required information. It's about having the strength of character to do the right thing.

2. Objectivity:

   • Meaning: To not allow bias, conflict of interest, or undue influence of others to override professional or business judgments.
   • In Practice: Professional accountants must exercise their judgment impartially. They should not undertake a professional activity if a circumstance or relationship unduly influences their professional judgment regarding that activity. This principle requires independence of mind and appearance, especially in assurance engagements like audits.

3. Professional Competence and Due Care:

   • Meaning: To attain and maintain professional knowledge and skill at the level required to ensure that a client or employing organization receives competent professional service, based on current technical and professional standards and relevant legislation. To act diligently and in accordance with applicable technical and professional standards.
   • In Practice: This means:
     • Professional Competence: Possessing the necessary skills and knowledge to perform a professional activity.
     • Due Care: Acting diligently, thoroughly, and in a timely manner. It includes taking reasonable steps to ensure that others working under the professional accountant's authority have appropriate training and supervision. It also implies a commitment to continuing professional development (CPD) to stay updated with relevant developments in practice, legislation, and technology.

4. Confidentiality:

   • Meaning: To respect the confidentiality of information acquired as a result of professional and business relationships and not disclose any such information to third parties without proper and specific authority or unless there is a legal or professional right or duty to disclose. Confidential information should also not be used for the personal advantage of the professional accountant or third parties.
   • In Practice: This extends to all unpublished information about a client's or employer's affairs. It requires professional accountants to take appropriate action to protect the confidentiality of information throughout its lifecycle (collection, use, transfer, storage, retention, dissemination, and destruction). The duty of confidentiality continues even after the end of the professional relationship.

5. Professional Behavior:

   • Meaning: To comply with relevant laws and regulations and avoid any conduct that the professional accountant knows or should know might discredit the profession.
   • In Practice: This principle encompasses a broad range of conduct, requiring professional accountants to act in a manner consistent with the accountancy profession's responsibility to act in the public interest. It means being courteous and considerate, avoiding exaggerated claims for services, and not making disparaging references to the work of others. It underscores the importance of maintaining the reputation and trustworthiness of the entire accounting profession.

iii) Ex-Interest and Cum-Interest Price

When discussing fixed-income security investments such as bonds or debentures especially when trading these investments in the period between interest payment dates, it's important to have a clear idea of the ex-interest price and cum-interest price. That's because the buyer and seller must account for accumulated interest since the last interest payment.

1. Cum-Interest Price

The 'cum-interest' (or 'cum-coupon' or 'dirty') price is the full quoted price of a security, including accrued interest from the last interest payment date, up to, but not including the settlement date.

When you purchase a security at a cum-interest price, it's priced to include the security's interest that the seller has "earned" for the time they owned the security (from the time of the last interest payment until the sale)--in addition to its principal value.

Buyer perspective: Buyer only needs to pay a lump sum. At the next interest payment date, the buyer will be entitled to the full interest payment for the full period, despite having only held the security for part of that period. For the to reflect the price of the investment correctly, the buyer would have to deduct the accrued interest from the cum-interest price. The difference is the real cost of the investment.

Seller's Perspective: The seller receives the cum-interest price. This amount includes the interest they are entitled to for the period they held the security.

Formula: Cum-Interest Price = Ex-Interest Price + Accrued Interest

2. Ex-Interest Price 

Price ex-interest (or ex-coupon, or clean) is the quoted price of security that excludes accrued interest. {*} This is only the face value of the security.

When buying a security at an ex-interest price, you are paying this price for the security itself. On top of this, you will manually transfer or pay directly to the seller any interest that has accrued from the last date on which any interest is paid on the interest accruing from the previous period until the date of such repayment.

Buyer's Perspective: The buyer invests in the ex-interest price. They also pay a second amount to the seller for the accumulated interest. At maturity the following monthly interest payment, the buyer gets the interest, but they already paid the seller for their half.

Seller's Perspective: The seller gets the ex-interest price of the security. Additionally, each of them gets the accrued interest the buyer has paid separate from the other.

Formula: Ex-Interest Price = Cum-Interest Price - Accrued Interest

iv) Accounting Standard 11

"Accounting Standard (AS) 11" deals with "The Effects of Changes in Foreign Exchange Rates."

Its primary objective is to prescribe the accounting treatment for:

1. Forex accounting: Assignment of FX amounts (amounts expressed in a currency other than the functional currency of a reporting entity) assignments of the foreign currency transactions (e.g. A foreign currency transaction, and a spot or forward contract to exchange foreign currency).

2. Translation of the Financial Statements of Foreign Operations: How to translate the financial statements of a foreign branch, subsidiary or joint arrangement into the presentation currency of the parent entity.

3. Accounting for foreign currency transactions in the nature of forward exchange contracts: How to treat derivative instruments like forward contracts that are used to hedge foreign currency risk.

Principles and Concepts under AS 11:

• Recognition of Foreign Currency Transactions: A foreign currency transaction should be recorded (when included in initial recognition in the reporting currency) by applying to the foreign currency amount the exchange rate between the reporting currency and foreign currency at the date of the transaction. For convenience, if a rate for a time period (e.g., week or month) is close to the exact rates, it may be substituted.

• Reporting at Subsequent Balance Sheet Dates:

  • Monetary Items: Foreign currency monetary items (like cash, receivables, payables, loans) should be reported using the closing rate (the exchange rate at the balance sheet date). Any exchange differences arising from this retranslation are generally recognized in the profit and loss statement for the period.
  • Non-Monetary Items:

    • Carried at historical cost:- Items that are not monetary (Land and Building, Plant and Machinery, Stock, etc.) and are carried at historical cost denominated in the foreign currency are to be reported using the exchange rate at the date of the transaction (historical rate). They are not converted at the closing exchange rate.

    • Carried at fair value or similar valuation: Non-monetary items carried at fair value should be reported using the exchange rates prevailing when such fair values were determined.
  • Contingent Liabilities: Contingent liabilities denominated in foreign currency at the balance sheet date are disclosed using the closing rate.

• Recognition of Exchange Differences:

  • Exchange Differences to be Recognized:

    The exchange differences on settlement of monetary items or on translation at the then present rates of monetary items of amounts recorded in the books or the balance-sheet of the previous financial year (except in any matter covered in Rule 1) are usually recognised as income or as the case may be expense in the profit and loss account of the year in which they arise.

  • Important Exception (Para 46/46A): For companies, AS 11 prescribes a special accounting treatment for exchange differences on long term foreign currency monetary items. To the extent that those differences are in relation to the acquisition of the depreciable asset or the loan itself they too may need to be added back to the carrying value of the underlying asset or loan and then amortised over the remaining life of the asset or loan, rather than being brought to account all up-front through the P&L. This was a significant modification introduced by the Ministry of Corporate Affairs (MCA) in India.

• Foreign Operations (Integral vs. Non-Integral):

• Integral Foreign Operation: Operation which is integrated in the activities of the reporting enterprise. Its financial transactions are recorded as if they and those of the reporting enterprise were those of a single entity. Item-by-Item Translation of Financial Statements of Operations The financial statements of foreign branch and affiliate operations also are translated into the reporting currency, using rules analogous to those for foreign currency transactions.

• Non-Integral Foreign Operation: It is an operation not integrated in the operation of the reporting enterprise. It has a high degree of autonomy and its financials are aggregated in local currency. Its financial statements are translated into the reporting currency of the parent differently, with exchange differences recorded in the "Foreign Currency Translation Reserve" in equity, and not in the profit and loss account.

• Forward Exchange Contracts: AS 11 also provides guidance on accounting for gains and losses on forward exchange contracts, including how premiums or discounts on such contracts are recognized.

Differences from Ind AS (Indian Accounting Standards) 21:

Note that India has moved toward Ind AS (Indian Accounting Standards), which are converged with IFRS (International Financial Reporting Standards).

AS 11 forms a part of the "old" Indian GAAP (Generally Accepted Accounting Principles).

Ind AS 21 (The Effects of Changes in Foreign Exchange Rates) is the Indian Accounting Standard corresponding to it.

Both are involved with foreign exchange, although Ind AS 21 pioneers the "functional currency approach" as being the currency of the primary economic environment in which an entity operates. This is more principled approach from the AS 11’s “integral” vs. “non-integral” classification. The accounting for exchange differences, in particular regarding long-term monetary items, also differs in AS 11 (which has a specific carve-out for depreciable assets/loans) and Ind AS 21.

Most large companies in India (especially listed companies and those with a certain net worth) have transitioned to Ind AS. However, smaller companies and those not yet mandated to adopt Ind AS might still follow AS 11.

v) Corporate Governance

Corporate governance is the system of rules, practices, and processes by which a firm is directed and controlled. It is the systems and processes by which businesses are held to account — especially their own management — by those with whom they engage or seek to engage; shareholders, employees, customers, the wider community. The document below, delves into the fundamental building blocks of corporate governance, why it's important and some of the frameworks that help make corporate governance work.

Components of Corporate Governance

1. Board of Directors: Board is responsible for managing the company on behalf of the shareholders. The gender, autonomy, and diversity of the board are key d From w1the perspective of effective governance.

2. Shareholder Rights : Preserve shareholder rights as the building block for corporate governance. This encompasses the right to vote on important matters, access to information and influence over corporate decisions.

3. Transparency and Disclosure: Firms must disclose fair and timely information to stakeholders. Transparency breeds trust, and it allows investors and other concerned parties to make an informed decision.

4. Risk Management: Good governance is about how risk exposure is identified, assessed and managed to help the company perform at its best and protect its reputation. This includes implementation of strong internal controls and compliance systems.

5. Ethics: Good Business Sense Ethics create a solid foundation for governance. You must have a code of conduct at your company to foster honesty and responsibility among your staff.

Importance of Corporate Governance

Corporate governance is crucial for several reasons:

• Improves Accountability: It makes management accountable to the share and stakeholders and promotes a culture of accountability.

• Ensures Sustainable Growth: Good governance fosters sustainable growth by harmonising multiple stakeholders' interests & encouraging ethical business practices.

• Manages Risks: Good governance systems contribute to the fast detection and control of risk, thus minimizing susceptibility to corporate scandal and financial crisis.

• Building Investor Confidence: Well-run governance can increase investor confidence, which can lead to additional investing and higher stock prices.

Frameworks for Corporate Governance

How Corporations Are Governed Several models and manuals exist for promoting good corporate governance:

OECD Principles of Corporate Governance: Provide marquee template for policymakers and companies to improve governance around the world

Sarbanes-Oxley Act (SOX): SOX, implemented in the US, has been enacted to protect investors from accounting scandals and other corporate abuses perpetrated by supporting more reliable and accurate corporate disclosures of material information.

UK Corporate Governance Code: This code defines how companies should be directed on a day-to-day basis in the area of board leadership and effectiveness, remuneration, accountability and relations with shareholders.