MGT 515

ACCOUNTING FOR
MANAGERS

TERM PAPER
Neetu Singh Ashish Suman
RS1904A09 RS1904A10
 FINANCIAL
REPORTING
STANDARD
(IFRS)

GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
(GAAP)
Infosys technologies LTD- It was
founded on July 2,1981 in Pune by
NR Narayana Murthy and 6 other
people .The company was
incorporated as private company
and went public in 1993.In its
recent annual reports , Infosys
technologies limited also provides
its balance sheet as per the inter
national financial reporting
standards.
 INTERNATIONAL
FINANCIAL RE-PORTING
STANDARD (IFRS)
v IFRS are standards
,interpretations and framework
adopted by the International
Accounting Standards Board
[IASB] which was issued
between 1973 and 2001 by
IASC .
v In India The Institute of
chartered accountants of India
has announced that IFRS will be
 GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
(GAAP)
 Generally accepted accounting
principles is the term used to refer to
the standard framework of guidelines
for financial accounting used in any
given jurisdiction
 GAAP includes the standards
conventions and rules accountants
follow In recording and summarizing
transactions and in the preparation of
financial statements

 Features of IFRS
 IFRS standards are principle based
whereas GAAP standard are rule
based. Indian standards are basically
modeled on the basis of IFRS
 Convergence- In the Accounting
Standard parlance ,convergence
means alignment of national
requirements with the international
norms
 102countries have either adopted or
are converging to IFRS.
 Benefits of IFRS
 Immediate benefits of convergence are
comparability of financial statement,
portability of professional skills across
countries. Easy merger & acquisition
process and doing with the need to
translate to different accounting
norms
 This will greatly bolster the ability of
Indian companies to raise and attract
foreign capital at low cost.

 Contd.
 Once Indian companies adopt IFRS, the
global acceptability of them will be
enhanced.
 The adaptation of IFRS is expected to
increase transparency of financial
statements.
 The risk of being exposed to errors in
reporting under different accounting
frameworks for Indian multinational
companies will be eliminated.
 Indian professionals trained under IFRS
could be benefited immensely as they
can scout for new client around the
 Differences Between Indian
GAAP & IFRS
 Significant difference between the Indian
GAAP & IFRS. An example is accounting
for amalgamations and mergers. Indian
GAAP is very liberal, in this respect where
as IFRS is rather stringent.
 As per Indian GAAP, while accounting for
amalga-mations, goodwill on acquisition
has to be amortized over fives years or
so. That, is whether or not the goodwill is
impaired, the company will have to
charge it as expenditure in the financial
statement affecting its profitability.
However IFRS provides for retaking the
Cont.
 According to Indian GAAP current
investment are required to be valued
at lower cost and fair values. Thus, if
the fair value of an investment is
lower than the cost, the loss is
recognized but the gain is ignored.
However IFRS requires firms to reckon
both gains and losses for arriving at
the profit. It means for investment
held for trading, both the losses and
gains as the case may be ,would have
to reflect in the profit and loss.
 Cont.
 In India, fixed assets are valued at the
price they were bought (historical
cost) after allowing for depreciation.
But this historical cost does not
reflect the current fair market value of
assets. Once IFRS is implemented,
such anomalies will be removed.

 Cont.
 In India, fixed assets are valued at the
price they were bought (historical
cost) after allowing for depreciation.
But this historical cost does not
reflect the current fair market value of
assets. Once IFRS is implemented,
such anomalies will be removed.
 Some other areas of major differences
are preparation of consolidated
financial statements and exposures of
firms to forward contracts on foreign
currency transaction
 Infosys Balance Sheet as per
Indian GAAP in crores Rs
31.03.05 31.03.06 Absolute % change
inc./dec.
Sources of fund:
Sh.holder’s fund
Capital 135 138 3 +2.22
Res. & surplus 5090 6828 1738 +34.14
Total Sh.holder 5225 6966 1741 +33.32
fund
Other 94 68 -26 -27.65
L.T.Liability &
C.Liabilities
Prov.
Liabilities 656 934 278 +42.37
Provisions 777 1412 635 +81.72
Total C.L. & Prov. 1433 2346 913 +63.71
Total sources of 6752 9380 2628 +38.92
fund
Application of fund:

Fixed Assets
Net Gross Block 1256 1655 399 +31.76
Capital work in 318 571 253 +79.55
progress
Investments 1211 755 -456 -28.97
Deferred Tax Assets 45 65 20 +44.44
C.A.,loans & Adv.
S. Debtors 1322 1608 286 +21.63
Cash & Bank balance 1576 3429 1853 +117.57

Loans & Advances 1024 1297 273 +26.66

Total C.Assets 2488 3988 1500 +60.28
Total Application of 5319 7034 1715 +32.24
fund
 Interpretations
 In current Assets total increase amounts to
1500 cores (60.28%). The increase in cash
was the most i.e. Rs.1853 cores(117.57%)
 Current Liabilities increases up to Rs 913
cores(63.71%).This increase is greater than
increase in current asset that means in 05-
06 the liquidity of Infosys has decreased.
 During the yr. 05-06 reserves & surplus have
increased by Rs 1738 cores(34.14%). The
Sh. Holder fund have increased by Rs 1741
cores (33.32%) which represent the
financial soundness of the business.
 During the year the investment has been
decreased & is used to pay off its other
long term liability.
 Infosys Balance sheet Based
On IFRS
in million dollars
31.03.05 31.03.06 Absolute %change
Assets: Current Assets change
Cash & cash equivalents 410 889 479 116.8%
Investment in liquid 278 170 -108 -38.8%
mutual fund unit
Trade account 303 361 58 19.14%
receivable
Unbilled revenue 32 48 16 50%
Other C.A. &prepaid 35 40 5 14.2%
exp. C.A.
Total 1058 1508 450 42.5%
Property, Plant & 352 491 139 39.4%
equipments
Goodwill 8 8 0 0%
Deferred tax asset 10 14 4 40%
Advance Income Tax _ 18 18 _
Other assets 26 27 1 3.8%
Total Assets 1454 2066 612 42%
Liabilities & Sh. Holder’s
Current Liability
equity
Account Payable 1 3 2 200%
Income tax payable 23 _ -23 -100%
Client deposits 7 2 -5 -71.4%
Unearned revenue 20 44 24 120%
Other accrued liabilities 124 160 36 29%
Total current liabilities 175 209 34 19.4%
Non-current liability
Preferred stock of subsidiary 21 _ -21 -100%
Other non-current liability 5 5 0 0%

Stock holder’s equity

Equity shares 31 31 0 0%
Additional paid in capital 279 428 149 53.4%
Accumulated other compare 33 9 -24 -72.7%
income
Retained earning 910 1369 459 50.4%
Minority interest _ 15 15 _
Total Liability 1454 2066 612 42%
 Currency rate
 A/c to Indian GAAP
 Deferred tax asset= Rs 65 cores
 A/c to IFRS
 Deferred tax asset= 14 million $
 Comparing both, we get
 1$=650000000/14000000
 =Rs 46.42
 Thus currency rate is 1 US $ = Rs
46.42
 Comparison between both
B/S
 Indian GAAP has followed the
Accounting standard of India (AS1)
while IFRS has followed International
Accounting Standards (IAS1).
 A/c to IFRS total CA has increased up to
42.5 % while a/c to Indian GAAP the
increase in CA is up to 61.49%.
 IFRS has made differentiation regarding
CA, non CA, liabilities & non liabilities
however its not in Indian GAAP.
?
Thanks