Analysis of Annual Report on the Basis Of

8/6/2019 Analysis of Annual Report on the Basis Of

http://slidepdf.com/reader/full/analysis-of-annual-report-on-the-basis-of 1/5

1

ANALYSIS OF ANNUAL REPORT ON THE BASIS OF:

DEPRECIATION

INVENTORY VALUATION

FOREIGN EXCHANGE

DEFERRED TAX

EXPLANATION :

DEPRECIATION:

According to AS-6, Depreciation is a measure of the wearing out, consumption or

other loss of value of a depreciable asset arising from use, effluxion of time or

obsolescence through technology & market changes.

Depreciation is allocated so as to charge a fair proportion of the depreciable

amount in each accounting period during the expected useful life of the

asset. Depreciation includes amortisation of assets whose useful life is

predetermined.

PURPOSE OF DEPRECIATION:

1. Depreciation has a significant effect in determining and presenting the

financial position and results of operations of an enterprise. Depreciation is

charged in each accounting period by reference to the extent of the

depreciable amount, irrespective of an increase in the market value of the

assets.

2. Historical cost of a depreciable asset represents its money outlay or its

equivalent in connection with its acquisition, installation and

commissioning as well as for additions to or improvement thereof. The

historical cost of a depreciable asset may undergo subsequent changes

arising as a result of increase or decrease in long term liability on account



2

exchange fluctuations, price adjustments, changes in duties or similar

factors.

3. The method of depreciation is applied consistently to provide

comparability of the results of the operations of the enterprise from period

to period.

ANALYSIS OF JINDALS DEPRECIATION EFFECT:

Depreciation on fixed assets is provided on straight-line method (SLM) at the

rates and in the manner specified in Schedule XIV to the Companies Act, 1956.

Leasehold Land and Aircraft are being amortised over the period of lease. In the

case of assets where impairment loss is recognised, the revised carrying amount is

depreciated over the remaining estimated useful life of the asset.

Certain Plant and Machinery have been considered as continuous process planton the basis of technical assessment and depreciation on the same is provided for

accordingly. Intangible Assets are amortised over the expected duration of

benefits not exceeding ten years.

INVENTORY VALUATION:

According to AS-2, Valuation of inventory are assets:

(a) held for sale in the ordinary course of business;

(b) in the process of production for such sale; or

(c) in the form of materials or supplies to be consumed in theproduction process or in the rendering of services.

Inventories encompass goods purchased and held for resale, for example,

merchandise purchased by a retailer and held for resale, computer software

held for resale, or land and other property held for resale. Inventories also

encompass finished goods produced, or work in progress being produced, by

the enterprise and include materials, maintenance supplies, consumables

and loose tools awaiting use in the production process. Inventories do not

include machinery spares which can be used only in connection with an itemof fixed asset and whose use is expected to be irregular; such machinery

spares are accounted for in accordance with Accounting Standard (AS) 10,

Accounting for Fixed Assets.



3

PURPOSE:

A primary issue in accounting for inventories is the determination of the

value at which inventories are carried in the financial statements until the

related revenues are recognised. This Standard deals with the determinationof such value, including the ascertainment of cost of inventories and any

write-down thereof to net realisable value.

ANALYSIS OF JINDALS VALUATION OF INVENTORIES:

Raw Materials and Stores & Spares are valued at lower of cost, computed on

weighted average basis, and net realizable value. Cost includes the purchase price

as well as incidental expenses. Scrap is valued at estimated realisable value.

Work-in-progress is valued at lower of estimated cost and net realisable value andfinished goods are valued at lower of cost and net realisable value. Cost for this

purpose includes direct cost and appropriate administrative and other overheads.

FOREIGN EXCHANGE:

According to AS-11, Foreign exchange is the exchange of one currency for

another, or the conversion of one currency into another currency. Foreign

exchange also refers to the global market where currencies are traded virtually

around-the-clock. The term foreign exchange is usually abbreviated as "forex" andoccasionally as "FX."

PURPOSE:

An enterprise may carry on activities involving foreign exchange in two

ways. It may have transactions in foreign currencies or it may have foreign

operations. In order to include foreign currency transactions and foreign

operations in the financial statements of an enterprise, transactions must

be expressed in the enterprises reporting currency and the financial

statements of foreign operations must be translated into the enterprisesreporting currency.

The principal issues in accounting for foreign currency transactions and

foreign operations are to decide which exchange rate to use and how to

recognise in the financial statements the financial effect of changes in

exchange rates.



4

ANALYSIS OF JINDALS FOREIGN EXCHANGE EFFECT:

Foreign currency transactions are recorded at the rate of exchange prevailing at

the date of the transaction. Monetary foreign currency assets and liabilities are

translated at the year-end exchange rates and resultant gains / losses arerecognised in the profit & loss account for the year, except to the extent that they

relate to new projects till the date of capitalisation which are carried to pre-

operative expenses and those relating to fixed assets which are adjusted to

the carrying cost of the respective assets.

In case of forward foreign exchange contracts, exchange differences are dealt

with in the profit & loss account over the life of the contract except those relating

to fixed assets in which case they are capitalised with the cost of respective

fixed assets. Non-monetary foreign currency items are carried at historical cost. In

case of foreign subsidiaries, with non-integral foreign operations, revenue itemsare converted at the average rate prevailing during the year. All assets and

liabilities are converted at the rates prevailing at the end of the year.

Exchange difference arising on conversion is recognised in Foreign Currency

Translation Reserve.

DEFFERED TAX:

According to AS-22, Deferred tax is the tax effect of timing differences. Taxable

income is calculated as per tax laws.Hence there is a difference between the tax

income and accounting incomeThis difference can be classified into

Permanent differences

Difference originated in one period which do not reverse

subsequently

Timing differences

Difference originated in one period which is capable of reversal

in one or more subsequent periods



5

PURPOSE:

As per AS-22, a company is liable to provide for deferred tax liability on the first

day it accounts for such income. The basic premise being that revenues and

expenses of an accounting period should meet matching principle and disparity incomputing income for tax and book purposes should be appropriately resolved.

Differences between the two sets of computation of income can be classified into

two categories; permanent and timing differences. Permanent differences arise

with respect to expenditure legitimately incurred but are wholly or partially

disallowed for tax purposes.

Such expenses do not give rise to deferred tax provision. Temporary differences

are those that arise due to timing reasons. A typical example is provision for

depreciation with varying rates for book purposes and tax purposes. Rates

prescribed for company law are minimum rates, taking into consideration useful

life of the asset.

ANALYSIS OF JINDALS DEFERRED TAX:

In accordance with Accounting Standard (AS-22) Accounting for Taxes on

Income issued by the Institute of Chartered Accountants of India, deferred taxesresulting from timing differences between book and tax profits are accounted for

at the tax rate substantively enacted by the Balance Sheet date to the extent the

timing differences are expected to be crystallised. Deferred tax assets are

recognised to the extent there is reasonable/virtual certainty of realising such

assets against future taxable income.

Analysis of Annual Report on the Basis Of

Documents

Transcript of Analysis of Annual Report on the Basis Of