Subject Indian GAAP US GAAP Proposed dividend
Proposed dividends are recognised in the financial
statements in the period to which they relate, even
if they are subject to shareholders’ approval.
Dividends are recorded in the year of declaration.
Vacation accrual
Vacation accrual, or leave encashment, is viewed
as a retirement entitlement and is generally reported
at the actuarially determined present value of future
benefits.
Vacation earned but not taken is reported as a
liability based on the number of days entitlement,
priced at the balance sheet salary rate.
Retirement benefits
The liability for defined benefit retirement plans is
reported at an actuarial valuation. Several alternative
methodologies are considered acceptable for the
purposes of the valuation, and the actuary has
considerable latitude in selecting assumptions to be
used. However, there is a new accounting standard
on retirement benefits, not yet applicable, which
requires projected unit credit method to be followed
for acturial valuaiton.
Expenditure incurred on voluntary retirement scheme
may be deferred and amortized within a period of
five years.
The liability for defined benefit retirement plans is
reported at the present value of future benefits using
the projected unit credit method, with a stipulated
method to determine assumptions.
Expenditure incurred on voluntary retirement scheme
should be expensed in the period incurred.
Depreciation
Depreciation is generally charged at rates prescribed
by the Companies Act. These rates are the minimum
rates, and companies are permitted to charge
depreciation at higher rates, in order to write off the
cost of assets over their useful lives, if shorter.
Depreciation is provided in a systematic and rational
manner over the estimated useful economic life of
the assets.
Derivative financial
instruments and hedging
The Guidance note on Accounting for Equity Index
Options and Equity Stock Options and the guidance
note on accounting for equity index futures are the
pronouncements, which address the accounting for
derivatives.
Revised AS-11 deals with accounting of forward
contracts, whereby premium/discount amortization
and accounting for gain or loss on the contract is
required in case of forward contracts entered into
All derivatives are required to be recognised as
assets or liabilities in the balance sheet and
measured at fair value. The accounting for changes
in the fair value of a derivative (that is gain and
losses) depends on the intended use of the
derivative and the resulting designation. Derivatives
based on the intended use are broadly classified
into three classes’ viz. Fair value hedge, Cash flow
hedge and Foreign currency hedge.
Financial statements of integral operations should be
translated using the principles and procedures as if
the transactions of the foreign operation had been
those of the reporting enterprises itself.
Deferred taxation
Deferred taxes are required to be provided for the
tax effect of timing differences between taxable
income and accounting income using substantively
enacted tax rates.
Deferred tax assets arising due to unabsorbed
depreciation or carry forward of losses are
recognized only to the extent that there is virtual
certainty that sufficient future taxable income will be
available against which such deferred tax assets
can be realized.
Other deferred tax assets are recognized and carried
forward only to the extent that there is a reasonable
certainty that sufficient future taxable income will be
available against which such deferred tax assets
can be realized.
Deferred tax liabilities and assets are recorded for
the tax effect of temporary differences between the
tax and book bases of assets and liabilities and
operating loss carry-forwards, at currently enacted
tax rates expected to be in force when the
temporary differences reverse. Changes in tax rates
are reported in the income statement in the period
of enactment.
A valuation allowance is made against deferred taxes
if, based on the weight of available evidence, it is
more likely than not that some portion or all of the
deferred tax asset will not be realized.
