BANK OF BARODA Subject Indian GAAP US GAAP Goodwill arising on the acquisition of shares of a
company is generally not separately recognized, but
is included in the cost of the investment.
For companies that prepare consolidated financial
statements, goodwill arising on consolidation is
recognized upon consolidation. Such goodwill is not
amortized.
Additionally, goodwill needs to be tested for
impairment on annual basis, as required by AS 28
“Impairment of Assets”.
Impairment of assets
Applicable for accounting periods beginning from April
1, 2004 onwards.
The standard required companies to assess whether
there is any indication that an asset is impaired at
each balance sheet date. If such an indication exists,
the company is required to estimate the recoverable
amount of the asset. If the recoverable amount of
an asset is less than its carrying amount, that
carrying amount of the asset should be reduced to
its recoverable amount. That reduction is reported
as an impairment loss.
SFAS No.144 develops one accounting model for
long-lived assets other than goodwill that are to be
disposed of by sale, as well as addresses the
principal implementation issues.
SFAS No.144 requires that long-lived assets that
are to be disposed of by sale be measured at the
lower of book value or fair value less cost to sell.
The impairment review is based on undiscounted
cash flows at the lowest level of independent cash
flows. If the undiscounted cash flows are less than
the carrying amount, the impairment loss must be
measured using discounted cash flows.
Property, plant and
equipment
Fixed assets are recorded at historical costs or
revalued amounts.
On revaluation, an entire class of assets is revalued,
or a selection of assets for revaluation is made on
a systematic basis. There is no restriction on the
frequency of revaluation. However, revaluation should
not exceed the recoverable amount of assets.
Revaluations are not permitted.
Issuance and redemption
costs for borrowings
Debt issuance costs may be amortized, charged as
an expense or charged to the Securities Premium
Account.
Redemption premiums payable on the redemption of
debt may be accrued over the life of the debt.
Debt issuance costs are treated as a deferred
charge and amortized using the effective interest
rate method over the life of the debt. Redemption
premiums are accrued as a yield adjustment over
the life of the debt.
Foreign exchange
The revised AS-11 “The Effects of Changes in
Foreign Exchange Rates” applicable from accounting
periods beginning after April 1, 2004 deals with
accounting for foreign exchange transactions whereby
exchange differences arising on transactions and
translation of monetary items are recognized as
income or expense in the year in which they arise
except those that relate to foreign borrowings incurred
to finance an asset purchased from a country outside
India, which are treated as a part of borrowing cost
and are capitalised.
For the purpose of consolidating non-integral foreign
operations, its financial statements are translated into
the parent’s reporting currency. Assets and liabilities
are translated using the balance sheet rate of
exchange. amounts in the income statements are
translated using the weighted average rate for the
period. Translating differences that arise are reported
in a separate component of shareholder’s equity.
Under US GAAP gains or losses arising from foreign
currency transactions are included in determining
net income. Foreign exchange gains or losses are
not included in interest cost.
For the purposes of consolidating a foreign
subsidiary where the funcitional currency is a foreign
currency, its financial statements are translated into
the parent’s reporting currency. Assets and liabilities
are translated using the balance sheet rate of
exchange. Amounts in the income statements are
translated using the weighted average rate for the
period. Translation differences that arise are reported
in a separate component of shareholders’ equity.
Where the functional currency is the reporting
currency, translation is done using principles and
procedurres as if the transactions of the foreign
operation had been those of the reporting
enterprises itself.
