Comparison Of India And Us Gaap
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COMPARISON OF INDIA AND U.S. GAAP (by P.R. Ramesh & N. Venkatram, from 'The Chartered Accountant', October 2000)
A comparison of accounting treatment under US GAAP and India GAAP in some significant areas in which different could surface whilst restating accounts, is given below: Area
U.S. GAAP
India GAAP
Assets valuation
Carried at historical cost. Only downward revaluation is permitted, for impairment. Exchange fluctuations on loans taken for, purchase of assets are expensed when incurred.
Usually at historical cost. Revolution of fixed assets is permitted. Exchange fluctuations on loans are capitalised.
Depreciation
Depreciation is charged based on the, useful lives of assets.
Depreciation is charged at statutory rates, which may be higher than that computed considering the useful of assets.
Capitalised Interest costs
Capitalisation is required.
Actual interest costs incurred on the installation or construction of fixed assets are capitalised.
Long-lived assets
Assets, including intangibles, are reviewed for impairment, which is measured at the currying amount of the assets minus the un-discounted future cash flows. Restoration of recognised impairment losses is prohibited.
Assets retired from active use or held for disposal are state at book value or net realisable value.
Research and development costs
Expensed when incurred (with the exception of development costs in, specialised industries). Purchased R&D may be capitalised if it has alternative future use.
Research and development costs may be capitalised if the criteria of technical feasibility of the product, resource availability and existence of market, are met…
Leases
Capital leases reflected in the fixed assets of lessee. Operating lessee disclosed in footnotes
The asset is reflected in the books of the lessor. The lessee expenses the lease rentals payable during the year.
Inventory valuation (year end)
Carried at the lower of costs or replacement costs.
Carried at the lower of costs and- net realisable value.
Loans (asset)
Impairment of loans is measured as the present value of the expected future cash flows discounted at the loan’s effective interest rate minus the recorded investment in the loan. Impairment is considered for each loan individually.
Impairment of loans is provided for in accordance with Reserve Bank of India prudential norms (for the financial sector), or on the basis of recoverability (for others).
Deferred revenue
Deferral is not generally permitted.
Expenses, such as pre–operative
Fixed assets
expenditure
Investment Marketable Securities
expenditure, restructuring costs and the costs of voluntary retirement schemes are generally amortised over a period of 3-5 years. Securities are individually marketed to market, with unrealized gains or losses taken to current income.
Current investments are carried at the lower of costs or market value.
0-20 percent ownership
Securities are individually marketed to market, with unrealized gains or losses taken to shareholders equity
Long term investments are carried at costs less provision for diminution in value.
20-50 percent
Equity method of accounting. Intercompany profit effect is eliminated
Treated as current or long-term based on intention. Dividend income is recognised when received.
51-100 percent
Consolidated, using pulling of interest (up to 2001) or purchase accounting. Minority interest is disclosed as a line item. Inter-company transactions are eliminated.
Consolidation is not required. Carried at cost, as long-term investments. Profits of subsidiary are recognised to the extent dividend is received. Losses of subsidiary are not reflected.
Deferred taxes
Computed under the liability method. The tax expense for the period is, determined through the change in the deferred tax assets and liabilities.
Accounted for under the tax payable (flow through) method, though the liability method is recommended.
Debt
Long-term debt is valued at present value: all other debt at face value. -
Principally valued at face value.
Pension
Reflected in the balance sheet based
Disclosed on the balance sheet if unfunded.
Liabilities
On the accumulated benefit obligation less the fair value of the plan assets.
Liabilities, such as gratuity, are funded.
Goodwill
Taken to balance sheet and amortised, over a period not exceeding 40 years (20 years under consideration)
Purchased goodwill is capitalised and amortised over the expected period of benefit or charged against available capital reserves.
Discontinued operations
Discontinued operations are separately identified segments. Income for operation and gain/loss, on disposal are disclosed separately.
Gain/loss on disposal of segments are shown gross, as extraordinary items.
Earnings per share
Disclosure of basic and diluted EPS is required.
Disclosure is made voluntarily of the basic EPS.
Long term investments
A comparison of accounting treatment under US GAAP and India GAAP in some significant areas in which different could surface whilst restating accounts, is given below: Area
U.S. GAAP
India GAAP
Assets valuation
Carried at historical cost. Only downward revaluation is permitted, for impairment. Exchange fluctuations on loans taken for, purchase of assets are expensed when incurred.
Usually at historical cost. Revolution of fixed assets is permitted. Exchange fluctuations on loans are capitalised.
Depreciation
Depreciation is charged based on the, useful lives of assets.
Depreciation is charged at statutory rates, which may be higher than that computed considering the useful of assets.
Capitalised Interest costs
Capitalisation is required.
Actual interest costs incurred on the installation or construction of fixed assets are capitalised.
Long-lived assets
Assets, including intangibles, are reviewed for impairment, which is measured at the currying amount of the assets minus the un-discounted future cash flows. Restoration of recognised impairment losses is prohibited.
Assets retired from active use or held for disposal are state at book value or net realisable value.
Research and development costs
Expensed when incurred (with the exception of development costs in, specialised industries). Purchased R&D may be capitalised if it has alternative future use.
Research and development costs may be capitalised if the criteria of technical feasibility of the product, resource availability and existence of market, are met…
Leases
Capital leases reflected in the fixed assets of lessee. Operating lessee disclosed in footnotes
The asset is reflected in the books of the lessor. The lessee expenses the lease rentals payable during the year.
Inventory valuation (year end)
Carried at the lower of costs or replacement costs.
Carried at the lower of costs and- net realisable value.
Loans (asset)
Impairment of loans is measured as the present value of the expected future cash flows discounted at the loan’s effective interest rate minus the recorded investment in the loan. Impairment is considered for each loan individually.
Impairment of loans is provided for in accordance with Reserve Bank of India prudential norms (for the financial sector), or on the basis of recoverability (for others).
Deferred revenue
Deferral is not generally permitted.
Expenses, such as pre–operative
Fixed assets
expenditure
Investment Marketable Securities
expenditure, restructuring costs and the costs of voluntary retirement schemes are generally amortised over a period of 3-5 years. Securities are individually marketed to market, with unrealized gains or losses taken to current income.
Current investments are carried at the lower of costs or market value.
0-20 percent ownership
Securities are individually marketed to market, with unrealized gains or losses taken to shareholders equity
Long term investments are carried at costs less provision for diminution in value.
20-50 percent
Equity method of accounting. Intercompany profit effect is eliminated
Treated as current or long-term based on intention. Dividend income is recognised when received.
51-100 percent
Consolidated, using pulling of interest (up to 2001) or purchase accounting. Minority interest is disclosed as a line item. Inter-company transactions are eliminated.
Consolidation is not required. Carried at cost, as long-term investments. Profits of subsidiary are recognised to the extent dividend is received. Losses of subsidiary are not reflected.
Deferred taxes
Computed under the liability method. The tax expense for the period is, determined through the change in the deferred tax assets and liabilities.
Accounted for under the tax payable (flow through) method, though the liability method is recommended.
Debt
Long-term debt is valued at present value: all other debt at face value. -
Principally valued at face value.
Pension
Reflected in the balance sheet based
Disclosed on the balance sheet if unfunded.
Liabilities
On the accumulated benefit obligation less the fair value of the plan assets.
Liabilities, such as gratuity, are funded.
Goodwill
Taken to balance sheet and amortised, over a period not exceeding 40 years (20 years under consideration)
Purchased goodwill is capitalised and amortised over the expected period of benefit or charged against available capital reserves.
Discontinued operations
Discontinued operations are separately identified segments. Income for operation and gain/loss, on disposal are disclosed separately.
Gain/loss on disposal of segments are shown gross, as extraordinary items.
Earnings per share
Disclosure of basic and diluted EPS is required.
Disclosure is made voluntarily of the basic EPS.
Long term investments
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