Audited Accounts of ICAI for the year ended 31-3-2012 have been recently released at the 63rd Annual Meeting held in February, 2013. The summarised position given below will show that the net worth of ICAI as at 31-3-2012 was Rs. 838.77 crore. (including Earmarked Funds of Rs. 162.86 crore). The Net Surplus as per Income & Expenditure Account for the year ending 31-3-2012 was Rs. 182.61 crore.
4. Our New President and Vice President
On 12-2-2013, Shri Subodh Kumar Agrawal (Kolkatta) is elected as President and Shri K. Raghu (Bangalore) is elected as Vice President of ICAI for the year 2013-14. Our greetings and best wishes to both of them for a successful term of office.
5. EAC Opinion
Accounting for Preliminary and other Pre-operative expenses and Government Grants in Profit and Loss Statement
Facts
A State Government accorded sanction for implementation of the High Speed Rail Link (HSRL) to the International Airport. A Ltd., a wholly owned Government company, was appointed as nodal agency of the State Government for the HSRL project and to play a similar role that it has been playing in the implementation of another International Airport. Further, sanction was also accorded to constitute Special Purpose Vehicle (SPV Ltd.) to implement the project on PPP – BOT basis by inviting Expression of Interest (EOI) and Request for Proposal (RFP). A Ltd. was also authorised to engage the services of another company, B Ltd on assignment basis as project consultants to assist SPV Ltd., in the implementation of this project.
By another Government order, sanction was accorded to release an amount of Rs. 2.50 crore to A Ltd. for utilising the funds to pay consultancy fee to study the impact of City Airport Terminal (CAT) on the traffic and to suggest engineering solution to tackle the traffic problem and project consultancy fee for incorporation of SPV Ltd. and documentation charges/fee for preparation of MOA & AOA of SPV Ltd., Accordingly, A Ltd. incorporated SPV Ltd. on 31st March,2008 with the main objective-to implement HSRL Project to an International Airport under PPP concept. SPV Ltd. initially issued 49,996 shares to A Ltd and 4 shares to nominees of State Government, Thus, it became a subsidiary of A Ltd.
Thereafter, SPV Ltd. prepared its accounts for the period from the date of incorporation to 31st March,2009 i.e. for the first year. It prepared only balance sheet and no profit and loss account or income and expenditure account was prepared as company had not commenced its operations. A note was given that pre-operative/implementation (construction) period expenses till the completion of the project will be capitalised and preliminary expenses would be amortised in five equal installments after commencement of its operation. In the next year i.e. in the financial year 2009/10, the SPV Ltd .prepared its profit and loss account and preliminary expenses and pre-operative expenses were charged including the expenses incurred by A Ltd on behalf of SPV Ltd., in the profit and loss statement.
Query
On these facts, an opinion of EAC was sought, whether the accounting by SPV Ltd. for expenses/ funds which were received by A Ltd. as promoter of SPV Ltd. by preparing the profit and loss account for the financial year 2009/10 is in compliance with the requirements of the Companies Act, 1956 and Accounting Standard issued by ICAI and if not what is the appropriate accounting treatment?
Opinion
The Committee after considering AS-26 was of the view that cost of starting up an activity that includes incorporation expenses, including preliminary expenses incurred by A Ltd. towards incorporation of SPV Ltd., in bringing an enterprise into existence as a separate legal entity should be expensed as no intangible asset or other asset is acquired or created that can be recognised, unless such expenditure is required to be capitalised as part of the cost of a fixed asset as per AS-10 in the books of SPV Ltd.
Further, the Committee was of the view that the funds received from the Government meet the definition of “government grants” as per provisions of AS-12 and should be recognised accordingly. Besides, the Committee was of the view that funds received were both in the nature of grants related to revenue and of the nature of promoters’ contribution. Hence, the funds received for meeting the envisaged obligation of SPV Ltd. should be treated as income to match against the expenses incurred for the period. The funds in the nature of “promoters’ contribution” should be taken to capital reserve as per the requirements of AS 12 and amount received from the Government against the issue of the shares be recognised as share capital.
As regards preparation of profit and loss account before commencement of commercial operations by the SVP Ltd., the Committee noted that as per requirement of section 210 of the Companies Act, 1956, a profit and loss account has to be prepared for each annual general meeting from the date of incorporation of SPV Ltd. Same view has been taken in the circular no. 2/17/64-ER dated 29th January, 1964 issued by the Department of Company Affairs. Hence, the preliminary and other expenses incurred should be expensed in the year of their incurrence. Similarly, the grants which were earned by SPV Ltd. during the period should be recognised as per requirements of AS 12. Therefore, the Committee has taken the view that the profit and loss account should be prepared by SPV Ltd. from the date of incorporation, even before commercial commencement of the project.
Hence, the accounting by SPV. Ltd for expenses/ funds received by A Ltd. while preparing the profit and loss account of the financial year 2009/10 was not correct and was not in compliance with AS 10, AS 26 and AS 12. The expenses/funds received should be accounted for in the profit and loss account of SPV Ltd. of the respective years in which these are incurred/earned.
[Pl. Refer Page nos. 1246 to 1253 of C. A. Journal – February, 2013]
6. ICAI News
(Note : Page Nos. given below are from C.A. Journal for February, 2013)
(i) Council Elections – 2013
Results of Council Elections held in December, 2012 were declared on 7-1-2013. 22nd Council was constituted effective from 12-2-2013. Out of 1,92,641 voters, 90,228 voters (46.83%) exercised their franchise. Region wise voting percentage was Western 49.81%, Southern 44.07%, Eastern 42.23%, Central 46.14% and Northern 47.45%. (Page – 1171)
(ii) November, 2012, Final Examination Result.
(a) Both groups – 12.97%, (b) Group I – 27.30%, (c) Group II – 21.85%
Rank – 1 Ms. Prema Jaykumar (Mumbai) 75.88%
Rank – 2 Mr. Ashokkumar Indiana (Rajamahendra varam) 75.25%
Rank – 3 Mr. N. Gnansampath (Coimbatore) 74.13% (P. 1173)
(iii) Members of New Central and Regional Councils
Names of New Central Council and Regional Council members and given on pages 1184/1185.
(iv) New Publications
ICAI has published a book on “Commonly Used Terms in Public Finance & Government Accounting”.
(P. 1326)
(v) ICAI Awards – 2012
ICAI has declared the following Awards to Western Region for 2012
(a) Best Regional Council – WIRC
(b) Best Students Association – Western India
(c) Best Branch (Large Branch) – Baroda, Nagpur (WIRC) and Ludhiana (NIRC)
(d) Best Branch (Medium Branch) – Aurangabad (WIRC) and Salem (SIAC)
