Accounting Estimates - Ind AS - Indian Accounting Standards - Companies Law

Accounting Estimates Meaning Estimation means approximation. Due to uncertainties inherent in business activities, many items in financials cannot be measured with precision and therefore some estimation to be made. Developing accounting estimates involves the use of judgements or assumptions based on the latest available, reliable information. Usage of estimate doesn t reduce the reliability of financial statements. Following are general estimation used in Financial Statements; a loss allowance for expected credit losses, applying Ind AS 109, Financial Instruments; the net realisable value of an item of inventory, applying Ind AS 2 Inventories; the fair value of an asset or liability, applying Ind AS 113, Fair Value Measurement; the depreciation expense for an item of property, plant and equipment, applying Ind AS 16; and a provision for warranty obligations, applying Ind AS 37, Provisions, Contingent Liabilities and Contingent Assets. Estimations are made based on the latest reliable information available and the circumstances on the date of preparation of financial statements. Professional judgement is required while estimating. Estimation is approximation, hence it requires revision as and when- There is change in the circumstances and information available; New Information is available; More experience or subsequent deveolpments. Revision is estimation is expected to occur hence it is not a prior period item and is not the correction of error. Applying Changes in Accounting Estimates The effect of change in an accounting estimate, shall be recognised prospectively by including it in profit or loss in: the period of the change, if the change affects that period only; or the period of the change and future periods, if the change affects both. To the extent that a change in an accounting estimate gives rise to changes in assets and liabilities , or relates to an item of equity, it shall be recognised by adjusting the carrying amount of the related asset, liability or equity item in the period of the change. Disclosure An entity shall disclose the nature and amount of a change in an accounting estimate that has an effect in the current period or is expected to have an effect in future periods, except for the disclosure of the effect on future periods when it is impracticable to estimate that effect. If the amount of the effect in future periods is not disclosed because estimating it is impracticable, an entity shall disclose that fact.