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CA Intermediate · Advanced Accounting · Applicability of Accounting Standards

Ananya Ltd is a company that is Level I because it is listed. During the year it entered into a business of constructing a flyover for a municipality under a fixed price contract and began preparing consolidated financial statements. Which approach is correct?

Ananya Ltd, being a listed Level I company, must comply with all Accounting Standards in full. So it must apply AS 7 to the flyover construction contract and AS 21 when preparing consolidated financial statements, with no exemption available.

  1. AIt need not apply AS 7 or AS 21 as these apply only to Level II
  2. BIt must apply AS 7 for the contract and AS 21 for consolidated financial statements, as a Level I company has to comply with all Accounting StandardsCorrect
  3. CIt must apply AS 7 but AS 21 is optional
  4. DIt must apply AS 21 but AS 7 applies only to partnerships

Explanation

Level I companies must comply fully with all notified Accounting Standards without exemption. AS 7 governs construction contract accounting and AS 21 governs consolidated financial statements, so both apply.

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