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CA Intermediate · Advanced Accounting · Applicability of Accounting Standards

Sagar Foods Ltd., an unlisted company, had turnover of Rs 240 crore in the previous year and Rs 270 crore in the current year, with borrowings never above Rs 40 crore. In the previous year it was treated as an SMC. For the current year, how should it apply Accounting Standards?

Sagar Foods must apply all Accounting Standards in full from the current year. SMC status needs turnover not above Rs 250 crore and borrowings not above Rs 50 crore; failing either limit ends it. Turnover of Rs 270 crore exceeds the limit, so earlier SMC status gives no continuing relief.

  1. AAs a non-SMC from the current year, since turnover exceeds Rs 250 crore, and it must comply fully with all standardsCorrect
  2. BAs an SMC for the current year, since it qualified in the previous year
  3. CAs an SMC for two more years under a grace period
  4. DAs a non-SMC only if borrowings also exceed Rs 50 crore

Explanation

SMC status is tested for each accounting period. Turnover of Rs 270 crore exceeds the Rs 250 crore limit, so Sagar ceases to be an SMC and must follow the full standards for the current year. Both conditions need not fail; failing any one limit removes SMC status. Relaxations availed earlier must be disclosed where the status changes.

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