About the Author
Ravinder Kumar Arora is Professor of Finance and Accounting at International Management Institute, New Delhi. He has a B.Com. degree with distinction from Panjab University; an MBA degree from University Business School, Chandigarh; and a doctorate from Indian Institute of Technology, Delhi. He is also a fellow member of the Institute of Cost Accounts of India and the Institute of Company Secretaries of India. He has nearly three and a half decades of industry, teaching and research experience. He has published his research in premier national and international journals.

Preface

About the Author

1 Nature and Purpose of Accounting

1.1 Introduction

1.2 Accounting

1.3 Users and Uses of Accounting Information

1.4 Sub-Fields of Accounting

1.5 Accounting Terms

1.6 Financial Statements

1.7 Generally Accepted Accounting Principles

2 Balance Sheet

2.1 Introduction

2.2 Balance Sheet

2.3 Assets

2.4 Liabilities

2.5 Basic Concepts Underlying Preparation of Balance Sheet

3 Statement of Profit and Loss

3.1 Introduction

3.2 Statement of Profit and Loss

3.3 Basic Concepts

4 Accounting Records and Systems

4.1 Introduction

4.2 Steps in the Accounting Cycle

4.3 Analysis of Accounting Transactions

4.4 Accounting Records

4.5 Trial Balance

5 Preparation of Financial Statements

5.1 Introduction

5.2 Relationship Between Profit and Loss Account and Balance Sheet

5.3 Preparation of Profit and Loss Account

5.4 Preparation of Balance Sheet

5.5 Adjustment Entries

5.6 Adjusted Trial Balance

6 Plant Assets and Intangible Assets

6.1 Introduction

6.2 Accounting for Property, Plant and Equipment

6.3 Revaluation of Property, Plant and Equipment

6.4 Retirements and Disposals

6.5 Depreciation

6.6 Depreciation Methods

6.7 Impairment of Assets

6.8 Intangible Assets

6.9 Internally Generated Intangible Assets

6.10 Amortization of Intangible Assets

6.11 Useful Life of Intangible Assets

6.12 Residual Value of Intangible Assets

6.13 Research and Development Expenditure

6.14 Goodwill

7 Inventories: Accounting and Valuation

7.1 Introduction

7.2 Inventories

7.3 Reasons for Keeping Inventories

7.4 Objectives of Inventory Accounting

7.5 Effects of Inventory Misstatements

7.6 Systems for Keeping Inventory Records

7.7 Cost of Inventories

7.8 Inventory Costing Methods

7.9 Inventory Costing Under the Periodic Inventory System

7.10 Inventory Costing Under the Perpetual Inventory System

7.11 Comparison of Alternative Inventory Costing Methods

7.12 The Consistency Principle

7.13 Lower-of-Cost or Market Value

7.14 Determining Inventory Quantities

7.15 Valuing Inventories by Estimation

7.16 Recognition of Inventories as an Expense

7.17 Disclosure

8 Corporate Financial Statements

8.1 Introduction

8.2 Books of Accounts to Be Kept by a Company

8.3 Financial Statements

8.4 Assets

8.5 Equity

8.6 Other Equity

8.7 Liabilities

8.8 Contingent Liabilities and Commitments

8.9 Revenue from Operations

8.10 Other Income

8.11 Expenses

8.12 Profit Before Exceptional Items and Tax

8.13 Exceptional Items

8.14 Tax Expense

8.15 Profit (Loss) for the Period from Continuing Operations

8.16 Discontinued Operations

8.17 Profit (Loss) for the Period

8.18 Other Comprehensive Income

8.19 Earnings per Share

8.20 Income Taxes

8.21 Dividend

8.22 Preliminary Expenses

8.23 Discount on Issue of Shares or Debentures

8.24 Capitalization of Profits

8.25 Preparing Profit and Loss Account and Balance Sheet

9 Financial Statements of Banking Companies

9.1 Introduction

9.2 Types of Banks

9.3 Accounting System of Banks

9.4 Legal Provisions

9.5 Income Recognition

9.6 Format of Financial Statements

9.7 Classification of Advances and Provisioning

9.8 Classification of Investments

9.9 Capital Adequacy Norms

9.10 Some Special Transactions

10 Understanding Corporate Annual Reports

10.1 Introduction

10.2 Notes to Accounts

10.3 Directors’ Report

10.4 Independent Auditors’ Report

10.5 Segment Information

10.6 Related Party Transactions

10.7 Corporate Governance Report

10.8 Management Discussion and Analysis Report

10.9 Business Responsibility Report

10.10 Value Added Statement

10.11 Economic Value Added Statement 398

11 Statement of Cash Flows

11.1 Introduction

11.2 Cash and Cash Equivalents

11.3 Purposes of Cash Flow Statement

11.4 Operating Activities

11.5 Investing Activities

11.6 Financing Activities

11.7 Reporting Cash Flows from Operating Activities

11.8 Reporting Cash Flows from Investing Activities

11.9 Reporting Cash Flows from Financing Activities

11.10 Treatment of Special Items

11.11 Format of Cash Flow Statement (Direct Method) 414

11.12 Format of Cash Flow Statement (Indirect Method)

11.13 Analysis of Cash Flow Statement

12 Analysis of Financial Statements

12.1 Introduction

12.2 Techniques of Financial Analysis

12.3 Comparative Financial Statements

12.4 Trend Percentages

12.5 Common-Size Financial Statements

12.6 Ratio Analysis

12.7 Analyzing Financial Statements of Banking Companies

12.8 Quality of Earnings

12.9 Sustainable Income

13 Financial Reporting Standards

13.1 Introduction

13.2 Accounting Standards Issued by ICAI

13.3 International Financial Reporting Standards (IFRS)

13.4 Advantages of Adopting IFRS

13.5 Indian Accounting Standards

13.6 Applicability and Roadmap for Implementation of Ind AS

13.7 Comparison of Indian GAAP, IFRS and Ind AS

Summary – Review of Learning Objectives

Glossary

Review Questions

Index

Preface
The study of financial accounting is necessary for business managers, investors and many other users to take
informed decisions and to make appropriate judgements. There are many excellent books available on the
subject. However, I felt there was a need for a book that starts with simple and easy concepts and then grad-
ually explains the difficult and complex ones. To this end, the book first explains the accounting concepts
with reference to financial statements of non-corporate entities and only later moves to the more complex
corporate financial statements.
Moreover, there have been important changes in the recent past that made it necessary to have a book
that incorporates these changes. The first important change was the promulgation of the Companies Act,
2013. The new Act made many changes in the provisions related to corporate accounts and corporate
financial statements. The other major change was the coming into effect, in a staggered manner, of the new
Indian Accounting Standards (Ind AS) which marks a step towards convergence of the Ind AS with the
International Financial Reporting Standards (IFRS). This book is based on the new provisions that form a
part of the Companies Act, 2013 and the Ind AS.
The book is primarily written for graduate students of management. However, it should prove equally
useful for undergraduate students of commerce (B. Com.) as well as students of professional courses, such
as Chartered Accountancy (CA) and Cost and Management Accountancy (CMA).

ABOUT THE BOOK
The book Financial Accounting - Fundamentals, Analysis and Reporting takes the students through the subject matter of Financial Accounting in a step-wise manner. Chapter 1 provides the basics of accounting and its uses. Chapters 2 and 3 introduce the financial statements prepared by business enterprises. Chapters 4 to 9 and Chapter 11 then explain the detailed process of preparing simple and intricate financial statements of both non- corporate and corporate entities, including banking companies. After this, the analysis of the financial statements from the perspective of managerial decision making is explained in Chapter
12. Apart from Accounting Fundamentals and Analysis of Financial Statements, the book lays great stress on Corporate Financial Reporting. Chapter 10 describes in detail the various disclosures that companies need to make in their annual reports. Chapter 13 describes the currently applicable financial reporting standards that companies need to comply with. To access learning resources, visit www.wileyindia.com/financial-accounting- fundamentals-analysis-and-reporting.html