BUSINESS ANALYSIS AND VALUATION

Unit- V
Valuation of goodwill - Valuation of brands- Valuation of real estate - Human resource
accounting - Relevant accounting standards. (Theory Only)

Goodwill:
Goodwill is often described as the corporate reputation of the acquired party; it might
also include flagship value, customer relationships, and a range of equally difficult to describe,
much less quantify, business intangibles. Goodwill is often thought of as the value of the
company’s trade identity. An accountant would describe goodwill as the market price of the
business as a whole less fair value of other assets acquired. Factors that contribute to goodwill are:
Outstanding sales organization, favorable tax condition, effective advertising, superior
management team, good labor relations, and outstanding credit rating.
Methods of Measuring Goodwill:
a. Master valuation approach:
Goodwill is measured as the excess of cost over the fair value of the identifiable net assets
acquired.
Goodwill = Purchase price of a business - market value of net assets of the business.
Market value of net assets = M.V. of assets - M.V. of liabilities.
b. Capitalization of excess earnings power:
Excess earnings power = the difference between what a firm earns and what is normally earned for a
similar firm in the same industry.
Goodwill = Discounting the excess earnings over the estimated life of the excess earnings.
Example:
Excess earning = Rs.100,000
Discount Rate = 10% Estimated
life = 10 years
Goodwill = Rs.100,000 x 6.145 = Rs. 61,450
Negative Goodwill:
Negative goodwill cannot be recognized. The negative goodwill is used to reduce the costs assigned to
the non-current assets acquired. The reduction is proportionately to the relative market value of the
non-current assets.
What is goodwill? How a firm has goodwill?
When a business is able to earn profits at a rate higher than that at which a similar business earns, the
former business is said to possess goodwill. Goodwill is, therefore, an invisible asset by the
possession of which a business can enjoy super earning. Since it is invisible the goodwill is called an
in tangible asset. But since its existence can only be felt through superior earning power it is a
real asset.
There are several causes for which a business may have goodwill and some of them are:
• Possession of a large number of profitable contracts ;
• Suitable nature of the business ;
• Exclusive franchise ;
• Protected valuable patents and trademarks ;
• Suitable location of the business ;
• Ideal window dressing ;
• Government patronage ;
• Reputability, respectability and reliability of the proprietor, partners or trustees ;
• Special ability and skill of the persons in management, etc.
In case of transfer of business, separation of the partners from the business due to retirement, death,
etc, assessment of the value of the business for any reason, goodwill may have to be valued.

What are the different methods of valuation of Goodwill?

There are various methods for valuation of goodwill of a business of which the following are of
common use:
Few years’ Purchase of Average Profits Method:
Under this method goodwill is valued on the basis of an agreed number of years’ purchase of the
average maintainable profit. The word maintainable indicates several adjustments in respect of the
factors which might have influenced abnormally the profits of the years over which the average is
taken.
Super Profits Method:
Under this method average super profit is ascertained. Goodwill is calculated at a few years’ purchase
of the super profit of the concern. The number of years to be taken for consideration depends upon the
nature of the business, the steady or fluctuating nature of the profit and also the nature of goodwill.
First, ascertain the average capital employed during the year.

Annuity Method:
Under this method the basis is super profit. Let us take an example:-
Suppose the super profit of a concern has been calculated at Rs.50000 and it has been considered
reasonable that 5 years’ purchase of the super profit approximates the value of goodwill. The
contention behind this is that, the purchaser of the business can expect to enjoy super profit of
Rs.50000 per year for the next 5 years. If this is the contention it is not reasonable that he should
pay Rs. (50000*5) or Rs.250000.

Capitalization Method:-
Capitalization of Average Profit: Under this method the average annual profit is to be ascertained after
providing for reasonable management remuneration. This profit should be capitalized at the rate of
reasonable return to find out the total value of business. Now the value of goodwill will be the total
value of business minus its net assets. If, however, the net asset is greater there will be no
goodwill, rather there is bad will.Capitalization of Super Profit: Under this method the average super
profit is capitalized at a certain rate of interest and this capitalized amount becomes the value of
goodwill.

BRAND VALUATION
The brand is a special intangible that in many businesses is the most important asset. This is
because of the economic impact that brands have.
“If this business were split up, I would give you the land and bricks and mortar, and I would take
the brands and trade marks, and I would fare better than you.”
— John Stuart, Chairman of Quaker (ca. 1900)
A brand is an experience: “A brand is essentially a container for a customer’s complete
experience with the offer and the company” - Sergio Zyman.
Value of Brands:
Influence customers, employees, investors and all stakeholders
Important even for non-profit organizations to attract sponsors, donations, etc.
Brands contribute significantly to market capitalization.
Companies with strong brands outperform the market in respect of several indices.

Evidence of brand value

The brand is a special intangible that in many businesses is the most important asset. This is
because of the economic impact that brands have. They influence the choices of customers,
employees, investors and government authorities. In a world of abundant choices, such
influence is crucial for commercial success and creation of shareholder value. Even non-profi
t organizations have started embracing the brand as a key asset for obtaining donations,
sponsorships and volunteers.

The social value of brands

The economic value of brands to their owners is now widely accepted, but their social value
is less clear. Do brands create value for anyone other than their owners, and is the value
they create at the expense of society at large? The ubiquity of global mega-brands has made
branding the focus of discontent for many people around the world. They see a direct link
between brands and such issues as the exploitation of workers in developing countries and
the homogenization of cultures. Furthermore, brands are accused of stifling com-petition
and tarnishing the virtues of the capitalist system by encouraging monopoly and limiting
consumer choice. The opposing argument is that brands create substantial social as well as
economic value as a result of increased competition, improved product performance and the
pressure on brand owners to behave in socially responsible ways.

To capture the complex value creation of a brand, take the following five steps:
1. Market segmentation.
2. Financial analysis.
3. Demand analysis.
4. Competitive benchmarking.
5. Brand value calculation.

Applications
There are two main categories of applications:
• Strategic brand management, where brand valuation focuses mainly on internal
audiences by providing tools and processes to manage and increase the economic value
of brands.
• Financial transactions, where brand valuation helps in a variety of brand-related
transactions with external parties.
Strategic brand management
Recognition of the economic value of brands has increased the demand for effective
management of the brand asset. In the pursuit of increasing share-holder value, companies are
keen to establish procedures for the management of brands that are aligned with those for other
business assets, as well as for the company as a whole.
These companies find brand valuation helpful for the following:
• Making decisions on business investments.
• Measuring the return on brand investments
• Making decisions on brand investments.
• Making decisions on licensing the brand to subsidiary companies.
• Turning the marketing department from a cost center into a profit center by
connecting brand investments and brand returns (royalties from the use of the brand by
subsidiaries).
• relationship between investments in and returns from the brand becomes
transparent and man- ageable.

• Allocating marketing expenditures according to the benefit each business unit

derives from the brand asset.
• Organizing and optimizing the use of different brands in the business (for
example, corporate, product and subsidiary brands) according to their respective
economic value contribution.
• Assessing co-branding initiatives according to their economic benefits and risks
to the value of the company’s brand.
• Deciding the appropriate branding after a merger according to a clear economic
rationale.
• Managing brand migration more successfully as a result of a better
understanding of the value of different brands, and therefore of what can be lost or gained if
brand migration occurs.
• Establishing brand value scorecards based on the understanding of the drivers of
brand value that provide focused and actionable measures for optimal brand performance.
• Managing a portfolio of brands across a variety of markets. Brand performance
and brand investments can be assessed on an equally com-parable basis to enhance the
overall return from the brand portfolio.
• Communicating where appropriate the eco-nomic value creation of the brand to the
capital markets in order to support share prices and obtain funding.
Financial transactions
The financial uses of brand valuation include the following:
• Assessing fair transfer prices for the use of brands in subsidiary companies.
• Determining brand royalty rates for optimal exploitation of the brand asset
through licensing the brand to third parties.
• Capitalizing brand assets on the balance sheet according to US GAAP, IAS
and many country- specific accounting standards.
• Determining a price for brand assets in mergers and acquisitions as well as
clearly identifying the value that brands add to a transaction.
• Determining the contribution of brands to joint ventures to establish profit
sharing, investment requirements and shareholding in the venture.
• Using brands for securitization of debt facilities in which the rights for the
economic exploitations of brands are used as collateral.

VALUATION OF BRANDS

When Valuation of Brands is needed?

Brand valuation is needed under the following circumstances:
a. Accounting purposes:
b. Transactional Purpose:
c. Brand Management decisions and Value-based management

Approaches to Brand Valuation:

There are two broad approaches to Brand Valuation:
a. Research-based Brand Equity Valuations
b. Financially-driven Approaches
Research-based Brand Equity Valuations:
The distinct features of Research-based Brand Equity Valuations are:
a. Consumer research to assess the relative performance of brands.
b. These do not put a financial value on brands. They measure consumer
behavior and attitudes that have an impact on the economic performance of
brands.
c. They try to explain, interpret and measure consumers’ perceptions that
influence purchase behavior.
d. They include a wide range of perceptive measures such as different levels
of awareness (unaided, aided, top of mind), knowledge, familiarity,
 relevance, specific image attributes, purchase consideration, preference,
satisfaction and recommendation.
e. Some models add behavioral measures such as market share and relative price.
f. These approaches do not differentiate between the effects of other
influential factors such as R&D and design and the brand.
Financially-driven Approaches:
Financially driven approaches fall under four categories:
1. Cost-based approach:
a. Defines the value of a brand as the aggregation of all historic costs
incurred or replacement costs required in bringing the brand to its current state.
b. This approach fails because there is no direct correlation between the
financial investment made and the value added by a brand.

2. Comparables:
a. Arrive at a value for a brand on the basis of something comparable.
b. Difficult - as by definition brands should be differentiated.
c. The value creation of brands in the same category can be very different,
even if most other aspects such as target groups, advertising spend, price promotions and
distribution channel are similar or identical.
d. Comparables can provide an interesting cross-check
e. Should never be relied on solely for valuing brands.
3. Premium price:
a. The value is calculated as the net present value of future price
premiums that a branded product would command over an unbranded or generic equivalent.
b. The primary purpose of many brands is not necessarily to obtain a
price premium but rather to secure the highest level of future demand.
c. This approach is flawed, as there are rarely generic equivalents to
which the premium price of a branded product can be compared.
d. The price difference between a brand and competing products can be
an indicator of its strength, but it does not represent the only and most important value
contribution a brand makes to the underlying business.
4. Economic Use Approach:
a. Approaches that are driven exclusively by brand equity measures or
financial measures lack either the financial or the marketing component to provide a
complete and robust assessment of the economic value of brands.
b. The economic use approach: developed in 1988
c. Combines brand equity and financial measures
d. Has become the most widely recognized and accepted
methodology for brand valuation.
e. It has been used in more than 4,000 brand
valuations worldwide. The Economic Use approach uses the following
principles:
The marketing principle:
Relates to the commercial function that brands perform within businesses.
1. Brands help to generate customer demand. Customer demand
translates into revenues through purchase volume, price and frequency.
2. Brands secure customer demand for the long term through
repurchase and loyalty.
The financial principle:
Relates to the net present value of future expected earnings. The brand’s future earnings are
identified and then discounted to a net present value using a discount rate that reflects the risk of
 those earnings being realized.

Brand value calculation:

Brand value is the net present value (NPV) of the forecast brand earnings, discounted by the brand
discount rate.
The NPV calculation comprises both the forecast period and the period beyond, reflecting
the ability of brands to continue generating future earnings.

Brand (Market) Performance Valuation:

A number of indices and techniques are available to measure brand performance. Some
of them are given below:
a. Landor Power Index
b. Interbrand Valuation model
c. Y&R Brandasset Valuator
d. Intangible Value Valuator
The Landor Power Index:
This index equated Power with strength. The two synthetic measures are awareness and
esteem. Index is built on ‘Share of Mind’ idea (cf. Share of Market, Share of Voice, Share of
Requirements, etc.). Most influencing factor is brand perceived quality.

Interbrand’s Brand Strength Attributes:

Leadership (25%) Internationality (25%) Geographic

Market share spread International positioning
Awareness Relative market share Prestige
Positioning Ambition
Competitor Profile
Stability (15 %) Trend (10 %)
Longevity Long-term market share performance Projected
Coherence brand performance Sensibility of brand Plans
Consistency Brand competitive actions
Identity
Risks
Market (10 %) What is Support (10 %) Consistency of
the market? message Consistency of spending
Nature of market (e.g. volatility) Above vs. below line Brand
Size of market franchise
Market dynamics
Barriers to entry
Protection (5%)
Trademark registration and registrability Common
law
Litigations/disputes

Young & Rubicam’s Brandsset Valuator PowerGrid

Niche / Leadership
Unrealized Potential
nce)
(Dif
Stre

tion
fere
ntia
Bra

Rel
eva
ngt
nd

&
h
 DREK DREK
New / Eroding
Unfocussed Potential
DREK DREK
Brand Stature (Esteem & Knowledge)

Are brands asset? Characteristics of Brands

An asset is having following characteristics;
• there must exist some specific right to future benefits or service potentials;
• rights over asset must accrue to specific individual or firm;
• there must be legally enforceable claim to the rights or services over the asset;
• asset must arise out of past transaction or event.

What are the objectives of corporate branding?

Corporate Identity:
Brands help corporate houses to create and maintain identity for them in the market. This is chiefly
facilitated by brand popularity and the eventual customer loyalty attached to the brands.
Total Quality Management (TQM):
By building brand image, it is possible for a body corporate to adopt and practice TQM. Brands help in
building lasting relationship between the brand owner and the brand user.
Customer Preference:
Interaction between a specified group of products and services and a specified group of loyal customers
creates a psychological lasting impression in the mind of those customers. Branding gives them
advantage of status fulfilment.
Market Strength:
By building strong brands, firms can enlarge and strengthen their market base. This would also
facilitate programmes, designed to achieve maximum market share.
Market Segmentation:
By creating strong brand values, companies classify market into more strategic areas on a
homogeneous pattern of efficient operations. It enables firms to focus on target group of customers to
meet competition.
Identify the factors that have influence on brand valuation.
Mode of valuation of brands depends on type of brands; (i) acquired or (ii) self acquired. n general method
of valuation of brands on one or more following variables;
Cost of acquisition of brand
Expenses incurred on nurturing a home grown brand
Earning power of the brand
Product life cycle
Separating brand from other less important value drivers
Intrinsic strength of the people and process handling brand
Impact of other new brands in the market
Intrinsic strength of the people and process handling the brand
Accuracy in projecting the super or extra earnings offered by a brand and the rate of discounting cash
flows Cost of withdrawing or rejecting the brand.

How do you value acquired brand?

A purchased brand is one, which is acquired from other existing concerns. The acquiring company may
acquire only the brand names. The value of acquired brands is given below:
Brand value=Price paid for acquisition.
On the other hand, a company may acquire an existing business concern along with its brands. It
happens in case of mergers & acquisitions. The sum involved in these transactions provides an indication
of the financial value of brands. In this case;
Brand value=Purchase consideration(x)-Net assets acquired(y).

How do you value self- generated brands? Explain different methods of self-generated brands.
(i) Historical Cost Model:
Brand value=Brand Development Cost+ Brand marketing & distribution cost+ Brand promotion
cost including advertising and other costs.
(ii) Replacement Cost Model:
Under replacement cost model brands are valued at the costs which would be required to
recreate the existing brands. The method is based on the assumption that the existing brands
can be recreated exactly by new brands. It is the opportunity cost of investment made for the
replacement of the brand.
(iii) Market Price Model:
Brand Value=Net realisable value
(iv) Present Value Model:
According to present value model, the value of a brand is the sum total of present value
of future estimated flow of brand revenues for the entire economic life of brand plus the
residual attached to the brand. The model is also called Discounted Cash Flow model which has
been wisely used by considering the year wise revenue attributable to the brand over a period of
5,8 or 10 years. The discounting rate is the weighted average cost of capital cost. The residual
value is estimated on the basis of a perpetual income, assuming that such revenue is constant
or increased at a constant rate.

Brand value =Rt

t
1  r  Re sidualvalue

N
1 r 

Where, Rt =Anticipated revenue in year t, attributable to the brand t = Discounting rate

Residual value beyond year N
How do you value real estate?
A piece of land, including the air above it and the ground below it, and any buildings or structures on it. Real
estate can include business and/or residential properties, and are generally sold either by a relator or
directly by the individual who owns the property. Real estate investments comprise the most significant
component of real asset investments. . For several years, analysts in real estate have used their own
variants on valuation models to value real estate.

How do you classify different types of real estate?

1. Raw land:
2. Rental residences:
3. Office buildings:
4. Warehouses:
5. Neighbourhood shopping centres:
6. Travel accommodations:
7. Private residences:
What are the Advantages of Real Estate investing?
The advantages are :
1. Financial Leverage: Financial leverage can be defined as the use of borrowed money to buy an
investment with a larger value than what the buyer could have afforded without any borrowed money. When
an individual can invest borrowed money and earn a rate of return higher than the rate of interest payable
on the loan, the financial leverage is profitable.
2. Tax Shelter: Rental property can be depreciated, and this depreciation is a tax- deductible expense
that will reduce taxes on the rental income.
3. Control: Real estate owners can control all physical aspects of their properties-the color their house is
painted, how often the grass is cut, how soon leaking plumbing is repaired, and other factors, all of which
may give them psychic income.

What are the disadvantages of Real Estate investing?

The disadvantages are :
1. Structural Flaws: A home or building can have termites, sinking or shifting foundations, a leaky
basement or roof, or other flaws. Furthermore, such flaws may be extremely difficult to detect and may
involve difficult and costly repairs.
2. Change in Neighborhood Quality: Location has a tremendous impact on the value of a piece
of real estate. If a famous actor moves into a home next door to a piece of real estate you own, the value of
your property might increase substantially overnight.
3. Liquidity: Real estate is an example of an asset that typically has low liquidity,
4. Financial Risk: Most real estate investors obtain mortgage loans to finance their purchases.
Some mortgages have floating, or variable, interest rates.
5. The Landlord’s Duties: Managing rental property is hard work. A landlord must the property rented,
execute legally enforceable rental contracts, collect rent and with delinquent payments, stop violations of
leases, keep peace between the tenants, and maintain the property in good condition.
6. Brokers Fees: Real estate agents typically receive different percent of the value of the transaction
when a property is purchased. They collect the same commission rate when the property is sold.

Types of value:
1. Market Value: Market Value is usually interchangeable with Open Market Value or Fair Value.
International Valuation Standards (IVS) define Market Value as: “Market Value is the estimated amount
for which a property should exchange on the date of valuation between a willing buyer and a willing
seller in an arms-length transaction after proper marketing wherein the parties had each acted
knowledgably, prudently, and without compulsion”.
2. Value-in-use: The net present value (NPV) of a cash flow that an asset generates for a specific
owner under a specific use. Value-in-use is the value to one particular user, and is usually below the
market value of a property.
3. Investment Value: It is the value to one particular investor, and is usually higher than the
market value of a property.
4. Insurable Value: It is the value of real property covered by an insurance policy. Generally it
does not include the site value.
5. Liquidation Value: It assumes a seller who is compelled to sell after an exposure period which is
less than the market-normal timeframe.

Three Approaches to Value:

The three approaches to value are:
1. The cost approach
2. Comparable or Relative Valuation
3. Discounted Cash Flow (DCF) Valuation

The cost approach:

The cost approach was formerly called the summation approach. The theory is that the value of a
property can be estimated by summing the land value and the depreciated value of any improvements.
The value of the improvements is often referred to by the abbreviation RCNLD (reproduction cost new
less depreciation or replacement cost new less deprecation).
Comparable or Relative Valuation:
The Comparable or Relative Valuation approach examines the price or price per unit area of similar
properties being sold in the marketplace. Simply put, the sales of properties similar to the subject are
analyzed and the sale prices adjusted to account for differences in the comparables to the subject to
determine the value of the subject.
Use of standardized Value Estimates:
When valuing assets based on comparable assets, the value has to be standardized for the comparison. In
stocks, this standardization is often done by dividing the price per share by the earnings per share (PE) or
the book value per share (PBV). In the case of real estate, this adjustment is made by:
a. Size: The simplest standardized measure is the price per unit area such as square metre
or square foot, which standardizes value using the size of the building.
b. Income: The value of an asset can be standardized using its income. For instance, the
gross income multiplier (price of property / gross annual income) is an income-standardized value
measure. The advantage of this approach is that the income incorporates differences in scale, construction
quality, and location.
The Discounted Cash Flow (DCF) Valuation:
The Discounted Cash Flow (DCF) Valuation approach is used to value commercial and investment properties.
In a commercial income-producing property this approach, also known as income approach, capitalizes an
income stream into a present value.
In order to use DCF valuation to value real estate investments, it is necessary to:
a. Measure the riskiness of real estate investments, and estimate a discount rate based on the
riskiness.
b. Estimate expected cash flows on the real estate investment for the life of the asset.

Human Resource Accounting:

Human Resource Accounting (HRA) is a set of accounting methods that seek to settle and describe the
management of a company’s staff. It focuses on the employees’ education, competence and remuneration.
HRA promotes the description of investments in staff, thus enabling the design
of human resource management systems to follow and evaluate the consequences of various HR
management principles. There are four basic HRA models:
1. The anticipated financial value of the individual to the company. This value is dependent
on two factors – the person’s productivity, and his/her satisfaction with being in the company.
2. The financial value of groups, describing the connection between motivation and
organisation on one hand, and financial results on the other.
3. Staff replacement costs describing the financial situation in connection with
recruitment, re- education and redeployment of employees. This model focuses on replacement costs
related to the expenses connected with staff acquisition, training and separation. Acquisition covers
expenses for recruitment, advertising etc. Training covers education, on-the-job training etc.
4. Human resource accounting and balancing as complete accounts for the human resource
area. This model concentrates on cost control, capitalisation and depreciation of the historic expenses for
human resources.
5. Input Measurement. Inputs (such as training) are not necessarily effective, so cost is not
always a good proxy measure of output value.

6. Output Measurement. Virtually no firm actively measures the output benefits from training.

7. Replacement Values. Such values are rare, usually calculated to help product sales or the sale of
the company, and are often highly debatable.

Benefits of HRA:
According to Likert (1971), HRA serves the following purposes in an organisation:
a. It furnishes cost/value information for making management decisions about
acquiring, allocating, developing, and maintaining human resources in order to attain ost-
effectiveness;
b. It allows management personnel to monitor effectively the use of human resources;
c. It provides a sound and effective basis of human asset control, that is, whether the
asset is appreciated, depleted or conserved;
d. It helps in the development of management principles by classifying the financial
consequences of various practices.

HRA Measurements:
The two main approaches usually employed in HRA are:
1. The cost approach which involves methods based on the costs incurred by the company,
with regard to an employee.
2. The economic value approach which includes methods based on the economic value of
the human resources and their contribution to the company’s gains. This approach looks at human
resources as assets and tries to identify the stream of benefits flowing from the asset.

Cost Approach to Employee Valuation:

The historical cost approach follows the asset model of accounting, and measures the organization’s
investment in its employees, and is viewed most appropriate when used for external reporting and
considered quite objective.

The Economic Value Approach:

The value of an object, in economic terms, is the present value of the services that it is expected to
render in future. Similarly, the economic value of human resources is the present worth of the services that
they are likely to render in future. This may be the value of individuals, groups or the total human
organisation. The methods for calculating the economic value of individuals may be classified into
monetary and non-monetary methods.
Monetary Measures for assessing Individual Value:
a. Flamholtz’s model of determinants of Individual Value to Formal Organisations:
As per this model, the value of an individual is the present worth of the services that he is likely to render
to the organisation in future. As an individual moves from one position to another, at the same level or at
different levels, the profile of the services provided by him is likely to change. The present cumulative value
of all the possible services that may be rendered by him during his/her association with the organisation, is
the value of the individual.
b. Flamholtz’s Stochastic Rewards Valuation Model:
The movement or progress of people through organizational ‘states’ or roles is called a stochastic
process. The Stochastic Rewards Model is a direct way of measuring a person’s expected conditional
value and expected realizable value. It is based on the assumption that an individual generates value as he
occupies and moves along organizational roles, and renders service to the organisation. It presupposes
that a person will move from one state in the organisation, to another, during a specified period of time.
C.The Lev and Schwartz Model:
The Lev and Schwartz model is the basic model employed by most Indian organisations . According to
this model, the value of human capital embodied in a person who is ‘y’ years old, is the present value of
his/her future earnings from employment.

Non-monetary methods:
The non-monetary methods for assessing the economic value of human resources also measure the
Human Resource but not in dollar or money terms. Rather they rely on various indices or ratings and
rankings. These methods may be used as surrogates of monetary methods and also have a predictive
value. The non-monetary methods may refer to a simple inventory of skills and capabilities of people
within an organization or to the application of some behavioral measurement technique to assess the
benefits gained from the Human resource of an organisation.
1. The skills or capability inventory
2. Performance evaluation
3. Assessment of potential
List of Accounting Standards in India

Objective: This standard sets out generally speaking necessities for show of financial statements, rules for their
construction and least prerequisites for their substance to guarantee likeness.
Ind AS 1: Presentation of Financial Statements:
1 prescribes the minimum structure and content, including certain information required on the face of the
financial statements:Balance sheet (current/noncurrent distinction is not required) ,Income statement
(operating/nonoperating separation is required),Cash flow statement (IAS 7: Cash Flow Statements sets out the
details)
Ind AS 2 Inventories Accounting
Objective: Its arrangements with accounting of inventories like estimation of stock, incorporations and avoidances in
its expense, divulgence necessities, and so forth.
Ind AS 7 Statement of Cash Flows
Objective: It manages cash got or paid during the period from working, financing and contributing exercises. It
additionally shows any adjustment of the money and money counterparts of any element.
Ind AS 8 Accounting Policies, Changes in Accounting Estimates and Errors
Objective: It prescribes choosing and changing accounting strategies along with accounting medicines and exposures.
Ind AS 10 Events after Reporting Period
Objective: It manages any changing or unchanging occasion happening subsequent to reporting.
Ind AS 11 Construction Contracts
Objective: It manages any changing or unchanging occasion happening subsequent to reports.
Ind AS 12 Income Taxes
Objective: This standard recommends accounting for income tax. The chief issue in representing annual duties is the
means by which to represent the current and future assessment.
Ind AS 16 Property, Plant and Equipment
Objective: This recommends accounting treatment for Property, Plant And Equipment (PPE) like acknowledgment of
resources, assurance of their conveying sums and the devaluation charges and impedance misfortunes to be perceived
comparable to them.
Ind AS 17 Leases
Objective: This standard recommends fitting accounting arrangements and guidelines for tenants and lessors.
Ind AS 19 Employee Benefits
Objective: This standard recommends bookkeeping and divulgence prerequisites identifying with representative
advantages.
Ind AS 20 Accounting for Government Grants and Disclosure of Government Assistance
Objective: This Standard will be applied in representing and in exposure of, government awards and in revelation of
different types of government help.
Ind AS 21 The Effects of Changes in Foreign Exchange Rates
Objective: This standard helps to understand how to incorporate unfamiliar cash exchanges and unfamiliar activities in
the financial reports of a company and how to make an interpretation of budget reports into a presentation currency.
Ind AS 23 Borrowing Costs
Objective: It gives acquiring cost caused on qualifying asset should frame part of that asset, it additionally directs on
which money cost ought to be promoted, conditions for capitalization, season of initiation and discontinuance of
capitalization of getting cost.
Ind AS 24 Related Party Disclosures
Objective: This guarantees that any organization’s fiscal reports contain fundamental revelations to cause us to notice
the likelihood that its monetary position and benefit or misfortune might have been influenced by the presence of
related gatherings and by exchanges and exceptional equilibriums.
Ind AS 27 Separate Financial Statements
Objective: This recommends bookkeeping and revelation necessities for interests in auxiliaries, joint endeavors and
partners when a company plans separate budget reports.
Ind AS 28 Investments in Associates and Joint Ventures
Objective: This standard endorses representing interests in partners and to set out necessities for the utilization of value
technique when representing interests in partners and joint endeavors.