PART 9: Complete Glossary of Technical Terms

Accounting Standards

Uniform rules that tell companies how to record transactions, value assets/liabilities, and present financial statements

Accrual Basis

Record transactions when they happen, not when cash moves. Revenue in March even if cash comes in April.

Actuarial Valuation

Mathematical estimate (by a qualified actuary) of employee benefit obligations using assumptions about salary growth, attrition, mortality, discount rates

Amortisation

Spreading the cost of an INTANGIBLE asset (patent, software) over its useful life the intangible equivalent of depreciation

Balance Sheet Approach

Calculating deferred tax by comparing book values and tax values of every Balance Sheet item (Ind AS 12 method)

Carrying Amount

The net amount at which an asset appears in the books = Cost − Accumulated Depreciation − Impairment

CGU (Cash Generating Unit)

Smallest group of assets that generates cash on its own. Used to test goodwill for impairment.

Component Accounting

Depreciating different parts of an asset separately because they have different useful lives

Consolidation

Combining parent + subsidiary financial statements into one set showing the entire group as a single entity

Contingent Liability

A POSSIBLE obligation that is only DISCLOSED in notes (not recognised as a liability) because it is not probable

Convergence vs Adoption

Convergence = adapting IFRS to local conditions (what India did). Adoption = using IFRS exactly as-is (what EU did).

De Facto Control

Effective control over a company even without owning >50% shares (e.g., when remaining shareholders are widely dispersed)

Deferred Tax Asset (DTA)

Future tax BENEFIT. You paid more tax now than accounting suggests; you will get a tax saving later.

Deferred Tax Liability (DTL)

Future tax OBLIGATION. You paid less tax now than accounting suggests; you will pay more tax later.

ECL (Expected Credit Loss)

Forward-looking estimate of credit losses on loans/receivables recognised from Day 1, not just when default occurs

Equity Method

Accounting for associates: start investment at cost, add share of profits each year, subtract dividends received

Fair Value

What a knowledgeable buyer would pay in an orderly market transaction (not a fire sale or forced transaction)

FVOCI

Fair Value through Other Comprehensive Income value changes go to OCI, not regular P&L

FVTPL

Fair Value through Profit or Loss ALL value changes hit regular P&L immediately

Going Concern

Assumption that the company will continue operating for at least 12 more months (not shutting down)

Goodwill

Premium paid in an acquisition over the fair value of net identifiable assets. Represents synergies, brand, market position.

Historical Cost

Recording an asset at the price you actually paid for it, regardless of current market value

ICAI

Institute of Chartered Accountants of India the body that drafts Indian accounting standards

IASB

International Accounting Standards Board the London-based body that issues IFRS

Impairment

Writing down an asset because its book value exceeds what you can recover from it (through use or sale)

Ind AS

Indian Accounting Standards India’s converged version of IFRS, notified by MCA under Companies Act 2013

Lease Liability

Present value of all future lease payments the lessee must make. Goes on the Balance Sheet under Ind AS 116.

Materiality

An item is material if omitting or misstating it could influence users’ economic decisions

NCI / Minority Interest

The share of a subsidiary’s equity and profit belonging to shareholders other than the parent

NRV (Net Realisable Value)

Expected selling price minus costs to complete and sell. Used for inventory valuation.

OCI (Other Comprehensive Income)

Gains/losses that are real but not from regular business operations (parked separately from normal P&L)

Performance Obligation

A promise in a contract to transfer a distinct good or service to the customer

PPA

Purchase Price Allocation assigning acquisition price to individual assets and liabilities at fair value in a business combination

Provision

A liability that IS recognised on the Balance Sheet because the obligation is probable and can be estimated

Recoverable Amount

Higher of Fair Value Less Costs of Disposal and Value in Use compared with carrying amount for impairment

Retrospective Application

Going back and restating past financial statements as if the new policy/correction had always applied

ROU Asset

Right-of-Use Asset the lessee’s right to use a leased asset. Goes on Balance Sheet under Ind AS 116.

SPPI Test

Test to check if a financial asset’s cash flows are Solely Payments of Principal and Interest

Substance Over Form

Report the economic reality of a transaction, not just what the legal paperwork says

Tax Base

The amount of an asset or liability for income tax purposes (what the Income Tax Act recognises)

Temporary Difference

Difference between an item’s carrying amount (Ind AS) and its tax base (Income Tax). Creates deferred tax.

Value in Use

Present value of expected future cash flows from using an asset one way to calculate recoverable amount

Fair Value

Exit price in an orderly transaction between knowledgeable, willing market participants (Ind AS 113)

Carrying Amount

Book value on the Balance Sheet = Original Cost − Accumulated Depreciation − Impairment

Recoverable Amount

Higher of: Fair Value Less Costs of Disposal and Value in Use (present value of future cash flows)

Cash Generating Unit (CGU)

Smallest group of assets generating independent cash inflows; used for impairment testing

Performance Obligation

A distinct promise to transfer a good or service to a customer (Ind AS 115)

Right-of-Use Asset

Lessee’s right to use a leased asset for the lease term; goes on Balance Sheet (Ind AS 116)

OCI

Other Comprehensive Income gains/losses not from normal operations (forex translation, FVOCI changes, actuarial)

Functional Currency

Currency of the primary economic environment where the entity operates

Temporary Difference

Difference between carrying amount (Ind AS books) and tax base (Income Tax books) of an asset/liability

Amortised Cost

Initial amount − principal repayments +/− amortisation of premium/discount − impairment

SPPI Test

Solely Payments of Principal and Interest test determines if cash flows qualify for simpler accounting categories

NCI

Non-Controlling Interest the portion of a subsidiary’s equity/profit not belonging to the parent

Goodwill

Premium paid in acquisition = Consideration + NCI + Previous Interest − Fair Value of Net Identifiable Assets

ECL

Expected Credit Loss forward-looking estimate of credit losses on financial assets from Day 1

EIR

Effective Interest Rate rate that discounts future cash flows to the net carrying amount of a financial instrument

PPA

Purchase Price Allocation assigning acquisition consideration to individual assets/liabilities at fair value

Hedge Accounting

Matching the timing of gains/losses on hedging instruments with the hedged items in P&L

Bargain Purchase

Acquiring a business for LESS than fair value of net assets the “gain” is treated differently in Ind AS vs IFRS