CC Issue No.69-May 12

Consultants Corner

Volume 5 | Number 69 | May 2012 | Page 1– 12

Handling QDQU Page. 03

Lakshminarayanan M N

AS 14:Accounting For Amalgamations Page. 04

NCR Consultants Limited www.ncrcl.com Associates with

Homage

Suresh R th

(24 November, 1984 to 5th May, 2012)

All of us at NCRCL deeply mourn the demise of our colleague Suresh. Suresh popularly called ‘Suri’ joined NCRCL in April, 2003 in our BBMP project office and was on duty when he passed away due to a heart attack. Apart from his dedication to work, we remember Suri for his good sense of humour and friendly nature. Images of his role in ‘Sri Krishna Sandhana’, a play staged by NCRCL staff will never leave us and keep reminding us of his personality.

We pray for his soul to rest in peace.

Consultants’ Corner

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Handling QDQU Dr.R.S. Murali muralirs@ncrcl.com

The basic issue in corporate India is the lack of

job fit. What educational

qualifications prepare the students for and what the industry needs seem to be totally different. In recent times, this difference has been increasing as students do not even possess soft skills and learning attitude at work. This has to change.

I understand that the software bigwigs now recruit students from three year programmes like B.Sc, B.Com and train them in-house before placing them on the job. Engineering graduates are no more considered very suitable for the software companies. The himalayan blunder in engineering courses has been expanding the quantity without any concern for quality. Actually, if India had created even 25% of these institutions in the caliber of IITs then we would have ruled the world. Slowly India is losing out in the IT sector. Apart from these qualitative issues, the cost of Indian employees has also become very high that we are no more price beneficial to the clients. So we have a set of people who are costly and cannot deliver!

This quality down-quantity up (QDQU) syndrome has caught up with the MBA course also. We have thousands of institutions offering MBA programmes without any quality whatsoever. Students without screening are admitted for the sake of fees and very low quality programme is offered to them often with negative value additions making the students totally unemployable!

No one seems to be bothered about this issue and the impact it has on the economy and the country as a whole. India was known for its Mathematics and English skills. These are now going down slowly. It is sad to note that the attitude of the parents and the students are alike.

They do not want to learn and work for success. They feel that just the completion Inside of a course entails them with best things in life. This attitude of Indians, when compared with the situation in countries like China, Brazil and even some of the 3 Message from Dr. RSM CIS countries is very depressing.

AS 14:Accounting For 4 Amalgamations China is introducing interesting programmes that are oriented towards the industry and research, apart from drastically improving the English skills of their Environmental Management students. Innovative teaching methods and state of the art technology is used in 5 Accounting (EMA) education. The industry is also aware of what is required and accordingly provides feedback to the educational institutions. In India, the moment a person gets the degree he wants he stops studying (meaning upgrading himself). In the case of practicing professions like advocacy and accounting, the practitioners, utmost try to understand the amendments in statutes relevant to them; they have no idea of the technology that influences their practice, the latest concepts that are being researched, and also the changing global market/behavioural scenarios.

Thus we see not only in education, but also in work the updating and industry orientation seem to be totally lacking. This QDQU need to be tackled immediately and is no more an issue for the educational institutions alone. The stakeholders from the demand side of the issue need to get involved and this means all of us.

We need to play a major role in handling QDQU issues. But how? Let us discuss.

Please mail your ideas….

7 How much should we do?

7 Feedback 8 What’s up at NCRCL? 9 An Exclusive Talk 10 Parichay 11 Knowledge Snippet 11 Birthday Greetings 11 Just for Laughs 11 Round Table

Consultants’ Corner

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AS 14:Accounting For Amalgamations Lakshminarayanan M N lakshmi.n@ncrcl.com

Introduction: The accounting terminology of „Amalgamation‟ is derived from the term „Amalgam‟ which means to unite. In corporate environments also two entities unite and form a single entity.

Important Terms  Transferor Company: Company amalgamated into another company.  Transferee Company: Company Transferor Company would amalgam.

which into

is

which

Types and Method of Accounting In general, there are two types of amalgamation and method of accounting, they are: Nature of Amalgamation

Method of Accounting

Merger

Pooling of Interest method Purchase method

Purchase

Amalgamation in nature of merger 1. In the event of two entities coming together. If all five conditions stated in AS 14 are fulfilled it is treated as amalgamation in nature of merger. The conditions are as follows: 2. All the assets and liabilities of the transferor company become the assets and liabilities of the transferee company.

3. Shareholders of the transferor company holding not less than 90% of the face value of equity shares become the shareholders of transferee company by virtue of amalgamation.

4. Consideration made to equity shareholders of transferor company is in the form of equity shares in the transferee company, except in case of fractional shares cash can be paid.

5. The business of the transferor company is intended to be carried on by the transferee company even after amalgamation.

6. Assets and liabilities of the transferor company are incorporated in the books of the transferee company at book value except to ensure uniform accounting policies.

Pooling of Interest method 1. In preparing financial statements of the transferee company, assets, liabilities and reserves of the transferor company should be recorded as existing

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carrying amounts and in the same form at the date of amalgamation, balance of the profit and loss account of the transferor company should be aggregated with the corresponding balance of the transferee company or transferred to general reserve if any.

2. If at the time of amalgamation the accounting policies followed by the transferor company and transferee company are in conflict, it should be resolved, and brought in line with the policies of the transferee company.

3. T h e diff er ence between the amount recorded in share capital issued and the amount of share capital issued by the transferor company should be adjusted in reserves, however in some cases courts may stipulate the manner in which the reserves should be adjusted.

Amalgamation in nature of purchase What is not a merger is a purchase.

Purchase method In purchase method accounting for amalgamation is done by applying same principles used in accounting for normal purchase of assets. Some of the rules adopted are the following.

1. The Assets and liabilities (not reserves) of the transferor company are incorporated in the books of transferee company at the existing amounts.

Alternatively, the purchase consideration should be allocated individual identified Assets and liabilities on the basis of their fair values at the date of amalgamation.

2. Non statutory reserves of the transferor company are not included in the financial statements of the transferee company.

3. If purchase consideration > net assets, the difference is debited to the good will account. If purchase consideration < net assets, the difference is credited to the capital reserve account.

Cont on next page

We can chart our future clearly and wisely only when we know the path which has led to the present.

-Adlai E. Stevenson

Consultants’ Corner 4. The goodwill arising on amalgamation should be amortized to income over the five useful life. however if some what a longer period is justifiable the period of amortization can be extended.

5. Where the requirements of the relevant statute so demands, statutory reserves should be recorded in the financial statement of the transferee company. (credit statutory reserves, debit „Amalgamation adjustment account‟). When legal requirements no longer warrants maintenance of such reserve a reverse entry is passed. The Amalgamation adjustment account should be disclosed in the balance sheet under the heading „Miscellaneous Expenditure‟.

Areas Having Linkage Non cash consideration If consideration paid to transferor company, include securities or non cash items. Four aspects have to be kept in mind.  Non cash component must be valued at fair value.  In case of securities, the value fixed by the statutory authorities have to be taken as fair value.  If other Assets are handed over their market value is taken as fair value.  If market value are not ascertainable then the net book values are taken as fair value.

Adjustment of consideration – Future events

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 In all other cases, it must be recognized as soon as the amount is determinable.

Treatment of reserves if specified in the scheme of amalgamation In some cases, the court may specify certain conditions pertaining to „treatment of reserves‟ of transferor company, then such conditions should be followed. If such conditions as laid down by the court is different from those of AS 14, then the following additional disclosures is to be made.  Description of accounting treatment given.

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 Deviations in accounting treatment given to reserves sanctioned under the statue as compared to AS 14 that would have been followed, had no treatment been prescribed by the court.

Disclosure Requirements 1. For all amalgamations a. Names, nature of business of amalgamating companies and Effective date of amalgamation. b. Method of accounting c. Particulars of scheme –statutorily sanctioned d. Amalgamation after B/S date but before issue of financial statements disclose as per AS 4 – but not be incorporated in financial statements.

2. For Pooling of interest -1st Financial Statement a. Description and nature of shares issued. b. Percentage of equity shares exchanged to give effect to amalgamation. c.

Difference between consideration and NAV treatment.

3. For Purchase method-1st Financial Statement a. Consideration paid and contingently payable. b. Difference between consideration and NAV treatment. c.

Amortization period of goodwill if any.

Need for EMA

A purchase or merger transaction can take place on terms and conditions which may include an element of consideration payable on a subsequent date which may depend on one or more events materializing, two possibilities may arise.  Such a condition payment if probable and amount can also be estimated then the amount should be included in the consideration.

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Environmental Management Accounting (EMA) Babu Rajendra Prasad babu.p@ncrcl.com

Many organizations are now aware of the environmental implications of their operations, products or services on the society which are important for long term survival and profitability of the organization. By reducing the negative impacts of its operations, products or services, the potential benefits that flow to the organizations are as follows.

1. Ensures the organizations meet with legal and regulatory requirements 2. Increases sales by meeting the customers‟ needs 3. Helps to create & maintain a positive public image

 Reasons for following such treatment.

contd on next page

Stories can conquer fear, you know. They can make the heart bigger.

- Ben Okri

Consultants’ Corner

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4. Helps in managing environment risk

In Traditional Accounting Systems, costs related to environment like waste management, pollution control, decommissioning etc are grouped under the general overheads and so organizations do not have any information on those costs to manage or reduce the environmental impacts. In order to overcome these deficiencies, Environmental Management Accounting was introduced.

1. Conventional Costs: Raw materials, utilities, labour and capital costs are conventional costs always considered in project appraisals and cost accounting, however the environmental portion of these costs, e.g. non-product raw material costs, are not isolated and recognized as environmental.

2. Administrative costs: Costs are buried in the overhead costs and hidden. Examples include monitoring, reporting or training costs.

3. Contingency costs: Costs that may or may not be incurred in the future, such as potential clean-up costs from an accident, compensations or fines: the inherent difficulty in predicting their likelihood, magnitude or timing often results in their omission from the costing process. However, these costs very often represent a major business risk for the company.

4. Image benefits and costs: These costs often called as intangible or “good-will" benefits and costs arise from the improved or impaired perception of stakeholders (environmentalists, regulators, customers, etc.). Changes in these intangible benefits are often not felt until they are impaired.

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5. External costs represent a cost to external stakeholders (communities, customers, etc.) rather than to the company itself. The company should be aware, however, that high levels of external costs may eventually become internalized through stricter environmental regulation, taxes or fees.

Types of Information EMA can collect two types of information to provide as information to management for making decisions.

E n v i r o n m e n t a l Management Accounting The purpose of EMA is to take in to account the env i r onm ent al costs associated with all aspects of operations, products or services. The aim of EMA is to provide financial and non financial information about the environment costs in such a way the management can make better decisions about products and projects and so better manage their overall environmental performance.

EMA breaks down environmental costs into five categories:

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For example, a bad relationship with regulators may result in prolonged licensing process or stricter monitoring.

5. Reduces environmental costs through improved use of fuel, water etc Deficiency in Traditional Accounting Systems

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1. Physical data – On the use of materials & resources 2. Monetary information – On the financial costs and revenues & potential savings EMA Techniques EMA techniques like Environmental ABC, Life Cycle Costing, Input – Output Analysis etc gathers the accounti ng i nf orm ati on of environment costs related to specific activities, processes, products or services.

Benefits to Organization EMA is concerned with accounting information needs of an organization in relation to corporate activities that affect the environment as well as environment – related impacts on the company. EMA enables the company:  To identify & estimate the costs of environment related activities  To identify & monitor the usage & cost of resources such as water, fuel etc and to reduce costs  To ensure environment contributions form part of capital investment decisions and new product developments  To assess the likelihood & impact of environment risks  To ensure routine performance monitoring includes environment related indicators & benchmark activities against environmental best practice.

Reference 1.

UNDSD: “Environmental Management Accounting, Procedures and Principles”, United Nations, New York, 2001

The more you give, the more you live, and it's never too early to start.

-Blake Mycoskie

Consultants’ Corner

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How much should we do?

-Rekha Murali rekha@ncrcl.com

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Moral of the story: "One must not engage in duties other than his own" ========================================== Now take a new look at the same story...

Thought to ponder...

In office, at home, in life we face situations where we are tempted to do beyond our brief… with good intentions of course, but our good intentions sometimes boomerang much to our dismay. Lesson learnt, we may be content doing just what is expected of us… and then we are pulled up … for not showing initiative, to go beyond our call of duty. How can we differentiate or draw the fine line between being ticked off or appreciated; being pro-active and not reactive. Nevertheless, I have personally believed and lived by what Desmond Hill said in Law of Success - work more than what you are paid for. This means, be pro-active and exceed your brief.

Here again, choice is yours.

Now read on………… ========================================== There was once a washer man who had a donkey and a dog. One night when the whole world was sleeping, a thief broke into the house, the washer man was fast asleep too but the donkey and the dog were awake.

The dog decided not to bark since the master did not take good care of him and wanted to teach him a lesson.

The donkey got worried and said to the dog that if he doesn't bark, the donkey will have to do something himself. The dog did not change his mind and the donkey started braying loudly.

Hearing the donkey bray, the thief ran away, the master woke up and started beating the donkey for braying in the middle of the night for no reason.

The washer man was a well educated man from a premier management institute.

He had the ability of looking at the bigger picture and thinking out of the box. He was convinced that there must be some reason for the donkey to bray in the night.. He walked outside a little and did some fact finding, applied a bottom up approach, figured out from the ground realities that there was a thief who broke in and the donkey only wanted to alert him about it.

Looking at the donkey's extra initiative and going beyond the call of the duty, he rewarded him with lot of hay and other perks and became his favorite pet.

The dog's life didn't change much, except that now the donkey was more motivated in doing the dog's duties as well. In the annual appraisal, the dog managed "ME" (Met Expectations) .

Soon the dog realized that the donkey is taking care of his duties and he can enjoy his life sleeping and lazing around. The donkey was rated as "star performer". The donkey had to live up to his already high performance standards.

Soon he was over burdened with work and always under pressure and now is looking for a NEW JOB ... !!!!

(Source: Internet)

Feedback CC looks stylish! Kudos to CC team!! - Bhavana The New look CC is amazing. Especially the exclusive talk page is superb. it is as good as the TV program walk the talk..Keep it up.. congrats.. - Ravikrishnan It‟s come out very well. - Kishore The new look is quite impressive and colourful! Hope we get in more and more original articles and add quality to the readers. - Suresh C S While our CC has 12 colourful and well designed pages, effectively there are articles for only 5 pages. Effort should be made to improve this ratio and have at least 7 to 8 pages of worthwhile articles for our readers. - Suresh C S New look is super! - Balaji (Office Assistant) The new look CC looks great. Congrats on a job well done!! - Ashok Rao Good job!! CC looks awesome. Looks professional and innovative. - Sowmya

Look deep into nature, and then you will under-

There were a number of responses to the new Avatar of the Consultants Corner which are featured above. Thank you stand everything better. for your enthusiastic and encouraging feedback! We appreciate your support to help us do better. - Editorial Team

- Albert Einstein

Consultants’ Corner

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What’s up at NCRCL? C S Suresh attended a seminar on Business Opportunities with ADB at Hyderabad on 24th April 2012.

Babu Rajendra Prasad conducted a two day study circle on Balanced Score Card. The initiative was well received by the NCRCL team with whole hearted participation. The first day‟s session covered the theoretical aspects of Balanced score card with corporate examples. The second day was action packed for the participants with a case study. The Case study was based on a Greek Tobacco Manufacturing Company. The participants were divided into four teams with team members selecting a name for their team. Each team was then asked to prepare a balanced score card on a relevant area for the company. A member of the team was then asked to present it to the larger group for discussion and validation. The presentations were conducted during the major part of the day after team discussions. Kudos to Babu for the well planned initiative and we hope to see more such workshops at NCRCL!

Welcome!!

Gopal Agarwal, CA, joins NCRCL® Bangalore.

R Krithiga Priyadharsini, CA, j oi ns NCRC L ® Chennai.

“Are social networking sites generally beneficial to our world” was the topic of a heated debate at our Chennai office, organised by Pradeep on 25th April, judged by C S Suresh with Kishore as the moderator. The result was however neutral.

Ashok Rao & Padmaja visited Mangalore for TP Project

Our Chennai office celebrated “Ethnic Day” on Saturday, April 21, 2012. The team members came sportingly dressed in traditional attire to office. The men wore Dhotis with Kurta/Shirt and the women presented a pretty picture in colourful sarees and the customary “mallipoo” (jasmine flowers). The enthusiasm and gaiety was palpable through the day and the icing on the cake was the birthday celebrations of Lakshminarayanan. The day was filled with both an element of fun and intense learning.

We extend a very warm welcome to Gopal and Krithiga!

The most important lessons in life can never be expressed in black and white, but must be experienced.

Experience is the greatest teacher.

- Benny Lewis

Consultants’ Corner

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An Exclusive Talk with Gopal

Gopal Agarwal CA , B.Com. Working as Consultant Trainee Born on 17th February Email: gopal@ncrcl.com Mob No: +91 8892621806

CC. The meaning of your name.

Gopal: Gopal is the Child form of Lord Krishna.

CC. Nickname.

Gopal: Goops CC. Your dream job.

Gopal: Be a successful Businessman CC Your first impression of NCRCL. Gopal: Knowledge and professionalism

CC. Team work vs Individual work – your comments.

Gopal: Depends.

CC. Do you make efforts to get others to laugh and smile?

Gopal: Yeah. Whenever I get the chance, I make efforts to get others to smile.

CC. What personal/emotional characteristic of yours do you want to change?

Gopal: Anger

CC. Your heart rules your head or your head rules your heart?

Gopal: When things are related to emotions, my heart rules my head and when things are related to responsibility, my head rules my heart.

CC. Money or job satisfaction?

Gopal: First priority Job Satisfaction.

CC. What kind of special talent do you have?

Gopal: I can easily understand new things

CC. Your Stress buster.

Gopal: Previously it was Internet Surfing, Now it‟s REIKI

CC. What are your hobbies?

Gopal: Chess, Travelling

CC. Do you have a small circle of close friends, rather than a large number of friends?

Gopal: I have both types of friends CC. What do you most like about a person?

Gopal: Knowledge and simplicity CC. What do you most hate in a person?

Gopal: Dual policy (andre se kuch, bahar se kuch)

Wisdom is knowing what to do next, skill is knowing how to do it, and virtue is doing it.

- David Starr Jordan

Parichay

Know our Associates!

Fichtner India FICHTNER INDIA, an ISO:9001:2000 company certified by TUV India, is one of the leading Engineering Consultancy firms in India providing comprehensive engineering solutions for a wide range of services in the:   

Utility & Industrial Power Projects – based on subcritical and supercritical technology Desalination Plants Water & Infrastructure Projects

FICHTNER INDIA also provides complete range of engineering consultancy services, with the support of FICHTNER GERMANY in Solar Power Projects in India based on modern technology.

FICHTNER INDIA, Incorporated in the year 1987 as a joint venture, is today a wholly owned subsidiary company of FICHTNER GmbH & Co. KG, Stuttgart, Germany, and has grown into a leading multidisciplinary engineering consultancy firm. It has its head office in Chennai and has branch offices at Mumbai and Bengaluru.

NCRCL® and FICHTNER INDIA have entered into a long term contractual agreement to work together on a prestigious project with Karnataka Urban Infrastructure Development and Finance Corporation (KUIDFC) over the last two years. NCRCL has provided the services of Information Management Specialist and Financial Management Expert to work with the Project Management Unit of the World Bank assisted Karnataka Municipal Reforms Project (KMRP).

Consultants Corner

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Knowledge Snippet Which is the country known as the Sugar Bowl of the world?

Send in your answers to the editor at cc@ncrcl.com

Answer To last monthâ&#x20AC;&#x2122;s Knowledge Snippet question: Which is the river which carries maximum quantity of water into the sea?

The right answer was given by R Bhavana

Answer: Amazon River. It is in Brazil

!!! Congratulations !!!

Round Table Suggestions galore from our colleagues on the changes they would like to see at NCRCL! We can get together for a discussion on how to take these suggestions forward! - Editorial Team I would like to have a more spacious office for NCRCL Bangalore with a separate room for discussion - Ashok I would like to see a bright and fit team at NCRCL. What better way than to start a group yoga session twice or thrice a week! This would lead to a more cohesive and energised team. Also uplift each one of us spiritually leading to benefit of the Organisation. This can be done either before or after office hours. - Rekha Let us have a knowledge sharing session during the tea break (every alternate day at least). The session should not last for more than 5-7 minutes followed by a few mins of Q&A/discussion. New concepts and ideas relating to our area of work can be discussed at the library table. Topics may be from areas such as Finance, Process, IT, HR, General Management etc. These can go in as a half-page article for that month's CC - Kishore Over the last year or so we have been dedicating one full page for "Our Business Associates" and filling it up with colourful logos. How many of the NCRCL employees know these associates, what they do and who are the people behind these entities? It would be nice if we can organise key members of the associates to come and address us (with video conference with Blore) or in some cases, have an internal briefing about them.â&#x20AC;&#x201D;C S Suresh

For feedback

Ha Ha Ha !!!

If you have any comment/suggestion for the editors, please write to us at cc@ncrcl.com! Your views and comments on articles featured here are also welcome!

Happy Birthday!

Balaji.G - 25th May

What you are is what you have been. What you'll be is what you do now.

- Buddha

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Karnataka Institute of Public Auditors

www.fichtner.in/india.htm

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