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LEASED assets of banks will now be
governed by the Institute of Chartered Accountants of India (ICAI)'s standard
on `impairment' of value under Accounting Standards (AS) 28. In addition to leased assets, a bank's fixed
assets would also be covered under these norms, as per the RBI guidelines on
compliance with AS by banks. In a circular issued to scheduled commercial
banks, the RBI said, ICAI's accounting standard on value impairment would,
however, not apply to a bank's investments, inventories and financial assets
such as loans and advances . The country's largest bank, State Bank
of India for instance, has leased assets amounting to Rs 750 crore and the
overall fixed assets to the tune of Rs 2,388 crore as on the financial year
ended March 31, 2003. According to the ICAI standard, an `impairment loss'
should be recognised as an expense in the statement of profit and loss account
immediately. As per the RBI's latest guidelines, banks are now prohibited from
declaring dividend until any expenditure not represented by tangible assets is
carried in the balance sheet. Intangible assets recognised and carried in the
balance sheet of banks will attract provisions of Section 15 (1) of the BR Act,
RBI has clarified. The AS, will however, not apply to
intangible assets before the effective date of this standard which has come
into force from the accounting period commencing April 1, 2003. But such assets
will, however, be governed by the transition provisions contained in the
standard. The relevant accounting standard also requires that an intangible
asset should be measured initially at cost and that internally generated
goodwill should not be recognised as an asset. RBI has said that although it may be
difficult to estimate the useful life of computer software, which has been
customised for the bank's use and is expected to be in use for some time, the
detailed recognition and amortisation principle in respect of computer software
prescribed in the Standard, adequately addresses these issues and has suggested
that this may be followed by banks. RBI has further said that merger or
closure of branches of banks by transferring the assets and liabilities to
other branches of the same bank may not be deemed as a discontinuing of
operation under AS 24 of the ICAI. The
apex bank has emphasised that disclosures would be required under the Standard
only when the discontinued operation is substantial in its entirety. |
