Special Accounts: In brief we would
cover the following
• Bank Reconciliation
Trial Balance
Capital & Revenue Expenditure
Inventory Valuation
Bills of Exchange
Consignment
• Joint Venture
Leasing & Hire Purchase
Module – C Special Accounts
• Accounts for no-Trading Organisations
• Depreciation Accounting
• Accounting From incomplete records
(Single Entry System
Ratio Analysis
Bank Reconciliation
• Every trader/business maintains Bank
Account. However when you compare the
balance on a particular day (generally at
the end of month )on comparison the
Bank Balance as per Books maintained by
Business & that reflected by Bank
Statement may not be matching most of
the times. A few reasons are listed below :
BR : Difference in CB & PB
• Bank Reconciliation Statement is a state
• All Cheques Issued may not have been
Presented in Bank
• All Cheques deposited may not been
Credited in Bank Account
• Interest & Bank Charges effected by Bank
• Standing Instruction given to Bank not
reflected in Businessman’s Books
BR : Difference in CB & PB
• For eg. Tel. Bills , Electric Bills & Insurance
Premia (debited by Bank )
• Standing Instruction for Credits may be FD
Interest, Dividends etc.
• Dishounour of Cheques deposited as also those
issued by Business
• Direct Credit in Bank by Business.
• Thus Bank Reconciliation is a statement
prepared to explian the difference between the
balance as as per the ash Book & Bank Pass
Book/Statement.
BR
• It is a STATEMENT(not an Account)
prepared by Customer.
• Overcasting the deposit side of Cash
Book increases the Bank Balance as per
Cash book.
Bank shows as Deposits & withdrawals
what is called for Receipts & Payments by
Businessman in his Cash Book.
Bank A/C as per Cash Book for Dec
Dec
1 To Opening Bal.
• 8 To A & Co
•
•
•
20 To Cash ( C ) Dep.
Dr.
15000
200
Dec
5 By X & Co.
5 By Y & Co.
10 By Cash (C)(withd.)
400
500
2000
1000
30 By MTNL
30 To B & Co.
Cr.
800
700
30 By Z & Co.
900
31 By Bal C/d.
12300
-------------------------------------------16900
16900
Bank Statement
Withdrawals
1 Dec Opening Bal.
• 7
X & Co.
7
Y & Co.
8
A & Co.
• 10 Cash
•
20 Cash
• 31 By Charges
31 By Dividend
Deposits
Balance
15000 Cr.
400
500
200
14300 Cr.
1000
13300 Cr.
2000
100
200
13400Cr.
Bank Reconciliation as on 31st December
•
• Bank Balance as per Cash Book as on 31st Dec
Add: Cheque issued but not presented
•
MTNL Rs.800+ Z & Co. Rs.900 =
Rs.1700
• Dividend Credited not effected in CB Rs. 200
-----• Less : Cheque Deposited but not credited Rs. 700
Bank Chgs. Debited not effected in CB Rs.100
• Ans: bank Bal. as per Bank Statement
•
Rs
12300
1900
------14200
800
13400
BR Statement (When we start with Bank Bal. as per Bank Statement
• Rs
• Bank Balance as per Bank Statement as on 31st Dec 13400
Add: Cheque Deposited but not credited Rs. 700
Bank Chgs. Debited not effected in CB Rs.100
800
– -
• Less :Chequ issued but not presented
MTNL Rs.800+ Z & Co. Rs.900 =
Rs.1700
• Dividend Credited not effected in CB Rs. 200
• Ans: bank Bal. as per Cash Book
14200
1900
12300
Select the appropriate
• 1.Dr. Bal. as per Pass Book means ______ (Overdraft, Favourable
Balance, neither of the two)
• 2. Cheque deposited is recorded on________side (of Cash Book)
& when dishonoured it is recorded on _______ side of the CASH
BOOK. (Debit, Credit)
• 3.Debit Bal. in the Cash Book shows (Overdraft, Favourable
Balance, neither of the two)
• 4. Insurance premia paid by the Bank is ________
(debited/Credited) by the Bank.
• 5.Direct Deposit by the Customer is first recorded in (Cash Book,
Pass Book).
Answers
• 1. Overdraft
2. Debit, Credit
• 3. Favourable
4. Debited
• 5. Pass Book.
BR :Match the following
•
Column : A
1.Cash Book Dr. Side
2. Cash Book Cr. Side
3. Pass Book Dr. side
4. Pass Book Cr. Side
5. Dr. Bal. in Pass book
Column :B
a. Deposits
b. Withdrawals
c. Receipts
d. Payments
e. Overdraft as per Pass Book.
Answers
• 1 1.Cash Book Dr. Side
c) Receipts
2. Cash Book Cr. Side
d)Payments
3.Pass Book Dr. side
b) Withdrawals
4. Pass Book Cr. Side
a) Deposits.
5. Dr. Bal. in Pass book e) Overdraft as per Pass
Book
TRIAL BALANCE
• Rectification of Errors
• Trial Balance is a list or abstract of
balances from Books (ledger, Cash Book,
journal) to determine posted
Debits/Credits and to establish a basic
summary for financial statements. It may
be prepared monthly, quarterly & half
yearly.
Disagreement of a Trial Balance
•
Type of errors
Errors of principle
(No effect on trail
balance )
Clerical Errors
OMMISSION
Compensatory
Complete(No effect on TB)
Partial(After TB)
COMMISSION
Errors
• Compensating Errors: One effect nullifies the
wrong effect on another
• Error of Commission: A clerical error committed
while posting, totaling or balancing of an
Account
• Error of Principles : An error arising out of
non-observance of Accounting Principles
One Sided Error: An error which affects only one
side of Account
Errors
• Two Sided Errors : An error affecting two
sides
• Rectifying Entry : An entry passed to
rectify the error.
• Suspense Account: An Account opened to
tally trial balance temporarily.
Example-1
• Goods purchased from Sohanlal wrongly
entered into Sales Register at Rs.500.
• Correct Entry( That should have been)
Purchases A/c. Dr. 500
• To Sohanlal
Cr.Rs.500
Wrong Entry Passed
Sohanlal A/c. Dr. 500
To Sales
Cr. 500
Example-1
• Rectification Entry
Sales A/c.
Dr.500
• Purchase A/c. Dr.500
To Sohanlal
Cr. Rs.1000
• (Being purchase of goods wrongly
recorded in Sales Register now rectified.)
Example -2
• Salary Paid to Vijay, Accountant wrongly
recorded to his Personal A/c. Rs.1000
• Correct Entry
Salary A/c. Dr. 1000
To Cash
Cr. Rs.1000
Wrongly Passed as :
Vijay A/c. Dr. 1000
To Cash
Cr. Rs. 1000
Example-2
• Rectification entry
Salary A/c. Dr. 1000
To Vijay A/c.
Cr. 1000
(Being Salary paid wrongly debited to
personal A/c now rectified).
Example-3
• Wages paid for installation of Machinery
Rs.500 were debited to Wages A/c.Rs.500
Correct Entry
Machinery A/c. Dr. 500
To cash
Rs.500
Wrongly passed as :
Wages A/c. Dr. 500
To Machinery
Rs.500
Example-3
• Rectification Entry
Machinery A/c. Dr. Rs.500
•
To cash
Rs.500
( Being wages paid for Installation of
Machinery is wrongly debited to Wages
A/c. now rectified).
Example-4
• Rent paid Rs.200 wrongly debited to
Postage A/c.
Correct Entry:
Rent A/c. Dr. Rs. 500
Cash A/c. Cr.
Rs.500
Entry wrongly passed as :
Postage A/c. Dr. Rs. 500
Cash A/c. Cr.
Rs.500
Example-4
• Rectification Entry
• Rent A/c. Dr. Rs. 500
To Postage A/c. Cr.
Rs.500
(Being Payment of Rent wrongly debited
to Postage A/c. now rectified).
Match the following
•
Column: A
1.Trial Balance
2. Net Trial Bal.
3. Gross Trial Bal.
4. Suspense A/c.
5. Real A/c.
Column : B
1. Diff. in Trial Bal.
2. Always shows Dr. bal.
3. Always shows Cr. Bal.
4. Generally shows Dr. Bal.
5. Statement of balances of ledger A/cs
6. Dr. or Cr. Balances
7. Ledger A/c.
8. Debit & credit totals
Ans: 1(6), 2(5), 3(8), 4(1), 5(2)
Fill in the Blanks
1.Errors which cancel out the effects of one
another are called _________ Errors
2. Mistakes involving wrong recording or
posting are called Errors of ________
3. Difference in Trial Balance is transferred
to ____________Account.
4. When a transaction is not recorded it is an
error of _________.
Answers
1. Compensatory Errors
2. Commission
3. Suspense A/c.
4. Ommission
12.
• Chapter :12
• Capital & Revenue Expenditure
CAPITAL EXPENDITURE &
REVENUE EXPENDITURE
• From the Trial Balance we can observe
that some items directly appear in Balance
Sheet while some other items are
charged to P&L A/c.
Items which directly appear are generally
CAPITAL while those charged to P & L
are REVENUE. How this is classified?
The Basis
1.
Nature of the Expenses
2. Effect on revenue Earning Capacity
3. Benefit from the Expenditure
1.NATURE : Tests : Whether recurring in ordinary course
of business : Salary, Electricity Bill, Tel Charges, Raw
purchased etc.
Applicability of Materiality Concept :
An Wall Clock costing
Rs.500/- having long useful life & it is non-recurring. However under
Materiality Concept it is allowed to be charged as REVENUE.
Building, Plant & Machinery, Motor Cars are examples of CAPITAL Expenditure
Effecting on Revenue Earning
Capacity
The expense which help to generate income/revenue
in the current year are revenue in nature and
should be matched against the earned in the
current year. If the expenditure helps to generate
revenue for more than one accounting year is
generally called purchase of plant.
State whether expenditure is Revenue/
Capital/ Deferred Revenue
1.Freight paid on a Machine for bringing it to
factory.
2.The shifting of stock from old works to new site.
3.The overhauling expenses of Machine.
4.The Legal expenses incurred in connection with
raising of Debentures issue.
5 Purchase of Machinery.
6. Labour Welfare Expenses
True or False
1.A revenue expenditure of one party may be
Capital receipt for the other party.
2.Receipts from Sale of machinery is revenue
receipt.
3.The distinction between & revenue expenditure
can not be definite. It depends on the facts &
circumstances of each case.
4.Legal charges paid for purchase of land are
True or False
Capital Expenditure but legal charges paid
in the ordinary course of business is
revenue expenditure.
• 5. Wages paid in the Ordinary Course of
business are revenue expenditure but
wages paid for erection of machinery are
capital expenditure.
6.Debenture receipts are revenue receipts.
Answers to True or False
•
•
•
•
•
•
1. True
2. False
3. True
4. True
5. True
6. False
13.
• INVENTORY VALUATION
Objective
• The main objective for accounting for
INVENTORIES is to ascertain income through
matching appropriate costs t for receipts as well as
conversion of raw materials into semi-finished &
finished products.
• As per Accounting Standard-2 the inventory may be
for sale in the ordinary course of business
• In the process of production for such sale
• The production for goods or services for sale
including maintenance, supplies and consumables
other than machinery & spares.
13. Inventory Valuation
• Cost of the goods is worked out as follows:
• Op. Stock+ Purchases-Closing Stock
= Cost of Goods
• VALUATION METHODS :
• (A) FIFO-FIRST IN FIRST OUT.
• (B) LIFO-LAST IN FIRST OUT
• ©AVERAGE COST
• (D) BASE STOCK
• (E) ADJUSTING SELLING PRICES
Find out Stock Value under 3
methods : (page:249),April ,2009
L.F
Units Rate
1 Op. Stock
2 Purchases
4 Purchases
6 Purchase
500
8
600 10
100 10.20
200 10.50
Date Recepits
Issued Date
3
5
7
Units
300
400
400
Stock verification on 3rd April reveals loss of 1o units.
Show the stock of Cost of goods sold & valuation of
stock as on 7th april,2009 under FIFO,LIFO & Weighted
Average Cost Method.
FIFO
• April,09
Receipts
1.
• 2.
600*10=6000
• 3.
• 4.
• 5
Issue
300*8=2400
10(Loss)*8=80
100*10.20=1020
190*8=1520
210*10=2100
Balance
500*8=4000
500*8=4000
600*10=6000
190*8=1520
600*10=6000
{ 190*8= 1520
{600*10= 6000
{100*10.20=1020
{ 390*10= 3900
{100*10.20=1020
FIFO(page no: 250)
• April,09
Receipts
6.
200*10.50=2100
7.
Issue*
390*10=3900
10*10.20=102
Balance
390*10= 3900
100*10.20=1020
200*10.50=2100
90*10.20= 918
200*10.50=2100
• Closing Stock under FIFO Method :290 units Rs.3018
Cost of Goods Sold :
1100 units Rs.10022
Loss of Units :
10 units Rs.80
LIFO
• April,09
Receipts
1.
• 2.
600*10=6000
Issue
• 3.
• 4.
• 5
•
300*10= 3000
10(Loss)*10=100
100*10.20=1020
100*10.20= 1020
290*10= 2900
10*8 =
80
Balance
500*8=4000
500*8=4000
600*10=6000
500*8=4000
290*10=2900
500*8= 4000
290*10=2900
100*10.20=1020
490*8 =3929
LIFO
• April,09
Receipts
6
200*10.50= 2100
Issue
Balance
490*8=3920
200*10.50=2100
• 7
400 Units
200*10.50=2100
200*8=1600
10,800
Closing Stock under LIFO 290 units Rs.2320
Cost of Goods Sold
1100 units Rs.10700
Loss of Units
10units Rs.100
290*8=2320
Average Weighted Cost
•
April,09
1.
2.
3.
•
•
•
•
•
Receipts
Issue
Balance
500*8=4000
1100*9.09=10000
300
10 loss
310*9.09=2819 790*9.09= 7181
4
100*10.20=1020
890*9.21=8201
5
400*9.21=4513
490*9.21=4513
6.
200*10.50=2100
690*9.58=6613
7
400*9.58=3835 290*9.58=2778
Stock: units 290*9.58= Rs.2778
Cost of Goods Sold 1100 units=10251
Loss of units 10*9.09 = Rs.91.
Base Stock Method
• Base Stock Method : It is assumed holding
of minimum quantity (base stock) with a
particular price & the quantity in excess
thereof are dealt with some other basis.
Adjusted Selling Price :After considering
the Selling price stock is valued.
Methods
• Periodic Inventory
Perpetual Inventory
• Implications of FIFO & LIFO Methods in
rising methods & falling Prices.
• Requirements
In rising Market , FIFO just like LIFO in
falling Market will reflect lowest cost so
higher profits.
Select the correct answer
1.The test of objectivity & verifiability is satisfied by valuing
stock at (a)Historical Cost (b)Current replacement Price
(C ) Net realisable value.
2. The ascertainment of value of stock from accounting
records is known as (a) Continuous Stock taking (b)
Periodic Inventory © Perpetual Inventory
3. Historical Cost Concepts are reduced to net realisable
value of ( (a) Consistency (b) Conservatism © realisation
4. The cost of formulae recommended by Accounting
Standard 2 for valuation of inventories are (a) FIFO or
Weighted Average (b) Standard Costs ( C ) LIFO or
latest purchase Price
5. In retail business widely followed method of inventory is
(a) FIFO (b) Weighted © adjusted selling prices
Answers
•
•
•
•
•
1-a
2-c
3-b
4-a
5-c
Fill in the Blanks
• 1. The inventory valuation is subjective because it depends
on the _________________followed by the accountant
• 2. Historical value is reduced to net realisable value due to
the accounting convention of ____________.
• 3. Net realisable value is the estimated selling price in the
ordinary course of business less costs of of
_______________and less costs necessary to make the
______.
• 4. The ascertainment of the costs at the end by physically
counting the stock is known as _________.
• 5. The basis of inventory valuation should not be changed
frequently because its violates the accounting principle of
____________.
Answers to fill in the Blanks
• 1. Accounting Policies 2. Conservatism
3. Completion, Sale
4. Periodic Inventory 5. Consistency
14.
• BILLS OF EXCHANGE
Bills of Exchange
• The main journal is divided into a number of journals. So
there are Bills Receivable & Bills Payable journals.
Types of Instruments of Credit :
• Promissory Note
• Bills Of Exchange : It is an instrument in writing Signed by
the maker containing an unconditional order to pay a
certain sum of money to a person named in the instrument
or to his order to the bearer on a certain fixed future date
or demand.
• (se. 5 of NI Act)
Bills of Ex.
• A Sells goods worth Rs.10000 to B On Credit.
A draws the Bill for Rs.10000. It is accepted by B &
returned to A. Show the entries to be passed in the
books of A & B respectively under the different
circumstances
(a) if A retains the Bill & presents on maturity
(b) If A discounts the bill before the due date for
Rs.9800. © A sends the Bill to his Bank for
Collections.
(d ) If A endorses the bill to C his Creditor
Answer
• Here ‘A’ is the drawer, Bill means Bills of
Exchange & it is Bills Receivable for Drawer
& Bills Payable for Drawee.
• (a) B.R. A/c. Dr. 10000
To B
(b) Cash A/c. Dr. 9800
Discount
200
To B. R.
Cr. 10000
Cr. 10000
Bills of Ex.
• (C)
Bank for Bills Collection A/c. Dr. 10000
To Bills Receivable A/c. cr.
10000
(d) When the Bill is endorsed to C
C A/c Dr.
10000
To Bills Receivable
10000
(being endorsement of Bill of C
Bills of Ex.
• In the Books of B
A’s A/c
Dr. 10000
To Bills Payable A/c.
Cr. 10000
Entries on due date under the following Circumstances
• (a) if A retains the Bill & presents on maturity
(b) If A discounts the bill before the due date for
Rs.9800. © A sends the Bill to his Bank for
Collections.
(d ) If A endorses the bill to C his Creditor.
• (a)Cash A/c. Dr. 10000
To B R. A/c. Cr. 10000
(b) No entry as Bank will take step on due date
Bills of Ex.
• ( c). Here Bank collects the money from Drawee
remits to A.
Cash or Bank A/c. Dr. 10000
To Bank for Bills Collection Cr. 10000
(d) When endorsed Bill is met.
No entry in B’s Books.
In B’s Books :
• Bills Payable A/c. Dr. 10000
To Cash/ Bank
Cr. 10000
Dishonouring of Bill
Books of A
• a) Dishonour of retained Bill.
B’s A/c.
Dr. 10100
To
BR A/c. Cr. 10000
To
Cash
100
(b) Discounted Bill Dishonoured
BR A/c/ Dr.
10000
Noting Charges Dr. 100
To Cash A/c. Cr. 10100
B’s A/c.
Dr. 10100
To
BR A/c. Cr. 10000
To
Cash
100
Dishonouring of Bill
Books of A
• (a) Dishonour of retained Bill.
B’s A/c.
Dr. 10100
To
BR A/c. Cr. 10000
To
Cash
100
(b) Discounted Bill Dishonoured
BR A/c/ Dr.
10000
Noting Charges Dr. 100
To Cash A/c. Cr. 10100
B’s A/c.
Dr. 10100
To
BR A/c. Cr. 10000
To
Cash
100
Bills Sent for collection
• BR A/c/ Dr.
10000
Noting Charges A/c 100
To Cash A/c. Cr.
To Bills for collection
B’s A/c.
Dr. 10100
To
BR A/c. Cr.
To Noting Charges
100
10000
10000
100
When endorsed Bill is dishonoured
• BR A/c Dr.
10000
Noting Charges A/c Dr. 100
To C
• B’s A/c Dr.
10100
To BR
To Noting Charges
In B’s Books
Bills Payable
10000
Noting Charges A/c Dr. 100
To Bills Payable
10100
10000
100
10100
On retirement
• In A’s Books
• Cash A/c Dr. Rs.9500
Rebate A/c Rs. 500
To Bills Receivable Rs.10000
In B’s Books
Bills Payable A/c. Dr. Rs.10000
To Cash A/c. Cr Rs.9500
To Rebate Cr. Rs.500
When Bills is renewed B by paying
Rs.4000.
• Bill is renewed for a period of 3 months for which
pays 3 months interest at 10% p.a.
• First old bill is to be cancelled
B’s A/c Dr. Rs. 10000
•
To Bills Receivable A/c. Cr. Rs.10000
• Cash A/c Dr.
Rs.4000
Bills Receivable A/c Rs.6150
To Interest A/c
Rs.150
To B’s A/c
Rs.10000
Renewal in B’s books
• First old bill is to be cancelled
Bills Payable A/c Dr. Rs.10000
•
To A’s A/c. Cr.
Rs.10000
• A’s A/c Dr.
Rs.10000
Interest A/c. Dr.
Rs. 150
To Cash A/c. Cr.
To B’s A/c
Rs. 4000
Rs.6150
Accommodation Bills
• These bills are drawn without
consideration & objective is to accomdate
one party.
The rest of things are same as Bills
receivable (with exception to sharing of
discount in the manner they share
Proceeds from Bills).
State whether the following
statements are true or false
•
•
•
•
•
•
•
•
•
•
.
1. A bill of exchange is a negotiable instrument.
2. A bill of exchange need not to be dated.
3. A bill of exchange must be accepted by the drawer.
4. Drawer is a person to whom the bill is endorsed.
5. Amount of bill is paid to the payee.
6. Drawee after acceptance becomes acceptor.
7. A bill of exchange must be in writing.
8. A bill of exchange may be drawn for payment in kind.
9. Drawer has the right to discount the bill.
10. There are three parties to a bill of exchange.
Answers 1 to 10
• 1.True
2. False
•
4. False
5.
• 6. True
7. True
• 9. False 10True
3. True
True
8 False
State whether the following
statements are true or false
•
•
•
•
•
•
•
•
11. There are two parties to a promissory note.
12. Drawee is the maker of the bill exchange.
13. Debtor is the maker of a promissory note.
14. A bill of exchange is a conditional order.
15. A bill of exchange must be properly stamped.
16. The maker of a promissory note must sign it.
17. Mere acknowledgement of debt is not a promise.
18. A bill of exchange which arises out of trading
relationship of two persons is called a trade bill.
• 19. Acceptance is voluntary for a bill of exchange.
• 20. In general acceptance , the drawer agrees with some
of the conditions of the bill.
Answers to True or False
• 11. True 12. False
• 13 True
14 False 15 True 16 True 17 True
•
18. True 19 False 20 False
BE: Fill in the Blanks
1.When goods are sold on credit, the seller becomes a
________ and buyer becomes a _________.
(Debtor/Creditor)
2. Negotiable Instrument is ________ from one person to
another. (transferable/not transferable)
3. A bill of exchange must be properly _________.
4. A bill of exchange must be signed by the ________.
5. A Bills of exchange is accepted by the _________
•
Answers to fill in the blanks
• Ans1. Creditor, Debtor
2. transferred 3.
Stamped
4. Maker 5. drawee.
Consignment Account
• 15. Consignment Account
15.CONSIGNMENT ACCOUNT
• A consignment is the dispatch of goods
buy its owner to its agent for the purpose
of selling. It this Principal (Owner) is a
Consignor, Agent is a Consignee. The
goods so sent are called Consignment
Outward & for Agent it is Consignment
Inward.
15.CONSIGNMENT ACCOUNT
• Since transfer of goods to Agent is not a sales
the invoice prepared is called Pro forma invoice.
And the Statement prepared by Agent Showing
sale of goods received on Consignment .Unsold
stock or damaged stock, expenses incurred &
his commission is called ACCOUNT Sale.
• Commission:
• ORDINARY &
• DEL CREDRE.
Ordinary Commission is paid on total Sales.
Losses or bad debts are borne by Consignee
Consignment Ex. (page 281)
• Jyotimal of Kolkata consigned 50 cases Cotton Goods
costing
• Rs.2000 each to Ziauddin of Decca. Jyotimal paid
follwing expenses : Carriage Rs.2500. Freight Rs.19000
& loading Charges Rs.3500.
• Ziauddin sales 30 cases at Rs.3500 each and incurs the
following exp. Landing Charges Rs.3000. Warehousing
& Storage Rs.5000 & selling Rs.4000. It is found that 2
cases have been lost in transit & three cases are still in
transit. Ziauddin is entitled to a commission of 10% on
gross sales. Draw the necessary ledger accounts in the
books of Jyotimal.
15.CONSIGNMENT ACCOUNT(pg. no:281)
Consignment A/c
To Goods Sent on Cons. Rs. 100000
(50*2000)
Rs.
To Bank:carriage 2500
Freight
19000
By Ziauddin(Sales)
105000
30*3500
By Goods lost in Transit 5000
(2*2000=4000+1000)
Loading Chgs. 3500
To Ziauddin
Loading
3000
Warehousing
5000
Selling 4000
To Ziauddin (Commission)
To P & L A/c
25000
By Good in transit 7500
12000
10500
8500
156000
By Closing Stock
38500
156000
Ziauddin’s A/c
To Consignment 105000 By Consignment Exp 12000
By Consignment-Comm.10500
.______ By Bank
82500
105000
105000
Cl. Stock; 50*2000 =
Rs.30000
Add; Prop. Exp.Consignor
15*500
Rs. 7500
Consinee: Non recurring:
On 15 cases for warehousing
45cases Rs.3000
so for 15 cases
1000.
38500
In transit 3*2000+1500=7500
.
15.Indicate the Correct Answer
1.
When goods are sent on Consignment debit is given to (a)
Consignee’s A/c (b) Consignment Account(( C ) Sales A/c.
2.
The relationship between Consignor & Consignee is that of
(a) Principal & Agent() buyer & Seller( C ) debtor & Creditor.
3. A loss which is natural & unavoidable is called
(a) abnormal (b) normal ( c) Contingent
4. A loss arising due to pilferage, theft, fine etc. is
(a) Normal (b) abnormal ( c) Contingent
5. Abnormal loss of stock after adjusting for recovery of insurance
claim is transferred to (a) Trading A/c. (b) P& L A/c
( c)Capital A/c.
6. Consignee’s A/c is a
(a) Nominal A/c.(b) Personal A/c. (C ) Real A/c.
7. Del Credre Commission is calculated on (a) Cash Sales (b) Credit
Sales ( C ) total Sales.
15.Answers to Indicate the Correct Answer
• 1 ( b)
2(a)
3( b)
4 (b)
5 (b)
6 ( b)
• 7( C )
16. Joint Venture
• JV
JV
• It is an agreement between two or more
parties.
The agreement is made to carry on a
specific job
• The agreement is over as soon as venture
is completed
JV Example (pg.288) A & B entered into a JV sharing
P & L in the ratio of 3:2
They opened a Joint Bank A/c. where A deposited Rs.5000 & B
deposited Rs.40000. A purchased goods for Rs.30000 & incurred
Rs.5000 for expenses out of the Joint Bank & he also supplied
materials from his stock for Rs.3000. He sold the entire goods for
Rs.50000 & deposited entire amount into the joint Bank a/c.
B purchased goods for Rs.25000 & incurred Rs.3000 for various
expenses out of the joint Bank A/c. He sold all the goods for
Rs.44000 except for goods valued at Rs.2000 which he took for his
own use.
The proceeds were also deposited in joint Bank a/c. Pl. prepare JV
A/c, Joint Bank A/c & C-Venturer’s A/c.
Joint Venture A/c
To Joint Bank
By Joint Bank A/c
Pur. 30000
Exp. 5000
To A’s Capital
To Joint Bank A/c
Pur 25000
Exp. 3000
To Profit Trd.
A 18000
B 12000
. (pg.288)
35000
Sale Proceeds
50000
Sale Proceeds
44000
3000
By B’s A/c- Goods Taken
2000
28000
30000
96000
96000
Joint Bank A/c
To A (Contri)
50000 By JV (goods & Exp)
35000
To B(contribution)
40000
By JV
28000
To JV(Sale Proceeds)50000 By A-Final Pay
71000
To JV- Sale Proceeds 44000 By-B –Final Pay
50000
184000
184000
CO-VENTURERS A/c
A
B
A
B
To JV
2000 By JV A/c
50000 40000
To JV Bank A/c 71000 50000 By JV
3000
By JV-Proft 18000 12000
------- --------------------71000 52000
71000 52000
16 JV: Fill in the blanks
1. In JV the association of persons is of a _______ nature.
2. JV may also be called as a ______ partnership.
3. The co-venturers enter into a ________ with each other.
4. The co-venturers agree to share ______ or _________arising out of
business.
5. The persons entering into JV are called __________.
Ans: Temporary 2. Temporary/restricted 3. Contract
4. Profit/Loss 5. Co venturers
16.JV Match
• (1) JV
(a) Personal
(2) Co-ventures A/c
(b) Nominal A/c
(3) Goods Supplied on JV A/c ( C )Real
(4 ) Joint Bank A/c
(d) Personal
(5) Cr. Bal. in JV A/c.
(e) Profit on JV
(6) JV ends
(f) Completion of Venture
JV Answers
• 1((b) 2 (a) 3 © 4 (h) 5 ( e) 6 ( f)
17.
• 17.LEASING & HIRE PURCHASE
17.LEASING & HIRE PURCHASE
• Leasing is a contract between two parties,whereby the owner of an
assets transfers his rights of use to some other party on payment
of a fixed periodical rent. So there are Lessor, Lessee, Lease Deed,
Lease Rent terms use.
Types : 1. Finance or Capital lease.
2. Operating Lease
3. Services Lease and
4. Leveraged Lease.
• FINANCE or CAPITAL LEASE: This is fairly for a long time.
i.e. Primary Period+ Secondary Period.
During Primary period Lessor charges Lease Rent in a manner
covering Cost of the Machine plus interest thereon. In secondary
period he charges Nominal rent.
Operating Lease
• Operating lease is a lease which is not
‘Finance’ or a ‘Capital’ lease .It does not
transfer any of the rewards and the risk of
ownership of the leased property to the
lessee. The contract is, usually,
cancelable and of lower maturity period
than in case of financial lease. Normally,
the period of lease is much less compared
to the economic life of the asset.
Distin. Fin. Lease & Op. Lease.
Fin. Lease
Op. Lease
1. Fin. Lease may give option to own 1. Any lease where lessor
takes leased asset.
risk at a nominal price
2. Period : fairly long
2. Short Period
3. Lessor incurs maintenance 3.Lessee incurs maintenance
4. Intention of becoming owner 4.
No such intention
5. On Liability side Dues less down5. On Asset side Dep. is
Prov.
6. payment appears reduced on 6. Need not be so.Same
yearly payment the instalments
payment may continue.
Both have different Accounting treatmnt
Operating Lease
• Leasing of telephones, vehicles,
computers, etc., are some of the examples
of the operating lease. The lease period is
normally for a short period and may
stretch from a day to about three years
Service Lease
• This takes care of Services & not Capital
outlay. Assets generally remains with the
Lessee.
• Leveraged Lease : In this type there are
three parties. Financier apart from Lessor
& Lessee.
Accounting Treatment in case of
Finance Lease:
• 1. Under Fixed Assets Head would appear Sub-Head as Assets
given on Lease along with Dep.
• Bank A/c. Dr.
• To Lease Rent
• Lease Rent A/c Dr.
To P & L A/c.
Hire Purchase & Instalment Sale
• Hire Purchase has two Components
instalments & Interest.
Distinction: HP & Instalment
1. Ownership
2. On Default in Repayment
3. Buyer’s right to terminatye Contract
• 4. Buyer’s right to dispose off goods
5. Loss of Goods
17Lease
• 1. In a lease agreement there are ___ parties.
2. The user of the assets is known as_______
3. In higher purchase transactions the buyer Pays the
price in _______.
• 4. In higher purchase , the ownership of goods passes to
the buyer on payment of _______ instalment.
• 5.The ownership of goods passes to the buyer
immediately in ________system.
• 6. Under Hire Purchase , buyer is called____ while
seller is called ______.
Answers
• 1.two 2. Lessee. 3. Installment
• 5. instalment
• 5. Hire Purchaser & Hire Vendor
4. Last
18.
• ACCOUNTS OF NON- TRADING
ORGANISATION
18.
• Non- Trading Organisations are also required to
maintain the following books of accounts like Cash
Book, General Ledger, Journal , Membership Register,
Donations Register, Property Register & Others
depending on the type for eg. Students Register in case
School. Final Accounts consist of
1.Receipts & Payment A/c
2. Income & Expenditure A/c.
• 3. Balance sheet.
18
• Receipts & Payment A/c. : This shows
actual amounts (Cash & cheques)
received
and paid for the whole year.
• Income & Expenditure A/c ; It is similar to
P&L A/c. that Businessman prepares.
• Balance Sheet : It is same as B/S in
Business. Capital here referred to as
Capital Fund or General Fund.
Diff. Rec. & Payments & I & E A/c.
• Receipts & Payments
Income & Exp.
1. Classification : Real A/c. 1. Nominal A/c.
2. Contents:Summary of actual
receipts & Payments
2.It contains I & E of a period
3. Items included: Capital & Revenue 3. Only Revenue
4. Op. & Cl. Bal.: Cash & Bank 4.
No op. or Cl. Bal but
In R & P.
Ends with deficit & Surplus.
Choose the Correct Answer
(a)The I & E account is prepared on the basis of :
• (i) Mercantile system of Accounting
• (ii) Cash System of Accounting
(iii) Hybrid System of Accounting
(b) Amount received towards endowment fund is:
• (i) Revenue Receipt
(ii) Capital Receipt
(iii) Deferred Revenue Receipt.
Non Trading Accounts
• ( C ) The debit balance in the Income & Expenditure
Account indicates :
(i) the excess of income over expenditure
(ii) the excess of expenditure over income
(iii) the excess of Cash receipts over Cash Payments
• (d) Which of the following items should not be entered
in the receipts & payments accounts of a Club :
(i) Subscriptions received
(ii) Sale of Machinery
( iii) Loss on sale of Furniture.
Answers
• a(i) Mercantile system of Accounting
• b(ii) Capital Receipt
• c(ii) the excess of expenditure over
income
• d( iii) Loss on sale of Furniture.
Non- Trading Accounts
(e) Subscriptions receivable at the beginning & at the end of the year
are Rs.2000 & Rs.3000 respectively. Income & Expenditure shows
subscriptions at Rs.20000. The amount shown as subscriptions in
Receipts & Payments (a) 19000 (b)23000 & (c ) Rs.22000.
Ans: Subscriptions Received During the year
(? say X )
Less : Subscriptions received for
Previous year
2000
Less : Sub. Received in advance
nil
Add: Outstanding subscription for Current year
3000
Subscriptions taken to I & E A/c.
20000
Therefore X = Rs.20000+ Rs.2000- Rs.3000 =Rs.19000 Ans.
Match the following
•
A
B
1.Receipts & Payment A/c. (a) No intention of earning it
Profit
2. I & E A/c.
(b) Excess of expenditure
over Income
3. Deficit
(C) In & Exp. For the year
4. Non- Trading Organization (d) Actual Receipts &
Payments in Cash
• 1 (d ) 2 ( C) 3 (b) 4 (a)
19.
• Depreciation Accounting
Depreciation
• (i) is a part Operating Cost
(ii) It is reduction in the value of assets
(iii) The decrease in the value of its assets
is due to its use caused by wear & tear or
obsolescence
(iv) decrease in the value of assets in
gradual & Continuous.
• Dep. Helps us to arrive at correct profit.
Accounting Entries
• Depreciation A/c Dr.
To Asset A/c. Cr.
• ALTERNATIVELY
• Depreciation A/c Dr
• To Prov. For dep. A/c. Cr.
Methods of Depreciation
• Straight Line : Cost Price – Scrap Value
Est. Life of assets (no. of yrs)
• W. D.V: Here Depreciation provided on the book value
which appears after writing down depreciation
periodically. Here the Value of asset would never
become Zero while in case of Straight line the
value of asset become zero.
Let us see the example of Rs.100000 on WDV method
with Dep. on 10% method.
WDV Dep. Method:
Machinery
1/4/05To Bank
1/4/06 To Bal B/d
100000
.______
100000
Account
31/3/06 By Dep
31/3/06 By Bal C/d
90000 31/3/07
______. 31/3/07
90000
1/4/07 To Bal /d 81000 31/3/08
_______ 31/3/08
81000
1/4/08 To Bal B/d 72900 31/3/09
.______ 31/3/09
72900
1/4/09 To Bal B/d 65610
By Depreciation
By Bal C/d
By Depreciation
By Bal C/d
By Dep.
By Bal C/d
10000
90000
100000
9000
81000
90000
8100
72900
81000
7290
65610
72900
Sinking Fund
• Sinking Fund Method
(For Providing Dep.)
Dep. A/c Dr.
To Sinking Fund A/c Cr
( For Making Investment )
• Sinking Fund Investment A/c.
To Bank A/c. Cr.
SF method
• Next year
Bank A/c. Dr.
To Int. on Sink. Fund Invest. A/c.Cr.
Dep. A/c.
To Sinking Fund A/c.
Int. on Sink. Fund Invest. A/c. Dr.
To Sinking Fund A/c.
Sinking Fund A/c. Dr.
To Bank A/c.
In the year of Replacement
(Sale of Investments)
i) Bank A/c. Dr.
To sinking Fund investment A/c.
(Profit on sale of Investments)
ii)Sinking Fund Inv. A/c. Dr.
To Sinking Fund A/c)
iii)Sinking Fund A/c. Dr.
To Sinking Fund Inv. A/c.(Loss)
iv)Dep. A/c. Dr.
To Sinking Fund A/c (Dep. For the year )
SF Method
(Sale of old asset)
V. Sinking Fund A/c. Dr.
To Asset A/c
vi) Sinking Fund A/c.
To Asset A/c. (Tr. Of sinking fund to Asset)
(Pur. Of new asset)
vii) New Asset A/c.
To Bank A/c.
Example
Rs.35000 is spent by way of overhauling on
a 2nd hand Motor car Purchased at
Rs.80000 on 1/4/06. The car on which
straight line method depreciation is
provided is sold for Rs.65000 on
39/6/2009. Pl. show the entries & Motor
Car showing profit or loss on sale of car.
Car
1/4/2003: By Car A/c. Dr. Rs.80000
To Bank A/c.
80000
(being the purchase cost of 2nd hand car)
By Car A/c Dr. 35000
To Bank A/c
35000
(Being the overhauling cost capitalised ).
31/3/04 By Dep. A/c Dr.
11500
To Motor Car
11500
By P & L A/c. Dr.
11500
To Dep.
11500
Car
31-3-05
By Dep.
11500
To Motor Car A/c.
• By P & L A/c. Dr.
11500
To Dep.
11500
31-3-06
By Dep.
11500
To Motor Car A/c.
• By P & L A/c. Dr.
11500
To Dep.
11500
11500
11500
30/06/2009 By Cash A/c Dr. 65000
By Dep. A/c
2875
By Loss on Sale Car 12625
To Motor Car
80500
Motor Car A/c
1/4/03 To Bank
1/4/03 To Bank
1/4/04 To Op. Bal
80000
35000
115000
31/3/04 By Dep
31/3/04 By Bal C/d
11500
103500
115000
103500
31/3/05 By Dep
31/3/05 By Bal C/d.
11500
92000
103500
103500
1/4/05 To Op. Bal
92000
31/3/06 By Dep
31/3/06 By bal c/d
11500
80500
92000
1/4/06 To Op. Bal
80500 30/6/06 By Dep.
30/6/06
By Bank
30/6/06 By Loss on sale of car
80500
2875
65000
12625
80500
20. Accounting from incomplete records
• Single Entry System
20. Accounting from incomplete Records (Single Entry System)
• Single entry system arises out of incomplete information & the
Accountant has to construct Accounts based on the drawing figures
from available information.
• Computation of PROFITS :
(i) Net Worth Method : This involves adjustment for drawings &
adjustment for capital Introduced.
• Sales & Purchase Policy
Eg. Sales proportions/ Cash/ Credit sales
Credit Policy: Closing debtors represent 2 months Credit Sales
and Creditors represent 2 months Purchases.
Price Policy: Selling Price at a certain % of Sales.
Single Entry System
• Conversion Method : This method requires more details
like collections from debtors, Payment to creditors etc. to
give a true picture.
• For e.g. For a Firm the Debtors at the beginning
of the year are Rs.1lakh. Closing debtors are
20% more. Payment made to creditors during
year Rs.70000. Here we are required to find out
the credit purchase made during the year. We
can the figure y constructing Creditors Account
as under :
Creditors Account
• Dr.
Cr.
1-April By Op. Bal
1,00,000
31/12 To Bank 70000 31/12 By Purchases
90000
31/03 To Cl. Bal 120000
(Balancing figure)
---------------------•
1900000
190000
In single entry problems sales/debtors may be given by ratio or /%
or the number of times or in a algebra type where we have to find
out value of X.
RATIO ANALYSIS
• Ch. 21.
21. RATIO ANALYSIS
• Accounting ratios are relationship
expressed in mathematical terms between
accounting figures which for meaningful
purpose.
• Classification: P & L Ratios
• Balance Sheet Ratios
• Composite or Inter-Statement Ratios.
Functional Classification
• Profitability
• Turnover/Activity Ratios
Financial/Solvency Ratios
• Financial Ratios may be further classified
as Short Term Ratios/Liquidity Ratios
or Long Term/ Solvency Ratios
PROFITABILITY RATIOS
Return on Capital Employed
• EBIT * 100
Capital Employed
Earnings before Interest & Tax
• Op. Profit means profit from the Operations of the Company plus
Int(Long term) & Tax
• Capital Employed = Share Capital+ Reserves & Surplus+ Long
Term loans –( Non- business assets + Fictitious assets)
• Proper calculation gives us Return on Capital Employed
Earnings Per Share
(EPS)
• EPS = Net Profit after tax & Pref. Dividend
No. of Equity Shares
This shows whether equity Capital of Co. is
properly used or not
Company’s capacity to pay Dividend.
EPS helps us at estimating Market Price of
the Company
Price Earning (P/E Ratio)
• Market Price of per Equity Share
EPS
Helps to decide whether to buy Share of a
Company.
Gross Profit Ratio
• Gross Profit* 100
Net Sales
• It helps in Price decision & Profit from Op.
before Charging all other expenses.
Net Profit Ratio
• Net Operating Profit * 100
Net sales
Solvency Ratios
Long Term Solvency Ratios
• Fixed Assets Ratios : Fixed Assets
Long Term Funds
• The ratio should not be more than one.
• If it is less than one then it indicates part of the Working
Capital Financed through Long term Funds i.e. we may
call Core Working Capital
Debt- Equity Ratio :
• i) DE Ratio :
• Ii)
DE Ratio :
Total Long Term Debt
Total Long Term Funds
Total Long Term Debt
Shareholders Funds
Debt Service Coverage Ratio= Cash Profit available for debt service
•
Interest+ Instalment
Short Term Solvency Ratio
• i) Current Ratio = Current Assets
Current Liabilities
ideal ratio: 2.Acceptable to Bank 1.33
• ii) Liquidity Ratio/Acid Test or Quick Ratio:
Liquid Assets
Current Liability
Turnover Ratios
• Stock Turnover Ratio =
Cost of goods Sold during the year
Average Inventory
Debtors Turn over Ratios (Debtors Velocity) =
Credit Sales
Average Accounts Receivable
Debtors Collection Period = Months or days in a year
Debtors turnover
Accounts receivable
Average Monthly or daily Credit sales
or
• Fixed Assets Turnover Ratio =
• Cost of Goods Sold
Net Fixed Assets
Calculate the following ratios for YE March2009 & 2010
a)
Return on Capital Employed
(b) Current Ratio © Debt Equity Ratio
(d) Fixed Assets Turnover Ratio
(e) Inventory Turnover Ratio (f) Earning Per Share
Liabilities
2008
Rs. Lakhs
2009
2010
Sh. Capital:Shares of Rs.10 each
Reserves & surplus
Secured Term Loans
Cash Credits from bank
Sundry Creditors
800
700
800
800
1200
4300
1000
800
2000
1000
900
5700
Balance Sheets as at 31st March
1000
1000
2400
1500
1100
7000
Balance Sheets as at 31st March
Assets
2008
Fixed Assets: Gross Block
Less : Dep
Net Block
Current Assets: Stock
Debtors
Other Current Assets
Total Assets
Rs. Lakhs
2009
2010
2800
3000
4000
920
1400
2000
1880
1600
2000
1520
480
420
2420
2400
500
1200
4100
2800
900
1300
5000
4300
5700
7000
ROCE
EBIT * 100
Capital Employed
EBIT=Earnings before Interest & Tax
For March,2009
Ret. On Cap. Emp= Total Cap. Employed for March,2008 is Rs.
2300+Rs. 3800 for Mar,2009.So Av. Cap. Employed is Rs.6100 /2=
3050 lakhs. EBIT is Rs.1020. So ROCE 1020*100= 33.34%
3050
ROCE for March,2010
Total Cap. Employed for March,2009 is Rs. 3800+Rs. 4400 for
Mar,2010.So Av. Cap. Employed is Rs.8200 /2= 4100 lakhs. EBIT is
Rs.1800. So ROCE is 1800*100= 43.90%
4100
• Current Ratio = Current Assets
Current Liabilities
2009
•
2010
4100 =2.16 5000 =1.92
1900
2600
Debt Equity Ratio = Total Long Term Debt
Total Long Term Funds
2000 = 1.11
1800
2400 = 1.2
2000
Fixed Assets Turnover Ratio =
Cost of goods Sold during the year
Average Net Fixed Assets
• We may take sales when Cost of goods figures are not available
•
4800 =2.76
1740
7200
1800
=4
• Average Fixed Assets for March,2009 = 1880+1600=3480/2=1740
• Average Fixed Assets for March,2010 = 1600+2000=3600/2=1800
Stock Turnover Ratio =
Cost of goods Sold during the year
Average Inventory
• We may take sales when Cost of goods figures are not available
•
Sales
Av Inv.
4800 =9.8
490
7200 = 10.29
700
• EPS = Net Profit after tax & Pref. Dividend
No. of Equity Shares
Net Profit after Tax for 2009 = Rs.300 Lakhs = Rs.3 =EPS
While no. of Eq. shares are
100 Lakhs
Net Profit after Tax for 2010 = Rs.600 Lakhs = Rs. 6 =EPS
While no. of Eq. shares are
100 Lakhs