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Thread: CPT Notes - Accounts - Fundamenal of Accounting.

  1. #11
    deepika
    Guest

    Thumbs up Fundamenal of Accounting - Rectification of Errors.

    Rectification of Errors


    Types of errors

    1. Errors of Principles- These errors arise because of wrong application of accounting principles and failure to differentiate between capital and revenue and capital expenditure.

    Examples- Wages paid for erection of machinery but wrongly debited to Wages A\C .
    Sale of an asset but wrongly entered in sales book.
    Purchase of an asset but wrongly entered in purchases day book etc.
    Registration charges paid for a land but wrongly debited to Legal Expenses A\C.

    2. Compensating Errors- These are a group of errors, the total effect of which are not reflected in the Trial Balance.

    3. Errors of Commission- If an amount is recorded on the wrong side or in wrong account or the totals are wrong or a wrong balance is struck, it will be a case of error of commission.

    4. Errors of Omission- If a transaction is completely or partly is omitted to be recorded, it is called error of omission.

    Stages of Rectifying Errors
    1. Rectification before preparation of Trial Balance.
    2. Rectification after preparation of Trial Balance.
    3. Rectification after preparation of Final Accounts.

    Notes- 1. In case of rectification of a single sided error, before preparation of Trial Balance, no entry is required is required, just a note called Blank Entry is written.

    2. In case of rectification of a single sided error, after preparation of Trial Balance, Suspense A\C is opened to give effect double entry system.

  2. #12
    deepika
    Guest

    Thumbs up Fundamenal of Accounting - Capital and revenue expenditure.

    CAPITAL AND REVENUE EXPENDITURE

    Capital Expenditure- Capital Expenditures are those expenses which are paid to acquire fixed assets (both tangible and intangible) benefit of which does not end in a financial year but the business uses it for many years.

    Revenue Expenditure-
    Revenue expenditures are incurred to meet the expenses which are essential to run the business. Benefit of it may extend maximum for a period of 1 year.

    Deferred Revenue Expenditure- Deferred revenue expenditure is that expenditure for which payment has been made or a liability incurred but which is carried forward on the assumption that benefit of it will be received in a subsequent period.

    Capital Receipt- Capital receipt is the money received other than the normal business activities Examples- Issue of shares and debentures, sale of shares etc.

    Capital Profit- Capital profit is the profit which arises out of sale of fixed assets. Another example of capital profit is premium received on issue of shares and debentures.

    Revenue Profit- Revenue profit is the profit which arises out of normal and regular business activities.

    Some Examples of Capital Expenditure


    1. Purchase of any fixed asset including trade mark, patent right goodwill.
    2. Payment of carriage to bring the asset.
    3. Installation cost.
    4. Repairing or overhaul expenses on any second hand asset.
    5. Legal expenses to acquire fixed asset such as registration expenses, fees paid to lawyer.
    6. Brokerage paid to acquire any fixed asset.
    7. License fee to run a cinema hall.
    8. Extension of fixed assets such as addition to building.
    9. Change of mazor part of the machine.
    10. Cost of temporary hut necessary at the site in the process of the construction of the premises.

    Some important examples of revenue expenditure
    1. Interest on loan taken for acquisition of a fixed asset.
    2. Legal expenses to defend a suit claiming against the fixed property of the company
    3. Repairs on existing assets.

    Some examples of deferred revenue expenditure
    1. Heavy advertising expenses
    2. Preliminary expenses
    3. Discount on issue of shares and debentures
    4. Underwriting commission.

  3. #13
    deepika
    Guest

    Thumbs up Fundamenal of Accounting - Stock valuation.

    STOCK VALUATION

    Types of Inventories

    1. Raw Materials
    2.Work-in-Progress or Semi-Finished Goods
    3. Finished Goods

    Need of stock valuation


    1. Determination of Income
    2.Ascertainment of Financial Position
    3.Liquid Analysis
    4.Statutory Compliance

    Inventory Record System

    1. Periodic Inventory System-Under this method, stock is ascertained physically. Under this system valuation is done at the end of the period.
    2. Perpetual Inventory System- Under this system valuation of stock is done after each issue and receipt.
    Physical valuation is not done here.

    Difference between periodic inventory system and perpetual inventory system

    Periodic Inventory System
    Perpetual Inventory System
    1. This system is based on physical verification. 1. It is based on book record.
    2. This system does not provide continuous information about stock and cost of sales. 2. 2. This system provides continuous information about stock and cost of sales.
    3. This system determines inventory and considers cost of goods sold as residual value. 3. It directly determines cost of goods sales and balancing figure is taken as closing stock.
    4. Cost of goods sold includes loss of goods as goods not in stock are assumed to be sold. 4. Closing inventory includes loss of goods as all unsold goods are assumed to be in inventory.
    5. Under this method inventory control is not possible. 5. Inventory control can be exercised easily.
    6. It requires closing of business for counting of stock. 6. Stock can be valued without hampering the normal business activities.

    Methods of Stock Valuation


    1. FIFO Method- Under this method, for the purpose of pricing the issues, it is assumed that materials received first are issued first.

    2. LIFO Method- Under this method, for the purpose of pricing the issues, it is assumed that materials received lat are issued first.

    3. Simple average Method- Under this method the rates of purchases represented by stock at the time of issue are added and then divided by the number of such rates to obtain the simple average rate at cost.

    4. Weighted Average Method- Under this method total cost of materials in stock at the time of issue is divided by the total quantity of materials in stock to obtain the weighted average rate.

    5. Periodic Simple Average Method- In this case the rates of purchases during a given period are added and then divided by number of such purchases during that period. Opening stock representing last year’s purchases is not considered.

    6. Periodic Weighted Average Method- In this case, to obtain rate of issues, all purchases during a given period in value (cost) are added and then it is divided by total quantity purchased. Here also opening stock representing last year’s purchases is not considered.

    Note- Under both periodic simple average method and weighted average method all issues are made at a single rate.

    Difference between LIFO and FIFO Method of Pricing

    FIFO Method
    LIFO Method
    1. In this case first receipts are issued first. 1. In this case last receipts are issued first.
    2. In condition of rising prices, FIFO gives greater profit. 2. In condition of falling prices, LIFO gives greater profit.
    3. FIFO puts emphasis on the balance sheet. 3. LIFO puts emphasis on the income statement.

    For B. Com Only-
    Stock Level of Materials


    Maximum Level= Re-order level + Re-order quantity-(Minimum Consumption X Minimum order period)

    Or, = Re-order level + Re-order quantity- Minimum Consumption in Given Period

    Minimum level= Re-order level-( Average Consumption X Average re-order period) or,
    Re-order Level-(Average Consumption Rate X Average Lead Time)

    Re-ordering Level= Maximum Consumption X Maximum re-order period) or,
    Average Consumption X( Minimum Stock for emergency + Avg. Lead Time) or,
    Safety Stock + Lead Time Consumption

    Average Level= Minimum Level + Maximum Level\ 2

    Danger Level= Average Consumption X Lead Time For Emergency Purchases

    Economic Order Quantity= 2AO\C ?

    Number of orders= Annual Consumption\ EOQ ( Order Size)

    Time gap between two consecutive orders= 12 Months or 365 Days\ Number of Orders

    Here ,A= Annual Consumption , O= Ordering Cost , C= Carrying Cost.

  4. #14
    deepika
    Guest

    Thumbs up Fundamenal of Accounting - Consignment.

    CONSIGNMENT

    Consignment- It is a form of the business under which the entrepreneur appoints an agent to sell the goods. In consideration the agent gets commission.

    RELATED PARTIES
    Consignor: He is the owner of the goods. He consigns the goods to the agent to sell on his behalf.

    Consignee: He is the agent appointed by the consignor to sell the goods on his behalf. He gets commission on sales at a specified rate.

    TYPES OF COMMISSION
    Ordinary commission: This commission is paid in each case. It is generally paid on sale price. But sometime it is paid on invoice price (I.P.).

    Del-credre commission: This commission is paid when consignee agrees to bear bad debts. In this case bad debt is the loss of the consignee not of the consignor. So bad debt is not shown in the Consignment A\C. But consignee shows it in his book by passing the following entry-

    Commission Earned A\C - Dr.
    To Bad Debt A\C

    Special commission:

    i. Based on profit -Sometime consignee is paid some portion of profit as commission.
    ii. Over-riding commission -Some time consignee gets extra commission if he sells the good over and above I.P.

    Types of losses

    Normal Loss- No accounting treatment is required for it . It is just deducted (in quantity) from total quantity to
    calculate the value of consignment stock (closing stock).It occurs regularly in the business.

    Abnormal Loss-This is the loss which occurs accidentally and which does not occur regularly.

    Types of Expenses
    Recurring Expenses- Expenses which are incurred for more than once on any particular lot of goods are called recurring expenses. In other words, expenses incurred after the goods arrive at the consignee’s godown are called recurring expenses. Ex. Godown rent, selling expenses, advertisement, carriage outward, salesmen’s commission etc.

    Non-recurring Expenses- Expenses which are incurred only once on any particular lot of goods, are called nonrecurring expenses. In other words, expenses incurred till the goods arrive at the consignee’s godown. Ex. Loading expenses, unloading expenses, handling expenses, carriage to godown, dock dues, custom duty and clearing charges etc.

    Note- Accounting treatment for it has been discussed later.

    Books of Consignor- In the books of consignor following accounts are prepared

    1. Consignment A\c ( Nominal A\C)
    2. Consignee A\C ( Personal A\C)
    3. Abnormal Loss A\C ( nominal A\C)
    4. Goods Sent on Consignment A\c ( Nominal A\C)
    5. Consignment Stock A\c (Real A\C)
    6. Stock Reserve A\c ( Nominal A\C)

    Books of Consignee


    1.Consignee A\C
    2. Commission A\C

    Computation of abnormal loss and value of closing stock
    Rs
    Cost of goods sent ****
    Add.Cosignor’s Expenses ****
    Less- Abnormal loss ****
    Add. Consignee’s non-recurring expenses ****


    JOURNAL ENTERIES:

    Books of Consignor

    i. For goods sent on consignment -
    Consignment a/c - Dr
    To Goods sent on consignment a/c

    ii. For expenses paid by the consignor.
    Consignment a/c - Dr
    To Bank a/c

    iii. For exp. paid by the consignee
    Consignment a/c - Dr
    To Consignee

    iv. For commission payable to consignee
    Consignment a/c - Dr
    To Consignee

    v. For sale
    Consignee a/c (cash) - Dr
    Consignment Debtros (credit) - Dr
    To consignment a/c

    vi. For Bad debts
    Consinment a/c - Dr
    To Consignee - (If no consignment debtor a\c is maintained)
    To Consignment debbts A/c - ( If consignment debtor a\c is maintained)

    vii. For Abnormal Loss
    Abnormal Loss a\c - Dr.
    To Consignment a\c

    viii. For Insurance Claim Received
    Consignee a\c - Dr. (If received by the consignee)
    Bank a\c - Dr. ( If received by the consignor)

    ix. For discount on bill transfer to consignment a\c
    Consignment a\c - Dr.
    To Discount on bill a\c

    Note: Discount on bill may alternatively be debited to Profit & Loss A\C in place of debiting to Consignment A\C.

    CLOSING ENTRIES

    x. For transfer of goods sent on consignment
    Trading a/c - Dr (if consignor is a manufacturer)
    Purchases a/c - Dr (if consigner is not a manufacture)
    To Goods sent on consignment a/c

    xi. For abnormal coss
    Profit & Loss a\c - Dr
    To Abnormal Loss a\c

    xii. For closing stock
    Consignment stock a/c - Dr
    To consignment a/c

    xiii. For profit on consignment
    Consignment a/c - Dr
    To Profit & Loss a/c

    xvi. For loss on consignment a/c
    Profit & Loss a/c - Dr
    To Consignment a/c

    Some more entries only in case of goods are sent at I.P.


    xvii. For cancellation of loading on goods sent
    Goods sent on consignment a/c - Dr
    To Consignment a/c

    xviii. For cancellation of loading on abnormal loss
    consignment a/c - Dr
    To Abnormal loss

    xix. For stock reserve (Loading on consignment stock)
    Consignment a/c - Dr
    To Stock recerve a/c

    Some more enteries in case, Consignment Debtors a\c is maintained

    xx. For collection from debtors
    Consignee a\c - Dr. (If received by the consignee)
    Bank a\c - Dr. (If received by the consignor)
    To Consignment Debtors a\c

    xxi. For bad debts
    Consignment a\c - Dr.
    To Consignment Debtors a\c

    xxii. For bill receivable received by from the debtor
    Bills receivable a\c - Dr.
    To Consigmnment Debtors a\c

    Note: If consignee is paid del-credre commission, Consignment Debtor A\c is not maintained in the book of the consignor but it is maintained in the books of the consignee.

    Books of Consignee

    i. For goods received
    No Entry

    ii. For payment of consignment of consignment of consignment expenses
    Consignor a\c - Dr.
    To Baqnk

    iii. For commission receivable
    Consignor a\c - Dr.
    To Commission a\c

    iv. For collection from debtors
    Bank - Dr.
    To Consignor a\c

    v. For bad debts
    Consignor a\c - Dr. ( if del-credre commission is not paid)
    Bad Debts a\c - Dr. (if del-credre commission is paid )
    To Consignment Debtors a\c

    vi. For final remittance to consignor
    Consignor a\c - Dr.
    To Bank a\c
    To Bills payable a\c.

  5. #15
    deepika
    Guest

    Thumbs up Fundamenal of Accounting - Joint venture.

    Joint venture

    Joint venture- It is a very short duration business entered into by two or more than two persons jointly. It may be limited to one transaction or may extend to a number of transactions. It may be even for specified period of time.

    Separate set of books:-Under this method three accounts are opened. Accounts are maintained jointly in the book of ventures

    Journal entries

    i. For capital invested by ventures
    Joint Bank a/c - Dr
    To co- venture’s a/c

    ii. For expenses paid and purchase of goods.
    Joint venture a/c - Dr
    To joint Bank a/c (if paid through joint Bank)
    To co-venture’s a/c (if paid personally) - Dr

    iii. For purchase of goods on credit
    Joint venture a/c - Dr
    To creditor’s a/c

    iv. For purchase returns
    Creditors a/c - Dr (if return out of credit purchase)
    Joint Bank a/c - Dr (if return out of cash purchase)
    To joint venture a/c

    v. For Cash paid to creditors
    Creditors a/c - Dr
    To J/B (if paid through J/B)
    To co-venture (if paid by co-venture)

    vi. For sale
    J/B a/c - Dr (cash sale)
    Debtor a/c - Dr (credit sale)
    To J/V

    vii. For sales return
    J/V a/c - Dr
    To J/B (if return out of cash sale)
    To Debtors (if return out of credit sale)

    viii. For payment received from debtors
    J/B a/c - Dr (if receipt deposited into J/B)
    Co-venture a/c - Dr (if received by co- venture)
    To Debtors a/c

    ix.For discount Allowed or bad debts
    J/V a/c - Dr.
    To Debtors a/c

    x. For insurance claim received
    J/B a/c - Dr.
    To J/v a/c

    xi. For goods or assets taken over by the venturers
    Venturer’s a/c - Dr
    To J/V a/c

    xii. For commission or interest payable to venturers
    J/V a/c - Dr
    To venture’s a/c

    xiii. For profit
    J/V a/c - Dr
    To Venturer’s a/c

    xiv. For loss
    Venturer’s a/c - Dr
    To J/V a/c

    xv. For refund of capital
    Venturer’s a/c - Dr
    To J/B a/c

    xvi. For cash remittance by one venture to another.
    Receiving venturer a/c - Dr
    To paying venturer a/c

    xvii. For B/R drawn on debtor.
    B/R a/c - Dr
    To Debtors a/c

    xviii. For Bill discounted
    J/B a/c - Dr
    Discount on bill a/c Dr
    To B/R a/c

    xix. For transfer of discount on bill
    J/V a/c - Dr
    To discount on bill a/c

    Notes
    - No entries are required for (i) Goods remittance from one venturer to another. (ii) Goods destroyed or
    spoilage

    Same set of books

    1. Recording own transactions and transactions of co-venturer as well:-

    Under this method each venture maintains his own book preparing two accounts
    (i) Joint venture a/c (ii) Co-venturer a/c

    Note:- No joint bank a/c is opened but all the payments are made by the ventures personally.

    Journal entries :-


    1. For payment of expenses and goods purchased.
    J/V a/c - Dr
    To Bank (own transactions)
    To Co- venturer’s a/c (co-venture’s transaction)

    2. For goods supplied out of existing business.
    J/V a/c - Dr
    To Purchases a/c (own)
    To Co-venturers a/c

    3. For sale of goods
    Bank a/c - Dr
    Co-venturer a/c Dr
    To J/v a/c

    4. For cash remitted to co-venturer.
    Co-venturer a/c - Dr
    To Bank a/c

    5. For cash received from co-venturer.
    Bank a/c - Dr
    To Co-venturer a/c

    6. For B/R drawn on co-venturer
    B/R a/c - Dr
    To Co-venturer a/c

    7. For B/P drawn by co-venturer
    Co-venturer a/c - Dr
    To B/P a/c

    8. For B/R discounted.
    Bank a/c - Dr.
    J/V a/c (amount of discount) Dr.
    To B/R a/c

    9. For goods or assets drawn by self
    Purchases a/c - Dr.
    Assets a/c - Dr.
    To J/V a/c

    10. For goods or assets drawn by co-ventures
    Co-venturer a/c - Dr.
    To J/V

    II. For interest or commission payable to ventures
    J/V a/c - Dr.
    To Interest/Commission a/c - (own)
    To Co-venturer a/c

    12. For insurance claim received
    Bank a/c - Dr.
    Co-venturer A/c - Dr.
    To J/V a/c

    13. For profit
    J/V a/c - Dr.
    To P/L a/c (own)
    To Co-venturer a/c

    14. For Loss
    P/L a/c - Dr.
    Co-venturer a/c - Dr.
    To J/V a/c

    15. For final remittance to co-venture.
    Co-venturer a/c - Dr.
    To Bank

    16. For final receipt from co-venturer.
    Bank a/c - Dr.
    To Co-venturer a/c

    Memorandum Joint Venture

    Under this method accounts are maintained under same set of books. But venturers record own transactions
    only. They do not record the transactions made by the co-venturer. At the end they prepare Memorandum
    Joint Venture jointly putting all the transactions made by all the venturers.

    Note- Journal entries are passed under same set of books as above.

  6. #16
    deepika
    Guest

    Thumbs up Fundamenal of Accounting - Profit and Loss Appropriation Account.

    Profit and Loss Appropriation Account

    Profit & Loss Appropriation A\C- This account is prepared to show the distribution of net profit between or among the partners.

    Provisions of Partnership Act.

    No interest on capital is payable.
    ii. No interest on drawing is chargeable.
    iii. No any type of remuneration is payable to the partners.
    iv. Profit or loss is to be divided equally.
    v. Interest @ 6% is payable on the loan provided by the partners to the firm.
    vi. No any new partner can be admitted to the firm without the consent of all the partners.

    Note- Above provisions are applicable only if there are no agreements regarding all these.
    Interest on monthly drawings:

    1. If drawings are made at the beginning of each month, interest is charged for 6.5 months.
    2. If drawings are made in the middle of each month, interest is charged for 6 months.
    3. If drawings are made at the end of each month, interest is charged for 5.5 months.

    Note- If date of drawing is not mentioned, interest is charged for 6 months.

    Types of Capital


    A. Fluctuating Capital
    B. Fixed Capital
    i. Capital A\C
    ii. Current A\C

    Adjustments to be posted in fixed capital accounts:

    1. Introduction of capital is credited to Capital A\C
    2. Withdrawn of capital is debited to Capital A\C

    In the books of the partnership firm
    Profit & Loss Account
    For the year ended………..


    Particulars Rs. Particulars Rs.
    To Interest on Capital
    To Partners’ commission, salary etc.
    To Interest on partners’ loan*
    To General Reserve & Other Reserves
    To Divisible Profit
    ****
    ****
    ****
    ****
    By Profit & Loss A\C
    -Net Profit
    By Interest on drawings
    ****

    ****

  7. #17
    deepika
    Guest

    Thumbs up Fundamenal of Accounting - Treatment For Goodwill.

    Treatment For Goodwill

    A) When Premium for goodwill is brought

    i) For premium for goodwill brought by the new partner
    Bank A/C - Dr.
    To Premium for Goodwill (PFG)
    (Being PFG brought by new partner)

    ii) For PFG shared by the old partners
    PFG A/C - Dr.
    To Old Partners’ Capital A/Cs ( In sacrificing ratio)
    (Bing PFG credited to old partners’ capital A/C)

    iii) For amount of PFG withdrawn by the partners
    Old Partners’ capital A/Cs - Dr.
    To Bank A/c
    (Being amount of PFG withdrawn)

    B) When PFG is not brought

    i) For raising goodwill
    Goodwill A/c - Dr.
    To Old Partners’ Capital A/Cs (In Old Ratio)
    (Being goodwill raised crediting partners’ capital A/Cs)

    ii) For writing off goodwill
    All partners’ capital A/C - Dr.
    To Goodwill A/C (In New Ratio)
    (Being goodwill written off after admission of new partner)

    iii) For adjustment to be of made though Capital A\Cs
    New Partner’s Capital A/C - Dr.
    To Old Partners’ Capital A/Cs (In Sacrificing Ratio)
    (Being treatment for goodwill made through capital A/Cs)

    iv) For PFG not brought temporarily
    New Partner’s Loan A/C - Dr.
    To Old Partners’ Capital A/Cs (In S/R) (Being PFG due from new partner)

    C For PFG paid privately – No Entry

    Method of Calculating Goodwill

    i) Average profit method= Average profit X No. of years purchase

    ii) Super profit method= Super profit X No. of years purchase

    NOTE- Super profit = Avg. /Actual profit – Normal profit
    Annuity method= Super profit X Annuity factor

    Super profit capitalisation method = Super profit x 100

    Normal rate of return


    Average Profit Capitalisation Method =
    Average Profit X 100Normal Rate of Return


    What is Goodwill?

    It is the reputation earned by the business by establishing faith among the customers.

    Premium for Goodwill – PFG is the amount brought by the incoming partner in addition to his capital to be shared by the old partners in sacrificing ratio for the reputation or goodwill earned by them for the business.

    Circumstances when goodwill need to be valued.

    i) At the time of admission of a partner.
    ii) At the time of retirement of a partner.
    iii) At the time of death of a partner.
    iv) At the time of dissolution of the firm.
    v) When profit sharing ratio among the partner changes.


    Admission of a partner


    i) For capital brought by the new partner.
    Bank A/c - Dr.
    To New Partner’s Capital A/c

    ii) For transfer of retained earnings.
    Profit & loss A/C - Dr.
    General Reserve - Dr.
    Other Reserves & Funds A/C - Dr.
    To Old Partners’ Capital A/Cs

    (Being transfer of retained earnings)

    iii) For transfer of retained loss
    Old Partners’ Capital A/C - Dr.
    To Profit & Loss A/C
    To Advertisement Suspense A/C

    iv) For increase in value of eases
    Assets A/C - Dr.
    To Revaluation A/C

    v) For decrease in value of assets
    Revaluation A/C - Dr.
    To Assets A/C

    vi) For increase in liabilities
    Revaluation A/C - Dr.
    To Liabilities A/C

    vii) For decrease in liabilities
    Liabilities A/C - Dr.
    To Revaluation A/C

    viii) For loss on revaluation
    Old partners’ Capital A/Cs - Dr.
    To Revaluation A/C

    ix) For profit on revaluation
    Revaluation A/C - Dr.
    To Old Partners’ Capital A/Cs

    Retirement or Death of a Partner

    What does a retiring partner or deceased partner takes away?
    i. His capital
    ii. His share of retained earnings or loss
    iii. His share of goodwill
    iv. His share in joint life policy
    v. His share of profit up to the date of retirement or death

    NOTE- All the above entries (except no. 1) are same in case of retirement and death.

    x) For share of profit up to the date of death or retirement.
    Profit & Loss Suspense A/C - Dr.

    To Retiring / Deceased Partner’s Capital A/C

    Settlement of Retiring or Deceased Partner’s Dues

    i. By payment of whole amount at the time of retirement
    ii. By transferring the full amount to Loan A\C to be paid later
    iii. Part payment at the time of retirement and balance is transferred to Loan A\C to be paid later.

  8. #18
    deepika
    Guest

    Thumbs up Fundamenal of Accounting - Joint Life Policy.

    Joint Life Policy


    Joint Life Policy
    - The partnership firm takes joint life policy on lives of the partners sometimes jointly ii) sometimes individually.

    Joint Life Policy may be dealt with in the following manner:
    i) When LJP A\C is not maintained
    ii) When JLP A\C is maintained
    i. When JLP A\C is not maintained

    Under this method premium paid for the policy is treated as an expense of the business thus debited to P\L
    A\C. No Joint Life Insurance Policy is shown in the balance sheet.

    Journal Entries
    1. For payment of premium
    JLP Premium A\C - Dr.
    To Bank A\C

    2. For charging prm.
    P\L A\C - Dr.

    To JLP Prm. A\C

    3. For JLP realized
    Bank A\C - Dr.
    To Partners’ Capital A\C

    2. When JLP A\C is maintained

    a. Joint Life Method- Under this method JLP is maintained at its surrender value.

    1. For payment of prm.
    JLP A\C - Dr.
    To Bank A\C

    2. For adjustment of book value of JLP with its surrender value
    P\L A\C - Dr.
    To JLP A\C (if book value is higher than surrender value)
    JLP A\C - Dr.
    To P\L A\C (if book value is lower than surrender value)

    3. For realization of JLP
    Bank A\C - Dr.
    Partners’ Capitals A\Cs (Being loss) - Dr.
    ( If realized below book value)
    To JLP A\C
    To Partners’ Capital A\Cs (Being profit)
    (if realized above book value)

    b. JLP Reserve Method- Under this method a JLP Reserve A\C is maintained at surrender value along with JLP
    A\C.

    1. For payment of JLP prm.
    JLP A\C - Dr.
    To Bank A\C

    2. For creation of JLP Reserve
    P\L A\C - Dr.
    To JLP Reserve A\C

    3. For bringing down JLP to its surrender value
    JLP Reserve A\C - Dr.
    To JLP A\C (With the amount JLP A\C exceeds its surrender value)

    4. For realization of policy money
    Bank A\c - Dr.
    To JLP A\C

    5. For transfer of credit balance of JLP
    JLP A\C - Dr.
    To JLP Reserve A\C

    6. For transfer of balance of JLP Reserve
    JLP Reserve A\C - Dr To Partners’ Capital A\Cs.

  9. #19
    deepika
    Guest

    Thumbs up Fundamenal of Accounting - Introduction to Company Accounts.

    Introduction to Company Accounts


    Features of a company

    1. Artificial Person
    2. Incorporated Association
    3. Separate Legal Entity
    4. Perpetual Existence
    5. Common Seal
    6. Limited Liability
    7. Distinction between Ownership and Management
    8. Periodic Audit
    9. Not a Citizen
    10. Transferability of shares
    11. Maintenance of Books

    Types of Companies

    Statutory Company- All those company which operates under the special act passed by the state Legislature or parliament are called statutory company.

    Government Company- A Govt. Co. is that co. in which Central Govt. or State Govt.\ Govts. or partly by Central Govt. and partly by State Govt.\ Govts. hold at least 51% shares. Subsidiary of a Govt. Co. is also called a Govt. Co.

    Foreign Company-
    A foreign Co. is that co. which is incorporated outside India.

    Holding Company and Subsidiary
    - If any co. holds 51% or more shares of a company the former is called holding co. and later is called subsidiary co.

    Public Company-Features
    1. A public co. means a company which is not a private co.
    2. It must have a minimum paid-up capital of Rs. 500000.

    Private Company- Features
    1. A private co. means a company which has a minimum paid-capital of Rs. 100000.
    2. Non-transferability of shares.
    3. Number of members (share holders) is limited to 50.
    4. It cannot invite public to subscribe its shares.
    5. It cannot accept any deposit from persons other than its members, directors and relatives.

    Financial Statements of a Company Includes
    1. A profit & Loss A\C 2. A Balance Sheet
    But now-a-days Cash Flow Statement is also published by the co.

  10. #20
    deepika
    Guest

    Thumbs up Fundamenal of Accounting - Issue of shares.

    ISSUE OF SHARES

    Shares- The capital of the company is divided into units of equal denominations. Each of the units carries a fixed amount. These units are known as shares.

    Types of shares- 1) Equity Share 2) Preference Share

    Share Capital

    Authorised Share Capital- This is also known as Registered Capital or Nominal Share Capital. This is the maximum number of capital which a company can issue.

    Issued Share Capital-It is the nominal value of that part of the Authorized Capital which has been offered to the public for subscription.

    Subscribed Share Capital- It is the part of nominal value of issued capital that has been subscribed (applied for) by the public and allotted to the director to the company.

    i) Over Subscription- It is the situation when number of the application is more than the number of the shares offered by the company.
    ii)- Under Subscription- It is the situation when number of the shares is less than number of shares company offered by the company.

    Called-up Capital- it is the part of the subscribed capital which the company has called upon its share holders to pay.

    Paid-up Capital- It is the part of called-up capital which the shareholders have actually paid.
    Reserve Capital- is the part of uncalled capital which shall not be called up for payment except during its liquidation.

    Issue of Shares


    At Par
    (Share issued at Nominal Value)
    At Premium
    (Shares issued at a price higher than Nominal Value)
    At Discount
    (Shares issued at a price lower than Nominal Value)

    Calls-in-arrear: Amount not paid on allotment and call on time is called calls-in-arrear. Interest on calls-in advance is chargeable is @ 5% p.a. (as per Table A).

    Calls-in –advance: Amount paid on allotment and call before time is called, calls-in-arrear. Company pays interest @6% p.a. on calls-in-advance (as per Table A).

    Conditions of issue of shares at discount as per section 79 of Companies Act, 1956:

    1. Such an issue is being made at least after one year from the date of commencement of business.
    2. The company must have resolved at its general meeting and the Central Government must have sanctioned such an issue.
    3. The rate of discount should be resolved as above but should not exceed 10 %. However in some special cases discount at higher rate may be offered.
    4. The issue at discount must be made within two months from the date of sanctioned or within such date as may be approved by the Central Government.
    5. Only such type of shares may be issued at discount which has already been issued.

    Utilsation of Securities Premium as per sec. 78

    1. For issuing fully paid bonus shares.

    2. For writing off following
    i) Share issue expenses or commission paid on issue of shares.
    ii) Discount on issue of shares or Debentures.
    iii) Preliminary expenses.

    3. For providing premium on redemption of preference shares or debentures.

    Minimum Application as per sec. 79

    Forfeiture of Shares

    In case of non-payment of allotment money or any of the call money, company after serving a notice may forfeit the shares. Notice is served giving at least 14 days time.
    Re-issue of Forfeited Shares

    Shares may be re-issued at or at premium or at discount.

    Maximum amount of discount on re-issue

    1. Where shares were originally issued at par or at premium

    Maximum Discount= Amount Forfeited

    2. Where shares were issued at discount

    Maximum Discount= Amount Forfeited+ Amount of Original Discount

    Prospectus- Prospectus is a document issued before the issue of shares to invite the public for subscription of shares.

    Pro-rata Allotment of Shares- in case of over subscription of shares, company issues shares to the public in proportion of shares applied by them. This is called pro-rata allotment.

    Journal Entries

    For receipt of application money
    Bank A\C - Dr.
    To Share Application A\C

    For application money transfer share capital account
    Share Application A\C - Dr.
    To Share Capital A\C

    For refund of excess application money
    Share Application A\C - Dr.
    To Bank A\C

    For adjustment of excess application money with allotment money
    Share Application A\C - Dr.
    To Share Allotment A\C

    For allotment money due
    Share Allotment A\C - Dr.
    To Share Capital A\C

    For allotment money received
    Bank A\C - Dr.
    Calls-in- arrear A\C (if any) - Dr.
    To Share Allotment A\C

    For call money due
    Share Call A\C - Dr.
    To Share Capital A\C

    For call money received
    Bank A\C - Dr.
    To share Call A\C (if any)
    To Calls-in-advance A\C

    For forfeiture of Shares
    Share Capital A\C - Dr.
    Securities Premium A\C (if due) - Dr.
    To Share Forfeited A\C
    To Calls-in-arrear A\C
    To Discount on Shares (if any)

    For re-issue of shares

    Bank A\C - Dr.
    Discount on shares A\C - Dr. (Original amount of discount)
    Share Forfeited A\C (loss on re-issue) - Dr.
    To Share Capital A\C.

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