CHAPTER NO.1
NON TRADING CONCERNS
1. What is meant by non trading concerns?
Individuals or
institutions with activities other than trade and their primary objective is not to earn profit are known as non trading
concerns. Like hospitals, libraries and colleges.
2. What is receipt & payment account?
A receipts &
payments account is summarized cash book for given period. Receipts are shown
on the debit side and payments are shown on credit side without any distinction
between capital and revenue.
3. What is income and expenditure account?
The account through
which surplus or deficits of a non trading concern is ascertained. This account
is credited with all earning and debited with expenses is called income and
expenditure account.
4. What is major difference between receipts or
payment account and an income and expenditure account?
Receipts and payments
account only a summary of the cash transactions whereas income &
expenditure accounts a comparable account of a profit and loss account which
shows the incomes expenses and surplus / deficit for the period.
5. What are key statements prepared in accounts
of nonprofit seeking organization?
The following three
key statements are prepared at the end of year
·
Receipts and payments
accounts
·
Income and expenditure
accounts (Profit and loss account)
·
Balance sheet
6. What are key statements prepared in accounts
of profit seeking organization?
The following key
statements are prepared at the end of year
·
Trial Balance
·
Trading and
Profit & loss account
·
Balance sheet
7. Define legacy?
The amount given to a
non trading concern as per the will of deceased person is known as legacy. It
should be treated as capital receipts and included capital fund account.
8. Define donations?
Donation is the amount
received from some person, firm, company or any other body by way of gift.
if donations are for
specified purpose then it should be treated as capital expenditures and
otherwise credited to income and expenditure account
9. What is subscription?
The amount paid by the
member annually to keep their membership alive is known as subscription.
It should be credited
to income and expenditure account.
10. What is special subscription?
It is the special
subscriptions collected form the members who participate in a particular
activity because of the cost involved in providing these may vary considerably. It should be credited to income and
expenditure account.
11. Define life membership fee?
This is a system where
by a member pays a lump sum and then becomes a member of the whole life.
Life member not
required to pay the annual membership fees. As life membership fees is a
substitute for annual membership fees only fair portion is to considered in
income and expenditure account. If not mentioned treat all the amount.
12. Define entrance fees?
At the time of
admission every new member is to pay specific fee in addition to subscription
called entrance fees. It should either treat as capital or revenue receipts but
normally treat as revenue receipts
13. What is sale of news paper?
As the old newspaper
or magazines and other things are disposed off every year, It should be
credited in income and expenditure account
14. Define sale of sports material?
Sale of sports
material is a regular function of club, It should be credited in income and
expenditure account
15. What is capital fund?
The difference between
total assets over total external liabilities in case of non trading concern is
called capital fund. It should not considered in income and expenditure account
16. What is honorarium?
The amount paid to the
person who is not the employee of the organization is said to be honorarium
person may be invited to deliver lectures or artists may be invited to give
their performance
It should be debited in income and expenditure account.
SINGLE ENTRY
SYSTEM
1. What is single entry system of book keeping?
Single entry system
may be defined as a system in which accounting records are not kept strictly
according to the double entry system of book keeping.
2. Write down the formula for determining the net
profit under net worth method?
The formula for
determining the net income may be put as follows
Net income
=
capital at the end (Ending Capital
(+) Drawings
(-) Additional capital (Fresh
capital) introduced
(-) Capital at the beginning (Beginning
capital)
3. Define characteristics of single entry system?
·
It is suitable for the
small businesses
·
Only personal account
are kept
·
This system is
flexible
4. What are the limitations/defects of single
entry system?
The defects of this
system may be summed up as follows.
·
Under this system only
partial and incomplete record is kept because two fold aspects of transactions
are generally ignored.
·
As the two fold
aspects of every transaction are not recorded a trial balance cannot be drawn
up to test the arithmetical accuracy of the record
·
As nominal accord are
not maintained a profit and loss account cannot be prepared for want of
information regarding the various income and expenditures
·
As no real account are
maintained the preparation of a balance sheet is not possible
5. Write down the fundament balance sheet
equation?
Assets = Liabilities +
Owner’s Equity
6. How many methods are for preparing final
account from single entry system?
There are two methods
for preparing the final account
1) First method of statement of affairs
2) Second method conversion into double entry
system
7. What is statement of affairs?
It is statement of
assets and liabilities (including capital) prepared under the single entry
system.
8. Define balance sheet?
It is statement of
assets and liabilities (including capital) prepared under the Double entry
system.
9. What is major difference between single entry
system and double entry system?
Under entry system
both debit and credit aspects of all the transactions are recorded whereas
under single entry system some transactions are not recorded at all while some
transactions are recorded in only one of their aspect either debit aspect or
credit aspect ( only one aspect of transaction).
10. What will be the capital of proprietor, in his
assets are of Rs. 87000 and liabilities are of Rs. 20000?
Assets-Liabilities = Capital
87000-20000= 67000
11. What shall be the profits of the concern
in beginning capital is Rs 8000 and capital at the end Rs, 9000 drawing during
the year is Rs 1800 fresh capital Introduce Rs 500?
Net income
=
capital at the end (Ending
Capital
9000
(+)
Drawings
1800
____________________________________________________
10800
(-) Additional capital (Fresh
capital)
introduced
500
(-) Capital at the beginning (Beginning
capital)
8000
____________________________________________________
2300
12. Calculate the missing figures profits made
during the year Rs, 2400 Drawing Rs.1200 capital at the end Rs 8000 opening
capital? Fresh capital introduced during the year Rs 2000?
Net income = capital at the end (+) Drawings (-) Additional
capital (-) Capital at the beginning
2400 = 8000 + 1200-2000-Capital at the beginning
Capital at the beginning = 8000 + 1200-2000-2400 = 4800
13. Calculate the Net income/Loss
Opening capital Rs. 5000, capital introduced Rs.1000
Net income = capital at the end (+) Drawings (-) Additional capital (-) Capital
at the beginning
Net Loss = 0+0-1000-5000= -6000
14. Calculate the drawing s during the year:
Capital in the
beginning Rs,
20000
Capital introduced Rs, 25000
Profit made during the year Rs.15000
Net income = capital at the end (+) Drawings (-) Additional capital (-) Capital
at the beginning
15000 = 0+Drawings-25000-20000
Drawings = 15000+25000+20000 = 60000
15. How Many methods are for conversion from single
entry to double entry?
· Prospective ( on and from the date on which arrangements
are made for conversion)
· Retrospective (on and from a date before the date of
conversion)
16. In case of conversion of single entry system
into double entry. What necessary information / item are required for the
preparation of trading account?
In order to prepare trading account following information’s / items are
required
Opening stock + purchase + direct expenses-sales- closing stock
17. In case of conversion of single entry system
into double entry. What necessary information / item are required for the
preparation of profit and loss account?
The following item are required in order to
prepare the profit and loss account
Indirect expense- other incomes
18. In case of conversion of single entry system
into double entry. What necessary information / item are required for the
preparation balance sheet?
Following information
are required in order to prepare the balance sheet
· All assets
· All liabilities
· Opening capital
· Profit or loss of the year
19. How to prepare to Total debtors accounts?
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Total debtors account
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Opening balance
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cash received from debtor during the period
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credit sales
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B/R Received
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B/R dishonored
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Return Inward
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Discount allowed
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Bad debts
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Closing balance
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20. How to prepare total creditors accounts?
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Total Creditor account
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Cash paid to creditors
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Opening Balance
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B/P granted
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Credit Purchases
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Return outward
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B/P dishonored
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Discount received
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Closing balance
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Chapter no 4
Company
Define Joint Stock
Company
A joint stock company may be defined as an
artificial person recognized by lay with a distinctive name a common seal, a
common capital comprising transferable share carrying limited liability and
have a perpetual succession
What is separate legal
entity of company?
Separate legal entity means that a company is
distinct from the person forming it. It enjoy s may of the rights artificial
persons.
Like
·
It sue or be sued in
its name
·
If can own and
transfer the property on its own name
What is common seal?
Common seal is used as substitute of signature
because company is an artificial person and cannot sing itself.
Define perpetual existence
of a company
It means a joint stock company has a
continuous life. The share holder can come or go but the existence of a company
cannot effect. It can be winded up through compliance with the provision of
company’s ordinance 1984
Define limited liability.
The liability of the member is generally
limited ot the extent to the nominal value of share or the amount held by them.
What is company
limited by shares?
These are companies in which the shareholders
have a limited to the extent to the nominal value of shares. These companies
must have share capital.
What is company
limited by guarantee?
A company in which the liability of its
members is limited to such amount a s member may be respectively undertake tot
contribute to the assets of the company in the event of tits being wound u.
generally such companies do not have share capital.
Define unlimited
company.
A company in which the liability of its
members n unlimited every member of the companies personally liable to the full
extent of his personal assets for the full debts f the companies it may or may
or may not have share capital.
Private limited
company.
According to the
company ordinance 1984 it can be formed
1.
At least tow member
and maximum 50 members
2.
It has no right to
issue the shares
3.
It restrict the
transference of shares
What is a public
limited company?
According to the
company ordinance 1984 it can be formed
1.
At least seven member
and there is no limit on maximum numbers
2.
It can invite the
public for application for issuance of shares
3.
it can easily transfer
the shares form one person to another person
Define memorandum of
association.
The document which define the scope and object
of the company
What is article of
association?
The document which defines the rules and
regulation of the company
What is prospectus?
This is a statement in the form of a small
booklet, notice, circular, advertisement or other an invitation issued by the
company to the public for subscription of shares
Define term shares.
The total amount of capital of a company Is
divided into smaller units these units are called shares.
What is share capital?
The sum or total of the par value of shares of
a company is called share capital.
Define Authorized
capital.
The amount of capital with which is
registered. It is also called nominal or registered capital.
Define issued capital.
Shares offered to the general public for
contribution are know as shares issued the totoal value of these shares called
issued capital.
Define Subscribed
capital.
Out of the total number of shares issued by
the company that is number of share which is taken up by the public are know as
subscribed shares. The total valued of such shares called subscribed s capital.
Subscription may be:
·
under subscription (A company may not received application for all
the shares offer by it to the public. a company receives application less that
its offer is called.)
·
over subscription (A company may receive a large number of application for all the
shares offer by it to the public. a company receives application more then that
its offer is called.)
What is called up
capital?
The portion of a subscribed capital which is
called up by the company form public is called up capital
Define Paid up capital
The total amount received by the company out
of the total called up amounts called paid up capital.
What is primary
or preliminary expense?
These are the expense which is incurred in the
initial sates of incorporation like legal fee, remuneration of promoters and
cost of printing of various documents.
Define underwriting commission
The commission which is paid to underwriter to
take the risk of share offiered to the pubic is know as underwriting
commission.
What is par value of
share?
The value of which is assigned to a unit of
shares is called par value of share its is also called as nominal value
or face value of shares.
Define book value of
shares?
The value of shares according to the books of
a company is called book value of share.
What is market value
of share?
The price at which the buyer is willing to
purchase the shares and seller is willing to sell it is called market value of
shares.
Issued of shares at
premium?
When a share having face value of Rs.10 is
issued by the company for an amount more than Rs.10 the share is called issued
at a premium.
Issued of share at
discount?
When a share having face value of Rs.10 is
issued by the company for an amount Less than Rs.10 the share is called issued
at a Discount
Define Debentures?
A certificate issued by a company under its
seal acknowlging a debts due by it to its holder. It includes debentures stock,
Bonds and participation term certificate and other securities.
Kinds of debentures
Redemption point of
view
1. Redeemable debentures
Those debentures which are repayable at the
end of a specified period
2. Irredeemable debentures
Those debentures which never repayable during
the existence of the company
Convertibility point
of view
1. Convertible debentures
These are debentures which are converted into
shares as per terms of their issues
2. Non convertible debentures
Debentures are not convertible into shares of
a company are term as non convertible debentures.
Security point of view
1. Simple or naked debentures
Those debentures which are without any
security as to payment of interest or repayment of principle
2. Mortgage debentures
Those debentures which are secured by a fixed
or floating charge on the assets of the company
Registration point of
view
1. Registered debentures
These are debentures which are registered in
the name of the holders in the books of the company. And transfer of these must
be registered in the books of company
2. Bearer Debentures
These are payable to bearer of debentures.
These debentures can be transferred by mere delivery
What is debentures
stock?
Debentures stock is converted debentures which
is fully paid and transfer in fraction of rupees.
Difference between Debentueres and debentures
stcok
What is difference
between Debentures holder and share holder?
Debentures
holder
Share holder
Debentures holder is creditor of company.
Shareholder is Owner of business.
Debentures holder receives interest.
Shareholder
receives profit.
Debentures holder have no right to participate
in Shareholder participate in
decision making decision making.
What is difference
between Joint Stock Company and partnership?
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JSC
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Partnership
|
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It is a legal person.
|
it is not legal person
|
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Liability of member is
limited
|
Liability is not limited
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Number of members are at least 7
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at least 2 and maximum 20 members but in
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banking sector not more then ten.
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What
is consignment?
Consignment is a act
of sending a quantity of good from one person/one country to another person/an
other country for selling purpose is called consignment.
Who is consignor?
Consignor is person
who is sending the goods means sender of goods is called consignor.
Who is consignee?
Consignee is person to
whom goods are send is called consignee
What is consignment
outward?
Dispatch of goods for
consignor to consignee is called consignment outward
What is consignment
inward?
Goods receipts
from consignee for consignee point of view is called consignment inward
What is difference
between sale and consignment?
|
Sales
|
Consignment
|
|
Ownership is
transferred to purchaser
|
Ownership is not
transfer to consignee
|
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Relationship between
seller and purchaser of debtor and creditors
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Relationship between
consignor and consignee of Principle and agent
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All the expenses are
borne by Purchaser
|
All the expense are
borne by consignor
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Purchaser is
responsible for all losses
|
Consignor is
responsible for all losses
|
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Account sale is not
required
|
All sale is required
|
Define the term
commission?
Remuneration paid for
services is called commission. Commission is always paid on sales.
Define the term Del
creder commission?
Extra commission paid
to consignee for timely collection of debs and avoids bad bebts is called Delcreder commission.
What is overriding
commission?
Commission paid on the
sale of new product line is called overriding commission
Define advance against
consignment?
Advance given by
consignee to consignor that may be in form of cash or bill of exchange
What is consignment
account?
Consignment account
which shows profit or loss is called congisments account.
What is an account
sale?
A document prepared by
consignee by giving the detail of goods sold
Define Performa
invoice?
An invoice which give
the detail about the quantity, quality of goods
What is Normal loss?
Which is inherited and
cannot not avoid like the sand
What is abnormal loss?
Which is not inherited
and can be avoided is called abnormal loss.
What is stock?
No of finished goods
remain unsold is called unsold stock
ENTRIES FOR
CONSIGNMENT
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Consignor’s Journal
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Consignee’s journal
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1.When Goods sent
for consignment
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Consignment account
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No entry because of
no transfer of ownership
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Goods sent for Consignment
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2.Expenses incurred
by Consignor
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Consignment account
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No entry because
these are incurred by consignor
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Bank account
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3.Advance against
Consignment
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Cash account
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Consignor account
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Consignee account
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Cash account
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4.Expenses incurred
by Consignee
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Consignment account
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Consignor accent
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Consignee account
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Cash account
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5.sales of goods
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Consignee account
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Cash account
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Consignment account
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Consignor account
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6.Commission paid by
consignor
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Consignment account
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Consignor account
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Consignee account
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Commission account
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Be careful. And
remember.
Here stop and make
consignment account from journal of consignor. And get profit or loss Proceed
if profit then profit and loss is credited and if loss then profit and loss
is debited.
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7.For profit
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Consignment account
|
No entry
because he has no concern with profit
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Profit and loss account
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8.Clsoing of
consignment
|
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Good sent for
consignment account
|
No entry
because he has no concern with profit
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Trading account
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Chapter no 05
DEPRECIATION
What is depreciation?
Depreciation is the gradual and permanent decrease in the value of an asset is called deprecation.
How many kind of factors affect deprecation?
o Internal factor
o Wear and tear
o depletion
o External factor
o Obsolescence
o Efflux of time
o Accident
What is wear and tear?
Change in shape of assets due to its use is called wear and tear of asset.
Define depletion?
The process of measuring and recording the exhaustion of natural resources such as deposits, oil well etc, is called depletion
OR
Decrease in the quantity of assets like mine quarries and oil.
Define obsolescence
The term obsolesce refers to reduction in the useful life of the assets arising from such factors as
j Technological changes
j Improvement in production
j Change in the market demand
Or
The process of becoming out of date or obsolete is termed as obsolescence due new investigations or change in taste of people
What is amortization of assets?
the term amortization is useful for describing the process of wirtingdown or decrease the long term investments in intangible assets leases holds, patents, can copyright and goodwill
What are the major objects of providing deprecation?
The objectives of providing deprecation are
Ä To find out the net profit and loss account for accounting period
Ä To present a fair and value of assets on balance sheet
Ä Ascertain the true cost of production
Ä For true valuation of asset
Ä Replacement of asset
What are fixed assets?
Assets which have long life and which are bought for use for long period of time like building, machinery and furniture
What are tangible assets?
Assets which have physical existence and which can be seen and touched is called tangible assets
Define intangible assets
Assets which have no physical existence and which can be seen and touched is called intangible assets
What is difference between the term fluctuation and depreciation?
Depreciation is the gradual and permanent decrease in the value of an asset is called deprecation. But the value or price of assets may rise or fall due on the account of fluctuation
Define scrap value or residual value?
Scrap values mean the price at which at which an assets will be sold at the end of its working life is known as scrap or residual value.
What is difference between depreciation and depletion?
Depreciation is the gradual and permanent decrease in the value of tangible assets
And depletion is measuring and recording the exhaustion of natural resources
What is difference between deprecation and amortization?
Depreciation is the gradual and permanent decrease in the value of tangible assets and amortization is useful for describing the process of wirtingdown the long term investments in intangible assets leases holds, patents, can copyright and goodwill
How many methods for deprecation?
• Fixed installment Method
• Diminishing Method
• Annuity Method
What is fixed installment method?
The method under which charge fixed or equal amount of deprecation each year is called fixed installment method.
Entries
• When charged depreciation
Deprecation account
To Asset account
• Transfer to profit and account
Profit and loss account
Deprecation account
• When sold at end at scrap value
Cash account
Assets account
What are advantages of fixed installment method?
These are advantages of fixed installment method
• It is simple and easy to calculate
• The book value of asset can be reduce to zero
What are disadvantages of fixed installment method?
These are disadvantages of fixed installment method
• No provision for the replacement of the assets is made
• Not popular because charge depreciation every year same while effect of assets is decreasing every year
Under straight line method what formula is used to calculate deprecation?
Annual depreciation = Cost –scrap value
Estimated life
What are other names of fixed installment method?
• Straight line method
• Original cost method
What is diminishing balance method?
Under this method the asset is depreciated at fixed percentage calculate on the debit balance of the asset which is diminishing year after year on account of deprecation.
What are other names of diminishing balance method?
• Written down
• Reducing installment method
What are advantages of diminishing balance method?
• Popular because charge depreciation every year same while effect of assets is decreasing every year
• No separate calculation is not required for addition and extension
What are advantages of diminishing balance method?
• This method cannot reduce the book value of an asset to zero.
• Very high rate of depreciation would have to adopt otherwise take very long time to write off
What is depreciation?
Depreciation is the gradual and permanent decrease in the value of an asset is called deprecation.
How many kind of factors affect deprecation?
o Internal factor
o Wear and tear
o depletion
o External factor
o Obsolescence
o Efflux of time
o Accident
What is wear and tear?
Change in shape of assets due to its use is called wear and tear of asset.
Define depletion?
The process of measuring and recording the exhaustion of natural resources such as deposits, oil well etc, is called depletion
OR
Decrease in the quantity of assets like mine quarries and oil.
Define obsolescence
The term obsolesce refers to reduction in the useful life of the assets arising from such factors as
j Technological changes
j Improvement in production
j Change in the market demand
Or
The process of becoming out of date or obsolete is termed as obsolescence due new investigations or change in taste of people
What is amortization of assets?
the term amortization is useful for describing the process of wirtingdown or decrease the long term investments in intangible assets leases holds, patents, can copyright and goodwill
What are the major objects of providing deprecation?
The objectives of providing deprecation are
Ä To find out the net profit and loss account for accounting period
Ä To present a fair and value of assets on balance sheet
Ä Ascertain the true cost of production
Ä For true valuation of asset
Ä Replacement of asset
What are fixed assets?
Assets which have long life and which are bought for use for long period of time like building, machinery and furniture
What are tangible assets?
Assets which have physical existence and which can be seen and touched is called tangible assets
Define intangible assets
Assets which have no physical existence and which can be seen and touched is called intangible assets
What is difference between the term fluctuation and depreciation?
Depreciation is the gradual and permanent decrease in the value of an asset is called deprecation. But the value or price of assets may rise or fall due on the account of fluctuation
Define scrap value or residual value?
Scrap values mean the price at which at which an assets will be sold at the end of its working life is known as scrap or residual value.
What is difference between depreciation and depletion?
Depreciation is the gradual and permanent decrease in the value of tangible assets
And depletion is measuring and recording the exhaustion of natural resources
What is difference between deprecation and amortization?
Depreciation is the gradual and permanent decrease in the value of tangible assets and amortization is useful for describing the process of wirtingdown the long term investments in intangible assets leases holds, patents, can copyright and goodwill
How many methods for deprecation?
• Fixed installment Method
• Diminishing Method
• Annuity Method
What is fixed installment method?
The method under which charge fixed or equal amount of deprecation each year is called fixed installment method.
Entries
• When charged depreciation
Deprecation account
To Asset account
• Transfer to profit and account
Profit and loss account
Deprecation account
• When sold at end at scrap value
Cash account
Assets account
What are advantages of fixed installment method?
These are advantages of fixed installment method
• It is simple and easy to calculate
• The book value of asset can be reduce to zero
What are disadvantages of fixed installment method?
These are disadvantages of fixed installment method
• No provision for the replacement of the assets is made
• Not popular because charge depreciation every year same while effect of assets is decreasing every year
Under straight line method what formula is used to calculate deprecation?
Annual depreciation = Cost –scrap value
Estimated life
What are other names of fixed installment method?
• Straight line method
• Original cost method
What is diminishing balance method?
Under this method the asset is depreciated at fixed percentage calculate on the debit balance of the asset which is diminishing year after year on account of deprecation.
What are other names of diminishing balance method?
• Written down
• Reducing installment method
What are advantages of diminishing balance method?
• Popular because charge depreciation every year same while effect of assets is decreasing every year
• No separate calculation is not required for addition and extension
What are advantages of diminishing balance method?
• This method cannot reduce the book value of an asset to zero.
• Very high rate of depreciation would have to adopt otherwise take very long time to write off
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