AccountingQA Latest Questions

Simerpreet
SimerpreetHelpful
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  2. Kajal

    A Realisation account is prepared at the time of dissolution of the Partnership firm to ascertain profit or loss from the sale of assets and payment of liabilities of the firm. All assets that can be converted into cash (i.e. from which any value can be realised) and all external liabilities to be pRead more

    A Realisation account is prepared at the time of dissolution of the Partnership firm to ascertain profit or loss from the sale of assets and payment of liabilities of the firm. All assets that can be converted into cash (i.e. from which any value can be realised) and all external liabilities to be paid are transferred to the Realisation A/c.

    So, Cash and Bank (already in liquid form), fictitious assets (doesn’t have any value to be realised), Partner’s Loan (internal liability) and Undistributed profits (not something that can be realised) are not included in the Realisation account.

     

    DISSOLUTION OF PARTNERSHIP FIRM

    It means the firm closes down its business and comes to an end. Simply, it means the firm will cease to exist in the future. As the firm is closing down, its assets are sold, liabilities are paid off, and the remaining amount (if any) is distributed among the partners.

     

    REALISATION ACCOUNT

    This account is prepared only once, at the time of dissolution of the Partnership firm. It is opened to dispose of all the assets of the firm and make payments to all the external creditors of the firm.

    It ascertains the profit earned or loss incurred on the realisation of assets and payment of liabilities.

     

    Items not included in Realisation A/c

     

    1. ASSETS

    CASH AND BANK BALANCES are not included in the Realisation account as the purpose of the Realisation account is to sell assets to realise cash, but cash and bank are already in liquid form and thus, not included.

    These are directly used for the payment of liabilities and if there is any remaining amount, then that amount is distributed among the partners.

     

    FICTITIOUS ASSETS are huge expenses or losses that are written off over the years by writing off a portion of it every year for the next few years like accumulated losses, balance of Advertisement expenses, Preliminary expenses, Loss on the issue of Debentures, etc. They don’t have any physical existence or realisable value.

    Since nothing can be realised from these assets they are not included in the Realisation account. These are transferred to the Partner’s Capital A/c.

     

    2. LIABILITIES

     

    PARTNER’S LOAN refers to the loan given to the firm by any partner of the firm. 

    Suppose, there are three Partners A, B and C. ‘C’ gave the firm a loan of $5,000. This $5,000 will be recorded as a Partner’s Loan and not just as a normal loan taken from an external party.

    Since, Partner’s Loans are the internal obligation of the firm, they are not included in the realisation account instead a separate account is prepared to settle Partner’s Loan after all external liabilities are settled.

    So, we can say in the Realisation account only external liabilities are included and paid.

     

    UNDISTRIBUTED PROFITS  are the  Profits that are not distributed among the Partners like General Reserve, Reserve Fund, and Credit balance of P&L A/c.

    They are not included in the realisation account as they can’t be sold as an asset neither they are any liabilities that should be paid. Undistributed profits belong to the Partners of the firm and thus, are transferred to Partner’s capital A/c.

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Vijay
VijayCurious
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Companies Act
  2. Naina@123 (B.COM and CMA-Final)
    This answer was edited.

    Simply explaining the meaning of the useful life of an asset, it is nothing but the number of years the asset would remain in the business for purpose of revenue generation, making it more simple, the amount of time an asset is expected to be functional and fit for use.  It is also called economic lRead more

    Simply explaining the meaning of the useful life of an asset, it is nothing but the number of years the asset would remain in the business for purpose of revenue generation, making it more simple, the amount of time an asset is expected to be functional and fit for use.  It is also called economic life or service life

    It is a useful concept in accounting as it is used to work out depreciation. By knowing this useful life of an asset an entity can easily analyze how to allot the initial cost of an asset across the relevant accounting period rather than doing it unfairly manner.

    How do we calculate the useful life of an asset?

    The useful life of an asset is not an accounting policy, but an accounting estimate. calculating useful life is not an exact phenomenon but an estimate that is done because it directly impacts how much an asset is to expense every year.

    Factors affecting “how long an asset is expected to be useful” depends on some stated points as below:

    1. Usage, the more the assets are used, the more quickly it will deteriorate.
    2. Whether the asset is new at the time of purchase or reused model.
    3. Change in technology.

    As per the companies act 2013, some of the useful life of assets are stated below

    To know more about the different categories of assets you can follow the given link useful life of assets.

    POINT TO BE NOTED:- There lies a huge difference in the useful life v/s the physical life of an asset. It is very important to note that amount of time an asset is used in a business is not always be same as an asset’s entire life span.

     

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Jasmeet_Sethi
Jasmeet_SethiCurious
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  2. GautamSaxena Curious .
    This answer was edited.

    Depreciation on Tools and Equipment Tools and Equipment are the instruments that are used for producing any product, machine, or service. Also, tools and equipment are a part of plants and machinery, making them a major fixed asset. Therefore, a certain percentage of depreciation is charged on ToolsRead more

    Depreciation on Tools and Equipment

    Tools and Equipment are the instruments that are used for producing any product, machine, or service. Also, tools and equipment are a part of plants and machinery, making them a major fixed asset. Therefore, a certain percentage of depreciation is charged on Tools and Equipment.

    As we’re aware, depreciation refers to a process in which assets lose their value over time until it becomes obsolete or zero. It is chargeable on the fixed assets and it ultimately results in depreciation of the value of fixed assets except, land. The land is an exception in fixed assets as where all the fixed assets are depreciated, the land’s value is appreciated over time.

    The rate of depreciation as per the Income Tax Act on tools and equipment (plant and machinery) is 15%.

    Example

    Suppose given below are the details regarding the tools and equipment:

    And, we’re required to calculate the value of the tools and equipment as on 1-Mar-22

    In this, as we can see the business’ accounting period starts in March and ends in April. Therefore, we can easily deduct the depreciation amount and get the desired result.

    Solution: Opening Value = $30,000

    Depreciation = 15% of $30,000 = $4,500

    Value of tools and equipment as on 1-Mar-22 = $30,000 – $4500 = $25,500

     

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Karan
Karan
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  2. Manvi Pursuing ACCA
    This answer was edited.

    The accounting equation represents the relationship between assets, capital, and liabilities of a business. It follows the concept of the double-entry bookkeeping system where every debit has an equal credit. The rules state that at any time a business’ assets should equal liabilities. This is alsoRead more

    The accounting equation represents the relationship between assets, capital, and liabilities of a business. It follows the concept of the double-entry bookkeeping system where every debit has an equal credit. The rules state that at any time a business’ assets should equal liabilities. This is also known as the statement of financial position equation.

    The accounting equation can be shown as follows:

      Assets = Capital + Liabilities

    For example, Liza starts a business by investing $3,000 as cash. In accounting terms, business and owner are separate and so business owes money to Liza as capital.

    In this example,

    Capital invested = $3,000

    Cash (Asset) = $3,000

    If Liza puts this into the accounting equation, it will be shown as:

    Assets = Capital + Liabilities
    $3,000 (Cash) = $3,000 + Liabilities

    Further, Liza purchases a market stall from Ben and the cost of the stall was $1,800. She purchases flowers from the wholesale market at a cost of $700. Now she is left with $500 cash out of the original $3,000.

    The state of her business has now changed and can be shown as follows:

    Assets = Capital + Liabilities
    Stall        $1,800 $3,000 + Liabilities
    Flowers     $700
    Cash         $500
                     $3,000 $3,000
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Ayushi
AyushiCurious
In: >

  2. Samar Sparsh
    This answer was edited.

    Let us assume that we are discussing Input Tax Credit in GST of India. Input Tax Credit or ITC is the tax that a business pays on a purchase and that it can claim credit and use it to reduce its tax liability when it makes a sale. In other words, it means at the time of paying tax on output (Final sRead more

    Let us assume that we are discussing Input Tax Credit in GST of India.

    Input Tax Credit or ITC is the tax that a business pays on a purchase and that it can claim credit and use it to reduce its tax liability when it makes a sale. In other words, it means at the time of paying tax on output (Final sale product), you can reduce the tax you have already paid on inputs (Purchase).

    Example  For a manufacturer, tax payable on output (Final product) is Rs 500 and tax paid on input A is Rs 100, input B is Rs 50 and, input C is Rs50. You can claim INPUT CREDIT of Rs 200(100+50+50) and you only need to deposit Rs 300(500-200) in taxes.

    Conditions- Only a Registered Person would be able to claim the benefit of Input Tax Credit of GST after satisfying the following:

    1. He is in possession of a Tax Invoice or any other specified tax-paid document.
    2. He has received the goods or services. Includes “Bill to ship” scenarios.
    3. Tax is actually paid by the supplier.
    4. The supplier has furnished the GST Return.
    5. To claim ITC, the buyer should pay the supplier for the supplies received (inclusive of tax) within 180 days from the date of issuing the invoice.

    Claiming of ITC – Discussed by taking an example, seller A sold his goods to B. Now B who is a buyer will be eligible to claim the input tax credit on purchases based on the invoices when he makes further sales. Now,

    •  S will upload the details of all the tax invoices in GSTR 1.
    • All the details in accordance with the sales to B will reflect in GSTR 2A, and the same data will be taken by B to file GSTR 2 (i.e. details of inward supply).
    • B will accept the details about the purchase that has been made and uploaded by the seller, the tax on purchases will be credited to ‘Electronic Credit Ledger’ of B and he can adjust it against future output tax liability and get the refund.
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Jayesh Gupta
Jayesh GuptaCurious
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    Capital Redemption Reserve is a statutory reserve, which means it is mandatory for a company to create such reserve when it decides to redeem its preference shares. Capital Redemption Reserve cannot be utilised for any purpose other than the issue of bonus shares. Now let’s understand the reason behRead more

    Capital Redemption Reserve is a statutory reserve, which means it is mandatory for a company to create such reserve when it decides to redeem its preference shares. Capital Redemption Reserve cannot be utilised for any purpose other than the issue of bonus shares.

    Now let’s understand the reason behind it.

    We know preference shares are those shares that carry some preferential rights:

    • Dividend at a fixed rate
    • Right to get repaid before equity shareholders in event of winding up of the company
    • Other rights as specified in the Articles of Associations.

    Also, unlike equity shares, preference shares are redeemable i.e. repaid after a period of time (which cannot be more than 20 years).

    Generally, the creditors of a company have the right to be repaid first. So, in event of redemption of preference shares, the preference shareholders are repaid before creditors and the total capital of the company will but the total debt of the company is unaffected.

    The gap between the debt and equity of the company will further widen and this will also increase the debt-equity ratio of the company. It will be perceived to be a risky scenario by the creditors and lenders of the company because the

    So to protect the creditor and lender, Section 55 of the Companies Act comes to rescue.

    Section 55 of the Companies Act ensure that the creditors and lenders of a company do not find themselves in a riskier situation when the company decides to redeem its preference shares by making it mandatory for a company to either

    • issue new shares to fund the redemption of preference shares

    OR

    • create a capital redemption reserve if it uses profits for redemption

    OR

    • a combination of both

    This will fill up the void created by the redemption of preference shares and the debt-equity ratio will remain unaffected. Keeping an amount aside in Capital Redemption Reserve ensures that such amount will not be used for dividend distribution and capital will be restored because it can be only used to issue bonus shares.

    In this way the debt-equity ratio remains the same, the interest of the creditors and lenders secured.

    Bonus shares are fully paid shares that are issued to existing shareholders at no cost.

    Let’s take a numerical example for further understanding:

    ABC Ltd wants to redeem its 1,000 9% Preference shares at a face value of Rs 100 per share. It has decided to issue 8,000 equity shares @Rs 10 per share and use the profit and reserves to fund the deficit.

    The journal entries will be as follows:

    Working note:                                                                            Rs

    9% preference shares due for redemption (1,000 x 10) – 1,00,000

    Less: Amount of new shares issued (8,000 x 10)           –      80,000

    Amount to be transferred to CRR                                              20,000

    Hence, the reduction of total capital by Rs 1,00,000 due to the redemption of preference shares is reversed by issuing equity shares of Rs 80,000 and creating a Capital Redemption Reserve of Rs 20,000.

     

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Radha
Radha
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  2. Manvi Pursuing ACCA
    This answer was edited.

    The principal book of accounting is “Ledger”. It records all types of transactions relating to a real, personal or nominal account. It records transactions relating to an income, expense, asset or a liability. A ledger classifies a transaction which is recorded in journal to their respective accountRead more

    The principal book of accounting is “Ledger”. It records all types of transactions relating to a real, personal or nominal account. It records transactions relating to an income, expense, asset or a liability.

    A ledger classifies a transaction which is recorded in journal to their respective accounts, and in the end calculates a closing balance for the same account. The closing balance is further transferred to the financial statements, and hence ledger is called the books of final entry as it gives true and fair picture of an account.

    Template of Ledger:

     

    For example, ABC Ltd purchased machinery for cash amounting to Rs 1,00,000 on 1st January. This transaction will include a machinery account and a cash account. The amount will be recorded in the respective accounts for that period.

    The reason being ledger is called a principal book of accounting is, it helps a business in preparation of trial balance and financial statements.

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