AccountingQA Latest Questions

Astha
AsthaLeader
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  2. Rahul_Jose Aspiring CA currently doing Bcom

    When a business deposits its money into a bank account, it receives a percentage of the amount deposited as bank interest. The journal entry for interest received from a bank is as follows: Since the Bank account is a current asset, it gets debited. This is in accordance with the modern rules of accRead more

    When a business deposits its money into a bank account, it receives a percentage of the amount deposited as bank interest. The journal entry for interest received from a bank is as follows:

    Since the Bank account is a current asset, it gets debited. This is in accordance with the modern rules of accounting where an increase in assets is debited while a decrease in assets is credited. According to the traditional rules (golden rules) of accounting, a bank account is classified under Personal account with the rule of “debit the receiver” and “credit the giver”. In the given journal entry bank account is receiving money and is hence debited.

    Meanwhile, Bank interest is the income received by the business and according to the modern rule of accounting, an increase in incomes is credited and a decrease in incomes is debited. Whereas, considering the traditional rules (golden rules), bank interest comes under Nominal account where “all incomes are credited” and “all expenses are debited”. Therefore, considering these rules, bank interest is credited.

    EXAMPLE

    If Gregor Ltd has a bank account with HSBC, having an opening balance of Rs 10,000 earning an interest of 5% per annum, then the journal entry for interest received from the bank is recorded as

    The interest amount is taken on the amount deposited in the bank (10,000 * 5%).

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Aadil
AadilCurious
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RECEIPTS AND PAYMENTS ACCOUNT OF BHARTI CLUB for the year ended 31st March, 2019 Receipts Amount Payments Amount To Balance b/d           10,500 By Salary           25,000 To Subscriptions           70,500 By Travelling Expenses             4,000 To Donations             5,000 By Stationery           ...

  2. Vijay Curious M.Com
    This answer was edited.

    Here I have prepared the Income & Expenditure A/c and Balance Sheet of Bharti Club: Income & Expenditure A/c for the year ended 31st March 2019 Expenditure Amt Income Amt To Salary          25,000 By Subscriptions (WN 1)          69,900 To Travelling Expenses            4,000 By Donations   Read more

    Here I have prepared the Income & Expenditure A/c and Balance Sheet of Bharti Club:

    Income & Expenditure A/c for the year ended 31st March 2019

    Expenditure Amt Income Amt
    To Salary          25,000 By Subscriptions (WN 1)          69,900
    To Travelling Expenses            4,000 By Donations            5,000
    To Stationery          13,000 By Life Membership Fees          10,000
    To Rent          32,000 By Income from Investments            2,000
    To Surplus (Balancing figure)          12,900
             86,900          86,900

     

    Balance Sheet as on 31st March 2019

    Liabilities  Amt Assets  Amt
    Capital Fund (WN 2)     44,900 Cash         30,000
    Add: Surplus     12,900         57,800 9% Investments         25,000
    Advance Subscription           3,500 Books         12,000
    Life Membership Fees         10,000 Outstanding Subscription           4,300
            71,300         71,300

     

    Working Note 1: Calculation of Subscriptions

    Particulars Amt
    Total subscriptions received in 2018-19        70,500
    Add: Advance subscription for 2018-19          2,000
              Subscription outstanding for 2018-19          4,300          6,300
           76,800
    Less: Advance subscription for 2019-20          (3,500)
              Subscription outstanding for 2017-18          (3,400)          (6,900)
           69,900

    Working Note 2: Calculation of Capital Fund

    We prepare the previous year’s balance sheet of Bharti Club to identify the capital.

    Balance Sheet as on 31st March 2018

    Liabilities  Amount Assets  Amount
    Capital Fund (Balancing figure)    44,900 Cash    10,500
    Advance Subscription      2,000 9% Investments    25,000
    Books      8,000
    Outstanding Subscription      3,400
       46,900    46,900
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Jasmeet_Sethi
Jasmeet_SethiCurious
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Final AccountsLoose ToolsRevaluation
  2. prashant06 B.com, CMA pursuing
    This answer was edited.

    To begin with, let me explain what is revaluation all about. So basically revaluation is a method of calculating the depreciation of assets where there are multiple identifiable assets of low value such as loose tools, live stocks, etc. Under this method assets like loose tools are revalued at the eRead more

    To begin with, let me explain what is revaluation all about. So basically revaluation is a method of calculating the depreciation of assets where there are multiple identifiable assets of low value such as loose tools, live stocks, etc.

    Under this method assets like loose tools are revalued at the end of the accounting period and the same is compared with the value at the beginning of the year. the difference amount is considered as depreciation.

    The formula goes as :

    REVALUATION= OPENING VALUE + PURCHASES – CLOSING VALUE

    Let me take an example to show the same. Opening balance of Loose tools amounts to Rs.2,000 during the year, the business purchased loose tools of Rs.500 and at the year-end loose tool amounted to Rs.1,500 then revalued figure which will be shown as depreciation will be

    REVALUATION=  Rs.(2,000+ 500 – 1,500)

    = Rs.1,000

    The main discussion is”how to show adjustment of revaluation of the loose tool in financial statements”?

    As we all know, loose tools are considered assets for the business, hence shown under the head current assets or fixed assets depending upon the nature of the business and the time for which it is held.

    When the trial balance shows the debit value of loose tools, later on in the year-end the loose tools are revalued to a certain amount then the difference amount will be shown as depreciation in the Profit & Loss A/c and the revalued figure will be posted in the balance sheet asset side.

    Let me support my explanation with an example,

    Given is the extracted trial balance of XYZ & Co.

     

    we see the value of Loose tools in the given trial balance as Rs.50,000. At the year-end, these Loose tools were revalued at Rs.40,000.

    Therefore the adjustment in the financial statement would be like Rs (50,000 – 40,000) i.e Rs. 10,000 would be shown as depreciation under Profit & Loss A/c

     

    and the adjusted figure of Rs. 40,000 (i.e Rs.50,000 – Rs.10,000), will be shown on the asset side under the head fixed assets of the Balance Sheet.

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Simerpreet
SimerpreetHelpful
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  2. Vijay Curious M.Com
    This answer was edited.

    Sometimes a business may earn an income by delivering the goods/services within the stipulated time. But the business may not have issued an invoice to the customer. Such a scenario is what is called unbilled revenue. Note that as per the accrual concept of accounting, sales are recognized on the daRead more

    Sometimes a business may earn an income by delivering the goods/services within the stipulated time. But the business may not have issued an invoice to the customer. Such a scenario is what is called unbilled revenue.

    Note that as per the accrual concept of accounting, sales are recognized on the day it was made, irrespective of whether the business receives cash or not.

    The business records unbilled revenue by passing the following journal entry:

    Unbilled Revenue is treated as an asset because it is yet to be fully recognized as an income. Therefore it is debited. Revenue A/c is credited as there is an increase in income.

    Once the bill/invoice has been issued to the customer, the following entry is passed to close the Unbilled Revenue A/c.

    Let me explain this concept with an example,

    Luca Traders, a business dealing in stationery and office supplies receives an order on August 5th for 1,000 pens worth 10 each. On August 8th they deliver the pens but they are yet to issue an invoice to the customer. They issue the invoice only on August 13th.

    So the sales revenue of 10,000 (1,000*10) will be treated as an unbilled revenue for the period of August 8th – August 12th. On August 8th the following entry is made to record unbilled revenue.

    Unbilled Revenue A/c  10,000
       To Revenue A/c  10,000
    (Being entry for recording unbilled revenue worth 10,000)

    When the invoice is sent to the customer on August 13th, the following journal entry is posted to close the unbilled revenue A/c.

    Bills Receivable A/c  10,000
       To Unbilled Revenue A/c  10,000
    (Being invoice issued against unbilled revenue)
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Radha
Radha
In: >

  2. Rahul_Jose Aspiring CA currently doing Bcom
    This answer was edited.

    When a loan is taken from a person by a business, there is an asset and liability being created. Cash is being brought into the business which increases the asset whereas the financial obligation of the company rises when a loan is taken and hence a liability increases. For example, Mark Ltd. has taRead more

    When a loan is taken from a person by a business, there is an asset and liability being created. Cash is being brought into the business which increases the asset whereas the financial obligation of the company rises when a loan is taken and hence a liability increases.

    For example, Mark Ltd. has taken a loan from John for $5,000. Therefore the journal entry can be shown as:

    According to the modern rules of accounting, increase in assets is Debit and increase in liability is credit. The company may have taken the loan to finance its business or for some emergency. When it is time for the business to pay off the loan, they can either pay it off completely or in instalments. They must pay off the principal amount along with interest.

    Now for our above example, if Mark Ltd paid off the entire loan after one year at 10% interest, then the journal entry would be:

    Here, the interest on loan account is debited since an increase in expense is debited. Loan account will be debited because the obligation is now reduced and hence liability decreases. Finally, we credit cash since cash is leaving the business which implies a decrease in assets.

    If the entire loan is not paid off in that year, then the balance of the loan amount will be shown in the balance sheet under the head liabilities.

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Bonnie
BonnieCurious
In: >

Receipts Amount Payments Amount To Balance b/d 32,500 By Salaries 31,500 To Subscription By Postage 1,250 2016-17            1,500 By Rent 9,000 2017-18          60,000 By Printing and 2018-19            1,800 63,300 Stationery 14,000 To Donations (Billiards Table) 90,000 By Sports Material 11,500 By Miscellaneous Expenses 3,100 To Entrance Fees 1,100 By Furniture (1.10.2017) 20,000 To Sale of old magazines 450 By 10% investment (1.10.2017) 70,000 By Balance ...

  2. Manvi Pursuing ACCA
    This answer was edited.

    In the books of Youth Ltd. Income & Expenditure A/c for the year ended 31 March 2018 Expenditure Amt (₹) Income Amt (₹) To Salaries 31,500 By Subscription (W.N.1) 75,000 To Postage 1,250 By Entrance fees 1,100 To Rent 9,000 By Sale of old magazines 450 To Printing and Stationery 14,000 By IntereRead more

    In the books of Youth Ltd.

    Income & Expenditure A/c for the year ended 31 March 2018

    Expenditure Amt (₹) Income Amt (₹)
    To Salaries 31,500 By Subscription (W.N.1) 75,000
    To Postage 1,250 By Entrance fees 1,100
    To Rent 9,000 By Sale of old magazines 450
    To Printing and Stationery 14,000 By Interest on investment (W.N.3) 3,500
    To Sports material consumed (W.N.2) 10,000
    To Miscellaneous expenses 3,100
    To Depreciation on furniture (W.N.4) 1,000
    To Surplus 10,200
    80,050 80,050

     

    Working Notes:

    1. Calculation of Subscription:
    Subscription for the year 60,000
    Add: Outstanding subscription 16,200
    Less: Subscription in arrears (1,200)
    75,000
    2. Calculation of sports material consumed:
    Opening stock of Sports Material 3,000
    Add: Purchased during the year 11,500
    Less: Closing stock of Sports material (4,500)
    10,000
    3. Calculation of Interest on investment:
    Investment as on 1.10.2017 = 70,000
    The investment will be calculated for 6 months i.e starting from 1.10.2017 to 31.3.2018
    For 6 months = 70,000 * 10% * 6/12
    = 3,500
    4. Calculation of Depreciation on furniture:
    Furniture as on 1.10.2017 = 20,000
    Depreciation on the furniture will be calculated for 6 months i.e starting from 1.10.2017 to 31.3.2018
    For 6 months = 20,000 * 10% * 6/12
    = 1,000

     

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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Ayushi Curious Pursuing CA

    Today, mobile phones especially smartphones are an indispensable part of most businesses and they qualify as fixed assets as they usually last for more than a year. Being a fixed asset, the depreciation on mobile phones is to be provided. The rate of depreciation to be charged on mobile phones is 15Read more

    Today, mobile phones especially smartphones are an indispensable part of most businesses and they qualify as fixed assets as they usually last for more than a year. Being a fixed asset, the depreciation on mobile phones is to be provided.

    The rate of depreciation to be charged on mobile phones is 15% WDV* as per the Income Tax Act. The rates as per the companies act, 2013 are 4.75% SLM** and 13.91% WDV*.

    *Written Down Value **Straight Line Method

    A company has to charge depreciation on mobiles in their books as per the rates of Companies Act, 2013.

    Any business or entity other than a company can choose the rate as per the Income Tax Act, 1961 which is 15% WDV. It is a general practice for non-corporates to charge depreciation in their books as per the rates of the Income Tax Act.

    An important thing to know is that as per the Income Tax Act, 1961, mobile phones are treated as plants and machinery and the general rate of 15% is applied to it.

    One may consider mobile phones as computers and charge depreciation at the rate of 40%. However, such a practice is not correct. Mobile phones are not considered equivalent to computers and there is case judgment given by Madras High Court which backs this consideration. The case is of Federal Bank Ltd. vs. ACIT (supra).

    Therefore we are bound to this case judgment and should treat mobile phones as part of plant and machinery and charge depreciation on it accordingly for the time being.

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