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Simerpreet
SimerpreetHelpful
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Yes, sure! But lets us first understand what a revaluation account is. A revaluation account is prepared to recognise the change in the book value of assets and liabilities of an entity. These changes happen when assets and liabilities are revalued to present their fair value. It is a nominal accounRead more

    Yes, sure! But lets us first understand what a revaluation account is.

    A revaluation account is prepared to recognise the change in the book value of assets and liabilities of an entity. These changes happen when assets and liabilities are revalued to present their fair value.

    It is a nominal account because it represents gain or loss in value of assets and liabilities. However such gain or loss is unrealised because the assets and liabilities are not sold or discharged.

    After revaluation of assets and liabilities, the balance of the revaluation account can be debit or credit. The debit balance means ‘loss on revaluation’ and credit balance means ‘gain on revaluation’.

    The balance of revaluation is transferred to the capital account.

    Journal Entries related to Revaluation Account

     1. Increase in value of an asset upon revaluation:

    Asset A/c Dr. Amt
    To Revaluation A/c Cr. Amt
    (Being asset value increased upon revaluation)

    2. Decrease in value of an asset upon revaluation:

    Revaluation A/c Dr. Amt
    To Asset A/c Cr. Amt
    (Being asset value decreased upon revaluation)

    3. Increase in value of liabilities upon revaluation:

    Revaluation A/c Dr. Amt
    To Liabilities A/c Cr. Amt
    (Being liabilities value increased upon revaluation)

    4. Decrease in value of liabilities upon revaluation:

    Liabilities A/c Dr. Amt
    To Revaluation A/c Cr. Amt
    (Being liabilities value decreased upon revaluation)

    5. Transfer or distribution of the balance of revaluation account

    Revaluation A/c Dr. Amt
    To Capital/ Partners’ capital  A/c Cr. Amt
    (Being profit on revaluation transferred to capital account.

    or

    Capital/ Partners’ capital  A/c Dr. Amt
    To Revaluation A/c Cr. Amt
    (Being loss on revaluation transferred to capital account.

    Numerical example

    P, Q and R are partners of the firm ‘PQR Trading’. They share profits and losses in the ratio 3:2:1. On 1st May 20X1, they decided to admit S for 1/6th share in profits and losses of the firm. Upon the revaluation:

    • Plant and machinery increased from Rs 1,20,000 to Rs. 1,30,000
    • The stock decreased by Rs 5000
    • Debtors and creditors both decreased by Rs 4,000 and Rs 6,000 respectively.
    • Furniture decreased from Rs 25,000 to Rs 10,000
    • Land increased by Rs 40,000.

    Let’s prepare the revaluation account.

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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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Bonnie
BonnieCurious
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  2. AishwaryaMunot

    Before we jump in the concept of valuation of Goodwill, let us first understand the meaning of term “Goodwill”. Goodwill is an Intangible asset of the business. As the definition of Intangible asset, Goodwill cannot be seen or felt. In simple words it is business’s worth or its reputation earned oveRead more

    Before we jump in the concept of valuation of Goodwill, let us first understand the meaning of term “Goodwill”.

    Goodwill is an Intangible asset of the business. As the definition of Intangible asset, Goodwill cannot be seen or felt. In simple words it is business’s worth or its reputation earned over a period of time.

    Calculation of value of the goodwill in monetary terms is done at the time of merger or acquisition of the business. Goodwill is often applied to businesses which are earning large number of profits, have crucial corporate links and large customer/client base.

    Self-earned goodwill is never shown in monetary terms in business’s own balance sheet while goodwill which is purchased is shown in the asset side of the balance sheet of the buyer business.

    Following are the methods under which goodwill can be valued:

    1. Average Profit Method – In this method, Goodwill is calculated by average profits multiplied by the number of years purchased. Typically, last 5-6 years profit figures are taken ignoring any abnormal gains or loss during the year. Formula for the same would be as follows:

               Goodwill = Average Profit x No. of Years Purchase

    1. Weighted Average Method – This method is updated method of average profit method, Profits of the previous years are calculated by specific number of weights. This method is useful when there is a lot of fluctuations in the profits and importance has to be given to current year’s profit. Formula for the same would be as follows:

              Goodwill = Weighted Average Profit x No. of Years Purchase

    Where,

    Weighted Average Profit = Sum of Profits multiplied by weights / Sum of Weights

    1. Super Profit Method – Super profit is additional profit generated by the business over normal profit. Further for the calculation, Super profit is capitalized by the normal rate of return and resulting figure is value of Goodwill.

    Formula for the same would be as follows:

             Goodwill = Super Profits x (100/Normal Rate of Return)

    1. Annuity Method – In this method, Discounted amount of the super profits is calculated by taking into consideration the current value of the annuity at rate of return.

    Formula for the same would be as follows:

             Goodwill = Super Profit x Discounting Factor

    1. Capitalization Method – In this method, existing capital employed is deducted from capitalized number of average profits or super profits. The resulting figure is Goodwill.

    Formula for the same would be as follows:

               a. Average Profit Capitalization Method –

                 Goodwill = [Average Profit / Normal Rate of Return x 100] – Capital                                                        Employed

               b. Super Profit Capitalization Method –

                Goodwill = Super Profits x (100/ Normal Rate of Return)

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Anushka Lalwani
Anushka Lalwani
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Introduction In Tally, journal entries are made in the vouchers. For each type of journal entry, there is a specific voucher. It is the vouchers where the transactions are recorded along with all the relevant details. Hence, when we speak of journal entries in tally, it is the vouchers which we haveRead more

    Introduction

    In Tally, journal entries are made in the vouchers. For each type of journal entry, there is a specific voucher. It is the vouchers where the transactions are recorded along with all the relevant details. Hence, when we speak of journal entries in tally, it is the vouchers which we have to master.

    In Tally, vouchers are of four types:

    1. Accounting vouchers
    2. Inventory vouchers
    3. Order voucher
    4. Payroll voucher

    The vouchers under the above voucher types are as shown below:

    To open the voucher creation menu follow these steps:

    In Tally ERP 9: Gateway of Tally→ Accounting Vouchers→ Voucher creation menu will open

    In Tally Prime: Gateway of Tally→ Vouchers→ Voucher creation menu will open

    Out of the above vouchers, the vouchers which I would suggest you practice are as follows (along with their short-cut keys):

    1. Contra Voucher – F4
    2. Payment Voucher – F5
    3. Receipt Voucher – F6
    4. Journal Voucher – F7
    5. Sales Voucher – F8
    6. Purchase Voucher – F9
    7. Credit note – Alt + F6
    8. Debit note – Alt + F5

     

    All of the above are accounting vouchers. You can simply press the short-cut keys to open the respective voucher while in the voucher creation menu

    If you are new to tally, I would suggest you practice only the accounting vouchers.

    Here, I have discussed only the accounting vouchers:

    Payment Voucher – F5

    A payment voucher is used to record payments of cash or by the bank. Payment can be to creditors or for expenses.

    There are two modes to this voucher which you can change by clicking the ‘Change Mode’ option on the right-hand side menu or simply pressing Ctrl + H. This menu will open.

    Select the ‘Double Entry’ mode for sake of simplicity. In this mode, the entry will be just like the conventional journal entry as in the double entry system of accounting.

    You have to just select the account you want debit which can be an expense, creditor etc. and you can credit only the cash or bank accounts as it is a payment voucher. Below there is a narration field which you can fill too. After entering all the necessary details you have to accept the voucher.

    Here, is a filled payment voucher in which I have recorded an expense payment entry.

     

     The journal entries which you can practice on payment vouchers are as follows:

    • Payment of expenses like rent, electricity, wages, salaries, carriage, interest etc
    • Payment to trade creditors.
    • Purchase of Assets

     

    Receipt Voucher – F6

    A receipt voucher is used for the recorded receipt of cash in the business. Just like a payment voucher, I recommend you to use it in Double Entry mode. In Tally prime, it looks this:

     

    The receipt voucher given above is already filled. I have passed a ‘collection from the debtor’ entry here. 

    The journal entries you can practice in the receipt voucher are as follows:

    • Receipt of cash from trade debtors.
    • Receipt of interest from the bank.
    • Commission received
    • Sale of Assets.

    Purchase Voucher – F7

    A purchase voucher is a voucher for exclusively recording purchase of goods entries. Purchase whether cash or credit should be recorded in the purchase voucher only as it allows recording of additional details related to purchase as well as tracking with purchase order and receipt note.

    The purchase voucher looks like this:

    Here, the purchase voucher is opened in ‘Item invoice’ mode. Item invoice is easier to understand hence I advise you to this mode to use the purchase voucher. You can change the mode by pressing Ctrl + H.

    If you wish to record transactions like journal entries then you can choose the ‘As Voucher’ mode.

    The details which you have to fill in are as follows:

    • Reference number or Bill number
    • Party A/c Name or the name of the creditor. (If the creditor is not created, press Alt + C to create)
    • Name of item purchased ( Press Alt + C to create the stock item if not created)
    • Enter the quantity and rate of the item and the total amount will be auto-populated.
    • The accounting details menu will open asking for the account to be debited for the purchase. Select the purchase account you want to debit or create a purchase account by pressing Alt + C if not created.

    • Enter a narration if you want and accept the voucher.

    Below is a complete purchase voucher where a credit sale transaction is passed:

    Sales Voucher – F8

    A sales voucher is a voucher for exclusively recording sales of goods entries. Sales, whether cash or credit, should be recorded in the sales voucher only as it allows recording of additional details related to sales as well as tracking with Sales orders and Delivery notes.

    Here also, I recommend you to use the sales voucher in Invoice mode

    Filling up of details in sales voucher is same as in purchase voucher. The difference here is that in the ‘Accounting details’ section you have selected a sales account to be credited.

    Here is a completed sales voucher where I have recorded a credit sale transaction:

    Contra Voucher – F4

    A Contra voucher is used to record contra transactions. Contra transactions are those transactions which take place between:

    • A Bank account and cash account
    • Two different bank accounts 

    The journal entries which can be practised on contra voucher are as follows:

    1. Withdrawal of cash from the bank.
    2. Deposit from cash into the bank.
    3. Transfer of amount from one bank to another.

    Given below is a completed Contra voucher in which ‘cash deposited into bank’ transaction is recorded:

    Journal Voucher – F7

    There are many transactions which cannot be passed in any of the vouchers discussed above. The examples of such transactions or journal entries are as follows:

    1. Depreciation of assets
    2. Entries related to the provision
    3. Prepaid Expenses
    4. Outstanding expenses
    5. Rectification of error entries
    6. Accrued income entries
    7. Any other entry which cannot be passed in any other voucher.

    It is an important voucher in Tally as many crucial entries are recorded in it.
    The journal voucher looks like this:

    It looks like a journal book and it does not have any different mode like voucher discussed above:

    The journal entries to practice on journal vouchers are many. You can refer to the examples of transactions I have mentioned above.

     

    Debit Note Voucher – Alt + F5

    A debit note voucher is to record purchase return transactions in Tally. Hence, the only transaction you can record here is of purchase return. The debit note voucher looks like this:

     

    Credit Note Voucher– Alt + F5

    In credit note vouchers, the sale return transactions are recorded. The credit note voucher looks like this:

    That’s all.  These are vouchers I would recommend one to practice on Tally.

     

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A_Team
A_Team
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  2. Akash Kumar AK
    This answer was edited.

    Generally, Assets are classified into two types. Non-Current Assets Current Assets   Non-Current Asset Noncurrent assets are also known as Fixed assets. These assets are an organization's long-term investments that are not easily converted to cash or are not expected to become cash within an acRead more

    Generally, Assets are classified into two types.

    1. Non-Current Assets
    2. Current Assets

     

    Non-Current Asset

    Noncurrent assets are also known as Fixed assets. These assets are an organization’s long-term investments that are not easily converted to cash or are not expected to become cash within an accounting year.

    In general terms, In accounting, fixed assets are assets that cannot be converted into cash immediately. They are primarily tangible assets used in production having a useful life of more than one accounting period. Unlike current assets or liquid assets, fixed assets are for the purpose of deriving long-term benefits.

    Unlike other assets, fixed assets are written off differently as they provide long-term income. They are also called “long-lived assets” or “Property Plant & Equipment”.

     

    Examples of Fixed Assets

    • Land
    • Land improvement (e.g. irrigation)
    • Building
    • Building (work in progress)
    • Machinery
    • Vehicles
    • Furniture
    • Computer hardware
    • Computer software
    • Office equipment
    • Leasehold improvements (e.g. air conditioning)
    • Intangible assets like trademarks, patents, goodwill, etc. (non-current assets)

     

    Valuation of Fixed asset

    fixed assets are recorded at their net book value, which is the difference between the “historical cost of the asset” and “accumulated depreciation”.

    “Net book value = Historical cost of the asset – Accumulated depreciation”

     

    Example:

    Hasley Co. purchases Furniture for their company at a price of 1,00,000. The Furniture has a constant depreciation of 10,000 per year. So, after 5 years, the net book value of the computer will be recorded as

    1,00,000 – (5 x 10,000) = 50,000.

    Therefore, the furniture value should be shown as 50,000 on the balance sheet.

     

    Presentation in the Balance Sheet

    Both current assets and non-current assets are shown on the asset side(Right side) of the balance sheet.

     

    Difference between Current Asset and Non-Current Asset

    Current assets are the resources held for a short period of time and are mainly used for trading purposes whereas Fixed assets are assets that last for a long time and are acquired for continuous use by an entity.

    The purpose to spend on fixed assets is to generate income over the long term and the purpose of the current assets is to spend on fixed assets to generate income over the long term.

    At the time of the sale of fixed assets, there is a capital gain or capital loss but at the time of the sale of current assets, there is an operating gain or operating loss.

    The main difference between the fixed asset and current asset is, although both are shown in the balance sheet fixed assets are depreciated every year and it is valued by (the cost of the asset – depreciation) and current asset is valued as per their current market value or cost value, whichever is lower.

     

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SidharthBadlani
SidharthBadlani
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  2. Ishika Pandey Curious ca aspirant
    This answer was edited.

    Definition Gross profit is the excess of the proceeds of goods and services rendered during a period over their cost, before taking into account administration, selling, distribution, and financial expenses. When the result of this computation is negative it is referred to as gross loss Formula : ToRead more

    Definition

    Gross profit is the excess of the proceeds of goods and services rendered during a period over their cost, before taking into account administration, selling, distribution, and financial expenses.

    When the result of this computation is negative it is referred to as gross loss

    Formula :

    Total Revenues – Cost Of Goods Sold

    Net profit is defined as the excess of revenues over expenses during a particular period.

    When the result of this computation is negative it is called a net loss.

    Net profit may be shown before or after tax.

    Formula :

    Total Revenues – Expenses
    Or
    Total Revenues – Total Cost ( Implicit And Explicit Cost )

    The basic difference between gross profit and net profit is that gross profit estimates the profitability of a company whereas net profit is to show the performance of the company.

    Key points of Gross Profit

    Some of the key points of as for gross profits follows :

    • Stage of calculation: Gross Profit is calculated in the first stage of the Final Account.

    • Purpose of calculation: It is calculated to know the total profit earned during the particular accounting

    • Type of balance: Gross Profit shows the credit balance of the Trading Account.

    • Dimension: It is a narrow concept as it is a part of Net Profit.

    • Treatment: It is not treated directly in the balance sheet. It is transferred to the Profit And Loss Account.

    Key points of Net Profit

    Some of the key points of as for gross profits follows :

    • Stage of calculation: Net Profit is calculated in the second stage of the Final Account.

    • Purpose of calculation: It is calculated to know the net profit earned during the particular accounting

    • Type of balance: Net Profit shows the credit balance of the Profit And Loss Account.

    • Dimension: It is a wider concept as it includes Gross Profit.

    • Treatment: It is treated directly in the balance sheet by adding or subtracting from the capital.

    Examples

    Now let me explain to you by taking an example which is as follows :

    In a business organization there were the following data given as purchases made Rs 73000, inventory, in the beginning, was Rs 10000, direct expenses made were Rs 7000, closing inventory which was Rs 5000, revenue from operation during the period was Rs 100000.
    Then,
    COST OF GOODS SOLD = Purchases + Opening Inventory + Direct Expenses – Closing Inventory.
    = Rs ( 73000 + 10000+ 7000- 5000)
    = Rs 85000

    GROSS PROFIT = REVENUE – COST OF GOODS SOLD
    = Rs ( 100000 – 85000 )
    = Rs 15000

    Now from the above question keeping the gross profit same if the indirect expenses of the organization are Rs 2000 and the other income is Rs 1000.
    Then,

    NET PROFIT = GROSS PROFIT – INDIRECT EXPENSES + OTHER INCOMES
    = Rs ( 15000 – 2000 + 1000)
    = Rs 14000

    Conclusion

    So here I conclude that gross profit is the difference between revenues from sales and/or services rendered and its direct cost.

    Whereas net profit is after the deduction of total expenses from the total revenues of the enterprise.

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Aadil
AadilCurious
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  2. Mehak
    This answer was edited.

    To understand why we do not record self-generated goodwill in accounting, let us first understand what goodwill is and its accounting treatment. What is Goodwill? Goodwill is an intangible asset of a business.  It represents the reputation and brand value of a business built over time. It is a valueRead more

    To understand why we do not record self-generated goodwill in accounting, let us first understand what goodwill is and its accounting treatment.

    What is Goodwill?

    Goodwill is an intangible asset of a business.  It represents the reputation and brand value of a business built over time. It is a value over and above the tangible assets of the business.

    Goodwill often arises when a business purchases another business and pays a premium, which means a price higher than the fair value of the business.

    Characteristics of Goodwill

    Goodwill has the following characteristics:

    1. It is an Intangible asset, meaning it has no physical existence and cannot be seen or touched.
    2. It is generally recognized during transactions in mergers and acquisitions.
    3. It is the value attributed to the brand value and reputation of the business.
    4. It adds value to a business beyond its tangible assets.

    Example of Goodwill

    Let us take an example to understand the concept of goodwill better.

    Suppose there is a company ABC Ltd. It is planning to acquire XYZ Ltd. The fair value of the assets of XYZ is calculated to be 600,000. However, ABC has agreed to pay a sum of 650,000 to acquire the company. This difference of 50,000 is goodwill.

    Impact on Financial Statements

    Goodwill is shown under the assets side of the Balance Sheet.

    What is self-generated goodwill?

    Self-generated goodwill in simple words means the positive reputation or trust that a business earns over time through their own hard work and decisions. It’s not something bought or inherited but something built from scratch internally, like a brand’s reputation, loyal customers, strong relationships, or unique ideas.

    For example, a small business that goes the extra mile to offer great customer service or always delivers high-quality products over the years will naturally build goodwill.

    It is also known as internally generated goodwill.

    Why do we not record sef-generated goodwill?

    Self-generated goodwill is not recorded in the financial statements because of the following reasons:

    1. Measurement may not be reliable: The measurement of self-generated goodwill is majorly based on the judgment of the managers. It is based on the value creation because of a good reputation or consumer base of the business, which might not be measured accurately.
    2. Conservatism principle: As per the conservatism principle, a business shall not overstate its assets or liabilities. However, self-generated goodwill might be overstated.
    3. Lack of market transaction: There is a lack of a market transaction that ensures verification of the value of goodwill as in the case of purchased goodwill.
    4. Manipulation: There are higher chances of manipulation of financial statements through self-generated goodwill.

    Conclusion

    On a concluding note, self-generated goodwill is something that adds real value to a business, but it’s not something that can easily be measured or captured in financial statements. Accounting is all about providing clear, reliable information, and including goodwill would make things murky and open to manipulation. Even though it doesn’t show up on the books, you can still see its effects in a company’s reputation and success. Maybe in the future, businesses will find a way to highlight it better, but for now, leaving it out helps keep financial reports honest and straightforward.

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