AccountingQA Latest Questions

Radhika
Radhika
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  2. PriyanshiGupta Graduated, B.Com
    This answer was edited.

    Plant and Machinery are the equipment attached to the earth that supports the manufacturing of the company or its operations. These are tangible non-current assets to the company and as a result, have a debit balance. Depreciation is the decrease in the value of an asset that is spread over the expeRead more

    Plant and Machinery are the equipment attached to the earth that supports the manufacturing of the company or its operations. These are tangible non-current assets to the company and as a result, have a debit balance.

    Depreciation is the decrease in the value of an asset that is spread over the expected life of the asset. Not depreciating an asset presents a false image of the company as the asset is recorded at a higher value and profit is overstated as depreciation expense is not provided for.

    There are two ways that a company provide depreciation:

    • By reducing the balance of an asset in the Asset Account by passing a journal entry.
    • By maintaining a separate account for depreciation called Accumulated Depreciation A/c. The nature of this account is naturally credit since it is created to reduce the value of an asset.

    For most of the depreciation methods, we need a rate to provide for depreciation every year. Now, for accounting purposes, the management can use a rate they think is suitable depending on the use and expected life of the machinery.

    Depreciation is calculated on the basis of the Companies act, 2013 for the purpose of book-keeping. According to Schedule 2 of the Companies Act, depreciation on plant and machinery is calculated on the basis of either SLM or WDV.

    Plant and machinery for those special rates are not assigned useful life is considered to be 15 years and depreciation is calculated @ 18.10% on WDV and @6.33% on SLM.

    According to the Income Tax Act, 15% depreciation is provided every year on Plant and Machinery and, an additional 20% depreciation is provided in the first year of installation of machinery.

    Depreciation on Machinery is charged on the basis of usage of such machinery. if it is used for 180 days or more then full depreciation is allowed and if it is used for less than 180 days then only 50% depreciation is allowed.

     

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Bonnie
BonnieCurious
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  2. GautamSaxena Curious .
    This answer was edited.

    Bills Payable Book Bills payable book, also known as a B/P book is a subsidiary or secondary book of account in which transactions relating to bills of exchange are recorded. It includes the recording of bills that are payable by a business. In a business where the number of bills exchanging hands iRead more

    Bills Payable Book

    Bills payable book, also known as a B/P book is a subsidiary or secondary book of account in which transactions relating to bills of exchange are recorded. It includes the recording of bills that are payable by a business.

    In a business where the number of bills exchanging hands is large in number, it is very useful, as it is tough to journalize all the bills drawn. A bills payable account generally has a credit balance as it is supposed to be paid at maturity and be a liability.

    Format for B/P book

    • The person, who draws the bill of exchange, is called a “drawer”.
    • The customer, on whom it is drawn, is called a “drawee” or an “acceptor”.

     

    Bills Payable A/c

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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. GautamSaxena Curious .
    This answer was edited.

    The land is a fixed asset and is treated as a long-term asset account.  Explanation The land is a fixed asset which is also referred to as a long-term asset. The fixed assets are those assets that are not expected to be cashed, consumed, last, sold, or written off within one accounting year and areRead more

    The land is a fixed asset and is treated as a long-term asset account. 

    Explanation

    The land is a fixed asset which is also referred to as a long-term asset.

    The fixed assets are those assets that are not expected to be cashed, consumed, last, sold, or written off within one accounting year and are purchased for long-term use. The fixed assets are also called non-current assets and the reason behind it is that current assets are easily converted into cash within one year and they are not.

    Fixed assets are planned by the company to be used for the long term in order to generate income.

    Example- Land, building, furniture, plants & equipment, etc.

     

    Why is land an asset?

    Although the land is not depreciated, it is still considered to be an asset because just like other assets the business spends its own money to acquire it.

    It can also be used by the business for different operations and it doesn’t create any liability for the business. Instead, reselling the land after a few years can help the company earn a huge margin of profit.

     

    Land in the balance sheet

    On the asset side of the balance sheet, the land is stated under the heading long-term assets.

    Balance Sheet (for the year…)

     

    Therefore, the land is a fixed asset and is treated as a long-term asset account.

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

    Definition Prepaid expenses are those expenses whose payments are done in advance which can be for the goods or services whose benefit will accrue in the subsequent accounting period. A prepaid expense is a current asset. prepaid expenses are classified under the head current assets in the balance sRead more

    Definition

    Prepaid expenses are those expenses whose payments are done in advance which can be for the goods or services whose benefit will accrue in the subsequent accounting period.

    A prepaid expense is a current asset. prepaid expenses are classified under the head current assets in the balance sheet.

    This is because they provide future economic benefits to the company. As such, they are assets that can be used to generate revenue in the future.

    For example prepaid rent, prepaid insurance, etc.

     

    Current assets are defined as cash and other assets that are expected to be converted into cash or consumed in the production of goods or rendering of services in the normal course of business.

    Or in other words, we can say that the expected realization period is less than the operating cycle period although it is more than the period of 12 months from the date of the balance sheet.

    For example, goods are purchased with the purpose to resell and earn a profit, debtors exist to convert them into cash i.e., receive the amount from them, bills receivable exist again for receiving cash against it, etc.

     

    Current liabilities are liabilities that are payable generally within 12 months from the end of the accounting period or in other words which fall due for payment in a relatively short period.

    For example bills payable, short-term loans, etc.

     

    Why current assets and not a  current liability?

    Now let me try to explain to you that prepaid expenses are classified as current assets  and not as a current liability which is as follows :

      • we can say that the expected realization period is less than the operating cycle period although it is more than the period of 12 months from the date of the balance sheet.
      • expected to be converted into cash or consumed in the production of goods or rendering of services in the normal course of business.
      • In the business prepaid expense are treated as an asset which we can see on the asset side of the balance sheet.
      • Or in other words, we can say that it is initially recorded as a prepaid expense as an asset in the balance sheet and subsequently its value is expensed over time in the profit and loss account.

     

    Example

    Now let us take an example for explaining prepaid expenses which are mentioned below.

    An insurance premium of Rs 50000 has been paid for one year beginning (previous year). The financial year ends on 31st  march YYYY.

    It means the premium for 6 months i.e., 1st April, YYYY(current year) to 30th September, YYYY(current year) amounting to Rs 25000 is paid in advance.

    Thus, of premium paid in advance (Rs 25000)  is a Prepaid Expense. It will be accounted as an expense in the financial year ending  31st  march next year. In the balance sheet as of 31st march YYYY ( current year ) it will be shown as Current Asset.

    Here is an extract of the profit /loss account and balance sheet of the above example:

     

    Key points

    There are a few things to keep in mind when dealing with prepaid expenses.

    • First, is that the expenses are actually prepaid. This means that the expenses were paid for before they were used.

     

    • Second, it is essential to track the number of prepaid expenses that have been used. That is to make sure that the prepaid expenses are not overstated on the company’s financial statements. This can happen if the company pays for more goods or services than it actually

     

    • Last but not least it is important to keep in mind that changes in the value of prepaid expenses can impact the company’s net income. For example, if the company’s prepaid insurance increases in value, this will increase the company’s net income.

     

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Satyamkumar
Satyamkumar
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What is the difference between expense and revenue expenditure

  2. Mukarram

    Expense Expenditure: Expense expenditures refer to the costs incurred by a company in its day-to-day operations. These expenses are deducted from revenue to calculate the net income. Here are some examples of expense expenditures: Salaries and wages: The payments made to employees for their servicesRead more

    Expense Expenditure:
    Expense expenditures refer to the costs incurred by a company in its day-to-day operations. These expenses are deducted from revenue to calculate the net income. Here are some examples of expense expenditures:

    Salaries and wages: The payments made to employees for their services are considered expense expenditures. This includes salaries, wages, bonuses, and commissions.

    Rent: The cost of leasing office space or other business premises is an expense expenditure. It includes monthly rent payments, property taxes, and insurance premiums associated with the rented space.

    Utilities: Expenses related to utilities such as electricity, water, gas, and internet services are considered expense expenditures.

    Office supplies: The cost of purchasing and replenishing office supplies like stationery, printer ink, pens, paper, and other consumables is categorized as an expense expenditure.

    Advertising and marketing: Expenditures incurred to promote a company’s products or services, such as advertising campaigns, online marketing, social media promotions, and print media advertisements, are considered expense expenditures.

    Revenue Expenditure:
    Revenue expenditures are expenses incurred to acquire or improve assets that are expected to generate revenue over multiple accounting periods. Unlike expense expenditures, revenue expenditures are typically not capitalized. Here are some examples of revenue expenditures:

    Repairs and maintenance: Costs incurred to repair and maintain existing assets, such as machinery, equipment, and vehicles, are considered revenue expenditures. Routine maintenance expenses, like oil changes, servicing, and small repairs, fall into this category.

    Software and technology upgrades: Expenses incurred to upgrade or enhance software systems, computer hardware, or other technological infrastructure are considered revenue expenditures.

    Training and development: Expenditures on employee training programs, workshops, seminars, and skill development courses that enhance the productivity and capabilities of the workforce are classified as revenue expenditures.

    Advertising campaigns for new products: While advertising expenses are generally classified as expense expenditures, when they are specifically related to the launch or introduction of new products or services, they can be considered revenue expenditures.

    Renovation and improvements: Costs incurred to renovate or improve existing assets, such as office spaces, stores, or warehouses, can be classified as revenue expenditures if they enhance the earning capacity or extend the useful life of the asset.

    These examples highlight the distinction between expense and revenue expenditures based on their purpose and treatment in financial statements.

     

     

     

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Astha
AsthaLeader
In: >

Capital
  2. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    As per Wiki, it is also called construction in progress. Capital work in progress is a non-current asset of an entity. It is also known as CWIP in short. CWIP is the work which is not yet completed but the amount for which has already been paid. Suppose, at the time of preparing a balance sheet, ifRead more

    As per Wiki, it is also called construction in progress. Capital work in progress is a non-current asset of an entity. It is also known as CWIP in short.

    CWIP is the work which is not yet completed but the amount for which has already been paid.

    Suppose, at the time of preparing a balance sheet, if an asset is not completed, all the costs incurred on that asset up to the balance sheet date are to be transferred to an account called capital work in progress.

    Example 1: A machinery under installation.

    There are several expenses incurred while installing machinery, expenses such as labor charges, Initial delivery and handling costs, Assembly and installation cost, etc are included in CWIP and when the asset is completed and is ready to use, all the costs are transferred to the relevant accounts.

    To make it simpler, let me show journal entries relating to this example.

    When an expense is incurred/paid:

    Journal entry for capital work in progress when an expense is incurred

    When an asset is complete and put to use:

    Journal entry for capital work in progress when asset is complete and put to use

    Example 2: A Contractor is constructing a building. The following expenditures are being incurred to date:

    i) Raw materials – 5,00,000

    ii) Payment to Architect – 3,50,000

    iii) Advance for Equipments – 1,50,000

    Following accounting entries will be passed to record the expenditure on CWIP assets:

    capital work in progress journal entries example

    The following accounting entry will be passed once assets are ready to use:

    entry to show cwip when asset is complete

    Disclosure in the Balance sheet

    CWIP account is shown separately in the balance sheet below the fixed asset.

    we cannot depreciate capital work in progress. It can only be depreciated when the asset is put to use.

    Capital work in progress shown in balance sheet

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