AccountingQA Latest Questions

Astha
AsthaLeader
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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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Simerpreet
SimerpreetHelpful
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  2. prashant06 B.com, CMA pursuing
    This answer was edited.

    QUALITATIVE CHARACTERISTICS OF ACCOUNTING INFORMATION ARE AS FOLLOWS: 1. COMPARABILITY: Comparison of financial statements is one of the most frequently used and effective tools of financial analysis. It helps the users of accounting information to compare, analyze and take decisions accordingly. CoRead more

    QUALITATIVE CHARACTERISTICS OF ACCOUNTING INFORMATION ARE AS FOLLOWS:

    1. COMPARABILITY: Comparison of financial statements is one of the most frequently used and effective tools of financial analysis. It helps the users of accounting information to compare, analyze and take decisions accordingly. Comparability enables inter-firm and intra-firm comparisons. It helps to ascertain the growth and progress of the business over time and in comparison to other businesses.

    For example, managers of ITC ltd want to know which business of his is performing well and which needs progress so they would compare the financial statement of its different businesses and make the decision accordingly.

    2. RELEVANCE: It generally means that the essential information should be easily and readily available and any irrelevant information should be avoided. The user of accounting information needs relevant accounting information for a good decision-making process, planning, and predicting future circumstances.

    For example, a firm is expected to provide the total amount owed by the debtors in the balance sheet, whereas the total number of debtors is not important.

    3. UNDERSTANDIBILITY: The financial statement should be presented so that every user can interpret the information without any difficulty in a meaningful and appropriate manner. To be more precise it should be complete, concise, clear, and organized.

    For example, mentioning note number in the financial statement for any items which needs disclosure. This helps the users of accounting to interpret the financial statement without any difficulty.

    4. RELIABILITY: This means the accounting information must be free from material error and bias. All accounting information is verifiable and can be verified from the source documents basically, information should not be vague or false.

    For example, any significant matters like amount due, damages, losses, etc. which impact the financial stability shall be mentioned as disclosure since it is useful for all the users of accounting to be aware of such facts and not to be misguided by incomplete information.

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Karan
Karan
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  2. prashant06 B.com, CMA pursuing
    This answer was edited.

    The journal entry for a loan to an employee is as follows: Loans to employee A/c                                            …..Dr xxx             To Bank/Cash A/c xxx (Being loan given to employee) From the above journal entry, we see that there are two accounts-first one is "Loan to employee accounRead more

    The journal entry for a loan to an employee is as follows:

    Loans to employee A/c                                            …..Dr xxx
                To Bank/Cash A/c xxx
    (Being loan given to employee)

    From the above journal entry, we see that there are two accounts-first one is “Loan to employee account” and the second one is “Bank/cash account“. Both are assets for the company.

    Loan to employees is considered an asset because they are expected to be returned by the employee within the stipulated time period. If the loan is repaid within one year it will be shown under the current asset and if it is not expected to be collected within a year or in short might be repaid after a year then it will be shown under long-term assets.

    Also, we all know Bank/cash is an asset for the company.

    Why loan to employee A/c is debited and Bank/cash A/c is credited?

    As per the modern rule:

    ASSETS
    Increase Debit
    Decrease Credit

    Connecting the above-stated entry with the modern rule “loan to an employee” is debited as money comes back into the business hence there is an increase in an asset therefore debited. While in the second case “bank/cash account” is credited as the money goes out of the business, there is a decrease in assets of the company therefore credited.

    Loan to employee The inflow of cash in a future date Increase in an asset Debit
    Bank/ cash The outflow of cash Decrease in an asset Credit

    We notice that in this entry there is an increase in one asset while a decrease of another asset. Therefore the impact on the balance sheet is Nil.

    Let me give you a simple illustration of the above entry

    Mr. Ross was an employee of Maxwell Pvt ltd. Mr. Ross was lent Rs 2,00,000 by the company for some emergency purpose. So as per modern rules the accounting entry in the books of the company will be as follows:

    Loans to Mr. Ross A/c                                            …..Dr 2,00,000
                To Bank/Cash A/c 2,00,000
    (Being loan given to Mr. Ross)
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A_Team
A_Team
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    IND AS 102: ‘Share-based payments’ in its actual text is considerably lengthy and very detailed. The objective of my answer is to provide a basic understanding of what IND AS 102 is all about. Further reading of the actual text is suggested for a more detailed understanding. IND AS 102 is the IndiaRead more

    IND AS 102: ‘Share-based payments’ in its actual text is considerably lengthy and very detailed.

    The objective of my answer is to provide a basic understanding of what IND AS 102 is all about. Further reading of the actual text is suggested for a more detailed understanding.

    IND AS 102 is the India specific version of IFRS 2 which deals with the accounting of Share-based payments. IND AS 102 and IFRS are almost similar.

    It deals with the financial reporting of the share-based payment transactions entered into by an enterprise in the following cases:

    1. Transactions with suppliers of goods or services that are settled by share-based payments.
    2. Transactions with employees of the enterprise in nature of Employee Stock Option Plan.

    Share-based payments are of three types:

    • Equity settled share-based payment: It is a transaction in which an entity receives goods or services from the supplier of those goods and services (including an employee) and settles it by issuing equity instruments of the entity or its parent entity.

     Example: A business acquires an asset for Rs. 1,00,000 and makes payment by the issue of its equity shares.

    • Cash settled share-based payment: It is a transaction in which an entity incurs a liability and settles the transaction by paying cash or other assets based on the price of the equity instruments of the entity or group’s entity.

    Example: A business acquires an asset for Rs. 1,00,000 and makes payment in amounts of case based upon its share price.

     

    • Share-based payment transaction with cash alternatives:- In this case,  either the entity or the counterparty has the option of settling the transaction either through with issue of equity or payment of cash by incurring liability.

     

    Things that are not under the scope of IND AS-102

    • Transactions with parties who are acting in the capacity of shareholders.
    • Where a business acquires net assets of a business in case of amalgamation, joint venture etc and issues shares as consideration.

    Recognition

    In a share-based transaction,

    • goods and services are to be recognised when the goods or services are received by the entity.
    • Also, the corresponding increase in equity in equity-settled transactions or liability in the cash-settled transactions is to be recognised.

    Measurement

    The amount at a share-based transaction is to be recorded depending upon the type of counterparty:

    1. Non-employee counter-party: The transaction will be measured based on the fair value of the goods or services received on the date when the goods or services are received.
    2. Employee counter-party: The transaction is to be recorded at the fair value of the equity instruments as on the grant date because the services rendered by the employee cannot be recorded reliably.

    I hope this is enough for a basic understanding of the IND AS 102.

     

     

     

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A_Team
A_Team
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A. Original B. Duplicate C. Personal D. Nominal

  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    The correct option is (A) Original. Journal entry is the book of the original entry. It is because every event or transaction which is of monetary nature is first recorded in the journal. The transactions recorded in the journal are known as journal entries. Journal follows the double-entry system oRead more

    The correct option is (A) Original. Journal entry is the book of the original entry. It is because every event or transaction which is of monetary nature is first recorded in the journal. The transactions recorded in the journal are known as journal entries.

    Journal follows the double-entry system of accounting. It means a journal entry affects at least two accounts. It is from the journal entries, the ledger accounts are prepared. For example, the transaction, ‘sale of goods for Rs 1000 for cash’ affects two accounts. The journal entry is:

    There are many special journals that record some special set of transactions which are called subsidiary journals or daybooks. Such special journals are not considered the books of original entry.

    Option (B) Duplicate is wrong. It is because the journal is the book where monetary events and transactions are recorded. It cannot be the book of duplicate entries. There is no such thing as ‘book of duplicate entry.’

    Option (C) Personal is wrong. Personal is a type of account under the golden rules of accounting. A personal account is a type of account that represents a person. But, the journal is not an account, it is a book. Also, there is no such thing as book of personal entry.

    Option (D) Nominal is wrong. Nominal is also a type of account under the golden rules of accounting. The nominal account is a type of account that represents an income, expense, gain or loss. Journal is a type of account but a book.

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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. PriyanshiGupta Graduated, B.Com
    This answer was edited.

    Income derived from farming land, building constructed or associated with farming land, and commercial products from farming land is called agricultural income. According to Section 10(1) of the Income Tax Act, agricultural income is exempt from tax. However, the government can levy tax if agricultuRead more

    Income derived from farming land, building constructed or associated with farming land, and commercial products from farming land is called agricultural income.

    According to Section 10(1) of the Income Tax Act, agricultural income is exempt from tax. However, the government can levy tax if agricultural income is above Rs 5,000.

    Following are the sources to be considered for agricultural income according to the conditions mentioned in Section 2 (1A) of the Income Tax Act:

    • Revenue generated through rent or lease of land in India that is used for agricultural purposes.
    • Revenue generated through the commercial sale of produce gained from agricultural land.
    • Revenue generated through the renting or leasing of buildings in and around the agricultural land subject to the following conditions:
    • The cultivator or farmer should have occupied the building, either through rent or revenue.
    • The building is used as a residential place, storeroom, or outhouse.
    • The agricultural land or the land where the building is located, is being assessed for land revenue or subject to a local rate assessed.

    If the land does not fall under the provisions stated above, the Income Tax Act requires a separate evaluation to calculate tax.

    The Income-tax Act has laid down a method to indirectly tax such income.
    This method or concept is called the partial integration of agricultural income with non-agricultural income. It aims at taxing the non-agricultural income at higher rates of tax.

    Partial integration of agricultural income with non-agricultural income involves the following steps:

    1.  For example, the base income of the individual is Rs. 20,000 and agricultural income is Rs 10,000, then we first have to calculate tax on Rs 30,000. For convenience, we can call this tax T(30,000)
    2. Assuming that the income falls under tax slab A, this tax slab A has to be added to the agricultural income and tax has to be calculated on it as well and it is called T(S+10,000).
    3. The final tax on the individual’s income will be T(30,000)- T(A+10,000)

    The important step to keep in mind is to aggregate the agricultural income while calculating tax otherwise it can lead to double taxation, extra tax, or interest on tax.

     

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Rahul_Jose
Rahul_Jose
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  2. Radhika
    This answer was edited.

    An asset is a resource in the name of the company or controlled by the company that holds economic value and will provide it future benefits. A company invests in various kinds of assets for manufacturing purposes and investment purposes as well. Some examples of assets are: Plant and Machinery InveRead more

    An asset is a resource in the name of the company or controlled by the company that holds economic value and will provide it future benefits.

    A company invests in various kinds of assets for manufacturing purposes and investment purposes as well. Some examples of assets are:

    • Plant and Machinery
    • Investments
    • Inventory
    • Cash and Cash Equivalents, etc.

    Assets can be broadly divided into two categories based on their physical existence:

    • Tangible Assets
    • Intangible Assets

    Tangible Assets can be further divided into two categories based on their life and role in the operating cycle:

    • Non-Current Assets
    • Current Assets

    Since the company derives benefit from the asset, an asset account is debit in nature. If an asset account has a credit balance, it would fundamentally make it a liability. However, there are certain exceptions to it.

    In the case of Bank Overdraft, which means a company withdraws more from the bank than it has deposited in its account, Bank Account can also be shown having a credit balance.

    Contra Assets Accounts are the accounts that are contrary to the basic nature of an assets account, that is it is contrary to the debit nature of the assets account and hence are credit in nature.

    Examples of Contra Assets Account are:

    Accumulated Depreciation Account which is essentially Plant Assets Account also has a credit balance as it is used to depreciate the asset, or in other words, reduce the value of the assets, hence it also has a credit balance.

    When there are balances in the Account Receivables Account that are not paid to the company or have a very low probability of being paid, they are recorded in a separate account called Bad Debts Account, which is also credit in nature.

     

     

     

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