AccountingQA Latest Questions

Simerpreet
SimerpreetHelpful
In: >

  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    Introduction Ind AS 110 stands for Indian Accounting Standard 110. It deals with principles of preparation and presentation of consolidated financial statements when an entity controls one or more other entities. It is often seen that an entity owns and controls one or more entities. Like a parent cRead more

    Introduction

    Ind AS 110 stands for Indian Accounting Standard 110. It deals with principles of preparation and presentation of consolidated financial statements when an entity controls one or more other entities.

    It is often seen that an entity owns and controls one or more entities. Like a parent company have many subsidiaries. For example, Alphabet is the parent company of Google. The parent and its subsidiaries prepare their financial statements separately to present to the true and fair view of their business.

    Consolidated financial statements are the financial statements of the whole group i.e. taking the parent and its subsidiaries together. It reports the assets, liabilities, equity, income and expenses of the whole group as a single economic entity.

    It helps the stakeholders to know the overall performance and positions of assets and liabilities of the whole group.

    When to prepare Consolidated Financial Statements(CFS)

    The requirement for the preparation of CFS depends on the control model provided by Ind AS 110. As per this model, an investor controls an investee when:

    • the investor is exposed to or has rights to, variable returns from its involvement with the investee and
    • it has the ability to affect those returns through its power over the investee.

    If both the conditions are fulfilled, then it can be said that the investor controls the investee and the investor has to prepare the consolidated financial statements with its investee. Every type of investor-investee relationship is judged as per Ind AS 110.

    Exposure or right to variable returns

    Variable returns mean no fixed returns and can vary as per the performance of the investee. Such returns can be both positive and negative.  These returns include not only return on investment but also the benefits or expenses to which the investor is entitled to or has to bear respectively. Such returns are:

    1. Dividends
    2. Changes in the value of the investee.
    3. Fee for servicing investee’s assets and liabilities
    4. Tax benefits
    5. Access to proprietary knowledge
    6. Sourcing scare products
    7. Goodwill generation

    It is not required by Ind AS 110 for an investor to be exposed or have the right to all such variable returns, but there should be significant exposure or right.

    Power to affect the variable returns from investee

    An investor has power over an investee if it has existing rights that give it direct ability to affect the relevant activities of the investee

    An investor generally has many rights over the investee. These rights are of two types:

    1. Protective Rights: These are the rights to protect the self-interest of the investor from any risk arising from investment in the investee. Such right only protects the investor but it does not give him power over the investee. Hence, with protective rights, an investor cannot control the investee.
    2. Substantive Rights: These are rights with which an investor can have power over the investee. Such rights are generally the voting rights that are derived from the holding equity shares. Also having potential voting rights which are significant enough to control the investee qualify as substantive rights.

    However, the investor may other substantive rights like power to appoint or remove the board of directors etc.

    These rights should not only exist with investors but the investor should also have the ability to exercise such rights.

    Scope of Ind AS 110

    The investee can be any type of entity, the structure of the investee does not matter whether it is a partnership firm, LLP, company or any Special Purpose Entity (SPE).

    If any investor control one or more other entities it will be called parent entity and it will present the consolidated financial statements.

    Exemptions

    If any parent entity fulfils any of these conditions, then the presentation of consolidated financial statements is not necessary:

    • It is an investment entity.
    • Its debt or equity securities are not listed on any recognized stock exchange or any other public market.
    • It is a wholly-owned or partially owned subsidiary of another entity and all of its owners have been informed about and do not have any objections to the parent not preparing the consolidated financial statements.
    • Its ultimate or any intermediate parent entity has prepared consolidated financial statements for the whole group.
    • It did not file or is in process of filing its financial statement with the concerned securities commission or any other regulatory body for issuing its securities in the public market.
    See less
    • 0
AbhishekBatabyal
AbhishekBatabyalHelpful
In: >

  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Meaning of lease A lease is an agreement or a contract in which the right to use an asset like land, building, or machinery is given by one party to the other party for a fixed period of time against the consideration of a single payment or a series of payments. There are two parties in a lease agreRead more

    Meaning of lease

    A lease is an agreement or a contract in which the right to use an asset like land, building, or machinery is given by one party to the other party for a fixed period of time against the consideration of a single payment or a series of payments.

    There are two parties in a lease agreement:

    • Lessor: The party who gives the right to use its asset in return for a series of payments or a single payment.
    • Lessee: The party who receives the right to use the asset from the Lessor.

    This is similar to a rent agreement or contract. The only difference between lease and rent is duration. A rent agreement is generally for less than 12 months while a lease agreement is for more than 12 months like 5 years or 10 years, sometimes even for like 99years.

     

    Type of lease

    There are two types of lease:

    • Operating lease
    • Finance Lease

     

    Operating lease

    • An operating lease is a type of lease in which the possession of the leased asset is transferred back from the lessee to the lessor at the end of the lease period.
    • Here, all the risk and rewards incident to ownership remains with the lessor, not the lessee.
    • The depreciation on the leased asset in case of operating lease is not charged by the lessee to its profit and loss account as the leased asset is not shown in the balance sheet. A leased asset is an off-balance sheet item in the case of an operating lease.

     

    Finance lease

    • Unlike an operating lease, the ownership of the leased asset is transferred to the lessee at the end of the leased period.
    • Thus, at the inception of the lease agreement, all the risk and rewards incident to ownership is transferred from the lessor to the lessee.
    • The depreciation on the leased asset is charged by the lessee to its profit and loss account as the leased asset is shown in the balance sheet. A leased asset is a balance sheet item in the case of an operating lease.
    • Along with the leased asset, the obligation to pay the future lease payment is also shown in the balance sheet as a non-current liability or current liability as the case may be.

     

    Difference between operating lease and finance lease in tabular format

     

    See less
    • 0
Jayesh Gupta
Jayesh GuptaCurious
In: >

  2. GautamSaxena Curious .
    This answer was edited.

    Errors revealed by Trial Balance Trial balance, as we know, is a statement prepared after the ledger, followed by a journal. It has a list of all the general ledger accounts contained in the ledger of a business. Each nominal ledger account either holds a debit balance or credit. It is primarily useRead more

    Errors revealed by Trial Balance

    Trial balance, as we know, is a statement prepared after the ledger, followed by a journal. It has a list of all the general ledger accounts contained in the ledger of a business. Each nominal ledger account either holds a debit balance or credit.

    It is primarily used to identify the balance of debits and credits entries from the transactions recorded in the general ledger in a certain accounting period. The debit and credit sides total are equal in a trial balance.

    Classification of errors in the trial balance

    • Errors of Commission: Errors arising due to wrong posting of a journal entry, a ledger account, wrong totaling of a subsidiary book, or even wrong recording of accounts. Therefore, resulting in trial balance error. E.g business receives an amount on goods sold on credit but it is instead posted to additional capital a/c.
    • Errors of Omission: This occurs when some transactions are fully or partially omitted from books of accounts. A complete omission is a case when the transaction is completely omitted but a partial omission is seen when the transaction is entered in the journal but not posted to the ledger. E.g a cheque worth $4,100 was received from ABC Ltd. but completely omitted. Then the rectification entry shall be passed later on.
    • Compensating Errors: It occurs when the errors are equal in amount and opposite to each other so and so that they cancel each other which further creates no difference in the Trial Balance. E.g Harry’s account is debited to $300 wrongly instead of $400. On the other hand, Liam’s account is credited by $700 instead of $800.
    • Errors of Principles: These are the errors occurring when the entries that are posted are incorrect, violating the accounting policy. E.g when receiving money from debtor then debiting debtor and crediting the amount of money received.

    Some of the common errors

    Some more (commonly seen) errors while preparation of the trial balance:

    Errors of Commission

    1. Addition or totaling mistakes in the trial balance, debit, and credit side.
    2. Wrong totaling of subsidiary books.
    3. Error in the sum total of subsidiary book.
    4. Posting in the wrong account.
    5. Recording a transaction incorrectly in a journal.
    6. Balance wrote on the wrong side of the trial balance.
    7. Error in posting a journal to a ledger.
    8. Posting on the wrong side of the account.

    Errors of Omission

    1. Goods purchased and returned to the supplier may be entered in the purchase returns book but not posted in the debit of the supplier account.
    2. Cash paid to creditors was completely omitted from the recording.

    Compensating Errors

    • Wrong posting of the same amount in another account, which may not be affecting the equalizing of trial balance.

    Errors of Principles

    1. Posting twice to a ledger account.
    2. Balance c/d or balance b/d is written on the wrong side of the ledger account.
    3. Reversal of a journal entry by mistake like, crediting cash and debiting debtor’s a/c.

     

     

     

     

    See less
    • 0
Bonnie
BonnieCurious
In: >

  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    Credit Note A credit note is a document which generally evidences a sales return. It is created by the seller and sent to the buyer acknowledging the receipt of goods returned by the buyer. On the basis of it, the seller promises to pay back the buyer for the goods returned to him or adjust the amouRead more

    Credit Note

    A credit note is a document which generally evidences a sales return. It is created by the seller and sent to the buyer acknowledging the receipt of goods returned by the buyer. On the basis of it, the seller promises to pay back the buyer for the goods returned to him or adjust the amount in future transactions.

    A credit note is also created when the buyer has sent excess money by mistake against the goods delivered to him.

    In Tally, a credit note is created using a credit note voucher. Now, a credit note can only be created only if a sales entry has been made.

    Hence first, we will be creating a sales entry and then the credit note.

     Creation of sales entry in sales voucher ( If not done before)

    The step to create a sale entry in Tally prime is as follows:

    Gateway of Tally –> Vouchers –> Press F8 to open sales voucher

    Enter the details of sales in the sales voucher like I have entered in my sale voucher and accept.

    Here, my debtor is Rama and I have sold 1000pcs of Linc pens@Rs. 10 to him

    Important things to consider:

    • If no ledger accounts, stock items and stock units are created in your company, you can easily create them while in the voucher creation menu itself. Just press Alt + C  in the field where you need to enter party name, stock item name or stock unit name and the respective creation menus will open.
    • After entering the item details, a new menu will open which will ask for which account to be credited for the sale entry. As we know, a sales account is credited, so you have select the sales account from the menu or simply create a Sales account if not created by pressing Alt + C. Below is that menu:

    #2 Creation of credit note

    If already in the voucher creation menu, just press Alt + F6 to open the credit note voucher.

    Enter the party name and a menu will open, asking for a tracking number.  No need to enter any details there.

    Next, another menu will open asking for party details. Select the name of the respective debtor.

    Next enter the details of stock items returned as I have done:

    I have made a credit note for 100pcs of Linc pens returned by Rama.

    After entering all the details, press Enter and accept.

    You can verify the effect of this sales voucher by performing the following steps.

    Gateway of Tally –> Display more reports –> Account Books –> Ledger –>Select the debtor account from the list of ledgers.

    After opening the ledger, if you see that the debtor account is credited by an amount through a credit note voucher, then it can be said that you have performed the steps correctly.

    See less
    • 0
A_Team
A_Team
In: >

  2. Bonnie Curious MBA (Finance)
    This answer was edited.

    As per the Golden Rules As per the golden rules of accounting, a trading account is a nominal account. To ensure that financial statements accurately reflect a business's financial position and performance, the golden rules of accounting guide the preparation of financial statements. The point to noRead more

    As per the Golden Rules

    As per the golden rules of accounting, a trading account is a nominal account. To ensure that financial statements accurately reflect a business’s financial position and performance, the golden rules of accounting guide the preparation of financial statements.

    The point to note is that it is almost impossible to apply the rules of debit and credit with certain accounts such as Trading A/c, Profit & Loss A/c, etc.

     

    As per the Modern Rules

    The purpose of a trading account is to record transactions related to the purchase and sale of goods for a business. In other words, it serves as a recording and reporting mechanism for business income and expenses.

    An accounting period, like a month, quarter, or year, is the time when a trading account is prepared. It is used to calculate the business’s net profit or loss. Other financial statements, such as the balance sheet, are prepared using the information in a trading account.

    In summary, a trading account is a type of income statement account that is used to track and report on the income and expenses from a business’s buying and selling activities

     

    Rules of Debit and Credit

    There are three main types of accounts according to the legacy rules of debit and credit: personal accounts, real accounts, and nominal accounts. A personal account is one that is related to an individual or entity owing the business money (e.g. a customer), or owing the business money (e.g. a supplier).

    A real account is one that relates to assets such as cash, inventory, and property.

    Nominal accounts are accounts that relate to income and expenses, such as a “trading account”.

    To summarize, a trading account is a nominal account used to record and report the business’s income and expenses resulting from its buying and selling activities.

    See less
    • 0
Simerpreet
SimerpreetHelpful
In: >

A. Furniture B. Capital C. Sales D. Commission earned

  2. Ishika Pandey Curious ca aspirant

    Definition Where the total of the debit side is more than the credit side therefore the difference is the debit balance and is placed credit side as “ by balance c/d “ A furniture account that is an asset has a debit balance. Debit balance may arise due to timing differences in which case income wilRead more

    Definition

    Where the total of the debit side is more than the credit side therefore the difference is the debit balance and is placed credit side as “ by balance c/d “

    A furniture account that is an asset has a debit balance.

    Debit balance may arise due to timing differences in which case income will be accrued at the year’s end to offset the debit.

    The amount is shown in the record of a company s finances, by which its total debits are greater than its total credits.

    The account which has debit balances are as follows:

    • Assets accounts

    Land, furniture, building machinery, etc

    • Expenses accounts

    Salary, rent, insurance, etc

    • Losses

    Bad debts, loss by fire, etc

    • Drawings

    Personal drawings of cash or assets

    • Cash and bank balances

    Balances of these accounts

    The account has credit balances as follows:

    • Liabilities accounts

    Creditors, bills payable, etc

    • Income accounts

    Salary received, interest received, etc

    • Profits

    Dividends, interest, etc

    • Capital

    Partners Capital

     

    Here are some examples showing the debit balances and credit balances of the accounts :

    See less
    • 5
Aditi
Aditi
In: >

  2. Mehak
    This answer was edited.

    Every business requires research and development to create innovative products for consumers. More innovative and creative products and services are more popular among customers, leading to increased revenue and profits for the business. Creating new products or designing changes and testing existinRead more

    Every business requires research and development to create innovative products for consumers. More innovative and creative products and services are more popular among customers, leading to increased revenue and profits for the business.

    Creating new products or designing changes and testing existing products also forms a part of research and development.

    Examples of Research and Development costs are –

    1. Salaries of employees
    2. Cost of making prototypes
    3. Cost of raw material
    4. Overhead expenses

    Let us now understand how research and development costs are treated in Financial Statements.

    Research and Development Costs are generally shown as an expense in the Income Statement.

    IAS-38

    IAS-38 majorly governs the accounting of research and development costs. There are two phases in R&D:

    • Research: During this phase, costs are incurred for understanding or designing the product. These costs are expensed as incurred costs as there is an uncertainty of a future benefit.
    •  Development: Economic value can be ascertained during this phase and hence, the costs incurred can be capitalized as Intangible assets. To be recognised as intangible assets, the following conditions shall be satisfied:

    1. it is developed with the intention of putting it to use in the future

    2.  the asset shall hold an economic value

    3. the costs can be measured reliably

    Treatment of R&D costs in the Financial statements:

      1. Income statement: Research costs are shown as expenses in the income statement. However, development costs if capitalized as intangible assets can be amortised over time.
      2. Balance Sheet: Capitalised development costs are shown as intangible assets under the Assets head of the Balance Sheet.

    Conclusion

    The above discussion can be summarised as follows:

    1. Research and development is essential for creating innovative and creative products and services.
    2. Accounting standard IAS-38 governs the accounting for Research and Development.
    3. Research costs are usually shown as an expense in the Income statement of the business.
    4.  Development costs when capitalised can be shown as Intangible assets in the Balance Sheet.
    See less
    • 0
Load More Questions

Most Helping Users

Astha

Astha

Leader
Simerpreet

Simerpreet

Helpful
AbhishekBatabyal

AbhishekBatabyal

Helpful