AccountingQA Latest Questions

Mehak
Mehak
In: >

  2. Aditi

    Biological Assets comes under International Accounting Standard IAS 41 Agriculture. IAS 41 Agriculture is the first standard that specifically covers the primary sector. The scope of IAS 41 is accounting for agricultural activity. Agricultural Activity- It is the management of biological transformatRead more

    Biological Assets comes under International Accounting Standard IAS 41 Agriculture.

    IAS 41 Agriculture is the first standard that specifically covers the primary sector. The scope of IAS 41 is accounting for agricultural activity.

    • Agricultural Activity- It is the management of biological transformation by an entity and measuring the change in the quality and quantity of biological assets.
    • Biological Transformation- It comprises the process of growth, degeneration, production and procreation that cause qualitative or quantitative changes in a biological asset
    • Biological Asset – They are living plants or animals owned by an entity
    • Agricultural Produce- It is the harvested / detached product of the entity’s biological asset.

    IAS 41 does not apply to

    • Agricultural land
    • Intangible assets related to agricultural activity
    • Products that are the result of processing after the point of harvest, for example, yarn, carpet, rubber, wine, etc
    • The land on which the biological assets grow, regenerate, degenerate.

     

     

    Biological Assets

    Definition

    Biological assets are living plants or animals that go through biological transformation, owned by an entity to prepare agricultural produce for the purpose of agricultural activities only.

    Living plants include plants that are consumable within 1 year and are harvested. It also includes plants that are used for lumbering and wood-cutting activities.

    Examples

    Examples of biological assets are:

    Sheep, pigs, poultry, beef cattle, fish, dairy cows, plants for harvest etc

    Importance

    • Farming: They are key to agriculture and food production.
    • Income: They generate substantial income for businesses in industries such as vineyards, livestock, silviculture, etc.
    • Sustainability: Properly managing them helps the environment.

     

    Accounting & Presentation

    Recognition

    Under IAS 41 biological assets are recognised when

    • The business must have ownership over them from a past event.
    • The future economic benefits are expected to flow to the business from their ownership.
    • The cost or fair value of the asset can be measured reliably.

    Agricultural produce is recognised

    • It is recognised at the point of harvest or detachment.

    Agricultural produce is derecognised when

    • They enter the trading.
    • Enters the production process.

    Measurement

    • Biological assets are measured on initial recognition and at each balance sheet date at their fair value less costs to sell.
    • Costs to sell are incremental costs incurred in selling the asset.
    • Agricultural produce is measured at the point of harvest, at fair value less costs to sell at the point of harvest.
    • Agricultural produce after the point of harvest/ detachment is transferred and treated under the IAS 2 Inventory

    Gains & Losses

    • Gains and losses arising from the initial recognition of biological assets are reported in the statement of profit and loss.
    • The change in fair value less costs to sell of a biological asset between balance sheet dates is reported as gain or loss in the statement of profit and loss.
    • A gain or loss arising on initial recognition of agricultural produce at fair value less selling costs is included in profit or loss for the period in which it arises.

    Treatment

    • The sale of agricultural produce is treated as revenue in the statement of profit and loss.
    • Agricultural produce to be harvested for more than 12 months, livestock to be held for more than 12 months and trees cultivated for lumber are recorded as Biological assets under the Non-current assets head in the balance sheet.
    • Agricultural produce to be harvested within 12 months, livestock to be slaughtered within 12 months and annual crops like wheat, and maize are recorded as Biological assets under the head Current assets in the balance sheet.
    • Inventories produced from agricultural produce are presented as Inventory under the head Current assets in the balance sheet.

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A_Team
A_Team
In: >

Final AccountsLoose Tools
  2. Vijay Curious M.Com
    This answer was edited.

    Let me begin by giving a small explanation of what loose tools are before we dive into their accounting treatment. Loose tools are assets that are used in various steps of the production process and therefore are vital for the conversion of raw materials into finished goods. They are considered as cRead more

    Let me begin by giving a small explanation of what loose tools are before we dive into their accounting treatment.

    Loose tools are assets that are used in various steps of the production process and therefore are vital for the conversion of raw materials into finished goods. They are considered as current assets of the business as their useful life is limited. They have a small monetary value (cost-efficient) and high turnover. Examples of loose tools include screwdrivers, hammers, etc.

    One may say loose tools like screwdrivers and hammers can be used for more than one year and therefore should be classified as non-current assets. But unlike fixed assets, these loose tools have a high probability of being misplaced or lost. Hence they are classified as current assets.

    Since loose tools are treated as an asset for the business, they are shown as a debit balance in the trial balance.

    The cost of loose tools consumed for the year will be shown on the debit side of the Profit & Loss A/c as an expense. In the balance sheet, loose tools are shown on the Assets side under the head Current Assets and sub-head Inventories. Since they aid the production process, loose tools are shown as a part of the inventory of the business.

    Let us take an example,

    XYZ Ltd. at the beginning of the year had loose tools worth 5,000. During the year they purchased loose tools worth 500. At the end of the year, the company valued its loose tools at 4,500.

    Now let us find the cost of loose tools consumed. The formula for finding the cost of loose tools consumed is as follows:

    Cost of loose tools consumed  = Opening inventory of loose tools + Purchases of loose tools – Closing inventory of loose tools

    Cost of loose tools consumed = 5,000 + 500 – 4,500 = 1,000

    So, the cost of loose tools consumed (1000) will be shown on the debit side of the P&L A/c as follows:

    The closing inventory of loose tools worth 4,500 will be shown on the assets side of the balance sheet under the head current assets and sub-head inventory in the following manner:

    One thing to remember here is there is an exception to loose tools. While calculating liquidity ratios like the Current ratio, Quick ratio, etc. loose tools are excluded from current assets. The reason for this is loose tools cannot be easily converted into cash i.e. they are less liquid. The purpose of calculating the current ratio is to check the liquidity of a company. Including loose tools (which cannot be easily converted into cash) in current assets defeats the purpose of calculating the ratio.

     

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Vijay
VijayCurious
In: >

Capital Expenditure Revenue Expenditure Cash Expense Credit Expense

  2. Karan B.com and Pursuing ACCA
    This answer was edited.

    The correct answer is 2. Revenue Expenditure. An honorarium is a voluntary payment paid to a person for the services provided. It is a type of cost incurred for the expenses of guests and volunteers. This is a payment made to the person who is not an employee of the institution. Revenue expendituresRead more

    The correct answer is 2. Revenue Expenditure. An honorarium is a voluntary payment paid to a person for the services provided. It is a type of cost incurred for the expenses of guests and volunteers. This is a payment made to the person who is not an employee of the institution.

    Revenue expenditures are the short-term expenses and consumed within one accounting year and are also known as operating expenses.

    Payment of honorarium to the secretary is treated as revenue expenditure because benefits from the expense are derived in the same accounting period. The honorarium is a type of outside expense and any outside expense is revenue in nature. It is a daily allowance incurred to cover the hotel/stay expense.

    Payment of honorarium to the secretary is shown on the Expenditure side of the Income and Expenditure Account.

    Capital Expenditure is the expense incurred on acquiring an asset and honorarium cannot be a capital expenditure as benefits derived from it cannot be carried forward to the next year.

    It cannot be treated as cash or credit expense although it is paid in cash or credit. In this case, it will be treated as a revenue expense while preparing financial statements.

    Payment of honorarium is mainly a topic of not-for-profit organizations.

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A_Team
A_Team
In: >

Receipts and Payments A/C for the year ended 31st March 2020 Receipts Amt Payments Amt To Balance b/d  (Cash)        180,000 By Salary        480,000 To Subscriptions        900,000 By Rent           50,000 To Sale of Investments        200,000 By Stationery           20,000 To Sale ...

  2. Radha M.Com, NET
    This answer was edited.

    Here I've prepared the Income & Expenditure A/c. Income & Expenditure A/c for the year ended 31st March 2021 Expenditure Amt Income Amt To Salary      4,80,000 By Subscriptions      9,00,000 To Rent          50,000 By Donations          10,000 To Stationery          20,000 To Loss on sale ofRead more

    Here I’ve prepared the Income & Expenditure A/c.

    Income & Expenditure A/c for the year ended 31st March 2021

    Expenditure Amt Income Amt
    To Salary      4,80,000 By Subscriptions      9,00,000
    To Rent          50,000 By Donations          10,000
    To Stationery          20,000
    To Loss on sale of furniture (WN)          10,000
    To Surplus      3,50,000
         9,10,000      9,10,000

     

    Working Note: Calculation of Loss on sale of furniture

    The following calculation is made to identify the loss incurred on the sale of furniture.

    Particulars Amt
    Book Value of Furniture        40,000
    Less: Sale Value of Furniture        30,000
    Loss on Sale of Furniture        10,000

     

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Karan
Karan
In: >

A. Debit balance B. Credit balance C. Either Debit or Credit D. None of these

  2. Ayushi Curious Pursuing CA
    This answer was edited.

    The correct option is C. Either Debit or Credit. Partner’s Current account is prepared when the capital account is of fixed nature. We know that partner’s capital account can be of fluctuating nature or fixed nature. In the case of fluctuating partner’s capital, all the transactions relating to theRead more

    The correct option is C. Either Debit or Credit.

    Partner’s Current account is prepared when the capital account is of fixed nature. We know that partner’s capital account can be of fluctuating nature or fixed nature.

    In the case of fluctuating partner’s capital, all the transactions relating to the appropriation of profit, salary, commission, drawings, the introduction of capital, interest on capital etc. are passed through the partner’s capital account.

    The balance of partner’s capital is generally credit but sometimes it may show debit balance indicating that the business owes to partner.

    But when the partner’s capital account is of fixed nature, then separate partner’ current accounts are prepared. Through this account, all the transactions of revenue nature are passed like appropriation of profits, salary or commission paid to a partner, interest on capital and drawings. The balance of this account may be debit or credit.

    The debit balance means the partner has withdrawn a lot of amount as drawings in anticipation of profits. The credit balance means the partner owes to the business.

    The partner’s capital shows a fixed amount as capital and its balance is affected only when additional capital is introduced or capital is withdrawn. The balance of this account is always credit.

    The partner current account is prepared when the firm wants to show the revenue transactions and capital transactions related to the partner ‘capital separately.

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Aadil
AadilCurious
In: >

A. For a certain given period B. At a particular point of time C. After a fixed date D. None of the above

  2. Ayushi Curious Pursuing CA

    The correct option is Option (b) at a particular point of time. A balance sheet discloses the financial position of an entity at a particular point of time. The particular point of time is generally the last date of an accounting year. Most of the business concerns follow an accounting year ending oRead more

    The correct option is Option (b) at a particular point of time.

    A balance sheet discloses the financial position of an entity at a particular point of time. The particular point of time is generally the last date of an accounting year. Most of the business concerns follow an accounting year ending on 31st March and prepare their balance sheet as at 31st March.

    By financial position, it means the value of assets and liabilities of the entity. As an entity may enter into monetary transactions every day, the values of the assets and liabilities may also vary every day. Hence, to prepare the balance sheet of an entity, a particular point of time is to be chosen which is generally the last date of an accounting year

    Option (a) for a given period of time is incorrect.

    It is because the values of assets and liabilities of concern may differ daily, a balance sheet cannot be prepared to disclose the financial position of an entity for a given period of time.

    The statement of profit or loss is prepared for a given period of time as it discloses the overall performance of an entity for a given period of time.

    Option (c) after a fixed date is also incorrect.

    The phrase, “after a fixed date” does not indicate a particular point of time. It may mean any day after a fixed date. For example, if there is an instruction to prepare a balance sheet that discloses the financial position of a concern after 30th March, it may mean 31st March, 1st April or any day thereafter.

    As we know that a balance can be prepared for a particular point of time, this option seems wrong.

    Option (d) None of these is incorrect too as Option (b) is the correct one.

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Radha
Radha
In: >

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

    Capital Work in Progress refers to the total cost incurred on a fixed asset that is still undergoing construction as on the balance sheet date. These costs are not allowed to be used as an operating asset until the asset is ready to use. Until the construction of the asset is completed, the costs arRead more

    Capital Work in Progress refers to the total cost incurred on a fixed asset that is still undergoing construction as on the balance sheet date. These costs are not allowed to be used as an operating asset until the asset is ready to use. Until the construction of the asset is completed, the costs are recorded as capital work in progress.

    Depreciation is the systematic allocation of the cost of an asset over its useful life. Depreciation is charged on an asset from the date it is ready to use. Since Capital Work in Progress is not yet ready to use, depreciation cannot be charged on it.

    Example

    If a company owns a Machinery worth Rs. 45,000 out of which Rs. 15,000 is part of capital work in progress, then depreciation on such machinery would be calculated only on the part of machinery that is ready to use that is Rs. 30,000 (45,000-15,000).

    When an asset is undergoing construction, the journal entry for each expense would be recorded as

    Further, when all construction of the above asset is completed, it is transferred to fixed asset account. This would be recorded as

    After transfer to Fixed Asset account, depreciation can be calculated and shown as below

    If the construction of an asset is complete but has not been put to use till now, depreciation is still calculated as it is ready for use. It can be done through various methods like straight-line method, written down value method etc.

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