AccountingQA Latest Questions

Simerpreet
SimerpreetHelpful
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  2. Naina@123 (B.COM and CMA-Final)
    This answer was edited.

    As per the companies act 2013, the rate of depreciation for cars/vehicles and their useful life is mentioned below  They are categorized by the companies act as follows: when these car/ motor vehicles are owned with no intention to sell within the accounting period and are generally used to generateRead more

    As per the companies act 2013, the rate of depreciation for cars/vehicles and their useful life is mentioned below

     They are categorized by the companies act as follows:

    1. when these car/ motor vehicles are owned with no intention to sell within the accounting period and are generally used to generate revenue. For example, giving cars/motor vehicles on lease or hire purpose.
    2. cars/motor vehicles when used for purposes other than the business of hire. For example, a car is owned for official use.

    Car/motor vehicles are considered as fixed tangible assets. Treatment of these cars/ motor vehicles is similar to those of other fixed assets. The depreciation will be shown as an expense in the profit and loss account and also the value of these assets will be adjusted in the balance sheet.

    Explaining with a simple example:  Mars.Ltd purchased a car for Rs 10,00,000, and use it for its official purpose. Its useful life as per act is taken as 6 years and the rate of depreciation as 31.23% as per the WDV method.

    Therefore depreciation as per WDV is calculated as follows

    Cost of car = Rs 10,00,000

    Residual value = NIL

    Rate of depreciation = 31.23%

    depreciation for first-year = Rs (10,00,000 – NIL)*31.23%

    = Rs 3,12,300

    Calculated depreciation on this car will be shown in the profit and loss account as an expense and the same will be treated under the balance sheet every year. Here is the extract of profit and loss and the balance sheet for the above example.

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Naina@123
Naina@123
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  2. prashant06 B.com, CMA pursuing
    This answer was edited.

    First, let us understand the meaning of a provision of depreciation. It is nothing but the total collection of all the depreciation over the years. This account is not like a normal account but a contra asset account. It is also called accumulated depreciation. Annual depreciation charged is an expeRead more

    First, let us understand the meaning of a provision of depreciation. It is nothing but the total collection of all the depreciation over the years. This account is not like a normal account but a contra asset account. It is also called accumulated depreciation.

    Annual depreciation charged is an expense for the business and hence has a debit balance. Whereas provision for depreciation as a contra asset account has a credit balance.

    The journal entry for provision for depreciation is

    Depreciation A/c                                                      ……….Dr XXX
               To Provision for depreciation XXX

    Explaining the credit nature of this account. As we know that the depreciation is an expense for the business hence as per modern rules “Debit all the expenses and losses and credit all incomes and gains” therefore it is debited whereas the provision of depreciation is contra account it has a credit balance as it reduces the value of assets. So according to modern rule, we know a decrease in assets has a credit balance, hence shown in a negative balance on the balance sheet under long-term assets.

    With the preparation of this account, we do not credit depreciation in the asset account but transfer every year to the accumulated depreciation account, and when assets are disposed of or sold we credit the ‘total’ of the provision on depreciation to the credit of the asset account just to calculate the actual profit or loss on a sale of the asset.

     

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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    The word, “deferred” means delayed or postponed and “revenue” in layman’s terms means income. Therefore deferred revenue means the revenue which is yet to be recognised as income. It is actually unearned income. In accrual accounting, income is recognised only when it is accrued or earned. DeferredRead more

    The word, “deferred” means delayed or postponed and “revenue” in layman’s terms means income. Therefore deferred revenue means the revenue which is yet to be recognised as income. It is actually unearned income.

    In accrual accounting, income is recognised only when it is accrued or earned. Deferred revenue is the income received before the performance of the economic activity to earn it.

    Example:  A shoe shop owner gives an order to a shoe manufacturer of 1000 pair of shoes which is to be delivered after 4 months. He also gives him a cheque of ₹15,000 in advance, the rest ₹5000 is to be given at the time of delivery.

    So, in this case, the ₹15,000 is actually is unearned revenue i.e. deferred revenue. It will be recognised as revenue when the shoe manufacture completes the order and deliver it.

    Till then, the deferred revenue is reported as a liability in the balance sheet. Like this:

    After recognition as revenue, it will be reported in the statement of profit or loss:

    Hence, to summarise, deferred revenue is:

    • Unearned revenue
    • Recognised as income till it is earned
    • Till then it is recognised and reported as a liability in the balance sheet.

    Some examples of deferred revenue are as follows:

    • Advance rent received
    • Advance payment for goods to be delivered.
    • Advanced payment for services to be provided.

    Now the question arises why deferred revenue is recognised as a liability. It is due to the fact that the business may not be able to perform the economic activity successfully to earn that revenue.

    Taking the above example, suppose the shoe manufacturer is not able to honour its commitment and the shoe shop owner can wait no more, then the advanced money of ₹ 15,000 is to be refunded. That’s why deferred revenue is recognised as a liability because it is a liability if we consider the principle of conservatism (GAAP).

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Jayesh Gupta
Jayesh GuptaCurious
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    Capital Redemption Reserve is a statutory reserve, which means it is mandatory for a company to create such reserve when it decides to redeem its preference shares. Capital Redemption Reserve cannot be utilised for any purpose other than the issue of bonus shares. Now let’s understand the reason behRead more

    Capital Redemption Reserve is a statutory reserve, which means it is mandatory for a company to create such reserve when it decides to redeem its preference shares. Capital Redemption Reserve cannot be utilised for any purpose other than the issue of bonus shares.

    Now let’s understand the reason behind it.

    We know preference shares are those shares that carry some preferential rights:

    • Dividend at a fixed rate
    • Right to get repaid before equity shareholders in event of winding up of the company
    • Other rights as specified in the Articles of Associations.

    Also, unlike equity shares, preference shares are redeemable i.e. repaid after a period of time (which cannot be more than 20 years).

    Generally, the creditors of a company have the right to be repaid first. So, in event of redemption of preference shares, the preference shareholders are repaid before creditors and the total capital of the company will but the total debt of the company is unaffected.

    The gap between the debt and equity of the company will further widen and this will also increase the debt-equity ratio of the company. It will be perceived to be a risky scenario by the creditors and lenders of the company because the

    So to protect the creditor and lender, Section 55 of the Companies Act comes to rescue.

    Section 55 of the Companies Act ensure that the creditors and lenders of a company do not find themselves in a riskier situation when the company decides to redeem its preference shares by making it mandatory for a company to either

    • issue new shares to fund the redemption of preference shares

    OR

    • create a capital redemption reserve if it uses profits for redemption

    OR

    • a combination of both

    This will fill up the void created by the redemption of preference shares and the debt-equity ratio will remain unaffected. Keeping an amount aside in Capital Redemption Reserve ensures that such amount will not be used for dividend distribution and capital will be restored because it can be only used to issue bonus shares.

    In this way the debt-equity ratio remains the same, the interest of the creditors and lenders secured.

    Bonus shares are fully paid shares that are issued to existing shareholders at no cost.

    Let’s take a numerical example for further understanding:

    ABC Ltd wants to redeem its 1,000 9% Preference shares at a face value of Rs 100 per share. It has decided to issue 8,000 equity shares @Rs 10 per share and use the profit and reserves to fund the deficit.

    The journal entries will be as follows:

    Working note:                                                                            Rs

    9% preference shares due for redemption (1,000 x 10) – 1,00,000

    Less: Amount of new shares issued (8,000 x 10)           –      80,000

    Amount to be transferred to CRR                                              20,000

    Hence, the reduction of total capital by Rs 1,00,000 due to the redemption of preference shares is reversed by issuing equity shares of Rs 80,000 and creating a Capital Redemption Reserve of Rs 20,000.

     

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Aadil
AadilCurious
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    The term ‘contra’ means  'opposite'. Therefore, a contra revenue account is an account that is opposite of the revenue accounts of a business i.e. sales account. It has the opposite balance of the revenue account i.e. debit balance. The purpose of the contra revenue account is to ascertain the actuaRead more

    The term ‘contra’ means  ‘opposite’. Therefore, a contra revenue account is an account that is opposite of the revenue accounts of a business i.e. sales account. It has the opposite balance of the revenue account i.e. debit balance.

    The purpose of the contra revenue account is to ascertain the actual amount of sales and record the items which have reduced the sales.

    These are the contra revenue accounts commonly seen in businesses:

    • Sales return account: This account records the amount of goods sold returned by customers. The journal entry for recording sale return is as follow:

    The total sales return is deducted from the sales in the balance sheet. Though being opposite of the sales account, the sale return account is not an expense account. It is considered an indirect loss as it reduces sales.

    • Sale Discount account: This account records the amount of discount allowed to customers. The journal entry for recording sale discounts is as follows:

    Sales discount is an expense hence it is debited to the profit and loss account.

    Sales returns and sales discounts are shown in the trading and profit and loss account in the following manner:

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Aadil
AadilCurious
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Meaning We know that an account in ledger format has two amount columns i.e. debit and credit amount columns. Now, most of the time, the total of debit and credit sides do not match.  The difference between their totals is called the balance of the account and it is posted on the shorter side. ThisRead more

    Meaning

    We know that an account in ledger format has two amount columns i.e. debit and credit amount columns. Now, most of the time, the total of debit and credit sides do not match.  The difference between their totals is called the balance of the account and it is posted on the shorter side. This result in equalling the total of both sides, hence this act is called ‘balancing an account.

    Types of balances

    Balancing an account is a very usual practice so that the balance of an account can be known. An account can have two types of balances:

    • Debit balance, where the debit side total is more than the credit side total.
    • Credit balance, where the credit side is more than the debit side total.

    The balance of an account is posted on the shorter side. It means:

    • The debit balance will be shown on the credit side as the credit side total is shorter. (posted as ‘By Balance c/d’)
    • The credit balance will be shown on the debit side as the debit side total is shorter (posted as ‘To Balance c/d’)

    Example

    The following is a cash account that is not balanced:

     

    We can see the debit side is ₹800 more than the credit side. It means there is a debit balance. It will be posted on the credit side as ‘By balance c/d’ to balance the account.

    Exceptions

    Balance of the income and the expense accounts (nominal accounts)are not computed. Instead, they are closed to trading account or profit and loss account to balance their amount totals. For example, the salaries account and sales accounts

    Only the balance of the following types of accounts are computed and carried forwarded to successive accounting years:

    • Assets
    • Liabilities
    • Capital

    The balance of these accounts is shown on the trial balance and balance sheet as well.

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A_Team
A_Team
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    Journal entry for goods purchased by cheque The journal entry for goods purchased by cheque is as follows: In this journal entry, purchase account and bank account are involved. The explanation is given below. Explanation Purchase Whenever there is a purchase of goods, the purchase account is debiteRead more

    Journal entry for goods purchased by cheque

    The journal entry for goods purchased by cheque is as follows:

    In this journal entry, purchase account and bank account are involved. The explanation is given below.

    Explanation

    Purchase

    Whenever there is a purchase of goods, the purchase account is debited.

    Goods refer to the items which an enterprise manufactures or purchases and sells to generate its business revenue.

    If there is a purchase of any other item which does not satisfy the above definition of goods, then the purchase account is not involved.

    For example, if stationery is purchased and the enterprise does not trade in stationery items, then the purchase account will not appear in the journal entry.

    Payment by cheque

    Payment by cheque means the payment amount will be deducted from the bank account balance. Hence, in the given journal entry, the bank account is involved.

    The logic behind the debit and credit

    The golden rules of accounting

    Purchase is an expense hence it is a nominal account. The golden rule for nominal accounts is “Debit all expense and loss and credit all incomes and gains”

    Hence, the purchase account is debited.

    Bank is a real account and the golden rule of accounting for real accounts is, “Debit what comes in, credit what goes out”.

    Hence, the bank account is credited as money is going out of the bank.

    Modern rules of accounting

    Purchase is an expense account, and expenses are debited when increased and credited when decreased.

    Hence, the purchase account is debited here.

    A bank account is an asset account. Asset accounts are debited in case of an increase and credited in case of a decrease. Hence, the bank account is credited here.

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Simerpreet
SimerpreetHelpful
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  2. Poorvi_*
    This answer was edited.

    When the Accumulated depreciation account is not maintained, the journal entry for vehicle depreciation shall be                              Particulars     Debit   Credit Depreciation a/c                                              Dr.      (xxx)      To Vehicle a/c      (xxx) (Being DepreciationRead more

    When the Accumulated depreciation account is not maintained, the journal entry for vehicle depreciation shall be

                                 Particulars     Debit   Credit
    Depreciation a/c                                              Dr.      (xxx)
         To Vehicle a/c      (xxx)
    (Being Depreciation charge on Vehicle made)

    For example, let us assume that a vehicle (Bike) was purchased on 1st April 2019 with INR. 2,50,000, the rate of depreciation is 15% and also the Company follows the straight-line method of calculating depreciation.

    Then the journal entries shall be,

    The depreciation charge for the 1st Year 

            Date                                Particulars  Debit  Credit
    31-03-2020 Depreciation a/c Dr.  37,500
        To Vehicle a/c  37,500
    (Being Depreciation made on Vehicle)

    The depreciation charge for the 2nd Year 

            Date                                Particulars  Debit  Credit
    31-03-2021 Depreciation a/c Dr.  37,500
        To Vehicle a/c  37,500
    (Being Depreciation made on Vehicle)

    The depreciation charge for the 3rd Year

            Date                                Particulars  Debit  Credit
    31-03-2022 Depreciation a/c Dr.  37,500
        To Vehicle a/c  37,500
    (Being Depreciation made on Vehicle)

    The respective ledger accounts for all three years are given below:

    When the Accumulated depreciation account is maintained, the journal entry for vehicle depreciation shall be

                                 Particulars   Debit   Credit
    Depreciation a/c                                              Dr.    (xxx)
         To Accumulated depreciation a/c    (xxx)
    (Being Depreciation charge on Vehicle made)

    Taking the above said example,

    The depreciation charge for the 1st Year 

            Date                                Particulars  Debit  Credit
    31-03-2020 Depreciation a/c Dr.  37,500
        To accumulated depreciation a/c  37,500
    (Being Depreciation made on Vehicle)

    The depreciation charge for the 2nd Year 

            Date                                Particulars  Debit  Credit
    31-03-2021 Depreciation a/c Dr.  37,500
        To accumulated depreciation a/c  37,500
    (Being Depreciation made on Vehicle)

    The depreciation charge for the 3rd Year

            Date                                Particulars  Debit  Credit
    31-03-2021 Depreciation a/c Dr.  37,500
        To accumulated depreciation a/c  37,500
    (Being Depreciation made on Vehicle)

    The respective ledger accounts for all three years are given below:

     

     

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Atreya
AtreyaCurious
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  2. Ishika Pandey Curious ca aspirant

    Definition A limited liability partnership (LLP)is a business vehicle like a partnership that features the partners ‘ liability is limited. Thus, it has elements of partnership and company. Another important feature of LLP is that each partner is not responsible or liable for another partner’s miscoRead more

    Definition

    A limited liability partnership (LLP)is a business vehicle like a partnership that features the partners ‘ liability is limited. Thus, it has elements of partnership and company.

    Another important feature of LLP is that each partner is not responsible or liable for another partner’s misconduct or negligence.

    LLP as constituted in INDIA:

    The limited liability partnership act, 2008 came into effect on 31st march, 2009. LLP is different from a partnership as it operates like a partnership, but in an LLP each partner is protected from personal liability, except to the extent of his capital contribution in the LLP.

    • LLP is subject to income tax like any other partnership firm.

    • A partner is not liable for independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partner‘s wrongful business decisions or misconduct.

    • LLP is a body corporate and legal entity separate from its partners. It has perpetual succession like a limited liability company.

    Indian partnership act 1932 is not applicable to LLPs and also the limit on the number of partners in an LLP is not applicable, unlike an ordinary partnership firm where the maximum number of partners cannot exceed the number specified under SEC 464 of Companies Act 2013, which at present is 50.

    The LLP Act, 2008 specifies that a least one of the partners in the LLP is a citizen of India and an Indian national.

    • The Registrar Of Companies ( ROC) is authorized to register and control LLPs.

     

    Characteristics

    • Separate legal entity :

    Like a company, LLP also has a separate legal entity. Therefore partners and LLP are distinct from each other, like a company where the company has a legal entity separate from its shareholders.

    • Minimum capital :

    LLP is not required to maintain minimum capital. Thus partners in LLP decide how much capital will be contributed by each partner.

    • The Minimum number of members :

    An LLP can be established with at least two members who shall also be the designated partners and shall have Director Identification Number (DIN).

    There is no limit on the maximum number of partners. Members other than designated partners are required to have DIN.

    • Audit is not mandatory :

    All companies, whether private or public, are required to get their accounts audited. However, an audit of LLP‘s books of accounts is not mandatory except :

    • If the contribution of the LLP exceeds Rs 25 lakhs: or
    • If the annual turnover of the LLP exceeds Rs 40 lakhs.

     

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Naina@123
Naina@123
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  2. prashant06 B.com, CMA pursuing
    This answer was edited.

    Revenue also called income is nothing but the income generated by individuals or businesses from the sale of goods or investing capital or assets. Some examples of revenue are as follows:- Sales revenue Dividend received Interest earned Rent received Commission    1. SALES REVENUE Sales revenueRead more

    Revenue also called income is nothing but the income generated by individuals or businesses from the sale of goods or investing capital or assets. Some examples of revenue are as follows:-

    1. Sales revenue
    2. Dividend received
    3. Interest earned
    4. Rent received
    5. Commission

     

     1. SALES REVENUE

    Sales revenue is the income received by the individual or business by selling its product or provision of services. the words “sale” and “revenue” are used interchangeably to mean the same thing. It is to be noted that revenue does not necessarily mean it has been received in cash, it can be partly in cash or partly on credit also.

    How to calculate sales revenue?

    SALES REVENUE = NO. OF UNITS SOLD * AVERAGE PRICE PER UNIT

    For example:- Amazon sold 4000 units of shirts @ 500 each. Therefore sales revenue for amazon is

    Sales revenue = 4000 * 500

    = 20,00,000

    Treatment of sales revenue in the financial statement, since sales are part of a trading account and appear on the credit side of the trading account.

    2. DIVIDEND RECEIVED

    Naina, this can be explained in simple terms. Suppose you own shares of a company which declares dividend so the dividend received is income for you. Since it does not reduce the assets of a company nor creates a liability it is shown as income and posted on the credit side of profit & loss A/c.

    Let me give you a short example of a dividend received, suppose you own 1000 shares of ABC.ltd. the company at the quarter-end calculate its earnings and decides to declare a dividend of Rs 5 per share. Therefore you would receive 1000* 5 i.e Rs 5000 as dividend income.

    3. INTEREST INCOME EARNED

    Interest income is the earnings the entity receives on any investments made. To be more precise it is money earned by an individual or business for lending their fund either by putting them as deposit in the bank. It is shown on the credit side of the profit & loss A/c.

    A very simple example for interest earned is when a business or an individual deposits money in the bank as savings and decided not to touch it for the coming years then such a depositor will gain interest on such savings by the bank. such type of income so received is treated as interest received and shown as income in the profit & loss A/c.

    3. RENT RECEIVED

    When money is received by the business for exchange of use of assets of the business by the other person, then it will be called rent received. Rent can be received by the business firm in respect of land, building, machinery, etc. As rent received is income for the business firm, it is shown on the credit side of profit & loss A/c.

    For example, X. ltd received Rs 20,000 via cash on one of its properties to Mr. Z. Then rent so received shall be treated as income in the books of ABC. ltd and same shall be treated as income and shown in the profit & loss statement.

    Summarised extract of profit & loss account is shown below for dividend received, Rent received and interest earned.

     

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