AccountingQA Latest Questions

A_Team
A_Team
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  2. Ayushi Curious Pursuing CA

    The partnership act 1932 does not mention the types of partners specifically. It does have mentions of ‘partner who is minor’ in section 30 and ‘partner by holding out in section 28. But we do come across many types of partners in partnership firms. Following is the list of the types of partners weRead more

    The partnership act 1932 does not mention the types of partners specifically. It does have mentions of ‘partner who is minor’ in section 30 and ‘partner by holding out in section 28.

    But we do come across many types of partners in partnership firms. Following is the list of the types of partners we generally see:-

    1. Active partner: – It is the partner who provides the capital and is also actively involved in the management and daily activities of the firm. Such a type of partner is of utmost importance to the firm. Apart from a share in profit and loss, he is also eligible to draw remuneration from the firm.

     

    1. Sleeping/ Dormant partner: – This type of partner does not participate in the daily workings of the firm nor actively participates in the management of the firm. Such a type of partner has a large sum of capital invested in the firm and shares the profits as well as losses of the firm.

     

    1. Partner by holding out:- If any partner, who by his words or by his conduct, represents himself as a partner of a firm, then he is called a partner by holding out. Such a partner is actually not a partner of the firm and doesn’t receive any share of profit as he has contributed no capital.

    As per section 28, such a partner is liable to any person who has given credit to the firm on             the belief that he is a partner of the firm.

     

    1. Minor partner: – If any person who is less than 18 years of age is admitted into the firm, such partner is known as a minor partner. Such a partner is entitled to the profits of the firm based on his capital but is immune from losses suffered by the firm.

     

    1. Secret partner: – It is a partner of a firm whose membership is kept hidden from the outsiders such as creditors and other third parties. But he is equally liable as other partners for the outside liabilities.

     

    1. Outgoing partner: – A partner who voluntarily leaves the partnership without dissolving the firm is called an outgoing partner or retiring partner. Such a partner is liable to all liabilities incurred before his retirement. But he can be held liable to outside liabilities if he fails to give public notice of his retirement.

     

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Karan
Karan
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Difference BetweenDissolution of FirmDissolution of Partnership
  2. PriyanshiGupta Graduated, B.Com
    This answer was edited.

    Dissolution of partnership means partnership coming to an end while the firm still stands. Various reasons for the dissolution of partnership could be: Admission of a partner Death of a partner Retirement of a partner Dissolution of firm In the event of the above cases, the existing partnership is dRead more

    Dissolution of partnership means partnership coming to an end while the firm still stands. Various reasons for the dissolution of partnership could be:

    • Admission of a partner
    • Death of a partner
    • Retirement of a partner
    • Dissolution of firm

    In the event of the above cases, the existing partnership is dissolved and a new partnership is created with the new partners without affecting the firm.

    A new partnership deed is created, in case there is a partnership deed agreed among partners and new profit-sharing ratios among the partners are decided, while the assets and liabilities of the firm remain the same.

    Dissolution of a firm means the firm no longer exists. Various reasons for the dissolution of a partnership firm could be:

    • Mutual decision of partners
    • By the court of law

    A partnership firm is dissolved by a court of law when there has been a non-compliance of law, the firm is engaged in illegal practices, or that the court’s opinion is that it is in the public interest for the firm to be dissolved.

    The partnership is also dissolved with the dissolution of the firm but the converse need not be true.

    When a firm is dissolved, there is a sequence that is followed to pay creditors and partners.

    • First, outside creditors like banks, third party creditors are paid firstly with the cash available with the firm and then by selling the assets.
    • Second, partners who have lent money in the form of a loan to the firm are paid.
    • Lastly, if there is any surplus, partners are paid with the amount of their capital. In case of loss, partners are required to pay from their personal assets.

    Dissolution of the firm can be done by the partners themselves and they could also appoint a third person to do so on the payment of fees, charges, the proportion of surplus, or any contract that has been agreed to.

    To summarize, we can a draw a difference table as follows:

    Dissolution of Partnership Dissolution of Partnership Firm
    The partnership ends but the firm still stands. A partnership firm no longer exists.
    A new partnership deed is created by the mutual agreement of partners. A new partnership firm is created if the partners decide.
    Reasons:

    ·        Admission

    ·        Retirement

    ·        Death

    		 Reasons:

    ·        By court

    ·        Mutual decision of partners
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Jayesh Gupta
Jayesh GuptaCurious
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  2. PriyanshiGupta Graduated, B.Com
    This answer was edited.

    A Cash Flow Statement analyzes the effect of various activities in the company on cash and, that is, it shows the inflow and outflow of cash and cash equivalents. A Fund Flow Statement analyzes the financial position of a company by the inflow and outflow of funds. Both the statements are financialRead more

    A Cash Flow Statement analyzes the effect of various activities in the company on cash and, that is, it shows the inflow and outflow of cash and cash equivalents.

    A Fund Flow Statement analyzes the financial position of a company by the inflow and outflow of funds.

    Both the statements are financial statements and are used to analyze the financial performance of the company of two different reporting periods. Both the statements record the inflow and outflow of cash or funds, as the case may be.

    The primary objective of preparing a Cash Flow Statement is to gain an understanding of the changes in the net working capital of the company and to classify the activities in the company under three different heads which helps in better analysis of Financial Statements for management, outsiders, and investors.

    The primary objective of preparing a Fund Flow Statement is to track the movements of funds in the company, as the extent of use of long-term and short-term borrowings, frequency of their procurement, its application, etc.

    The components of the Cash Flow Statement are:

    • Cash Flow from Operating Activities- activities concerning the regular business operations and working capital are classified under this head.
    • Cash Flow from Investing Activities- investment in long-term assets or sale of such assets are considered under this head.
    • Cash Flow from Financing Activities- borrowings that a company makes to fund its operations, their interest payment, and repayment are covered under this head.

    The components of the Fund Flow Statement are:

    Sources of Funds:

    • Owners
    • Outsiders

    Application of Funds:

    • Funds deployed in Fixed Assets
    • Funds deployed in Current Assets

    A sample format of the Cash Flow Statement will be:

    Particulars Amount
    Cash Flow from Operating Activities XXX
    Cash Flow from Investing Activities XXX
    Cash Flow from Financing Activities XXX
    Net Increase (Decrease) in Cash and Cash Equivalents XXX
    Cash and Cash Equivalents at the beginning XXX
    Cash and Cash Equivalents at the end XXX

    A sample format of the Fund Flow Statement will be:

    Particulars Amount
    Sources of Funds XXX
    Funds from Operations XXX
    Sale of Fixed Assets XXX
    Issue of Shares XXX
    Issue of Debentures XXX
    Long Term Borrowings XXX
    Total (A) XXX
    Application of Funds XXX
    Loss from Operations XXX
    Payment of Tax XXX
    Repayment of Loan XXX
    Redemption of Debentures XXX
    Redemption of Preference Shares XXX
    Total (B) XXX
    Net Increase (Decrease) in Working Capital XXX

    To conclude the difference between Fund Flow and Cash Flow Statement will be:

    Cash Flow Statement Fund Flow Statement
    Record of inflow and outflow of cash. Record of sources and application of funds.
    Prepared to analyze cash used in various activities. Prepared to track the movement of funds and their applications.
    Components include:

    • Operating Activities
    • Investing Activities
    • Financing Activities
    		 Components include:

    ·       Sources of Funds

    ·       Application of Funds

     

     

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Aadil
AadilCurious
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  2. Astha Leader Pursuing CA, BCom (Hons.)
    This answer was edited.

    General reserve is the part of profits or money kept aside to meet future uncertainties and obligations of the entity.  General reserve is created out of revenue profits for unspecified purposes and therefore is also a part of free reserves. General reserve forms a part of the Profit & Loss ApprRead more

    General reserve is the part of profits or money kept aside to meet future uncertainties and obligations of the entity.  General reserve is created out of revenue profits for unspecified purposes and therefore is also a part of free reserves.

    General reserve forms a part of the Profit & Loss Appropriation account and is created to strengthen the financial position of the entity and serves as a sources of internal financing. It is upon the discretion of the management as to how much of a reserve is to be created. No reserve is created when the entity incurs losses.

    General reserve is shown in the Reserves & Surplus head on the liability side of the balance sheet of the entity and carries a credit balance.

    Suppose, an entity, ABC Ltd engaged in the business of electronics earns a profit of 85000 in the current financial year and has an existing general reserve amounting to 100000. The management decides to keep aside 20% of its profits as general reserve.

    Then the amount to be transferred to general reserve will be = 85000*20% = 17000.

    In the financial statements it will be shown as follows-

    Now, in the next financial year, the entity incurs losses amounting to 45000. In this case, no amount shall be transferred to the general reserve of the entity and will be shown in the financial statement as follows-

    The creation of general reserve can sometimes be deceiving since it does not show the clear picture of the entity and absorbs losses incurred.

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A_Team
A_Team
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  2. GautamSaxena Curious .
    This answer was edited.

    Non-debt capital receipts As we're aware, there are two main sources of the government’s income — revenue receipts and capital receipts. Revenue receipts are all those receipts that neither create any liability nor cause any reduction in assets for the government, whereas, capital receipts are thoseRead more

    Non-debt capital receipts

    As we’re aware, there are two main sources of the government’s income — revenue receipts and capital receipts. Revenue receipts are all those receipts that neither create any liability nor cause any reduction in assets for the government, whereas, capital receipts are those money receipts of the government that either create a liability for a government or cause a reduction in assets.

    Revenue receipts comprise both tax and non-tax revenues while capital receipts consist of capital receipts and non-debt capital receipts. Non-debt capital receipt is a part of capital receipt.

    Definition

    Non-debt capital receipts, also known as NDCR, are the taxes and duties levied by the government forming the biggest source of its income. Those receipts of the government lead to a decrease in assets, and not an increase in liabilities. It accounts for just 3% of the central government’s total receipts.

    The union government usually lists non-debt capital receipts in two categories:

    • Recovery of loans – Recovery of loans means the amount recovered when a loan defaults.
    • Other receipts – Other receipts basically mean disinvestment proceeds from the sale of the government’s share in public-sector companies.
    • Money accrued to the union government from the listing of central government companies and the issue of bonus shares.

     

    For Example – Disinvestment and recovery of loans are non-debt creating capital receipts.

     

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A_Team
A_Team
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  2. Akash Kumar AK
    This answer was edited.

    Generally, Assets are classified into two types. Non-Current Assets Current Assets   Non-Current Asset Noncurrent assets are also known as Fixed assets. These assets are an organization's long-term investments that are not easily converted to cash or are not expected to become cash within an acRead more

    Generally, Assets are classified into two types.

    1. Non-Current Assets
    2. Current Assets

     

    Non-Current Asset

    Noncurrent assets are also known as Fixed assets. These assets are an organization’s long-term investments that are not easily converted to cash or are not expected to become cash within an accounting year.

    In general terms, In accounting, fixed assets are assets that cannot be converted into cash immediately. They are primarily tangible assets used in production having a useful life of more than one accounting period. Unlike current assets or liquid assets, fixed assets are for the purpose of deriving long-term benefits.

    Unlike other assets, fixed assets are written off differently as they provide long-term income. They are also called “long-lived assets” or “Property Plant & Equipment”.

     

    Examples of Fixed Assets

    • Land
    • Land improvement (e.g. irrigation)
    • Building
    • Building (work in progress)
    • Machinery
    • Vehicles
    • Furniture
    • Computer hardware
    • Computer software
    • Office equipment
    • Leasehold improvements (e.g. air conditioning)
    • Intangible assets like trademarks, patents, goodwill, etc. (non-current assets)

     

    Valuation of Fixed asset

    fixed assets are recorded at their net book value, which is the difference between the “historical cost of the asset” and “accumulated depreciation”.

    “Net book value = Historical cost of the asset – Accumulated depreciation”

     

    Example:

    Hasley Co. purchases Furniture for their company at a price of 1,00,000. The Furniture has a constant depreciation of 10,000 per year. So, after 5 years, the net book value of the computer will be recorded as

    1,00,000 – (5 x 10,000) = 50,000.

    Therefore, the furniture value should be shown as 50,000 on the balance sheet.

     

    Presentation in the Balance Sheet

    Both current assets and non-current assets are shown on the asset side(Right side) of the balance sheet.

     

    Difference between Current Asset and Non-Current Asset

    Current assets are the resources held for a short period of time and are mainly used for trading purposes whereas Fixed assets are assets that last for a long time and are acquired for continuous use by an entity.

    The purpose to spend on fixed assets is to generate income over the long term and the purpose of the current assets is to spend on fixed assets to generate income over the long term.

    At the time of the sale of fixed assets, there is a capital gain or capital loss but at the time of the sale of current assets, there is an operating gain or operating loss.

    The main difference between the fixed asset and current asset is, although both are shown in the balance sheet fixed assets are depreciated every year and it is valued by (the cost of the asset – depreciation) and current asset is valued as per their current market value or cost value, whichever is lower.

     

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

    Definition Gross profit is the excess of the proceeds of goods and services rendered during a period over their cost, before taking into account administration, selling, distribution, and financial expenses. Gross profit and net profit are gross profit estimates of the profitability of a company. WhRead more

    Definition

    Gross profit is the excess of the proceeds of goods and services rendered during a period over their cost, before taking into account administration, selling, distribution, and financial expenses.

    Gross profit and net profit are gross profit estimates of the profitability of a company.

    When the result of this computation is negative it is referred to as gross loss

    Formula :

    Total Revenues – Cost Of Goods Sold

    Net profit is defined as the excess of revenues over expenses during a particular period.
    Net profit is to show the performance of the company.

    When the result of this computation is negative it is called a net loss.

    Net profit may be shown before or after tax.

    Formula :

    Total Revenues – Expenses
    Or
    Total Revenues – Total Cost ( Implicit And Explicit Cost )

    Examples

    Now let me explain to you by taking an example which is as follows :

    In a business organization there were the following data given as purchases made Rs 73000, inventory, in the beginning, was Rs 10000, direct expenses made were Rs 7000, closing inventory which was Rs 5000, revenue from operation during the period was Rs 100000.
    Then,

    COST OF GOODS SOLD = Purchases + Opening Inventory + Direct Expenses – Closing Inventory.

    = Rs ( 73000 + 10000+ 7000- 5000)
    = Rs 85000

    GROSS PROFIT = REVENUE – COST OF GOODS SOLD

    = Rs ( 100000 – 85000 )
    = Rs 15000

    Now from the above question keeping the gross profit same if the indirect expenses of the organization are Rs 2000 and the other income is Rs 1000.
    Then,

    NET PROFIT = GROSS PROFIT – INDIRECT EXPENSES + OTHER INCOMES

    = Rs ( 15000 – 2000 + 1000)
    = Rs 14000

    Treatment

    Treatment of gross profit and net profit is given as follows :

    Gross profit

    • Gross profit appears on the credit side of the trading account.
    • Gross profit is located in the upper portion beneath revenue and cost of goods sold.

    Net profit

    • Net profit appears on the credit side of the profit and loss account.
    • It is treated directly in the balance sheet by adding or subtracting from the capital.

    Here is an extract of the trading and profit/loss account and balance sheet showing GROSS PROFIT & NET PROFIT :

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Mehak
Mehak
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  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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Bonnie
BonnieCurious
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Calls in AdvanceCompanies Act
  2. Naina@123 (B.COM and CMA-Final)
    This answer was edited.

    To begin with, lets us understand what the Companies Act 2013 tells about calls-in-advance, so basically as per section 50 of the companies act 2013 "A company may if so authorized by its articles, accepts from any members the whole or part of amount remaining unpaid on any share held by him, even iRead more

    To begin with, lets us understand what the Companies Act 2013 tells about calls-in-advance, so basically as per section 50 of the companies act 2013 “A company may if so authorized by its articles, accepts from any members the whole or part of amount remaining unpaid on any share held by him, even if no amount has been called up”.

    To be more precise whenever excess money is received by the company than, what has been called up is known as calls-in-advance.

    Accounting Treatment

    Well, it is to be noted that calls-in-advance is never a part of share capital. A company when authorized by its article can accept those advance amounts and directly credit the amount received to the calls-in-advance account.

    As these advance amounts are a liability for the company these are shown under the head current liability of the balance sheet until calls are made and are paid to the shareholders.

    Since this is the liability of the company, it is liable to pay the interest amount on such call money from the date of receipt until the payment is done to the shareholders. The rate of interest is mentioned in the articles of association. If the article is silent regarding the rate on which interest is paid then it is assumed to be @6%.

    Accounting Entry

    Bonnie let us understand the entries with help of an example

    ADIDAS LTD issued 25,000 equity shares of Rs 10 each payable as follows:

    ON APPLICATION  Rs 5

    ON ALLOTMENT    Rs 3

    ON FINAL CALL     Rs 2

    Application on 30,000 shares was received. excess money received on the application was refunded immediately. Mr. X who was allotted 1,000 shares paid the call money at the time of allotment and all amounts were duly received assume interest rate @6% for 3 months, so the relevant accounting entry goes as follows:

    Important Points to be noted under calls-in-advance as per the companies act 2013

    • The shareholder is not entitled to any voting rights on money paid until the said money is called for.
    • No dividends are payable on advance money.
    • Board may pay interest on advance not exceeding 12%.
    • The shareholders are entitled to claim the interest amount as mentioned in the article, if there are no profits, then it must be paid out of capital because shareholders become the creditors of the company.
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Vijay
VijayCurious
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  2. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    The Furniture and Fixture is depreciated @10% according to the income tax act and as per the companies act, 2013 @9.50% under Straight line method and @25.89% under written down value method. Furniture and fixture form a major part to furnish an office. For Example, the chair, table, bookshelves, etRead more

    The Furniture and Fixture is depreciated @10% according to the income tax act and as per the companies act, 2013 @9.50% under Straight line method and @25.89% under written down value method.

    Furniture and fixture form a major part to furnish an office. For Example, the chair, table, bookshelves, etc. all comes under Furniture and Fixture. The useful life of Furniture and Fixtures is estimated as 5-10 years depending upon the kind of furniture.

    Rate of depreciation in reference to days

    • If Furniture is bought and put to use for more than 180 days, then the full rate of depreciation will be charged.
    • If the furniture is bought and put to use for less than 180 days, then half the rate of depreciation will be charged.
    • If the furniture is bought but is not put to use, then no depreciation will be charged.
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