JAIIB Accounts MODULE_C_

8/10/2019 JAIIB Accounts MODULE_C_

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MODULE : C

Special Accounts

CA R.C. Joshi ,

FCA,CAIIB,LL.B. B.Com(Hons.)


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Special Accounts: In brief we would

cover the following

Bank Reconciliation

Trial Balance

Capital & Revenue Expenditure

Inventory Valuation

Bills of Exchange

Consignment

Joint VentureLeasing & Hire Purchase


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ModuleC Special Accounts

Accounts for no-Trading Organisations

Depreciation Accounting

Accounting From incomplete records(Single Entry System

Ratio Analysis


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Bank Reconciliation

Every trader/business maintains Bank

Account. However when you compare the

balance on a particular day (generally at

the end of month )on comparison the

Bank Balance as per Books maintained by

Business & that reflected by Bank

Statement may not be matching most ofthe times. A few reasons are listed below :


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BR : Difference in CB & PB

Bank Reconciliation Statement is a state

All Cheques Issued may not have beenPresented in Bank

All Cheques deposited may not beenCredited in Bank Account

Interest & Bank Charges effected by Bank

Standing Instruction given to Bank notreflected in Businessmans Books


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BR : Difference in CB & PB

For eg. Tel. Bills , Electric Bills & InsurancePremia (debited by Bank )

Standing Instruction for Credits may be FDInterest, Dividends etc.

Dishounour of Cheques deposited as also thoseissued by Business

Direct Credit in Bank by Business.

Thus Bank Reconciliation is a statement

prepared to explian the difference between thebalance as as per the ash Book & Bank PassBook/Statement.


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BR

It is a STATEMENT(not an Account)

prepared by Customer.

Overcasting the deposit side of Cash

Book increases the Bank Balance as per

Cash book.

Bank shows as Deposits & withdrawals

what is called for Receipts & Payments byBusinessman in his Cash Book.


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Bank A/C as per Cash Bookfor Dec

Dec Dr. Dec Cr.

1 To Opening Bal. 15000

8 To A & Co 200 5 By X & Co. 4005 By Y & Co. 500

10 By Cash (C)(withd.) 2000

20 To Cash ( C ) Dep. 1000 30 By MTNL 800

30 To B & Co. 70030 By Z & Co. 900

31 By Bal C/d. 12300

----------------- ----------------------------

16900 16900


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Bank Statement

Withdrawals Deposits Balance

1 Dec Opening Bal. 15000 Cr.

7 X & Co. 400

7 Y & Co. 500

8 A & Co. 200 14300 Cr.

10 Cash 2000 20 Cash 1000 13300 Cr.

31 By Charges 100

31 By Dividend 200 13400Cr.


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Bank Reconciliation as on 31stDecember

Rs

Bank Balance as per Cash Book as on 31stDec 12300

Add: Cheque issued but not presented

MTNL Rs.800+ Z & Co. Rs.900 = Rs.1700

Dividend Credited not effected in CB Rs. 200 1900------ -------

14200

Less : Cheque Deposited but not credited Rs. 700

Bank Chgs. Debited not effected in CB Rs.100 800

Ans: bank Bal. as per Bank Statement 13400


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BR Statement (When we startwith Bank Bal. as per Bank Statement

Rs

Bank Balance as per Bank Statement as on 31stDec 13400

Add: Cheque Deposited but not credited Rs. 700

Bank Chgs. Debited not effected in CB Rs.100 800

- 14200 Less :Chequ issued but not presented

MTNL Rs.800+ Z & Co. Rs.900 = Rs.1700

Dividend Credited not effected in CB Rs. 200 1900

Ans: bank Bal. as per Cash Book 12300


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Select the appropriate

1.Dr. Bal. as per Pass Book means ______ (Overdraft, FavourableBalance, neither of the two)

2. Cheque deposited is recorded on________side (of Cash Book)& when dishonoured it is recorded on _______ side of the CASHBOOK. (Debit, Credit)

3.Debit Bal. in the Cash Book shows(Overdraft, FavourableBalance, neither of the two)

4. Insurance premia paid by the Bank is ________

(debited/Credited) by the Bank.

5.Direct Deposit by the Customer is first recorded in (Cash Book,Pass Book).


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Answers

1. Overdraft

2. Debit, Credit

3. Favourable

4. Debited

5. Pass Book.


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BR :Match the following

Column : A Column :B

1.Cash Book Dr. Side a. Deposits

2. Cash Book Cr. Side b. Withdrawals

3. Pass Book Dr. side c. Receipts

4. Pass Book Cr. Side d. Payments5. Dr. Bal. in Pass book e. Overdraft as per Pass Book.


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Answers

1 1.Cash Book Dr. Side c) Receipts

2. Cash Book Cr. Side d)Payments

3.Pass Book Dr. side b) Withdrawals

4. Pass Book Cr. Side a) Deposits.

5. Dr. Bal. in Pass book e) Overdraft as per PassBook


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TRIAL BALANCE

Rectification of Errors

Trial Balance is a list or abstract of

balances from Books (ledger, Cash Book,

journal) to determine posted

Debits/Credits and to establish a basic

summary for financial statements. It may

be prepared monthly, quarterly & halfyearly.


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Disagreement of a Trial Balance

Type of errors

Errors of principle

(No effect on trail

balance )

Clerical Errors

OMMISSION COMMISSION

Compensatory

Complete(No effect on TB) Partial(After TB)


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Errors

Compensating Errors: One effect nullifies thewrong effect on another

Error of Commission: A clerical error committed

while posting, totaling or balancing of anAccount

Error of Principles : An error arising out of

non-observance of Accounting Principles

One Sided Error: An error which affects only oneside of Account


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Errors

Two Sided Errors : An error affecting two

sides

Rectifying Entry : An entry passed to

rectify the error.

Suspense Account: An Account opened to

tally trial balance temporarily.


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Example-1

Goods purchased from Sohanlal wrongly

entered into Sales Register at Rs.500.

Correct Entry( That should have been)

Purchases A/c. Dr. 500

To Sohanlal Cr.Rs.500

Wrong Entry Passed

Sohanlal A/c. Dr. 500

To Sales Cr. 500


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Example-1

Rectification Entry

Sales A/c. Dr.500

Purchase A/c. Dr.500

To Sohanlal Cr. Rs.1000

(Being purchase of goods wrongly

recorded in Sales Register now rectified.)


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Example -2

Salary Paid to Vijay, Accountant wrongly

recorded to his Personal A/c. Rs.1000

Correct Entry

Salary A/c. Dr. 1000

To Cash Cr. Rs.1000

Wrongly Passed as :

Vijay A/c. Dr. 1000

To Cash Cr. Rs. 1000


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Example-2

Rectification entry

Salary A/c. Dr. 1000

To Vijay A/c. Cr. 1000

(Being Salary paid wrongly debited topersonal A/c now rectified).


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Example-3

Wages paid for installation of MachineryRs.500 were debited to Wages A/c.Rs.500Correct Entry

Machinery A/c. Dr. 500To cash Rs.500

Wrongly passed as :Wages A/c. Dr. 500

To Machinery Rs.500


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Example-3

Rectification Entry

Machinery A/c. Dr. Rs.500

To cash Rs.500

( Being wages paid for Installation of

Machinery is wrongly debited to Wages

A/c. now rectified).


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Example-4

Rent paid Rs.200 wrongly debited to

Postage A/c.

Correct Entry:

Rent A/c. Dr. Rs. 500Cash A/c. Cr. Rs.500

Entry wrongly passed as :

Postage A/c. Dr. Rs. 500Cash A/c. Cr. Rs.500


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Example-4

Rectification Entry

Rent A/c. Dr. Rs. 500

To Postage A/c. Cr. Rs.500

(Being Payment of Rent wrongly debited

to Postage A/c. now rectified).


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Match the following

Column: A Column : B1.Trial Balance 1. Diff. in Trial Bal.

2. Net Trial Bal. 2. Always shows Dr. bal.

3. Gross Trial Bal. 3. Always shows Cr. Bal.

4. Suspense A/c. 4. Generally shows Dr. Bal.5. Real A/c. 5. Statement of balances of ledger A/cs

6. Dr. or Cr. Balances

7. Ledger A/c.

8. Debit & credit totals

Ans: 1(6), 2(5), 3(8), 4(1), 5(2)


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Fill in the Blanks

1.Errors which cancel out the effects of one

another are called _________ Errors

2. Mistakes involving wrong recording or

posting are called Errors of ________3. Difference in Trial Balance is transferred

to ____________Account.

4. When a transaction is not recorded it is anerror of _________.


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Answers

1. Compensatory Errors

2. Commission

3. Suspense A/c.

4. Ommission


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12.

Chapter :12

Capital & Revenue Expenditure


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CAPITAL EXPENDITURE &

REVENUE EXPENDITURE

From the Trial Balance we can observe

that some items directly appear in Balance

Sheet while some other items are

charged to P&L A/c.Items which directly appear are generally

CAPITAL while those charged to P & L

are REVENUE. How this is classified?


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The Basis

1. Nature of the Expenses

2. Effect on revenue Earning Capacity

3. Benefit from the Expenditure

1.NATURE : Tests : Whether recurring in ordinary courseof business : Salary, Electricity Bill, Tel Charges, Raw

purchased etc.

Applicability of Materiality Concept: An Wall Clock costingRs.500/- having long useful life & it is non-recurring. However under

Materiality Concept it is allowed to be charged as REVENUE.

Building, Plant & Machinery, Motor Cars are examples of CAPITAL Expenditure


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Effecting on Revenue Earning

CapacityThe expense which help to generate income/revenue

in the current year are revenue in nature and

should be matched against the earned in the

current year. If the expenditure helps to generate

revenue for more than one accounting year is

generally called purchase of plant.


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State whether expenditure is Revenue/

Capital/ Deferred Revenue

1.Freight paid on a Machine for bringing it to

factory.

2.The shifting of stock from old works to new site.

3.The overhauling expenses of Machine.

4.The Legal expenses incurred in connection with

raising of Debentures issue.

5 Purchase of Machinery.6. Labour Welfare Expenses


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True or False

1.A revenue expenditure of one party may be

Capital receipt for the other party.

2.Receipts from Sale of machinery is revenue

receipt.3.The distinction between & revenue expenditure

can not be definite. It depends on the facts &

circumstances of each case.

4.Legal charges paid for purchase of land are


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True or False

Capital Expenditure but legal charges paid

in the ordinary course of business is

revenue expenditure.

5. Wages paid in the Ordinary Course of

business are revenue expenditure but

wages paid for erection of machinery are

capital expenditure.6.Debenture receipts are revenue receipts.


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Answers to True or False

1. True

2. False

3. True 4. True

5. True

6. False


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13.

INVENTORY VALUATION


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Objective

The main objective for accounting forINVENTORIES is to ascertain income throughmatching appropriate costs t for receipts as well asconversion of raw materials into semi-finished &finished products.

As per Accounting Standard-2 the inventory may befor sale in the ordinary course of business

In the process of production for such sale

The production for goods or services for sale

including maintenance, supplies and consumablesother than machinery & spares.


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13. Inventory Valuation

Cost of the goods is worked out as follows: Op. Stock+ Purchases-Closing Stock

= Cost of Goods

VALUATION METHODS :

(A) FIFO-FIRST IN FIRST OUT.

(B) LIFO-LAST IN FIRST OUT

AVERAGE COST

(D) BASE STOCK (E) ADJUSTING SELLING PRICES


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Find out Stock Value under 3

methods : (page:249),April ,2009

Date RecepitsL.F Units Rate IssuedDate Units1 Op. Stock 500 8 3 300

2 Purchases 600 10 5 400

4 Purchases 100 10.20 7 400

6 Purchase 200 10.50

Stock verification on 3rdApril reveals loss of 1o units.

Show the stock of Cost of goods sold & valuation of

stock as on 7thapril,2009 under FIFO,LIFO & WeightedAverage Cost Method.


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FIFO

April,09 Receipts Issue Balance1. 500*8=4000

2 . 600*10=6000 500*8=4000600*10=6000

3. 300*8=240010(Loss)*8=80 190*8=1520

600*10=6000

4. 100*10.20=1020 { 190*8= 1520

{600*10= 6000{100*10.20=1020

5 190*8=1520210*10=2100 { 390*10= 3900

{100*10.20=1020


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FIFO(page no: 250)

April,09 Receipts Issue* Balance

6. 200*10.50=2100 390*10= 3900

100*10.20=1020

200*10.50=2100

7. 390*10=3900

10*10.20=102 90*10.20= 918200*10.50=2100

Closing Stock under FIFO Method :290 units Rs.3018

Cost of Goods Sold : 1100 units Rs.10022

Loss of Units : 10 units Rs.80


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LIFO

April,09 Receipts Issue Balance1. 500*8=4000

2 . 600*10=6000 500*8=4000600*10=6000

3. 300*10= 3000

10(Loss)*10=100 500*8=4000290*10=2900

4. 100*10.20=1020 500*8= 4000290*10=2900

100*10.20=1020

5 100*10.20= 1020

290*10= 2900 10*8 = 80 490*8 =3929


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LIFO

April,09 Receipts Issue Balance

6 200*10.50= 2100 490*8=3920

200*10.50=2100

7 400 Units

200*10.50=2100

200*8=1600

10,800 290*8=2320

Closing Stock under LIFO 290 units Rs.2320

Cost of Goods Sold 1100 units Rs.10700

Loss of Units 10units Rs.100


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Average Weighted Cost

April,09 Receipts Issue Balance

1. 500*8=4000

2. 1100*9.09=10000

3. 300

10 loss

310*9.09=2819 790*9.09= 7181

4 100*10.20=1020 890*9.21=8201

5 400*9.21=4513 490*9.21=4513

6. 200*10.50=2100 690*9.58=6613

7 400*9.58=3835 290*9.58=2778

Stock: units 290*9.58= Rs.2778

Cost of Goods Sold 1100 units=10251

Loss of units 10*9.09 = Rs.91.


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Base Stock Method

Base Stock Method : It is assumed holding

of minimum quantity (base stock) with a

particular price & the quantity in excess

thereof are dealt with some other basis.Adjusted Selling Price :After considering

the Selling price stock is valued.


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Methods

Periodic Inventory

Perpetual Inventory

Implications of FIFO & LIFO Methods in

rising methods & falling Prices.

Requirements

In rising Market , FIFO just like LIFO in

falling Market will reflect lowest cost sohigher profits.


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Answers

1-a

2-c

3-b

4-a

5-c


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Fill in the Blanks

1. The inventory valuation is subjective because it dependson the _________________followed by the accountant

2. Historical value is reduced to net realisable value due tothe accounting convention of ____________.

3. Net realisable value is the estimated selling price in the

ordinary course of business less costs of of_______________and less costs necessary to make the______.

4. The ascertainment of the costs at the end by physicallycounting the stock is known as _________.

5. The basis of inventory valuation should not be changedfrequently because its violates the accounting principle of____________.


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Answers to fill in the Blanks

1. Accounting Policies 2. Conservatism

3. Completion, Sale

4. Periodic Inventory 5. Consistency


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14.

BILLS OF EXCHANGE


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Bills of Exchange

The main journal is divided into a number of journals. Sothere are Bills Receivable & Bills Payable journals.Types of Instruments of Credit :

Promissory Note

Bills Of Exchange : It is an instrument in writing Signed bythe maker containing an unconditional order to pay acertain sum of money to a person named in the instrumentor to his order to the bearer on a certain fixed future dateor demand.

(se. 5 of NI Act)


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Bills of Ex.

A Sells goods worth Rs.10000 to B On Credit.

A draws the Bill for Rs.10000. It is accepted by B &

returned to A. Show the entries to be passed in the

books of A & B respectively under the different

circumstances(a) if A retains the Bill & presents on maturity

(b) If A discounts the bill before the due date for

Rs.9800. A sends the Bill to his Bank for

Collections.(d ) If A endorses the bill to C his Creditor


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Answer

Here A is the drawer, Bill means Bills ofExchange & it is Bills Receivable for Drawer& Bills Payable for Drawee.

(a) B.R. A/c. Dr. 10000To B Cr. 10000

(b) Cash A/c. Dr. 9800

Discount 200To B. R. Cr. 10000


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Bills of Ex.

( C )

Bank for Bills Collection A/c. Dr. 10000

To Bills Receivable A/c. cr.

10000(d) When the Bill is endorsed to C

C A/c Dr. 10000

To Bills Receivable 10000(being endorsement of Bill of C


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Bills of Ex.

In the Books of B

As A/c Dr. 10000

To Bills Payable A/c. Cr. 10000


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Entries on due date under the following Circumstances

(a) if A retains the Bill & presents on maturity(b) If A discounts the bill before the due date forRs.9800. A sends the Bill to his Bank forCollections.

(d ) If A endorses the bill to C his Creditor. (a)Cash A/c. Dr. 10000

To B R. A/c. Cr. 10000(b) No entry as Bank will take step on due date


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Bills of Ex.

( c). Here Bank collects the money from Draweeremits to A.

Cash or Bank A/c. Dr. 10000To Bank for Bills Collection Cr. 10000

(d) When endorsed Bill is met.No entry in Bs Books.

In Bs Books :

Bills Payable A/c. Dr. 10000

To Cash/ Bank Cr. 10000

Dishonouring of Bill


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Books of A

a) Dishonour of retained Bill.Bs A/c. Dr. 10100

To BR A/c. Cr. 10000To Cash 100

(b) Discounted Bill Dishonoured- BR A/c/ Dr. 10000Noting Charges Dr. 100

To Cash A/c. Cr. 10100Bs A/c. Dr. 10100




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Books of A

(a) Dishonour of retained Bill.Bs A/c. Dr. 10100


(b) Discounted Bill Dishonoured- BR A/c/ Dr. 10000Noting Charges Dr. 100

To Cash A/c. Cr. 10100Bs A/c. Dr. 10100



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Bills Sent for collection

BR A/c/ Dr. 10000

Noting Charges A/c 100

To Cash A/c. Cr. 100

To Bills for collection 10000Bs A/c. Dr. 10100

To BR A/c. Cr. 10000

To Noting Charges 100


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When endorsed Bill is dishonoured

BR A/c Dr. 10000Noting Charges A/c Dr. 100

To C 10100

Bs A/c Dr. 10100

To BR 10000To Noting Charges 100In Bs BooksBills Payable 10000Noting Charges A/c Dr. 100

To Bills Payable 10100


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On retirement

In As Books

Cash A/c Dr. Rs.9500

Rebate A/c Rs. 500

To Bills Receivable Rs.10000In Bs Books

Bills Payable A/c. Dr. Rs.10000

To Cash A/c. Cr Rs.9500To Rebate Cr. Rs.500

When Bills is renewed B by paying


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When Bills is renewed B by paying

Rs.4000.

Bill is renewed for a period of 3 months for which

pays 3 months interest at 10% p.a.

First old bill is to be cancelled

Bs A/c Dr. Rs. 10000 To Bills Receivable A/c. Cr. Rs.10000

Cash A/c Dr. Rs.4000

Bills Receivable A/c Rs.6150

To Interest A/c Rs.150

To Bs A/c Rs.10000


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Accommodation Bills

These bills are drawn without

consideration & objective is to accomdate

one party.

The rest of things are same as Billsreceivable (with exception to sharing of

discount in the manner they share

Proceeds from Bills).

State whether the following


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statements are true or false

1. A bill of exchange is a negotiable instrument.

2. A bill of exchange need not to be dated.

3. A bill of exchange must be accepted by the drawer.

4. Drawer is a person to whom the bill is endorsed. 5. Amount of bill is paid to the payee.

6. Drawee after acceptance becomes acceptor.

7. A bill of exchange must be in writing.

8. A bill of exchange may be drawn for payment in kind.

9. Drawer has the right to discount the bill. 10. There are three parties to a bill of exchange.

.


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Answers 1 to 10

1.True 2. False 3. True

4. False 5. True

6. True 7. True 8 False

9. False 10True



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statements are true or false

11. There are two parties to a promissory note. 12. Drawee is the maker of the bill exchange.

13. Debtor is the maker of a promissory note.

14. A bill of exchange is a conditional order.

15. A bill of exchange must be properly stamped. 16. The maker of a promissory note must sign it.

17. Mere acknowledgement of debt is not a promise.

18. A bill of exchange which arises out of tradingrelationship of two persons is called a trade bill.

19. Acceptance is voluntary for a bill of exchange. 20. In general acceptance , the drawer agrees with some

of the conditions of the bill.


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Answers to True or False

11. True 12. False

13 True 14 False 15 True 16 True 17 True

18. True 19 False 20 False


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BE: Fill in the Blanks

1.When goods are sold on credit, the seller becomes a

________ and buyer becomes a _________.

(Debtor/Creditor)

2. Negotiable Instrument is ________ from one person to

another. (transferable/not transferable)

3. A bill of exchange must be properly _________.

4.A bill of exchange must be signed by the ________.5. A Bills of exchange is accepted by the _________


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Answers to fill in the blanks

Ans1.Creditor, Debtor2. transferred 3.Stamped

4. Maker 5. drawee.


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Consignment Account

15. Consignment Account


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15.CONSIGNMENT ACCOUNT

A consignment is the dispatch of goodsbuy its owner to its agent for the purpose

of selling. It this Principal (Owner) is a

Consignor, Agent is a Consignee. Thegoods so sent are called Consignment

Outward & for Agent it is Consignment

Inward.

CO S G CCO


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15.CONSIGNMENT ACCOUNT

Since transfer of goods to Agent is not a salesthe invoice prepared is called Pro forma invoice.

And the Statement prepared by Agent Showingsale of goods received on Consignment .Unsoldstock or damaged stock, expenses incurred &his commission is called ACCOUNT Sale.

Commission:

ORDINARY &

DEL CREDRE.Ordinary Commission is paid on total Sales.Losses or bad debts are borne by Consignee

C i E ( 281)


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Consignment Ex. (page 281)

Jyotimal of Kolkata consigned 50 cases Cotton Goodscosting

Rs.2000 each to Ziauddin of Decca. Jyotimal paid

follwing expenses : Carriage Rs.2500. Freight Rs.19000

& loading Charges Rs.3500. Ziauddin sales 30 cases at Rs.3500 each and incurs the

following exp. Landing Charges Rs.3000. Warehousing

& Storage Rs.5000 & selling Rs.4000. It is found that 2

cases have been lost in transit & three cases are still intransit. Ziauddin is entitled to a commission of 10% on

gross sales. Draw the necessary ledger accounts in the

books of Jyotimal.


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15.CONSIGNMENT ACCOUNT(pg. no:281)

Consignment A/c

To Goods Sent on Cons. Rs. 100000 By Ziauddin(Sales) 105000

(50*2000) Rs. 30*3500

To Bank:carriage 2500 By Goods lost in Transit 5000

Freight 19000

(2*2000=4000+1000)Loading Chgs. 3500 25000

To Ziauddin

Loading 3000 By Good in transit 7500

Warehousing 5000

Selling 4000 12000To Ziauddin (Commission) 10500

To P & L A/c 8500 By Closing Stock 38500

156000 156000

Zi ddi A/


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Ziauddins A/c

To Consignment 105000 By Consignment Exp 12000By Consignment-Comm.10500

.______ By Bank 82500

105000 105000

Cl. Stock; 50*2000 = Rs.30000 In transit 3*2000+1500=7500

Add; Prop. Exp.Consignor

15*500 Rs. 7500

Consinee: Non recurring:

On 15 cases for warehousing45cases Rs.3000

so for 15 cases 1000.

38500


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15.Indicate the Correct Answer.1. When goods are sent on Consignment debit is given to (a)

Consignees A/c (b) Consignment Account(( C ) Sales A/c.2. The relationship between Consignor & Consignee is that of

(a) Principal & Agent() buyer & Seller( C ) debtor & Creditor.

3. A loss which is natural & unavoidable is called(a) abnormal (b) normal ( c) Contingent

4. A loss arising due to pilferage, theft, fine etc. is(a) Normal (b) abnormal ( c) Contingent5. Abnormal loss of stock after adjusting for recovery of insuranceclaim is transferred to (a) Trading A/c. (b) P& L A/c( c)Capital A/c.6. Consignees A/c is a

(a) Nominal A/c.(b) Personal A/c. (C ) Real A/c.7. Del Credre Commission is calculated on (a) Cash Sales (b) Credit

Sales ( C ) total Sales.


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15.Answers to Indicatethe Correct Answer

1 ( b)2(a)

3( b)

4 (b)5 (b)

6 ( b)

7( C )

16 J i t V t


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16. Joint Venture

JV

JV


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JV

It is an agreement between two or moreparties.

The agreement is made to carry on a

specific job The agreement is over as soon as venture

is completed

JV Example (pg 288) A & B entered into a JV sharing


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JV Example (pg.288)A & B entered into a JV sharingP & L in the ratio of 3:2

They opened a Joint Bank A/c. where A deposited Rs.5000 & Bdeposited Rs.40000. A purchased goods for Rs.30000 & incurred

Rs.5000 for expenses out of the Joint Bank & he also supplied

materials from his stock for Rs.3000. He sold the entire goods for

Rs.50000 & deposited entire amount into the joint Bank a/c.

B purchased goods for Rs.25000 & incurred Rs.3000 for various

expenses out of the joint Bank A/c. He sold all the goods for

Rs.44000 except for goods valued at Rs.2000 which he took for his

own use.

The proceeds were also deposited in joint Bank a/c. Pl. prepare JVA/c, Joint Bank A/c & C-Venturers A/c.


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Joint Venture A/c. (pg.288)

To Joint Bank By Joint Bank A/c

Pur. 30000 Sale Proceeds 50000

Exp. 5000 35000 Sale Proceeds 44000To As Capital 3000

To Joint Bank A/c By Bs A/c- Goods Taken 2000

Pur 25000

Exp. 3000 28000

To Profit Trd.

A 18000

B 12000 3000096000 96000


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Joint Bank A/c

To A (Contri) 50000 By JV (goods & Exp) 35000To B(contribution) 40000 By JV 28000

To JV(Sale Proceeds)50000 By A-Final Pay 71000

To JV- Sale Proceeds 44000 By-BFinal Pay 50000

184000 184000

CO-VENTURERS A/cA B A B

To JV 2000 By JV A/c 50000 40000

To JV Bank A/c 71000 50000 By JV 3000 -

By JV-Proft 18000 12000

------- ------ ------- ----------

71000 52000 71000 52000

16 JV Fill i th bl k


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16 JV: Fill in the blanks

1. In JV the association of persons is of a _______ nature.

2. JV may also be called as a ______ partnership.

3. The co-venturers enter into a ________ with each other.

4. The co-venturers agree to share ______ or _________arising out ofbusiness.

5. The persons entering into JV are called __________.

Ans: Temporary 2. Temporary/restricted 3. Contract

4. Profit/Loss 5. Co venturers

16 JV M t h


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16.JV Match

(1) JV (a) Personal(2) Co-ventures A/c (b) Nominal A/c(3) Goods Supplied on JV A/c ( C )Real(4 ) Joint Bank A/c (d) Personal

(5) Cr. Bal. in JV A/c. (e) Profit on JV(6) JV ends (f) Completion of Venture

JV Ans ers


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JV Answers

1((b) 2 (a) 3 4 (h) 5 ( e) 6 ( f)

17


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17.

17.LEASING & HIRE PURCHASE

17 LEASING & HIRE PURCHASE


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17.LEASING & HIRE PURCHASE

Leasing is a contract between two parties,whereby the owner of an

assets transfershis rights of use to some other party on paymentof a fixed periodical rent. So there are Lessor, Lessee, Lease Deed,

Lease Rent terms use.

Types : 1. Finance or Capital lease.

2. Operating Lease

3. Services Lease and

4. Leveraged Lease.

FINANCE or CAPITAL LEASE: This is fairly for a long time.

i.e. Primary Period+ Secondary Period.

During Primary period Lessor charges Lease Rent in a manner

covering Cost of the Machine plus interest thereon. In secondary

period he charges Nominal rent.

Operating Lease


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Operating Lease

Operating lease is a lease which is notFinance or a Capital lease .It does not

transfer any of the rewards and the risk of

ownership of the leased property to thelessee. The contract is, usually,

cancelable and of lower maturity period

than in case of financial lease. Normally,the period of lease is much less compared

to the economic life of the asset.

Distin Fin Lease & Op Lease


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Distin. Fin. Lease & Op. Lease.

Fin. Lease Op. Lease1. Fin. Lease may give option to own 1. Any lease where lessor

takes leased asset. risk at a nominal price2. Period : fairly long 2. Short Period

3. Lessor incurs maintenance 3.Lessee incurs maintenance4. Intention of becoming owner 4. No such intention5. On Liability side Dues less down5. On Asset side Dep. is

Prov.6. payment appears reduced on 6. Need not be so.Same

yearly payment the instalments payment may continue.Both have different Accounting treatmnt

Operating Lease


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Operating Lease

Leasing of telephones, vehicles,computers, etc., are some of the examples

of the operating lease. The lease period is

normally for a short period and maystretch from a day to about three years

Service Lease


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Service Lease

This takes care of Services & not Capitaloutlay. Assets generally remains with the

Lessee.

Leveraged Lease : In this type there arethree parties. Financier apart from Lessor

& Lessee.

Accounting Treatment in case of


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g

Finance Lease:

1. Under Fixed Assets Head would appear Sub-Head as Assets

given on Lease along with Dep.

Bank A/c. Dr.

To Lease Rent

Lease Rent A/c Dr.

To P & L A/c.

Hire Purchase & Instalment Sale


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Hire Purchase & Instalment Sale

Hire Purchase has two Componentsinstalments & Interest.Distinction: HP & Instalment

1. Ownership

2. On Default in Repayment3. Buyers right to terminatye Contract

4. Buyers right to dispose off goods

5. Loss of Goods

17Lease


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17Lease

1. In a lease agreement there are ___ parties.2. The user of the assets is known as_______3. In higher purchase transactions the buyer Pays theprice in _______.

4. In higher purchase , the ownership of goods passes tothe buyer on payment of _______ instalment.

5.The ownership of goods passes to the buyer

immediately in ________system.

6. Under Hire Purchase , buyer is called____ while

seller is called ______.

Answers


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Answers

1.two 2. Lessee. 3. Installment 4. Last

5. instalment

5. Hire Purchaser & Hire Vendor

18


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18.

ACCOUNTS OF NON- TRADINGORGANISATION

18


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18.

Non- Trading Organisations are also required tomaintain the following books of accounts like Cash

Book, General Ledger, Journal , Membership Register,

Donations Register, Property Register & Others

depending on the type for eg. Students Register in caseSchool. Final Accounts consist of

1.Receipts & Payment A/c

2. Income & Expenditure A/c.

3. Balance sheet.

18


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18

Receipts & Payment A/c. : This showsactual amounts (Cash & cheques)receivedand paid for the whole year.

Income & Expenditure A/c ; It is similar toP&L A/c. that Businessman prepares.

Balance Sheet : It is same as B/S in

Business. Capital here referred to asCapital Fund or General Fund.

Diff Rec & Payments & I & E A/c


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Diff. Rec. & Payments & I & E A/c.

Receipts & Payments Income & Exp.1. Classification : Real A/c. 1. Nominal A/c.

2. Contents:Summary of actual

receipts & Payments 2.It contains I & E of a period

3. Items included: Capital & Revenue 3. Only Revenue

4. Op. & Cl. Bal.: Cash & Bank 4. No op. or Cl. Bal but

In R & P. Ends with deficit & Surplus.

Choose the Correct Answer


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Choose the Correct Answer

(a)The I & E account is prepared on the basis of : (i) Mercantile system of Accounting

(ii) Cash System of Accounting

(iii) Hybrid System of Accounting

(b) Amount received towards endowment fund is:

(i) Revenue Receipt

(ii) Capital Receipt

(iii) Deferred Revenue Receipt.

Non Trading Accounts


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Non Trading Accounts

( C ) The debit balance in the Income & ExpenditureAccount indicates :

(i) the excess of income over expenditure

(ii) the excess of expenditure over income

(iii) the excess of Cash receipts over Cash Payments

(d) Which of the following items should not be entered

in the receipts & payments accounts of a Club :

(i) Subscriptions received

(ii) Sale of Machinery

( iii) Loss on sale of Furniture.


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Non- Trading Accounts


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Non- Trading Accounts

(e) Subscriptions receivable at the beginning & at the end of the yearare Rs.2000 & Rs.3000 respectively. Income & Expenditure shows

subscriptions at Rs.20000. The amount shown as subscriptions in

Receipts & Payments (a) 19000 (b)23000 & (c ) Rs.22000.

Ans: Subscriptions Received During the year (? say X )Less : Subscriptions received for

Previous year 2000

Less : Sub. Received in advance nil

Add: Outstanding subscription for Current year 3000

Subscriptions taken to I & E A/c. 20000

Therefore X = Rs.20000+ Rs.2000- Rs.3000 =Rs.19000 Ans.


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19


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19.

Depreciation Accounting

Depreciation


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Depreciation

(i) is a part Operating Cost(ii) It is reduction in the value of assets

(iii) The decrease in the value of its assets

is due to its use caused by wear & tear orobsolescence

(iv) decrease in the value of assets in

gradual & Continuous. Dep. Helps us to arrive at correct profit.

Accounting Entries


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Accounting Entries

Depreciation A/c Dr.To Asset A/c. Cr.

ALTERNATIVELY

Depreciation A/c Dr

To Prov. For dep. A/c. Cr.

Methods of Depreciation


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Methods of Depreciation

Straight Line : Cost PriceScrap ValueEst. Life of assets (no. of yrs)

W. D.V: Here Depreciation provided on the book value

which appears after writing down depreciation

periodically. Here the Value of asset would neverbecome Zero while in case of Straight line the

value of asset become zero.

Let us see the example of Rs.100000 on WDV methodwith Dep. on 10% method.

WDV Dep. Method:

M hi A t


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MachineryAccount

1/4/05To Bank 100000 31/3/06 By Dep 10000.______ 31/3/06 By Bal C/d 90000

100000 100000

1/4/06 To Bal B/d 90000 31/3/07 By Depreciation 9000

______. 31/3/07 By Bal C/d 8100090000 90000

1/4/07 To Bal /d 81000 31/3/08 By Depreciation 8100

_______ 31/3/08 By Bal C/d 72900

81000 81000

1/4/08 To Bal B/d 72900 31/3/09 By Dep. 7290.______ 31/3/09 By Bal C/d 65610

72900 72900

1/4/09 To Bal B/d 65610

Sinking Fund


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Sinking Fund

Sinking Fund Method(For Providing Dep.)

Dep. A/c Dr.

To Sinking Fund A/c Cr

( For Making Investment )

Sinking Fund Investment A/c.

To Bank A/c. Cr.

SF method


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SF method

Next yearBank A/c. Dr.

To Int. on Sink. Fund Invest. A/c.Cr.Dep. A/c.

To Sinking Fund A/c.

Int. on Sink. Fund Invest. A/c. Dr.

To Sinking Fund A/c.

Sinking Fund A/c. Dr.To Bank A/c.

In the year of Replacement


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In the year of Replacement

(Sale of Investments)i) Bank A/c. Dr.

To sinking Fund investment A/c.

(Profit on sale of Investments)

ii)Sinking Fund Inv. A/c. Dr.

To Sinking Fund A/c)

iii)Sinking Fund A/c. Dr.

To Sinking Fund Inv. A/c.(Loss)iv)Dep. A/c. Dr.

To Sinking Fund A/c (Dep. For the year )

SF Method


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SF Method

(Sale of old asset)V. Sinking Fund A/c. Dr.

To Asset A/cvi) Sinking Fund A/c.

To Asset A/c. (Tr. Of sinking fund to Asset)

(Pur. Of new asset)

vii) New Asset A/c.

To Bank A/c.


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Car


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Car

31-3-05By Dep. 11500

To Motor Car A/c. 11500

By P & L A/c. Dr. 11500

To Dep. 11500

31-3-06

By Dep. 11500

To Motor Car A/c. 11500

By P & L A/c. Dr. 11500

To Dep. 11500


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30/06/2009 By Cash A/c Dr. 65000By Dep. A/c 2875

By Loss on Sale Car 12625

To Motor Car 80500

Motor Car A/c


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Motor Car A/c

1/4/03 To Bank 80000 31/3/04 By Dep 11500

1/4/03 To Bank 35000 31/3/04 By Bal C/d 103500115000 115000

1/4/04 To Op. Bal 103500 31/3/05 By Dep 1150031/3/05 By Bal C/d. 92000

103500 103500

1/4/05 To Op. Bal 92000 31/3/06 By Dep 1150031/3/06 By bal c/d 80500

92000

1/4/06 To Op. Bal 80500 30/6/06 By Dep. 287530/6/06 By Bank 65000

30/6/06 By Loss on sale of car

1262580500 80500

20.Accounting from incomplete records


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Single Entry System

20. Accounting from incompleteRecords (Single Entry System)


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g p ( g y y )

Single entry system arises out of incomplete information & theAccountant has to construct Accounts based on the drawing figures

from available information.

Computation of PROFITS :

(i) Net Worth Method : This involves adjustment for drawings &

adjustment for capital Introduced. Sales & Purchase Policy

Eg. Sales proportions/ Cash/ Credit sales

Credit Policy: Closing debtors represent 2 months Credit Sales

and Creditors represent 2 months Purchases.

Price Policy: Selling Price at a certain % of Sales.

Single Entry System


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g y y

Conversion Method : This method requires more detailslike collections from debtors, Payment to creditors etc. togive a true picture.

For e.g. For a Firm the Debtors at the beginningof the year are Rs.1lakh. Closing debtors are20% more. Payment made to creditors duringyear Rs.70000. Here we are required to find outthe credit purchase made during the year. We

can the figure y constructing Creditors Accountas under :

Creditors Account


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Dr. Cr.1-April By Op. Bal 1,00,000

31/12 To Bank 70000 31/12 By Purchases 90000

31/03 To Cl. Bal 120000 (Balancing figure)

---------- ------------- 1900000 190000

In single entry problems sales/debtors may be given by ratio or /%

or the number of times or in a algebra type where we have to find

out value of X.

RATIO ANALYSIS


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Ch. 21.

21. RATIO ANALYSIS


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Accounting ratios are relationshipexpressed in mathematical terms between

accounting figures which for meaningful

purpose. Classification: P & L Ratios

Balance Sheet Ratios

Composite or Inter-Statement Ratios.

Functional Classification


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Profitability Turnover/Activity Ratios

Financial/Solvency Ratios

Financial Ratios may be further classifiedas Short Term Ratios/Liquidity Ratios

or Long Term/ Solvency Ratios

PROFITABILITY RATIOS

Return on Capital Employed


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Return on Capital Employed

EBIT * 100Capital Employed

Earnings before Interest & Tax Op. Profit means profit from the Operations of the Company plus

Int(Long term) & Tax

Capital Employed = Share Capital+ Reserves & Surplus+ Long

Term loans( Non- business assets + Fictitious assets)

Proper calculation gives us Return on Capital Employed

Earnings Per Share(EPS)


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( )

EPS = Net Profit after tax & Pref. DividendNo. of Equity Shares

This shows whether equity Capital of Co. is

properly used or not

Companys capacity to pay Dividend.

EPS helps us at estimating Market Price of

the Company

Price Earning (P/E Ratio)


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g ( )

Market Price of per Equity ShareEPS

Helps to decide whether to buy Share of a

Company.

Gross Profit Ratio


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Gross Profit* 100Net Sales

It helps in Price decision & Profit from Op.before Charging all other expenses.

Net Profit Ratio


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Net Operating Profit * 100Net sales

Solvency Ratios

Long Term Solvency Ratios


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Long Term Solvency Ratios

Fixed Assets Ratios : Fixed AssetsLong Term Funds

The ratio should not be more than one.

If it is less than one then it indicates part of the Working

Capital Financed through Long term Funds i.e. we maycall Core Working Capital

Debt- Equity Ratio :


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y

i) DE Ratio : Total Long Term DebtTotal Long Term Funds

Ii)

DE Ratio : Total Long Term Debt

Shareholders Funds

Debt Service Coverage Ratio= Cash Profit available for debt service Interest+ Instalment

Short Term Solvency Ratio


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i) Current Ratio = Current AssetsCurrent Liabilities

ideal ratio: 2.Acceptable to Bank 1.33

ii) Liquidity Ratio/Acid Test or Quick Ratio:Liquid AssetsCurrent Liability

Turnover Ratios


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Stock Turnover Ratio =Cost of goods Sold during the year

Average Inventory

Debtors Turn over Ratios (Debtors Velocity) =Credit Sales

Average Accounts Receivable

Debtors Collection Period = Months or days in a year

Debtors turnover orAccounts receivable

Average Monthly or daily Credit sales


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Fixed Assets Turnover Ratio = Cost of Goods Sold

Net Fixed Assets

Calculate the following ratios for YE March2009 & 2010


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a) Return on Capital Employed(b) Current Ratio Debt Equity Ratio(d) Fixed Assets Turnover Ratio

(e) Inventory Turnover Ratio (f) Earning Per ShareBalance Sheets as at 31stMarch Rs. Lakhs

Liabilities 2008 2009 2010Sh. Capital:Shares of Rs.10 each 800 1000 1000

Reserves & surplus 700 800 1000Secured Term Loans 800 2000 2400Cash Credits from bank 800 1000 1500Sundry Creditors 1200 900 1100

4300 5700 7000

Balance Sheets as at 31stMarch Rs. Lakhs

Assets 2008 2009 2010


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Fixed Assets: Gross Block 2800 3000 4000Less : Dep 920 1400 2000

Net Block 1880 1600 2000

Current Assets: Stock 1520 2400 2800

Debtors 480 500 900

Other Current Assets 420 1200 1300

2420 4100 5000

Total Assets 4300 5700 7000

EBIT * 100

Capital Employed

EBIT=Earnings before Interest & Tax


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EBIT=Earnings before Interest & Tax

ROCE For March,2009

Ret. On Cap. Emp= Total Cap. Employed for March,2008 is Rs.2300+Rs. 3800 for Mar,2009.So Av. Cap. Employed is Rs.6100 /2=

3050 lakhs. EBIT is Rs.1020. So ROCE 1020*100= 33.34%

3050

ROCE for March,2010

Total Cap. Employed for March,2009 is Rs. 3800+Rs. 4400 for

Mar,2010.So Av. Cap. Employed is Rs.8200 /2= 4100 lakhs. EBIT is

Rs.1800. So ROCE is 1800*100= 43.90%

4100


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Current Ratio = Current AssetsCurrent Liabilities

2009 2010

4100 =2.16 5000 =1.92

1900 2600

Debt Equity Ratio = Total Long Term Debt

Total Long Term Funds

2000 = 1.11 2400 = 1.21800 2000

Fixed Assets Turnover Ratio =

Cost of goods Sold during the year

Average Net Fixed Assets


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Average Net Fixed Assets

We may take sales when Cost of goods figures are not available

4800 =2.76 7200 =4

1740 1800

Average Fixed Assets for March,2009 = 1880+1600=3480/2=1740 Average Fixed Assets for March,2010 = 1600+2000=3600/2=1800

Stock Turnover Ratio =

Cost of goods Sold during the year

Average Inventory


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Average Inventory

We may take sales when Cost of goods figures are not available

Sales 4800 =9.8 7200 = 10.29

Av Inv. 490 700


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EPS = Net Profit after tax & Pref. DividendNo. of Equity Shares

Net Profit after Tax for 2009 = Rs.300 Lakhs = Rs.3 =EPS

While no. of Eq. shares are 100 Lakhs

Net Profit after Tax for 2010 = Rs.600 Lakhs = Rs. 6 =EPS

While no. of Eq. shares are 100 Lakhs

Thank You


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JAIIB Accounts MODULE_C_

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