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What is the difference between operating lease and finance lease?
Meaning of lease Lease is an agreement or a contract in which the right to use of an asset like land, building or machinery is given by one party to the other party for a fixed period of time in consideration of a single payment or a series of payments. There are two parties in a lease agreement: LRead more
Meaning of lease
Lease is an agreement or a contract in which the right to use of an asset like land, building or machinery is given by one party to the other party for a fixed period of time in consideration of a single payment or a series of payments.
There are two parties in a lease agreement:
This is similar to rent agreement or contract. The only difference between lease and rent is of duration. A rent agreement is generally for less than 12 months while lease agreement are for more than 12 months like 5years or 10 years, sometimes even for like 99years.
Type of lease
There are two types of lease:
Operating lease
Finance lease
- Unlike operating lease, the ownership of the leased asset is transferred to the lessee at the end of the leased period.
- Thus, at the inception of the lease agreement, all the risk and rewards incident to ownership is transferred from the lessor to the lessee.
- The depreciation on the leased asset is charged by the lessee to its profit and loss account as the leased asset is shown in the balance sheet. Leased asset is balance sheet item in case of operating lease.
- Along with the leased asset, the obligation to pay the future lease payment is also shown in the balance sheet as non-current liability or current liability as the case may be.
See lessWhat is minority interest?
Introduction Minority interest refers to the interest of the outsiders in the subsidiary or subsidiaries of a holding company. In the presentation of the consolidated balance sheet of a parent company and its subsidiaries, Minority Interest is shown just below Shareholders’ Funds. Explanation To undRead more
Introduction
Minority interest refers to the interest of the outsiders in the subsidiary or subsidiaries of a holding company. In the presentation of the consolidated balance sheet of a parent company and its subsidiaries, Minority Interest is shown just below Shareholders’ Funds.
Explanation
To understand the concept of minority interest, we need to first understand the relationship between a holding company and its subsidiary company or companies.
A holding company means a company that controls one or more companies by:
A subsidiary company is a company that is controlled by another company.
From the above, we can simply deduce that a holding company holds the majority of the equity in its subsidiary company or companies.
So, the equity of the subsidiary company which does not belong to the holding company, but to the outsiders is known as the minority interest as it is, in fact, the minority in comparison to the majority stake of the holding company.
Example
For example, A Ltd holds 75% of the equity in B Ltd, then the rest 25% which belongs to the outsiders will be the Minority Interest.
Minority Interest means the share of outsiders in the:
For example, B Ltd has the following particulars under Shareholders’ Funds.
B Ltd is a subsidiary company of the A Ltd. A Ltd holds 75% of B Ltd.
It means minority interest in B Ltd is 25% (100% – 75%)
Therefore, in the consolidated balance sheet of A Ltd and its subsidiary, the minority interest will be as follows:
Minority Interest in B Ltd (25%)
See lessWhat is composite supply and mixed supply?
Introduction In GST, a supply is a taxable event. This means whenever there is a supply of goods or services or both, GST is charged. Supply includes the exchange of goods or services between supplier and recipient by way of sale, barter, lease etc for consideration and in the course or furtheranceRead more
Introduction
In GST, a supply is a taxable event. This means whenever there is a supply of goods or services or both, GST is charged. Supply includes the exchange of goods or services between supplier and recipient by way of sale, barter, lease etc for consideration and in the course or furtherance of business. The rate of GST on any supply depends on the type of good or service supplied.
Composite supply and mixed supply are two special types of supplies, in which two or more goods or services or both are offered together in a bundle. As two or more goods are supplied together, the question arises at which rate the GST is to be charged on such supplies as such goods or services may have different rates of GST applicable to them. Sections 8 of the CGST act, 2017 deals with the tax liability of such supplies.
Composite supply
A composite supply is a type of supply in which two or more goods or services or both are supplied together in the ordinary course of business. Such goods or services are natural bundles. By natural bundle, we mean the goods or services are complementary to each, they are naturally provided together and are to be used along with each other.
For example, mobile phones and chargers are supplied as a bundle. This concept of the natural bundle is the main determiner of a composite supply.
In such supplies, there is one main product which is called the principal supply. Like in the above example, the mobile phone is the principal supply. Other goods or services are dependent on the principal supply.
A composite supply will be taxable as the rate of GST applicable on the principal supply.
For example, suppose the rate of GST on mobile phones is 18% and that on the charger is 12%, then the whole supply will be taxable at the rate of 18%.
Mixed supply
A mixed supply is a type of supply in which two or more goods or services or both are supplied together but they do not complement each other and are not a natural bundle. They are not supplied in the ordinary course of business, For example, a combo of bottled honey and face cream.
In mixed supply, the good or service which attracts the highest rate of GST is considered the rate of supply for the whole supply.
For example, suppose bottled honey attracts 5% GST and face cream 18% GST, then the whole supply will be charged 18% GST.
See lessWhat is the concept of supply in GST?
Introduction Like, in the case of excise duty, the taxable event is the manufacture of goods, supply is a taxable event with respect to the Goods and Services Tax regime in India. A taxable event is an event on occurrence of which tax is charged. Excise duty is charged when any specified good is manRead more
Introduction
Like, in the case of excise duty, the taxable event is the manufacture of goods, supply is a taxable event with respect to the Goods and Services Tax regime in India. A taxable event is an event on occurrence of which tax is charged.
Excise duty is charged when any specified good is manufactured, GST is charged when any good or service is supplied.
Definition of Supply
The concept of supply is of great significance to the GST architecture. It can be called the ‘bones to the body of GST’.
Section 7 of the CGST defines ‘supply’.
At first, I have provided the whole Section 7 which consists of four sub-sections:
Thereafter will be the explanation of each sub-section in simple language.
Section 7
Section 7(1) of the CGST Act, 2017 defines ‘supply’. As per section 7(1) of the CGST Act, 2017, the supply includes:
Section 7(1A) states, ‘where certain activities or transaction constitute as supply in accordance of with the provisions of sub-section (1), they shall be treated either as a supply of good or supply of services as referred to Schedule II.
Section 7(2) states, ‘notwithstanding with anything contained in sub-section (1).
shall not be treated neither as a supply of goods nor a supply of services.
Section 7(3) states ‘subject to sub-section (1), (1A) and (2), the government may, on the recommendation of the council specify, by the notification, the transaction that is treated as :
Explanation of Section 7 in simple terms.
Section 7(1) (a) sets three parameters of an activity or transaction to be a supply.
Any activity or transaction will be treated as a supply if the above parameters are fulfilled as per sub-section (1) clause (a).
Section 7(1)(b) is actually an exception to the 3rd parameter of supply. Import of service for a consideration will be considered a supply even if it is not made in furtherance of business,
Section 7(1)(c) states that item in the schedule I will be treated as supply whether there is consideration or not. This is an exception to the 2nd parameter.
Section 7(1A) states any activity which is a supply as per sub-section (1), shall be classified either as a supply of goods or as a supply of service as per schedule II. There are many activities and transactions which have the characteristics of both goods and services.
For example, dining in a restaurant. Schedule II helps to eliminate this confusion and helps to classify such activities or transactions as either supply of goods or supply of services. As per Schedule II, dining or take-away from a restaurant is a supply of service.
Section 7(2) states the activities which are neither supply of goods nor neither of services even if they fulfilled the condition of the sub-section (1).
Section 7(3) says that the central government have the power to notify transactions that are to be treated as supply of goods nor as a supply of service or supply of services not as a supply of services
See lessWhat is capital reduction account?
Introduction A capital reduction account is an account used to pass entries related to the internal reconstruction of a company. During reconstruction, paid-up capital reduced is credited to this account; hence its name is capital reduction account. It is also known as the reconstruction account. TyRead more
Introduction
A capital reduction account is an account used to pass entries related to the internal reconstruction of a company. During reconstruction, paid-up capital reduced is credited to this account; hence its name is capital reduction account. It is also known as the reconstruction account.
Type of account
A capital reduction account is a temporary account open just to carry out internal reconstruction. It represents the sacrifices made by the shareholders, debenture holders and creditors. Also, any appreciation in the value of assets is credited to this account. It is closed to capital reduction when internal reconstruction is completed.
Entries passed through capital reduction account
When paid-up capital is cancelled.
When paid-up capital is cancelled, the share capital account is debited and the capital reduction account is debited as share capital is getting reduced.
When assets and liabilities are revalued
At the time of internal reconstruction, the gain or loss on revaluation is transferred to the capital reduction account instead of the revaluation reserve.
Writing off of accumulated losses and intangible assets
The credit balance of the capital reduction account is used to write off the accumulated losses and intangible assets like goodwill, patents etc which are unrepresented by capital. The capital reduction account is debited and profit and loss account and intangible assets accounts are credited.
Treatment in books of account
The balance in the capital reduction account, whether debit or credit, it is transferred to the capital reduction account. Hence, it doesn’t appear on the balance sheet.
See lessWhat is audit sampling?
Introduction As per SA 530, audit sampling refers to the application of auditing procedures to less than 100% of items within a population relevant under audit such that all the sampling units have an equal chance of selection. In simple words, sampling in auditing refers to the practice deriving aRead more
Introduction
As per SA 530, audit sampling refers to the application of auditing procedures to less than 100% of items within a population relevant under audit such that all the sampling units have an equal chance of selection.
In simple words, sampling in auditing refers to the practice deriving a conclusion by the auditor about a population of data by evaluation of only a part or sample of the whole data. Population means a set of data.
Concept of sampling
We know, an audit involves inspection of financial information of an entity by an auditor to form an opinion on its financial statements. Now the financial information of a firm usually contains large volumes of data. For example, a firm may have entered into 50,000 purchase transactions in a year.
Now, checking each and every purchase transaction will cost both time and money. Also, nowadays, almost every enterprise have internal controls and automated accounting systems that are established to ensure accuracy and prevention of errors. Hence, a full-fledged inspection of each and every transaction is not worth the time and effort.
Instead, a wise thing to do is to take a sample from the whole volume of transactions or accounts and apply the auditing procedures to the sample. The results derived from the sample are then projected upon the whole volume of data. Samples are often taken using statistical methods to ensure that sample is taken randomly and represents the whole population of data in a true and unbiased manner.
Consideration regarding the population before audit sampling:
Irrespective of the method of sampling, the sample must represent the whole population closely.
Approaches to sampling
There are two approaches to sampling:
- Statistical Approach: It is a scientific way of ensuring that the sample is chosen randomly from data and represents the data in a true and unbiased way. It employs mathematical and statistical tools like the theory of probability and also considers sampling risk characteristics.
- Non-Statistical Approach: Under this approach, the auditor employs his personal experience to collect sample from the population. No mathematical tools are used but the personal judgement of the auditor regarding sampling. Sometimes, this approach may give satisfactory results depending upon the capability of the auditor. But in most cases, reliability is less compared to the statistical approach.
See lessWhat is internal reconstruction?
Introduction Internal reconstruction refers to the process of restructuring a sick company’s balance sheet by certain methods to turn it financially healthy, thus saving it from potential liquidation. Explanation When a company has been making losses for many years, it has a huge amount of accumulatRead more
Introduction
Internal reconstruction refers to the process of restructuring a sick company’s balance sheet by certain methods to turn it financially healthy, thus saving it from potential liquidation.
Explanation
When a company has been making losses for many years, it has a huge amount of accumulated losses due to which the reserve and surplus appear at a very low or negative amount in the balance sheet.
Also, such a company is said to be overcapitalised as it is not able to generate enough returns to its capital.
As the company is overcapitalised, the assets are also overvalued. The balance sheet also contains many fictitious assets and unrepresented intangible assets.
The balance sheet of such a ‘sick’ company looks like the following:
Hence, to save the company from liquidation,
In this way, its balance sheet gets rid of all undesirable elements and the company gets a new life without being liquidated. This process is known as internal reconstruction.
Legal compliance
The internal reconstruction of a company is governed by the provisions of the Companies Act, 2013.
See less