AccountingQA Latest Questions

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  2. Kajal
    This answer was edited.

    Yes, Goodwill is a fixed asset because it adds to the value of the business over a long period. Goodwill can never be calculated for a short period.   GOODWILL Basically, goodwill is a premium or you can say an additional price you are paying because of the reputation of a firm or a person. YouRead more

    Yes, Goodwill is a fixed asset because it adds to the value of the business over a long period. Goodwill can never be calculated for a short period.

     

    GOODWILL

    Basically, goodwill is a premium or you can say an additional price you are paying because of the reputation of a firm or a person.

    You may have seen some famous shop in your locality which usually charges a higher price as compared to the other local shops selling the same product.

    You may have also noticed that bigger brands like Bata, Titan, Zara, etc. charge higher prices for their products as compared to the same products available in the local market and people are even willing to pay for them. Ever wondered why?

    This is because of the goodwill created by them over the years by providing quality products and services, good employee relationships, a strong customer base, social service, a brand name and so on. Customers trust them and for this trust, they are even willing to pay higher prices.

    Goodwill is the quantitative value (i.e. in monetary terms) of the reputation of the firm in the market.

     

    FIXED ASSETS

    An asset is any possession or property of the business that enables the firm to get cash or any benefit in the future.

    Fixed Assets are assets which are purchased for long-term use. They are for continued use in the business for producing goods or services and are not meant for resale. For example- Plant, machinery, building, goodwill, patents etc.

    Fixed assets can be tangible or intangible.

    Tangible assets are those assets which can be seen and touched and have physical existence like Plant and machinery, building, stock, furniture etc.

    Intangible assets are those assets which cannot be seen or touched i.e. they don’t have any physical existence like goodwill, patent, trademark, prepaid expenses etc. Even though they can’t be seen or touched by they have value and are not fictitious assets.

     

    Goodwill as a Fixed Asset

    Goodwill is an intangible asset as it cannot be seen or touched but has value and adds value to the business over a long period. Thus, goodwill is a fixed asset.

    It is shown in the balance sheet as a Fixed asset under the head Intangible asset.

    Goodwill can be

    • Self-generated (Non-Purchased goodwill)
    • Purchased goodwill

    Self-generated goodwill is created over a period due to the good reputation of the business. It is the difference between the value of the firm and the fair value of the net tangible assets of the firm.

    Goodwill = Value of the firm – Fair value of net tangible assets

    Here, F.V of net tangible assets = Fair value of tangible assets- Fair value of tangible liabilities

    Purchased goodwill arises when one business purchases another business. It is the difference between the price paid for the purchased firm and the sum of the fair market value of the assets received and liabilities to be paid by them on behalf of the purchased firm.

    Goodwill = Purchase price – (F.V of assets received + F.V of liabilities to be paid)

    Only purchased goodwill is recorded in the books of accounts because it is difficult to correctly calculate the value of self-generated goodwill as the future is uncertain, also its valuation depends on the judgement of the person calculating it, which defers from person to person. Since there is no fixed standard to calculate self-generated goodwill only purchased goodwill is recorded as the price paid for it at the time of acquiring another business.

    Suppose Firm A acquired Firm B.

    Purchase price= $100,000

    Assets received=$60,000

    Liabilities (to be paid by Firm A on behalf of Firm B) = $10,000

    Goodwill = $100,000 – ($60,000 + $10,000) = $30,000

    This, goodwill of $30,000 will be recorded under the head Fixed Asset, subhead Intangible Assets in the balance sheet of Firm A (that is in the balance sheet of the acquiring firm)

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

    Deleting a company in Tally Prime Tally prime is the latest version of Tally ERP software. In its functionality, it is slightly different from its previous version Tally ERP 9.  Hence, the process of deleting a company in Tally Prime is different from that in Tally ERP 9. To delete a company in TallRead more

    Deleting a company in Tally Prime

    Tally prime is the latest version of Tally ERP software. In its functionality, it is slightly different from its previous version Tally ERP 9.  Hence, the process of deleting a company in Tally Prime is different from that in Tally ERP 9.

    To delete a company in Tally Prime, you need to be in the Gateway of Tally window which looks the following:

    On the right-hand side, there is a menu where is an option named ‘F3: Company’. You can either click on it or simply press F3.

    After clicking on the option, the Company menu where a list of names of the companies created in the Tally is there, along with some options above the company name list.

    You have to select the option named, ‘Shut Company’. After clicking the option, the screen will display a ‘Shut Company’ menu.

    From there, you have to select the company you want to delete. Like in the example given, I have selected the company named Rain Ltd.

    After selecting the name of the company you want to delete, a confirmation dialog box will appear.

    You have to click OK and the company will be shut down or deleted.

    In short, the steps to delete a company in Tally Prime are as follows:

    Gateway of Tally –> Press F3 –> Select ‘Shut Company’ option –> Select the name of the company –> Confirm and press OK

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

    Definition Journal Entry is an entry made in the journal is called journal entry. And the process of recording a transaction in a journal is called journalizing. Broadly journal entries are of two types : 1. Simple entry 2. Compound entry Otherwise, they are categorized into seven types which are asRead more

    Definition

    Journal Entry is an entry made in the journal is called journal entry. And the process of recording a transaction in a journal is called journalizing.

    Broadly journal entries are of two types :

    1. Simple entry
    2. Compound entry

    Otherwise, they are categorized into seven types which are as follows :

    1. Opening entries
    2. Closing entries
    3. Rectification entries
    4. Transfer entries
    5. Adjusting entries
    6. Entries on dishonor of bills
    7. Miscellaneous entries

    Explanation

    Now let me explain to you the above types of entries mentioned which are as follows ;

    Simple entry
    • Is a journal entry in which one account is debited and another account is credited with an equal amount.
    • For example, the purchase of goods of Rs 5000 cash. It will affect two accounts,i.e., purchase A/C and cash A/C with the amount of Rs 5000.

    Compound entry
    • Is a journal entry in which one or more accounts are debited and/or one or more accounts credited or vice versa.
    • For example the sale of goods to Sati for Rs 5000, Rs 2000 is received in cash, and the balance is to be received later.
    • This transaction of the sale has an effect on three accounts i.e cash or bank A/C, Sati A/C, and sales A/C.

    Opening entries
    • Are defined as when books are started for the new year, the opening balance of assets and liabilities are journalized. For example bills payable, short-term loans, etc.

    Closing entries
    • At the end of the year, the profit and loss account has to be prepared. For this purpose, the nominal accounts are transferred to this account. This is done through journal entries called closing entries.

    Rectification entries
    • If an error has been committed, it is rectification through a journal entry.

    Transfer entries
    • If some amount is to be transferred from one account to another, the transfer will be made through a journal entry.

    Adjusting entries
    • At the end of the year, the number of expenses or income may have to be adjusted for amounts received in advance or for amounts not yet settled in cash.
    • Such an adjustment is also made through journal entries. Usually, the entries pertain to the following :

    Outstanding expenses,i.e., expenses incurred but not yet paid;

    Prepared expenses,i.e., expenses paid in advance for some period in the future ;

    Interest on capital is the interest proprietor’s investment in the business entity investment; and

    Depreciation fall in the value of assets used on account of wear and tear. For all these, journal entries are necessary.

    Entries on dishonor of bills
    • If someone who accepts a promissory note ( or bill) is not able to pay in on the due date, a journal entry will be necessary to record the non–payment or dishonor.

    Miscellaneous entries
    The following entries will also require journalizing
    • Credit purchase of things other than goods dealt in or materials required for the production of goods e.g. Credit purchase of furniture or machinery will be journalized.
    • An allowance to be given to the customers or a charge to be made to them after the issue of the invoice.
    • Receipt of promissory notes or issue to them if separate bills books have not been maintained.
    • On an amount becoming irrecoverable, say, because, of the customer becoming insolvent.
    • Effects of accidents such as loss of property by fire.
    • Transfer of net profit to capital account.

    Here are some examples of journal entries showing the above types :

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A_Team
A_Team
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The balances as per cash column of cash book and passbook The balance as per bank column of cash book and passbook The balance as per Bank column of cash book and ...

Bank Reconciliation StatementDifference Between
  2. Radha M.Com, NET
    This answer was edited.

    A Bank Reconciliation Statement is prepared to know the causes for the difference between 2. the balance as per bank column of cash book and passbook. This is because transactions in Cash Book are recorded from the point of view of the business and the Bank Statement/Pass Book is prepared from the pRead more

    A Bank Reconciliation Statement is prepared to know the causes for the difference between 2. the balance as per bank column of cash book and passbook.

    This is because transactions in Cash Book are recorded from the point of view of the business and the Bank Statement/Pass Book is prepared from the point of view of the banker. Since both are prepared from a different point of view, differences are bound to occur.

    Bank Reconciliation is the process by which on a particular date the bank balance as per Cash Book is reconciled with the balance as per Pass Book/Bank Statement.

    Whenever bank reconciliation is done, we need to identify the reasons or transactions causing the differences between both balances. Then a statement highlighting the reasons or causes of differences is prepared. This statement is known as Bank Reconciliation Statement.

    A Bank Reconciliation Statement is prepared by starting with either the (a) bank balance as per Cash Book or the (b) balance as per Pass Book/Bank Statement. Only those entries which are recorded in the Cash Book but not in the Pass Book/Bank Statement or vice versa are considered while preparing the Bank Reconciliation Statement.

    The reasons for the differences between the two balances can be broadly classified into three categories:

    1. Differences due to timing.
    2. Transactions recorded by the Bank.
    3. Errors.

     

    For example, the debit bank balance as per the Cash Book of Mr. A on 31st March is 20,000. On the same date, his Bank Statement showed a credit balance of 30,000. When the Bank Reconciliation Statement is prepared on 31st March, he will find out the transactions causing the 10,000 (30,000 – 20,000) difference between both the balances. Once the transactions are identified he will reconcile the balance as per the Cash Book with the balance as per his Bank Statement.

     

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

    Introduction   Furniture is treated as a fixed asset of an enterprise unless it deals in the manufacturing or the trade of furniture. As stock in trade, it will be treated as current assets. In both cases, they are real accounts. Hence, the golden rule of accounting will be the same. But, when it coRead more

    Introduction

     

    Furniture is treated as a fixed asset of an enterprise unless it deals in the manufacturing or the trade of furniture. As stock in trade, it will be treated as current assets.

    In both cases, they are real accounts. Hence, the golden rule of accounting will be the same.

    But, when it comes to journal entries, Furniture A/c will appear only when it is treated as a fixed asset.

    No journal entries are passed in the stock-in-trade account except for some balance transferring entries.

    Journal Entries on taking Furniture as a fixed asset

    Taking furniture as a fixed asset, we can pass various entries related to it. Since furniture is an asset, any increase is debited and the decrease is credited.

    Also, furniture is a real account which means the golden rule of accounting  applicable is, “Debit what comes in and credit what goes out”.

    Following are the basic entries related to furniture.

    Purchase of furniture

    The most common entry related to furniture is the purchase of furniture:

    Furniture A/c                                            Dr. Amt
    To Cash / Bank A/c Amt

    Here Furniture A/c is increased, hence debited.
    Cash or Bank being reduced is credited.

    Sale of furniture

     

    Cash / Bank A/c                                       Dr. Amt
    Profit and Loss A/c *                               Dr. Amt
    To Furniture A/c Amt
    To Profit and Loss A/c  ** Amt

     *In case of loss

    **In case of profit

     On the sale of furniture, its balance gets reduced, hence credited.
    Cash or Bank is debited as cash comes in hand or into the bank.

    Also, profit or loss may arise due to the difference in sale value and the carrying amount of the furniture A/c.

    The difference is debited to Profit and Loss A/c in case of loss and credited in case of profit.

     

    Depreciation on Furniture

    Depreciation A/c                                         Dr. Amt
    To Furniture A/c Amt

    Here, furniture is credited as it is decreased by the amount of depreciation.

    Depreciation being a non-cash expense, is debited.

    Journal Entries on taking Furniture as stock in trade

    When furniture is stock of trade of a business, the journal entries will be like normal purchase and sales entries as below:

     

    Purchase A/c                                               Dr. Amt
    To Cash / Bank A/c Amt

     

     

    Cash / Bank A/c                                          Dr. Amt
    To Sales A/c Amt

    There will be no furniture account.

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Anushka Lalwani
Anushka Lalwani
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  2. Radhika
    This answer was edited.

    Unrecorded Assets are the assets that are completely written off but still physically available in the company or assets that are not shown in the books of the company. Unrecorded assets are generally recorded or recognized at the event of admission, retirement, death of a partner when all the assetRead more

    Unrecorded Assets are the assets that are completely written off but still physically available in the company or assets that are not shown in the books of the company.

    Unrecorded assets are generally recorded or recognized at the event of admission, retirement, death of a partner when all the assets and liabilities are revalued or dissolution of the firm.

    Since Accounting Standards require firms to record all the assets and liabilities in their books, it is therefore mandatory to record such unrecorded assets.

    There can be two cases for treatment of such unrecorded assets:

    • Unrecorded Asset entered into the business and recorded in books
    Unrecorded Asset A/c (Dr.) Amt
     To Revaluation A/c Amt

    The unrecorded asset is now debited since it has to be recorded in the books now and Revaluation Account is credited since it is again for the business which will eventually be transferred to Partners’ Capital Account.

    • Unrecorded Asset taken over by a partner and paid cash   
    Cash A/c (Dr.) Amt
     To Partners’ Capital A/c Amt

    If a partner decides to take over an unrecorded asset then his account is credited with that amount and since cash paid by the partner comes into business Cash Account is debited.

    • Unrecorded Asset discovered during Dissolution
    Cash/ A/c (Dr) Amt
     To Realization A/c Amt

    When an unrecorded asset is discovered during the dissolution of the firm, such an asset is sold directly to the outsider and as a result, cash A/c is debited since the cash is entering the business. The entry is made through the Revaluation A/c and it is hence credited.

    Example:

    At the time of revaluation, firms find a typewriter that has not been recorded in the books and is valued at Rs 10,000.  The journal entry to record that typewriter will be:

    Typewriter A/c (Dr.) 10,000
      To Revaluation A/c 10,000

     

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