AccountingQA Latest Questions

Radha
Radha
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Sacrificing Ratio
  2. Rahul_Jose Aspiring CA currently doing Bcom
    This answer was edited.

    When a partnership firm consisting of some partners, decide to admit a new partner into their firm, they have to forego a part of their share for the new partner. Therefore, sacrificing Ratio is the proportion in which the existing partners of a company give up a part of their share to give to the nRead more

    When a partnership firm consisting of some partners, decide to admit a new partner into their firm, they have to forego a part of their share for the new partner. Therefore, sacrificing Ratio is the proportion in which the existing partners of a company give up a part of their share to give to the new partner. The partners can choose to forego their shares equally or in an agreed proportion.

    Before admission of the new partner, the existing partners would be sharing their profits in the old ratio. Upon admission, the profit-sharing ratio would change to accommodate the new partner. This would give rise to the new ratio. Hence Sacrificing ratio can be calculated as:

    Sacrificing Ratio = Old Ratio – New Ratio

    For example, Tony and Steve are partners in a firm, sharing profits in the ratio of 3:2. They decide to admit Bruce into the partnership such that the new profit-sharing ratio is 2:1:2. Now, to calculate the sacrificing ratio of Tony and Steve, we subtract their new share from their old share.

    Tony’s Sacrifice = 3/5 – 2/5 = 1/5

    Steve’s Sacrifice = 2/5 – 1/5 = 1/5

    Therefore, the Sacrificing ratio of Tony and Steve is 1:1. This shows that Tony gave up 1/5th of his share while Steve also sacrificed 1/5th of his share.

    Calculation of sacrificing ratio is important in a partnership as it helps in measuring that portion of the share of existing partners that have to be sacrificed. This ensures a smooth reconstitution of the partnership. Since the old partners are foregoing a part of their share in profits, the new partner has to bring in some amount as goodwill to compensate for their loss.

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Astha
AsthaLeader
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Consignment
  2. Naina@123 (B.COM and CMA-Final)
    This answer was edited.

    Consignment is "goods sent by its owners to his agent for the purpose of sale". In simple language, the word consignment means to send goods to another person for sale on his behalf without transfer of ownership. In accounting terms, consignment is the process where the owner (consignor) transfers tRead more

    Consignment is “goods sent by its owners to his agent for the purpose of sale”. In simple language, the word consignment means to send goods to another person for sale on his behalf without transfer of ownership.

    In accounting terms, consignment is the process where the owner (consignor) transfers the possession of the goods to the agent (consignee) to make a sale on his behalf while the ownership of goods remains with the owner until the sale is made by the agent. In return, the agent receives an agreed percentage of the sum in the form of commission. 

    Generally, there are two parties involved in consignment, those are as follows:

    1. CONSIGNOR: the person who is the owner and sender of goods.
    2. CONSIGNEE: the person who receives goods for sale/resale from the consignor in exchange for a percentage of the sale or on an agreed sum known as commission.

    The relationship between consignor and consignee is that of principal and agent.

    Let me give you a simple example of how consignment works.

    Mr. John (consignor) sends goods to Mr. Jeh (consignee) worth Rs 20,000 to sell these goods at a cost plus 10%. Mr. Jeh agrees to sell these goods on his behalf for a commission of 1% on the sale. Therefore Mr. Jeh sold these goods at the agreed amount i.e Rs 22,000 [20,000+ 10% of 20,000] and charges Rs 220 [1% of Rs 22,000] as commission made on such sale and remit the remaining balance to the owner Mr. John.

    There is a lot of confusion regarding “is consignment the same as the sale of goods?“. The answer is NO.

    The reason what makes it different from the sale is

    a) In sale the ownership gets transferred from seller to buyer but in case of consignment the ownership remains with the consignor until the sale is made by the agent.

    b) In sale the risk gets transferred with the transfer of goods, whereas in consignment the risk remains with the owner till the sale is made.

    c) Also goods once sold cannot be returned on damages /defaults, but in case of consignment goods that come to be faulty can be returned to the consignor.

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

    Brief Introduction Alternate Minimum Tax or AMT as the name suggests, is an alternate tax that an assessee has to pay, subject to certain conditions, instead of the income tax liability which is computed as per normal provisions of the Income-tax law. Alternate Minimum Tax is levied to impose higherRead more

    Brief Introduction

    Alternate Minimum Tax or AMT as the name suggests, is an alternate tax that an assessee has to pay, subject to certain conditions, instead of the income tax liability which is computed as per normal provisions of the Income-tax law.

    Alternate Minimum Tax is levied to impose higher tax liability on non-corporate assessees who have claimed various profit-link deductions or investment-linked deductions in the relevant previous year.

    My answer is based on the Indian Income law i.e. Income Tax Act, 1961.

    The concept behind Alternate Minimum Tax

    Let’s start our discussion with MAT i.e. Minimum Alternative Tax. It applies to corporate entities or companies.

    Before MAT, it was seen that companies used to declare huge dividends to their shareholders. But when it came to filing income tax returns, they used to claim various profit linked and investment-linked deductions to report very low profits and even losses to arrive at negligible tax or nil tax whereas their financial statements would report huge profits.

    It is true that the government provides such profit linked or investment linked deductions to encourage business and investments, but it also needs a sufficient and regular flow of revenue in the form of tax to fund its expenditure.

    Hence, to prevent misuse of deductions to evade taxes by corporates, government introduce Minimum Alternate Tax to charge such assessees a minimum rate of tax.

    Alternate Minimum Tax is the same as Minimum Alternate Tax in terms of concept.  The provisions related to AMT are given under section 115JC of the Income Tax Act, 1961.

    Scope of AMT as per section 115JC

    Alternate Minimum Tax applies to all non-corporate assessees who claimed have claimed

    • Deduction claimed if any under Chapter VI-A from section 80H to 80RRB except section 80P
    • Exemption under section 10AA
    • Deduction under section 35AD (Investment-linked deduction)

    However, there is a threshold limit for certain non-corporates.

    By non-corporate assessees we mean:

    1. Individual
    2. Hindu Undivided Family (HUF)
    3. Firms (partnership firms)
    4. Co-operative societies
    5. Association of Persons (AOP)
    6. Body of Individuals (BOI)
    7. Artificial Juridical Person (AJP)
    8. Limited Liability Partnership (LLP)

    AMT is applicable to all except

    • Individuals
    • HUF
    • AOP
    • BOP
    • Artificial Juridical Person

    If their total adjusted income does not exceed Rs 20,00,000  in the previous year.

    Therefore, AMT is applicable to all other non-corporate assessees like LLP, firms and cooperative societies irrespective of their total adjusted income.

    Calculation of Alternate Minimum Tax

    The rate of AMT is 18.5% of the adjusted total income. This adjusted total income and the AMT on it is calculated in the following manner:

    The higher of the following becomes the tax liability of the assessee:

    • Alternate Minimum Tax calculated on adjustment income plus surcharges u/s 87A (4% Health and education cess)
    • Income Tax calculated on taxable income (as per normal provisions)

    Numerical example

    Mr X is a businessman who has earned the following income and expenditure in P.Y 2020-2021:  (Amount in Rupees)

    Income from manufacturing business                             25,00,000

    Interest on saving bank account                                               8,000

    Dividend from ABC ltd                                                              10,000

    Insurance premium paid                                                       1,00,000

    Capital expenditure made as per section 35AD               5,00,000

    Mr X  is eligible to claim a profit linked deduction of Rs 6,00,000.

    Also, the depreciation allowed (other than under 35AD) as per Income-tax Act,1961 amounts to Rs. 3,00,000.

    Following is his computation of both AMT and Income tax liability as per normal provisions.

     

     

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Karan
Karan
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A. Debit balance B. Credit balance C. Either Debit or Credit D. None of these

  2. Ayushi Curious Pursuing CA
    This answer was edited.

    The correct option is C. Either Debit or Credit. Partner’s Current account is prepared when the capital account is of fixed nature. We know that partner’s capital account can be of fluctuating nature or fixed nature. In the case of fluctuating partner’s capital, all the transactions relating to theRead more

    The correct option is C. Either Debit or Credit.

    Partner’s Current account is prepared when the capital account is of fixed nature. We know that partner’s capital account can be of fluctuating nature or fixed nature.

    In the case of fluctuating partner’s capital, all the transactions relating to the appropriation of profit, salary, commission, drawings, the introduction of capital, interest on capital etc. are passed through the partner’s capital account.

    The balance of partner’s capital is generally credit but sometimes it may show debit balance indicating that the business owes to partner.

    But when the partner’s capital account is of fixed nature, then separate partner’ current accounts are prepared. Through this account, all the transactions of revenue nature are passed like appropriation of profits, salary or commission paid to a partner, interest on capital and drawings. The balance of this account may be debit or credit.

    The debit balance means the partner has withdrawn a lot of amount as drawings in anticipation of profits. The credit balance means the partner owes to the business.

    The partner’s capital shows a fixed amount as capital and its balance is affected only when additional capital is introduced or capital is withdrawn. The balance of this account is always credit.

    The partner current account is prepared when the firm wants to show the revenue transactions and capital transactions related to the partner ‘capital separately.

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Simerpreet
SimerpreetHelpful
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Capital ExpenditureRevenue Expenditure
  2. Astha Leader Pursuing CA, BCom (Hons.)
    This answer was edited.

    Capital Expense Capital expenses are incurred for acquiring assets including incidental expenses. Such expenses increase the revenue earning capacity of the business. These are incurred to acquire, upgrade and maintain long term assets such as buildings, machines, etc and are non-recurring in natureRead more

    Capital Expense

    Capital expenses are incurred for acquiring assets including incidental expenses. Such expenses increase the revenue earning capacity of the business. These are incurred to acquire, upgrade and maintain long term assets such as buildings, machines, etc and are non-recurring in nature.

    Revenue Expenses

    Revenue expenses are incurred to carry on operations of an entity during an accounting period. Such expenses help in maintaining the revenue earning capacity of the business and are recurring in nature.

    These include ordinary repair and maintenance costs necessary to keep an asset working without any substantial improvement that leads to an increase in the useful life of the asset.

    Suppose, company Takeaway ltd. purchases machinery for 50,000 and pays installation charges of 10,000. Salary of 15,000 is paid to the employees and existing machinery is painted costing 8,000. Here, the cost of machinery 50,000 and installation charges of 10,000 are treated as capital expenditure and the salary of 15,000 and painting cost of 8,000 is treated as revenue expenditure.

    Identification

    Points to categorize an expenditure as Capital or Revenue are as follows:

    • An expenditure that neither creates assets nor reduces liability is categorized as revenue expenditure. If it creates an asset or reduces a liability, it is categorized as capital expenditure.

    For example, a company Motors ltd. purchases furniture for 65,000, repays loans amounting to 1,00,000 and pays salary of 25,000.

    Here the company creates an asset of 65,000 and reduces liability by 1,00,000 as shown below and therefore is considered as capital expenditure.

    However, payment of salaries neither creates assets nor reduces liability. It only reduces profits and therefore is considered as revenue expenditure.

    • Usually, the amount of capital expenditure is larger than that of revenue expenditure. But it is not necessary that if the amount is small it is revenue expenditure and if the amount is large, it is a capital expenditure.

    For example, a company Stars ltd purchases machinery for 1,20,000, furniture for 35,000 and has a rental expense of 80,000.

    Here, the purchase of machinery is capital expenditure since it results in higher expense. However, the purchase of furniture cannot be regarded as a revenue expense and payment of rent cannot be regarded as a capital expense only because the rental expense is higher than the amount expended for the purchase of furniture.

    • Usually, capital expenditure is not frequent and is made at a time, in lump sum. On the other hand, revenue expenditure is paid periodically. However, it is possible that capital expenditure is paid in installments.

    For example, a company Caps ltd. purchases land for 1,00,00,000 on an equal monthly installment basis. Then such payments cannot be considered as revenue expense only because the payments are recurring. Since the installments are paid in lieu of the purchase of land which is a long term asset, the payments will be considered as capital expenditure.

    • Mostly capital expenditures are met out of capital whereas revenue expenditures are met out of revenue receipts. However, payments can be made vice-versa.
    • If an expenditure is incurred by the payer as a capital expenditure, it will remain a capital expenditure even if the amount may be revenue receipt in the hands of the payee.

    For example, a company Marks Ltd. purchases machinery directly from the manufacturer for 50,000. For the manufacturer, the proceeds from the sale of machine are revenue in nature but the amount expended by Marks Ltd. will be categorized as capital expenditure.

    Following conclusion can be inferred from the above explanation:

    *Such transactions may or may not hold true as explained above.

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Radha
Radha
In: >

  2. PriyanshiGupta Graduated, B.Com
    This answer was edited.

    Yes, Capital Work in Progress is Tangible Asset. To attain an understanding of the same, we first need to understand what are tangible assets. Assets that have a physical existence, that is they can be seen, touched are called Tangible Assets. Capital work in progress is the cost incurred on fixed aRead more

    Yes, Capital Work in Progress is Tangible Asset.

    To attain an understanding of the same, we first need to understand what are tangible assets. Assets that have a physical existence, that is they can be seen, touched are called Tangible Assets.

    Capital work in progress is the cost incurred on fixed assets that are under construction as on the balance sheet date. Since the asset cannot be used for operation it cannot be classified as a Fixed Asset.

    For example:

    If an asset takes 1.5 years to be constructed as on 1.4.2020 then on the balance sheet date 31.3.2021, the cost incurred on the asset will be classified as Capital Work in Progress.

    Common examples of Capital Work in Progress include immovable assets like Plant and Machinery, Buildings.

    It is shown under the head Non-Current Assets in the balance sheet. Examples of cost included in Capital Work in Progress can be:

    • Advance payment to the contractor
    • Material used/purchased
    • Cost of labor incurred, etc.

    Since the assets under the head Capital Work in Progress are in the process of completion and not completed, hence they are not depreciable until completed. Once the asset is completed it is moved under the head Fixed Assets.

    Capital Work in Progress is shown in the Balance Sheet as:

     

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Simerpreet
SimerpreetHelpful
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  2. Rahul_Jose Aspiring CA currently doing Bcom
    This answer was edited.

    Under GST, Input Tax Credit (ITC) refers to the tax already paid by a person on input, which is available as a deduction from tax payable on output. This means that if you have paid tax on some purchases, then at the time of paying tax on the sale of goods, you can reduce it by the amount you alreadRead more

    Under GST, Input Tax Credit (ITC) refers to the tax already paid by a person on input, which is available as a deduction from tax payable on output. This means that if you have paid tax on some purchases, then at the time of paying tax on the sale of goods, you can reduce it by the amount you already paid on purchase and pay only the balance amount.

    EXAMPLE

    Suppose Ashok purchased goods worth Rs 100 while paying tax at 10%, that is Rs 10. He now sold the goods for Rs 200, with a tax payable of Rs 20. Now, Ashok can avail input tax credit of Rs 10 that he already paid for the purchase and hence the net tax payable is Rs 10 (20-10).

    METHOD OF UTILISATION OF ITC

    The central government collects CGST, SGST, UTGST or IGST based on whether the transactions are done intrastate or interstate.

    The amount of input tax credit on IGST is first used for paying IGST and then utilised for the payment of CGST and SGST or UTGST. Similarly, the amount of ITC relating to CGST is first utilised for payment of CGST and then for the payment of IGST. It is not used for the payment of SGST or UTGST. Meanwhile, the amount of ITC relating to SGST is utilised for payment of SGST or UTGST and then for the payment of IGST. Such amounts are not used for payment of CGST.

    We can see how Input Tax Credit is used from the below example and table:

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