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  2. GautamSaxena Curious .
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    Income and Expenditure A/c of Charitable Trust Income and Expenditure A/c is like the Profit and Loss A/c in the Balance Sheet of the Charitable Trust. All the income and expenses are, therefore, recorded in this. It is used to determine the surplus or deficit of income over expenditures over a specRead more

    Income and Expenditure A/c of Charitable Trust

    Income and Expenditure A/c is like the Profit and Loss A/c in the Balance Sheet of the Charitable Trust. All the income and expenses are, therefore, recorded in this. It is used to determine the surplus or deficit of income over expenditures over a specific accounting period.

    It shows the summary of all the income and expenditures done by the charitable trust over an accounting year. All the revenue items relating to the current period are shown in this account, the expenses and losses on the expenditure side, and incomes and gains on the income side of the account.

     

    • Therefore, as you can see here, how a charitable trust may use MS Excel for making their Income and Expenditure A/c, the Surplus and Deficit are the balancing figures used for balancing both the debit and credit sides.

    Later on, they are even used in the Balance Sheet. As follows-

    On the Assets Side 

     

    On the Liability Side

     

     

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

    Introduction First, we should know what Earnings per share is. Earnings per share or EPS is the earnings available to each equity share of a company. The general formula of Earning per share is as follows: Earnings per share indicate the profit-generating capability of an enterprise and potential inRead more

    Introduction

    First, we should know what Earnings per share is.

    Earnings per share or EPS is the earnings available to each equity share of a company. The general formula of Earning per share is as follows:

    Earnings per share indicate the profit-generating capability of an enterprise and potential investors often compare the EPS of different companies to choose the best investment alternative.

    It is shown at the bottom of the Statement of profit and loss of a company.

    Basic Earnings per share

    As per AS-20, there are two types of EPS.

    • Basic EPS
    • Diluted EPS

    Basic Earnings per share has the same meaning as given above. But the formula of basic earnings per share as per AS-20 is as follows:

    The formula of basic earnings per share is slightly different from the general formula of EPS. Here the numerator is the same as discussed above. But the denominator is different.

    Here it is ‘Weight average number of equity shares outstanding’ instead of ‘Total number of equity shares outstanding.

    The two components of the formula are discussed below:

    Meaning of earnings available to equity shareholders

    The earnings or net profit which remains after deduction of interest payable, preference dividend, if any, and tax is known as earnings available to equity shareholders. It is calculated as shown below:

    Weighted average number of equity shares outstanding

    The weighted average will be calculated by applying the weight of the time period for which the numbers of shares were outstanding. Let’s see a simple case to understand the calculation of the weighted average number of equity shares outstanding:

    Solution:

    Alternative way:

    The calculation of the weighted average number of equity shares is different in special cases like:

    • party paid-up shares
    • bonus shares and
    • right issue shares

    Partly paid-up shares

    Partly paid-up shares are not considered in the above calculation unless they are eligible to take part in dividends. In that case, such partly paid-up shares are included in the calculation as fractional shares.

    For example, 300 equity shares of Rs. 10 each and Rs. 5 paid up will be considered as 150 shares. (300 x 5/10)

    Bonus shares

    We know bonus shares are issued at no cost to the shareholders. Issue of bonus shares leads to an increase in the number of equity shares without an increase in the resources.

    AS-20 tells us to make adjustments to the number of shares outstanding before the issue of bonus shares as if the bonus shares were issued at the beginning of the earliest reported period. The effect will be retrospective.

    Take the following example:

    Here, number of bonus shares = 30,000 x 2 = 60,000

    Therefore, EPS for 2012 = 60,00,000 /(30,000 + 60,000)= Rs.  6.67

    As the earliest report period is 2011, its EPS will also have to be adjusted. Bonus issue will be treated as if it had occurred at the beginning of the earliest reported period.

    Adjusted EPS for 2011= 18,00,000 / (30,000 + 60,000) = Rs.  20

    Right issue

    The right issue generally has an exercise price that is less than the fair value of the shares. Hence, we can say that the right issue has an element of bonus in them.

    So, just like in the case of a bonus issue, we will have to adjust the number of shares outstanding before the right issue up to the earliest reported period by an adjustment factor.

    The number of shares outstanding before the right issue is to be multiplied by the adjustment factor given below:

    Theoretical ex-right value per share is calculated in the following way:

    Let’s see an example:

    Net profit for 2011     Rs. 11,00,000
    Net profit for 2012     Rs. 15,00,000
    No. of shares outstanding prior to rights issue   5,00,000 shares
    Rights issue price                                                       Rs. 15
    Last date to exercise rights                                    1st March 2012

    The right issue is one new share for every 5 shares outstanding (i.e. 1,00,000 new shares)

    The fair value of shares immediately prior to 1st March 2012 = Rs. 21

    Solution:

     

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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Meaning of lease A lease is an agreement or a contract in which the right to use an asset like land, building, or machinery is given by one party to the other party for a fixed period of time against the consideration of a single payment or a series of payments. There are two parties in a lease agreRead more

    Meaning of lease

    A lease is an agreement or a contract in which the right to use an asset like land, building, or machinery is given by one party to the other party for a fixed period of time against the consideration of a single payment or a series of payments.

    There are two parties in a lease agreement:

    • Lessor: The party who gives the right to use its asset in return for a series of payments or a single payment.
    • Lessee: The party who receives the right to use the asset from the Lessor.

    This is similar to a rent agreement or contract. The only difference between lease and rent is duration. A rent agreement is generally for less than 12 months while a lease agreement is for more than 12 months like 5 years or 10 years, sometimes even for like 99years.

     

    Type of lease

    There are two types of lease:

    • Operating lease
    • Finance Lease

     

    Operating lease

    • An operating lease is a type of lease in which the possession of the leased asset is transferred back from the lessee to the lessor at the end of the lease period.
    • Here, all the risk and rewards incident to ownership remains with the lessor, not the lessee.
    • The depreciation on the leased asset in case of operating lease is not charged by the lessee to its profit and loss account as the leased asset is not shown in the balance sheet. A leased asset is an off-balance sheet item in the case of an operating lease.

     

    Finance lease

    • Unlike an 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. A leased asset is a balance sheet item in the case of an operating lease.
    • Along with the leased asset, the obligation to pay the future lease payment is also shown in the balance sheet as a non-current liability or current liability as the case may be.

     

    Difference between operating lease and finance lease in tabular format

     

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Ayushi
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    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:

    • Holding more than fifty percent of the total voting rights or equity share capital.
    • having the power to appoint or remove the majority of the board members.

    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:

    • Paid-up share capital of the subsidiary
    • Reserve and Surplus

    For example, B Ltd has the following particulars under Shareholders’ Funds.

    Equity Share Capital Rs. 10,00,000
    Revaluation Reserve Rs. 4,00,000
    Balance of Profit and Loss A/c Rs. 1,00,000
    General Reserves Rs. 5,00,000

     

    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%)

    Equity Share Capital Rs. 2,50,000 (10,00,000 x 25%)
    Revaluation Reserve Rs. 1,00,000 (4,00,000 x 25%)
    Balance of Profit and Loss A/c Rs. 25,000 (1,00,000 x 25%)
    General Reserves Rs. 1,25,000 (5,00,000 x 25%)
    Total Rs. 5,00,000

     

     

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

    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.

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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Ayushi Curious Pursuing CA

    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:

    • 7(1)
    • 7(1A)
    • 7(2)
    • 7(3).

    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:

    • All forms of supply of goods and services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made for a consideration by a person in the course or furtherance of business
    • Importation of service, for a consideration whether or not in the course or furtherance of business and
    • The activities specified in Schedule I, made or agreed to be made with or without consideration.

    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).

    • Activities and transactions stated specified in Schedule III or
    • Such activities and transactions undertaken by the Central government, state government or local authority in which they are engaged as public authorities, as may be notified by the government on the recommendation of the Council

    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 :

    • a supply of goods and not as a supply of services
    • a supply of services and not as a supply of goods.

    Explanation of Section 7 in simple terms.

    Section 7(1) (a) sets three parameters of an activity or transaction to be a supply.

    • Supply should be only of goods and services. Supply of anything other than goods or services like money, securities do not attract GST.
    • Supply should be made for a consideration
    • Supply should be made in the course or furtherance of business

    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

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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Ayushi Curious Pursuing CA

    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.

    Share Capital A/c Dr. Amt
    To Capital Reduction A/c Cr. Amt

    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.

    Capital Reduction A/c Dr. Amt
    To Profit and loss A/c Cr. Amt
    To Goodwill/ Patents A/c Cr. Amt

    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.

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