AccountingQA Latest Questions

Vijay
VijayCurious
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Companies Act
  2. Naina@123 (B.COM and CMA-Final)
    This answer was edited.

    Simply explaining the meaning of the useful life of an asset, it is nothing but the number of years the asset would remain in the business for purpose of revenue generation, making it more simple, the amount of time an asset is expected to be functional and fit for use.  It is also called economic lRead more

    Simply explaining the meaning of the useful life of an asset, it is nothing but the number of years the asset would remain in the business for purpose of revenue generation, making it more simple, the amount of time an asset is expected to be functional and fit for use.  It is also called economic life or service life

    It is a useful concept in accounting as it is used to work out depreciation. By knowing this useful life of an asset an entity can easily analyze how to allot the initial cost of an asset across the relevant accounting period rather than doing it unfairly manner.

    How do we calculate the useful life of an asset?

    The useful life of an asset is not an accounting policy, but an accounting estimate. calculating useful life is not an exact phenomenon but an estimate that is done because it directly impacts how much an asset is to expense every year.

    Factors affecting “how long an asset is expected to be useful” depends on some stated points as below:

    1. Usage, the more the assets are used, the more quickly it will deteriorate.
    2. Whether the asset is new at the time of purchase or reused model.
    3. Change in technology.

    As per the companies act 2013, some of the useful life of assets are stated below

    To know more about the different categories of assets you can follow the given link useful life of assets.

    POINT TO BE NOTED:- There lies a huge difference in the useful life v/s the physical life of an asset. It is very important to note that amount of time an asset is used in a business is not always be same as an asset’s entire life span.

     

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A_Team
A_Team
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Bank statement and bank column of cash book Bank statement and cash column of cash book Bank column of cash book and cash column of cash book None of the above

Bank Reconciliation Statement
  2. Karan B.com and Pursuing ACCA
    This answer was edited.

    The correct answer is the 1. Bank statement and bank column of the cash book, because it will help the business to verify whether amounts entered and entries recorded are correct or not. It will also help in verifying the balances of bank statements and cash books whether they tally or not. What isRead more

    The correct answer is the 1. Bank statement and bank column of the cash book, because it will help the business to verify whether amounts entered and entries recorded are correct or not. It will also help in verifying the balances of bank statements and cash books whether they tally or not.

    What is Reconciliation?

    Reconciliation is an accounting procedure that compares two sets of records to check figures are correct and in agreement. Reconciliation can also be used for personal purposes.

    What is a Bank Reconciliation Statement?

    A statement showing causes of disagreement between the balance of bank statement and bank column of the cash book at the end of a specific period is called a Bank Reconciliation Statement.

    Steps in preparation of Bank Reconciliation Statement

    Step 1: Comparing items appearing on the debit and credit sides of the bank statement and bank column of the cash book.

    Step 2: Make a list of missed entries.

    Step 3: Analyse the causes of differences.

    Step 4: Select the date for the preparation of the Bank Reconciliation Statement.

    Step 5: Choose the starting point i.e balance as per cash book or balance as per bank statement.

    Step 6: Adjust the starting point by adding or subtracting the missed entries.

    Step 7: Bank Statement must match with the cash book.

    To prepare a bank reconciliation statement a business will need a bank statement from its bank and cash book which it prepares to record entries.

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A_Team
A_Team
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  2. GautamSaxena Curious .
    This answer was edited.

    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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Jasmeet_Sethi
Jasmeet_SethiCurious
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  2. Simerpreet Helpful CMA Inter qualified

    Sundry Debtors Sundry Debtors are those persons or firms to whom goods have been sold or services rendered on credit and the payment has not been received from them. In other words, Debtors are the persons or firms from whom the payment is to be received by the business. For Example, Ramen Sold goodRead more

    Sundry Debtors

    Sundry Debtors are those persons or firms to whom goods have been sold or services rendered on credit and the payment has not been received from them. In other words, Debtors are the persons or firms from whom the payment is to be received by the business.

    For Example, Ramen Sold goods to Sam on credit, Sam did not pay for the goods immediately, so here Sam is the debtor for Ramen because he owes the amount to Ramen.

    Another Example, If goods worth Rs 7000 have been sold to Sid on credit, he will continue to remain as debtor of the business so long as he does not make the full payment.

    Treatment:

    Sundry Debtor is considered as a current asset and hence it is shown on the assets side of the balance sheet under the Current Assets heading.

    Sundry Debtors are not considered as an item of profit and loss because it is not considered as an item of income or expense. However, the items associated with sundry debtors such as bad debts or provision for doubtful debts or bad debts recovered are shown in profit and loss accounts in the debit and credit sides respectively.

    Sundry Creditors

    Sundry creditors are those persons or firms from whom goods have been purchased or services rendered on credit and for which payment has not been made. In other words, Creditors are the person or firms to whom some money has to be paid by the business.

    For Example, Ramen purchased goods from Sam on credit, Ramen did not pay for the goods immediately, so here Ramen is the creditor for Sam because he owes money to Sam.

    Another Example, If Mr. Johnson purchased goods worth Rs 3000 from M/s. Rick & Co. on credit, Mr. Johnson will continue to remain as a creditor of M/s. Rick & Co. as long as the full payment is made by Mr. Johnson.

    Treatment:

    Sundry Creditor is shown in the liabilities side of the balance sheet under the heading Current Liabilities.

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

    Definition Bad debts are a debt owed to an enterprise that is considered to be irrecoverable or we can say that it is owed to the business that is written off because it is irrecoverable. Bad debts will be treated in the following ways : On the debit side of the profit and loss account. In the curreRead more

    Definition

    Bad debts are a debt owed to an enterprise that is considered to be irrecoverable or we can say that it is owed to the business that is written off because it is irrecoverable.

    Bad debts will be treated in the following ways :

    On the debit side of the profit and loss account.

    In the current assets side of the balance sheet, these are deducted from sundry debtors.

    For example loans from banks are declared as bad debt, sales made on credit and amounts not received from customers, etc.

    Now I will show you an extract of the profit and loss account and balance sheet   

    Current assets are defined as cash and other assets that are expected to be converted into cash or consumed in the production of goods or the rendering of services in the ordinary course of business.

    For example,  debtors exist to convert them into cash i.e., receive the amount from them, bills receivable exist again for receiving cash against it, etc.

     

    Current liabilities are defined as liabilities that are payable normally within 12 months from the end of the accounting period or in other words which fall due for payment in a relatively short period.

    For example bills payable, short-term loans, etc.

     

    Accounting treatment

    Now let me try to explain to you the accounting treatment for bad debts which is as follows :

    • Balance sheet
      • In the balance sheet either it can be shown on the asset side under head current assets by reducing from that specific assets.
      • For example, if credit sales are made to a customer who says it’s not recoverable or is partially recoverable then the amount is bad debt. It’s a loss for the business and credited to the personal account of debtors or we can say reduced from debtor those are current assets of the balance sheet.

     

    • Profit and loss account
      • Bad debts are treated as an expense and debited to the profit and loss account.
      • For example, as I have explained above, but before transferring to the balance sheet, bad debt will be debited to the profit and loss account as an expense.

     

    Reasons for bad debts

    There are several reasons why businesses may have bad debts some of them are as follows:-

    • Offered credit to customers who were unable to pay them back, or they may have been the victim of fraud.

     

    • When there is conflicts or dispute arise with respect to product size, color, quality, delivery, credit term, price, etc therefore debts becomes bad.

     

    • Debtors have poor financial management or they are not able to pay debts on time.

     

    • Debtors’ unwillingness to pay is also a reason for debts to become bad.

     

    • Or there can be more cases where debtors are unable to collect debts and debts turns out to be bad.

     

    Accounting methods

    There are two methods for accounting for bad debts which are mentioned below:-

    • First, is the direct written-off method which states that bad debts will be directly treated as expenses and expensed to the income statement, which is called the profit and loss account.

     

    • Second, is the allowance method which means we create provisions for doubtful debts accounts and the debtor’s account remains as it is since the debtor’s account and provision for doubtful debts account are two separate accounts.

     

      • Debts that are doubtful of recovery are provided estimating the debts that may not be recovered .amount debited to the profit and loss account reduces the current year’s profit and the amount of provision is carried forward to the next year.
      • Next year, when debts actually become bad debts and are written off, the amount of bad debts is transferred ( debited ) to the provision for doubtful debts account.
      • The amount of bad debts is not debited to the profit and loss account since it was already debited in earlier years.
      • Provision for doubtful debts is shown in the debit side of the profit and loss account as well as shown as a deduction from sundry debtors in the assets side of the balance sheet. 

     

    Related terms

    So there are a few related terms whose meanings you should know

    • Further bad debts :
      • It means the amount of sundry debtors in the trial balance is before the deduction of bad debts. in this situation, entry for further bad debts is also passed into the books of account.
      • That is bad debts are debited and the debtor’s account is credited. And the accounting treatment for them is the same as bad debts which I have shown you above.

     

    • Bad debts recovered :
      • It may happen that the amount written off as bad debts is recovered fully or partially.
      • In that case, the amount is not credited to the debtor’s (personal) account but is credited to the bad debts recovered account because the amount recovered had been earlier written off as a loss.
      • Thus amount recovered is a ‘gain’  and is credited to the profit and loss account.

     

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Ayushi
AyushiCurious
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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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Karan
Karan
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  2. PriyanshiGupta Graduated, B.Com
    This answer was edited.

    Sales return shows the sale price of goods returned by customers. It is deducted from sales or gross sales in the income statement. It is a contra revenue account that represents returns from the customers and deductions to the original selling price, in case of any defective product received by theRead more

    Sales return shows the sale price of goods returned by customers. It is deducted from sales or gross sales in the income statement.

    It is a contra revenue account that represents returns from the customers and deductions to the original selling price, in case of any defective product received by the customer or any other manufacturing default.

    Sales allowances arise when any customer accepts the product at a lower price than the original price or, in other words, a reduction in the price charged by a seller, due to any problem related to the sold product like a quality issue, an incorrect price charged or shipment issue.

    Sales allowances are created before the final billing is paid by the buyer.

    Journal entry for sales return and allowances:

    Dr. Sales return and allowances Amt  
    Cr. Accounts receivable   Amt
    • Sales Return Account is debited because it is reverse of Sales Account which is credited at the time of sale.
    • Account Receivable Account is credited to reverse the debtors debited at the time of sale.
    • Hence Sales Return entry is just reverse of the entry recorded at the time of sale.

     

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