AccountingQA Latest Questions

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

    You must have knowledge of what depreciation is. Depreciation is the process of allocating the value of an asset over its useful life. It reduces the carrying value of the asset year by year till it is scraped. It is an expense (expense of using the asset for business purposes) and it is charged toRead more

    You must have knowledge of what depreciation is. Depreciation is the process of allocating the value of an asset over its useful life. It reduces the carrying value of the asset year by year till it is scraped.

    It is an expense (expense of using the asset for business purposes) and it is charged to profit and loss account.

    Depreciation can be reported in the financial statement in two ways:

    1. Deduct depreciation from the asset account and show the asset at “depreciation less” value. See the journal entries below:

    1. Maintain a provision for depreciation account and show the asset account at original cost. In this method, no entry is passed through the asset account. See the journal entries below:

     

    Provision for depreciation account represents the collection of total depreciation till date on an asset. That’s why it is also called accumulated depreciation account. When an asset is sold, its accumulated depreciation is credited to the asset account. See the journal entry below:

    It is shown on the liabilities side of the balance sheet. It is a nominal account because it is shown as an expense in the statement of profit or loss.

    In case provision for depreciation account is not maintained then the balance sheet looks like this:

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Karan
Karan
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Difference BetweenDissolution of FirmDissolution of Partnership
  2. PriyanshiGupta Graduated, B.Com
    This answer was edited.

    Dissolution of partnership means partnership coming to an end while the firm still stands. Various reasons for the dissolution of partnership could be: Admission of a partner Death of a partner Retirement of a partner Dissolution of firm In the event of the above cases, the existing partnership is dRead more

    Dissolution of partnership means partnership coming to an end while the firm still stands. Various reasons for the dissolution of partnership could be:

    • Admission of a partner
    • Death of a partner
    • Retirement of a partner
    • Dissolution of firm

    In the event of the above cases, the existing partnership is dissolved and a new partnership is created with the new partners without affecting the firm.

    A new partnership deed is created, in case there is a partnership deed agreed among partners and new profit-sharing ratios among the partners are decided, while the assets and liabilities of the firm remain the same.

    Dissolution of a firm means the firm no longer exists. Various reasons for the dissolution of a partnership firm could be:

    • Mutual decision of partners
    • By the court of law

    A partnership firm is dissolved by a court of law when there has been a non-compliance of law, the firm is engaged in illegal practices, or that the court’s opinion is that it is in the public interest for the firm to be dissolved.

    The partnership is also dissolved with the dissolution of the firm but the converse need not be true.

    When a firm is dissolved, there is a sequence that is followed to pay creditors and partners.

    • First, outside creditors like banks, third party creditors are paid firstly with the cash available with the firm and then by selling the assets.
    • Second, partners who have lent money in the form of a loan to the firm are paid.
    • Lastly, if there is any surplus, partners are paid with the amount of their capital. In case of loss, partners are required to pay from their personal assets.

    Dissolution of the firm can be done by the partners themselves and they could also appoint a third person to do so on the payment of fees, charges, the proportion of surplus, or any contract that has been agreed to.

    To summarize, we can a draw a difference table as follows:

    Dissolution of Partnership Dissolution of Partnership Firm
    The partnership ends but the firm still stands. A partnership firm no longer exists.
    A new partnership deed is created by the mutual agreement of partners. A new partnership firm is created if the partners decide.
    Reasons:

    ·        Admission

    ·        Retirement

    ·        Death

    		 Reasons:

    ·        By court

    ·        Mutual decision of partners
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Bonnie
BonnieCurious
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  2. Radhika
    This answer was edited.

    A cash flow statement is a statement showing the inflow and outflow of cash and cash equivalents during a financial year. Cash Flow Statements along with Income statements and Balance Sheet are the most important financial statements for a company. The Cash Flow Statement provides a picture to the sRead more

    A cash flow statement is a statement showing the inflow and outflow of cash and cash equivalents during a financial year. Cash Flow Statements along with Income statements and Balance Sheet are the most important financial statements for a company.

    The Cash Flow Statement provides a picture to the shareholders, government, and the public of how the company manages its obligations and fund its operations. It is a crucial measure to determine the financial health of a company.

    The Cash Flow Statement is created from the Income Statement and the Balance Sheet. While Income Statement shows money engaged in various transactions during the year, the Balance Sheet presents information about the opening and closing balances.

    The primary objective of a Cash Flow Statement is to present a record of inflow and outflow of cash, cash equivalents, and marketable securities through various activities of a company.

    Various activities in a company can be broadly classified into three parts or heads:

    • Cash Flow from Operating Activities: it represents how money from regular business activities is derived and spent. It includes Net Profit from Income Statement after adjusting for tax and extra-ordinary activities. Items included in Operating Activities are adjustments in Working Capital. If current liabilities are paid or current assets are bought it means outflow of cash, hence it is deducted and if liabilities are increased or assets are sold it means the inflow of cash, hence it is added. Operating Activities take into account taxation, dividend, depreciation, and other adjustments.
    • Cash Flow from Investing Activities: it represents aggregate inflow or outflow of cash due to various investments activities that the company was engaged in. Purchase and sale of non-current assets like fixed assets and long-term investments are considered under this head. If there is an investment made, it means outflow of cash, hence it is deducted and if there is an investment sold it means the inflow of cash, and hence it is added.
    • Cash Flow from Financing Activities: it represents the activities that are used to finance a company’s operations, like, issue of cash or debentures, paying dividends and interest, long-term borrowing taken by a company, etc. If these are paid, it means outflow of cash and is hence deducted and if they are acquired, it means the inflow of cash and hence ae added.

    Cash Flow Statements also present a picture of the liquidity of the company and are therefore used by the management of a company to take decisions with the help of the right information.

    Cash Flow Statements are a great source of comparison between a company’s last year’s performance to its current year or with other companies in the same industry and hence, helps shareholders and potential investors to make the right decisions.

    It also helps to differentiate between non-cash and cash items; incomes and expenditures are divided into separate heads.

     

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Anushka Lalwani
Anushka Lalwani
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  2. Pooja_Parikh Aspiring Chartered Accountant
    This answer was edited.

    In a partnership firm, the partners may withdraw certain amounts from the firm for their personal use. Such amounts withdrawn by the partners are called drawings. This amount is usually deducted from their capital. The partners are required to pay an amount as interest, based on the time period forRead more

    In a partnership firm, the partners may withdraw certain amounts from the firm for their personal use. Such amounts withdrawn by the partners are called drawings. This amount is usually deducted from their capital. The partners are required to pay an amount as interest, based on the time period for which the money was withdrawn. This amount is called Interest on Drawings.

    The journal entry for interest on drawings is as follows:

    Since interest on drawings is an income to the firm, it is credited based on the rule that “increase in incomes are credited”. Since the partner has to bear the interest amount, his capital account is debited as a “ decrease in capital is debited”.

     

    FORMULAS

    The basic formula for interest on drawings is:
    Interest on drawings = Amount of Drawings x Rate/100 x No. of months/12

    1. When equal amounts of drawings are withdrawn at the beginning of every month, then
      Interest on Drawings = Total Drawings x Rate/100 x (12+1)/2
    2. When equal amounts of drawings are withdrawn at the end of every month, then the Interest on Drawings = Total Drawings x Rate/100 x (12-1)/2
    3. When the date of the drawing is not specified, it is assumed to be withdrawn evenly. Hence Interest on Drawings = Total Drawings x Rate/100 x 6/12

    The calculations in 1,2 and 3 are done so that drawings can be calculated for the average period.

     

    EXAMPLE

    Jack is a partner who withdrew $20,000 on 1st April 2020. Interest on drawings is charged at 10% per annum. If we have to calculate interest on drawings as of 31st December, then

    Interest on Drawings = 20,000 x 10/100 x 9/12 = $1,500
    (Here, interest on drawings is outstanding for 9 months, that is from April to December)

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A_Team
A_Team
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  2. AishwaryaMunot
    This answer was edited.

    Meaning New profit-sharing ratio is the profit-sharing ratio after the new partner is admitted in the partnership. At the time of such admission there is change in old/existing partners’ ratio too. The share of new partner’s profit is acquired from old/existing partners’ share of profit. Thus, New pRead more

    Meaning

    New profit-sharing ratio is the profit-sharing ratio after the new partner is admitted in the partnership. At the time of such admission there is change in old/existing partners’ ratio too. The share of new partner’s profit is acquired from old/existing partners’ share of profit.

    Thus, New profit-sharing ratio can be stated as ratio in which all the partners, Old and New will share profits and losses of the partnership in future. The new profit-sharing ratio can be calculated as follows.

     

    Formula

    Sacrifice ratio is the ratio in which old/existing partners agrees to give away their share in profits for the new partner.

    For better understanding let’s see how calculation of New profit-sharing ratio can be done:

    Example : There are two partners in a partnership firm, Mr. Anil & Mr. Mukesh. Their profit-sharing ratio is 2:3. They wants to admit Mr. Nikhil as their third partner for 1/3rd share.

    In such case, Calculation of New profit-sharing ratio would be as follows:

    Total profit = 1

    Mr. Nikhil’s Share = 1/3

    Remaining Profit = 1 – 1/3 = 2/3

    So, this remaining share of 2/3 is shared among the old partners in their old ratio of 2:3.

    Mr. Anil’s Share = 2/3 x 2/5 = 4/15

    Mr. Mukesh’s Share = 2/3 x 3/5 = 6/15

    Mr. Nikhil’s Share = 1/3 x 5/5 =5/15

    So, New ratio would be 4/15: 6/15: 5/15 i.e., 6:4:5

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Simerpreet
SimerpreetHelpful
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  2. ShreyaSharma none
    This answer was edited.

    Ledger posting As we know, a business records all of its transactions in the journal. After the transactions are recorded in the journal, they are posted in the principal book called ‘Ledger’. Transferring the entries from journals to respective ledger accounts is called ledger posting or posting toRead more

    Ledger posting

    As we know, a business records all of its transactions in the journal. After the transactions are recorded in the journal, they are posted in the principal book called ‘Ledger’. Transferring the entries from journals to respective ledger accounts is called ledger posting or posting to the ledger accounts. Balancing of ledgers is carried out to find differences at the year’s end.

    Posting to the ledger account means entering information in the ledger, and respective accounts from the journal for individual records. The accounts that are credited are posted to the credit side and vice versa.

    Ledger maintenance is done at the end of an accounting period and it’s maintained to reflect a permanent summary of all the journal accounts. In the end, all the accounts that are entered and operated in the ledger are closed, totaled, and balanced. Balancing the ledger means finding the difference between the debit and credit amounts of a particular account.

    While posting to the ledger account, suppose goods were bought for cash. While passing the journal entry, we’ll be debiting the purchases a/c and crediting the cash a/c by stating it as, ‘To Cash A/c’.

    Now, this entry will be affecting both the purchases account and the cash account. In the cash account, we’ll be debiting purchases. Whereas in the purchases account, we’ll be crediting the cash. That’s how it works in the double-entry bookkeeping system of accounting.

    Example

    Mr. Tony Stark started the business with cash of $100,000 on April 1, 2021. He bought furniture for business for $15,000. He further purchased goods for $75,000.

    Now, we’ll be journalizing the transactions and posting them into the ledger accounts.

    Journal Entries

    Posting to Ledger Account

    Cash A/c

    Capital A/c

    Furniture A/c

    Purchases A/c

     

     

     

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Simerpreet
SimerpreetHelpful
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  2. Poorvi_*
    This answer was edited.

    When the Accumulated depreciation account is not maintained, the journal entry for vehicle depreciation shall be                              Particulars     Debit   Credit Depreciation a/c                                              Dr.      (xxx)      To Vehicle a/c      (xxx) (Being DepreciationRead more

    When the Accumulated depreciation account is not maintained, the journal entry for vehicle depreciation shall be

                                 Particulars     Debit   Credit
    Depreciation a/c                                              Dr.      (xxx)
         To Vehicle a/c      (xxx)
    (Being Depreciation charge on Vehicle made)

    For example, let us assume that a vehicle (Bike) was purchased on 1st April 2019 with INR. 2,50,000, the rate of depreciation is 15% and also the Company follows the straight-line method of calculating depreciation.

    Then the journal entries shall be,

    The depreciation charge for the 1st Year 

            Date                                Particulars  Debit  Credit
    31-03-2020 Depreciation a/c Dr.  37,500
        To Vehicle a/c  37,500
    (Being Depreciation made on Vehicle)

    The depreciation charge for the 2nd Year 

            Date                                Particulars  Debit  Credit
    31-03-2021 Depreciation a/c Dr.  37,500
        To Vehicle a/c  37,500
    (Being Depreciation made on Vehicle)

    The depreciation charge for the 3rd Year

            Date                                Particulars  Debit  Credit
    31-03-2022 Depreciation a/c Dr.  37,500
        To Vehicle a/c  37,500
    (Being Depreciation made on Vehicle)

    The respective ledger accounts for all three years are given below:

    When the Accumulated depreciation account is maintained, the journal entry for vehicle depreciation shall be

                                 Particulars   Debit   Credit
    Depreciation a/c                                              Dr.    (xxx)
         To Accumulated depreciation a/c    (xxx)
    (Being Depreciation charge on Vehicle made)

    Taking the above said example,

    The depreciation charge for the 1st Year 

            Date                                Particulars  Debit  Credit
    31-03-2020 Depreciation a/c Dr.  37,500
        To accumulated depreciation a/c  37,500
    (Being Depreciation made on Vehicle)

    The depreciation charge for the 2nd Year 

            Date                                Particulars  Debit  Credit
    31-03-2021 Depreciation a/c Dr.  37,500
        To accumulated depreciation a/c  37,500
    (Being Depreciation made on Vehicle)

    The depreciation charge for the 3rd Year

            Date                                Particulars  Debit  Credit
    31-03-2021 Depreciation a/c Dr.  37,500
        To accumulated depreciation a/c  37,500
    (Being Depreciation made on Vehicle)

    The respective ledger accounts for all three years are given below:

     

     

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