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

    Non-debt capital receipts As we're aware, there are two main sources of the government’s income — revenue receipts and capital receipts. Revenue receipts are all those receipts that neither create any liability nor cause any reduction in assets for the government, whereas, capital receipts are thoseRead more

    Non-debt capital receipts

    As we’re aware, there are two main sources of the government’s income — revenue receipts and capital receipts. Revenue receipts are all those receipts that neither create any liability nor cause any reduction in assets for the government, whereas, capital receipts are those money receipts of the government that either create a liability for a government or cause a reduction in assets.

    Revenue receipts comprise both tax and non-tax revenues while capital receipts consist of capital receipts and non-debt capital receipts. Non-debt capital receipt is a part of capital receipt.

    Definition

    Non-debt capital receipts, also known as NDCR, are the taxes and duties levied by the government forming the biggest source of its income. Those receipts of the government lead to a decrease in assets, and not an increase in liabilities. It accounts for just 3% of the central government’s total receipts.

    The union government usually lists non-debt capital receipts in two categories:

    • Recovery of loans – Recovery of loans means the amount recovered when a loan defaults.
    • Other receipts – Other receipts basically mean disinvestment proceeds from the sale of the government’s share in public-sector companies.
    • Money accrued to the union government from the listing of central government companies and the issue of bonus shares.

     

    For Example – Disinvestment and recovery of loans are non-debt creating capital receipts.

     

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Simerpreet
SimerpreetHelpful
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  2. Akash Kumar AK
    This answer was edited.

    Partnership Firm Persons who have entered into a partnership with one another to carry on a business are individually called “Partners“; collectively called a “Partnership Firm”; and the name under which their business is carried on is called the “Firm Name” In simple words, A partnership is an agreRead more

    Partnership Firm

    Persons who have entered into a partnership with one another to carry on a business are individually called “Partners“; collectively called a “Partnership Firm”; and the name under which their business is carried on is called the “Firm Name”

    In simple words, A partnership is an agreement between two or more people who comes together to run a business on a partnership deed, which is called a Partnership firm. A Partnership Deed is a written agreement between partners who are willing to form a Partnership Firm. It is also called a Partnership Agreement.

    It has no separate legal entity which cannot be separated from the members. It is merely a collective name given to the individuals composing it. This means, a partnership firm cannot hold property in its name, and neither it can sue nor be sued by others.

     

    Contents of a Partnership Deed

    A Partnership Deed shall mainly include the following contents:

    1. Name of the Partnership firm
    2. Address of the Partnership firm
    3. Details of all the Partners
    4. Date of commencement of the Business
    5. The amount of capital contributed by each of the partners forming the Partnership firm
    6. The Profit sharing ratio (The Business profit shared among the partners on a ratio basis)
    7. The rate or amount of Interest on Capital & the rate or amount of Interest on drawings to each partner respectively.
    8. The salary is payable to each of the partners of the firm.
    9. The rights, duties, and power of each partner of the firm.
    10. The duration of the existence of the firm

     

    Types of Partners

    The following are the various types o partners

    1. Working partner or Active partner
    2. Sleeping partner
    3. Limited partner
    4. Partner in profit only
    5. Nominal or quasi partner
    6. Minor as a partner

     

    Types of Partnership Firms

    There are four types of partnership which are as below.

    1. General Partnership
    2. Limited Partnership
    3. Partnership at will
    4. Particular Partnership

    Essential characteristics of a partnership firm

    1. Two or More persons: There must be at least two persons to form a partnership. A person cannot enter into a partnership with himself. The maximum number of persons in a partnership should not exceed 50.
    2. Agreement between partners: There must be an agreement between the parties in a partnership. The relation of partnership arises from the formation of a contract i.e., Partnership deed.
    3. Mutual Agency: Partnership business can be carried on by all the partners or by any of them acting on behalf of the others. in simple words, every partner is an agent to the other partners and of the form. Each partner is liable for acts performed by other partners on behalf of the firm.
    4. Registration of Firm: Registration of a partnership firm is not compulsory under the Act. The only document or even an oral agreement among partners required is the ‘partnership deed’ to bring the partnership into existence.
    5. Unlimited Liability: the liability of the partners is unlimited for the debts of the firm. In case the assets of the firm are insufficient to pay the debts in full, the personal property of each partner can be attached to pay the creditors of the firm.
    6. Non-Transferability of interest: there is a restriction in the transfer of shares of profits of the partnership without the prior consent of all other partners.
    7. Sharing of profits: The profits must be distributed among the partners in an agreed ratio. Similarly, losses should be shared among the partners.
    8. Lawful Business: The business carried on by the partners must be lawful. Illegal acts such as theft, dacoity, smuggling, etc., cannot be called partnerships.
    9. Utmost good faith: A partner must observe utmost good faith in all dealings with his co-partners. He must render true accounts and make no secret profits from the business.

     

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

    Definition Posting refers to moving the transaction entries from the journal to the ledger books of the company. It is an important part of the accounting cycle. Posting helps us to classify transactions in a better manner. A journal is used to record transactions in chronological order while ledgerRead more

    Definition

    Posting refers to moving the transaction entries from the journal to the ledger books of the company. It is an important part of the accounting cycle.

    Posting helps us to classify transactions in a better manner.

    A journal is used to record transactions in chronological order while ledger books are used to classify transactions into assets, liabilities, expenses, and incomes.

    Steps of Posting

    • Create and name ledger accounts for different items of trial balance

    • Identify those entries in the journal that relate to the relevant ledger book under consideration.

    • Post the entry on the debit or credit side of the ledger account.

    • For example, when salaries are paid a salary account is debited and a bank account is credited. When posting this transaction in the bank account we will debit the bank account and write “To salaries” under the head “particular”. This will indicate that salaries were paid from a bank account causing a reduction in the bank balance.

    • After all the journal entries relevant to a particular ledger account have been posted in it, we will tally the total of the debit and the credit side of the ledger account to ascertain any balance left.

    • Usually, asset accounts have the debit side exceeding the credit side. That is to say, they have a debit balance. Liability accounts usually have a credit balance.

    • It is not necessary that every ledger account may have a balance left at the end. The total of the amounts on the debit side may be equal to the total of the amounts on the credit side in some ledger accounts.

    • The last step is to recheck the ledger account to identify and correct any mistakes that may have occurred during the posting process.

    Importance of Posting

    • Posting helps us to classify transactions in a better and more efficient manner.

    • Posting makes the books of accounts more readable.

    • An accountant may choose to engage in posting once every month or even once every day as per the requirements of the business and the financial reporting norms.

    • Posting is necessary for the creation of financial statements. A trial balance cannot be drafted without determining the balance of each ledger account.

    • Posting helps us to know the balance of each account This helps to run the business smoothly by tracking balances timely and making up for any likely deficiency in advance.

    • Analysis of how balances of various ledger accounts have changed over time helps us to draw valuable conclusions for the business.

    Conclusion

    We can conclude by saying that the process of posting refers to transferring the entries from the journal to the ledger accounts.

    Posting is an essential step of the accounting cycle and without it, financial statements cannot be prepared. Any error while posting is bound to adversely affect the creation of the financial statements.

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

    Yes, Accounts Payable can have a Debit balance. Accounts payable is a liability and thus, has a credit balance but can have a debit balance in case the creditor is overpaid or when there is purchase return (for already-paid goods)   ACCOUNTS PAYABLE Accounts payable refers to all short-term liaRead more

    Yes, Accounts Payable can have a Debit balance. Accounts payable is a liability and thus, has a credit balance but can have a debit balance in case the creditor is overpaid or when there is purchase return (for already-paid goods)

     

    ACCOUNTS PAYABLE

    Accounts payable refers to all short-term liabilities of the business that are to be paid. These are usually paid within a duration of  90 days. It includes both Trade payable (goods and services purchased on credit) as well as expenses payable (used but payment not made yet) like rent payable, electricity bill, etc.

    Businesses cannot make every payment on the spot. There can be cases when the business is facing a shortage of funds, can have funds but doesn’t have enough cash (or liquid funds) to make payment or simply doesn’t want to make payment on the spot to reduce its capital requirement.

    So, like us businessmen also purchase goods on credit or use services for which payment is to be made soon. All these are liabilities for the business.

    However, they must be related to the business to be considered as accounts payable.

     

    DEBIT BALANCE OF ACCOUNTS PAYABLE 

    Debit balance of accounts payable means money owed by others. There is Debit balance when

    OVERPAYMENT is made to the creditors or the supplier. It happens when the wrong amount is paid or payment is made twice for the same transaction.

    Suppose you need to pay $10,000 as rent within 30 days. After 25 days you mistakenly made a payment of $12,000.

    In this case,

    • Firstly, you will record the transaction by crediting Accounts payable (as liability increased) by $10,000
    • When payment is made after 25 days, Accounts Payable is debited by $12,000 (as liability decreased)
    • So, there will be a debit balance of $2,000 (which means the creditor owes you) till the creditor returns the excess amount.

     

    PURCHASE RETURN of already paid goods also result in debit balance of Accounts Payable.

    Suppose you bought goods worth $50,000 from Mr A on credit and paid for the same. Later, you returned all the goods because they were defective. Now, there will be Debit balance of Accounts Payable till there is a full refund of $50,000 by Mr A.

     

    How is Accounts Payable Treated Normally?

    Accounts Payable are the current liabilities of the firm and are shown under the head Current Liabilities in the Balance Sheet. Its liability, thus has a credit balance which represents the amount owed by the firm to others. It is credited when increases and debited when decreases.

    For example – Suppose you purchased goods worth $30,000 and agreed to pay after 30 days. So, Accounts payable will be credited by $30,000 and purchases will be debited by $30,000.

    Purchases A/c – $30,000 (debit)

    To Accounts Payable A/c – $30,000

    After 30 days payment is made in cash, which means the liability decreased. So, Accounts Payable A/c will be debited.

    Accounts Payable A/c – $30,00

    To Cash – $30,000

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prashant06
prashant06
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DrawingsIncome Statement
  2. Radha M.Com, NET
    This answer was edited.

    Whenever the proprietor/owner of a business withdraws cash or goods from the business for his/her personal use, we call it drawings. For example, Alex, proprietor of a soap manufacturing company, takes 50 pack of soaps costing 30 each for his personal use. So, 1,500 (50*30) will be considered as draRead more

    Whenever the proprietor/owner of a business withdraws cash or goods from the business for his/her personal use, we call it drawings. For example, Alex, proprietor of a soap manufacturing company, takes 50 pack of soaps costing 30 each for his personal use. So, 1,500 (50*30) will be considered as drawings of Alex. One important thing to note here is whenever goods are withdrawn for personal use they are valued at cost.

    Drawings are not an asset/liability/expense/income to the business. The drawings account is a contra-equity account. A contra-equity account is a capital account with a negative balance i.e. debit balance. It reduces the owner’s equity/capital.

    Drawings being a contra-equity account has a debit balance, reducing the owner’s capital in the business. This is because withdrawals for personal use represent a reduction of the owner’s equity in the business.

    Drawings are not shown in the Income Statement as they are neither an expense nor an income for the business. However, the following journal entries are passed to record drawings for the year:

    Drawings A/c is debited because it reduces the owner’s capital. Cash/Purchases A/c is debited as a withdrawal reduces the assets of the business.

    At the end of the year, drawings A/c are closed by transferring it to the owner’s capital A/c. We post the following entry to close the drawings A/c at the end of the year:

    In the balance sheet, drawings are shown by deducting it from the owner’s capital A/c.

    Let us take our earlier example of Alex. He withdrew soaps worth 1,500. At the end of the year, his capital was worth 5,500. The journal entry for recording the drawings is as follows:

    In the balance sheet, drawings worth 1,500 are shown as follows:

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Astha
AsthaLeader
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  2. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    Financial analysis of a company means analyzing the previous data of the company and giving recommendations based on that whether the company will improve in the future on not. It is the process of evaluating the financial performance and stability of the company. There are various types of financiaRead more

    Financial analysis of a company means analyzing the previous data of the company and giving recommendations based on that whether the company will improve in the future on not.

    It is the process of evaluating the financial performance and stability of the company.

    There are various types of financial analysis. They are leverage, growth, cash flow, liquidity, profitability, etc.

    The main objectives of Financial analysis are

    1.Reviewing the current position: In order to know if the company is doing well, past analysis of data is required to be carried out. Regular recording of the transactions helps to understand the financial position of the company.

    For example, A company wants to generate a revenue of 2000 crores in the next 5 years. The last four years’ data shows revenue as 1100, 1300,1600, 1800 crores respectively.

    So from the above, we can say that the company is performing well and looks like it will reach the desired target in the fifth year or may perform better than the target desired.

    However, if the revenue declines, it will cause concern for the team but the team will get time to gear up and work efficiently to achieve the desired target.

    2. Ease in decision making: For Future decision-making, quarterly financials play an important role. Subsidiary books and accounts like the sales book, purchase orders, manufacturing a/c, etc. help in giving more reliable information.

    For example, If sales are increasing inconsistently in a quarter, and in the next quarter the level of sales decrease due to any reason then the management can analyze and change the strategy.

    3. Performance Comparison: It helps in comparing the performance of the business every month, quarterly, half-yearly, and yearly. Analyzing the data can help the management to compare if the company is proceeding in the right direction.

    4. Assessing the profitability: Financial statements are used to assess the profitability of the firm. The analysis is made through the accounting ratios, trend line, etc. Accounting ratios calculated for a number of years shows the trend of change of position i.e. positive, negative or static. The assessing of the trend helps the management to analyze if the company is making profits or not.

    5. Measure the solvency of the firm: Financial analysis helps to measure the short-term and long-term efficiency of the firm for the benefit of the Stakeholders.

    6. Helps the end-users: The owners are the end-users for whom the financial statements are prepared. Financial statements are the summaries that are prepared for providing various disclosures to the owners which helps them understand the statements in a better way. If the end-users arrive at the right decision with the help of financial statements that means the objective is achieved.

    7. Other objectives:

    • It helps to settle disputes among the parties.
    • It helps in the expansion decision of the firm.
    • It helps in analyzing the amount of tax to be paid.
    • It reduces the chances of fraud.
    • It provides information about resources.
    • It provides a true and fair view of financial position.
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