AccountingQA Latest Questions

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

    The term "principal book of accounts'' refers to the set of ledgers that an entity prepares to group the similar transactions recorded as journal entries under an account. So to put it simply, the principal book of accounts mean ledgers. Ledgers are prepared by posting the debits and credits of a joRead more

    The term “principal book of accounts” refers to the set of ledgers that an entity prepares to group the similar transactions recorded as journal entries under an account.

    So to put it simply, the principal book of accounts mean ledgers.

    Ledgers are prepared by posting the debits and credits of a journal entry to the respective accounts.

    A ledger groups the transactions concerning the same account. For example, Mr B is a debtor of X Ltd. Hence all the transactions entered into with Mr. will be grouped into the ledger Mr B A/c in the books of X Ltd.

    Ledgers are of utmost importance because all the information to any account can be known by its ledger.

    Preparation of ledger is very important because all the information to any account can be known by its ledger. Ledgers also display the balance of each and every account which may be debit or credit. This helps in the preparation of the trial balance and subsequently the financial statements of an entity.

    Hence, it is the most important book of accounts and calling it the ‘books of final entry’ is also justified.

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

    IND AS 102: ‘Share-based payments’ in its actual text is considerably lengthy and very detailed. The objective of my answer is to provide a basic understanding of what IND AS 102 is all about. Further reading of the actual text is suggested for a more detailed understanding. IND AS 102 is the IndiaRead more

    IND AS 102: ‘Share-based payments’ in its actual text is considerably lengthy and very detailed.

    The objective of my answer is to provide a basic understanding of what IND AS 102 is all about. Further reading of the actual text is suggested for a more detailed understanding.

    IND AS 102 is the India specific version of IFRS 2 which deals with the accounting of Share-based payments. IND AS 102 and IFRS are almost similar.

    It deals with the financial reporting of the share-based payment transactions entered into by an enterprise in the following cases:

    1. Transactions with suppliers of goods or services that are settled by share-based payments.
    2. Transactions with employees of the enterprise in nature of Employee Stock Option Plan.

    Share-based payments are of three types:

    • Equity settled share-based payment: It is a transaction in which an entity receives goods or services from the supplier of those goods and services (including an employee) and settles it by issuing equity instruments of the entity or its parent entity.

     Example: A business acquires an asset for Rs. 1,00,000 and makes payment by the issue of its equity shares.

    • Cash settled share-based payment: It is a transaction in which an entity incurs a liability and settles the transaction by paying cash or other assets based on the price of the equity instruments of the entity or group’s entity.

    Example: A business acquires an asset for Rs. 1,00,000 and makes payment in amounts of case based upon its share price.

     

    • Share-based payment transaction with cash alternatives:- In this case,  either the entity or the counterparty has the option of settling the transaction either through with issue of equity or payment of cash by incurring liability.

     

    Things that are not under the scope of IND AS-102

    • Transactions with parties who are acting in the capacity of shareholders.
    • Where a business acquires net assets of a business in case of amalgamation, joint venture etc and issues shares as consideration.

    Recognition

    In a share-based transaction,

    • goods and services are to be recognised when the goods or services are received by the entity.
    • Also, the corresponding increase in equity in equity-settled transactions or liability in the cash-settled transactions is to be recognised.

    Measurement

    The amount at a share-based transaction is to be recorded depending upon the type of counterparty:

    1. Non-employee counter-party: The transaction will be measured based on the fair value of the goods or services received on the date when the goods or services are received.
    2. Employee counter-party: The transaction is to be recorded at the fair value of the equity instruments as on the grant date because the services rendered by the employee cannot be recorded reliably.

    I hope this is enough for a basic understanding of the IND AS 102.

     

     

     

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

    Definition Prepaid expenses are those expenses whose payments are done in advance which can be for the goods or services whose benefit will accrue in the subsequent accounting period. A prepaid expense is a current asset. prepaid expenses are classified under the head current assets in the balance sRead more

    Definition

    Prepaid expenses are those expenses whose payments are done in advance which can be for the goods or services whose benefit will accrue in the subsequent accounting period.

    A prepaid expense is a current asset. prepaid expenses are classified under the head current assets in the balance sheet.

    This is because they provide future economic benefits to the company. As such, they are assets that can be used to generate revenue in the future.

    For example prepaid rent, prepaid insurance, etc.

     

    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 rendering of services in the normal course of business.

    Or in other words, we can say that the expected realization period is less than the operating cycle period although it is more than the period of 12 months from the date of the balance sheet.

    For example, goods are purchased with the purpose to resell and earn a profit, 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 liabilities that are payable generally 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.

     

    Why current assets and not a  current liability?

    Now let me try to explain to you that prepaid expenses are classified as current assets  and not as a current liability which is as follows :

      • we can say that the expected realization period is less than the operating cycle period although it is more than the period of 12 months from the date of the balance sheet.
      • expected to be converted into cash or consumed in the production of goods or rendering of services in the normal course of business.
      • In the business prepaid expense are treated as an asset which we can see on the asset side of the balance sheet.
      • Or in other words, we can say that it is initially recorded as a prepaid expense as an asset in the balance sheet and subsequently its value is expensed over time in the profit and loss account.

     

    Example

    Now let us take an example for explaining prepaid expenses which are mentioned below.

    An insurance premium of Rs 50000 has been paid for one year beginning (previous year). The financial year ends on 31st  march YYYY.

    It means the premium for 6 months i.e., 1st April, YYYY(current year) to 30th September, YYYY(current year) amounting to Rs 25000 is paid in advance.

    Thus, of premium paid in advance (Rs 25000)  is a Prepaid Expense. It will be accounted as an expense in the financial year ending  31st  march next year. In the balance sheet as of 31st march YYYY ( current year ) it will be shown as Current Asset.

    Here is an extract of the profit /loss account and balance sheet of the above example:

     

    Key points

    There are a few things to keep in mind when dealing with prepaid expenses.

    • First, is that the expenses are actually prepaid. This means that the expenses were paid for before they were used.

     

    • Second, it is essential to track the number of prepaid expenses that have been used. That is to make sure that the prepaid expenses are not overstated on the company’s financial statements. This can happen if the company pays for more goods or services than it actually

     

    • Last but not least it is important to keep in mind that changes in the value of prepaid expenses can impact the company’s net income. For example, if the company’s prepaid insurance increases in value, this will increase the company’s net income.

     

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Aditi
Aditi
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  2. Mehak
    This answer was edited.

    To understand the accounting treatment of fixed assets under IFRS let us first understand what fixed assets are. What are Fixed Assets? Fixed assets are the assets that are purchased for long-term use by a business and not for resale. Some examples of fixed assets are land, buildings, machinery, furRead more

    To understand the accounting treatment of fixed assets under IFRS let us first understand what fixed assets are.

    What are Fixed Assets?

    Fixed assets are the assets that are purchased for long-term use by a business and not for resale. Some examples of fixed assets are land, buildings, machinery, furniture and fixtures, etc.

    Fixed assets are essential for the smooth operations of the business. It often shows the value of the business. The value of fixed assets usually decreases with time, obsolescence, damage, etc.

    As per IAS-16 Property, Plant and Equipment, an asset is identified as a fixed asset if it satisfies the following conditions:

    • the future economic benefits associated with the asset will probably flow to the entity, and
    • the cost of the asset can be measured reliably.

    What is IFRS?

    IFRS stands for International Financial Reporting Standards. It provides a set of standards to be followed globally by all companies to ensure transparency, comparability, and consistency.

    What is the accounting treatment of fixed assets under IFRS?

    Under IFRS, the first step is to measure the value of the fixed assets on cost. The cost of the fixed assets includes the following:

    1. purchase price
    2. any direct cost related to the asset (such as transportation, installation, etc.)
    3. duties/taxes

    After this step, the entity may choose any one of the following two primary methods:

    1. Cost Model: According to this model the value is first recognized on a cost basis. This includes the purchase price and direct costs attributable to the asset. Subsequently, depreciation is calculated on the cost of the asset. Depreciation spreads the cost of an asset over its useful life. Impairment checks are conducted to ensure the asset’s value on the books doesn’t exceed what it’s worth.

    For example, a company bought a piece of machinery for 60,000. 5,000 were spent on its installation. It has a useful life of 10 years. The machinery would be depreciated over its useful life of 10 years based on its cost which is 65,000.

    2. Revaluation model: As per this model, the fixed assets are valued on their fair value, as on the revaluation date. The amount of depreciation and impairment losses is subtracted from the fair value.

    If the value of an asset increases, the gain goes to equity (revaluation surplus) unless it can be set off with a past loss recorded in profit or loss.
    On the other hand, if the value decreases, the loss goes to profit or loss unless it offsets a past surplus in equity.

    For example, a building was purchased for 100,000. On the revaluation date, the fair value of this building was 150,000. Hence, there is a revaluation surplus of 50,000 which shall be credited to the revaluation surplus account.

    Impact on Financial Statements

    Fixed assets are shown on the Assets side of the Balance Sheet.

    Conclusion

    From the above discussion, it may be concluded that:

    • Fixed assets are the assets that are purchased for long-term use by a business and not for resale.
    • Some examples of fixed assets are land, buildings, machinery, furniture and fixtures, etc.
    • IFRS provides a set of standards to be followed globally by all companies to ensure transparency, comparability, and consistency.
    • Under IFRS, the first step is to measure the value of the fixed assets on cost.
    • After this step, the entity may choose any one of the two primary methods which are cost model and the revaluation model.
    • Fixed assets are shown on the Assets side of the Balance Sheet.

     

     

     

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Aadil
AadilCurious
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    In Tally, it is possible to record credit sales entry in the following accounting vouchers: Sales Voucher  Journal Voucher Generally, sale entries whether credit sales or cash sales are recorded in the Sales vouchers. Also, I strongly recommend you to record sales entries in the Sales voucher only aRead more

    In Tally, it is possible to record credit sales entry in the following accounting vouchers:

    • Sales Voucher 
    • Journal Voucher

    Generally, sale entries whether credit sales or cash sales are recorded in the Sales vouchers. Also, I strongly recommend you to record sales entries in the Sales voucher only as it can record various aspects related to credit sales like the sales order number, delivery note number, particulars of creditor and much more.

    In this answer, I have shown the steps to record a credit sales entry into the Sale voucher. My answer is based on Tally Prime, the latest version of Tally. If you are using Tally ERP 9, there will be only a few areas of differences which are not that significant. 

    Steps to record credit sales in Sales voucher

    To record credit sales entry, you have to first open the Sales voucher creation window. To open the Sales creation window, the steps are as follows:

    Gateway of Tally → Voucher → Press F8 

    The Sales voucher creation window will open and will look like this:

    Now, there are three modes to the sales voucher which you can be accessed and changed from the ‘Change mode’ option in the right-hand side menu or by simply pressing Ctrl + H. Upon pressing Ctrl  + H, the Change mode option will open.

    I will recommend you to use ‘Item Invoice’ mode. It looks like an invoice and it is easier to use and understand. The image of the sale voucher given is in the item invoice only.

    Now to have to fill in the following details:

    • Reference number of the sale entry if there is any
    • Select the Party name or the name of the debtor (Press ALT + C if you want to create a new debtor)
    • The dispatch details menu will open. Enter the details if you want otherwise leave them blank.
    • The party details menu will open asking again for the party name and party’s other details.
    • Select the name of the item to be sold (Create stock item if not created before by pressing Alt + C when in Name of Item field)
    • Enter the quantity and rate of the item and the total amount will be auto-populated.
    • After it, the accounting details menu will open where you have selected the sales account you want to credit. If a sales account is not created, press ALT + C to create it.
    • Enter narration if you desire and finally accept the voucher.

    This is a completed sales voucher:

    Hence, this is how you have recorded a credit sales entry in the sales voucher.

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

    Starting of the business The starting of the business, in accounting terms, is called the commencement of the business. There are three types of businesses that can be commenced, they are, sole proprietorship, partnership, and joint-stock company. In order to start the business, in companies, commenRead more

    Starting of the business

    The starting of the business, in accounting terms, is called the commencement of the business. There are three types of businesses that can be commenced, they are, sole proprietorship, partnership, and joint-stock company.

    In order to start the business, in companies, commencement is a declaration issued by the company’s directors with the registrar stating that the subscribers of the company have paid the amount agreed. In a sole proprietorship, the business can be commenced with the introduction of any asset such as cash, stock, furniture, etc.

    Journal entry

    In this entry, “Started business with cash $60,000”

    As per the golden rules of accounting, the cash a/c is debited because we bring in cash to the business, and as the rule says “debit what comes in, credit what goes out.” Whereas the capital a/c is credited because “debit all expenses and losses, credit all incomes and gains”

    As per modern rules of accounting, cash a/c is debited as cash is a current asset, and assets are debited when they increase. Whereas, on the increment on liabilities, they are credited, therefore, capital a/c is credited.

     

     

     

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Jayesh Gupta
Jayesh GuptaCurious
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    As per AS-10 ( Revised ): Property, Plant and Equipment, depreciation on an asset should begin when the asset is in the location and condition necessary for it to be capable of operating in the manner as intended by the management. This means a firm should start charging depreciation when the assetRead more

    As per AS-10 ( Revised ): Property, Plant and Equipment, depreciation on an asset should begin when the asset is in the location and condition necessary for it to be capable of operating in the manner as intended by the management.

    This means a firm should start charging depreciation when the asset is ready to be used as per the management’s desire.

    Let’s take an example to understand this clearly:

    A business bought a drinking water cooler for its office use on 1st April 2021. Now, this water cooler needs to be installed and wiped with Isopropyl Alcohol before it can be put to use.

    The business completed all the required procedures by 1st May 2021, but it opened the machine for office use from 1st August 2021.

    So the question arises, from when to start charging depreciation?

    • 1st April 2021 – The date of Purchase
    • 1st May 2021- The date when the machine was ready to use.
    • 1st August 2021 –The date from which the machine was put to use.

    The answer is 1st May 2021– The date when the machine was ready to use.

    It doesn’t matter whether the company started the use of an asset or not. Once an asset is in

    • the location and condition
    • necessary for it to be capable of operating
    • as intended by the management,

    the depreciation should begin.

     

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