Please briefly explain why you feel this question should be reported.

Please briefly explain why you feel this answer should be reported.

Please briefly explain why you feel this user should be reported.

Sign InSign Up

AccountingQA

AccountingQA Logo AccountingQA Logo

AccountingQA Navigation

  • Home
  • Ask Questions
  • Write Answers
  • Explore
  • FAQs
Search
Ask A Question

Mobile menu

Close
Ask a Question
  • Home
  • Questions
    • Most Visited
    • Most Active
    • Trending
    • Recent
  • Follow
    • Categories
    • Users
    • Tags
  • Write an Answer
  • Badges & Points
  • Request New Category
  • Send a Suggestion
  • Search Your Accounting Question..

  • Recent Questions
  • Most Answered
  • Answers
  • Most Visited
  • Most Voted
  • No Answers

AccountingQA Latest Questions

Bonnie
BonnieCurious
In: 1. Financial Accounting > Financial Statements

What is the primary objective of cash flow statement?

  • 1 Answer
  • 0 Followers
Answer
  1. Radhika
    Added an answer on December 1, 2021 at 2:09 pm
    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.

     

    See less
    • 0
    • Share
      Share
      • Share on Facebook
      • Share on Twitter
      • Share on LinkedIn
      • Share on WhatsApp
AbhishekBatabyal
AbhishekBatabyalHelpful
In: 1. Financial Accounting > Miscellaneous

What is effective capital?

  • 1 Answer
  • 0 Followers
Answer
  1. Ayushi Curious Pursuing CA
    Added an answer on November 30, 2021 at 7:50 pm
    This answer was edited.

    Effective Capital is an amount calculated for purpose of arriving at the maximum limit of managerial remuneration as per the Companies Act, 2013 where profit is inadequate or no profit. Other than that it has no use. Computation of effective capital is given in Explanation I to Schedule II of the CoRead more

    Effective Capital is an amount calculated for purpose of arriving at the maximum limit of managerial remuneration as per the Companies Act, 2013 where profit is inadequate or no profit. Other than that it has no use.

    Computation of effective capital is given in Explanation I to Schedule II of the Companies Act. Schedule II deals with remuneration payable to managers in case of no profit or inadequate profit in the following manner:

    Computation of effective capital is done in the following manner:

    Numerical example:

    ABC Ltd reports its balance sheet as given below:

    We will compute its effective capital for both an investment company and a non-investment company.

    See less
    • 0
    • Share
      Share
      • Share on Facebook
      • Share on Twitter
      • Share on LinkedIn
      • Share on WhatsApp
Ayushi
AyushiCurious
In: 1. Financial Accounting > Accounting Terms & Basics

What is managerial remuneration?

  • 1 Answer
  • 0 Followers
Answer
  1. Pooja_Parikh Aspiring Chartered Accountant
    Added an answer on November 30, 2021 at 7:12 pm
    This answer was edited.

    The major affairs of the company are handled by the manager and hence he is entitled to receive some compensation for his efforts. This is termed Managerial Remuneration. The manager has to bring out the maximum potential of the employees while ensuring that the interests of the shareholders and othRead more

    The major affairs of the company are handled by the manager and hence he is entitled to receive some compensation for his efforts. This is termed Managerial Remuneration. The manager has to bring out the maximum potential of the employees while ensuring that the interests of the shareholders and other stakeholders are secured.

    MAXIMUM REMUNERATION

    As per section 197 of the Companies Act, the Company has certain limits on paying maximum remuneration, depending on whether he is working full-time or part-time. If the company has only one whole-time manager, he is entitled to a maximum remuneration of 5% of net profits. If there is more than one whole time manager, then the percentage increases to 10%.

    For part-time directors, the remuneration allowed is 1% of net profits (if there is a whole-time director present) and if no whole-time manager is present, then remuneration for a part-time director is 3%.

    Therefore, a company can only pay a maximum remuneration of 11% of net profits.

    A public company is allowed to pay remuneration in excess of 11% by :

    • Passing a special resolution approved by the shareholders
    • Subject to compliance with Schedule V conditions

    Remuneration can be paid to such managers who do not have any direct interest in the company and also possesses special knowledge and expertise along with a graduate-level qualification.

    PENALTY

    Any person who fails to comply with the provisions of managerial remuneration shall be punishable with a fine that can vary from Rs. 1 Lakh to a maximum of Rs. 5 Lakhs.

    However, Sec 197 applies to only public companies and hence private companies are free to pay managerial remuneration with no upper limit.

    See less
    • 0
    • Share
      Share
      • Share on Facebook
      • Share on Twitter
      • Share on LinkedIn
      • Share on WhatsApp
Rahul_Jose
Rahul_Jose
In: 1. Financial Accounting > Ratios

What is Statutory Liquidity Ratio?

  • 1 Answer
  • 0 Followers
Answer
  1. Pooja_Parikh Aspiring Chartered Accountant
    Added an answer on November 29, 2021 at 8:30 pm

    Statutory Liquidity ratio is the minimum percentage of reserves of liquid assets that the commercial bank should maintain. These liquid assets are in the form of gold, cash, and other securities. These reserves are kept with the bank itself and not with the Reserve Bank of India. The bank holds variRead more

    Statutory Liquidity ratio is the minimum percentage of reserves of liquid assets that the commercial bank should maintain. These liquid assets are in the form of gold, cash, and other securities. These reserves are kept with the bank itself and not with the Reserve Bank of India.

    The bank holds various demand and time deposits of the public, the total of which is called Net Demand and Time Liabilities (NDTL). This includes demand deposits that have to be paid on demand. Various other deposits like time deposits, fixed deposits, demand drafts, etc. are also included.

    Every bank must keep a portion of its NDTL in the form of cash, gold, or other liquid assets. Therefore, the Statutory Liquidity Ratio is the ratio of these liquid assets to the total demand and time liabilities. The authority to determine the ratio lies with the RBI, who can increase it to the extent of 40%.

    FORMULA

    PURPOSE OF SLR

    RBI controls the flow of cash in the economy by means of monetary policy measures through financial instruments like Statutory Liquidity Ratio. At the time of inflation, RBI increases SLR to reduce the flow of cash whereas, at the time of deflation, they reduce SLR to increase the flow of cash. Maintaining SLR also helps ensure the solvency of the commercial banks.

    If the banks do not maintain the necessary level of SLR, they would be liable to pay a penalty to RBI at 3% per annum above the bank rate, on the shortfall amount of that day.

     

    See less
    • 0
    • Share
      Share
      • Share on Facebook
      • Share on Twitter
      • Share on LinkedIn
      • Share on WhatsApp
Rahul_Jose
Rahul_Jose
In: 1. Financial Accounting > Ratios

What is Cash Reserve Ratio?

  • 1 Answer
  • 0 Followers
Answer
  1. Radhika
    Added an answer on November 29, 2021 at 6:04 pm
    This answer was edited.

    The commercial banks are required to keep a certain amount of their deposits with the central bank and the percentage of deposits that the banks are required to keep as reserves is called Cash Reserve Ratio. The banks have to keep the amount to maintain the Cash Reserve Ratio with the RBI. CRR meansRead more

    The commercial banks are required to keep a certain amount of their deposits with the central bank and the percentage of deposits that the banks are required to keep as reserves is called Cash Reserve Ratio.

    The banks have to keep the amount to maintain the Cash Reserve Ratio with the RBI.

    CRR means that commercial banks cannot lend money in the market or make investments or earn any interest on the amount below what is required to be kept in CRR.

    RBI mandates Cash Reserve Ratio so that a percentage of the bank’s deposit is kept safe with the RBI, hence, in an uncertain event bank can still fulfill its obligation against its customers.

    CRR also helps RBI to control liquidity in the economy. When CRR is kept at a higher rate, the lower the liquidity in the economy, and similarly when CRR is kept at a lower rate, there is higher liquidity in the economy.

    The Reserve Bank of India also regulates inflation through the Cash Reserve Ratio:

    • During inflation, that is when RBI wants to apply contractionary monetary policy, it increases CRR so that the money left with banks to lend is reduced. Such measures reduce the money supply in the economy and therefore help combat inflation.
    • During deflation, that is when RBI wants to apply expansionary monetary policy, it reduces CRR, so that the money left with banks to lend is increased. Such measures increase the money supply in the economy and therefore help combat deflation.

    The formula for CRR is- 

    Reserves maintained with Central Banks / Bank Deposits * 100%

    For example:

    The current CRR is 3% which means that for every Rs 100 deposit in the commercial banks have to keep Rs 3 as a deposit with RBI.

     

    See less
    • 0
    • Share
      Share
      • Share on Facebook
      • Share on Twitter
      • Share on LinkedIn
      • Share on WhatsApp
Ayushi
AyushiCurious
In: 4. Taxes & Duties > Income Tax

What is Alternate Minimum Tax?

  • 1 Answer
  • 0 Followers
Answer
  1. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    Added an answer on November 30, 2021 at 6:07 pm
    This answer was edited.

    Brief Introduction Alternate Minimum Tax or AMT as the name suggests, is an alternate tax that an assessee has to pay, subject to certain conditions, instead of the income tax liability which is computed as per normal provisions of the Income-tax law. Alternate Minimum Tax is levied to impose higherRead more

    Brief Introduction

    Alternate Minimum Tax or AMT as the name suggests, is an alternate tax that an assessee has to pay, subject to certain conditions, instead of the income tax liability which is computed as per normal provisions of the Income-tax law.

    Alternate Minimum Tax is levied to impose higher tax liability on non-corporate assessees who have claimed various profit-link deductions or investment-linked deductions in the relevant previous year.

    My answer is based on the Indian Income law i.e. Income Tax Act, 1961.

    The concept behind Alternate Minimum Tax

    Let’s start our discussion with MAT i.e. Minimum Alternative Tax. It applies to corporate entities or companies.

    Before MAT, it was seen that companies used to declare huge dividends to their shareholders. But when it came to filing income tax returns, they used to claim various profit linked and investment-linked deductions to report very low profits and even losses to arrive at negligible tax or nil tax whereas their financial statements would report huge profits.

    It is true that the government provides such profit linked or investment linked deductions to encourage business and investments, but it also needs a sufficient and regular flow of revenue in the form of tax to fund its expenditure.

    Hence, to prevent misuse of deductions to evade taxes by corporates, government introduce Minimum Alternate Tax to charge such assessees a minimum rate of tax.

    Alternate Minimum Tax is the same as Minimum Alternate Tax in terms of concept.  The provisions related to AMT are given under section 115JC of the Income Tax Act, 1961.

    Scope of AMT as per section 115JC

    Alternate Minimum Tax applies to all non-corporate assessees who claimed have claimed

    • Deduction claimed if any under Chapter VI-A from section 80H to 80RRB except section 80P
    • Exemption under section 10AA
    • Deduction under section 35AD (Investment-linked deduction)

    However, there is a threshold limit for certain non-corporates.

    By non-corporate assessees we mean:

    1. Individual
    2. Hindu Undivided Family (HUF)
    3. Firms (partnership firms)
    4. Co-operative societies
    5. Association of Persons (AOP)
    6. Body of Individuals (BOI)
    7. Artificial Juridical Person (AJP)
    8. Limited Liability Partnership (LLP)

    AMT is applicable to all except

    • Individuals
    • HUF
    • AOP
    • BOP
    • Artificial Juridical Person

    If their total adjusted income does not exceed Rs 20,00,000  in the previous year.

    Therefore, AMT is applicable to all other non-corporate assessees like LLP, firms and cooperative societies irrespective of their total adjusted income.

    Calculation of Alternate Minimum Tax

    The rate of AMT is 18.5% of the adjusted total income. This adjusted total income and the AMT on it is calculated in the following manner:

    The higher of the following becomes the tax liability of the assessee:

    • Alternate Minimum Tax calculated on adjustment income plus surcharges u/s 87A (4% Health and education cess)
    • Income Tax calculated on taxable income (as per normal provisions)

    Numerical example

    Mr X is a businessman who has earned the following income and expenditure in P.Y 2020-2021:  (Amount in Rupees)

    Income from manufacturing business                             25,00,000

    Interest on saving bank account                                               8,000

    Dividend from ABC ltd                                                              10,000

    Insurance premium paid                                                       1,00,000

    Capital expenditure made as per section 35AD               5,00,000

    Mr X  is eligible to claim a profit linked deduction of Rs 6,00,000.

    Also, the depreciation allowed (other than under 35AD) as per Income-tax Act,1961 amounts to Rs. 3,00,000.

    Following is his computation of both AMT and Income tax liability as per normal provisions.

     

     

    See less
    • 0
    • Share
      Share
      • Share on Facebook
      • Share on Twitter
      • Share on LinkedIn
      • Share on WhatsApp
AbhishekBatabyal
AbhishekBatabyalHelpful
In: 4. Taxes & Duties > Income Tax

Is agricultural income taxable in India?

  • 1 Answer
  • 0 Followers
Answer
  1. PriyanshiGupta Graduated, B.Com
    Added an answer on November 28, 2021 at 10:21 am
    This answer was edited.

    Income derived from farming land, building constructed or associated with farming land, and commercial products from farming land is called agricultural income. According to Section 10(1) of the Income Tax Act, agricultural income is exempt from tax. However, the government can levy tax if agricultuRead more

    Income derived from farming land, building constructed or associated with farming land, and commercial products from farming land is called agricultural income.

    According to Section 10(1) of the Income Tax Act, agricultural income is exempt from tax. However, the government can levy tax if agricultural income is above Rs 5,000.

    Following are the sources to be considered for agricultural income according to the conditions mentioned in Section 2 (1A) of the Income Tax Act:

    • Revenue generated through rent or lease of land in India that is used for agricultural purposes.
    • Revenue generated through the commercial sale of produce gained from agricultural land.
    • Revenue generated through the renting or leasing of buildings in and around the agricultural land subject to the following conditions:
    • The cultivator or farmer should have occupied the building, either through rent or revenue.
    • The building is used as a residential place, storeroom, or outhouse.
    • The agricultural land or the land where the building is located, is being assessed for land revenue or subject to a local rate assessed.

    If the land does not fall under the provisions stated above, the Income Tax Act requires a separate evaluation to calculate tax.

    The Income-tax Act has laid down a method to indirectly tax such income.
    This method or concept is called the partial integration of agricultural income with non-agricultural income. It aims at taxing the non-agricultural income at higher rates of tax.

    Partial integration of agricultural income with non-agricultural income involves the following steps:

    1.  For example, the base income of the individual is Rs. 20,000 and agricultural income is Rs 10,000, then we first have to calculate tax on Rs 30,000. For convenience, we can call this tax T(30,000)
    2. Assuming that the income falls under tax slab A, this tax slab A has to be added to the agricultural income and tax has to be calculated on it as well and it is called T(S+10,000).
    3. The final tax on the individual’s income will be T(30,000)- T(A+10,000)

    The important step to keep in mind is to aggregate the agricultural income while calculating tax otherwise it can lead to double taxation, extra tax, or interest on tax.

     

    See less
    • 0
    • Share
      Share
      • Share on Facebook
      • Share on Twitter
      • Share on LinkedIn
      • Share on WhatsApp
Load More Questions

Sidebar

Question Categories

  • 1. Financial Accounting

      • Accounting Terms & Basics
      • Bank Reconciliation Statement
      • Banks & NBFCs
      • Bills of Exchange
      • Capital & Revenue Expenses
      • Consignment & Hire Purchase
      • Consolidation
      • Contingent Liabilities & Assets
      • Departments & Branches
      • Depreciation & Amortization
      • Financial Statements
      • Goodwill
      • Insurance Accounting
      • Inventory or Stock
      • Investment Accounting
      • Journal Entries
      • Ledger & Trial Balance
      • Liquidation & Amalgamation
      • Miscellaneous
      • Not for Profit Organizations
      • Partnerships
      • Ratios
      • Shares & Debentures
      • Source Documents & Vouchers
      • Subsidiary Books
  • 2. Accounting Standards

      • AS
      • IFRS
      • IndAS
  • 3. Cost & Mgmt Accounting
  • 4. Taxes & Duties

      • GST
      • Income Tax
  • 5. Audit

      • Bank Audit
      • Internal Audit
      • Miscellaneous - Audit
      • Statutory Audit
  • 6. Software & ERPs

      • Tally
  • 7. MS-Excel
  • 8. Interview & Career
  • Top Questions
  • I need 20 journal entries with ledger and trial balance?

  • Can you show 15 transactions with their journal entries, ledger, ...

  • What is furniture purchased for office use journal entry?

  • What is loose tools account and treatment in final accounts?

  • What is the Journal Entry for Closing Stock?

  • What is the journal entry for goods purchased by cheque?

  • What is commission earned but not received journal entry?

  • What is the journal entry for interest received from bank?

  • How to show adjustment of loose tools revalued in final ...

  • Following is the Receipts and Payments Account of Bharti Club ...

Hot Topics

Accounting Policies Accounting Principles Balance Sheet Bank Reconciliation Statement Bill of Exchange Branch Accounting Calls in Advance Capital Capital Expenditure Companies Act Compound Entry Consignment Creditors Current Assets Debit Balance Debtors Depreciation Difference Between Dissolution of Firm Dissolution of Partnership Drawings External Users Fictitious Assets Final Accounts Financial Statements Fixed Assets Fixed Capital Fluctuating Capital Gain Impairment Installation Interest Received in Advance Internal Users Journal Entry Ledger Loose Tools Miscellaneous Expenditure Profit Rent Rent Received in Advance Reserves Revaluation Revenue Expenditure Revenue Reserve Sacrificing Ratio Subscription Subscription Received in Advance Trial Balance Type of Account Uncalled Capital
  • Home
  • Questions
    • Most Visited
    • Most Active
    • Trending
    • Recent
  • Follow
    • Categories
    • Users
    • Tags
  • Write an Answer
  • Badges & Points
  • Request New Category
  • Send a Suggestion

Most Helping Users

Astha

Astha

  • 50,291 Points
Leader
Simerpreet

Simerpreet

  • 72 Points
Helpful
AbhishekBatabyal

AbhishekBatabyal

  • 65 Points
Helpful

Footer

  • About Us
  • Contact Us
  • Pricing
  • Refund
  • Forum Rules & FAQs
  • Terms and Conditions
  • Privacy Policy
  • Career

© 2021 All Rights Reserved
Accounting Capital.