AccountingQA Latest Questions

Astha
AsthaLeader
In: >

  2. Manvi Pursuing ACCA
    This answer was edited.

    An asset is an item of property owned by a company/business. It may be for a longer or shorter period of time. Assets are classified into two broad heads: Non-Current Assets Current Assets   The asset may be sold for several reasons such as: An asset is fully depreciated. It should be sold becaRead more

    An asset is an item of property owned by a company/business. It may be for a longer or shorter period of time. Assets are classified into two broad heads:

    1. Non-Current Assets
    2. Current Assets

     

    The asset may be sold for several reasons such as:

    1. An asset is fully depreciated.
    2. It should be sold because it is no longer needed.
    3. It is removed from the books due to unforeseen circumstances.

     

    The journal entry for profit on the sale of assets will be:

    Cash / Bank A/c Debit
             To Asset A/c Credit
             To Profit on Sale of Asset A/c Credit
    (Being sale of an asset made with a gain)

    According to the golden rules of accounting, in the above entry “Cash/Bank A/c” it is a Real Account and the rule says “Debit what comes in” and so is debited.

    “Asset A/c” is a real account and the rule says “Credit what goes out” and so is credited. Any Gain on sale of an asset goes to the Nominal account and according to the rule “Credit, all incomes and gains” and so is credited.

     

    The journal entry for loss on sale of the asset will be:

    Cash / Bank A/c Debit
    Loss on Sale of Asset A/c Debit
             To Asset A/c Credit
    (Being sale of an asset made and loss incurred)

    In the above entry, “Loss on Sale of Asset” is debited because according to Nominal account rules “Debit all losses and expenses” and so is debited.

    According to modern rules of accounting, “Debit entry” increases assets and expenses, and decreases liability and revenue, a “Credit entry” increases liability and revenue, and decreases assets and expenses.

    Cash / Bank A/c Debit Increases Asset
    Loss on Sale of Asset A/c Debit Increases Expenses
             To Asset A/c Credit Decreases Asset
             To Profit on Sale of Asset A/c Credit Increases Expenses

     

    For example, Mr. A sold furniture for $2,500 and incurred a loss on the sale which amounted to $2,500.

    According to modern rules, the journal entry will be:

    Particulars Amt Amt  
    Cash / Bank A/c 2,500 Increase in asset
    Loss on Sale of Asset A/c 2,500 Increase in expenses
             To Asset A/c 5,000 Decrease in asset
    (Being sale of an asset made and loss incurred)
    See less
    • 0
A_Team
A_Team
In: >

  2. Vishnu_K Nil
    This answer was edited.

    Shareholder's Equity Meaning - Shareholder's Equity is the amount invested into the Company. It represents the Net worth of the Company. It is also where the owners have the claim on the Assets after the Debts are settled. It Calculation of Shareholder's Equity Method 1 Shareholder's Equity = TotalRead more

    Shareholder’s Equity

    Meaning – Shareholder’s Equity is the amount invested into the Company. It represents the Net worth of the Company. It is also where the owners have the claim on the Assets after the Debts are settled. It

    Calculation of Shareholder’s Equity

    Method 1

    Shareholder’s Equity = Total Assets – Total Liabilities

    Method 2

    Shareholder’s Equity = Share Capital + Retained Earnings – Treasury Stock/Treasury Shares

    Components of the Shareholder’s Equity

    From the above Method 1,  it can be understood that shareholder’s equity comprises of

    Net Assets = Current Assets + Non-current Assets, reduced by

    Net liabilities = Current liabilities + Long-term liabilities

    where Long-term liabilities = Long-term debts + Deferred long-term liabilities + Other liabilities

     

    Also from the method 2,

    Share Capital = Outstanding shares + Additional Paid-up share capital

    Retained Earnings are the sum of the company’s earnings after paying the dividends

    Treasury stocks = Shares repurchased by the company

    Example of Shareholder’s Equity

     

    The shareholder’s Equity is represented in the Balance Sheet as below;

     

    See less
    • 0
Radha
Radha
In: >

Internal Users
  2. Vijay Curious M.Com
    This answer was edited.

    One of the main purposes of accounting is to provide financial data to its users so that decisions are taken at an appropriate time. These users of accounting information are broadly classified into (a) internal users and (b) external users. Since the question concentrates on internal users I’ll beRead more

    One of the main purposes of accounting is to provide financial data to its users so that decisions are taken at an appropriate time. These users of accounting information are broadly classified into (a) internal users and (b) external users. Since the question concentrates on internal users I’ll be explaining internal users of accounting information in detail.

    Internal users are people within an organization/business who need accounting information to make day-to-day decisions.

    The various internal users of accounting information include:

    • Owners/Promoters/Directors:

    Owners are the people who contribute capital to the business and therefore they are interested to know the profit earned or loss incurred by the business as well as the safety of their capital. In the case of a Sole Proprietorship, the proprietor is the owner of the business. In the case of a Partnership, the partners are considered as the owners of the firm.

    The use for them: To know how the business is doing financially, owners need to know the profit and loss reflected in the financial statements.

    • Management:

    Management is responsible for setting objectives, formulating plans, taking informed decisions, and ensuring that pre-planned objectives are met within the stipulated time period.

    The use for them: To achieve objectives, management needs accounting information to make decisions related to determining the selling price, budgeting, cost control and reduction, investing in new projects, trend analysis, forecasting, etc.

    • Employees/Workers:

    Employees and workers are the ones who implement the plans set by the management. Their well-being is dependent on the profitability of the business.

    The use for them: They are interested to check the financial statements so that they can get a better knowledge of the business. Some organizations also give their employees a share in their profits in the form of a bonus at the year-end. This also creates an interest in the employees to check the financial statements.

    See less
    • 0
Jayesh Gupta
Jayesh GuptaCurious
In: >

  2. Vijay Curious M.Com
    This answer was edited.

    Yes, I agree with your statement that accounting information should be comparable. Comparability is one of the qualitative characteristics of accounting information. It means that users should be able to compare a company's financial statements across time and across other companies. Comparability oRead more

    Yes, I agree with your statement that accounting information should be comparable.

    Comparability is one of the qualitative characteristics of accounting information. It means that users should be able to compare a company’s financial statements across time and across other companies.

    Comparability of financial statements is crucial due to the following reasons:

    1. Intra-Firm Comparison:

    Comparison of financial statements of two or more periods of the same firm is known as an intra-firm comparison.

    Comparability of accounting information enables the users to analyze the financial statements of a business over a period of time. It helps them to monitor whether the firm’s financial performance has improved over time.

    The intra-firm analysis is also known as Time Series Analysis or Trend Analysis.

    To understand intra-firm analysis, I have provided an extract of the balance sheet of ABC Ltd. for two accounting periods.

    2. Inter-Firm Comparison:

    Comparison of financial statements of two or more firms is known as an inter-firm comparison.

    Inter-firm comparison helps in analyzing the financial performance of two or more competing firms in an industry. It enables the firm to know its position in the market in comparison to its competitors.

    Inter-firm comparison is also known as Cross-sectional Analysis.

    I’ve provided the balance sheets of Co. A and Co.B to make an inter-firm comparison.

    Here is a piece of bonus information for you,

    Sector Analysis – it refers to the assessment of economical and financial conditions of a given sector of a company/industry/economy. It involves the analysis of the size, demographic, pricing, competitive, and other economic dimensions of a sector of the company/industry/economy.

    One more important thing to note here is that comparability can only be achieved when the firms are consistent in the accounting principles and standards they adopt. The accounting policies and standards must be consistent across different periods of the same firm and across different firms in an industry.

    See less
    • 0
Ayushi
AyushiCurious
In: >

  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

     

     

    See less
    • 0
A_Team
A_Team
In: >

Wages Outstanding Wages and Salaries Director’s Remuneration Advance Payment of Wages All of the Above

  2. SidharthBadlani CA Inter Student
    This answer was edited.

    The correct answer is option B. Wages and salaries are debited to the trading account. The trading account helps us to determine the Gross Profit Or Loss that a company earns or incurs by carrying on its core manufacturing or trading activities. Let us discuss the above items and their treatments inRead more

    The correct answer is option B. Wages and salaries are debited to the trading account.

    The trading account helps us to determine the Gross Profit Or Loss that a company earns or incurs by carrying on its core manufacturing or trading activities.

    Let us discuss the above items and their treatments in the final accounts one at a time:

    Wages Outstanding

    Firstly, “wages outstanding” is not debited into the trading account. It is a liability that is shown in the balance sheet.

    Outstanding wages imply remuneration due to be paid to the workers for the services they have already rendered to the business.

    Since the company has already received the service, it becomes a legal obligation for it to pay the wages to the workers for those services. Hence, outstanding wages are a liability.

    Wages and Salaries

    Wages and Salaries are debited to the trading account.

    Wages Vs Salaries

    Let us understand the difference between wages and salaries. Wages are the regular payments that are made daily, weekly or fortnightly. Such payments are mostly made to factory workers.

    Salaries, on the other hand, are assumed to imply the remuneration paid to office workers and sales staff.

    Wages are debited to the trading account, while salaries are debited to the Profit and Loss account.

    Director’s Remuneration

    No, the director’s remuneration is not debited to the trading account. This is because director’s generation is a business expense. It is a kind of salary provided to the director for the services rendered by him to the company.

    Directors’ remuneration refers to compensation the company gives to its directors for the services rendered. It is debited to the Profit and Loss Account.

    Advance Payment of Wages

    No, advance payment of wages is not debited to a trading account. It is shown by reducing it to wages. Advance payment of wages implying paying remuneration to the workers before the commencement of the period for which the wages relate to.

    However, one must note that if both wages and prepaid wages appear within the trial balance, then only the figure written against wages would appear in the trading account. There would be no treatment for prepaid wages.

    Let us consider a scenario where wages of amount 5,000 is appearing inside trial balance. Outside the trial balance, the following information is provided

    • Wages prepaid for the current financial year = 1,000
    • Wages prepaid for the next financial year = 2,000

    In the above case, the total wages to be debited to the trading account would be 5,000 + 1,000 – 2,000 = 4,000

    Significance of the Final Accounts

    • It helps in determining the net profit or loss of the entity for the current financial year.
    • It is a major source of guidance for investors. Shareholders decide whether or not to invest in a company on the basis of final accounts.
    • It allows banks and investors to see your business’s total income, debt load a,nd financial stability.

     

    See less
    • 0
Aadil
AadilCurious
In: >

  2. GautamSaxena Curious .
    This answer was edited.

    Meaning of Opening Stock Opening stock is the inventory or stock of goods that are available at the beginning of the new accounting year carried down from the previous year's closing stock which is recorded in the books of accounts. In simple words, Opening stock is the goods/quantity/products thatRead more

    Meaning of Opening Stock

    Opening stock is the inventory or stock of goods that are available at the beginning of the new accounting year carried down from the previous year’s closing stock which is recorded in the books of accounts.

    • In simple words, Opening stock is the goods/quantity/products that are held by a business at the beginning of a new accounting period and it is the closing stock of the preceding year carried down.
    • Similarly, the closing stock is the number of unsold goods that remain with the business at the end of an accounting year and is further carried down to the next year as Opening Stock.

     

    Formula

    There are 3 main formulas used for Opening Stock’s calculation. They are-

    • For manufacturing companies

    Opening Stock = Raw Material Cost + Work in Progress + Finished Goods Cost

    • When only Sales, GP, COGS, and Closing Stock are given

    Opening Stock = Sales – Gross Profit – Cost of Goods Sold + Closing Stock

    • You can use this one when only limited information is provided

    Opening Stock = COGS + Closing Inventory – Purchases

     

    Types of Opening Stock

    There are three types of Opening Stock or we may also say that Opening  Stock consists of these 3 elements. They are-

    • Raw Materials- These are the unprocessed goods held by a business that is yet to be converted into finished goods.
    • Work in Progress- These include the goods that are in process but not converted into finished goods.
    • Finished Goods- These are the goods/products that have completed the manufacturing process but have not yet been sold.

    Opening Stock in Final Accounts

    Opening stock is a part of the Trading Account while preparing the Final Accounts. And this is how it is posted in the Trading A/c.

    Trading A/c (for the year ending…)

     

    Example of Opening Stock

    Example

    IKEA, the biggest Furniture manufacturer collected this data on April 1, 2021,

    Timber – $300,000

    Wood – $30,000

    Nails – $15,000

    Pre-cut Wood – $120,000

    Assembled Furniture – $400,000

    Now, adding them (as said earlier, Opening stock is a combination of these three.)

    Opening Stock (Raw Material + Work in Progress + Finished Goods) = $865,000

    Therefore, that’s how one can calculate Opening Stock.

    See less
    • 0
Load More Questions

Most Helping Users

Astha

Astha

Leader
Simerpreet

Simerpreet

Helpful
AbhishekBatabyal

AbhishekBatabyal

Helpful