The word, “deferred” means delayed or postponed and “revenue” in layman’s terms means income. Therefore deferred revenue means the revenue which is yet to be recognised as income. It is actually unearned income. In accrual accounting, income is recognised only when it is accrued or earned. DeferredRead more
The word, “deferred” means delayed or postponed and “revenue” in layman’s terms means income. Therefore deferred revenue means the revenue which is yet to be recognised as income. It is actually unearned income.
In accrual accounting, income is recognised only when it is accrued or earned. Deferred revenue is the income received before the performance of the economic activity to earn it.
Example: A shoe shop owner gives an order to a shoe manufacturer of 1000 pair of shoes which is to be delivered after 4 months. He also gives him a cheque of ₹15,000 in advance, the rest ₹5000 is to be given at the time of delivery.
So, in this case, the ₹15,000 is actually is unearned revenue i.e. deferred revenue. It will be recognised as revenue when the shoe manufacture completes the order and deliver it.
Till then, the deferred revenue is reported as a liability in the balance sheet. Like this:
After recognition as revenue, it will be reported in the statement of profit or loss:
Hence, to summarise, deferred revenue is:
Unearned revenue
Recognised as income till it is earned
Till then it is recognised and reported as a liability in the balance sheet.
Some examples of deferred revenue are as follows:
Advance rent received
Advance payment for goods to be delivered.
Advanced payment for services to be provided.
Now the question arises why deferred revenue is recognised as a liability. It is due to the fact that the business may not be able to perform the economic activity successfully to earn that revenue.
Taking the above example, suppose the shoe manufacturer is not able to honour its commitment and the shoe shop owner can wait no more, then the advanced money of ₹ 15,000 is to be refunded. That’s why deferred revenue is recognised as a liability because it is a liability if we consider the principle of conservatism (GAAP).
The Income Tax 1961 does not provide any rate of depreciation specifically for cameras. But we can consider camera within the block of ‘Computer including software’ for which the rate of depreciation is 40% at WDV method. It is a general practice for non-corporates to charge depreciation at rates slRead more
The Income Tax 1961 does not provide any rate of depreciation specifically for cameras. But we can consider camera within the block of ‘Computer including software’ for which the rate of depreciation is 40% at WDV method.
It is a general practice for non-corporates to charge depreciation at rates slightly lower than the rate provided by the Income Tax Act, 1961. But one cannot charge depreciation more than it.
In the case of corporate, the rates for charging depreciation are provided by the Companies Act 2013, which is
20.58% WDV and 7.31% SLM for cameras to be used for the production of cinematography and motion pictures.
25.89% WDV and 9.50% SLM for cameras which is part of electrical installations and equipment (CCTV cameras).
Let’s take an example:
Mr X is a jewellery shop owner and has installed CCTV cameras on 1st April 2021, costing ₹ 40,000 at various points in his shop to ensure safety and security. Keeping in mind the Income-tax rates, his accountant decided to charge depreciation @ 30% p.a. on the CCTV cameras.
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:
Deduct depreciation from the asset account and show the asset at “depreciation less” value. See the journal entries below:
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:
Firstly, let’s understand the meaning of both terms. Revenue receipts: The term 'revenue' suggests these are the amounts received by a business due to its operating activities. These receipts arise in a recurring manner in a business. Such receipts don’t affect the balance sheet. They are shown inRead more
Firstly, let’s understand the meaning of both terms.
Revenue receipts: The term ‘revenue‘ suggests these are the amounts received by a business due to its operating activities. These receipts arise in a recurring manner in a business. Such receipts don’t affect the balance sheet. They are shown in the statement of profit or loss. Such receipts are essential for the survival of the business.
Examples of revenue receipts are as follows:
Proceeds from the sale of goods.
Proceeds from the provision of services
Rent received
Interest received from deposits in banks or financial institutions
Discount received from creditors (shown in the debit side of P/L A/c)
Capital receipts: The term ‘capital’ that such receipts are do not arise due to operating activities, hence not shown in the Profit and loss statement. These are the money received by a business when they sell any asset or undertake any liability. These receipts do not arise in a recurring manner in a business. They don’t affect the profit or loss of the business. They are not essential for the survival of the business.
Examples of capital receipts are as follows:
Loan from a bank or financial institution. (Increase in liabilities)
Proceeds from the sale of an asset. (decrease in assets)
Proceeds from sale of investments. (decrease in assets)
Proceeds from the issue of equity shares. (Increase in liabilities)
Proceeds from issue of debentures. (Increase in liabilities)
I have given a table below for more understanding:
I am assuming that you are asking the question with reference to the sole proprietorship business. In the case of a company, the rates as per the Companies Act, 2013 will apply. A sole proprietor can charge the depreciation in its books of accounts at whatever rate it wants but it should not be moreRead more
I am assuming that you are asking the question with reference to the sole proprietorship business. In the case of a company, the rates as per the Companies Act, 2013 will apply. A sole proprietor can charge the depreciation in its books of accounts at whatever rate it wants but it should not be more than the rates prescribed in the Income Tax Act, 1961.
It is a general practice to take depreciation rate lower than the Income Tax Act, 1961, so that the financial statements look good because of slightly higher profit. There is no harm in it as it is a sole proprietor.
The Income Tax Act, 1961 has prescribed rates at which depreciation is to be given on different blocks of assets. For motor vehicles, the rates are as follows:
Particulars
Rates (WDV)
1
Motor buses, motor Lorries and motor taxis used in a business of running them on hire.
30%
2
Motor buses, motor lorries and motor taxis used in a business of running them on hire, acquired on or after the 23rd day of August 2019 but before the 1st day of April 2020 and is put to use before the 1st day of April 2020.
45%
3
Commercial vehicles to use in business other than running them on hire.
40%
Let’s take an example to understand the accounting treatment:-So a business can choose to charge depreciation at rates slightly lower than the above rates.
Mr A purchased a lorry for ₹1,00,000 on 1st April 2021 for his business, to be used for transportation of the finished goods. Now, Mr A decided to charge depreciation on the WDV method @30% (prescribed rate is 40%).
External liabilities are the amounts which a business is obliged to pay to the outsiders (who are not owners of the business). Here is the list of external liabilities:- Accounts payable ( trade creditors and bills payables) Loan taken from outsiders Loan from bank Debentures Public deposits accepteRead more
External liabilities are the amounts which a business is obliged to pay to the outsiders (who are not owners of the business).
Here is the list of external liabilities:-
Accounts payable ( trade creditors and bills payables)
Loan taken from outsiders
Loan from bank
Debentures
Public deposits accepted
Outstanding expenses
Outstanding salary
Outstanding rent
Outstanding tax
Interest due on loans taken from outsiders
The list is not exhaustive.
Just for more understanding, internal liabilities are those liabilities which a business is supposed to pay back to its owners. Such as capital balance, profit surplus etc.
The partnership act 1932 does not mention the types of partners specifically. It does have mentions of ‘partner who is minor’ in section 30 and ‘partner by holding out in section 28. But we do come across many types of partners in partnership firms. Following is the list of the types of partners weRead more
The partnership act 1932 does not mention the types of partners specifically. It does have mentions of ‘partner who is minor’ in section 30 and ‘partner by holding out in section 28.
But we do come across many types of partners in partnership firms. Following is the list of the types of partners we generally see:-
Active partner: – It is the partner who provides the capital and is also actively involved in the management and daily activities of the firm. Such a type of partner is of utmost importance to the firm. Apart from a share in profit and loss, he is also eligible to draw remuneration from the firm.
Sleeping/ Dormant partner: – This type of partner does not participate in the daily workings of the firm nor actively participates in the management of the firm. Such a type of partner has a large sum of capital invested in the firm and shares the profits as well as losses of the firm.
Partner by holding out:- If any partner, who by his words or by his conduct, represents himself as a partner of a firm, then he is called a partner by holding out. Such a partner is actually not a partner of the firm and doesn’t receive any share of profit as he has contributed no capital.
As per section 28, such a partner is liable to any person who has given credit to the firm on the belief that he is a partner of the firm.
Minor partner: – If any person who is less than 18 years of age is admitted into the firm, such partner is known as a minor partner. Such a partner is entitled to the profits of the firm based on his capital but is immune from losses suffered by the firm.
Secret partner: – It is a partner of a firm whose membership is kept hidden from the outsiders such as creditors and other third parties. But he is equally liable as other partners for the outside liabilities.
Outgoing partner: – A partner who voluntarily leaves the partnership without dissolving the firm is called an outgoing partner or retiring partner. Such a partner is liable to all liabilities incurred before his retirement. But he can be held liable to outside liabilities if he fails to give public notice of his retirement.
What is deferred revenue?
The word, “deferred” means delayed or postponed and “revenue” in layman’s terms means income. Therefore deferred revenue means the revenue which is yet to be recognised as income. It is actually unearned income. In accrual accounting, income is recognised only when it is accrued or earned. DeferredRead more
The word, “deferred” means delayed or postponed and “revenue” in layman’s terms means income. Therefore deferred revenue means the revenue which is yet to be recognised as income. It is actually unearned income.
In accrual accounting, income is recognised only when it is accrued or earned. Deferred revenue is the income received before the performance of the economic activity to earn it.
Example: A shoe shop owner gives an order to a shoe manufacturer of 1000 pair of shoes which is to be delivered after 4 months. He also gives him a cheque of ₹15,000 in advance, the rest ₹5000 is to be given at the time of delivery.
So, in this case, the ₹15,000 is actually is unearned revenue i.e. deferred revenue. It will be recognised as revenue when the shoe manufacture completes the order and deliver it.
Till then, the deferred revenue is reported as a liability in the balance sheet. Like this:
After recognition as revenue, it will be reported in the statement of profit or loss:
Hence, to summarise, deferred revenue is:
Some examples of deferred revenue are as follows:
Now the question arises why deferred revenue is recognised as a liability. It is due to the fact that the business may not be able to perform the economic activity successfully to earn that revenue.
Taking the above example, suppose the shoe manufacturer is not able to honour its commitment and the shoe shop owner can wait no more, then the advanced money of ₹ 15,000 is to be refunded. That’s why deferred revenue is recognised as a liability because it is a liability if we consider the principle of conservatism (GAAP).
See lessHow much is depreciation on camera?
The Income Tax 1961 does not provide any rate of depreciation specifically for cameras. But we can consider camera within the block of ‘Computer including software’ for which the rate of depreciation is 40% at WDV method. It is a general practice for non-corporates to charge depreciation at rates slRead more
The Income Tax 1961 does not provide any rate of depreciation specifically for cameras. But we can consider camera within the block of ‘Computer including software’ for which the rate of depreciation is 40% at WDV method.
It is a general practice for non-corporates to charge depreciation at rates slightly lower than the rate provided by the Income Tax Act, 1961. But one cannot charge depreciation more than it.
In the case of corporate, the rates for charging depreciation are provided by the Companies Act 2013, which is
Let’s take an example:
Mr X is a jewellery shop owner and has installed CCTV cameras on 1st April 2021, costing ₹ 40,000 at various points in his shop to ensure safety and security. Keeping in mind the Income-tax rates, his accountant decided to charge depreciation @ 30% p.a. on the CCTV cameras.
Following is the journal entry:
The balance sheet will look like this:
See lessWhat is a provision for depreciation account?
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:
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:
See lessWhat are some examples of revenue receipts and capital receipts?
Firstly, let’s understand the meaning of both terms. Revenue receipts: The term 'revenue' suggests these are the amounts received by a business due to its operating activities. These receipts arise in a recurring manner in a business. Such receipts don’t affect the balance sheet. They are shown inRead more
Firstly, let’s understand the meaning of both terms.
Revenue receipts: The term ‘revenue‘ suggests these are the amounts received by a business due to its operating activities. These receipts arise in a recurring manner in a business. Such receipts don’t affect the balance sheet. They are shown in the statement of profit or loss. Such receipts are essential for the survival of the business.
Examples of revenue receipts are as follows:
Capital receipts: The term ‘capital’ that such receipts are do not arise due to operating activities, hence not shown in the Profit and loss statement. These are the money received by a business when they sell any asset or undertake any liability. These receipts do not arise in a recurring manner in a business. They don’t affect the profit or loss of the business. They are not essential for the survival of the business.
Examples of capital receipts are as follows:
I have given a table below for more understanding:
See lessHow much is depreciation on commercial vehicle?
I am assuming that you are asking the question with reference to the sole proprietorship business. In the case of a company, the rates as per the Companies Act, 2013 will apply. A sole proprietor can charge the depreciation in its books of accounts at whatever rate it wants but it should not be moreRead more
I am assuming that you are asking the question with reference to the sole proprietorship business. In the case of a company, the rates as per the Companies Act, 2013 will apply. A sole proprietor can charge the depreciation in its books of accounts at whatever rate it wants but it should not be more than the rates prescribed in the Income Tax Act, 1961.
It is a general practice to take depreciation rate lower than the Income Tax Act, 1961, so that the financial statements look good because of slightly higher profit. There is no harm in it as it is a sole proprietor.
The Income Tax Act, 1961 has prescribed rates at which depreciation is to be given on different blocks of assets. For motor vehicles, the rates are as follows:
Let’s take an example to understand the accounting treatment:-So a business can choose to charge depreciation at rates slightly lower than the above rates.
Mr A purchased a lorry for ₹1,00,000 on 1st April 2021 for his business, to be used for transportation of the finished goods. Now, Mr A decided to charge depreciation on the WDV method @30% (prescribed rate is 40%).
Following will be the journal entries.
I hope I was able to answer your question.
See lessCan you provide a list of external liabilities?
External liabilities are the amounts which a business is obliged to pay to the outsiders (who are not owners of the business). Here is the list of external liabilities:- Accounts payable ( trade creditors and bills payables) Loan taken from outsiders Loan from bank Debentures Public deposits accepteRead more
External liabilities are the amounts which a business is obliged to pay to the outsiders (who are not owners of the business).
Here is the list of external liabilities:-
The list is not exhaustive.
Just for more understanding, internal liabilities are those liabilities which a business is supposed to pay back to its owners. Such as capital balance, profit surplus etc.
See lessWhat are the types of partners in partnership act 1932?
The partnership act 1932 does not mention the types of partners specifically. It does have mentions of ‘partner who is minor’ in section 30 and ‘partner by holding out in section 28. But we do come across many types of partners in partnership firms. Following is the list of the types of partners weRead more
The partnership act 1932 does not mention the types of partners specifically. It does have mentions of ‘partner who is minor’ in section 30 and ‘partner by holding out in section 28.
But we do come across many types of partners in partnership firms. Following is the list of the types of partners we generally see:-
As per section 28, such a partner is liable to any person who has given credit to the firm on the belief that he is a partner of the firm.
See less