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Radha
Radha
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Installation
  2. Karan B.com and Pursuing ACCA
    This answer was edited.

    The installation expenses for a new machinery will be debited to the "Machinery A/c". Installation expenses are the expense incurred to bring an asset to a working condition where it can be used. For example, installation charges are incurred on machinery to make it operational. Installation chargesRead more

    The installation expenses for a new machinery will be debited to the “Machinery A/c“. Installation expenses are the expense incurred to bring an asset to a working condition where it can be used. For example, installation charges are incurred on machinery to make it operational.

    Installation charges will be capitalized along with the cost of machinery. It is so because this expense is concerning the machinery and any expense directly related to an asset should be capitalized, as an asset will be with the business for a longer period of time.

    This charge will be incurred only once as a part of bringing the machinery to its working condition, and hence it should be capitalized and should be added to the cost of the machine. The whole amount will be shown in the balance sheet on the asset side as a Fixed Asset.

    This charge will not be shown in Profit and Loss A/c as it reflects all the revenue expenditure incurred in the period.

    Example:

    Starbucks purchased a coffee blending machine for the business purpose for $1,00,000. The installation expense incurred on it to make it operational was $20,000. How will Starbucks record this in the Balance Sheet on 31 December?

    In the Balance Sheet, Starbucks will add the installation expense incurred on the machine to the cost of the machine as it is the cost incurred to make the machine operational for further business use. Hence, the cost of $20,000 will be shown along with the cost of the coffee blending machine ($1,00,000+$20,000=$1,20,000)

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prashant06
prashant06
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  2. Karan B.com and Pursuing ACCA
    This answer was edited.

    The journal entry for the opening stock will be: Particulars Amt Amt Trading A/c INR              To Opening Stock A/c INR (Being opening stock transferred to Trading A/c) Opening stock is the value of inventory that is available with the company for sale at the beginning of the accounting period. ORead more

    The journal entry for the opening stock will be:

    Particulars Amt Amt
    Trading A/c INR
                 To Opening Stock A/c INR
    (Being opening stock transferred to Trading A/c)

    Opening stock is the value of inventory that is available with the company for sale at the beginning of the accounting period. Opening stock may include stock of raw material, semi-finished goods, and finished goods. It is a part of the cost of sales.

    Closing stock is the value of unsold inventory left with the company at the end of the year. The previous year’s closing stock is the current year’s opening stock.

    Trading Account is a nominal account. According to the golden rules of accounting, the nominal account is the account where “Debit” all expenses and losses, and “Credit” all income and gains.

    In the above journal entry, the opening stock account is credited because it is the balance that is carried forward from the previous year and carried forward with the aim of selling it and gaining profit from it. The trading account here is debited as opening stock is carried forward to the next year from the trading account only.

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

    Here, Trading A/c is debited because an expense is incurred while bringing stock into the business. Opening Stock A/c is credited because indirectly it is creating a source of income for the business.

    The formula for calculating opening stock is as follows:

    Opening Stock = Cost of Goods Sold + Closing Stock – Purchases

    For example, AB Ltd. started a new accounting period for dairy products and introduced opening stock worth Rs.1,00,000 in the business.

    Here, the journal entry will be,

    Particulars Amt Amt
    Trading A/c 1,00,000
                 To Opening Stock A/c 1,00,000
    (Being opening stock transferred to Trading A/c)
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A_Team
A_Team
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    Fictitious assets are the expenses and losses which are yet to be written off, so they appear in the Asset side of the balance sheet of the relevant financial year because expenses and losses have a debit balance. They are not assets in substance. Examples: Business loss ( debit balance of Profit anRead more

    Fictitious assets are the expenses and losses which are yet to be written off, so they appear in the Asset side of the balance sheet of the relevant financial year because expenses and losses have a debit balance. They are not assets in substance.

    Examples:

    1. Business loss ( debit balance of Profit and loss A/c )*
    2. Prepaid expenses
    3. Discount on the issue of debentures.
    4. Huge promotional expenditure.

    *business loss is shown as a negative figure under the head Reserve and Surplus, when the balance sheet is prepared as per Schedule III of The Companies Act, 2013.

    Deferred revenue expenditures are the expenses incurred for which the benefits are expected to flow to the enterprise beyond the current year. Such expenses are huge and are not written off completely in a financial year. The part of the expenditure which is not written off is shown on the assets side of the balance sheet.

    Examples:

    1. Huge advertisement expense.

    As you can see, there is some similarity between the two. Deferred revenue expenditure can be called a type of fictitious asset as it is shown in the asset side of the balance sheet but it isn’t an asset.

     

    The term ‘fictitious asset’ has a broader meaning than deferred revenue expenditure and also includes the losses such as discounts on the issue of debenture and business loss.

    The difference between fictitious assets and deferred revenue expenditure are as follows:

    Fictitious Assets Deferred Revenue Expenditure
    1 These are no real assets but expenses and losses that are not completely written off in an F.Y. These are expenses incurred from which benefits are expected to flow for more than one accounting period.
    2 It has a broader meaning. It has a narrower meaning.
    3 Examples:- business loss, discount on issue of debentures, prepaid expenses etc. Examples:- huge promotional expenditure etc.
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Ayushi
AyushiCurious
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    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.

     

     

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

    A balance sheet is a financial statement that reports the position or value of assets, liabilities and equity at a particular date, which is usually the closing date of a financial year. Formats of balance sheet A balance sheet may be presented in two formats: T-form or Horizontal format This formatRead more

    A balance sheet is a financial statement that reports the position or value of assets, liabilities and equity at a particular date, which is usually the closing date of a financial year.

    Formats of balance sheet

    A balance sheet may be presented in two formats:

    T-form or Horizontal format

    This format is the same as the format of ledger accounts. There are two columns with the headings ‘Liabilities’ for the left column and ‘Assets’ for the right column and columns adjacent to both columns for amounts. The liabilities and equity (capital) are shown on the liabilities side because they both have credit balance and assets are shown on the asset side. Most of the non-corporates prepare their balance as per this format. The T-form balance sheet looks as given below:

    Vertical format

    The vertical format of the balance sheet is mostly prepared by corporate entities. Here, the liabilities and assets are shown in the same column as compared to two separate columns in the horizontal format. This results in having a longer shape. Hence, it is called a ‘vertical’ balance sheet. Generally, companies prepare their balance sheet as per this format.

    Also, many times, there are two columns for the amount in this format presenting the amount of both the current year and the previous year. This format looks like as given below:

    Grouping and marshalling

    Beside the structure of the balance sheet i.e. horizontal and vertical, the grouping and marshalling of the items inside the balance sheet are also very important.

    Grouping refers to the presenting of similar items under a heading or group. This is done in order to present the balance sheet in a concise manner. This is very important to do. For example, a business can have numerous creditors, but they are all presented under one ‘Creditors’ heading or two or more heading specifying different types of creditors.

    The assets of a business are grouped under the heading such as Plant, Property and equipment, Current assets, Non-current investments etc.

    Marshalling means the arranging of items as per a particular order. We know that a balance sheet consists of many items and to make the statement more useful and easy to comprehend, the items are arranged in one of the following orders:

    • Order of Liquidity: The items which are more liquid i.e which can be easily converted into cash are kept at the top. Like in assets, cash is the most liquid asset and requires no conversion. Then items like current investment, inventories (in case of fast-moving goods) are placed under and so on. At the near bottom, items that require a long time of conversion into cash are placed such as land, plant and machinery.

    In case of liabilities, the items which are due for repayment soon are kept at the top, like bank overdraft etc. The items which are due for repayment after a long time or at the time of winding capital are kept at the bottom, like long term loans and capital funds. Given below is a format of horizontal balance sheet in which the items are marshalled in order of liquidity:

    • Order of permanence: This type of arrangement is just the opposite of the order of liquidity. Here the items which are least liquid are placed at the top and the more liquid items are placed at the bottom. Like in the case of assets, cash appears at the bottom and non-current assets at the top. On the liabilities side, equity and non-current liabilities are at the top while current liabilities are at the bottom. Mostly all balance sheets are marshalled in order of permanence.
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Ayushi
AyushiCurious
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    Introduction In GST, a supply is a taxable event. This means whenever there is a supply of goods or services or both, GST is charged. Supply includes the exchange of goods or services between supplier and recipient by way of sale, barter, lease etc for consideration and in the course or furtheranceRead more

    Introduction

    In GST, a supply is a taxable event. This means whenever there is a supply of goods or services or both, GST is charged. Supply includes the exchange of goods or services between supplier and recipient by way of sale, barter, lease etc for consideration and in the course or furtherance of business. The rate of GST on any supply depends on the type of good or service supplied.

    Composite supply and mixed supply are two special types of supplies, in which two or more goods or services or both are offered together in a bundle. As two or more goods are supplied together, the question arises at which rate the GST is to be charged on such supplies as such goods or services may have different rates of GST applicable to them. Sections 8 of the CGST act, 2017 deals with the tax liability of such supplies.

    Composite supply

    A composite supply is a type of supply in which two or more goods or services or both are supplied together in the ordinary course of business. Such goods or services are natural bundles. By natural bundle, we mean the goods or services are complementary to each, they are naturally provided together and are to be used along with each other.

    For example, mobile phones and chargers are supplied as a bundle. This concept of the natural bundle is the main determiner of a composite supply.

    In such supplies, there is one main product which is called the principal supply. Like in the above example, the mobile phone is the principal supply. Other goods or services are dependent on the principal supply.

    A composite supply will be taxable as the rate of GST applicable on the principal supply.

    For example, suppose the rate of GST on mobile phones is 18% and that on the charger is 12%, then the whole supply will be taxable at the rate of 18%.

    Mixed supply

    A mixed supply is a type of supply in which two or more goods or services or both are supplied together but they do not complement each other and are not a natural bundle. They are not supplied in the ordinary course of business, For example, a combo of bottled honey and face cream.

    In mixed supply, the good or service which attracts the highest rate of GST is considered the rate of supply for the whole supply.

    For example, suppose bottled honey attracts 5% GST and face cream 18% GST, then the whole supply will be charged 18% GST.

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