To begin with, let me explain what is revaluation all about. So basically revaluation is a method of calculating the depreciation of assets where there are multiple identifiable assets of low value such as loose tools, live stocks, etc. Under this method assets like loose tools are revalued at the eRead more
To begin with, let me explain what is revaluation all about. So basically revaluation is a method of calculating the depreciation of assets where there are multiple identifiable assets of low value such as loose tools, live stocks, etc.
Under this method assets like loose tools are revalued at the end of the accounting period and the same is compared with the value at the beginning of the year. the difference amount is considered as depreciation.
The formula goes as :
REVALUATION= OPENING VALUE + PURCHASES – CLOSING VALUE
Let me take an example to show the same. Opening balance of Loose tools amounts to Rs.2,000 during the year, the business purchased loose tools of Rs.500 and at the year-end loose tool amounted to Rs.1,500 then revalued figure which will be shown as depreciation will be
REVALUATION= Rs.(2,000+ 500 – 1,500)
= Rs.1,000
The main discussion is”how to show adjustment of revaluation of the loose tool in financial statements”?
As we all know, loose tools are considered assets for the business, hence shown under the head current assets or fixed assets depending upon the nature of the business and the time for which it is held.
When the trial balance shows the debit value of loose tools, later on in the year-end the loose tools are revalued to a certain amount then the difference amount will be shown as depreciation in the Profit & Loss A/c and the revalued figure will be posted in the balance sheet asset side.
Let me support my explanation with an example,
Given is the extracted trial balance of XYZ & Co.
we see the value of Loose tools in the given trial balance as Rs.50,000. At the year-end, these Loose tools were revalued at Rs.40,000.
Therefore the adjustment in the financial statement would be like Rs (50,000 – 40,000) i.e Rs. 10,000 would be shown as depreciation under Profit & Loss A/c
and the adjusted figure of Rs. 40,000 (i.e Rs.50,000 – Rs.10,000), will be shown on the asset side under the head fixed assets of the Balance Sheet.
Current assets are all the assets of the company which are expected to be used, sold, or consumed within one year. Current assets are those assets that can be converted into cash easily. For example - Inventory, Accounts Receivable, Cash, and Cash Equivalents. Loose tools are parts of machinery or sRead more
Current assets are all the assets of the company which are expected to be used, sold, or consumed within one year. Current assets are those assets that can be converted into cash easily.
For example – Inventory, Accounts Receivable, Cash, and Cash Equivalents.
Loose tools are parts of machinery or spare parts of machinery. Loose can be classified on the nature of use whether it is a fixed asset or a current asset. If loose tools are used regularly or within one accounting year, it is classified as a current asset.
Loose tools are usually classified as a current asset, however, there is one exception i.e it is excluded from the current ratio.
They are excluded from the current ratio because the current ratio takes into account only current assets, and the nature of loose tools is either a fixed asset or a current asset and can’t be converted into cash easily.
The current ratio is calculated to check the liquidity of the company.
Loose tools appear in the Asset Side of the Balance Sheet under the head Current Asset, subhead Inventories.
The extract of the Balance Sheet is as follows:
When the balance sheet prepared under Schedule III loose tools is shown under notes to accounts under sub-head Inventories on the asset side.
When the balance sheet is in a T format loose appears as a current asset after recording fixed assets on the asset side.
To begin with, lets us understand what the Companies Act 2013 tells about calls-in-advance, so basically as per section 50 of the companies act 2013 "A company may if so authorized by its articles, accepts from any members the whole or part of amount remaining unpaid on any share held by him, even iRead more
To begin with, lets us understand what the Companies Act 2013 tells about calls-in-advance, so basically as per section 50 of the companies act 2013 “A company may if so authorized by its articles, accepts from any members the whole or part of amount remaining unpaid on any share held by him, even if no amount has been called up”.
To be more precise whenever excess money is received by the company than, what has been called up is known as calls-in-advance.
Accounting Treatment
Well, it is to be noted that calls-in-advance is never a part of share capital. A company when authorized by its article can accept those advance amounts and directly credit the amount received to the calls-in-advance account.
As these advance amounts are a liability for the company these are shown under the head current liability of the balance sheet until calls are made and are paid to the shareholders.
Since this is the liability of the company, it is liable to pay the interest amount on such call money from the date of receipt until the payment is done to the shareholders. The rate of interest is mentioned in the articles of association. If the article is silent regarding the rate on which interest is paid then it is assumed to be @6%.
Accounting Entry
Bonnie let us understand the entries with help of an example
ADIDAS LTD issued 25,000 equity shares of Rs 10 each payable as follows:
ON APPLICATION Rs 5
ON ALLOTMENT Rs 3
ON FINAL CALL Rs 2
Application on 30,000 shares was received. excess money received on the application was refunded immediately. Mr. X who was allotted 1,000 shares paid the call money at the time of allotment and all amounts were duly received assume interest rate @6% for 3 months, so the relevant accounting entry goes as follows:
Important Points to be noted under calls-in-advance as per the companies act 2013
The shareholder is not entitled to any voting rights on money paid until the said money is called for.
No dividends are payable on advance money.
Board may pay interest on advance not exceeding 12%.
The shareholders are entitled to claim the interest amount as mentioned in the article, if there are no profits, then it must be paid out of capital because shareholders become the creditors of the company.
Journal Entry for Calls in Advance Calls in advance mean excess money received by the company than what has been called up. Calls in advance are treated as Current Liability and shown in the Balance Sheet on the liability side. Journal Entry will be : Here we will "Debit" Bank A/c as it will increaRead more
Journal Entry for Calls in Advance
Calls in advance mean excess money received by the company than what has been called up. Calls in advance are treated as Current Liability and shown in the Balance Sheet on the liability side.
Journal Entry will be :
Here we will “Debit” Bank A/c as it will increase assets of the company and “Credit” Calls in Advance A/c because it will increase the company’s current liabilties.
For Example:
Mr.Z shareholder of ABC Ltd was allotted 2,000 equity shares of Rs.10 each. He paid call money at the time of allotment.
On Application
Rs 5
On Allotment
Rs 2
On First and final call
Rs 3
Journal Entry is as follows:
Here, the company received an excess amount of Rs.6,000 (2,000*3) from a shareholder Mr.Z who paid the call money in advance. ABC Ltd will record this under Calls in Advance A/c. While passing journal entry ABC Ltd will debit its Bank A/c by Rs.6,000 and credit calls in advance account by Rs.6,000.
When share calls are called up, calls received in advance are adjusted. The company will hold only the required amount which will make allotted shares fully paid.
Once the amount is transferred to relevant call accounts, calls in advance account will be written off.
Let us begin with a short explanation of what Calls-in-Advance is: Whenever a company accepts money from its shareholders for calls not yet made, then we call it calls-in-advance. To put it in even simpler terms, it is the amount not yet called up by the company but paid by the shareholder. An imporRead more
Let us begin with a short explanation of what Calls-in-Advance is:
Whenever a company accepts money from its shareholders for calls not yet made, then we call it calls-in-advance. To put it in even simpler terms, it is the amount not yet called up by the company but paid by the shareholder. An important thing to note here is that a company can accept calls-in-advance from its shareholders only when authorized by its Articles of Association.
Calls-in-advance is treated as the company’s liability because it has received the money in advance, which has not yet become due. Till the amount becomes due, it will be treated as a current liability of the company.
The journal entry for recording calls-in-advance is as follows:
The money received from the shareholder is an asset for the company and therefore Bank A/c is debited with the amount received as calls-in-advance. The calls-in-advance A/c is credited because it is a liability for the company.
Since Calls-in-Advance is a liability, it is shown in the Equities and Liabilities part of the Balance Sheet under the head Current Liabilities and sub-head Other Current Liabilities.
For better understanding, we will take an example,
ABC Ltd. made the first call of 3 per share on its 10,00,000 equity shares on 1st May. Max, a shareholder, holding 5,000 shares paid the final call amount 2 along with the first call money. Now let me show the journal entry to record calls-in-advance.
In the Balance Sheet, I will show calls-in-advance in the following manner,
The calls-in-advance of 10,000 is shown under the Equities and Liabilities side of the balance sheet under the head current liabilities and sub-head other current liabilities. It will be shown as a liability till the final call money becomes due. The amount received by the company from Max is shown on the Assets side of the balance sheet under head current assets and under the sub-head cash and cash equivalents.
To begin with, let me first give you a small explanation of what Contingent assets are A contingent asset is a potential asset or economic benefit that does not exist currently but may arise in the near future. Such an asset arises from an uncertain and unpredictable event. To make it clear with anRead more
To begin with, let me first give you a small explanation of what Contingent assets are
A contingent asset is a potential asset or economic benefit that does not exist currently but may arise in the near future. Such an asset arises from an uncertain and unpredictable event.
To make it clear with an example: String Co. filed a lawsuit against a competitor company Weave Tech Co. for infringing on company ABC’s patent. Even if it is probable (but not certain) that Strings Co. will win the lawsuit, it is a contingent asset.
As such, it will not be recorded in Strings Co. general ledger accounts until the lawsuit is settled.
At most the Strings Co. can do is, prepare a note disclosing the fact that it has filed the lawsuit the outcome of which is uncertain.
Disclosing Contingent Assets
The probability of occurrence is virtually certain or probable: It will be disclosed as an asset in the balance sheet.
For Example, The court orders for reimbursement to Strings Co. say 1,00,000 for the damages, but it has not yet received the money. Although it is virtually certain that the company will receive the money in the near future, it will be treated as an asset and can be disclosed in the balance sheet on the assets side.
The probability of occurrence is probable: It will be disclosed as notes to accounts below the balance sheet.
For Example, Strings Co. filed a lawsuit against a competitor company Weave Tech for infringing on Strings Co. patent. Even if it is probable (but not certain) that Strings Co. will win the lawsuit, it is a contingent asset.
As such, it will not be recorded in Strings company’s general ledger until the lawsuit is settled.
At most the Strings Co. can do is, prepare a note disclosing the fact that it has filed the lawsuit the outcome of which is uncertain.
The probability of occurrence is remote or not probable: It will not be treated as a contingent asset.
In this case, the disclosure of it is not permitted.
To begin with, let me give you a brief explanation of both the terms i.e. Accounting policies and accounting principles- In order to maintain the financial statements, the company’s management adopts various Accounting Policies of its own. This generally includes the rules, the directions as to howRead more
To begin with, let me give you a brief explanation of both the terms i.e. Accounting policies and accounting principles-
In order to maintain the financial statements, the company’s management adopts various AccountingPolicies of its own. This generally includes the rules, the directions as to how the financial statements will be prepared or how the valuation of depreciation would be done, and so on. These are flexible in nature and vary from company to company.
For Example 1, Johnson Co. uses FIFO (first in first out) method to value the inventory. That is to say that, while selling its product, it sells those goods or products which it has acquired or produced first.
It does not consider the LIFO or weighted average cost. The other company may adopt the other method as per its wish.
Example 2, Johnson Co. uses the straight-line method of depreciating an asset, whereas the other company can opt for a written down value method depending upon the need of the company.
So what I am trying to explain from this is that the accounting policies are flexible and can be adopted as per the needs of the company.
Accounting Principles are the rules which the accountants adopt universally for recording and reporting the financial data. It brings uniformity in accounting throughout the practice of accounting. These are generally less flexible in nature.
For Example, “Cost” is a principle. According to this accounting principle, an asset is recorded in the books at the price paid to acquire it and this cost will be the basis for all the subsequent accounting for the asset. However, asset market value may change over time, but for the accounting purpose, it continues to be shown at its book value i.e. at which it is acquired.
Some more examples would be of Matching principle, Consistency principle, Money measurement principle, etc.
Differences
Conclusion
The point is Accounting Principles are the broad direction to reach a goal and to reach that goal helps the accounting policies.
How to show adjustment of loose tools revalued in final accounts?
To begin with, let me explain what is revaluation all about. So basically revaluation is a method of calculating the depreciation of assets where there are multiple identifiable assets of low value such as loose tools, live stocks, etc. Under this method assets like loose tools are revalued at the eRead more
To begin with, let me explain what is revaluation all about. So basically revaluation is a method of calculating the depreciation of assets where there are multiple identifiable assets of low value such as loose tools, live stocks, etc.
Under this method assets like loose tools are revalued at the end of the accounting period and the same is compared with the value at the beginning of the year. the difference amount is considered as depreciation.
The formula goes as :
REVALUATION= OPENING VALUE + PURCHASES – CLOSING VALUE
Let me take an example to show the same. Opening balance of Loose tools amounts to Rs.2,000 during the year, the business purchased loose tools of Rs.500 and at the year-end loose tool amounted to Rs.1,500 then revalued figure which will be shown as depreciation will be
REVALUATION= Rs.(2,000+ 500 – 1,500)
= Rs.1,000
The main discussion is”how to show adjustment of revaluation of the loose tool in financial statements”?
As we all know, loose tools are considered assets for the business, hence shown under the head current assets or fixed assets depending upon the nature of the business and the time for which it is held.
When the trial balance shows the debit value of loose tools, later on in the year-end the loose tools are revalued to a certain amount then the difference amount will be shown as depreciation in the Profit & Loss A/c and the revalued figure will be posted in the balance sheet asset side.
Let me support my explanation with an example,
Given is the extracted trial balance of XYZ & Co.
we see the value of Loose tools in the given trial balance as Rs.50,000. At the year-end, these Loose tools were revalued at Rs.40,000.
Therefore the adjustment in the financial statement would be like Rs (50,000 – 40,000) i.e Rs. 10,000 would be shown as depreciation under Profit & Loss A/c
and the adjusted figure of Rs. 40,000 (i.e Rs.50,000 – Rs.10,000), will be shown on the asset side under the head fixed assets of the Balance Sheet.
See lessAre loose tools current assets?
Current assets are all the assets of the company which are expected to be used, sold, or consumed within one year. Current assets are those assets that can be converted into cash easily. For example - Inventory, Accounts Receivable, Cash, and Cash Equivalents. Loose tools are parts of machinery or sRead more
Current assets are all the assets of the company which are expected to be used, sold, or consumed within one year. Current assets are those assets that can be converted into cash easily.
For example – Inventory, Accounts Receivable, Cash, and Cash Equivalents.
Loose tools are parts of machinery or spare parts of machinery. Loose can be classified on the nature of use whether it is a fixed asset or a current asset. If loose tools are used regularly or within one accounting year, it is classified as a current asset.
Loose tools are usually classified as a current asset, however, there is one exception i.e it is excluded from the current ratio.
They are excluded from the current ratio because the current ratio takes into account only current assets, and the nature of loose tools is either a fixed asset or a current asset and can’t be converted into cash easily.
The current ratio is calculated to check the liquidity of the company.
Loose tools appear in the Asset Side of the Balance Sheet under the head Current Asset, subhead Inventories.
The extract of the Balance Sheet is as follows:
When the balance sheet prepared under Schedule III loose tools is shown under notes to accounts under sub-head Inventories on the asset side.
When the balance sheet is in a T format loose appears as a current asset after recording fixed assets on the asset side.
See lessCan you explain calls in advance as per the companies act?
To begin with, lets us understand what the Companies Act 2013 tells about calls-in-advance, so basically as per section 50 of the companies act 2013 "A company may if so authorized by its articles, accepts from any members the whole or part of amount remaining unpaid on any share held by him, even iRead more
To begin with, lets us understand what the Companies Act 2013 tells about calls-in-advance, so basically as per section 50 of the companies act 2013 “A company may if so authorized by its articles, accepts from any members the whole or part of amount remaining unpaid on any share held by him, even if no amount has been called up”.
To be more precise whenever excess money is received by the company than, what has been called up is known as calls-in-advance.
Accounting Treatment
Well, it is to be noted that calls-in-advance is never a part of share capital. A company when authorized by its article can accept those advance amounts and directly credit the amount received to the calls-in-advance account.
As these advance amounts are a liability for the company these are shown under the head current liability of the balance sheet until calls are made and are paid to the shareholders.
Since this is the liability of the company, it is liable to pay the interest amount on such call money from the date of receipt until the payment is done to the shareholders. The rate of interest is mentioned in the articles of association. If the article is silent regarding the rate on which interest is paid then it is assumed to be @6%.
Accounting Entry
Bonnie let us understand the entries with help of an example
ADIDAS LTD issued 25,000 equity shares of Rs 10 each payable as follows:
ON APPLICATION Rs 5
ON ALLOTMENT Rs 3
ON FINAL CALL Rs 2
Application on 30,000 shares was received. excess money received on the application was refunded immediately. Mr. X who was allotted 1,000 shares paid the call money at the time of allotment and all amounts were duly received assume interest rate @6% for 3 months, so the relevant accounting entry goes as follows:
Important Points to be noted under calls-in-advance as per the companies act 2013
- The shareholder is not entitled to any voting rights on money paid until the said money is called for.
- No dividends are payable on advance money.
- Board may pay interest on advance not exceeding 12%.
- The shareholders are entitled to claim the interest amount as mentioned in the article, if there are no profits, then it must be paid out of capital because shareholders become the creditors of the company.
See lessWhat is the journal entry for calls in advance?
Journal Entry for Calls in Advance Calls in advance mean excess money received by the company than what has been called up. Calls in advance are treated as Current Liability and shown in the Balance Sheet on the liability side. Journal Entry will be : Here we will "Debit" Bank A/c as it will increaRead more
Journal Entry for Calls in Advance
Calls in advance mean excess money received by the company than what has been called up. Calls in advance are treated as Current Liability and shown in the Balance Sheet on the liability side.
Journal Entry will be :
Here we will “Debit” Bank A/c as it will increase assets of the company and “Credit” Calls in Advance A/c because it will increase the company’s current liabilties.
For Example:
Mr.Z shareholder of ABC Ltd was allotted 2,000 equity shares of Rs.10 each. He paid call money at the time of allotment.
Journal Entry is as follows:
Here, the company received an excess amount of Rs.6,000 (2,000*3) from a shareholder Mr.Z who paid the call money in advance. ABC Ltd will record this under Calls in Advance A/c. While passing journal entry ABC Ltd will debit its Bank A/c by Rs.6,000 and credit calls in advance account by Rs.6,000.
When share calls are called up, calls received in advance are adjusted. The company will hold only the required amount which will make allotted shares fully paid.
Once the amount is transferred to relevant call accounts, calls in advance account will be written off.
See lessHow to show calls in advance in the balance sheet?
Let us begin with a short explanation of what Calls-in-Advance is: Whenever a company accepts money from its shareholders for calls not yet made, then we call it calls-in-advance. To put it in even simpler terms, it is the amount not yet called up by the company but paid by the shareholder. An imporRead more
Let us begin with a short explanation of what Calls-in-Advance is:
Whenever a company accepts money from its shareholders for calls not yet made, then we call it calls-in-advance. To put it in even simpler terms, it is the amount not yet called up by the company but paid by the shareholder. An important thing to note here is that a company can accept calls-in-advance from its shareholders only when authorized by its Articles of Association.
Calls-in-advance is treated as the company’s liability because it has received the money in advance, which has not yet become due. Till the amount becomes due, it will be treated as a current liability of the company.
The journal entry for recording calls-in-advance is as follows:
The money received from the shareholder is an asset for the company and therefore Bank A/c is debited with the amount received as calls-in-advance. The calls-in-advance A/c is credited because it is a liability for the company.
Since Calls-in-Advance is a liability, it is shown in the Equities and Liabilities part of the Balance Sheet under the head Current Liabilities and sub-head Other Current Liabilities.
For better understanding, we will take an example,
ABC Ltd. made the first call of 3 per share on its 10,00,000 equity shares on 1st May. Max, a shareholder, holding 5,000 shares paid the final call amount 2 along with the first call money. Now let me show the journal entry to record calls-in-advance.
In the Balance Sheet, I will show calls-in-advance in the following manner,
The calls-in-advance of 10,000 is shown under the Equities and Liabilities side of the balance sheet under the head current liabilities and sub-head other current liabilities. It will be shown as a liability till the final call money becomes due. The amount received by the company from Max is shown on the Assets side of the balance sheet under head current assets and under the sub-head cash and cash equivalents.
See lessWhen and where are Contingent Assets disclosed?
To begin with, let me first give you a small explanation of what Contingent assets are A contingent asset is a potential asset or economic benefit that does not exist currently but may arise in the near future. Such an asset arises from an uncertain and unpredictable event. To make it clear with anRead more
To begin with, let me first give you a small explanation of what Contingent assets are
A contingent asset is a potential asset or economic benefit that does not exist currently but may arise in the near future. Such an asset arises from an uncertain and unpredictable event.
To make it clear with an example: String Co. filed a lawsuit against a competitor company Weave Tech Co. for infringing on company ABC’s patent. Even if it is probable (but not certain) that Strings Co. will win the lawsuit, it is a contingent asset.
As such, it will not be recorded in Strings Co. general ledger accounts until the lawsuit is settled.
At most the Strings Co. can do is, prepare a note disclosing the fact that it has filed the lawsuit the outcome of which is uncertain.
Disclosing Contingent Assets
For Example, The court orders for reimbursement to Strings Co. say 1,00,000 for the damages, but it has not yet received the money. Although it is virtually certain that the company will receive the money in the near future, it will be treated as an asset and can be disclosed in the balance sheet on the assets side.
For Example, Strings Co. filed a lawsuit against a competitor company Weave Tech for infringing on Strings Co. patent. Even if it is probable (but not certain) that Strings Co. will win the lawsuit, it is a contingent asset.
As such, it will not be recorded in Strings company’s general ledger until the lawsuit is settled.
At most the Strings Co. can do is, prepare a note disclosing the fact that it has filed the lawsuit the outcome of which is uncertain.
In this case, the disclosure of it is not permitted.
See lessWhat is the difference between accounting policies and principles?
To begin with, let me give you a brief explanation of both the terms i.e. Accounting policies and accounting principles- In order to maintain the financial statements, the company’s management adopts various Accounting Policies of its own. This generally includes the rules, the directions as to howRead more
To begin with, let me give you a brief explanation of both the terms i.e. Accounting policies and accounting principles-
In order to maintain the financial statements, the company’s management adopts various Accounting Policies of its own. This generally includes the rules, the directions as to how the financial statements will be prepared or how the valuation of depreciation would be done, and so on. These are flexible in nature and vary from company to company.
For Example 1, Johnson Co. uses FIFO (first in first out) method to value the inventory. That is to say that, while selling its product, it sells those goods or products which it has acquired or produced first.
It does not consider the LIFO or weighted average cost. The other company may adopt the other method as per its wish.
Example 2, Johnson Co. uses the straight-line method of depreciating an asset, whereas the other company can opt for a written down value method depending upon the need of the company.
So what I am trying to explain from this is that the accounting policies are flexible and can be adopted as per the needs of the company.
Accounting Principles are the rules which the accountants adopt universally for recording and reporting the financial data. It brings uniformity in accounting throughout the practice of accounting. These are generally less flexible in nature.
For Example, “Cost” is a principle. According to this accounting principle, an asset is recorded in the books at the price paid to acquire it and this cost will be the basis for all the subsequent accounting for the asset. However, asset market value may change over time, but for the accounting purpose, it continues to be shown at its book value i.e. at which it is acquired.
Some more examples would be of Matching principle, Consistency principle, Money measurement principle, etc.
Differences
Conclusion
The point is Accounting Principles are the broad direction to reach a goal and to reach that goal helps the accounting policies.
See less