AccountingQA Latest Questions

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

    IND AS 102: ‘Share-based payments’ in its actual text is considerably lengthy and very detailed. The objective of my answer is to provide a basic understanding of what IND AS 102 is all about. Further reading of the actual text is suggested for a more detailed understanding. IND AS 102 is the IndiaRead more

    IND AS 102: ‘Share-based payments’ in its actual text is considerably lengthy and very detailed.

    The objective of my answer is to provide a basic understanding of what IND AS 102 is all about. Further reading of the actual text is suggested for a more detailed understanding.

    IND AS 102 is the India specific version of IFRS 2 which deals with the accounting of Share-based payments. IND AS 102 and IFRS are almost similar.

    It deals with the financial reporting of the share-based payment transactions entered into by an enterprise in the following cases:

    1. Transactions with suppliers of goods or services that are settled by share-based payments.
    2. Transactions with employees of the enterprise in nature of Employee Stock Option Plan.

    Share-based payments are of three types:

    • Equity settled share-based payment: It is a transaction in which an entity receives goods or services from the supplier of those goods and services (including an employee) and settles it by issuing equity instruments of the entity or its parent entity.

     Example: A business acquires an asset for Rs. 1,00,000 and makes payment by the issue of its equity shares.

    • Cash settled share-based payment: It is a transaction in which an entity incurs a liability and settles the transaction by paying cash or other assets based on the price of the equity instruments of the entity or group’s entity.

    Example: A business acquires an asset for Rs. 1,00,000 and makes payment in amounts of case based upon its share price.

     

    • Share-based payment transaction with cash alternatives:- In this case,  either the entity or the counterparty has the option of settling the transaction either through with issue of equity or payment of cash by incurring liability.

     

    Things that are not under the scope of IND AS-102

    • Transactions with parties who are acting in the capacity of shareholders.
    • Where a business acquires net assets of a business in case of amalgamation, joint venture etc and issues shares as consideration.

    Recognition

    In a share-based transaction,

    • goods and services are to be recognised when the goods or services are received by the entity.
    • Also, the corresponding increase in equity in equity-settled transactions or liability in the cash-settled transactions is to be recognised.

    Measurement

    The amount at a share-based transaction is to be recorded depending upon the type of counterparty:

    1. Non-employee counter-party: The transaction will be measured based on the fair value of the goods or services received on the date when the goods or services are received.
    2. Employee counter-party: The transaction is to be recorded at the fair value of the equity instruments as on the grant date because the services rendered by the employee cannot be recorded reliably.

    I hope this is enough for a basic understanding of the IND AS 102.

     

     

     

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Receipts and Payments A/C for the year ended 31st March 2020 Receipts Amt Payments Amt To Balance b/d  (Cash)        180,000 By Salary        480,000 To Subscriptions        900,000 By Rent           50,000 To Sale of Investments        200,000 By Stationery           20,000 To Sale ...

  2. Radha M.Com, NET
    This answer was edited.

    Here I've prepared the Income & Expenditure A/c. Income & Expenditure A/c for the year ended 31st March 2021 Expenditure Amt Income Amt To Salary      4,80,000 By Subscriptions      9,00,000 To Rent          50,000 By Donations          10,000 To Stationery          20,000 To Loss on sale ofRead more

    Here I’ve prepared the Income & Expenditure A/c.

    Income & Expenditure A/c for the year ended 31st March 2021

    Expenditure Amt Income Amt
    To Salary      4,80,000 By Subscriptions      9,00,000
    To Rent          50,000 By Donations          10,000
    To Stationery          20,000
    To Loss on sale of furniture (WN)          10,000
    To Surplus      3,50,000
         9,10,000      9,10,000

     

    Working Note: Calculation of Loss on sale of furniture

    The following calculation is made to identify the loss incurred on the sale of furniture.

    Particulars Amt
    Book Value of Furniture        40,000
    Less: Sale Value of Furniture        30,000
    Loss on Sale of Furniture        10,000

     

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  2. Vijay Curious M.Com

    Cash Book is called a journalized ledger because it is considered to be both a journal as well as a ledger. As you know Cash Book is a subsidiary book. But like a journal, the transactions in the Cash Book are recorded in it for the first time from the source documents/vouchers. Hence it is considerRead more

    Cash Book is called a journalized ledger because it is considered to be both a journal as well as a ledger.

    As you know Cash Book is a subsidiary book. But like a journal, the transactions in the Cash Book are recorded in it for the first time from the source documents/vouchers. Hence it is considered to be a journal for all cash transactions.

    Cash Book can also be viewed as a Cash A/c because all transactions involving cash are recorded in it. It provides a summary of cash transactions. Hence it is considered to be a ledger account for cash transactions.

    Since Cash Book is both a journal and ledger, you can very well call it a ‘journalized ledger’.

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

    Fictitious assets are not actually assets. They are expenses/losses not written off in the year in which they are incurred. They do not have any physical presence. Their expense is spread over more than one accounting period. A part of the expense is amortized/written off every year against the compRead more

    Fictitious assets are not actually assets. They are expenses/losses not written off in the year in which they are incurred. They do not have any physical presence. Their expense is spread over more than one accounting period.

    A part of the expense is amortized/written off every year against the company’s earnings. The remaining part (which is yet to be written off) is shown as an asset in the balance sheet. They are shown as assets because these expenses are expected to give returns to the company over a period of time.

    Here are some examples of fictitious assets:

    • Preliminary expenses.
    • Promotional expenses.
    • Loss incurred on the issue of debentures.
    • Underwriting commission.
    • Discount on issue of shares.

     

    To make it simple I’ll explain the accounting treatment of preliminary expenses with an example.

    The promoters of KL Ltd. paid 50,000 as consultation fees for incorporating the company. The consultation fee is a preliminary expense as they are incurred for the formation of the company. The company agreed to write off this expense over a period of 5 years.

    At the end of every year, the company will write off 10,000 (50,000/5) as an expense in the Profit & Loss A/c.

    The remaining portion i.e. 40,000 (50,000 – 10,000) will be shown on the Assets side of the Balance Sheet under the head Non – Current Assets and sub-head Other Non – Current Assets. 

    Here are the financial statements of KL Ltd.,

    Note: As per AS 26 preliminary expenses are fully written off in the year they are incurred. This is because such expenses do not meet the definition of assets and must be written off in the year of incurring.

    Source: Some fictitious assets examples are from Accountingcapital.com & others from Wikipedia.

     

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  2. Manvi Pursuing ACCA
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    International Financial Reporting Standards (IFRS) is a not-for-profit, public interest organization. The main objective of the IFRS Foundation is to raise the standard of financial reporting and bring about global harmonization of accounting standards. IFRS was established to develop high-quality,Read more

    International Financial Reporting Standards (IFRS) is a not-for-profit, public interest organization. The main objective of the IFRS Foundation is to raise the standard of financial reporting and bring about global harmonization of accounting standards.

    IFRS was established to develop high-quality, understandable, enforceable, and generally accepted accounting standards. International Accounting Standards Board (IASB) develops IFRS. There are currently 16 IFRSs in issue.

    Benefits of IFRS Standards:

    1. It brings transparency by international comparability and quality of financial information.
    2. It strengthens accountability by reducing the information gap between providers and users of the capital.
    3. It contributes to economic efficiency by improving capital allocation and, helps investors in identifying opportunities and risks across the world.

     

    Following are the uses of IFRS:

    1. As national requirements.
    2. As the basis for all or some national requirements.
    3. As an international benchmark for those countries which develop their own requirements.
    4. By regulatory authorities for domestic and foreign companies.
    5. By companies themselves.

     

    Challenges faced by companies if IFRS is not implemented:

    1. The financial statements will differ for the companies who have offices worldwide and use only national accounting standards.
    2. Increased complexity while preparing financial statements.
    3. Difficulty in comparing and verifying financial statements.
    4. Accounting of transactions will differ from country to country if IFRS is not implemented.
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Deferred Revenue Expenditure Capital Expenditure Capital Gain Revenue Expenditure

DepreciationFixed Assets
  2. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    The correct answer is 4. Revenue Expenditure. Depreciation is a non-cash expense and is charged on the fixed asset for its continuous use. Revenue expenditure is a day-to-day expense incurred by a firm in order to carry on its normal business. Depreciation is considered a revenue expense due to theRead more

    The correct answer is 4. Revenue Expenditure.

    Depreciation is a non-cash expense and is charged on the fixed asset for its continuous use. Revenue expenditure is a day-to-day expense incurred by a firm in order to carry on its normal business. Depreciation is considered a revenue expense due to the regular use of the fixed assets.

    Depreciation is the systematic and periodic reduction in the cost of a fixed asset. It is a non-cash expense. Mostly, depreciation is charged according to the straight-line method or written down method as per the policy of the company.

    Depreciation is the systematic and periodic reduction in the cost of a fixed asset. It is a non-cash expense. Mostly, depreciation is charged according to the straight-line method or written down method as per the policy of the company. It is calculated as-

    Depreciation = Cost of the asset – Scrap value / Expected life of the asset.

    For Example, ONGC bought machinery at the beginning of the year for Rs 10,00,000

    It charges depreciation @10% at the end of the year.

    10,00,000 x 10/100 = 1,00,000 will be depreciation for the year and will be shown on the debit side of Profit & Loss A/c.

    As the fixed assets are used in the day-to-day activities of the firm and hence the depreciation charged on it on the daily basis would be revenue in nature. so depreciation is said to be an item of revenue expenditure.

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The balances as per cash column of cash book and passbook The balance as per bank column of cash book and passbook The balance as per Bank column of cash book and ...

Bank Reconciliation StatementDifference Between
  2. Radha M.Com, NET
    This answer was edited.

    A Bank Reconciliation Statement is prepared to know the causes for the difference between 2. the balance as per bank column of cash book and passbook. This is because transactions in Cash Book are recorded from the point of view of the business and the Bank Statement/Pass Book is prepared from the pRead more

    A Bank Reconciliation Statement is prepared to know the causes for the difference between 2. the balance as per bank column of cash book and passbook.

    This is because transactions in Cash Book are recorded from the point of view of the business and the Bank Statement/Pass Book is prepared from the point of view of the banker. Since both are prepared from a different point of view, differences are bound to occur.

    Bank Reconciliation is the process by which on a particular date the bank balance as per Cash Book is reconciled with the balance as per Pass Book/Bank Statement.

    Whenever bank reconciliation is done, we need to identify the reasons or transactions causing the differences between both balances. Then a statement highlighting the reasons or causes of differences is prepared. This statement is known as Bank Reconciliation Statement.

    A Bank Reconciliation Statement is prepared by starting with either the (a) bank balance as per Cash Book or the (b) balance as per Pass Book/Bank Statement. Only those entries which are recorded in the Cash Book but not in the Pass Book/Bank Statement or vice versa are considered while preparing the Bank Reconciliation Statement.

    The reasons for the differences between the two balances can be broadly classified into three categories:

    1. Differences due to timing.
    2. Transactions recorded by the Bank.
    3. Errors.

     

    For example, the debit bank balance as per the Cash Book of Mr. A on 31st March is 20,000. On the same date, his Bank Statement showed a credit balance of 30,000. When the Bank Reconciliation Statement is prepared on 31st March, he will find out the transactions causing the 10,000 (30,000 – 20,000) difference between both the balances. Once the transactions are identified he will reconcile the balance as per the Cash Book with the balance as per his Bank Statement.

     

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Bank statement and bank column of cash book Bank statement and cash column of cash book Bank column of cash book and cash column of cash book None of the above

Bank Reconciliation Statement
  2. Karan B.com and Pursuing ACCA
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    The correct answer is the 1. Bank statement and bank column of the cash book, because it will help the business to verify whether amounts entered and entries recorded are correct or not. It will also help in verifying the balances of bank statements and cash books whether they tally or not. What isRead more

    The correct answer is the 1. Bank statement and bank column of the cash book, because it will help the business to verify whether amounts entered and entries recorded are correct or not. It will also help in verifying the balances of bank statements and cash books whether they tally or not.

    What is Reconciliation?

    Reconciliation is an accounting procedure that compares two sets of records to check figures are correct and in agreement. Reconciliation can also be used for personal purposes.

    What is a Bank Reconciliation Statement?

    A statement showing causes of disagreement between the balance of bank statement and bank column of the cash book at the end of a specific period is called a Bank Reconciliation Statement.

    Steps in preparation of Bank Reconciliation Statement

    Step 1: Comparing items appearing on the debit and credit sides of the bank statement and bank column of the cash book.

    Step 2: Make a list of missed entries.

    Step 3: Analyse the causes of differences.

    Step 4: Select the date for the preparation of the Bank Reconciliation Statement.

    Step 5: Choose the starting point i.e balance as per cash book or balance as per bank statement.

    Step 6: Adjust the starting point by adding or subtracting the missed entries.

    Step 7: Bank Statement must match with the cash book.

    To prepare a bank reconciliation statement a business will need a bank statement from its bank and cash book which it prepares to record entries.

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  2. Simerpreet Helpful CMA Inter qualified
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    Specimen of Ledger account This is the specimen of a ledger account. J.F. here represents the journal folio. A Ledger account is an account that consists of all the business transactions that take place during the current financial year. For Example, cash, bank, machinery, A/c receivable account, etRead more

    Specimen of Ledger account

    This is the specimen of a ledger account. J.F. here represents the journal folio.

    A Ledger account is an account that consists of all the business transactions that take place during the current financial year.

    For Example, cash, bank, machinery, A/c receivable account, etc.

    After the financial data is recorded in the Journal. It is then classified according to the nature of accounts viz. Asset, liability, expenses, revenue, and capital to be posted in the ledger account.

    With this head, the identification as to whether the opening balance will come under the debit side or the credit side is done.

    The table below would help to understand the concept of opening balance in the ledger.

    For further clarification of the concept let me give you a practical example.

    Suppose, a manufacturing firm Amul purchased machinery for, say, Rs 2,50,000. The installation charges were Rs 25,000 and the opening balance of machinery during the year was Rs 5,00,000.

    So as the machinery account comes under the category assets, its opening balance would come under the debit side of the ledger account.

    And as purchase and installation charges mean expenses for the firm, they would also come under the debit side of the account.

    And in case of any sale of a part of the machinery, it would be posted on the credit side of the account as the sales would generate revenue for the firm.

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Final AccountsLoose Tools
  2. Vijay Curious M.Com
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    Let me begin by giving a small explanation of what loose tools are before we dive into their accounting treatment. Loose tools are assets that are used in various steps of the production process and therefore are vital for the conversion of raw materials into finished goods. They are considered as cRead more

    Let me begin by giving a small explanation of what loose tools are before we dive into their accounting treatment.

    Loose tools are assets that are used in various steps of the production process and therefore are vital for the conversion of raw materials into finished goods. They are considered as current assets of the business as their useful life is limited. They have a small monetary value (cost-efficient) and high turnover. Examples of loose tools include screwdrivers, hammers, etc.

    One may say loose tools like screwdrivers and hammers can be used for more than one year and therefore should be classified as non-current assets. But unlike fixed assets, these loose tools have a high probability of being misplaced or lost. Hence they are classified as current assets.

    Since loose tools are treated as an asset for the business, they are shown as a debit balance in the trial balance.

    The cost of loose tools consumed for the year will be shown on the debit side of the Profit & Loss A/c as an expense. In the balance sheet, loose tools are shown on the Assets side under the head Current Assets and sub-head Inventories. Since they aid the production process, loose tools are shown as a part of the inventory of the business.

    Let us take an example,

    XYZ Ltd. at the beginning of the year had loose tools worth 5,000. During the year they purchased loose tools worth 500. At the end of the year, the company valued its loose tools at 4,500.

    Now let us find the cost of loose tools consumed. The formula for finding the cost of loose tools consumed is as follows:

    Cost of loose tools consumed  = Opening inventory of loose tools + Purchases of loose tools – Closing inventory of loose tools

    Cost of loose tools consumed = 5,000 + 500 – 4,500 = 1,000

    So, the cost of loose tools consumed (1000) will be shown on the debit side of the P&L A/c as follows:

    The closing inventory of loose tools worth 4,500 will be shown on the assets side of the balance sheet under the head current assets and sub-head inventory in the following manner:

    One thing to remember here is there is an exception to loose tools. While calculating liquidity ratios like the Current ratio, Quick ratio, etc. loose tools are excluded from current assets. The reason for this is loose tools cannot be easily converted into cash i.e. they are less liquid. The purpose of calculating the current ratio is to check the liquidity of a company. Including loose tools (which cannot be easily converted into cash) in current assets defeats the purpose of calculating the ratio.

     

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