A cheque that has been issued but yet not presented to the bank for payment is known as an unpresented cheque Generally what happens is when a cheque is issued to a party or say, creditor, the business immediately records them in the bank column of the cash book but the creditor might not present thRead more
A cheque that has been issued but yet not presented to the bank for payment is known as an unpresented cheque
Generally what happens is when a cheque is issued to a party or say, creditor, the business immediately records them in the bank column of the cash book but the creditor might not present them immediately to the bank for payment on the same date. The bank will only debit the account when it will be presented to it, therefore as long as the cheque remains unpresented there will be a difference in both the books i.e cash book and passbook.
Let me give you a short example of the above treatment
Suppose on 27th January, in the books of Mr. Shyam, the balance of the bank column as per the cash book is Rs 10,000. He received a cheque of Rs 5,000 from Mr. Hari, one of his debtors, which was sent to the bank for collection. The amount of the cheque was not collected by the bank until 31st January. Due to this, there arises a difference of Rs 5,000 in the cash book and pass book of Mr. Shyam.
Following will be the entry in Mr. Shyam cash book and passbook
In the books of Mr. Shaym
Cash book (bank column only)
Date
Particulars
Bank (Rs)
Date
Particulars
Bank (Rs)
27th Jan
To balance b/d
10,000
27th Jan
To Hari
5,000
31st Jan
By balance c/d
15,000
15000
15000
Mr. Shyam
Bank Statement
Date
Particulars
Debit (Withdraw)
Credit (Deposite)
Debit or Credit
Balance
31st Jan
To balance b/d
credit
10,000
How it is treated in the bank reconciliation statement?
There lies a temporary difference in both the books as the represented cheques will eventually be presented. Therefore we will not alter the cash book. The bank statement shows the greater amount of Rs 5,000 as compared to the cashbook, therefore we will debit the amount of unpresented cheque which will eventually make it balance to the level of bank statement.
Prepaid expenses are those expenses that have not been expired yet but their payment has already made in advance. There are many examples of prepaid expenses such as rent paid in advance, interest paid in advance, unexpired insurance You might be wondering what kind of account it is? As the name sugRead more
Prepaid expenses are those expenses that have not been expired yet but their payment has already made in advance. There are many examples of prepaid expenses such as rent paid in advance, interest paid in advance, unexpired insurance
You might be wondering what kind of account it is? As the name suggests it should be an expense but actually it’s an asset. When we initially record prepaid expenses we consider them as current assets and show them in the balance sheet. It turns out to be an expense when we use the service/item for what we have paid for in advance.
The entry for the above explanation is as follows:
From the modern rule, we know Assets and expenses increased are debits while decrease in assets and expenses are credit.
As this is asset, increase in asset therefore we debit prepaid expense and on the other hand we pay cash/ bank on behalf of that asset in advance hence there is decrease in assets hence credited. The entry will be as follows:
Prepaid Expense A/c …….Dr
XXX
To Cash/ Bank
XXX
when this prepaid expense actually becomes expense we pass the adjusting entry. The entry will be as follows:
Expense A/c …….Dr
XXX
To Prepaid expense
XXX
Let me give you simple example of the above entry.
Suppose you pay advance rent of Rs 9,000 for six months for the space you haven’t used yet. So you need to record this as prepaid expense and show it on the asset side of the balance sheet under current assets. Since you paid for the same the entry would be as follows:
Prepaid Rent A/c …….Dr
9,000
To Cash/ Bank
9,000
As each month passes we will adjust the rent with prepaid rent account. Since the rent was advanced for 6 months, therefore (9,000/6) Rs 1500 will be adjusted each month with the rent expense account. The adjustment entry will be:
Rent A/c …….Dr
1,500
To Prepaid rent
1,500
The process is repeated until the rent is used and asset account becomes nil.
Let me explain to you in short what is unrecorded assets in the partnership. Basically, these are the assets that are not recorded in the books of accounts but are still present in the business in physical form. These assets are directly credited to the realization account at the time of dissolutionRead more
Let me explain to you in short what is unrecorded assets in the partnership. Basically, these are the assets that are not recorded in the books of accounts but are still present in the business in physical form. These assets are directly credited to the realization account at the time of dissolution of the partnership firm
Unrecorded assets are treated in two ways:
Either they can be sold for cash.
Taken over by any of the partners.
The journal entry for the unrecorded assets sold in cash is as follows:
Bank A/c ……..Dr
xxx
To Realization A/c
xxx
(Being unrecorded assets sold for cash)
To make the entries more simple for you let me give you a small example
A partnership firm has decided to dissolve its business. The firm had old furniture which was completely written off. They decide to sell the furniture for Rs 3,000. Here we can see that the firm has decided to realize its furniture by selling them in cash. Therefore the journal entry would be
Bank A/c ……..Dr
3,000
To Realisation A/c
3,000
(Being old furniture sold for cash)
And the journal entry for unrecorded assets taken over by the partner is as follows:
Partner’s capital A/c ……..Dr
xxx
To Realization A/c
xxx
(Being unrecorded taken over by the partner)
For example:
A partnership firm has decided to dissolve its business. The firm had old furniture which was completely written off. One of the pieces of furniture was taken over by one of the partners for Rs 3,000. Here we can see that the firm has decided to realize its furniture by taking over the partner. Therefore the journal entry would be
Bank A/c ……..Dr
3,000
To Partnership A/c
3,000
(Being old furniture taken by partner)
As realization is a nominal account it debits all expenses and losses while credit all incomes and gains. Therefore when a business treats unrecorded assets either by selling them or is taken over by the partner’s, it brings a certain amount of cash into the business hence Bank A/c and Partner’s capital account is debited in the journal entry and appear on the credit side of the realization account.
To proceed with how to make a partnership deed, let me explain to you in short what is partnership deed? A partnership deed is the written agreement between the partners who have agreed to share profits of a business carried on by them. This basically contains terms and conditions to be followed betRead more
To proceed with how to make a partnership deed, let me explain to you in short what is partnership deed?
A partnership deed is the written agreement between the partners who have agreed to share profits of a business carried on by them. This basically contains terms and conditions to be followed between the partners.
Few contents of the partnership deed are as follows:
Name, address, and type of business of the partnership firm.
Name & address of all the partners
Profit-sharing ratio.
Rights, duties, and liabilities of all partners.
Date of commencement of the partnership
Method of settlement of dispute among the partners.
Treatment of loss in case of insolvency of one or more partners.
Generally, a partnership deed contains all those matters which can affect the relationship between the partners. However, if there is no such agreement the partnership should follow the provisions mentioned under The Partnership Act, 1932.
Now coming to the main question how to make a partnership deed? See the process is not so complicated. The partnership deed may be oral or written, but as the oral agreement has no value for obtaining tax benefits, a partnership firm always prefers a written agreement.
To prepare the same the partnership deed must be prepared on a stamp paper and signed by all the partners as per Indian Stamp Act and copies of the same should be with all the partners and also must be filed by the registrar of the firm.
A deed may vary depending on the nature of the partnership they are engaged in. Generally, partnerships are of three types
General partnership
Limited partnership
Limited liability partnership
the process of making deed is same for all but, the content of deed may vary depending on the liability of partners in the partnership.
Return inwards in simple terms means sending back goods by the customer to the seller. Simply speaking when your customer purchases items from your business but is not satisfied with the items so received they return those items back to you. Some of the reasons for sending back the items are statedRead more
Return inwards in simple terms means sending back goods by the customer to the seller. Simply speaking when your customer purchases items from your business but is not satisfied with the items so received they return those items back to you. Some of the reasons for sending back the items are stated below:
Incorrect items delivered by the seller
The excess amount delivered to the buyer
Return of expired/ spoiled good
In such a case, the return is initiated by the buyer and a credit note is issued to the buyer, and the same is recorded in the books of accounts. Also, this return inward is deducted from the total sales.
Example: M/s Pest ltd sold 4 units of fertilizers spraying tools of Rs 10,000 each to Mr. Zen. On inspection, he found 1 unit worth Rs 10,000 so received to be defective. Therefore the return of Rs 10,000 was initiated and goods were returned to the seller. A credit note of Rs 10,000 will be raised by the seller (M/s Pest ltd) to the buyer (Mr. Zen). The following adjustment will be shown in the trading account.
Return outwards means returning the goods by the buyer to the supplier. In layman language, when you purchase items for your business and you are not happy with the items then you may decide to return them.
In this case, a debit note is issued to the seller and is recorded in the books of accounts, and the same is reduced from the total purchases in the trading account so prepared.
Example: Suppose you are dealing in a business of clothing. You purchased 20 shirts for Rs.10,000 from a wholesale market. When you sold these shirts, you found 10 shirts worth Rs 5,000 to be defective which were returned by your customer. Therefore you will return these shirts to the wholesale market from where you purchased them. The following adjustment will be shown in the trading account.
As per the companies act 2013, the rate of depreciation for cars/vehicles and their useful life is mentioned below They are categorized by the companies act as follows: when these car/ motor vehicles are owned with no intention to sell within the accounting period and are generally used to generateRead more
As per the companies act 2013, the rate of depreciation for cars/vehicles and their useful life is mentioned below
They are categorized by the companies act as follows:
when these car/ motor vehicles are owned with no intention to sell within the accounting period and are generally used to generate revenue. For example, giving cars/motor vehicles on lease or hire purpose.
cars/motor vehicles when used for purposes other than the business of hire. For example, a car is owned for official use.
Car/motor vehicles are considered as fixed tangible assets. Treatment of these cars/ motor vehicles is similar to those of other fixed assets. The depreciation will be shown as an expense in the profit and loss account and also the value of these assets will be adjusted in the balance sheet.
Explaining with a simple example: Mars.Ltd purchased a car for Rs 10,00,000, and use it for its official purpose. Its useful life as per act is taken as 6 years and the rate of depreciation as 31.23% as per the WDV method.
Therefore depreciation as per WDV is calculated as follows
Cost of car = Rs 10,00,000
Residual value = NIL
Rate of depreciation = 31.23%
depreciation for first-year = Rs (10,00,000 – NIL)*31.23%
= Rs 3,12,300
Calculated depreciation on this car will be shown in the profit and loss account as an expense and the same will be treated under the balance sheet every year. Here is the extract of profit and loss and the balance sheet for the above example.
Consignment is "goods sent by its owners to his agent for the purpose of sale". In simple language, the word consignment means to send goods to another person for sale on his behalf without transfer of ownership. In accounting terms, consignment is the process where the owner (consignor) transfers tRead more
Consignment is “goods sent by its owners to his agent for the purpose of sale”. In simple language, the word consignment means to send goodsto another person for sale on his behalf without transfer of ownership.
In accounting terms, consignment is the process where the owner (consignor) transfers the possession of the goods to the agent (consignee) to make a sale on his behalf while the ownership of goods remains with the owner until the sale is made by the agent. In return, the agent receives an agreed percentage of the sum in the form of commission.
Generally, there are two parties involved in consignment, those are as follows:
CONSIGNOR: the person who is the owner and sender of goods.
CONSIGNEE: the person who receives goods for sale/resale from the consignor in exchange for a percentage of the sale or on an agreed sum known as commission.
The relationship between consignor and consignee is that of principal and agent.
Let me give you a simple example of how consignment works.
Mr. John (consignor) sends goods to Mr. Jeh (consignee) worth Rs 20,000 to sell these goods at a cost plus 10%. Mr. Jeh agrees to sell these goods on his behalf for a commission of 1% on the sale. Therefore Mr. Jeh sold these goods at the agreed amount i.e Rs 22,000 [20,000+ 10% of 20,000] and charges Rs 220 [1% of Rs 22,000] as commission made on such sale and remit the remaining balance to the owner Mr. John.
There is a lot of confusion regarding “is consignment the same as the sale of goods?“. The answer is NO.
The reason what makes it different from the sale is
a) In sale the ownership gets transferred from seller to buyer but in case of consignment the ownership remains with the consignor until the sale is made by the agent.
b) In sale the risk gets transferred with the transfer of goods, whereas in consignment the risk remains with the owner till the sale is made.
c) Also goods once sold cannot be returned on damages /defaults, but in case of consignment goods that come to be faulty can be returned to the consignor.
Simply explaining the meaning of the useful life of an asset, it is nothing but the number of years the asset would remain in the business for purpose of revenue generation, making it more simple, the amount of time an asset is expected to be functional and fit for use. It is also called economic lRead more
Simply explaining the meaning of the useful life of an asset, it is nothing but the number of years the asset would remain in the business for purpose of revenue generation, making it more simple, the amount of time an asset is expected to be functional and fit for use. It is also called economic life or service life
It is a useful concept in accounting as it is used to work out depreciation. By knowing this useful life of an asset an entity can easily analyze how to allot the initial cost of an asset across the relevant accounting period rather than doing it unfairly manner.
How do we calculate the useful life of an asset?
The useful life of an asset is not an accounting policy, but an accounting estimate. calculating useful life is not an exact phenomenon but an estimate that is done because it directly impacts how much an asset is to expense every year.
Factors affecting “how long an asset is expected to be useful” depends on some stated points as below:
Usage, the more the assets are used, the more quickly it will deteriorate.
Whether the asset is new at the time of purchase or reused model.
Change in technology.
As per the companies act 2013, some of the useful life of assets are stated below
To know more about the different categories of assets you can follow the given link useful life of assets.
POINT TO BE NOTED:- There lies a huge difference in the useful life v/s the physical life of an asset. It is very important to note that amount of time an asset is used in a business is not always be same as an asset’s entire life span.
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.
How to treat cheque issued but not presented for payment?
A cheque that has been issued but yet not presented to the bank for payment is known as an unpresented cheque Generally what happens is when a cheque is issued to a party or say, creditor, the business immediately records them in the bank column of the cash book but the creditor might not present thRead more
A cheque that has been issued but yet not presented to the bank for payment is known as an unpresented cheque
Generally what happens is when a cheque is issued to a party or say, creditor, the business immediately records them in the bank column of the cash book but the creditor might not present them immediately to the bank for payment on the same date. The bank will only debit the account when it will be presented to it, therefore as long as the cheque remains unpresented there will be a difference in both the books i.e cash book and passbook.
Let me give you a short example of the above treatment
Suppose on 27th January, in the books of Mr. Shyam, the balance of the bank column as per the cash book is Rs 10,000. He received a cheque of Rs 5,000 from Mr. Hari, one of his debtors, which was sent to the bank for collection. The amount of the cheque was not collected by the bank until 31st January. Due to this, there arises a difference of Rs 5,000 in the cash book and pass book of Mr. Shyam.
Following will be the entry in Mr. Shyam cash book and passbook
In the books of Mr. Shaym
Cash book (bank column only)
Mr. Shyam
Bank Statement
How it is treated in the bank reconciliation statement?
There lies a temporary difference in both the books as the represented cheques will eventually be presented. Therefore we will not alter the cash book. The bank statement shows the greater amount of Rs 5,000 as compared to the cashbook, therefore we will debit the amount of unpresented cheque which will eventually make it balance to the level of bank statement.
See lessWhat are prepaid expenses?
Prepaid expenses are those expenses that have not been expired yet but their payment has already made in advance. There are many examples of prepaid expenses such as rent paid in advance, interest paid in advance, unexpired insurance You might be wondering what kind of account it is? As the name sugRead more
Prepaid expenses are those expenses that have not been expired yet but their payment has already made in advance. There are many examples of prepaid expenses such as rent paid in advance, interest paid in advance, unexpired insurance
You might be wondering what kind of account it is? As the name suggests it should be an expense but actually it’s an asset. When we initially record prepaid expenses we consider them as current assets and show them in the balance sheet. It turns out to be an expense when we use the service/item for what we have paid for in advance.
The entry for the above explanation is as follows:
From the modern rule, we know Assets and expenses increased are debits while decrease in assets and expenses are credit.
As this is asset, increase in asset therefore we debit prepaid expense and on the other hand we pay cash/ bank on behalf of that asset in advance hence there is decrease in assets hence credited. The entry will be as follows:
when this prepaid expense actually becomes expense we pass the adjusting entry. The entry will be as follows:
Let me give you simple example of the above entry.
Suppose you pay advance rent of Rs 9,000 for six months for the space you haven’t used yet. So you need to record this as prepaid expense and show it on the asset side of the balance sheet under current assets. Since you paid for the same the entry would be as follows:
As each month passes we will adjust the rent with prepaid rent account. Since the rent was advanced for 6 months, therefore (9,000/6) Rs 1500 will be adjusted each month with the rent expense account. The adjustment entry will be:
The process is repeated until the rent is used and asset account becomes nil.
See lessWhat is the journal entry for unrecorded assets in a partnership?
Let me explain to you in short what is unrecorded assets in the partnership. Basically, these are the assets that are not recorded in the books of accounts but are still present in the business in physical form. These assets are directly credited to the realization account at the time of dissolutionRead more
Let me explain to you in short what is unrecorded assets in the partnership. Basically, these are the assets that are not recorded in the books of accounts but are still present in the business in physical form. These assets are directly credited to the realization account at the time of dissolution of the partnership firm
Unrecorded assets are treated in two ways:
The journal entry for the unrecorded assets sold in cash is as follows:
To make the entries more simple for you let me give you a small example
A partnership firm has decided to dissolve its business. The firm had old furniture which was completely written off. They decide to sell the furniture for Rs 3,000. Here we can see that the firm has decided to realize its furniture by selling them in cash. Therefore the journal entry would be
And the journal entry for unrecorded assets taken over by the partner is as follows:
For example:
A partnership firm has decided to dissolve its business. The firm had old furniture which was completely written off. One of the pieces of furniture was taken over by one of the partners for Rs 3,000. Here we can see that the firm has decided to realize its furniture by taking over the partner. Therefore the journal entry would be
As realization is a nominal account it debits all expenses and losses while credit all incomes and gains. Therefore when a business treats unrecorded assets either by selling them or is taken over by the partner’s, it brings a certain amount of cash into the business hence Bank A/c and Partner’s capital account is debited in the journal entry and appear on the credit side of the realization account.
See lessHow to make a partnership deed?
To proceed with how to make a partnership deed, let me explain to you in short what is partnership deed? A partnership deed is the written agreement between the partners who have agreed to share profits of a business carried on by them. This basically contains terms and conditions to be followed betRead more
To proceed with how to make a partnership deed, let me explain to you in short what is partnership deed?
A partnership deed is the written agreement between the partners who have agreed to share profits of a business carried on by them. This basically contains terms and conditions to be followed between the partners.
Few contents of the partnership deed are as follows:
Generally, a partnership deed contains all those matters which can affect the relationship between the partners. However, if there is no such agreement the partnership should follow the provisions mentioned under The Partnership Act, 1932.
Now coming to the main question how to make a partnership deed? See the process is not so complicated. The partnership deed may be oral or written, but as the oral agreement has no value for obtaining tax benefits, a partnership firm always prefers a written agreement.
To prepare the same the partnership deed must be prepared on a stamp paper and signed by all the partners as per Indian Stamp Act and copies of the same should be with all the partners and also must be filed by the registrar of the firm.
A deed may vary depending on the nature of the partnership they are engaged in. Generally, partnerships are of three types
the process of making deed is same for all but, the content of deed may vary depending on the liability of partners in the partnership.
Further to know more about the registration process of partnership firm you can refer the following link https://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf
See lessDifference between return inwards and return outwards?
Return inwards in simple terms means sending back goods by the customer to the seller. Simply speaking when your customer purchases items from your business but is not satisfied with the items so received they return those items back to you. Some of the reasons for sending back the items are statedRead more
Return inwards in simple terms means sending back goods by the customer to the seller. Simply speaking when your customer purchases items from your business but is not satisfied with the items so received they return those items back to you. Some of the reasons for sending back the items are stated below:
In such a case, the return is initiated by the buyer and a credit note is issued to the buyer, and the same is recorded in the books of accounts. Also, this return inward is deducted from the total sales.
Example: M/s Pest ltd sold 4 units of fertilizers spraying tools of Rs 10,000 each to Mr. Zen. On inspection, he found 1 unit worth Rs 10,000 so received to be defective. Therefore the return of Rs 10,000 was initiated and goods were returned to the seller. A credit note of Rs 10,000 will be raised by the seller (M/s Pest ltd) to the buyer (Mr. Zen). The following adjustment will be shown in the trading account.
Return outwards means returning the goods by the buyer to the supplier. In layman language, when you purchase items for your business and you are not happy with the items then you may decide to return them.
In this case, a debit note is issued to the seller and is recorded in the books of accounts, and the same is reduced from the total purchases in the trading account so prepared.
Example: Suppose you are dealing in a business of clothing. You purchased 20 shirts for Rs.10,000 from a wholesale market. When you sold these shirts, you found 10 shirts worth Rs 5,000 to be defective which were returned by your customer. Therefore you will return these shirts to the wholesale market from where you purchased them. The following adjustment will be shown in the trading account.
See lessDepreciation on car as per companies act?
As per the companies act 2013, the rate of depreciation for cars/vehicles and their useful life is mentioned below They are categorized by the companies act as follows: when these car/ motor vehicles are owned with no intention to sell within the accounting period and are generally used to generateRead more
As per the companies act 2013, the rate of depreciation for cars/vehicles and their useful life is mentioned below
They are categorized by the companies act as follows:
Car/motor vehicles are considered as fixed tangible assets. Treatment of these cars/ motor vehicles is similar to those of other fixed assets. The depreciation will be shown as an expense in the profit and loss account and also the value of these assets will be adjusted in the balance sheet.
Explaining with a simple example: Mars.Ltd purchased a car for Rs 10,00,000, and use it for its official purpose. Its useful life as per act is taken as 6 years and the rate of depreciation as 31.23% as per the WDV method.
Therefore depreciation as per WDV is calculated as follows
Cost of car = Rs 10,00,000
Residual value = NIL
Rate of depreciation = 31.23%
depreciation for first-year = Rs (10,00,000 – NIL)*31.23%
= Rs 3,12,300
Calculated depreciation on this car will be shown in the profit and loss account as an expense and the same will be treated under the balance sheet every year. Here is the extract of profit and loss and the balance sheet for the above example.
See lessIn accounting Consignment means?
Consignment is "goods sent by its owners to his agent for the purpose of sale". In simple language, the word consignment means to send goods to another person for sale on his behalf without transfer of ownership. In accounting terms, consignment is the process where the owner (consignor) transfers tRead more
Consignment is “goods sent by its owners to his agent for the purpose of sale”. In simple language, the word consignment means to send goods to another person for sale on his behalf without transfer of ownership.
In accounting terms, consignment is the process where the owner (consignor) transfers the possession of the goods to the agent (consignee) to make a sale on his behalf while the ownership of goods remains with the owner until the sale is made by the agent. In return, the agent receives an agreed percentage of the sum in the form of commission.
Generally, there are two parties involved in consignment, those are as follows:
The relationship between consignor and consignee is that of principal and agent.
Let me give you a simple example of how consignment works.
Mr. John (consignor) sends goods to Mr. Jeh (consignee) worth Rs 20,000 to sell these goods at a cost plus 10%. Mr. Jeh agrees to sell these goods on his behalf for a commission of 1% on the sale. Therefore Mr. Jeh sold these goods at the agreed amount i.e Rs 22,000 [20,000+ 10% of 20,000] and charges Rs 220 [1% of Rs 22,000] as commission made on such sale and remit the remaining balance to the owner Mr. John.
There is a lot of confusion regarding “is consignment the same as the sale of goods?“. The answer is NO.
The reason what makes it different from the sale is
a) In sale the ownership gets transferred from seller to buyer but in case of consignment the ownership remains with the consignor until the sale is made by the agent.
b) In sale the risk gets transferred with the transfer of goods, whereas in consignment the risk remains with the owner till the sale is made.
c) Also goods once sold cannot be returned on damages /defaults, but in case of consignment goods that come to be faulty can be returned to the consignor.
See lessWhat is useful life of assets as per the Companies Act?
Simply explaining the meaning of the useful life of an asset, it is nothing but the number of years the asset would remain in the business for purpose of revenue generation, making it more simple, the amount of time an asset is expected to be functional and fit for use. It is also called economic lRead more
Simply explaining the meaning of the useful life of an asset, it is nothing but the number of years the asset would remain in the business for purpose of revenue generation, making it more simple, the amount of time an asset is expected to be functional and fit for use. It is also called economic life or service life
It is a useful concept in accounting as it is used to work out depreciation. By knowing this useful life of an asset an entity can easily analyze how to allot the initial cost of an asset across the relevant accounting period rather than doing it unfairly manner.
How do we calculate the useful life of an asset?
The useful life of an asset is not an accounting policy, but an accounting estimate. calculating useful life is not an exact phenomenon but an estimate that is done because it directly impacts how much an asset is to expense every year.
Factors affecting “how long an asset is expected to be useful” depends on some stated points as below:
As per the companies act 2013, some of the useful life of assets are stated below
To know more about the different categories of assets you can follow the given link useful life of assets.
POINT TO BE NOTED:- There lies a huge difference in the useful life v/s the physical life of an asset. It is very important to note that amount of time an asset is used in a business is not always be same as an asset’s entire life span.
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.
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