AccountingQA Latest Questions

Ayushi
AyushiCurious
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  2. Pooja_Parikh Aspiring Chartered Accountant
    This answer was edited.

    The major affairs of the company are handled by the manager and hence he is entitled to receive some compensation for his efforts. This is termed Managerial Remuneration. The manager has to bring out the maximum potential of the employees while ensuring that the interests of the shareholders and othRead more

    The major affairs of the company are handled by the manager and hence he is entitled to receive some compensation for his efforts. This is termed Managerial Remuneration. The manager has to bring out the maximum potential of the employees while ensuring that the interests of the shareholders and other stakeholders are secured.

    MAXIMUM REMUNERATION

    As per section 197 of the Companies Act, the Company has certain limits on paying maximum remuneration, depending on whether he is working full-time or part-time. If the company has only one whole-time manager, he is entitled to a maximum remuneration of 5% of net profits. If there is more than one whole time manager, then the percentage increases to 10%.

    For part-time directors, the remuneration allowed is 1% of net profits (if there is a whole-time director present) and if no whole-time manager is present, then remuneration for a part-time director is 3%.

    Therefore, a company can only pay a maximum remuneration of 11% of net profits.

    A public company is allowed to pay remuneration in excess of 11% by :

    • Passing a special resolution approved by the shareholders
    • Subject to compliance with Schedule V conditions

    Remuneration can be paid to such managers who do not have any direct interest in the company and also possesses special knowledge and expertise along with a graduate-level qualification.

    PENALTY

    Any person who fails to comply with the provisions of managerial remuneration shall be punishable with a fine that can vary from Rs. 1 Lakh to a maximum of Rs. 5 Lakhs.

    However, Sec 197 applies to only public companies and hence private companies are free to pay managerial remuneration with no upper limit.

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Satyamkumar
Satyamkumar
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What is the difference between expense and revenue expenditure

  2. Mukarram

    Expense Expenditure: Expense expenditures refer to the costs incurred by a company in its day-to-day operations. These expenses are deducted from revenue to calculate the net income. Here are some examples of expense expenditures: Salaries and wages: The payments made to employees for their servicesRead more

    Expense Expenditure:
    Expense expenditures refer to the costs incurred by a company in its day-to-day operations. These expenses are deducted from revenue to calculate the net income. Here are some examples of expense expenditures:

    Salaries and wages: The payments made to employees for their services are considered expense expenditures. This includes salaries, wages, bonuses, and commissions.

    Rent: The cost of leasing office space or other business premises is an expense expenditure. It includes monthly rent payments, property taxes, and insurance premiums associated with the rented space.

    Utilities: Expenses related to utilities such as electricity, water, gas, and internet services are considered expense expenditures.

    Office supplies: The cost of purchasing and replenishing office supplies like stationery, printer ink, pens, paper, and other consumables is categorized as an expense expenditure.

    Advertising and marketing: Expenditures incurred to promote a company’s products or services, such as advertising campaigns, online marketing, social media promotions, and print media advertisements, are considered expense expenditures.

    Revenue Expenditure:
    Revenue expenditures are expenses incurred to acquire or improve assets that are expected to generate revenue over multiple accounting periods. Unlike expense expenditures, revenue expenditures are typically not capitalized. Here are some examples of revenue expenditures:

    Repairs and maintenance: Costs incurred to repair and maintain existing assets, such as machinery, equipment, and vehicles, are considered revenue expenditures. Routine maintenance expenses, like oil changes, servicing, and small repairs, fall into this category.

    Software and technology upgrades: Expenses incurred to upgrade or enhance software systems, computer hardware, or other technological infrastructure are considered revenue expenditures.

    Training and development: Expenditures on employee training programs, workshops, seminars, and skill development courses that enhance the productivity and capabilities of the workforce are classified as revenue expenditures.

    Advertising campaigns for new products: While advertising expenses are generally classified as expense expenditures, when they are specifically related to the launch or introduction of new products or services, they can be considered revenue expenditures.

    Renovation and improvements: Costs incurred to renovate or improve existing assets, such as office spaces, stores, or warehouses, can be classified as revenue expenditures if they enhance the earning capacity or extend the useful life of the asset.

    These examples highlight the distinction between expense and revenue expenditures based on their purpose and treatment in financial statements.

     

     

     

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Nistha
Nistha
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Accounting PoliciesAccounting PrinciplesDifference Between
  2. Sandy CMA Final
    This answer was edited.

    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.

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Aadil
AadilCurious
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Meaning We know that an account in ledger format has two amount columns i.e. debit and credit amount columns. Now, most of the time, the total of debit and credit sides do not match.  The difference between their totals is called the balance of the account and it is posted on the shorter side. ThisRead more

    Meaning

    We know that an account in ledger format has two amount columns i.e. debit and credit amount columns. Now, most of the time, the total of debit and credit sides do not match.  The difference between their totals is called the balance of the account and it is posted on the shorter side. This result in equalling the total of both sides, hence this act is called ‘balancing an account.

    Types of balances

    Balancing an account is a very usual practice so that the balance of an account can be known. An account can have two types of balances:

    • Debit balance, where the debit side total is more than the credit side total.
    • Credit balance, where the credit side is more than the debit side total.

    The balance of an account is posted on the shorter side. It means:

    • The debit balance will be shown on the credit side as the credit side total is shorter. (posted as ‘By Balance c/d’)
    • The credit balance will be shown on the debit side as the debit side total is shorter (posted as ‘To Balance c/d’)

    Example

    The following is a cash account that is not balanced:

     

    We can see the debit side is ₹800 more than the credit side. It means there is a debit balance. It will be posted on the credit side as ‘By balance c/d’ to balance the account.

    Exceptions

    Balance of the income and the expense accounts (nominal accounts)are not computed. Instead, they are closed to trading account or profit and loss account to balance their amount totals. For example, the salaries account and sales accounts

    Only the balance of the following types of accounts are computed and carried forwarded to successive accounting years:

    • Assets
    • Liabilities
    • Capital

    The balance of these accounts is shown on the trial balance and balance sheet as well.

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Jayesh Gupta
Jayesh GuptaCurious
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A. Trading Account B. Trial Balance C. Profit and Loss Statements D. Balance Sheet  

  2. Ayushi Curious Pursuing CA
    This answer was edited.

    The correct answer is Option C. The Profit and loss statement is also referred to as the statement of revenues and expenses. It is because the Profit and Loss statement reports all types of revenue that have been earned and all types of expenses that have been incurred during a particular period ofRead more

    The correct answer is Option C.

    The Profit and loss statement is also referred to as the statement of revenues and expenses. It is because the Profit and Loss statement reports all types of revenue that have been earned and all types of expenses that have been incurred during a particular period of time.

    Option A Trading Account reports only the operating revenues and operating expenses.

    Option B Trial Balance shows the balances of all the ledgers of a business and is prepared to check the arithmetical accuracy of the books of accounts.

    Option D Balance sheet reports the balances of assets and liabilities of a business as at a particular date.

    People often confuse the trading and the profit and loss statement to be the same. But they are different.

    Trading Account is prepared with aim of arriving at operating profit or gross profit whereas the profit and loss statement is prepared to arrive at the net profit of a business and reports every revenue and expense whether operating or non operating in nature.

    Operating revenue and operating expense are earned or incurred respectively are related to the chief business activities of a business.

    Features of profit and loss statement:

    1. It is prepared to measure the net profit of a business hence its profitability.
    2. It is usually prepared for a period of one year but many companies do prepare quarterly statements to better judge their performance.
    3. It helps the management in decision making and the other stakeholders like shareholders, creditors to make informed decisions.
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Anushka Lalwani
Anushka Lalwani
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  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)
    This answer was edited.

    Meaning The term ‘Sundry creditors’ consist of two words:  ‘Sundry’ and ‘creditors’.  The word ‘sundry’ means the items which are not significant enough to be named separately. It also refers to a collection of miscellaneous items. Creditors are the person from whom money is borrowed or goods are puRead more

    Meaning

    The term ‘Sundry creditors’ consist of two words:  ‘Sundry’ and ‘creditors’. 

    The word ‘sundry’ means the items which are not significant enough to be named separately. It also refers to a collection of miscellaneous items.

    Creditors are the person from whom money is borrowed or goods are purchased on credit by a business or a non-business entity. They have to be repaid after a period of time which is usually less than or up to one year.

    By combining the meaning of both words, ’sundry’ and ‘creditor’, the term ‘sundry creditor’ will refer to the collection of insignificant creditors of an entity.

    Back in the days when accounting records were maintained on paper, only the records of those creditors were maintained separately, from whom goods are purchased regularly and in large amounts. 

    But there used to be numerous other creditors with whom the transactions were occasional and insignificant. To reduce the paperwork, records of all such creditors were maintained on a single page or book under the head ‘Sundry Creditors’

    Nowadays, as accounting records are maintained digitally, hence maintaining records of each and every creditor is not a problem. 

    Hence, every creditor whether small or big, is grouped under the head ‘Sundry creditor’ or ‘Trade Creditor’.

     

    Accounting Treatment 

    Sundry creditors are the persons to whom a business owes money. 

    Hence, as per golden rules of accounting, Sundry creditor is a personal account and the golden rule for personal account is, ‘Debit the receiver and credit the giver’ 

    We know sundry creditors are liabilities, hence, as per modern rule of accounting, sundry creditors are credited in case of increase and debited in case of decrease.

    Example, a business purchased goods for Rs. 10,000 from ABC & Co. The journal entry will as follows:

    Here, ABC & Co is the creditor. It is credited as it is a personal account and the creditor has given the goods to the business, hence the giver is credited.

    From point of view of modern rules of accounting, ABC & Co. is a creditor, a liability. On purchase of goods on credit, a liability is created. Hence, ABC & Co A/c is credited.

     

    Balance sheet

    Sundry creditor is a current liability, so it is shown on the liabilities side of a balance sheet. Trade payable and accounts payable mean sundry creditors only.

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Jayesh Gupta
Jayesh GuptaCurious
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Shareholders are the entities that hold some amount or number of shares of a company. As we know that ownership of a company is divided into its shares, a shareholder is actually a part-owner of a company. By entity, it means a shareholder may be: An individual Any other company Any other incorporatRead more

    Shareholders are the entities that hold some amount or number of shares of a company. As we know that ownership of a company is divided into its shares, a shareholder is actually a part-owner of a company.

    By entity, it means a shareholder may be:

    • An individual
    • Any other company
    • Any other incorporated entity
    • Cooperative society
    • BOI( Body of Individuals)
    • AOP(Association of Persons)
    • Artificial Juridical Person

    The rights of shareholders depend on the type of shareholder one is.

    Types of shareholders

    1.   Equity Shareholders: By the term ‘shareholders’ we usually mean equity shareholders. They are permanent in nature i.e. they are not repaid the money they have invested into the company until the company is liquidated or wound up. Equity shareholders have the following rights:

    • Right to have a share in profits made by the company. The profit made by a company, when distributed to its equity shareholders is known as a dividend.
    • Right to vote on all resolutions to be passed in the Annual General Meeting of a company.
    • Right to get repaid in event of winding up of the company. However, they are paid after meeting the obligations of outsiders and of preference shareholders.
    • Right to transfer ownership of the shares. A shareholder may sell its shares to some willing buyer and cease to be a shareholder of a company.

     

    2. Preference Shareholders: They are shareholders who are given preference regarding:

    • Dividend
    • Repayment at time of winding up

    Unlike equity shareholders, they are not of permanent nature. Preference shares are redeemable i.e. they are to be repaid after a period which cannot be more than 20 years from the date of allotment of such shares (as the Companies Act, 2013). Also, a company cannot issue irredeemable preference shares. The rights of preference shareholders are as follows:-

    • By preference as to dividend, it means preference shareholders have the right to receive a fixed dividend as a certain percentage on the nominal value of the share and that too before equity shareholders are paid.
    • Right to get repaid at the date of redemption.
    • If the company get liquidated before redemption of the preference shareholder, then they have the right to get repaid before equity shareholders.

     

    3.  Differential Voting Rights Shareholders: These shareholders hold equity shares but with differential, right as to voting i.e. they may either have less voting rights or more voting right as compared to ordinary equity shares. Generally, DVR shares carry less voting power.

    For example, a DVR shareholder gets 1 vote for 10 shares whereas an ordinary equity shareholder gets 10 votes for 10 shares i.e. one vote for every share. DVR shares issued to raise not only permanent capital but also prevent dilution of voting rights.

    The rest of the right remains the same as the equity shareholders.

     

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Mehak
Mehak
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  2. Aditi

    Biological Assets comes under International Accounting Standard IAS 41 Agriculture. IAS 41 Agriculture is the first standard that specifically covers the primary sector. The scope of IAS 41 is accounting for agricultural activity. Agricultural Activity- It is the management of biological transformatRead more

    Biological Assets comes under International Accounting Standard IAS 41 Agriculture.

    IAS 41 Agriculture is the first standard that specifically covers the primary sector. The scope of IAS 41 is accounting for agricultural activity.

    • Agricultural Activity- It is the management of biological transformation by an entity and measuring the change in the quality and quantity of biological assets.
    • Biological Transformation- It comprises the process of growth, degeneration, production and procreation that cause qualitative or quantitative changes in a biological asset
    • Biological Asset – They are living plants or animals owned by an entity
    • Agricultural Produce- It is the harvested / detached product of the entity’s biological asset.

    IAS 41 does not apply to

    • Agricultural land
    • Intangible assets related to agricultural activity
    • Products that are the result of processing after the point of harvest, for example, yarn, carpet, rubber, wine, etc
    • The land on which the biological assets grow, regenerate, degenerate.

     

     

    Biological Assets

    Definition

    Biological assets are living plants or animals that go through biological transformation, owned by an entity to prepare agricultural produce for the purpose of agricultural activities only.

    Living plants include plants that are consumable within 1 year and are harvested. It also includes plants that are used for lumbering and wood-cutting activities.

    Examples

    Examples of biological assets are:

    Sheep, pigs, poultry, beef cattle, fish, dairy cows, plants for harvest etc

    Importance

    • Farming: They are key to agriculture and food production.
    • Income: They generate substantial income for businesses in industries such as vineyards, livestock, silviculture, etc.
    • Sustainability: Properly managing them helps the environment.

     

    Accounting & Presentation

    Recognition

    Under IAS 41 biological assets are recognised when

    • The business must have ownership over them from a past event.
    • The future economic benefits are expected to flow to the business from their ownership.
    • The cost or fair value of the asset can be measured reliably.

    Agricultural produce is recognised

    • It is recognised at the point of harvest or detachment.

    Agricultural produce is derecognised when

    • They enter the trading.
    • Enters the production process.

    Measurement

    • Biological assets are measured on initial recognition and at each balance sheet date at their fair value less costs to sell.
    • Costs to sell are incremental costs incurred in selling the asset.
    • Agricultural produce is measured at the point of harvest, at fair value less costs to sell at the point of harvest.
    • Agricultural produce after the point of harvest/ detachment is transferred and treated under the IAS 2 Inventory

    Gains & Losses

    • Gains and losses arising from the initial recognition of biological assets are reported in the statement of profit and loss.
    • The change in fair value less costs to sell of a biological asset between balance sheet dates is reported as gain or loss in the statement of profit and loss.
    • A gain or loss arising on initial recognition of agricultural produce at fair value less selling costs is included in profit or loss for the period in which it arises.

    Treatment

    • The sale of agricultural produce is treated as revenue in the statement of profit and loss.
    • Agricultural produce to be harvested for more than 12 months, livestock to be held for more than 12 months and trees cultivated for lumber are recorded as Biological assets under the Non-current assets head in the balance sheet.
    • Agricultural produce to be harvested within 12 months, livestock to be slaughtered within 12 months and annual crops like wheat, and maize are recorded as Biological assets under the head Current assets in the balance sheet.
    • Inventories produced from agricultural produce are presented as Inventory under the head Current assets in the balance sheet.

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Manvi
Manvi
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External Users
  2. Karan B.com and Pursuing ACCA
    This answer was edited.

    External users are people outside the business or entity who use accounting information. They do not have a direct link with the organization but can influence or can be influenced by the organization's activities. For example - Tax Authorities, Banks, Customers, Trade Unions, Government, Investors,Read more

    External users are people outside the business or entity who use accounting information. They do not have a direct link with the organization but can influence or can be influenced by the organization’s activities.

    For example – Tax Authorities, Banks, Customers, Trade Unions, Government, Investors, or Creditors.

    External Users:

    • Investors – Investors are interested in the past performance and future earnings of the business. They want to track the performance of their business whether it is giving them any benefit or not. A business’s past information helps investors in assessing their investments.
    • Creditors or Suppliers – Some suppliers provide goods and services on credit, and before providing any credit they check the company’s ability to pay. Creditors are interested in the company’s liquidity i.e to see if a company can fulfill short-term obligations.
    • Customers – Customers are more interested in a company’s financial statement as they rely on them for goods and services. They check the ability of the company whether it is providing them good quality goods and will continue to provide them in future.
    • Banks – Banks are most likely interested in the liquidity and profitability of the company. They keep track of whether the company can pay the debt when it is due along with interest.
    • Government – The company’s activities are central to the economy and must be met by them. The government controls a company’s actions if they break a law or damage the environment.
    • Environmental agencies – They keep an eye on organizations whether their activities are harming the environment or not.
    • Trade unions – They take an active part in the decision-making process. They want to see the financial statements of the company and want to decide the compensation of the employees they represent.
    • Tax authorities – They determine whether the business has declared the correct amount of tax in its tax returns. They conduct audits of the tax returns to verify them with the accounting records disclosed.

    Here is a summary of external users

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AbhishekBatabyal
AbhishekBatabyalHelpful
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  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Meaning A valuation account is a balance sheet account that is paired with another balance sheet account to report the carrying amount of the paired account at a reduced value. The purpose of a valuation account is to reduce the balance of the concerned asset or liability without affecting the mainRead more

    Meaning

    A valuation account is a balance sheet account that is paired with another balance sheet account to report the carrying amount of the paired account at a reduced value.

    The purpose of a valuation account is to reduce the balance of the concerned asset or liability without affecting the main ledger account.  This is a conservative approach to use valuation accounts to present the value of the concerned asset or liability at a reduced value.

    The most common example of a valuation account is the ‘Provision for doubtful debts account’. It appears in the balance sheet as a reduction from the debtors’ accounts. Also when the amount is transferred to this provision, it appears in the statement of profit and loss account. But it doesn’t appear in the debtors’ account ledger.

    Treatment

    A valuation account appears only in the balance sheet. Sometimes, it also appears in the profit and loss account when any amount is transferred to it.

    Valuation accounts are only used in accrual accounting. They cannot be used in cash-based accounting as there is no flow of cash related to valuation accounts.

    They have a balance opposite of their paired accounts i.e. if their paired account is an asset then they will have a credit balance and if it is a liability then they will have a debit balance.

    Other Examples of valuation accounts are as follows:

    1. Provision for doubtful debts (offsets the account receivables or debtors’ account)
    2. Accumulated depreciation (report the assets net of depreciation)
    3. Discount on bonds payable (reduces the reporting balance of bond payable account)
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