AccountingQA Latest Questions

prashant06
prashant06
In: >

A. Normal wear and tear B. Foreseen obsolescence C. Normal wear & tear & foreseen obsolescence D. Unforeseen obsolescence  

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

    Depreciation of fixed capital assets refers to C. Normal wear & tear & foreseen obsolescence. Normal wear & tear refers to the damage caused to an asset due to its continuous usage. Even when the asset is properly maintained, wear and tear occurs. Hence, it is considered to be inevitableRead more

    Depreciation of fixed capital assets refers to C. Normal wear & tear & foreseen obsolescence.

    Normal wear & tear refers to the damage caused to an asset due to its continuous usage. Even when the asset is properly maintained, wear and tear occurs. Hence, it is considered to be inevitable and natural.

    For example, Kumar has purchased a car for 25,00,000. After five years he wishes to sell his car. Now the market price of his used car is 12,00,000. This reduction in the value of the car from 25,00,000 to 12,00,000 is because of its usage. This fall in the value of the asset due to usage is known as normal wear & tear.

    In generic terms, obsolescence means something that has become outdated or is no longer being used. Foreseen obsolescence is nothing but obsolescence that is expected.

    In the context of business, whenever the value of an asset falls because it has become outdated or is replaced by a superior version, we call it obsolescence. The fall in the value of the asset due to obsolescence expected by the purchaser of the asset is known as foreseen obsolescence.

    When an asset becomes obsolete it doesn’t mean it is not in working condition. Even when an asset is in good working condition it can become obsolete due to the following reasons:

    • Technology advancement.
    • Change in demand (change in fashion, change in taste and preferences of the consumers, etc.)

     

    For example, before the invention of computers, people used typewriters for getting their paperwork done. With the invention of computers, laptops, etc. it is easier to type as well as save our documents, spreadsheets, etc. Thus typewriters became obsolete with the invention of computers. It has become a technology of the past.

    Here is a summarised version of wear & tear and obsolescence:

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A_Team
A_Team
In: >

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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Naina@123
Naina@123
In: >

1. Credit balance in the cash column of the cash book 2. Credit balance in the bank column of the cash book 3. Neither of the two 4. Both (a) ...

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

    The correct answer is 2. Credit balance in the bank column of the cash book. The credit balance in the bank column of Cash Book represents the overdraft facility utilized by the business. Overdraft is a credit extension facility offered by banks to both savings and current account holders. It allowsRead more

    The correct answer is 2. Credit balance in the bank column of the cash book.

    The credit balance in the bank column of Cash Book represents the overdraft facility utilized by the business. Overdraft is a credit extension facility offered by banks to both savings and current account holders. It allows the account holder to borrow a specified sum of money over and above the balance in their accounts.

    It is a form of short-term borrowing offered by banks and is extremely useful for businesses to resolve short-term cash flow issues.

    The account holder can withdraw money even when his/her account does not have enough balance to cover the withdrawal. Since the business is withdrawing money that is not in its account, an overdraft is represented by a negative bank balance. That is why they are shown as a credit balance in the bank column of the Cash Book.

    Overdraft is a liability for the business. Hence, it is shown on the Equity and Liability part of the Balance Sheet under the head Current Liabilities and sub-head Short Term Borrowings.

    Banks do not offer this facility to all customers. Only those who have a good reputation and credit score are eligible for this facility. Like any other borrowing, interest is charged on the amount utilized by the account holder as an overdraft.

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Manvi
Manvi
In: >

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

    As the name suggests, unrecorded liabilities means the liabilities that a firm fails to record in its book of accounts. Usually, a firm gets to know about its unrecorded liabilities when it is about to get dissolved. What happens is that upon hearing that a firm is going to dissolve in near future,Read more

    As the name suggests, unrecorded liabilities means the liabilities that a firm fails to record in its book of accounts.

    Usually, a firm gets to know about its unrecorded liabilities when it is about to get dissolved. What happens is that upon hearing that a firm is going to dissolve in near future, its creditors and lenders report to the firm about their dues.

    At that time, a firm may get to know that it had failed to record some liabilities in its books and it has settled them now.

    We know that when a partnership firm is dissolved, a realisation account is created to which all the assets and liabilities of the firm are transferred.  Entries are as given below:

    Realisation A/c     Dr.      ₹ Amt

    To Assets A/c                  ₹ Amt

    ( Asset transferred to realisation account)

    Liabilities A/c    Dr.        ₹ Amt

    To Realisation A/c       ₹ Amt

    (Liabilities transferred to realisation account)

    Hence, for transferring unrecorded liabilities, the procedure is the same for the recorded liabilities:

    Unrecorded Liabilities A/c        Dr.     ₹ Amt

    To Realisation A/c                               ₹ Amt

    ( Unrecorded liabilities transferred to realisation account)

    Then to pay off the unrecorded liability the entry is:

    Realisation A/c     Dr.    ₹ Amt

    To Cash / Bank A/c       ₹ Amt

    (Unrecorded liabilities paid off)

    That’s it, I hope I was able to make you understand.

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Karan
Karan
In: >

Difference BetweenDissolution of FirmDissolution of Partnership
  2. PriyanshiGupta Graduated, B.Com
    This answer was edited.

    Dissolution of partnership means partnership coming to an end while the firm still stands. Various reasons for the dissolution of partnership could be: Admission of a partner Death of a partner Retirement of a partner Dissolution of firm In the event of the above cases, the existing partnership is dRead more

    Dissolution of partnership means partnership coming to an end while the firm still stands. Various reasons for the dissolution of partnership could be:

    • Admission of a partner
    • Death of a partner
    • Retirement of a partner
    • Dissolution of firm

    In the event of the above cases, the existing partnership is dissolved and a new partnership is created with the new partners without affecting the firm.

    A new partnership deed is created, in case there is a partnership deed agreed among partners and new profit-sharing ratios among the partners are decided, while the assets and liabilities of the firm remain the same.

    Dissolution of a firm means the firm no longer exists. Various reasons for the dissolution of a partnership firm could be:

    • Mutual decision of partners
    • By the court of law

    A partnership firm is dissolved by a court of law when there has been a non-compliance of law, the firm is engaged in illegal practices, or that the court’s opinion is that it is in the public interest for the firm to be dissolved.

    The partnership is also dissolved with the dissolution of the firm but the converse need not be true.

    When a firm is dissolved, there is a sequence that is followed to pay creditors and partners.

    • First, outside creditors like banks, third party creditors are paid firstly with the cash available with the firm and then by selling the assets.
    • Second, partners who have lent money in the form of a loan to the firm are paid.
    • Lastly, if there is any surplus, partners are paid with the amount of their capital. In case of loss, partners are required to pay from their personal assets.

    Dissolution of the firm can be done by the partners themselves and they could also appoint a third person to do so on the payment of fees, charges, the proportion of surplus, or any contract that has been agreed to.

    To summarize, we can a draw a difference table as follows:

    Dissolution of Partnership Dissolution of Partnership Firm
    The partnership ends but the firm still stands. A partnership firm no longer exists.
    A new partnership deed is created by the mutual agreement of partners. A new partnership firm is created if the partners decide.
    Reasons:

    ·        Admission

    ·        Retirement

    ·        Death

    		 Reasons:

    ·        By court

    ·        Mutual decision of partners
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Aadil
AadilCurious
In: >

  2. Ayushi Curious Pursuing CA

    The accounting equation for a non-profit organisation is almost the same as in the case of the profit-oriented organisation. Let's first briefly understand what accounting equation and non-profit organisation are: Accounting Equation Accounting equation is an equation that depicts the relationship bRead more

    The accounting equation for a non-profit organisation is almost the same as in the case of the profit-oriented organisation. Let’s first briefly understand what accounting equation and non-profit organisation are:

    Accounting Equation

    Accounting equation is an equation that depicts the relationship between assets, liabilities and capital of an entity.

    Assets = Liabilities + Capital

    As per this equation, the total assets of an entity are equal to the sum of its total liabilities and total capital. This equation holds good in every situation.

    Non-Profit Organisation

    A Non-Profit Organisation is an entity which exists for purposes other than for profit. Such organizations exist and operate for charitable purposes, promotion of culture and sports and welfare of society. The accounting for Non-profit organisation is slightly different from For-profit organisations. In the case of a non-profit organisation, the capital account is known as the capital fund.

    Accounting Equation for non-profit organisations

    The Accounting equation for a non-profit organisation is as follows:

    Assets = Liabilities + Capital fund.

    The difference is only in name. In the case of non-profit organizations, the capital is known as a capital fund. Rest everything is the same. The accounting equation will be prepared as normally prepared for business concerns.

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Radha
Radha
In: >

  2. Rahul_Jose Aspiring CA currently doing Bcom

    The term set off in English means to offset something against something else. It thereby refers to reducing the value of an item. In accounting terms, when a debtor can reduce the amount owed to a creditor by cancelling the amount owed by the creditor to the debtor, it is termed as set off. It is coRead more

    The term set off in English means to offset something against something else. It thereby refers to reducing the value of an item. In accounting terms, when a debtor can reduce the amount owed to a creditor by cancelling the amount owed by the creditor to the debtor, it is termed as set off.

    It is commonly used by banks where they seize the amount in a customer’s account to set off the amount of loan unpaid by the customer.

    Types

    There are various types of set-offs as given below:

    • Transaction set-off – This is where a debtor can simply reduce the amount he is owed from the amount he owes to the creditor.
    • Contractual set-off – Sometimes, a debtor agrees to not set off any amount and hence he would have to pay the entire amount to the creditor even if the creditor owed some amount to the debtor.
    • Insolvency set-off – These rules are mandatory and have to be followed under the Insolvency rules 2016.
    • Bankers set-off – Here, the bank sets off the amount of a customer with another account of the customer.

    Example

    Let’s say Divya owes Rs 20,000 to Sherin for the purchase of goods. But, Sherin owed Rs 6,000 to Divya already for use of her Machinery. Therefore, the amount of 6,000 can be set off against the 20,000 owed to Sherin and hence Divya would effectively owe Sherin Rs 14,000.

    This helps in reducing the number of transactions and unnecessary flow of cash.

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Astha
AsthaLeader
In: >

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

    Provisional financial statements are prepared on the basis of past data i.e. for the period which is already over. For example, the bank requested for Q4 financial statement but there were still 15 days left for the quarter to get over. In this case, the business/company will prepare a provisional fRead more

    Provisional financial statements are prepared on the basis of past data i.e. for the period which is already over. For example, the bank requested for Q4 financial statement but there were still 15 days left for the quarter to get over. In this case, the business/company will prepare a provisional financial statement.

    Provisional financial statements can be requested by banks, investors, and large vendors while making decisions regarding business and want current financial statements which can be obtained easily.

    It is prepared with the help of past actual figures on a particular date or before the end of a financial statement. The main purpose of preparing is to show the company’s financial position on a particular date. Items of the provisional financial statement are assets, liabilities, and equity/capital.

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A_Team
A_Team
In: >

  2. Ishika Pandey Curious ca aspirant
    This answer was edited.

    Definition The trial balance is a list of all the closing balances of the general ledger at the end of the year. Or in other words, I can say that it is a statement showing debit and credit balances. A trial balance is prepared on a particular date and not on a particular period. Importance As the tRead more

    Definition

    The trial balance is a list of all the closing balances of the general ledger at the end of the year. Or in other words, I can say that it is a statement showing debit and credit balances.

    A trial balance is prepared on a particular date and not on a particular period.

    Importance

    As the trial balance is prepared at the end of the year so it is important for the preparation of financial statements like balance sheet or profit and loss

    Purpose of trial balance which are as follows:

      • To verify the arithmetical accuracy of the ledger accounts
      • This means trial balance indicates that equal debits and credits have been recorded in the ledger accounts.
      • It enables one to establish whether the posting and other accounting processes have been carried out without any arithmetical errors.
      • To help in locating errors
      • There can be some errors if the trial balance is untallied therefore to get error-free financial statements trial balance is prepared.
      • To facilitates the preparation of financial statements
      • A trial balance helps us to directly prepare the financial statements and then which gives us the right to not look or no need to refer to the ledger accounts.

     

    Preparation of trial balance

      • To verify the correctness of the posting of ledger accounts in the terms of debit credit amounts periodically, a periodic trial balance may be prepared ( say ) at the end of the month or quarter, or half year.
      • There is no point in denying that a trial balance can be prepared at any time.
      • But it should at least be prepared at the end of the accounting period to verify the arithmetical accuracy of the ledger accounts before the preparation of financial statements.

     

    Methods of preparation

    • Balance method
    • Total amount methods

     

    These are two methods that you can use to prepare trail balance, now let me explain to you in detail about these methods which are as follows:-

     

    Balance method

    • The balances of all the accounts ( including cash and bank account ) are incorporated in the trial balance.
    • When ledger accounts are balanced only this method can be used.
    • This method is generally used by accountants for preparation of the financial statements.

     

    Total amount method

    • Under this method, the total amount of debit and credit items in each ledger account is incorporated into the trial balance.
    • This method can be used immediately after the completion of posting from the books of the original entry ledger.

     

    Steps to prepare a trial balance

    • First, we need to decide the method to opt for the preparation of the trial balance which is mentioned above.
    • Then once opted, collect all the balances as per the method adopted and prepare accordingly by posting the debit and credit side of the trial balance.
    • After this process arrange all the accounts in order of their nature (assets, liabilities, equity, income, and expenses ).
    • Then you have to total debit and credit balances separately.
    • After the above steps if there is any difference between the total debit and credit side balances then that is adjusted through the suspense account.

     

    A suspense account is generated when the above case arises that is trial balance did not agree after transferring the balance of all ledger accounts including cash and bank balance.

    And also errors are not located in  timely, then the trial balance is tallied by transferring the difference between the debit and credit side to an account known as a suspense account.

     

    Rules of trial balance

    When we prepare a trial balance from the given list of ledger balances, the following rules to be kept in mind that are as follows :

    • The balance of all
    • Assets accounts
    • Expenses accounts
    • Losses
    • Drawings
    • Cash and bank balances

    Are placed in the debit column of the trial balance.

    • The balances of
    • liabilities accounts
    • income accounts
    • profits
    • capital

    Are placed in the credit column of the trial balance.

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Rahul_Jose
Rahul_Jose
In: >

  2. Pooja_Parikh Aspiring Chartered Accountant

    Statutory Liquidity ratio is the minimum percentage of reserves of liquid assets that the commercial bank should maintain. These liquid assets are in the form of gold, cash, and other securities. These reserves are kept with the bank itself and not with the Reserve Bank of India. The bank holds variRead more

    Statutory Liquidity ratio is the minimum percentage of reserves of liquid assets that the commercial bank should maintain. These liquid assets are in the form of gold, cash, and other securities. These reserves are kept with the bank itself and not with the Reserve Bank of India.

    The bank holds various demand and time deposits of the public, the total of which is called Net Demand and Time Liabilities (NDTL). This includes demand deposits that have to be paid on demand. Various other deposits like time deposits, fixed deposits, demand drafts, etc. are also included.

    Every bank must keep a portion of its NDTL in the form of cash, gold, or other liquid assets. Therefore, the Statutory Liquidity Ratio is the ratio of these liquid assets to the total demand and time liabilities. The authority to determine the ratio lies with the RBI, who can increase it to the extent of 40%.

    FORMULA

    PURPOSE OF SLR

    RBI controls the flow of cash in the economy by means of monetary policy measures through financial instruments like Statutory Liquidity Ratio. At the time of inflation, RBI increases SLR to reduce the flow of cash whereas, at the time of deflation, they reduce SLR to increase the flow of cash. Maintaining SLR also helps ensure the solvency of the commercial banks.

    If the banks do not maintain the necessary level of SLR, they would be liable to pay a penalty to RBI at 3% per annum above the bank rate, on the shortfall amount of that day.

     

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