AccountingQA Latest Questions

Jasmeet_Sethi
Jasmeet_SethiCurious
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Current AssetsLoose Tools
  2. Karan B.com and Pursuing ACCA
    This answer was edited.

    Current assets are all the assets of the company which are expected to be used, sold, or consumed within one year. Current assets are those assets that can be converted into cash easily. For example - Inventory, Accounts Receivable, Cash, and Cash Equivalents. Loose tools are parts of machinery or sRead more

    Current assets are all the assets of the company which are expected to be used, sold, or consumed within one year. Current assets are those assets that can be converted into cash easily.

    For example – Inventory, Accounts Receivable, Cash, and Cash Equivalents.

    Loose tools are parts of machinery or spare parts of machinery. Loose can be classified on the nature of use whether it is a fixed asset or a current asset. If loose tools are used regularly or within one accounting year, it is classified as a current asset.

    Loose tools are usually classified as a current asset, however, there is one exception i.e it is excluded from the current ratio.

    They are excluded from the current ratio because the current ratio takes into account only current assets, and the nature of loose tools is either a fixed asset or a current asset and can’t be converted into cash easily.

    The current ratio is calculated to check the liquidity of the company.

    Loose tools appear in the Asset Side of the Balance Sheet under the head Current Asset, subhead Inventories.

    The extract of the Balance Sheet is as follows:

    When the balance sheet prepared under Schedule III loose tools is shown under notes to accounts under sub-head Inventories on the asset side.

    When the balance sheet is in a T format loose appears as a current asset after recording fixed assets on the asset side.

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Aadil
AadilCurious
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Credited to Debtors Account Debited to Fixed Asset Account Shown in Branch Account Not shown in Branch Account

Branch AccountingDepreciationFixed Assets
  2. Manvi Pursuing ACCA
    This answer was edited.

    The correct answer is 4. Not shown in Branch Account. The value of depreciation of fixed assets will be not shown in the branch accounting because the opening value of the asset is recorded at the start of the period on the debit side and the closing value of the asset is shown on the credit side atRead more

    The correct answer is 4. Not shown in Branch Account.

    The value of depreciation of fixed assets will be not shown in the branch accounting because the opening value of the asset is recorded at the start of the period on the debit side and the closing value of the asset is shown on the credit side at the end of the period.

    The difference between the opening and closing values of the asset is the value of depreciation which is automatically charged. In this case, if depreciation is also shown it will be counted twice.

    Example:

    XYZ Ltd purchased furniture for one of its branches on 1st January. Following are the details of the purchase:

    Furniture as on 1st January $30,000
    Furniture purchased on 1st June $5,000

    Depreciation is provided on furniture at @10% per annum on the straight-line method.

    Woking Notes: Amt 
    i. Depreciation on furniture:
    On $30,000 @10% p.a for full year 3,000
    On $5,000 @10% p.a for 6 months 250
    3,250
    ii. Branch Furniture as of 31 Dec:
    Furniture as of 1 January 30,000
    Add: Addition made during the year 5,000
    35,000
    Less: Depreciation (3,250)
    31,750

    As additional furniture was purchased after 6 months, depreciation will be charged on that and the total depreciation of 3,250 will be charged on the furniture of $35,000 ($30,000+$5,000) and the difference will be the closing balance which will be shown in the branch account on the credit side.

    The depreciation amount will not be shown in the Branch Account as the difference between the opening and closing values of the furniture reflects the value of depreciation. If depreciation is shown in the account it will be counted twice.

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Astha
AsthaLeader
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Balance SheetMiscellaneous Expenditure
  2. Simerpreet Helpful CMA Inter qualified
    This answer was edited.

    Miscellaneous expenditure in the balance sheet The expenses that are written off in the current financial year are shown on the debit side of the profit and loss account. However, those that are not written off during the current financial year are shown in the balance sheet on the Assets Side as MiRead more

    Miscellaneous expenditure in the balance sheet

    The expenses that are written off in the current financial year are shown on the debit side of the profit and loss account. However, those that are not written off during the current financial year are shown in the balance sheet on the Assets Side as Miscellaneous expenditure.

    Miscellaneous expenditure are those expenses that are not categorized as Operating expenses i.e. these are not classified as manufacturing, selling, and administrative expenses.

    For example, BlackRock has spent 5,00,000 which will be written of in 5 consecutive years as an Advertisement expense. During the current financial year, only 1,00,000 will be written off and the rest will be carried to the next year and year thereafter.

    Treatment in the first year:

    • 1,00,000 which is written off during the current financial year will be shown on the debit side of the Profit and Loss account.
    • 4,00,000 which is carried forward will be shown on the assets side of the balance sheet as miscellaneous expenditure because all assets and expenses have a debit balance.

    Treatment in the second year:

    • 1,00,000 which is written off during the current financial year will be shown on the debit side of the Profit and Loss account.
    • 4,00,000 which is carried forward will be shown in the assets side of the balance sheet as a miscellaneous expenditure.

    The same will be done in the third, fourth, and fifth years.

    Conclusion

    Deferred revenue expenditure is also a long-term expenditure the benefit of which cannot be derived within the same year. So the amount that is written off during the current year is shown on the debit side of the profit and loss account and the amount which is not written off during the current financial year is shown on the assets side under the head Miscellaneous expenditure.

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

    Software is not depreciated but amortized, as it is an intangible asset. As per companies act the useful life of software is 3 years. The treatment of depreciation is the same as computers. Following are the software depreciation rates as per the companies act: As of 2021 Nature of Asset Useful LifeRead more

    Software is not depreciated but amortized, as it is an intangible asset. As per companies act the useful life of software is 3 years. The treatment of depreciation is the same as computers. Following are the software depreciation rates as per the companies act:

    As of 2021

    Nature of Asset Useful Life Depreciation
    WDV SLM
    Servers and networks 6 years 39.30% 15.83%
    End-user devices such as desktops, laptops, etc. 3 years 63.16% 31.67%

    For example, XYZ Ltd purchased a new accounting software on 1 October for Rs.50,000. As per the Companies Act, the useful life of software is 3 years. Hence, the software will be amortized for 3 years and the company amortizes on the straight-line method.

    Amortization amount = 50,000*31.67%

    For full year = Rs.15,835

    As the software was purchased on 1 October hence it will be amortized for 6 months.

    For 6 months = 15,835*6/12

    = Rs.7,917.50

    Amortization is the same as depreciation. Hence, treatment will also be the same. The amortization amount will be transferred to the Profit & Loss A/c on the debit side as a non-cash expense.

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prashant06
prashant06
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  2. Manvi Pursuing ACCA
    This answer was edited.

    Return inwards are the goods returned by the customer to the seller. The goods are returned for reasons like defects, excess delivery, and low quality. Return inwards are also known as Sales Returns. Sales returns are a contra account to sales revenue. The amount of sales returns is deducted from thRead more

    Return inwards are the goods returned by the customer to the seller. The goods are returned for reasons like defects, excess delivery, and low quality. Return inwards are also known as Sales Returns.

    Sales returns are a contra account to sales revenue. The amount of sales returns is deducted from the total sales in the Trading section of the Trading and Profit & Loss Account.

    In subsidiary books, return inwards are recorded only for those goods which are sold on credit to the customer.

    For example, On 1 August E Electronics sold 50 units of television to Hill Hotels on credit for Rs.25,000 each. Out of which 5 units were found to be defective and were returned back to E Electronics. In that accounting period, E Electronics made a total sales of Rs.20,00,000 (including the item sold to Hill Hotels).

    E Electronics in its Trading section of Trading and P&L A/c will account for a sales return of Rs.1,25,000 (Rs.25,000*5) and this amount will be deducted from the total sales. The same will be recorded in the subsidiary books as it accounts for sales made on credit.

    Extract of Profit & Loss Account:

    For a business, sales returns will either have a decrease in the sales revenue or it will increase the sales returns and allowances which is a contra account to sales revenue. An increase in sales returns will decrease gross profit.

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Vijay
VijayCurious
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Capital Expenditure Revenue Expenditure Cash Expense Credit Expense

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

    The correct answer is 2. Revenue Expenditure. An honorarium is a voluntary payment paid to a person for the services provided. It is a type of cost incurred for the expenses of guests and volunteers. This is a payment made to the person who is not an employee of the institution. Revenue expendituresRead more

    The correct answer is 2. Revenue Expenditure. An honorarium is a voluntary payment paid to a person for the services provided. It is a type of cost incurred for the expenses of guests and volunteers. This is a payment made to the person who is not an employee of the institution.

    Revenue expenditures are the short-term expenses and consumed within one accounting year and are also known as operating expenses.

    Payment of honorarium to the secretary is treated as revenue expenditure because benefits from the expense are derived in the same accounting period. The honorarium is a type of outside expense and any outside expense is revenue in nature. It is a daily allowance incurred to cover the hotel/stay expense.

    Payment of honorarium to the secretary is shown on the Expenditure side of the Income and Expenditure Account.

    Capital Expenditure is the expense incurred on acquiring an asset and honorarium cannot be a capital expenditure as benefits derived from it cannot be carried forward to the next year.

    It cannot be treated as cash or credit expense although it is paid in cash or credit. In this case, it will be treated as a revenue expense while preparing financial statements.

    Payment of honorarium is mainly a topic of not-for-profit organizations.

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Anushka Lalwani
Anushka Lalwani
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1) Cash Book 2) Statement 3) Journal 4) None of these

  2. ShreyaSharma none
    This answer was edited.

    1) A simple petty cash book is like a cash book.   Definition The term 'petty' means small. A simple petty cash book is identical to a cash book, maintained to record the small expenses of a business like stationery, postage, stamps, carriage, etc. The cash received by a petty cashier is recordRead more

    1) A simple petty cash book is like a cash book.

     

    Definition

    The term ‘petty’ means small. A simple petty cash book is identical to a cash book, maintained to record the small expenses of a business like stationery, postage, stamps, carriage, etc. The cash received by a petty cashier is recorded on the debit/ receipt side whereas, the cash he pays is recorded on the credit/ payment side. The difference between the sum of the debit and credit items represents the balance of the petty cash in hand.

    Format

    Explanation

    Cash Book – A simple petty cash book is recorded and maintained just like the cash book. Just like a cash book records all the major transactions of the business, a petty cash book only focuses on the expenses which are of little value. Just like the cash book is maintained by the accountant of the business, the petty cash book is maintained by the petty cashier.

    Therefore, a petty cash book is like a sub-part of a cash book itself.

    Statement – A statement in accounting terms refer to a report. They are prepared to show some accounting data and different types of statements show different perspectives of the company’s financial health and performance. For e.g Balance sheet, trial balance, cash flow statements, etc.

    Thus, a petty cash book is not a part of statements in accounting.

    Journal – A petty cash book is not a part of a journal as a journal entry records business transactions in the accounting system for an organization and is also called the building block of the double-entry accounting method. While a petty cash book is maintained to record the small expenses of a business that are of little value.

    Therefore, 1) Cash book is the correct option.

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AbhishekBatabyal
AbhishekBatabyalHelpful
In: >

  2. Ayushi Curious Pursuing CA
    This answer was edited.

    Effective Capital is an amount calculated for purpose of arriving at the maximum limit of managerial remuneration as per the Companies Act, 2013 where profit is inadequate or no profit. Other than that it has no use. Computation of effective capital is given in Explanation I to Schedule II of the CoRead more

    Effective Capital is an amount calculated for purpose of arriving at the maximum limit of managerial remuneration as per the Companies Act, 2013 where profit is inadequate or no profit. Other than that it has no use.

    Computation of effective capital is given in Explanation I to Schedule II of the Companies Act. Schedule II deals with remuneration payable to managers in case of no profit or inadequate profit in the following manner:

    Computation of effective capital is done in the following manner:

    Numerical example:

    ABC Ltd reports its balance sheet as given below:

    We will compute its effective capital for both an investment company and a non-investment company.

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Simerpreet
SimerpreetHelpful
In: >

  2. prashant06 B.com, CMA pursuing
    This answer was edited.

    QUALITATIVE CHARACTERISTICS OF ACCOUNTING INFORMATION ARE AS FOLLOWS: 1. COMPARABILITY: Comparison of financial statements is one of the most frequently used and effective tools of financial analysis. It helps the users of accounting information to compare, analyze and take decisions accordingly. CoRead more

    QUALITATIVE CHARACTERISTICS OF ACCOUNTING INFORMATION ARE AS FOLLOWS:

    1. COMPARABILITY: Comparison of financial statements is one of the most frequently used and effective tools of financial analysis. It helps the users of accounting information to compare, analyze and take decisions accordingly. Comparability enables inter-firm and intra-firm comparisons. It helps to ascertain the growth and progress of the business over time and in comparison to other businesses.

    For example, managers of ITC ltd want to know which business of his is performing well and which needs progress so they would compare the financial statement of its different businesses and make the decision accordingly.

    2. RELEVANCE: It generally means that the essential information should be easily and readily available and any irrelevant information should be avoided. The user of accounting information needs relevant accounting information for a good decision-making process, planning, and predicting future circumstances.

    For example, a firm is expected to provide the total amount owed by the debtors in the balance sheet, whereas the total number of debtors is not important.

    3. UNDERSTANDIBILITY: The financial statement should be presented so that every user can interpret the information without any difficulty in a meaningful and appropriate manner. To be more precise it should be complete, concise, clear, and organized.

    For example, mentioning note number in the financial statement for any items which needs disclosure. This helps the users of accounting to interpret the financial statement without any difficulty.

    4. RELIABILITY: This means the accounting information must be free from material error and bias. All accounting information is verifiable and can be verified from the source documents basically, information should not be vague or false.

    For example, any significant matters like amount due, damages, losses, etc. which impact the financial stability shall be mentioned as disclosure since it is useful for all the users of accounting to be aware of such facts and not to be misguided by incomplete information.

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Anushka Lalwani
Anushka Lalwani
In: >

  2. AbhishekBatabyal Helpful Pursuing CA, BCOM (HONS)

    Meaning of Workmen's Compensation Reserve Workmen compensation reserve is a reserve created to compensate the labourers and employees of a firm in case of an uncertain future event in the line with their work. For example, if a labourer or group of labourers get injured seriously while working on thRead more

    Meaning of Workmen’s Compensation Reserve

    Workmen compensation reserve is a reserve created to compensate the labourers and employees of a firm in case of an uncertain future event in the line with their work. For example, if a labourer or group of labourers get injured seriously while working on the premises of the firm, then they will be compensated from the money kept aside in the workmen’s compensation reserve.

    Workmen’s compensation reserve is created using the profits of a business. The journal entry for the creation of workmen compensation reserve is as follows:

    When a claim arises, the claim amount is transferred to Provision for workmen compensation claim A/c

    Treatment of workmen compensation reserve in revaluation account

    At the time of admission, retirement or death of partner or change in profit sharing ratio, the reserve is distributed among the old or existing partners or kept intact.

    Workmen’s compensation reserve is also distributed among the old or existing partners subject to the claim arising on the reserve.

    Here are the three situations:

     

    The revaluation account comes into the picture only when the claim is more than the amount available in the reserve. For example, the claim is Rs. 20,000 but the amount in the reserve is only Rs. 15,000.

    In such a case, the excess claim will be met by debiting the revaluation account.

    The journal will as  given below:

    Since the revaluation account is debited, it is a loss and this loss will be written from old or existing partners’ capital in the old profit sharing ratio. The journal entry is given below:

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