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1. What is accounting cycle? List the sequential steps involved in Accounting cycle?
The Accounting Cycle: The accounting cycle refers to a series of sequential steps or
procedures performed to accomplish the accounting process. The steps in the cycle arc
as follows:
Step 1 Transactions
are recorded in the journal
Step 2 Journal Entries are posted in the Ledger
Step 3 Preparation of a Trial Balance
Step 4 Adjusting journal entries are journalized and posted
Step5 Preparation of the worksheet
Step 6 Preparation of the financial statements
Step 7 Closing journal entries are journalized and posted
Step 8 Preparation of the post-closing trial balance
Step 9 Reversing journal entries are journalized and posted
The Journal
The journal is a chronological record of the entity's transactions. A journal entry shows all
the effects of a business transaction in terms of debits and credits. Each transaction is
initially recorded in a journal rather than directly in the ledger. A journal is called the book of
original entry. Of only two accounts are affected- one account is debited and the oilier
account is credited- it is called a Simple Journal entry. When three or more accounts arerequired in a journal entry, the entry is referred to as a Compound entry.
The Ledger
A grouping of the entity's accounts is referred to as the ledger. Although some firms may
use various ledgers to accumulate certain detailed information, all firms have a general
ledger. A general ledger is the reference book of the accounting system and is used to
classify and summarize transactions, and to prepare data for the basic financial
statements.
The Trial Balance
The Trial Balance is a list of all accounts with their respective debit orcredit balances. It is
prepared to verily the equality of debits and credits in the ledger at the end of each
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accounting period or at any time the postings are updated.
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1. A. Bring out the difference between Indian GAAP and US GAAP norms?
There are significant differences between Indian GAAP and US GAAP. US GAAP stipulate
stringent accounting treatment as well as disclosure norms, whereas their Indian GAAP
in many cases have relaxed requirements ( AS 18,17,AS 3). Similarly, there are several
areas where no Accounting Standard have been issued by ICAI . These differences lead
to wide variations when Financial Results of Indian Companies are computed under US
GAAP and it is found that Profits computed under US GAAP are generally lower
Some of these major differences between US GAAP and Indian GAAP which give
rise to differences in profit are highlighted hereunder:
1. Underlying assumptions: Under Indian GAAP, Financial statements are
prepared in accordance with the principle of conservatism which basically
means Anticipate no profits and provide for all possible losses. Under US
GAAP conservatism is not considered, if it leads to deliberate and
consistent understatements.
2. Prudence vs. rules : The Institute of Chartered Accountants of India
(ICAI) has been structuring Accounting Standards based on the
International Accounting Standards ( IAS) , which employ concepts and
`prudence' as the principle in contrast to the US GAAP, which are "rule
oriented", detailed and complex. It is quite easy for the US accountants to
handle issues that fall within the rules, while the International Accounting
Standards provide a general framework of accounting standards, which
emphasise "substance over form" for accounting. These rules are less
descriptive and their application is based on prudence. US GAAP has thus
issued several Industry specific GAAP , like SFAS 51 ( Cable TV), SFAS
50 (Record and Music Industry) , SFAS 53 ( Motion Picture Industry) etc.
3. Format/ Presentation of financial statements: Under Indian GAAP,
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financial statements are prepared in accordance with the presentation
requirements of Schedule VI to the Companies Act, 1956. On the other
hand , financial statements prepared as per US GAAP are not required to
be prepared under any specific format as long as they comply with the
disclosure requirements of US GAAP. Financial statements to be filed with
SEC include
4. Consolidation of subsidiary companies: Under Indian GAAP (AS 21),
Consolidation of Accounts of subsidiary companies is not mandatory. AS
21 is mandatory if an enterprise presents consolidated financial statements.
In other words, the accounting standard does not mandate an enterprise to
present consolidated financial statements but, if the enterprise presents
consolidated financial statements for complying with the requirements of
any statute or otherwise, it should prepare and present consolidated
financial statements in accordance with AS 21.Thus, the financial income
of any company taken in isolation neither reveals the quantum of business
between the group companies nor does it reveal the true picture of the
Group . Savvy promoters hive off their loss making divisions into separate
subsidiaries, so that financial statement of their Flagship Company looks
attractive .Under US GAAP (SFAS 94),Consolidation of results of
Subsidiary Companies is mandatory , hence eliminating material, inter
company transaction and giving a true picture of the operations and
Profitability of the various majority owned Business of the Group.
5. Cash flow statement: Under Indian GAAP (AS 3) , inclusion of Cash
Flow statement in financial statements is mandatory only for companies
whose share are listed on recognized stock exchanges and Certain
enterprises whose turnover for the accounting period exceeds Rs. 50
crore. Thus , unlisted companies escape the burden of providing cash flow
statements as part of their financial statements. On the other hand, US
GAAP (SFAS 95) mandates furnishing of cash flow statements for 3 years
current year and 2 immediate preceding years irrespective of whether
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the company is listed or not .
6. Investments: Under Indian GAAP (AS 13), Investments are classified as
Current and Long term. These are to be further classified Government orTrust securities ,Shares, debentures or bonds Investment properties
Others-specifying nature. Investments classified as current investments are
to be carried in the financial statements at the lower of cost and fair value
determined either on an individual investment basis or by category of
investment, but not on an overall (or global) basis. Investments classified
as long term investments are carried in the financial statements at cost.
However, provision for diminution is to be made to recognise a decline,
other than temporary, in the value of the investments, such reduction being
determined and made for each investment individually. Under US GAAP
( SFAS 115) , Investments are required to be segregated in 3 categories
i.e. held to Maturity Security ( Primarily Debt Security) , Trading Security
and Available for sales Security and should be further segregated as
Current or Non current on Individual basis. Debt securities that the
enterprise has the positive intent and ability to hold to maturity are
classified as held-to-maturity securities and reported at amortized cost.
Debt and equity securities that are bought and held principally for the
purpose of selling them in the near term are classified as trading securities
and reported at fair value, with unrealised gains and losses included in
earnings. All Other securities are classified as available-for-sale securities
and reported at fair value, with unrealised gains and losses excluded from
earnings and reported in a separate component of shareholders' equity
7. Depreciation: Under the Indian GAAP, depreciation is provided based
on rates prescribed by the Companies Act, 1956. Higher depreciation
provision based on estimated useful life of the assets is permitted, but must
be disclosed in Notes to Accounts.( Guidance note no 49) . Depreciation
cannot be provided at a rate lower than prescribed in any circumstance.
Similarly , there is no compulsion to provide depreciation at a higher rate,
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even if the actual wear and tear of the equipments is higher than the rates
provided in Companies Act. Thus , an Indian Company can get away with
providing with lesser depreciation , if the same is in compliance to
Companies Act 1956. Contrary to this, under the US GAAP , depreciation
has to be provided over the estimated useful life of the asset, thus making
the Accounting more realistic and providing sufficient funds for replacement
when the asset becomes obsolete and fully worn out.
8. Foreign currency transactions: Under Indian GAAP(AS11) Forex
transactions ( Monetary items ) are recorded at the rate prevalent on the
transaction date .Year end foreign currency assets and liabilities ( Non
Monetary Items) are re-stated at the closing exchange rates. Exchange
rate differences arising on payments or realizations and restatements at
closing exchange rates are treated as Profit /loss in the income statement.
Exchange fluctuations on liabilities incurred for fixed assets can be
capitalized. Under US GAAP (SFAS 52), Gains and losses on foreign
currency transactions are generally included in determining net income for
the period in which exchange rates change unless the transaction hedges a
foreign currency commitment or a net investment in a foreign entity .
Capitalization of exchange fluctuation arising from foreign liabilities incurred
for acquiring fixed assets does not exist. Translation adjustments are not
included in determining net income for the period but are disclosed and
accumulated in a separate component of consolidated equity until sale or
until complete or substantially complete liquidation of the net investment in
the foreign entity takes place . US GAAP also permits use of Average
monthly Exchange rate for Translation of Revenue, expenses and Cash
flow items, whereas under Indian GAAP, the closing exchange rate for the
Transaction date is to be taken for translation purposes.
9. Expenditure during Construction Period: As per the Indian GAAP
(Guidance note on Treatment of expenditure during construction period' ) ,
all incidental expenditure on Construction of Assets during Project stage
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are accumulated and allocated to the cost of asset on completion of the
project. Contrary to this, under the US GAAP (SFAS 7) , such expenditure
are divided into two heads direct and indirect. While, Direct expenditure
is accumulated and allocated to the cost of asset, indirect expenditure are
charged to revenue.
10. Research and Development expenditure: Indian GAAP ( AS 8)
requires research and development expenditure to be charged to profit and
loss account, except equipment and machinery which are capitalized and
depreciated. Under US GAAP ( SFAS 2) , all R&D costs are expenses
except intangible assets purchased from others and Tangible assets that
have alternative future uses which are capitalised and depreciated or
amortised as R&D Expense. Under US GAAP, R&D expenditure incurred
on software development are expensed until technical feasibility is
established ( SOP 81.1) . R&D Cost and software development cost
incurred under contractual arrangement are treated as cost of revenue.
11. Revaluation reserve : Under Indian GAAP, if an enterprise needs to
revalue its asset due to increase in cost of replacement and provide higher
charge to provide for such increased cost of replacement, then the Asset
can be revalued upward and the unrealised gain on such revaluation can
be credited to Revaluation Reserve ( Guidance note no 57). The
incremental depreciation arising out of higher book value may be adjusted
against the Revaluation Reserve by transfer to P&L Account. However for
window dressing some promoters misutilise this facility to hoodwink the
shareholders on many occasions. US GAAP does not allow revaluing
upward property, plant and equipment or investment.
12. Long term Debts: Under US GAAP , the current portion of long term debt
is classified as current liability, whereas under the Indian GAAP, there is no
such requirement and hence the interest accrued on such long term debt in
not taken as current liability.
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13. Extraordinary items, prior period items and changes in accounting
policies: Under Indian GAAP( AS 5) , extraordinary items, prior period
items and changes in accounting policies are disclosed without netting off
for tax effects . Under US GAAP (SFAS 16) adjustments for tax effects are
required to be made while reporting the Prior period Items.
14. Goodwill: Under the Indian GAAP goodwill is capitalized and charged to
earnings over 5 to 10 years period. Under US GAAP ( SFAS 142) , Goodwill and
intangible assets that have indefinite useful lives are not amortized ,but they are
tested at least annually for impairment using a two-step process that begins with
an estimation of the fair value of a reporting unit. The first step is a screen for
potential impairment, and the second step measures the amount of impairment, if
any. However, if certain criteria are met, the requirement to test goodwill for
impairment annually can be satisfied without a remeasurement of the fair value of a
reporting unit.
15. Capital issue expenses: Under the US GAAP, capital issue expenses are
required to be written off when incurred against proceeds of capitals, whereas
under Indian GAAP , capital issue expense can be amortized or written off against
reserves.
16. Proposed dividend: Under Indian GAAP , dividends declared are accounted for
in the year to which they relate. For example, if dividend for the FY 1999-2000 is
declared in Sep 2000 , then the corresponding charge is made in 2000-2001 as
below the line item . Contrary to this , under US GAAP dividends are reduced from
the reserves in the year they are declared by the Board. Hence in this case under
US GAAP , it will be charged Profit and loss account of 2000-2001 above the line.
17. Investments in Associated companies: Under the Indian GAAP( AS 23) ,investment in associate companies is initially recorded at Cost using the Equity
method whereby the investment is initially recorded at cost, identifying any
goodwill/capital reserve arising at the time of acquisition. The carrying amount of
the investment is adjusted thereafter for the post acquisition change in the
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investors share of net assets of the investee. The consolidated statement of profit
and loss reflects the investors share of the results of operations of the investee.are
carried at cost . Under US GAAP ( SFAS 115) Investments in Associates are
accounted under equity method in Group accounts but would be held at cost in the
Investors own account.
18. Preoperative expenses: Under Indian GAAP, (Guidance Note 34 - Treatment
of Expenditure during Construction Period), direct Revenue expenditure during
construction period like Preliminary Expenses, Project related expenditure are
allowed to be Capitalised. Further , Indirect revenue expenditure incidental and
related to Construction are also permitted to be capitalised. Other Indirect revenue
expenditure not related to construction, but since they are incurred during
Construction period are treated as deferred revenue expenditure and classified as
Miscellaneous Expenditure in Balance Sheet and written off over a period of 3 to 5
years. Under US GAAP ( SFAS 7) , the concept of preoperative expenses itself
doesnt exist. SOP 98.5 also madates that all Start up Costs should be expensed.
The enterprise has to prepare its balance sheet and Profit and Loss Account as if it
were a normal running organization. Expenses have to be charged to revenue and
Assets are Capitalised as a normal organization. The additional disclosure include
reporting of cash flow, cumulative revenues and Expenses since inception. Upon
commencement of normal operations, notes to Statement should disclose that the
Company was but is no longer is a Development stage enterprise. Thus , due to
above accounting anomaly, Accounts prepared under Indian GAAP , contain
higher charges to depreciation which are to be adjusted suitably under US GAAP
adjustments for indirect preoperative expenses and foreign currencies.
19. Employee benefits: Under Indian GAAP, provision for leave encashment is
accounted based n actuarial valuation. Compensation to employees who opt for
voluntary retirement scheme can be amortized over 60 months. Under US GAAP,
provision for leave encashment is accounted on actual basis. Compensation
towards voluntary retirement scheme is to be charged in the year in which the
employees accept the offer.
20. Loss on extinguishment of debt: Under Indian GAAP, debt extinguishment
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premiums are adjusted against Securities Premium Account. Under US GAAP,
premiums for early extinguishment of debt are expensed as incurred.
B. What is Matching Principle? Why should a business concern follow this principle?
The Matching principle is a culmination ofaccrual accounting and the revenue recognition
principle. They both determine the accounting period, in which revenues and expenses are
recognized. According to the principle, expenses are recognized when obligations are (1)
incurred (usually when goods are transferred or services rendered, e.g. sold), and (2) offset
against recognized revenues, which were generated from those expenses (related on the
cause-and-effect basis), no matter when cash is paid out. In cash accountingin contrast
expenses are recognized when cash is paid out, no matter when obligations are incurred
through transfer of goods or rendition of services: e.g., sale.
If no cause-and-effect relationship exists (e.g., a sale is impossible), costs are recognized
as expenses in the accounting period they expired: i.e., when have been used up or
consumed (e.g., of spoiled, dated, or substandard goods, or not demanded services).
Prepaid expenses are not recognized as expenses, but as assets until one of the qualifying
conditions is met resulting in a recognition as expenses. Lastly, if no connection with
revenues can be established, costs are recognized immediately as expenses (e.g., general
administrative and research and development costs).
Prepaid expenses, such as employee wages or subcontractor fees paid out or promised,
are not recognized as expenses (cost of goods sold), but as assets (deferred expenses),
until the actual products are sold.
The matching principle allows better evaluation of actual profitability and performance
(shows how much was spent to earn revenue), and reduces noise from timing mismatch
between when costs are incurred and when revenue is realized.
http://en.wikipedia.org/wiki/Accounting_methods#Accrual_basishttp://en.wikipedia.org/wiki/Revenue_recognitionhttp://en.wikipedia.org/wiki/Accounting_periodhttp://en.wikipedia.org/wiki/Revenueshttp://en.wikipedia.org/wiki/Expenseshttp://en.wikipedia.org/wiki/Accounting_methods#Cash_basishttp://en.wikipedia.org/wiki/Accounting_periodhttp://en.wikipedia.org/wiki/Prepaid_expenseshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Prepaid_expenseshttp://en.wikipedia.org/wiki/Cost_of_goods_soldhttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Accounting_methods#Accrual_basishttp://en.wikipedia.org/wiki/Revenue_recognitionhttp://en.wikipedia.org/wiki/Accounting_periodhttp://en.wikipedia.org/wiki/Revenueshttp://en.wikipedia.org/wiki/Expenseshttp://en.wikipedia.org/wiki/Accounting_methods#Cash_basishttp://en.wikipedia.org/wiki/Accounting_periodhttp://en.wikipedia.org/wiki/Prepaid_expenseshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Prepaid_expenseshttp://en.wikipedia.org/wiki/Cost_of_goods_soldhttp://en.wikipedia.org/wiki/Assets -
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3. Prove that the accounting equation is satisfied in all the following transactions of Mr. X
(1) Commence business with cash Rs.50000
(2) Paid rent in advance Rs.1000
(3) Purchased goods for cash Rs.18000 and Credit Rs.20000
(4) Sold goods for cash Rs.25000 costing Rs.22000
(5) Paid salary Rs.5000 and salary outstanding is Rs.3000
(6) Bought moped for personal use Rs.20000
Sr. No. Assets = Liabilities + Capital1 50000 = 0 + 50000
2 -1000
+1000
50000 = 0 + 50000
3.1 -18000
+18000
50000 = 0 + 50000
3.2 + 20000 =
70000 = 20000 + 50000
4 - 22000
+ 25000 =
73000 =
0 + 3000
20000 + 530005 - 5000 =
68000 =
+ 3000 + (-) 8000
23000 + 450006 - 20000 =
48000 =
0 + (-) 20000
23000 + 25000End
Equation48000 = 48000
Sr.No.Asset = Liabilities + Capital
Cash Debtors Rent Goods Salary Personal Creditor Capital1 50000 50000
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2 -1000 +1000
3.1 -18000 +18000
3.2 20000 20000
4 +25000 -22000 +3000
5 -5000 3000 -8000
6 - 20000 -20000
End
Equation
56000 1000 16000 -5000 - 20000 23000 25000
= 48000 = 48000
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4. Following are the extracts from the Trial Balance of a firm as on 31st March 20X7
Dr Cr
Sundry Debtors 2,05,000
Provision for Doubtful Debts 10,000
Provision for Discount on Debtors 1,800
Bad Debts 3,000Discount 1,000
Additional Information:
1) Additional Bad Debts required Rs.4,000
2) Additional Discount allowed to Debtors Rs.1,000
3) Maintain a provision for bad debts @ 10% on debtors
4) Maintain a provision for discount @ 2% on debtors
Required: Pass the necessary journal entries and show the relevant accounts including
final accounts.
Journal entries as on 31st March 20X7
Particulars LF Debit
(Rs.)
Credit
(Rs.)
Bad Debt account DR
To Sundry Debtor account
4000
4000
Provision for Doubtful Debts account DR
To Bad Debts account
7000
7000
P&L account DR
To Provision for Doubtful Debt
17100
17100
Provision for Discount account DR
To Discount on Debtors account
1000
1000
P&L account DR
To Provision for Doubtful Debts account
2818
2818
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Provision for Doubtful Debts account
Particulars Amount
(Rs.)
Particulars Amount
(Rs.)
To Bad Debts account 7000 By Balance b/d 10000To Balance c/d 20100 By P&L account 17100
27100 27100
Provision for Discount on Debtors account
Particulars Amount
(Rs.)
Particulars Amount
(Rs.)To Discount on Debtors account 1000 By Balance b/d 1000
To Balance c/d 3618 By P&L account 2818
4618 4618
Bad Debts accountParticulars Amount
(Rs.)
Particulars Amount
(Rs.)
To Balance b/d 3000 By Provision for Doubtful Debts account 7000
To Sundry debtors 4000
7000 7000
Calculation of Provision required
Debtors as per Trial Balance 205000
Less additional Bad Debt - 4000
201000
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10% on 201000 20100
Opening balance in Provision account 10000
Less Bad Debts w/o - 7000
3000
Provision needed 20100
Therefore Provision required to be made 20100 3000 = 17100
Calculation of Provision for Discount
Debtors as per Trial Balance 205000
Less additional Bad Debts - 4000
201000
Less additional Provision - 20100
180900
2% of 180900 3618
Profit & Loss account
Particulars Amount
(Rs.)
Amount
(Rs.)
Particulars Amount
(Rs.)
Amount
(Rs.)To Bad Debts 3000
+ New Bad Debts 4000
+ New R.D.D 20100
27100
- Old R.D.D -10000
17100
Discount as per Trial Balance 1000+ New Provision 3618
4618- Old Provision -1800
2818
Balance Sheet
Particulars Amount Amount Particulars Amount Amount
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(Rs.) (Rs.) (Rs.) (Rs.)C.A
Sundry Debtors 205000
- Bad Debts - 4000
- R.D.D - 20100
180900
- Reserve for Discount on
Debtors
- 3618
177282
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5. A. Bring out the difference between trade discount and cash discount.
Cash
DiscountTrade Discount
Is a reduction granted by supplier from
the invoice price in consideration of
immediate or prompt payment
Is a reduction granted by supplier from the list price of
goods or services on business consideration re: buying
in bulk for goods and longer period when in terms of
services
As an incentive in credit management
to encourage prompt paymentAllowed to promote the sales
Not shown in the supplier bill or
invoice Shown by way ofdeduction in the invoice itself
Cash discount account is opened in
the ledgerTrade discount account is not opened in the ledger
Allowed on payment of money Allowed on purchase of goods
It may vary with the time period within
which payment is received
It may vary with the quantity of goods purchased or
amount of purchases made
B. Explain the term (1) asset (2) liability with the help of examples.
In financial accounting, assets are economic resources. Anything tangible or intangible that
is capable of being owned or controlled to produce value and that is held to have positive
economic value is considered an asset. Simplistically stated, assets represent ownership of
value that can be converted into cash (although cash itself is also considered an asset).[1]
The balance sheet of a firm records the monetary[2] value of the assets owned by the firm.
It is money and other valuables belonging to an individual or business.[3] Two major asset
classes are tangible assets and intangible assets. Tangible assets contain various
subclasses, including current assets and fixed assets.[4] Current assets include inventory,
while fixed assets include such items as buildings and equipment.[5] Intangible assets are
nonphysical resources and rights that have a value to the firm because they give the firm
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some kind of advantage in the market place. Examples of intangible assets are goodwill,
copyrights, trademarks, patents and computer programs,[5] and financial assets, including
such items as accounts receivable, bonds and stocks.
In financial accounting, a liability is defined as an obligation of an entity arising from
past transactions or events, the settlement of which may result in the transfer or
use of assets, provision of services or other yielding of economic benefits in the
future.
All type of borrowing from persons or banks for improving a business or
person income which is payable during short or long time.
They embody a duty or responsibility to others that entails settlement by
future transfer or use of assets, provision of services or other yielding of
economic benefits, at a specified or determinable date, on occurrence of a
specified event, or on demand;
The duty or responsibility obligates the entity leaving it little or no discretion
to avoid it; and,
The transaction or event obligating the entity has already occurred.
Liabilities in financial accounting need not be legally enforceable; but can be based
on equitable obligations or constructive obligations. An equitable obligation is a
duty based on ethical or moral considerations. A constructive obligation is an
obligation that can be inferred from a set of facts in a particular situation as
opposed to a contractually based obligation.
The accounting equation relates assets, liabilities, and owner's equity:
Assets = Liabilities + Owner's Equity
http://en.wikipedia.org/wiki/Goodwill_(accounting)http://en.wikipedia.org/wiki/Copyrightshttp://en.wikipedia.org/wiki/Trademarkshttp://en.wikipedia.org/wiki/Patentshttp://en.wikipedia.org/wiki/Computer_programhttp://en.wikipedia.org/wiki/Asset#cite_note-CPA_Finance-4http://en.wikipedia.org/wiki/Asset#cite_note-CPA_Finance-4http://en.wikipedia.org/wiki/Accounts_receivablehttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Financial_accountinghttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Accounting_equationhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Ownership_equityhttp://en.wikipedia.org/wiki/Goodwill_(accounting)http://en.wikipedia.org/wiki/Copyrightshttp://en.wikipedia.org/wiki/Trademarkshttp://en.wikipedia.org/wiki/Patentshttp://en.wikipedia.org/wiki/Computer_programhttp://en.wikipedia.org/wiki/Asset#cite_note-CPA_Finance-4http://en.wikipedia.org/wiki/Accounts_receivablehttp://en.wikipedia.org/wiki/Bond_(finance)http://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Financial_accountinghttp://en.wikipedia.org/wiki/Assetshttp://en.wikipedia.org/wiki/Accounting_equationhttp://en.wikipedia.org/wiki/Assethttp://en.wikipedia.org/wiki/Ownership_equity -
8/6/2019 30503144 Accounts Assignment MBA1
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6. A fresh MBA student joined as trainee was asked to prepare Trial balance. He was
unable to submit a correct trial balance. You, as a senior accountant find out the errors and
rectify them. After redrafting the trial balance prepare trading and Profit and loss account.
Particulars Debit CreditCapital 7,670
Cash in Hand 30Purchases 8,990
Sales 11,060Cash at bank 885
Fixtures and Fittings 225
Freehold premises 1.500
Lighting and Heating 65
Bills Receivable 825
Return Inwards 30
Salaries 1.075
Creditors 1890Debtors 5,700
Stock at 1st April 2007 3,000Printing 225
Bills Payable 1,875Rates, taxes and insurance 190
Discount received 445
Discount allowed 200
21,175 21,705
Adjustments:
1) Stock on hand on 31st March 2008 was valued at Rs.1800
2) Depreciate fixtures and fittings by Rs.25
3) Rs.35 was due and unpaid in respect of salaries
4) Rates and insurance had been paid in advance to the extent of Rs.40
Trading Account for the year ended 31-03-2008
ParticularsAmount
(Rs.)
Amount
(Rs.)Particulars
Amount
(Rs.)
Amount
(Rs.)
To Opening stock 3000 By Sales 11060
To Purchase 8990 Less Sales Returns 30 11030
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8/6/2019 30503144 Accounts Assignment MBA1
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To G/P closed 840 By closing stock 1800
12830 12830
P&L Account for the year ended 31-03-2008
ParticularsAmount
(Rs.)
Amount
(Rs.)Particulars
Amount
(Rs.)
Amount
(Rs.)
To Lighting and heating 65 By G/P balanced 840
To Salaries 1075 By Discount received 445
Add outstanding 35 By N/L closed 490
To Printing 225
To Rates taxes & insurance 190 1775
- Less prepaid - 40
To Discount Allowed 200
To depreciation fixture &
fittings 25
1775
Balance Sheet as on 31-03-2008
ParticularsAmount
(Rs.)
Amount
(Rs.)Particulars
Amount
(Rs.)
Amount
(Rs.)
Capital 7670 Freehold premises 1500
- Less Net Loss - 490 7180 Fixtures & Fittings 225
- Less Depreciation -25 200Creditor 1890 1700
Bills Payable 1875
Outstanding salaries 35 Stock 1800
Debtors 5700
Bills Receivable 825
Cash at Bank 885
Cash in hand 30
Prepaid Rates 40
10980 10980
Redrafted Trial Balance
Particulars Debit Credit
Capital 7,670
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Cash in Hand 30
Purchases 8,990
Sales 11,060
Cash at bank 885
Fixtures and Fittings 225
Freehold premises 1.500
Lighting and Heating 65
Bills Receivable 825
Return Inwards 30
Salaries 1.075
Creditors 1890
Debtors 5,700
Stock at 1st April 2007 3,000
Printing 225
Bills Payable 1875
Rates, taxes and insurance 190
Discount received 445
Discount allowed 200
22940 22940