Post on 29-Jan-2023
DNYANSAGAR ARTS AND COMMERCE COLLEGE
SUBJECT: FINANCIAL ACCOUNTING
SUBJECT CODE: 102
BY PROF. : MUBINA ATTARI
SYLLABUS1.Basic concept of financial accounting.
2.piecemeal distriBution of cash.
3.single entry system.
4.gst
ACCOUNTING CONCEPTS, CONVENTIONS AND PRINCIPLES AND AN OVERVIEW OF EMERGING TRENDS IN ACCOUNTING
• (A)Accounting Concepts, Conventions and Principles
1. Money Measurement
2. 2. Business Entity
3. 3. Dual Aspect
4. 4. Periodicity Concept
5. 5. Realization Concept
6. 6. Matching Concept
7. 7. Accrual / Cash Concept
8. 8. Consistency Concept
9. 9. Conservatism Principle
10. 10. Materiality Concept
11. 11. Going Concern Concept
12. 12. Historical Cost Concept
• (B)Emerging Trends in Accounting
• 1.Inflation Accounting
• 2. Creative Accounting
• 3. Environmental Accounting
• 4. Human Resource Accounting
• 5. Forensic Accounting
INFLATION ACCOUNTING
What is Inflation?
Inflation means an upward change in the prices of goods & services of general consumption.
is due tothe fall in total supply of goods and services. imbalance in total supply of goods & services.changes in general prices of basic commodities.
NEED FOR INFLATION ACCOUNTING?
Traditional accounting based on historical cost fails to
match current revenue against costs that are current
costs of purchases or depreciation are shown at historical costs, and are much below current levels
NEED FOR INFLATION ACCOUNTING?
Traditional accounting based on historical cost fails tomatch current revenue against costs that are currentstate profit realistically
as costs of purchases, depreciation are understated, reported profits are high
NEED FOR INFLATION ACCOUNTING?
Traditional accounting based on historical cost fails to-match current revenue against costs that are current- state profit realistically- provide adequate depreciation for replacement of assets
depreciation is calculated on book value of assets that are way below their current market price.
CONCLUSION
Methods of Inflation Accounting are criticized as
They are subjectiveThey are based on estimation
They are not free from flaws
Discussion on this subject gained momentum with the rise in the price levels and the tempo died down with the fall in inflation.
METHODS OF INFLATION ACCOUNTING
Current Purchasing Power (CPP)
Current Value Systems
Current Cost Accounting
Replacement Cost Accounting Method
METHODS OF INFLATION ACCOUNTING
Current Purchasing Power (CPP)
Conversion Factor = Price index at the time of conversionPrice at the date of conversion
CPP Value= Conversion Amount or Historical Value x conversion factoer
ADVANTAGES Realistic view.
Basis of Depreciation
Check on payment of dividend out of capital
True and fair Balance-sheet.
Reasonable comparison of profitability.
Check on Mis-leading Deeds
Wrong matching concepts
DISADVANTAGES Depreciation.
Replacement of Fixed Assets
Situation in Deflation
Theoretical Concept.
Complicated System
Expensive Technique
Subjectivity in the valuation process
Secured Liabilities
Taxes/ Govt. dues
Preferential Liabilities
Employees dues
Partner’s Loan Partner’s
capital
Realization expenses
Unsecured liabilities
order of payment
10 laKhs
1. realiZation eXpenses 1 laKhs2. reserVes for contingent liaBilities 1 laKh
contingent liaBilities: liaBilities Which are depends on some factors , it may arise or it may not Be
noW, partnership firm haVe 8 laKhs With them.
order of payment
8 laKhs
3. preferential liaBilities 2 laKhs
goVernments taXes 1 laKhemployees dues 1 laKh
noW partnership firm haVe 6laKh With them.
order of payment
6laKh
4. secured liaBilities
BanK loan 1 laKh
noW partnership firm haVe 5laKh With them.
order of payment
5laKh
5. unsecured liaBilities
creditors 1 laKhBills payaBle 1 laKhm/s a’s loan 1 laKh
noW partnership firm haVe 2laKh With them.
FOLLOWING INFORMATION IS GIVEN IN THE QUESTION
1.CASH RECEIVED FROM THE SALE OF ASSETS.
2.DATE OF CASH REALIZATION
3.LIABILITIES PAID OFF.
4.PROFIT SHARING RATIOS.( ASSUMED EQUAL IF NOT GIVEN)
Balance sheet as on 31st march 2020Liabilities Assets
Capital Accounts 60000 Building 100000A 20000 Machinery 30000B 20000 Debtors 20000C 20000 Cash 50000Government Dues 10000Creditors 20000Secured Bank loan 90000
200000 200000
A, B, and C share profits and losses in equal ratio. Their balance sheet as on 31 st march is as follows.
CONTINUE.........THE FIRM WAS DISSOLVED AND IT WAS AGREED THAT THE NET REALIZATION SHOULD BE DISTRIBUTED IN THEIR DUE ORDER AT THE END OF EACH CALENDAR MONTH. THE GRADUAL REALIZATIONS WERE AS FOLLOWS:REALIZATION EXPENSES WAS RS 20000DATE AMOUNTAPRIL RS 50000MAY RS 75000JUNE RS 50000
PREPARE THE STATEMENT SHOWING ORDER OF PAYMENT.
ORDER OF PAYMENTMONTH AMOUNT LIABILITIES PAID OFFAPRIL 50000 1. REALIZATION EXPENSES 20000
(20000)
30000 2. GOVERNMENT DUES 10000
(10000)
20000 3. SECURED BANK LOAN 20000
(20000) (90000-20000)= 70000
0
MAY 75000 1. SECURED BANK LOAN 70000
(70000)
5000 2. CREDITORS 5000(20000-5000)= 15000
ORDER OF PAYMENT
MONTH AMOUNT LIABILITIES PAID OFF
JUNE 50000 1.CREDITORS 15000(15000)
35000 EQUAL AMONG THREE PARTNERS
11666 11666 11666
SURPLUS CAPITAL METHOD
Prepare statement of excess capital: This statement is prepared in order to make the capital of partners equal so that all the partners are on same ground.
INFORMATION REQUIRED IN PREPARATION OF STATEMENT OF SURPLUS CAPITAL.
1.CAPITAL BALANCES OF PARTNERS.
2.PROFIT SHARING RATIO.
Practical Question
1. A, B and C are the partners sharing profit and losses in the ratio of 3:2:1 respectively. Their Balance Sheet as on 31-3-2020 is as follows:
The partnership firm dissolved and the assets are realized as follows:Instalments AmountFirst realization 10000Second realization 15000Third realization 24000
Show distribution of cash as per excess capital method.
LIABILITIES AMOUNT ASSETS AMOUNTS
CAPITAL ACCOUNTS
ASSETS 80000
A 30000
B 30000
C 20000 80000
80000 80000
Solution :
In the books of M/S A,B and C Statement of Surplus Capital
PARTICULARS A’CAPITAL B’CAPITAL C’CAPITAL
CAPITAL BALANCE………1 30000 30000 20000
Profit sharing ratio ……2 3 2 1
Unit value(divide (1 ) by (2) 10000 15000 20000
Taking A’capital as Base(bcoz unit value is least in A) 30000 20000 10000
SURPLUS CAPITAL………(3) 0 10000 10000
Profit sharing ratio …………(4) 2 1
Unit value(divide (3) by (4) 5000 10000
Taking B’capital as Base(bcoz unit value is least in B) 10000 5000
Ultimate surplus 5000
STATEMENT SHOWING PIECEMEAL DISTRIBUTION OF CASHParticular Cash A’capital B’capital C’capital
Balances Due 30000 30000 20000
First Realisation 11000
Paid to C’capital (5000) (5000)
Amount left after 1st realisation 6000
Paid to B and C ( 2:1 ) (4000) (2000)
0
Second realization 15000
Paid to B and C (9000) (6000) (3000)
Amount left after 2nd realisation 6000
Paid to A, B and C in 3:2:1 (6000) 3000 2000 1000
0
Third realization 24000
Paid to A, B and C in 3:2:1 (24000) 12000 8000 4000
Realization Loss 15000 10000 5000
Practical Question
1. A, B and C are the partners sharing profit and losses in the ratio of 5:3:2 respectively. Their Balance Sheet as on 31-3-2020 is as follows:
LIABILITIES AMOUNT ASSETS AMOUNTS
CAPITAL ACCOUNTS
Other assets 1304000
A 50000 Cash 20000
B 34500
C 29500
General Reserve 10000
B’ loan 200000
Creditors 1000000
1324000 1324000
There is a bill for Rs 4000 due to on 1st
April 2020 under discount. Other Assets realized as follows:
1st
April 2020: 885000, 1st
May 2020:300000, 1st
June2020:8000, 1st
July 2020:5000 , 1st
August 2020 : 10000
The expenses of realization were expected to be 5000 but ultimately amounted to be 4000 only and were paid on 1
stAugust. The acceptor
of the bill under discount met the bill on to due date .Prepare a statement showing monthly distribution of cash according to Surplus capital method.
Solution :
In the books of M/S A,B and C Statement of Surplus Capital
PARTICULARS A’CAPITAL B’CAPITAL C’CAPITAL
CAPITAL BALANCE………1 55000 37500 31500
Profit sharing ratio ……2 5 3 2
Unit value(divide (1 ) by (2) 11000 12500 15750
Taking A’capital as Base(bcoz unit value is least in A) 55000 33000 22000
SURPLUS CAPITAL………(3) 4500 9500
Profit sharing ratio …………(4) 3 2
Unit value(divide (3) by (4) 1500 4750
Taking B’capital as Base(bcoz unit value is least in B) 4500 3000
Ultimate surplus 6500
STATEMENT SHOWING PIECEMEAL DISTRIBUTION OF CASHParticular Cash A’capital B’capital C’capital
Balances Due 50000 34500 29500
General Reserve 5000 3000 2000
First Realisation
Paid to C’capital
Amount left after 1st realisation
Paid to B and C ( 2:1 )
Second realization
Paid to B and C
Amount left after 2nd realisation
Paid to A, B and C in 3:2:1
Third realization
Paid to A, B and C in 3:2:1
Realization Loss
practical proBlem
After paying off the liabilities the assets of M/S P,Q,R and Co. realized as follows:First realization 02/10/2020 14000Second Realization 25-11-2020 18000Third Realization 31-12-2020 30000Fourth Realization 23-01-2020 30000
The Capital account of the partner P, Q, R showed credit balance of 10000, 40000, 60000 respectively. The partner shared the profit of the business in the ratio of 3:2:1Prepare a statement showing distribution of cash as per Maximum Loss Method.
UNIT3: ACCOUNTS FROM INCOMPLETE RECORDS
Key points
Meaning
Features
Conversion of Single Entry into double entry
Practical Prblems
INTRODUCTION
It is not necessary to a small business to maintain books of accounts under double entry system
They are usually happy with the minimum information
Thus, they are adopting a different method which is came to known as single entry system of accounting
MEANING
It is also known as incomplete accounting system
An accounting system which is not based on double entry system is known as single entry system of accounting
Such system maintains only personal accounts and cash book
Expenses and incomes are reflected in the cash book, where as personal accounts reflects the position of debtors and creditors
It usually follows cash basis of accounting
FEATURES
Maintained by small business organisationsMaintenance of cash bookOnly personal accounts are keptCollection of information from original
documentsLack of uniformityDifficulty in preparation of final accounts
SINGLE ENTRY V/S DOUBLEENTRY
Both debit and credit aspects of all transactions are recorded
Various subsidiary books aremaintained
Ledger contains personal, real and nominal accounts
Preparation Trial Balance ispossible
Trial Balance, Profit/Loss A/c and Balance Sheet are prepared in a scientific manner
It is a mixture of double entry, one entry and noentry
No subsidiary books, except
• cash book is maintained
Ledger contains personal accounts only
Preparation Trial Balance is not possible
Only rough estimates of profit or loss statement affairs is made
Double Entry System Single Entry System
ADVANTAGES
Quick and easy to maintainDoes not require employing a qualified
accountantExtremely useful for small business
organisationsEconomical
DISADVANTAGES
Trial balance cannot be preparedArithmetical accuracy cannot be guaranteedIncomplete and unrealistic result of tradingNot possible to prepare balance sheetDifficult to detect errors and fraudImproper valuation of assets and liabilitiesChance for mixing business and personal
transactions of ownersExternal agencies cannot use financial
information
GST
• Goods and service tax (GST) is a comprehensive tax levy onmanufacture, sale and consumption of goods and service at anational level.
• Gst is a tax on goods and services with value addition at eachstage.
• Gst will include many state and central level indirecttaxes.
• It overcomes drawback present tax system
WHY DOES INDIA NEEDGST
• GST is being introduced majorly due to 2 reason
1. The current indirect tax structure is full of uncertainties due tomultiple rates.
2. Due to multiple rates there are multiple forms.
• GST the tax complexity in the prevailing tax regime.
TAX STRUCTURE IN INDIA
• Direct Tax :
e.g.: Income Tax, Corporate Tax, Wealth Tax
• Indirect Tax :
e.g.: Excise duty, custom duty, Service Tax, Octrai Tax,VAT.
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TAX STRUCTURE UNDER GST
SGST
IGST
• Stands for Central GST• Tax collected by Central Government• Applicable on supplies within the state
• Stands for State GST• Tax collected by State Government• Applicable on supplies within the state
• Stands for Integrated GST• Tax collected is shared between Centre and State• Applicable on interstate and import transactions
UTGST• Stands for Union Territory GST• Tax collected by Union Territory• Applicable on supplies within the Union Territory
CGST
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UNDERSTANDING CGST, SGST, UTGST &IGST
Foreign TerritoryState 1
Union territory without legislatureState 2
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FEATURES OF CONSTITUTION AMENDMENTACT
Concurrent jurisdiction for levy & collection of GST by the Centre (CGST) and theStates (SGST)
Centre to levy and collect IGST on supplies in the course of inter-State trade orcommerceincluding imports
Compensation for loss of revenue to States for five years
GST on petroleum crude, high speed diesel, motor spirit (commonly known aspetrol), natural gas & aviation turbine fuel to be levied from a later date onrecommendations of Council
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SHORT COMINGS IN CURRENT TAXSYSTEM
Tax Cascading (Tax on Tax)
Complexity
Taxation at Manufacturing Level
Exclusion of Services
Tax Evasion
Corruption
BENEFITS OFGST
Transparent Tax System
Uniform Tax system Across India
Reduce TaxEvasion
Export will be more competitive