Accounting

Name of presentation 2004 Company name

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Accounts Afterschoool – developing change makers CENTRE FOR SOCIAL ENTREPRENEURSHIP PGPSE PROGRAMME – OPEN FOR ALL FREE FOR ALL

Dr. T.K. Jain. AFTERSCHOOOL Centre for social entrepreneurship Bikaner M: 9414430763 [email protected] www.afterschool.tk www.afterschoool.tk

Accounts

Name some current assets? • Current assets are those, which will change in next accounting year / financial year / operating cycle. • Examples: cash, inventory, debtors, bills receivables, prepaid expenses, etc.

What are direct expenses? • These are the expenses, which are directly identifiable with production – as production goes up – these expenses will also increase. • Example: purchase, wages, carriage inward, octroi etc.

What is suspense account – where will it go?

• When there is some difference in trial balance, we prepare suspense account for the difference. It will go to balance sheet.

Which are errors in accounting ? • • • • •

Error of commission Error of omission Error of principle Compensating error Error of posting – this will affect only one account. (part of commission) • Totaling errors (part of commission )

Which is negotiable instrument? • Options: bill of exchange, promisory note, cheque, crossed cheque • Answer: all except crossed cheque – because all other can be transferred with good rights.

Which is the book of original entry? • Journal

Accounting equation approach is based on which rule?

• Dual aspects

Which convention says: value inventory at cost or market price – whichever is lower? of conservatism. • Convention

We have installed a new machinery – where should we show the expenses of Rs. 100000? • Machinery account (real account).

What is overriding commission? • It is a commission calculated on Sale price – invoice price / cost • For example invoice price is 100, and sale price is 120, and we pay 50% overriding commission, the commission amount will be 10 per piece.

Wages of Rs. 5000 was shown as salary, actually they were paid for installing new machinery. Pass rectifying entry. • Machinery Account Dr. 5000 • To salary account credit 5000

• • • •

Purchase : 100000, sales 90000, margin = 20%. What is closing stock?

Cost of sales is : 90000 *100/120 = 75000. Thus closing stock is 100000-75000 =25000 answer.

I get 5% commission on profit after charging commission. Profit is 58000. what*is5/105 my commission? • 58000 • = 2762 answer

Mohan drew bill on Gopal of Rs. 100000 for 3 month. Proceeds are to be shared euqally. Mohan gets the bill discounted for 12%. How much amount should Mohan Gopal? bill. The basic • This issend accommodation purpose is to finance working capital. • 100000- 3000 = 97000. • Thus Mohan will send Rs. 48500 to Gopal. Answer.

A bill is drawn on 12 June for 2 months. What will be due date of this bill?

• Add 2 months, we get 12 august + add three days – we get 15 august – but 15 August is public holiday – so due date is 14 August. Answer.

I purchased a building of Rs. 200000 against debentures (issued at 20% discount). What Building Account Dr. should 200000 be entry ?

• • To Firm Account (from whom we have purchased building). 200000 • Next: .. • 200000*20/80 = 50000 discount • Firm Account Dr. 200000 • Discount on issue of debentures Dr.50000 • Debentures Account Credit 250000

Who are the main users of accouning information?

• Customers, employeees, lenders • Government, public, investors, suppliers and creditors.

What are basis of accouning? • Cash basis of accounting • Accrual basis of accounting • (generally accrual basis of acounting is followed).

What are essential characteristics of accounting statements?

• They should be comparable • They should be reliable • They should give true and fair view of the company • They should be understandable • They should be relevant.

Define asset? • A resoruce controlled by company – which will give a stream of earnings in the future. The resource may be physical or nonphysical resource. It must have a measurable cost / value.

Define liability? • Present obligation of the company arising out of past events – which will result in outflow of resources emboding economic benefits.

Define current assets and current liability?

• Assets and liability which will change in next business cycle or in next one year are called current assets and current liability.

Define equity? • Residual interest in the assets of a company – after deducting all liability is called equity. It is the excess of assets over liability. • Equity = Assets – liability.

Define income? • Increase in economic benefits during an accounting period is called income. • Income = revenue + gain • Revenue = income from ordinary business activities (selling) • Gain = other income (like income from interest).

Define Expense? • Expense is decrease in economic benefit during an accounting period. • It may be outflow of money or depletion of assets or incurrence of liability.

Your financial profit is Rs. 125000 as per your statement – what is true profit– with the following information. • Cost of Asset of Rs. 25000 has been taken as expense. • Salary payable Rs. 7000 – ignored • Purchased assets for 75000 – market value Rs. 85000. Recorded at market value. • Expected profit of Rs. 10000 has been taken into account (Rs. 10000 has not yet been realised – because it will be there when car is sold – which will take some time).

What is the mistake in accounting in previous question and what should be done? • We have failed to use historical and accrual concepts of accounting – so we should follow these principles.

Answer: • • • • • • •

125000 Add: 25000 (assets shown as expense) Subtract: 7000, (salary) 10000 (unrealised income) = 133000 (answer)

• • • •

What is profit & stock as per the following transactions:

1-4-7 purchased 10 units @50 2-4-7 purchased 10 units @ 70 3-4-7 sold 6 units @ 65 4-4-7 sold 9 units @ 65

Solution .. • Cost : (we can use only FIFO or Weighted average method, LIFO is not permitted as per AS2) • 10*50 +10*70 = 1200 • Selling price = 65*15= 975 • Inventory = 350 (As per FIFO)300 (As per weighted average method). • Profit = (975+350)-1200 (fifo) = 125 • Or (975+300) -1200 = 75

Solution continued .. • Calculation of inventory: • Total = 20 – used 15 = inventory of 5 • Under FIFO, the left out goods are those which have been purchased last. Thus their rate is 70 per unit • 5*70 =350. • In case of weighted average, we shall calculate their average cost: 1200/20= 60 per unit. 5*60 = 300

You have sold an assets of Rs. 50000 at a profit of Rs. 10000. how much amount will you show in your cash flow statement under cash from operating activities?

• NIL • (in in cash from operating activities – we mention only regular sale. Sale of assets is not part of regular sale).

You have set up a plant in notified backward area. You have got a subsidy of Rs. 1 crore from government. Where will you • You willtransfer transfer it? it to capital reserve account.

What is capital reserve? • • • • • • • •

It includes following: Profits before incorporation Profit from sale of fixed assets Profit not available for distribution Profit on reissue of forfeited shares Premiums received on debentures etc. (share premium is not capital reserve) (Share premium and capital redemptin reserve accounts are separate.)

You have made investment of Rs. 500000. their market price is now Rs. 400000. At what price will you record them in balance sheet?

• Rs. 500000 (at cost itself). (if you do revaluation – you may show it at 400000, after preparing revaluation account).

You have found that your goodwill is worth Rs 400000. How much will you record in balance sheet? • Nil – internally generated goodwill is generally not recorded.

What are final accounts of a company?

• Balance sheet and P& L account • (as per section 210 of company act and as per schedule VI

Which are statutory books? • • • • • • •

Register of investments – sec. 49 Register of mortgages and charges – sec 143 Register of members and index – sec. 150 Debenture holders – sec. 152 Minute book – sec193 Contracts etc. sec. 301 Directors & Directors’s shareholding – sec. 303 & 307 • Investment in securities other companies

What is annual return? • Every company has to prepare in 60 days (from AGM) annual return and submit in prescribed proforma to the registrar. (part I & II of schedule V) and sec. 149.

What is maximum remuneration to directors?

• 5% of profit – if one director only • 10% of profit - if two whole time directors • 11% of profit – if 2 whole time directors, 1 part time director and one manager.

4a +7b = 17 & 4a-2b=21, what is a&b?

• Let us subtract II equation from I. 4a gets cancelled. We get 9B = -4 or b = -4/9 • Let us put this value in I equation, we get: 4a – 28/9 =17 or 4a =17+28/9 • 4a = 181/9 • A = 181/9 *1/4 • =181/36 answer.

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• • • • • • •

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Pedagogy curriculum and approach based on IIM Ahmedabad and ISB Hyderabad (the founder is alumnus from IIMA & ISB Hyderabad) Meditation, spiritualisation, and self development Essential softwares for business Business plan, Research projects Participation in conferences / seminars Workshops on leadership, team building etc. Written submissions of research projects/articles / papers Interview of entrepreneurs, writing biographies of entrepreneurs Editing of journals / newsletters Consultancy / research projects Assignments, communication skill workshops Participation in conferences and seminars Group discussions, mock interviews, self development diaryng Mind Power Training & writing workshop (by Dr. T.K.Jain)

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