Accounting Hints Partnership Accounts Calculation of Goodwill Super profit = Avg. Profit Returns on Capital employed.

. When admitting new partner, retiring existing partner, prepare revaluation account. Unaccounted liabilities, if any are included here. Prepare Capital accounts. Credit profit, reserves, revaluation profit, Goodwill to partners. Debit Revaluation loss, drawings from Capital Accounts. When Goodwill need not be shown in B/S, write it off here. Writing off Goodwill 1. Calculate Gaining ratio in case of retirement and sacrificing ratio in case of admission of new partner. Gaining ratio = New ratio Old Ratio Sacrificing ratio = Old Ratio New ratio Debit remaining partners and credit retiring partners using gaining ratio Debit new partner and credit old partners using sacrificing ratio. 2. Credit Good will in all the partners capital accounts and write it off after admitting new partner in new PSR. In case of death of partner, profit up to date of death will be given. It is credited to dead partners capital account in the method given. Usually, it is done based on previous years profit or a certain percentage of his capital. The remaining profit is credited in the other partners capital account. Revaluation account and capital accounts are prepared. If amount due to dead partner is not paid immediately, credit the amount to executors account. When preparing the appropriation of profit A/c for the rest of the year, apply Sec. 37 of Partnership Act. Credit the higher of the following to executors account 1. Interest on balance amount for remaining months 2. Profit earned out of unsettled capital When Joint life policy claim is received, credit it in capital account in PSR.

Insurance Loss of stock Calculate gross profit for previous year with available data if it is not given. Use it to prepare Memorandum Trading Account and calculate closing stock and apply average clause if insured amount is less than stock value. Damaged stock if written off from previous years closing stock needs to be added back to calculate GP ratio. When calculating closing stock in such a case, show damaged stock and good stock separately. Check if remaining damaged stock is worth less value or original value. Claim = (Loss of stock * Sum insured )/ Insurable stock Loss of stock = Insurable stock Salvage value Loss of Profit Step 1 - Calculation of GP ratio. GP ratio = (Net Profit + Insured Standing charges)*100/ Sales Adjust GP ratio to increase/ decrease in GP ratio Step 2 Standard Sales Short Sales Adjust Standard Sales to increase/ decrease in Turnover Step 3 Loss of profit on Short Sales - GP on Step 2 Step 4 Annual Adjusted Turnover Turnover for 12 months immediately preceding the date of fire adjusted for current trend. Step 5 GP on Annual Adjusted Turnover Step 6 Calculation of allowable expenses Least of the following: 1. Actual expenses incurred 2. GP on sales affected due to additional expenditure 3. Actual expenses * GP on Annual Adjusted Turnover_________ GP on Annual Adjusted Turnover + Uninsured standing charges

Step 7 Loss of profit Loss of profit on Short Sales + Allowable expenses Savings Step 8 -- If average clause is applicable, (Loss of profit * Insured amount)/Annual Adjusted Turnover Calculation of insurance policy to be taken Add current trend to previous years Gross profit and add increased standing charges Gross profit = Sales Variable expenses Investment AS 13 Valuation of Long term investment Historical Cost. Valued at revalued cost if change is permanent Valuation of current investment Cost or NRV whichever is lower. Reclassification Current to Long term Valuation at cost or Fair Value, whichever is lower Long term to Current Valuation at cost or Carrying amount, whichever is lower Calculation of Value of investment Cum Dividend (Purchase price + Brokerage if any + Stamp charges) dividend Ex dividend -- (Purchase price + Brokerage if any + Stamp charges) In case of sales, subtract brokerage from sale consideration to get sale value For purchase with cum rights, always credit dividend to investment account and not P/L A/c Profit or loss on sale of investment is transferred to P/L A/c Non-profit Organizations Receipts and Payments All cash transactions including capital receipts and capital payments are recorded. Opening and closing cash balance Profit or loss on sale not to be recorded

Prepaid/ Outstanding expenses not to be recorded here Income and Expenditure Only current year transactions including outstanding expenses and income to be recorded No capital receipts or capital payments Depreciation to be recorded here Surplus/ Deficiency of income and expenditure account to be taken to Balance Sheet Incomplete records Prepare opening statement of affairs using opening balances and compute opening capital Compute closing capital in a similar way using closing balances In case interest on investment is mentioned anywhere, compute investment value and include it in statement of affairs. Compute profit Opening capital + Additional capital Drawings -- Closing Capital = profit/ loss Prepare ledgers for Debtors, Creditors, B/P, B/R, Cash etc. Bills endorsed to creditors will not appear in Debtors, only in B/R Creditors A/c Dr To B/RA/c If Endorsed bill is dishonored, it will appear in Debtors a/c B/R dishonored Dr To Creditors A/c In B/R A/c, Opening B/R + B/R accepted in current year -- Closing Balance = B/R received In B/P A/c, Opening B/P + B/P accepted in current year -- Closing Balance = B/P payments

Cash Flow Debenture interest is to be computed if Debentures are given.