Beruflich Dokumente
Kultur Dokumente
Basavaraj S G
KLE CBA Hubli.
Section - A
(Each Question carries 2 marks)
1. What is an invoice?
An invoice is a record of a sale or shipment made by a vendor to a customer that typically lists the
customer’s name, items sold or shipped, sales price, and terms of the sale. In other words, it’s an
itemized statement the reports the details of a sale for the buyer and seller’s records.
39. Give two reasons for preparing the bank reconciliation statement.
a. Cheques issued but not presented
b. Interest on deposits credited by the banker
Financial Accounting
Section - B
(Each Question carries 5 marks)
2. Convention of Consistency:
Rules and practices of accounting should be continuously observed and applied. In order to enable the
management to draw conclusions about the operation of a company over a number of years, it is
essential that the practices and methods of accounting remain unchanged from one period to another.
Comparisons are possible only if a consistent policy of accounting is followed.
3. Convention of Conservatism:
“Anticipate no profit and provide for all possible losses” is the essence of this convention. Future is
uncertain. Fluctuations and uncertainties are not uncommon. Conservatism refers to the policy of
choosing the procedure that leads to understatement as against overstatement of resources and
income.
4. Convention of Materiality:
American Accounting Association defines the term materiality as “An item should be regarded as
material if there is reason to believe that knowledge of it would influence the decision of informed
investor.” It refers to the relative importance of an item or event. Materiality of an item depends on its
amount and its nature.
Some of the ways external users employ accounting information include the following:
Stockholders have the right to know how a company is managing its investments
Federal and State Governments require tax returns and other documents often prepared by
accountants
Banks or lending institutions may use accounting information to guide decisions such as
whether to lend or how much to lend a business
Investors will also use accounting information to guide investment decisions
10. Write the Rules of Debit and Credit under English System
The different subsidiary books and their purpose are shown below:
1. Purchases Day Book: for recording credit purchase of goods only. Cash purchase or assets
purchased on credit are not entered in this book.
2. Sales Day Book: for recording credit sales of goods only. Assets sold or cash sales are not
recorded in this book.
3. Purchases Returns Book for recording the goods returned to the suppliers when purchased on
credit.
4. Sales Returns Books: for recording goods returned by the customers when sold on credit.
5. Bills Receivable Book: for recording the bills received [Bills Receivables] from customers for
credit sales.
6. Bills Payables Book: for recording the acceptances [Bills Payables] given to the suppliers for
credit purchases.
7. Cash Book: for all receipts and payments of cash.
8. Journal proper: for recording any transaction which could not be recorded in the above-
mentioned subsidiary books. For example, assets purchased or sold on credit and opening entry etc.,
are entered in this book.
Financial Accounting
Section - C
(Each Question carries 10 marks)
1. What are the differences between Fixed capital Method & Fluctuating capital method
Fixed Capital Account: Under this system, the capital which is introduced by partners will remain
fixed throughout the life of the partnership. Hence under this method two type of accounts are made
one is capital account and other is current account. Therefore all entries relating to drawings, interest
on capital, profit and loss share of partner are made in a separate account for each partner, it is called
current account of partners. However when partner brings additional capital or withdraws capital
permanently, then capital account is credited or debited respectively.
Fluctuating Capital Account: Under this method capital account of partners will not remain fixed
rather they will keep fluctuating from time to time. In this method all the entries related to drawings,
interest on capital and share of profit and loss of partner are recorded in capital account, hence in this
method there is no need for current account.
Fluctuating capital account method is usually preferred by partners; however they can also use fixed
capital account according to their business and preference.
2. What are the features and Causes of Depreciation
“Depreciation is the permanent and continuing diminution in the quality, quantity or value of an
asset.”
“Depreciation may be defined as a measure of the exhaustion of the effective life of an asset from
any cause during a given period.” -Spicer and Pegler.
Characteristics of Depreciation:
(i) Depreciation is decline in the value of fixed asset (except land). Decline in the value of asset is
permanent in nature. Once reduced, it cannot be restored to its original value.
(ii) Depreciation is a gradual and continuous process because value of asset is reduced, either with use
of asset or due to expiry of time.
(iii) It is not a process of valuation of asset. It is the process of allocating cost of an asset to its
effective life.
(iv) Depreciation reduces the book value and not the market value of the asset.
(v) Depreciation is used in respect of tangible fixed assets only. It is not used for wasting and
intangible assets such as amortization of goodwill, depletion of natural resources etc.
Causes of Depreciation:
1. Normal Physical Wear and Tear: Due to normal use of the assets, the assets deteriorate
physically, which results in reduction in their value.
2. Efflux of Time: Certain intangible assets have fixed life span such as Trade Marks, Patents or
Copyrights etc. The value of such assets decreases anyway with the passage of time irrespective of
the fact business enterprise is using them or not.
3. Obsolescence: Research & Development leads to innovations, in the form of better and technically
advanced machines that scrap old machines even though they may be capable of being run physically.
In that case there may be a permanent decrease in the market prices of certain assets like Computers,
Motor Cars etc.
This results in decline in the value of old machines. Obsolescence is a loss arising from outdating
and replacing the existing asset with the new and improved model of that asset.
4. Accidents: Destruction or damage caused by an accident may result in reducing the value of
assets.
5. What do you mean by Accounting concepts and conventions? Explain any two of each of them.
**
Accounting Concepts:
Accounting is the language of business; affairs of a business unit are communicated to others as
well as to those who own or manage it through accounting information which has to be suitably
recorded, classified, summarized and presented. To make the language convey the same meaning to
all people, as far as practicable, and to make it full of meaning, accountants have agreed on a number
of concepts which they try to follow.
Business entity concept: A business and its owner should be treated separately as far as their
financial transactions are concerned.
Money measurement concept: Only business transactions that can be expressed in terms of
money are recorded in accounting, though records of other types of transactions may be kept
separately.
Dual aspect concept: For every credit, a corresponding debit is made. The recording of a
transaction is complete only with this dual aspect.
Going concern concept: In accounting, a business is expected to continue for a fairly long time
and carry out its commitments and obligations. This assumes that the business will not be forced to
stop functioning and liquidate its assets at “fire-sale” prices.
Cost concept: The fixed assets of a business are recorded on the basis of their original cost in the
first year of accounting. Subsequently, these assets are recorded minus depreciation. No rise or fall in
market price is taken into account. The concept applies only to fixed assets.
Accounting year concept: Each business chooses a specific time period to complete a cycle of
the accounting process—for example, monthly, quarterly, or annually—as per a fiscal or a calendar
year.
Matching concept: This principle dictates that for every entry of revenue recorded in a given
accounting period, an equal expense entry has to be recorded for correctly calculating profit or loss in
a given period.
Realization concept: According to this concept, profit is recognised only when it is earned. An
advance or fee paid is not considered a profit until the goods or services have been delivered to the
buyer.
Accounting Conventions
There are four main conventions in practice in accounting: conservatism; consistency; full
disclosure; and materiality.
Conservatism is the convention by which, when two values of a transaction are available, the
lower-value transaction is recorded. By this convention, profit should never be overestimated, and
there should always be a provision for losses.
Consistency prescribes the use of the same accounting principles from one period of an
accounting cycle to the next, so that the same standards are applied to calculate profit and loss.
Materiality means that all material facts should be recorded in accounting. Accountants should
record important data and leave out insignificant information.
Full disclosure entails the revelation of all information, both favourable and detrimental to a
business enterprise, and which are of material value to creditors and debtors.
The document containing the agreement between the partners is called ‘Partnership Deed’.
The deed must be properly stamped and signed by all the partners except a minor who has be
admitted in the benefits of partnership.
It is better if the deed is very elaborate and clear about all possible questions which may rise in
the course of partnership. In the absence of any agreement in relation to any point not incorporated
therein, the provisions of the Partnership Act will apply and will determine their rights and duties.
The Partnership deed is not a public document like the Memorandum of Association of a
Company.
Contents of a Partnership Deed
The partnership deed must contain the following particular:
1. The name of the firm.
2. The names and addresses of the partners.
3. The nature of the business.
4. The term or duration of partnership.
5. The amount of capital to be contributed by each partner.
6. The drawings that can be made by each partner.
7. The interest to be allowed on capital and charged on drawings.
8. Rights of partners.
9. Duties of partners.
10. Remuneration to partners.
11. The ratio in which the profits or losses are to be shared among the partners.
12. The basis for the calculation of goodwill at the time of admission, retirement, and death of a
partner.
13. The keeping of proper books of accounts and the preparation of Balance Sheet.
14. Settlement of amount on the dissolution of the firm.
15. The procedures to be adopted in the case of disputes among the partners.
16. Arbitration clause.
BASIS FOR
TRIAL BALANCE BALANCE SHEET
COMPARISON
Meaning Trial Balance is the list of all The Balance sheet is the statement
balances of General Ledger which shows the assets, equity and
Account. liabilities of the company.
Division Debit and Credit columns Assets and equity & liabilities heads
Balances Personal, real and nominal Personal and real account are shown.
account are shown.
Preparation At the end of each month, At the end of the financial year.
quarter, half year or
financial year.
9. What are final accounts of a trader? Explain the need for preparing the final accounts
Final Accounts refers to financial statements and accounts prepared at the end of an accounting year
for working the results of the business operations and to present the financial position of the business
as on date.
Needs to prepare Final Accounts:
1. Ascertainment of trading results: The trading Account is prepared to find out the profit or loss
made by the business activities which include buying, manufacturing, and selling of goods &
services. This profit is called Trading Profit or Gross Profit
2. Determination of Net Profit: The profit & Loss account is prepared to find out the final profit or
loss made by running the business, that is, the ultimate working results of the business. This is called
Net Profit/ Net Income. Such profit or income is the excess of sales revenues over all the related
expenses.
3. Presenting Financial Position: The balance sheet is prepared to show the financial status of the
business as on a particular date. It gives an idea of the financial strength of the business in terms of
the value of its assets and properties and also the share of outsider’s equity and the owner’s
investments. This will present the solvency position of the business.
4. Facilitates financial analysis and interpretation: Final accounts serve as window to understand and
explain the changes in the profitability and financial health of a business. The financial statements are
useful for investors, creditors and public, in taking decision in their areas.
5. Legal Requirements: The corporate entities like joint stock companies, statutory corporations,
cooperative societies, etc are required to submit the copies of their financial statements to members,
Stock exchanges, and to the respective government departments. The income tax liability also
computed on the basis of the audited statements of accounts.
10. What are the Objectives of Charging Depreciation? List out Merits and Demerits of Straight
line Method.
Meaning of Depreciation:
In common usage the term ‘depreciation’ refers to a decline in the value of any kind of property. But
in Accounting its use is restricted to the expiration of the cost of tangible fixed assets. Except land, all
other physical assets have a limited period of useful life.
Characteristics of Depreciation:
Depreciation refers to fall or shrinkage rather than an increase in the value of an asset.
It refers to a fall in book value of the asset. This value may or may not be equal to the market
value or the cost price of the asset.
The fall in book value is a slow and gradual process rather than a sudden event. It is always
continuing and a permanent shrinkage.
Depreciation is restricted to the fall in the value of fixed assets. Once a fixed asset is put to
use, depreciation begins to occur and it stays there forever.
12. List out Merits and Demerits of Written down Value Method.
Written down Value Method: It is also known as Reducing Balance or Reducing Installment
Method or Diminishing Balance Method. Under this method, the depreciation is calculated at a
certain fixed percentage each year on the decreasing book value commonly known as WDV of the
asset (book value less depreciation).
Merits:
The following are the advantages of this method:
As this method equalizes the total charges of using the asset (i.e., the amount of depreciation
plus repair charges) from year to year, it is considered more equitable than straight-line
method. This is because depreciation charges decline each year whereas repair charges
increase year by year.
It matches the service of the asset with the depreciation charge. When asset is more efficient
in the initial years, higher depreciation is charged compared to later years. It is true about
fixed assets such as motor vehicles.
It recognizes the risk of obsolescence by charging the major part of depreciation in the early
years of the life of the asset.
It results in a better cash flow through tax deferral as under this method, the net income to be
taxed is lower in the initial years and higher in subsequent years.
As and when additions are made to the asset, fresh calculations of depreciation are not
necessary.
Income-tax authorities recognize this method.
Demerits:
The main drawbacks of this method are as follows:
In subsequent years the original cost of the asset is completely lost sight of.
The asset can never be reduced to zero.
This method does not take into consideration the interest on capital invested in the asset.
This method requires elaborate book-keeping. The determination of correct rate of
depreciation is a complex task.
13. What are the Accounting rules under English system? Classify the following into Personal, Real
& Nominal Accounts
a. Capital Account
b. Drawings Account
c. Canara Bank Account
d. Machinery Account
e. Salary Account
f. Goodwill Account
g. Interest Account