Jaiibmodule c

JAIIBJAIIBAccounting & Finance for BankersAccounting & Finance for Bankers

PRESENTATION BY PRESENTATION BY S.D.BARGIRS.D.BARGIR

Joint Director, IIBFJoint Director, IIBF

17-10-200717-10-2007

TOPICSTOPICSBANK RECONCILIATIONBANK RECONCILIATIONTRIAL BALANCETRIAL BALANCECAPITAL & REVENUE EXPENDITURECAPITAL & REVENUE EXPENDITUREINVENTORY VALUATIONINVENTORY VALUATIONBILLS OF EXCHANGEBILLS OF EXCHANGECONSIGNMENT ACCOUNTCONSIGNMENT ACCOUNTJOINT VENTUREJOINT VENTURELEASING & HIRE PURCHASELEASING & HIRE PURCHASENON-TRADING ORGANISATIONSNON-TRADING ORGANISATIONSDEPRECIATIONDEPRECIATIONMODEL QUESTIONSMODEL QUESTIONS

Bank Reconciliation statementBank Reconciliation statementMeaningMeaningCauses of differencesCauses of differences

Cheque issued but not presented for Cheque issued but not presented for paymentpaymentCheque deposited but not yet realizedCheque deposited but not yet realizedBank chargesBank chargesInterest on saving bankInterest on saving bankInt. on overdraftInt. on overdraftAmount directly collected by bankAmount directly collected by bankAmount directly paid by bank on Std. Amount directly paid by bank on Std. InstructionsInstructionsDishonor of a ChequeDishonor of a ChequeDirect payment into bank by customerDirect payment into bank by customererrorserrors

BANK RECONCILIATION STATEMENTBANK RECONCILIATION STATEMENT

BANK RECONCILIATION( B. R. ) IS BASED ON THE BANK RECONCILIATION( B. R. ) IS BASED ON THE PRINCIPLE OF DOUBLE ENTRY. PRINCIPLE OF DOUBLE ENTRY.

DEBIT THE RECEIVER AND CREDIT THE GIVERDEBIT THE RECEIVER AND CREDIT THE GIVER

B. R. SHOWS CAUSES OF DIFFERENCES BETWEEN B. R. SHOWS CAUSES OF DIFFERENCES BETWEEN CASH BOOK AND PASS BOOK BALANCECASH BOOK AND PASS BOOK BALANCE

DEBIT BALANCE AS PER CASH BOOK IS CREDIT DEBIT BALANCE AS PER CASH BOOK IS CREDIT BALANCE AS PER PASS BOOK = POSITIVE BALANCEBALANCE AS PER PASS BOOK = POSITIVE BALANCE

CREDIT BALANCE IN CASH BOOK IS DEBIT CREDIT BALANCE IN CASH BOOK IS DEBIT BALANCE IN PASS BOOK = NEGATIVE BALANCE IN PASS BOOK = NEGATIVE BALANCE/OVERDRAFTBALANCE/OVERDRAFT

EXAMPLESEXAMPLESM/s Shekhar Enterprises .was maintaining account with M/s Shekhar Enterprises .was maintaining account with KRB Bank Ltd. On 31st December,2006, Bank column KRB Bank Ltd. On 31st December,2006, Bank column of cash book of company showed a debit balance of Rs. of cash book of company showed a debit balance of Rs. 26000. 26000. Cheques deposited into the bank but not credited before Cheques deposited into the bank but not credited before 31st December,2006 amounted to Rs.400031st December,2006 amounted to Rs.4000Bank charges of Rs. 500 were debited by the bank but no Bank charges of Rs. 500 were debited by the bank but no entry was made by the accountant of the company.entry was made by the accountant of the company.From the above particulars, find out the balance as From the above particulars, find out the balance as per KRB Bank’s books.per KRB Bank’s books.Rs.30500Rs.30500Rs.25500Rs.25500RsRs.21500.21500Rs.22500Rs.22500

EXAMPLESEXAMPLES2.2. When overdraft as per cash book and a Cheque When overdraft as per cash book and a Cheque

of Rs.1000 directly deposited in the bank, but of Rs.1000 directly deposited in the bank, but not recorded in cash book----not recorded in cash book----

a) Add Rs.1000 in CBa) Add Rs.1000 in CBb) deduct Rs.1000 in CBb) deduct Rs.1000 in CBc) Add Rs.2000 in cash bookc) Add Rs.2000 in cash bookd) Deduct Rs.2000 in CBd) Deduct Rs.2000 in CB

3.3. Cheque issued to Rohan for Rs.4000 Cheque issued to Rohan for Rs.4000 was recorded twice in cash bookwas recorded twice in cash book

a)a) Deduct Rs.4000 in Cash bookDeduct Rs.4000 in Cash bookb)b) Add Rs. 4000 in cash bookAdd Rs. 4000 in cash bookc)c) Add Rs.8000 in Cash BookAdd Rs.8000 in Cash Bookd)d) Deduct Rs.8000 in cashbookDeduct Rs.8000 in cashbook

EXAMPLESEXAMPLES4.4. Sujit is having account with two banks viz. PNB and Sujit is having account with two banks viz. PNB and

Canara bank. He made a deposit of Rs. 3000 in Canara Canara bank. He made a deposit of Rs. 3000 in Canara Bank , but wrongly entered in column of PNB.For Bank , but wrongly entered in column of PNB.For preparing BRS of Canara Bank , sujit will----preparing BRS of Canara Bank , sujit will----

a) Add Rs.3000 in Cash Book of Canara BK columna) Add Rs.3000 in Cash Book of Canara BK columnb) deduct Rs.3000 in Cash book of Canara BK b) deduct Rs.3000 in Cash book of Canara BK

columncolumnc) Add Rs.6000 in cash book of Canara BK columnc) Add Rs.6000 in cash book of Canara BK columnd) Deduct Rs.6000 in CB of Canara BK columnd) Deduct Rs.6000 in CB of Canara BK column

5.5. Payment side of cash book of LKJ ltd. Is overcast by Payment side of cash book of LKJ ltd. Is overcast by Rs.9000.Rs.9000.

a)a) Deduct Rs.9000 in Cash bookDeduct Rs.9000 in Cash bookb)b) Add Rs. 9000 in cash bookAdd Rs. 9000 in cash bookc)c) Add Rs.18000 in Cash BookAdd Rs.18000 in Cash Bookd)d) Deduct Rs.18000 in cashbookDeduct Rs.18000 in cashbook

Trial Balance(TB)- Rectification entriesTrial Balance(TB)- Rectification entriesTrial balance – meaningTrial balance – meaningTypes- gross TB, Net TBTypes- gross TB, Net TBDisagreement of TBDisagreement of TBClassification of errorsClassification of errors

Clerical errorsClerical errors– Errors of omission Errors of omission – Errors of commissionErrors of commission

Posting of correct amount at wrong side Posting of correct amount at wrong side Posting wrong amount at wrong sidePosting wrong amount at wrong sideTotaling error in subsidiary bookTotaling error in subsidiary bookMistake while balancing of ledgerMistake while balancing of ledger

– Compensating errorsCompensating errorsErrors of principlesErrors of principles

Suspense account-Suspense account-Suspense account- After preparation Suspense account- After preparation of T/Bof T/BRectification when books are closed- Rectification when books are closed- Diff. in nominal A/c adj. through P & L Diff. in nominal A/c adj. through P & L Adj. A/c- then effect on Capital A/cAdj. A/c- then effect on Capital A/c

Rectification of Errors-ExamplesRectification of Errors-Examples(1) Rs. 7000 paid as wages for installing the (1) Rs. 7000 paid as wages for installing the

machinery should be debited to-----machinery should be debited to-----Wages A/cWages A/cMachinery a/cMachinery a/cCapital A/cCapital A/cNone of the aboveNone of the above

(2) Sales to Navin of Rs.1000 is debited to Ravin (2) Sales to Navin of Rs.1000 is debited to Ravin A/c. this will be rectified by-----A/c. this will be rectified by-----Debiting Navin a/c and Crediting Ravin A/cDebiting Navin a/c and Crediting Ravin A/cDebiting both AccountsDebiting both AccountsDebiting Ravin a/c and Crediting Navin A/cDebiting Ravin a/c and Crediting Navin A/cDebiting Navin A/c and crediting Sales A/CDebiting Navin A/c and crediting Sales A/C

Trial Balance-ExamplesTrial Balance-Examples3.3. Credit sale of Credit sale of Rs.5000 to Suresh is Rs.5000 to Suresh is

posted to his credit, then rectification is posted to his credit, then rectification is i.i. Credit Suresh to the extent of Rs.10,000Credit Suresh to the extent of Rs.10,000ii.ii. Credit Suresh to the extent of Rs.5,000 Credit Suresh to the extent of Rs.5,000 iii.iii. DebitDebit Suresh to the extent of Rs.10,000 Suresh to the extent of Rs.10,000iv.iv. Debit Suresh to the extent of Rs.5000Debit Suresh to the extent of Rs.5000

4.4. Freight expenses for carrying New Freight expenses for carrying New Machinery is carried to Traveling Exp. a/c. Choose Machinery is carried to Traveling Exp. a/c. Choose the correct rectification entrythe correct rectification entry

i.i. Debit machinery a/c and credit Traveling Exp a/c.Debit machinery a/c and credit Traveling Exp a/c.ii.ii. Credit machinery a/c and debit Freight Exp a/cCredit machinery a/c and debit Freight Exp a/ciii.iii. Credit profit and loss account and debit Freight Exp a/c.Credit profit and loss account and debit Freight Exp a/c.iv.iv. Debit profit and loss a/c( P&L a/c) and credit Traveling Debit profit and loss a/c( P&L a/c) and credit Traveling

Exp a/c.Exp a/c.

Rectification of Errors-ExamplesRectification of Errors-Examples5.5. One of the pair given below is mismatch, identify the same One of the pair given below is mismatch, identify the same

i.i. Trial balance <> Statement of balances of ledger Trial balance <> Statement of balances of ledger accountsaccounts

ii.ii. Real Account<> Always shows debit balance Real Account<> Always shows debit balance iii.iii. Suspense Account<> difference in trail balanceSuspense Account<> difference in trail balanceiv.iv. Outstanding Expenses<> Nominal AccountOutstanding Expenses<> Nominal Account

6.6. One of the statement is incorrect. Select the incorrect One of the statement is incorrect. Select the incorrect statement.statement.

i.i. If the trial balance shows short debit, the suspense a/c If the trial balance shows short debit, the suspense a/c will have credit balance.will have credit balance.

ii.ii. Errors which cancel out the effect of one another are Errors which cancel out the effect of one another are called compensating errors.called compensating errors.

iii.iii. One sided errors are rectified without passing journal One sided errors are rectified without passing journal entriesentries

iv.iv. Two sided errors originate in the primaryTwo sided errors originate in the primary books books

Capital & Revenue ExpenditureCapital & Revenue Expenditure

CAPITAL REVENUE

Large amount Relatively small

Improve or enhance earning capacity

Maintain asset

Long duration benefit Short duration

Non- recurring recurring

Balance sheet item Trading /P & L A/c item

Deferred Revenue expenditureDeferred Revenue expenditure Expenditure incurred in one year , but benefit of Expenditure incurred in one year , but benefit of which is accruing not in one year but following two which is accruing not in one year but following two or more years , then such expenditure is called asor more years , then such expenditure is called as Deferred Revenue expenditureDeferred Revenue expenditure ExamplesExamples– Heavy advertisement exp.Heavy advertisement exp.– Issue of capital expensesIssue of capital expenses– Preliminary expensesPreliminary expenses

Cap. & Rev. Expenditure-ExamplesCap. & Rev. Expenditure-Examples((1)1)Cost of replacement of defective parts of the Cost of replacement of defective parts of the

machinery is -----machinery is -----a.a. Capital expenditureCapital expenditureb.b. RRevenue expenditureevenue expenditurec.c. Deferred revenue expenditureDeferred revenue expenditured.d. None of the aboveNone of the above

(2) Loss of goods due to fire Rs.8000 is a revenue (2) Loss of goods due to fire Rs.8000 is a revenue expenditure because----expenditure because----

a.a. It is recurringIt is recurringb.b. Amount involved is smallAmount involved is smallc.c. LLoss is arising out of business operationsoss is arising out of business operationsd.d. None of the aboveNone of the above

Cap. & Rev. Expenditure-ExamplesCap. & Rev. Expenditure-Examples(3) (3) Expenditure incurred in acquiring the patents Expenditure incurred in acquiring the patents

rights for the business is an example of ----rights for the business is an example of ----a.a. CCapital expenditureapital expenditureb.b. Deferred revenue expenditureDeferred revenue expenditurec.c. Revenue expenditureRevenue expenditure((4) Professional fees paid in connection with 4) Professional fees paid in connection with

acquisition of leasehold premises is----acquisition of leasehold premises is----a.a. CCapital expenditureapital expenditureb.b. Deferred revenue expenditureDeferred revenue expenditurec.c. Revenue expenditureRevenue expenditure

ExamplesExamples(5)Preliminary expenses , discount allowed (5)Preliminary expenses , discount allowed

on issue of shares are the examples of on issue of shares are the examples of a.a. Capital expenditureCapital expenditureb.b. DDeferred revenue expenditureeferred revenue expenditurec.c. Revenue expenditureRevenue expenditure(6) Machinery costing Rs.10,000, whose (6) Machinery costing Rs.10,000, whose

current book value is Rs.7000 is sold for current book value is Rs.7000 is sold for Rs.12000 what is the amount of capital & Rs.12000 what is the amount of capital & revenue receiptrevenue receipt

a.a. Capital receipt of Rs. 2000 & Rev. Receipt of Rs.10000Capital receipt of Rs. 2000 & Rev. Receipt of Rs.10000b.b. CCapital receipt of Rs. 9000 & Rev. Receipt of Rs.3000apital receipt of Rs. 9000 & Rev. Receipt of Rs.3000c.c. Capital receipt of Rs. 12000 & Rev. Receipt of Rs.NilCapital receipt of Rs. 12000 & Rev. Receipt of Rs.Nil

Methods of valuation of inventoryMethods of valuation of inventory

FIFO LIFO AVERAGECOST

•Goods issued valued at earliest price•Stock valuation at latest price

•Goods issued valued at latest price•Stock valuation at earliest price

Found out by dividing total price paid by quantity received

ExamplesExamples1.1. Select the incorrect statement from the following---Select the incorrect statement from the following---

a.a. Inventory valuation is subjective because it depends upon the Inventory valuation is subjective because it depends upon the accounting policies adopted by the organisationaccounting policies adopted by the organisation

b.b. The basis of inventory valuation adopted should not be changed The basis of inventory valuation adopted should not be changed frequently because it violates accounting principle of frequently because it violates accounting principle of ‘consistency’‘consistency’

c.c. Accounting standard recommends FIFO or weighted average Accounting standard recommends FIFO or weighted average methodmethod

d.d. The ascertainment of value of stock from accounting record is The ascertainment of value of stock from accounting record is known as known as PPerpetual inventoryerpetual inventory

Examples-conted..Examples-conted..Q:During the rising prices the ______ Q:During the rising prices the ______

method will reflect method will reflect ((FFIFO/LIFO/weighted Average)IFO/LIFO/weighted Average)lowest cost of material supplied and lowest cost of material supplied and results in under pricing the productsresults in under pricing the productsInventory is shown at the higher Inventory is shown at the higher priced material.priced material.Lock up of large amount of working Lock up of large amount of working capital.capital.Profits are inflatedProfits are inflatedMore liability for payment of taxesMore liability for payment of taxes

Bill of ExchangeBill of ExchangeBill of Exchange Promissory Note

Unconditional order Unconditional promise

Made by creditor Made by debtor

Acceptance by debtor must No acceptance as such

Three parties to a bill Two parties to a bill

Noting is not necessary On dishonor, noting is necessary by notary public

Bill of ExchangeBill of ExchangeHonoring on due dateHonoring on due dateRetirement Retirement Discounting of billDiscounting of billSent for collection to bankSent for collection to bankEndorsed to creditorEndorsed to creditorRenewal of the billRenewal of the billAccommodation billAccommodation bill

ExamplesExamplesQ1. ___________ draws a bill on __________Q1. ___________ draws a bill on __________Q2. A bill of exchange is a negotiable instrumentQ2. A bill of exchange is a negotiable instrument

TrueTrueFalseFalse

Q3. Negotiable instruments can be ________from one Q3. Negotiable instruments can be ________from one person to anotherperson to another

Q4. A bill of exchange must be in writingQ4. A bill of exchange must be in writingTrueTrueFalseFalse

Q5: A bill of exchange is not to be datedQ5: A bill of exchange is not to be datedTrueTrueFFalsealse

Examples-contedExamples-contedQ6.: The date on which the bill is payable is called Q6.: The date on which the bill is payable is called

its _________its _________Q7. The due date is calculated after adding Q7. The due date is calculated after adding

__________ to the actual period of the bill.__________ to the actual period of the bill.Q8. If the due date falls on a public holiday, then it Q8. If the due date falls on a public holiday, then it

becomes due on the -------becomes due on the -------Q9.A bill was drawn on 23rd Dec. 2005 for one Q9.A bill was drawn on 23rd Dec. 2005 for one

month maturity. What will be its due date.month maturity. What will be its due date.Q10. When a Bill of exchange or promissory note Q10. When a Bill of exchange or promissory note

has been dishonoured for non acceptance or non has been dishonoured for non acceptance or non payment, the holder may, within a reasonable payment, the holder may, within a reasonable period, cause such dishonour to be noted and period, cause such dishonour to be noted and certified by a notary public, such a certificate is certified by a notary public, such a certificate is calledcalled________________Ans.: due date, Three days of grace, Previous working day, Ans.: due date, Three days of grace, Previous working day, 25th 25th January,protestJanuary,protest

CONSIGNMENT ACCOUNTCONSIGNMENT ACCOUNTA consignment is the dispatch of goods by A consignment is the dispatch of goods by

its owner to his agent for the purpose of its owner to his agent for the purpose of selling.selling.

Consignor, consignee, Proforma Invoice, Consignor, consignee, Proforma Invoice, Account SaleAccount Sale

Books of Account in the books of consignor- Books of Account in the books of consignor- Consignment A/cConsignment A/cConsignee A/cConsignee A/cGoods sent on ConsignmentGoods sent on Consignment

Valuation of closing stockValuation of closing stockConsigning goods at higher priceConsigning goods at higher price

CONSIGNMENT ACCOUNT CONSIGNMENT ACCOUNT

A TYPICAL CONSIGNMENT ACCOUNT WILL APPEAR AS A TYPICAL CONSIGNMENT ACCOUNT WILL APPEAR AS FOLLOWS:FOLLOWS:DR. CRDR. CRTo goods sent on By consigneeTo goods sent on By consignee

consignment (goods sold by consignment (goods sold by (invoice value) consignee)(invoice value) consignee)

To bank By closing stockTo bank By closing stock (all expenses incurred by (all expenses incurred by Consignor in transporting)Consignor in transporting)

To consigneeTo consignee (all expenses incurred by(all expenses incurred by Consignee in selling)Consignee in selling)

To profit & loss a/cTo profit & loss a/c

ExamplesExamplesQ1. Q1. The possession of the goods remains with the _________, The possession of the goods remains with the _________,

but the property in or the ownership of the goods remain but the property in or the ownership of the goods remain with the _________with the _________

Q2 : Usually the consignee recovers all ___________ by him on Q2 : Usually the consignee recovers all ___________ by him on the consignment.the consignment.

Q3.:Consignment account is of the nature ofQ3.:Consignment account is of the nature ofa.a. Personal accountPersonal accountb.b. Nominal accountNominal accountc.c. Real accountReal account

Q4.When the goods are sent by the consignor to the Q4.When the goods are sent by the consignor to the consignee, they are accompanied byconsignee, they are accompanied by

a.a. Proforma invoice*Proforma invoice*b.b. Commercial invoiceCommercial invoicec.c. Account salesAccount salesd.d. Bank draftBank draft

Consignee, Consignor, expenses incurred, nominalConsignee, Consignor, expenses incurred, nominal

ExamplesExamplesQ5. Where del-credere commission is paidQ5. Where del-credere commission is paid::

a)a) the normal commission is not payable to the the normal commission is not payable to the consigneeconsignee

b)b) the bad debts, if occur, are borne by the consignorthe bad debts, if occur, are borne by the consignorc)c) the badthe bad debts, if occur, are borne by the consignee debts, if occur, are borne by the consigneed)d) the bad debts, if occur, are shared by the consignor the bad debts, if occur, are shared by the consignor

and consignee equallyand consignee equallyQ6: Q6: The principle followed in valuations of closing The principle followed in valuations of closing

stock on consignment isstock on consignment isa)a) to include the expenses by the consignor onlyto include the expenses by the consignor onlyb)b) costcost to the consignor plus proportionate expenses to the consignor plus proportionate expenses

incurred till the goods reach to the premises of the incurred till the goods reach to the premises of the consignee plus direct expenses of consigneeconsignee plus direct expenses of consignee

c)c) Cost plus proportionate non-recurring expenses Cost plus proportionate non-recurring expenses incurred by the consignorincurred by the consignor

d)d) Cost plus proportionate non-recurring expenses Cost plus proportionate non-recurring expenses incurred by the consigneeincurred by the consignee

JOINT VENTUREJOINT VENTUREMeaningMeaningTemporary partnershipTemporary partnershipAccountingAccounting-when separate books -when separate books

– Joint Bank AccountJoint Bank Account– Co-venturer’s AccountCo-venturer’s Account– Joint Venture AccountJoint Venture Account

AccountingAccounting--when no separate books are maintainedwhen no separate books are maintained– Joint VentureJoint Venture– Co-VenturerCo-Venturer

ExamplesExamplesQ1.When separate set of books are kept for keeping Q1.When separate set of books are kept for keeping

the accounts of Joint Venture, thenthe accounts of Joint Venture, thena)a) Memorandum Joint Venture Account is Memorandum Joint Venture Account is

preparedpreparedb)b) Transactions take the form of ordinary Transactions take the form of ordinary

accounting systemaccounting systemc)c) Only Joint Venture and Personal accounts of Only Joint Venture and Personal accounts of

the co-venturers are maintained.the co-venturers are maintained.d)d) JointJoint Venture, Co-venturers and Joint Bank Venture, Co-venturers and Joint Bank

accounts are openedaccounts are opened

Q2.A debit balance in Joint Venture A/c indicatesQ2.A debit balance in Joint Venture A/c indicatesa. a. Profit on Joint VentureProfit on Joint Ventureb. b. LossLoss on Joint venture on Joint venturec. Amount receivablec. Amount receivabled. Amount payabled. Amount payable

LEASING LEASING Contract between two partiesContract between two partiesOwner of an asset transfers his right Owner of an asset transfers his right of use to other party on payment of of use to other party on payment of a fixed rent periodicallya fixed rent periodically

Types Types >>>> Finance or Capital Lease Finance or Capital Lease Operating LeaseOperating LeaseService LeaseService LeaseLeveraged LeaseLeveraged Lease

Leasing ExamplesLeasing ExamplesA lease which does not secure for A lease which does not secure for the lessor, the recovery of his the lessor, the recovery of his capital outlay (original cost of the capital outlay (original cost of the asset leased) plus a return on the asset leased) plus a return on the funds invested during the lease funds invested during the lease term is called-----term is called-----

(a) Capital Lease(a) Capital Lease(b) (b) OOperational Leaseperational Lease

Leasing ExamplesLeasing Examples(2)(2) There are three parties in-----There are three parties in-----a.a. Capital Capital LeaseLeaseb.b. Operational LeaseOperational Leasec.c. Service LeaseService Leased.d. LLeveraged Leaseeveraged Lease

(3) Allocating total finance income of Rs. 30000 (3) Allocating total finance income of Rs. 30000 over the leased period of 4 years by the sum of over the leased period of 4 years by the sum of the digit method results in-----the digit method results in-----

a.a. FY Rs.7500,SY Rs.7500 TY Rs.7500, FY Rs.7500 FY Rs.7500,SY Rs.7500 TY Rs.7500, FY Rs.7500 b.b. FYFY Rs.12000,SY Rs.9000 TY Rs.6000 FOURTH Y Rs.12000,SY Rs.9000 TY Rs.6000 FOURTH Y

Rs.3000Rs.3000c.c. FY Rs.3000,SY Rs.6000 TY Rs.9000 FY Rs.12000 FY Rs.3000,SY Rs.6000 TY Rs.9000 FY Rs.12000 d.d. FY Rs.NIL,SY Rs.10000 TY Rs.10000 FOURTH Y FY Rs.NIL,SY Rs.10000 TY Rs.10000 FOURTH Y

Rs.10000 Rs.10000

Leasing ExamplesLeasing Examples(4)(4) If Lease charges of the year exceed the depreciation If Lease charges of the year exceed the depreciation

charge of the year then-----charge of the year then-----a.a. LeaseLease Equalization account is debited (with the Equalization account is debited (with the

difference)difference)b.b. Lease Equalization account is credited (with the Lease Equalization account is credited (with the

difference)difference)c.c. Lease Terminal Adjustment account is debited (with the Lease Terminal Adjustment account is debited (with the

difference)difference)d.d. None of the aboveNone of the above(5) In case operational Lease , if the total lease rent is (5) In case operational Lease , if the total lease rent is

receivable in various installments then in the first year of receivable in various installments then in the first year of lease , the journal entry for total lease rent receivable, in lease , the journal entry for total lease rent receivable, in the books of lessor is------the books of lessor is------

a.a. Debit Lessee account and Credit Rent Suspense a/c* Debit Lessee account and Credit Rent Suspense a/c* b.b. Debit Advance Lease Rent account and Credit Lease Rent Debit Advance Lease Rent account and Credit Lease Rent

a/c a/c c.c. Debit Bank Account and Credit Lease Rent AccountDebit Bank Account and Credit Lease Rent Accountd.d. Debit Bank Account and Credit Advance Lease Rent AccountDebit Bank Account and Credit Advance Lease Rent Account

HIRE PURCHASE & INSTALMENT SALEHIRE PURCHASE & INSTALMENT SALEA buyer purchases goods but pays A buyer purchases goods but pays the price in various installments.the price in various installments.In hire purchase ownership passes to In hire purchase ownership passes to the buyer on the payment of last the buyer on the payment of last installment while in installment installment while in installment selling it passes immediately. selling it passes immediately. The hire purchase price consists of The hire purchase price consists of two elements a) cash price and b) two elements a) cash price and b) interest for delayed payments interest for delayed payments

Accounting of non-trading Accounting of non-trading organizationsorganizations

MeaningMeaningNeed for maintenance of accountsNeed for maintenance of accountsAccountsAccounts

Receipt & Payment accountReceipt & Payment accountIncome & Expenditure AccountIncome & Expenditure AccountBalance sheetBalance sheet

DistinctionDistinctionReceipt & Payment A/c Income& ExpenditureA/c

Real Account Nominal Account

All receipts & payment in a year Only income and expenses in a year

Capital/ revenue items Only revenue items

Starts with Opening cash & end with closing cash

No op. balance but end with surplus/ deficit

current,previous and next year Current year only

Treatment of some itemsTreatment of some itemsDonations- purpose to be seenDonations- purpose to be seenEntrance fees- cap. receiptEntrance fees- cap. receiptLife membership fees-cap receiptLife membership fees-cap receiptGovernment grants-for maintenance revenue-for specific Government grants-for maintenance revenue-for specific purpose cap.receiptpurpose cap.receiptSpecial fund- exps& income of that fundbooked to that Special fund- exps& income of that fundbooked to that fundfundOp. & closing. Stock of stationary- consumed during year Op. & closing. Stock of stationary- consumed during year to be taken as exps.to be taken as exps.Sale of fixed assets/investments- above BV below BVSale of fixed assets/investments- above BV below BVSports material-asset and dep is chargedSports material-asset and dep is chargedOpening/closing Balance sheetOpening/closing Balance sheetCapital fundCapital fund

adjustmentsadjustmentsOutstanding incomeOutstanding incomeOutstanding expensesOutstanding expensesIncome received in advanceIncome received in advancePrepaid expensesPrepaid expensesDepreciation on assetsDepreciation on assets

EXAMPLES EXAMPLES 1.1. SOLID PVT LIMITED HAS FOLLOWING TRANSACTIONS (Purchase of SOLID PVT LIMITED HAS FOLLOWING TRANSACTIONS (Purchase of

inventory I-Q100 @10 on 1.1.06),II(Q150@12 on 2.1.06)inventory I-Q100 @10 on 1.1.06),II(Q150@12 on 2.1.06)(Issue of inventory I-Q100 on 3.1.06 II-Q50on 4.1.06) q=quantity(Issue of inventory I-Q100 on 3.1.06 II-Q50on 4.1.06) q=quantityWhat is value of closing stock ,if co. follows FIFO methodWhat is value of closing stock ,if co. follows FIFO method

a.a. Rs.1200Rs.1200b.b. Rs.1000Rs.1000c.c. Rs.1800Rs.1800d.d. None of the aboveNone of the above

2.2. What is the value of closing stock, if co. follows LIFO methodWhat is the value of closing stock, if co. follows LIFO methoda.a. Rs.1800Rs.1800b.b. Rs.1200Rs.1200c.c. Rs.1000Rs.1000d.d. None of the aboveNone of the above

3.3. What is the value of closing stock, if co. follows weighted average cost What is the value of closing stock, if co. follows weighted average cost methodmethod

a.a. Rs.1120Rs.1120b.b. Rs.1200Rs.12001.1. Rs.1800Rs.18002.2. None of the aboveNone of the above

EXAMPLES EXAMPLES 4.4. Identify the wrong pairIdentify the wrong pair

a.a. Maker of the bill ^^drawerMaker of the bill ^^drawerb.b. Dishonour of bill ^^ rebateDishonour of bill ^^ rebatec.c. Person in whose favour bill is endorsed^^endorseePerson in whose favour bill is endorsed^^endorseed.d. Bill of exchange ^^ negotiable instrumentBill of exchange ^^ negotiable instrument

5.5. One of the following pair is mismatch.Identify the wrong pairOne of the following pair is mismatch.Identify the wrong paira.a. Diminishing balance method^^ depreciated value of asset never become Diminishing balance method^^ depreciated value of asset never become

zerozerob.b. Current asset^^ asset on which depreciation is not providedCurrent asset^^ asset on which depreciation is not providedc.c. Depreciation^^ decreases the value of the assetDepreciation^^ decreases the value of the assetd.d. Rate of depreciation^^ depends upon profit of the firmRate of depreciation^^ depends upon profit of the firm

6.6. Select the true statementSelect the true statementa.a. Goodwill is a current assetGoodwill is a current assetb.b. The expenditure incurred on installation of machinery is revenue The expenditure incurred on installation of machinery is revenue

expenditureexpenditurec.c. Reducing balance method is also known as SLM Reducing balance method is also known as SLM d.d. Even if an asset is not used ,mere passage of time will cause a fall in its Even if an asset is not used ,mere passage of time will cause a fall in its

value unless it happens to be landvalue unless it happens to be land

EXAMPLES EXAMPLES Sudhir Draws following billsSudhir Draws following bills

1.1. On Ruchira for Rs.1000On Ruchira for Rs.10002.2. On Madhur for Rs.2000On Madhur for Rs.20003.3. On Trichur for Rs.3000On Trichur for Rs.30004.4. On Nupur for Rs.4000On Nupur for Rs.4000

All the bills are accepted by all.Solve the examples as per followingAll the bills are accepted by all.Solve the examples as per following7.7. Ruchira’s acceptance is retained till due date, but it was Ruchira’s acceptance is retained till due date, but it was

dishonoured. Identify the correct entry in sudhir’s booksdishonoured. Identify the correct entry in sudhir’s booksa.a. Debit bill a/c and credit BR a/cDebit bill a/c and credit BR a/cb.b. Debit Ruchira A/c and credit BR a/cDebit Ruchira A/c and credit BR a/cc.c. Debit BR a/c and credit Ruchira a/cDebit BR a/c and credit Ruchira a/cd.d. Debit Dishonour Bill a/c credit BR a/cDebit Dishonour Bill a/c credit BR a/c

8.8. Madhur’s acceptance is discounted with the bank, but it was Madhur’s acceptance is discounted with the bank, but it was dishonoured. Identify the correct entry in sudhir’s booksdishonoured. Identify the correct entry in sudhir’s books

a.a. Debit Madhur credit bank a/cDebit Madhur credit bank a/cb.b. Debit BR a/c credit Madhur a/cDebit BR a/c credit Madhur a/cc.c. Debit Madhur a/c credit BR a/c Debit Madhur a/c credit BR a/c 1.1. No entry as bill is discounted with the bankNo entry as bill is discounted with the bank

EXAMPLES EXAMPLES

9.9. Trichur’s acceptance is endorsed to Tayyab and noting Trichur’s acceptance is endorsed to Tayyab and noting charges of Rs.50 were paid, but bill was dishonoured. charges of Rs.50 were paid, but bill was dishonoured. Identify the correct entry in sudhir’s booksIdentify the correct entry in sudhir’s books

a.a. Debit Trichur a/c by Rs.3050 and credit Tayyab a/c by Rs.3050Debit Trichur a/c by Rs.3050 and credit Tayyab a/c by Rs.3050b.b. Debit BR A/c, Debit Noting charges Rs.50 and credit Tayyab a/c Debit BR A/c, Debit Noting charges Rs.50 and credit Tayyab a/c

Rs.3050Rs.3050c.c. Debit Tayyab a/c Rs.3050 and credit Bank a/c Rs.3050Debit Tayyab a/c Rs.3050 and credit Bank a/c Rs.3050d.d. No entry as bill is endorsed to TayyabNo entry as bill is endorsed to Tayyab

10.10. Nupur’s acceptance was sent to bank for collection, but it Nupur’s acceptance was sent to bank for collection, but it was dishonoured. Identify the correct entry in sudhir’s was dishonoured. Identify the correct entry in sudhir’s booksbooks

a.a. Debit Nupur credit BR a/cDebit Nupur credit BR a/cb.b. Debit Nupur a/c credit Bill sent to Bank for collection a/cDebit Nupur a/c credit Bill sent to Bank for collection a/cc.c. Debit Bill sent to bank for collection a/c credit Bank a/c Debit Bill sent to bank for collection a/c credit Bank a/c d.d. No entry as bill is sent to bank for collectionNo entry as bill is sent to bank for collection

EXAMPLES EXAMPLES

11.11. Choose the wrong pairChoose the wrong paira.a. There is no difference in appearance between trade There is no difference in appearance between trade

bill and accommodation billbill and accommodation billb.b. Both the parties must accept the accommodation Both the parties must accept the accommodation

billbillc.c. Accommodation bill is drawn and accepted without Accommodation bill is drawn and accepted without

any considerationany considerationd.d. The purpose of any accommodation bill is to The purpose of any accommodation bill is to

provide temporary financeprovide temporary finance

EXAMPLES EXAMPLES

12.12. A trainee in a/c dept. has put up A trainee in a/c dept. has put up following four entries for accounting for following four entries for accounting for closing stock of joint venture . One of the closing stock of joint venture . One of the entries is correct. Select the sameentries is correct. Select the same

a.a. Debit bank a/c –credit joint venture a/cDebit bank a/c –credit joint venture a/cb.b. Debit stock credit joint venture a/cDebit stock credit joint venture a/cc.c. Debit co-venturer a/c credit joint ventureDebit co-venturer a/c credit joint ventured.d. Debit joint venture credit stock Debit joint venture credit stock

EXAMPLES EXAMPLES

13.13. Select the wrong statement in respect of Select the wrong statement in respect of jointjoint

a.a. It is temporary partnershipIt is temporary partnershipb.b. Nature of co-venturer’s liability is limitedNature of co-venturer’s liability is limitedc.c. Balancing figure of Joint venture a/c is either profit or Balancing figure of Joint venture a/c is either profit or

loss on joint ventureloss on joint ventured.d. Joint bank account is the account in which banking Joint bank account is the account in which banking

transactions are transacted by co-venturers transactions are transacted by co-venturers

EXAMPLES EXAMPLES

14.14.Select the wrong pair in respect of Select the wrong pair in respect of jointjoint

a.a. Joint venture ^^ real accountJoint venture ^^ real accountb.b. Joint bank account ^^ personal a/cJoint bank account ^^ personal a/cc.c. Unsold stock taken over by coventurer ^^ credit Unsold stock taken over by coventurer ^^ credit

joint venture a/cjoint venture a/cd.d. Credit balance in Joint venture a/c ^^ profit on Credit balance in Joint venture a/c ^^ profit on

joint venture a/cjoint venture a/c

EXAMPLES EXAMPLES

15.15.Select the false statementSelect the false statementa.a. Amount spent on uniform of workers is a Amount spent on uniform of workers is a

revenue expenditurerevenue expenditureb.b. Expenses of whitewashing of a factory building is Expenses of whitewashing of a factory building is

a revenue expenditurea revenue expenditurec.c. Cost of stores consumed in manufacturing Cost of stores consumed in manufacturing

machinery for installation in owned factory is a machinery for installation in owned factory is a revenue expenditurerevenue expenditure

d.d. Wages paid for construction of the extension of Wages paid for construction of the extension of the factory building is a capital expenditurethe factory building is a capital expenditure

..

16.16.The following financial statement is not The following financial statement is not prepared by a non-trading concernsprepared by a non-trading concerns

a)a) Receipt and Payment accountReceipt and Payment accountb)b) Income & Expenditure AccountIncome & Expenditure Accountc)c) PProfit & Loss Accountrofit & Loss Accountd)d) Balance SheetBalance Sheet

17.17.Receipts and Payments account isReceipts and Payments account isa)a) RReal accounteal accountb)b) Personal accountPersonal accountc)c) Nominal accountNominal account

EXAMPLES EXAMPLES

18.18.Incurring of expenditure of Incurring of expenditure of Rs.100000 on dismantling, Rs.100000 on dismantling, removing and reinstalling plant & removing and reinstalling plant & machinery is a ----- machinery is a -----

a.a. Capital expenditureCapital expenditureb.b. Revenue expensesRevenue expensesc.c. Deferred revenue expenditureDeferred revenue expenditured.d. None of the aboveNone of the above

EXAMPLES EXAMPLES

20.20. RVY sport club has given following information regarding RVY sport club has given following information regarding subscription income. Ascertain income for Current yearsubscription income. Ascertain income for Current year

1.1. Subscription received in cash Rs.5000 during Apr04 to Mar.05Subscription received in cash Rs.5000 during Apr04 to Mar.052.2. Subscription outstanding on 31.3.05 Rs.100Subscription outstanding on 31.3.05 Rs.1003.3. Subscription outstanding on 31.3.04 Rs.200Subscription outstanding on 31.3.04 Rs.2004.4. Subscription received in advance during 04-05 Rs.300Subscription received in advance during 04-05 Rs.3005.5. Subscription received in advance during 03-04 Rs.400Subscription received in advance during 03-04 Rs.400

Indicate from the following the exact amount of subscription to Indicate from the following the exact amount of subscription to be credited to Income & Expenditure Accountbe credited to Income & Expenditure Account

a.a. Rs.5800Rs.5800b.b. Rs.6000Rs.6000c.c. Rs.5200Rs.5200d.d. Rs.5600Rs.5600

ExamplesExamples21.21. IfIfA= Income accrued during CY (figure from I & E a/c)A= Income accrued during CY (figure from I & E a/c)B= outstanding for CYB= outstanding for CYC= outstanding for PYC= outstanding for PYD=advance for CYD=advance for CYE= advance for PYE= advance for PYFind the income received in cash during cy to be shown in receipt & Find the income received in cash during cy to be shown in receipt &

payment a/cpayment a/ca.a. A + B + C + D – EA + B + C + D – Eb.b. A – B + C + D – EA – B + C + D – Ec.c. A + B –C - D + EA + B –C - D + Ed.d. A – B + C – D + EA – B + C – D + E

EXAMPLES EXAMPLES

23.23. Select the wrong statement in respect of lease Select the wrong statement in respect of lease accountingaccounting

a.a. Lease Terminal Adjustment a/c is carried forward Lease Terminal Adjustment a/c is carried forward from year to yearfrom year to year

b.b. If Lease Terminal Adjustment a/c shows credit If Lease Terminal Adjustment a/c shows credit balance it is shown at liability sidebalance it is shown at liability side

c.c. If Lease Terminal Adjustment a/c shows debit If Lease Terminal Adjustment a/c shows debit balance it is debited to Profit and Loss accountbalance it is debited to Profit and Loss account

d.d. Lease Terminal Adjustment a/c balance is not Lease Terminal Adjustment a/c balance is not carried forward to next year but written off to Profit carried forward to next year but written off to Profit and Loss accountand Loss account

EXAMPLES EXAMPLES

22.22. Select the wrong statement in respect of lease Select the wrong statement in respect of lease accountingaccounting

a.a. If lease charges are Rs.31439 and annual depreciation is Rs. If lease charges are Rs.31439 and annual depreciation is Rs. 24000, the correct entry would be- Debit Lease equalisation a/c 24000, the correct entry would be- Debit Lease equalisation a/c by Rs.7439 and credit Lease Terminal a/c by Rs.7439by Rs.7439 and credit Lease Terminal a/c by Rs.7439

a.a. If lease charges are Rs.14228 and annual depreciation is Rs. If lease charges are Rs.14228 and annual depreciation is Rs. 14400, the correct entry would be- Debit Lease equalisation a/c 14400, the correct entry would be- Debit Lease equalisation a/c by Rs.152 and credit Lease Terminal a/c by Rs.152by Rs.152 and credit Lease Terminal a/c by Rs.152

b.b. If lease charges are Rs.7152 and annual depreciation is Rs. 8640, If lease charges are Rs.7152 and annual depreciation is Rs. 8640, the correct entry would be- Debit Lease Terminal a/c by Rs.1488 the correct entry would be- Debit Lease Terminal a/c by Rs.1488 and credit Lease Equalisation a/c by Rs.1488and credit Lease Equalisation a/c by Rs.1488

c.c. If Desai is a lessor and he purchases an asset for Rs.100000 for If Desai is a lessor and he purchases an asset for Rs.100000 for the purpose of giving the same on lease . The correct entry will the purpose of giving the same on lease . The correct entry will be Debit Asset Rs.100000 and credit Bank Rs.100000 be Debit Asset Rs.100000 and credit Bank Rs.100000

……Thank youThank you

For any queries or difficulties do contact at For any queries or difficulties do contact at S.D.BARGIR, JOINT DIRECTOR, IIBFS.D.BARGIR, JOINT DIRECTOR, IIBFE mail: E mail: [email protected]@iibf.org.inPhone; 022-22183898Phone; 022-22183898

Best of Best of luck……………………………………luck……………………………………