jaiib_accfinacd iddood dididi rj (1).ppt

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1. ACCOUNTING AND FINANCE ACCOUNTING AND FINANCE
BANKERS BANKERS
J A I I BJ A I I B
PAPER-2PAPER-2
SPECIAL ACCOUNTS - MODULE ‘ C ‘SPECIAL ACCOUNTS - MODULE ‘ C ‘

By By
RAVI ULLALRAVI ULLAL
CONSULTANTCONSULTANT

2. TOPICSTOPICS

BANK RECONCILIATIONBANK RECONCILIATION

TRIAL BALANCETRIAL BALANCE

CAPITAL & REVENUE EXPENDITURECAPITAL & REVENUE EXPENDITURE

INVENTORY VALUATIONINVENTORY VALUATION

BILLS OF EXCHANGEBILLS OF EXCHANGE

CONSIGNMENT ACCOUNTCONSIGNMENT ACCOUNT

JOINT VENTUREJOINT VENTURE

LEASING & HIRE PURCHASELEASING & HIRE PURCHASE

NON-TRADING ORGANISATIONSNON-TRADING ORGANISATIONS

DEPRECIATIONDEPRECIATION

MODEL QUESTIONSMODEL QUESTIONS

3. BASICS OF ACCOUNTINGBASICS OF ACCOUNTING
DOUBLE ENTRY SYSTEMDOUBLE ENTRY SYSTEM

3 TYPES OF ACCOUNTS:3 TYPES OF ACCOUNTS:
-- -- REALREAL: ASSETS OF BUSINESS, TANGIBLE AND: ASSETS OF BUSINESS, TANGIBLE AND
IDENTIFIABLE. IDENTIFIABLE.
-- -- PERSONALPERSONAL : THEY ARE HEADED WITH THE NAME OF: THEY ARE HEADED WITH THE NAME OF
PERSON/BUSINESS/FIRM. DEBTORS OR CREDITORS.PERSON/BUSINESS/FIRM. DEBTORS OR CREDITORS.
-- -- NOMINALNOMINAL: THEY RECORD TRANSACTIONS OF : THEY RECORD TRANSACTIONS OF
INTANGIBLES SUCH AS RENT EXPENSES.INTANGIBLES SUCH AS RENT EXPENSES.
. .

4. BASIC RULES OF ACCOUNTINGBASIC RULES OF ACCOUNTING
RULESRULES: :
-- -- REALREAL : DEBIT THE ACCOUNT WHEN WE PURCHASE : DEBIT THE ACCOUNT WHEN WE PURCHASE
AN ASSET & CREDIT WHEN WE SELL OR AN ASSET & CREDIT WHEN WE SELL OR
DEPRECIATE.DEPRECIATE.
-- -- PERSONAL PERSONAL : DEBIT THE RECEIVER OF GOODS & : DEBIT THE RECEIVER OF GOODS &
CREDIT THE GIVER OF GOODS.CREDIT THE GIVER OF GOODS.
-- -- NOMINAL NOMINAL : DEBIT LOSSES & EXPENSES, CREDIT : DEBIT LOSSES & EXPENSES, CREDIT
INCOMES & GAINS.INCOMES & GAINS.
-- IN A LEDGER, ASSETS OR LOSSES HAVE DEBIT -- IN A LEDGER, ASSETS OR LOSSES HAVE DEBIT
BALANCE WHILE LIABILITIES OR GAINS HAVEBALANCE WHILE LIABILITIES OR GAINS HAVE
CREDIT BALANCE. CREDIT BALANCE.

5. 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.

CREDIT THE GIVER AND DEBIT THE RECEIVERCREDIT THE GIVER AND DEBIT THE RECEIVER

B. R. SHOWS CAUSES OF DIFFERENCES BETWEEN CASH B. R. SHOWS CAUSES OF DIFFERENCES BETWEEN CASH
BOOK AND PASS BOOK BALANCEBOOK AND PASS BOOK BALANCE

DEBIT BALANCE AS PER CASH BOOK IS CREDIT BALANCE DEBIT BALANCE AS PER CASH BOOK IS CREDIT BALANCE
AS PER PASS BOOK = POSITIVE BALANCEAS PER PASS BOOK = POSITIVE BALANCE

CREDIT BALANCE IN CASH BOOK IS DEBIT BALANCE IN CREDIT BALANCE IN CASH BOOK IS DEBIT BALANCE IN
PASS BOOK = NEGATIVE BALANCE/OVERDRAFTPASS BOOK = NEGATIVE BALANCE/OVERDRAFT

WHETHER WE START WITH CASH OR PASS BOOK WHETHER WE START WITH CASH OR PASS BOOK
RECONCILIATION ENTRIES WILL REMAIN SAME AS PER RECONCILIATION ENTRIES WILL REMAIN SAME AS PER
PRINCIPLESPRINCIPLES

6. BANK RECONCILIATION STATEMENTBANK RECONCILIATION STATEMENT

CAUSES OF DIFFERENCESCAUSES OF DIFFERENCES TREATMENTTREATMENT

CASH/PASS BOOKCASH/PASS BOOK
DT. CR.DT. CR.
. .

CHEQUES ISSUED BUT NOT PRESENTED √CHEQUES ISSUED BUT NOT PRESENTED √

CHEQUES DEPOSITED BUT NOT COLLECTED √CHEQUES DEPOSITED BUT NOT COLLECTED √

BANK CHARGES √BANK CHARGES √


INTEREST ON SAVINGS BANK √INTEREST ON SAVINGS BANK √

INTEREST ON LOAN √INTEREST ON LOAN √

AMOUNT PAID BY BANK AS PER √AMOUNT PAID BY BANK AS PER √
STANDING INSTRUCTIONSSTANDING INSTRUCTIONS
. DIRECT PAYMENTS MADE BY CUSTOMERS √. DIRECT PAYMENTS MADE BY CUSTOMERS √
. DISHONOUR OF CHEQUES RECEIVED √ . DISHONOUR OF CHEQUES RECEIVED √

7. BANK RECONCILIATION STATEMENTBANK RECONCILIATION STATEMENT

CAUSES OF DIFFERENCES TREATMENTCAUSES OF DIFFERENCES TREATMENT
CASH/PASS BOOKCASH/PASS BOOK
DT. CR.DT. CR.
. PAYMENTS SIDE OF CASH BOOK . PAYMENTS SIDE OF CASH BOOK
UNDERCAST √UNDERCAST √
. DEPOSIT SIDE OF CASH BOOK. DEPOSIT SIDE OF CASH BOOK
OVERCAST √OVERCAST √
. CHEQUE ISSUED BUT NOT TAKEN. CHEQUE ISSUED BUT NOT TAKEN
IN BANK COLUMN √IN BANK COLUMN √

. DEBIT BALANCE X BROUGHT . DEBIT BALANCE X BROUGHT
FORWARD AS CREDIT BALANCE 2X FORWARD AS CREDIT BALANCE 2X

. CHEQUE ISSUED BUT RECORDED. CHEQUE ISSUED BUT RECORDED
TWICE √TWICE √

8. BANK RECONCILIATION STATEMENTBANK RECONCILIATION STATEMENT
IMPORTANT : WHETHER WE ARE RECONCILING PASS BOOK OR CASHIMPORTANT : WHETHER WE ARE RECONCILING PASS BOOK OR CASH

BOOK , EACH OF THE RECTIFICATION ENTRIES WILL BOOK , EACH OF THE RECTIFICATION ENTRIES WILL
APPEAR ON THE SAME SIDE . ADDITION OR SUBRACTION APPEAR ON THE SAME SIDE . ADDITION OR SUBRACTION
OF ENTRIES FROM THE OPENING OR GIVEN BALANCEOF ENTRIES FROM THE OPENING OR GIVEN BALANCE
DEPENDS UPON WHICH SIDE OF THE LEDGER THEY AREDEPENDS UPON WHICH SIDE OF THE LEDGER THEY ARE
CAST OR TO BE CAST. THUS WHAT WE SIMPLY NEED TOCAST OR TO BE CAST. THUS WHAT WE SIMPLY NEED TO
KNOW IS WHETHER EACH FIGURE GIVEN IN THEKNOW IS WHETHER EACH FIGURE GIVEN IN THE
PROBLEM IS A DEBIT OR CREDIT ENTRY. I WILL EXPLAIN PROBLEM IS A DEBIT OR CREDIT ENTRY. I WILL EXPLAIN
WITH THE HELP OF A PROBLEM LATER.WITH THE HELP OF A PROBLEM LATER.

9. BANK RECONCILIATION STATEMENTBANK RECONCILIATION STATEMENT
SIMPLY PUT, IF AN ENTRY IS ALREADY THERE BUT EITHER SIMPLY PUT, IF AN ENTRY IS ALREADY THERE BUT EITHER
THE WHOLE OR PART IT HAS TO BE RECTIFIED THEN THAT THE WHOLE OR PART IT HAS TO BE RECTIFIED THEN THAT
PORTION IS POSTED ON THE OPPOSITE SIDE OF THE PORTION IS POSTED ON THE OPPOSITE SIDE OF THE
ORIGINAL ENTRY. ORIGINAL ENTRY.

10. BANK RECONCILIATION STATEMENTBANK RECONCILIATION STATEMENT
ADVANTAGES OF BANK RECONCILIATIONADVANTAGES OF BANK RECONCILIATION
. VERIFICATION OF ACCURACY OF ENTRIES. VERIFICATION OF ACCURACY OF ENTRIES
. TIMELY CORRECTIVE ACTION. TIMELY CORRECTIVE ACTION
. PREVENTS FRAUDS. PREVENTS FRAUDS
. CONTROL TOOL FOR MANAGEMENT. CONTROL TOOL FOR MANAGEMENT

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

12. EXAMPLESEXAMPLES
When overdraft as per cash book and a Cheque of Rs.1000 directly When overdraft as per cash book and a Cheque of Rs.1000 directly
deposited in the bank, but not recorded in cash book----deposited in the bank, but not recorded in cash book----
a) Add Rs.1000 in CBa) Add Rs.1000 in CB
b) b) DDeduct Rs.1000 in CBeduct Rs.1000 in CB
c) Add Rs.2000 in cash bookc) Add Rs.2000 in cash book
d) Deduct Rs.2000 in CBd) Deduct Rs.2000 in CB
Undercasting of the credit side of Cash Book has the same effect as Undercasting of the credit side of Cash Book has the same effect as
overcasting of the– overcasting of the–
•DDebit side of the pass book. ebit side of the pass book.
•Credit side of the pass book.Credit side of the pass book.
•There is no relevance between the twoThere is no relevance between the two

13. TRIAL BALANCETRIAL BALANCE

DEFINITIONDEFINITION

IT IS A STATEMENT SHOWING CREDIT AND DEBITIT IS A STATEMENT SHOWING CREDIT AND DEBIT
BALANCES FROM THE LEDGER.BALANCES FROM THE LEDGER.

HELPS ARITHMETICAL ACCURACY AND FACILITATESHELPS ARITHMETICAL ACCURACY AND FACILITATES
FINAL ACCOUNTS.FINAL ACCOUNTS.

14. TRIAL BALANCETRIAL BALANCE

BASIC PRINCIPLEBASIC PRINCIPLE : :

SINCE IT IS DOUBLE ENTRY BOOK-KEEPING, HENCE,SINCE IT IS DOUBLE ENTRY BOOK-KEEPING, HENCE,
ASSETS AND EXPENSES ARE DEBIT BALANCESASSETS AND EXPENSES ARE DEBIT BALANCES
LIABILITIES AND INCOMES ARE CREDIT BALANCESLIABILITIES AND INCOMES ARE CREDIT BALANCES
. IN CASE OF ARITHMETICAL INACCURACY IDENTIFY. IN CASE OF ARITHMETICAL INACCURACY IDENTIFY
CLERICAL/PRINCIPLE ERRORS AND RECTIFYCLERICAL/PRINCIPLE ERRORS AND RECTIFY

15. TRIAL BALANCETRIAL BALANCE

TYPES OF ERRORS:TYPES OF ERRORS:

A) A) CLERICAL ERRORSCLERICAL ERRORS

-- ERRORS OF OMISSION-- ERRORS OF OMISSION
--- OMISSION OF TRANSACTION FROM BOOKS--- OMISSION OF TRANSACTION FROM BOOKS
--- COMPLETE OMISSION NOT AFFECTING TRIAL--- COMPLETE OMISSION NOT AFFECTING TRIAL
BALANCEBALANCE
--- PARTIAL OMISSION AFFECTING TRIAL--- PARTIAL OMISSION AFFECTING TRIAL
BALANCEBALANCE

16. TRIAL BALANCETRIAL BALANCE
-- ERRORS OF COMMISSION-- ERRORS OF COMMISSION
--- FIGURE POSTED ON THE WRONG SIDE OR WITH --- FIGURE POSTED ON THE WRONG SIDE OR WITH
WRONG AMOUNTWRONG AMOUNT

-- COMPENSATING ERRORS-- COMPENSATING ERRORS
--- ONE ERROR BALANCES ANOTHER ERROR--- ONE ERROR BALANCES ANOTHER ERROR

. B) . B) ERRORS OF PRINCIPLEERRORS OF PRINCIPLE
-- ERRORS IN CONTRAVENTION OF ACCOUNTING -- ERRORS IN CONTRAVENTION OF ACCOUNTING
PRINCIPLESPRINCIPLES

17. TRIAL BALANCETRIAL BALANCE

RECTIFICATION OF ERRORS IS A SERIES OF STEPS:RECTIFICATION OF ERRORS IS A SERIES OF STEPS:

PASS THE CORRECT ENTRYPASS THE CORRECT ENTRY

COMPARE THE WRONG ENTRY WITH THE CORRECT COMPARE THE WRONG ENTRY WITH THE CORRECT
ONEONE

PASS THE RECTIFICATION ENTRYPASS THE RECTIFICATION ENTRY

IF TRIAL BALANCE DOES NOT TALLY THEN IF TRIAL BALANCE DOES NOT TALLY THEN
DIFFERENCE IS TRANSFERRED TO SUSPENCE DIFFERENCE IS TRANSFERRED TO SUSPENCE
ACCOUNT ACCOUNT

18. TRIAL BALANCETRIAL BALANCE
TYPICAL TRIAL BALANCETYPICAL TRIAL BALANCE
N A M EN A M E DEBIT DEBIT
CREDITCREDIT

CAPITAL XCAPITAL X

DRAWINGS XDRAWINGS X

PURCHASES XPURCHASES X

SALES XSALES X

EXPENSES XEXPENSES X

DEBTORS(CUSTOMRES) XDEBTORS(CUSTOMRES) X

CREDITORS(SUPPLIERS) XCREDITORS(SUPPLIERS) X

CASH XCASH X

SALES RETURN XSALES RETURN X

19. TRIAL BALANCETRIAL BALANCE

TYPICAL ERRORS:TYPICAL ERRORS:

-- CLERICAL:-- CLERICAL:

A) SALARY PAID 1000/- BUT POSTED AS 10, 000/-.A) SALARY PAID 1000/- BUT POSTED AS 10, 000/-.

RECTIFICATIONRECTIFICATION : CREDIT SALARY WITH 9000/-.: CREDIT SALARY WITH 9000/-.

B) SALARY PAID 1000/- BUT POSTED IN RENT A/C.B) SALARY PAID 1000/- BUT POSTED IN RENT A/C.

RECTIFICATIONRECTIFICATION : DEBIT SALARY AND CREDIT RENT WITH: DEBIT SALARY AND CREDIT RENT WITH
1000/-.1000/-.


C) GOODS WORTH 100/- SOLD TO VIJAY WRONGLYC) GOODS WORTH 100/- SOLD TO VIJAY WRONGLY
RECORDED IN PURCHASE REGISTER.RECORDED IN PURCHASE REGISTER.

RECTIFICATIONRECTIFICATION : CREDIT SALES AND PURCHASE A/Cs: CREDIT SALES AND PURCHASE A/Cs
WITH 100/- EACH AND DEBIT VIJAY WITH 200/-.WITH 100/- EACH AND DEBIT VIJAY WITH 200/-.

20. TRIAL BALANCETRIAL BALANCE
AFTER TRIAL BALANCE IS PREPARED ONE FINDSAFTER TRIAL BALANCE IS PREPARED ONE FINDS
. D) SALES OF 500/- POSTED AS 5000/- WHILE RENT PAID . D) SALES OF 500/- POSTED AS 5000/- WHILE RENT PAID
500/- POSTED AS 5000/-.500/- POSTED AS 5000/-.
. . RECTIFICATION:RECTIFICATION: DEBIT SALES WITH 4500/-, CREDIT DEBIT SALES WITH 4500/-, CREDIT
SUSPENCE WITH 4500/-, CREDIT RENT WITH 4500/-,SUSPENCE WITH 4500/-, CREDIT RENT WITH 4500/-,
DEBIT SUSPENCE WITH 4500/-.DEBIT SUSPENCE WITH 4500/-.


E) SALARY PAID AS 1000/- BUT POSTED AS 10,000/- IN RENT E) SALARY PAID AS 1000/- BUT POSTED AS 10,000/- IN RENT
A/C.A/C.

RECTIFICATIONRECTIFICATION : DEBIT SALARY WITH 1000/- SUSPENCE : DEBIT SALARY WITH 1000/- SUSPENCE
WITH 9000/-; CREDIT RENT WITH 10000/-WITH 9000/-; CREDIT RENT WITH 10000/-

F) A PURCHASER’S DEBIT BALANCE OF 9000/- HAS NOT F) A PURCHASER’S DEBIT BALANCE OF 9000/- HAS NOT
BEEN TAKEN.BEEN TAKEN.

RECTIFICATION:RECTIFICATION: DEBIT DEBTORS, CREDIT SUSPENCE TO DEBIT DEBTORS, CREDIT SUSPENCE TO
THE EXTENT OF 9000/-.THE EXTENT OF 9000/-.

21. Rectification of Errors-ExamplesRectification of Errors-Examples
(1) Rs. 5000 paid as wages for installing the machinery should be (1) Rs. 5000 paid as wages for installing the machinery should be
debited to-----debited to-----

Wages A/cWages A/c

Machinery a/cMachinery a/c

Capital A/cCapital A/c

None of the aboveNone of the above
(2) Sales to Navin of Rs.1000 is debited to Ravin A/c. this will be (2) Sales to Navin of Rs.1000 is debited to Ravin A/c. this will be
rectified by-----rectified by-----

Debiting Navin a/c and Crediting Ravin A/cDebiting Navin a/c and Crediting Ravin A/c

Debiting both AccountsDebiting both Accounts

Debiting Ravin a/c and Crediting Navin A/cDebiting Ravin a/c and Crediting Navin A/c

Debiting Navin A/c and crediting Sales A/CDebiting Navin A/c and crediting Sales A/C

22. (1) Rs. 5000 paid as wages for installing the machinery should be (1) Rs. 5000 paid as wages for installing the machinery should be
debited to-----debited to-----

Wages A/cWages A/c

Machinery a/cMachinery a/c

Capital A/cCapital A/c

None of the aboveNone of the above
(2) Sales to Navin of Rs.1000 is debited to Ravin A/c. this will be (2) Sales to Navin of Rs.1000 is debited to Ravin A/c. this will be
rectified by-----rectified by-----

Debiting Navin a/c and Crediting Ravin A/cDebiting Navin a/c and Crediting Ravin A/c

Debiting both AccountsDebiting both Accounts

Debiting Ravin a/c and Crediting Navin A/cDebiting Ravin a/c and Crediting Navin A/c

Debiting Navin A/c and crediting Sales A/CDebiting Navin A/c and crediting Sales A/C
Rectification of Errors-ExamplesRectification of Errors-Examples

23. Rectification of Errors-ExamplesRectification of Errors-Examples
 Credit sale of Credit sale of Rs.5000 to Suresh is posted to his credit, then Rs.5000 to Suresh is posted to his credit, then
rectification is rectification is
i.i.Credit Suresh to the extent of Rs.10,000Credit Suresh to the extent of Rs.10,000
ii.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.10,000
iv.iv.Debit Suresh to the extent of Rs.5000 Debit Suresh to the extent of Rs.5000
 Freight expenses for carrying New Machinery is carried to Traveling Freight expenses for carrying New Machinery is carried to Traveling
Exp. a/c. Choose the correct rectification entryExp. a/c. Choose the 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/c
iii.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 Exp a/c.Debit profit and loss a/c( P&L a/c) and credit Traveling Exp a/c.

24. CAPITAL AND REVENUE EXPENDITURECAPITAL AND REVENUE EXPENDITURE
BASIC PRINCIPLEBASIC PRINCIPLE ::
. ALL EXPENSES AND RECEIPTS OF REVENUE NATURE. ALL EXPENSES AND RECEIPTS OF REVENUE NATURE
ARE TAKEN TO TRADING AND PROFIT & LOSSARE TAKEN TO TRADING AND PROFIT & LOSS
ACCOUNTACCOUNT
. ALL EXPENDITURES AND RECEIPTS OF CAPITAL . ALL EXPENDITURES AND RECEIPTS OF CAPITAL
NATURE ARE TAKEN TO BALANCE SHEETNATURE ARE TAKEN TO BALANCE SHEET

25. CAPITAL AND REVENUE EXPENDITURECAPITAL AND REVENUE EXPENDITURE
REVENUE RECEIPTS/PAYMENTS :REVENUE RECEIPTS/PAYMENTS :
. ARE SMALLER IN SIZE(RELATIVELY). ARE SMALLER IN SIZE(RELATIVELY)
. ARE RECURRING IN NATURE. ARE RECURRING IN NATURE
. THE BENEFITS ARE OVER A SHORTER PERIOD (1 YEAR). THE BENEFITS ARE OVER A SHORTER PERIOD (1 YEAR)
. THE PURPOSE IS TO RUN THE BUSINESS ON A DAY TO . THE PURPOSE IS TO RUN THE BUSINESS ON A DAY TO
DAY BASISDAY BASIS
. MAINTAIN ASSETS IN WORKING CONDITION . MAINTAIN ASSETS IN WORKING CONDITION

26. CAPITAL & REVENUE EXPENDITURE CAPITAL & REVENUE EXPENDITURE

CAPITAL RECEIPTS/PAYMENTS:CAPITAL RECEIPTS/PAYMENTS:

ARE USUALLY LARGE(RELATIVELY)ARE USUALLY LARGE(RELATIVELY)

ARE NON-RECURRING IN NATUREARE NON-RECURRING IN NATURE

THE BENEFITS ARE OVER LONGER DURATIONTHE BENEFITS ARE OVER LONGER DURATION

THE PURPOSE IS TO ENHANCE PRODUCTIVITY OF THE PURPOSE IS TO ENHANCE PRODUCTIVITY OF
THE ASSETSTHE ASSETS

27. CAPITAL AND REVENUE EXPENDITURECAPITAL AND REVENUE EXPENDITURE
THERE ARE CERTAIN EXPENDITURES WHICH ARETHERE ARE CERTAIN EXPENDITURES WHICH ARE

OTHERWISE REVENUE IN NATURE BUT SOMETIMESOTHERWISE REVENUE IN NATURE BUT SOMETIMES
UNUSUALLY LARGE AND WHOSE BENEFIT TO THE UNUSUALLY LARGE AND WHOSE BENEFIT TO THE
ORGANISATION MAY ACCRUE AFTER FEW YEARS.THESEORGANISATION MAY ACCRUE AFTER FEW YEARS.THESE
MAY BE TREATED AS DEFERRED REVENUE EXPENDITURE ,MAY BE TREATED AS DEFERRED REVENUE EXPENDITURE ,
CARRIED TO THE BALANCE SHEET , AND WRITTEN OFF TOCARRIED TO THE BALANCE SHEET , AND WRITTEN OFF TO
THE PROFIT & LOSS ACCOUNT OVER A PERIOD OF TIME.THE PROFIT & LOSS ACCOUNT OVER A PERIOD OF TIME.

28. CAPITAL AND REVENUE EXPENDITURECAPITAL AND REVENUE EXPENDITURE
SAME IS THE CASE WITH CERTAIN RECEIPTS SUCH ASSAME IS THE CASE WITH CERTAIN RECEIPTS SUCH AS

SALE OF ASSETS, WHERE THE RECEIPTS UPTO BOOK SALE OF ASSETS, WHERE THE RECEIPTS UPTO BOOK
VALUE IS DEDUCTED FROM THE ASSET, AND , IFVALUE IS DEDUCTED FROM THE ASSET, AND , IF
BETWEEN BOOK VALUE & COST AS REVENUEBETWEEN BOOK VALUE & COST AS REVENUE
RECEIPT & ABOVE COST AS CAPITAL RECEIPT.RECEIPT & ABOVE COST AS CAPITAL RECEIPT.
. . THERE IS A THIN LINE BETWEEN CAPITAL & REVENUETHERE IS A THIN LINE BETWEEN CAPITAL & REVENUE
CLASSIFICATION. FOR INSTANCE REPAIRS TOCLASSIFICATION. FOR INSTANCE REPAIRS TO
MACHINERY WHICH KEEPS THE ASSET IN WORKINGMACHINERY WHICH KEEPS THE ASSET IN WORKING
CONDITION IS CHARGED TO THE P & L A/C WHILE CONDITION IS CHARGED TO THE P & L A/C WHILE
BETTERMENT EXPENSE IS CAPITALISED.BETTERMENT EXPENSE IS CAPITALISED.

29. CAPITAL & REVENUE EXPENDITURECAPITAL & REVENUE EXPENDITURE

EXAMPLES OF EACH TYPE OF CLASSIFICATION:EXAMPLES OF EACH TYPE OF CLASSIFICATION:

CAPITAL NATURE:CAPITAL NATURE:
-- PURCHASE OF ASSETS SUCH AS BUILDING,-- PURCHASE OF ASSETS SUCH AS BUILDING,
MACHINERY, VEHICLES.MACHINERY, VEHICLES.
-- EXPENDITURE IN PURCHASE /SETTING UP OF -- EXPENDITURE IN PURCHASE /SETTING UP OF
CAPITAL GOODS/ASSETSCAPITAL GOODS/ASSETS
-- EXCESS OF SALE PRICE OF ASSET OVER ITS COST -- EXCESS OF SALE PRICE OF ASSET OVER ITS COST
PRICEPRICE
-- FUNDS RAISED THRU BANKS/INSTITUTIONS-- FUNDS RAISED THRU BANKS/INSTITUTIONS
-- FUNDS RAISED THRU ISSUE OF SHARES, & -- FUNDS RAISED THRU ISSUE OF SHARES, &
DEBENTURES DEBENTURES

30. CAPITAL AND REVENUE EXPENDITURECAPITAL AND REVENUE EXPENDITURE

REVENUE NATUREREVENUE NATURE ::

ALL TRANSACTIONS RELATING TO NOMINAL ALL TRANSACTIONS RELATING TO NOMINAL
ACCOUNTSACCOUNTS

EVEN CERTAIN EXPENSES OF NON-RECURRING EVEN CERTAIN EXPENSES OF NON-RECURRING
NATURE BASED ON MATERIALITY CONCEPTNATURE BASED ON MATERIALITY CONCEPT

EXCESS OF SALE VALUE OF ASSET OVER W D VALUEEXCESS OF SALE VALUE OF ASSET OVER W D VALUE
UPTO COST OF ASSETUPTO COST OF ASSET

31. CAPITAL AND REVENUE EXPENDITURECAPITAL AND REVENUE EXPENDITURE

DEFERRED REVENUE EXPENDITUREDEFERRED REVENUE EXPENDITURE ::

LARGE ADVERTISING EXPENDITURE FOR(SAY) LARGE ADVERTISING EXPENDITURE FOR(SAY)
LAUNCH OF A PRODUCTLAUNCH OF A PRODUCT

EXPENDITURE FOR RAISING OF FUNDS INCLUDING EXPENDITURE FOR RAISING OF FUNDS INCLUDING
PREPARATION OF PROJECT REPORTPREPARATION OF PROJECT REPORT

INITIAL EXPENSES FOR SETTING UP OF A COMPANYINITIAL EXPENSES FOR SETTING UP OF A COMPANY

32. 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 expenditure
b.b.RRevenue expenditureevenue expenditure
c.c.Deferred revenue expenditureDeferred revenue expenditure
(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 recurring
b.b.Amount involved is smallAmount involved is small
c.c.LLoss is arising out of business operationsoss is arising out of business operations

33. Cap. & Rev. Expenditure-ExamplesCap. & Rev. Expenditure-Examples
(3) (3) Expenditure incurred in acquiring the patents rights Expenditure incurred in acquiring the patents rights
for the business is an example of ----for the business is an example of ----
a.a.CCapital expenditureapital expenditure
b.b.Deferred revenue expenditureDeferred revenue expenditure
c.c.Revenue expenditureRevenue expenditure
((4) Professional fees paid in connection with acquisition 4) Professional fees paid in connection with acquisition
of leasehold premises is----of leasehold premises is----
a.a.CCapital expenditureapital expenditure
b.b.Deferred revenue expenditureDeferred revenue expenditure
c.c.Revenue expenditureRevenue expenditure

34. ExamplesExamples
(5)Preliminary expenses , discount allowed on (5)Preliminary expenses , discount allowed on
issue of shares are the examples of issue of shares are the examples of
a.a.Capital expenditureCapital expenditure
b.b.DDeferred revenue expenditureeferred revenue expenditure
c.c.Revenue expenditureRevenue expenditure
(6) Machinery costing Rs.10,000, whose current (6) Machinery costing Rs.10,000, whose current
book value is Rs.7000 is sold for Rs.12000 book value is Rs.7000 is sold for Rs.12000
what is the amount of capital & revenue what is the amount of capital & revenue
receiptreceipt
a.a.Capital receipt of Rs. 2000 & Rev. Receipt of Rs.10000Capital receipt of Rs. 2000 & Rev. Receipt of Rs.10000
b.b.CCapital receipt of Rs. 9000 & Rev. Receipt of Rs.3000apital receipt of Rs. 9000 & Rev. Receipt of Rs.3000
c.c.Capital receipt of Rs. 12000 & Rev. Receipt of Rs.NilCapital receipt of Rs. 12000 & Rev. Receipt of Rs.Nil

35. INVENTORY VALUATIONINVENTORY VALUATION
VALUATION OF STOCKS IS IMPORTANT FROM THE VALUATION OF STOCKS IS IMPORTANT FROM THE
POINT OF INCOME DETERMINATION.POINT OF INCOME DETERMINATION.
THE DANGER COULD BE OF EITHER OVERVALUATION THE DANGER COULD BE OF EITHER OVERVALUATION
OR UNDERVALUATION OF STOCKS RESULTING IN OR UNDERVALUATION OF STOCKS RESULTING IN
OVERSTATING OR UNDERSTATING OF PROFITS.OVERSTATING OR UNDERSTATING OF PROFITS.

METHODS OF VALUATIONMETHODS OF VALUATION ::
-- FIFO-- FIFO

-- LIFO-- LIFO

-- AVERAGE OR WEIGHTED AVERAGE COST METHOD-- AVERAGE OR WEIGHTED AVERAGE COST METHOD

-- BASE STOCK METHOD-- BASE STOCK METHOD
-- ADJUSTED SELLING PRICE METHOD-- ADJUSTED SELLING PRICE METHOD

36. INVENTORY VALUATIONINVENTORY VALUATION

UNDER FIFOUNDER FIFO GOODS ISSUED TO PRODUCTION IS GOODS ISSUED TO PRODUCTION IS
VALUED AT THE EARLIEST PRICE WHEREAS THE VALUED AT THE EARLIEST PRICE WHEREAS THE
CLOSING STOCK IS AT THE LATEST PRICE.CLOSING STOCK IS AT THE LATEST PRICE.

UNDER LIFOUNDER LIFO GOODS ISSUED TO PRODUCTION IS GOODS ISSUED TO PRODUCTION IS
VALUED AT THE LATEST PRICE WHEREAS THE VALUED AT THE LATEST PRICE WHEREAS THE
CLOSING PRICE IS AT THE EARLIEST PRICE.CLOSING PRICE IS AT THE EARLIEST PRICE.

UNDER WEIGHTED AVERAGE COSTUNDER WEIGHTED AVERAGE COST METHOD METHOD
ARITHMETIC MEAN OF TOTAL PRICE BY TOTAL ARITHMETIC MEAN OF TOTAL PRICE BY TOTAL
QUANTITY RECEIVED IS TAKEN FOR VALUATION.QUANTITY RECEIVED IS TAKEN FOR VALUATION.

37. INVENTORY VALUATIONINVENTORY VALUATION

ADJUSTING SELLING PRICE METHODADJUSTING SELLING PRICE METHOD IS GENERALLY IS GENERALLY
USED BY SMALL BUSINESSMEN WHO ARE UNABLE TO USED BY SMALL BUSINESSMEN WHO ARE UNABLE TO
DIFFERENTIATE VARIOUS COSTS.DIFFERENTIATE VARIOUS COSTS.

HENCE THEY VALUE THE STOCKS AT SELLING PRICE HENCE THEY VALUE THE STOCKS AT SELLING PRICE
AND THEN REDUCE ITS VALUE TO THE EXTENT OF AND THEN REDUCE ITS VALUE TO THE EXTENT OF
ESTIMATED GROSS MARGIN. ESTIMATED GROSS MARGIN.

38. INVENTORY VALUATIONINVENTORY VALUATION
BASE STOCK METHODBASE STOCK METHOD IS SIMILAR TO LIFO. CLOSING IS SIMILAR TO LIFO. CLOSING
STOCK IS ALWAYS AT COST AT THE BEGINNING OF STOCK IS ALWAYS AT COST AT THE BEGINNING OF
BUSINESS. IN TIMES OF INFLATION VERY LOW VALUE BUSINESS. IN TIMES OF INFLATION VERY LOW VALUE
OF STOCK MAKES FOR EXCELLENT ACCOUNTING.OF STOCK MAKES FOR EXCELLENT ACCOUNTING.
IT HOWEVER REQUIRES A MINIMUM STOCK TO BEIT HOWEVER REQUIRES A MINIMUM STOCK TO BE
MAINTAINED. MAINTAINED.

PRESENTLY ACCOUNTING STANDARDS PERMIT PRESENTLY ACCOUNTING STANDARDS PERMIT
FIFO(HISTORICAL PRICE) OR WEIGHTED AVERAGE FIFO(HISTORICAL PRICE) OR WEIGHTED AVERAGE
COST METHOD.COST METHOD.
VALUE OF STOCK CAN BE ASCERTAINED BY VALUE OF STOCK CAN BE ASCERTAINED BY
PERIODIC(PHYSICAL VERIFICATION) OR PERPETUAL PERIODIC(PHYSICAL VERIFICATION) OR PERPETUAL
INVENTORY ( MAINTAINENCE OF STOCK REGISTER).INVENTORY ( MAINTAINENCE OF STOCK REGISTER).

39. INVENTORY VALUATION INVENTORY VALUATION

CHARACTERISTICS OF DIFFERENT METHODS OF CHARACTERISTICS OF DIFFERENT METHODS OF
INVENTORY VALUATIONINVENTORY VALUATION

FIFO : FIFO :
-- IN RISING MARKET FIFO RESULTS IN HIGHER-- IN RISING MARKET FIFO RESULTS IN HIGHER
PROFITS LOCKING UP OF SCARCE W. C.PROFITS LOCKING UP OF SCARCE W. C.
-- GOODS ARE SOLD AT CURRENT HIGHER PRICES -- GOODS ARE SOLD AT CURRENT HIGHER PRICES
WHILE COST OF GOODS REFLECTS LOWER THAN WHILE COST OF GOODS REFLECTS LOWER THAN
CURRENT COSTS CURRENT COSTS
-- IN FALLING MARKET FIFO RESULTS IN LOWER-- IN FALLING MARKET FIFO RESULTS IN LOWER
PROFITSPROFITS
. .

40. INVENTORY VALUATIONINVENTORY VALUATION

-- LIFO :-- LIFO :

-- IN FALLING MARKET THE EFFECT IS THE SAME AS-- IN FALLING MARKET THE EFFECT IS THE SAME AS
THAT OF FIFO IN RISING MARKETTHAT OF FIFO IN RISING MARKET

-- IN RISING MARKET THE EFFECT IS SAME AS THAT-- IN RISING MARKET THE EFFECT IS SAME AS THAT
OF FIFO IN FALLING MARKET. OF FIFO IN FALLING MARKET.

41. INVENTORY VALUATIONINVENTORY VALUATION

IN THIS CHAPTER IT IS IMPORTANT TO DISCUSS THE IN THIS CHAPTER IT IS IMPORTANT TO DISCUSS THE
VARIOUS ACCOUNTING CONVENTIONSVARIOUS ACCOUNTING CONVENTIONS

CONSERVATISM CONCEPTCONSERVATISM CONCEPT : RECOGNITION OF : RECOGNITION OF
INCREASES IN EARNINGS REQUIRES BETTER INCREASES IN EARNINGS REQUIRES BETTER
EVIDENCE THAN DOES RECOGNITION OF DECREASES EVIDENCE THAN DOES RECOGNITION OF DECREASES
THAT IS EXPENSESTHAT IS EXPENSES

REALISATION CONCEPTREALISATION CONCEPT : RECOGNITION OF AMOUNT : RECOGNITION OF AMOUNT
OF REVENUE THAT HAS CERTAINTY OF REALISATIONOF REVENUE THAT HAS CERTAINTY OF REALISATION

MATCHING CONCEPTMATCHING CONCEPT : RECOGNITION OF REVENUES : RECOGNITION OF REVENUES
AND EXPENSES FOR A CERTAIN EVENT.AND EXPENSES FOR A CERTAIN EVENT.

42. INVENTORY VALUATIONINVENTORY VALUATION

CONSISTENCY CONCEPTCONSISTENCY CONCEPT : ONCE A CERTAIN METHOD : ONCE A CERTAIN METHOD
IS DECIDED UPON FOR ALL SUBSEQUENT EVENTS OF IS DECIDED UPON FOR ALL SUBSEQUENT EVENTS OF
THE SAME CHARACTER THE SAME METHOD SHOULD THE SAME CHARACTER THE SAME METHOD SHOULD
BE USED UNLESS THERE IS A SOUND REASON TO BE USED UNLESS THERE IS A SOUND REASON TO
CHANGECHANGE

MATERIALITY CONCEPT: MATERIALITY CONCEPT: DEPENDING UPON DEPENDING UPON
JUDGEMENT AND COMMON SENSE IMMATERIAL JUDGEMENT AND COMMON SENSE IMMATERIAL
EVENTS / TRIVIAL MATTERS SHOULD NOT BE GIVEN EVENTS / TRIVIAL MATTERS SHOULD NOT BE GIVEN
MORE IMPORTANCE THAN WARRANTED.MORE IMPORTANCE THAN WARRANTED.

HISTORICAL COSTS: HISTORICAL COSTS: COST OF ACQUISITION – COST OF ACQUISITION –
DISCOUNTS, IF ANY, + COSTS INCIDENTAL TO DISCOUNTS, IF ANY, + COSTS INCIDENTAL TO
BRINGING THE ASSET/ ERECTING THE ASSET.BRINGING THE ASSET/ ERECTING THE ASSET.

43. BILLS OF EXCHANGEBILLS OF EXCHANGE

BILL OF EXCHANGEBILL OF EXCHANGE IS THE VEHICLE FOR CREDIT IS THE VEHICLE FOR CREDIT

TRANSACTIONS IN BUSINESS; HAS 3 PARTIES:TRANSACTIONS IN BUSINESS; HAS 3 PARTIES:
DRAWER DRAWER – WHO MAKES THE BILL/ CREDITOR;– WHO MAKES THE BILL/ CREDITOR;
DRAWEEDRAWEE – ON WHOM THE BILL IS DRAWN; – ON WHOM THE BILL IS DRAWN;
PAYEE PAYEE -- WHO RECEIVES THE MONEY; -- WHO RECEIVES THE MONEY;
SOMETIMES DRAWER & PAYEE ARE THE SAME.SOMETIMES DRAWER & PAYEE ARE THE SAME.
ACCEPTANCE TO PAY BY THE DRAWEE IS ESSENTIAL.ACCEPTANCE TO PAY BY THE DRAWEE IS ESSENTIAL.
. .

44. BILLS OF EXCHANGEBILLS OF EXCHANGE
. . PROMISSORY NOTEPROMISSORY NOTE IS SIMILAR ; HAS ONLY 2 PARTIES IS SIMILAR ; HAS ONLY 2 PARTIES
BUT SIGNED BY DEBTOR; NOTING NECESSARY.BUT SIGNED BY DEBTOR; NOTING NECESSARY.
. . ACCOMODATION BILLACCOMODATION BILL : THERE IS NO TRANSACTION; : THERE IS NO TRANSACTION;
THE BILL IS DISCOUNTED TO RAISE MONEYS FOR THE BILL IS DISCOUNTED TO RAISE MONEYS FOR
BOTH PARTIES, WHO SHARE THE AMOUNT. BOTH PARTIES, WHO SHARE THE AMOUNT.

45. BILLS OF EXCHANGEBILLS OF EXCHANGE

TYPICAL ENTRIES:TYPICAL ENTRIES:
. THE ENTRIES IN THE BOOKS OF DRAWER ‘A’ ARE:. THE ENTRIES IN THE BOOKS OF DRAWER ‘A’ ARE:

DIRECT BILL TRANSACTIONDIRECT BILL TRANSACTION

BILLS RECEIVABLE a/c DR.BILLS RECEIVABLE a/c DR.
TO DRAWEE ‘B’TO DRAWEE ‘B’
. CASH a/c DR.. CASH a/c DR.
TO BILLS RECEIVABLETO BILLS RECEIVABLE
( BILL IS MET ON DUE DATE) ( BILL IS MET ON DUE DATE)

46. BILLS OF EXCHANGEBILLS OF EXCHANGE
BILL ENDORSED TO CBILL ENDORSED TO C
. C’s a/c DR.. C’s a/c DR.
TO BILLS RECEIVABLETO BILLS RECEIVABLE
( NO ENTRY WHEN BILL IS MET)( NO ENTRY WHEN BILL IS MET)
BILL SENT FOR COLLECTIONBILL SENT FOR COLLECTION
. BANK FOR BILL COLLECTION a/c DR.. BANK FOR BILL COLLECTION a/c DR.
TO BILLS RECEIVABLETO BILLS RECEIVABLE
. CASH a/c DR.. CASH a/c DR.
TO BANK FOR BILL COLLECTIONTO BANK FOR BILL COLLECTION
( BILL SENT FOR COLLECTION IS MET)( BILL SENT FOR COLLECTION IS MET)

. .
. .
. .

47. BILLS OF EXCHANGEBILLS OF EXCHANGE
IN CASE OF DISCOUNTINGIN CASE OF DISCOUNTING
CASH a/c DR.CASH a/c DR.
DISCOUNT a/c DR.DISCOUNT a/c DR.
TO BILLS RECEIVABLE TO BILLS RECEIVABLE
( NO ENTRY WHEN BILL IS MET)( NO ENTRY WHEN BILL IS MET)

THE ENTRIES IN THE BOOKS OF DRAWEE ‘B’:THE ENTRIES IN THE BOOKS OF DRAWEE ‘B’:
.. A’s a/c DR... A’s a/c DR.
TO BILLS PAYABLETO BILLS PAYABLE
. BILLS PAYABLE a/c DR.. BILLS PAYABLE a/c DR.
TO CASH TO CASH
( BILL IS PAID)( BILL IS PAID)

48. BILLS OF EXCHANGEBILLS OF EXCHANGE

THERE ARE CASES WHEN BILLS ARE DISHONOURED.THERE ARE CASES WHEN BILLS ARE DISHONOURED.

IN THAT CASE THE ENTRIES ARE AS FOLLOWS:IN THAT CASE THE ENTRIES ARE AS FOLLOWS:
IN A’s BOOKSIN A’s BOOKS::
BILL DIRECTLY SENT FOR PAYMENTBILL DIRECTLY SENT FOR PAYMENT
B’s A/C DR.B’s A/C DR.
TO BILLS RECEIVABLETO BILLS RECEIVABLE
TO CASHTO CASH
( CASH IS THE NOTING CHARGE)( CASH IS THE NOTING CHARGE)

DISHONOUR OF DISCOUNTED BILLDISHONOUR OF DISCOUNTED BILL
. BILLS RECEIVABLE A/C DR.. BILLS RECEIVABLE A/C DR.
NOTING CHARGES A/C DR.NOTING CHARGES A/C DR.
TO CASHTO CASH
(CASH (notary charges) IS PAID TO THE BANK)(CASH (notary charges) IS PAID TO THE BANK)

49. BILLS OF EXCHANGEBILLS OF EXCHANGE

-- B’s a/c DR.-- B’s a/c DR.

TO BILLS RECEIVABLETO BILLS RECEIVABLE

TO NOTING CHARGESTO NOTING CHARGES

(BILL RETURNED TO ‘A’)(BILL RETURNED TO ‘A’)
DISHONOUR OF BILL SENT BY BANK FOR PAYMENT

BILL RECEIVABLE a/c DR.BILL RECEIVABLE a/c DR.

NOTING CHARGE a/c DR.NOTING CHARGE a/c DR.

TO CASHTO CASH

TO BANK FOR BILL COLLECTIONTO BANK FOR BILL COLLECTION
( DISHONOUR OF BILL FOR COLLECTION)( DISHONOUR OF BILL FOR COLLECTION)
. B’s a/c DR.. B’s a/c DR.
TO BILLS RECEIVABLETO BILLS RECEIVABLE
TO NOTING CHARGESTO NOTING CHARGES
(BILL RETURNED TO B)(BILL RETURNED TO B)

50. BILLS OF EXCHANGEBILLS OF EXCHANGE

DISHONOUR OF ENDORSED BILLDISHONOUR OF ENDORSED BILL
. BILLS RECEIVABLE a/c DR.. BILLS RECEIVABLE a/c DR.

NOTING CHARGES a/c DR.NOTING CHARGES a/c DR.

TO CTO C

B’s a/c DR.B’s a/c DR.

TO BILLS RECEIVABLE TO BILLS RECEIVABLE

TO NOTING CHARGESTO NOTING CHARGES
(BILL RETURNED TO B)(BILL RETURNED TO B)

51. CONSIGNMENT ACCOUNTCONSIGNMENT ACCOUNT

WHEN OWNER SENDS GOODS TO HIS AGENT FOR THE WHEN OWNER SENDS GOODS TO HIS AGENT FOR THE
PURPOSE OF SELLING THEN IT IS CALLED PURPOSE OF SELLING THEN IT IS CALLED
CONSIGNMENT.CONSIGNMENT.

IT IS DIFFERENT FROM SALE IN THAT THE IT IS DIFFERENT FROM SALE IN THAT THE
CONSIGNEE CANNOT DISPOSE OFF THE GOODS CONSIGNEE CANNOT DISPOSE OFF THE GOODS
ACCORDING TO HIS CHOICE; DOES NOT RECEIVE ANY ACCORDING TO HIS CHOICE; DOES NOT RECEIVE ANY
RISK FROM THE CONSIGNOR; CAN RETURN THE RISK FROM THE CONSIGNOR; CAN RETURN THE
GOODS IF NOT MARKETABLE. GOODS IF NOT MARKETABLE.

52. CONSIGNMENT ACCOUNTCONSIGNMENT ACCOUNT

IN CONSIGNMENT ACCOUNTING THERE ARE 3 IN CONSIGNMENT ACCOUNTING THERE ARE 3
ACCOUNTSACCOUNTS ::

CONSIGNMENT ACCOUNT; WHICH SHOWS CONSIGNMENT ACCOUNT; WHICH SHOWS
GOODS/STOCK AT COST INCLUDING EXPENSES GOODS/STOCK AT COST INCLUDING EXPENSES
INCURRED IN SENDING THE GOODS.INCURRED IN SENDING THE GOODS.

CONSIGNEE ACCOUNT; WHICH IS NET OF HIS CONSIGNEE ACCOUNT; WHICH IS NET OF HIS
SELLING PRICE AND THE NON-RECURRING OR DIRECT SELLING PRICE AND THE NON-RECURRING OR DIRECT
EXPENSES INCURRED BY HIM.EXPENSES INCURRED BY HIM.


GOODS SENT ON CONSIGNMENT ACCOUNT. GOODS SENT ON CONSIGNMENT ACCOUNT.

53. CONSIGNMENT ACCOUNT CONSIGNMENT ACCOUNT
A TYPICAL CONSIGNMENT ACCOUNT WILL APPEAR A TYPICAL CONSIGNMENT ACCOUNT WILL APPEAR
AS FOLLOWS:AS FOLLOWS:
DR. CRDR. CR
To 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

54. CONSIGNMENT ACCOUNTCONSIGNMENT ACCOUNT

NOTES: NOTES:

CLOSING STOCK IS VALUED AT COST/INVOICE PRICE + CLOSING STOCK IS VALUED AT COST/INVOICE PRICE +
PROPORTIONATE AMOUNT OF COST INCURRED BY PROPORTIONATE AMOUNT OF COST INCURRED BY
CONSIGNOR IN TRANSPORTING.CONSIGNOR IN TRANSPORTING.

IF GOODS ARE LOST IN TRANSIT THE SAME METHOD OF IF GOODS ARE LOST IN TRANSIT THE SAME METHOD OF
COSTING IS APPLIED AND THAT AMOUNT IS CREDITED TO THE COSTING IS APPLIED AND THAT AMOUNT IS CREDITED TO THE
CONSIGNMENT ACCOUNT.CONSIGNMENT ACCOUNT.

NOMINAL LOSSES ARE PROPORTIONATELY CHARGED TO ALL NOMINAL LOSSES ARE PROPORTIONATELY CHARGED TO ALL
STOCK WHETHER SOLD OR NOT. ABNORMAL LOSS IS STOCK WHETHER SOLD OR NOT. ABNORMAL LOSS IS
DIRECTLY CHARGED TO P&L A/C. DIRECTLY CHARGED TO P&L A/C.


APART FROM FIXED RATE OF COMMISSION ON THE GOODS APART FROM FIXED RATE OF COMMISSION ON THE GOODS
SOLD AN ADDITION ‘ DEL CREDERE’ COMMISSION IS PAID TO SOLD AN ADDITION ‘ DEL CREDERE’ COMMISSION IS PAID TO
THE CONSIGNEE FOR ENCOURAGING SALES ON CREDIT BASIS.THE CONSIGNEE FOR ENCOURAGING SALES ON CREDIT BASIS.
HOWEVER THE INHERENT RISKS REMAIN WITH THE HOWEVER THE INHERENT RISKS REMAIN WITH THE
CONSIGNEE.CONSIGNEE.

55. JOINT VENTUREJOINT VENTURE

JOINT VENTURE ACCOUNTS ARE TEMPORARY IN JOINT VENTURE ACCOUNTS ARE TEMPORARY IN
NATURE ; FOR THE AD HOC PURPOSE OF AN NATURE ; FOR THE AD HOC PURPOSE OF AN
ASSIGNMENT UNDERTAKEN.ASSIGNMENT UNDERTAKEN.

IT IS SIMILAR TO A PARTNERSHIP EXCEPT SUCH IT IS SIMILAR TO A PARTNERSHIP EXCEPT SUCH
ASSOCIATIONS ARE TEMPORARY IN NATURE.ASSOCIATIONS ARE TEMPORARY IN NATURE.

ALSO IN PARTNERSHIP THE ACCOUNTING IS ON ALSO IN PARTNERSHIP THE ACCOUNTING IS ON
ACCRUAL BASIS WHILE IN JOINT VENTURE ACCRUAL BASIS WHILE IN JOINT VENTURE
ACCOUNTING IS ON CASH BASIS.ACCOUNTING IS ON CASH BASIS.

56. JOINT VENTUREJOINT VENTURE

THERE ARE 3 ACCOUNTS:THERE ARE 3 ACCOUNTS:

-- JOINT BANK WHICH SHOWS EACH CO-VENTURER’S-- JOINT BANK WHICH SHOWS EACH CO-VENTURER’S
INVESTMENT;INVESTMENT;
-- CO-VENTURER’S ACCOUNT-- CO-VENTURER’S ACCOUNT
-- JOINT VENTURE INTO WHICH THE FINAL -- JOINT VENTURE INTO WHICH THE FINAL
PROFIT/LOSS IS TRANSFERRED. PROFIT/LOSS IS TRANSFERRED.

57. LEASING AND HIRE PURCHASELEASING AND HIRE PURCHASE
LESSOR (OWNER) GIVES HIS ASSETS TO LESSEE LESSOR (OWNER) GIVES HIS ASSETS TO LESSEE
(USER) FOR USE; RECEIVES LEASE RENTALS IN (USER) FOR USE; RECEIVES LEASE RENTALS IN
RETURN, AN AMOUNT WHICH INCLUDES COST OF RETURN, AN AMOUNT WHICH INCLUDES COST OF
DEPRECIATION, COST OF FINANCE, AND DEPRECIATION, COST OF FINANCE, AND
ADMINISTRATIVE EXPENSES OF THE LESSOR.ADMINISTRATIVE EXPENSES OF THE LESSOR.
. LEASING HELPS IN IMPROVING SALES VOLUME OF . LEASING HELPS IN IMPROVING SALES VOLUME OF
GOODS; REDUCES CAPITAL INVESTMENT FOR GOODS; REDUCES CAPITAL INVESTMENT FOR
LESSEE, INCREASES HIS BORROWING CAPACITY, LESSEE, INCREASES HIS BORROWING CAPACITY,
REDUCES TAX LIABILITY AS RENTALS ARE FULLY REDUCES TAX LIABILITY AS RENTALS ARE FULLY
TAX DEDUCTABLE, HOWEVER BURDENSOME.TAX DEDUCTABLE, HOWEVER BURDENSOME.

58. LEASING AND HIRE PURCHASELEASING AND HIRE PURCHASE

FINANCIAL LEASE IS THE MOST POPULAR, LONG FINANCIAL LEASE IS THE MOST POPULAR, LONG
TERM IN NATURE, GENERALLY USEFUL FOR PLANT TERM IN NATURE, GENERALLY USEFUL FOR PLANT
AND MACHINERY.AND MACHINERY.

OTHER TYPES ARE OPERATING AND SERVICE OTHER TYPES ARE OPERATING AND SERVICE
LEASES.LEASES.

LESSOR RECEIVES LEASE RENTALS, CLAIMS LESSOR RECEIVES LEASE RENTALS, CLAIMS
DEPRECIATION.DEPRECIATION.

LESSEE CHARGES THE LEASE RENTALS PAID TO THE LESSEE CHARGES THE LEASE RENTALS PAID TO THE
P & L ACCOUNT.P & L ACCOUNT.

59. LEASING AND HIRE PURCHASELEASING AND HIRE PURCHASE

THE LESSOR BREAKS UP THE RENTALS RECEIVEDTHE LESSOR BREAKS UP THE RENTALS RECEIVED

INTO FINANCE INCOME AND ANNUAL LEASE INTO FINANCE INCOME AND ANNUAL LEASE
CHARGE.CHARGE.

FINANCE INCOME = TOTAL RENTALS OVER THEFINANCE INCOME = TOTAL RENTALS OVER THE
LEASE PERIOD + RESIDUAL VALUE OF LEASED ASSETLEASE PERIOD + RESIDUAL VALUE OF LEASED ASSET
-- COST OF LEASED ASSET-- COST OF LEASED ASSET ( FAIR VALUE ). ( FAIR VALUE ).

60. LEASING AND HIRE PURCHASELEASING AND HIRE PURCHASE

USE SUM OF DIGITS METHOD TO FIND ANNUAL USE SUM OF DIGITS METHOD TO FIND ANNUAL
FINANCE INCOME.FINANCE INCOME.

ANNUAL LEASE CHARGE = ANNUAL LEASE RENT – ANNUAL LEASE CHARGE = ANNUAL LEASE RENT –
ANNUAL FINANCE INCOME. ANNUAL FINANCE INCOME.

ANNUAL LEASE CHARGE = STATUTORY ANNUAL LEASE CHARGE = STATUTORY
DEPRECIATION + LEASE EQUALISATION CHARGE.DEPRECIATION + LEASE EQUALISATION CHARGE.

LEASE EQUALISATION CHARGE IS DEDUCTED FROM LEASE EQUALISATION CHARGE IS DEDUCTED FROM
THE LEASE RENTALS OR THE PROFIT & LOSS THE LEASE RENTALS OR THE PROFIT & LOSS
ACCOUNT. ACCOUNT.

61. LEASING & HIRE PURCHASELEASING & HIRE PURCHASE


SOMETIMES THE ANNUAL LEASE IS LESS THAN STATUTORY SOMETIMES THE ANNUAL LEASE IS LESS THAN STATUTORY
DEPRECIATION; THEN THE LEASE EQUALISATION CHARGE DEPRECIATION; THEN THE LEASE EQUALISATION CHARGE
IS ADDED TO THE PROFIT & LOSS ACCOUNT.IS ADDED TO THE PROFIT & LOSS ACCOUNT.

THE LEASE EQUALISATION CHARGE ACCOUNTED THROUGH THE LEASE EQUALISATION CHARGE ACCOUNTED THROUGH
THE LEASE TERMINAL ADJ. A/C WHICH FINALLY IS THE LEASE TERMINAL ADJ. A/C WHICH FINALLY IS
DEDUCTED FROM THE WRITTEN DOWN VALUE OF THE DEDUCTED FROM THE WRITTEN DOWN VALUE OF THE
ASSET.ASSET.

IN CASE OF OPERATING LEASE IF THE PERIOD IS LESS IN CASE OF OPERATING LEASE IF THE PERIOD IS LESS
THAN 1 YEAR ( WHICH IS GENERALLY THE CASE ) THEN THE THAN 1 YEAR ( WHICH IS GENERALLY THE CASE ) THEN THE
ENTIRE AMOUNT IS TAKEN TO THE PROFIT & LOSS ENTIRE AMOUNT IS TAKEN TO THE PROFIT & LOSS
ACCOUNT. ACCOUNT.

IF THE PERIOD IS MORE THAN 1 YEAR AND THE ENTIRE IF THE PERIOD IS MORE THAN 1 YEAR AND THE ENTIRE
RENTAL IS TAKEN INTO A LEASE RENT SUSPENCE RENTAL IS TAKEN INTO A LEASE RENT SUSPENCE
ACCOUNT AND YEARLY RENTALS ARE CHARGED TO IT.ACCOUNT AND YEARLY RENTALS ARE CHARGED TO IT.

62. LEASING & HIRE PURCHASE LEASING & HIRE PURCHASE

NOTES: NOTES:

FINANCE INCOME IS THE PERCEIVED RETURN ON FINANCE INCOME IS THE PERCEIVED RETURN ON
LEASED ASSET.LEASED ASSET.

LEASE EQUALISATION CHARGE IS THE EXCESS OF LEASE EQUALISATION CHARGE IS THE EXCESS OF
LEASE RENT AFTER DUE WEIGHTAGE IS GIVEN TO LEASE RENT AFTER DUE WEIGHTAGE IS GIVEN TO
THE RETURN ON THE LEASED ASSET AND THE THE RETURN ON THE LEASED ASSET AND THE
EXTENT OF DEPRECIATION CHARGED.EXTENT OF DEPRECIATION CHARGED.

THIS AMOUNT IS CARRIED FORWARD IN THE THIS AMOUNT IS CARRIED FORWARD IN THE
BALANCE SHEET TO BE CHARGED AGAINST THE BALANCE SHEET TO BE CHARGED AGAINST THE
WRITTEN DOWN VALUE OF THE ASSET.WRITTEN DOWN VALUE OF THE ASSET.

63. LEASING AND HIRE PURCHASELEASING AND HIRE PURCHASE
Explanation Explanation

The concept of lease equalisation account is The concept of lease equalisation account is
an equaliser between the capital recovery an equaliser between the capital recovery
inherent in lease rentals and the depreciation inherent in lease rentals and the depreciation
chargeable as per Companies Act.chargeable as per Companies Act.


The objective of the lessor is to write-off an The objective of the lessor is to write-off an
amount equal to the capital recovery inherent amount equal to the capital recovery inherent
in lease rentals, so as to leave in the revenue in lease rentals, so as to leave in the revenue
statement only the financing charges statement only the financing charges

64. LEASING AND HIRE PURCHASE LEASING AND HIRE PURCHASE

HIRE PURCHASE IS DIFFERENT IN THAT THE HIRER IS HIRE PURCHASE IS DIFFERENT IN THAT THE HIRER IS
THE OWNER FOR THE PURPOSE OF DEPRECIATION. THE OWNER FOR THE PURPOSE OF DEPRECIATION.
ALTHOUGH ACTUAL OWNERSHIP PASSES ON THE ALTHOUGH ACTUAL OWNERSHIP PASSES ON THE
DATE OF PAYMENT OF LAST INSTALMENT.DATE OF PAYMENT OF LAST INSTALMENT.

THE HIRE PURCHASE PRICE CONSISTS OF CASH THE HIRE PURCHASE PRICE CONSISTS OF CASH
PRICE AND INTEREST.PRICE AND INTEREST.

INSTALMENT SALE IS SIMILAR EXCEPT THAT INSTALMENT SALE IS SIMILAR EXCEPT THAT
OWNERSHIP PASSES ON TO BUYER AS SOON AS THE OWNERSHIP PASSES ON TO BUYER AS SOON AS THE
11
STST
INSTALMENT IS PAID. INSTALMENT IS PAID.

THE 1THE 1
STST
INSTALMENT IN BOTH CASES IS CALLED INSTALMENT IN BOTH CASES IS CALLED
DOWN PAYMENT.DOWN PAYMENT.

THE SELLER OF THE ASSET IS CALLED VENDOR THE SELLER OF THE ASSET IS CALLED VENDOR

65. LEASING AND HIRE PURCHASELEASING AND HIRE PURCHASE

A TYPICAL LEASE TRANSACTION IN THE BOOKS OF THE LESSOR:A TYPICAL LEASE TRANSACTION IN THE BOOKS OF THE LESSOR:

Bank a/c dr.Bank a/c dr.
to lease rentto lease rent
(lease rent received)(lease rent received)

Lease rent a/c dr.Lease rent a/c dr.
to P & L a/c to P & L a/c
(lease rent transferred to profit) (lease rent transferred to profit)

Depreciation a/c dr.Depreciation a/c dr.
to asset to asset
(annual depreciation(annual depreciation
Of the asset)Of the asset)

P & L a/c dr.P & L a/c dr.
to depreciation to depreciation
(depn. Charged to P & L a/c) (scroll down)(depn. Charged to P & L a/c) (scroll down)
if annual lease charge>depn.if annual lease charge>depn.
Lease equalisation a/c dr.Lease equalisation a/c dr.
to lease terminal adj.to lease terminal adj.

P & L a/c dr.P & L a/c dr.
to lease equalisationto lease equalisation
if annual lease charge<depnif annual lease charge<depn


Lease terminal adj. a/c dr.Lease terminal adj. a/c dr.
to lease equalisation charge.to lease equalisation charge.
. P & L a/c dr.. P & L a/c dr.
to other expensesto other expenses
(all other expenses debited) (all other expenses debited)


. .

66. LEASING AND HIRE PURCHASELEASING AND HIRE PURCHASE
IN THE BOOKS OF THE LESSEEIN THE BOOKS OF THE LESSEE : :

Lease rent paid a/c dr.Lease rent paid a/c dr.
to bank to bank
(lease rent paid)(lease rent paid)
P & L a/c dr. P & L a/c dr.
to lease rentto lease rent
(lease rent charged to P & L)(lease rent charged to P & L)
IF LEASE RENT IS PAID FOR THE ENTIRE PERIOD THE IF LEASE RENT IS PAID FOR THE ENTIRE PERIOD THE
SAME IS ACCOUNTED FOR IN BANK A/C AND AN SAME IS ACCOUNTED FOR IN BANK A/C AND AN
ANNUAL AMOUNT IS CHARGED TO P & L A/C EVERY ANNUAL AMOUNT IS CHARGED TO P & L A/C EVERY
YEAR YEAR

67. LEASING AND HIRE PURCHASELEASING AND HIRE PURCHASE

A TYPICAL TRANSACTION IN THE BOOKS OF THE HIRER:A TYPICAL TRANSACTION IN THE BOOKS OF THE HIRER:

Asset a/c dr.Asset a/c dr.

to vendor to vendor
(purchase of asset on H P basis-(purchase of asset on H P basis-
to the extent of the amount agreed)to the extent of the amount agreed)
. Vendor a/c dr.. Vendor a/c dr.
to bank to bank
(down payment/instalment)(down payment/instalment)
. Depreciation a/c dr.. Depreciation a/c dr.
to assetto asset
(depn. Of asset)(depn. Of asset)
. P & L a/c dr.. P & L a/c dr.
to depreciation scroll downto depreciation scroll down
(depn. Charged to P & L)\(depn. Charged to P & L)\
. P & L a/c dr.. P & L a/c dr.
to expensesto expenses
(any other expenses charged to P & L)(any other expenses charged to P & L)
IN THE BOOKS OF LESSEE:IN THE BOOKS OF LESSEE:
. Hirer a/c dr.. Hirer a/c dr.
to sales to sales
(sale of asset on H P basis)(sale of asset on H P basis)
Bank a/c dr.Bank a/c dr.
to hirerto hirer
(instalment received)(instalment received)

68. NON-TRADING ORGANISATIONSNON-TRADING ORGANISATIONS
NON-TRADING ORGANISATIONS ARE NON PROFIT NON-TRADING ORGANISATIONS ARE NON PROFIT
MAKING BODIES, RENDERING SERVICES TO PUBLIC, MAKING BODIES, RENDERING SERVICES TO PUBLIC,
COLLECTING MONEYS BY WAY OF MEMBERSHIP COLLECTING MONEYS BY WAY OF MEMBERSHIP
FEES, SUBSCRIPTIONS, DONATIONS. HOWEVER TO FEES, SUBSCRIPTIONS, DONATIONS. HOWEVER TO
PREVENT MISUSE OF FUNDS, ACCOUNTS ARE PREVENT MISUSE OF FUNDS, ACCOUNTS ARE
MAINTAINED.MAINTAINED.
RECEIPTS & PAYMENTS STATEMENT CONTAINS REALRECEIPTS & PAYMENTS STATEMENT CONTAINS REAL
ACCOUNTS, ACTUAL RECEIPTS AND PAYMENTS, ACCOUNTS, ACTUAL RECEIPTS AND PAYMENTS,
BOTH CAPITAL AND REVENUE ITEMS.BOTH CAPITAL AND REVENUE ITEMS.
. INCOME & EXPENDITURE STATEMENT CONTAINS. INCOME & EXPENDITURE STATEMENT CONTAINS
NOMINAL ACCOUNTS, OF REVENUE ITEMS OF NOMINAL ACCOUNTS, OF REVENUE ITEMS OF
INCOME & EXPENSES FOR A FIXED PERIOD.INCOME & EXPENSES FOR A FIXED PERIOD.

69. NON-TRADING ORGANISATIONSNON-TRADING ORGANISATIONS

A TYPICAL WAY OF CONVERTING RECEIPTS & A TYPICAL WAY OF CONVERTING RECEIPTS &
PAYMENTS STATEMENT INTO INCOME & PAYMENTS STATEMENT INTO INCOME &
EXPENDITURE STATEMENT IS TAKE THE EXPENDITURE STATEMENT IS TAKE THE
RECEIPTS/PAYMENTS OF THE CURRENT YEAR RECEIPTS/PAYMENTS OF THE CURRENT YEAR
SUBTRACT THE OPENING BALANCE OF THE CURRENT SUBTRACT THE OPENING BALANCE OF THE CURRENT
YEAR AND ADD THE CLOSING BALANCE ( IF ANY ).YEAR AND ADD THE CLOSING BALANCE ( IF ANY ).

THE CLOSING BALANCES WILL CONSTITUTE THE THE CLOSING BALANCES WILL CONSTITUTE THE
BALANCE SHEET. BALANCE SHEET.

70. DEPRECIATIONDEPRECIATION

DEPRECIATION IS A CHARGE ON PROFITS, TO DEPRECIATION IS A CHARGE ON PROFITS, TO
ACCOUNT FOR THE FALL IN THE VALUE( NOTIONAL ACCOUNT FOR THE FALL IN THE VALUE( NOTIONAL
OR OTHERWISE ) OF AN ASSET DURING THE PERIOD OR OTHERWISE ) OF AN ASSET DURING THE PERIOD
OF USE. OF USE.

DEPRECIATION OR WRITING OFF OF A CERTAIN DEPRECIATION OR WRITING OFF OF A CERTAIN
PORTION OF AN ASSET ON AN ANNUAL BASIS IS A PORTION OF AN ASSET ON AN ANNUAL BASIS IS A
PRUDENT WAY OF SAVINGS FOR REPLACEMENT OF PRUDENT WAY OF SAVINGS FOR REPLACEMENT OF
THE ASSET AFTER ITS USEFUL LIFE IS OVER.THE ASSET AFTER ITS USEFUL LIFE IS OVER.

SINCE DEPRECIATION IS AN OPERATING COST AND SINCE DEPRECIATION IS AN OPERATING COST AND
THEREFORE TAX DEDUCTIBLE, EACH YEAR THE THEREFORE TAX DEDUCTIBLE, EACH YEAR THE
SAVING IS TO THE EXTENT OF (TAX RATE)* ANNUAL SAVING IS TO THE EXTENT OF (TAX RATE)* ANNUAL
DEPRECIATION. DEPRECIATION.

71. DEPRECIATIONDEPRECIATION

DEPRECIATION CAN ALSO BE LOOKED IN A DEPRECIATION CAN ALSO BE LOOKED IN A
DIFFERENT WAY.DIFFERENT WAY.

DEPRECIATION IS AN ACCOUNTING PROCESS FOR DEPRECIATION IS AN ACCOUNTING PROCESS FOR
THE GRADUAL CONVERSION OF THE CAPITALIZED THE GRADUAL CONVERSION OF THE CAPITALIZED
COST OF FIXED(TANGIBLE) ASSETS INTO EXPENSE.COST OF FIXED(TANGIBLE) ASSETS INTO EXPENSE.

SIMILARLY, INTANGIBLE ASSETS ARE CONVERTED SIMILARLY, INTANGIBLE ASSETS ARE CONVERTED
INTO EXPENSE BY AMORTISATION.INTO EXPENSE BY AMORTISATION.

WHILE ASSETS SUCH AS NATURAL RESOURCES ARE WHILE ASSETS SUCH AS NATURAL RESOURCES ARE
CONVERTED BY PROCESS CALLED DEPLETION. CONVERTED BY PROCESS CALLED DEPLETION.

72. DEPRECIATIONDEPRECIATION
WHAT CAUSES DEPRECIATIONWHAT CAUSES DEPRECIATION ? ?
SIMPLY WEAR AND TEARSIMPLY WEAR AND TEAR
MISHAPSMISHAPS

OBSOLESCENCEOBSOLESCENCE
PASSAGE OF TIMEPASSAGE OF TIME
FALL IN VALUEFALL IN VALUE

73. DEPRECIATIONDEPRECIATION

IN ORDER TO CALCULATE DEPRECIATION THERE ARE IN ORDER TO CALCULATE DEPRECIATION THERE ARE
BASIC ISSUES TO BE ASCERTAINEDBASIC ISSUES TO BE ASCERTAINED : :
-- ESTIMATED USEFUL LIFE OF THE ASSET(YEARS).-- ESTIMATED USEFUL LIFE OF THE ASSET(YEARS).
-- THE RESIDUAL VALUE OF THE ASSET.-- THE RESIDUAL VALUE OF THE ASSET.
-- METHOD TO BE USED FOR PROVIDING-- METHOD TO BE USED FOR PROVIDING
DEPRECIATION.DEPRECIATION.

74. DEPRECIATIONDEPRECIATION
METHODS OF DEPRECIATIONMETHODS OF DEPRECIATION : :
. STRAIGHT LINE METHOD. EQUAL FRACTION OF THE . STRAIGHT LINE METHOD. EQUAL FRACTION OF THE
NET COST(COST OF THE ASSET LESS THE RESIDUAL NET COST(COST OF THE ASSET LESS THE RESIDUAL
VALUE) IS CHARGED EACH YEAR.VALUE) IS CHARGED EACH YEAR.

WRITTEN DOWN VALUE METHOD. EQUAL WRITTEN DOWN VALUE METHOD. EQUAL
PERCENTAGE OF THE WRITTEN DOWN VALUE IN THE PERCENTAGE OF THE WRITTEN DOWN VALUE IN THE
BOOKS OF THE COMPANY IS CHARGED EACH YEAR.BOOKS OF THE COMPANY IS CHARGED EACH YEAR.
SINKING FUND METHOD. IT IS STRAIGHT LINE SINKING FUND METHOD. IT IS STRAIGHT LINE
METHOD BUT THE DEPRECIATION CHARGED OR A METHOD BUT THE DEPRECIATION CHARGED OR A
PORTION OF IT IS KEPT AS A RESERVE, INVESTED IN PORTION OF IT IS KEPT AS A RESERVE, INVESTED IN
MARKETABLE SECURITIES. THE FUND GROWS INTO MARKETABLE SECURITIES. THE FUND GROWS INTO
REPLACEMENT VALUE OF THE ASSET.REPLACEMENT VALUE OF THE ASSET.

75. FINAL LEGFINAL LEG

THANK YOU VERY MUCH FOR YOUR THANK YOU VERY MUCH FOR YOUR
PATIENCE; I TRUST IT WAS USEFUL. PATIENCE; I TRUST IT WAS USEFUL.
BEFORE WE DISPERSE LET US GO BEFORE WE DISPERSE LET US GO
THRU’ A SET OF QUESTIONS WITH THRU’ A SET OF QUESTIONS WITH
MULTIPLE CHOICE ANSWERS,WHICHMULTIPLE CHOICE ANSWERS,WHICH
WILL COVER THOSE ASPECTS OF WILL COVER THOSE ASPECTS OF
ACCOUNTING THAT MAY NOT BEEN ACCOUNTING THAT MAY NOT BEEN
TOUCHED UPON.TOUCHED UPON.

76. E N DE N D
ANY QUERIES MAY BE ADDRESSED TOANY QUERIES MAY BE ADDRESSED TO
[email protected]@rediffmail.com