book

Financial Accounting

by V. Rajasekaran, R. Lalitha

June 2010

Intermediate to advanced

904 pages

28h 49m

English

Pearson India

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Cover
Title page
Brief Contents
Contents
Dedication
Preface
Chapter 1. Accounting as an Information System
Objective 1: Meaning and Definition of AccountingObjective 2: Characteristic Features of AccountingObjective 3: Concept of Accounting as Information SystemObjective 4: Characteristic Features of an Accounting SystemObjective 5: Users of Financial Accounting Information5.1 Investors5.2 Suppliers and Creditors5.3 Lenders5.4 Employees5.5 Customers5.6 Government and Regulatory Services5.7 Security Analysts and Advisors5.8 Public5.9 ManagementObjective 6: Branches of Accounting6.1 Financial Accounting6.2 Cost Accounting6.3 Management Accounting6.4 Tax Accounting6.5 Social Responsibility Accounting6.6 Other Branches of AccountingObjective 7: Distinction Between Financial Accounting and Management AccountingObjective 8: Objectives of Financial AccountingObjective 9: General Purpose StatementObjective 10: Qualitative Characteristics of Accounting Information or Financial Statements10.1 Understandability10.2 Relevance10.3 Reliability10.4 ComparabilityObjective 11: Functions of AccountingObjective 12: Advantages of AccountingObjective 13: Limitations of AccountingObjective 14: Bases of AccountingObjective 15: Distinction Between Accrual Basis of Accounting and Cash Basis of AccountingSummaryKey TermsReferenceObjective-type QuestionsShort Answer-type QuestionsEssay-type Questions
Chapter 2. Nature of Financial Accounting Principles
Objective 1: Need and Meaning of Accounting PrinciplesObjective 2: Meaning and Characteristic Features of Generally Accepted Accounting Principles (GAPP)2.1 Meaning of GAPP2.2 Salient Features of GAPPObjective 3: Basic Accounting Concepts3.1 Entity Concept3.2 Money Measurement Concept3.3 Going Concern Concept3.4 Periodicity Concept (Accounting Period Concept)3.5 Cost Concepts3.6 Realisation Concept3.7 The Accrual Concept3.8 Matching ConceptsObjective 4: Basic Accounting Conventions4.1 Convention of Conservatism (Prudence)4.2 Convention of Consistency4.3 Convention of Materiality4.4 Convention of DisclosureSummaryKey TermsReferenceObjective-type QuestionsShort Answer-type QuestionsEssay-type Questions
Chapter 3. Accounting Standards
Objective 1: Meaning and Definition of Accounting Standards1.1 Objectives of Accounting Standards1.2 Development of Accounting StandardsObjective 2: Constitution of Accounting Standard Board in India2.1 Formation of the Accounting Standards Board2.2 Objectives and FunctionsObjective 3: Scope of Accounting Standards in IndiaObjective 4: Procedure of Issuing Accounting StandardsObjective 5: Applicability of Accounting Standards5.1 Level-I Enterprise5.2 Level-II Enterprise5.3 Level-III EnterpriseObjective 6: Status of the Accounting Standards Issued by the Institute of Chartered Accountants of IndiaObjective 7: Compliance with Accounting StandardsObjective 8: Implementation of Accounting StandardsObjective 9: Salient Features of “General Purpose Financial Statements”Objective 10: Benefits of Accounting StandardsObjective 11: AS-1 – Disclosure of Accounting Policies11.1 Disclosure of Significant Accounting Policies11.2 Disclosure of Fundamental Accounting Assumptions11.3 Selection of Accounting Policies11.4 Disclosure of Changes in Accounting PoliciesObjective 12: Case Study12.1 Convention12.2 Basis of Accounting12.3 Depreciation12.4 Inventories12.5 Revaluation of Assets12.6 Investments12.7 Sale12.8 Turnover12.9 Investment Income12.10 Retirement Benefits12.11 Provision for Income Tax12.12 Lease Rentals12.13 Research and Development12.14 Foreign Currency Transaction12.15 Claims12.16 Financial and Management Information SystemObjective 13: Accounting Standard-2 (AS–2) Revised and Valuation of Inventories13.1 Valuation of InventoriesObjective 14: Accounting Standard-3 (AS–3) and Cash Flow StatementsObjective 15: AS–4: Contingencies and Events Occurring after Balance Sheet DateObjective 16: AS–5: Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting PoliciesSummaryKey TermsReferenceObjective-type QuestionsShort Answer-type QuestionsEssay-type Questions
Chapter 4a. Accounting Process – Journal
Objective 1: Concept of Accounting Process and StagesObjective 2: Recording of Business Transactions and its Classification2.1 Meaning of Business Transaction2.2 Classification of Business Transactions2.3 Another Way of Classification of Business TransactionsObjective 3: Meaning of Account and its Classification3.1 Meaning of Account3.2 Classification of AccountsObjective 4: Classification of Accounts4.1 Personal Accounts4.2 Impersonal Accounts4.3 Nominal Accounts Treated as Personal AccountsObjective 5: Meaning of Double Entry and Double Entry System5.1 Meaning of Double EntryObjective 6: Methods of Recording Business Transactions6.1 Traditional Approach6.2 Accounting Equation ApproachObjective 7: Traditional Approach for Recording Business Transactions and Debit–Credit Rules for Three Types of AccountsObjective 8: Meaning and Format of Journal8.1 Meaning of Journal8.2 Format of JournalObjective 9: Meaning of Journalising9.1 Meaning9.2 Process in JournalisingObjective 10: Analysis of Business TransactionsObjective 11: Recording the Results of AnalysisObjective 12: Types of Entries12.1 Simple Entry12.2 Compound Entry12.3 Opening EntryObjective 13: Source Documents – Formats, Uses and Methods of Recording13.1 Cash Memo13.2 Invoice13.3 Receipt13.4 Debit Note13.5 Credit Note13.6 Voucher13.7 Pay-in-slip13.8 ChequeObjective 14: Recording of Trade Discount and Cash DiscountObjective 15: Accounting Equation Approach – Meaning and Classification of Accounts15.1 Meaning of Accounting Equation15.2 Classifications of AccountsObjective 16: Rules of Debit and Credit as per Accounting Equation Approach16.1 Accounting Equation Reaming and FeaturesObjective 17: Analysis of Business Transactions Applying Accounting Equation TechniqueSummaryKey TermsObjective-type QuestionsShort Answer-type QuestionsEssay-type QuestionsExercises

Chapter 4b. Accounting Process – Ledger
Objective 1: Meaning of “Ledger”Objective 2: Standard Form of Ledger and its Contents2.1 Explanation of Ledger Account FormatObjective 3: Meaning of PostingObjective 4: Procedure of PostingObjective 5: Distinction Between Journal and LedgerObjective 6: Posting of an Opening EntryObjective 7: Balancing an Account and Procedure for Balancing7.1 Balancing of Different Accounts7.2 Procedure for BalancingSummaryObjective-type QuestionsMultiple-choice QuestionsShort Answer-type QuestionsEssay-type QuestionsExercises
Chapter 4c. Accounting Process – Subsidiary Books
Objective 1: Meaning of Subsidiary BooksObjective 2: Kinds and Purposes of Subsidiary BooksObjective 3: Advantages of Subsidiary Books (or) Special JournalsObjective 4: Difference Between Subsidiary Books and LedgerObjective 5: Meaning and Type of Cash Book5.1 Meaning5.2 Types of Cash BookObjective 6: Meaning, Format and Recording of Transactions in Single Column Cash Book6.1 Meaning6.2 Format of Single Column Cash Book6.3 Balancing of Cash BookObjective 7: Meaning and Format of Double Column Cash Book (Cash Book with Discount and Cash Column)Objective 8: Method of Entering Bank Transactions in Two Columns (Bank and Discount Column)Objective 9: Meaning of Triple Column Cash Book with Discount, Cash and Bank Columns and Procedure of Recording Business Transactions in Triple Column Cash BooksObjective 10: Meaning, Salient Features and Advantages of Petty Cash Book10.1 Meaning10.2 Advantages10.3 Salient FeaturesObjective 11: Format and Method of Recording Transactions in the Analytical Form of Petty Cash Book11.1 Format of Analytical Petty Cash Book of…11.2 Explanations of Column and Procedure for Recording11.3 Balancing Procedure11.4 Passing of Journal Entries11.5 Posting to LedgerObjective 12: Purchases Book – Meaning and Format and Methods of Preparing Purchase Book and Ledger Accounts12.1 Meaning of Purchase Book12.2 FormatObjective 13: Meaning, Format and Features of Sales Book13.1 Format of Sales Book13.2 Explanation and Procedure for Recording TransactionObjective 14: Meaning and Features of Purchases Returns Book14.1 Explanation and Procedure for Recording Purchases Returns Transactions14.2 What is an ‘Allowance’?Objective 15: Meaning and Features of Purchases Returns Book15.1 FormatObjective 16: Meaning of Bills of Exchange Specimen and Meaning of Some Important Terms16.1 Bills of Exchange16.2 Specimen or Format of Bill of Exchange16.3 Meaning of Important TermsObjective 17: Procedure of Recording Transactions in B/R and B/P Books17.1 Bills Receivable and Bills Payable Books17.2 Bills Receivable Book17.3 Bills Payable Book17.4 Posting of Bills Receivable and Bills Payable BooksObjective 18: Journal Proper and Different Kinds of EntriesSummaryObjective-type QuestionsShort Answer-type QuestionsEssay-type QuestionsExercises
Chapter 4d. Accounting Process – From Journal to Trial Balance
Objective 1: Meaning of Trial BalanceObjective 2: Objectives and Salient Features of Trial Balance2.1 Objectives of a Trial Balance2.2 Salient Features of a Trial BalanceObjective 3: Methods of Preparation of a Trial Balance3.1 Totals Method3.2 Balances Method3.3 Totals cum Balances MethodObjective 4: Concept of ErrorsObjective 5: Kinds of Errors5.1 Errors of Principle5.2 Clerical Errors5.3 Compensating ErrorsObjective 6: Classification of Errors (Based on the Impact of Errors on Trial Balance)Objective 7: Rectification of Errors7.1 Rectification of Errors which do not Affect the Trial Balance7.2 Rectification of Errors Affecting Trial BalanceObjective 8: Steps to Locate the Errors in Trial BalanceObjective 9: Meaning of Suspense Account and its Accounting TreatmentSummaryKey TermsReferencesObjective-type QuestionsShort Answer-type QuestionsEssay-type QuestionsExercises
Chapter 5a. Accounting Process – From Trial Balance to Final Accounts and Final Accounts of Non-corporate Business Entities
Objective 1: Accounting Process – Preparation of Final Accounts from Trial BalanceObjective 2: Trading Account2.1 Trading Account: A Constituent of Final Accounts2.2 Preparation of Trading AccountObjective 3: Manufacturing Account3.1 Meaning of Manufacturing Account3.2 Pro-forma of a Manufacturing Account3.3 Differences Between Trading Account and Manufacturing AccountObjective 4: Profit and Loss Account4.1 Profit and Loss Account: Meaning and Features4.2 Closing Entries Relating to Profit and Loss Account4.3 Pro-forma of Profit and Loss Account4.4 Explanation of Some of the Terms Appearing in Profit and Loss AccountObjective 5: Balance Sheet5.1 Meaning and Features of a Balance Sheet5.2 Contents of the Balance Sheet5.3 Grouping and Marshalling of Assets and Liabilities: Meaning of Grouping and Marshalling5.4 In the Order of Liquidity5.5 In the Order of PerformanceObjective 6: Uses of Balance SheetObjective 7: Differences Between Trial Balance and Balance Sheet7.1 Stock at the End or Closing Stock7.2 Accrued Expenses or Outstanding Expenses7.3 Prepaid Expenses7.4 Accrued Income7.5 Income Received in Advance (or) (Unearned Income or Unaccrued Income)7.6 Description of Fixed Assets7.7 Bad Debts7.8 Provision for Bad and Doubtful Debts7.9 Provision for Discount on Debtors7.10 Provision (or) Reserve for Discount on Creditors7.11 Adjustment of Interest on Capital7.12 Interest on Drawings7.13 Abnormal Loss of Stock7.14 Insurance Premium7.15 Salaries and Wages7.16 Commission on Profit7.17 Goods Sent on Approval: Meaning and Accounting Treatment7.18 Goods-in-Transit7.19 Bad Debts Written off Recovered7.20 Withdrawals, Samples and Free Gifts7.21 Income Tax7.22 Provident Fund: Employee’s and Employer’s ContributionSummaryKey TermsReferencesObjective-type QuestionsShort Answer-type QuestionsEssay-type QuestionsExercises
Chapter 5b. Capital and Revenue – Expenditures and Receipts
Objective 1: Meaning of Capital Expenditure and Examples1.1 ExamplesObjective 2: Meaning and Features of Revenue Expenditure2.1 ExamplesObjective 3: Deferred Revenue ExpenditureObjective 4: Revenue Expenditure: To be Treated as Capital ExpendituresObjective 5: Distinction Between Capital Expenditure and Revenue ExpenditureObjective 6: Capital and Revenue Receipts6.1 Concepts of Capital and Revenue ReceiptsObjective 7: Meaning of Capitalised ExpenditureObjective 8: Capital Profit and Revenue Profit8.1 Concepts of Capital Profit and Revenue ProfitObjective 9: Capital and Revenue Losses9.1 Capital and Revenue PaymentsSummaryKey TermsReferencesObjective-type QuestionsShort Answer-type QuestionsEssay-type QuestionsExercises
Chapter 6. Accounting for Not-for-profit Organisations
Objective 1: Meaning and Salient Features of NPOs1.1 Salient Features of NPOsObjective 2: Meaning and Features of Receipts and Payments Account2.1 Receipts and Payments Account2.2 Features of Receipts and Payments AccountObjective 3: Preparation of Receipts and Payments AccountObjective 4: Meaning and Main Features of Income and Expenditure Account4.1 Meaning4.2 Main Features of Income and Expenditure AccountObjective 5: Distinction Between Receipts and Payments Account and Income and Expenditure AccountObjective 6: Accounting Treatment of Some Special Items6.1 Subscription6.2 Category II: Life Membership6.3 Treatment of Fund Income (and Fund Expenses)6.4 Legacy6.5 Donations6.6 Endowment Fund6.7 Entrance Fees6.8 Aid from Government and Other Institutions6.9 Capital Expenditures6.10 Current Years’ ExpenditureObjective 7: Preparation of Income and Expenditure Account from Receipts and Payments AccountObjective 8: Preparation of Opening and Closing Balance Sheets8.1 Preparation of “Opening Balance Sheet”8.2 Preparation of “Closing Balance Sheet”Objective 9: Preparation of Receipts and Payments Account from Income and Expenditure Account9.1 Preparation of Various AccountsObjective 10: Preparation of Receipts and Expenditure Account for Professionals10.1 General Features10.2 Steps in the Preparation of Accounts of Professional FirmSummaryKey TermsReferencesObjective-type QuestionsShort Answer-type QuestionsEssay-type QuestionsExercisesQuestion Bank – Exercises
Chapter 7. Financial Statements from Incomplete Records (Single Entry System)
Objective 1: Meaning and Definition of Single Entry SystemObjective 2: Salient Features of Incomplete Records System2.1 Advantages of Incomplete Double Entry System2.2 Disadvantages of Single Entry SystemObjective 3: Differences Between Single Entry System (Incomplete Records System) and Double Entry SystemObjective 4: Preparation of Accounts (or) Ascertainment of Profit or Loss from Incomplete Records4.1 Statement of Affairs Method (or) Net Worth MethodObjective 5: Distinction Between Statement of Affairs and Balance SheetObjective 6: Accounting Treatment6.1 Model 1: Computation of Capital6.2 Model 2: Ascertainment of Profit/Loss6.3 Model 3: Ascertainment of Opening Capital, Closing Capital and Profit/Loss6.4 Model 4: Computation of Net Profit (After Adjustments)6.5 Model 5: Cheques Issued but not Presented6.6 Model 6: Bank Transactions – Adjustments6.7 Model 7: Net Increase in Assets or Net Decrease in Liabilities6.8 Incomplete Records and Partnership Firms6.9 Model 8: Single Entry and Partnership FirmObjective 7: Method 2: Conversion Method (or) Final Accounts Method7.1 Meaning7.2 Conversion Method Features7.3 Procedure Under Conversion Method7.4 Model: Calculation of Missing Figure – Opening Stock7.5 Model: Calculation of Missing Figure – Purchases7.6 Model: Calculation of Missing Figure – Credit Sales7.7 Model: Calculation of Missing Figure – Bills Receivable7.8 Cost of Goods Sold and Memorandum Trading Account7.9 Revenue Expenses7.10 Revenue Income7.11 Model: Computation of Missing Figures (Combination of More Than One Item)7.12 Model: Preparation of Trading and Profit and Loss Account Together with Balance SheetSummaryKey TermsReferencesObjective-type QuestionsShort Answer-type QuestionsEssay-type QuestionsExercises
Chapter 8. Measurement of Business Income
Objective 1: Definition of IncomeObjective 2: Revenues and Expenses2.1 Revenues2.2 ExpensesObjective 3: Meaning of Measurement of Business Income3.1 Net Worth MethodObjective 4: Measurement of “Net Income” or “Net Profit”Objective 5: Measurement of Net Income: Matching of Incomes and Expenses Method5.1 Incomes and ExpensesObjective 6: Comparison of “Net Worth Method” and “Matching Costs Against Revenue Method”Objective 7: Procedure for Measurement of Business IncomeObjective 8: Salient Features of Business IncomeObjective 9: Meaning of Economic Concept of IncomeObjective 10: Salient Features of Economic Concept of IncomeObjective 11: Procedure to Measure Economic IncomeSummaryKey TermsReferenceObjective-type QuestionsShort Answer-type QuestionsEssay-type Questions
Chapter 9. Revenue Recognition and Recognition of Expenses
Objective 1: Definition of Revenue1.1 MeaningObjective 2: Factors Derived from the DefinitionObjective 3: Timing of Revenue Recognition3.1 Recognition of RevenueObjective 4: Guidelines for Revenue RecognitionObjective 5: Revenue Recognition at the Point of SaleObjective 6: A Method to Ascertain Recognition of Revenue6.1 Proportionate or Percentage of Completion Method6.2 Installment Method of Revenue Recognition6.3 Recognition at Completion of Production Process6.4 Revenue Recognition on Holding of Assets6.5 On Service ContractsObjective 7: Concept of Recognition of Expenses (Costs)7.1 Guidelines for Expense RecognitionObjective 8: AS–9 Revenue Recognition8.1 Introduction: Salient Features of AS–98.2 Definitions8.3 Explanation8.4 Sale of Goods8.5 Rendering of Services8.6 Effect of Uncertainties on Revenue Recognition8.7 Accounting StandardObjective 9: AppendixSummaryKey TermsReferenceObjective-type QuestionsShort Answer-type QuestionsEssay-type Questions
Chapter 10. The Nature of Depreciation
Objective 1: Definition of DepreciationObjective 2: Characteristic Features of “Depreciation”Objective 3: Accounting Concept of DepreciationObjective 4: Salient FeaturesObjective 5: The Causes of Depreciation5.1 Physical Features5.2 Functional FactorsObjective 6: Need for DepreciationObjective 7: Factors Affecting Amount of DepreciationObjective 8: Depreciation on AssetsObjective 9: Accounting Treatment9.1 Method 1: By Charging to Asset Account Directly9.2 Method 2: By Creating Provision for DepreciationObjective 10: Methods of Providing (Allocating) Depreciation10.1 Straight Line Method: (or) Fixed (or) Equal Installment Method: Meaning, Formula, Merits, Demerits and Suitability10.2 Written Down Value Method (or) Diminishing Balance Method (or) Reducing Balance Method: Meaning, Formula, Merit, Demerit and Suitability10.3 Provision for Depreciation/Accumulated Depreciation: Passing of Entries and Preparation of Accounts10.4 Procedure for Change in the Method of Depreciation10.5 Annuity Method: Meaning and Features10.6 Sinking Fund Method (or) Depreciation Fund Method: Meaning, Merits, Demerits and SuitabilityObjective 11: Choice of Depreciation MethodObjective 12: Is Depreciation a Source of Income or Expense?Objective 13: Provision: Meaning, Examples, Objectives, Accounting Treatment and Disclosure13.1 Meaning13.2 Examples of Provisions13.3 Objectives13.4 Accounting Treatment13.5 DisclosureObjective 14: Reserves14.1 Meaning14.2 Objectives14.3 Distinction Between Provision and Reserve14.4 Types of ReservesObjective 15: Provision for Repairs and Renewals: Meaning and Accounting TreatmentObjective 16: Accounting Standard (AS)–616.1 Salient features of AS–6 (Revised)SummaryKey TermsReferencesObjective-type QuestionsShort Answer-type QuestionsEssay-type QuestionsExercises
Chapter 11. Inventory – Valuation
Objective 1: MeaningObjective 2: Significance of Inventory ValuationObjective 3: Inventory Record Systems3.1 Periodic Inventory System3.2 Perpetual Inventory System3.3 Distinction Between Periodic Inventory System and Perpetual Inventory SystemObjective 4: Valuation of Inventories4.1 Important Concepts4.2 Cost FormulaeObjective 5: Specific Identification of CostsObjective 6: First-in-first-out Method6.1 Merits6.2 DemeritsObjective 7: Last-in-first-out Method (LIFO)7.1 Merits7.2 DemeritsObjective 8: Weighted Average Method8.1 Procedure Under Periodic Inventory System8.2 Procedure Under Perpetual Inventory SystemObjective 9: Choice of Inventory Valuation MethodsObjective 10: Valuation of Inventory as on the Balance Sheet10.1 Method I10.2 Method IIObjective 11: Accounting Standard-2 (Revised)SummaryKey TermsReferencesObjective-type QuestionsShort Answer-type QuestionsEssay-type QuestionsExercises
Chapter 12. Accounting for Hire-Purchase and Installment
Objective 1: Definition of Hire-Purchase System1.1 Explanation of Important Terms1.2 Contents of Hire-Purchase Agreement1.3 Salient Features of Hire-Purchase SystemObjective 2: Process of Calculation and Allocation of Interest2.1 Situation 12.2 Situation 22.3 Situation 32.4 Situation 42.5 Situation 52.6 Situation 62.7 Rule 78Objective 3: Accounting Treatment3.1 Journal Entries in the Books of the Buyer (or) Hire Purchase3.2 Accounting Treatment in the Books of Hire VendorObjective 4: Default and Repossession4.1 Full Repossession4.2 Partial Repossession4.3 Accounting TreatmentObjective 5: Format of Hire-Purchase Sales Register for the Year EndedObjective 6: Methods of Ascertaining Profit6.1 Debtors Method6.2 Stock and Debtors SystemObjective 7: Installment System7.1 Purchase System7.2 Accounting TreatmentObjective 8: Concepts of Operating and Financial Lease8.1 Meaning8.2 Lessor8.3 Lessee8.4 Leasing Agreement8.5 SuitabilityObjective 9: Salient Features of LeaseObjective 10: Advantages of LearningObjective 11: Disadvantages of LeasingObjective 12: Accounting Treatment Relating to Leases as per AS–1912.1 Finance Lease (or) Full Pay-out Lease12.2 Operating Lease (or) Non-pay-out LeaseObjective 13: Distinction Between Financial Lease and Operating LeaseSummaryKey TermsReferencesObjective-type QuestionsShort Answer-type QuestionsEssay-type QuestionsExercises
Chapter 13. Accounting for Inland Branches
Objective 1: Meaning of a Branch1.1 Main Objectives of Opening a BranchObjective 2: Branch AccountingObjective 3: Accounting for Inland Dependent Branches3.1 Salient Features of Dependent Branches3.2 Accounting Treatment for Dependent BranchesObjective 4: Accounting System4.1 Debtors MethodObjective 5: Stock-Debtors System or Stock and Debtors Method5.1 Meaning of Stock-Debtors System5.2 Different Accounts and their Purpose5.3 Branch Stock Account5.4 Branch Adjustment Account5.5 Branch Expenses5.6 Stock Reserve Account5.7 Accounting Treatment5.8 Final Account System5.9 Item to be Shown in the Branch Account5.10 Wholesale Branch MethodObjective 6: Independent Branches6.1 Accounting for Fixed Assets6.2 Accounting for Goods in Transit6.3 Accounting for Inter-branch TransactionsObjective 7: Incorporation of Branch Trial Balance7.1 Detailed Consolidated Method7.2 Abridged Consolidated Method7.3 Separate Final Accounts MethodSummaryKey TermsReferencesObjective-type QuestionsShort Answer-type QuestionsEssay-type QuestionsExercises
Chapter 14. Dissolution of Partnership
Objective 1: Dissolution of Partnership1.1 When May a Partnership be Dissolved?1.2 Dissolution of a Firm1.3 Dissolution by Notice1.4 Dissolution by CourtObjective 2: Distinction Between Dissolution of Partnership and Dissolution of FirmObjective 3: Treatment of Some Accounts at the Time of Dissolution3.1 Treatment of Loss: Section 48 (a)3.2 Treatment of Assets: Section 48 (b)3.3 Treatment of Firm’s Debts and Private DebtsObjective 4: Accounting Treatment4.1 Preparation of Realisation Account4.2 Meaning and Features of Realisation Account4.3 Procedure to Record Entries for Various Items and Preparation of Realisation AccountObjective 5: Accounting Treatment on Dissolution5.1 Account Treatment on Dissolution of a Firm5.2 Realisation Account5.3 Cash or Bank Account (Ledger)5.4 Partner’s Capital Account5.5 Partners Loan Account: (Loan by Partner)Objective 6: Goodwill6.1 Accounting Treatment6.2 Unrecorded Assets and Liabilities6.3 Memorandum Balance SheetObjective 7: Preparation of Balance Sheet as on the Date of Dissolution7.1 Preparation of Balance Sheet as on the Date of Dissolution7.2 Accounting Procedure7.3 Assets and Liabilities Taken Over by Partner(s) Accounting ProcedureObjective 8: Return of Premium (Goodwill) (Section 51)8.1 Gift of Firm – Asset to Partners8.2 Gift to a PartnerObjective 9: Insolvency of Partner(s)9.1 Meaning of Insolvency9.2 Garner vs. Murray Rule9.3 Students Should Remember these Criteria9.4 Accounting Procedure when Capitals are Fixed9.5 Accounting Procedure when Capitals are Fluctuating or FloatingObjective 10: All Partners are Insolvent10.1 Acconting Treatment10.2 Use of Algebraic EquationObjective 11: Minor and Partnership Dissolution11.1 Minor’s Status in Partnership Dissolution11.2 Minor and Insolvency11.3 Garner vs. Murray Rule in Case of Commission to a Partner as Expense of the BusinessObjective 12: Sale of Partnership Firm to a Limited Company12.1 Meaning12.2 Salient Features12.3 Meaning and Computation of “Purchase Consideration”12.4 Procedure12.5 Accounting Entries12.6 Purchase ConsiderationObjective 13: Piecemeal Distribution13.1 Meaning of Piecemeal Distribution13.2 Proportionate or Surplus Capital Method13.3 Maximum Possible Loss MethodSummaryKey TermsReferencesObjective-type QuestionsShort Answer-type QuestionsExercises
Chapter 15. Financial Statement Analysis
Objective 1: Meaning of Financial Statement AnalysisObjective 2: Types or Classification of Financial Statement Analysis2.1 Type 1 – According to the Material Used2.2 Type 2 – According to Modus Operandi2.3 Type 3 – According to the Objective of the Analysis2.4 Distinction Between Horizontal Analysis and Vertical Analysis2.5 Distinction Between Inter-firm and Intra-firm AnalysisObjective 3: Process of Financial Statement Analysis3.1 Re-arrangement3.2 Comparison3.3 Analysis3.4 InterpretationObjective 4: Purposes and Significance of Financial Analysis4.1 Earning Capacity4.2 Managerial Efficiency4.3 Solvency4.4 Inter-firm Comparison4.5 Budgets and ForecastsObjective 5: Tools or Techniques of Financial Statement Analysis5.1 Comparative Financial Statements5.2 Common Size Financial Statements5.3 Trend Percentages5.4 Ratio Analysis5.5 Cash Flow Statement5.6 Funds Flow StatementObjective 6: Comparative Financial Statements6.1 Objectives of Comparative Financial Statements6.2 Meaning of Comparative Balance SheetObjective 7: Comparative Income Statement – Special Features7.1 Objectives of Comparative Income Statements7.2 Preparation of Comparative (P and L A/c) Income Statement7.3 Percentage of Change is Calculate this Way7.4 Computation of Percentage ChangeObjective 8: Meaning of Common Size Statements8.1 Preparation of Common Size Balance Sheet8.2 Accounting Treatment of Sources and Uses of Funds in the Preparation of Common Size Statements (Balance Sheet)Objective 9: Meaning and Computation of Trend Percentages9.1 Trend Ratios9.2 Steps Involved in Computation of Trend Percentages9.3 Limitations of Trend Ratios (Percentage)Objective 10: Various Users of Financial StatementsObjective 11: Limitations of Financial Statement AnalysisObjective 12: Financial Statements of a Company – Types and Formats12.1 Contents of Annual Report12.2 Report of Board of Directors12.3 Auditor’s Report12.4 Balance Sheet12.5 Profit and Loss Account12.6 Notes to Accounts12.7 Cash Flow Statement12.8 Segment ReportSummaryKey TermsReferencesObjective-type QuestionsShort Answer-type QuestionsEssay-type QuestionsExercises
Chapter 16. Accounting Ratios
Objective 1: Meaning of Ratio Analysis – A Systematic Use of Ratios to Interpret the Performance of Entities1.1 Meaning of Ratio and Ratio Analysis1.2 Ratio AnalysisObjective 2: Advantages and Uses of Ratio AnalysisObjective 3: Limitations of Ratio AnalysisObjective 4: Classification of Ratios or Types of RatiosObjective 5: Liquidity Ratios5.1 Current Ratio – Relationship of Current Assets to Current Liabilities5.2 Liquid Ratio or Quick Ratio or Acid Test Ratio5.3 Absolute Liquid Ratio – Relationship of Absolute Liquid Assets to Liquid LiabilitiesObjective 6: Solvency Ratios (Long-term Solvency)6.1 Debt Equity Ratio6.2 Total Assets to Debt Ratio6.3 Proprietary RatioObjective 7: Profitability Ratios7.1 Gross Profit Ratio7.2 Net Profit Ratio7.3 Operating Profit Ratio7.4 Operating RatioObjective 8: Activity Ratios8.1 Inventory Turnover Ratio8.2 Debtors Turnover Ratio or Receivables Turnover Ratio8.3 Working Capital Turnover RatioObjective 9: Ratios: Advanced Level9.1 Turnover Ratio9.2 Cash Cycle – Combined Effect of Turnover Ratios9.3 Leverage Ratios9.4 Profitability RatiosSummaryKey TermsReferencesObjective-type QuestionsMultiple-choice QuestionsShort Answer-type QuestionsEssay-type QuestionsExercises
Chapter 17. Cash Flow Statement
Objective 1: Meaning of Cash Flow and Cash Flow StatementObjective 2: Uses of Cash Flow StatementObjective 3: Limitations of Cash Flow Statement3.1 Meaning of Cash Flow, Cash and Cash EquivalentsObjective 4: Preparation of Cash Flow StatementsObjective 5: Cash Flow Statement: Preparation5.1 Direct Method Pro-forma or Format of Cash Flow Statement for the Year Ended5.2 Indirect Method Pro-forma or Format Cash Flow Statement for the Year Ended5.3 Calculation of Cash Outflow on Purchases5.4 Cash Outflow on Expenses Incurred5.5 Adjustments5.6 Cash Flow from Investing Activities5.7 Cash Flow from Investing Activities5.8 Cash Flow from Financing Activities5.9 Accounting Treatment of Special ItemsObjective 6: Important Steps (stages) in the Preparation of Cash Flow Statement6.1 Stage I: A. Cash Flow from Operating Activities6.2 Stage II: B. Cash Flow from Investing Activities6.3 Stage III: C. Cash Flow from Financing Activities6.4 Stage IV: Net Increase/Decrease in Cash and Cash Equivalents6.5 Stage V: Cash and Cash Equivalents at the Beginning of the Year to be Added6.6 Stage VI: Cash and Cash Equivalents at the End of the Year to be RecordedObjective 7: Some Important HintsSummaryKey TermsReferencesObjective-type QuestionsShort Answer-type QuestionsEssay-type QuestionsExercises
Acknowledgements
Copyright

Content preview from Financial Accounting

Chapter 17 Cash Flow Statement

LEARNING OBJECTIVES

After studying this chapter, you will be able to understand

Meaning of Cash Flow and Cash Flow Statement
Uses of Cash Flow Statement
Limitations of Cash Flow Statement
Classification of Business Transactions into Operating Activities, Investing Activities, and Financing Activities According to Accounting Standard (AS)–3 (Revised)
Preparation of Cash Flow Statement as per AS–3 by Both Direct Method and Indirect Method.
Accounting Treatment of Special Items (Non-cash Expenses and Non-operating Income)
Various Stages Involved in the Preparation of Cash Flow Statement (Six Stages With Illustrations) in Accordance With AS–3 (Revised).

Introduction

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Chapter 17