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ACCOUNTING MATERIAL FOR INTERVIEWS

English Essay Writing 1 * 5 = 5 MarksEnglish Correct the Sentence 5 * 1 = 5 Marks

Multiple Choice Questions 40 * 1 = 40 marks(ccounts ! "inance#

ccounts ! "inance Questions nee$ to %rite &rie'ly 5 * = 10 MarksSimple thematic an$ )easoning = 10 * 1 = 10 Marks

+otal ,0 Marks

-' u selecte$ in Written test u %ill ha.e /et ) -nter.ie% (2ersonal Questions#an$ +echnical roun$ (Questions on ccounts an$ 'inance#3

ere i am attaching some imp Questions ! 2repare %ell33Su6ect -nter.ie%

ccounting 7e'initions ! Concepts an$ 2rincipals)atio8s %ith $e'initions 9 Shares ! $eenture2arent ! susi$iary Company2ulic lt$ Company an$ 2ri.ate :t$ Company

)e.enue -ncome;Epen$iture$e'erre$ -ncome;Epen$itureCapital -ncome;Epen$itureccrue$ -ncome;Epen$iture

+ime .alue o' money


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What is book building? --&ook uil$ing is a process %here y the company

seeks i$s 'rom prospecti.e in.estors 'or its 2ulic o''er3 &ase$ upon the i$srecei.e$ the o''er price is 'ie$3

What is an IPO? -----2 stan$s 'or -nitial 2ulic o''ering3 +he shares are issue$'or the 'irst time to the pulic as oppose$ to the secon$ary market3

What is an ADR? 7) is merican 7epository )eceipt3 non DS companyissues 7)s in DS in or$er to rise capital3 n 7) %ill normally e in multiples o'EAuity shares o' that company3What are the various investing opportunities you have?)eal Estate9 o.ernment securities9 7eentures9 EAuity Shares9 2re'erenceshares9 ta sa.ing &on$s9 Mutual 'un$s9 -nsurance etc3

What is a merger? merger is a transaction et%een t%o companies %herey oth companies merge into each other an$ as a result a ne% company is

'orme$3What is a subsidiary company? -- company %hich is controlle$ y itshol$ing company3 +he control coul$ e ecause o' any o' the 'ollo%ing 'actors3More than 50@ o' capital eing o%ne$ y hol$ing company3

Ma6ority o' the &oar$ o' $irectors o' susi$iary are 'rom hol$ing company3

Who are promoters? 2romoters are the people %ho initiates the i$ea o'creating the company3 +hey may;may not 6oin the &oar$ o' $irectors a'ter thecompany is 'orme$3

What are consolidated statements?+hese are the 'inancial statementsreporte$ y a hol$ing company an$ these statements inclu$e the 'inancial

per'ormance o' its susi$iaries3What is stock option?Stock option is an instrument that carries a right to

uy the un$erlying stock at a certain price $uring certain time 'rame3 /ormallyissue$ to the employees o' the companies to moti.ate an$ retain them3

What is the rule of ominal accounts? ----7eit all epenses an$ losses3

Cre$it all incomes an$ gains3What are the important financial ratios a banker looks into !hen you

approach for loan?7et Ser.ice co.erage ratio

-nterest Co.erage )atioWhat is a prospectus? --t is an in.itation asking prospecti.e in.estors to

in.est in the company3

What is the financial year in India ??an7ec or prmar or ?uly?uneApr1-Mar31

i.e eample 'or the 'ollo%ingF

Non Cash Expenditures F 7epreciation9 Write $o%n o' in.estments92ro.isions3

Intangible assets oo$%ill9 2+E/+S9 +)7EM)GSAd!ust"ents after Net Inco"e F 7i.i$en$s9 -nterest on capital in case o'

partnershipsContingent liabilities F uarantees#ixed expenses )ent9 -nsurance

ll -tems %hich are in &ol$ are important

13all accounting concepts

3re.enue epen$itures;deferred re$enue expenditures;capital epen$iture

3p.t lt$ company9 pulic lt$ comp43+ypes o' shares

MADHAV KRISHNA IRRINKI 2


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53share premium;$iscount on issue o' sharesH3memorentum o' association

,3ariticles o' association%&subsidary co"pany or holding co"pany

'&"inority interest1(&pri"ary "ar)et or secondary "ar)et

11&stoc) exchanges in India and abroad1*&depriciation-Acounting standard-+13$epletion;amorti>ation143SE&-(security echange oar$ -n$ia #153pro.ision;reser.e1H3general reser.e or capital reser.e

1,3$eentures an$ onus shares1I3$i.e$en$interium an$ 'inal $i.i$en$

1J3in.entory .aluation an$ metho$s*(&good,ill $aluation and "ethods*1&cashflo, and funds flo,**&,or)ing capital

*3&"arginal cost"argin of safetybrea) e$en point$ariable costse"i$ariable costfixed cost436oint.enture an$ partnership*.&non recurring ite"s in p/l account

EFsale o' in.estmentH3non cash epen$iture acoount in p!l account

eF$epiriciatiaon,3$i''3 et%een re.enue an$ income

I3accrue$ incomeJ3$etor;cre$itor $e'initions03%rite entry an$ postingoutstan$ing salaries

13accounting treatmentFloss o' in.entoryno insurance co.erage

partly insurance co.erage'ully insurance co.erage

3 ratio analysisall ratios are prepare$3 'orm o' alance sheethori>ontalK.erticalsche$ule H .ery important 'ully co.ere$

43capital pro'it an$ re.enue pro'it53reate u;s II o' income ta act3+&"utual fund; tra$e $iscount;cash $iscount

,3$uties o' 'inance managerI3interim au$it;statutory au$itJ30ensex

uestions as)ed in Earlier inter$ie,s collected fro" frineds

2ro.isions Bs )eser.es

What is &alance sheet an$ Cash 'lo%

Sche$ule H 'ormat

+ra$ing ;c Bs 2!: ;c

Eampls o' /on )ecurring Epen$iture

)e.enue Bs -ncome

)atio nalysis ll 'ormulas

(-mp $et eAuity 9 optimim stage o' $et eAuity#

%hat is cost o' goo$s sol$

"inance Manager 7uties

Capital epen$iture an$ "ie$ epen$iture

What is -2 What is 7)



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+ell aout Cre$it )ating agencies

7i'' ;% ross pro'it an$ /et 2ro'it

2e$erages operating and financial 4

2e$erages usage

Closing stock ( Cost or Market .alue %hich is less#

2ort'olio Management

Mutual 'un$s

What is L:imite$ L in company names means

2rospectuses

Quorum

7i'' ;% 2.t an$ 2ulic :imite$ Company

-ncome +a 2ai$ is not treate$ as Epen$iture 'or -ncome +a

5i"e 6alue of Money7 ho, it ,ill useful in Capital 8udgeting

"ather o' Economics $am Smith

"ather o' Scienti'ic Mgt"W +aylor

-ntegrate$ an$ /on -ntegrate$ ccounts

ol$ing Bs susi$iary companies

)e.aluation )eser.e

)ecurring an$ /on )ecurring -tems in 2!l a;c

ssociation not 'or pro'it

7e$uctions

Accrual 8asis and Cash 8asis

9ood,ill

Wor)ing Capital

Costing 8asics and i"portant topics

What is "eant by 8sheet7 Cash flo,

:o, going concern concept reflects in 8ashed

(:ike margin o' sa'ety9 .ariale cost9 semi.ariale chose#

Q#$epreciation9 morti>ation an$ -mpairment

Q#cap epr an$ re.3epr

Q#tangileintangile

Q#associate ! hol$ing susi

i' %e r ha.ing 0 to 50@ interest more than 50@ susi

Q#What is appropriation account an$ %hat are the

components o'

appr3a;c'rom /et pro'it topro.i$e reser.es3Q#%hat is E2S an$ 72SQ#sset %rite$o%n arises9 %hen on re.ie% y a

company9 circumstances in$icate that the carrying.alue o' an asset9 that an entity hol$s 'or usage

may not e reco.erale9 an$ i' the sum o' epecte$

'uture cash 'lo%s is less than the carrying .alue o'

the asset9 an impairment is recogni>e$ to the etent

the carrying .alue ecee$s the 'air .alue o' the



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asset3

/oteF sset %rite$o%n is not to e con'use$ %ith$epreciation or amorti>ation (%hich is a regular

charge o' the cost o' an asset o.er its estimate$

use'ul li'e#3 sset impairment arises as result o'

re.ie% o' the longli.e$ assets y an entity9 %here

as $epreciation is a uni'orm charge o' the cost o'

the asset o.er its estimate$ use'ul li'e3

7i'' et%een Capital )es. an$ )e.enue )esr.

What are the components o' &;S

What is net%orth

What is $i''ere$ Epen$itureWhere can u 'in$ iton &;S

%hat is liAui$ ratio an$ aci$ ratio 7etEAuity ratio

What is unearne$ re.enueEF $.ance$ income

What is Working Capital

Structure o' cost sheet"unctions o' 'inancial MgtWhat is 2rimary market an$ Secon$ary marketSE&-capital epen$iture money spent 'or a$$itionsor impro.ements to structures or eAuipment that areuse$ to carry on the acti.ities o' an organi>ationor in$i.i$ual3

Q#capital gain or loss the gain or loss incurre$

'rom the sale or $isposition o' assets inclu$ing

securities an$ real estate3Q#accounting eAuation the asic eAuation o'$ouleentry accounting that re'lects therelationship o' assets9 liailities an$ net %orth(reser.es N stockhol$ers eAuity N retaine$earnings#3 +he eAuation may e epresse$ in itssimplest 'orm asF assets = liailities N net %orth3

Q#accounts payale amounts recor$e$ as

liailities on the ooks o' a company9 institutionor in$i.i$ual that are o%e$9 ut ha.e not yet een

pai$9 to a cre$itor 'or pre.iously purchase$

merchan$ise or ser.ices3Q#accounts recei.ale amounts recor$e$ as assets



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on the ooks o' a company9 institution or in$i.i$ual

that are $ue9 ut ha.e not yet een collecte$9 'roma $etor 'or the pre.ious purchase o' merchan$ise or

ser.ices3employee stock options

minority interestconsoli$ate$ accounts

kin$s o' $epreciation charge 9 employee stock options

Mergers an$ malgamations;;;;;;;;


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3o% is "- an$ S7 integrate$

3o% is "- an$ MM integrate$

43o% is "- an$ sset mo$ule integrate$53What is a real -nternal or$er

3+&What is a statistical internal order?,3What is assessment

I3What is $istriution

J3What are co""it"ent ite"s?403What are internal or$ers

413o% are internal or$ers settle$43What is a settle"ent rule?

3

(1# OOOOOOOOOO is concerne$ %ith the maimi>ation o' a 'irm8s earnings a'tertaes3

(a# Sharehol$er %ealth maimi>ation(# 2ro'it maimi>ation(c# Stakehol$er maimi>ation

($# E2S maimi>ationns%er F &

(# Which o' the 'ollo%ing %oul$ generally ha.e unlimite$ liaility(a# limite$ partner in a partnership3

(# sharehol$er in a corporation3(c# +he o%ner o' a sole proprietorship3($# memer in a limite$ liaility company (::C#3ns%er F C

(# Which o' the 'ollo%ing eamples %oul$ e $e$uctile as an epense on thecorporation8s income statement

(a# -nterest pai$ on outstan$ing on$s3(# Cash $i.i$en$s pai$ on outstan$ing common stock3

(c# Cash $i.i$en$s pai$ on outstan$ing pre'erre$ stock3($# ll o' the ao.e3

ns%er F (4# -n 'inance %e re'er to the market %here ne% securities are ought an$ sol$'or the 'irst time as the OOOOOOOOOO market3(a# money (# capital(c# primary ($# secon$aryns%er F C

(5# Which o' the 'ollo%ing %oul$ not impro.e the current ratio(a# &orro% short term to 'inance a$$itional 'ie$ assets3

(# -ssue longterm $et to uy in.entory3(c# Sell common stock to re$uce current liailities3

($# Sell 'ie$ assets to re$uce accounts payale3ns%er F

(H# Grisle an$ Gringle8s $ettototal assets ratio is343 What is its $ettoeAuityratio(a# 3 (# 3,,(c# 3HH, ($# 3ns%er F C

(,# Which group o' ratios measures a 'irm8s aility to meet shortterm

oligations(a# :iAui$ity ratios3



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(# 7et ratios3(c# Co.erage ratios3

($# 2ro'itaility ratios3ns%er F

(I# ccor$ing to the accounting pro'ession9 %hich o' the 'ollo%ing %oul$ econsi$ere$ a cash'lo% item 'rom a L'inancingL acti.ity

(a# cash out'lo% to the go.ernment 'or taes3(# cash out'lo% to repurchase the 'irm8s o%n common stock3(c# cash out'lo% to len$ers as interest3($# cash out'lo% to purchase on$s issue$ y another company3ns%er F &

(J# Cash u$gets are prepare$ 'rom pastF

(a# alance sheets3(# income statements3

(c# income ta an$ $epreciation $ata3($# /one o' the ao.e ans%ers arens%er F 7

(10# +he accounting statement o' cash 'lo%s reports a 'irm8s cash 'lo%ssegregate$ into %hat categorical or$er(a# perating9 in.esting9 an$ 'inancing3(# -n.esting9 operating9 an$ 'inancing3

(c# "inancing9 operating an$ in.esting3($# "inancing9 in.esting9 an$ operating3

ns%er F

(11# +he 'irm ha$ a net increase o' PI009000 in net 'ie$ assets o.er the lastperio$3 +he eginning an$ en$ing net 'ie$ asset account alances %erePJ91009000 an$ PJ9J009000 respecti.ely3 -' the 'irm purchase$ P90009000 ina$$itional 'ie$ assets an$ sol$ P1009000 o' 'ie$ assets at ook .alue9 %hat %as

the 'irm8s $epreciation epense o.er the perio$(a# PI009000

(# P191009000(c# P19J009000

($# P9,009000ns%er F &

(1# -' EQ = 40 units9 or$er costs are P per or$er9 an$ carrying costs are P30per unit9 %hat is the usage in units(a# 10 units3 (# 1H units3(c# 40 units3 ($# I0 units3ns%er F 7

(1# What is the ook .alue o' common eAuity per share o' common eAuityoutstan$ing 'or the 'ollo%ing 'irm +he 'irm has 09000 common shares

authori>e$ o' %hich 159000 are outstan$ing at a par .alue o' P13 $$itional pai$incapital represents P009000 an$ retaine$ earnings are an a$$itional P0090003

(a# P1 (# P0(c# P1 ($# P41ns%er F 7(14# Dpon close eamination o' the income statement9 %hich o' the 'ollo%ingmathematical epressions %oul$ e true(a# /et Sales ross 2ro'it = -ncome 'rom perations(# ross 2ro'it N Selling9 eneral an$ $ministrati.e Epenses = /et Sales

(c# -ncome 'rom perations -nterest Epense -ncome +a Epense = /et

-ncome

($# /one o' the ao.e are true3ns%er F C



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(15# Which o' the 'ollo%ing is nota correct epression o' the accountingeAuation

(a# ssets :iailities = %ners8 EAuity(# /et ssets = EAuities

(c# ssets = EAuities($# ssets = :iailities N %ners8 EAuity

ns%er F &(1H# +he o%ners8 eAuity section o' a alance sheet contains t%o ma6orcomponentsF(a# Common Stock an$ $$itional 2ai$in Capital(# 2ai$in Capital an$ )etaine$ Earnings

(c# Common Stock an$ )etaine$ Earnings($# /et -ncome an$ 7i.i$en$s

ns%er F &(1,# Which o' the 'ollo%ing %oul$ not e inclu$e$ on a alance sheet (

a# ccounts recei.ale3(# ccounts payale3

(

c# Sales3($# Cash3nsFC(1I# -' total assets %ere P19000 an$ total liailities %ere P19000 at the

eginning o' the year9 an$ i' net income 'or the year %as P590009 %hat is totalo%ners8 eAuity at the en$ o' the year

(a# P 49000 (# 59000(c# J9000 ($# 149000

ns%er F 7(1J# +reasury stock in.ol.es shares %hich areF(a# issue$ an$ outstan$ing3(# authori>e$ ut not yet issue$3

(c# suscrie$ ut not yet authori>e$3($# issue$ ut not currently outstan$ing3

ns%er F 7(0# -' a transaction $uring the year cause$ one asset to increase y P409000 an$

another asset to $ecrease y P090009 %hich o' the 'ollo%ing e.ents may ha.ecause$ these e''ects

(a# Merchan$ise in.entory %as purchase$ an$ pai$ 'or entirely %ith cash3(# Cash %as recei.e$ in echange 'or the issuance o' common stock3(c# EAuipment %as purchase$ an$ pai$ 'or partly %ith cash an$ %ith an accountpayale 'or the $i''erence3($# /one o' the ao.e coul$ ha.e cause$ these e''ects3

ns%er F C

(1# /et assets %ere PJ9500 at the eginning o' the year an$ P19000 at the en$o' the year3 Merchan$ise -n.entory %ent up y P19000 $uring the year9 ccounts

2ayale %ent $o%n y P5009 an$ ccounts )ecei.ale %ent $o%n y P90003 -'the Cash account %as the only other asset an$ there %ere no other liailities9

%hat happene$ to cash $uring the year(a# Cash increase$ y P90003(# Cash increase$ y P90003(c# Cash $ecrease$ y P90003($# /one o' the ao.e3ns%er F &(# +he term 8current assets8 $oes not inclu$e

a# 2ayments in a$.ance3

# &ills recei.ale3

c# :ongterm $e'erre$ charges3$# Cash at ank

http://www.principlesofaccounting.com/incorrect.htmhttp://www.principlesofaccounting.com/incorrect.htmhttp://www.principlesofaccounting.com/incorrect.htmhttp://www.principlesofaccounting.com/incorrect.htmhttp://www.principlesofaccounting.com/correct.htmhttp://www.principlesofaccounting.com/correct.htmhttp://www.principlesofaccounting.com/incorrect.htmhttp://www.principlesofaccounting.com/incorrect.htmhttp://www.principlesofaccounting.com/incorrect.htmhttp://www.principlesofaccounting.com/incorrect.htmhttp://www.principlesofaccounting.com/correct.htmhttp://www.principlesofaccounting.com/incorrect.htm


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nsFC

(# +he retaine$ earnings alance 'or Matt ! nne8s "oo$ Center at 7ecemer19 00 %as P90003 +he alance at 7ecemer 19 004 %as P4,90003 7uring

0049 $i.i$en$s in the amount o' PH9000 %ere $eclare$ an$ pai$ to stockhol$ers3 +he only other change in retaine$ earnings %as $ue to net income3 +he net

income 'or 004 %as(a# PI9000 (# 149000(c# 09000 ($# H9000

ns%er F C(4# +he principle stating that all epenses incurre$ %hile earning re.enuesshoul$ e i$enti'ie$ %ith the re.enues %hen they are earne$9 an$ reporte$ 'or

the same time perio$ is theF(a# cost principle3

(# re.enue principle3(c# epense principle3($# matching principle3ns%er F 7

(5# L+he 'irm must e treate$ as 'inancially separate an$ $istinct 'orm its8o%ner(s#L3 +his rule is kno%n asF(a# +he account

E33QF Economic or$er Quantity3 -t is a Auality o' material that Can e or$ere$ at%hich oth or$ering cost an$ carring costs are minimum3

E33Q =

= nnual usage units= or$ering cost per nnamC= Carring cost per unit per nnamSemi Bariale Cost F +hese costRs are partly 'ie$ an$ partly9 .ariale inrelation to out put"or EampleF +elephone ill9 Electricity ill

ngle o' -nci$entsF When oth the cost cur.e an$ sales cur.e cutRs or meet at a

point3 +hat point is calle$ as &reak e.en point3 +he angle le't a'ter pro'it angle (or# ngle o' -nci$entRs

Margin o' sa'etyF 7i''erence et%een tol$ actual salesreak e.en salesMargin o' sa'ety = +otal sales &3E32

Margin o' sa'ety %ill e reache$ 'aster i' angle o' -nci$ents is +otal sales = 0000Margin sa'ety = 00000000

&E2 sales = 0000 = 10000Means Ecess actual sales o.er reak e.en sales is calle$ margin o' sa'ety3sorption CostingF Each an$ e.ery item o' cost i3e9 .ariale cost an$ 'ie$ cost ischarge$ to the pro$uct3

Case 1F -n this case 'ie$ cost are charge$ to the pro$uct on the asis o' normalcapacity3

/ormal Capacity +he numer o' units /ormally



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pro$uce$ y the Companycase F -n case o' un$er sorption3 +hat cannot shoul$ e charge$ to the 2 ! :

;CCase 1F EF /ormal units 10000

ctual pro$uction 1000 "ie$ o.er hea$s 100000

+he asorption rate= 'ie$ o.erhea$s;/ormal units =100000;00000

n$ total sorption shoul$ e )estrite$ to 1000003-n any case3 +he asore$ mount shoul$ not ecee$ the actual 'ie$ cost3

Case F i' the actual pro$uction is I000 units+he asorption )ate = 100000;10000=10;; per unit

+he amount asore$ mount= 100000I0000= 0000

%hich is charge$ to the 2! : ;CMarginal CostingF -n the case o' Marginal costing only .ariale cost areasore$ y the pro$uct3

-n this case the 'ie$ costs are consi$ere$ as perio$ cost an$ this shoul$

e charge$ to 2 ! : ;CCostingF +he process o' $etermining cost is calle$ as costingBariale costF 13 Cost %hich is changing %ith e.ery change in pro$uctiona$$itionally i' you %ant to pro$ucing one more unit %e nee$ to epen$ a$$itional

cost .ariale cost in epecte$ to 'luctuate in 10 units 100; total $irectly inproportionate the changes 'or 11thunit a$$itionally 10; in .alue o' pro$uction

(or# sales33 Cost 'or unit %ill not change ut there is change in total cost 10 units 100)s

Cost per unit = cost;unit=100;10=10;11units 110;Cost per unit=110;11=10;"ie$ CostF 13 +his cost is 'ie$ %ill not change %ith -ncrease or $ecrease in

pro$uctionEF "actory rent

3 +he total cost %ill not change ut cost per unit %ill change3)ent 10000

1 person share 10000 persons share 50000 each

4 persons share 500 each23B )atioF 2ro'it .alue )atio3 -t is a )atio et%een contriution an$ sales2;B )atio= Contruution;salesT100Contriution per unit=sale price.ariale cost&reak E.en 2oint (&3E32#+his is a point at %hich there is no pro'it no loss3

t this point to total amount recei.e$ is eAual to the total cost+otal sales mount+otal Cost mount (Bariale Cost N "ie$ cost#

+otal contriution=+otal 'ie$ costEF Selling price 10; 2;B=105

Bariale cost 5; =5;"ie$ Cost 10000; 5;100T100=50@

&3E32 (Dnits# = "ie$ Cost;Contriution per unit10000;5=00units

&3E32(Balue# = "ie$ cost;2;. )atio 10000;50T100=0000Statement o' Marginal CostF+otal Sales.ariale cost= contriutionContriution'ie$ cost=pro'it

)atioF

13 Current )atioF Current ssets;Current liailitiesCurrent ssets are those %hich can e con.erte$ in to cash in the short run



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+he term short run meansgenerally a perio$ o' one yearCurrent ssetsF -n.entories N Sun$ry $etors N cash an$ ank alance N short

term loans ! $.ances N Marketale non tra$e Securities N prepai$ Epences3

Current :iailitiesF cash cre$it N ank 37 N short term orro%ings N cre$itorsN propose$ $i.i$en$ N unclaime$ $i.i$en$ N pro.ision 'or taation (pro.ision 'or

ta $.ance ta pai$#

3 Quick )atioF Quick ssets;Quick liailitiesQuick ssets = Current ssetsStock an$ prepai$ epencesother liAui$ portion o'current ssetsQuick :iailities = Current :iailities cash cre$it9 &ank9 &orro%ing an$ other

short term &orro%ings3 7et EAuity )atioF 7et;EAity

7et=Secure$ loan an$ unsecure$ loan less cash cre$it an$ &ank 37EAuity= pai$ up share capital inclu$ing pre'erence capital an$ 'ree reser.es43 7et ser.ice Co.erage )atioFpro'it a'ter taN -nterest N 7epreciation N non cash items; -ntrest N 7et

-nstalment53 -ntrest co.erage )atioFEarnings a.ailale to eAuity share hol$ers;/umer o' EAuity sharesH3 23E )atio= 2rice earnings )atio

market price per share;Earnings per share,3 7i.i$en$ yiel$ )atio = 7i.i$en$ per share; market price per share

I3 perating :e.erage = Contriution;Earnings e'ore -ntrest ! +aJ3 "inance :e.erage = Earnings &e'ore -ntrest ! +a;Earnings &e'ore +a

+otal :e.erage = operating :e.erage ; "inance :e.erageM 7e'ines companies Contriution an$ Scope M is the contriution o' theCompany this $ocument )epresents )ules an$ )egulation o' the Company

MEM)/7DMS )+-C:ES-t is a primary $ocument -t is Secon$ary $ocument

-t is suor$inate to the ct -t is suor$inate to M ! the ct

-t is a must 'or e.ery Company Can e %ritten or taken 'rom Company

ct

Strict pro.isions 'or alteration Special )esolution is su''icient ecept

%here the amen$ment rings in toe''ect a pri.ate 'rom pulic

Dltra .irus M e.en all the memers3Cannot rati'y it

Dltra .irus ut intra .irus the Mcan e )ati'ie$

S)ES 7E&E/+D)E

Shares are a part o' the capital o' thecompany

7eentures contriute a loan

Share hol$ers are memers or %enerso' the compny

7eenture hol$ers are cre$itors

When recommen$e$ y the &oar$$i.i$en$ coul$ e $eclare$ to share

hol$ers

"ie$ amount o' -ntrest on $eenturespai$ e'ore $i.i$en$ $eclaration

Shares $o not carry on any charge 7eentures generally ha.e a charge on

the asset o' the company

Shares ha.e restrictions -ssue at a

$iscount

7eentures $o not ha.e )estrictions

-ssue at a $iscount

Share hol$ers ha.e .oting )ights 7eenture hol$ers $o not ha.e .oting

rights7i.i$en$ is payale only %hen pro'its 7i.i$en$ is payale %hether pro'its are



13/53


are there there or not

/o 'ie$ $i.i$en$ )ate o' -ntrest is 'ie$

S)E :7E) 7E&E/+D)E :7E)

ne o' the o%ners o' the Company an$has proprietory intrest in the Company

nly a cre$itor o' the Company

When the Company makes pro'its an$the oar$ recommen$s9 share hol$ergets a share in the pro'its

ets a 'ie$ rate o' -ntrest %hether theCompany makes pro'it

/o security 'or his -n.estment /ormally $eentures are security

Eligile 'or .oting rights /o .oting )ights

n liAui$ation9 share hol$ers are pai$

last

)anks priority %ith regar$ repai$

S)E S+CG

as a nominal .alue /o /ominal .alue

May e 'ully pai$ or partly pai$ l%ays 'ully pai$

Can e trans'erre$ is %hole numersan$ not in 'ractions

Can e trans'erre$ in 'ractions

Each an$ e.ery shares shall e o' eAual$enomination

May e o' uneAual amount

Shares are i$enti'ie$ %ith $istincti.enumers

7o not ha.e any $istincti.e numers

Can e issue$ $irectly to the pulic nly 'ully pai$ up shares can econ.erte$ in to stock an$ cannot eissue$ 7irectly

2)M-SS)U /+E &-:: " ETC/E

-n a pronote there is a promise to pay -n a ill there is an or$er to pay-n a pronote there are t%o parties themaker an$ the payee

-n a ill there are there parties13 7ra%er 3 7ra%ee3 2ayee

2ronote cannot e ma$e payale to themaker himsel'

-n a ill the $ra%er an$ the payee maye the same

+he maker a pronote is primarily liale +he maker o' a ill is liale only %henthe $ra%ee $oes not accept or pay

pronote is signe$ y the person lialeto pay3 so no acceptance is nee$e$

ill has to e accepte$ y the $ra%eee'ore he can e hel$ liale

?D)/: :E7E)

?ournal is the ook o' 'irst or originalentry3 -t is also calle$ the &ook o' 'irstentry

+he le$ger is the &ook o' secon$ entry

+ransaction in the ?ournal %ill erecor$e$ -mme$iately

7epen$ing upon his con.eniences thetra$er )ecor$s o' the transaction in the

le$ger

When once the entries are poste$ to

le$ger the ?ournal :ooses its-mportance

-t %ill ne.er :oose importance as it is

the main ook o' ccounts %hich isrelie$ upon permanently

-n the preparation o' 'inal ;Cs ?ournalis not use'ul

-n the preparation o' trial alance an$'inal ;Cs :e$ger is a must

+he ta authorities generally may not

$epen$ on ?ournal

-n the 'inali>ation o' income ta to e

pai$9 the ta authorities $epen$ onle$ger3



14/53


+)-: &:/CE &:/CE SEE+

+he trial &alance is prepare$ to checkthe arithmetical accuracy o' the &ookso' ccounts

&alance sheet is prepare$ to kno%le$getrue position o' ssts an$ liailitiesparticular $ate

+rial alance $oesnot sho% the 'inancialposition o' usiness

+he 'inancial position can e kno%le$ge'rom alance sheet

+he trials alance is prepare$ ase$ onthe :e$ger ccounts

+he alance sheet is prepare$ on thease o' in'ormation 'rom trial alance

+he preparation o' trial alance is notcompulsory

+he preparation o' alance sheet ismust

+rial alance can not e sho%n as a$ocumentary e.i$ence

&ut alance sheet %ill e accept$ocumentary e.i$ences y taauthorities an$ courts

2)"-+ ! :SS CCD/+ &:/CE SEE+

6ecti.e o' preparing 2!: ;C toascertain the /et pro'it cost it loss o'the usiness $uring the year

+he o6ecti.e o' preparing alancesheet is to kno% 'inancial position o' theusiness on a speci'ic $ate

-s an account ha.ing $eit an$ cre$itas such V+ an$ V&U are use$recor$e$ in the 2 ! : ;C

&alance sheet is a statement an$ henceV+ an$ V&U are not use$

)e.enue epen$iture an$ -ncomes areaccor$e$ in the 2 ! : ;C

Capital -ncomes an$ epen$itures aresho%n in the alance sheet

&alancing 'igure o' this ccount eithernet pro'it or /et loss

&alance sheet %ill not sho% anyalancing 'igure3 total o' liailities an$ssets si$e shoul$ al%ays e eAual

"ie$ ssetsF +hese assets are acAuire$ 'or long term use in the usiness:iAui$ assetsF +hese assets also kno%n as circulating9 'luctuating or current

assets can e con.erte$ is to cash as early as possile3

"ictitious assetsF "ictitious assets are those assets9 %hich $o not ha.e physical"orm3 +hey $o not ha.e any real .alue

EF loss on issue o' shares9 preliminary Epences3

-ntaugile assetsF -ntaugile assets are those ha.ing no physical eistence an$can not 'ouchEF oo$%ill9 +ra$emarksContingent liailities F +hese are not the real liailities they are not actual

liailities at present3 +hey right ecome liaility in 'uture on con$ition that thecontemplate$ e.int

S)E CE)+-"-C+E S)E W))/+

+he hol$er is a registere$ memer o'the compoun$

+he earer o' a shares %arrant is not aregistere$ memer

+he hol$er o' a share certi'icate isessentially a memer

+he earer o' a share %arrant can e amemer only i' the article so pro.i$e$

in

"or the issue o' share certi'icate may

reAuire$ appro.al o' the central o.t3

Share %arrant can e issue$ central

o.t3 appro.al is must

ll Companies must issue share

certi'icates

Share %arrants can e only y pulic

companies

Share certi'icate is issue$ is partly (or#

'ully pai$ shares

Share %arrant can e issue$ only 'ully

pai$ sharesShare certi'icate in not negotiale Share %arrant is negotiale



15/53


+he hol$er o' a share certi'icate canpresent a petition 'or %in$ing up

+he hol$er o' a share %arrant can notpresent a petition %in$ing up

&ookkeeping F is complementary to the ccounting process &ook keeping is thesystematic recor$ing o' 'inancial an$ Economic transactions3ccounting is the snalysis an$ -nterpretation o' ook keeping recor$s3

)eali>ation conceptF

)e.enues %ill e )ecor$e$ in ook only %hen they are reali>e$Cash &ookFthe cash ook is a su$i.isinal o' the &ook o' original entry recor$ingtransactions in.ol.ing receipts an$ payments o' cash3ll cash transactions are 'irst entere$ in the cash ook an$ these poste$ 'romcash ook in to the le$ger

transactions are recor$e$ chronologically in the cash ook&ill o' echangeF

-s a instrument in %riting containing can un con$itional or$er signe$ y the laker2)D7E/CE F

-ncomes are recogni>e$9 %hen they are realise$ all possile epences are pro.i$e

)eali>ation Concept F-n this concept ssets are recor$e$ at the reali>ation .alue o' ssets an$ not thehistocal cost asisSo no% a $ays reali>ation con.ention is not accepte$ pro'essional ccor$ingo$ys3

+E)M :/SF+erm loans represents y secure$ orro%ing an$ at present are the most

important source o' 'inance 'or ne% pro6ects+he generally carry a rate o' interest these loans are generally repayale o.er a

perio$ o' years in annual 9 semi annual 9 Auantity installments+erm loans are also pro.i$e$ y anks9 state 'inancial institutions an$ all -n$ialen$ing institutions

CS 2)"-+Cash pro'it is arri.e$ y a$6usting the non cash transactions to the net pro'it

CS ":W S++EME/+ccounting stan$ar$ eplain aout this

this statement sho%s ho% much cash is generate$ an$ epense$ in theorgani>ation $uring the year 9 it also opening an$ closing alance o' cash

it is use 'ull 'or in.estors an$ cre$itors it pro.i$es .ital(important# in'ormation aout companies aility togenerate 'uture cash 'lo% to satis'y in.estors an$ cre$itors epectations

Metho$s o' preparing cash 'lo%sF +here are t%o metho$s13 7irect metho$ = ross receipts gross payments3 in$irect metho$

= net pro'ita$$ non cash epen$iture

less nosh income (cre$it sales#= net cash 'lo%C:SS-"-C+-/ " CS ":W perating cash 'lo% -n.esting cash 'lo% "inancing cash 'lo%

CSF 2urchasing po%er in han$ calle$ cash



16/53


CS ET2E/SESCash in pai$ 'or epenses incurre$ eg %ages pai$9 salaries pai$

// CS ET2E/SESF +hat is cash is not going to out o' usiness Eg $epreciation9 %riting o'' goo$%ill 9 patents

Writing o'' preliminary epenses 7iscount on issue o' shares an$ $eenture

C2-+: ET2E/7-+D)E Epenses incurre$ o' on long term in.estment +he ene'its %ill 'lo% or en6oye$ y the organi>ation 'or more than one

year eg plant machinery +he item $ealt is calle$ as issue$ it is epresse$ or i$enti'ie$ in its o%n

name eg plant machinery

ssets is purchase$ 'or utili>ation in the usiness in the normal course o'usiness

7epreciation is to e consi$ere$ 'or the li'e o' asset)EBE/DE ET2E/7-+D)E

+hese epenses sho%n in the $eit si$e o' p!l account Epen$iture incurre$ 'or short term in.estment

+he ene'its 'or the epen$iture %ill 'lo% or en6oye$ y the organi>ation'or the current year only eg salaries

+he item $ealt is calle$ goo$s an$ merchan$ise2lant goo$s

+ . goo$s

oo$s are purchase$ %ith an intention to sell3+here no nee$ o' $epreciationCM2/U

Company cones in to eistence only %hen it is registere$ un$er thecompanies act

Memership incase o' a company minimum pri.ate nos pulic,nosmaimum pri.ate50 nos9 pulic unlimite$

company on its incorporation en6oys a separate legal entity -ncase o' company memers liaility is limite$

2)+/E) S-2 "irm is create$ y mutual agreement et%een partners9 registration is

optional Memership incase o' 'irm t%o partners minimum9 an$ maimum anking

usiness 10 nos 9 other usiness 0 nos 'irm $oes not ha.e a separate legal entity

-n case o' 'irm partners are 6ointly ! se.erally lialeCM2/U F company is a tra$ing association9 a company is reAuire$ to e

registration un$er the companies actC:D&F Clu is a on tra$ing association9 registration o' a clu is not man$atory

7E:EC)E7)U CMMSS-/F -t is etra commission pai$ to are the a$ $etscollection loss7EM+ CCD/+F

7emat Means the meterilise$ ccount -t is a separate ccount maintaine$ 'or -n.estment (shares9 securities9

$eentures9 on$s Etra

-t gi.es -n'ormation aout shares ought an$ sol$ prices at %hich shares%ere ought an$ sol$3 shares presently hol$ing amount hel$3

-3)3)F (-nternal )ate o' )eturn#+his metho$ takes is to consi$eration time .alue3-t can e sai$ as $iscounte$ )ate o' )eturn2urchase Consi$erationFconsi$eration pai$ y the trans'eror company to the share o' trans'ree company3

Economic .alue $$es F



17/53


18/53


+hen it is calle$ shares issue$ at $iscount the $i''erence et%een the issue$price an$ nominal .alue is $iscount on issue o' share3 -t is sho%n in alance

sheet un$er hea$ o' miscellaneous epen$itures no %rite o''7W-::

-s to e Calculate$ asically on the asis o' 'ollo%ing metho$sFCapitali>ation Metho$

Super pro'it Metho$Capitali>ation Metho$F/ormal capital employe$='uture maintainale pro'its;/ormal )ate o' )eturnoo$%ill = normal capital employe$actual closing capital employe$Super pro'it Metho$FSuper pro'it Metho$='uture Maintainale pro'itsctual Capital employee T

/ormal )ate o' )eturnoo$%ill = super pro'it T /o3 o' years 'or %hich super pro'it

can e Maintaine$capital employe$= +otal ssets o' the Companyout si$ers liailitiesoo$%ill F-t is an mount pai$ o.er an$ ao.e the .alue o' ssets an$ liailities o' the

un$er takingoo$%ill is the )eputation o' the usiness3 +his reputation is $ue to EcessSales an$ pro'it ma$e then normal sales an$ pro'it reasons 'or goo$ %ill areF13 goo$ reputation

3 'a.orale location3 aility an$ skill o' employees

43 goo$ management etragoo$%ill is o' t%o types

13 purchase$ goo$%ill3 $e.elope$ goo$%illpurchase$ goo$%illF More mount pai$ 'or ssets than reAuireEF +otal ssets 100000

mount pai$ 1500007e.elope$ goo$ %ill F +his goo$%ill not to e %ritten in ooks

Shares at a premiumFWhen a Company issues shares at a price higher than the nominal .alue o'

the (Securities# then the $i''erence in the nominal .alue an$ the issue price isthe premium3

+he premium may e recei.e$ in cash or in kin$ &ut the share premium collecte$ y a Company on issue o' shares in

reAuire$ to e retaine$ in a separate ccounts title$ as (security# premiumccount3

Securities premium account can e use$ only 'or13 paying up o' 'ully pai$ onus shares to e issue$ y the Company to its

memers3 +o %rite o'' preliminary epences

3 to %rite o'' un$er%riting epences ;commission pai$ $iscount allo%e$ on anyissue o' shares or $eentures o' the Company

43 +o pro.i$e premium payale y a Company on )e$emption o' re$eemaleshares or )e$emption o' $eentures o' the Company37istriution o' securities premium amount as $i.i$en$ is not permitte$3Security premium is not a 'ree reser.es it is in the nature o' capital reser.e3ccounting ConceptsF1# &usiness entity ConceptF -n ccounting language usiness is separate personis &usiness entity (an$ the person %ho has in.este$ money in that &usiness ornot the same so the person %ho is -n.esting money must e treate$ as loan

gi.en#

-' the in.est money in usiness shoul$ e share as capacity3 the o%ner o' the &usiness is usiness it sel'



19/53


oth usiness an$ person in.esting are t%o $i''erent persons so e.ery personacti.ities must e %ritten saperately

&usiness acti.ities must e %ritten is usiness ooks person acti.ities must e %ritten is personal ooks

capital is sho%n as liaility in &;S3 the reason -n.esting this is usiness inlen$ing money 'rom the person in.esting

this is also calle$ as S2E)+E :E: E/+-+U# Money measurement conceptFusiness recor$s only those transactions %hich are Epresse$ in money terms3+hey %ill not recor$ transactions i' only epresse$ in other unit o' measurement3# cost conceptF transactions in ooks are recor$e$ at cost at the actual mount-ncure$ market .alue is not consi$ere$

eF 10 :aks %orth lan$ i' purchase$ 1 :ak%e shall recor$ at one lakRs only3

4# oing concern conceptF -t is assume$ ut o.erly usiness %ill e running 'or 'uture seale +hat the usiness entity $esent ha.e any intension to stop an &usiness acti.itiesin year 'uture

-' %e 'eel that the &usiness %ill not run or has to e stop in year 'oreseeale'uture3 +hen all the things ha.e to recor$e$ at reali>ale .alues35# 7ual spct ConceptF each transaction as t%o acti.ities

a3 po%er to recei.e some thing (goo$s purchase$#3 7uty to pay some thing ($uty to pay money#

H# ccrual conceptFnot only cash items are recor$e$ in the ooks ut also cre$it items are to e

recor$e$3Cash ccounting systemFnly cash transactions are recor$e$ i' the system is 'ollo%ingMatching 2rincipleF

)e.enues are matche$ %ith rele.ant epences 'or getting that re.enue in thatperio$3

all epences incurre$ or matche$ %ith rele.ant incomes

ut 0tanding Expenditure Epen$iture incurre$ ut the payment 'or %hich isnot yet pai$ %ill e sho%n in the alance sheet liailities si$e an$ pro'it an$ lossaccount $eite$3ccrue$ epensesF +he epen$iture %hich is incurre$ an$ the payment thereo'might or might not e pai$3

Working capitalF "or running $ay to $ay acti.ities a usiness9 some capital isreAuire$ %hich is calle$ %orking capital

Working capitalF current assets current liailitiesEcess o' total current assets o.er current liailities

Working capital cycle; operating cycleF there is a complete cycle 'rom cash tocash 9 perating cycle is the time $uration reAuire$ to con.ert cash in to cash

a3 con.ersion o' cash in to )a% material3 con.ersion o' ra% material in to %ork in progressc3 con.ersion o' %ork in progress in to 'inishe$ goo$s$3 con.ersion o' 'inishe$ goo$s $etors an$e3 con.ersion o' $etors in to cash

/o operating cycleF /o o' $ays in year ; operating cycle perio$

Stock echangeF stock echange is the place 9 %here stocks shares an$ othersecurities o' the liste$ companies ought an$ sol$



20/53


Mutual 'un$F Mutual 'un$ is 'un$ 9a3 %hich collects the in.estments o' small sa.ing hol$ers

3 an$ re -n.est in capital market 9c3 like share market 9 $et market9 -t clearly link et%een small sa.ing

hol$ers an$ capital markets ETF D+- mutual 'un$7et Securiti>ationF

a3 -t is a mo$e o' "inancing3 Where in securities are issue$ on the asis o' package o' assets 9 this

in.ol.es the 'ollo%ing process o' acti.itiesrgani>ing 'unction2ooling 'unctionSecuriti>ation 'unction

2rimary marketF Shares are purchase$ $irects at the time o' allotment y the

companySecon$ary marketF Shares are purchase$ 'rom market through the stockechangeMemoran$um o' associationF

a3 -t is the main $ocument o' the company3 -' this $ocument represents constitution o' that companyc3 -t contains 13 name clause

3 6ecti.e clause

3 State clause43 capital clause

53 liaility clauseH3 situation clause

rticles o' associationF+his $ocument represents rules an$ regulations o' the company9 it $e'ines $uties 9rights an$ po%ers o' the go.erning o$y et%een themsel.es an$ company

:imite$ liailityF liaility is limite$ to the 'ace .alue o' shareMinority interestF -n a susi$iary company 9 the ma6ority shares is hel$ y hol$ing

company ( say suppose I0@ o' shares taken y hol$ing company remaining 0@is hel$ y some other people %ho are little intereste$ in the company3 +his little

interest is calle$ as minority interest9 these people are calle$ as minority sharehol$ers

Susi$iary companyF company %ho is selling more than 51@ o' shares toanother company is calle$ susi$iary companyol$ing companyF company %ho is uying more than 51@ o' shares 'romanother company is calle$ hol$ing company2uic limite$ companyF

13 minimum memers ,

3 maimum memers unlimite$3 minimum $irectors

43 'ter getting usiness commencement certi'icate 9 they can $ousiness( ut not a'ter incorporation#

53 pulic limite$ company can go to pulic issuepri.ate limite$ companyF

13 minimum memers 3 maimum memers 503 minimum $irectors 43 can start usiness a'ter incorporation53 pri.ate limite$ company shall not issue shares to outsi$ers

o.ernment companyF go.ernment company is a company in %hich not less

than 51@ o' the pai$ up share capital o' the company is hel$ y Central

go.ernment9 state go.ernment9 partly y the central go.t9 an$ partly one ormore



21/53


eneral )eser.eF -t is reser.e %hich is create$ to meet any meet any 'uture

unkno%n liaility 9 it can e utili>e$ as $i.i$en$Capital reser.eF pro'its in the nature o' capital or pro'its in the 'orm o' capital

nature)eser.e capitalF reser.e capital is calle$ up only at the time o' liAui$ation i' assets

hel$ are not su''icient to meat the liailities

2)B-S-/S 2ro.isions is charge against pro'its is ma$e 'or kno%n liaility or epen$iture

it is utili>e$ 'or that purpose only is sho%n ao.e the line

ao.e the line means pro'it an$ loss account

)ESE)BE )eser.e in an appropriation pro'its

it is ma$e 'or 'uture unkno%n liaility it can e utili>e$ 'or any 'uture purpose is kno%n elo% the line elo% the line means p!l appropriation account

PRIMAR MARKET

! S"#$%& #$% '($)"#&%* *+$%),-. #, ,"% ,+/% #--,/%, . ,"% )/'#.

SECONDAR MARKET

! S"#$%& #$% '($)"#&%* $/ /#$%, ,"$(" ,"% &,) %)"#%

STOCK ECHANGE

! S,) %)"#% +& ,"% '-#)% "%$% &,)& &"#$%& #* ,"%$ &%)($+,+%& ,"% -+&,%* )/'#+%&(", #* &-*

DE:T SECURITA;ATION

! I, +& # /*% +#)+

! W"%$% + &%)($+,+%& #$% +&&(%* ,"% #&+& '#)#% #&&%,& )#--%* '-+! T"+& +


22/53


! Con.ersion o' 'inishe$ goo$s in to $etors an$

! Con.ersion o' $etors in to cash

/o o' operating cycle= no o' $ays in a year;operating cycle perio$

!

ACCRUED INCOME

I)/% %#$%* (, "+)" , *(% ? $+", , $%)%+


23/53


L+#+-+,. +& -+/+,%* , ,"% #)%


24/53


EA2I0A82E 6A2@E s per reali>ale .alue9 assets are carrie$ at the amounto' cash or eAui.alent that coul$ currently e otaine$ y selling the assets in an

or$erly $isposal3 apha>ar$ $isposal may yiel$ something less3 :iailities arecarrie$ at their settlement .aluesX i3e39 the un$iscounte$ amounts o' cash or cash

eAui.alents epresse$ to e pai$ to satis'y the liailities in the normal course o'usiness3

BE0EN5 6A2@E s per present .alue9 an asset is carrie$ at the present$iscounte$ .alue o' the 'uture net cash in'lo%s that the item is epecte$ togenerate in the normal course o' usiness3 :iailities are carrie$ at the present$iscounte$ .alue o' 'uture net cash out'lo%s that are epecte$ to e reAuire$ tosettle the liailities in the normal course o' usiness3

ED Mr3 T 'oun$ that he can get )s309009000; i' he %oul$ sell the machine

purchase$9 on 11I paying )s3,9009000; an$ %hich %oul$ cost )s359009000;in case he %oul$ uy it currently3

ACC@N5IN9 CNCEB50

ccounting Concept is generally use$ to mean a Y/otionR only or mental i$eaaout something3 "or eample9 Cost9 -ncome an$ Capital9 7eit an$ Cre$it9

ssets an$ :iailities etc39 are concepts i3e39 asic assumptions or con$itions upon%hich science o' accounting is ase$3 +here is no authoritati.e list o' these

concepts3 -n other %or$s9 concept means such i$eas %hich are couple$ %ith$i''erent accounting proce$ures e3g3 ppropriation an$ Charge9 )eser.e an$

2ro.isions9 7epletion an$ mortisation etc3 +he 'ollo%ing are some o' theimportant generally acceptale conceptsF (-CW#

ccounting is the language o' usinessX a''airs o' a usiness unit are

communicate$ to others as %ell as to those %ho o%n or manage it throughaccounting in'ormation %hich has to e suitaly recor$e$9 classi'ie$9 summari>e$

an$ presente$3 +o make it 'ull o' meaning9 accountants ha.e agree$ on a numero' concepts %hich they try to 'ollo%3 +hese are gi.en elo%F (SDG:#

8@0INE00 EN5I5 CNCEB5ccountants treat a usiness as $istinct 'rom the

persons %ho o%n itX then it ecomes possile to recor$ transactions o' theusiness %ith the proprietor also3 Without such a $istinction9 the a''airs o' the'irm %ill e all mie$ up %ith the pri.ate a''airs o' the proprietor an$ the truepicture o' the 'irm %ill not e a.ailale3

+his concept has no% een eten$e$ to accounting separately 'or .arious

$i.ision o' a 'irm in or$er to ascertain the results 'or each $i.ision separately3 -thas een o' immense .alue in $etermining results y each responsiility centre

)esponsiility ccounting3

MNE MEA0@EMEN5 CNCEB5F ccounting recor$s only those transactions%hich are epresse$ in monetary terms9 though Auantitati.e recor$s are alsokept3 n e.ent9 e.en though important9 like a Auarrel et%een the pro$uctionmanager an$ the sales manager9 %ill not e recor$e$ unless its monetary e''ectcan e measure$ %ith a 'air $egree o' accuracy3 -t shoul$ e rememere$ thatmoney enales .arious things o' $i.ers nature to e a$$e$ up only throughmoney .alues an$ not other%ise3

C05 CNCEB5 +ransactions are entere$ in the ooks o' account at the

amounts actually in.ol.e$3 Suppose a 'irm purchases a piece o' lan$ 'or )s319509000; ut consi$ers it as %orth )s39009000;3 +he purchase %ill e recor$e$



25/53


at )s319509000; an$ not any more3 +his is one o' the most important concepts it pre.ents aritrary .alues eing put on transactions9 chie'ly those resulting in

acAuisition o' assets3 nother %ay o' saying the same thing %oul$ e that theamount to e recor$e$ is o6ecti.ely arri.e$ at as a result o' the mutual

agreement o' the t%o parties in.ol.e$3

' course9 sometimes accountants ha.e necessarily to e satis'ie$ %ith anestimate only the amount o' $epreciation to e charge$ each year in respect o'machinery is an eampleX the amount has to e an estimate since the 'uture li'eo' the machinery cannot e kno%n precisely3

9IN9 CNCEN CNCEB5F -t is assume$ that the usiness %ill eist 'or a

long time an$ transactions are recor$e$ 'rom this point o' .ie%3 -t is this thatnecessitates $istinction et%een epen$iture that %ill ren$er ene'it o.er a long

perio$ an$ that %hose ene'it %ill e ehauste$ Auickly9 say9 %ithin the year9 o'course9 i' it is certain that the concerne$ .enture %ill eist only 'or a limite$ time9the accounting recor$ %ill e kept accor$ingly3

e$ either cash has een recei.e$ or a legal oligation to pay has een

assume$ y the customer no sale can e sai$ to ha.e taken place an$ no pro'itor income can e sai$ to ha.e arisen3

ACC@A2 CNCEB5F -' an e.ent has occurre$ or a transaction has een entere$

into9 its conseAuences %ill 'ollo%3 /ormally9 all transactions are settle$ in cash ute.en i' cash settlement has not yet taken place9 it is proper to ring thetransaction or the e.ent concerne$ into the ooks3 -ncome or pro'it arises onlyout o' usiness operations %hen there has een an increase in the o%nerRsshare o' the assets o' the 'irm (calle$ o%nerRs eAuity# ut not i' the increase hasresulte$ 'rom money contriute$ y the o%ner himsel'3 ny increase in theo%nerRs eAuity is calle$ re.enue an$ anything that re$uces the o%nerRs eAuity isepense (or loss#X pro'it results only %hen the total o' re.enues ecee$s the total

o' epenses or losses



26/53


MA5C:IN9 CNCEB5 +his concept recogni>es that the $etermination o' pro'itor loss on a particular accounting perio$ is a prolem o' matching the epire$

cost allocate$ to an acti.ity perio$3 -n other %or$s9 the epenses %hich areactually incurre$ $uring a speci'ic acti.ity perio$9 in or$er to earn the re.enue 'or

the sai$ perio$9 must e matche$ against the re.enue %hich are reali>e$ 'or thatperio$3 "or this purpose9 epenses %hich are specially incurre$ 'or earning the

re.enue %hich are reali>e$ perio$ are to e consi$ere$3 -n short9 all epensesincurre$ $uring the acti.ity perio$ must not e taken3 nly rele.ant cost shoul$e $e$ucte$ 'rom the re.enue o' a perio$ 'or perio$ic income statement9 i3e39 theepenses that are relate$ to the accounting perio$ shall e consi$ere$ 'or thepurpose o' matching3 +his process o' relating costs to re.enue is calle$ matchingprocess3 -t shoul$ e rememere$ that cost o' 'ie$ asset is not taken ut only

the $epreciation on such 'ie$ asset relate$ to the accounting perio$ is taken3("or the purpose o' matching9 prepai$ epenses are eclu$e$ 'rom the total costs

ut outstan$ing epenses are a$$e$ to the total cost 'or ascertaining the costrelate$ to the perio$#3 :ike costs9 all re.enues earne$ $uring the perio$ are nottaken9 ut re.enue %hich are relate$ to the accounting perio$ are consi$ere$3

pplication o' matching concept creates some prolems %hich are note$elo%Fa# Some special items o' epenses9 e3g39 preliminary epenses9 epenses inconnection %ith the issue o' shares an$ $eentures9 a$.ertisement epenses etc39

cannot e easily i$enti'ie$ an$ matche$ against re.enues o' a particular perio$3# nother prolem is that ho% much o' the capital epen$iture shoul$ e %ritten

o'' y %ay o' $epreciation 'or a particular perio$ 'or matching against re.enuecreates the prolems o' 'in$ing out the epecte$ li'e o' the asset3 s such9

accurate matching is not possile3c# -n case o' long term contracts9 usually9 amount is not recei.e$ in proportion tothe %ork $one3 s a result9 epen$itures %hich are carrie$ 'or%ar$ an$ notrelate$ to the income recei.e$9 may create some prolems3

CN6EN5IN0

-t re'ers to the general agreement on the usage an$ practices in social or

economic li'e9 it is a customary practice9 rule9 metho$ or usage3 -n other %or$s9 itis an accounting proce$ure 'ollo%e$ y the accounting community on the asis o'long stan$ing customs3

ccounting Con.entions can e use$ as 'ollo%sFCN0I05ENC+he accounting practices shoul$ remain in the same 'rom one

year to another 'or instance9 it %oul$ not e proper to .alue stockintra$eaccor$ing to one metho$ one year an$ accor$ing to another metho$ net year3 -'

a change ecomes necessary9 the change an$ its e''ect shoul$ e state$ clearly3


27/53


is9 is not permitte$3 -t is also not proper to sho% a position sustantially %orsethan %hat it is3 -n other %or$s9 secret reser.es are not permitte$3

MA5EIA2I5 Materiality means relati.e importance3 -n other %or$s9 %hether a

matter shoul$ e $isclose$ or not in the 'inancial statements $epen$s on itsmateriality9 i3e39 %hether it is material or not3 merican ccounting ssociation

$e'ines YMaterialityR as un$erF

Vn item shoul$ e regar$e$ as material i' there is reason to elie.e thatkno%le$ge o' it %oul$ in'luence the $ecision o' in'orme$ in.estors3

n accountant cannot ignore the consi$eration o' materiality o'

proce$ures3 +he term itsel' is a su6ecti.e term3 s such9 an accountant shoul$recor$ an item o' material e.en though it is o' small amount i' the same

in'luences the $ecisions o' the users9 .i>3 proprietors9 au$itors9 or in.estors etc3n the other han$ i' it is 'oun$ that an in'ormation is not su''iciently important toin'luence the Auality o' perio$ical 'inancial statements9 the same shoul$ etreate$ as YimmaterialR an$ hence shoul$ e a.oi$e$3

-t has een state$ ao.e that materiality $epen$s on the amountsin.ol.e$ an$ the account so a''ecte$3 s a result9 %hether a particular item ismaterial or immaterial $epen$s on the amount an$ nature o' the same3 &ecause9

the material in'ormation helps the management to a.oi$ unnecessary %astage o'time an$ money on principal matters3 -t shoul$ e note$ that this $octrine o'

materiality re'ers to separate $isclosure o' in'ormation in the pulishe$ 'inancialstatements 'or the user o' the same3 -n short9 material items shoul$ separately

e $isclose$ %hereas immaterial items may not e $isclose$ separately ut maye comine$ in a consoli$ate$ 'orm in the pulishe$ 'inancial statements3

#@Ne$ as theyare earne$ or incurre$ (an$ not as money is recei.e$ or pai$# an$ recor$e$ in the'inancial statements or the perio$s to %hich they relate3 (+he consi$erationsa''ecting the process o' matching costs %ith re.enues un$er the accrualassumption are not $ealt %ith in this statement#3

N5E0 5 ACC@N50



28/53


/otes to accounts are the eplanation o' the management aout the items

in the 'inancial statements i3e39 pro'it an$ loss account an$ alance sheet3 +hemanagement gi.es more eplanation an$ in'ormation aout the item o' pro'it an$

loss account an$ the alance sheet an$ any other items9 y %ay o' notes o'accounts

/otes to accounts are integral part o' 'inancial statement3

CCD/+-/ S+/7)7SF

n ccounting Stan$ar$ is a selecte$ set o' accounting policies or roa$

gui$elines regar$ing the principles an$ metho$s to e chosen out o' se.eralalternati.es3 Stan$ar$s con'orm to applicale la%s9 customs9 usages an$ usiness

en.ironment3 So there is no uni.ersally acceptale set o' stan$ar$s3 -n -n$ia9ccounting Stan$ar$s &oar$ (S has the authority o' issuing ccountingStan$ar$s3 +he sole o6ecti.e o' ccounting Stan$ar$s is to harmonise the$i.ersi'ie$ policies to make the system more use'ul an$ e''ecti.e3

+he Council o' the -C- has so 'ar issue$ t%enty eight ccountingStan$ar$s3 o%e.er9 SI on V)esearch ! 7e.elopment is %ith$ra%n conseAuentto issue o' SH V-ntangile ssets3 +hese are as 'ollo%sF

A0 5itle of the A0


29/53


in "inancial Statements o'Employers

1H &orro%ing Costs 14000 ll

1, Segment )eporting 14001 See /ote

1I )elate$ 2arty 7isclosures 14001 ll

1J :eases 14001 ll

0 Earning 2er Share 14001 See /ote

1 Consoli$ate$ "inancial Statements 14001 See /ote

ccounting 'or +aes on -ncome See /ote 4 See /ote 4

ccounting 'or -n.estment in

ssociates in Consoli$ate$ "inancialStatements

1400

ll

4 7iscontinuing perations 14004 ll

5 -nterim "inancial )eporting 1400 ll

H -ntangile ssets 1400 ll

,"inancial )eporting o' -nterest in?oint Benture

14004ll

I -mpairment o' sset 1400414005 See /ote All

J2ro.isions9 Contingent :iailitiesan$ Contingent ssets

14004 All(%ith certaineceptions in

respect o'paragraphs HH

! H, o' theStan$ar$#

/+E 1F a# Sole 2roprietary concerns ; -n$i.i$uals

# 2artnership "irmsc# Societies registere$ un$er the Societies )egistration ct

$# +rustse# in$u Dn$i.i$e$ "amily'# ssociation o' persons

/+E F S 9 S 1,9 an$ S 0 ha.e een ma$e man$atory in respect o''ollo%ing enterprisesF

i# Enterprises %hose eAuity or $et securities are liste$ on arecogni>e$ stock echange in -n$ia9 an$ enterprises that are in the

process o' issuing or $et securities that %ill e liste$ on a recogni>e$stock echange in -n$ia as e.i$ence$ y the oar$ o' $irectorsR resolution

in this regar$3

ii# ll other commercial9 in$ustrial an$ usiness reportingenterprising9 %hose turno.er 'or the accounting perio$ ecee$s )s3 50Crores3

/+E F S 1 is man$atory i' an enterprise presents consoli$ate$ 'inancialstatements3 -n other %or$s9

the accounting stan$ar$ $oes not man$ate an enterprise to presentconsoli$ate$ 'inancial

statements ut9 i' the enterprise presents consoli$ate$ 'inancialstatements 'or complying %ith the

reAuirements o' any status or other%ise9 it shoul$ prepare an$ presentconsoli$ate$ 'inancial

statements in accor$ance %ith S 13



30/53


/+E 4F S comes into e''ect in respect o' accounting perio$ commencing onor a'ter 140013 -t is man$atory in nature 'orF

(a# ll the accounting perio$s commencing on or a'ter 140019 inrespect o' the 'ollo%ingF

(i# Enterprise %hose eAuity or $et securities are liste$ on arecogni>e$ stock echange in -n$ia an$ enterprises that are in the process

o' issuing eAuity or $et securities that %ill e liste$ on a recogni>e$ stockechange in -n$ia as e.i$ence$ y the oar$ o' $irectorsR resolution in this

regar$3(ii# ll the enterprises o' a group9 i' the parent consoli$ate$

'inancial statements an$ the ccounting Stan$ar$ is man$atory in natureo' respect o' any o' the enterprises o' that group in terms o' (i# ao.e3

(# ll the accounting perio$s commencing on or a'ter 14009 in

respect o' companies not co.ere$ y (a# ao.e

(c# ll the accounting perio$s commencing on or a'ter 14009 in respecto' all other enterprises3

E&&& Econo"ic rder uantity4-t is a Auality o' material that can e occurre$ at %hich oth or$ering costs an$carrying costs are minimum3

E33Q3= )oot ;C

= nnual Consumption= r$ering Cost per or$er

C= Carrying Cost per unit per annum

0e"i-6ariable Cost+hese costs are partly 'ie$ an$ partly .ariale9 in relation to output3

Ex+elephone &ill9 Electricity &ill3

Angle of IncidenceWhen oth the cost cur.e an$ sales cur.e cuts or meet at a point that point is

calle$ as &reak E.en 2oint3+he angle le't a'ter their inter section is calle$ pro'it angle or angle o' inci$ents3

Sales Cur.e

Margin of 0afety7i''erence et%een +otal ctual Sales &reak E.en Sales

Margin o' Sa'ety = +otal Sales &3E323Margin o' Sa'ety %ill e reache$ 'aster i' angle o' inci$ents is more an$ .ice

.ersa3Ex+otal Sales = 0000 X &3E323 Sales = 0000there'ore Margin o' Sa'ety = 0000 0000 = )s3 10000

Absorption Costing Each an$ e.ery item o' cost i3e39 .ariale cost an$ 'ie$ cost is charge$ to thepro$uct3

Case 1 -n this case 'ie$ cost are charge$ to the pro$uct on the asis o' normal

capacity3/ormal capacity +he numer o' units normally pro$uce$ y the companyZ



31/53


Case *F in case o' un$er asorption9 that amount shoul$ e charge$ to the 2!:

;c

ExCase-1 /ormal units = 109000

ctual pro$uction = 19000"ie$ o.er hea$s = )s319009000;+he asorption rate F 'ie$ o.er hea$s = 19009000 /ormal units 190000 = )s310; per unit

n$ total asorption shoul$ e )estricte$ to )s319009000;-n any case the asore$ amount shoul$ not ecee$ the actual 'ie$ cost3

Case-* i' the actual pro$uction is I9000 units+he asorption )ate F19009000 =)s310; per unit 109000

+he amount asore$ =I000T10 = )s3I09000Dn$er asore$ mount F 19009000 I09000= )s309000;Which is charge$ to the 2ro'it an$ :oss ;c3

Marginal Costing+his is a techniAue o' 7ecision Making3

-n the case o' Marginal Costing only .ariale cost are asore$ y the pro$uct3-n this case the 'ie$ costs are consi$ere$ as perio$ cost an$ this shoul$ e

charge$ to 2 ! : ;c3

Costing+he 2rocess o' $etermining cost is calle$ as costing3

6ariable Cost

13 Cost %hich is changing %ith e.ery change in pro$uction a$$itionally i' you %antto pro$ucing one more unit %e nee$ to epen$ a$$itional cost3

Ex'or 10 units )s3100; 'or 11th unit a$$itionally )s310;

3 Cost per unit %ill not change ut there is change in total cost3Ex'or 10 units )s3100;Cost per unit = cost;unit =100;10= )s310;11 units 110;Cost per unit= 110;11 = )s310;

#ixed Cost13 +his cost is 'ie$ %ill not change %ith increase or $ecrease in pro$uction3

Ex"actory rent

3 +he total cost %ill not change ut cost per unit %ill change3ExF )ent = )s310000;1 person share =)s310000; persons share= )s35000; each4 persons share = )s3500; each

B6 atio Brofit - 6olu"e atio4

-t is a )atio et%een Contriution an$ Sales3

2;B )atio = Contriution ; Sales 100



32/53


Contriution per unitF Selling 2rice per unit Bariale Cost per unit

8rea) - E$en - Boint 8&E&B&4+his is a point at %hich there is no pro'it or no loss3

t this point to total amount recei.e$ is eAual to the total cost incurre$3

+otal Sales amount= +otal Cost mount ("ie$ Cost N Bariale Cost#+otal Contriution = +otal "ie$ Cost

EF Selling 2rice = )s310; Bariale Cost= )s35; "ie$ Cost= )s310000;Contriution= )s310)s35 = )s35;

2;B )atio = Contriution 100 = 5;10100=50@Sales

&3E323Dnits= "ie$ Cost; Contriution per unit = 10000;5= 000 units3&3E323Balue= "ie$ Cost; 2B )atio = 10000;50100 = )s30000;

0tate"ent of Marginal Cost

+otal Sales Bariale Cost = ContriutionContriution "ie$ Cost = 2ro'it

Current atioCurrent ssets ; Current :iailities

Current ssets are those %hich can e con.erte$ into cash in the short run3+he term short run means generally a perio$ o' one year3

Current ssets = -n.entories N Sun$ry 7etors N Cash an$ &ank &alances NShort +erm :oans ! $.ances N

Marketale /on+ra$e Securities N 2repai$ Epenses3Current :iailities = Cash Cre$it N &ank 373 N Short +erm &orro%ings NCre$itors N 2ropose$ 7i.i$en$ N Dnclaime$

7i.i$en$ N 2ro.ision 'or +aation (2ro.ision 'or +a

$.ance +a 2ai$#

uic) atioQuick ssets ; Quick :iailitiesQuick ssets = Current ssets Stock an$ 2repai$ Epenses ther :iAui$

2ortion o' Current ssetsQuick :iailities = Current :iailities Cash Cre$it9 &ank &orro%ings an$ ther

Short +erm &orro%ings

uity atio7et ; EAuity7et = Secure$ :oan an$ Dnsecure$ :oan minus Cash Cre$it an$ &ank 373EAuity = 2ai$up Share Capital inclu$ing 2re'erence Capital an$ 2re)eser.es

Capital E"ployed F/et "ie$ ssets N Working Capital

In$entory 5urno$er atio= Cost o' oo$s Sol$ ; .erage -n.entory


33/53



34/53


0hareholder ation 'or more than one

year3EF plant an$ machinery

+he ene'its 'or the epen$iture %ill'lo% or en6oye$ y the organi>ation

'or the current year only3EF salaries9 printing ! stationary etc3

5 +he item $ealt is calle$ as asset3 -tis epresse$ or i$enti'ie$ in its o%n

name32lant 2lant X +3B3 +3B3

+he item $ealt is calle$ goo$s ormerchan$ise3

2lant oo$s X +3B3 oo$s3

H sset is purchase$ 'or utili>ation inthe usiness9 in the normal courseo' usiness3

oo$s are purchase$ %ith an intentionto sell3

, 7epreciation is to e consi$ere$ 'orthe li'e o' asset3

+here is no nee$ o' $epreciation3

Brofit and 2oss Account 8alance 0heet

1 6ecti.e o' preparing 2 ! : ccountto ascertain the net pro'it or loss o'the usiness $uring the year3

+he o6ecti.e o' the preparing &alanceSheet is to kno% the 'inancial positiono' the usiness on a speci'ic $ate3

-n this account ha.ing $eit an$ &alance Sheet is a statement an$



35/53


cre$it as such V+o an$ V&y areuse$

hence V+o an$ V&y are not use$3

)e.enue epen$iture an$ incomesare recor$e$ in the 2ro'it an$ :ossccount3

Capital incomes an$ epen$itures aresho%n in the &alance Sheet3

4 &alancing 'igure o' this accounteither net pro'it or net loss3

&alance Sheet %ill not sho% anyalancing 'igure3 total o' :iailitiesan$ ssets si$e shoul$ al%ays e

eAual3

ecurring Expenses Non-ecurring Expenses

-tems %hich are repeate$3EF Salaries ! Wages

-tems Which re /ot )egular n$)epeate$3EF &uying o' Machinery or ther

"ie$ ssets9 :egal Epenses9 :oss or2ro'it on sale o' sset9 -nsurance

Claims3

Bublic 2i"ited Co"pany Bri$ate 2i"ited Co"pany

1 Minimum numer o' memers are ,3 Minimum numer o' memers are 3

Maimum numer o' memers areunlimite$3

Maimum numer o' memers are 503

Minimum $irectors are 3 Minimum $irectors are 3

4 'ter getting usinesscommencement certi'icate they can$o usiness3

Can start usiness a'ter incorporation3

5 2ulic :imite$ Company can go 'orpulic issue3

2ri.ate :imite$ Company shall notissue its shares to outsi$ers3

Bro$ision eser$e

1 2ro.ision is a charge against thepro'its3

)eser.e is an appropriation on pro'its3

-s ma$e 'or kno%n liaility orepen$iture3

-t is ma$e 'or 'uture unkno%n liaility3

-t is utili>e$ 'or that purpose only3 -t can e utili>e$ 'or any 'uturepurpose3

4 -s sho%n ao.e the line3 -s sho%n elo% the line3

5 o.e the line means 2ro'it an$ :oss

ccount3

&elo% the line means 2ro'it an$ :oss

ppropriation ccount3

Bartnership Goint 6enture

1 -t is a going concern3 -t is a terminale .enture3

-t al%ays has a name3 -t may not ear a name3

2ersons carrying on usiness arecalle$ partners3

2ersons carrying on usiness arecalle$ Co.enturers3

4 2ro'its are ascertaine$ at regularinter.als9 i3e39 annually3

+he pro'its are ascertaine$ 'or each.enture separately cash asis o'accounting is 'ollo%e$3


36/53


term 'inancial sources3 sources3

7eposits are unsecure$3 7eentures are generally secure$3

4 -t is easy to rise pulic $eposits3 -ssue o' $eentures restricte$ y )&-3

Me"ber 0hare holder

1 /ame entere$ in the register o'

memers3

/ame not entere$ in the register on

memers3

Memer is also a share hol$er3 Share hol$er is not a memer unless

name is entere$ in the register o'memers3

Share %arrant hol$er is not amemer3

Share %arrant hol$er is share hol$er3

Bartner


37/53


4 +he preparation o' +rial &alance isnot compulsory3

+he preparation o' &alance Sheet ismust3

5 +rial &alance cannot e sho%n as a$ocumentary e.i$ence3

&alance Sheet %ill e accepte$ as$ocumentary e.i$ences y taauthorities an$ courts3

#orfeiture of 0hares 0urrender of 0hares

1 "or'eiture is procee$ing againstreluctant sharehol$er3 ( $e'aulte$ incall payment#

Surren$er is a''ecte$ %ith the assento' share hol$er3

"or'eiture can e $one only partlypai$ up shares3

Surren$er can e $one only 'ully pai$up shares3

0hare Certificate 0hare Warrant

1 +he hol$er is a registere$ memer o'the company3

+he earer o' a share %arrant is not aregistere$ memer3

+he hol$er o' a share certi'icate isessentially a memer3

+he earer o' a share %arrant can ea memer only i' the article sopro.i$e$ in an$ as3

"or the issue o' share certi'icate maynot reAuire$ appro.al o' the Centralo.ernment3

Share %arrant can e issue$ Centralo.t3 appro.al is must3

4 ll companies must issue sharecerti'icates3

Share %arrant can e issue$ only ypulic companies3

5 Share certi'icate is issue$ is partly or'ully pai$ shares3

Share %arrant can e issue$ only 'ullypai$ shares3

H Share certi'icate is not negotiale3 Share %arrant is negotiale3

, +he hol$er o' a share certi'icate canpresent a petition 'or %in$ing up3

+he hol$er o' a share %arrant cannotpresent a petition 'or %in$ing up3

Bro"issory Note 8ill of Exchange

1 -n promissory note there is apromise to pay33

-n a ill there is an or$er to pay3

-n promissory note there are t%oparties9 namely9 the maker an$ thepayee3

-n a ill there are three parties9namely9 $ra%ee9 $ra%er9 an$ payee3

promissory note is signe$ y theperson liale to pay3 So noacceptance is nee$e$3

ill has to e accepte$ y the$ra%ee e'ore he can e hel$ liale3

Gournal 2edger

1 ?ournal is the ook o' 'irst or originalentry3 -t is also calle$ the ook o''irst entry or primary entry3

+he le$ger is the ook o' secon$entry3

+ransaction in the 6ournal %ill erecor$e$ imme$iately3

7epen$ing upon his con.eniences thetra$er recor$s the transaction in thele$ger3

When once the entries are poste$ into le$ger9 the 6ournal losses itsimportance3

-t %ill ne.er lose importance as it isthe main ook o' accounts %hich isrelie$ upon permanently3

4 -n the preparation o' 'inal accounts6ournal in not use'ul3

-n the preparation o' trial alance an$'inal accounts le$ger is a must3



38/53


5 +he ta authorities generally maynot $epen$ on 6ournal3

-n the 'inali>ation o' income ta to epai$9 the ta authorities $epen$ onle$ger3

8oo)-)eeping is complement to the accounting process3 &ookkeeping is the

systematic recor$ing o' 'inancial an$ economic transactions3

Accountingis the analysis an$ interpretation o' &ookkeeping recor$s3

Cash 8oo) +he Cash &ook is a su $i.ision o' the original entry recor$ingtransactions in.ol.ing receipts an$ payments o' cash3 ll cash transactions are'irst entere$ in the cash ook an$ then poste$ 'rom cash ook in to the le$ger3+ransactions are recor$e$ chronologically in the cash ook3

8ill of Exchange is a instrument in %riting containing an uncon$itional or$er9

signe$ y the maker9 $irecting a certain person to pay a certain sum o' moneyonly to9 or to the or$er o' a certain person or to the earer o' the instrument3

Brudence-ncomes are recogni>e$ %hen they are reali>e$9 all possile epenses

are pro.i$e3

5er" 2oans +erm :oans represents secure$ orro%ing an$ at present are themost important source o' 'inance 'or ne% pro6ects3 +hey generally carry a rate o'interest3 +hese loans are generally repayale o.er a perio$ o' H to 10 years inannual9 semi annual9 or Auarterly in installments3 +erm loans are also pro.i$e$ y

anks9 state 'inancial institutions an$ all -n$ia term len$ing institutions3

Cash BrofitCash is arri.e$ y a$6usting the noncash transactions to the netpro'it a'ter ta3

/et pro'it a'ter ta $$F /oncash epenses

$$F 7epreciation

:essF /oncash incomes(cre$it sales# Cash 2ro'it xxxx

Cash #lo, 0tate"ent ccounting Stan$ar$ eplains aout this3

+he statement sho%s ho% much cash is generate$ an$ epen$e$ in

the organi>ation $uring the year3 -t also sho%s opening an$ closing

alance o' cash3 -t is use 'ull 'or in.estors an$ cre$itors3

-t pro.i$es .ital (important# in'ormation aout companies aility to

generate 'uture cash 'lo% to satis'y in.estors an$ cre$itors

epectations3

Methods in preparing cash flo,s+here are t%o metho$s9 these are a# 7irect Metho$9 an$ # -n$irect Metho$3-n 7irect Metho$ F ross )eceipts ross 2ayments = /et Cash "lo%-n -n$irect Metho$ F /et 2ro'it N /oncash Epen$iture /oncash -ncomes(Cre$it Sales# = /et Cash "lo%3

Classification of Cash #lo,s i# perating Cash "lo%

ii# -n.esting Cash "lo%



39/53


iii# "inancing Cash "lo%

Cash +he purchasing po%er in han$ is calle$ cash3

Cash Expenses Cash is pai$ 'or epenses incurre$3 EF Salaries9 Wages pai$etc3

Non-cash Expenses it is an epen$iture9 there is no cash in.ol.ement3Epenses are incurre$ ut cash is not pai$ ( that is cash is not going out o' theusiness#EF $epreciation %riting o''9 goo$%ill9 patents9 %riting o'' preliminary epenses9$iscount on issue o' shares an$ $eentures9 loss on re.aluation o' assets an$

liailities etc39 in this cases income is re$uce$ since ta sa.ing is e''ecte$3

A"alga"ation -n.ol.es merger o' t%o eisting companies or a companytakeo.er the another company3

Absorption company take o.er another company3 malgamation inclu$es

asorption3

#ixed Assets +hese assets are acAuire$ 'or long term use in the usiness3

2i>uid Assets +hese assets also kno%n as circulating9 'luctuating9 or currentassets3 +hese assets can e con.erte$ in to cash as early as possile3

#ictitious Assets "ictitious assets are those assets9 %hich $o not ha.e physical

'orm3 +hey $o not ha.e any real .alue3EF loss on issue o' shares9 preliminary epenses etc3

Intangible Assets -ntangile assets are those ha.ing no physical eistence

an$ cannot touch3EF oo$%ill9 2atents9 an$ +ra$emarks etc3

Contingent 2iabilities +hese are not the real liailities3 +hey are not actual

liailities at present3 +hey right ecome a liaility in respect o' pen$ing3 +his isnot sho%n in alance sheet3 +hat may e sho%n as notes un$er alance sheet3


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A8C Analysis &C nalysis is a metho$ o' in.entory control3 -t is popularsystem o' in.entory control3 +he item o' in.entory is generally classi'ie$ in to

three types3 +hese areF F Dsage .alue is Maimum an$ numer o' items is Minimum3

& F Dsage .alue is Me$ium an$ numer o' items is also Me$ium3C F Dsage .alue is :o%est an$ numer o' items is ighest3

Annual eport nnual )eport is a report9 %hich %ill contain the all 'inancialstatements o' the company an$ au$itors report an$ main opinions onper'ormance o' company3 -t is use'ul %ith pre.ious reports3

0,eat E>uity 0hares means eAuity shares issue$ y the company to

employees9 $irectors3 Such issue shoul$ e authori>e$ y a special resolutionpasse$ y the company in general meeting3

Me"orandu" means M as originally 'rame$ or altere$ 'rom time to time inpursuance o' any pre.ious company la% or o' this act3

Issue of 0hare at a


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Bortfolio Manage"ent Classi'ication o' assets get aims at minimi>ing the totalrisk %hile taking the maimum returns is calle$ port'olio management3 -t re'ers

to $i.ersi'ication o' assets %hich means not keeping all eggs in the same asket3

9ood ,ill -t is an amount pai$ o.er an$ ao.e the .alue o' assets an$ liailitieso' the un$er taking3oo$%ill is the reputation o' the usiness3 +his reputation is $ue to ecess salesan$ pro'it ma$e then normal sales an$ pro'it3)easons 'or goo$%ill areF

oo$ reputation

"a.ourale location

ility an$ skill o' employees

oo$ management3

oo$%ill is o' t%o types9 these are i# 2urchase$ oo$%ill an$ ii# 7e.elope$oo$%ill

Burchased good,illmore amounts pai$ 'or assets than reAuire$EF +otal ssets = 100000

mount 2ai$= 150000ation metho$ an$ ii# Super 2ro'it Metho$CapitaliHation Method

/ormal Capital Employe$ = "uture Maintainale 2ro'its/ormal )ate o' )eturn

oo$%ill = /ormal Capital Employe$ ctual closing capital employe$

0uper Brofit MethodSuper 2ro'it = "uture Maintainale 2ro'its ctual Capital Employe$

/ormal )ate o' )eturn3oo$%ill = Super 2ro'it /o3 o' years 'or %hich super pro'it can e

maintaine$3Capital Employe$ = +otal ssets o' the Company utsi$ers :iailities3

Annual eport nnual )eport contains &alance Sheet9 2ro'it an$ :oss ccountan$ /otes to accounts o' the company $uring the last year3

Notes to Accounts it gi.es the in'ormation on the 'ollo%ing aspects9i# ccounting policies %ith respect to

"ie$ assets an$ $epreciation )esearch an$ $e.elopment epen$iture

"oreign echange transactions

Ecise $uty

-nterim ; propose$ $i.i$en$

-n.estments

Miscellaneous epen$iture

We are $o%nloa$e$ more than 1W CompanyRs annual report 'rom their %e sitesan$ internet3 +hen %e can access more than H00 'iles3

Cash Accounting 0yste" nly cash transactions are recor$e$ i' the system is

'ollo%e$3



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Mercantile Accounting 0yste" &oth cash transactions an$ cre$it transactionsare recor$e$ in this system3 -' cash transactions are incurre$ 'irst they are

recor$e$ 'irst3 -' cre$it transactions are incurre$ 'irst they are recor$e$ 'irst3 -nsimple to say %hat e.er is incurre$ 'irst %ill e recor$e$ 'irst3


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Capital Brofits Capital pro'its are pro'its reali>e$ on sale o' 'ie$ assets or on$iscount o' in.estments3 +hey may e $istriute$ y %ay o' $i.i$en$3

e$enue BrofitsF )e.enue pro'its are the pro'its earne$ y the company

through its or$inary acti.ities3

e$ as $i.i$en$3

Capital eser$e 2ro'its in the nature o' capital or pro'its in the 'orm o' capital

nature3EF Share 2remium9 Share "or'eiture3

eser$e Capital )eser.e Capital is calle$ up only at the time o' liAui$ation i'

assets hel$ are not su''icient to meet the liailities3

0ubsidiary Co"pany company %ho is selling more than 51@ o' their sharesto another company is calle$ susi$iary company3

:olding Co"pany company %ho is uying more than 51@ o' shares 'rom

another company9 is calle$ hol$ing company3 company shall e $eeme$ to e asusi$iary o' another company9 i' that other company9

Controls the composition o' its &oar$ o' 7irectors3

ol$s more than 50@ o' the .oting po%er or pai$ up capital in the

other company3 -s the susi$iary any other company9 %hich is the susi$iary o' hol$ing

company3

9o$ern"ent Co"pany o.ernment Company is a company in %hich notless than 51@ o' the pai$ up share capital o' the company is hel$ y Central

o.ernment9 or State o.ernment9 or partly y the y the Central o.ernmentan$ partly y one or more State o.ernments3

Me"orandu" of Association -t is the main $ocument o' the company3 +his

$ocument represents constitution o' that company3 -t contains i# /ame Clause9 ii#6ecti.e Clause9 iii# State Clause9 i.# Capital Clause9 .# :iaility Clause9 an$ .i#

Situation Clause3

Articles of Association +his $ocument represents rules an$ regulations o' thecompany3 -t $e'ines $uties9 rights9 an$ regulations o' the company et%eenthemsel.es an$ company3

2i"ited 2iability :iaility is limite$ to the 'ace .alue o' the share3



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Minority Interest -n a Susi$iary Company9 the ma6ority sharehol$ing is hel$y hol$ing company (say H0@ or I0@ or so9 the remaining 40@ or 0@ is hel$

y sum other people %ho are little intereste$ in the company3 +his little interest iscalle$ as minority interest#3 +hese people are calle$ as minority sharehol$ers3

0toc) Exchange Stock Echange is the place9 %here stocks9 shares an$ other

securities o' the liste$ companies ought an$ sol$3

Mutual #und Mutual "un$ is a 'un$9 %hich collects the in.estments o' smallsa.ing hol$ers an$ rein.est in capital markets9 like share market9 $et market3 -tcreates link et%een small sa.ing hol$ers an$ capital markets3 EF D3+3-3 Mutual"un$s3

ing 'unction

2ooling 'unction

Securiti>ation 'unction

Bri"ary Mar)et Shares are purchase$ $irectly at the time o' allotment y thecompany3

0econdary Mar)et Shares are purchase$ 'rom market through the stockechange3

Wor)ing Capital "or running $ay to $ay acti.ities o' a usiness9 same capital isreAuire$ %hich is calle$ %orking capital3

Working Capital = Current ssets Current :iailities or9Ecess o' +otal Current ssets o.er Current :iailities3

Working Cycle or perating Cycle F +here is a complete operating cycle is the time$uration reAuire$ to con.ert cash in to cash cycle 'rom cash to cash

Con.ersion o' cash into ra% material

Con.ersion o' ra% material into %ork in progress

Con.ersion o' %ork in progress into 'inishe$ goo$s

Con.ersion o' 'inishe$ goo$s into $etors an$

Con.ersion o' $etors into cash

/o3 o' perating Cycle = /o3 o' 7ays in a year;perating Cycle 2erio$

b!ecti$e of Wor)ing Capital Manage"ent ptimum -n.estment in current

assets re$ucing current liailities3

Wor)ing Capital Manage"ent 7ecisions are to e taken 'or e''ecti.e'inancing o' current assets reAuire$ 'or $ay to $ay running o' the organi>ation3Working Capital Management re'ers to the proce$ures an$ policies reAuire$ tomanage the %orking capital3

Accrued Interest +he accrue$ interest is to e a$$e$ to the concerne$ income

in the cre$it si$e o' the pro'it an$ loss account3 +he accrue$ interest is to esho%n as an asset9 sset si$e o' &alance Sheet

ccrue$ -nterest ;c 7r-nterest ;c



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Written


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elps in $i.i$en$ $istriution an$ the 'ormulation o' an i$eal $i.i$en$

policy3

elps in making correct $ecisions in planning an$ $e.elopment o' the

company3

Concept of 0ources and uses of #unds n increase in noncurrent liailities or a $ecrease in noncurrent

assets o' the 'irm is consi$ere$ as source o' 'un$s3 n increase in the noncurrent assets an$ a $ecrease in the non

current liailities is a use o' 'un$s3 $ecrease in net %orking capital $uring the accounting perio$9 is

consi$ere$ to e a source o' 'un$s3 n increase on net %orking capital $uring the accounting perio$ is

consi$ere$ to e a use o' 'un$s3

Net Wor)ing Capital F Current Assets Current 2iabilities

#unds+he term 'un$s means %orking capital i3e39 the ecess o' current assetso.er current liailities3

#lo, of #unds+he term 'lo% means mo.ement an$ inclu$es oth V-n'lo% an$Vut'lo%3

atio Analysis -t is the relationship et%een t%o 'inancial .alues3 +o make itclear the %or$ relationship stan$s 'or a 'inancial ratio %hich is the result o' t%omathematical .alues3

9ross Brofit atio= ross 2ro'it ; Sales 100+his ratio tells us the result 'rom tra$ing cti.ity ('rom &uying an$ Selling#3 +o

kno% the perating E''iciency o' the rganisation3Net Brofit atio= /et 2ro'it ; Sales 100-t in$icates the 'inal result to organi>ation an$ o.erall e''iciency o' theorgani>ation3

perating Brofit atio Fperating 2ro'it ; Sales 100+his ratio speaks o' the operational per'ormance o' the organi>ation an$ re'er the

managerial e''iciency o' the 'irm3

Earning per 0hare= EAuity Sharehol$ers ; /o3 o' EAuity Sharehol$ers-t re.eals the pro'it a.ailale to or$inary sharehol$ers3


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perating Expenses= (''ice $ministrati.e Ep3 N Selling ! 7istriution Ep3N "inancial Ep3#

ffice / Ad"inistration Exp& atio F''ice ! $mn3 Ep3 ; Sales 100

0elling /


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ratio helps us in assessing the risk 'actor that arises in the use o' $et capital incapital structure3

0toc) 5urno$er atio FCost o' oo$s Sol$ ; .erage Stock

-t re.eals the mo.ement o' stock in the organi>ation3 -' the no3 o' times is more itin$icates the 'ast mo.ement o' stock3 -' the no3 is less it in$icates slo% mo.emento' stock in the organi>ation3

uity2roprietary "un$s

ation o' companyRs 'inancial structure3

Burchase Consideration F 2urchase consi$eration means the purchase priceagree$ upon9 %hich is pai$ y the purchasing company inor$er to pay to theBen$or Company3

2u"p su" Method :ump sum amount is pai$ to Ben$or3



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:2


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#air 6alue Methodthis is also calle$ earning capacity .aluation metho$ or $ual

metho$3 +his is geare$ to recti'y one o' the limitations o' the earlier metho$ thatthe .alue o' the share is ase$ on the $i.i$

Documents

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