Module D Final Accounts covering Final Accounts CA R. C. Joshi B.Com(Hons.),FCA,LL.B.CAIIB.

Module DFinal Accounts covering Final

Accounts CA R. C. Joshi

B.Com(Hons.),FCA,LL.B.CAIIB

Equation

• Balance Sheet Rs. Lakhs Capital & Liabilities Assets Capital 30 Fixed Assets 20Reserves 10 Investments 05Capital Employed40 Current Assets Term Liab 10 Cash 5 Current Liab. 15 Bank 5 Debtors 20 _____ Stock 10 40 65 65

• Assets = Equities (Total Claims)Or Assets = Liabilities +Capital or

Liabilities= Assets- Capital orCapital= Assets- Liabilities

• Capital =Rs.65 lakhs-Rs.25 lakhs(TL *CL)So we get capital deployed of Rs.40 lakhs

Final Accounts

• Current assets are those which are:• kept temporarily for resale• for converting into cash• they are cash or cash equivalent• are to be realized within a period of one year• are to be realized during the normal operating

cycle

• Some common adjustments are:• Closing Stock• Expenses due but not paid (Outstanding

expenses)• Expenses paid in advance (Prepaid expenses)• Incomes due but not received (Accrued incomes)• Incomes not due but received (Unearned

incomes)• Depreciation on assets• Interest on Capital

• : Closing consolidated journal entries are normally passed for

• Transfer of all manufacturing and purchase expense to the debit side of trading a/c

• Transfer of Purchases and Sales return to the debit side of Trading a/c

• Transfer of Sales and Purchases return to the credit side of Trading a/c

• Transfer of closing stock to the credit of trading account by an adjustment entry

Equation & closing entries• Transfer of Gross profit to the credit side of Profit & Loss

a/c for the yearended 31-12-2009. Trading Account

• To Opening Stock 15000 By Sales 65000To Purchases 30000 By Cl.Stock 20000To Wages 11000+ O/s forMar 1000 12000 To Carriage Inward 3000 To Gross Profit 25000 85000 85000

• Transfer of Gross loss to the debit side of Profit & Loss a/c

Profit & Loss Account for the Period ended 31/3/09.

To Salaries 12000 By Gross Profit 25000To Rent 600 By Commission 4000To Admin. Exp. 400 By Misc. Income1000To InsuranceRs.3000

LessPrepaid 1000 2000• To Dep. 1000To Net Profit Trd To

Capital Account 11000 30000 30000

Balance Sheet• Capital A/c Fixed Assets10000

Op. Bal 42000+ -Dep 1000 33000 Profit 11000 Current Assets

-Drawing 8000 45000 Cash 1000 Sun Cr. 11000 Bank 1000 Wages O/s 1000 Debtors10000

Stock 20000 23000 57000 Adv: Prepaid Div 1000

Total 57000

• Owners fund includes:• Capital less drawings of the owner• Undistributed profits• Reserves• Assets minus liabilities

True or False

• a. Balance Sheet represents an expansion of the equation: Assets= Liabilities+ capital b. Assets- Original Capital= Liabilities c. Rehman has assets of Rs.5000 & Liabilities of Rs.5000 therefore his Capital would be Rs.15000. d. Assets will be equal to Capital if there are no liabilities of the business. E. If a firm borrows a money its capital would be reduced. F. Samir has assets of Rs.20000 & Liabilities of Rs.10000. Therefore his Capital is Rs.30000.

• Answer a)True b) False © False d) True e False • (F) False

• Banking Final Accounts

BANKING ACCOUNTS

• A company that carries on the business of Banking in India.

• It generally governed by the Provisions of the Companies Act, 1956.

• It is specifically governed by the Banking Regulation Act,1949.

BANKING ACCOUNTS

• The Major institutions that are carrying on business of banking in India are:

• Nationalised Banks• State Bank of India and their associates• Foreign Banks having branches in India• Co-operative Banks• Rural Banks• Private Sector Banks

BANKING ACCOUNTS

• Bankers’ Books include:• Ledgers• Day Books• Cash Books• Account Books• All other records used in the ordinary business

of a bank

BANKING ACCOUNTS• Third Schedule: Form ‘A’• Form of Balance Sheet• Balance Sheet as on 31st March,………….• Capital and Liabilities Schedule Rs• Capital 1

…….• Reserves and Surplus 2

…….• Deposits 3

…….• Borrowings 4

…….• Other Liabilities and Provisions 5

…….• Total

…….• …….

Non- Banking Assets

• ‘Non-Banking Assets?• This relates to assets, which are not acquired by

the banks for the purpose of Banking business like lending .Land & building for its own se.

• Second category of non Baking assets are assets repossesed by Bank In case of non-payment of loan amount such securities are taken in possession for recovery.These assets were finance by the bank & have turned bad.

• Sec. 17 of BR Act requires 25% from 2007(earlier 20) by way of Reserves and also provision for Bonus Sec. 15 prohibits bank to declare dividend unless first written all capital expnses

BANKING ACCOUNTS• Assets Schedule No.

Rs.• Cash and Balance with RBI 6

…….• Balance with Banks and• Money at call and Short Notice 7

…….• Investments 8

…….• Advances 9

…….• Fixed Assets 10

…….• Other Assets 11

…….• Total• Contingent Liabilities 12

• BANK BALANCE SHEET :• Sch1 to 12 Balnance out of which 1to 5 for

Capital & Liability Side & Sch.6 to 12 for Babk’s Assets Side.

• Bank’s P & L : Sch.13 to 16.

Sch.1 Capital • The various items in schedule-1(Capital) in Balance

Sheet(Form A) includes:• For Nationalised Banks- Capital• For Banks incorporated outside India- Start up capital as

prescribed by RBI + Amount of deposit kept with RBI under section 11(2) of BR Act,1949.

• For other Banks- i) Authorised Capital (…shares of Rs….each)• ii) Issued Capital --do-• iii) Subscribed Capital --do—• iv) Called-up Capital --do—• v)Less call unpaid + Add Forfeited Shares

Sch.2• The various items in schedule-2(Reserve and Surplus) in Balance

Sheet(Form A) • includes: • Statutory Reserves(opening Balance + Additions and Deductions during

the • year).• Capital Reserves ( ---------------- do-------------------------------------------).• Share Premium ( ---------------- do-------------------------------------------).• Revenue and other Reserves ( ---------------- do---------------------------).• Balance in Profit and Loss Account.• Total(a+b+c+d+e)

Sch. 3

• The various items in schedule-3(Deposits) in Balance Sheet(Form A) includes:

• a) (I) Demand Deposits-- ( i )From Banks, ii) From Others.

• (II) Savings Bank Deposits• (III) Term Deposits – i)From Banks, ii) From

Others• (IV) Total (I + II + III)• b) (I) Deposits of Branches in India• (II) Deposits of Branches Outside India

Sch.4

• The various items in schedule-4(Borrowings) in Balance Sheet(Form A) includes:

• Borrowings in India (reserve Bank of India +Other Banks +Other Institutions

• and agencies)• Borrowings outside India• Total(a + b)• Secured Borrowings in a & b above

Sch.5

• The various items in schedule-5(other Liabilities and Provisions) in Balance

• Sheet(Form A) includes: • Bills Payable• Inter-office Adjustments(net)• Interest Accrued• Others(including Provisions)

Sch. 6Cash & Bal. with RBI

Form A includes: • Cash in Hand (including foreign currency notes)• Balances with RBI in(Current Account, other Accounts)• Total(a + b) . Cash and Balance with the Reserve Bank of India

includes:• Cash in hand including foreign currency notes.• Balance with RBI in current account and in other accounts.• It includes cash in hand including foreign currency notes and

also of foreign branches in case of banks having such branches.

Sch. 7 • The various items in schedule-7(Balance with Banks & Money at call and

short • notice) in Balance Sheet(Form A) includes: • In India:• i) Balance with banks (in Current Accounts + in Other Deposit Accounts)• ii) Money at Call and Short Notice (With Banks + With other Institutions)• Total( i + ii )• Outside India:• i) In Current Accounts• ii) In other Deposit Accounts• iii) Money at Call and Short Notice• Total (i + ii + iii)• Grand Total (a + b)

• Balances with other Banks and Money at Call and Short Notice includes:• Balances with Banks in India including co-operative Banks, in current

accounts and in other Deposit accounts shown separately.• Money at call and short notice with banks and other institutions. It

represents loans given by one bank to other for a short period. Call loans are repayable at any time the banker recalls while short notice advances are repayable within short notice say, 24 hours to maximum period of two weeks. It also includes deposits repayable within 15 days notice lent in the inter-bank call money market.

• Balances in current accounts and deposit accounts outside India which includes balances held by foreign branches and branches of Indian Banks outside India.

• Money at call and short notice in foreign countries.

Sch. 8

• The various items in schedule-8(Investments) in Balance Sheet(Form A) includes:

• Investments in India in:• i) Govt. Securities• ii) Other Approved Securities• iii) Shares• iv) Debentures and Bonds• v) Subsidiaries and/or Joint Ventures• vi) Others (to be specified

Sch. 8

• Investments Outside India in:• i) Govt.Securities (including Local

Authorities)• ii) Subsidieries and/or Joint Ventures abroad• iii) Other Investment (to be specified)• Total:• Grand Total (a and b)

• Investment in India includes:• Central and State Govt. securities and govt. treasury bills

shown at the book value. Difference between the book value and market value should be mentioned in notes.

• Other than govt. securities which are treated as approved securities as per BR Act,1949.

• Investments in shares, debentures and bonds of companies and corporations not included above.

• Investments in Subsidiaries/Joint Ventures (including RRBs)• Residual investments if any, like Gold, commercial paper and

instruments in the nature of share/debentures/bonds.

• Investment outside India includes:• All foreign government securities including

securities issued by local • authorities.• Investments made in the share capital of

subsidiaries floated outside India • and/or joint ventures abroad.• All other investments made outside India.

Sch. 9• . The various items in schedule-9(Advances) in Balance

Sheet(Form A) includes: • i) Bill Discounted and Purchased• ii) Cash Credits, Overdrafts and Loans Payable on Demand• iii) Term Loans• Total:• i) Secured by Tangible Assets• ii) Covered by Bank/Govt. Guarantees• iii) Unsecured• Total:

Sch. 9 continued • I. Advances in India:• i) Priority Sectors• ii) Public Sector• iii) Banks• iv) Others• Total:• II. Advances Outside India:• i) Due from Banks• ii) Due from Others( Bills Purchased and Discounted, Syndicated Loans, • Others)• Total:• Grand Total( I and II )

• ‘Advances’?• includes Loans, Cash Credit and Overdraft• Loan is an advance which has fixed amount and fixed period.• Cash Credit is an arrangement where banks agree to lend

money to borrowers up to a fixed limit against Hypothecation or Pledge of securities. However the borrower need not avail the whole amount in one go.

• Overdraft is an arrangement where customer is permitted to overdraw money in his current account up to a certain limit against securities like, L.I.C. Policy, FDRs, National Saving Certificates, Quoted shares etc.

Sch. 10 Fixed Assets• The various items in schedule-10(Fixed Assets) in Balance Sheet(Form A)

includes: • Premises :• At cost as on 31st March of the preceding year • Additions during the year• Deductions during the year• Depreciation to date• Other Fixed Assets(Including Furniture and Fixture)• At cost on 31st March of the preceding year• Additions during the year• Deductions during the year• Depreciation to date• Total (a + b)

Sch. 11 Other Items • . The various items in schedule-11(Other Assets) in Balance

Sheet(Form A) • includes:• Inter-Office Adjustments• Interest Accrued• Tax Paid in Advance/Tax Deducted at source• Stationery and Stamps• Non-banking Assets acquired in satisfaction of claims• Others (any unadjusted balance of loss, when the loss

exceeds the aggregate of capital, Reserves and Surplus)

Sc. 12 Contingent liabilities• . The various items in schedule-12(Contingent Liabilities) in Balance

Sheet(Form A) • includes:• Claims against the Bank not acknowledged as debts• Liability for partly paid investments• Liability on account of Outstanding Forward Exchange Contracts• Guarantees given on behalf of constituents;• i) In India• ii) Outside India• Acceptances, Endorsements and other Obligations• Other items for which the Bank is contingently liable• Total

Sch. 13 P& L

• The various items in Schedule 13 (Interest Earned) of Profit and Loss Account

• (Form B) includes:• Interest/Discount on Advances/Bills• Income on Investments• Interest on balances with RBI and other inter-

bank funds• Others

• Interest Earned (schedule 13) includes:• Interest/discount on Advances/bills: includes interest and discount on all

types • of loans and advances like Cash Credit, demand loans, overdrafts,

export • loans, term loans, domestic and foreign bills purchased and • discounted (including those rediscounted), overdue interest and also

interest • subsidy, if any, relating to such advances/bills.• Income on investments: Includes all income derived from the investment

portfolio by way of interest and dividend.• Interest on Balances with RBI and other inter-bank funds: includes

interest on balances with Reserve Bank and other banks, call loans, money market placements, etc.

• Others: Includes any other interest/discount income not included in the above heads.

• The various items in Schedule 14 (Other Incomes) of Profit and Loss Account

• (Form B) includes:• Commission, Exchange and Brokerage• Profit on Sale of Investments• Less: Loss on sale of investments• Profit on Revaluation of Investments• Less: Loss on Revaluation of Investments• Profit on Sale of Land/Building and other Assets• Less: Loss on sale of Land, Building & Other assets• Profit on Exchange Transactions• Less: Loss on Exchange Transactions• Income earned by way of dividends, etc., from subsidiaries, companies

and/or joint ventures abroad/in India• Misc. Income

Sch. 14 other income

• Other Incomes (schedule 14) includes:8• Commission, Exchange and Brokerage: includes all

remuneration on services such as commission on collection, commission/exchange on remittances and

• transfers, commission on letters of credit, letting out of lockers, guarantees,

• commission on Govt. business, commission on the other permitted agency

• business including consultancy and other services, brokerage etc., on securities excluding foreign exchange income.

• Profit on sale of investments less loss on sale of investments.• Profit on revaluation of investments less loss on revaluation

of investments.

Sch. 15 Interest Expended

• The various items in Schedule 15 (Interest Expended) of Profit and Loss Account

• (Form B) includes:• Interest on deposits• Interest on RBI/Inter-Bank Borrowings• Others

Sch. 16• The various items in Schedule 16 (Operating Expenses) of Profit and Loss

Account • (Form B) includes:• Payments to and Provisions for Employees• Rent, Taxes and Lighting• Printing and Stationery• Advertisement and Publicity• Depreciation on Bank’s property• Director’s fees, Allowances and Expenses• Auditor’s fees and expenses (Including Branch Auditors)• Law Charges• Postages, Telegrams, Telephones etc.• Repairs and Maintenance• Insurance• Other Expenditure

Sch.16• Operating Expenses (schedule 16) includes:• Payments to and provisions for employees: Includes staff

salaries/wages, allowances, bonus, other staff benefits like provident fund, pension, gratuity, leave fare concessions, staff welfare medical allowance to staff.

• Rent, Taxes and lighting: Includes rent paid by the banks on buildings and other municipal and other taxes paid excluding income tax and interest tax, electricity and other similar charges and levies. House rent allowance and other similar payments to staff should appear under the head “Payment to and provisions for employees”.

Sch.16• Printing and stationery: Includes books and forms of

stationery used by the bank and other printing charges which are not incurred by way of publicity expenditure.

• Advertisement and publicity: Includes expenditure incurred by the bank for advertisement and publicity purposes including printing charges of publicity matter.

• Depreciation on bank’s property: Includes depreciation on bank’s own property, motor cars and other vehicles, furniture, electric fittings, vaults, lifts, leasehold properties, non-banking assets etc.

Sch. 16• Directors’ fees, allowances and expenses: Includes sitting fees and all

other items of expenditure incurred on behalf of directors. The daily allowance, hotel charges, conveyance charges etc., which though in the nature of reimbursement of expenses incurred may be included under this head. Similar expenses of local committee members may be included under this head.

• Auditors’ fees and expenses (Including branch auditors’ fees and expenses): Includes the fees paid to the statutory auditors and branch auditors for professional services rendered and all expenses for performing their duties, even though they may be in the nature of reimbursement of expenses. If external auditors have been appointed by bank themselves for internal inspection and audits and other services, the expenses incurred in that context including fees may not be included under this head but shown under ‘Other expenditure’.

• Law charges: includes all legal expenses and reimbursement of expenses incurred in connection with legal services.

Sch.16• Postage, telegrams, telephones etc.: Includes all postage

charges like stamps, telegram, telephones, teleprinters etc.• Repairs and Maintenance: Includes repairs to bank’s property,

their maintenance charges.• Insurance: Includes insurance charges on bank’s property,

insurance premium paid to DICGC etc., to the extent they are not recovered from the concerned parties.

• Other expenditures; Includes all expenses other than those not included in any of the other heads like, license fees, donations, subscriptions to papers, periodicals, entertainment expenses, travel expenses, etc. In case any particular item under this head exceeds one percentage of the total income, particulars may be given in the notes.

• The Provisions and Contingencies include:• Provisions made for bad and doubtful debts• Provisions for taxation• Provision for diminution in the value of

investments• Transfers to contingencies

Money at Call & ShortNotice

• ‘Money At Call and Short Notice’?• It relates to inter-bank transactions. One Bank may

approach another Bank to avoid adverse clearing which may be for a day or Friday then for two to three days.

• Banks having short supply of money borrow from banks having surplus money.

• Money is borrowed usually for 1 to 14 days.• The rate of interest fluctuates everyday and even

within a day.

‘Bills receivable being Bills for collection as per contra’?• It is a contra item in the Balance Sheet.• ‘Bills received being bills for collection ‘ account

denotes the amounts receivable and is shown on assets side of the balance sheet.

• ‘Bills for collection being Bills receivable’ account denotes the amount payable to the customer and is shown in the liabilities side of the balance sheet.

• Acceptance Endorsements and other Obligations’?• It represents liabilities, which the bank assumes on behalf of its

customers.• The various ways in which a bank may accommodate its

customers are, opening of L/C, accepting bills on behalf of customers, making endorsements on Promissory Note prepared by customers, issuing Letter of Guarantee.

• The bank obtains counter Guarantee from its customers to meet the third party liabilities.

• It creates contra item in balance sheet.• The account ‘Constituents’ liability for acceptances,

endorsements or other obligations’ appears in the asset side of the balance sheet.

• The account ‘ Acceptances, Endorsements and other Obligations’

Prepare the Profit and Loss account of Andhra Bank for the year ended 31st March, 2003, from the following:

Interest on Fixed Deposits 298000• Rebate on Bills discounted 165000• Interest on Loans 280000• Commission Charged to Customers 7000• Establishment 60000• Discount on Bills Discounted 89,000• Interest on Cash Credit 24,0000• Unexpired Disc. Agst bills disc 55000• Directors’ Fees 10,000• Audit Fees 5000• Postage and Telegram 2,000• Printing and Stationery 3,000• Rent and Taxes 22000• Interest on Overdrafts 60000• Sundry Charges 2000• Interest on Savings Bank Deposits 72000

Andhra Bank Ltd. P & L Account for the YE 31/3/03

• Schedule No. Rs• I. Income• Interest Earned 13 690000• Other Income 14 7000• Total 697000• II. Expenditure• Interest Expended 15 370000• Operating Expenses 16 94000• Provision for Contingencies 30000• Total 494000• III. Profit• Net Profit for the year 203000

Sce. 13Interest Earned• Schedules to be annexed with Profit and Loss Account• Schedule13: Interest Earned• Interest on:

Loan 280000• Cash Credit 24,0000• Overdrafts 260000 580000• Discount on Bills discounted165000• Less: Rebate on Bill Discounted55000 110000• 690000

Sc.14 &15

• Schedule 14: Other Income• Commission charged to customer

7000• Schedule 15: Interest Expended • Interest paid on • Fixed Deposits 298000• Savings Bank Deposits 72000• 415000

• Schedule 16: Operating Expenses• Establishment Expenses 60000• Director’s Fees • Audit Fees 5000• Rent and Taxes 22,000• Postage and Telegrams 2,000• Printing and Stationery 3,000• Sundry Expenses 2,000

Partnership

Partnership• Sec. 4 of Indian Partnership Act,1932 defines partnership as relationship

between the persons who have agreed to share the profits of a business carried on by all or any one of them acting for all.

• Partnership Agreement inter alia contains partnership business, commencement of business , the Firm name & ,Commencement & duration, Capital contribution, RoI on loans etc Salary Other terms. CAPITAL ACCOUNTS: METHODS :

• Fixed Capital: Here as stipulated amount of capital will be shown as Capital while Salary, Drawing, Interest entries are routed throgh Current Accouts.

• The important features of partnership are• It is a relationship between persons• There should be minimum two persons to form a partnership• It is the result of an agreement• The partnership agreement may be written or oral• The agreement is to share the profits of the business.• There must be a lawful business• The business must be carried on by any one of them acting

for all or by more than one, or by all of the partners

• Any variations in the mutual rights and duties of partners• Method by which goodwill is to be calculated on the

admission, retirement or death of a partner• Procedure by which a partner may be admitted or retired,

and the method of payment of dues• Basis of the determination of the executors if any one of them

is deceased and the method of payment• Treatment of losses arising out of the insolvency of a partner.

Whether Garner vs. Murray rule will be applicable to them or not.

• Procedure to be followed for settlement of disputes among partners

• Preparation of accounts and their audit.

Fluctuating Capital methods :

• Here entries for Salary, Interest are routed through one account hence the amount in capital account may fluctuate. For eg. Prakash & Surya have position as under Capitals: Prakash Surya Fixed Capital 40000 60000Salary 36000 48000Drawings 32000 40000Share in Profit 12000 16000

• Current Acs 10000 15000 • Show Fixed Capital & Fluctuating Capital Accounts

incorporating the above transactions .

• Prakash 31/3 To Bal C/d 40000 1/4 By Bal B/d 40000

Surya 31/3 To Bal C/d 60000 1/4 By Bal B/d 60000

Current A/c: Prakash 31/3 To Drawings 32000 1 /4 By Bal B/d 10000 31/3 To Bal C/d 26000 31/3 By Salary 36000 --------- 31/3 By Sh. Of Profit 12000 58000 58000

• Current A/c: Surya 31/3 To Drawings 40000 1 /4 By Bal B/d 15000 31/3 To Bal C/d 39000 31/3 By Salary 48000 ______31/3 By Sh. Of Profit 16000 79000 79000 Now Under Fluctuating Capital There being no separate Current A/c One single Account for each partner will appear as: SURYA’s CAPITAL A/C

• 31/3 To Drawings 40000 1 /4 By Bal B/d 75000 31/3 To Bal C/d 99000 31/3 By Salary 48000 ______31/3 By Sh. Of Profit 16000 139000 139000

Valuation of goodwill

• 1. Average profit method :• Goodwill at 5 Years’ of last 3 years average profits:

20000+40000+ 60000 = 40000 average profit• 3• 40000*5 years = Rs.200000 goodwill.

2. Superprofit Method : From Capital employed Rs. 100000we assume return at 10% i.e. normal profit Actual profit Rs.36000- Rs.10000- Rs.26000 Super Profitat 5 years’ purchase Rs.26000*5= Rs.130000Capitalisation : Normal Profit*100 normal rate

• Say normal Profit is Rs.30000, normal rate is 10%• Value of business= 30000*100 i.e. Rs.3,00,000

10• Actual Capital say Rs. 1,00,000.

Goodwill = 300000-Rs.1,00000= Rs.200000

Current A/c: Prakash 31/3 To Drawings 32000 1 /4 By Bal B/d 50000 31/3 To Bal C/d 66000 31/3 By Salary 36000 --------- 31/3 By Sh. Of Profit 12000 98000 98000

Admission of new Partner & treatment for goodwill

• 1. When privately paid : No entry 2. When brought it is shared by existing partners in their profit sharing ratio.

• By Cash/ Bank A/c Dr. • To Goodwill A/c

Goodwill A/c To A’s Capital A/c To B’s Capital A/c

• 3. No goodwill is brought in but is raised & Shown inB/S as an assets. Goodwill A/c To A;s Capital To B’s Capital

• No goodwill is brought in but is raised & written off : Goodwill A/c To A;s Capital To B’s Capital By A’s Capital By B’s Capital To Goodwill A/c.

Goodwill on retirement

• A,B & C are equal partners. C retires when goodwill is valed at Rs.90000. C’s Share Rs.30000.

• Goodwill A/c Dr. 30000 To C’s Capital A/c 30000 A’s Capital A/c 15000 B’s Capital A/c 15000 To Goodwill A/c 30000

• Goodwill is normally due to:• Favourable Location• Nature of business• Licences and quotas with the business• Possibility of competition • Better customer service• Efficient advertisement• Possession of patent rights and trade marks• Efficiency and Personal skill/ reputation of the management• Better products

Fundamentals of Partnership Accounts

• Let us suppose A, B, and C are partners sharing profits and losses in the ratio of 5 : 3 : 2. A retires and B and C agree to continue at the ratio of 3: 2. In this case, the position will be as follows:

• Old Ratio New Ratio Net Gain/Loss • A 5/10 Nil —• B 3/10 3/5 + 3/10 (3/5 – 3/10)• C 2/10 2/5 + 2/10 (2/5 – 2/10)• Gain ratio will be 3 : 2.• (b) Let us now suppose B and C change their ratio to 5 :

3; then the position will be as follows:• Old Ratio New Ratio Net Gain/Loss • A 5/10 — (–) 5/10 i.e 1/2• B 3/10 5/8 + 13/40 (5/8 – 3/10)• C 2/10 3/8 + 7/40 (3/8 – 2/10)• Gain ratio will be 13/40 : 7/40 i.e. 13 : 7.

On death of a partner

• On the death of a partner the executors or representatives of the deceased partner are entitled to the following benefits:

• The amount standing to the credit of deceased partners’ capital a/c• His share in the goodwill of the firm• His share of profits earned from the beginning of the year to the date of

death• His share of profits on revaluation of assets and liabilities. His share of the

loss, if any, shall be deducted• His share of undistributed profit or reserves• Interest on capital, salary or commission, etc. if provided in partnership

deed.• His share of the proceeds of the joint life policy.

Event of DEATH

• If the death takes place in the DURING THE accounting period, the deceased partner is entitled to his share in profit or loss upto the date of his death. The amount can be determined by

• (i)preparing final accounts up to the date of death, or• (ii) an estimated share in profit or loss is determined on

the basis of• (a) Preceding year• (b) on the basis of sales up to the date of death and

calculating profit on the basis of • the percentage of profit earned in the previous year• (c) on the basis of the time• (d) on the basis of the average of the two

COMPANY

Company

• A Private Company is one which Restricts the transfer of shares. Limits no. of members to 50 & Prohibits invitation to public. Public Company (Sec. 3(i) (iv) of Indian Companies Act, 1956) is one which is not a Private Company. Govt. Co. where Govt (Central or State) holds not less than 51% of its paid up capital.

• Holding Co, holds 51% capital in Subsdiary co.

Co. may have both Preference Share Capital Or Equity Share Capital or both

• Pref. Shares may be cumulative (Dividend is accumulated) Redeemable (after a period)or Participating( in profits in excess of those available to equity shareholders.Another Classification

• 1. Authorised 2. Issued 3. Subscribed 4. Called up & 5. Paid up.

True or false

• 1. Paidup capital may exceed authorised capital

• 2. Particpating pref shares have right to participate in profits after paying dividen to eu. Shareholders.

• 3. Equity Shareholders have to first paid dividend before paying/declaaring dividend to Eq. Shareholders

COMPANY Accounts

• The Assets side of the balance sheet shows the following sequence:

• Fixed Assets• Investments• Current assets, Loans and Advances

– Current Assets– Loans & Advances

• Miscellaneous Expenditure• Profit & Loss account (Debit balance, if any)

COMPANY Accounts• With regard to Share Capital, the company should specifically

state:• Details of Authorised, Issued, Subscribed, Called up and Paid

up capitals• Details of number of shares and face value of each share• Amount called up on each share• Classes of shares-Preference or Equity with or without voting

rights• Shares allotted as fully paid for consideration other than cash• Shares issued as bonus shares and source

COMPANY Accounts

• RESERVES AND SURPLUS• Capital Reserve• Capital redemption Reserve• Share Premium Account• Other reserves• Less: Debit balance in P & L A/c, if any• Surplus (Balance in the P & L appropriation A/c)• Proposed additions to reserves• Sinking funds

COMPANY Accounts

• SECURED LOANS• Debentures• Loans and advances from banks• Loans and advances from Subsidiaries• Other Loans and advances

COMPANY Accounts

• UNSECURED LOANS• Fixed deposits• Loans and advances from subsidiaries• Short term loans & Advances

– from Banks– From Others

• 4. Other loans and advances • (a.)from Banks• (b) From Others

COMPANY Accounts

• INVESTMENTS• Investments in Government or trust securities• Investment in shares, Debentures or bonds• Investment in immovable properties• Investment in the capital of partnership firms• Balance of un-utilised monies raised by issues

COMPANY Accounts

• CURRENT LIABILITIES & PROVISIONS• (A) Current Liabilities• Acceptances• Sundry Creditors• Subsidiary companies• Advance payment and unexpired discounts• Unclaimed dividends• Other liabilities (if any)• Interest accrued but not due on loans

COMPANY Accounts• FIXED ASSETS

– Goodwill– Land– Buildings– Leaseholds– Railway sidings– Plant & Machinery– Furniture & fittings– Development of property– Patents, trade marks & designs– Live stock– Vehicles, etc.

COMPANY Accounts

• The fixed assets must be• Classified and distinguished• The following details are required to be

shown separately: – original cost,– additions during the year, – deductions there from during the year, – Total depreciation written off or provided up to

the end of the year

COMPANY Accounts

• : The followings must be clearly stated with regard to Investments:

• Nature of Investments• Mode of valuation (Cost or market value)• Classification of Investments

COMPANY Accounts• CURRENT ASSETS LOANS & ADVANCES• Current Assets• Interest accrued on investments• Stores and spare parts• Loose tools• Stock in trade• Sundry Debtors• Cash in hand• Bank balances

– With scheduled banks– With others

COMPANY Accounts

• In respect of Sundry Debtors following details are to be shown:

• Debts considered good and in respect of which the company is fully secured

• Debts considered good for which the company holds no security other than personal security of debtors

• Debts considered doubtful or bad

COMPANY Accounts

• Loans & Advances• Advances and loans• Bills of Exchange• Advances receivable in cash or kind or for

value to be received• Balances on current accounts• Balances with Customs, Port trust, etc. (where

payable on demand)

COMPANY Accounts• Miscellaneous expenditure is shown in the following

sequence on the assets side of the balance sheet:• Preliminary expenses• Expenses including commission or brokerage on underwriting

or subscription of shares or debentures• Discount allowed on issue of shares or debentures• Interest paid out of capital during construction• Development expenditure not adjusted• Other items

• 1. Final Accounts of a Company consist of ______ & ________.

• 2. _______need not be prepared separately & can be included in _______.

• 3. __________ Prescribes the form of Balance Sheet

• 1. P& L, B/s, 2. Trading. ,P &L • 3Sch.IV

Answers: Match

• Match the following :1. Fixed Assets a. Partly paid up shares held as investment2. Current Liability b. Debentures3. Secured Loans c. Deposits from Public 4. Unsecured Loans d. Goodwill5. Contingent Liability e. Sundry Creditors.

• 1.Fixed Asset; Goodwiil• 2. CL: Sundry Creditors

3. Secured Loans : Debetures4. Unsec : Deposits from public 5. Partly paid shares : Cont. Liab

• Classify under correct head the following items : (a) Proposed Dividend (b) Unclaimed Dividend © Prov. For Taxation d) Share Premium ( e) Forfeited Shares A/c (f) Credit Bal. in P & L A/c.

• Select Proper Heading : 1. WIP, 2. Government Bonds, 3. Goodwill 4. Prepaid insu 5. Disc. On Issue of Shares

TRUE OR FALSE

• 1. Paidup capital may exceed authorised capital

• 2. Particpating pref shares have right to participate in profits after paying dividen to eu. Shareholders.

• 3. Equity Shareholders have to first paid dividend before paying/declaaring dividend to Eq. Shareholders