CA Inter Notes

THE PATH TO SUCCESS
SUMMARY NOTES
ACCOUNTING
Complied by CA Chiranjeev Jain
YESHAS ACADEMY
P2S YESHAS ACADEMY
ABOUT THE AUTHOR
CA Chiranjeev Jain has qualified Chartered Accountancy Course in

2005 and has completed all the levels of this course in his very first attempt. He is among
the top rank holders Delhi University having done his graduation from Sri Ram College
of Commerce. He scored more than 90% in accounts at all levels of CA and university
examinations. He has done Diploma in Information System Audit conducted by the
ICAI. He has also done Masters in Business Administration (MBA) with specialization
in Finance.
After completing Academic & Professional Education, he has worked with Deloitte Haskin
& Sells as a chartered accountant and developed immense skills in the practical
application of various accounting standards. Finally he exposed himself to the practice as
chartered accountant and adapted to teaching accounts (the subject he loves the most)
as his career.
He possesses a vast experience in teaching accountancy to students of CA CPT, IPCC &
Final. He is also into Corporate Training in the industry and has addressed a number of
courses and seminars organized by Professional Institutions. He has served as an
examiner of accounts at CA IPCC and Final level. He is an expert in both Indian Accounting
Standards and IFRS.
He has conducted face to face classes at Hyderabad, Bangalore, Kolkata and Ahmadabad
apart from VSAT classes in the Southern region with Yeshas Academy. His easy way of
teaching Accountancy from the very basic and his motivational lectures are very famous
among CA students' fraternity.
CA. Chiranjeev Jain Page 1

P2S YESHAS ACADEMY
CONTENTS
PAPER 1: ACCOUNTING (100 MARKS)
Chapter No Name of Chapter Page No
Chapter 1 Accounting for Bonus Issue 2-2
Chapter 2 Profit and loss: Pre and Post Incorporation 3-4
Chapter 3 Financial Statements of Company 5-10
Chapter 4 Cash Flow Statement - AS 3 11-14
Chapter 5 Internal Reconstruction 15-17
Chapter 6 Amalgamation, Absorption & Reconstruction -AS 14 18-26
Chapter 7 Average Due Date And Account Current 27-29
Chapter 8 Self Balancing Ledgers 30-33
Chapter 9 Not for Profit Organisation 34-38
Chapter 10 Accounts for Incomplete Records 39-42
Chapter 11 Hire Purchase and Installment Purchase 43-45
Chapter 12 Investment Accounts 46-48
Chapter 13 Insurance Claims for Loss of Stock and Loss of Profit 49-51
Chapter 14 Partnership Accounts 52-56
Chapter 15 Accounting Standards 57-68

P2S YESHAS ACADEMY
ACCOUNTING FOR BONUS ISSUE

BONUS SHARES BONUS CALL
Upon the sanction of an issue of bonus shares Upon the sanction of bonus by converting partly
paid shares into fully paid shares
Capital Redemption Reserve Account Dr.
Capital Reserve Account Dr.
Securities Premium Account Dr.
General Reserve Account Dr.
Capital Reserve Account Dr.
Profit & Loss Account Dr.
General Reserve Account Dr.
Dividend equalisation Reserve A/c Dr.
To Bonus to Shareholders Account
Dividend equalisation Reserve A/c Dr.
To Bonus to Shareholders Account.
Upon issue of share On adjustment of final call

Bonus to Shareholders Account Dr. Bonus to Shareholders Account Dr.
To Equity Share Capital Account. To Equity Share Capital Account.
a) Securities premium and capital reserve must be realised in cash.

b) Bonus shares are always fully paid up.
c) Bonus shares are issued to existing equity shareholders only if they are fully paid up.
d) The partly paid-up shares, if any outstanding on the date of allotment of bonus shares, are made
fully paid-up.
e) Partly paid up shares are made fully paid up as per the information given in question. If question
is silent partly paid up shared are made fully paid up by declaring bonus call.
f) Company can issue bonus shares to existing equity shareholders only if similar benefit is
extended to the holders of such FCDs/PCDs. The bonus shares shall be issued to the holders of
such FCDs/PCDs at the time of conversion of such convertible debt instruments on the same at
which the bonus shares were issued.
g) Before allotment of bonus shares Authorised capital should be amended if required. Minimum
Authorised Share Capital after bonus shares will be calculated as under:
Existing Equity Shares xxx
Add: Bonus to Equity Shareholders xxx
Add: Bonus shares to be issued to Debenture holders after conversion xxx
xxx

P2S YESHAS ACADEMY
PROFIT OR LOSS PRE AND POST

INCORPORATION
PRE-INCORPORATION PROFITS & LOSSES
No Pre-incorporation Profits Pre-incorporation Losses
1 It is transferred to Capital Reserve Account It is treated as a part of business acquisition

(i.e. capitalized). cost (Goodwill).
2 It can be used for : It can be used for :

 writing off Goodwill on acquisition  setting off against Post incorporation
Profit
 writing off Preliminary Expenses
 addition to Goodwill on acquisition
 writing down over-valued assets
 writing off against Capital Profit
 issuing of bonus shares
 paying up partly paid shares
BASIS OF APPORTIONMENT
ITEM BASIS OF APPORTIONMENT
1 Gross Profit or Gross Loss Sales Ratio Or,

Cost of goods sold ratio Or,
Time ratio
2. Variable Indirect expenses linked with Sales Ratio

Turnover
3. Fixed Common charges Time ratio.
4. Expenses exclusively relating to pre- Charge to pre-incorporation period

Incorporation period
[e.g. Interest on Vendor’s/partner’s Capital,
Partners salary]
5. Expenses exclusively relating to post Charge to Post-incorporation period

incorporation period
[e.g. Formation expenses, interest on
debentures, director’s fees, Directors’

P2S YESHAS ACADEMY
remuneration, Preliminary Expenses, Share

issue Expenses, Underwriting commission,
Discount on issue of securities, shares
transfer fees
5. Audit Fees
(i) For Company’s Audit under the Charge to Post-incorporation period
Companies Act, 2013.
(ii) For Tax Audit under section 44AB of On the basis of sales ratio
the Income tax Act, 1961
Note: If Question is silent assume Audit fees
have been incurred for Company’s Audit
under the Companies Act, 2013.
6. Interest on purchase consideration to

vendor:
(i) from the date of acquisition of Charge to Pre-incorporation period
business to date of incorporation.
(ii) from the date of incorporation to year
Charge to Post-incorporation period
end.
ACCOUNTING TREATMENT FOR ACQUISITION OF BUSINESS
When Separate Books of account followed When same Books of account followed
1. For incorporation assets and liabilities taken 1. For Conversion of vendor capital into
over equity Share capital
Sundry Assets A/c (with AV) Dr. Vendor’s Capital A/c (with BV) Dr.
Goodwill A/c (PC>NATO) Dr. Goodwill A/c (PC>NATO) Dr.
To Sundry Liabilities A/c (with AV) To Equity Share Capital (with PC)
To Vendor (with PC) To Capital Reserve (PC<NATO)
To Capital Reserve (PC<NATO)
2. For allotment of shares to vendor

Vendor A/c Dr.
To Equity Share Capital

P2S YESHAS ACADEMY
FINANCIAL STATEMENTS OF COMPANIES

FORMAT of BALANCE SHEET AS PER SCHEDULE III
Particulars Note Current Year Previous year
No
I. EQUITY AND LIABILITIES
(1) Shareholder’s Funds
(a) Share Capital
(b) Reserves and Surplus
(c) Money received against share warrants
(2) Share application money pending allotment
(3) Non-Current Liabilities
(a) Long-term borrowings
(b) Deferred tax liabilities (Net)
(c) Other Long term liabilities
(d) Long term provisions
(4) Current Liabilities
(a) Short-term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short-term provisions
Total
II. Assets
(1) Non-current assets
(a) Fixed assets
(i) Tangible assets
(ii) Intangible assets
(iii) Capital work-in-progress
(iv) Intangible assets under development
(b) Non-current investments
(c) Deferred tax assets (net)
(d) Long term loans and advances
(e) Other non-current assets
(2) Current assets
(a) Current investments
(b) Inventories
(c) Trade receivables
(d) Cash and cash equivalents
(e) Short-term loans and advances
(f) Other current assets
Total

P2S YESHAS ACADEMY
Form of STATEMENT OF PROFIT AND LOSS

Particulars Note Current Year Previous year
No
I. Revenue from operations xxx xxx
II. Other Income xxx xxx
III. Total Revenue (I +II) Xxx Xxx
IV. Expenses:
Cost of materials consumed xxx xxx
Purchase of Stock-in-Trade xxx xxx
Changes in inventories xxx xxx
Employee benefit expense xxx xxx
Financial costs xxx xxx
Depreciation and amortization expense xxx xxx
Other expenses xxx xxx
Total Expenses xxx xxx
V. Profit before exceptional and extraordinary xxx xxx
items and tax(III - IV)
VI. Exceptional Items xxx xxx
VII. Profit before extraordinary items and tax (V - VI) xxx xxx
VIII. Extraordinary Items xxx xxx
IX. Profit before tax (VII - VIII) xxx xxx
X. Tax expense:
(1) Current tax xxx xxx
(2) Deferred tax xxx xxx
XI. Profit/(Loss) for the period xxx xxx
XII. Earning per equity share:
(1) Basic xxx xxx
(2) Diluted xxx xxx
Meaning of current assets and current liabilities

Current Assets Current Liability
it is expected to be realized in the company’s it is expected to be settled in the company’s
normal operating cycle. normal operating cycle
it is expected to be realized within twelve it is due to be settled within twelve months
months after the reporting date after the reporting date
it is held primarily for the purpose of being it is held primarily for the purpose of being
traded traded
it is cash or cash equivalent the company does not have an
unconditional right to defer settlement of
the liability for at least twelve months after
the reporting date

P2S YESHAS ACADEMY
Treatment of Dividend and CDT in Financial Statement
Interim dividend of current year Debit P & L Appropriation A/c Interim dividend will not
paid given in Trail balance appear in Balance sheet
Credit Interim Dividend A/c
Final dividend of previous year Debit P & L Appropriation A/c Final dividend (PY) will not
paid given in Trail balance appear in Balance sheet
Credit Final Equity Dividend A/c
Preference dividend paid given Debit P & L Appropriation A/c Preference dividend will
in Trail balance not appear in Balance sheet
Credit Preference Dividend A/c
CDT paid given in Trail balance Debit P & L Appropriation A/c Such CDT will not appear in
Balance sheet
Credit CDT A/c
Proposed dividend of current Not recognised as per AS 4 Such dividends are not
year given as an adjustment recognised as a liability at
the balance sheet date
because no obligation
exists at that time unless a
statute requires otherwise.
Such dividends are
disclosed in the notes.
Preference Dividend not paid Not recognised. However it will

during the year – related to be disclosed as contingent
Cumulative preference shares liability.
Preference Dividend not paid Not recognised. It will not be

during the year – related to Non- disclosed as contingent liability.
Cumulative preference shares
DECLARATION OF DIVIDEND OUT OF RESERVES

A company may declare dividend out of the accumulated profits subject to the fulfilment of
the following conditions:
(1) The rate of dividend declared <= average rates of dividend of last 3 years
(2) Amount withdrawn from reserve <= 1/10th of paid-up share capital and free reserve
(3) The balance of reserves after withdrawal > 15% paid up share

P2S YESHAS ACADEMY
Treatment of Provision for Income tax and Advance Tax
1 For Creation Provision for tax for Debit Profit and Loss A/c
current year
Credit Provision for Taxation A/c
2 For Advance Income tax paid for Debit Advance Tax A/c
current year
Credit Bank A/c
When Assessment is completed:
3 For transferring advance tax of last year Debit Provision for Tax A/c
to provision for tax
Credit Advance Tax A/c
4 If the actual tax liability more than the Debit Profit and Loss A/c
provision made last year
5 If the actual tax liability is less than the Debit Provision for Taxation A/c
provision made last year
Credit Profit and Loss A/c
6 If the actual tax liability more than the Debit Provision for Taxation A/c
advance tax made last year
Credit Liabilities for Taxation A/c
7 If the actual tax liability less than the Debit Income tax refundable A/c
advance tax made last year
Provision for Tax
To Advance Tax 3 By Balance b/d
- Related to PY - PFT of PY
To Profit and Loss A/c 5 By Profit and Loss A/c 4
- Adjustment for PY - Adjustment for PY
To Liabilities for taxation A/c 6 By Income Tax Refundable 7
To Balance c/d By Profit and loss A/c 1

- Shown under short - Created for CY
term provisions
Advance tax
To Balance b/d By Provision for Tax 3
- AT of PY - Related to PY
To bank 2 By balance c/d
- Paid for CY - Shown under short term
loans and advances

P2S YESHAS ACADEMY
Liabilities for Taxation A/c

To balance c/d By provision for Tax 6
- Shown under Other
current liability
Income tax Refundable
To provision for Tax 7 By balance c/d
- Shown under Other
current assets
MANAGERIAL REMUNERATION
Remuneration payable by companies having profits without Central Government approval:
(i) Overall (excluding fees for attending meetings) 11% of net profit
(ii) If there is one managerial person 5% of net profit
(iii) If there are more than one managerial person 10% of net profit
(iv) Remuneration of part-time directors :
(a) If there is no managing or whole-time director 3% of net profit
(b) If there is a managing or whole-time director 1% of net profit
(v) Remuneration to the manager 5% of net profit
Remuneration payable by companies having no profit or inadequate profit without Central
Government approval:
Where the effective capital is Limit of yearly remuneration
payable shall not exceed (Rupees)
(i) Negative or less than 5 crores 30 lakhs
(ii) 5 crores and above but less than 100 crores 42 lakhs
(iii) 100 crores and above but less than 250 crores 60 lakhs
(iv) 250 crores and above 60 lakhs plus 0.01% of the effective
Capital in excess of Rs. 250 crores.
Meaning of net profit as per section 198
Indirect method Direct Method
Net profit as per draft P/L A/c Gross Profit
Add: Provision for tax (if Dr) Add: Subsidies received from Govt.
Add: Managerial Remuneration (if Dr) Add: Transfer fees
(Excluding Director Fees) Add: Interest on Investment
Net Profit before tax and MR Add: Revenue Profit on sale of
Add: Deprecation Dr to P/L machinery (Total profit – Capital Profit)
Less: Depreciation as per Schedule II Less: Administrative, Selling and
Add: All Provision Dr to P/L distribution expenses
Less: Actual Expenses for provisions created PY Less: Donation to charitable funds
Add: All Fictitious Assets Written off Lees: Directors fees
Add: Loss on sale of Long Term investment Less: Interest on debentures/bank
Less: Profit on sale of Long Term investment overdraft
Less: Capital profit on sale of Fixed assets (Sale Less: Compensation for breach of
proceeds – HC) contract

P2S YESHAS ACADEMY
Add: Ex-gratia payment to employee (if Dr) Less: Depreciation as per Schedule II
Add: Grant or subsidies Received (if not Cr) Less: Legal Workman Compensation
Add: Capital Expenditure (If Dr) Net profit as per section 198
Less: Profit on sale of forfeited shares (If Cr)
Less: Premium on Issue of Shares (If Cr)
Add: Voluntarily compensation, damages or
payments made (if Dr)
Net profit as per section 198
Meaning of Effective capital
Paid-up share capital (excluding share application money or Calls in advances
against shares)
Add: Share premium account
Add: Reserves and surplus (excluding revaluation reserve)
Add: Long-term loans and deposits repayable after one year (excluding working
capital loans, over drafts, interest due on loans unless funded, bank guarantee, etc.,
and other short-term arrangements)
Less: Non Trade Investments (except in case of investment by an investment
company)
Less: Accumulated losses
Less: Preliminary expenses not written off
Effective capital

P2S YESHAS ACADEMY
CASH FLOW STATEMENT

AS 3 – CASH FLOW STATEMENT
Cash flow means Cash & Cash equivalents

Information to be given in three segments
Operating Activity Investing Activity Financial Activity

Principal revenue Acquisition and disposal of Results in changes in composition or
producing activity long term assets size in owner’s capital
Direct
Gross Basis
Method
Reported NP adjusted for Major classes of cash receipts

Indirect Non-cash items, non- and cash payments on gross
Method basis subject to exceptions
operating items etc.
Special Attention:
Foreign Currency Transaction, Extra-ordinary items, Tax on income, Non-tax transaction
Disclosure include:
 Management commentary on special areas
 Reconciliation of opening and closing cash items

P2S YESHAS ACADEMY
Format of Cash flow Statement

Cash flows from operating Activities Using Cash flows from operating Activities Using
Direct Method Indirect Method
Gross receipts from operating activities Net Profit (Profit after tax)
Cash receipts from the sale of goods and the Add: Provision for taxation
rendering of services
- Cash Sales Profit before tax
- Collection from debtor Add: Extraordinary items (if debited to P&L )
Cash receipts from royalties, commissions and Less: Extraordinary items (if credited to P&L )
other revenue
Gross payment for operating activities: Profit before extraordinary items and tax
Cash payments to suppliers for goods and Add: Adjustment for Non-cash and Non-
services; operating expenses charged to Profit & Loss
- Cash purchase - Depreciation
- Payment to suppliers - Goodwill written off
Cash payments to and on behalf of employee - Preliminary expenses written off
Cash payment for other operating expenses - Interest expenses
Cash Generated from operations - Loss on sale of fixed assets, long-term
investments
Less: Income tax paid - Foreign exchange loss
Cash from Operating Activities before Less: Adjustment for Non-cash and Non-
Extraordinary Items operating Income Credited to Profit & Loss A/c
Profit/(Loss) from Extraordinary Items - Profit on sale of investment, assets
Net Cash from Operating Activities - Interest income
- Dividend income
- Foreign exchange gain
Cash generated from Operations Before
Working Capital Changes
Add: Decrease in Current assets
Less: Increase in Current assets
Add: Increase in Current liability
Less: Decrease in Current liability
Cash Generated from operations
Less: Income tax paid
Cash from Operating Activities before
Extraordinary Items
Profit/(Loss) from Extraordinary Items
Net Cash from Operating Activities
Cash Flows from Investing Activities
Purchase of Fixed Assets (both tangible and intangible assets)
Purchase of Investments (Other than Cash Equivalent)
Proceeds from Sale of Fixed Assets (both tangible and intangible assets)
Proceeds from Sale of Investments (Other than Cash Equivalent)

P2S YESHAS ACADEMY
Interest Received
Dividend Received
Net Cash from Investing Activities before extra-ordinary items
Extraordinary Items
Net Cash from Investing Activities
Cash Flows from Financing Activities

Proceeds from Issue of Shares including Premium
Proceeds from Long-term Loans
Proceeds from Issue of Debentures
Redemption of Preference shares including premium
Redemption of Debentures including premium
Repayment of Loans
Interest Paid
Dividend Paid
Net Cash from Financing Activities before extra-ordinary items
Extraordinary Items
Net Cash from Financing Activities
If net profit is not given, then calculate net profit by preparing profit and loss appropriation
account for cash flow from operating activities under indirect method:
Profit and Loss appropriation account
To Proposed dividend xxx By balance b/d xxx
To Preference dividend xxx By Net profit (balancing figure) xxx
To Interim dividend xxx
To CDT xxx
To General reserve xxx
To Premium on redemption on xxx
preference shares
To Other reserve xxx
To balance c/d xxx
xxx xxx
Changes in working capital for calculation of cash flow from operating activities under indirect
method should not include:
a) Provision for tax
b) Advance Tax
c) Proposed dividend
d) Provision for CDT
e) Unclaimed dividend
f) Accrued interest income (Interest receivable)
g) Accrued interest Expense (Interest payable)

P2S YESHAS ACADEMY
h) Current investment
Cash flow statement will be prepared either by using direct or indirect method as per the
information given in question.
However if question is silent;
a) Use indirect method if balance sheet is given without statement of profit and loss.
b) Use indirect or direct method if balance sheet is given with statement of profit and loss.
However indirect method is preferable.
Bad debt, discount allowed and sales return are not adjusted with net profit under indirect
method.
However if bad debt has been written off through provision for doubtful debt account then
provision for doubtful debt created during the year will be added back and bad debt will be
deducted from net profit. For calculation of changes in working capital gross debtor should
be considered.
Alternatively, ignore information about provision for doubtful debt and bad debt and consider
net debtor for calculation of changes in working capital.

P2S YESHAS ACADEMY
INTERNAL RECONSTRUCTION
Accounting Treatment
Transaction Journal Entry
1 Alteration of Share Capital (Sub-division Share Capital (Old) A/c Dr.

or Consolidation of Shares)
To Share Capital (New)
2. Conversion of Fully Paid Shares into Equity Share Capital A/c Dr.
Stock
To Equity Stock A/c
3 Conversion of Stock into Shares Equity Stock A/c Dr.

To Equity Share Capital A/c
4 Reduction of paid up share capital Share Capital (Old) A/c Dr.

without change in nominal value
To Capital Reduction A/c
5 Reduction of paid up share capital with Share Capital (Old) A/c Dr.
change in nominal value
To Share Capital (New) A/c
6 Reduction in liability in respect of Share Capital (Old) A/c Dr.

uncalled capital
To Share Capital (New)
7. For surrender of shares by shareholders Share capital A/c Dr.

To Shares Surrender A/c
8 For utilising Surrendered shares for a) for reduction in the claims of creditors or
reduction in the claims of creditors debenture holders
Creditor/ Debenture A/c Dr.
b) for issuing shares to creditors or debenture
holders from surrendered shares
Shares Surrender A/c Dr.
To Share Capital
9 For cancellation of unutilised Shares Surrender A/c Dr.

Surrendered Shares

P2S YESHAS ACADEMY
10 When equity shareholders give up their Reserves Account Dr.

claim to reserves and accumulated
profits
11 Settlement of outside liabilities at lesser Outside Liabilities Account Dr

amount
Provision Account Dr.
12 Reduction of claims of debentures by Old Debentures Account Dr.

issuing new debentures
Interest on debentures Account Dr.
To New Debenture
13 For surplus on revaluation of assets Individual Asset Account Dr.

To Capital Reduction
14 For writing off the over valuation of Capital Reduction Dr.

assets
To Individual Asset A/c
15 For settlement of contingent liability To Pay the contingent liability

(e.g., Arrear of preference dividend)
Capital Reduction Dr.
To Bank
To Cancel contingent liability: No journal entry is
required to cancel contingent liability.
16 For Payment of reconstruction expenses Capital Reduction Dr.

To Bank
17 For writing-off the Accumulated losses, Capital Reduction A/c Dr.

fictitious assets and other Intangible
To Profit & Loss Account
assets
To Fictitious assets
Note: If Capital reduction account is
insufficient to write off such items, then To Intangible Assets Account
other reserve (including securities
premium) can be used for this purpose.

P2S YESHAS ACADEMY
18 For transfer of credit balance of Capital Capital Reduction A/c Dr.

reduction account
To Capital Reserve Account
Note:
a) After the name of the company, the words “and Reduced” should be added only if the
Court so orders.
b) Instead of capital reduction account, reconstruction or capital reconstruction or capital
reorganisation account can be used.

P2S YESHAS ACADEMY
AMALGAMATION OF COMPANIES
AS – 14 Accounting for Amalgamations
Amalgamation – “to unite”

Accounting in the books of transferee (purchasing) company ONLY
CONDITIONS
Assets & Liabilities Shareholders Business
 All assets/liabilities of  Atleast 90% of shareholders PC should intend to carry on

SC should be taken of SC become shareholders of existing business of SC
over PC
 All assets/liabilities  Consideration to be paid only
should be recorded at in form of equity shares of PC
same values that (cash for fractional shares)
existed in SC books
YES All five conditions satisfied? NO
Amalgamation in the nature of

Amalgamation in the nature of
“Purchase”
“Merger”
Pooling of Interest Method Purchase Method

 All assets/liabilities recorded at book  All assets/liabilities recorded at fair values
values  PC > Net assets – debit goodwill
 Difference between purchase  PC < Net assets – Credit Capital reserves
consideration and share capital – adjust (Net assets = Assets at fair values Less
with P & L, reserves Liabilities at agreed values)
 If Purchase consideration > share capital
– debit difference to reserve (credit to
reserve if vice versa)

P2S YESHAS ACADEMY
Pooling of Interest Purchase

Discharge of Purchase Mainly shares; cash for settling Shares, or other securities, or cash
consideration dues of fractional shares
Asset & Liabilities Recorded at Book value Recorded at fair value
Reserves Are brought into and recorded in Only statutory reserves are
the books recorded by debit to amalgamation
adjustment account (reversed
when statutory conditions are met)
Difference between Not recorded - difference is Recorded as goodwill or capital

consideration and net value of adjusted against reserves reserve
assets
Purchase Consideration:
Purchase Consideration
Net payment Method(NPM) Net Aeets method(NAM)
PC = Payment to ESH +Payment to PSH
Nos. of shares Issued By

PC Issue price of PC
PC = NATO
at agreed
Given Not given value
If not given IP
Calculate Nos of Shares will be IV or
PC Swap ratio MV or FV
of SC
If Given If Not Given
Calculate Identify value of shares

PC of Both Co
Given Not Given
Calulate SR =Value Calcuate IV (if

Old/Value New specified) for Swap if Not specified, use NET
Calculate PC Ratio ASSET METHOD

P2S YESHAS ACADEMY
Points to be noted for PC

a) Any payment made by Transferee Co to debentureholder or crditor of Transferor Co should
not be considered for calculation of PC by NET PAYMENT METHOD.
b) Liquidation expenses of transferor Co paid or reimbursed bt Transferee Co. is not Included in
PC.
c) Calculation of IV
All assets at Market value or Realisable Value or (Book value) xxx
(including goodwill but excluding Fictitious assets)
Less: All Liability at Payable value or (Book value) xxx
Less: Amount payable to PSH (including Preference dividend) xxx
Net assets avaialble to ESH (inclusive of Proposed dividend) xxx
Less: Proposed dividend (in case of Transgeree Co.) xxx
Net assets avaialble to ESH (exclusive of Proposed dividend) xxx
-:- Nos of equity Shares xx
IV x
d) IV of transferor Co will be Cum dividend and IV of transferee Co will be Ex dividend.
e) When Transferee Co issues shares at IV, PC by NPM and NAM will be same.
f) Any fractional lot of shares will be discharged in cash.
g) If market value, realiasable value or agreed value of assets and liabilities are not given, consider
book value.
h) If contingent liability are taken over consider suck liabilty fo calculation of IV of transferor Co.
and PC by NAM.
i) If question is silent, always assume all assets and liabilities are taken over by transferee Co
Accounting Treatment in the books of Transferor Co:

Step 1: Close the balance sheet items at book value
Assets other than cash and bank
 If taken over : transfer to realisation account
 If not taken over: transfer to realisation account
Cash and bank balance
 If not taken over: donot transfer to realisation account
Liabilities (excluding proposed dividend)
P2S YESHAS ACADEMY

 If not taken over: transfer to realisation account
Proposed dividend (if appeaing in Balance sheet)
 If not taken over: transfer to equity shareholders account
Contingent liability
 If taken over : Not applicable
 If not taken over: Not applicable
Preference Share Capital: Transfer to Preference Shareholders A/c
Equity Share Capital: Transfer to Equity Shareholders A/c
Fictitious assets: Transfer to Equity Shareholders A/c
Reserve and surplus (including statutory reserve): Transfer to Equity Shareholders
Step 2: Due PC from transferee co for assets and liabilities (including contingent liability)
taken over.
Debit Transferee Company Account
Credit Realisation Account
Step 3: Realise assets and settle liabilities (including contingent liability) not taken over.
For sale of such assets
Debit Cash/Bank account
Credit Realisation account
For Payment of such Liability
Debit Realisation account
Credit Cash/Bank account
Step 4: Payment of realisation expenses
Step 5: Realise PC from transferee co as per WN of PC
Debit Cash Account
Debit Equity Shares in Transferee Company Account
Debit Preference Shares in Transferee Company Account
Debit Debentures in Transferee Company Account
Credit Transferee Company Account
Step 6: Distribute PC to PSH as per WN of PC
Any difference in PSH A/c will be transferred to realisation A/c

P2S YESHAS ACADEMY
Step 7: Closse Realisation A/c and transfer profit or loss to ESH

Step 8: Distribue PC to ESH as per WN of PC
If cash and bank balance not taken over, any surplus left in such account will be
transferred to ESH
Ledger of Transferor Company

Realisation Account
To sundry assets (including BV By Sundry Liabilities BV
cash and bank if taken)
To cash and bank Amount paid By Transferee Co PC
- Liability not taken - For assets and
- Liquidation exp paid liabilities taken
To PSH (if any) From PSH A/c By Cash and bank Amount
- Assets not taken realised
- Liaqidation exp
reimbursed
To ESH (Realisation profit) B/f By PSH (if any) From PSH A/c
By ESH (Realisation loss) B/f
Equity Shareholders Account
To fictitious Assets BV By Equity Share Capital BV
To Cash and bank WN of PC By Reserve and surplus BV
To ES of transferee Co WN of PC By Realisation (profit) Realisaton A/c
To Realisation (loss) Realisaton A/c
Preference Shareholders Account
To Cash and bank WN of PC By preference Share Capital BV
To PS of transferee Co WN of PC
To Realisation A/c B/f By Realisation A/c B/f
Transferee Company Account
To Realisation A/c PC By Cash and Bank WN of PC
By Es of Transferee Co WN of PC
By Ps of Transferee Co WN of PC
Cash and Bank Account
To balance B/d (if not taken) BV
To Realisation A/c Amount By Realisation A/c Amount paid
- Assets not taken realised - Liability not taken
- Liaqidation exp reim - Liquidation exp paid
To Transferee Co PC By PSH WN of PC
BY ESH B/f
ES Of Transsfree Company Account
To transferee Co WN of PC By ESH b/f
PS of Transferee Company Account
To transferee Co WN of PC By ESH b/f

P2S YESHAS ACADEMY
Note: Agreed value of assets and liabilites of tranferor copmany are not relavant for accounting
treatment in the books of transferor company.
Agreed value of assets and liabilites of tranferor copmany is relavant for:
a) For PC by Net assets method
b) Intrinsic value of shares for swap ratio
c) Accounting treatmemt in the books of transferee co in case of purchase.
Accounting Treatment in the books of Transferee Co:
TRANSACTION AMALGAMATION IN THE NATURE OF AMALGAMATION IN THE NATURE OF

PURCHASE PURCHASE
For PC due on Business Purchase A/c Dr Business Merger A/c Dr

acquisition of
To Liquidator of Transferor To Liquidator of Transferor
business
Company A/c Company A/c
(With the amount of PC) (With the amount of PC)
For incorporation Sundry Assets A/c * Dr Sundry Assets A/c * Dr

of assets and
Goodwill A/c *** Dr Capital/General reserve***
liabilities taken
over To Sundry Liabilities A/c * To Sundry Liabilities A/c *
To Business Purchase A/c ** To All Reserves A/c (Other than
General Reserve)*
To Capital Reserve A/c***
To Capital/General Reserve ***
* with Agreed Value
To Business Purchase A/c**
** with PC
* with Book Value
***with balancing figure
** with PC
***with balancing figure
For payment to Liquidator of Transferor Co A/c Dr Liquidator of Transferor Co A/c Dr

liquidator
To Share Capital A/c To Share Capital A/c
To Debentures To Debentures
To Securities Premium A/c To Securities Premium A/c
To Cash A/c To Cash A/c
For Maintaining Amalgamation Adjustment A/c Dr. Not required

Statutory Reserve
To Statutory Reserve
of Transferor Co.

P2S YESHAS ACADEMY
For payment of Goodwill/Capital Reserve A/c Dr. Revenue reserve A/c

liquidation
To cash/bank A/c To cash/bank A/c
expenses
For payment of Preliminary Expenses A/c Dr. Preliminary Expenses A/c Dr.
incorporation
To cash/bank A/c To cash/bank A/c
expenses (if any)
For eliminating
unrealised profit
included in the
stock
- If goods are sold Profit and Loss Account Dr. Profit and Loss Account Dr.
by transferee to
To Stock To Stock
transferor
- If goods are sold Goodwill/Capital Reserve Dr. Profit and Loss Account Dr.
by transferor to
To Stock To Stock
transferee
For eliminating a) For Mutual Indebtedness a) For Mutual Indebtedness

inter-company
Sundry Creditors Account Dr. Sundry Creditors Account Dr.
Owings
To Sundry Debtors Account To Sundry Debtors Account
b) For Mutual Acceptances b) For Mutual Acceptances
Bills Payable Account Dr. Bills Payable Account Dr.
To Bills Receivable Account To Bills Receivable Account
Summary for Preparation of balance sheet of Transferee Company:
Items of Balance Sheet Purchase Merger
Tangible Assets BV of New + AV of Old BV of New + BV of Old
Intangible Assets other than BV of New + AV of Old BV of New + BV of Old

goodwill
Goodwill BV of New + AV of Old BV of New + BV of Old

AV = (PC + Liquidation Exp) -
NATO
Investment BV of New + AV of Old BV of New + BV of Old

P2S YESHAS ACADEMY
Trade Receivables BV of New + AV of Old – Inter BV of New + BV of Old – Inter

Co Debt Co. Debt
Stock BV of New + AV of Old – BV of New + BV of Old –

Unrealised profit Unrealised profit
Cash and Bank balance Opening balance of new Opening balance of new
+ Taken from old + Taken from old
- PC Paid in cash - PC Paid in cash
- liquidation expense paid - liquidation expense paid
+Public issue (If any) +Public issue (If any)
+ Other Transaction + Other Transaction
Other Current assets BV of New + AV of Old BV of New + BV of Old
Fictitious Assets BV of New + Nil BV of New + Nil

It will be shown by way of It will be shown by way of
deduction from revenue deduction from revenue
reserve. reserve.
Share Capital BV of new + PC discharged in BV of new + PC discharged in

shares at NV + Public issue of shares at NV + Public issue of
shares at NV (if any) shares at NV (if any)
Securities premium BV of New + Nil + PC discharged BV of New + BV of old + PC

in shares at premium discharged in shares at
premium
Capital reserve BV of New + Nil + AV of BV of New + BV of old +

negative goodwill Difference of PC and share
capital of old
General reserve BV of New + Nil BV of New + BV of old +

Difference of PC and share
capital of old
Profit and loss (surplus) BV of New + Nil – unrealised BV of New + BV of old +

profit Difference of PC and share
capital of old – unrealised
profit
Statutory Reserve BV of New + BV of Old* BV of New + BV of Old

P2S YESHAS ACADEMY
* For this amalgamation

adjustment account will been
shown under assets side.
Other reserve and surplus BV of New + BV of Old BV of New + BV of Old
Debenture BV of New + AV of Old BV of New + BV of Old
Trade payable BV of New + AV of Old – Inter BV of New + BV of Old – Inter

Co Debt Co. Debt
Other liability BV of New + AV of Old BV of New + BV of Old
Calculation of Goodwill or Calculation of amount adjusted

Capital Reserve with reserve
PC xxx PC xxx
Add: Liquidation Expense xxx Add: Liquidation Expense xxx
Less: NATO Less: Share capital Of Old xxx
(excluding Goodwill) xxx Adjustment with reserve xxx
Goodwill or Capital Reserve xxx If + decrease reserve
If – increase reserve

P2S YESHAS ACADEMY
AVERAGE DUE DATE AND

ACCOUNT CURRENT
UNIT I - AVERAGE DUE DATE

STEPS FOR CALCULATING AVERAGE DUE DATE:
a. Take the earliest due date as starting day or base date. Any date whatsoever, may also be
taken as base date.
b. Consider the number of days from base date up to each due date.
c. Find out the product
d. Add up the amount and products.
f. Calculate the Average Du Date by using the following formula:
Average due date = Base date ±
 If multiple transaction are settled on ADD, then there is no loss of interest to either party.
- For trade transaction: Amount of interest will be NIL
- For Loan Instalment transaction: Amount of interest will calculated from date of loan to
ADD
 If transactions are settled after ADD, then extra interest will be charged from ADD to settlement
date.
 If transactions are settled before ADD, then rebate/interest will be allowed from settlement
date to ADD.
HOW TO CALCULATE DUE DATE OF an INVOICE/BILL
Transactions
Invoice Bills of exchange
Due Date = Transaction

Bill after Date Bill After Sight
Date + Tenure
Due Date = Date of Due Date = Date of

Drawing + Tenure+ 3 Acceptance + Tenure+ 3
Grace days Grace days

P2S YESHAS ACADEMY
Tutorial Note:
(a) If question is silent - Assume bill is after date
(b) If due date is cannot be calculated - Assume transaction date as due date.
(c) If due date is on public holiday - Preceding business date will be due date
(d) If due date is on sudden holiday - Next business date will be due date.
ACCOUNT CURRENT
An Account Current is a running statement of transactions in the form of ledger account with three
additional columns on both the sides of such an account:
(a) Due date of transactions. If no specific date is mentioned as the date on which payment is
due, the date of the transactions is presumed to be the due date.
(b) the number of days counted from the due date of each transaction to the date of rendering
or closing the account.
(c) Interest due on individual transactions.
Parties Involved in Account Current
Renderer: Party who renders the account (Sending Party)
Rendered: Party to whom the account is rendered (Receiving Party)
Types of Account Current:
(i) With the help of interest tables;
(ii) By means of products; and
(iii) By means of products of balances.
Method of Computing the numbers of Days
1. Forward Method- Under this method the number of days are calculated from the due date
of the transaction to the date of closing the account.
2. Backward (or Epoque Method) Under this method, the number of the days are calculated
from the opening date of statement to the due date of transaction.
Tutorial Notes:
(1) While counting the number of days, the date of due date is ignored and the date upto which
the account is prepared, is included.
(2) While counting the number of days, for opening balances, the opening date as well as date
upto which the account is prepared, is counted.

P2S YESHAS ACADEMY
RED - INK INTEREST: In case the due date of a bill falls after the date of closing the account, then no
interest is allowed for that. However, interest from the date of closing to such due date is written in
“Red-Ink” in the appropriate side of the ‘Account current’. This interest is called Red-Ink interest.
Format of account current (according to interest on individual transactions Method)
“Rendered” in Account Current with “Renderer” as at Settlement date
Date Particulars Due Amount Days Interest Date Particulars Due Amount Days Interest
date date
Format of account current (according to Product of individual transactions Method)

Date Particulars Due Amount Days Product Date Particulars Due Amount Days Product
date date
Format of account current (according to Product of Balance Method)

Date Particulars Debit Credit Balance (Dr Or Cr.) Days Debit Credit
Product Product

P2S YESHAS ACADEMY
SELF BALANCING LEDGERS

Transactions Sectional balancing System Self-balancing system
1 For Cash Receipts, Total Debtors A/c Dr. Debtors Ledger Adjustment A/c Dr.
Discount Allowed,
To Sales A/c (in General Ledger)
Returns Inward, Bad
Debts, and Bills To B/R Dishonoured A/c To General Ledger Adjustment
Receivable etc.
To Interest and Charges A/c (in Debtors Ledger)
2 For Sales Day Book, Cash A/c Dr. General Ledger Adjustment A/c Dr.
Bills Receivable
Discount Allowed Dr. (in Debtors Ledger)
Dishonoured, bad
debt, Interest and Returns Inward Dr. To Debtors Ledger Adjustment A/c
Charges etc.
Bad Debts A/c Dr. (in General Ledger)
Bills Receivable Dr.
To Total Debtors A/c
3 For Cash Payment, Total Creditor’s A/c Dr. Creditors Ledger Adjustment A/c Dr.
Discount Received,
To Cash A/c (in General Ledger)
Returns Outward,
Bills Payable etc. To Discount Received A/c To General Ledger Adjustment A/c
To Returns Outwards A/c (in Creditors Ledger)
To Bills Payable A/c
4 For Purchase Day Purchase A/c Dr. General Ledger Adjustment A/c Dr.
Book, Interest and
Interest & Charges Dr. (in Creditors Ledger)
Charges, Bill payable
dishonoured Bills Payable A/c Dr To Creditors Ledger Adjustment A/c
To Total Creditor’s A/c (in General Ledger)
5 For transfer of credit Total Creditor’s A/c Dr. Creditors Ledger Adjustment A/c Dr
balance of creditor
To Total Debtors A/c To General Ledger Adjustment
from CL to DL or debit
balance of Debtor General Ledger Adjustment A/c Dr.
from DL to CL
To Debtors Ledger Adjustment A/c
6 For transfer of debit Total Debtors A/c Dr. Debtors Ledger Adjustment A/c Dr
balance of creditor
To Total Creditor’s A/c To General Ledger Adjustment
from CL to DL or credit

P2S YESHAS ACADEMY
balance of Debtor General Ledger Adjustment A/c Dr.

from DL to CL
To Creditors Ledger Adjustment A/c
For endorsed bill
dishonoured
SPECIMEN OF ADJUSTMENT /CONTROL ACCOUNTS UNDER SELF BALANCING SYSTEM

In General Ledger
Debtors Ledger Adjustment Account
Dr Cr
Date Particulars Rs Date Particulars Rs
To balance b/f Xxx By balance b/f (if any) xxx
To General Ledger Xxx By General Ledger Adjustment A/c xxx
Adjustment A/c:
- Sales (Credit) xxx - Sales Returns xxx
- Cheques dishonoured xxx - Cash and cheque received xxx
- Interest charged xxx - Bills receivable xxx
- Notary charges xxx - Discount allowed xxx
- Cash paid xxx - Bad debts xxx
- B/R dishonoured Xxx - Transfer (if any) xxx
To balance c/f (if any) xxx By balance c/f xxx
xxx xxx
In Debtors Ledger
General Ledger Adjustment Account
To balance b/f Xxx By balance b/f (if any) xxx
To Debtor Ledger Adjustment Xxx By Debtor Ledger Adjustment A/c xxx
A/c:
- Sales Returns Xxx - Sales (Credit) xxx
- Cash and cheque received xxx - Cheques dishonoured xxx
- Bills receivable xxx - Interest charged xxx
- Discount allowed xxx - Notary charges xxx
- Bad debts xxx - Cash paid xxx
- Transfer (if any) xxx - B/R dishonoured xxx
To balance c/f (if any) xxx By balance c/f xxx
xxx xxx

P2S YESHAS ACADEMY
In General Ledger
Creditors Ledger Adjustment Account
Dr Cr
To balance b/f (if any) xxx By balance b/f xxx
To General Ledger xxx By General Ledger Adjustment xxx
Adjustment A/c A/c:
- Cash and cheques paid xxx - Purchase (credit) xxx
- Return outwards xxx - Cheques dishonoured xxx
- Discount received xxx - B/P dishonoured xxx
- Bills payable accepted xxx xxx
- Transfers (if any) xxx xxx
To balance c/f xxx By balance c/f (if any) xxx
xxx xxx
In Creditors Ledger
General Ledger Adjustment Account
Dr Cr
To balance b/f (if any) xxx By balance b/f xxx
To Creditor Ledger xxx By Creditor Ledger Adjustment xxx
Adjustment A/c: A/c:
- Purchase (credit) xxx - Cash and cheques paid xxx
- Cheques dishonoured xxx - Return outwards xxx
- B/P dishonoured xxx - Discount received xxx
- Bills payable accepted xxx
- Transfers (if any) xxx
To balance c/f xxx By balance c/f (if any)
xxx xxx
SPECIMEN OF ADJUSTMENT /CONTROL ACCOUNTS UNDER SECTIONAL BALANCING SYSTEM
In General Ledger
Total Debtors Account
Dr. Cr.
Date Particulars Amount Date Particulars Amount
To Balance b/d xxx By Balance b/d (if any) xxx
” Credit Sales xxx ” Cash/Cheque received xxx
” B/R dishonoured xxx ” Discount Allowed xxx
” Interest and Charges xxx ” Bad Debts xxx
” Cash paid to Debtors xxx ” Returns Inward xxx
” Balance c/d (if any) xxx ” Bills Receivable xxx
” balance c/d xxx
xxx xxx

P2S YESHAS ACADEMY
Total Creditors Account

Dr. Cr.
Date Particulars Amount Date Particulars Amount
To Balance b/d (if any) xxx By Balance b/d xxx
” Cash and Cheque paid xxx ” Purchases xxx
” Discount Received xxx ” B/P Dishonoured xxx
” Bills Payable xxx ” Balance c/d (if any) xxx
” Returns Outward xxx xxx
” Transfer xxx xxx
” Balance c/d xxx xxx
xxx xxx

P2S YESHAS ACADEMY
FINANCIAL STATEMENTS OF
NOT-FOR PROFIT ORGANISATIONS
Format of Receipt and Payment Account
Receipts Amount Payments Amount
To balance b/d By All Payments
- Cash in hand xxx - Capital xxx
- Cash at bank xxx - Revenue xxx
To All Receipts (May be related to any period
- Capital Receipts xxx previous, current or subsequent.)
- Revenue Receipts xxx By Balance c/d
(May be related to any period - Cash in hand xxx
previous, current or subsequent.) - Cash at bank xxx
xxx xxx
Format of Income and Expenditure Account
Expenditure Amount Income Amount
To All revenue expenses To All revenue receipts
(related to current period only) xxx (related to current period only) xxx
To Excess of Income over To Excess of Expenditure over
Expenditure (Surplus) xxx Income (Deficit) xxx
xxx xxx
Fund based accounting:
Fund/Donation
Specific Fund Non Specific fund
Asset Fund( For CapEX) Restricted Revenue Fund Unrestricted Fund
When donation received for When donation received for If recurring in nature
purchase/construction of an specific revenue expenditure
Donation received transferred
asset
Bank A/c Dr. to income and expenditure
Bank A/c Dr. account
To Revenue Fund A/c
To Asset Fund A/c
If the Special Fund is used to If the Special Fund is used to If non-recurring in nature
purchase/construction of an meet an expense
Donation received transferred
asset
Revenue Fund A/c Dr. to Capital Fund
Asset A/c Dr.
To Bank A/c (amt. of expense)
To Bank A/c (Cost of the asset)

P2S YESHAS ACADEMY
For amount utilized for The balance amount unutilized

purchase/construction of of the Fund is shown as a
Assets liability.
Asset Fund A/c Dr.
To Capital Fund A/c
The balance amount unutilized

of the Fund is shown as a
liability.
Entrance Fees or Admission Fees: should be added with Capital Fund.

Annual Subscriptions: credited to Income & Expenditure Account on accrual basis.
Subscription Account
To balance b/d xxx By balance b/d xxx
- Subscription due a beg - Pre-received subscription at beg
To Income and Expenditure A/c xxx By Cash A/c xxx
- Income of Current year - Received during the year
To balance c/d xxx By balance b/d xxx
- Pre-received subscription at end - Subscription due a end
xxx xxx
Life membership subscription:

(a) It is usually credited to a separate account shown as a liability. Annual Subscription
apportioned out of that is credited to Income & Expenditure Account and deducted from the
liability.
(b) Alternatively, the entire amount can be credited to the Capital Fund in the year in which it is
received.
PREPARATION OF INCOME AND EXPENDITURE ACCOUNT AND BALANCE SHEET WHEN RECEIPTS AND PAYMENTS
ACCOUNT AND OTHER INFORMATION GIVEN:
Step 1: Prepare Balance Sheet at the beginning of the period to find out Capital fund.
Step 2: Identify Payments from Receipts and Payments Account,
- If revenue payment is given without adjustment post directly to income and
expenditure account
- If revenue payment is given with adjustment calculate revenue expenses as under and
post to income and expenditure account
Revenue payment xxx
+ Outstanding Expense at the end xxx
- Outstanding Expense at the beg xxx
+ Prepaid expense at the beg xxx

P2S YESHAS ACADEMY
- Prepaid expense at the end xxx

Xxx
- If capital payment, post capital payments to appropriate assets or liabilities accounts
for being incorporated in the Balance Sheet.
Step 3: Identify Receipts from Receipts and Payments Accounts
- If revenue receipt is given without adjustment post directly to income and expenditure
account
- If revenue receipt is given with adjustment calculate revenue income as under and
post to income and expenditure account
Revenue receipt xxx
+ Outstanding income at the end xxx
- Outstanding Income at the beg xxx
+ Pre-received at the beg xxx
- Pre-received at the end xxx
Xxx
- If capital receipt, post capital receipt to appropriate assets or liabilities accounts for
being incorporated in the Balance Sheet.
Step 4: Analyse the additional information given and make necessary entries in the Income and
Expenditure Account.
Step 5: Calculate surplus or deficit in the Income and Expenditure Account. Transfer the surplus or
deficit to the Capital Fund Account; and Prepare Balance Sheet at the end of the period.
PREPARATION OF RECEIPTS AND PAYMENTS ACCOUNT FROM A GIVEN INCOME AND EXPENDITURE ACCOUNT AND A
BALANCE SHEET
Step 1: Prepare Balance Sheet at the beginning of the period to find out Capital fund.
Step 2: Identify Revenue expense from Income and Expenditure
- If revenue expense is given without adjustment post directly to payment side of
receipt and payment account
- If revenue expense is given with adjustment calculate revenue payment as under and
post to payment side of receipt and payment account
Revenue Expense xxx
- Outstanding Expense at the end xxx
+ Outstanding Expense at the beg xxx
- Prepaid expense at the beg xxx
+ Prepaid expense at the end xxx
Xxx
P2S YESHAS ACADEMY
- Identify capital payment from additional information given In the question and post
to payment side of receipt and payment account
Step 3: Identify Revenue Income from Receipts and Payments Accounts
- If revenue income is given without adjustment post directly to receipt side of receipt
and payment account.
- If revenue income is given with adjustment calculate revenue receipt as under and
post to receipt side of receipt and payment account
Revenue Income xxx
- Outstanding income at the end xxx
+ Outstanding Income at the beg xxx
- Pre-received at the beg xxx
+ Pre-received at the end xxx
Xxx
- Identify capital receipt from additional information given in the question and post to
receipt side of receipt and payment account
Step 4: Transfer the surplus or deficit given in the Income and Expenditure Account to the Capital
Fund Account; and Prepare Balance Sheet at the end of the period.
In this respect the following points are important:
 If both the opening and closing balances of Cash and Bank are given, both payments side and
receipts side of the receipts and Payments Account will be equal.
 If only the opening balances of Cash and Bank have been given, the balance will represent
closing balances of Cash and Bank.
 If only the closing balances of the Cash and Bank have been given, the balancing figure will
represent opening Cash and Bank.
PREPARATION OF OPENING AND CLOSING BALANCE SHEET FROM A GIVEN RECEIPT AND PAYMENT ACCOUNT AND INCOME
AND EXPENDITURE ACCOUNT
Step 1: Take opening and closing balance of Cash and Bank which are given in the Receipts and
Payments Account and incorporate it in opening and closing balance sheet
Step 2: Identify all opening assets and liabilities given as additional information and incorporate
them in opening balance sheet.
Step 3: Identify all closing assets and liabilities given as additional information and incorporate them
in closing balance sheet.
Step 4: Now, each individual item of Receipts and Payments Account should be compared with each
individual item of Income and Expenditure Account and the same is to be adjusted
accordingly in opening and closing balance sheet. It must be remembered that items which

P2S YESHAS ACADEMY
are appeared in the credit side of the Receipts and Payments Account must be compared
with the items which is appeared in the debit side of Income and Expenditure and vice-versa.
Step 5: Transfer the surplus or deficit given in the Income and Expenditure Account to the Capital
Fund Account; and Prepare Balance Sheet.
PREPARATION OF RECEIPTS AND PAYMENTS ACCOUNT, INCOME AND EXPENDITURE ACCOUNT AND BALANCE SHEET
WHEN LEDGER BALANCES AND OTHER INFORMATION ARE GIVEN:
Receipts and Payments Account, Income and Expenditure Account and Balance Sheet are prepared
in the usual manner with the help of additional information given.

P2S YESHAS ACADEMY
ACCOUNTS FROM INCOMPLETE

RECORDS
STEPS INVOLVED IN THE CALCULATION OF PROFIT FROM INCOMPLETE RECORDS
Step 1: Prepare Opening Statement of Affair to calculate opening capital.
Step 2: Prepare Closing Statement of Affair to calculate closing capital
Step 3: Calculate profit or loss by preparing Statement of Profit
Statement of Profit and Loss for the year ended.....
Particulars Amount (Rs.) Amount (Rs.)
Capital (at the end) xx
Less: Capital (at the beginning) xx xx
Add: Drawings xx
xx
Less: Further Capital (if any) xx
Net Profit/Loss for the period xx
Less: Appropriation items:
(i) Interest on partner’s capital xx
(ii) Partners’ salaries etc. xx xx
Add: Interest on Partner’s Drawing Xx
Divisible Profit Xx
STEPS INVOLVED IN THE PREPARATION OF FINAL ACCOUNT FROM INCOMPLETE RECORDS
Step 1: Prepare cash and bank summary (cash book) (if not available in proper form with both sides
tallied)
Format of Cash book:

Cash Bank Cash Bank
Particulars (Rs.) (Rs.) Particulars (Rs.) (Rs.)
To Balance b/d xx xx By balance b/d (overdraft) -- xx
To Cash sales xx -- By Creditors (Payment) xx --
To Debtors (collection) xx xx By Cash purchase xx Xx
To Bill receivable (collected) xx xx By Bills Payable (paid) xx Xx
To Capital (Additional) xx xx By Drawings A/c xx Xx
To Fixed Assets (Sales) xx xx By Expenses A/c xx Xx
To Miscellaneous Income xx xx By fixed Assets (Purchase) xx xx
To Bank (Cash withdrawn) xx -- By Cash (Cash withdrawn) -- xx
To Cash (Cash Deposited) -- xx By Bank (Cash Deposited) xx --
To Balance c/d (overdraft) -- xx By Balance c/d xx Xx
xx xx xx Xx
Tutorial Note:
If credit sides exceeds debit side, Balancing If debit sides exceeds credit side, Balancing
figure may be figure may be
a) Opening cash or bank a) Closing cash or bank
P2S YESHAS ACADEMY
b) Closing bank overdraft b) Opening bank overdraft

c) Collection from debtor c) Payment to creditor
d) Cash sales d) Cash Purchase
e) Additional capital e) Drawing
f) Cash embezzlement/destroyed
Step 2: Prepare Total debtor account and bills receivable account (If any)
Format of Total Debtor Account

Dr. Cr.
Particulars (Rs.) Particulars (Rs.)
To Balance b/d xx By Cash (collected in cash) Xx
To Credit sales xx By Bank (Collected in cheques) xx
To Bill receivable (Dishonour) xx By sales Return xx
To Bank (cheque dishonour) xx By Bad debt xx
To Total creditor (Endorsed bill xx By Bill receivable (Bill Drawn) xx
dishonour)
To Bank (Discounted bill dishonour) xx By Discount allowed xx
xx By Balance c/d xx
xx xx
Note: Provision for doubtful debt, Provision for discount on debtor, Bad debt recovered, trade
discount allowed, Bill discounted, bill endorsed do not affect the total debtor account.
Tutorial Note:
1) Credit sales 1. Closing balance
2) Opening balance 2. Collection from debtor
3. Bill drawn
Format of Bill Receivable Account

Dr. Cr.
To Balance b/d xx By Cash (bills collected in cash) --
To Total debtor (Bill drawn) xx By Bank (Collected in cheques) Xx
xx By Total creditor (bill endorsed) Xx
xx By Total Debtor ( bill dishonour) Xx
xx By Balance c/d Xx
xx Xx
Tutorial Note:
2) Bill drawn 1) Closing balance
3) Opening balance 2) Bill Collection in cash
Step 3: Prepare Total Creditor account and Bill Payable account (If any)
Format of Total Creditor Account

Dr. Cr.

P2S YESHAS ACADEMY
To Purchase Return xx By Balance b/d Xx

To Cash (Paid in cash) xx By Credit Purchase Xx
To Bank (Payment in cheques) xx By Bills Payable (bill dishonour) Xx
To Bill payable (bill accepted) xx By Total Debtor (Endorsed bill Xx
dishonour)
To Discount Received xx
To Balance c/d xx
xx Xx
Tutorial Note:
2) Closing balance 1) Credit Purchase
3) Payment to creditor 2) Opening balance
4) Bill accepted
Format of Bill Payable Account
Dr. Cr.
To Cash (Paid in cash) xx By Balance b/d xx
To Bank (Payment in cheques) xx By Total Creditor (Bills accepted) xx
To Total Creditor (bill dishonour) xx xx
To Balance c/d xx
xx xx
Tutorial Note:
1) Closing balance 3) Bill accepted
2) Bills payable paid 4) Opening balance
Step 4: Prepare Revenue Expense and Revenue Income Account
Format of Revenue Expense Account

Dr. Cr.
To balance b/d (Opening prepaid) xx By Balance b/d(Opening Outstanding) xx
To Cash/bank (Expenses Paid ) xx By Trading or P/L A/c xx
To Balance c/d (Closing Outstanding) xx By Balance b/d (Closing prepaid) xx
xx xx
Tutorial Note: If there are no prepaid expenses and outstanding expenses at the beginning
and at the end of the year, it means expenses paid during the year will debited to trading or
P/L account.
Format of Revenue Income Account
Dr. Cr.
To balance b/d (Opening Accrued) xx By Balance b/d(Opening Pre received) xx
To Trading or P/L A/c xx By Cash/Bank (Income received) xx

P2S YESHAS ACADEMY
To Balance c/d (Closing Pre received) xx By Balance b/d (Closing accrued) xx

xx xx
Tutorial Note: If there are no accrued incomes and pre received income at the beginning
and at the end of the year, it means income received during the year will credited to trading
or P/L account.
Step 5: Prepare balance sheet at the beginning of the year to calculate Opening capital
Opening Capital = Total assets at the beginning – Total Liabilities at the beginning
Step 6: Prepare Trading and Profit & Loss account and the Balance Sheet.

P2S YESHAS ACADEMY
HIRE PURCHASE AND INSTALLMENT

SALE TRANSACTIONS
Cash Price = HP price – Interest
= Present value of HP Price
HP Price = Cash Price + Interest on Outstanding Balance
= Down Payment + Total Installment
Accounting Arrangements of Hire Purchase Transaction

ACCOUNTING ENTRIES UNDER CASH PRICE METHOD
Transactions Books of Hire Purchaser Books Of Hire Vendor
1. On entering into the Asset Account Dr. Hire Purchaser Account Dr.
agreement To Hire Vendor Account To H.P. Sales Account
[With Full cash price] [Full cash price]
2. When down payment is Hire Vendor Account Dr. Bank Account Dr.
made To Cash/Bank Account To Hire Purchaser account
[With Down payment] [With Down payment]
3. When an instalment Interest Account Dr. Hire Purchaser Account Dr.
becomes due To Hire Vendor Account To Interest Account
4. When an instalment is Hire Vendor Account Dr. Bank Account Dr.
paid To Bank Account To Hire Purchaser Account
5. When depreciation is Depreciation Account Dr. Not Applicable
charged on the asset To Asset Account
6. For closing interest and Profit and Loss Account Dr. H.P Sales Account Dr.
depreciation account To Interest Account To Trading Account
To Depreciation Account Interest Account Dr.
ACCOUNTING ENTRIES UNDER INTEREST SUSPENSE METHOD

Transactions Books of Hire Purchaser Books Of Hire Vendor
1. On entering into the Asset Account Dr. Hire Purchaser Account Dr.
agreement To Hire Vendor Account To H.P. Sales Account
[With Full cash price] [Full cash price]

P2S YESHAS ACADEMY
Interest Suspense Account Dr. Hire Purchaser Account Dr.

To Hire Vendor Account To Interest Suspense Account
[With Total interest] [With Total interest]
2. When down payment is Hire Vendor Account Dr. Bank Account Dr.
made To Cash/Bank Account To Hire Purchaser account
[With Down payment] [With Down payment]
3. When an instalment Interest Account Dr. Interest Suspense Account Dr.
becomes due To Interest Suspense Account To Interest Account
4. When an instalment is Hire Vendor Account Dr. Bank Account Dr.
paid To Bank Account To Hire Purchaser Account
5. When depreciation is Depreciation Account Dr. Not Applicable
charged on the asset To Asset Account
6. For closing interest and Profit and Loss Account Dr. H.P Sales Account Dr.
depreciation account To Interest Account To Trading Account
To Depreciation Account Interest Account Dr.
DEFAULT AND REPOSSESSION

COMPLETE REPOSSESSION: When seller takes back the possession of complete goods.
Particulars Books of hire purchaser Books of hire vendor
1. For Repossession of goods Hire Vendor A/c Dr Goods Repossessed A/c Dr.
To Asset A/c To Hire Purchaser
(With the outstanding Balance (With the outstanding Balance
of Hire Vendor A/c) of Hire Purchaser A/c)
2. For closing Assets account If Loss On repossession Not Applicable
To Asset Account
If Profit on repossession
Asset Account Dr.
3. For repairing and Not Applicable Goods Repossessed Account Dr
reconditioning expenses To Bank/Cash Account
incurred on Goods
repossessed
4. When repossessed goods Not Applicable Bank/Cash Account Dr.
are sold To Goods Repossessed A/c

P2S YESHAS ACADEMY
5. For closing goods Not Applicable If Profit on sale

repossessed account Goods Repossessed Account Dr
If Loss on Sale
To Goods Repossessed A/c
Partial Repossession: When seller takes possession of only part of the total asset sold to buyer.
Particulars Books of hire purchaser Books of hire vendor
1. For Repossession of goods Hire Vendor A/c Dr Goods Repossessed A/c Dr.
To Asset A/c To Hire Purchaser
(With the agreed value of asset (With the agreed value of asset
repossessed) repossessed)
2. For profit or loss on If Loss On repossession Not Applicable
repossession (Note 4) Profit & Loss Account Dr.
To Asset Account
If Profit on repossession
Asset Account Dr.
Note:
1. Both buyer and seller do not close seller’s and buyer’s account in their respective books.
2. The entry is passed with the agreed value of the asset which is taken away by the seller.
3. The basis for finding out the value of asset taken away is given in the question.
4. Profit or loss on repossession = BV of asset taken – Agreed value of assets taken
5. Other accounting treatment will be same as complete repossession.

P2S YESHAS ACADEMY
INVESTMENT ACCOUNTS
AS – 13 Accounting for Investments
Investments
Asset held for earning income by way of dividend, interests and rentals;
for capital appreciation
Intention to hold the Investment

YES for more than 1 year and not for NO
sale?
Long term Cost of Investment Current

investment  Purchase Price investment
 Directly attributable costs like
brokerage, fees, etc.
Carrying amount  Adjust pre-acquisition interest Carrying amount
 Usually carried at and dividend  Lower of cost & FV
cost  Review periodically
 Provide for  Route impact of
permanent movement below cost
diminution of value through P & L
 Apply individual basis Cost in case of  Apply Item by item
for determining a “Exchange” basis or Group basis (if
amount reqd)
Exchanged for another assets

Exchanged for shares
FV of asset given up or
Fair value of securities issued
FV of asset acquired if market value is
more clearly evident
Disposal Reclassification
 Adjust difference between proceeds Long term to current Current to Long term
and carrying amount through P & L Take lower of cost price Take lower of cost price
 Part sale – Apply average carrying and “carrying amount” and “Fair value”
amount
Investment properties should account for them  Depreciate Investment properties as per AS 10
in accordance with the cost model as prescribed  Investment properties cannot be revalued/ fair
in AS 10 Property, Plant and Equipment. valued

P2S YESHAS ACADEMY
Fixed Income Bearing securities Variable Income Bearing securities
On Purchase of Scrips On Purchase of Scrips

Investment Account Dr Ex-interest Cost Price] Investment Account Dr [Cost Price]
Interest Account Dr [Accrued interest] To Bank Account
To Bank Account [The total amount Paid]
On Sale Of scrips On Sale of Scrips

Bank A/c Dr [Net cum Interest sales price] Bank Account Dr [Net Sale Price]
To Investment A/c[Net Ex interest sales Price] To Investment Account
To Interest Account [Accrued Interest]
If there is a profit on sale of investment If there is a profit on sale of investment

Investment Account Dr Investment Account Dr
To Profit & Loss Account To Profit & Loss Account
If there is a loss on sale of investment If there is a loss on sale of investment
Profit & Loss Account Dr Profit & Loss Account Dr
To Investment Account To Investment Account
When interest is received after purchase on Dividend received:

due date
Pre-acquisition dividend:
Bank A/c Dr [total interest received]
Bank Account Dr.
To Interest Account
To Investment Account
[On due date interest will be received from
Post-acquisition dividend:
company from last due date to current due
date.] Bank Account Dr.
If accounting year end and due date of interest To Dividend Account
are not same, calculate
[At the end of the year Dividend account will be
a) Opening accrued interest for opening transferred to Profit and loss account]
investment from last due date of PY to
year beginning.
b) Closing accrued interest for closing
investment from last due date of CY to
year end

P2S YESHAS ACADEMY
Calculation of Ex-interest Cost Price Bonus shares: No journal entry

Cum-Interest purchase price xx However, number of shares will be increased.
Less: Interest accrued from last due xx Remember: In the books of company there will
date to date of purchase be journal entry for bonus shares (refer bonus
Ex-interest cost Price Xx share chapter)
Add: Brokerage, securities Transaction xx
Tax, stamp fees
Ex-Interest Cost Price xx
Calculation of profit/loss on sale of scrip Right shares:
Cum Interest Sales price xx When right shares offered are subscribed:
Less: Interest accrued from last due xx
Investment Account Dr. [Cost price]
date to date of sale
Ex-interest sale price xx To Bank Account
Less: Brokerage, securities Transaction xx When rights are not subscribed for but are sold
Tax in the market:
Net ex-interest sale price xx
Less: book value of investment sold xx a) Where the original shares are acquired
Profit or loss on sale of investment xx on ex-right basis: the sale proceeds are
taken to the profit and loss statement.
b) Where the original shares are acquired
on cum-right basis: the sale proceeds of
rights will be reduced from carrying
amount of such investments.
At the end of the accounting year, the balance of investment is to be valued as follows:
a) Current investments at cost or fair value, whichever is lower;
b) Long- term investment at cost (provided no decline is anticipated);
For reduction in the value of current investment, where the market value is lower than cost,
following entry will be recorded
Profit and Loss account Dr.
To Investment account
When a part of the holding of an individual investment is sold, cost price of investment sold is
calculated by applying average cost. If question requires use FIFO.

P2S YESHAS ACADEMY
INSURANCE CLAIMS FOR LOSS OF

STOCK AND LOSS OF PROFIT
CLAIM FOR LOSS OF STOCK CLAIM FOR LOSS OF PROFIT
STEP 1: Calculate Gross profit Ratio STEP 1: Determine the period of claim by taking
the indemnity period or dislocation
a) If GP Ratio of CY is not given, calculate
period whichever is less
Normal GP ratio of PY.
Step 2: Calculation of trend in turnover
b) Adjusted Gross Profit Ratio = Gross Profit
Ratio of Previous year ± Trend in GP Ratio If trend in turnover not given, calculate it by
comparing sales of unaffected period of CY with
c) The effects of abnormal items (if any) should
corresponding sales of PY.
be excluded.
If trend in turnover cannot be identified ignore
d) If trend in GP Ratio is not given assume GP
trend
ratio is constant.
STEP 3: Calculate the Insured Gross Profit ratio
e) If GP ratio of past few years are given,
calculate average GP ratio of for past years. I.G.P. Ratio of PY
Average can be simple or weighted as per
=
trend.
Adjusted IGPR = IGPR (PY) ± Trend in GP Ratio
If trend in GP Ratio is not given assume GP ratio
is constant.
STEP 2: Calculate the Value of stock as on the STEP 4: Calculate the Loss in Turnover (Short
date of Fire sales) in the period of claim
a) Memorandum Trading Account should be Standard Sales xxx
prepared. (showing separately normal items
Add/less: Upward or downward trend xxx
and abnormal items)
Adjusted Standard Sales xxx
b) Gross profit ratio should be applied to
normal sales only and not abnormal sales. Less: Actual Turnover xxx
c) Value of Stock on the date of fire = Stock of Turnover Lost xxx
normal item + Stock of abnormal item.
STEP 5: Calculate Loss of Gross Profit during the
d) Normal stock will be calculated as a period of claim
balancing figure from memorandum trading
Loss of Gross Profit = Turnover Lost during the
account
period of claim x Adjusted IGPR
e) Abnormal stock will be valued as per the
information given in question. If question is
silent it will be valued at NRV.

P2S YESHAS ACADEMY
STEP 3: Calculate the Value of Stock lost by fire STEP 6: Calculate the Sum Insurable i.e.,
(Actual loss suffered) Adjusted Annual Turnover (AAT) and
Insured GP on AAT
Value of Stock on the date fire xxx
Annual turnover xxx
Less: Value of undamaged stock
xxx Add/less: Upward or downward trend xxx
Less: Value of Salvaged stock xxx Adjusted Annual Turnover xxx
Add: Firefighting expenses xxx IGP on AAT = AAT x Adjusted IGPR
xxx
a) If salvaged stock is taken by the insurance
company, it will be not deducted.
b) If question is silent, assume salvaged stock is
not taken by the insurance company.
Step 4: Calculation of amount of claims STEP 7: Calculate Claim for additional expenses
Without Average clause: Claim is equal to the The lower of the following
lower of actual loss or sum insured.
a) Actual expenses incurred
With Average Clause: Amount of claim for loss
b) Additional sales x Adjusted IGPR
of stock is proportionately reduced if sum
insured is less than closing stock on the date of c) Proportionate Additional expenses
fire.
Amount of claim = Loss of stock x [Sum insured Additional Expenses x
/ Closing stock]
Unless otherwise stated, Actual sales during the
period of claim is assumed to be additional sale.
Special Points for claim for loss of profit: STEP 8: Calculate the amount of total loss
suffered by the Insured
a) Adjusted IGP (CY) = Adjusted NP + ISC
Gross profit lost xxx
b) Adjusted NP + ISC = Adjusted GP – UISC
Add: Claim for Additional expenses xxx
c) Adjusted IGPR = [Adjusted GP –
UISC]/AAT Total Loss xxx
Less: Saving in Insured Standing Charges xxx
Actual loss suffered xxx
STEP 9: Calculation of amount of claims

Without Average clause: Claim is equal to the

P2S YESHAS ACADEMY

insured is less than IGP on AAT
Amount of claim = Loss of stock x [Sum insured /
IGP on AAT]
STEP 8: Calculate the amount of total loss

suffered by the Insured
Gross profit lost xxx
Add: Claim for Additional expenses xxx
Total Loss xxx
Less: Saving in Insured Standing Charges xxx
Actual loss suffered xxx
STEP 9: Calculation of amount of claims

Without Average clause: Claim is equal to the
insured is less than IGP on AAT
Amount of claim = Loss of stock x [Sum insured /
IGP on AAT]

P2S YESHAS ACADEMY
ISSUES IN PARTNERSHIP ACCOUNTS

If partnership deed/agreement is silent, following provisions of the Partnership Act will apply.
1. no partner has the right to a salary,
2. no interest is to be allowed on capital,
3. no interest is to be charged on the drawings,
4. interest at the rate of 6% is to be allowed on a partner’s loan to the firm, and
5. profits and losses are to be shared equally.
Capital account
Fixed capital Method Fluctuating capital
Method
Partner’s capital A/c Partner’s Current A/c Partner’s capital A/c
Nature Fixed. Fluctuate Fluctuate
Balance Credit balance Cr. or Dr. Balance Cr. or Dr. Balance
Interest on Capital NA Credited Credited
Partners’ Salary NA Credited Credited
Drawing NA Debited Debited
Interest on Drawing NA Debited Debited
Share of Profit NA Credited Credited
Share of Loss NA Debited Debited
Profit & Loss Appropriation A/c

Particulars Amount Particulars Amount
To Partners' Salary XXX By Net Profit XXX
To Partners' Interest on Capital XXX By Partners' Interest on Drawing XXX
To Partners' Commission XXX
To Partners' Capital/Current a/c
- Share of profit XXX
XXX XXX
Interest on Drawing
Equal amount is drawn at No. of Months for which interest will be calculated
Beginning of each month 6.5 Months
Middle of each month 6 Months
End of each month 5.5 Months
Beginning of each quarter 7.5 Months
Middle of each quarter 6 Months
End of each quarter 4.5 Months

P2S YESHAS ACADEMY
Interest on Capital
a) In case of fixed capital accounts, interest is calculated on the balance of capital accounts
only.
b) Unless otherwise agreed, interest on capitals is to be provided out of profits only. Thus
in case of loss, no interest is provided.
c) But in case of insufficient profits, the amount of profit is distributed in capital ratio.
Rectification of Error
If Two sided error If One sided Error
Increase in Assets Debit Assets A/c Debit Assets A/c
Credit PL Adjustment A/c Credit Suspense A/c
Decrease in Assets Debit PL Adjustment A/c Debit Suspense A/c
Credit Assets A/c Credit Assets A/c
Increase in Liabilities Debit PL Adjustment A/c Debit Suspense A/c
Credit Liability A/c Credit Liability A/c
Decrease in liabilities Debit Liability A/c Debit Liability A/c
Credit PL Adjustment A/c Credit Suspense A/c
Increase in profit Debit Assets or liability A/c Debit Suspense A/c
Credit PL Adjustment A/c Credit PL Adjustment A/c
Decrease in profit Debit PL Adjustment A/c Debit PL Adjustment A/c
Credit Asset or Liability A/c Credit Suspense A/c
Valuation of goodwill
Goodwill
Average Capitalzation
Super profit
Profit Method
AP X NOYP AP x AF SP X NOYP SP X AF SP/NROR
AP = Average Profit AF = Annuity Factor

SP = Super Profit = AP -NP NOYP = Nos. of years Purchase
NROR=Normal rate of return NP = CE X NROR
CE = (All Assets – Investment) – All Liabilities

P2S YESHAS ACADEMY
Treatment of goodwill on reconstitution of firm

Goodwill adjustment on reconstitution Debit Gaining Partners Capital A/c
of firm Credit Sacrificing Partners Capital A/c
Cash/ assets brought in by Gaining Debit Cash or Assets A/c
Partners Credit Gaining Partners Capital A/c
Cash withdrawn by sacrificing partners Debit Sacrificing Partners Capital A/c
Credit Cash or Assets A/c
Goodwill already appearing in Balance Debit Old Partners capital A/c
Sheet – write off in OPSR Credit Goodwill A/c
Revaluation of assets on reconstitution of firm: Revaluation of assets and liabilities will after
rectification adjustment
Increase in Assets Debit Assets A/c

Credit Revaluation A/c
Decrease in Assets Debit Revaluation A/c
Credit Assets A/c
Increase in Liabilities Debit Revaluation A/c
Credit Liability A/c
Decrease in liabilities Debit Liability A/c
Revaluation profit Debit Revaluation A/c
Credit Old Partners capital A/c
Revaluation loss Debit Old Partners capital A/c
Treatment of Reserve and Surplus on reconstitution of firm
Reserve Debit Reserve A/c

Credit Old Partners capital A/c
Accumulated Loss (Dr balance of PL A/c) Debit Old Partners capital A/c
Credit PL A/c
Fictitious Assets Debit Old Partners capital A/c
Credit Fictitious Assets A/c
Reconstitution of partnership
Change in Admission Retirement Death
PSR
Rectification(If any) Yes Yes Yes Yes
Revaluation(if any) Yes Yes Yes Yes
Goodwill Adjustment Yes Yes Yes Yes
JLP adjustment Yes Yes Yes Yes
Distribute Reserve Yes Yes Yes Yes
Cash introduced by Incoming partner NA Yes NA NA
P2S YESHAS ACADEMY
Repayment to Outgoing partner NA NA Yes Yes

If not repaid Transfer to Outgoing NA NA Yes Yes
partner’s loan or executor a/c
Relief to outgoing Partner NA NA Yes Yes
Application of proportionate capital (If Yes Yes Yes Yes
specified)
Application of proportionate capital: Proportionate capital will be applied only when specified in
the question:
Total Captal
Distribute
of
Total Capital in
Reconstitute
NPSR
d firm given
Cash and Total Capital = Assets -
Proportion bank Liabilities
ate Capital Balance Distribute Total capital in
given NPSR
Total Captal of If incoming Partner capital is
Reconstituted given - take it as Base capital
firm not given
Cash and If incoming Partner capital is
bank not given - take combined
Balance not capital of other partners as
given Base capital
If Surplus capital is required -
Take minimum capital as base
capital
Relief to Outgoing Partner: For the period from date of event to settlement date
Relief to Outgoing partner
Applicable Higher of
Interest @ 6% p.a. on Proportionate share of

To outgoing partner
outstanding balance profit in the ratio of
Outstanding balance
ramain unstteled
nether entitled to share of

profit nor interest

P2S YESHAS ACADEMY
Joint Life Policy adjustment

Admission, retirement, change in PSR Death of a partner
Revalue JLP Debit JLP A/c Debit JLP A/c
Credit Revaluation A/c Credit Revaluation A/c
(Upto Surrender value) (Upto Policy amount)
Distribute JLP Debit JLP Reserve A/c Debit JLP Reserve A/c
Reserve (if any) Credit Old partner’s capital A/c Credit Old partner’s capital A/c
(At book value) (At book value)
Realisation of NA Debit Bank A/c
JLP* Credit JLP A/c
(Policy amount)
* If policy amount is received on the date of death of deceased partner –consider it for
calculation of relief
* If policy amount is not received on the date of death of deceased partner – ignore it for
calculation of relief
Memorandum Revaluation A/c: In case partners desire to disclose assets and liabilities in the
balance sheet at old figures then the change (i.e. increase or decrease) in the value of assets
and liabilities may be adjusted through Partners’ Capital Accounts directly instead of using
Revaluation Account. For this purpose Memorandum Revaluation account is prepared.
Memorandum Revaluation Account
Particulars Amount Particulars Amount
To Decrease in Assets XXX By Increase in Assets XXX
To Increase in Liabilities XXX By Decrease in Liabilities XXX
To Revaluation Profit (b/f) XXX To Revaluation Loss (b/f) XXX
- t/f to Old Partners in OLD PSR - t/f to Old Partners in OLD PSR
XXX XXX
To Decrease in Assets XXX By Increase in Assets XXX
To Increase in Liabilities XXX By Decrease in Liabilities XXX
To Revaluation Profit (b/f) XXX To Revaluation Loss (b/f) XXX
- t/f to New Partners in NEW PSR - t/f to New Partners in NEW PSR
XXX XXX

P2S YESHAS ACADEMY
ACCOUNTING STANDARDS
AS – 1 DISCLOSURE OF ACCOUNTING POLICIES
Accounting Policies
Principles and methods adopted in applying such principles
Disclosure needs arise because the methods of applying the principles can vary
Three Fundamental Accounting Assumptions

Going Concern, Consistency and Accrual
Overriding Factor for selection of

Accounting Policies: Major Consideration for selection and application:
 Prudence
“True and Fair View”  Materiality
 Substance over form
 Disclose all significant accounting policies in one place

 Disclose changes in accounting policies if material effects thereof either in current year, or in later
years
 Disclose Fundamental accounting assumption if not followed.

P2S YESHAS ACADEMY
AS – 2: Valuation of Inventories
Inventory valuation
(Take Lower of)
Cost Net Realizable Value (NRV)
COMPONENTS OF COST
ASCERTAINING NRV
 Cost Of Purchase
 Estimated Selling Price
 Cost of Conversion
 Other Attributable Cost
LESS
EXCLUSIONS
 Estimated Cost of Completion &
 Storage, abnormal wastage
 Estimated other Cost necessary to
 Selling & Distribution Cost
effect the sale
 Administrative and Office Expenses
COST ASPECTS NRV ASPECTS
Cost of Purchase
 Purchase Price Estimating NRV
 Duties and taxes on purchases (net of  Reliable evidence
refund if any)  Price Fluctuations
 Freight inward  Events occurring after balance sheet
 Other acquisition cost in simple, the date
landed cost Ascertaining based on estimation
 ED net of CENVAT credit available
Conversion Costs Estimating NRV

 Direct Labour  Firm sales – Contract price
 Variable production overhead  Sales price of sales before approval of
 Fixed Costs (relatively constant for accounts
Normal capacity)  Excess inventory – general selling price
Other Costs
 Direct attributable to bring items to Provide for -
their present location and condition Contingent losses as per AS 29
Joint costs to be allocated on a consistent and

For Materials and other supplies used in
rational basis
production (WIP)- Examine and relate the sale
value of FG
Ascertain and reduce NRV of small value by- Consider replacement cost for decline in price
products etc. from cost of main product of materials

P2S YESHAS ACADEMY
Allocation of production overhead
If Variable Production Overhead If Fixed Production Overhead
Allocated to each unit on the basis of  Actual production<=Normal Capacity: on

actual production the basis of normal production
 Actual production > Normal Capacity : on
the basis of actual production
Valuation of Raw Material
If FG in which RM will be incorporated is If FG in which RM will be incorporated is

expected to be sold at CP or more than CP expected to be sold at below CP
Value RM at CP Value RM at lower of CP and Replacement

Price
Select and apply appropriate Cost Formula

FIFO, Weighted Average, Specific identification method
Techniques: Standard Cost or Retail Inventory Method
Review Annually
Valuation can be made individual basis or In select areas, valuation can be Group (or
item by item basis. Category) method
Disclose:
 Inventory valuation Policy
 the cost formula used
 the total carrying amount of inventories and
 classification of inventories
 Changes in accounting policy, if any and Impact of such changes

P2S YESHAS ACADEMY
AS – 7 (Revised): Construction Contracts
Accounting in the books of “Contractors”

 Construction of assets or combination of assets
 Rendering of service directly related to construction
 Destruction or restoration of assets
 Specially negotiated
 Construction of assets or combination of assets
 If combination of assets- Inter-related, interdependent in terms of design, technology,
function or ultimate purpose.
Construction Destruction Restoration Restoration Following

demolition
Fixed Price Contracts Cost plus Contracts
Careful evaluation – Determine Single Contract

“Substance over form”
Combination of Assets? Segmentation of contract? Additional Assets?
Two or more contract can The additional asset

A contract will be
combine if: treated as a separate
segmented if:
construction contract
 negotiated as a single  separate proposals and when:
package; negotiation have been
 the asset differs
 the contracts are closely submitted for each asset;
significantly in design,
interrelated  costs and revenues of technology or function
 the contracts are each asset can be
 the price of additional
performed concurrently or identified.
asset is negotiated
in a continuous sequence. separately.

P2S YESHAS ACADEMY
Components – Contract Cost Components – Contract Revenue

 Basic Price
 Direct Cost – DM, DL & DE  Variation
 Allocable Costs  Escalation
 Costs as per contract terms  Claims
 Incentives
Recognition of Contract Revenue

and Contract Cost
Exclusions Apply certainty of

 Costs related to future activity  Measurability
 Payment made to subcontractor in  Collectability
advance of work performed
Outcome of contract can be reliably estimated Outcome of contract cannot be reliably

 Apply “Percentage of completion method” estimated
 Recognize Revenue in the periods in which the  “Percentage of completion method” cannot
work is “performed” be applied
 Expected Losses to be recognized immediately  Recognise Revenue to the extent of
 Applying matching cost Recovered contract costs.
 Reliance on contracts terms of conditions, right  Recognise Contract costs in the period in
and obligations which they are incurred.
 Expected Losses to be recognized
immediately.
Determine Percentage of Work Performed
Costs to total cost method Survey Method Physical evaluation method
Consider the uncertainties in recognizing revenue
Disclosure
 Method used to determine the contract revenue
 Method used to determine the stage of completion of contract in progress
 Contract revenue recognised as revenue in the period
 Aggregate costs incurred and recognised profits/losses up to the reporting date;
 Advances received up to the reporting date and
 Amount of retentions up to the reporting date
 Gross Amount due to/from customers

P2S YESHAS ACADEMY
AS – 9 Revenue Recognition
Revenue
Gross inflow of cash, receivables and other consideration
Sale of goods Rendering of services Use of enterprises resources

by others
 Transfer of “Property” in goods

 Transfer of Significant “risks and rewards”
 Proportionate completion of services method

 Completed services contract method
 Interest – Time proportion basis

 Royalties – Accrual basis, subject to terms
 Dividends – Right to receive is established
Measurability & Collectability
Yes No
Recognize at the time of sale or Postpone and recognize when ultimate

rendering of services collection becomes certain
Disclose
 Accounting Policy – AS 1
 Postponement of revenue recognition
 Gross Turnover, Excise duty and Net turnover is to be disclosed separately

P2S YESHAS ACADEMY
AS – 10 (Revised) Property, Plant and Equipment
Property, plant and equipment are tangible items that:

 are held for
- use in the production or
- supply of goods or services,
- for rental to others, or
- for administrative purposes; and
 are expected to be used during more than one period.
Recognition of cost of an item of PPE as an asset

- future economic benefits is probable
- cost of the item can be measured reliably
Initial Recognition- measured at its cost Subsequent Recognition
The cost PPE is the cash price An enterprise should choose either the
equivalent at the recognition date. Cost Model or the Revaluation Model
If payment is deferred beyond normal
credit terms, the total payment - cash Apply that policy to an entire class of
price equivalent is recognised as interest PPE.
expense or capitalised as per AS 16
Purchase for Monetary Self-construction: Purchase for Non-monetary

Consideration  Same principles as for Consideration:
Components of HC an acquired asset.  Measured at the fair
 Purchase Price less trade  Include costs directly value of the asset(s)
discount related to the asset received or the asset(s)
 Import duty and non - and allocated cost given up
refundable duties & taxes  any internal profits are  If the acquired item(s)
 Directly attributable costs eliminated is/are not measured at
to bring it to present  Abnormal loss in self- fair value, its/their
location & condition constructing an asset is cost is measured at the
 initial estimate of the not included carrying amount of the
costs of dismantling and asset(s) given up.
removing the item and
restoring the site
 Borrowing Cost (AS 16)
 Reduced by government
grants, if any (AS 12)

P2S YESHAS ACADEMY
Subsequent Recognition
COST MODEL REVALUTION MODEL

Carried at cost Carried at Revalued amount
Less: accumulated depreciation Less: Subsequent accumulated depreciation
Less: accumulated impairment losses Less: Subsequent accumulated impairment losses
 Restating Gross Book value and Accumulated Depreciation

 Restate Net Book Value by adding net increase on account of revaluation
Determine Fair Value of PPE Previously

First time
revalued  Market based evidence by appraisal – by qualified valuers revalued
 income approach ( Discounted cash flow projections)
 depreciated replacement cost approach
Increase in
Credit revaluation Reserve Increase or decrease in
value?
Value?
Consider 4 possibilities
Decrease in Charged to statement of Profit
value? and Loss
Present Present Present Present

Increase + decrease + Increase + decrease +
Previous Previous Previous Previous
Increase Increase decrease decrease
Credit Charge Revaluation Credit statement of Charge to

Revaluation Reserve to the extent Profit and Loss to the statement of
Reserve of previous increase extent of previous Profit and Loss
and the charge the decrease and credit
reminder, if any to the reminder, if any
statement of Profit to Revaluation
and Loss. Reserve
Key Points:
 If an item of PPE is revalued, the entire class of PPE to which that asset belongs should be revalued.
 The revaluation surplus of an item of PPE may be transferred to the revenue reserves when the asset
is derecognised.
 Additional depreciation on revalued amount may be transfers from revaluation surplus to the
revenue reserves and such transfer are not made through the statement of profit and loss

P2S YESHAS ACADEMY
Depreciation
AS 10 mandates component accounting.
A component of an item of PPE with a cost that is significant in relation to
total cost of the item is separately depreciated.
Hence, entities will need to divide the cost of an asset into significant parts,
if their useful life is different, and depreciate them separately.
Basic Principle: The depreciable amount of an asset should be allocated on a systematic

basis over its useful life.
Depreciation of an asset begins when it is available for use.
Depreciation of an asset ceases either at the date that the asset is retired from active use
and is held for disposal or the date that the asset is derecognised whichever is earlier
Three Basic elements of measuring depreciation
Historical Cost or Revalued Estimated useful life Estimated Residual Value

amount
Factors considered in determining the Depreciable Amount = [Historical Cost or

useful life: Revalued amount] - Residual Value
 expected usage of the asset  If residual value is insignificant – ignore
 expected physical wear and tear  If residual value >= Carrying amount –
 technical or commercial obsolescence Depreciation charge will be Zero
 legal or similar limits on the use of the  Companies Act presume 5% of the value
asset of assets as their residual value
Depreciation Method: should reflect pattern in which Periodic Review:

future economic benefits pattern of the asset are Requires estimates of useful lives,
expected to be consumed by the enterprise. depreciation method and residual values to
Examples: be reviewed at least at the end of each
 Straight-line method, financial year.
 Diminishing balance method Such change is treated as a change in
 Units of production method accounting estimate and applied
prospectively.
Land and Building: Land has an unlimited useful life and therefore is not depreciated.
Land and buildings are separable assets and are accounted for separately, even when they are acquired
together.
However where land cannot be separated from the building, the land and building can be recognised as a
single asset

P2S YESHAS ACADEMY
Changes in Historical cost
On account of
 changes in liabilities,
 price adjustments,
 changes in duties,
 changes in initial estimates for dismantling, removing, restoration.
If the related asset is measured using the If the related asset is measured using the
Cost model Revaluation model
 Increase in liability - added to cost of the

related asset
 Decrease in liability - deducted from the
cost of the related asset
 If a decrease in the liability > carrying
amount of the asset - excess should be
credited to profit and loss.
 If added to cost – Test for impairment loss
(AS 28)
If Decrease in Liabiliy If Increase in Liabiliy
If Previously If Previously downward If Previously upward

Upward revaluation If Previously revaluation
revaluation Credit statement of downward Charge Revaluation
Credited directly Profit and Loss to the revaluation Reserve to the extent of
to extent of previous debited to previous increase and
Revaluation decrease and credit the Credit statement the charge the reminder,
surplus reminder, if any to of Profit and Loss if any to statement of
Revaluation Reserve Profit and Loss.
s
If a decrease in the liability > carrying amount

The adjusted depreciable amount of the asset
of the asset under cost model- excess should
is depreciated over its useful life.
be charge to profit and loss as an expense

P2S YESHAS ACADEMY
Retirement and dereognition
Retirement from active use and held for disposal Derecognition

 stated at the lower of their carrying amount and net  The carrying amount of PPE should be derecognised
realisable value (a) on disposal; or
 Any writedown in this regard should be recognised (b) when no future economic benefits are expected
immediately in the statement of profit and loss  The gain or loss arising from the derecognition
should be included in statement of profit and loss
Gain or loss on Derecognition:
Compensation for Impairment
Sale proceeds
Compensation from third parties for items of PPE that
Less: Cost of Disposal (If any)
were impaired, lost or given up should be included in
Net sales proceeds
the statement of profit and loss when the
Less: carrying amount of assets
compensation becomes receivable.
Gains should not be classified as revenue, as defined in AS 9

However, an enterprise that in the course of its ordinary activities, routinely sells items of PPE
that it had held for rental to others should transfer such assets to inventories at their carrying
amount when they cease to be rented and become held for sale. The proceeds from the sale of
such assets should be recognised in revenue in accordance with AS 9, Revenue Recognition.
Disclosure
Disclose for each class of property, plant and equipment:
 the measurement bases (i.e., cost model or revaluation model)
 the depreciation methods used;
 the useful lives or the depreciation rates used
 the gross carrying amount and the accumulated depreciation (aggregated with accumulated
impairment losses) at the beginning and end of the period; and
 a reconciliation of the carrying amount at the beginning and end of the period.
The financial statements should also disclose:
 the existence and amounts of restrictions on title.
 the amount of expenditure recognised in the course of its construction (Capital WIP);
 the amount of contractual commitments for the acquisition of PPE;
 the amount of compensation from third parties for items of PPE that were impaired, lost or given up
 the amount of assets retired from active use and held for disposal.
If items of PPE are stated at revalued amounts, the following should be disclosed:
 the effective date of the revaluation;
 whether an independent valuer was involved;
 the methods applied in estimating fair values of the items;
 the extent to which fair values of the items were determined directly by reference to
- observable prices in an active market or
- recent market transactions on arm’s length terms or
- other valuation techniques; and
 the revaluation surplus and any restrictions on the distribution of the balance to shareholders.

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THE PATH TO SUCCESS

ABOUT THE AUTHOR

CA Chiranjeev Jain has qualified Chartered Accountancy Course in

CA. Chiranjeev Jain Page 1

Chapter No Name of Chapter Page No

Chapter 1 Accounting for Bonus Issue 2-2

Chapter 2 Profit and loss: Pre and Post Incorporation 3-4

Chapter 3 Financial Statements of Company 5-10

Chapter 4 Cash Flow Statement - AS 3 11-14

Chapter 5 Internal Reconstruction 15-17

Chapter 6 Amalgamation, Absorption & Reconstruction -AS 14 18-26

Chapter 7 Average Due Date And Account Current 27-29

Chapter 8 Self Balancing Ledgers 30-33

Chapter 9 Not for Profit Organisation 34-38

Chapter 10 Accounts for Incomplete Records 39-42

Chapter 11 Hire Purchase and Installment Purchase 43-45

Chapter 12 Investment Accounts 46-48

Chapter 14 Partnership Accounts 52-56

Chapter 15 Accounting Standards 57-68

CA. Chiranjeev Jain Page 2

ACCOUNTING FOR BONUS ISSUE

Upon issue of share On adjustment of final call

a) Securities premium and capital reserve must be realised in cash.

CA. Chiranjeev Jain Page 3

PROFIT OR LOSS PRE AND POST

No Pre-incorporation Profits Pre-incorporation Losses

1 It is transferred to Capital Reserve Account It is treated as a part of business acquisition

2 It can be used for : It can be used for :

ITEM BASIS OF APPORTIONMENT

1 Gross Profit or Gross Loss Sales Ratio Or,

2. Variable Indirect expenses linked with Sales Ratio

3. Fixed Common charges Time ratio.

4. Expenses exclusively relating to pre- Charge to pre-incorporation period

5. Expenses exclusively relating to post Charge to Post-incorporation period

CA. Chiranjeev Jain Page 4

remuneration, Preliminary Expenses, Share

6. Interest on purchase consideration to

ACCOUNTING TREATMENT FOR ACQUISITION OF BUSINESS

2. For allotment of shares to vendor

CA. Chiranjeev Jain Page 5

FINANCIAL STATEMENTS OF COMPANIES

CA. Chiranjeev Jain Page 6

Form of STATEMENT OF PROFIT AND LOSS

Meaning of current assets and current liabilities

CA. Chiranjeev Jain Page 7

Treatment of Dividend and CDT in Financial Statement

Preference Dividend not paid Not recognised. However it will

Preference Dividend not paid Not recognised. It will not be

DECLARATION OF DIVIDEND OUT OF RESERVES

CA. Chiranjeev Jain Page 8

Treatment of Provision for Income tax and Advance Tax

When Assessment is completed:

To Balance c/d By Profit and loss A/c 1

CA. Chiranjeev Jain Page 9

Liabilities for Taxation A/c

CA. Chiranjeev Jain Page 10

CA. Chiranjeev Jain Page 11

CASH FLOW STATEMENT

Cash flow means Cash & Cash equivalents

Operating Activity Investing Activity Financial Activity

Reported NP adjusted for Major classes of cash receipts

CA. Chiranjeev Jain Page 12

Format of Cash flow Statement