Accounting Finance Bankers Mo Dc

7/24/2019 Accounting Finance Bankers Mo Dc

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ACCOUNTING AND FINANCEACCOUNTING AND FINANCE

BANKERSBANKERS

J A I I BJ A I I B

PAPER-2PAPER-2

MODULE C MODULE C

ByBy

RAVI ULLALRAVI ULLAL

CONSULTANTCONSULTANT


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TOPICSTOPICS

BANK RECONCILIATIONBANK RECONCILIATION TRIAL BALANCETRIAL BALANCE CAPITAL & REVENUE EXPENDITURECAPITAL & REVENUE EXPENDITURE INVENTORY VALUATIONINVENTORY VALUATION BILLS OF EXCHANGEBILLS OF EXCHANGE CONSIGNMENT ACCOUNTCONSIGNMENT ACCOUNT JOINT VENTUREJOINT VENTURE LEASING & HIRE PURCHASELEASING & HIRE PURCHASE

NON-TRADING ORGANISATIONSNON-TRADING ORGANISATIONS DEPRECIATIONDEPRECIATION MODEL QUESTIONSMODEL QUESTIONS


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BASICS OF ACCOUNTINGBASICS OF ACCOUNTING

DOUBLE ENTRY SYSTEMDOUBLE ENTRY SYSTEM 3 TYPES OF ACCOUNTS:3 TYPES OF ACCOUNTS:

---- REALREAL: ASSETS OF BUSINESS TANGIBLE AND: ASSETS OF BUSINESS TANGIBLE AND IDENTIFIABLE!IDENTIFIABLE!

---- PERSONALPERSONAL: THEY ARE HEADED "ITH THE NAME OF: THEY ARE HEADED "ITH THE NAME OF PERSON#BUSINESS#FIRM! DEBTORS OR CREDITORS!PERSON#BUSINESS#FIRM! DEBTORS OR CREDITORS!

---- NOMINALNOMINAL: THEY RECORD TRANSACTIONS OF: THEY RECORD TRANSACTIONS OFINTANGIBLES SUCH AS RENT EXPENSES!INTANGIBLES SUCH AS RENT EXPENSES!

!!


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BASIC RULES OF ACCOUNTINGBASIC RULES OF ACCOUNTING

RULESRULES::---- REALREAL: DEBIT THE ACCOUNT "HEN "E PURCHASE: DEBIT THE ACCOUNT "HEN "E PURCHASE

AN ASSET & CREDIT "HEN "E SELL ORAN ASSET & CREDIT "HEN "E SELL ORDEPRECIATE!DEPRECIATE!

---- PERSONALPERSONAL : DEBIT THE RECEIVER OF GOODS &: DEBIT THE RECEIVER OF GOODS &CREDIT THE GIVER OF GOODS!CREDIT THE GIVER OF GOODS!

---- NOMINALNOMINAL: DEBIT LOSSES & EXPENSES CREDIT: DEBIT LOSSES & EXPENSES CREDIT INCOMES & GAINS!INCOMES & GAINS!

-- IN A LEDGER ASSETS OR LOSSES HAVE DEBIT-- IN A LEDGER ASSETS OR LOSSES HAVE DEBITBALANCE "HILE LIABILITIES OR GAINS HAVEBALANCE "HILE LIABILITIES OR GAINS HAVE

CREDIT BALANCE!CREDIT BALANCE!


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BANK RECONCILIATION STATEMENTBANK RECONCILIATION STATEMENT

BANK RECONCILIATION$ B! R! % IS BASED ON THE PRINCIPLEBANK RECONCILIATION$ B! R! % IS BASED ON THE PRINCIPLEOF DOUBLE ENTRY!OF DOUBLE ENTRY!

CREDIT THE GIVER AND DEBIT THE RECEIVERCREDIT THE GIVER AND DEBIT THE RECEIVER

B! R! SHO"S CAUSES OF DIFFERENCES BET"EEN CASHB! R! SHO"S CAUSES OF DIFFERENCES BET"EEN CASHBOOK AND PASS BOOK BALANCEBOOK AND PASS BOOK BALANCE

DEBIT BALANCE AS PER CASH BOOK IS CREDIT BALANCEDEBIT BALANCE AS PER CASH BOOK IS CREDIT BALANCEAS PER PASS BOOK POSITIVE BALANCEAS PER PASS BOOK POSITIVE BALANCE

CREDIT BALANCE IN CASH BOOK IS DEBIT BALANCE INCREDIT BALANCE IN CASH BOOK IS DEBIT BALANCE INPASS BOOK NEGATIVE BALANCE#OVERDRAFTPASS BOOK NEGATIVE BALANCE#OVERDRAFT

"HETHER "E START "ITH CASH OR PASS BOOK"HETHER "E START "ITH CASH OR PASS BOOKRECONCILIATION ENTRIES "ILL REMAIN SAME AS PERRECONCILIATION ENTRIES "ILL REMAIN SAME AS PERPRINCIPLESPRINCIPLES


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CAUSES OF DIFFERENCESCAUSES OF DIFFERENCES TREATMENTTREATMENT

CASH#PASS BOOKCASH#PASS BOOK DT! CR!DT! CR!!! CHEQUES ISSUED BUT NOT PRESENTED 'CHEQUES ISSUED BUT NOT PRESENTED '

CHEQUES DEPOSITED BUT NOT COLLECTED 'CHEQUES DEPOSITED BUT NOT COLLECTED '

BANK CHARGES 'BANK CHARGES ' INTEREST ON SAVINGS BANK 'INTEREST ON SAVINGS BANK '

INTEREST ON LOAN 'INTEREST ON LOAN '

AMOUNT PAID BY BANK AS PER 'AMOUNT PAID BY BANK AS PER ' STANDING INSTRUCTIONSSTANDING INSTRUCTIONS

! DIRECT PAYMENTS MADE BY CUSTOMERS '! DIRECT PAYMENTS MADE BY CUSTOMERS '

! DISHONOUR OF CHEQUES RECEIVED '! DISHONOUR OF CHEQUES RECEIVED '


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CAUSES OF DIFFERENCES TREATMENTCAUSES OF DIFFERENCES TREATMENT CASH#PASS BOOKCASH#PASS BOOK DT! CR!DT! CR!! PAYMENTS SIDE OF CASH BOOK! PAYMENTS SIDE OF CASH BOOK

UNDERCAST 'UNDERCAST '

! DEPOSIT SIDE OF CASH BOOK! DEPOSIT SIDE OF CASH BOOK

OVERCAST 'OVERCAST '

! CHEQUE ISSUED BUT NOT TAKEN! CHEQUE ISSUED BUT NOT TAKEN IN BANK COLUMN 'IN BANK COLUMN '! DEBIT BALANCE X BROUGHT! DEBIT BALANCE X BROUGHT

FOR"ARD AS CREDIT BALANCE 2XFOR"ARD AS CREDIT BALANCE 2X

! CHEQUE ISSUED BUT RECORDED! CHEQUE ISSUED BUT RECORDED T"ICE 'T"ICE '


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IMPORTANT : "HETHER "E ARE RECONCILING PASS BOOK OR CASHIMPORTANT : "HETHER "E ARE RECONCILING PASS BOOK OR CASH

BOOK EACH OF THE RECTIFICATION ENTRIES "ILLBOOK EACH OF THE RECTIFICATION ENTRIES "ILL

APPEAR ON THE SAME SIDE ! ADDITION OR SUBRACTIONAPPEAR ON THE SAME SIDE ! ADDITION OR SUBRACTION

OF ENTRIES FROM THE OPENING OR GIVEN BALANCEOF ENTRIES FROM THE OPENING OR GIVEN BALANCE

DEPENDS UPON "HICH SIDE OF THE LEDGER THEY AREDEPENDS UPON "HICH SIDE OF THE LEDGER THEY ARE

CAST OR TO BE CAST! THUS "HAT "E SIMPLY NEED TOCAST OR TO BE CAST! THUS "HAT "E SIMPLY NEED TO

KNO" IS "HETHER EACH FIGURE GIVEN IN THEKNO" IS "HETHER EACH FIGURE GIVEN IN THE

PROBLEM IS A DEBIT OR CREDIT ENTRY! I "ILL EXPLAINPROBLEM IS A DEBIT OR CREDIT ENTRY! I "ILL EXPLAIN

"ITH THE HELP OF A PROBLEM LATER!"ITH THE HELP OF A PROBLEM LATER!


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SIMPLY PUT IF AN ENTRY IS ALREADY THERE BUT EITHERSIMPLY PUT IF AN ENTRY IS ALREADY THERE BUT EITHER

THE "HOLE OR PART IT HAS TO BE RECTIFIED THEN THATTHE "HOLE OR PART IT HAS TO BE RECTIFIED THEN THAT

PORTION IS POSTED ON THE OPPOSITE SIDE OF THEPORTION IS POSTED ON THE OPPOSITE SIDE OF THE

ORIGINAL ENTRY!ORIGINAL ENTRY!


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ADVANTAGES OF BANK RECONCILIATIONADVANTAGES OF BANK RECONCILIATION

! VERIFICATION OF ACCURACY OF ENTRIES! VERIFICATION OF ACCURACY OF ENTRIES

! TIMELY CORRECTIVE ACTION! TIMELY CORRECTIVE ACTION

! PREVENTS FRAUDS! PREVENTS FRAUDS

! CONTROL TOOL FOR MANAGEMENT! CONTROL TOOL FOR MANAGEMENT


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TRIAL BALANCETRIAL BALANCE

DEFINITIONDEFINITION

IT IS A STATEMENT SHO"ING CREDIT AND DEBITIT IS A STATEMENT SHO"ING CREDIT AND DEBIT

BALANCES FROM THE LEDGER!BALANCES FROM THE LEDGER!

HELPS ARITHMETICAL ACCURACY AND FACILITATESHELPS ARITHMETICAL ACCURACY AND FACILITATES

FINAL ACCOUNTS!FINAL ACCOUNTS!


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BASIC PRINCIPLEBASIC PRINCIPLE::

SINCE IT IS DOUBLE ENTRY BOOK-KEEPING HENCESINCE IT IS DOUBLE ENTRY BOOK-KEEPING HENCE

ASSETS AND EXPENSES ARE DEBIT BALANCESASSETS AND EXPENSES ARE DEBIT BALANCES

LIABILITIES AND INCOMES ARE CREDIT BALANCESLIABILITIES AND INCOMES ARE CREDIT BALANCES

! IN CASE OF ARITHMETICAL INACCURACY IDENTIFY! IN CASE OF ARITHMETICAL INACCURACY IDENTIFY

CLERICAL#PRINCIPLE ERRORS AND RECTIFYCLERICAL#PRINCIPLE ERRORS AND RECTIFY


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TYPES OF ERRORS:TYPES OF ERRORS:

A%A% CLERICAL ERRORSCLERICAL ERRORS

-- ERRORS OF OMISSION-- ERRORS OF OMISSION

--- OMISSION OF TRANSACTION FROM BOOKS--- OMISSION OF TRANSACTION FROM BOOKS

--- COMPLETE OMISSION NOT AFFECTING TRIAL--- COMPLETE OMISSION NOT AFFECTING TRIAL BALANCEBALANCE

--- PARTIAL OMISSION AFFECTING TRIAL--- PARTIAL OMISSION AFFECTING TRIAL BALANCEBALANCE


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-- ERRORS OF COMMISSION-- ERRORS OF COMMISSION

--- FIGURE POSTED ON THE "RONG SIDE OR "ITH--- FIGURE POSTED ON THE "RONG SIDE OR "ITH"RONG AMOUNT"RONG AMOUNT

-- COMPENSATING ERRORS-- COMPENSATING ERRORS

--- ONE ERROR BALANCES ANOTHER ERROR--- ONE ERROR BALANCES ANOTHER ERROR

! B%! B% ERRORS OF PRINCIPLEERRORS OF PRINCIPLE

-- ERRORS IN CONTRAVENTION OF ACCOUNTING-- ERRORS IN CONTRAVENTION OF ACCOUNTINGPRINCIPLESPRINCIPLES


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RECTIFICATION OF ERRORS IS A SERIES OF STEPS:RECTIFICATION OF ERRORS IS A SERIES OF STEPS:

PASS THE CORRECT ENTRYPASS THE CORRECT ENTRY

COMPARE THE "RONG ENTRY "ITH THE CORRECTCOMPARE THE "RONG ENTRY "ITH THE CORRECTONEONE

PASS THE RECTIFICATION ENTRYPASS THE RECTIFICATION ENTRY

IF TRIAL BALANCE DOES NOT TALLY THENIF TRIAL BALANCE DOES NOT TALLY THENDIFFERENCE IS TRANSFERRED TO SUSPENCEDIFFERENCE IS TRANSFERRED TO SUSPENCEACCOUNTACCOUNT


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TYPICAL TRIAL BALANCETYPICAL TRIAL BALANCE

N A M EN A M E DEBITDEBITCREDITCREDIT

CAPITAL XCAPITAL X

DRA"INGS XDRA"INGS X PURCHASES XPURCHASES X SALES XSALES X EXPENSES XEXPENSES X

DEBTORS$CUSTOMRES% XDEBTORS$CUSTOMRES% X CREDITORS$SUPPLIERS% XCREDITORS$SUPPLIERS% X CASH XCASH X SALES RETURN XSALES RETURN X


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TYPICAL ERRORS:TYPICAL ERRORS: -- CLERICAL:-- CLERICAL: A% SALARY PAID ()))#- BUT POSTED AS () )))#-!A% SALARY PAID ()))#- BUT POSTED AS () )))#-! RECTIFICATIONRECTIFICATION: CREDIT SALARY "ITH *)))#-!: CREDIT SALARY "ITH *)))#-!

B% SALARY PAID ()))#- BUT POSTED IN RENT A#C!B% SALARY PAID ()))#- BUT POSTED IN RENT A#C! RECTIFICATIONRECTIFICATION: DEBIT SALARY AND CREDIT RENT "ITH: DEBIT SALARY AND CREDIT RENT "ITH ()))#-!()))#-!

C% GOODS "ORTH ())#- SOLD TO VIJAY "RONGLYC% GOODS "ORTH ())#- SOLD TO VIJAY "RONGLY

RECORDED IN PURCHASE REGISTER!RECORDED IN PURCHASE REGISTER! RECTIFICATIONRECTIFICATION: CREDIT SALES AND PURCHASE A#C+: CREDIT SALES AND PURCHASE A#C+ "ITH ())#- EACH AND DEBIT VIJAY "ITH 2))#-!"ITH ())#- EACH AND DEBIT VIJAY "ITH 2))#-!


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AFTER TRIAL BALANCE IS PREPARED ONE FINDSAFTER TRIAL BALANCE IS PREPARED ONE FINDS

! D% SALES OF ,))#- POSTED AS ,)))#- "HILE RENT PAID! D% SALES OF ,))#- POSTED AS ,)))#- "HILE RENT PAID,))#- POSTED AS ,)))#-!,))#- POSTED AS ,)))#-!

!! RECTIFICATION:RECTIFICATION:DEBIT SALES "ITH ,))#- CREDITDEBIT SALES "ITH ,))#- CREDITSUSPENCE "ITH ,))#- CREDIT RENT "ITH ,))#-SUSPENCE "ITH ,))#- CREDIT RENT "ITH ,))#-

DEBIT SUSPENCE "ITH ,))#-!DEBIT SUSPENCE "ITH ,))#-! E% SALARY PAID AS ()))#- BUT POSTED AS ())))#- IN RENTE% SALARY PAID AS ()))#- BUT POSTED AS ())))#- IN RENT

A#C!A#C! RECTIFICATIONRECTIFICATION: DEBIT SALARY "ITH ()))#- SUSPENCE: DEBIT SALARY "ITH ()))#- SUSPENCE

"ITH *)))#-. CREDIT RENT "ITH ())))#-"ITH *)))#-. CREDIT RENT "ITH ())))#-

F% A PURCHASER/S DEBIT BALANCE OF *)))#- HAS NOTF% A PURCHASER/S DEBIT BALANCE OF *)))#- HAS NOTBEEN TAKEN!BEEN TAKEN!

RECTIFICATION:RECTIFICATION:DEBIT DEBTORS CREDIT SUSPENCE TODEBIT DEBTORS CREDIT SUSPENCE TOTHE EXTENT OF *)))#-!THE EXTENT OF *)))#-!


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CAPITAL AND REVENUE EXPENDITURECAPITAL AND REVENUE EXPENDITURE

BASIC PRINCIPLEBASIC PRINCIPLE::

! ALL EXPENSES AND RECEIPTS OF REVENUE NATURE! ALL EXPENSES AND RECEIPTS OF REVENUE NATURE

ARE TAKEN TO TRADING AND PROFIT & LOSSARE TAKEN TO TRADING AND PROFIT & LOSS

ACCOUNTACCOUNT

! ALL EXPENDITURES AND RECEIPTS OF CAPITAL! ALL EXPENDITURES AND RECEIPTS OF CAPITAL

NATURE ARE TAKEN TO BALANCE SHEETNATURE ARE TAKEN TO BALANCE SHEET


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REVENUE RECEIPTS#PAYMENTS :REVENUE RECEIPTS#PAYMENTS :

! ARE SMALLER IN SI0E$RELATIVELY%! ARE SMALLER IN SI0E$RELATIVELY%

! ARE RECURRING IN NATURE! ARE RECURRING IN NATURE

! THE BENEFITS ARE OVER A SHORTER PERIOD $( YEAR%! THE BENEFITS ARE OVER A SHORTER PERIOD $( YEAR%

! THE PURPOSE IS TO RUN THE BUSINESS ON A DAY TO! THE PURPOSE IS TO RUN THE BUSINESS ON A DAY TO

DAY BASISDAY BASIS

! MAINTAIN ASSETS IN "ORKING CONDITION! MAINTAIN ASSETS IN "ORKING CONDITION


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CAPITAL & REVENUE EXPENDITURECAPITAL & REVENUE EXPENDITURE

CAPITAL RECEIPTS#PAYMENTS:CAPITAL RECEIPTS#PAYMENTS:

ARE USUALLY LARGE$RELATIVELY%ARE USUALLY LARGE$RELATIVELY%

ARE NON-RECURRING IN NATUREARE NON-RECURRING IN NATURE

THE BENEFITS ARE OVER LONGER DURATIONTHE BENEFITS ARE OVER LONGER DURATION

THE PURPOSE IS TO ENHANCE PRODUCTIVITY OFTHE PURPOSE IS TO ENHANCE PRODUCTIVITY OFTHE ASSETSTHE ASSETS


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THERE ARE CERTAIN EXPENDITURES "HICH ARETHERE ARE CERTAIN EXPENDITURES "HICH ARE

OTHER"ISE REVENUE IN NATURE BUT SOMETIMESOTHER"ISE REVENUE IN NATURE BUT SOMETIMES

UNUSUALLY LARGE AND "HOSE BENEFIT TO THEUNUSUALLY LARGE AND "HOSE BENEFIT TO THE

ORGANISATION MAY ACCRUE AFTER FE" YEARS!THESEORGANISATION MAY ACCRUE AFTER FE" YEARS!THESE

MAY BE TREATED AS DEFERRED REVENUE EXPENDITURE MAY BE TREATED AS DEFERRED REVENUE EXPENDITURE

CARRIED TO THE BALANCE SHEET AND "RITTEN OFF TOCARRIED TO THE BALANCE SHEET AND "RITTEN OFF TO

THE PROFIT & LOSS ACCOUNT OVER A PERIOD OF TIME!THE PROFIT & LOSS ACCOUNT OVER A PERIOD OF TIME!


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SAME IS THE CASE "ITH CERTAIN RECEIPTS SUCH ASSAME IS THE CASE "ITH CERTAIN RECEIPTS SUCH ASSALE OF ASSETS "HERE THE RECEIPTS UPTO BOOKSALE OF ASSETS "HERE THE RECEIPTS UPTO BOOK

VALUE IS DEDUCTED FROM THE ASSET AND IFVALUE IS DEDUCTED FROM THE ASSET AND IF

BET"EEN BOOK VALUE & COST AS REVENUEBET"EEN BOOK VALUE & COST AS REVENUE

RECEIPT & ABOVE COST AS CAPITAL RECEIPT!RECEIPT & ABOVE COST AS CAPITAL RECEIPT!

!! THERE IS A THIN LINE BET"EEN CAPITAL & REVENUETHERE IS A THIN LINE BET"EEN CAPITAL & REVENUE CLASSIFICATION! FOR INSTANCE REPAIRS TOCLASSIFICATION! FOR INSTANCE REPAIRS TO MACHINERY "HICH KEEPS THE ASSET IN "ORKINGMACHINERY "HICH KEEPS THE ASSET IN "ORKING CONDITION IS CHARGED TO THE P & L A#C "HILECONDITION IS CHARGED TO THE P & L A#C "HILEBETTERMENT EXPENSE IS CAPITALISED!BETTERMENT EXPENSE IS CAPITALISED!


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CAPITAL & REVENUE EXPENDITURECAPITAL & REVENUE EXPENDITURE

EXAMPLES OF EACH TYPE OF CLASSIFICATION:EXAMPLES OF EACH TYPE OF CLASSIFICATION: CAPITAL NATURE:CAPITAL NATURE:

-- PURCHASE OF ASSETS SUCH AS BUILDING-- PURCHASE OF ASSETS SUCH AS BUILDING

MACHINERY VEHICLES!MACHINERY VEHICLES! -- EXPENDITURE IN PURCHASE #SETTING UP OF-- EXPENDITURE IN PURCHASE #SETTING UP OF

CAPITAL GOODS#ASSETSCAPITAL GOODS#ASSETS

-- EXCESS OF SALE PRICE OF ASSET OVER ITS COST-- EXCESS OF SALE PRICE OF ASSET OVER ITS COST

PRICEPRICE -- FUNDS RAISED THRU BANKS#INSTITUTIONS-- FUNDS RAISED THRU BANKS#INSTITUTIONS

-- FUNDS RAISED THRU ISSUE OF SHARES &-- FUNDS RAISED THRU ISSUE OF SHARES &

DEBENTURESDEBENTURES


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REVENUE NATUREREVENUE NATURE::

ALL TRANSACTIONS RELATING TO NOMINALALL TRANSACTIONS RELATING TO NOMINALACCOUNTSACCOUNTS

EVEN CERTAIN EXPENSES OF NON-RECURRINGEVEN CERTAIN EXPENSES OF NON-RECURRINGNATURE BASED ON MATERIALITY CONCEPTNATURE BASED ON MATERIALITY CONCEPT

EXCESS OF SALE VALUE OF ASSET OVER " D VALUEEXCESS OF SALE VALUE OF ASSET OVER " D VALUE

UPTO COST OF ASSETUPTO COST OF ASSET


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DEFERRED REVENUE EXPENDITUREDEFERRED REVENUE EXPENDITURE::

LARGE ADVERTISING EXPENDITURE FOR$SAY%LARGE ADVERTISING EXPENDITURE FOR$SAY%LAUNCH OF A PRODUCTLAUNCH OF A PRODUCT

EXPENDITURE FOR RAISING OF FUNDS INCLUDINGEXPENDITURE FOR RAISING OF FUNDS INCLUDING

PREPARATION OF PROJECT REPORTPREPARATION OF PROJECT REPORT

INITIAL EXPENSES FOR SETTING UP OF A COMPANYINITIAL EXPENSES FOR SETTING UP OF A COMPANY


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INVENTORY VALUATIONINVENTORY VALUATION

VALUATION OF STOCKS IS IMPORTANT FROM THEVALUATION OF STOCKS IS IMPORTANT FROM THEPOINT OF INCOME DETERMINATION!POINT OF INCOME DETERMINATION!

THE DANGER COULD BE OF EITHER OVERVALUATIONTHE DANGER COULD BE OF EITHER OVERVALUATIONOR UNDERVALUATION OF STOCKS RESULTING INOR UNDERVALUATION OF STOCKS RESULTING IN

OVERSTATING OR UNDERSTATING OF PROFITS!OVERSTATING OR UNDERSTATING OF PROFITS!

METHODS OF VALUATIONMETHODS OF VALUATION:: -- FIFO-- FIFO -- LIFO-- LIFO -- AVERAGE OR "EIGHTED AVERAGE COST METHOD-- AVERAGE OR "EIGHTED AVERAGE COST METHOD -- BASE STOCK METHOD-- BASE STOCK METHOD -- ADJUSTED SELLING PRICE METHOD-- ADJUSTED SELLING PRICE METHOD


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UNDER FIFOUNDER FIFOGOODS ISSUED TO PRODUCTION ISGOODS ISSUED TO PRODUCTION ISVALUED AT THE EARLIEST PRICE "HEREAS THEVALUED AT THE EARLIEST PRICE "HEREAS THECLOSING STOCK IS AT THE LATEST PRICE!CLOSING STOCK IS AT THE LATEST PRICE!

UNDER LIFOUNDER LIFO GOODS ISSUED TO PRODUCTION ISGOODS ISSUED TO PRODUCTION ISVALUED AT THE LATEST PRICE "HEREAS THEVALUED AT THE LATEST PRICE "HEREAS THECLOSING PRICE IS AT THE EARLIEST PRICE!CLOSING PRICE IS AT THE EARLIEST PRICE!

UNDER "EIGHTED AVERAGE COSTUNDER "EIGHTED AVERAGE COSTMETHODMETHOD

ARITHMETIC MEAN OF TOTAL PRICE BY TOTALARITHMETIC MEAN OF TOTAL PRICE BY TOTALQUANTITY RECEIVED IS TAKEN FOR VALUATION!QUANTITY RECEIVED IS TAKEN FOR VALUATION!


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ADJUSTING SELLING PRICE METHODADJUSTING SELLING PRICE METHODIS GENERALLYIS GENERALLYUSED BY SMALL BUSINESSMEN "HO ARE UNABLE TOUSED BY SMALL BUSINESSMEN "HO ARE UNABLE TODIFFERENTIATE VARIOUS COSTS!DIFFERENTIATE VARIOUS COSTS!

HENCE THEY VALUE THE STOCKS AT SELLING PRICEHENCE THEY VALUE THE STOCKS AT SELLING PRICEAND THEN REDUCE ITS VALUE TO THE EXTENT OFAND THEN REDUCE ITS VALUE TO THE EXTENT OFESTIMATED GROSS MARGIN!ESTIMATED GROSS MARGIN!


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BASE STOCK METHODBASE STOCK METHOD IS SIMILAR TO LIFO! CLOSINGIS SIMILAR TO LIFO! CLOSINGSTOCK IS AL"AYS AT COST AT THE BEGINNING OFSTOCK IS AL"AYS AT COST AT THE BEGINNING OFBUSINESS! IN TIMES OF INFLATION VERY LO" VALUEBUSINESS! IN TIMES OF INFLATION VERY LO" VALUEOF STOCK MAKES FOR EXCELLENT ACCOUNTING!OF STOCK MAKES FOR EXCELLENT ACCOUNTING!

IT HO"EVER REQUIRES A MINIMUM STOCK TO BEIT HO"EVER REQUIRES A MINIMUM STOCK TO BE

MAINTAINED!MAINTAINED!

PRESENTLY ACCOUNTING STANDARDS PERMITPRESENTLY ACCOUNTING STANDARDS PERMITFIFO$HISTORICAL PRICE% OR "EIGHTED AVERAGEFIFO$HISTORICAL PRICE% OR "EIGHTED AVERAGECOST METHOD!COST METHOD!

VALUE OF STOCK CAN BE ASCERTAINED BYVALUE OF STOCK CAN BE ASCERTAINED BYPERIODIC$PHYSICAL VERIFICATION% OR PERPETUALPERIODIC$PHYSICAL VERIFICATION% OR PERPETUALINVENTORY $ MAINTAINENCE OF STOCK REGISTER%!INVENTORY $ MAINTAINENCE OF STOCK REGISTER%!


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CHARACTERISTICS OF DIFFERENT METHODS OFCHARACTERISTICS OF DIFFERENT METHODS OFINVENTORY VALUATIONINVENTORY VALUATION

FIFO :FIFO :

-- IN RISING MARKET FIFO RESULTS IN HIGHER-- IN RISING MARKET FIFO RESULTS IN HIGHER PROFITS LOCKING UP OF SCARCE "! C!PROFITS LOCKING UP OF SCARCE "! C!

-- GOODS ARE SOLD AT CURRENT HIGHER PRICES-- GOODS ARE SOLD AT CURRENT HIGHER PRICES

"HILE COST OF GOODS REFLECTS LO"ER THAN"HILE COST OF GOODS REFLECTS LO"ER THAN

CURRENT COSTSCURRENT COSTS

-- IN FALLING MARKET FIFO RESULTS IN LO"ER-- IN FALLING MARKET FIFO RESULTS IN LO"ER

PROFITSPROFITS

!!


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-- LIFO :-- LIFO :

-- IN FALLING MARKET THE EFFECT IS THE SAME AS-- IN FALLING MARKET THE EFFECT IS THE SAME AS

THAT OF FIFO IN RISING MARKETTHAT OF FIFO IN RISING MARKET

-- IN RISING MARKET THE EFFECT IS SAME AS THAT-- IN RISING MARKET THE EFFECT IS SAME AS THAT

OF FIFO IN FALLING MARKET!OF FIFO IN FALLING MARKET!


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IN THIS CHAPTER IT IS IMPORTANT TO DISCUSS THEIN THIS CHAPTER IT IS IMPORTANT TO DISCUSS THEVARIOUS ACCOUNTING CONVENTIONSVARIOUS ACCOUNTING CONVENTIONS

CONSERVATISM CONCEPTCONSERVATISM CONCEPT: RECOGNITION OF: RECOGNITION OF

INCREASES IN EARNINGS REQUIRES BETTERINCREASES IN EARNINGS REQUIRES BETTEREVIDENCE THAN DOES RECOGNITION OF DECREASESEVIDENCE THAN DOES RECOGNITION OF DECREASESTHAT IS EXPENSESTHAT IS EXPENSES

REALISATION CONCEPTREALISATION CONCEPT: RECOGNITION OF AMOUNT: RECOGNITION OF AMOUNTOF REVENUE THAT HAS CERTAINTY OF REALISATIONOF REVENUE THAT HAS CERTAINTY OF REALISATION

MATCHING CONCEPTMATCHING CONCEPT: RECOGNITION OF REVENUES: RECOGNITION OF REVENUESAND EXPENSES FOR A CERTAIN EVENT!AND EXPENSES FOR A CERTAIN EVENT!


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CONSISTENCY CONCEPTCONSISTENCY CONCEPT: ONCE A CERTAIN METHOD: ONCE A CERTAIN METHODIS DECIDED UPON FOR ALL SUBSEQUENT EVENTS OFIS DECIDED UPON FOR ALL SUBSEQUENT EVENTS OFTHE SAME CHARACTER THE SAME METHOD SHOULDTHE SAME CHARACTER THE SAME METHOD SHOULDBE USED UNLESS THERE IS A SOUND REASON TOBE USED UNLESS THERE IS A SOUND REASON TOCHANGECHANGE

MATERIALITY CONCEPT:MATERIALITY CONCEPT: DEPENDING UPONDEPENDING UPONJUDGEMENT AND COMMON SENSE IMMATERIALJUDGEMENT AND COMMON SENSE IMMATERIALEVENTS # TRIVIAL MATTERS SHOULD NOT BE GIVENEVENTS # TRIVIAL MATTERS SHOULD NOT BE GIVENMORE IMPORTANCE THAN "ARRANTED!MORE IMPORTANCE THAN "ARRANTED!

HISTORICAL COSTS:HISTORICAL COSTS: COST OF ACQUISITION 1COST OF ACQUISITION 1DISCOUNTS IF ANY COSTS INCIDENTAL TODISCOUNTS IF ANY COSTS INCIDENTAL TOBRINGING THE ASSET# ERECTING THE ASSET!BRINGING THE ASSET# ERECTING THE ASSET!


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BILLS OF EXCHANGEBILLS OF EXCHANGE

BILL OF EXCHANGEBILL OF EXCHANGEIS THE VEHICLE FOR CREDITIS THE VEHICLE FOR CREDIT

TRANSACTIONS IN BUSINESS. HAS 3 PARTIES:TRANSACTIONS IN BUSINESS. HAS 3 PARTIES:

DRA"ERDRA"ER1 "HO MAKES THE BILL# CREDITOR.1 "HO MAKES THE BILL# CREDITOR.

DRA"EEDRA"EE1 ON "HOM THE BILL IS DRA"N.1 ON "HOM THE BILL IS DRA"N.

PAYEEPAYEE -- "HO RECEIVES THE MONEY.-- "HO RECEIVES THE MONEY.

SOMETIMES DRA"ER & PAYEE ARE THE SAME!SOMETIMES DRA"ER & PAYEE ARE THE SAME!

ACCEPTANCE TO PAY BY THE DRA"EE IS ESSENTIAL!ACCEPTANCE TO PAY BY THE DRA"EE IS ESSENTIAL!

!!


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!! PROMISSORY NOTEPROMISSORY NOTEIS SIMILAR . HAS ONLY 2 PARTIESIS SIMILAR . HAS ONLY 2 PARTIES

BUT SIGNED BY DEBTOR. NOTING NECESSARY!BUT SIGNED BY DEBTOR. NOTING NECESSARY!

!! ACCOMODATION BILLACCOMODATION BILL: THERE IS NO TRANSACTION.: THERE IS NO TRANSACTION.

THE BILL IS DISCOUNTED TO RAISE MONEYS FORTHE BILL IS DISCOUNTED TO RAISE MONEYS FOR

BOTH PARTIES "HO SHARE THE AMOUNT!BOTH PARTIES "HO SHARE THE AMOUNT!


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TYPICAL ENTRIES:TYPICAL ENTRIES:

! THE ENTRIES IN THE BOOKS OF DRA"ER A/ ARE:! THE ENTRIES IN THE BOOKS OF DRA"ER A/ ARE: DIRECT BILL TRANSACTIONDIRECT BILL TRANSACTION BILLS RECEIVABLE #4 DR!BILLS RECEIVABLE #4 DR!

TO DRA"EE B/TO DRA"EE B/

! CASH #4 DR!! CASH #4 DR!

TO BILLS RECEIVABLETO BILLS RECEIVABLE

$ BILL IS MET ON DUE DATE%$ BILL IS MET ON DUE DATE%


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BILL ENDORSED TO CBILL ENDORSED TO C! C/+ #4 DR!! C/+ #4 DR! TO BILLS RECEIVABLETO BILLS RECEIVABLE

$ NO ENTRY "HEN BILL IS MET%$ NO ENTRY "HEN BILL IS MET%

BILL SENT FOR COLLECTIONBILL SENT FOR COLLECTION

! BANK FOR BILL COLLECTION #4 DR!! BANK FOR BILL COLLECTION #4 DR! TO BILLS RECEIVABLETO BILLS RECEIVABLE

! CASH #4 DR!! CASH #4 DR! TO BANK FOR BILL COLLECTIONTO BANK FOR BILL COLLECTION $ BILL SENT FOR COLLECTION IS MET%$ BILL SENT FOR COLLECTION IS MET%!!

!!!!


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IN CASE OF DISCOUNTINGIN CASE OF DISCOUNTINGCASH #4 DR!CASH #4 DR!

DISCOUNT #4 DR!DISCOUNT #4 DR! TO BILLS RECEIVABLETO BILLS RECEIVABLE

$ NO ENTRY "HEN BILL IS MET%$ NO ENTRY "HEN BILL IS MET%THE ENTRIES IN THE BOOKS OF DRA"EE B/:THE ENTRIES IN THE BOOKS OF DRA"EE B/:

!! A/+ #4 DR!!! A/+ #4 DR! TO BILLS PAYABLETO BILLS PAYABLE

! BILLS PAYABLE #4 DR!! BILLS PAYABLE #4 DR! TO CASHTO CASH$ BILL IS PAID%$ BILL IS PAID%


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THERE ARE CASES "HEN BILLS ARE DISHONOURED!THERE ARE CASES "HEN BILLS ARE DISHONOURED! IN THAT CASE THE ENTRIES ARE AS FOLLO"S:IN THAT CASE THE ENTRIES ARE AS FOLLO"S: IN A/+ BOOKSIN A/+ BOOKS::BILL DIRECTLY SENT FOR PAYMENTBILL DIRECTLY SENT FOR PAYMENT B/+ A#C DR!B/+ A#C DR!

TO BILLS RECEIVABLETO BILLS RECEIVABLE TO CASHTO CASH $ CASH IS THE NOTING CHARGE%$ CASH IS THE NOTING CHARGE%DISHONOUR OF DISCOUNTED BILLDISHONOUR OF DISCOUNTED BILL

! BILLS RECEIVABLE A#C DR!! BILLS RECEIVABLE A#C DR! NOTING CHARGES A#C DR!NOTING CHARGES A#C DR! TO CASHTO CASH $CASH $56789 48;


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-- B/+ #4 DR!-- B/+ #4 DR! TO BILLS RECEIVABLETO BILLS RECEIVABLE TO NOTING CHARGESTO NOTING CHARGES $BILL RETURNED TO A/%$BILL RETURNED TO A/%

DISHONOUR OF BILL SENT BY BANK FOR PAYMENT

BILL RECEIVABLE #4 DR!BILL RECEIVABLE #4 DR! NOTING CHARGE #4 DR!NOTING CHARGE #4 DR! TO CASHTO CASH TO BANK FOR BILL COLLECTIONTO BANK FOR BILL COLLECTION $ DISHONOUR OF BILL FOR COLLECTION%$ DISHONOUR OF BILL FOR COLLECTION%

! B/+ #4 DR!! B/+ #4 DR! TO BILLS RECEIVABLETO BILLS RECEIVABLE TO NOTING CHARGESTO NOTING CHARGES $BILL RETURNED TO B%$BILL RETURNED TO B%


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DISHONOUR OF ENDORSED BILLDISHONOUR OF ENDORSED BILL

! BILLS RECEIVABLE #4 DR!! BILLS RECEIVABLE #4 DR! NOTING CHARGES #4 DR!NOTING CHARGES #4 DR!

TO CTO C

B/+ #4 DR!B/+ #4 DR! TO BILLS RECEIVABLETO BILLS RECEIVABLE

TO NOTING CHARGESTO NOTING CHARGES $BILL RETURNED TO B%$BILL RETURNED TO B%


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CONSIGNMENT ACCOUNTCONSIGNMENT ACCOUNT

"HEN O"NER SENDS GOODS TO HIS AGENT FOR THE"HEN O"NER SENDS GOODS TO HIS AGENT FOR THEPURPOSE OF SELLING THEN IT IS CALLEDPURPOSE OF SELLING THEN IT IS CALLEDCONSIGNMENT!CONSIGNMENT!

IT IS DIFFERENT FROM SALE IN THAT THEIT IS DIFFERENT FROM SALE IN THAT THECONSIGNEE CANNOT DISPOSE OFF THE GOODSCONSIGNEE CANNOT DISPOSE OFF THE GOODSACCORDING TO HIS CHOICE. DOES NOT RECEIVE ANYACCORDING TO HIS CHOICE. DOES NOT RECEIVE ANYRISK FROM THE CONSIGNOR. CAN RETURN THERISK FROM THE CONSIGNOR. CAN RETURN THEGOODS IF NOT MARKETABLE!GOODS IF NOT MARKETABLE!


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IN CONSIGNMENT ACCOUNTING THERE ARE 3IN CONSIGNMENT ACCOUNTING THERE ARE 3ACCOUNTSACCOUNTS::

CONSIGNMENT ACCOUNT. "HICH SHO"SCONSIGNMENT ACCOUNT. "HICH SHO"S

GOODS#STOCK AT COST INCLUDING EXPENSESGOODS#STOCK AT COST INCLUDING EXPENSESINCURRED IN SENDING THE GOODS!INCURRED IN SENDING THE GOODS!

CONSIGNEE ACCOUNT. "HICH IS NET OF HISCONSIGNEE ACCOUNT. "HICH IS NET OF HISSELLING PRICE AND THE NON-RECURRING OR DIRECTSELLING PRICE AND THE NON-RECURRING OR DIRECT

EXPENSES INCURRED BY HIM!EXPENSES INCURRED BY HIM! GOODS SENT ON CONSIGNMENT ACCOUNT!GOODS SENT ON CONSIGNMENT ACCOUNT!


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A TYPICAL CONSIGNMENT ACCOUNT "ILL APPEARA TYPICAL CONSIGNMENT ACCOUNT "ILL APPEARAS FOLLO"S:AS FOLLO"S:

DR! CRDR! CR T6 ;66=+ +9 465+?;5


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NOTES:NOTES: CLOSING STOCK IS VALUED AT COST#INVOICE PRICE CLOSING STOCK IS VALUED AT COST#INVOICE PRICE

PROPORTIONATE AMOUNT OF COST INCURRED BY CONSIGNORPROPORTIONATE AMOUNT OF COST INCURRED BY CONSIGNORIN TRANSPORTING!IN TRANSPORTING!

IF GOODS ARE LOST IN TRANSIT THE SAME METHOD OFIF GOODS ARE LOST IN TRANSIT THE SAME METHOD OF

COSTING IS APPLIED AND THAT AMOUNT IS CREDITED TO THECOSTING IS APPLIED AND THAT AMOUNT IS CREDITED TO THECONSIGNMENT ACCOUNT!CONSIGNMENT ACCOUNT!

NOMINAL LOSSES ARE PROPORTIONATELY CHARGED TO ALLNOMINAL LOSSES ARE PROPORTIONATELY CHARGED TO ALLSTOCK "HETHER SOLD OR NOT! ABNORMAL LOSS IS DIRECTLYSTOCK "HETHER SOLD OR NOT! ABNORMAL LOSS IS DIRECTLYCHARGED TO P&L A#C!CHARGED TO P&L A#C!

APART FROM FIXED RATE OF COMMISSION ON THE GOODSAPART FROM FIXED RATE OF COMMISSION ON THE GOODSSOLD AN ADDITION DEL CREDERE/ COMMISSION IS PAID TOSOLD AN ADDITION DEL CREDERE/ COMMISSION IS PAID TOTHE CONSIGNEE FOR ENCOURAGING SALES ON CREDIT BASIS!THE CONSIGNEE FOR ENCOURAGING SALES ON CREDIT BASIS!

HO"EVER THE INHERENT RISKS REMAIN "ITH THEHO"EVER THE INHERENT RISKS REMAIN "ITH THECONSIGNEE!CONSIGNEE!


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JOINT VENTUREJOINT VENTURE

JOINT VENTURE ACCOUNTS ARE TEMPORARY INJOINT VENTURE ACCOUNTS ARE TEMPORARY INNATURE . FOR THE AD HOC PURPOSE OF ANNATURE . FOR THE AD HOC PURPOSE OF ANASSIGNMENT UNDERTAKEN!ASSIGNMENT UNDERTAKEN!

IT IS SIMILAR TO A PARTNERSHIP EXCEPT SUCHIT IS SIMILAR TO A PARTNERSHIP EXCEPT SUCHASSOCIATIONS ARE TEMPORARY IN NATURE!ASSOCIATIONS ARE TEMPORARY IN NATURE!

ALSO IN PARTNERSHIP THE ACCOUNTING IS ONALSO IN PARTNERSHIP THE ACCOUNTING IS ONACCRUAL BASIS "HILE IN JOINT VENTUREACCRUAL BASIS "HILE IN JOINT VENTURE

ACCOUNTING IS ON CASH BASIS!ACCOUNTING IS ON CASH BASIS!


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JOINT VENTUREJOINT VENTURE

THERE ARE 3 ACCOUNTS:THERE ARE 3 ACCOUNTS:

-- JOINT BANK "HICH SHO"S EACH CO-VENTURER/S-- JOINT BANK "HICH SHO"S EACH CO-VENTURER/S

INVESTMENT.INVESTMENT.

-- CO-VENTURER/S ACCOUNT-- CO-VENTURER/S ACCOUNT

-- JOINT VENTURE INTO "HICH THE FINAL-- JOINT VENTURE INTO "HICH THE FINAL

PROFIT#LOSS IS TRANSFERRED!PROFIT#LOSS IS TRANSFERRED!


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LEASING AND HIRE PURCHASELEASING AND HIRE PURCHASE

LESSOR $O"NER% GIVES HIS ASSETS TO LESSEELESSOR $O"NER% GIVES HIS ASSETS TO LESSEE$USER% FOR USE. RECEIVES LEASE RENTALS IN$USER% FOR USE. RECEIVES LEASE RENTALS INRETURN AN AMOUNT "HICH INCLUDES COST OFRETURN AN AMOUNT "HICH INCLUDES COST OFDEPRECIATION COST OF FINANCE ANDDEPRECIATION COST OF FINANCE ANDADMINISTRATIVE EXPENSES OF THE LESSOR!ADMINISTRATIVE EXPENSES OF THE LESSOR!

! LEASING HELPS IN IMPROVING SALES VOLUME OF! LEASING HELPS IN IMPROVING SALES VOLUME OFGOODS. REDUCES CAPITAL INVESTMENT FORGOODS. REDUCES CAPITAL INVESTMENT FORLESSEE INCREASES HIS BORRO"ING CAPACITYLESSEE INCREASES HIS BORRO"ING CAPACITYREDUCES TAX LIABILITY AS RENTALS ARE FULLY TAXREDUCES TAX LIABILITY AS RENTALS ARE FULLY TAXDEDUCTABLE HO"EVER BURDENSOME!DEDUCTABLE HO"EVER BURDENSOME!


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FINANCIAL LEASE IS THE MOST POPULAR LONGFINANCIAL LEASE IS THE MOST POPULAR LONGTERM IN NATURE GENERALLY USEFUL FOR PLANTTERM IN NATURE GENERALLY USEFUL FOR PLANTAND MACHINERY!AND MACHINERY!

OTHER TYPES ARE OPERATING AND SERVICEOTHER TYPES ARE OPERATING AND SERVICELEASES!LEASES!

LESSOR RECEIVES LEASE RENTALS CLAIMSLESSOR RECEIVES LEASE RENTALS CLAIMS

DEPRECIATION!DEPRECIATION!

LESSEE CHARGES THE LEASE RENTALS PAID TO THELESSEE CHARGES THE LEASE RENTALS PAID TO THEP & L ACCOUNT!P & L ACCOUNT!


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THE LESSOR BREAKS UP THE RENTALS RECEIVEDTHE LESSOR BREAKS UP THE RENTALS RECEIVED

INTO FINANCE INCOME AND ANNUAL LEASEINTO FINANCE INCOME AND ANNUAL LEASECHARGE!CHARGE!

FINANCE INCOME TOTAL RENTALS OVER THEFINANCE INCOME TOTAL RENTALS OVER THE

LEASE PERIOD RESIDUAL VALUE OF LEASED ASSETLEASE PERIOD RESIDUAL VALUE OF LEASED ASSET

-- COST OF LEASED ASSET-- COST OF LEASED ASSET $ FAIR VALUE %!$ FAIR VALUE %!


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USE SUM OF DIGITS METHOD TO FIND ANNUALUSE SUM OF DIGITS METHOD TO FIND ANNUALFINANCE INCOME!FINANCE INCOME!

ANNUAL LEASE CHARGE ANNUAL LEASE RENT 1ANNUAL LEASE CHARGE ANNUAL LEASE RENT 1

ANNUAL FINANCE INCOME!ANNUAL FINANCE INCOME!

ANNUAL LEASE CHARGE STATUTORYANNUAL LEASE CHARGE STATUTORYDEPRECIATION LEASE EQUALISATION CHARGE!DEPRECIATION LEASE EQUALISATION CHARGE!

LEASE EQUALISATION CHARGE IS DEDUCTED FROMLEASE EQUALISATION CHARGE IS DEDUCTED FROMTHE LEASE RENTALS OR THE PROFIT & LOSSTHE LEASE RENTALS OR THE PROFIT & LOSSACCOUNT!ACCOUNT!


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LEASING & HIRE PURCHASELEASING & HIRE PURCHASE

SOMETIMES THE ANNUAL LEASE IS LESS THAN STATUTORYSOMETIMES THE ANNUAL LEASE IS LESS THAN STATUTORYDEPRECIATION. THEN THE LEASE EQUALISATION CHARGEDEPRECIATION. THEN THE LEASE EQUALISATION CHARGEIS ADDED TO THE PROFIT & LOSS ACCOUNT!IS ADDED TO THE PROFIT & LOSS ACCOUNT!

THE LEASE EQUALISATION CHARGE ACCOUNTED THROUGHTHE LEASE EQUALISATION CHARGE ACCOUNTED THROUGH

THE LEASE TERMINAL ADJ! A#C "HICH FINALLY ISTHE LEASE TERMINAL ADJ! A#C "HICH FINALLY ISDEDUCTED FROM THE "RITTEN DO"N VALUE OF THEDEDUCTED FROM THE "RITTEN DO"N VALUE OF THEASSET!ASSET!

IN CASE OF OPERATING LEASE IF THE PERIOD IS LESSIN CASE OF OPERATING LEASE IF THE PERIOD IS LESSTHAN ( YEAR $ "HICH IS GENERALLY THE CASE % THEN THETHAN ( YEAR $ "HICH IS GENERALLY THE CASE % THEN THEENTIRE AMOUNT IS TAKEN TO THE PROFIT & LOSSENTIRE AMOUNT IS TAKEN TO THE PROFIT & LOSS

ACCOUNT!ACCOUNT!

IF THE PERIOD IS MORE THAN ( YEAR AND THE ENTIREIF THE PERIOD IS MORE THAN ( YEAR AND THE ENTIRERENTAL IS TAKEN INTO A LEASE RENT SUSPENCERENTAL IS TAKEN INTO A LEASE RENT SUSPENCEACCOUNT AND YEARLY RENTALS ARE CHARGED TO IT!ACCOUNT AND YEARLY RENTALS ARE CHARGED TO IT!


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LEASING & HIRE PURCHASELEASING & HIRE PURCHASE

NOTES:NOTES:

FINANCE INCOME IS THE PERCEIVED RETURN ONFINANCE INCOME IS THE PERCEIVED RETURN ONLEASED ASSET!LEASED ASSET!

LEASE EQUALISATION CHARGE IS THE EXCESS OFLEASE EQUALISATION CHARGE IS THE EXCESS OFLEASE RENT AFTER DUE "EIGHTAGE IS GIVEN TOLEASE RENT AFTER DUE "EIGHTAGE IS GIVEN TOTHE RETURN ON THE LEASED ASSET AND THETHE RETURN ON THE LEASED ASSET AND THEEXTENT OF DEPRECIATION CHARGED!EXTENT OF DEPRECIATION CHARGED!

THIS AMOUNT IS CARRIED FOR"ARD IN THETHIS AMOUNT IS CARRIED FOR"ARD IN THEBALANCE SHEET TO BE CHARGED AGAINST THEBALANCE SHEET TO BE CHARGED AGAINST THE"RITTEN DO"N VALUE OF THE ASSET!"RITTEN DO"N VALUE OF THE ASSET!


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E57?65E57?65 T< 4654


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HIRE PURCHASE IS DIFFERENT IN THAT THE HIRER ISHIRE PURCHASE IS DIFFERENT IN THAT THE HIRER ISTHE O"NER FOR THE PURPOSE OF DEPRECIATION!THE O"NER FOR THE PURPOSE OF DEPRECIATION!ALTHOUGH ACTUAL O"NERSHIP PASSES ON THE DATEALTHOUGH ACTUAL O"NERSHIP PASSES ON THE DATEOF PAYMENT OF LAST INSTALMENT!OF PAYMENT OF LAST INSTALMENT!

THE HIRE PURCHASE PRICE CONSISTS OF CASH PRICETHE HIRE PURCHASE PRICE CONSISTS OF CASH PRICEAND INTEREST!AND INTEREST!

INSTALMENT SALE IS SIMILAR EXCEPT THATINSTALMENT SALE IS SIMILAR EXCEPT THATO"NERSHIP PASSES ON TO BUYER AS SOON AS THEO"NERSHIP PASSES ON TO BUYER AS SOON AS THE((STSTINSTALMENT IS PAID!INSTALMENT IS PAID!

THE (THE (STSTINSTALMENT IN BOTH CASES IS CALLED DO"NINSTALMENT IN BOTH CASES IS CALLED DO"NPAYMENT!PAYMENT!

THE SELLER OF THE ASSET IS CALLED VENDORTHE SELLER OF THE ASSET IS CALLED VENDOR


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A TYPICAL LEASE TRANSACTION IN THE BOOKS OF THE LESSOR:A TYPICAL LEASE TRANSACTION IN THE BOOKS OF THE LESSOR: B5 #4 =8!B5 #4 =8! 76


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IN THE BOOKS OF THE LESSEEIN THE BOOKS OF THE LESSEE::L


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A TYPICAL TRANSACTION IN THE BOOKS OF THE HIRER:A TYPICAL TRANSACTION IN THE BOOKS OF THE HIRER:

A++


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NON-TRADING ORGANISATIONSNON-TRADING ORGANISATIONS

NON-TRADING ORGANISATIONS ARE NON PROFITNON-TRADING ORGANISATIONS ARE NON PROFITMAKING BODIES RENDERING SERVICES TO PUBLICMAKING BODIES RENDERING SERVICES TO PUBLICCOLLECTING MONEYS BY "AY OF MEMBERSHIPCOLLECTING MONEYS BY "AY OF MEMBERSHIPFEES SUBSCRIPTIONS DONATIONS! HO"EVER TOFEES SUBSCRIPTIONS DONATIONS! HO"EVER TOPREVENT MISUSE OF FUNDS ACCOUNTS AREPREVENT MISUSE OF FUNDS ACCOUNTS ARE

MAINTAINED!MAINTAINED!

RECEIPTS & PAYMENTS STATEMENT CONTAINS REALRECEIPTS & PAYMENTS STATEMENT CONTAINS REAL ACCOUNTS ACTUAL RECEIPTS AND PAYMENTS BOTHACCOUNTS ACTUAL RECEIPTS AND PAYMENTS BOTH

CAPITAL AND REVENUE ITEMS!CAPITAL AND REVENUE ITEMS!

! INCOME & EXPENDITURE STATEMENT CONTAINS! INCOME & EXPENDITURE STATEMENT CONTAINS NOMINAL ACCOUNTS OF REVENUE ITEMS OF INCOMENOMINAL ACCOUNTS OF REVENUE ITEMS OF INCOME

& EXPENSES FOR A FIXED PERIOD!& EXPENSES FOR A FIXED PERIOD!


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NON-TRADING ORGANISATIONSNON-TRADING ORGANISATIONS

A TYPICAL "AY OF CONVERTING RECEIPTS &A TYPICAL "AY OF CONVERTING RECEIPTS &PAYMENTS STATEMENT INTO INCOME &PAYMENTS STATEMENT INTO INCOME &EXPENDITURE STATEMENT IS TAKE THEEXPENDITURE STATEMENT IS TAKE THERECEIPTS#PAYMENTS OF THE CURRENT YEARRECEIPTS#PAYMENTS OF THE CURRENT YEARSUBTRACT THE OPENING BALANCE OF THE CURRENTSUBTRACT THE OPENING BALANCE OF THE CURRENT

YEAR AND ADD THE CLOSING BALANCE $ IF ANY %!YEAR AND ADD THE CLOSING BALANCE $ IF ANY %!

THE CLOSING BALANCES "ILL CONSTITUTE THETHE CLOSING BALANCES "ILL CONSTITUTE THEBALANCE SHEET!BALANCE SHEET!


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DEPRECIATIONDEPRECIATION

DEPRECIATION IS A CHARGE ON PROFITS TODEPRECIATION IS A CHARGE ON PROFITS TOACCOUNT FOR THE FALL IN THE VALUE$ NOTIONALACCOUNT FOR THE FALL IN THE VALUE$ NOTIONALOR OTHER"ISE % OF AN ASSET DURING THE PERIODOR OTHER"ISE % OF AN ASSET DURING THE PERIODOF USE!OF USE!

DEPRECIATION OR "RITING OFF OF A CERTAINDEPRECIATION OR "RITING OFF OF A CERTAINPORTION OF AN ASSET ON AN ANNUAL BASIS IS APORTION OF AN ASSET ON AN ANNUAL BASIS IS APRUDENT "AY OF SAVINGS FOR REPLACEMENT OFPRUDENT "AY OF SAVINGS FOR REPLACEMENT OFTHE ASSET AFTER ITS USEFUL LIFE IS OVER!THE ASSET AFTER ITS USEFUL LIFE IS OVER!

SINCE DEPRECIATION IS AN OPERATING COST ANDSINCE DEPRECIATION IS AN OPERATING COST ANDTHEREFORE TAX DEDUCTIBLE EACH YEAR THETHEREFORE TAX DEDUCTIBLE EACH YEAR THESAVING IS TO THE EXTENT OF $TAX RATE% ANNUALSAVING IS TO THE EXTENT OF $TAX RATE% ANNUALDEPRECIATION!DEPRECIATION!


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DEPRECIATION CAN ALSO BE LOOKED IN ADEPRECIATION CAN ALSO BE LOOKED IN ADIFFERENT "AY!DIFFERENT "AY!

DEPRECIATION IS AN ACCOUNTING PROCESS FORDEPRECIATION IS AN ACCOUNTING PROCESS FORTHE GRADUAL CONVERSION OF THE CAPITALI0EDTHE GRADUAL CONVERSION OF THE CAPITALI0EDCOST OF FIXED$TANGIBLE% ASSETS INTO EXPENSE!COST OF FIXED$TANGIBLE% ASSETS INTO EXPENSE!

SIMILARLY INTANGIBLE ASSETS ARE CONVERTEDSIMILARLY INTANGIBLE ASSETS ARE CONVERTEDINTO EXPENSE BY AMORTISATION!INTO EXPENSE BY AMORTISATION!

"HILE ASSETS SUCH AS NATURAL RESOURCES ARE"HILE ASSETS SUCH AS NATURAL RESOURCES ARECONVERTED BY PROCESS CALLED DEPLETION!CONVERTED BY PROCESS CALLED DEPLETION!


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"HAT CAUSES DEPRECIATION"HAT CAUSES DEPRECIATION

SIMPLY "EAR AND TEARSIMPLY "EAR AND TEAR

MISHAPSMISHAPS

OBSOLESCENCEOBSOLESCENCE

PASSAGE OF TIMEPASSAGE OF TIME

FALL IN VALUEFALL IN VALUE


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IN ORDER TO CALCULATE DEPRECIATION THERE AREIN ORDER TO CALCULATE DEPRECIATION THERE AREBASIC ISSUES TO BE ASCERTAINEDBASIC ISSUES TO BE ASCERTAINED::

-- ESTIMATED USEFUL LIFE OF THE ASSET$YEARS%!-- ESTIMATED USEFUL LIFE OF THE ASSET$YEARS%!

-- THE RESIDUAL VALUE OF THE ASSET!-- THE RESIDUAL VALUE OF THE ASSET!

-- METHOD TO BE USED FOR PROVIDING-- METHOD TO BE USED FOR PROVIDING

DEPRECIATION!DEPRECIATION!


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METHODS OF DEPRECIATIONMETHODS OF DEPRECIATION::! STRAIGHT LINE METHOD! EQUAL FRACTION OF THE! STRAIGHT LINE METHOD! EQUAL FRACTION OF THE

NET COST$COST OF THE ASSET LESS THE RESIDUALNET COST$COST OF THE ASSET LESS THE RESIDUALVALUE% IS CHARGED EACH YEAR!VALUE% IS CHARGED EACH YEAR!

"RITTEN DO"N VALUE METHOD! EQUAL"RITTEN DO"N VALUE METHOD! EQUALPERCENTAGE OF THE "RITTEN DO"N VALUE IN THEPERCENTAGE OF THE "RITTEN DO"N VALUE IN THEBOOKS OF THE COMPANY IS CHARGED EACH YEAR!BOOKS OF THE COMPANY IS CHARGED EACH YEAR!

SINKING FUND METHOD! IT IS STRAIGHT LINESINKING FUND METHOD! IT IS STRAIGHT LINE

METHOD BUT THE DEPRECIATION CHARGED OR AMETHOD BUT THE DEPRECIATION CHARGED OR APORTION OF IT IS KEPT AS A RESERVE INVESTED INPORTION OF IT IS KEPT AS A RESERVE INVESTED INMARKETABLE SECURITIES! THE FUND GRO"S INTOMARKETABLE SECURITIES! THE FUND GRO"S INTOREPLACEMENT VALUE OF THE ASSET!REPLACEMENT VALUE OF THE ASSET!


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FINAL LEGFINAL LEG

THANK YOU VERY MUCH FOR YOURTHANK YOU VERY MUCH FOR YOUR

PATIENCE; I TRUST IT WAS USEFUL.PATIENCE; I TRUST IT WAS USEFUL.

BEFORE WE DISPERSE LET US GOBEFORE WE DISPERSE LET US GO

THRU A SET OF QUESTIONS WITHTHRU A SET OF QUESTIONS WITH

MULTIPLE CHOICE ANSWERS,WHICHMULTIPLE CHOICE ANSWERS,WHICH

WILL COVER THOSE ASPECTS OFWILL COVER THOSE ASPECTS OFACCOUNTING THAT MAY NOT BEENACCOUNTING THAT MAY NOT BEEN

TOUCHED UPON.TOUCHED UPON.


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E N DE N D

ANY QUERIES MAY BE ADDRESSEDANY QUERIES MAY BE ADDRESSED

TOTO

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