1 FINANCIAL ACCOUNTS INTERNAL RECONSTRUCTION Internal Reconstruction means changes in the value of assets, liabilities & therefore changes in share capital. Given in the Question (i) Balance Sheet (P & L – Assets side) (ii) Adjustments What we have to prepare in solution (i) Journal entries (ii) Capital Reduction (Tally OR Balance on Debit sides) (iii) Balance Sheet (And Reduced) Important Transactions Assets Liabilities Capital (Share) (1) W/off (G/W, P & L) ↑ se in Liabilities (1) Face Value & paid up value both reduced (Option I) (2) ↑ se in Assets ↓ se in Liabilities (2) Only paid up value reduced (FV remains same) (3) ↓ se in Assets Payment (Option II) → in Journal Entry sacrifice amount) (4) Sale of Assets Payment of unrecorded Liab. (Loss / Exps.) (5) Sale of unrecorded assets (Income) Sacrifice of URL → No Entry Important Points :- (a) Reduced to ______________ (New Value) (b) Reduced by ____________(Sacrifice amount) (c) In Journal entry always reduced by amount (d) Goodwill, Profit & Loss and Misc. Exp. Are to be compulsory w/off. (Patents, copyright, Trade mark if specified) (e) Always prepare working note for creditors adjustments. (f) Assets to be w/off, but amount is not given (Prepare Capital Reduction for amount calculation) (g) Payment of Liability, but amount is not given (prepare Bank A/c for amount calculation)
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FINANCIAL ACCOUNTS
INTERNAL RECONSTRUCTION
Internal Reconstruction means changes in the value of assets, liabilities & therefore changes in share capital.
Given in the Question
(i) Balance Sheet (P & L – Assets side)
(ii) Adjustments
What we have to prepare in solution
(i) Journal entries
(ii) Capital Reduction (Tally OR Balance on Debit sides)
(iii) Balance Sheet (And Reduced)
Important Transactions
Assets Liabilities Capital (Share)
(1) W/off (G/W, P & L) ↑ se in Liabilities (1) Face Value & paid up value both reduced (Option I)
(2) ↑ se in Assets ↓ se in Liabilities (2) Only paid up value reduced (FV remains same)
(3) ↓ se in Assets Payment (Option II) → in Journal Entry sacrifice amount)
(4) Sale of Assets Payment of unrecorded Liab. (Loss / Exps.)
(5) Sale of unrecorded assets (Income)
Sacrifice of URL → No Entry
Important Points :-
(a) Reduced to ______________ (New Value)
(b) Reduced by ____________(Sacrifice amount)
(c) In Journal entry always reduced by amount
(d) Goodwill, Profit & Loss and Misc. Exp. Are to be compulsory w/off. (Patents, copyright, Trade mark if specified)
(e) Always prepare working note for creditors adjustments.
(f) Assets to be w/off, but amount is not given (Prepare Capital Reduction for amount calculation)
(g) Payment of Liability, but amount is not given (prepare Bank A/c for amount calculation)
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COMPANY FINAL ACCOUNTS
PRESENTATION OF REVISE BALANCE SHEET SCHEDULE – VI COMPANY FINAL ACCOUNT
PART I – Form of BALANCE SHEET Name of the Company ……………………. Balance Sheet as at ……………………… (Rupees in…………)
Particulars Notes
No.
Figures as at the end of current
reporting period
(1) (2) (3)
EQUITY AND LIABILITIES
1 Shareholders' funds
a Share capital 1 xxx
b Reserves and Surplus 2 xxx
c Money received against share warrants xxx
2. Share application money pending allotment xxx
3. Non-current liabilities
a Long-term borrowings 3 xxx
b Deferred tax liabilities (Net) xxx
c Other long term liabilities 4 xxx
d Long-term provisions 5 xxx
4. Current liabilities
a Short-term borrowings 6 xxx
b Trade Payables xxx
c Other current liabilities 7 xxx
d Short-term provisions 8 xxx
Total xxx
ASSETS
1 Non-current assets
a Fixed assets xxx
i Tangible assets 9 xxx
ii Intangible assets 10 xxx
iii Capital Work-in-progress xxx
iv Intangible assets under development xxx
b Non-current investments 11 xxx
c Deferred tax assets (Net) xxx
d Long-term loans and advances xxx
e Other non-current assets xxx
2 Current assets
a Current investments xxx
b Inventories 12 xxx
c Trade receivables 13 xxx
d Cash and cash equivalents xxx
e Short-term loans and advances xxx
f Other current assets xxx
Total xx
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PART II – Form of STATEMENT OF PROFIT AND LOSS
Name of the Company…………………….
Profit and loss statement for the year ended ………………………
(Rupees in…………)
Particulars Note No. Figures for the
current reporting period
I. Revenue from operations xxx
II. Other income xxx
III. Total Revenue(I + II) xxx
IV. Expenses: xxx
Cost of materials consumed xxx
Purchases of Stock-in-Trade xxx
Changes in inventories of finished goods
work-in-progress and Stock-in-Trade
Employee benefits expense
Finance costs
Depreciation and amortization expense
Other expenses
Total expenses (xxx)
Net Profit before tax (III – IV) xxx
Less : Provision for Tax (xxx)
Net Profit after Tax xxx
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AMALGAMATION
In all three situations there is a transaction of buying and selling of business. Therefore, in all above three situation companies are divided in two categories.
Old Company /
&
New Company/
Selling company /
&
Buying Co. /
Transferor Company /
&
Transferee company /
Vendor Company
&
Purchasing Company
Given in Question Required in Solution
(1) Balance Sheet of Existing Co. (1) Calculation of Purchase Consideration.
(2) Terms and conditions of Amalgamation (Adjustment)
(2) Books of Old company (Ledger or Journal)
(3) Books of New Company (Journal and Balance Sheet)
Statement of Purchase consideration
Meaning :- Price payable by new company to PSH & ESH of old co. (AS – 14)
Statement of PC (_________________________ method)
To Whom Amt. (`) Mode of Payments
PSH of XXXX No. PIS / EIS / Deb. In New Co.
Old Co. of ` FV at ` IP (NDX IP)
XXX Cash
ESH of XXXX No PIS/EIS/Deb. In New CO
Old Co. of ` FV at ` IP (NOX IP)
XXX Cash
Total PC
• Books of Old Co*
→ Following Ledger Accounts to be prepared
(1) Realisation A/c
(2) ESH A/c
(3) PSH A/c
(4) New Company A/c
(5) PIS in new Co. A/c
(6) EIS in new Co. A/c
(7) Debentures in new Co. A/c
(8) Cash / Bank A/c
→ Steps to be followed
(1) Transferred all Assets (B/s. = Amt. Debit Side)
(2) Transferred All Liab. (B/s. = Amt., Credit Side)
(3) Demand PC (Sale)
(4) Received of PC (Note)
Always
Statement of PC (MOP)
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(5) Sale of Remaining Assets
(6) Payment of remaining Liabilities.
(7) Expenses of old Co.
(8) Payment to PSH (As per PC)
(9) Close Realisation (ESH A/c)
(10) Payment to ESH (Balance of All MOP)
NOTE : ESH must Tally.
• Books of New Co.*
(1) Business Purchase
(2) Record Assets(T/O) & Liab. (T/O) at agreed value
Assets A/c Dr. XX
Goodwill
To Liab. A/c XXX
To Bus. Purchase XXX
To Capital Res.
(3) Payment of Purchase Consideration
Liquidator Of Old Co. XXX
To PSC / ESC XXX
**To SP XXX
To Bank XXX
(4) Debenture Convenion
(5) Record Statutory Reserves
(6) Payment of old company expenses
(7) Fresh Issue of states
(8) Payment of new co. expenses
(9) Cancellation of common Debt/Loan/Bill
Liability A/c Dr.
To Assets A/c
(10) Cancellation of Unrealised Profit on Stock
Goodwill Profit Amount
To Stock Profit Amount
Working Note :
Cost + Profit = Sales
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INVESTMENT ACCOUNTING
Investment can be made by any person having surplus money. Person who makes investment known as Investor. Investor may be individual person, partnership firm or joint stock company. Investment A/c is prepared by Investor.
Classification of Investment:
CURRENT SHORT TERM INVESTMENT
LONG TERM INVESTMENT
Type 1 : FIXED INCOME SECURITIES :
(1) Interest is an income for investor.
(2) Interest % is fixed.
(3) Interest % is calculated on Face Value.
(4) Date on which interest is payable by company is known as Interest Due Date (IDD).
(5) On IDD company pays interest to those investor whose names are recorded in company’s book.
(6) Interest upto date of sale belongs to seller and thereafter belongs to buyer.
(7) Therefore, interest upto Date of Purchase/Sale must be settled by buyer and seller at a time of purchase / sale.
(8) This interest must be added in market price.
(9) Therefore market price are of two types :
(i) Cum-Interest Price (CIP) i.e. Cumulative of Interest i.e. price including interest.
(ii) Ex-Interest Price (EIP) i.e. price excluding interest.
(10) Steps at the end of accounting year:
Step A: Accrued Interest (i.e. O/s Interest)
Step B: Balance in interest transfer to Profit & Loss A/c.
Step C: Closing balance of short term investment valued at WAC or market value whichever is
less ↓ [AS – 13]
Step L: Loss on revaluation transfer to Profit & Loss A/c
Type 2: VARIABLE INCOME SECURITIES:
(I) Bonus Issue:
(1) Bonus issue means shares issued by company to existing shareholders (investor) at free of cost.
(2) For receiving bonus shares, in the books of investor, journal entry is not required.
(3) Due to bonus shares received number of shares with investor increases Therefore Face Value of bonus share received is recorded in Investment A/c – Debit side, only in face value column.
∴∴∴∴EIP = CIP – Int.
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(II) Right Issue:
(1) Right Issue means shares issued by company to existing shareholders (investor) for purchase of shares.
(2) Issue Price is decided by company which is generally lower than Market Price [IP < MP]
(3) Company sends offer letter to existing investor indicating number of shares he is entitled to purchase.
(4) Investor can purchase shares by making payment to company or he may transfer his rights [Renounce] to an existing member or to an outsider.
(III) Dividend :
(1) Dividend is an income for investor.
(2) Company pays dividend on paid up share capital as on balance sheet date. (i.e. year ending date of co.)
(3) No dividend, on shares issued by company after balance sheet date (i.e. year ending date) and dividend is given on only those shares which are issued before balance sheet date (i.e. year ending date.) (No dividend on Bonus & Rights shares Dividend received on purchase shares from stock exchange).
(4) Dividend received by investor is classified into two categories:
a) Pre acquisition Dividend
b) Post acquisition Dividend
All the BestAll the BestAll the BestAll the Best
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COST ACCOUNTING
COST SHEET
(1) Six expenses are considered in Cost of Product
DIRECT COST : (a) Direct Material (b) Direct Labour (c) Direct Expenses
(3) Sale of Finished Goods & Sale of scrap are the only two income considered in costing.
(4) Upto Cost of Production CPU is calculated as per “Quantity Manufactured” and from Cost of Goods sold CPU is calculated as per “Quantity Sold”.
(5) In absence of information closing stock is to be valued as per FIFO basis i.e. on the basis of Cost of Production.
(6) In Estimated Cost Sheet use following Rules :
(a) ↑↑↑↑/↓↓↓↓ in Variable Cost to be done on “CPU”
(b) ↑↑↑↑/↓↓↓↓ in Fixed cost to be done on “Total Cost”.
(7) In case of break-up of WIP is given, Opening & Closing Stock of WIP to be adjusted with elements given in the break-up.
(8) If amount of Prime Cost, Factory Cost, Cost of Production, Cost of Goods sold or cost of Sales is given in question, it means it is “reverse working” question to find out missing amount.
(9) In Dual Pricing question, deduct the given Sales Quantity & Sales amount from Total Quantity sold & Total Sales respectively, to find out other Sales Quantity, Selling Price.
(10) Salary to working partner, Rent of own premises used for own business are “Notional Cost” & always to be considered in Cost of Product.
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RECONCILIATION
(1) Start Reconciliation with Profit or Loss as per any books. If no specific instruction the start with Costing records (if costing Profit / Loss available).
(2) Profit or Loss as per COSTING Records
Dr. Financial P & L A/c Cr. Dr. Costing P / L A/c Cr.
- + + - (3) Profit or Loss as per FINANCE Records
Dr. Financial P & L A/c Cr. Dr. Costing P / L A/c Cr.
+ - - +
(4) Terms used for reasons :
Stock : Over / under valued in Costing
Expenses : Over / under absorbed in Costing
Depreciation : Over / under charged in Costing
Other elements : Over / under / only not recorded in Costing.
MATERIAL COSTING
• Store Ledger : Maintaining records of receipts & issues of material. Two Methods:
I) FIFIO (First in first out) : Goods received first in godown should be issued first. Therefore stock is from latest purchases.
II) Weighted Avg. Cost Method : As soon as more than one rate of material in stock ,weighted Avg. Cost per unit is calculated as under: Total Value of Stock
Total Qty in stock
• EOQ:
I) Purchase order of Qty where material cost is minimum II) At EOQ, Ordering cost = Carrying Cost
• Stock Levels :
Reorder level (ROL)= Max. Consumption * Max. Lead Time Max. Level = ROL – ( Minimum Consumption * Minimum Lead Time ) + EOQ Minimum Level = ROL – ( Normal Consumption * Normal Lead Time) Average level + Maximum Level + Minimum Level
2
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LABOUR COSTING
• Time Rate System
1) Flat / Straight / Fixed Time Rate
2) Differential Time Rate
• Piece Rate System:
1) Flat / Straight/ Fixed piece Rate
2) Differential Piece Rate
a) Taylor’s Plan b) Merrick’s Plan
3) Combination of Time & Piece Rate
� Gantt’s Task Bonus Systems
• Incentive Bonus Schemes:
a) Halsey
b) Halsey –Weir
c) Rowan
d) Emerson’s Efficiency Plan
OVERHEADS
• Allocation of Overheads: To assign the entire item of cost if it is directly related to a cost centre/
department.
• Apportionment of Overheads: Distribution of expenses between production & Service
Department. Two Steps:
a) Primary Distribution b) Secondary Distribution
• Absorption of Overheads: on the basis of two rates
a) Actual Rate b) Predetermined Rate
Under absorption of Overheads . Absorbed Overheads < Actual Overheads Over absorption of Overheads Absorbed Overheads > Actual Overheads
All the Best
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MANAGEMENT ACCOUNTING
1. VERTICAL FORMATS
(1) (a)
(b) Name of the asset is not given:
Show separately in the list of Operating Expenses.
(2) Expenses & Income of Let Out Assets:
Non-operating but, if letting out is the main business then such income or expense is Operating.
(3) Reserves and Surplus:
CRR, Capital Reserve, Insurance fund, Workers Compensation Fund, Dividend equalization Reserve, PPI, Capital Subsidy.
(4) Misc. Expenditure (to the extent not W/off):
Incorporation exp., Formation exp., Share Issue exp., Development exp. not adjusted, Disc. on Issue of Shares & Debentures, P & L A/c (Dr.) bal.
(5) Fixed Assets will also include:
Let out Assets, Railway Sidings, Capital WIP, Leasehold premises, Live Stock.
(6) Current Liabilities will also include:
Security Deposits from Debtors, Prov. for Staff benevolent Fund, Provision for Staff benefit Scheme, Prov. for expenses, Reserve for exp., Prov. for Contingencies.
(7) Non Quick Assets:
Stock and prepaid exp., Advance tax, Loose tools, Staff Loans & Adv., F.D. (other than with Bank) Like BSES Deposit, Excise Deposit, Custom Deposit.
Depreciation (Name of Asset is given)
On Assets related to Factory
(Manufacturing)
On Assets related to
Office
On Assets related to
Distribution
C.O.G.S. Office & Administration Expenses
Selling & Distribution Expenses
Dep. on Machinery
Factory Bldg. Patterns Patents
Dep. on Office Premises
Furniture Motor Car
Office Equipment
Dep. on Motor Van Show room
Shop
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(8) Non Quick Liabilities:
Bank Overdraft, Income received in advance, Interest accrued but not due.
(9) Workers Profit Sharing Fund, Gratuity Fund, Provident Fund, Voluntary Retirement Fund and Pension Fund are Current Liabilities Gratuity Fund Investment, PF Investment, Pension Fund Investment are Current Assets.
2. COMMON SIZE STATEMENT
• ���
��� ��� ×× a = b = c =
(a, b, c are different amounts of Income & Expense)
• ���
��� �� ������� ×× a = b = c =
(a, b, c are amount of different Assets & Liabilities)
3. COMPARATIVE STATEMENT
Amount of 1st Year ‘x’
Amount of 2nd Year ‘y’
Absolute Change ‘y – x’
Percentage Change ‘���
� %’
4. TREND ANALYSIS
• ���
��� ������ ���� ×× 2nd Year amount = 3rd Year amount = 4th Year amount =
• Base Year Amount = ����� ������
� ��� �������� � %
5. RATIOS
(a)
Profitability Ratios
Based on Sales Based on Investments
• G.P. Ratio
• NP Ratio
• Operating Ratio
• R.D. Eq. Capital
• R.O. Prop. Fund
• R.O. Capital Employed
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(b)
(c) Capital Structure:
• Capital Gearing Ratio • Debt Equity Ratio
(d) Efficiency or Activity Ratio:
• Stock Turnover Ratio • Debtors Turnover Ratio
• Creditors Turnover Ratio • Stock to WC Ratio
(e) Earning / Valuation Ratio:
• Dividend Payout Ratio
(f) Sales 100
- COGS 80
GP 20
Sales 120
- COGS 100
GP 20
(g) Prop. Fund + Borrowed Fund = F.A. + Inv. + WC
(h) Prop. Fund + BF = Total Assets – C.L.
(i) Reverse Questions:
When NOI & NOE are not given
Operating Exp. = GP – NPBT
(j) Comments: (a) Meaning (b) Std. and Actual ratio
(c) Higher or Lower (d) Favourable or Unfavourable
According to ICAI, Contingent liability refers to an obligation relating to an existing condition or
situation which may arise in future depending on the occurrence or non-occurrence of one or
more uncertain future events. These liabilities may or may not be converted into actual liabilities
at some future date. It is a liability which may or may not occur. But on the date of the Balance
Sheet, it is not known definitely whether the liability would arise or not. But as a matter of
caution, it is indicated in the balance sheet for the sake of information and disclosure, under the
head "Contingent Liabilities." This amount is not included in the Balance Sheet figures but
shown outside as it is not recorded in the accounts. It is shown as a footnote to the Balance
Sheet. The amount of a contingent liability may or may not be known on the date of the balance
sheet. The following are some of the examples of Contingent Liabilities :
a) Discounted Bills of Exchange
b) Disputed liability on account of Income-tax, etc., about which appeal has been filed.
c) Uncalled amount on partly paid-up shares and debentures held by the company as investments.
d) Cumulative preference dividend in arrears.
e) Matters referred to arbitration.
f) Claims not acknowledged as debts.
g) Estimated amount of contracts remaining to be executed on capital account and not provided for.
h) Guarantees given by the company.
i) Bonds executed
There are two types of contingent liabilities. Certain liabilities, which when paid create an asset of corresponding value.
For example, when a liability on account of construction work arises and is paid off, it results in the increased value of assets.
Certain other liabilities, when paid off, do not create or increase the value of assets but on the contrary will result in the decrease of assets and cause decrease or increase in revenue expenditure.
For example, when the labour court orders to increase wages retrospectively, the discharge of this liability will result in decrease of current assets i.e., cash and increase expenses on wages.
(2) Miscellaneous Expenditure: (April 95, 98)
As we have seen earlier under Fictitious Assets, Miscellaneous Expenditure includes items which satisfy the condition of an asset but do not fit into the concept of fixed assets, investments or current assets. This category includes :
a) Preliminary Expenses,
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b) Commission and Brokerage on issue of shares,
c) Discount on issue of shares, and Debentures
d) Development expenditure not adjusted.
e) Interest paid out of capital during construction.
These expenses are to be shown in the balance sheet to the extent to which they are not written off. If any of these expenditures is written off, it is charged to the Profit and Loss Account of that year.
(3) Non Operating Incomes & .Expenses (Oct. 2000, April 03)
Interest on investments is not an operating income to a company which is engaged in buying and selling of goods and services or manufacturing of goods. But for an investment company, interest on investments will be considered as an operating income.
Non-operating income includes :
a) Interest on loan advanced.
b) Interest on investment made out of surplus funds.
c) Dividend on shares acquired.
d) Profit on sale of fixed assets such as Plant and Machinery, furniture and investment.
These are the expenses which do not relate to day to day conduct of business operations. These expenses arise due to certain unusual events and unexpected occurrences. Some of these expenses are given below:
a) Loss on sale of fixed assets.
b) Penalty for breach of contracts.
c) Compensation paid for infringement of trade marks, patents, etc.
d) Preliminary Expenses w/off.
(4) Secured Loans: (Oct. 02)
It refers to loans which are secured by a fixed or floating charge on the assets of the business. It includes :
a) Debentures,
b) Loans and advances from banks,
c) Loans and advances from subsidiaries and
d) Other loans and advances.
The nature of security should be specified in each case. The interest accrued and due on secured loans should be included under the appropriate subheads under the head 'Secured Loans' but the interest accrued and not due on secured loans is required to be shown under 'current liabilities'. Loans from directors, secretaries, treasurers and managers should be shown under this head, if such loans are guaranteed. In respect of debentures, the terms of redemption or conversion should be stated. The particulars of any redeemed debentures which the company has power to reissue should be stated by way of a note.
(5) Classification of Fixed Assets: (Oct. 06)
Fixed Assets are called long-term assets. They do not flow through the cash cycle of business within one year or the normal operating cycle. They are used over several periods. They are major sources of revenue to the business. They do not vary day in and day out due to routine
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business transactions. They are intended for long-term use in the business. They are called "bundle of future services" or "Sunk Costs". The group of fixed assets consists of the following :
a) Land,
b) Buildings,
c) Plant and Machinery
d) Vehicles,
e) Furniture 8& Fittings,
f) Railway sidings,
g) Live stock
h) Development of Property
i) Intangible Assets such as patents, copyrights, goodwill, etc.
Classification of Fixed Assets
a) Tangible movable assets;
b) Tangible immovable assets; and
c) Intangible assets.
a) Tangible movable assets are the assets which can be seen, touched and moved from one place to another place. Plant and machinery, furniture and fixtures, transportation equipments etc. are tangible movable assets.
b) Tangible immovable assets are the assets which can be seen and touched but
cannot be moved from one place to another place. Such assets include land, buildings, mines, oil wells, etc.
c) Intangible assets are the assets which cannot be seen and touched. However, their existence can only be imagined such as patents, trade marks, copyrights, goodwill, etc. Their existence is very important for the business. Intangible assets have several characteristics.
These assets are known as 'near cash' assets. In other words, quick assets are those which can be converted into cash quickly. Therefore, they are also known as liquid assets. Cash and bank balances are the most liquid assets. Debtors and cash advances can be converted into cash at a short notice. Therefore, they are also regarded as quick assets. Marketable investments, if can be converted into cash, fall into the category of quick assets. Inventory does not fall in this category of quick assets, since it cannot be converted into cash quickly, as material is to be converted into saleable goods and then they should be sold. If sale is on credit, there is a further delay in realisation.
Expenses paid in advance do not satisfy the criteria of quick assets. They cannot be converted into cash. They can be received in the form of services.
Quick Assets = Current Assets – Inventory – Prepayments
(7) Horizontal & Vertical Analysis of Financial Statements:
Horizontal Analysis : It is the comparison of figures reported in financial statements of two or more consecutive accounting periods, i.e. Analysis across year Comparative financial statement and Trend Analysis are the examples of Horizontal Analysis.
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Vertical Analysis : Comparing figures in the financial statements of a single period is known as Vertical Analysis, i.e. all the figures in a statement are converted to a common unit by expressing them as percentage of a key figure in the statement, such as total sales in the Income statement or total assets in a Balance Sheet. Such statements are called common size statements.
(8) Trading on Equity: (April 1999, April 2002, April 2005, October 2005, October 2007)
A company uses different types of securities for raising capital. These securities are classified into two categories Viz. Ownership securities and Creditorsship securities. In other-words, there are two different sources of fund, i.e. own fund and Loan Fund. A company is said to be trading on equity when it utilizes own fund and loan fund for financing its operations. Loan funds carry fixed rate of interest. Therefore, a company trading on equity can maximize the return on own fund. For example, X Ltd. Is using only equity capital for financing its operations. Y Ltd. is using only loans for financing its operations. Z Ltd. is utilizing equity capital and loans for financing its operations. X Ltd. and Y Ltd. are not trading on equity. Z Ltd. is trading on equity.
(9) Importance of Balance Sheet Ratio: (October 2001)
Ratios based on balance sheet figures are called as balance sheet ratios. Various balance sheet ratios and their importance is as follows.
a) Current ratio :
It helps to understand short term financial position of a company.
b) Liquid ratio :
It enables to know the liquidity position of a company. Adequacy of liquid assets for payment of urgent liabilities can be judged with the help of this ratio.
c) Proprietary ratio :
It helps to understand long term financial position of a company.
d) Capital Gearing Ratio, Debt Equity Ratio
It helps to know the capital structure of a company.
e) Stock Working Ratio :
It helps to understand incidence of inventory in working capital of a company. It indicates efficiency in working capital management.
(10) Window dressing of Current Ratio: (April 2004, October 2004, April 2006)
“Window Dressing” means the practice of bolstering and improving the current ratio through manipulation to make it appear more colourful.
It is the practice of colouring the current ratio artificially.
Window-dressing may be done in the following ways :
a) manipulation of inventory values.
b) recording in advance in the current year, any cash receipts of the following year.
c) deliberate deferring of purchases of fixed assets till the balance sheet date.
d) liquidation of current liabilities.
Example : Current Assets = ` 50,000
Current Liabilities = ` 20,000
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Current Ratio = 2.5 : 1
When the creditors are paid to the extent of 10,000/- out of cash balance, the current ratio is manipulated as follows :
4000,10
000,40
10,000 - 20,000
10,000 - 50,000==
Whereas current ratio earlier was merely 2.5.
Thus, an equal increase in both the numerator and denominator i.e., current assets and current liabilities, would decrease the current ratio. Similarly, an equal decrease in both the figures would improve the ratio.
e) permitting stock to fall below normal levels.
f) postponing certain pressing payments.
g) postponing purchase of inventories till balance sheet date.
h) pressurizing customers to pay their dues.
i) considering short-term obligations as long-term debts,
j) organising special sales and reducing the inventory.
Window Dressing is something which the analyst must continuously guard against, though it may be extremely difficult for him to obtain the information necessary to detect it.
(9) If there are two SOP (R) = Working note should be prepared having four columns to find out which house to be treated as SOP(R) and which house is to be taxed as DLOP.
INCOME FROM OTHER SOURCES
1. Exempt Incomes
Income Exempt
U/S Income
Exempt U/S
Agricultural Income 10(1) Daily Allowance 10(17)
Received share as member of HUF
10(2) Constituency Allowance 10(17)
Share of Profit from Partnership Firm
10(2A) Award From Govt. 10(17A)
LIC Policy amt. Recd on maturity
10(10D) Income of Minor Child 10(32)
Interest on PPF 10(11) (upto `1,500 p.a.per minor child)
Interest from GNPT PK RC 10(15) Dividend from Indian Co. 10(34)
Income from Units of UTI/MF 10(35)
Gift Income
From (a) IM DR HUT LO = Fully Exempt
(b) Otherwise (1) Upto ` 50,000 = Exempt
(2) more than ` 50,000 = Fully Taxable
(2) Deduction u/s 57 (is allowed in respect of expenses)
(a) Exempt Income = Ignore expenses
(b) Winning income = Ignore expenses (Gross amt. taxable)
(c) Taxable income = Deduct related expenses u/s 57
(d) Family Pension = Ignore Expenses. However std deduction will be allowed.
Standard Deduction = 1/3rd of Actual Amt Recd or Max Rs. 15,000 whichever is less
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CAPITAL GAIN
Types of Capital Asset
Capital Asset Held For Gain / Loss
Short Term Capital Asset Upto 3 years Short Term Capital Gain / Loss
Long Term capital Asset More than 3 years Long Term capital Gain / Loss
Cost of Acquisition Cost of Improvement
Before 1/04/1981 On or After 1/4/1981 Before 1/04/1981 On or After 1/4/1981
• Actual Cost or
• FMV on 1/4/1981
(Whichever is high)
Actual Cost IGNORE CONSIDER
For following Assets 1 Year Period of Holding is checked
Asset Transferred Residential House Property Any Capital Asset
Period of Asset Trsfd
LTCA LTCA
DJ SAAP & Others (Capital Assets)
• D: Drawings
• J: Jewellery
• S: Shares/securities/Debentures
• Sale of property
• A : Art Work
• A: Archaeological Collection
• P: Paintings
Other Assets :
• Res. / commercial house property
• Urban agricultural Land
• Plant & Machinery etc.
• MRSGS( Not a Capital Assets)
• M: Movable Personal Asset
• R: Rural Agricultural Land in India
• S: Stock in Trade
• G: Gold Bonds
• S: Special Bearer Bonds
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New Asset Residential House Property Bonds of NHAI & RECL
Exemption ♦ Gross LTCG or
♦ Amt. Invested
(in New Asset + Amt. deposited in CGDS A/c)
♦ Gross LTCG or
♦ Amt. Invested in Bonds
♦ Max. 50Lacs
Time Limit For Purchase
Within 1 year before or within 2 year after date of Transfer
For Construction
Within 3 year after date of transfer
Within 6 months from the date of transfer
Lock in Period 3 years 3 years
Un-utilized amt. (bal amt which could not be utilized till due date of filing return)
Should be deposited in CGDS a/c upto due date of filing return
Not Applicable
Violation of Lock in Period (New asset sold within 3 years)
Exempt LTCG will be taxable in the year of violation
Exempt LTCG will be taxable in the year of violation
DEDUCTIONS
SR. NO.
DEDUCTION MAXIMUM DEDUCTION
1. 80 C : SPECIFIED INVESTMENTS Max `1,00,000
(for Self, Spouse and children)
Investment in LUMP N TRI
Important: LIC Premium, Deposit in PPF, Employees contribution to SPF / RPF etc., NSC (including accrued interest) NSS, notified bonds of NABARD, Tuition Fees, School Fees, College Fees, repayment of house loan (Only principal amount), Purchase of share / bonds of infrastructure company.)
2. 80 CCC: CONTRIBUTION TO PROVIDENT FUND
(for Self)
Pension fund/Plan/Scheme/Policy or Annuity Plan Max `1,00,000
Note : The Combined deduction U/s 80C & 80CCC – Maximum ` 1,00,000
3. 80 D :MEDICLAIM INSURANCE PREMIUM( CHEQUE)
(For Self /Spouse/Dependent Children & Parents)
Basic Deduction for Self, Spouse and Dep. Children Max `15,000
Additional Deduction for Parents Max `15,000
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Additional Deduction for senior Citizen (60 yrs. Or more) Max `5,000
Deduction for Preventive health check up Max `5,000
(For Self/spouse/Children & student for whom Assessee is legal guardian)
NO LIMIT
6. 80U: PHYSICALLY HANDICAPPED ASSESSEE
50,000 or 1,00,000
7. 80 TTA : INTEREST ON SAVING BANK A/C
(with Banks / Co-operative Banks and Post Office ) Max `10,000
Other Points
Effect in IFOS Deduction U/Chapter
VIA
Effect In
Business/Profession
Accrued Interest on NSC IFOS - TAXABLE Deduction U/S 80C Not Allowed
Interest on Post office
Saving Bank Account
Exempt upto
`3,500
Deduction U/s80TTA
allowed on excess amt.
Not Allowed
Interest on other Saving
Bank Account
IFOS - TAXABLE Deduction U/s80TTA Not Allowed
Other Interest Incom
INCOME FROM BUSINESS
List of Expenses not allowed either as business expenses or business Income
Profit and Loss Account for the year ended 31st March 2014.
Particulars Effect Particulars Effect
To Salary to Proprietor X By Bad Debt recovery X
To Rent to Proprietor X (if not allowed earlier)
To Interest on Capital X By Income tax refund X
To RBD/RDD/RBDD/RFDD X By Interest Income (taxable as IFOS) X
To Donation & Charity X E.g. Interest on NSC (80C) X
To Depreciation as per P&L A/c X Interest on /NSS/Debentures X
(only if depreciation is also given in Adj.) Interest on Post office saving bank X
To Income Tax X ( 80 TTA )
To Wealth Tax X Int. on Fixed deposit/saving bank X
To Advance Tax X By Share of profit from partnership
To Int. on late payment of Income tax X firm as a partner X
To Sales Tax Penalty X By Share of Income received as
To Income Tax Penalty member of HUF X
To Wealth Tax Penalty By Refund of Advance to supplier X
To Service Tax Penalty X By Profit on sale of Fixed Asset X
To Custom / Excise Penalty X By Goods t/o by proprietor (profit) X
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To Penalty for breach of weight & X By Other heads income X
measures rules E.g. Salary from X Ltd. X
To Difference as per Trial Balance X Gifts from Employer X
To Suspense Account X Gifts from friends and Family X
To Purchase of Fixed Asset X Rent from Building/HP X
To NSC/NSS/Notified bonds of NABARD X Rent from other Asset X
(80C) Dividend income X
To Fixed Deposit X Interest income X
To Loss on sale of Fixed Asset X Agricultural Income X
To Advance to Supplier X Amount received from LIC Policy X
To Preliminary Expenses Paid (4/5) X Sale of Car X
To Capital Expenditure for Advt. X Sale of P&M/Land & bldg. X
E.g. Purchase of Neon Sign Board X Royalty income X
Purchase of Glow Sign Board X Winning income etc. X
Purchase of Permanent Sign Board X By Income tax refund (including int.) X
To Advt. in souvenir / Newspaper/ By Loan taken X
Brochure of a political party X By Advance received from customers X
To Scientific research expenses (cost of Land)
X
To Life Insurance Premium (80C) X
To Mediclaim Ins. Premium (80D) X
To Mediclaim of Staff (Cash) X
To Payment(salary etc.) to relatives X
(only Excess amount)
To Goods t/o (withdrawn) X
To Contribution to unapproved funds X
E.g. UPF/unapproved gratuity fund/ X
Staff welfare fund etc. X
To Deposit in PPF (80C) X
To Contribution to LIC Pension Fund (80CCC)
X
To Business exp. paid in cash/bearer
cheque
X
(if more than `20,000)
To CT BIL (if not paid upto 31st july 13) X
To Personal expenses / Drawings etc. X
e.g. Tuition(School) fees of son (80C) X
Exp. for Handicapped dep. Relative (80DD)
X
Int. on Loan for higher education (80E) X
To Expenses related to other heads income X
E.g. HP Expenses/other Source expenses X
Mun. tax of HP (LOP/SOPR etc) X
Dividend collection charges X
Purchase of lottery ticket X
To Loan & Advances X
Notes:
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(1) The list given above is not exhaustive (Complete). There are other income and expenses too which are not allowed. The above list depicts only common items.
(2) Gifts and Presents to employees will be allowed as business expenses. Similarly Gifts and Presents from Clients & Customer will be allowed as business income.
(3) Donation or Contribution for Scientific Research will be fully allowed and additional deduction of 75% or 100% will be allowed as UNRECORDED BUSINESS EXPENSES.
(4) Purchase of Assets (other than Land) for scientific research will be fully allowed.
(5) Interest from client / Customer/ Supplier will be allowed as business income.
(6) In absence of information Payment to Relative will be fully allowed.
(7) Business Expenses paid in cash/by bearer cheque up to `20,000 will be allowed.
(8) Business Expenses other than CT BIL will be allowed on due basis (i.e. It will be allowed even if not paid up to 31st July 2013)
(9) In absence of information Bad Debt recovery will be allowed as business income.
(10) Rent from staff quarters will be allowed as business income.
(11) Any personal expenses or Income of proprietor will not be allowed.
9
M.H.R.M
SECTION I MARKETING
Module - I
(1) Define marketing explain its features.
• Define marketing
• Marketing is the management process of identifying, anticipating and satisfying customer’s requirements profitably.
Features of marketing
• Systematic process
• Ideas goods, & services
• Target Market
• All pervasive
• Customer satisfaction
• Competitive advantage
• Corporate image
• Expansion of business
• Organisational objective
• Marketing envirionment
• Integrated approach
• Societal Interest
(2) Distinguish between Traditional Marketing and Strategic Marketing.
Meaning – traditional marketing –it is a process of identifying and satisfying customer’s requirement in order to achieve firm’s objective. Sm is a strategic process where firm differentiates it self from competitors by capitalising on strength to provide better value to customers than its competitors.
• Customer relationship – does not place emphasis on customer relationship, lots of resources directed for acquiring new customer
• Sm adopt customer centric approach resource are directed at maintaining & enhancing customer retaintions & relationship.
• Time frame – Tm is consider short term time. Sm manager consider long term time frame.
• Environment– Traditional marketing consider STABLE environment. Sm consider DYNAMIC environment.
• Opportunity sensitivity in traditional marketing manager follow adhoc search for a new opportunity. Sm managr go for ongoing search for new opportunity.
• Strategy– TM follow stable stretegy Sm follow growth stretegy.
• Decision making– Tm follow reactive decision where as sm follow proactive decision.
• Marketing research– Tm hardly invest funds in marketing research where as Sm emphasis on marketing research.
• Pricing method—Traditional marketing adopt cost oriented method where as Strategic market adopt consumer oriented method.
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(3) What is customer Relationship Management explain its techniques.
Customer relationship management
• CRM is concern with managing detailed information about individual customers and all customer ‘touch point’ to maximise cutomer customer loyalty
Techniques of CRM
• Data warehousing and data mining
• Loyalty programmes
• One to one marketing
• Priority customers programmes
• After sales services
• Satisfaction surveys
(4) What is social marketing. Bring out its importance.
Social marketing
• Social marketing seeks to influence social behaviors not to benefit the marketer but to benefit the target audience and the general society.
• Social marketing can be applied to promote merit goods like education & healthy food and avoid demerits goods like alcohol, smoking, drugs. International health programme such as polio vaccination.
Importance of social marketing
• Welfare of the whole society
• Overcomes social Evils
• Inculcates social behaviour
• Impetus green marketing
• Customer relationships
• Corporate image
• Social development
• Social responsibility of business
Module – II
(5) What is marketing information system explain its components?
Marketing Information System
• “ Marketing information system consists of people, equipment and procedure to gather sort analyse, evaluate and distribute needed timely and accurate information to marketing decision makers.”
Components of MIS
• Internal records
• Marketing intelligence
• Marketing research
• Consumer research
• Dealer research
• Product research
• Promotion research
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• Pricing research
• place research
(6) What is consumer behaviour ? Explain the steps in consumer buying decision process?
Consumer behavior
• Consumer behaviour as the actions and decisions processes of people who purchase goods and services for personal consumption.
• Buying decision process
• Need identification Attitude
• Information search Trial purchase
• Listing alternative brands purchase decision
• Evaluation of alternative post purchase behaviou
(7) What are the bases of Market Segmentation ?
Market segmentation
• Philip Kotler defines “ Market segmentation is a process of identifying group of buyers with different desires or requirements”
Bases of market segmentation
• Geographic segmentation
• Region
• Urban / rural
• locality
• Demographic segmentation
• Age
• Gender
• Income
• Education
• Family size
• Sociographic sementation
• Culture , Reference group
• Psychographic segmentation
• Life style, personality
• Behavioural segmentation
• Usage Rate, User status , Buying motives
(8) What is Marketing Research? Explain basic steps in Research Process.
Marketing research
• Marketing research is systematic gathering , recording and analyzing of data about problems relating to marketing of goods & services.
• Basic steps in marketing research process.
• Identifying and define problem
• Conduct preliminary investigation
• Determine data needs
• Determine data sources
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• Create the research design
• Design questionnaire
• Designing sample respondents
• Collection of data
• Organisation of data
• Analysis and interpretation of data
• Preparation of research report
• Follow-up report
Module – III
(9) Define Marketing Mix. Explain the elements of Marketing Mix.
• Define marketing mix. Explain its elements
• The basis of marketing operation is the co-ordination of four key variables namely product, price ,place, promotion.
• Elements – The product
• The price pace
• The promotion packaging
• The place positioning
(10) What is Product Mix ? What do you understand by Width, Depth and Consistency of product mix? Also explain the effect of firms objective on product mix.
Product Mix
• Product mix refers to the set of products which are offered for sale by a firm.
• Product’s depth refers to the number of product in a company’s specific product line. For e.g lakme facecream, lipstic, nailpolish, body talc eye liner and mascara.
• Product width refers to the numbers of separate product line sold by a company. For e.g co may sell 5 product lines like food, dairy, cosmetics beverages, soaps etc.
• Product consistency refers to the total number of product sold in all product line.
• Consistency of the product mix of an enterprise studies whether there is any co-relation among the product line or not. This co-relation may be in respect of the process of product or channel of distribution or consumption etc. for e.g. philips india ltd such as bulb, tubelight, radio, taperecorder, t.v. etc
• Effects of company’s objective on product mix
• Profit objective
• Sales stability
• Sales growth objective
• Change in the market demand
• Cost of production
• Advertising & distribution factor
• Competitors action & reaction
• Full utilisation of marketing capacity.
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(11) What is Pricing ? Discuss the various pricing strategies.
Pricing
• What is pricing discuss the various pricing strategies.
• Price is an important elements of marketing mix price is exchange value. Where consumer is ready to buy and seller is ready to sell. It should not be too high it should not be too low.it should increase market share and completing organisational objectives.
Pricing strategies
• Skimming pricing strategy
• Penetration pricing strategy
• Standard pricing strategy
• Probe pricing strategy
• Differential trade margins pricing strategy
• Transfer pricing strategy
• Trial pricing
• Differential pricing for different market
• Follow the leader pricing strategy
• Flexible pricing strategy
(12) Explain different phases of product life cycle.
Product life cycle
• 1. product development stage
• 2. Introduction stage
• 3. Growth stage
• 4. Maturity stage
• 5. Decline stage
(13) What is Branding ? Explain Component of Brand.
Branding
• Branding refers to that process through which a special identification of the product is established.
• Components of brand Essentials of brand
• Brand name simple & short
• Brand mark Easy pronounceable
• Trade mark Suggestive Distinctiv
Module – IV
(14) What is Physical Distribution? Discuss factors influencing selection of Distribution channel.
• What is physical distribution. Discuss factor influencing selection of distribution channel.
• Physical distribution is a process of effectively delivering the product to the customers in proper condition and on time.
• Integrated marketing communication as the element in an organization’s marketing mix that is used to inform, persuade and remind the market regarding the organisation or its product
• Steps in IMC
• Identifying the target audience
• Determine the communication objectives
Integrated marketing communication
• Steps in IMC
• Design the messaging content
• Select the means for communication
• Measure the effectiveness of the effort
(16) What are the components of logistics ?
Components of logistics
• Facility location and network design
• Information
• Customer service standards
• Customer order processing
• Warehousing
• Transportation
• Material handling
• Inventory management, logistic packaging
• Handling function
(17) What are the recent Trends in Distribution?
Recent trends in distribution
• Horizontal marketing system
• Third party delivery channel
• Multi- channel marketing
• Multi-level marketing
• Vertical marketing system
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Q.5. (A) Objectives. Fill in the blanks : (5)
(1) The _____ starts with determining consumer wants and ends with the satisfaction of those wants. ( Marketing concept )
(2) ________ refers to the set of products that share common characteristics channel, customers. ( Product line )
(3) Market ________ pricing involves fixing a low price to get a foot hold in the market. ( penetration )
(4) _________ the competitor who is normally behind market leader and challenger. ( Market followers )
