Explain concepts and conventions of Accounting.

Basic principles of accounting are essentially, the generated decision rules which
govern the development of accounting techniques. These Principles guide how
transaction should be recorded.

There are eight types of Concepts Principle, which are as following

1. Business Entity Concepts.

2. Money Measurement Concepts.
3. Periodicity Concepts.
4. Dual Aspects Concepts.
5. Going Concern Concepts.
6. Accrual Concepts.
7. Matching Concepts.
8. Cost Concepts.

1. Business Entity Concepts- According to this concept, business is treated as

a unit separate and distinct from its owners, creditors, managers and others. In
other words the owner of a business is always considered as distinct and
separate from the business owns. Because of the concept of separate entity, the
proprietor house, his personal investment in securities, his personal car and
personal income and expenditure are kept separate from the accounts of the
business entity.

2. Money Measurement Concepts- Only those transaction and events are

recorded in accounting ware capable of being expresses in terms of money. For
example, accounting does not record a quarrel between the production manager
and sales manager. So these events cannot be expressed in money terms and
thus are not recorded in the books.

3. Periodicity Concepts- As the business is intended to continue for a long

period, the result of the business operation can be ascertained only when the
business is completely wound up. The users the financial statement need to know
the result of business at time. Thus the entire life of the firm is divided into time
intervals for the measurement of the profits of the business.

4. Dual Aspects- According to this concept every business transaction is

recorded as having a dual aspect. In other words, every transaction affects at
least two accounts. If one account is debited, then other account must be
credited. The system of recording transaction based on this concept is called as
Double Entry System. It is because of this principle that the two side of the
Balance Sheet are always equal and the following accounting equations are
Assets = Liabilities plus Capital

Capital= Assets minus Liabilities

5. Going Concern Concept- As per this concept it is assumed that the business
will continue to exist for a long period in the future. The transaction are recorded
in the books of the business on the assumption that it is a continue enterprise. It
is also because of the going concern concepts that outside parties enter into long
term contract with the enterprise, give loans and purchase the debentures and
shares of the enterprise. For example, if Machinery purchased for 10 years it
means it gives the net profit or loss for next 10 year for an enterprise.

6. Accrual Concepts-In accounting accrual basis is used for recording of

transaction. It provides more appropriate information about the performance of
business enterprises as compared to cash basis. An accrual concept applies
equally to revenue and expenses. In accrual concept revenue is recorded when
sales are made or services are rendered and it is immaterial whether cash is
received or not.

7. Matching concepts-This concepts is very important for correct determination

of net profit. According to this concept in determining the net profit from business
operations, all cost which is applicable to revenue of the period should be
charged against that revenue. According for matching costs with revenue firm
revenues should be recognized and then costs incurred for generating that
revenue should be recognized. For example when an item of revenue is included
in the profit and loss account all expenses incurred on it, whether paid or not
should be shown as expenses in the profit and loss account. On the basis of this
principle outstanding expenses, though not paid in cash are shown in the profit
and loss account.

8. Cost Concept- According to this concept an asset is ordinarily recorded in the

books of account at the price at which it was acquired. This cost becomes the
basis of all subsequent accounting for the asset. Since the acquisition cost relates
to the past, it is referred to as historical cost. This cost is the basis of valuation of
the asset in the financial asset. For example if building purchased for Rs.5,
00,000 it would be recorded in the books at this figure.

Convention- An accounting convention may be defined as a custom or generally

accepted practices which is adopted either by general agreement or common
consent among accountants. Accounting Conventions differ from concepts in
respect to the following-

i. Accounting concepts are established by law while accounting convention are

guidelines based upon custom or general agreement.
ii. There is no role of personal judgment or individual in the adoption of
accounting concepts whereas they may play a crucial role in following accounting
conventions.
iii. There is uniform adoption of accounting concepts in different enterprises while
it may not be so in case of accounting conventions.
Following are the main accounting conventions,
Accounting Conventions
1. Convention of Full Disclosure.
2. Convention of Consistency.
3. Convention of Conservatism.
4. Convention of Materiality.

Convention of full disclosure- This principle requires that all significant

information relating to the economic affairs of the enterprise should be completely
disclosed. In other words there should be a sufficient disclosure of information
which is of material interest to the users of the financial statement such as
proprietors, present and potential creditors, investors and others.

Convention of Consistency- This convention states that accounting principles

and method should remain consistent from year to year to another. These should
not be changed from year to year in order to enable the management to compare
the profit and loss account and balance sheet. Of the different period and draw
important conclusions about the working of the enterprise. If a firm adopts
different accounting principles in two accounting period, the profit of current
period will not be comparable with the profit of the preceding period. For example
a firm can choose any one of the several methods of depreciation like SLM
method and WWDV method, but it is expected that if one method once choose
then never change year after year.

Convention of Consistency- This convention states that accounting principles

and method should remain consistent from year to year to another. These should
not be changed from year to year in order to enable the management to compare
the profit and loss account and balance sheet. Of the different period and draw
important conclusions about the working of the enterprise. If a firm adopts
different accounting principles in two accounting period, the profit of current
period will not be comparable with the profit of the preceding period. For example
a firm can choose any one of the several methods of depreciation like SLM
method and WWDV method, but it is expected that if one method once choose
then never change year after year.

Contingent Liabilities- For example a claim of very big sum pending in a court of
law against the enterprises should be brought to the notice of the users of the
financial statement otherwise the statement would be misleading.
If there is a change in the method of valuation of stock, or for providing
depreciation or in making provision for doubtful debts, it should be disclosed in
the balance sheet by way of a footnote.
Explain concept of Trial Balance with errors.

A trial balance is a list of all the ledger accounts contained in the ledger of a
business. This list will contain the name of the nominal ledger account and the
value of that nominal ledger account. The value of the nominal ledger will hold
either a debit balance value or a credit value balance. The debit balance values
will be listed in the debit column of the trial balance and the credit value balance
will be listed in the credit column. The profit and loss statement and balance
sheet and other financial reports can then be produced using the ledger accounts
listed on the trial balance.

The name comes from the purpose of a trial balance which is to prove that the
value of all the debit value balances equal the total of all the credit value
balances. Trialing, by listing every nominal ledger balance, ensures accurate
reporting of the nominal ledgers for use in financial reporting of a businesses
performance. If the total of the debit column does not equal the total value of the
credit column then this would show that there is an error in the nominal ledger
accounts. This error must be found before a profit and loss statement and
balance sheet can be produced.

The trial balance is usually prepared by a bookkeeper who has used daybooks to
record financial transactions and then post them to the nominal ledgers and
personal ledger accounts. The trial balance is a part of the double-entry
bookkeeping system and uses the classic ‘T’-account format for presenting
values.

Limitations of Trial Balance

A trial balance only checks the sum of debits against the sum of credits. That is
why it does not guarantee that there are no errors. The following are the main
classes of error that are not detected by the trial balance:

1. Errors affecting Trial Balance means one sided errors

2. Errors not affecting Trial Balance means double sided errors
1. Errors affecting Trial Balance means one sided errors-
If the Trial Balance does not tally, it will indicate that certain errors have been
committed which have affected the agreement of the Trial Balance. The
accountant will then proceed to find out the Errors and ultimately the errors will be
located. Such errors are called Errors Disclosed by Trial Balance.

Wrong Casting- If the total of the Cash book or some other Subsidiary Book is
wrong; the Trail Balance will not tally. For example, the total of the purchase Book
has been added Rs.1,000 in excess. When this total will be posted to the debit
side of the purchase account, it will also show an excess debit of Rs1,000 and
Trial Balance will not tally.

Posting to the Wrong side- If instead of posting an amount on the debit side of
an account, it is posted on the credit side or vice versa, the Trial Balance will not
tally. For example, goods for Rs2,000 have been purchased from Gopal. If
instead of posting the amount on the credit side of Gopal account it is posted to
his debit, the debit side of the Trial Balance will exceed the credit by Rs4,000.

Posting of Wrong Amount- The Trial Balance will not tally if the posting in an
account is made with an incorrect amount. For example, goods for Rs600 have
been purchased from Mahendra. If it has been correctly entered in the Purchase
Book but while posting To Mahendra credit, the amount posted is Rs60 instead
of Rs600, the Trial Balance will not tally

Omission of Posting of One Side of an Entry- For Example, if Rs500 have

been received from Ram and correctly entered in the Cash Book, but if it is
omitted to be posted on the credit side of Rams account, the Trial Balance will not
tally.

Double posting in a Single Account- For example, if Rs500 have been

received from Shyam Lal and correctly entered in the Cash Book, but if it posted
twice on the credit side of Shyam Lal account, the Trial Balance will not tally.
2. Errors not affecting Trial Balance means double sided errors-
Main objective of preparing a Trial Balance is to check the accuracy of the
accounts. However, the equality of debit and credit of the Trial Balance does not
mean that there are absolutely no errors in the books of accounts. There may be
a number of errors which may remain undetected in spite of the agreement of a
Trial Balance. As such it is true to say that Trial Balance is not a conclusive proof
of the accuracy of the books of accounts. There are certain errors which do not
affect the agreement of the Trial Balance. Such errors are called limitations
of Trial Balance. These may be discussed as below—

Errors of Omission- If a transaction remains altogether unrecorded either in the

journal or in subsidiary Books, it will be termed as an error of omission. Such an
error will not affect the agreement of a trial balance as neither the transaction has
been entered on the debit side of an account nor on the credit side of any other
account. For example suppose goods for Rs2,000 have been sold to Ram on
credit and the transaction was omitted to be recorded in the books. The omission
will not affect the trial balance.

Errors of Commission- If a Wrong amount is entered either in the Journal or in

the Subsidiary Books, the trial balance will tally because the same amount will be
posted in both the account affected by the transaction. For example. sale of
goods to Ram on credit for Rs420 has been entered in the journal as Rs240.
When the entry is posted to Ledger, Double Entry will be completed with Rs240,
Ram being debited with Rs240, and sales account being credited with Rs240.

Compensating Errors- If the effect of one error is neutralized by the effect of

some other error, such errors are called compensating errors. For example, while
posting on the debit side of Anil account, Rs50 are posted instead of Rs500 and
while posting on the debit side of Sunil account Rs500 are posted instead of
Rs50. These two mistakes will not affect the trial balance.

Errors of Principle- When some fundamental principle of Accountancy is

violated while recording a transaction the error is termed as error of principle.
These errors are committed in those cases where a proper distinction between
capital and revenue items is not made.
Explain Accounting Standards and classification of Business
Accounts.
Accounting Standards
Accounting is an information system and its main aim is to provide financial
information to a number of parties such as investors, management, creditors,
Government etc. Such information is provided through a set of financial
statements namely, profit and loss account and balance sheet. The set of
financial statements of enterprises should depict a true and fair view of its
operating results and financial position. However that constitutes true and fair
view has not been defined either in the companies act, 1956 or in any other
statute. Over a period of time a number of Generally Accepted Accounting
Principles GAAP in the form of concepts and conventions have been developed
and accepted to bring comparability and uniformity in the financial statements of
various business entities, But the difficulty is that GAAP also allow a large number
of alternative treatment for the same item. Different organization adopts different
policies for same transaction or an enterprise may follow different accounting
policies for the same item over different accounting period. As a result the
financial statements become inconsistent and incomparable. Hence there is an
urgent need to standardize these diverse accounting policies. The International
Accounting Standards Committee came into existence on 29th June, 1973 to
develop accounting standards. The ICAI and ICWAI of India is associate member
of the IASC.

Concepts of Accounting Standards- Accounting standards may be defined as

written statements issued from time to time by institutions of accounting
professionals, specifying uniform rules or practices for drawing the financial
statements

Kohler- defines accounting standards as a mode of conduct imposed on

accountants by custom, law or professional body.

Nature of accounting standards-

1. Accounting standards lay down the norms of accounting policies and practices
by way of codes to direct as to how the transaction and events should be dealt
with in accounts and disclosed in the financial statements.
2. In this way they remove the effect of diverse accounting practices and policies
so that financial statement of different business units becomes comparable.
3. They prescribe a preferred accounting treatment from the available set of
methods for solving one or more accounting problems.
4. They provide information to the users of financial statements as to the basis on
which such statement have been prepared.
Accounting standards specified by the Institute of chartered Accountants under
section 211 of the Act 1956-

Section 211 of the companies Act 1956 as amended recently, requires that the
profit and loss account and balance sheet of a company shall comply with the
accounting standards. For this purpose, the expression accounting standards
means the standards of accounting recommended by the Institute Chartered
Accounts of India as may be prescribed by the central government.
As on 1st April 2008 there are 29 accounting standards specified by the Institute,
compliance of all of which is Mandatory for companies. The following is the list o
these standards,

1. AS1, disclosure of Accounting policies

2. AS 2, Valuation of Inventories
3. AS 3, Cash Flow Statement
4. AS 4, Contingencies and Event Occurring after the Balance Sheet
5. AS 5, Net profit or Loss for the period, prior period Items and Changes in Accounting
Policies
6. AS 6, Depreciation Accounting
7. AS 7, Accounting for Construction Contracts
8. AS 8, Accounting for Research and Development
9. AS 9, Revenue Recognition
10. AS 10. Accounting for Fixed Assets
11. AS 11, Accounting for the effect of Changes in Foreign Exchange Rates
12. AS 12, Accounting for Government Grants
13. AS 13, Accounting for Investment
14. AS 14, Accounting for Amalgamation
15. AS 15, Treatment of Employee Benefit Schemes in the Financial Statement of
Employee.
16. AS 16, Borrowing Costs
17. AS 17, Segment Reporting
18. AS 18, Related party Disclosure
19. AS 19, Lease
20. AS 20, Earning per Share
21. AS 21, Consolidated Financial Statement
22. AS 22, Accounting for Tax and Income
23. AS 23, Accounting for Investment in Association in consolidated Financial Statement.
24. AS 24, Discontinued Operation
25. AS 25, Interim Financial Reporting
26. AS 26, Intangible Assets
27. AS 27, Financial Reporting of Interest in Joint Ventures
28, AS 28, Impairment of Asset
29. AS 29, Provision, Contingent Liabilities and Contingent Asset.
 Classification of business accounts

A business bank account allows a sole-proprietorship, a partnership or a corporation

to carry out financial transactions under an official business name. The Internal
Revenue Service requires personal bank accounts to be separate from business
bank accounts -- for tax purposes. Banks, credit unions and other financial institutions
provide a range of business accounts for the effective management of cash and
interest bearing investments (mutual funds, bonds and money market fund shares).

Business Checking Account

1. A checking account allows businesses to deposit and withdraw cash and funds
from a bank through ATM cards, electronic debit cards or checks. Some
business checking accounts require a minimal deposit before establishing a
new account while others require only proof of business and identification.
Checking accounts provide a wide range of financial services to a business at
highly competent rates. Banks allow various types of checking accounts,
depending on the financial needs of a business and the legal requirements of a
bank. Some banks, for instance, allow an unlimited amount of checks to be
written for cash withdrawal per month. Others restrict the number of checks a
business can write. Banks also have different minimum monthly checking
account balance requirements.

Business Savings Account

2. A savings account is an interest-bearing business option that is maintained by
a financial institution. It provides businesses a constant stream of interest by
saving and managing a business' liquid assets. Savings accounts are not
linked with checkbooks and debit cards. Instead, cash is withdrawn through an
ATM card or a personal visit to the bank itself. Some business savings
accounts require a minimum deposit to be maintained at all times. Regulation
D, 12 CFR 204.2(d)(2) of the FDIC manages transfers, payments and
withdrawals performed by a savings account. Banks are bound by law to
comply with these regulations. Bank statements and passbooks list all monthly
business savings account transactions.

Business Certificate of Deposit (CD)

3. A certificate of deposit is a time-bound (one month to five years) bank-issued
instrument of debt. Businesses can utilize CDs by putting aside a portion of
liquid assets for a specific period of time. A certificate of deposit bears a
maturity date, which determines the interest rate accrued upon maturity. The
Federal Deposit Insurance Corporation (FDIC) insures and guarantees the
safety of all bank-issued CDs. Not all banks, however, are insured by the
FDIC.Typically uninsured banks provide higher interest rates but less security
on CDs than an insured bank. Businesses have the option of looking into
various types of CDs, including callable CDs, brokered CDs, liquid CDs, variable
rate CDs, add-on CDs and zero-coupon CDs.

Define Innovative Management Accounting Practice.

Management Accounting
According to the Chartered Institutes of Management Accountants (CIMA),
Management Accounting is "the process of identification, measurement,
accumulation, analysis, preparation, interpretation and communication of
information used by management to plan, evaluate and control within an entity
and to assure appropriate use of and accountability for its resources.
Management accounting also comprises the preparation of financial reports for
non-management groups such as shareholders, creditors, regulatory agencies
and tax authorities" (CIMA Official Terminology).

The American Institute of Certified Public Accountants (AICPA) states that

management accounting as practice extends to the following three areas:

Strategic Management—advancing the role of the management accountant as a

strategic partner in the organization.

Performance Management—developing the practice of business decision-

making and managing the performance of the organization.

Risk Management—contributing to frameworks and practices for identifying,

measuring, managing and reporting risks to the achievement of the objectives of
the organization.

Innovative Practices

By innovative practices we mean, a change in the business environment; i.e. a

radical change in the methods of accounting or it can be interpreted as an
innovation in the accounting techniques. These innovations has been seen as
superfluous in business organizations, subsequently devoted considerable
resources to the development of a more innovative skill set for management
accountants.
The distinction between ‘traditional’ and ‘innovative’ management accounting
practices can be illustrated by reference to cost control techniques. Cost
Accounting is a central method in management accounting, and traditionally,
management accountants’ principal technique was variance analysis, which is a
systematic approach to the comparison of the actual and budgeted costs of the
raw materials and labor used during a production period.
While some form of variance analysis is still used by most manufacturing firms, it
nowadays tends to be used in conjunction with innovative techniques such as life
cycle cost analysis and activity-based costing, which are designed with specific
aspects of the modern business environment in mind.

Life-cycle costing recognizes that managers’ ability to influence the cost of

manufacturing a product is at its greatest when the product is still at the design
stage of its product life-cycle (i.e., before the design has been finalized and
production commenced), since small changes to the product design may lead to
significant savings in the cost of manufacturing the product.

Activity-based costing(ABC) recognizes that, in modern factories, most

manufacturing costs are determined by the amount of ‘activities’ (e.g., the number
of production runs per month, and the amount of production equipment idle time)
and that the key to effective cost control is therefore optimizing the efficiency of
these activities. Activity-based accounting is also known as Cause and Effect
accounting.

Both lifecycle costing and activity-based costing recognize that, in the typical
modern factory, the avoidance of disruptive events (such as machine breakdowns
and quality control failures) is of far greater importance than (for example)
reducing the costs of raw materials. Activity-based costing also deemphasizes
direct labor as a cost driver and concentrates instead on activities that drive
costs, such as the provision of a service or the production of a product
component.
Explain an alternative revoke management accounting, lean
accounting and concept of financial budgeting.

Alternative Revoke Management Accounting

An alternative view of management accounting

A seldom expressed alternative view of management accounting is that it is neither a neutral or benign
influence in organizations, rather a mechanism for management control through surveillance. This view
locates management accounting specifically in the context of management control theory.
Lean Accounting

The purpose of Lean Accounting is to support the lean enterprise as a business

strategy. It seeks to move from traditional accounting methods to a system that
measures and motivates excellent business practices in the lean enterprise.
There are two main thrusts for Lean Accounting,

The first is the application of lean methods to the company's accounting, control,
and measurement processes. This is no different than applying lean methods to
any other processes. The objective is to eliminate waste, free up capacity, speed
up the process, eliminate errors & defects, and make the process clear and
understandable.

The second thrust of Lean Accounting is to fundamentally change the accounting,

control, and measurement processes so they motivate lean change &
improvement, provide information that is suitable for control and decision-making,
provide an understanding of customer value, correctly assess the financial impact
of lean improvement, and are themselves simple, visual, and low-waste. Lean
Accounting does not require the traditional management accounting methods like
standard costing, activity-based costing, variance reporting, cost-plus pricing,
complex transactional control systems, and untimely & confusing financial
reports. These are replaced by

Lean-focused performance measurements.

Simple summary direct costing of the value streams.

Decision-making and reporting using a box score.

Financial reports that are timely and presented in "plain English" that
everyone can understand.

Radical simplification and elimination of transactional control systems by

eliminating the need for them.

Driving lean changes from a deep understanding of the value created for
the customers.
Eliminating traditional budgeting through monthly sales, operations and
financial planning processes (SOFP).

Value-based pricing.

Correct understanding of the financial impact of lean change.

As an organization becomes more mature with lean thinking and methods, they
recognize that the combined methods of Lean Accounting in fact creates a Lean
Management System (LMS) designed to provide the planning, the operational
and financial reporting, and the motivation for change required to prosper the
company's on-going lean transformation.

Financial Budgeting

Budgeting

Establishing a planned level of expenditures, usually at a fairly detailed level. A

company may plan and maintain a budget on either an accrual or a cash basis.

A financial budget is a plan including a budgeted balance sheet, which shows the
effects of planned operations and capital investments on assets, liabilities, and
equities. It also includes a cash budget, which forecasts the flow of cash and
other funds in the business.

The most effective financial budget includes both a short-range, month-to-month

plan for at least one calendar year and a long-range, quarter-to-quarter plan you
use for financial statement reporting. It should be prepared during the two months
preceding the fiscal year-end to allow ample time for sufficient information-
gathering.

Many financial budgets provide a plan only for the income statement; however,
it's important to budget both the income statement and balance sheet. This
enables you to consider potential cash-flow needs for your entire operation, not
just as they pertain to income and expenses. For instance, if you'd already been
in business for a few years and were adding a new product line, you'd need to
consider the impact of inventory purchases on cash flow.
Budgeting only the income statement also doesn't allow a full analysis of the
effect of potential capital expenditures on your financial picture. For instance, if
you're planning to purchase real estate for your operation, you need to budget the
effect the debt service will have on cash flow. That comes out if we have a
efficient financial budget.
Define Voucher Entry with receipt voucher, payment voucher, contra
voucher, general voucher and physical stock voucher.

Voucher Entry

A voucher is a bond which is worth a certain monetary value and which may be
spent only for specific reasons or on specific goods. For example housing, travel,
and food vouchers. The term voucher is also a synonym for receipt and is often
used to refer to receipts used as evidence of, for example, the declaration that a
service has been performed or that expenditure has been made.

Payment Voucher
The payment voucher is for all payments you make through cash or Bank. These
payments can be towards expenses, purchases, to trade creditors, etc. Fund
Transfer entries can also be made in payment voucher. Generally it specify the
purpose of payment.

Receipt Voucher
The receipt voucher is for all receipts into the Cash/Bank account. It is the proof
of money received on any account. When a firm receives money in cash or by
cheque, D.D., etc. from a customer, supplier or on any other account, a Receipt
Voucher is prepared.

Contra Voucher
The contra voucher is for fund transfers between cash and bank accounts only. In
other words to cater to concept of contra entries and for treatment of cheque
issued and received by business.

General Voucher
The general voucher is for making adjustments or corrections in books of
accounts.

Physical Stock Voucher

Physical Stock Voucher is used for recording the actual stock which is verified or
counted.
Define Inventory Information with stock group, unit of memo, godown
items, warehousing

Inventory Information
Warehousing

Warehouse

A warehouse is a commercial building for storage of goods. Warehouses are

used by manufacturers, importers, exporters, wholesalers, transport businesses,
customs, etc. They are usually large plain buildings in industrial areas of cities
and towns. They usually have loading docks to load and unload goods from
trucks. Sometimes warehouses load and unload goods directly from railways,
airports, or seaports. They often have cranes and forklifts for moving goods,
which are usually placed on ISO standard pallets loaded into pallet racks.

Performance of administrative and physical functions associated with storage of

goods and materials. These functions include receipt, identification, inspection,
verification, putting away, retrieval for issue, etc.
Define Invoice how to prepare Invoice, Tax Implication, CENTVAT and
concept of CVBD

Invoice

It can be defined in terms of company and as well as in terms of a customer.

In terms of company

Invoice is a document raised by the company and sent to the customer with the
details of items sold, qty sold, price, tax and other details. Based on this invoice,
the customer will send the payment in case of credit sales.

In terms of a customer

Invoice is a document raised by the customer and sent to the company with the
details of the items sent, qty sent, price and other details. The company will enter
this invoice details in the Payables module and then pay the customer according
to the credit terms. This invoice may come along with the consignment or may be
sent to the company separately.

Preparation of invoice
There are certain pieces of information that have to be on your invoices. Your
invoice must include:
• your business name
• the date of the invoice
• your Business Number
• the purchaser's name
• a brief description of the goods or services performed
• the total amount paid or payable
• the terms of payment
• an indication of items subject to the total rate of tax
• If applicable, an indication of items subject to the provincial rate.
Format of invoice

{Company name} – INVOICE

{Company address}
{Company telephone number}
{Company email}
Company #: {Company number}; VAT #: {VAT number}

Invoice No: {Invoice number here}

Date: {Invoice date}
Due date: {Due date}

To: {client name}

Fees:
{Description of services} £XXX

VAT @ 17.5% £XXX

Total £XXX

Payment terms
Payment within 30 days via money transfer only to the following account:
{Your company name}
Sort Code: {Sort code}
Account No: {Account number}
Tax Implication

When someone states that something has or may have a tax implication, which
simply means that it may affect the taxes you pay. It's generally used in reference
to your federal income tax return filed with the IRS (& state tax return if your state
has an income tax). If receiving a prize has tax implications, it would likely mean
that you need to report the income on your federal tax return.

CENVAT

Cenvat (Central Value Added Tax) has its origin in the system of VAT (Value
Added Tax), which is common in West European Countries. Concept of VAT was
developed to avoid cascading effect of taxes. VAT was found to be a very good
and transparent tax collection system, which reduces tax evasion, ensures better
tax compliance and increases tax revenue.

Basic Concept of VAT

Generally, any tax is related to selling price of product. In modern production

technology, raw material passes through various stages and processes till it
reaches the ultimate stage e.g., steel ingots are made in a steel mill. These are
rolled into plates by a re-rolling unit, while third manufacturer makes furniture from
these plates. Thus, output of the first manufacturer becomes input for second
manufacturer, who carries out further processing and supply it to third
manufacturer. This process continues till a final product emerges. This product
then goes to distributor/wholesaler, who sells it to retailer and then it reaches the
ultimate consumer.

If a tax is based on selling price of a product, the tax burden goes on increasing
as raw material and final product passes from one stage to other. For example,
let us assume that tax on a product is 10% of selling price. Manufacturer ‘A’
supplies his output to ‘B’ at Rs. 100. Thus, ‘B’ gets the material at Rs. 110,
inclusive of tax @ 10%. He carries out further processing and sells his output to
‘C’ at Rs. 150. While calculating his cost, ‘B’ has considered his purchase cost of
materials as Rs. 110 and added Rs. 40 as his conversion charges. While selling
product to C, B will charge tax again @ 10%. Thus C will get the item at Rs. 165
(150+10% tax). As stages of production and/or sales continue, each subsequent
purchaser has to pay tax again and again on the material which has already
suffered tax. This is called cascading effect.
Cascading effect of conventional system of taxes - A tax purely based on selling
price of a product has cascading effect, which has the following disadvantages -
(a) Computation of exact tax content difficult.
(b) Varying Tax Burden as tax burden depends on number of stages through
which a product passes.
(c) Discourages Ancillarisation.
(d) Increases cost of production.
(e) Concessions on basis of use is not possible.
(f) Exports cannot be made tax free.

VAT to avoid the cascading effect – VAT was developed to avoid cascading
effect of taxes. In the aforesaid example, ‘value added’ by B is only Rs. 40 (150–
110), tax on which would have been only Rs. 4, while the tax paid was Rs. 15. In
VAT, the idea is that B will pay tax on only Rs 40 i.e. value added by him. Then, it
makes no difference whether a product passes through 5 or 10 stages or even
100 stages, as every person will pay tax only on ‘value added’ by him to the
product and not on total selling price.

Tax credit system - VAT removes these defects by tax credit system. Under this
system, credit is given at each stage of tax paid at earlier stage.

Advantages of VAT –
(a) Exports can be freed from domestic trade taxes.
(b) It provides an instrument of taxing consumption of goods and services.
(c) Interference in market forces is minimal.
(d) Aids tax enforcement by providing audit trail through different stages of
production and trade. Thus, it acts as a self-policing mechanism.
(e) Neutrality i.e. with minimum distortion in tax structure - as there are few
variations in tax rates and exemptions from taxation are very few.

The disadvantage is that paper work required increases considerably and it is

not as simple as a single point sales tax.
REPORT OF RELIANCE FRESH
LIMITED
Financial Results:
The financial performance of the Company for the financial
year ended March 31, 2010 is summarized below:
(Rs. in lakh)
2009-2010 2008-2009
Profit/(Loss) before (15,072.19) (29,417.28)
Depreciation, Interest and Tax
Less: Interest 8.05 16.78
Depreciation 6,628.73 5,969.81
Profit /(Loss) before Tax (21,708.97) (35,403.87)
Less: Provision for
Fringe Benefit Tax - 176.07
Deferred Tax (8,192.56) (10,649.63)
Profit/ (Loss) after Tax (13,516.41) (24,930.31)
Add: Balance brought (27,676.78) (2,746.47)
forward from previous year
Balance carried to (41,193.19) (27,676.78)
Balance Sheet
Operational Review:
During the year under the review, the Company has maintained its robust growth as a 'value
retailer' dealing in a variety of superior quality food and non-food products at affordable
prices. The Company's 'Reliance Fresh' stores offer wide assortment of products including
private label products which are highly trusted, catering to the needs of the entire family.
The Company has incurred a loss of Rs. 13,516.41 lakh for the financial year ended
March 31, 2010. With the optimisation of resources and further scaling up of retail store
operations, the Company is confident of posting better results in the future. The Company
had applied to the Central Government seeking exemption from presenting the
information as per paras 3(i)(a) and 3(ii)(b) of Part II of Schedule VI to the Companies
Act, 1956. The Company has received Orders no. 46/84/2009-CLIII dated 14.05.2010 and
no. 46/74/2010-CL-III dated 14.05.2010 of the Ministry of Corporate Affairs,
Government of India granting the exemption from making the above disclosures
respectively for the financial years ended on 31.03.2009 and 31.03.2010.

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