COM ECO-02 Solved Assignments 2010
Course Code : ECO-02 Course Title : Accountancy-1 Assignment Code : ECO-02/TMA/2010 -11 Maximum Marks : 100
Attempt all the questions. 1. (a) What do you understand by classification of accounts? Explain the different types of accounts. (b) Explain the reasons on account of which the balance shown by the Pass Book does not agree with the balance shown by the bank column of the Cash Book. (10+10) Solution: According to Modern approach Accounts are classified into five groups: 1 Asset 2. Expense 3. Revenue 4. Liability 5. Capital According to Traditional approach Accounts are classified into three groups: 1. Personal Accounts: Accounts recording transactions relating to individuals or firms or company are known as personal accounts. Personal accounts may further be classified as : (1) Natural person's personal accounts: The accounts recording transactions relating to individual human beings e.g., Anand's A/c, Remesh's A/c, Pankaj's A/c are classified as natural person's personal accounts. (2) Artificial person's personal account: The accounts recording transactions relating to limited companies. bank, firm, institution, club. etc. e.g. Delhi Cloth Mill; Hans Raj College; Gymkhana Club are classified as artificial persons' personal accounts. (3) Representative personal accounts: The accounts recording transactions relating to the expenses and incomes are classified as nominal accounts. But in certain cases due to the matching concept of accounting the amount, on a particular date, is payable to the individuals or recoverable from individuals. Such amount (a) relates to the particular head of expenditure or income and (b) represents persons to whom itis payable or from whom it is recoverable. Such accounts are classified as representative personal accounts e.g. "Wages Outstanding Account", Pre-paid Insurance Account. etc. 2. Real Accounts The accounts recording transactions relating to tangible things (which can be touched, purchased and sold) such as goods, cash, building. machinery etc., are classified as tangible real accounts.

1.. Entry is made Balance = Increased No entry is made till the cheques are cleared Balance = same.. bad debts etc. wherever a nominal account represents the amount payable to or receivable from certain persons it is known as representative personal account. salaries. As already discussed. wages. The reasons on account of which the balance shown by the Pass Book does not agree with the balance shown by the bank column of the Cash Book.Whereas the accounts recording transactions relating to. Rules of Debit and Credit (classification based) 1. interest. Interest and dividends collected by Bank No entry is made till the Pass Book is checked Balance = Same Entry is made Balance = Increased 6. Nominal Accounts: The accounts recording transactions relating to the losses. Rent. Bills collected by the bank on behalf of the customer No entry is made till the Pass Book is checked Balance = Same Entry is made Balance = Increased 10 Errors committed either in Cash Back or Pass Book . Credit incomes and gains. Credit what goes out 3. 3. are classified as intangible real accounts. Personal Accounts: Debit the receiver. expenses and incomes e. trade marks etc. Interest allowed by the Bank No entry is made till the Pass Book is checked Balance = Same Entry is made Balance = Increased 4. Direct payments into the bank by a customer No entry is made till the Pass Book is checked Balance = Same Entry is made Balance = Increased 8. Interest and Expenses Charged by the Bank No entry is made till the Pass Book is checked Balance = Same Entry is made Balance = Decreased 5. commission..g. 3. gains. Real Accounts: Debit what comes in. Balance= Same as before 2. intangible things (which do not have physical shape) such as goodwill. Dishonor of a bill discounted with the bank No entry is made till the pass Book is checked Balance = Same Entry is made Balance = decreased 9. Credit the giver (supplier) 2. are classified as nominal accounts. patents and copy rights. Cheques paid into the bank but not yet cleared. Nominal Accounts: Debit expenses and losses. Cheques issued but not yet presented for payment Entry is made Balance =Decreased No entry is made till the cheques are presented for payment. Direct payments by the bank No entry is made till the Pass Book is checked Balance = Same Entry is made Balance = decreased 7.

individual entries in suspense accounts must be capable of identification and balances in suspense must be reviewed regularly to confirm that their retention in suspense is justified. cannot be properly allocated to a specific budget related expenditure or income account code. The procedures described above are also performed during month-end closing and year-end closing processes. The 'Daily Suspense Update Report' gives the details of each transaction such as debit/credit account. if liabilities exceed the assets. the business is considered as insolvent. for the time being at least. The most common circumstances for transactions to be posted to the suspense account include the use of an invalid six-digit account number. This file is kept to monitor and investigate any unusual balances in the suspense account over a given time. entries in suspense accounts are transitional and there is a presumption that there is no adequate authority for any items remaining in suspense over a period of time. For this reason. date posted. Any relevant information regarding the balances is kept in the notes section of the file. The daily balance of the suspense account is monitored through the file. By definition. we also obtain the following additional information: * Nature and Value of the assets: A balance sheet contains various assets in classified. Once the correct account information has been received by the Administrator. current assets etc. transaction code. While ascertaining the financial position. representing the excess of assets over liabilities. a balance sheet also contains different liabilities in a classified form and shows the amount of liabilities the business owes to different types of creditors. These procedures are integrated in the month-end closing and year-end closing checklists to ensure the suspense account is monitored and cleared on a timely fashion throughout the accounting cycle closing process. No corrections are made by the originator of the transactions.xls. It also shows the actual capital of the business at the end of trading period. Greater is the difference.Daily Suspense Update Report. A batch ID is assigned by the Office of Finance for the used to enter all of correcting transactions. * Nature and extent of liabilities and actual capital: Like assets. The main objectives of preparing a Balance Sheet is to ascertain the financial position of the business on a particular date. . stronger is the financial position. Daily Suspense Balance (by month). description and reason why the transaction put in suspense.=================================================================== 2. (a) What is Suspense Account? Why is it opened and how is it closed? (b) What are the objectives of preparing a Balance Sheet? Distinguish between a Balance Sheet and a Trial Balance. On the other hand. Why is it opened and how is it closed All items added to the suspense account are found on report. (10+10) Solution: A "suspense" account is a separate category of account code opened to record expenditure and/or income which. four-digit subcode or an account previously frozen. a batch is created in order to correct the transaction in (remove from the suspense account and post to the correct account). from with their respective values and as such it gives a clear picture about the nature and the value of different assets Comprising fixed assets. * Solvency of the business: If the assets exceed the liabilities the business is considered as solvent.

Bank. A of Ahmedabad consigned goods to B of Mumbai for sale at performa invoice price or over. The balance sheet also shows that the total of the asset amounts is equal to the total of the amounts of liabilities and stockholders¶ equity. B is entitled to have commission on sale at 5% on performa invoice price and 25% of any surplus realized. under-trading indicates excess liquid assets over current liabilities. 26. (a) What is meant by incomplete records? What are their limitations? (b) What do you understand by self-balancing system? How are ledgers made self-balancing under it? State the advantages of this system. and others. 2009. showing idleness of the funds Distinguish between a Balance Sheet and a Trial Balance. The total amount of each column should be the same. indicating over-trading. the position of the business is financially unsound. There may be many reasons why a firm has incomplete records.045 as freight and received Rs. you should find incomplete records problems more straightforward. The trial balance consists of three columns: the first column lists every account title having an account balance. 15. 20. Debtors etc. Prepare necessary ledger accounts in the books of A. liabilities. It should be said that the techniques needed to complete examination problems are also used in practice when a client¶s records are incomplete.* Over-trading and under-trading: If the total creditors exceed assets . the second column is for account balance if it is a debit balance. The balance sheet reports on the organization¶s assets. accounts must be prepared using a number of techniques. as of midnight of April 30. 400. Its purpose is to show that the amounts of debits and credits within the accounting system are equal. Investments.Cash. (10+10) Solution: Incomplete records is the term used for any system of bookkeeping which does not use full double entry. There are two major disadvantages to such incomplete (non-double entry basis) accounting records: (1) a great deal of useful information may be lost.. A balance sheet is one of the main financial statements and is also known as the statement of financial position. Goods consigned by A to B during the year 2008. lenders. On the other hand. The amounts in the debit column are summed and the amounts in the credit column are summed. a business must have sufficient working capital. but whatever the reason. A paid Rs. 000. The balance sheet is referred to as an external report because it is used outside of the company by investors. and the third column is for the account balance if it is a credit balance. For sound financial position. and stockholders¶ or owner¶s equity as of a point in time²for example. A trial balance is an internal document used only within the accounting department. 900 and invoiced at Rs. 1. (20) Solution: Coming soon « =================================================================== 4. 28. =================================================================== 3. 80% of the goods were sold by B for Rs. costs A Rs. Once you have mastered these techniques. It is possible to prepare financial . B remitted the balance of proceeds after deducting the commission. 000 as advanced from B..

This can be done by. then if the scrubber determines a balancing offset is needed it will create it with the proper accounting string. Conversely.e. Stock can be counted physically and the valued. this contains the same information as the balance sheet. but is not prepared from balances of accounts in a double entry accounting system. both to and by the undertaking. owner's equity decreases as a result of losses and drawings by the owner What do you understand by self-balancing system? How are ledgers made self-balancing under it? State the advantages of this system In this case the accounting cycle would generate the necessary hits to cash to balance both the expense and income transactions. In order to do this he must determine the total interest in the business and against this. A discussion of the treatment of incomplete records is useful for various reasons. chiefly for income tax purposes. undertakings that do not have formal accounting systems will find it necessary to keep records of certain basic information in order to conduct their business. In practice.g. Assume that a trader has been in business for some time and that he wants to determine his interest in the undertaking at a specific date.accounting statements from the available information. Certain transactions may not be accounted for and there is also no continuity in the recording of financial and other useful information. owner's equity increases if a profit is made and when the owner makes additional investments in the undertaking. accounts payable. The cost of fixed assets purchased can be determined from the supporting documentation. Obviously. Further. For each account in the system you can set up an offset accounting string by object code (i. For example. (2) The advantages of the controls inherent in a double entry accounting system are lost. It may also happen that the double entry accounting records of an enterprise are lost (e. (Basically. etc«). but this may be more difficult than when complete records are available.. The most practical method of determining net income or loss from incomplete accounting records is to analyse the change in owner's equity during any specific period.) The equity statement must be prepared by referring to any applicable information available. accounts receivable. Institutions will have the option to have balancing offsets post to the same account as the original transaction or identify an accounting string where the offset should post. bring into account any external interest. Keeping in mind that. cash in bank from the bank statement and amounts owing to and by the undertaking from invoices. the conversion of single entry accounting information to a double entry basis is an analytical exercise. as a result of damage by fire) and the accountant must reconstruct them from incomplete records. therefore. Cash on hand can be determined by a cash count. Owner's equity will be the difference between the values allocated to assets and liabilities. Consequently. it is practical because accountants often have to prepare financial statements from such incomplete records. it emphasises the advantage of a comprehensive double accounting system. records of cash received and paid and amounts owing. First. attention is given to certain aspects and practical procedures that arise as a result of keeping incomplete accounting records. =================================================================== . cash. constructing an equity statement. are essential.

3. This reserve is not used for distributing the dividend to shareholders of company. 1. Premium on the issue of shares and debentures. 5. Set off unknown losses of business. on 1st October. The accounts are closed on 31st December each year. These revenue reserves can also divide into two parts.a.50. This type can also divide in sub parts a) Capital reserves Capital reserves are main type of open reserves. (b) What are the different types of Reserves? Explain. Every person or public can know such reserves of company. Profit on sale of undertaking or part of it. staff reserve.5 (a) Laxmi Limited purchased a machine for Rs. profit earned prior to incorporation 2. 4. on the Diminishing Balance Method. It is showed in profit and loss appropriation account . Those reserves provide full information to shareholders about which amount has gone to reserves or why they are not getting all amount of dividend. Profit set aside for the purpose of redemption of preference shares. i) general reserves ii ) Specific reserves = Specific reserves includes dividend equalization reserve. 60. On the same date a new machine at a cost of Rs. 2005. These reserves can easy created by showing less value of assets and more value of liabilities in balance sheet. Surplus on revaluation of assets and liabilities. Investment fluctuation reserve. If a company has created such secret reserves for the . It is not created out of profit of company. To make stability in the dividend rate.It can be used for dividend to shareholders. 2007. Secret Reserves Secret reserves may be defined as that type of reserves which is not shown in final account of company. The main sources of these reserves are following:1. 000. Depreciation is provided @ 10% p. debenture redemption reserve . Open reserves Open reserves may be defined all reserves which shows in the balance sheet. Extension of business 2. 400000 on 1st July. Used to create strength in the financial position of business. 2. 3. 000 was purchased. There are following benefits of revenue reserves:1. taxation reserve and contingency reserves. b) Revenue reserves Revenue reserves are that part of open reserves which are created out of profit of company. Prepare machine account from 2005 to 2008. (10+10) Solution: What are the different types of Reserves There are two main types of reserves which I am explaining with following way :1. Profit on reissue of forfeited shares 4. 6. one fourth of the machine was found unsuitable and disposed off for Rs. Means it has neither been shown in profit and loss appropriation account nor in balance sheet.

benefits of company. it will be surely strong his financial position. 3. These secrete reserves can be created by following ways: * showing heavy depreciation value * Showing the less value of goodwill and closing stock of business. * Current asset not shown in balance sheet. It is shown in the liability side of company. * Showing heavy liabilities which is not of company. But company laws are not in favor because. Other Reserves i) Foreign currency translation reserve This reserve is made on the estimation of loss of translating from foreign currency to domestic currency. * Secrete of sale value of business. ======================================================================== ======================================================================== =================================THE END================================ . at that time this reserve is needed for keeping money separated for adjustment of currency differences due to difference in the rates applied. * Grouping of free reserves with creditors. When a company is dealing more than one country. it increases accounting scams. * Showing capital expenses as revenue expenses.

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