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ACCOUNTING DETAILS 1. 2. 3. Ans. 4. 5. 6. 7. 8. 9. 10. 11. 12. Ans.

Current Assets Current Liabilities = Working Capital Gratuity Calculation = Basic Salary x 15 x No. of Years of Service 26 What is a Balance Sheet? A Balance Sheet portrays the financial position of the Company by stating its economic resources and economic obligations both to the owners and creditors. Current Ratio = Current Assets Current Liabilities Debt Equity Ratio = Debt Equity

G.P Ratio = Gross Profit x 100 Net Sales Net Profit Ratio = Net Profit x 100 Net Sales Stock Turnover Ratio = Cost of Goods Sold Average Stock Debtors Turnover Ratio = Debtors + Bills Receivable x 365 Net Credit Sales Creditors Turnover Ratio = Creditors + Bills Payable x 365 Credit Purchases Operating Ratio = Operating Cost x 100 Net Sales What is Retention Money? The amount deducted from the vendors bill to be paid to the vendor after a certain period on completion of the contract (Ex. After 6 months or 1 year) The Journal entry = Sundry Creditors Dr To Retention Payable Cr

13. Ans.

Contingent Liability Contingent Liability is a liability that comes into existence on the happening of an uncertain event.

14. Ans.

What is a Trial Balance? When all the accounts of a concern are balanced, a list of Debit balances and Credit balances are prepared. That list is called the Trial Balance. 15. What is a Contra Entry?


Whenever a transaction relates to Cash and Bank both, it is recorded on both sides of the cash book. Such entry is called Contra Entry. Journal Entries: i) Income Outstanding (O/S) Accrued Income Dr To Income ii) Interest on Drawings Capital A/c Dr To Interest on Drawings iii) Outstanding Expenditure (O/S) Expenses A/c Dr To O/S Expenses iv) Prepaid Expenses Prepaid Expenses A/c Dr To Expenses

16. Ans. 17.

What is Depreciation? The process of spreading the cost of Fixed Assets is termed as Depreciation. Two Types of Depreciation i) Straight Line Method: Under this method depreciation is charged evenly every year. ii) W.D.V Method: Depreciation is charged at a fixed rate on reducing balance.


Rates of Depreciation on the Following Assets. Plant & M/c. Furniture & Fixtures Buildings Motor Vehicles Computer Air Conditioner Office Equipment 15% 10% 10% 15% 60%

19. Ans. 20.

Why is J.V Passed? Journal Voucher is passed in order to rectify the errors in the Books of Accounts. Tax exemption equal to 100% of profit for 5 Years and 50% of Profit for the next 2 years is allowed to undertakings who manufacture computer software in SEEPZ Zone from AY 2003-2004. Profession Tax Slab Upto 2000 2001 2500 2501 3500 3501 5000 5001 10,000 10,001 & above NIL 30 60 120 175 200



TDS Rates: 2.24% 5.61% 22.44% Interest Payment 22.44%

Payments to Contractors Payments to Professionals Payment of Rent 23. Ans.

Fringe Benefit Tax - Section (XII H) A new chapter inserted by the I.Tax Act to levy a tax termed as Fringe Benefit Tax (FBT) @ 30% of the value of Fringe Benefits plus surcharge and Education Cess provided or deemed to be provided by the Employer to his Employees. FBT is payable by the Employer.

Any Expenditure on conveyance, tour and travel including Foreign travel or hotel or boarding and lodging in connection with any conference shall be deemed to be expenditure incurred for the purpose of conference 20% of Expenditure is considered as the value of Fringe benefit. Conveyance, tour and travel including Foreign travel 5% of Expenditure in case the employer is engaged in manufacture of computer software is considered as value of Fringe benefit. Use of Hotel, boarding & Lodging facilities 5% in case the employer is engaged in manufacture of computer software. Use of Telephone including mobile Use of Club Facilities 20% of Expenditure 50% of Expenditure

No deduction shall be available in respect of Fringe Benefit Tax paid while computing income under the head Profits and Gains of Business or Profession. VAT: Rates of Tax : 12.50% Works Contract Tax: Issuance of Certificate of deduction of Works Contract Tax in Form 402. Works Contract Tax to be deducted only in cases where payment to a Contractor is Rs. 5 Lakhs or more during a year. Types of Works Contract 1. 2. 3. 4. Installation of Plant & M/c. Civil Work, Construction of Buildings Fixing of Marbles, Slabs etc. Any other Contract Amount to be deducted from the Contract Price (%) 15% 30% 25% 20%

The % age is to be applied after deducting from the total Contract Price, the amount paid by way of price for the entire sub contract to sub contractors if any. 24. Allowance Exempt from Tax: Leave Travel Allowance Section 10(5)


HRA Section 10(13A) The least of the following is exempt from Tax i) ii) iii) 50% of Salary (Residential house at Mumbai, Delhi, Calcutta, Chennai) & 40% if house is situated at any other place. Actual HRA received by the Employee Excess of Rent paid over 10% of Salary. Treated as Income

26. 27. 28.

Leave Encashment Section 10 (10AA) Medical Benefits -

Section 17 Exempt

Perquisites taxable in hands of all Employees i) ii) Value of Rent Free Accommodation Value of Concession in rent


DEDUCTION & REBATES Section 80 DD Rs. 50,000 for ordinary disability Rs. 75000 for severe disability


Income Tax Forms: Return of Income for Persons Form No. 2 C

Tax on banking transaction @ 0.1% on withdrawals of cash on any single day (other than S/B account) in excess of Rs. 25,000/- for an individual and 1 lac for other applicable from 01.06.2005) 31. Service Tax:

All taxable services may be exported without payment of Service Tax. 32. Forms & Nos:

10CC ABA - Certificate to be issued by an undertaking in the Special Economic Zone to the manufacturer undertaking for purchase goods for producing / computer software for export. 16A 24 Certificate of Tax deduction at source Annual Return of Salaries

Foreign Exchange: Exporters of Projects / Services are permitted to open and hold currency bank account in India or abroad. 33. What is Closing Entry?

Ans. All expenses and gains a/c must be closed at the end of the year and the balances transferred to Trading or P&L A/c. Journal entry is required for transferring them to Trading or P&L A/c. Such entry is called Closing Entry. 34. Closing Entry for Transferring Profit P&L A/c. Dr To Capital For Transferring Loss Capital A/c Dr To P&L A/c 35. i) Two Types of Accounting: Cash basis Accounting: Under this type income is taken as the difference between Cash receipts & payments irrespective of the period which they relate. ii) Mercantile System: Under this system, the period is the basis. Only the revenues and payments for that particular period is taken into account. 36. Ans. Why is adjustment entry passed? Because of the adoption of accrual system, Adjustment entry becomes necessary for eg. Prepaid Expenses, O/S Expenses, Accrued Income, Income received in advance. Some other Adjustment Entries are: i) ii) iii) Stock at the end. Depreciation Provision for discount on Creditors & Debtors etc.

Adjustment Entry: i) Interest on Capital Interest on Capital A/c Dr To Capital A/c ii) Income received in advance Income a/c Dr (P&L A/c) To Income received in advance (Liability) 37. Ans. Why is Bank Reconciliation done? Bank Reconciliation is done to reconcile the balances in the Cash Book and the Bank Book. Reconciliation statement explains the reasons for the difference.