Professional Documents
Culture Documents
From 1 January 2010, name of the components of financial statements has been revised as:
Balance sheet- :Statement of financial position
Income statement : Statement of comprehensive income
Cash flow statement : Statement of cash flow
Is to provide information about the financial position, financial performance and changes in financial
position of an enterprise that is useful to a wide range of users in making economic decision.
Internal users:
o Directors (operating business effectively; stewardship function; making effective decisions)
o Employees (Career; remuneration; bonus; retirement benefits; employment opportunities)
External users:
o Shareholders/investors/ (risk & return; management performance; profit; dividend; decision to
buy/hold/sell shares)
o Trade contacts (Suppliers: ability to pay; Customer: secure source of supply)
o Finance providers/lenders (Short-term: liquidity; Long-term: solvency)
o Tax authority (Tax assessment; determining taxation policy)
o Financial analysts/advisors (analyzed date for clients)
o Government agencies (employment opportunities; national statistics; efficient allocation of
resources; regulation)
o Public (employment for local people; using local suppliers; environment pollution)
Legislation (Private plus Public Ltd. Company: the Companies Act 1994; Listed Company: BAS &
BFRS/SEC Rules)
Accounting concept & individual judgment: (Accounting concept: detailed in chap-7; Judgment:
valuation of building; research and development; brand valuation; regulated by BAS)
BAS and BFRS (Harmonization; Comparability)
True and fair view/Faithful representation
Materiality: information is material if its omission or misstatement could influence the economic
decision of users taken on the basis of financial statements. Materiality depends on the size and nature of
omission or misstatements.
True & fair view: means faithful representation of the effects of transactions.
Substance over form: transactions are recorded and presented in accordance with the substance &
economic reality and not merely their legal form. Example: Finance lease
Capital expenditure (long tern asset- non-current asset aged more than 1 year)
- Initial cost: up to final condition and location; for example: legal fee, duties, carriage costs,
installation costs.
- Subsequent cost: increase earning capacity/efficiency
- Expenditure for trade purpose: i.e. normal course of business; for example: Raw material,
wages and salaries, selling and distribution, admin cost, finance cost etc.;
Revenue income:
- sale of goods
- rendering services
- Interest, dividend, royalty income
Increasing capital
Taking bank loan
Repaying bank loan
Measurement means: the amount at which elements are recognized in balance sheet and income statement
Financial concept: Capital maintenance = (Beginning net asset value/equity-Ending net asset
value/equity)
Physical concept: Capital maintenance = (Beginning productive capacity-Ending productive
capacity)
ACCOUNTING EQUATION & FORMAT OF F/S
a) Accounting f) Materiality
b) Management g) Faithful representation
stewardship
c) Balance sheet h) Capital expenditure
d) Income statement i) Revenue expenditure
e) Substance over form j) Capital income
d) Prudent k) Revenue income
e) Measurement l) Fair value
m) Concept of capital
maintenance
26. Identify „CapEx‟; „RevEx‟; „Capital income‟ and „Revenue income‟ from following list:[1 marks
for each]
Current Asset: Current assets are assets those are expected to be converted into cash within 1year.
Non-current Assets: Non-current assets are those assets acquired for long term use and would not be
realized into cash within 1 year.
Examples of current and non-current distinctions are presented by way of format of “Balance sheet”
Other income - - -
Operating expenses (Administrative,
Distribution & Other) - - -
Profit from operation - -
Finance expense - - -
Finance income - - -
Net finance expense - -
Profit before contribution to
WPPF - -
Contribution to WPPF - -
Profit before income tax - -
Income tax:
Current tax - -
Deferred tax - - -
Profit after tax - -
Intangible assets - - -
Investments - - -
Inventories - - -
Trade and other
debtors - - -
Advances, deposits and
prepayments - - -
Total assets - -
EQUITY:
Share capital - - -
Share premium
Retained earnings
Total equity - -
LIABILITY:
Deferred liability -
gratuity payable - - -
Long-term loan - - -
Total non-current liabilities
- -
Accrued expenses - - -
Total liabilities - -
Business entity concept means- a business is a separate legal entity from its owner. A company may, in
its own name, acquire assets, incur debts, and enter into contracts. If a company‟s assets became
insufficient to meet its liabilities, the company as a separate entity becomes „insolvent‟. However, the
owners of the company are not usually required to pay the debts from their own private resources.
Exception: the concept is not applicable for “Sole trader ship” and “Partnership” business.
Accounting Equation:
ASSET = EQUITY/CAPITAL + LIABILITY
EQUITY/CAPITAL = ASSET - LIABILITY
LIABILITY = ASSET - EQUITY/CAPITAL
ASSETS = CAPITAL + LI
No. Cash & Receivable Inventories/ Plant, Investments Paid up Retained
Loan De
Cash Supplies Property capital earnings
equivalents &
Equipment
1. 100,000 - - - - = 100,000 - + -
2. 50,000 - - - - = 50,000 - + -
3. - - - 35,000 - = 35,000 - + -
4. - - - 5,000 - = - - + -
5. - - - 2,000 - = - - + -
6. (15,000) 15,000 = - +
7. (3,000) - 3,000 - - = - +
8. (5,000) - - - - = - (5,000) + -
9. - 25,000 (18,000) - - = - 7,000 + -
10. (7,000) - - - - = - - + -
11. 25,000 (25,000) - - - = - - + -
12. (8,000) 8,000 = +
13. 10,000 - - = + 10,000
14. 5,000 = +
15. (2,000) = (2,000) +
16. (300) 300 = +
(250) = (250) +
17. - - - (35,000) = (35,000) +
18. 25,000 (7,000) = 8,000 +
Total = +
LEDGER, DOUBLE ENTRY, DISCOUNT & VAT ACCOUNTING
Nominal ledger vs. subsidiary ledger: nominal: all transaction by nature; subsidiary:
breakdown of receivable & payable control ledger for each individual customer & supplier
(personal account) nominal: total; subsidiary: detailed
Example
4. Duality concept
Objective:
Trade discount: bulk sale, prime customers
Cash discount: to enhance cash collection
Accounting entry:
Trade discount: none, because it is known from the invoice price
Cash discount: Yes, as income/expense
Terms:
2/10, n/30
5/14, n/60
Consumption tax
Consumer is the ultimate payer
Manufacturer is responsible for collecting from the consumer
Rates:
o Zero rated
o Reduced rate (@4%)
o Standard rate (@15%)
Math: M/S Kabir Traders is a VAT registered trader. It has the following transactions for
the month of January 2009:
o Goods purchased for Tk. 57,500 including VAT
o The above goods has been sold for Tk. 80,500 including VAT
o Tk. 3,000 deposited to Bangladesh Bank
o Out of goods sold Tk. 4,600 has been returned
o VAT return submitted after adjusting the input and output VAT
Journal entries
Income statement
Balance sheet
BANK STATEMENT
PRIME BANK LTD.
DILKUSHA BRANCH
DILKUSHA C/A
DHAKA-1000
Account: ABC Company Ltd.
Account no.: 1003800960
Print date: 31 December 2009
Step-1: tick off the items that appear in both cash book and the bank statement.
Step-2: update cash book by the unticked items in the bank statement.
Step-3: the remaining unticked items in the cash book will be the timing difference. This
timing difference are
used to prepare BRS.
821.45 821.45
Current year
Prior year
4. Correction of errors
1. ACCOUNTING ASSUMPTIONS
Accrual basis:
Under this basis, the effects of transactions and other events are recognized when they occur
and nor as cash or its equivalent is received or paid and they are recorded in the accounting
records and reported in the financial statement of the periods to which they relate.
Example:
Costs only recognized for that part which is sold (COGS concept comes from accrual basis
accounting)
Provisions maintained
Accruals of various expenses
Depreciation
Going concern:
Under this assumption it is assumed that an entity will continue its operation for the foreseeable
future (12 months from balance sheet date). It is also assumed that the enterprise has neither
the intention nor the necessity of liquidation or of curtailing materially the scale of its
operations.
All items in the balance sheet and profit and loss accounts shall be recorded on break-up value
basis i.e. net realizable value (sales price less selling expenses).
Disclosure requirement in case of going concern problem:
Example:
Consistency:
Items in the financial statements shall be presented and classified consistently year to year.
However, in some cases presentation/classification can be re-arranged.
Reason for re-arrangement shall be disclosed by way of notes. Previous year‟s figures shall also
be re-arranged.
Materiality depends on the size and nature of business. There is no specific rule for calculating
materiality. However, following rule for calculating materiality can be suggested:
Off-setting:
Assets and liabilities should not be off-set except when off-setting is required by another
BAS (Example: BAS-12);
Income and expenses should only be off-set if standard permits and if the figure is
immaterial.
Comparative information:
Prudence
Accounting policies are principles, bases, convention, rules and practices applied by an entity in
preparing and presenting financial statements. Following are example of accounting policies to
be incorporated by way of notes to the financial statements.
1. Reporting entity
Basis of
2. preparation
Statement of
2.1 compliance
2.2 Basis of measurement
Functional and presentational
2.3 currency
2.4 Use of estimates and judgments
2.5 Going concern
3. Significant accounting policies
3.1 Foreign exchange
3.2 Financial instruments
Property, plant and equipment and
3.3 depreciation
i. Recognition and measurement:
ii. Subsequent costs:
iii. Depreciation:
3.4 Impairment:
Recognition
Calculation of recoverable amount
Reversal of
impairment
3.5 Lease transactions
3.6 Borrowing costs
3.7 Inventories
3.7.1 Stocks
3.7.2 Stores
Trade and other
3.8 debtors
3.9 Provisions
3.11 Revenue recognition
3.12 Taxation
Provision for income
3.12.1 tax
3.12.2 Deferred tax
3.13 Events after the
balance sheet
Circumstances: debt may be received after it was written-off from the accounts
Exam Requirement:
How alloance is created
How allowance is retired
Accounting entry for written off and written-off debt recovered
Implication of treatment in income statement and balance sheet
Identify effect of irrecoverable debt in gross profit and in net profit [admin exp]
Maths on calculation of bad debt allowance
Practical
problem
INVENTORY [BAS-2]
Inventory Count
Inventory Valuation
Inventory write-off
Inventory Recording
A. INVENTORY COUNT CONSIDERATIONS AND PROCEDURES:
B. INVENTORY VALUATION:
Valuation Methods:
Measurement Methods:
FIFO
LIFO (Prohibited by BAS)
Average Cost
Standard Cost
Valuation Technique
Raw material valuation Work-in-process Finished Goods
valuation valuation
Cost: Cost: Cost:
Purchase price Purchase price Purchase price
Transport cost Transport cost Transport cost
Handling cost Handling cost Handling cost
Non-recoverable taxes Non-recoverable taxes Non-recoverable taxes
Conversion cost Conversion cost
(Labor and (Labor and
overhead) overhead)
NRV:
Sales price NRV: NRV:
(-) profit Sales price Sales price
(-) VAT (-) VAT (-) VAT
(-) cost incurred to (-) cost incurred to (-) selling cost
complete as FG complete
as FG
(-) selling cost
PRACTICAL
PROBLEM
Net realizable value is the estimated selling price in the ordinary course of business,
less the estimated costs of completion and selling expenses.
C. INVENTORY WRITE-OFF
Beginning inventory:
Cost of sales Dr.
Inventory Cr.
Ending inventory:
Inventory Dr.
Cost of sales Cr.
Inventory write-off:
Inventory write-off (expenses) Dr.
Inventory Cr.
Recognition
Measurement of PPE
Depreciation
Revaluation
Disposal
Impairment [BAS-36]
Asset Register
Intangible Assets [BAS-39]
Recognition
Revaluation model:
Revalued amount - Accumulated depreciation – Accumulated
impairment loss
Measurement
Asset should be measured initially at cost
Depreciation
Commonly used methods of depreciation are:
Straight line method Reducing balance method
Calculation: Calculation:
Revaluation:
Revaluation is made when actual life of an asset has increased than that of the estimated useful
life.
Accounting entry:
Plant properties and equipment Dr.
Revaluation surplus Cr.
Disposal
Asset is disposed off when life of the asset has exhausted or not usable.
Raising DOFA:
Asset Description Asset Location Cost Acc. WDV Reason
no. class Dep.
Disposal of assets carried at cost:
Accumulated Depreciation Dr.
Cash Dr.
PPE Cr.
Gain Cr.
Land:
Revaluation reserve Dr.
Retained earnings Cr.
Impairment [BAS]
Impairment loss = Carrying amount > recoverable amount
Asset register
ID description Location department Purchase cost Depreciation revaluation Carrying
no. date method amount
Intangible assets:
Goodwill
Preliminary expenses
Development cost [BAS-38: design, construction and testing of pre-production, operation of
pilot plant, feasibility study, initiate process systems etc.].
Application Software
Purchased goodwill:
Goodwill Dr.
Cash/Bank Cr.
1. Mention the users of financial statements specifying internal and external users.
2. List the financial reporting framework of Bangladesh.
3. Mention 4 qualitative characteristics of accounting information.
4. What information are required for information be reliable?
5. How accrual basis of accounting is related to matching concept?
6. Identify key points to distinguish „CAPEX‟ and „REVEX‟
7. Briefly describe the responsibility of directors for preparation of financial statements.
8. What statements comprise a complete set of financial statements?
9. Describe, in brief, the recognition criteria of an asset.
10. Mention BAS term of fixed assets, stock, debtors, creditors and profit and loss account.
11. Describe, in brief, the accounting consequences, if „business entity concept‟ followed and if
not.
12. Mention the name of measurement techniques used in accounting. Explain „Break-up value‟
of measurement technique.
13. How do you identify „non-current and current assets and liabilities?
14. Mention the formula for „Gross profit‟, ‟Net profit‟, and admin cost to sales.
15. Mention few examples of distribution expenses.
16. What are the elements of financial statements?
17. How do you distinguish „petty cash book in traditional system‟ and „petty cash book in
imprest system‟.
18. What documents are called source document? Why?
19. What information are generally included in the GRN?
20. What are books of original entry used for? Why?
21. Describe, in brief, all types of discount.
22. Why payroll costs shown in the profit and loss account is higher than the gross payroll cost
of employees.
23. Distinguish nominal ledger and subsidiary ledger. Why subsidiary ledger is maintained?
24. Define duality concept in double entry book keeping system.
25. Point out the basic rules for double entry book keeping.
26. What is the implication of VAT on registered and non-registered person?
27. Distinguish between errors that cause trial balance imbalance and those that do not.
28. What is adjusted cash book? Why computation of adjusted cash book is necessary for an
accountant?
29. Mention the types of errors in accounting.
30. Describe the use of suspense account in rectifying errors.
31. Explain the terms „Fair presentation‟, „substance over form‟ and „Prudence‟.
32. Describe the effect in accounting if „going concern assumption‟ followed and if not followed.
33. Mention the cases where offsetting is permitted by accounting standards?
CLASS TEST-2
KNOWLEDGE LEVEL-ACCOUNTING, SECTION-1
Course Teacher: Mohammad Shahidul Islam ACA
[All questions carry equal marks]
40. Summit Power operates an imprest petty cash system. The imprest amount is Tk. 5000.
at the end of the period the totals of the four analysis columns in the petty cash book
were as follows:
Column -1 tk. 23.12
Column -2 tk. 6.74
Column -3 tk. 12.90
Column -4 tk. 28.50
How much cash is required to restore the imprest amount?
41. Give two example of subsidiary ledger.
42. Soft Supplies Co. recently purchase from Hard Imports Co. 10 printers originally priced at
tk. 200 each. A 10% trade discount was negotiated together with a 5% cash discount if
payment was made within 14 days. Calculate the following.
a) The total of the trade discount
b) The total of the cash discount
43. Define trade discount and cash discount with two examples
44. Define the term 2/10, n/30
45. Prepare an income statement from the following items:
Taka
a) purchase at gross cost 120,000
b) trade discount allowed 4,000
c) cash discount received 1,500
d) cash sales 34,000
e) credit sale at invoice price 150,000
f) cash discount allowed 8,000
g) distributaries cost 32,000
h) administrative cost 40,000
i) drawings by proprietor 22,000
46. Explain why VAT is called expenditure tax?
47. Explain how VAT is collected?
48. Explain implication of VAT for registered and non-registered persons
49. A manufacturing company purchase raw materials at a cost of tk. 1,000 plus VAT at
standard rate of 15%. From the raw materials the company makes finished products
which it sales to a retail outlet, B ltd. For tk. 1,600 plus VAT a\@ 15%. B Ltd. Sales the
products to customers at a total price of tk. 2,000 plus VAT @15%. How much VAT is
paid at each stage in the chain?
50. Define the term “irrecoverable VAT” with two examples
51. ABC Company usually sell goods at tk. 130 each, it gives XYZ Trade discount of tk. 10 so
he sells goods to XYZ for tk. 120. ABC is registered for VAT. How much output VAT
should ABC company include on XYZ‟s invoice?
52. If you are told that an amount includes VAT @ 15% (gross amount), calculate the VAT
amount?
53. ABC is preparing financial statements for the year ended 31 December 2009. Included in
its balance sheet as at 31 December 2008 was a balance for VAT due from government
of tk. 15,000. ABC‟s summary income statement for the year 31 December 2009 was as
follows:
Taka
Revenue (net) (all standard rated) 500,000
Purchase (net) (all standard rated) (120,000)
Gross profit 380,000
Expenses:
Wages & salaries (VAT exempted) (163,000)
Entertainment (Tk. 40 plus irrecoverable VAT Tk. 6) (46,000)
Other (net, all standard rated) (71,000)
Net profit 100,000
Payments of tk. 5,000, 15,000 and 20,000 have been made in the year to government
and a repayment of tk. 12,000 was received.
a) What is the balance for VAT in the balance sheet as at 31 December 2009 (assume
VAT @ 15%)
54. When a credit customer pays an invoice for tk. 115 including VAT @ 15%. What will the
credit entry in the VAT ledger account?
55. Define input VAT and output VAT with example.
Error Type
A credit sales of tk. 6,843 has been incorrectly debited in the receivable ledger
as tk. 6,483
A business receives an invoice from a supplier for tk. 250 and the transaction is
missed from the books
An error is to treat revenue expenditure incorrectly as capital expenditure
Putting a debit entry or a credit entry in the wrong account
Casting error
Admin expenses of tk. 2,822 are entered as tk. 2,282 in the administrative
expenses ledger account. At the same time, income of tk. 8,931 is shown in te
sales account as tk. 8,391.
68. A bank statement shows a balance of tk, 1,200 in credit. An examination of the
statement shows a tk. 500 cheques paid in per the cash book but not yet on the bank
statement and a tk. 1,250 cheque paid out nu\\but not yet on the statement. In addition
the cash book shows the proprietors correct calculation of savings interest of tk. 50
which should have been received, but which is not on the statement. What is the balance
per the cash book?
69. ABC Company had a difference on its trial balance. After investigation the following
errors were discovered.
a) A sales invoice for tk. 500 was mis-read by the clerk as tk. 600 ad\nd entered as
such into the ledger accounts
b) Bank charge of tk. 145 had been debited to the cash at bank account tk. 154
How much was the original difference on the trial balance?
70. Give 3 examples for which a suspense account is required for correction of an error.
71. Bank statement of a company showed an overdrawn balance of tk. 5,250 on 31
December 2009. when this was reconciled to the cash book, the following difference
were noted:
o Un-presented cheques
o Un-credited lodgment
o Standing order for insurance premium payable not entered in cash book
o Overdraft interest not recorded in the cash book
o Credited in error to company‟s account by bank
What is the original balance on company‟s cash book as on 31 December 2009?
72. “Closing inventory balance is not included in the initial trial balance rather included in
the extended trial balance” explain
73. As at 31 December 2009 a company‟s bank statement shows an overdraft of tk. 1,500.
The statement includes bank charges of tk. 30 which have not yet been recorded in the
company‟s cash book. On 29 December 2009 the company had paid a cheque of tk. 500
to a supplier and banked tk. 200 received from a trade receivable; neither of these terms
appears in the bank statement. What would be the overdraft of the company‟s balance
sheet at 31 December 2009?
74. The cash book shows a bank balance of tk. 5,675 overdrawn at 31 December 2009. it is
subsequently discovered that a standing order payment for tk. 125 has been entered
twice, and that a dishonored cheque for tk. 450 has been debited in the cash book
instead of credited. What should be correct bank balance?
75. Give 10 examples for which amendments of cash book is required. (Assignment)
76. Give 5 example for which amendments of banks statement is required (assignment)