AS 4: Contingencies and Events Occurring After the Balance Sheet Date:

Meaning:
*Occurred after the end of the financial year.
*Before approval of the books by the board.

Types:
*Adjusting
*Non Adjusting

Adjusting Events:
Situation about the event existed before the end of the reporting period.

Non Adjusting Events:

Situation about the event did not exist before the end of the reporting period.

Accounting Treatment:
1. Adjusting Events:
Provision can be made in the books as well as disclosure can be made

2. Non Adjusting Events:

Only disclosure can be made along with the values.

AS 5: Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies

Prior Period Items

Incomes or Expenses arising in the current period due to errors or ommission in the past.

Types:
Changes in Accounting Estimates
Changes in Accounting Policies

Requirement:
Any change in Accounting Estimates or Change in Accounting Policies must be
disclosed seperately.
AS 7: CONSTRUCTION CONTRACTS

An organization must disclose:

• the amount of contract revenue recognized in an accounting period

• methods used to determine the contract revenue recognized in the accounting
period
• the methods used to estimate the stage of completion of contracts in progress

An organization having contracts in progress should disclose:

• aggregate amount of costs incurred and net profits (recognized profits less
recognized losses up to the reporting date) recognized
• the amount of advances received (advances are the amounts received by the
contractor before the related work is performed) and
• the amount of retention (retention is the amounts paid to the contractor only
when the conditions specified in the contract for payments for such amounts are
satisfied or until the defects have been rectified)

Thus, an organization must present:

• the gross amount due from customers for contract work as an asset and
• gross amount due to customers for contract work as a liability
AS 9: Revenue Recognition:
Meaning of Revenue: Income

Meaning of Recognition?
At what point of time, it should be considered as your income
and recorded in the books as your income.

Accrual System
Recognise that income once the income accrues
Even if it is actually not received.

If the probability of receiving the income is high, recognise it.

On the other hand if the income has accrued but probability of
receiving the income is lesser, do not recognise

Eg:
Income Situation
Consignment Once goods are sold to the outsiders
Advertising Agency Once the Advertisement is displayed
Interest On time basis

Very Important
Refer the chart in Pg. 1.35 from study material
AS 17: Segment Reporting:
Reportable Segment or Not?

3 Tests?
1. Revenue Test:
Total Revenue = xxx
10% of Total Revenue
Any segment having 10% or more than 10% of Total Revenue, is a reportable segment.

2. Asset Test:
Total Asset xxx
10% of Total Asset
Any segment having 10% or more than 10% of Total Asset, is a reportable segment

3. Results Test:
Total of all Profitable Segment xxx 10%
Total of all Loss making segment xxx 10%
whichever is higher in absolute terms'

Additional Test:
Take the total of revenue of all reportable segment
Compare that total revenue with total revenue of the firm and calculate %
If the % is more than 75%, no need to add additional reportable segment.
If the % is less than 75%, add more non reportable segment as reportable until the % reaches 75%.
 AS 18: Related Party Disclosures
The objective of the accounting standard is greater transparency and disclosures with
regard to related party relationship by the reporting entity.
Related Party relationships arise on either of the two below:
a) Under Control
b) Under Significant Influence
The difference between the two is that control relationship must be reported or
disclosed whether or not there have been transactions during the reporting period.
Significant Influence relationships are disclosed only if there have been transactions
during the reporting period.
The definition of a control relationship is (4 Points)
a) Holding more than 20% of Voting Powers
b) Controlling the composition of the governing body
c) Subsidiary of Subsidiaries
d) Group Subsidiary
Under Significant Influence, holding 20% or more of the voting power and KMP with
their relatives.
The definition of relative is limited to the immediate nucleolus of a family. It includes
spouse, children, brother, sister, father and mother. Even if less than 20% is held SI
can be inferred if the facts and circumstances so demonstrate.
AS - 19: Lease
Disclosure of Lease Asset and Lease Liability:
As per AS 19, Lease should be disclosed as Lease Liability from the point of view of Lesee
at the amount which is lowest of;
a. Present Value of Minimum Lease Payment.
b. Fair Value at the beginning of the lease
AS 20: Earnings Per Share

Basic EPS = Profit attributable to Equity Shareholders

Weighted Average Number of Equity Shares (WANES)

Profit Attributable to Equity Shareholders:

Rs.
Net Profit before Tax xx
Less: Provision for Tax xx
Net Profit after Tax xx
Less: Preference Dividend xx
Profit Attributable to Equity Shareholders xx

Weighted Average Number of Equity Shares is the number of shares

outstanding in the books on an average during the year.

Eg.:
Shares in the beginning on 1.4.2022 was 10000 shares. Company issued new shares
to the extent of 5000 shares on 1.9.2022. It also bought back 3000 shares on 1.3.2023.

WANES:
10000 x 5/12 = 4167
15000 x 6/12 = 7500
12000 x 1/12 = 1000
12667

Diluted Earnings Per Share:

Diluted EPS will be calculated if there is convertible debentures in the company.
Diluted EPS is nothing but the revised EPS if the debentures gets converted into equity shares.
It is calculated as under;

Diluted EPS = Revised Profit Attributable to Equity Shareholders

Revised No. of Equity Shares

Revised Profit:
Revised Profit is calculated as under;
Given NAT xxx
Add: Interest on Debentures xxx
Less: Tax on Int. on Debentures xxx
Revised Profit xxx

Revised No. of Equity Shares:

Existing No. of Shares xxx
Add: Shares that will be issued
to debentureholders on
conversion xxx
Revised No. of Shares xxx
Right Shares:

Adjustment Factor:

Step 1: Theoretical Ex Rights Price:

Theoretical Ex Rights Price = (Existing No. of shares x Current Price) + (No. of shares issued in rights x Issue Price)
Existing No. of shares + Right Shares

Step 2: Adjustment Factor

Adjustment Factor = Price before rights issue
Theoretical Ex Rights Price

Adjustment factor will be used to multiply with the existing no. of shares while calculating WANES.

When rights shares are issued, revised EPS of last year can also be calculated which is called
as Adjusted EPS or Restated EPS.

Restated EPS = Last Years Profit

Last Years No. of Shares x Adjustment Factor
 AS 22: Accounting for Taxes on Income

Meaning of Accounting Income (Loss):- The net profit or loss for a period, as reported in the
statement of profitand loss, before deducting income tax expense or adding income tax saving.
(PBT)
Meaning of Taxable Income (Tax Loss):- The amount of income (loss) for a period,
determined in accordance with the tax laws, based upon which income tax payable
(recoverable) is determined.
Tax Expense (Tax Saving):- The aggregate of current tax charged or credited to the statement
of profit and loss for the period. The amount of tax payable is reckoned as an item of
expense, againstthe income on which the tax is levied.
Current Tax: - The amount of income tax determined to be payable (recoverable) in respect
of the taxable income (tax loss) for a period.
Deferred Tax: - The effect of timing differences.

Timing Differences: - The differences between taxable income and accounting income for a
period that originate in one period and are capable of reversal in one or more subsequent
periods.
Permanent Differences: - The differences between taxable income and accounting income
for a period that originate in one period and do not reverse subsequently
Recognition

• Tax expense for the period, comprising current tax and deferred tax, should be
included in thedetermination of the net profit or loss for the period.
• Deferred tax should be recognised for all the timing differences, subject to the
considerationof prudence in respect of deferred tax assets (DTA).
 AS 26 – Intangible Assets

Recognition of Intangible Assets

An intangible asset should be recognized (i.e. accounted as asset) if & only if:
• It is probable to expect future economic benefits from the assets.
• Cost can be measured reliably.

Measurement principles
• It should be recognised initially at cost.
• The cost of separately acquired intangible asset will be included price paid, duties, taxes
paid and any other expenses incurred directly to bring it into usable condition.
• If acquired in exchange, fair value of asset given up.

Internally Generated Intangible Asset

To assess whether an internally generated intangible asset meets the criteria for recognition, an
enterprise classifies the generation of the asset into:
• a research phase; and
• a development phase.

Expenditure of Research phase

Such expenditure is to be charge off in the statement of profit and loss as an expense.

Expenditure on Development phase

An intangible asset arising from development phase can be recognised if and only iffollowing can
be demonstrated:
• The technical feasibility.
• Intention to complete it.
• Ability to sale or use it.
• Capability to generate economic benefit like existence of market for it or forproducts
generated from it.
• Availability of technical, financial & other resources to complete thedevelopment.
• Ability to reliably measure the expenditure during development.
AS 29: Provisions, Contingent Liabilities and Contingent Assets

Provisions:
Certain liability but exact amount not known. Eg. Bad Debts, Tax Liability.

Contingent Liabilities:
Liability which may occur or not occur based on a future event.
Eg. Compensation for Claim against the company, Discounted Bill of Exchange,
Guarantees given etc.

Contingent Assets:
Asset which can be or cannot be owned or recognised based on a future event.
Eg. Case filed by the company for a particular claim against a third party.

Accounting Treatment:
1. Provision:
Recognised books on the basis of estimation.

2. Contingent Liabilities:
Not recognised in books but disclosed as a notes to accounts alongwith the probable liability amount.

3. Contingent Assets:
Not recognised until it is received.

Important
Refer Chart in Pg. 1.143 of Study Material
Amalgamation, Absorption and External Reconstruction of Companies: (Accounting Standard - 14)
1. Amalgamation:
A Ltd + B Ltd = C Ltd
When two companies liquidates, comes together and forms new business is called as Amalgamation.
In Amalgamation there are two liquidations and one formation.
2. Absorption:

P Ltd
Q Ltd
When an existing company takes over another existing company, it is called as Absorption
In Absorption there is only one liquidation and no formation.
3. External Reconstruction
X Ltd = Y Ltd External Reconstruction
When an existing company is liquidated and takenover by a newly formed by company , it is called as external reconstruction.
In External Reconstruction there is one liquidation and one formation.

Purchase Consideration:
As per AS - 14 any amount paid by buying company to the shareholders of selling company is called as purchase consideration.
Following are the various methods to calculate purchase consideration;
1. Lumpsum Method 2. Net Payments Method 3. Net Assets Method

1. Lumpsum Method: Amount of Purchase Consideration will be directly given in the question.

2. Net Payments Method:

Under this method details about shares issued and cash paid will be given. Total of all these items will be nothing but
purchase consideration.

3. Net Assets Method:

Hints:
*Purchase consideration is not possible as per Lumpsum method and net payments method, it will be as per Net Assets Method
*Words such as balance, necessary will appear in the adjustment.
*Revised value of assets and liabilities are given.
*Value of goodwill is given in the adjustment

Purchase consideration is calculated as under:

Particulars Rs. Rs.
Revised Value of Assets Taken Over:
____ xx
____ xx xxx
Less: Revised value of liabilities takenover:
____ xxx
Net Assets or Purchase Consideration xxx

Important Points:
1. Consider revised values wherever given
2. If revised values are not given, consider book value.
3. Consider only those assets and liabilities which are takenover. In other words if some assets and liabilities are not takenover,
it should not be considered.
4. Consider only external liabilities in the list of liabilities
5. In assets we will not consider fictitious assets and losses.

Accounting Treatment:
I. Closing the books of Selling Company
II. Acquisition Entries in the books of Buying Company
I. Closing the books of selling company:
In the books of selling company we will prepare the following ledger accounts to close its book;
1. Realisation A/c
2. Equity Shareholders A/c
3. Preference Shareholders A/c (if any)
4. Buying Company A/c
5. Equity Shares in Buying Company A/c
6. Preference Shares in Buying Company A/c (if any)
7. Cash/Bank A/c

Following 10 steps will be followed in the books of sellling company to close its books;

Step I: Transfer of Liabilities side:

1. Equity Share Capital:
Equity Share Capital A/c Dr
To Equity Shareholders A/c

2. Preference Share Capital:

Preference Share Capital A/c Dr
To Preference Shareholders A/c

3. Reserves and Surplus:

Reserves and Surplus A/c Dr
To Equity Shareholders A/c

4. Sundry Liabiities:
Sundry Liabilities A/c Dr
To Realisation A/c

Step II: Transfer of Assets Side:

1. Sundry Assets:
Realisation A/c Dr
To Sundry Assets A/c

2 RDD:
RDD A/c Dr
To Realisation A/c

3. Fictitious Assets and Losses:

Equity Shareholders A/c Dr
To Fictitious Assets and Losses

4. Cash:
a. If takenover by buying company: Realisation A/c Dr side
b. If not takenover by buying company: Cash A/c Dr side as opening balance

Note:
a. All assets and liabiities transferred in Step I and Step II irrespective of the fact whether
it is takenover or not.
b. All assets and liabilities will be transferred at book values. Revised values should be
ignored.

Step III: Purchase Consideration Due:

Buying Company A/c Dr
To Realisation A/c
Step IV: Purchase Consideration Received:
Equity Shares in Buying Company A/c Dr
Preference Shares in Buying Company A/c Dr
Cash/Bank A/c Dr
To Buying Company A/c

Step V: Sale of Assets not takenover by buying company:

Bank A/c Dr
To Realisation A/c

Step VI: Repayment of liabilities not takenover:

Realisation A/c Dr
To Bank A/c

Step VII: Liquidation Expenses:

Realisation A/c Dr
To Bank A/c

Note:
Above entry will be passed only if liquidation expenses are paid by selling company.
If liquidation expenses are paid by buying company, it should be ignored in the books
of selling company.

Step VIII: Settlement of Preference Shareholders:

Preference Shareholders A/c Dr
To Preference Shares in Buying Co. A/c
To Equity Shares in Buying Co. A/c

Note:
After passing the above entry, Preference Shareholders Account will be closed and any difference
will be transferred to Realisation A/c

Step IX: Close Realisation A/c:

Close Realisation A/c and the balancing figure will be profit or loss on realisation.
This profit or loss on realisation will be transferred to equity shareholders A/c.

Step X:
Equity Shareholders A/c Dr
To Equity Shares in buying co. A/c
To Preference Shares in buying co. A/c
To Cash/Bank A/c

Note:
After passing the above entry, Equity Shareholders A/c will be automatically tallied.
Acquisition Entries in the books of buying company:
1. For Purchase Consideration due:
Business Purchase A/c Dr
To Liquidator of Selling Company A/c

2. Purchase Consideration Settled:

Liquidator of Selling Company A/c Dr
To Equity Share Capital A/c (FV)
To Preference Share Capital A/c (FV)
To Securities Premium A/c
To Cash/Bank A/c

3. Take over assets and liabilities:

Asset A/c Dr
Goodwill A/c (bal.fig.)
To Liabilities A/c
To Business Purchase A/c
To Capital Reserve (bal.fig.)

Note:
a. Only those assets and liabilities will be recorded which are takenover.
b. All takenover assets and liabilities will be recorded at revised value.

Additional Entries:
1. Settlement of Debentureholders of Selling Company:
a. Credit Debentures of selling company while passing the third entry at takenover value.
b. Pass additional entry to settle the debentures;
Debentures of Selling Company A/c Dr
To ___% Debentures A/c

2. Liquidation Expenses of Selling Company Paid by Buying Company:

Goodwill A/c Dr
To Bank A/c

3. Set off of Capital Reserve and Goodwill:

Capital Reserve A/c Dr
To Goodwill A/c

4. Issue of Shares to Public:

Bank A/c Dr
To Equity/Preference Share Capital A/c
To Securities Premium A/c

5. Preliminary Expenses:
Preliminary Expenses A/c Dr
To Bank A/c
6. Underwriting Commission Paid:
Underwriting Commission A/c Dr
To Bank A/c
Amalgamation in the Nature of Merger.
As per Para 3(e) of AS -14, following conditions should be satisifed for Amalgamation in the Nature of Merger.

1. All the assets and liabilities of selling company should be takenover by the buying company.
2. All the assets and liabilities should be takenover at book value.
3. At least 90% of the existing shareholders from the selling company should continue to be shareholders in the buying company.
4. Purchase consideration can be settled only by way of issue of shares.
5. After amalgamation, buying company should continue to operate the same business as was carried out by the selling company.

If all the above conditions are satisifed, it will be called as Amalgamation in the Nature of Merger. It is also called as
Pooling of Interest Method'.
Even if any one condition is not satisifed, it will not be amalgamation in the nature of merger and in that case it will be called
as Amalgamation in the nature of purchase.

Accounting Treatment:
1. There will be no change in the calculation of purchase consideration.
2. There will be no change in the accounting treatment of selling company.
3. There will be no change while passing the first two journal entries of buying company.
4. While passing the 3rd journal entry, buying company along with assets and liabilities of selling company will also
takeover reserves of selling company.
5. Reserves of selling company will be takenover after adjusing the difference between Paid Up Share Capital of Selling company
and Purchase Consideration.
6. If Paid Up Share Capital > Purchase Consideration, it is a gain and the difference should be added to the existing reserves of selling company.
7. If Paid Up Share Capital < Purchase Consideration, it is a loss and the difference should be deducted from the existing reserves of selling company.
8. There will be no goodwill or capital reserve in the third entry.
9. If liquidation expenses of selling company is paid by buying company, under pooling of interest method, instead of debiting goodwill account we
will assume it as a revenue loss and hence the journal entry will be;
Profit and Loss A/c Dr
To Bank A/c

Note:
The question should be solved as per Pooling of Interest Method only if it is specifically asked to do so.
If the question is silent, follow Amalgmation in the Nature of Purchase.
Banking Company

Format of Profit and Loss Statement:

Sch.No. 31.3.20XI 31.3.20X0
I. Income:
Interest Earned 13 xxx
Other Incomes 14 xxx
A xxx

II. Expenditure:
Interest Expended 15 xxx
Operating Expenses 16 xxx
Provisions and Contingencies xxx
B xxx

III. Profit/Loss:
Net Profit for the year A-B xxx
Profit/Loss brought forward from Previous year xxx
xxx

IV. Appropriations:
Transfer to Statutory Reserve (25% of Net Profit) xxx
Transfer to other reserves xxx
Transfer to Proposed Dividend xxx
Transfer to Balance Sheet (bal.fig.) xxx
xxx
Format of Balance Sheet
Sch.No. 31.3.20XI 31.3.20X0
Capital & Liabilities:
Capital 1 xx
Reserves and Surplus 2 xx
Deposits 3 xx
Borrowings 4 xx
Other Liabilities and Provisions 5 xx
TOTAL xx

Assets
Cash in Hand and Balance with RBI 6 xx
Balance with other bank and Money at call & Short Notice 7 xx
Investments 8 xx
Advances 9 xx
Fixed Assets 10 xx
Other Assets 11 xx
TOTAL xx
Contingent Liabilities 12 xx
Bills for collection
Buyback of Equity Shares:
Section 68

1. Buyback Due:
Equity Share Capital A/c Dr (Face Value)
Premium on Buyback of Equity Shares A/c Dr (Premium)
To Equity Shareholders A/c

2. Payment:
Equity Shareholders A/c Dr
To Bank A/c

3. Writing off Premium on Buyback:

Securities Premium A/c Dr
Revenue Reserves A/c Dr
To Premium on Buyback of Equity Shares A/c

4. Transfer to Capital Redemption Reserve: (Only face value of equity shares bought back)
Revenue Reserve A/c Dr
Securites Premium A/c Dr
To Capital Redemption Reserve A/c

Revenue Reserves:
Eg: General Reserve, Profit and Loss Account and Dividend Equalisation Reserve
 CONSOLIDATION OF ACCOUNTS
(HOLDING COMPANY)
While preparing final accounts of holding company, the financial position of a subsidiary company
is merged with holding company. This process is called as consolidation of accounts
Following is the procedure of consolidation:
(1) Consolidated balance sheet should be kept ready.
(2) Prepare a Cost of Control Account (Investment of H Ltd. in the shares of S Ltd. A/c). This
account is prepared to ascertain goodwill or capital reserve arising on the date of acquisition.
(3) Prepare separate schedules for each reserves of holding company.
(4) Minority Interest: Amount payable to the outside shareholders is called as minority interest.
Hence minority interest would represent a liability. A separate schedule will be prepared to
ascertain the amounts payable to minority interest.
(5) At the commencement of consolidation ascertain the proportion held by holding company in
the subsidiary company. The balance proportion would be held by minority interest.
(6) All the assets and liabilities (other than shareholders funds) such as debtors, creditors, fixed
assets, cash and bank balances etc should be consolidated and transferred to the
consolidated balance sheet.
(7) Cost of investments in the shares of subsidiary company appearing in the balance sheet of
holding company will be transferred to Cost of Control Account as opening balance.
(8) Share Capital of holding company will be transferred to liabilities side. From the share capital
of subsidiary company, holding company’s share will be transferred to cost of control account
credit side and share of minority interest will be transferred to schedule of minority interest.
(9) All reserves of subsidiary company will be analysed into pre-acquisition and post-acquisition.
Pre-acquisition reserve means reserves earned by subsidiary company before the date of
purchase of shares by holding company. Holding company share in pre-acquisition reserve
is a capital profit and hence will be credited to cost of control account. Minority interest share
will be transferred to schedule of minority interest.
Post-acquisition reserve means reserves earned by subsidiary company after the purchase
of shares by the holding company. These profits are revenue profits and hence will be
transferred to schedule of reserves. However minority share will be transferred to schedule
of minority interest.
(10) Reserves and Surplus of holding company will be transferred to respective schedules as
opening balance.
(11) All schedules of reserves will be closed and the balance appearing in that schedule will be
transferred to liabilities side of the consolidated balance sheet.
(12) Total of minority interest will be transferred to liability side of consolidated balance sheet.
(13) Closing Cost of Control Account: Following cases are possible:
(a) Debit Balance: Debit balance in cost of control account would represent Goodwill and will
be transferred to Assets Side of Consolidated balance sheet.
(b) Credit Balance: Credit balance in cost of control account would represent Capital Reserve
and will be transferred to Liabilities Side of Consolidated balance sheet.
(14) After completion of all the above aspects, consolidated balance sheet will tally.
DISSOLUTION OF PARTNERSHIP FIRM:

Meaning:
Closing down the business of a partnership firm is called as Dissolution of
a partnership firm. In case of dissolution, assets of the firm are sold,
liabilities are repaid and the balance amount is distributed among the
partners.

Accounting Treatment:
To give effect to the transactions of dissolution, following ledger accounts
are to be opened;
1. Realisation Account
2. Partners Capital Account
3. Partners Current Account (if any)
4. Partners Loan Account (if any)
5. Cash/Bank Account

Journal Entries:
I. Transfer Entries
II. Adjusting Entries
III. Closing Entries

I. Transfer Entries:
1. Transfer of Liabilities side:
a. Partners Capital Account balance will be transferred Partners Capital A/c
as opening balance.

b. Parnters Current Account balance will be transferred to Partners Current A/c

as opening balance.

c. Partners Loan Account balance will be transferred to Partners Loan A/c as

opening balance.

d. Accumulated Profits: (General Reserve, Reserve Fund, Profit and Loss A/c)
Accumulated Profits A/c Dr
To Partners Capital/Current A/c

e. External Liabilities:
External Liabilities A/c Dr
To Realisation A/c

2. Transfer of Assets side:

a. Cash/Bank Account balance will be transferred to Cash/Bank A/c as

opening balance

b. Accumulated Losses (Profit and Loss A/c Dr. balance)

Partners Capital/Current A/c Dr
To Accumulated Losses A/c

c. Sundry Assets:
Realisation A/c Dr
To Sundry Assets A/c

d. RDD:
RDD A/c
To Realisation A/c

II. Adusting Entries:

1. Disposal of Assets:
a. Sale of Asset:
Cash/Bank A/c Dr
To Realisation A/c

b. Asset takenover by a partner:

Partner's Capital/Current A/c Dr
To Realisation A/c

2. Settlement of Liabilities:
a. Repayment:
Realisation A/c Dr
To Cash/Bank A/c

b. Liabilities takenover by a partner:

Realisation A/c Dr
To Partners Capital/Current A/c

3. Dissolution Expenses:
a. Paid by firm:
Realisation A/c Dr
To Cash/Bank A/c

b. Paid by Partner:
Realisation A/c Dr
To Partners Capital/Current A/c

III. Closing Entries:

1. Closing Partners Loan:

a. First Repay partners loan:
Partners Loan A/c Dr
To Cash/Bank A/c
b. After repayment of partners loan, any difference will be
transferred to Realisation Account.

Note: If no instructions are given in the question, repay partner's

loan at full amount.

2. Close Realisation Account:

Before closing realisation account, check whether all the external liabilities are
repaid. If not, repay the same and thereafter close Realisation Account.
Balancing figure in realisation account will be Profit/Loss on realisation.
This profit or loss will be distributed among the partners in their profit sharing
ratio.This profit or loss will be transferred to Partners Capital/Current A/c.

3. Close Partners Capital Account:

Close Partners Capital Account and the balance will be transferred to
Cash/Bank Account.

4. Close Cash/Bank Account:

After passing all the above entries, Cash/Bank Account will tally.
All Partners Insolvency:
In case of all partners insolvency, the following accounts will be prepared;
1. Realisation A/c (Only for Assets)
2. Partners Capital A/c
3. Deficiency A/c
4. External Liabilities A/c
5. Cash/Bank A/c

Accounting Procedure:
1. Realisation A/c will be meant only for assets.
2. Balances of external liabilties will be not be transferred to Realisation A/c, rather it
will be transferred to their respective accounts as opening balance.
3. All the entires for sale of asset, payment of realisation expenses etc and closing realisation account is same as earlier.
4. In case any partner brings any cash, the same should be recived and recorded.
5. Close partners capital account and the balancing figure will be transferred to Deficiency A/c
6. Close Deficiency A/c and the balancing figure will be transferred to external creditors.
7. If there are more than one external creditors, balance in deficiency account will be distributed among the
external liabilities in the ratio of their opening balance.
8. Close External Liabilities A/c and transfer the balance to cash/bank account. Thereafter cash/bank account will be tallied.
Piecemeal Distribution of Cash:

Types of Liabilties

External Liabilities Internal Liabilities

(amount payable to outsiders) (amount payable to partners)

Secured Liabilities Unsecured Liabilities Partners Loan Partners Capital

Liabilities secured against No Security is given 2 Methods

some assets are called as 1. Excess Capital Method
Secured Liabilities 2. Maximum Loss Method
Eg: Bank Loan taken against Preferential Other Unsecured
mortgage of Land and Building Creditors Creditors

Government Dues
Employee Dues

Order of Payment:
1. First external liabilities will be paid and thereafter internal liabilities will be repaid.
2. If asset sold is given as security, that liability will be repaid for which the asset was provided as
securitiy i.e. Secured Liabilities will repaid first.
3. If asset is sold is not given as security, unsecured liabilities will be repaid.
4. Under unsecured liabilities, preferential creditors will be repaid first and thereafter other unsecured creditors.
5. Eg of Preferential Creditors: Outstanding GST, Excise Duty Payable, Custom Duty Payable, Municipal Taxes payable in simple words
all government dues. Preferential creditors also includes Employee dues such as outstanding salaries and wages.
6. After repaying external liabilities, internal liabilities will be repaid.
7. Under internal liabilities, partners loan will be repaid first.
8. Thereafter Partners Capital will be repaid either as per Excess Capital Method or as per Maximum Loss Method.
Employee Stock Option Plan (ESOP)
Journal Entries:
Bank A/c Dr (No. of shares x Issue Price)
Employee Compensation Expenses A/c Dr (Difference between Market Price and Issue Price)
To Equity Share Capital A/c (Face Value)
To Securities Premium A/c (Difference between Market Price and Face Value)

Profit and Loss A/c Dr

To Employee Compensation Expenses A/c

Note:
All the entries will be passed on the basis of number of shares actually exercised by the employees.
Internal Reconstruction of Companies:
A company with huge accumulated losses and weak financial position can enter into a
scheme of reconstruction called as Internal Reconstruction of Companies.
Under Internal Reconstruction of Companies, Liabilities are waived to some extent, Assets are revalued to
create some artificial reserves. With these reserves, Intangible Assets and Accumulated losses are written off.
Internal Reconstruction can be done only with a prior approval from the court.

Accounting Treatment:
To record the accounting entries of Internal Reconstruction, we will prepare a separate account called as
Capital Reduction Account'. All the losses will be debited to this account whereas all the gains will be credited
to this account.

Journal Entries:
1. Increase in the value of Asset:
Asset A/c Dr
To Capital Reduction A/c

2. Decrease in the value of Asset:

Capital Reduction A/c Dr
To Asset A/c

3. Increase in the value of liabilities:

Capital Reduction A/c Dr
To Liabilities A/c

4. Decrease in the value of liabilities:

Liabilities A/c Dr
To Capital Reduction A/c

5. Sale of Asset:
a. Sold at Profit:
Bank A/c Dr
To Asset A/c
To Capital Reduction A/c

b. Sold at Loss:
Bank A/c Dr
Capital Reduction A/c Dr
To Asset A/c

6. Repayment of Liability:
a. Settled at Gain:
Liability A/c Dr
To Bank A/c
To Capital Reduction A/c

b. Settled at Loss:
Liability A/c Dr
Capital Reduction A/c Dr
To Bank A/c

7. Sale of Unrecorded Asset:

Bank A/c Dr
To Capital Reduction A/c

8. Settlement of Unrecorded Liability: (Contingent Liability)

Capital Reduction A/c Dr
To Bank A/c

Note:
Unrecored Liability if waived, there will be no journal entry.

9. Asset takenover by liability: (Eg. Debentureholders taking over Land and Building)
Liability A/c Dr
Asset A/c

Note:
Record Profit/Loss from the point of view of both assets as well as liabilities.

10. Reconstruction Expenses:

Capital Reduction A/c Dr
To Bank A/c

11. Writing off Accumulated Losses and Intangible Assets:

Capital Reduction A/c Dr
To Goodwill A/c
To Profit and Loss A/c
To Preliminary Expenses A/c
To Underwriting Commission A/c
To Patents A/c
To Share issue expenses A/c

Note:
Above entry will be passed even if the question is silent.
12. Sacrifice by Shareholders:

Shareholders

Reduction in Face Value Reduction in Paid Up Value

Replacement Entry Sacrifice Entry

Equity Share Capital (old) A/c Dr Equity Share Capital A/c Dr

To Equity Share Capital (New) A/c To Capital Reduction A/c
To Capital Reduction A/c

13. Close Capital Reduction A/c:

Any balance in capital reduction account should be transferred to Capital Reserve A/c.
Capital Reduction A/c Dr
To Capital Reserve A/c
List B Contributories:
* List B contributories will be responsible to pay the call money only if 12 months has not yet
lapsed since the transfer of his shares.
* If 12 months has lapsed, he will not be responsible to pay the call.
* His liability will be lowest of the following
a. Unpaid amount on his shares
b. Creditors upto the date of transfer of shares.
Format of Liquidators Statement of Affairs:
Estimated
Book Realiseable
Assets
Value Value
Assets not specifically pledged (as per List A)
xxx ____________ xxx
xxx ____________ xxx
xxx ____________ xxx xxx

Assets specifically pledged (as per List B)

Surplus
Estimated Due to
Book transferred
Asset Realiseable secured
Value to last
Value creditors
column
______ xxx xxx xxx xxx
xxx
Estimated amount available for Preferential Creditors, xxx
Debentures secured by Floating Charge and Unsecured
Creditors

Summary of Gross Assets realised:

Assets not specifically pledged xxx
Assets specifically pledged xxx
xxx

Gross
Liability Liabilities

xxx Secured Liabilities (as per List B) -

xxx
xxx Preferential Creditors (as per List C) xxx

Estimated Amount available for Debentures secured xxx

by Floating Charge and Unsecured Creditors

xxx Debentures Secured by Floating Charge (as per List D) xxx

Estimated Amount available for Unsecured Creditors xxx

xxx Unsecured Creditors (as per List E) xxx

xxx
xxx Preference Shareholders (as per List F) xxx
xxx
xxx Equity Shareholders (as per List G) xxx
Surplus/Deficiency (as per List H) xxx
Format of Liquidators Final Statement of Account:
Particulars (Receipts) Rs. Particulars (Payments) Rs.
To Cash in Hand/Bank xxx By Legal Expenses xxx

To Assets Realised: By Liquidator's Remuneration xxx

_______ xxx
_______ xxx By Liquidation Expenses xxx
_______ xxx xxx
By Debentures secured by floating charge:
To Surplus from Security xxx Principal xxx
Outstanding Interest xxx xxx
To Calls received
By Unsecured Creditors
Preferential xxx
Other Unsecured Creditors xxx xxx

By Preference Shareholders:
Capital xxx
Arrears of Dividend xxx xxx

By Equity Shareholders xxx

xxx xxx