Depreciation Account

DEPRECIATION                  Chapter no 05

           

What is depreciation?

Depreciation is the gradual and permanent decrease in the value of an asset is called deprecation.

How much kind of factors affects deprecation?

There are two factors

• Internal factor
• Wear and tear
• depletion
• External factor
• Obsolescence
• Efflux of time
• Accident

What is wear and tear?

Change in shape of assets due to its use is called wear and tear of asset.

Define depletion?

The process of measuring and recording the exhaustion of natural resources such as deposits, oil well is called depletion

OR

Decrease in the quantity of assets like mine quarries and oil

Define obsolescence

The term obsolesce refers to reduction in the useful life of the assets arising from such factors as

j       Technological changes

j       Improvement in production

j       Change in the market demand

Or

The process of becoming out of date or obsolete is termed as obsolescence due new investigations or change in taste of people

What is amortization of assets?

the term amortization is useful for describing the process of wirtingdown or decrease  the long term investments in intangible assets leases holds, patents, can copyright and goodwill

What are the major objects of providing deprecation?

The objectives of providing deprecation are

Ä      To find out the net profit and loss account for accounting period

Ä      To present a fair and value of assets on balance sheet

Ä      Ascertain the true cost of production

Ä      For true valuation of asset

Ä      Replacement of asset

What are fixed assets?

Assets which have long life and which are bought for use for long period of time like building, machinery and furniture

What are tangible assets?

Assets which have physical existence and which can be seen and touched is called tangible assets

Define intangible assets

Assets which have no physical existence and which can be seen and touched is called intangible assets

What is difference between the term fluctuation and depreciation?

Depreciation is the gradual and permanent decrease in the value of an asset is called deprecation. But the value or price  of assets may rise or fall due on the account of fluctuation

Define scrap value or residual value?

Scrap values mean the price at which at which an assets will be sold at the end of its working life is known as scrap or residual value.

What is difference between depreciation and depletion?

Depreciation is the gradual and permanent decrease in the value of tangible assets

And depletion is measuring and recording the exhaustion of natural resources

What is difference between deprecation and amortization?

Depreciation is the gradual and permanent decrease in the value of tangible assets and amortization is useful for describing the process of wirtingdown the long term investments in intangible assets leases holds, patents, can copyright and goodwill

What are Basis factor for determination of depreciation?

The are the following factors

1)      The original cost of asset

2)      The estimated work life of assets

3)      The scarp or residual value

4)      The amount spent for repairs

5)      The possibility that asset become obsolete

How many methods for deprecation?

 

What is fixed installment method?

The method under which charge fixed or equal amount of deprecation each year is called fixed installment method.

Entries

• When charged depreciation

Deprecation account

                                    To Asset account

• Transfer to profit and account

Profit and loss account

                        Deprecation account

• When sold at end at scrap value        

Cash account

                        Assets account

What are advantages of fixed installment method?

These are advantages of fixed installment method

·         It is simple and easy to calculate

·         The book value of asset can be reduce to zero

What are disadvantages of fixed installment method?

These are disadvantages of fixed installment method

·         No provision for the replacement of the assets is made

·         Not popular because charge depreciation every year same while effect of assets is decreasing  every year

Under straight line method what formula is used to calculate deprecation?

Annual depreciation =      Cost –scrap value

                                              Estimated life

What are other names of fixed installment method?

·         Straight line method

·         Original cost method

What is diminishing balance method?

Under this method the asset is depreciated at fixed percentage calculate on the debit balance of the asset which is diminishing year after year on account of deprecation.

What are other names of diminishing balance method?

·         Written down

·         Reducing installment method

What are advantages of diminishing balance method?

·         Not popular because charge depreciation every year same while effect of assets is decreasing  every year

·         No separate calculation is not required for addition and extension

What are advantages of diminishing balance method?

·         This method cannot reduce the book value of an asset to zero.

·         Very high rate of depreciation would have to adopt otherwise take very long time to write off

Company Account

Company                  chapter no 4

Define Joint Stock Company

A joint stock company may be defined as an artificial person recognized by lay with a distinctive name a common seal, a common capital comprising transferable share carrying limited liability and have a perpetual succession

What is separate legal entity of company?

Promoters

Revaluation Account

Gaining ration

Sacrifice ratio

directors

Separate legal entity means that a company is distinct from the person forming it. It enjoy s may of the rights artificial persons.

Like

• It sue or be sued in its name
• If can own and transfer the property on its own name

What is common seal?

Common seal is used as substitute of signature because company is an artificial person and cannot sing itself.

Define perpetual existence of a company

It means a joint stock company has a continuous life. The share holder can come or go but the existence of a company cannot effect. It can be winded up through compliance with the provision of company’s ordinance 1984

Define limited liability

The liability of the member is generally limited ot the extent to the nominal value of share or the amount held by them

What is company limited by shares

These are companies in which the shareholders have a limited to the extent to the nominal value of shares. These companies must have share capital.

What is company limited by guarantee?

A company in which the liability of its members is limited to such amount a s member may be respectively undertake tot contribute to the assets of the company in the event of tits being wound u. generally such companies do not have share capital.

Define unlimited company

A company in which the liability of its members n unlimited every member of the companies personally liable to the full extent of his personal assets for the full debts f the companies it may or may or may not have share capital.

Private limited company

According to the company ordinance 1984 it can be formed

1. At least tow member and maximum 50 members
2. It has no right to issue the shares
3. It restrict the transference of shares

What is public limited company

According to the company ordinance 1984 it can be formed

1. At least seven member and there is no limit on maximum numbers
2. It can invite the public for application for issuance of shares
3. it can easily transfer the shares form one person to another person

Define memorandum of association

The document which define the scope and object of the company

What is article of association?

The document which defines the rules and regulation of the company

What is prospectus?

This is a statement in the form of a small booklet, notice, circular, advertisement or other an invitation issued by the company to the public for subscription of shares

Define term shares?

The total amount of capital of a company Is divided into smaller units these units are called shares.

What is share capital?

The sum or total of the par value of shares of a company is called share capital.

Define Authorized capital

The amount of capital with which is registered. It is also called nominal or registered capital.

Define issued capital?

Shares offered to the general public for contribution are know as shares issued the totoal value of these shares called issued capital.

Define Subscribed capital?

Out of the total number of shares issued by the company that is number of share which is taken up by the public are know as subscribed shares. The total valued of such shares called subscribed s capital.

 Subscription may

·        under subscription (A company may not received application for all the shares offer by it to the public. a company receives application less that its offer is called.)

·        over s subscription

·        (A company may receive a large number of application for all the shares offer by it to the public. a company receives application more then that its offer is called.)

What is called up capital?

The portion of a subscribed capital which is called up by the company form public is called up capital

Define Paid up capital

The total amount received by the company out of the total called up amounts called paid up capital.

 What is primary or preliminary expense?

These are the expense which is incurred in the initial sates of incorporation like legal fee, remuneration of promoters and cost of printing of various documents.

Define underwriting commission

The commission which is paid to underwriter to take the risk of share offiered to the pubic is know as underwriting commission.

What is par value of share?

The value of which is assigned to a unit of shares is called  par value of share its is also called as nominal value or face value of shares.

Define book value of shares?

The value of shares according to the books of a company is called book value of share.

What is market value of share?

The price at which the buyer is willing to purchase the shares and seller is willing to sell it is called market value of shares.

Issued of shares at premium?

When a share having face value of Rs.10 is issued by the company for an amount more than Rs.10 the share is called issued at a premium.

Issued of share at discount?

When a share having face value of Rs.10 is issued by the company for an amount Less than Rs.10 the share is called issued at a Discount

Define Debentures?

A certificate issued by a company under its seal acknowlging a debts due by it to its holder. It includes debentures stock, Bonds and participation term certificate and other securities.

Kinds of debentures

Redemption point of view

1.     Redeemable debentures

Those debentures which are repayable at the end of a specified period

2.     Irredeemable debentures

Those debentures which never repayable during the existence of the company

Convertibility point of view

1.     Convertible debentures

These are debentures which are converted into shares as per terms of their issues

2.     Non convertible debentures

Debentures are not convertible into shares of a company are term as non convertible debentures.

Security point of view

1.     Simple or naked debentures

Those debentures which are without any security as to payment of interest or repayment of principle

2.     Mortgage debentures

Those debentures which are secured by a fixed or floating charge on the assets of the company

Registration point of view

1.     Registered debentures

These are debentures which are registered in the name of the holders in the books of the company. And transfer of these must be registered in the books of  company

2.     Bearer Debentures

These are payable to bearer of debentures. These debentures can be transferred by mere delivery

What is debentures stock?

Debentures stock is converted debentures which is fully paid and transfer in fraction of rupees.

Difference between Debentueres and debentures stcok       

Debentures stock                                                                              Debentures

                                                                                              

• Debentures stock is fully paid                                                                        it may be paid partially
• Debentures stock is transferable in fraction of rupees                        it is transferred entirely

What is difference between Debentures holder and share holder?

Debentures holder                                               Share holder

                                                                                              

• Debentures holder is creditor of company                              Shareholder is Owner of business
• Debentures holder receives interest                                        Shareholder receives profit
• Debentures holder have no right to participate                       Shareholder participate in      

      in decision making                                                                  decision making.

What is difference between joint stock company and partnership?

JSC                                                   partnership

• It is a legal person                                                       it is not legal person
• Liability of member is limited                         Liability is not limited
• No of members are at least 7 to unlimited                  at least 2 and maximum 20 members but in case                                                                                banking sector not more then ten.

Consignment Account

Consignment                                                Chapter No 3

What is consignment?

Consignment is a act of sending a quantity of good from one person/one country to another person/an other country for selling purpose is called consignment.

Who is consignor?

Consignor is person who is sending the goods means sender of goods is called consignor.

Who is consignee?

Consignee is person to whom goods are send is called consignee

What is consignment outward?

Dispatch of goods for consignor to consignee is called consignment outward

What is consignment inward?

Goods receipts  from consignee for consignee point of view is called consignment inward

What is difference between sale and consignment?

Sales	Consignment
Ownership is transferred to purchaser	Ownership is not transfer to consignee
Relationship between seller and purchaser of debtor and creditors	Relationship between consignor and consignee of Principle and agent
All the expenses are borne  by Purchaser	All the expense are borne by consignor
Purchaser is responsible for all losses	Consignor is responsible for all losses
Account sale is not required	All sale is required

Define the term commission?

Remuneration paid for services is called commission. Commission is always paid on sales.

Define the term Del creder commission?

Extra commission paid to consignee for timely collection of debs and avoids bad bebts is called Del creder commission.

What is overriding commission?

Commission paid on the sale of new product line is called overriding commission

Define advance against consignment?

Advance given by consignee to consignor that may be in form of cash or bill of exchange

What is consignment account?

Consignment account which shows profit or loss is called congisments account.

What is an account sale?

A document prepared by consignee by giving the detail of goods sold

Define Performa invoice?

An invoice which give the detail about the quantity, quality of goods

What is Normal loss?

Which is inherited and cannot not avoid like the sand

What is abnormal loss?

Which is not inherited and can be avoided is called abnormal loss.

What is stock?

No of finished goods remain unsold is called unsold stock

ENTRIES FOR CONSIGNMENT

Consignor’s Journal	Consignee’s journal
1.When Goods sent for consignment
Consignment account	No entry because of no transfer of ownership
Goods sent for Consignment
2.Expenses incurred by Consignor
Consignment account	No entry because these are incurred by consignor
Bank account
3.Advance against Consignment
Cash account	Consignor account
Consignee account	Cash account
4.Expenses incurred by Consignee
Consignment account	Consignor accent
Consignee account	Cash account
5.sales of goods
Consignee account	Cash account
Consignment account	Consignor account
6.Commission paid by consignor
Consignment account	Consignor account
Consignee account	Commission account
Be careful. And remember. Here stop and make consignment account from journal of consignor. And get profit or loss Proceed if profit then profit and loss is credited and if loss then profit and loss is debited.
7.For profit
Consignment account	No entry because he has no concern with profit
Profit and loss account
8.Clsoing of consignment
Good sent for consignment account	No entry because he has no concern with profit
Trading account