Practice Test/Accountancy

 (S R Patil)

Department of Commerce.

Surprise Test

Date -16/03/2019                                 B.Com III Sem VI                           Total Marks 10

1)________is one of the method of depreciation

a) Written down value b) FIFO    c) LIFO   d) HIFO

2) Net asset = Total Assets  - _______________

a) Total Liabilities b) 3^rd Party Liabilities c) Share Capital  d) Current Assets

3) One of the tax-free incomes from the following

a) Salary b) Interest  c) Agriculture d) Rent 

4) A person who is called “STRATEGY GURU”

 A) Anil Ambani  B)Mukesh  Ambani  C) C.K.Pralhad  D) Michale Porter

5) C R M means  

     a) Customize Relation Management b) Customer Relation Management 

     c) Corporate Relation Management d) None of above

6) Accounting to Banking regulation Act provisions of statutory Reserve is ……..

  a) 10%       b) 20%       c) 30%          d) 40%

7) In the opinion of Philip Kothalar  who is the Entrepreneur

 a) Innovator  b) Traditional c) Researcher  d) Risk taker

8) Minimum ______members are required Co-operative society

    a) 40       b) 30        c) 20             d) 10

9) According to Frank H Night Entrepreneur means____________

a) Takes Risk & decision b) Innovator c) Commercial sense d) Cleverness

10) In a service sector Micro Enterprise is maximum requirements of Investment

 

 

B Com III

 Adv Accounting

Classification of Ratio

A)     Liquidity ratio-

1)        Current Ratio  or  2:1 Ratio  or   Working capital Ratio  :-

      Current Ratio = Current Asset / Current Liabilities

Current Asset = Cash + bank + short term investment + inventory of raw materials, work in progress &finished goods + debtors + bills receivable + prepaid expenses + outstanding income

Current Liabilities = trade creditors + bills payables + bank overdraft + provision for taxation + dividend payable + outstanding expenses + pre-received income + portion of the long term liabilities payable in the year

Standard current ratio is 2:1

2) Quick or Liquid Ratio or Acid Test Ratio or Equal Ratio :-

Quick or Liquid Ratio = Quick or Liquid Asset / Quick or Liquid Liabilities

Quick Asset = Current asset – stock and prepaid expenses

Quick Liabilities = Current liabilities -bank overdraft

The standard Quick Ratio is 1:1 ( Equal )

B)      Activity or Turnover Ratio :-

1)      Inventory or Stock Turnover Ratio :-

 

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

 

Cost of goods sold = opening stock + purchase =expenses on purchase and manufacturing expenses -closing stock

Or

Cost of goods sold = sales – gross profit

2)      Debtors Turnover Ratio or Receivable Turnover Ratio : -      

 

Debtors Turnover Ratio = Debtors + Bills Receivable / Net Sales x 360 or 365

 

Net sales = Sales – sales return

Debtors = Debtors before deducting provision for doubtful debts

 

3)      Fixed Asset Turnover Ratio : -

                          Fixed Asset Ratio  = Net Sales / Fixed Assets

                     Fixed Assets = cost of fixed assets -depreciation

                    Net sales =  Sales – sales return

4)      Current Asset Turnover Ratio : -

 

Current Asset Ratio = Net Sales / Current Asset

 

5)      Total Asset Turnover Ratio : -

                           Total Turnover Ratio = Net Sales / Total Asset

6)      Working Capital Turnover Ratio :-

 

Working capital Turnover Ratio = Net Sales / Working Capital

 

Working capital = Current asset – current liabilities

C)      Leverage or Solvency Ratio : -

 

1)      Debt Equity or Total Liabilities to Proprietors Fund Ratio : -

 

Debt Equity Ratio = Total Debts / Net Worth

                 Or

     = Outside Liabilities / Shareholders Fund

                Or

      = Long Term Liabilities / Shareholders Fund

 

Net worth / shareholders fund = equity share capital + Pref. share capital + reserve and surplus – fictitious assets and losses

 

2)                  Proprietary Ratio or Tangible Net Worth to Total Asset Ratio or Capital to Total Asset Ratio : -

 

Proprietary Ratio = Proprietors fund / Total Asset

 

 

 

 

3)      Capital Gearing Ratio : -

 

Capital Gearing Ratio = Fixed Interest Bearing Securitas  / Equity Share Capital + Reserve &                                                            Surplus  - Fictitious assets

 

Fixed capital bearing securities = Pref. share capital + Debenture + Long Term Loans +Deposits accepted by the concern  

 

4)      Debt to Asset Ratio : -

 

Debts to Asset Ratio = Total Debts / Total Assets

 

Total Debts = Long term Loan + Short term Liabilities

 

5)      Interest Coverage Ratio or Debt to Service Ratio : -

                

                     Interest Coverage Ratio = Profit before Interest and Tax / Total Interest Charges

 

6)      Dividend Coverage Ratio : -

 

Dividend Coverage Ratio = Profit after interest and Tax / Preference Dividend

 

7)      Fixed Charges Coverage Ratio : -

 

Fixed Charges Coverage Ratio = Profit before interest and Tax / Fixed Charges

 

D)     Profitability Ratio : - ( Profitability Ratios based on Sales )

 

1)      Gross Profit Ratio or Gross Margin Ratio : -

 

Gross Profit Ratio = Gross Profit  / Net Sales x  100

 

Net Sales = Total sales – sales return

Gross profit = Net sales – cost of goods sold

2)      Net Profit or Net Margin Ratio : -

 

Net Profit Ratio = Net Profit /Net Sales x 100

 

Net profit = Gross profit – all operating & non operating expenses and taxes

Net sales = Gross profit – sales return

 

3)      Operating Profit Ratio : -

 

Operating Profit ratio = Operating Profit / Net sales x 100

 

Operating profit  = sales -cost of goods sold -operating expenses

                                                         Or

                              = Gross profit – operating expenses

Operating expenses = Office and administrative expenses +selling and distributing expenses      + financial expenses 

 

4)      Operating Ratio : -

 

Operating Ratio = Cost of Goods sold + Operating Expenses / Net Sales x 100

This ratio is opposite to operating profit ratio .

 

 

 

 

 

Profitability Ratio ( on the basis on Investment )  

 

5)      Return on Capital Employed Ratio : -

 

Return on capital employed = Net profit before interest and tax / capital employed x 100

 

Capital employed = eq. share capital + pref. share capital + debenture + long term loan + reserve &  surplus -fictitious assets and losses

                            = working capital + fixed assets

 

6)      Return on shareholders fund or Net Worth or Return on Capital Ratio :-

 

Return on Shareholders Fund  = Net profit after Interest and Tax / Shareholders Fund  x 100  

 

7)      Return on Common Equity or Ordinary shareholders Equity Ratio : -

 

Return on Common Equity = Net profit after Tax and Dividend / Common Equity x 100

 

Common Equity = Eq. share capital + reserve and surplus – fictitious assets and losses

 

8)      Earning par Share : -

 

Earning par shares = Net profit after Tax and Pref. Dividend /Number of Eq. shares

 

9)      Return on Total Assets Ratio : -

Return on Total Assets Ratio = Net profit /Total Assets x 100

 

 

 

 

 

  

 

 

      

Valuation of shares

(S R Patil)

 Radhanagari Mahavidya Radhanagari 

B Com -II sem-V

Corporate Accounting

Valuation of shares 

Though, the company fixes the value of its shares, which is termed as face value, the actual price may be different and therefore, it becomes necessary to value the shares in the following circumstances.

(i) When unquoted shares are to be sold by the shareholders.

(ii) For Estate Duty purpose.

(iii) At the time of amalgamation, absorption and reconstruction. (iv) If loan is to be raised on the security of shares.

(v) Conversion of one class of shares into another class.

There are three methods of valuation of shares viz.

(1) Net Assets Method, (2) Yield Method, (3) Fair Value 1. Net Assets Method or Intrinsic Value Method

This method is also called balance-sheet method or asset backing method, or intrinsic or break-up value method. Under this method, an attempt is made to determine as to how much amount per share a shareholder will receive on the date of determination of the value of shares. For this purpose, it is necessary to determine the net assets of the business as on that date. Net assets mean the total of realisable assets including non-trading investments and goodwill less the total of third party liabilities. As only realisable assets are to be taken, the items such as preliminary expenses, discount on debentures/shares, underwriting commission, Profit & Loss A/c (debit balance) etc. appearing under the heading "Miscellaneous Expenditure & Losses" are not to be taken into consideration. Similarly, realisable values and not the book-values are to be considered.

The intrinsic value per share is arrived at by dividing the value assets by the number of shares issued and subscribed.

of net

Important Points 

1: While taking third party liabilities, even contingent liabilities are to be considered.

2. Depreciation Fund: If there is a depreciation fund in respect of any

fixed asset and no change in the value of that asset is given, the depreciation

fund is to be deducted from the value of that asset to get its realiable value. However, if realisable value of such asset is given separately, the depreciation fund is not to be considered at all. The realisable value is to be taken.

Conversion of Single Entry into Double Entry System

(S R Patil) 

B Com -I sem-II

Financial Accounting 

Signal Entry 

(Conversion of Single Entry into Double Entry System)

In the Std. XII we have studied 'Single Entry System'. Under Single Entry System, two-fold effect for each transaction is not given and it is recorded only once in the ledger. As such a Trial Balance and in turn Trading and Profit & Loss A/e cannot be prepared. Profit or loss is ascertained by comparing capital at the commencement of the period and capital at the end of the period. Now we have to study how to convert Single Entry into Double Entry System.

Conversion of Single Entry into Double Entry System In order to convert Single Entry into Double Entry System the following steps are required to be taken. (i) To open all Real and Nominal Accounts in the books of accounts

(Personal Accounts and Cash Book are maintained and as such there is no

question of opening these accounts afresh.) (ii) From the Subsidiary Books, including Cash Book, and personal accounts posting is to be made to respective accounts (Real or Nominal). eg. the total of Purchase Books is to be debited to Purchases A/c (Posting to Supplier's Account is already made). Si.nilarly, credit purchase of machinery is to be posted to Machinery Account from the personal A/c of the seller. Payment of salaries is to be debited to Salaries A/c from the Cash Book. Thus, for each transaction double entry is to be completed i.e. second posting is to be made as only one aspect i.e. debit or credit is already recorded.

Important

In the examination a student is not supposed to open all such accounts. He is simply required to prepare Final Accounts from the items given in the Cash Book, Opening Balance Sheet, other information etc. However, he may be required to trace out the missing items such as Credit Sales, Credit, Purchases, Opening / Closing Balance of Debtors/Creditors, Opening Capital, Closing Balance of Bills Receivable / Bills Payable etc. by opening necessary accounts as under -

1. Total Debtors A/e to find out credit sales, or opening / closing balance of debtors, or cash received from debtors.

2. Total Creditors A/e to find out credit purchase, opening / closing balance of creditors etc. 3. Bills Receivable A/c to find out closing balance of Bills Receivable

or Bills Receivable received during the year. 4. Bills Payable A/c to find out closing balance of Bills Payable

or Bills Payable accepted during the year.

Meaning of Income tax and Levy of Income Tax

 (Sunil Patil)

Meaning of Income tax and Levy of Income Tax

Income tax is a tax on incorge Every person with an income in excess of a prescribed limit has to pay a tax Such tax charged on excess income is called Income tax Income tax is a direct tax It is contained in the income tax Act 1961 However every year the parliament passes a finance bill which can make amendments to Income tax Act. The rates of income tax for the year are specified in the finance bill (called the budget)

For levy of income tax all the taxable income of a person should be determined as per the provisions of the Act and Rules. The income arising from any of the following heads is chargeable to tax

() Income from Salary

ii) Income from House Property

i) Profits and Gains of Business or Profession.

iv) Capital Gains

v) Income from Other Sources

The income of a person should be computed under each head separately. The total of such net amount from each head of income is called the "Gross total Income There are other permissible deductions under the Act which are to be deducted from the gross total income. The balance is called the taxable income or "Total Income". The incomes which are exempt from tax are not included in the above income

Definitions under Income Tax Act

1.

Agricultural Income

There are three basic conditions to be fulfilled so that the income can be called agricultural income

a) The income should be related land

b) The land should be situated in India If the land is situated outside India the Income derived from such land is not agriculture income.

c) The land should be used for agricultural purposes. There should have been

some agricultural operations performed on that land.

Following incomes are treated as agricultural income

a) Any rent or revenue derived, Rent is a receipt in cash or yield or income from land b) Income by way of sale of agricultural produce, performance of any process,

which makes the produce fit for market

c) House property income of a building situated on or in immediate vicinity of the land (Such income from building will not be treated as agricultural income if the land or building is let out for residential purpose or for the purpose of a business or profession.)

The following are not considered as agricultural Income. a) Income from market, ferries and fisheries

b) Income from stone quarries

c) Income from mining royalties

d) Income arising from supply of water for irrigation purpose

Income from Dairy farming or poultry

Income from sale of earth or brick making g) Income from sale of wood of spontaneous forests

h) Remuneration received from a company engaged in agriculture

0

If the land is located outside India, any income derived from such land

Agricultural income is exempt from income tax u's 10 (1). However it the agricultural income exceeds Rs. 5,000, it is taken into account for determining the rates of income x on other non agricultural income of an assessee

Profit prior to Incorporation

 (S R Patil)

Profit or loss prior to and after Incorporation

Profit prior to Incorporation

A company comes into existence from the date of the issue of the certificate of incorporation by the Register of Companies. Some time a company is formed to take over existing business of partnership firms or limited company before getting a certificate of incorporation. However as the company comes into existence from the date of issue certificate of incorporation, the profit / loss sustained by the existing business from the date of agreement to purchase to the date of incorporation belongs to the purchasing company. Thurs any profit /loss to the company is entitled or before its incorporation is termed as " Profit /loss prior to imcorporation " and it is a capital gains

The existing company to Purchase  business of partnership farm with effect from 1st April 2017 and it gets certificate  Of IncorporationOn 1st July  2017 the profit earned by the existing company from 1-4-2017 to 30-6-2017 is"profit prior to imcorporation " and the profit earned from 1-7-2017 to 31-3-2017 is "profit after incorporation ".

The total profit earned during the year is required to be split up into two periods " prior to imcorporation " and "after incorporation "

Basis of Apportionment

1. Gross profit is to be divided in the ratio of sales of the two periods.

2. Expenses of fixed nature and depending on period such as salaries, Deprecation, Rent, Rates, Taxes, General and office experience, Repairs, printing and stationery etc. are to be divided in the ratio of months falling in the two periods. Prior and After

3. Expenses of variable nature and relating to sales sach as discounts, advertisement, sales commission, carriage outward, traveling agents salaries, and commissions etc.  divided in the ratio of sales of two periods.

4. Expenses relating to specific period only are to be charged to that period only. Preliminary expenses, Debenture interest, Directors Fees, Audit Fees etc. are charged to After Incorporation period. Vendors salaries are charged to prior to imcorporation period

5. Interest on purchases price payable to vendors - Interest payable up to the date of lncorporation is charged to prior incorporation period and interest payable in respect of further period is charged to after incorporation period.

Ascertainment of Sales Ratio

When the sales for two periods - prior incorporation and after incorporation are not given directly  to calculate sales for the two periods on the basis of the ratio of sales of various month

        

 

 

Closing of books of account

 (S R Patil)

conversations of partnership firms into a limited company

Closing of books of account

As the partnership firm is dissolved the books of the firm are required to be closed. Various account in the books of the firm are closed as under

1. All assets and liabilities are transferred to a Realisation Account

2. Undistributed profit or loss items are transferred to the Capital Account of the partner.

3. Limited company A/C is closed on receipt of purchase price,  shares, debenture, cash etc.

4. Partners Capital Accounts are closed by giving items cash, shares, debenture etc.

Journal Entries

1. For transfer of assets to realisation account

          Realisation A/C.              Dr.

                     To Assets A/C

2. For transfer of liabilitys

        Liabilities A/C.                Dr.

                    To Realisation A/C

3. For purchase consideration to be received from company

        Limited CO 's A/C.          Dr.

                     To Realisation A/C

4. For sale of assets for cash

        Cash /Bank A/C.           Dr.

                    To Realisation A/C

For an asset taken over by any partner

      Partners Captain A/C.     Dr.

                     To Realisation A/C

 

 

6. For payment of liability and realisation expenses

        Realisation A/C.             Dr.

              To cash / Bank A/C

7. For a liability taken over by a partner

           Realisation A/C.          Dr.

                   To partner Capital A/C

8. For transfer of realisation profit

             Realisation A/C.         Dr.

                     To partner capital A/C

For shares, debenture, cash etc. received from Limited company

          Shares A/C.             Dr.

          Debenture A/C.      Dr.

         Cash /Bank A/C.    Dr.

                     To Limited Company A/C

10. For payment of cash and distribution of shares /Debenture to partner

         Partners Capital A/C.       Dr.

                     To Shares A/C

                     To Debenture A/C

                     To Cash A/C

Distribution of Shares / Debentures

         The shares, debenture are given to the partner in settlement of the final balance due on their capital. The shares /debenture are distributed among the partner in the ratio of final balance.

 

Conversation of partnership firms into a Limited company

 (S R Patil)

Conversation of partnership firms into a Limited company

Introduction   := The partnership firms suffers from number of disadvantages -unlimited liability of partners, limited capital etc. To remove all such disadvantage of firm and to enjoy the benefits of company form, the big partnership firm is convinced into a limited company

Meaning of conversation

The conversation of a firm into a limited company means changing partnership from of organization to the joint stock company form.

Objective of conversation

1.To raise additional capital required for expansion of the existing business

2.To take the advantage of limited liability principal.

3. To enjoy status of separate legal entry.

4. To acquire better position in society.

Purchase consideration

 The partnership firms sells it's business to limited company at an agreed price.  This agreed price is called as purchase consideration. Purchase consideration may be defined as " The price paid by the purchasing company to partnership firm for taking over It's  business is known as purchase consideration.

Mode of payment

Generally purchasing company pays the purchase consideration in the form of its one shares, debenture and cash.

Method of calculating purchase consideration

1. Net asset value method - Net assets means excess of assets over liability.  Under this method purchase consideration is the agreed value of net assets taken over by the company. It is calculated as * total of agreed value of assets taken over by company  Less (-)Total of agreed value of liability taken over by company.

2. Net payment method - Under this method the total of payment made by the company in form of shares, debenture and cash to the firm is purchase consideration.  It is calculated as * payment made in shares + payment made in debenture +Cash paid

3. Lum-sum prise method -Under this method, price of each individual assets and liabilities is not determined separatkey. A Lum sum price is paid by the company for all assets and liabilities that are taken over. This price is given in the problem so we need not to calculate it.