Accountancy Theory

8/14/2019 Accountancy Theory

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Deals with financial transactions: Accounting records only those transactions andevents in terms of money, which are of a financial nature. In other words thetransaction which are not of financial nature are not recorded in the books ofaccounts. For example a company, which has a team of employees with sound

technological knowledge, cannot expressed in terms of financial numbers and hencewill not be recorded in the books of accounts of the company.

Interpretation: This is the final function of the accounting. The recorded financialdata is interpreted in a manner that the end-users can make a meaningful judgmentabout the financial condition and profitability of the business operations. The data isalso used for preparing the future plans and framing of policies for executing suchplans.

The above definition does not clearly reflect the present role performed byaccounting. A widely accepted definition of the term accounting is given by AmericanAccounting Association,which is follows:

Accounting is the process of identifying, measuring and communicating informationto permit judgment and decision by the users of accounts.

The main components of the above definition are:

1.Transactions and events are measured and relevant data are processed andcommunicated to the users.

2.Accouting data is relevant for decision-making

3.There are users of accounts who need economic information. The users of accounts

are investors, employees, lenders, suppliers and creditors, customers, governmentand public.

Various user groups may have diversified interests either conflicting orcomplementary, but it is not possible to provide information separately for suchusers. Therefore a general purpose financial statement is necessary to be provided toall users.

Objective of Accounting:

The following are the main objectives of the accouting:

1.To keep systematic records: Accounting is done to keep systematic records offinancial transactions. In absence of a scientific method of accounting, there wouldhave been tremendous burden on the human memory, which in most cases wouldhave been impossible to bear.

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2.To protect business properties: Accounting provides protection to businessproperties from unjustified and unwanted use. This is possible by providinginformation the following information to the management:

1.The amount of owners fund invested in the business.

2.How much the business owes to others.

3.How much the business has to recover from others.

4.How much business owns the assets.

This information helps the management in ensuring that the assets do not remainidle or under-utilized.

3.To ascertain the operational profit or loss: Accounting helps in ascertaining the netprofit or loss upon carrying on the business. This is done by maintaining the properrecord of revenues and expenses for a particular period.

4.To ascertain the financial of position of the business: The profit and loss accountsreflects the performance of the business during a particular period. However, it isalso necessary to know the financial position i.e. where we stand. What we owe andwhat we own. The objective is met by Balance Sheet, which shows the state ofaffairs of assets and liabilities as on a given date.It serves as barometer forascertaining the financial health of the business.

5.To help rational decision-making: Accounting these days has taken upon itself thetask of collection, analysis and reporting of information at the required points of timeto the required level of authority in order to facilitate rational decision-making.

Conclusion:

Accounting information is useful not only for the owners and management but alsouseful to Creditors, Employees, Governments and prospective investors. The mainobjective of the accounting is to reflect the true and fair picture of profitability andfinancial position, which helps management to take corrective actions and futuredecisions.



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2.Explain the meaning & Significance of the following 1)Dual aspect 2)Consistency 3)Materiality 4)Full disclosure 5)Cost concept

A)

1)Dual aspect:

This is just like Kirchoffs second law (current flowing towards a node is equal to thatflowing away from it). Dual aspect means that if an organisation receives money,someone must have given it to the organisation or entity. Likewise, if you pay outmoney someone must have received it. This leads to a method of book-keepingcalled double entry book-keeping.

This system is under a simple principle "every debit is having corresponding credit

every credit is having corresponding debit".

Every financial event can be viewed from two perspectives: the effect on an entitysresources and on claims against those resources.Thus at any time accounting equation isAssets = Liabilities + Capital or alternatively;Capital = Assets Liabilities.

For example a owner brings Rs.5, 00,000 in cash as Capital to start the company.Then Rs,5,00,000 is the Capital and corresponding amount of Rs.5,00,000 willappear as cash on hand(assets).



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2)Consistency:

The accounting rules should not be amended unless there is a fundamental change incircumstances. When rules/methods are changed it makes it more difficult tocompare historical (previous) accounts with current ones, unless they are re-worked.

The law requires consistency in the accounting policies applied in the preparation of profit and

loss accounts between,

any base year in Method A schemes or the 12 months immediately preceding the start

of a Method B Scheme,

the first profit period, and,

all subsequent profit periods.

Accounting policies are the specific accounting bases judged by business enterprises

as being, in the opinion of their management, appropriate to their circumstances and

best suited to present fairly their results and financial position. The notes to the

accounts must set out the policies the company has adopted to determine the

amounts to be included in the accounts. It is not acceptable to use alternative

accounting policies for PRP purposes except where specifically allowed by Schedule 8

of ICTA 1988.

Accounting bases are methods developed to apply the fundamental accounting

concepts to financial transactions and items for the purposes of financial accounts,

and in particular to determine,

The accounting period in which revenues and costs are recognized, and,

The amounts at which material items are stated in the balance sheet.



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Materiality:

The materiality rule applies principally to financial accounting. It statesthat if the material consequences of not following an accounting ruleare insignificant, the rule can be ignored. In management accountingthe impact would be the same - you can change your practices as yousee fit providing they don't impact on the financial accounting. Manyorganizations have to provide access to some or all of theirmanagement accounts to government bodies or public organizationswith whom they have contracts, i.e. some form of internal auditing orreporting on the management accounts is undertaken by theseexternal organizations.

Thus, organizations often cannot unilaterally change their internalaccounting practices without consultation or notification to majorcustomers. This often is the case on joint projects or a project that ispart of a greater project, a frequent occurrence in engineering. Themajor partner in these circumstances will demand consistency in theaccounts as these form the basis of pre- or part payments(milestones) as the project/contract progresses.

According to Kohler Materiality means characteristic to a statement,fact or item whereby its disclosure or method of giving it expressionwould be likely to influence the judgment of a reasonable person.

Full Disclosure:

In your initial contacts with a prospective financial planner, youre probably focusingon many issues: how much do they charge, what services do they provide, whatfinancial planning credentials do they have, how can they help you? But among themany key questions you should be asking is one that you may not know to ask: isthe person a registered investment adviser and, if not, are they a Certfied FinancialPlanner professional?

This is a key question because all registered investment advisers (RIAs) mustprovide full disclosure about their business practices. An individual or firm mustregister with either the federal Securities and Exchange Commission or their state

securities agency as an RIA if they provide investment advice as part their business.

Financial planners who hold the CFP certification are also required to disclosegenerally the same information as a registered investment adviser. But financialadvisers who work for banks, or who work as insurance agents or stockbrokers, donot have disclosure requirements, unless they are also CFP professionals.

Now the SEC is proposing an exception to this RIA rule that consumers should beaware of. The law currently exempts stockbrokers from registering as advisers if



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their investment advice is solely incidental to their brokerage services and if theyare not specifically compensated for that investment advice -- unless they have thepower of attorney to buy and sell stocks in a clients account.

The SEC is proposing that stockbrokers remain exempt even if the client is paying forthe investment advice, such as through portfolio management fees. Before the SEC

proposed the rule, stockbrokers calling themselves a financial planner and whoprovided investment advice for a fee would have need to register.

What key disclosures must an RIA make when registering, and why are thosedisclosures helpful to consumers? The RIA must spell out this information on eitherthe federal Form ADV, Part II, or the same information in a customized brochure bythe adviser. Any RIA should provide a copy of the form to you upon request. Youalso can request a copy of Part I, which reveals any disciplinary history. Part IIcovers numerous items, such as the RIAs services and fees, types of clients,education background, business activities, and business affiliations that are helpfulinformation to the public.

For example, RIAs must disclose whether they buy or sell securities that theyrecommend to clients (known as self-dealing), how they are compensated for theirservices, whether they are compensated by a third party for client referrals, or whatother business arrangements they have with outside parties. Some of these or otherarrangements may suggest potential conflicts of interest that might compromise theobjectivity of the advice.

Not all conflicts of interest are inherently bad. The key is full disclosure of thosepotential conflicts, so consumers can judge for themselves whether the conflictscould potentially compromise the planners objectivity and undermine the trust thatis so vital to an effective financial planning relationship. But unless the planner is aregistered investment adviser or a CFP professional, it's difficult to find out whethersuch conflicts exist.

Another key feature of being an RIA is that the adviser must act as a fiduciary -- thatis, the adviser must put the interests of his or her client ahead of the advisers owninterests. "Financial planners" who are not registered as such, or who do not work ina bank or trust department, are not required by law to adhere to this high standard.RIAs also are not permitted to use client testimonials to help attract new clients.

Ultimately, the result of full disclosure is that consumers can better discern whenthey are receiving unbiased advice upon which they can build a deep and trustingfinancial planning relationship -- or merely something that looks like financialplanning but isn't.

Cost Concept:

Transactions are entered in the books of account at the amounts actuallyinvolved. An asset is ordinarily recorded at the price at which it has been acquired.For example a Plot of land purchased by a business firm for Rs.5, 00,000, would berecorded at this value irrespective of its current market price. Cost concept has the



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advantage of bringing objectivity in the presentation of the financial statements. Inabsence of this concept the figures shown in the accounting records would havedepend on the subjective view of a person.

3.Trail Balance is a conclusion proof of accuracy of Accounts-Comment.

A)

Introduction:

The trial balance is a worksheet on which list of all general ledger accounts and theirdebit or credit balance. It is a tool that is used to alert you to errors in your books.The total debits(A debit is one of the amounts in an accounting entry. At least onecomponent of every accounting transaction (journal entry) is a debit amount. Debitsincrease assets and decrease liabilities and equity. For this reason, debits enteredon the left-hand side (the asset side of the accounting equation) of a two-column

journal or ledger) must equal the total credits(A credit is one of the amounts in a

double-entry accounting system entry. At least one component of every accountingtransaction (journal entry) is a credit amount. Credits increase liabilities and equityand decrease assets. For this reason, credits entered on the right-hand side (theliability and equity side of the accounting equation) of a two-column journal orledger). If they don't equal, have an error that must be tracked down.

Text :

The Trial Balance is a simple listing of the nominal (otherwise called general ledger)accounts with the debit balances posted into a debit column and the credit balancesposted into the credit column. Although it looks like an account because it has adebit column and a credit column, it is not an account but merely a list of accountbalances. Simply put, it ensures that for every debit amount there are equal creditamounts in the nominal or general ledger and vice versa.

Looking beyond the mechanics of the Trial Balance to its' purpose, it plays a key partin ensuring that for every recorded movement of value there is an explanation ofthat value in the nominal or general ledger.

When closing out the books at the end of an accounting period, have to preparethree trial balances:

1. A preliminary trial balance is prepared using the general ledger accountbalances before make adjusting entries.

2. An adjusted trial balance is done after preparing adjusting entries and posting

them to general ledger. This will help ensure that the books used to preparethe financial statements are in balance.

3. A post-closing trial balance is done after preparing and posting closingentries. This trial balance, which should contain only balance sheet accounts,will help guarantee that books are in balance for the beginning of the newaccounting period.

Finding Trial Balance Errors:



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When preparing a trial balance, the total debits must equal the total credits. Don't bediscouraged if they don't. Bookkeeping errors happen. Just think of the trial balanceas a tool to find the errors. Use the following steps as a guide to track down the erroror errors.

Be sure the numbers on the trial balance are the same numbers shown in the

general ledger. Check to see if properly classified amounts as debits orcredits on the trial balance.

Go back to journals (sales and cash receipts journal, cash disbursements journal, and general journal). Check that the journal totals were properlyposted to the general ledger. Were the correct amounts posted? Were theyproperly classified as debits or credits?

Go back to each journal again. Look at the totals that were posted to thegeneral ledger. Do total debits equal total credits in each journal?

Go back to each journal again. Did foot each column on each page of thejournal? Did it carry forward all column totals to the next page? Did all theitems entered in the "miscellaneous" column get posted to the generalledger?

Is the difference divisible by nine? If so, it could be a simple transpositionerror. For example, writing down 540 instead of 450 results in a difference of90. Writing down 26 instead of 62 results in a difference of 36. Notice thatboth of these differences are divisible by nine. If the difference betweendebits and credits is divisible by nine, go back to the journals, looking for theerror. Knowing that it may be the result of transposed numbers should help tofind it.

Is the difference between debits and credits 1, 100, 1,000, 10,000, etc.? Ifso, it is probably an addition or subtraction error.

Divide the difference by two. Is the resulting number shown on your trialbalance? If so, check to see if you have incorrectly classified the amount as adebit or credit.

Examples:

After paying the cash out of the safe to the window cleaner credit the Petty CashAccount in nominal ledger which records the reduction in money in safe but alsoneed to record the event as an expense for later management information so debitCleaning account in the nominal ledger for the same amount.

Pay a cheque (check) to purchase a new computer. Make a record on the credit sideof the Bank Account in nominal ledger to record the reduction of the balance of thebank account but you also need to make a debit entry for the same value in the

Office Equipment Account to record that the value has now been moved into thecomputer (an asset).

Make a sale and get paid by cheque (check) which you bank. You need to record theamount of the cheque as a debit in the Bank Account in the nominal ledger (becausethe Whatever Bank is now more of a debtor) but also need to record the sale formanagement information purposes so credit the Sales Account in the nominal ledgerfor the same amount.



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Conclusion:

Each account in the nominal or general ledger has a debit column and a creditcolumn (like the bank account). (A ledger is simply a number of accounts collectedtogether for a specific purpose - other ledgers include the Purchase and SalesLedgers.) In the nominal (or general) ledger individual accounts are kept for eachitem of expenditure or income, asset or liability that needs to be monitored eg.electricity account, sales account, premises account, bank account.

Whenever something happens, it affects an asset account to increase or reduce theassets and that needs to be explained with another entry in an income orexpenditure account. One is recorded as a debit and the other is recorded as a

credit. The Trial Balance summarizes the end result of all these debit and creditentries to ensure no single sided entries have been made in the nominal or generalledger.



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5)What are the causes of difference in the bank balance as shown by thecash book & the pass book.

A)

Introduction:

Depositing of cash or cheques in the bank and withdrawing of cashor issuing of cheques are the main operations, which are done through a bankaccount. When the money is deposited in the Bank,the firm debits the bankaccount , the firm debits the bank account(bank account being personalaccount) and money is withdrawn from the bank, the firms credits bank

account. Thus, balance shown by the firms books in the bank account shouldtally with the balance as shown by the banks book in the account of the firm.Of course , if the balance as per books of account is debit, the balance as perbanks book shall be credit and vice-versa.

However, the balances rarely tally. The difference in two balances would ariseif the all or some of the entries are not recorded.

Bank reconciliation statement aims at locating the discrepancies in the entriespassed between the bank statement or pass book and the bank accountmaintained by the firm.

Usually following are the reasons for the differences between twobalances:

1.Cheques received are entered in the bank book as soon as they arereceived. While such cheques may be deposited in the bank on the same orthe next working day, the bank credit the bank account only upon realizationof the proceeds. Thus during the period from receipt of the cheque tillrealization of the proceeds in to our accounts, there exists the differences inthe bank balances to the extent of cheques pending for realization.

2.Similarly the bank account in the books of account is credited no sooner thecheque is issued. Till such cheques are presented for payment and paid by

the bank the balance as per bank statement is not affected.

3.Bank often debit some amount to the account for the various servicesrendered by them. The entry for such charges is charged in the books ofaccount based on the advice received from the bank. Till such time that theentries are passed in the books of account based on the advice received fromthe bank. Till such time that the entries are passed in the books of accounts,there exists a difference between two balances.



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The cash balance in the books will never agree with the balance shown on the bankstatement because of the delay in checks and deposits clearing the bank, automaticbank charges and credits haven't recorded, and errors may have made in books.After preparing the bank reconciliation, can be comfortable that the account balanceshown on the books is up-to-date.

Another important reason to do a bank reconciliation is that it may uncoverirregularities such as employee theft of funds.

Here are step-by-step instructions for preparing a bank reconciliation.

1. Prepare a list of deposits in transit. Compare the deposits listed on thebank statement with the bank deposits shown in cash receipts journal. Onthe bank reconciliation, list any deposits that have not yet cleared the bankstatement. Also, take a look at the bank reconciliation that prepared lastmonth. Did all of last month's deposits in transit clear on this month's bankstatement? If not, should find out what happened to them.

2. Prepare a list of outstanding checks. In cash disbursements journal, mark

each check that cleared the bank statement this month. On the bankreconciliation, list all the checks from the cash disbursements journal that didnot clear. Also, take a look at the bank reconciliation prepared last month.Are there any checks that were outstanding last month that still have notcleared the bank? If so, be sure they are on the list of outstanding checks thismonth. If a check is several months old and still has not cleared the bank,may want to investigate further.

3. Record any bank charges or credits. Take a close look at the bankstatement. Are there any special charges made by the bank that have notrecorded in books? If so, record them now just as would have if had writtena check for that amount. By the same token, if there are any credits made toyour account by the bank, those should be recorded as well. Post the entriesto your general ledger.

4. Compute the cash balance per the books. Foot the general ledger cashaccount to arrive at the ending cash balance.

5. Enter bank balance on the reconciliation. At the top of the bankreconciliation, enter the ending balance from the bank statement.

6. Total the deposits in transit. Add up the deposits in transit, and enter thetotal on the reconciliation. Add the total deposits in transit to the bankbalance to arrive at a subtotal.

7. Total the outstanding checks. Add up the outstanding checks, and enterthe total on the reconciliation.

8. Compute book balance per the reconciliation. Subtract the totaloutstanding checks from the subtotal in step 6 above. The resultshould equal the balance shown in the general ledger.

Conclusion:

Bank reconciliation is a crucial document to primarily decide the arithmeticalaccuracy of accounts. Most of the transactions of collection and payments arerouted through bank accounts and as such it is essential to prepare bankreconciliation at a periodic interval so as to ensure the all the entries as per



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bank statement are reconciled with that of the entries in the bank account inthe ledge

6)From the following particulars,prepare a bank reconciliation statement as

on 31st December ,2000

1)On 31st December,2000 the cash book showed a bank balance ofRs.6000/-(Debit)

2)Cheque had been issued for Rs.5,000, out of which cheques worthRs.4,000/- only were presented for payment.

3)Cheques worth Rs.1,400/- which were deposited in the bank on28/12/2000 were not credited by bank.

4)A cheque for Rs.400/- deposited on 26/12/2000 was dishonoured &

advice received on 2.1.2001.

5.Pass book showed bank charges of Rs.20/- debited by bank.

6.One customer had deposited Rs.500/- directly in bank account intimationfor which was received from bank as 2.1.2001.

7.Bank pass book showed a credit balance of balance of Rs.5,180 as on31.12.2000.

A)

Bank Reconcilation Statement as on 31st Dec 2000

Balance as per cash book 6,000

Add Cheques issued but not presented 1,000For payment

Less Cheques were deposited but not -1,000

CreditedLess Cheque deposited but dishonoured - 400

Less Bank Charges - 20

Balace as per Pass Book 5,180



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8) Distinguish between (any two)

a) Capital Expenditure & Revenue Expenditureb) Capital Receipts & Revenue Receipts

a) Capital Expenditure & Revenue Expenditure:

This is expenditure on items which you expect to last for more than one year. Thereis no legal definition of capital expenditure. It includes not only equipment bought duringyour accounting year but items which you owned prior to becoming a freelance artist and

now use in your business.

Difference between Capital Expenditure & Revenue Expenditure:

The following are the points, which is distinguishes the expenditure between capital andrevenue.

1.The capital expenditure is incurred either for acquiring a new asset or for improving theexisting assets, while revenue expenditure is incurred either for maintaining the existingfixed assets or for meeting the routine, expenses of the business.

2.Capital Expenditure increases the earning capacity of the business, while revenueexpenditure does not do so, It generally helps in maintaining the existing capacity of thebusiness.

3.The benefits of capital expenditure are available over a period of time, while benefit ofrevenue expenditure is restricted only to accounting period in question.

4.Capital expenditure is recorded (subject to depreciation) in the balance sheet whereasthe revenue expenditure (subject to adjustment for outstanding and prepaid amount) istransferred either to trading account or profit and loss account.

The example for showing the difference between capital expenditure and revenueexpenditure

The difference between these depends in part on the size of your business. If, forexample, you make sales of 5000 a year, then capital expenditure would probably beexpenditure on items lasting more than one year and costing over 25. If you are makingsales of 20,000 a year, then you might treat anything costing under 100 as revenueexpenditure to be written off in the year it is purchased - even if it will last for longer. Youwould then claim capital allowances on anything costing over 100. There are no hardand fast rules. It is recommended that you disclose your chosen policy to the InlandRevenue for approval.



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Does the difference matter?

The reason why it's so important to distinguish between capital and ordinary day-to-dayrunning costs is because of the way in which you obtain tax relief on the expenditure. Onrevenue expenditure you will usually obtain a deduction of 100% of the cost in youraccounts. For capital expenditure you claim capital allowances. In most cases these

amount to 25% of the cost of the item in the first year, and in following years 25% of theremaining balance having deducted previous claims. The capital allowances arededucted from your profit when you work out your tax.

What items can I claim?

car, motorbike, bike - but business proportion only computer, printer and accessories, typewriter camera and photographic equipment (sometimes business proportiononly) drawing board, desk or table, chair or stool work lamps ,light box equipment and tools specific to your trade, eg loom for a weaver, wheel,

kilns, buckets for a ceramicist, etc drawing equipment, stock of brushes, etc storage, plan chests, filing cabinet, drawers, shelves, etc portfolio cases, briefcase, Filofax, electronic organiser stock of slides, projector, epidiascope

TV and video if used in research - but business proportion only (but notefor a video/film/media artist these would count as tools specific to yourtrade) stereo or radio if you need music to work - but business proportion only(but note again for some artists these may be tools specific to your trade -so the whole cost can be offset for business use

heater other than central heating drying racks and heaters to dry fabrics answerphone, fax, telephone and security systems exhibition equipment, table, stands and display items, frames fridge, kettle photocopier stock of reference books and materials.

Capital allowances:

This is complicated and there are detailed rules depending on the type of asset involved.If you have an accountant they will deal with this for you. If you don't read your self-assessment forms carefully and check with other artists how they have filled in that part

of their tax return.

Capital Receipts & Revenue Receipts:

Capital receipts are defined as the proceeds of property sales. However, such sumswill be treated as received when they become payable to the authority, rather than,as now, when actually paid. This change is simply part of the general approach of



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bringing definitions in line with accounting practice and will have no practicalimplications. There is power to vary this definition by regulations and it is likely thatthe repayment of certain loans made for capital expenditure will be, as now, definedas capital receipts.Example for capital receipt is Rs.12,000 have been received towards sale of the fixedassets. Thus the entire amount of Rs.12,000 is capital receipts, but the amount of

capital profit is only Rs.2000/-.

Long-term borrowing will continue to be available only for capital expenditurepurposes. The requirement for authorities to balance their revenue budgets preventsthe use of long-term borrowing to fund revenue expenditure, though the newsystem, like the present one, will confer limited capacity to borrow short-term forrevenue needs in the interests of cash-flow management.Example for revenue receipt is goods costing Rs.25000, are sold for Rs.30000/- andthe cash of Rs.30000 is received. The revenue receipts is Rs.30000/- but therevenue profit is only Rs.5000/-

Differences between Capital receipts and Revenue receipts:1.Capital receipts are normally of non-recurring nature whereas revenue receipts arenormally of recurring nature.2.Revenue receipts are obtained in the course of normal trading operations. Thereceipts, which are not revenue, are regarded as capital receipts.3.Revenue receipts are directly credited to the income statement where as capitalreceipts are not directly credited to the income statement.4.Capital receipts are normally not available for payment as profit to the owner ofthe business whereas the revenue receipts net of revenue expenses and expiredportions of capital expenditures/deferred revenue expenditure is available fordistribution to the owners of the business.



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(iii) Conducting market survey or any other survey necessary for the business ofthe assessee;

(iv) Engineering services relating to the business of the assessee :

Provided that the work in connection with the preparation of the feasibility report or

the project report or the conducting of market survey or of any other survey or theengineering services referred to in this clause is carried out by the assessee himselfor by a concern which is for the time being approved in this behalf by the Board;

(b) Legal charges for drafting any agreement between the assessee and any otherperson for any purpose relating to the setting up or conduct of the business of theassessee;

(c) Where the assessee is a company, also expenditure - (i) By way of legal chargesfor drafting the Memorandum and Articles of Association of the company;

(ii) On printing of the Memorandum and Articles of Association;

(iii) By way of fees for registering the company under the provisions of theCompanies Act, 1956 (1 of 1956);

(iv) In connection with the issue, for public subscription, of shares in or debenturesof the company, being underwriting commission, brokerage and charges for drafting,typing, printing and advertisement of the prospectus;

(d) Such other items of expenditure (not being expenditure eligible for any allowanceor deduction under any other provision of this Act) as may be prescribed.

(3) Where the aggregate amount of the expenditure referred to in sub-section (2)

exceeds an amount calculated at two and one-half per cent - (a) Of the cost of theproject, or

(b) Where the assessee is an Indian company, at the option of the company, of thecapital employed in the business of the company, the excess shall be ignored for thepurpose of computing the deduction allowable under sub-section (1).

Provided that where the aggregate amount of expenditure referred to in sub-section(2) is incurred after the 31st day of March, 1998, the provisions of this sub-sectionshall have effect as if for the words "two and one-half per cent, the words "five percent had been substituted.

B)

Unclaimed dividend:

To file a claim for unclaimed dividends, you must:

1. Send a written request including the bankruptcy case number, the debtor's nameand the amount of monies due to you. If you represent a business, your letter shouldbe written on company letterhead.



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2. State the reason you are claiming this money and why you believe you areuntitled to it.3. Include legible copies of supporting documentation, such as the original proof ofclaim, correspondence from the court, a copy of an original, un cashed cheque etc.

If, because of death, you are not the original entitled party, please include a copy of

the death certificate and will which states that you are the one and only entitled heir.If your business changed as a result of a merger or buyout, please includesupporting documents which show that the assets involved are now due to you.4. Positive identification (copy of current driver's license or passport and copy of yoursocial security card). If you represent a business, include a copy of a business cardwhich reflects your title.5. If you have relocated since you initially filed your claim with the court, please listyour prior address(es) as well as your current residence and telephone number.6. Close your request with a statement that the information you are giving is "trueand correct under penalty of perjury."7. Notarize your request.8. If you are an individual, include a cashier check in the amount of $20.00, madepayable to Clerk of the Court. If you represent a business, a company check is

acceptable.9. If you are an agent acting on behalf of the entitled party, you must include apower of attorney. If you are an attorney, please include an appropriate motion andorder in pleading format.

C:

Bills Receivable:

According to McElrath bills receivable is the unpaid promissory notes oracceptances held by an individual or firm. Once accounts receivable get too old, theyusually become un collectable.

Accounts receivable represent sales that have not yet been collected as cash. Haveto sell merchandise or services in exchange for a customer's promise to pay at acertain time in the future. If business normally extends credit to its customers, thenthe payment of accounts receivable is likely to be the single most important sourceof cash inflows. In the worst case scenario, unpaid accounts receivable will leave thebusiness without the necessary cash to pay its own bills. More commonly, late-paying or slow-paying customers will create cash shortages, leaving the businesswithout the cash necessary to cover its own cash outflow obligations.

Accounts receivable also represent an investment. That is, the money tied up inaccounts receivable is not available for paying bills, paying back loans, or expanding

the business. The payoff from an investment in accounts receivable doesn't occuruntil customers pay their bills. The idea of accounts receivable as an investment isan important concept to understand is to consider the impact of accounts receivableon cash flow.

The following analysis tools can be used to help determine the effect your business'saccounts receivable is having on the cash flow:

average collection period measurement



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using the average collection period accounts receivable to sales ratio accounts receivable aging schedule using the accounts receivable aging schedule

D)

Loose Tools:

Different methods (bases) of calculating depreciation may be used for differentclasses of fixed assets. For example, a company may use the Straight Line Method ofdepreciation for buildings, the Reducing Balance Method of depreciation for motorvehicles and a revaluation method for loose tools. There is a significant effect on thefinal accounts of an organization of using alternative methods of depreciation.

E)

Share premium account:

A company can issue its shares at a premium (i . e for a value higher than the facevalue of the shares) whether for cash or for consideration other cash. The power toissue shares at a premium need not be given by the articles of association. Accordingto section 78, such premium has to be transferred to share premium a/c, which canbe applied only for the following purposes:

1.For issue of fully paid bonus shares to the shareholders;

2.For writing off preliminary expenses of the company;

3.For writing off the expenses of or the commission paid or discount allowed, on

issue of shares or debentures of the company and

4.For providing premium payable on the redemption of any redeemable preferenceshares or debentures of the company.

Accountancy Theory

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