Financial Accounting

For B.Com, BBA, BBM and BMS

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Financial Accounting

For B.Com, BBA, BBM and BMS

Dr. (CA) Minaxi A. Rachchh ICLES’ Motilal Jhunjhunwala College of Arts,

Science and Commerce, Navi Mumbai

Principal Dr. Siddheshwar T. GadadeChairman Board of Studies Accountancy,

Ex Dean, Faculty of Commerce, University of Mumbai.Changu Kana Thakur Arts, Commerce and Science College,

New Panvel (W), Dist Raigad, Maharashtra

CA. Gunvantrai A. RachchhSmt. P. N. Doshi Women’s College,

Mumbai

Vikas® Publishing House Pvt. Ltd.

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VIKAS® PUBLISHING HOUSE PVT. LTD.E-28, Sector-8, Noida-201301Phone: 0120-4078900 • Fax: 0120-4078999Registered Office: 576, Masjid Road, Jangpura, New Delhi-110 014

E-mail: helpline@vikaspublishing.com • Website: www.vikaspublishing.com

• Ahmedabad : 305, Grand Monarch, 100ft Shyamal Road, Near Seema Hall, Ahmedabad-380 051 • Ph. +91-79-65254204 • Bengaluru : First Floor, N.S. Bhawan, 4th Cross, 4th Main, Gandhi Nagar, Bengaluru-560 009 • Ph. +91-80-22281254, 22204639 • Chennai : E-12, Nelson Chambers, 115, Nelson Manickam Road, Aminjikarai, Chennai-600 029 • Ph. +91-44-23744547, 23746090 • Hyderabad : Aashray Mansion, Flat-G (G.F.), 3-6-36118, Street No. 20, Himayath Nagar, Hyderabad-560 029 • Ph. +91-40-23269992, Fax +91-23269993 • Kolkata : 6B, Rameshwar Shaw Road, Kolkata-700014 • Ph. 91-33-22897888 • Mumbai : 67/68, 3rd Floor, Aditya Industrial Estate, Chincholi Bunder, Behind Balaji International School & Evershine Mall, Malad (West), Mumbai-400 064 • Ph. +91-22-28772545, 28768301 • Patna : Flat No. 101, Sri Ram Tower, Bes ide Chiraiyatand Over Bridge, Kankarbagh Main Road, Kankarbagh, Patna-800 020 • Ph. +91-612-2351147

Published in 2015ISBN: 978-93-259-83281Vikas® is the registered trademark of Vikas Publishing House Pvt. Ltd.Copyright © Author

All rights reserved. No part of this publication which is material protected by this copyright notice may be reproduced or transmitted or utilized or stored in any form or by any means now known or hereinafter invented, electronic, digital or mechanical, including photocopying, scanning, recording or by any information storage or retrieval system, without prior written permission from the publisher

Information contained in this book has been published by VIKAS® Publishing House Pvt. Ltd. and has been obtained by its Authors from sources believed to be reliable and are correct to the best of their knowledge. However, the Publisher and its Authors shall in no event be liable for any errors, omissions or damages arising out of use of this information and specifically disclaim any implied warranties or merchantability or fitness for any particular use. Disputes if any are subject to Delhi Jurisdiction only.

Printed in India

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Preface

This book has been written in simple and lucid manner. Due emphasis has been given on practical questions. Variety of problems on each topic has also been included.

The special feature of this book is that in each topic the practical illustrations are divided into different types to understand the topic easily.

This book is divided into two parts; first part covers the theory and the problems on each topic and second part covers problems with solution for every chapter. This book has been specially designed to help the students and readers to understand and get acquainted with practical application of each topic. This book adopts the same approach/es for solving the problems as mentioned in the syllabus. A large number of problems have been solved, keeping in view the difficulties encountered by the students in understanding the subject. Problems have been framed to suit the requirements of the examinations and the trend followed. Hence simple and brief yet difficult problems expected for this subject are carried in the book. Also the level of knowledge expected of the students has been kept in mind while framing the problems.

Our experience in practical and academic field helps us to give our best to the students and teachers. Exercises at the end of each chapter have been provided which would help the students to develop sufficient confidence in facing the examinations. It is earnestly hoped that the students preparing for the examination on the subject would find the book most useful and beneficial. At the same time, the teachers would find this a good companion book for their reference and discussion in the class.

We express our deep sense of gratitude to Mr. Nilabhra Poddar and the whole team of Vikas for encouragement and for bringing out the first edition of this book. Suggestions for the improvement of the book are most welcome.

Email ID: rachchh_a@yahoo.com

Dr.(CA) Minaxi A. RachchhDr. S.T. Gadade

CA. Gunvantrai A. Rachchh

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Contents

Preface v

PART ONE

CHAPTER 1 AmAlgAmAtion of CompAnies (As 14) 11.1 Meaning 11.2 Accounting Standard 14 Issued by Institute of Chartered Account of India 11.3 Types of Amalgamation 21.4 Purchase Consideration 21.5 Methods of Computing Purchase Consideration 21.6 Accounting Procedure in the Books of Transferor Company and Transferee Company 31.7 Illustrations 7 Exercise 71

CHAPTER 2 CApitAl ReduCtion And inteRnAl ReConstRuCtion 932.1 Need for Reconstruction 932.2 Reconstruction of a Company 942.3 Procedure for Internal Reconstruction 972.4 Pro Forma of Capital Reduction Account and Balance Sheet after Reconstruction 1012.5 Difference Between External Reconstruction and Internal Reconstruction 1012.6 Illustrations 102 Summary 144 Exercise 145

CHAPTER 3 investment ACCounting 1553.1 Meaning and Definition of Investment 1553.2 Purpose of Making the Investment 1563.3 Classification of Investment 1563.4 AS 13 1573.5 Accounting Treatments 1623.6 Disclosure Under AS 13 1663.7 Illustrations 1663.8 Summary 2123.9 Key Terms 212 Exercise 213

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viii Contents

CHAPTER 4 CompAny finAl ACCount 2294.1 Introduction 2294.2 Requirements and Contents 2304.3 Some Particulars Items of Adjustments 247

CHAPTER 5 intRoduCtion to ifRs 3675.1 Introduction 3675.2 Users of Financial Statements 3675.3 Purpose and Objectives of Financial Statements 3685.4 Framework for the Preparation and Presentation of Financial Statements 3695.5 Characteristics of Financial Statements 3705.6 The Elements of Financial Statements 3725.7 Recognition and Measurement 3735.8 Convergence and First Time Adoption of IFRS [IFRS – 1] 373 Summary 376 Exercise 377

PART TWO SOlvED QuESTiONS fOR PRACTiCE

Chapter 1 Amalgamation of Companies (AS 14) 381Chapter 2 Capital Reduction and Internal Reconstruction 415Chapter 3 Investment Accounting 447Chapter 4 Preparation of Final Accounts of Companies 469

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PART I

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continue

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