Advance Accounting
Advance Accounting
Advance Accounting
First, the ASB will identify areas where the formulation of accounting standards may be
needed
Then the ASB will constitute study groups and panels to discuss and study the topic at
hand. Such panels will prepare a draft of the standards.
The ASB then carries out deliberations of the said draft of the standard. If necessary
changes and revisions are made.
Then this preliminary draft is circulated to all concerned authorities. This will generally
include the members of the ICAI, and any other concerned authority.
Then the ASB arranges meetings with these representatives to discuss their views and
concerns about the draft and its provisions
The exposure draft is then finalized and presented to the public for their review and
comments
The comments by the public on the exposure draft will be reviewed. Then a final draft will
be prepared for the review and consideration of the ICAI
The Council of the ICAI will then reviews and consider the final draft of the standard. If
necessary they may suggest a few modifications.
Finally, the Accounting Standard is issued. In the case of standard for non-corporate
entities, the ICAI will issue the standard. And if the relevant subject relates to a corporate
entity the Central Government will issue the standard.
International Financial Reporting Standards (IFRS) are a set of accounting rules for the financial
statements of public companies that are intended to make them consistent, transparent, and
easily comparable around the world.
IFRS currently has complete profiles for 167 jurisdictions, including those in the European Union.
RS specify in detail how companies must maintain their records and report their expenses and
income. They were established to create a common accounting language that could be
understood globally by investors, auditors, government regulators, and other interested parties.
The standards are designed to bring consistency to accounting language, practices, and
statements and to help businesses and investors make educated financial analyses and decisions.
2.] Final Accounts of a Company:
Every businessman enters into business activities to make a profit. The role of accounting is to
compile the financial records of a business in such a manner that yields its profit or loss.
All transactions of a business are, in the first instance, recorded in the books of original entry.
These transactions are posted into ledgers in classified form and summarized before arithmetical
accuracy is checked by means of a trial balance. After the preparation of the trial balance, the next
step is preparing the final accounts.
1. Trading Account
2. Profit and Loss Account
3. Balance Sheet
#Feature of Final Accounts:
To know the Profitability of the business: Final accounts help to business to get know
the profitability of the business in a particular accounting year.
Financial Strength: – Final account provides information about the financial strength of
the business. It means, help in deciding whether the business can purchase new assets with
its own fund or not.
Forecasting and Budgeting: – Final Accounts are the basis of the forecasting and the
budgeting for the top management. On the basis of last year’s final accounts, management
decides the business new goal for the current year and preparing the budget for expenses.
Communication: - We need final accounts or financial Statements to communicate our
financial position with different parties (i.e. Investors, Lenders of Money, Supplier and Trade
Creditors and Government etc.)
Growth Rate of business: – With the help of the final account can calculate the growth
rate or our business by comparing the financial statement of the current year with last year.
Trading account is a statement which is prepared by a business firm. It shows the gross profit
of business activities during a specific period. It is a part of the final accounts of the entity. In
other words, the trading account gives details of total sales, total purchases and direct expenses
relating to purchase and sales.
II. Profit and Loss A/C:
A profit and loss account provides you with an overview of your company’s revenue and
expenses over a given period of time. These figures will show you whether your business
made a profit or loss over that period. As a result, it’s one of the most important financial
documents your business will need to produce.
Assets:
Cash and cash equivalents are the most liquid assets and can include Treasury bills and
short-term certificates of deposit, as well as hard currency.
Marketable securities are equity and debt securities for which there is a liquid market.
Accounts receivable (AR) refer to money that customers owe the company. This may
include an allowance for doubtful accounts as some customers may not pay what they
owe.
Inventory refers to any goods available for sale, valued at the lower of the cost or market
price.
Prepaid expenses represent the value that has already been paid for, such as insurance,
advertising contracts, or rent.
Long-term assets
Liabilities:
A liability is any money that a company owes to outside parties, from bills it has to pay to
suppliers to interest on bonds issued to creditors to rent, utilities and salaries. Current
liabilities are due within one year and are listed in order of their due date. Long-term
liabilities, on the other hand, are due at any point after one year.
The common size balance sheet format presents not only the standard information
contained in a balance sheet, but also a column that notes the same information as a
percentage of the total assets (for asset line items) or as a percentage of total liabilities
and shareholders' equity
The comparative balance sheet format presents side-by-side information about an entity's
assets, liabilities, and shareholders' equity as of multiple points in time. For example, a
comparative balance sheet could present the balance sheet as of the end of each year for
the past three years. It is useful for highlighting changes over time.
The vertical balance sheet format is one in which the balance sheet presentation format is
a single column of numbers, beginning with asset line items, followed by liability line
items, and ending with shareholders' equity line items.
Profit and loss appropriation a/c:
It is a special account that a firm prepares to show the distribution of profits/losses among the
partners or partner’s capital.
This account should not be confused with the typical Profit and Loss Account but rather seen as
an extension of it as it is made after making the Profit and Loss Account.
Overall the firm uses it to show the allocation and distribution of Net Profit among the
partners, reserves, and dividends.
B. Manufacturing a/c:
The main purpose of preparing the manufacturing account is to ascertain the cost of goods
manufactured during the financial year and to ascertain the amount of any profit or loss
occurred during the manufacturing process.
The manufacturing account provides information of all the expenses and costs incurred in the
preparation of the goods to be sold. It includes the expenses incurred in preparing the goods
but not the finished goods. All the expenses including the cost of raw materials, the cost of
machines and their maintenance, the salaries and wages of both skilled and unskilled
workers, depreciation of the assets are also included under this account.
3.] Accounts of holding companies:
Holding company:
A holding company is a corporation that doesn't produce or sell anything, but makes its
money from owning shares of other businesses.
Holding companies, which are sometimes called "parent companies," control the assets of
other companies, known as subsidiaries. Though they hold financial control of these
businesses (and make a lot of money from them), they generally don't make any day-to-day
decisions in running them.
Subsidiary company:
Subsidiary companies are a common way for corporations to expand into international
markets. As independent entities, the risk for the wider corporation is minimized. Subsidiary
companies are often distinct brands, positioned under an overall holding company.
# The advantages of a subsidiary company:
Brand recognition: As subsidiaries grow in size, they can establish their brand
recognition and increase the overall share of the market.
Increased efficiencies and diversification: By creating subsidiary silos, they’re able
to achieve greater operational efficiency through building a management style and
corporate culture that works for them.
Tax benefits: Subsidiaries can receive tax advantages, especially if a subsidiary is
organized in a different state or country.
Easier mergers and acquisitions: Subsidiaries can merge or sell company subdivisions
easier and cheaper than if it was a parent company.
Nonprofit benefits: Nonprofit organizations can engage in for-profit activities while
maintaining the parent’s nonprofit status.
Share capital -
General reserve -
# Accounting Treatment:
Journal Entries:
On the debit side, we record:-
We can avoid the debit balance of the Profit and Loss Account and the overvaluation of
assets. For this, we have to:
Note: We transfer the balance in the Capital Reduction A/c to the Capital Reserve A/c.
Balance Sheet
1. Companies must add the word “and Reduced” after its name on the Balance Sheet.
2. The Balance Sheet of the reconstructed company must show the written-off amount for 5
years under respective assets.
a) Alteration of Share Capital: Section 61 to 64 of Companies Act, 2013 deals with alteration of
share capital. It may take the form of fresh issue of new shares, conversion of fully paid
shares with stock, cancellation of unissued capital, consolidation of existing shares and
subdivision of existing shares.
# Amalgamation:
An amalgamation is a combination of two or more companies into a new entity.
Amalgamation is the combination of two or more companies into a brand new entity by
combining the assets and liabilities of both entities into one.
Pros
Can improve competitiveness
Can reduce taxes
Increases economies of scale
Potential to increase shareholder value
Diversifies the firm
Cons
Can concentrate too much power into a monopolistic firm
Can lead to job losses
Increases the firm's debt load
#Objectives of Amalgamation:
i) To reap economies of scale
#Types:
(i) All the assets and liabilities of the transferor company become, after amalgamation, the
assets and liabilities of the transferee company.
(ii) Shareholders holding not less than 90% of the face value of the equity shares of the
transferor company (other than the equity shares already held therein, immediately
before the amalgamation, by the transferee company or its subsidiaries or their
nominees) become equity shareholders of the transferee company by virtue of the
amalgamation.
(iii) The consideration for the amalgamation receivable by those equity shareholders of the
transferor company who agree to become equity shareholders of the transferee company is
discharged by the transferee company wholly by the issue of equity shares in the transferee
company, except that cash may be paid in respect of any fractional shares.
(iv) The business of the transferor company is intended to be carried on, after the
amalgamation, by the transferee company.
(v) No adjustment is intended to be made to the book values of the assets and liabilities of the
transferor company when they are incorporated in the financial statements of the
transferee company except to ensure uniformity of accounting policies.
If any one or more of the above conditions are not satisfied in an amalgamation, such
amalgamation is called amalgamation in the nature of purchase.
#Steps in Accounting :
# Purchase Consideration:
Purchase consideration means the price payable by the Purchasing co. to the shareholders of the
Selling co. for the Business taken over by the Purchasing co.
IN THE BOOKS OF TRANSFEREE COMPANY(PURCHASING COMPANY):
5.] A. Social account and Environment account:
Social accounting may be defined as identification and recording of business activities regarding
social responsibility. Social responsibility concept is the one of the important concept of
management. It is the duty of enterprise to do some social activities for completing their social
responsibility.
Social accounting is very important tool to measure the performance of any company in view of
social responsibility. Company has to make social responsibility income statement and balance
sheet. But it is not compulsory to make these statements.
2. Help to employees:
Company can help employees by providing the facility of education to children of employees,
providing transport free of cost and also providing good working environment conditions.
3. Help to society:
Because companies' factories spread the pollution in natural society which is very harmful for
society . So, enterprise can help to society by planting the trees, establishing new parks near
factory area and also opening new hospitals
4. Help to customers:
In social accounting this the part of benefits given by company to society , if company provides
goods to customers at lower rate and with high quality .
5. Help to investors:
Company can help to investors by providing transparent accounting information to investors.
Because of many objectives are related to safeguarding of natural resources so this accounting is
also known as social and Environmental Accounting,
It is easy to define human resource accounting. Human Resource Accounting tracks and manages
employees’ costs and values, including performance, compensation, benefits, and training. HR
professionals use various tools to track and analyze data, such as employee surveys,
performance reviews, and compensation and benefits reports. In addition to tracking employee
performance, HR professionals also need to track the performance of the organization as a
whole.
Identifying and understanding the needs of the organisation and its employees
Identifying and developing the appropriate human resources
Implementing effective recruitment, selection, training, development, and compensation
programs
Maintaining an accurate and up-to-date HR system
Ensuring that all employees are treated equally and fairly
Maintaining an accurate and up-to-date payroll system
C.) Responsibility accounting:
There are four types of responsibility centers, namely the cost center, revenue center, profit center,
and investment center.
Profit center :
It contributes to both revenue and expenses, resulting in profit and loss, respectively. For
example – The product line is a profit center, and the responsible person is the product
manager.
Cost center:
The center only contributes to specific costs that have been incurred. For example – The
housekeeping department will only incur costs.
Revenue center:
The revenue center only leads to the generation of sales. For example – Sales department of
an organization.
Investment center :
The center is responsible for profits and returns on investment. The latter includes the fund
which is invested in the organization's operations. For example – A subsidiary entity of a
company is an investment center. The responsible person in that instance would be the
president of the subsidiary.