1

SHARE CAPITAL TRANSACTIONS

Introduction
Joint stock company is an association of persons and has an objective carrying out
some business for profit. Company form come into existence after industrial revolution due to
limitations of proprietorship and partnership firms in carrying out business on a large scale.
Capital of a company is called share capital, which can be divided into transferable small
denominations. Each such unit of denomination is known as share. Company has separate
legal existence.

Types of Companies

Statutory Companies: These companies are created by the special Act of State or Central
legislature. E.g., Life Insurance Corporation of India, State Bank of India, Gujarat State
Financial Corporation etc.
Registered Companies: The companies, which are registered and formed under the
Companies Act, are called Registered Company.
Companies limited by shares: In these companies, liability of the shareholders is limited up
to the extent of the face value of shares held by them. Most of the companies are of this kind.
Company Limited by Guarantee: In such companies, in the event of liquidation, the liability
of shareholders is limited to a specified amount as guaranteed.
Unlimited Company: Liability of members of such company is unlimited. In other words, in
these companies, every shareholder is liable for all the liabilities of the company till all
creditors of the company are paid off. Currently, there is no such provision in the companies
act for incorporation of such companies.
Private company: A private company is one which, by its articles,
(i) restricts the right to transfer of shares, (ii) limits the number of its members to fifty, (iii)
prohibits any invitation to the public to subscribe for any shares or debentures.
Public company: A public company is all companies other than private companies.

Private company should have minimum 2 members whereas public company should
have minimum 7 members. There is no limit to the maximum number of members in
case of public company.
Kinds of Shares

Total share capital of a company is divided in small denominations of units is known as

shares. For, shareholders, shares indicate the extent of ownership of company. Each such
share is allotted a distinctive number. Share is an asset which is movable and transferable.
Authorized or Registered or Nominal Capital : This is the amount stated in the capital
clause of the memorandum of Association with which the company was registered. This is the
maximum capital which the company can raise during its lifetime. The share capital is divided
into shares of specified denomination such as Rs. 10 , 50 , 100 and so on. It is not necessary
for a company to issue the entire amount of capital mentioned in the memorandum at one
and the same time.
Issued capital : The part of authorized capital which is offered to the public for subscription ,
including shares offered to the vendors for subscription other than cash is called issued
capital.
The part of authorized capital not offered for subscription to the public is known as Un- issued
capital, which can be offered to the public at a later date.
Subscribed capital: It is that part of issued capital which represents face or nominal value
of shares subscribed for by persons i.e. applied for by prospective share holders and allotted
by company.
Minimum subscription should not be less than 90% of the issued capital.
If this condition is not satisfied ,the company shall refund the entire subscription. If a delay
beyond 8 days occurs the company shall be liable to pay interest @ 15%.
Called up capital: The portion of the subscribed capital that the directors require the share
holders to pay on the shares allotted to them is known as called up capital.
It is not necessary for directors to call for the entire amount on shares subscribed by the
share holders.
The balance of subscribed capital which has not been called up denotes uncalled capital. This
can be required to be paid by the shareholders as and when the directors feel the necessity of
additional resources by making calls.
Paid up capital: The amount of called up capital which has been actually paid by the
shareholders is called paid up capital. The difference between called up capital and paid up
capital is termed as calls in arrears means shareholders failed to pay call money.
Reserve capital: A company may by special resolution keep certain portion of its uncalled
capital for the purpose of liquidation which is called reserve capital.

Issue of shares:
The shares of the company can be issued in 2 ways , (1) for cash (2) for consideration other
than cash.

Issue of shares for cash

Again these shares can be issued in 3 ways,
(1) at par (2) at premium (3) at discount .

At Par
If the issue price of a share is equal to the face/par value of the shares it is said to be an
issue at par . e.g. when a share of Rs.10 is issued at Rs.10 only , it is said to be issued at par

At Premium
When a company issues its securities at a price more than the face value, it is said to
be an issue at a premium. Premium is the excess of issue price over face value of the
security. e.g. When a share of nominal value of Rs.100 is issued at Rs.105, it is said to have
been issued at premium of 5%.

Premium is generally called with the amount due on allotment however sometimes it
may be called with application money and rarely with the call money.
The amount received as premium has to be credited to separate account called
share/securities premium a/c. According to section 78, share premium a/c can be applied for :
1.
2.
3.
4.

Issue of bonus shares

Writing off preliminary expenses
Writing off discount allowed on issue of shares or debentures
For providing premium payable on redemption of any redeemable preference shares or
debenture.

At Discount
1. When a share is issued at a price lower than its face value, it is said that the shares are
issued at discount, e.g. shares par value s Rs.100 , issued at Rs.90, it is said that
shares are issued at discount of 10%.
2. According to section 79 of Companies Act , 1956, a company can issue shares at
discount, subject to following,
3. Issue of shares at discount is authorized by a ordinary resolution passed by the
company in general meeting and sanction by the Company Law Board
4. Not less than 1 year elapsed since the date on which company was entitled to
commence business
5. The shares are of a class which have already been issued
6. The ordinary resolution should specify the maximum discount at which shares are to be
issued
7. Issued at discount to be made within a period of 2 months from the sanction from the
company.

Short Questions
1. What are the different categories of share capital by which they are shown on
balance sheet of a Company?
Authorised Capital, Issued Capital, Subscribe Capital, Called up Capital, Paid up

the
Capital.

2. Discuss various types of shares of a company.

There are two types of share of company:
(i) Ordinary shares or Equity shares and
(ii) Preference shares.
3. What is a Redeemable Preference Share?
Those preference shares, on which the share capital is to be returned (redeemed) after
certain years, are called redeemable Preference Shares.
4. What is the minimum amount that must be called by the company alongwith share
application?
The company must call a minimum of 5% of the face value of shares alongwith share
application.
5. What are the uses of share premium?
A company can utilize share premium (i) in issuing fully paid bonus shares and (ii) in
writing of preliminary expenses.
6. If a company wants to issue shares at a discount, what can be the maximum rate of
discount?
The maximum rate of discount is 10%, with some exception.
7. When can a company issue shares at a discount?
A company can issue only those shares at a discount which it had issued previously.
8. When a company forfeits the shares, which is the main account that is debited? With what
amount?

The main account debited on forfeiting the shares is the Share Capital Account. It is
debited with the actual amount called up by the company till the date of forfeiture.
9. Can a company forfeit shares, even through there is no provision in the Companies Act for
forfeited shares? When?
Yes, the company can forfeit the shares, if there is a provision in the Articles of the
company, even though there is no provision for forfeiting shares in the companies Act.
10. What is Forfeited Shares Account? Which amount is credited to this account?
Forfeited Shares Account is an account opened when shares are forfeited by the company
to credit the amount forfeited. The amount so far paid by the
shareholder is credited to this
account.
11.

If a company want to reissue forfeited shares, at what minimum price can it do so?

When forfeited shares are reissued, the company can give maximum discount
upto the amount received from the previous shareholder.

12.

To what account is the balance of Forfeited Share Account transferred?

When forfeited shares are all reissued, the balance of Forfeited Shares
Account is transferred to Capital Reserve account.

13.

When can Share Premium Account be debited on forfeiture of shares? Is it

necessary to keep balance of share premium account in proportion to Share Capital
Account when forfeited shares are reissued?

When the shareholder has not paid the amount of Share Premium, the said amount is
debited to Share premium Account when his shares are forfeited. But when such shares are
reissued, it is not necessary to Credit Share Premium Account with proportionate amount.
14.

When a company forfeits shares issued at a discount and when such shares
arereissued, what would be the effect on Share Discount Account?
When sares issued at a discount are forfeited, the proportionate amount of
discount on such shares is credited to Share Discount Account. When such
forfeited shares are reissued, the same amount is again debited to Share
Discount Account.

15. Explain the meaning of Authorised Capital.

The maximum amount of share capital that company is authorized to issue during its
life time is stated in its memorandum of association and is known as authorized capital. It is
also known as Nominal Capital.
16.

Where is the balance of share discount account indicated in the balance sheet?
The balance of share discount account is shown in the balance sheet on the
asset side under the heading Miscellaneous Expenditure (not written)

17. What is sweat equity share?

By Amendment to Companies Act in 1999, Sec. 79A has been inserted providing
for
issue of equity shares by the company to employees or directors at a discount or for
consideration other than cash is called sweet equity share.
18. How many percent p.a. interest, the company can charge under the
Companies Act if the called amount is in parts?

The company can charge upto 5% interest p.a.

provisions

of

Statements : Whether True of False

1. A company is not allowed to return any amount received on any type of shares during its
lifetime.
False, the companies are allowed to return money received on redeemable preference
shares.
2. A company can issue shares at any rate of discount.
False, a company can issue shares at a maximum discount of 10%.
3. A company cannot accept calls in advance.

False, a company is entitled to receive calls in advance.

4. There is provision in the Articles of the company that the shares are to be forfeited, if the
holder of the shares does not pay call money.
False, there is no provision in the Companies Act for forfeiting shares, but companies make
provisions in the Articles for forfeiting shares.
5. When a company forfeits shares, it returns the money paid on it to its shareholders.
False, when shares are forfeited, the company forfeits the amount paid on them by the
shareholder.
6. When a company forfeits shares, it will debit the Call Account, which is not paid and will
credit share capital account.
False, on forfeiting shares, a company debits Share Capital Account and credits
Calls
Accounts on which money is not paid.
7. When shares are forfeited, the amount not paid on calls is credited to Forfeited Shares
Account.
False, when shares are forfeited, the forfeited shares account is credited with the amount
paid by the shareholder so far.
8. Forfeited shares can be reissued at any price.
False, a company can reissue forfeited shares at the maximum discount equal to the
amount forfeited only. It cannot, reissue shares at a lower price.
9. When a company forfeits shares which are issued at a premium, it will always debit
Securities Premium A/c along with Share Capital A/c.
False, if the amount of premium is already, received on shares forfeited, then Securities
Premium Account is not debited.
10. When Securities Premium A/c is debited on forfeiture of shares, the proportionate account
must always be credited to Securities Premium A/c at the time of reissue of these shares.
False, it is not necessary to credit Securities Premium Account when forfeited shares are
reissued.
11. In case of share application, the first entry is made for amount of application money
received and then it is transferred to Share Capital A/c. Similarly, in case of allotment
also, an entry for allotment money received is made first.

False, in case of allotment, first entry is made for allotment money due and then
an
entry is made for allotment money received.
12.

As soon as shares are forfeited, balance of forfeiture account in transferred to

Capital Reserve.

False, the balance of Forfeited Shares A/c in transferred to Capital Reserve A/c only
when all forfeited shares are reissued.
13. Paid up Capital is the subscribed Capital.

False, paid up capital is the amount paid by shareholders towards share capital, while
subscribed capital is the amount of face value of shares subscribed by shareholders.

14.

The company always debited Forfeited Shares Account while forfeiting shares.
False, share capital A/c is debited.

15.

The balance of forfeiture account is generally transferred to capital reserve

True

16. When the Company issues the shares at a price less than its face value it is
company has issued the shares at a discount.

True

account.
said

that

DEBENTURES

2.

Introduction
The long term requirement of capital is usually met by a company from two
broad sources: (i) Share Capital (Owners' Capital) and (ii) Loan or borrowed capital.
Large and financially sound companies take long-term loans from financial institutions.
Sometimes, instead of borrowing such loans from financial institutions or in addition to
borrowing such loan, companies can raise funds from the public by issue of securities. Such a
security is also popularly known as bond or debenture.
Companies carrying on business have the inherent power or authority to bor row
money. Based on this inherent power, companies borrow long-term funds from the
public. Against the money so borrowed, the company issues a document acknowledging its debt to the investor. Such a document is known as a debenture.
Debenture is a document that confirms ,the debt of the company and its acknowledgement of the debt. It is issued under the common seal of the company. The company
repays the money borrowed against a debenture at a future date as per the terms of issue
of debentures to the holders of the debentures. Such investors or holders of the debentures who have invested money in the company are known as debenture holders.
Debenture is a document relating to the money lent or given as a loan to the
company.
Debenture is a security that bears a fixed rate of interest on which the interest is
payable on a predetermined date. Such interest payment has nothing to do with the profit of the company. In other words, it is compulsory and the company has to pay the interest on the
debentures even if it has not earned a profit.
Debentures can be issued with or without charge on the assets of the company. Charge
on the asset means the asset is offered as a security against the debt of the company. Such a
charge is also known as mortgage or hypothecation.
Usually, debentures are listed on the stock exchange after the issue thereof and are
traded at the stock exchanges where they are listed. The market value of such
debentures could be more or less than the price of the issue. If the terms of the issue of
debentures so provide, the debentures can be converted into shares.
Debentures are shown under the heading "Secured Loans" in the balance sheet of a
company, if they are secured.
When debentures are issued for a fixed term, the money borrowed against such
debentures is repaid at the end of a fixed term in accordance with the agreed terms.

Debenture holders do not have any voting right in any matter of the company.
Debentures cannot be forfeited if some debenture holders do not pay, money thereon.
In the event of the liquidation of a company, the debenture holders are repaid their
money before the payment to equity shareholders.

Types of Debentures
Classification of debentures is made as under
Based on Security :
(1) Secured or Mortgage Debentures: When this type of debentures are issued,
some or all of the assets of the company are given as secu rity. In other words, a
charge is created on the assets of the company. Such a charge could be of two types fixed charge or floating charge. The company cannot dispose off such charged or
mortgaged assets without the consent of the debenture holders.
(2) Unsecured or simple or Naked Debentures: Such debentures are issued without
giving any security or creating any charge on the assets of the company. On such
debentures, the company only gives a promise to pay the interest on the due dates
and the repayment of the principal amount on the date of maturity. From the investors'
viewpoint, such debentures are risky for them.
Based on Conditions of Redemption :
(1) Redeemable Debentures : The debentures which are issued with a condition that
the amount of debentures can be repaid after a certain period are known. as redeemable
debentures. The period of redemption is stated in the Debenture or Trust deed.
(2) Irredeemable Debentures : Generally, money borrowed against such debentures is
repaid only at the time of the liquidation of a company. Thus, there is no undertaking
by the company about the specific time at which the money will be repaid.
(C) Based on Negotiability and Record Viewpoint :
(1) Registered Debentures : The Company maintains a Register of Debenture holders. The
Register contains the name, address and other particulars related to debenture holders. For
the transfer of such debentures, it is essential to get the transfer registered with the company
and the company makes an entry of the transfer in register maintained by it
(2) Bearer Debentures : There is no need to register the transfer of such debentures
with the company. The Purchaser has to make a payment to the seller of the
debentures and take the delivery of the debenture instrument. Thus, bearer debentures
are like currency notes and can be transferred by mere delivery. The person who
possesses such debentures is the holder thereof and enjoys all the rights thereof. The
Interest coupons are attached with such debentures for periodic interest payments and

such coupons are like cheques or orders for payment of interest which can be enchased
through the bank on due dates for the payment of the interest.
Based on Convertibility.:
(1)Convertible Debentures : The debentures which can b e converted into equity
shares or is automatically converted into shares for full or part of the amount of the
debentures after a specified period are known as convertible debentures.
(2) Non-Convertible Debenture : Such, debentures cannot be converted into shares.
Based on Priority of Redemption
(1) First Debentures : Such debentures have first charge on the assets given as
security and are repaid before any other, debentures are paid out..
(2) Second Debentures : Such debentures are paid off only after the first charge
or the first debentures are paid off.

Formalities for the issue of Debentures and the Related Provisions of the Companies
Act
When it is decided to issue debentures, a resolution is passed at the meeting of Board
of Directors of the company.
The resolution should state the amount of the debentures, the number of debentures,
rate of interest thereon, date of redemption and other terms related to the issue of the
debentures.
If the amount of the debentures together with other borrowed funds exceeds the total
amount of, paid up capital plus free reserves of the company, a resolution for the issue
of debentures is required to be passed at a general meeting. of the company.
For the issue of the debentures, a company should issue a Prospectus or a
Statement in lieu of the prospectus inviting the public to subscribe for debentures
giving full information as required by the provisions of the Companies Act.
If the debentures are redeemable beyond a period of 18 months from the date of
issue, debenture trustees are also required to be appointed to protect the interest of
the investors and their names are to be disclosed. A Debenture Rede mption Fund is also
required to be created for the purpose of the redemption of debentures.
For public subscription or rights offer of debentures, credit rating, by a recog nized
rating agency, is also mandatory.
When debentures are issued to the public, the money received on the application has
to be kept credited in a scheduled bank in a separate account opened for the purpose.
The company secretary prepares a list of applications received and the statement of
allotment after the closure of public subscription.

Issue of Debentures at Par

When the full amount of the debentures is called up at a time
For example, a company issued 5000 10% debentures of Rs 100 each.
Issue of Debentures at a Premium :
The way a company is able to issue shares at a price higher than the face value of
the shares, the debentures can also be issued at a price higher than the nominal or
face value of the debentures. Such an additional amount is called a premium and is
credited to the 'Debentures Premium Account' or 'Securities Premium' account. Like share
premium, debentures premium is also a capital profit and hence the same cannot be used
for distribution of the dividend but can be used for writing off expenses like
preliminary expenses, discount on issue of shares or debentures, share or
debenture issue expenses, etc. The amount of Debenture Premium (balance of
account) is shown under the heading Reserves and Surplus in the balance sheet
like Securities Premium.
Issue of Debentures at a Discount
When debentures 'are issued at a price less than the face value of the debentures, the
reduced amount of the face value is known as 'debenture discount'. This amount ,of discount is
debited to the 'Debenture Discount Account' or Discount on Issue of Debentures Account'.
There is no restriction in the Companies Act as regards the maximum discount which can
be given on the issue of the debentures. If there. is no restriction in the Articles of Association of
the company, debentures can be issued at a discount. Like 'Share Discount', 'Debenture Discount'
is also shown on the asset side in the balance sheet .Under the heading 'Miscellaneous
Expenditure'.
Important Note
When calls on debentures are in arrears, such amount of arrears will be shown in the
balance sheet of the company by way of deduction from the called up amount of debentures
in the inner column and only net amount will be shown in the outer column.
the debentures cannot be forfeited even if the calls thereon are in arrears as it is debt of
the company.
Accounting Entries [Various cases] for Writing Off Debenture Discount
Discount given at the time of issue of debentures is a loss for the
Since the company uses funds raised through debentures for many years, the
discount is not written off to the profit and loss account of the year
debentures are issued. Usually, debenture discount is written off over a
certain years according to the following methods.

company.
debenture
in which
period of

[a] If debentures are redeemable after a certain specified period, the debenture discount
is written off equally over such period.
[b] If some part of the amount of the debentures is to be repaid every year, the debenture
discount is to be written off in proportion to the amount for which the benefit is
received every year by the company.
[c] Debenture discount in respect or permanent or irredeemable debentures should be
written off over a longer period.
The amount of debenture discount written off every year is debited to Profit and
Loss Account of the respective year and is credited to the Debenture Discount Account.

Issue of Debentures as Collateral Security

When a company borrows money or avails of an overdraft from the bank, it sometimes gives
its own debentures as security. The debentures so issued are known as debentures issued as
collateral security. If the company repays its dues to the bank the bank will return the
debentures to the company and the debentures so received are cancelled by the company.
However, if the company fails to repay the dues. Of the bank by the due date, the bank can
recover its money by selling off the debentures in the market. The persons purchasing
debentures from the bank will get all the rights of the debenture holders.
There are two methods to show such debentures in the books of account.
Debentures given to a bank as security are only for the security of the loan. No
accounting entry is passed in the books of the company for the same. However, along
with the bank loan the same will be shown in the inner column under the heading
'secured loans' on the liability side of the balance sheet (As shown below).
For example,
Balance Sheet as at 31st March 2005
Capital Liabilities

Amount
Rs.

Bank Loan

2,00,000

(Against which
Company has given
its 9% debentures
Of Rs. 2,50,000 as
Collateral security)

Assets

Amount
Rs.


If a company fails to repay the bank loan, the bank becomes the owner of such
debentures issued as collateral security and becomes the debenture holder.Of course, the
bank can recover the amount of the loan by selling off such debentures in the market.
In such circumstance, accounting entry is passed in the books of the com pany for
debentures.
If the debentures given as collateral security are to be recorded in the books
of account, the entry will be as under:
Date Particulars

L.F. Debit Rs.

Debenture Suspense Account

Dr

Credit
Rs.

2,50,000

To Debentures Account

2,50,000

(Entry for giving debentures of Rs

2,50,000 a collateral security to the
bank against a loan of Rs 2,00,000)
The Debenture Suspense Account will be shown on the asset side of the balance sheet
and the Debentures will be shown on the liability side of the balance sheet If the money due
to the bank is repaid, the debentures received back from the bank will be cancelled and the
above entry in the books of the company will be reversed.

Issue of Debentures for Consideration other than Cash

Like shares, debentures are also sometimes issued for consideration other than cash.
For example, the issue of debentures against the purchase of assets like land-building, plant
and machinery, issue of debentures against purchase consideration at the time of purchase of
business etc. In such cases, the journal entries will be as, under.
Sundry Assets Account

Dr

(Business assets taken over)

To Sundry Liabilities Account

(Business liabilities taken over)

To Vendor Account

(Purchase price)

(Entry for purchase of business assets and liabilities)

Vendor Account

Dr

To Debentures Account
(Entry for issue of debentures of the company against purchase price)

Redemption of Convertible Debentures

During last few years, companies have issued convertible debentures in India. Under this
method, a company issues certain fixed shares after a specified period to the debenture holders
against their debentures as per the agreed terms. Debentures attract investors if the price of
the company's shares is high.
The following journal entry is passed in the books of the company when the debentures are
converted into equity or preference shares.
Debentures Account , Dr
To Equity/Preference Share Capital Account
When debentures are converted into shares, such shares should be issued at par or at
premium. In other words, when debentures are converted into equity shares before the due
date, care should be taken to see that such shares are not issued at a discount;
otherwise it will amount to violation of provisions of Companies Act.

Methods of Redemption of Debentures

Any of the following methods may be chosen by the company for the redemption of
debentures.
(1).Redemption of Debentures on a Fixed Date : Since the amount of Redeemable
debentures is to be repaid on a predetermined fixed date or dates, such a date is mentioned in
the Debenture Certificate when issued If such a date is not fixed, the company can redeem
such debentures by serving a notice of a certain period to the debenture holders.
(2) Redemption of Part of Debentures Every Year : If it is provided in the terms
of issue of debentures that a certain part of the total debentures will be redeemed every
year, the debentures can be redeemed every year according to such terms.
(3) Purchase from Open Market : Companies can buy its own debentures from the
market. If at the time of issue it is provided that the company can buy its own
debentures from the market, the company can purchase the same from the open market
and cancel them. If the market price of debentures is less than the face value, it will be a
gain for the company.
(4) Buy-Back Method : If a provision is made at the time of issue of debentures that
the company can buy back its debentures from debenture holders, the company can
buy such debentures from the debenture holders after a period of one year from the
date of issue thereof. In such a case, the company can repay the money to the
debenture holders by periodic repurchase or buy back of debentures.
(5) Conversion of Debentures into Shares : As per the terms of the issue of debentures,
a company can issue its equity or preference shares in lieu of debentures to the

debenture holders. Debentures can be so redeemed by the issue of shares in lieu of

debentures. When debentures are converted into shares,

Provision of Funds for Redemption of Debentures

When debentures are to be redeemed after a fixed period, the company is aware
about the time and amount of money required for such redemption. When the funds of the
year are used to repay the amount of the debentures then the working capital of the year
will decrease. However, it is advisable that the company sets aside a certain amount every
year out of its profit for the 'purpose of redemption and creates fund for the redemption
as it will not create an adverse impact on its working capital.

Debenture Redemption Fund (or Reserve) or Sinking Fund Method

According to this method, A company transfers a certain amount of its profit every year
to the Debenture Redemption Fund (DRF). The amount to be transferred can be readily
known from the Sinking Fund Table. This amount is determined in such a way that the
amount so set aside out of the profit every year together with the interest earned
thereon will make an amount. equal to the funds required for the redemption of debentures
on the due date. Every year a certain amount is appropri ated out of the profit and
credited to the Debenture Redemption Fund account. Such amount is also invested.
Interest earned on this amount every year is also credited to, the Debenture
Redemption Fund account and the same is also reinvested.

Short Questions
1. What are Convertible Debentures?
Those debentures which are partly or fully converted into equity shares of a company after
a fixed period, are called Convertible Debenture.
2. If a company redeems few debentures every year, how should it write off debenture
discount?
If the company redeems some debentures every year, the debenture discount is written
off in proportion to the debentures outstanding during the year.
3. State various types of considerations in which debentures are redeemed.
Debentures can be redeemed in three forms of consideration : (1) Cash (2)New Shares (3)
New Debentures.
4. State the names of main methods of redemption of debentures.
Debentures are redeemed mainly in following four ways (a) Redemption at a fixed time in
future (b) By purchasing debentures from open market (c) By redeeming certain number of
debentures every year (d) By Buy back of debentures from debenture holders.

5. Give names of two methods according to which provision is made for redemption of
debentures.
Provision for redemption of debentures is made by either Sinking Fund method or by
Insurance Policy Method.
6. In which account is the interest received on Debentures Redemption Fund Investments
credited?
Interest received on debenture redemption fund investments is credited to Debenture
Redemption Fund.
7. In case of issue of which debentures, it is not necessary to create Debenture Redemption
Fund?
When a company has issued convertible debentures, it is not necessary to raise debenture
redemption fund.
8. When the purpose of debenture redemption fund is over, where is that account
transferred?
When the purpose of debenture redemption fund is over, that is, when
debentures are
redeemed, its balance is transferred to General Reserve Account.
9. Where is the profit or loss on sale of debenture redemption fund investment transferred?
Profit or loss on sale of debenture redemption fund investments is transferred to Debenture
Redemption Fund A/c.
10. Where is the amount of debenture redemption premium transferred?

Debenture redemption premium account is closed by transfer to either Securities

Premium a/c or to Debenture Premium A/c.
11. At the time of redemption of debentures, if the outstanding interest is also
paid what
journal entry is made?

Sometimes when debentures are redeemed in the middle of the year, some interest is
still not paid on it. To pay this interest, two entries are made (i) In the first entry, profit and
loss account is debited and debenture interest is
credited. (ii) In the second entry,
debenture interest account is debited and
debenture holders account is credited.
12.

Where is the amount of debenture premium used for?

Debenture premium is used for writing off debenture or share issue discount,
preliminary expenses, goodwill etc.

13.

What is debenture issued as collateral security?

When the company may make out debentures in proper form and lodge them
with the bank as an additional security that may be agreed upon for loan or
overdraft granted by the bank is called debenture issued as collateral
security.

14. When it is necessary to create debenture redemption reserve?

By amendment to the Companies Act in 2000, Section 117 C was added andit is
provided that where a company issues debentures, it shall create debenture redemption
reserve for the redemption of debentures.

15.

What is Second Charge on Debentures?

While issuing debentures, if second charge is created on assets they
Debentures having second charge. They have a right to claim money only
after
first charge holders get full amount.

are
the

Statements : Whether True of False

1. Debenture premium is a capital loss and debenture redemption premium is
profit.
False

capital

2. Interest received on debenture redemption fund investments is credited to

Loss A/c.

False

Profit and

3. After redemption of debentures, the debenture redemption fund is closed by

to debenture redemption fund investments.

False

transfer

4. Even after all debentures are redeemed, the discount on issue of debentures
shown in the books of account.

False

can

be

5. Non-convertible debentures are borrowed capital.

True
6. Debentures represent a short term liability of business.

False
7. Debenture redemption premium is a revenue profit.

False
8. For debentures issued as collateral security, the Bank Loan A/c is debited and
Debenture A/c is credited.

False
9. Debenture discount still not written of is shown on liabilities side of balance

False

sheet.

10. On issue of right debenture or debentures issued for public, it is compulsory to

recognized credit rating.

True
11. If the company has issued convertible debentures, it is necessary to create
redemption fund.

False

get

debenture

FINANCIAL STATMENTS AND ITS ANALYSIS

3.

Financial Statements of Company - Meaning and Scope

Meaning: Company is required to present its financial statements every year as . .
required by the provisions of the Companies Act. Generally, these financial statements
comprise of Balance Sheet and Profit and Loss Account. Profit and Loss Account is
also known as Income Statement. Balance sheet shows the financial position
of the company as on the date of balance sheet. The financial position comprises
of what company/entity owns and what it owes. In other words, financial position shows
what are the assets and liabilities of the enterprise.
Scope : Company records day to day transactions in its books of account. From this
information, financial statements are prepared at the end of the year. These financial
statements comprise mainly of the following two statements
Balance sheet showing financial position of business; and
Profit and loss account showing the performance or result of business
during the year.
Financial statements are prepared in terms of provisions of law. They are prepared in the
form prescribed in the Companies Act.
These financial statements are prepared in accordance with generally accepted
accounting principles and accounting standards. For example, stock is valued at cost or
market price whichever is lower.
The financial statements are used for various objectives. For example, for
determining profit for the purpose of managerial remuneration, for making provision for
income tax, for determining taxable profit, etc.
Despite the financial statements being prepared in accordance with accounting principles
and standards, account writer's and management's personal opinions to have an
impact on these accounts. For example, method o f providing depreciation, quantum of
provision for doubtful debts, period during which fictitious asset is to be written off, etc.
depend upon the perception of the persons at the helm of affairs.

 Thus, financial statements are prepared based on the recorded facts, accounting principles
and accounting standards. Where options are permitted, personal opinions do affect these
statements. Thus, the financial statements are produced by combination of
1. Recorded facts
2. Underlying accounting principles and standards and
3. Personal views of preparers.
Of course, there are many important events, which affect efficiency and
profitability of the enterprise but are not recorded in the accounts at all. For example, high
labour turnover rate, retirement or death of an efficient managing director, etc

Form of Balance Sheet of Company

Form of Balance Sheet is given in Schedule VI of the Companies Act. Abridged version of the
Form can also be presented. The following format gives the details in brief. For
presenting the balance sheet in vertical form the Companies are not required to seek
permission from Central Government.
Horizontal Form of Balance Sheet according to Companies Act is as under
Balance sheet as on..
Capital and Liabilities

Amount
Rs.

1. Share Capital

(2) Investments

...shares of Rs. ... each

Issued Capital :

(3)Current
Advances

Assets,

Loans

and

(i) Current Assets

...shares of Rs.... each

(ii) Loans and Advances

Subscribed Capital

(4) Miscellaneous Expenditure

(To the extent not written off)

shares of Rs. ... each

Less : Calls in Arrears

(5) Profit and

(Debit balance)

____

(2) Reserves & Surplus

Amount
Rs.

(1) Fixed Assets

Authorised Capital :

+Shares
______

Assets

forfeited

Loss

Account

(3) Secured Loans

(4) Unsecured Loans
(5) Current Liabilities
and Provisions
(i) Current Liabilities....
(ii) Provisions
(6) Contingent Liabilities
(Not provided for)
Alternatively, contingent liabilities can also be shown as foot note to the balance sheet.
When shown in balance sheet, contingent liabilities are shown in inner column only as
information and its amount is not taken into account for totaling the balance sheet.
Contingent liabilities include
Claims against the company not acknowledged as debts
Uncalled liability on partly paid shares.
Arrears of fixed cumulative dividend
estimated amount of contracts remaining to be executed on capital account and not
provided for
other moneys for which the company is contingently liable. For example, for guarantees
given; for bills discounted but not matured.

Vertical Form of Balance Sheet as per Companies Act

Balance Sheet of

As at...

Particulars

Schedule No.

Figures at Figures at the

the end of endof
current
previous
financial
financial year
year

(1) Sources of funds:

(1) Shareholders' Funds
(A) Capital
(B) Reserves and Surplus
(ii)Loan Funds

_________
____
_________
____

(A) Secured Loans

(B) Unsecured Loans
Total

_ _ _ _ _ _
___

(2) Application of funds

_ _ _ _ _ _
___

(i) Fixed Assets :

(A) Gross Block
(B) Less : Depreciation
(C) Net Block

_________
____

(D) Capital work-in-progress

_________
_____
(ii) Investments
(iii) Current Assets, Loans and
Advances
Inventories
Sundry debtors

_________
_____
_________
_____
______
_ _ _ _ _ _
_ _ _ _ __

Cash and Bank balances

Other current assets
Loans and Advances
Less:
Current
Provisions

Liabilities

and

(A) Liabilities
(B) Provisions
Net Current Assets/Working Capital
(iv) (A) Miscellaneous Expenditure to
the extent not written off or adjusted
(B) Profit and Loss Account

Published Annual Financial Statements

Financial statements are also known as Annual Accounts or Published Accounts.

 Financial statements or Annual Accounts or Published Financial Statements include

following reports and statements apart from audited Profit and Loss Account and
Balance Sheet :
(1) Directors' Report
(2) Auditors' Report
(3) Cash Flow Statement
(4) Statement under section 212 relating to subsidiary company
(5) Other Statements
For better presentation, some companies give the following along with financial statements :
Comparative information with the help of charts and graphs.
Key financial information about past years (say, 10 years).

Objectives or Utilities of Financial Statements

Objectives or utilities of financial statements are as under
1. Published financial statements are relied upon by the public at large and increase
the credibility of the company.
2. Shareholders get more information about the company thereby increasing their
level of confidence in the company.
3. Financial statements add to the reputation of company.
4. Financial statements give information about performance, progress and position
to all stakeholders.
5. Lenders lending money to company and creditors supplying goods to company
get information useful to them from the financial state ments.
Analysis of Financial Statements
Information published in financial statements may not be sufficient from the view
point of different parties.
Different parties or stakeholders are interested in arriving at conclusions for their
own objectives based on information contained in financial statements.
For such conclusions, the information may not be readily available from financial
statements. For example, position of the company from the viewpoint of (i) liquidity, (ii)
profitability or (iii) solvency may not be known directly from the face of financial
statements.
For this purpose, information contained in financial statements is to be analysed
based on the figures of financial statements and other related supplementary
information. Such conclusions cannot be drawn straight from the numbers shown in
financial statements.

 For the purpose of analysis different information and figures have to be compared and
such information can be obtained in the form of percentage or rate of turnover.
Thus, conclusions drawn based on different financial numbers given in the financial
statements is known as analysis and the opinions framed based on such
conclusion is known as interpretation.
For example, sales during the year 2004-05 is Rs. 6,50,000 and the sales during the year
2003-04 were of Rs. 5,20,000. It can be said that the sales during the current year has
gone up by Rs. 1,30,000 as compared to the last year. In other words, as compared to
previous year, sale has gone up by 25% during the current year 2004-05.

Importance of Financial Statements Analysis

The following different parties use the financial statements
Equity Shareholders : By financial statement analysis, equity shareholders are interested
in knowing whether their investment is safe or not and whether regular and increasing
dividend shall be received on capital invested or not -They are also expecting
appreciation in market price of shares with the growth of the company.
Preference Shareholders : They are interested in analyzing financial statements to
know whether they will be able to get regular dividend or not; whether their investment is
safe; whether they will be able to get back their capital on expiry of specified term, etc.
Potential Investors : Prospective or potential investors are interested in analysis to
know whether to invest in shares of company or not, whether their investment is
safe, regularity of return, probability of capital gain due to growth of the company, etc.
Debenture holders and other lenders or institutions : This class is interested in
analyzing financial statements to know about safety of money and regular return on
investment.
Creditors : They are interested in financial statements analysis to know whether they
will be able to recover the money in respect of goods or services supplied to
company and also to know about the possibility of continued business with the company.
Management : By financial statement analysis, Management of the company wants to
measure its efficiency in managing company.
Employees / Trade unions : They are interested in analyzing financial statements
from the view point of possibility of better salaries, perks and operating efficiency.
Society or Public : Company emerges and develops in the society and accordingly is
a part of the society. It has to fulfill its obligations towards society. By financial
statement analysis,. the society or public gets information relating to the manner and method
by which the company has discharged its social responsibility.

Government : Government is interested in financial statements analysis from the viewpoint

of taxation and planning.
Competitors : Competitors are interested in knowing the strategies of an enterprise by
financial statement analysis so that they can also formulate their appropriate policies.
Thus, financial statement analysis is important and has following utilities
To know the profitability
To know liquidity position
To know operating efficiency
To know information about solvency
To know how quickly money is collected from customers
To know the proportion of debt to equity
To know about the cost and profitability of competitors
To get guidance about demand of workers for increase in wages and bonus
Such analysis is important from the viewpoint of bakers and other lenders lending money.
Shareholders and owners can know the efficiency with which their investments are,
used in the business.
To know about the position of progress of a company

Objectives of Financial Statement Analysis

Financial statements analysis has many objectives. Financial statements are useful to
many parties. We have seen that the financial statements are useful to different
parties for different reasons. Analysis is also" made to ascertain to wha t extent the
requirements for preparation of financial statements are complied with. These objectives
are :
1. Whether provisions of Companies Act are complied with or not.
2. To ascertain true and fair profit of the company and to determine income tax
liability based on that.
3. When shares of the company are listed at stock exchange, whether the
guidelines and requirements laid down by `SEBI' and other controlling authorities
are complied with.
4. To help management in framing different policies.
5. Apart from above, the objectives with which different parties are interested in
financial statements analysis are discussed earlier.

Limitations of Financial Statements

A company or an enterprise prepares profit and loss account to know the result of the
business at the end of year. It prepares balance sheet to know financial position.
Such financial statements also have certain limitations. These limitations are as under :
1. Efficiency of management cannot be directly presented in such statements. This is
an important limitation. Efficiency of management is an important factor affecting
profitability of business. However, profit and loss account cannot depict this factor
on the face of it.
2. Generally, fixed assets are shown i n balance sheet at their depreciated values.
However, market values of these assets are different and balance sheet cannot
show usefulness or efficiency of these assets. Method of providing depreciation
is- also subjective at times.
3. Financial statements are prepared based on specific accounting principles and
standards. Some information disclosed in financial statements is incomplete
and to that extent is less accurate. For example, amount of gratuity payable to
workers.
4. Under inflationary condition, the values of assets constantly increase. However,
such assets are shown at their cost price. Because of cost price, less depreciation
is provided and as a result, profit appears to be more. This is also a limitation.
5. Financial statements may not show proper picture if method of valuation of stock is
not appropriate.
6. Many external factors like policies of competitors; general economic condition,
political factors and monopolistic conditions affect the economic position of business.
As a result, the financial statements may not present true or proper financial
position.
7. Financial statements are not prepared from the viewpoints of all
stakeholders associated with the enterprise. Usually, they are presented from
the viewpoint of shareholders and management and less from the viewpoint of
other parties. Thus, they do not satisfy requirements of all the parties making it a
limitation.
Limitations of financial statement Analysis
1. If the financial statements which are analyzed are not prepared with accuracy,
the analysis and interpretations based on such analysis cannot be reliable.
2. Changing Government rules and controls affect preparation of financial
s t a t e m e n t s . T h i s w i l l h a v e , i t s e f f e c t o n a n a l y s i s o f f i n a n c i a l statements
also.
3. Limitations of 'alternative accounting treatments inbuilt and permitted by the
accounting standards also affect the analysis of financial statements.
4. Changes in provisions of Companies Act also have an effect on quality of financial
analysis.
5. Efficiency and maturity of professionals analyzing financial statements could also
become a limitation of analysis.

6. Methods of Analysis of Financial Statements

7. One gets information based on financial statements. Analysis of such information by
comparison or with the help of percentages or formula and arriving at conclusions
based on such analysis is known as financial statement analysis. Following are
Different methods or tools of analysis of financial statements
1. Comparative statements
2. Common-size statements
3. Trend percentages
4. Statement of changes in working capital
5. Cash flow statement
6. Ratio Analysis
Comparative Statements : One can not get an idea about profitability and financial
position by analyzing only one year's financial statements. Under this method of analysis,
one needs at least two years' figures. By putting figures of different years together,
one can know about the change of trend in business. This method is useful to know
about the business trend of various matters. To understand the presentation for analysis
of financial statements with the help of comparative statements, the following two
financial statements are prepared in this method
1. Profit and Loss Statement
From the given Comparative statement, we can compare incomes and expenses. Under this.
method, comparison can be made with the help of figures of two, three or five years. For
such comparison, two methods. are used.
By presenting figures of increase/decrease in income/expenses:
By comparing figures of each element as percentage of total amount.
2. Balance Sheet
In the same manner comparison is taking place for assets and debts. In this method
comparison is made between two-three or five years. For such comparison two methods are
used.
(i) By presenting figures of increase and decrease in the assets.
(ii) By comparing each element in the statement. On the basis of percentages (%).
Common-size Statements :
These statements are prepared to know percentage of each of assets to total assets and
percentage of each element of expense as percentage of total sales. Such statements
are also known as '100 percentage statement'.
Common-size statements are also useful in comparing financial position of two companies.
While analyzing balance sheet, each asset as a percentage of total assets and each

liability as a percentage of total liabilities is calculated. Similarly, in analyzing profit and loss
account, each item of expense and income is calculated as percentage of total sales.
For example, cash is 7% of total assets and the same is 10% in case of some other
company. It means that the liquidity position of other company is better.
Thus, common-size statements can tell us about how much difference is there and
where the difference lies. However, to know about the ideal position and about the
reasons for differences, detailed investigation becomes necessary.
The enterprises should prepare balance sheets on uniform basis to facilitate
comparison. An illustration of common-size statement is given below.

For the following multiple choice questions select correct alternative from
given choices and put its order in the bracket.
1. Profit and Loss account is known as ____________
(a) Income Statement
(b) Payment Statement
(c) Asset Statement
(d) Liability Statement
2.
A company prepares its Financial Statements at the end of accounting period
as per _________ act.
(a) Companies
(b) Partnership
(c) Income Tax
(d) Contract
3. Which of the following is followed to prepare Financial Statements?
(a) Certain accounting principles, traditions and accounting standards.
(b) Certain thoughts, principles and Interpretation.
(c) Certain figures, details and accounts.
(d) Certain group, traditions and accounting principles.
4. What is the correct order to show items of liabilities side of companys balance
sheet?
(a) Share Capital, Secured Loan, Unsecured Loan, Reserve and Surplus,
Current Liabilities
(b) Share Capital, Current Liabilities, Secured Loan, Unsecured Loans,
Reserve and Surplus.
(c) Share Capital, Reserve and Surplus, Secured Loans, Unsecured
Loans, Current Liabilities.
(d) Reserve and Surplus, Share Capital, Secured Loans, Unsecured Loans,
Current Liabilities
5.
What is the correct order to show items of assets side of companys balance
sheet?
(a) Fixed Assets, Current Assets, Investments, Miscellaneous Expenses.
(b) Current Assets, investments, Fixed Assets, Miscellaneous Expenses.
(c) Fixed Assets, Investments, Current Assets, Miscellaneous
Expenses.

6.

7.

8.

9.

10.

(d) Fixed Assets, Current Assets, Miscellaneous Expenses, Investments.

Information of how many minimum years is required to prepare comparative
statement.
(a) 1
(b) 2
(c) 3
(d) 4
Common Size Financial Statements are also known as ______________
statements.
(a) 100%
(b) 200%
(c) 10%
(d) 20%
Which of the following method is not used for analysis of Financial
Statements?
(a) Cash flow statement
(b) Ratio Analysis
(c) Comparative Statement
(d) Profit Loss Statements
Which statement are used to compare two companies condition?
(a) Common Size Statements
(b) Comparative Statements
(c) Income Statements
(d) Profit Loss Statements
Which statements are called or known as 100% statements?
(a) Common size statement
(b) Comparative statement
(c) Statement of changes in working capital
(d) Cash flow statement

11.

By what other name are the financial statements known?

(a) Unpublished accounts

(b) Balance sheet

(c) Private statement

12.

(d) Published accounts

Which position of business is shown by balance sheet?

(a) Profitability of business
(c) Financial position of business

13.

(b) Result of business

(d) working capacity of business

Which statements are most useful for comparing the conoution of two
companies?
(a) Common size statement
(b) Comparative statement
(c) Cash flow statement
(d) Statement of changes in working capital

14.

Which is not included in Contigent liabilities?

(a) Appears fixed cumulative dividend.

(b) Bills discounted but not matures
(c) Guarantees given
(d) Creditor

Fill in the blanks with appropriate words

1.
2.
3.
4.

Generally .. and .. are included in Financial Statements.

statements are prepared according to law.
. statements are also known as annual accounts or published accounts.
In comparative profit and loss accounts items of .. and are
compared.

5. Common size statements are also known as . statements.

6. In calculation of opening ratio . and . will be ignored.
[Ans: 1. Balance Sheet Profit & Loss Account 2. Financial 3. Financial 4. Incomes, Expenses
5. 100% 6. Taxation and Financial expenses]

Short Questions
1. Which accounts or statements are included in financial statements?
Generally, profit and loss account and balance sheet are included in financial statements.
2. Give the names of main methods of analysis of financial statements.
The following are the main methods of analysis of Financial Statements: (i) Comparative
statements (ii) Common size statements (iii) Trend percentages (iv) Changes in working
capital statement (v) Cash flow statement (vi) Ratio analysis (vii)
Value
added
statement.
3. For accounting analysis by means of comparative statements, which methods are generally
used?

For analysis by comparative statements, comparative profit and loss account and
comparative balance sheets are used.
4. Why are common-size statements prepared?
Common-size statements are prepared to show the percentage of various assets to total
assets, the percentages of various expenses to sale and to show the percentage of net profit
to sales.
5. How analysis of financial statement useful to preference shareholders?
From the analysis of financial statements, preference shareholders can get an idea that
they will get their fixed dividend regularly, whether their capital is
safe and whether they
will get their capital bank on maturity.
6. Where is the form of balance sheet of company given?

 The form in which balance sheet is to be prepared by all companies is given in Part I of
Schedule VI of Companies Act.
7. Write the importance of analysis of financial statements?
Importants of Analysis of financial statements: (1) To know the profit and financial
strength. (2) To known the managerial efficiently. (3) To decide whether the employees are
justified in demanding bonus and wage rise. (4) To give an idea of collection period of credit
sales. (5) To take corrective steps
for proper planning.
8. What is called financial statements?
The end product of financial accounting process is a set of reports which are called
financial statements. viz. a balance sheet, a profit and loss account and trading account etc.
9. Mention the importance of financial statement analysis for potential Investors.
Prospective investors who want to invest in shares of the company would like to know
whether it is safe to invest in shares of the company, whether they will get reasonable return
and whether there is any likehood of appreciation in
value of shares.

Statements : Whether True of False

1. Financial statements are prepared according to provisions of law.
True
2. Financial statements are not known as published accounts.
False
3. Details given in financial statements and quantitative data are enough of all parties
concerned.
False
4. Details about or loss can be obtained from comparative statements.
False
5. Comparative statements are useful for comparing state of affairs of two companies.
False

ACOUNTING RATIOS

4.

Introduction
The True owners of a company are the shareholders. Representatives of these shareholders
are known as directors. A company is managed by its directors. The Companies Act
came into existence to protect the interest of the shareholders. Financial statements of the
company are to be presented at the general meeting of the shareholders within a
prescribed time limit.
In this chapter, we shall discuss method of ratio analysis for analyzing financial
statements. Accounting ratios is one of the very efficient tools of financial statement
analysis.

Meaning of Accounting Ratio

Figures presented in financial statements may not be self -explanatory[figures
it self does not say any thing but you have to interpret those figures.] and for
interpretation, one needs to find the proportion or the ratios by comparing various
figures given in the financial statements. Thus, interrelationship derived by comparing
different relevant and related figures is known as accounting ratio

Definition of Accounting Ratio

Accounting ratio is a relationship expressed between numbers reflected in profit and
loss account, balance sheet or any other part of accounts.
Such relationships maybe expressed mainly into the following three forms
1. In percentage or
2. In proportion or ratio or
3. Turnover or Number of times
(i) Percentage :
The sales of R Ltd. during the year 2003-04 is Rs 5,00,000 and it has earned a gross
profit of Rs 75,000. Thus, on the sales of Rs 5,00,000, it has earned a gross profit of Rs
75,000. In place of figures, if this information is presented in the form of percentage, we can
say that the rate of gross profit on sales is 15 %. This is called presentation of interrelationship
between sales and gross profit. This expression is in percentage.

(ii) Proportion :
Balance sheet of S Ltd. shows current assets of Rs 4,00,000 and current liabilities of
Rs 2,00,000. Alternatively, this information presented through figures can be
expressed by stating that current assets are twice the current liabilities or the proportion of
current assets to current liabilities is 2:1. Thus, the current ratio is 2:1. If the same
information is to be expressed in one number, we say that the current ratio is 2.
(ii) Turnover :
With the help of stock turnover ratio, we get to know the number of times the
average stock is turned over or sold. Cost of goods sold and average stock are Rs
3,20,000 and Rs 80,000 as per financial statements for the year 2003-04. This means
that the stock turnover rate is 4. This ratio tells us how fast or how many times the stock is
sold during the year.
With the help of debtors ratio/debtors turnover, we can know the time frame of the
collection of money from the customers to whom goods are sold on credit. Based on
debtors turnover, the credit period allowed to the customers can be known. Similarly, the
number of days of credit allowed by the creditors or suppliers can be known with the help
of the creditors' ratio.
From the above discussion, we can say that the ratio is defined as the relationship
between two variables. Ratio expresses relationship between; different related
accounting numbers the financial statements. Ratio is the expression of such
accounting numbers by the numerator and the denominator. Such ratios can be expressed in
an appropriate manner according to the methods discussed above. Ratio analysis fulfils
objectives of different stakeholders interested in studying the financial the statements. These
ratios are useful in studying financial position of an enterprise.

Objectives/Utility and Importance of Accounting Ratios

Each party uses financial statements according to its own different objectives. Ratio
analysis is one of the important methods of financial statement analysis. Therefore,
objectives of financial analysis and ratio analysis are the same.
Let us first discuss about the utility of ratios to various parties.
Managers : Financial ' statements are useful for planning and policy making. From the
accounting ratios, managers can get information about profitability, solvency and liquidity of
the enterprise.
Equity Shareholders : Equity shareholders are owners of the company. Being
owners, they are obviously interested to know about profitability, solvency and
liquidity of the company. Apart from this, the rate of dividend is not fixed. Based on
profitability, they are also interested in knowing if there is a possibility of an increase in
the dividend and the dividend rate.

Preference Shareholders : Preference shareholders are interested to know about the

safety of their capital and the possibility of regular dividend.
Employees : Employees expect an increase in the remuneration they get from the
company. They expect better perquisites and facilities and therefore are interested in
financial statement analysis.
Creditors : With the help of ratio analysis, creditors are interested to know whether
their business with the company will continue or not, the possibility of growth therein
and the capability of the company to pay their dues.
Lenders : Debenture holders,. bankers and financial institutions can be included in
lenders. With the help of ratio analysis, this class is interested to know about the
safety and security of their money, possibility of regular payment of interest and
repayment of dues on the date of maturity.
Public : Companies have certain social responsibilities. Therefore, society is also
interested in financial statement analysis. By ratio analysis, the public at large and
society is also interested to know about the possibility of the progress of the company.
They are also interested to know about the impact of the progres s on the share price, of
the company.
Competitors Competitors are interested in such analysis to frame their own strategy.
Government The government is interested in analysis from the viewpoint of impact on
economy and planning.

Limitations of Accounting Ratios

Accounting ratios suffer from certain limitations, which areas under:
1. Accounting ratios present true position to the extent the financial statements are
correct because the accounting ratios are calculated based on these financial
statements. For example, ratio will not be useful if stock valuation is not proper and
correct.
2. Mere accounting ratios cannot measure the financial position of the business. Factors Eke
monopoly, general economic condition, policies of the competitors, Government controls
and political changes are also the other factors affecting business condition.
3. One cannot get a complete picture of the company's profitability and efficiency
merely based on one year's ratios.
4. At times, the decisions taken for the entire business based on one or two ratios
can prove risky.
5. Two companies can be properly compared with the help of ratios only if these
companies have the same method of preparing accounts or providing depreciation.
6. Sticking rigidly to a particular ratio can be harmful. For example, current assets
should be twice the current liabilities. Such rigidity based on two unrelated
variables is not useful. These are limitations of ratios. Ratios can be useful if these
limitations are kept in mind while using them.

Types of Accounting Ratios

Accounting ratios are classified in two ways
Classification based on financial statements; and
Functional classification
Sub-classification based on these types is as under
(I) Classification based on financial statements
Ratios based on profitability statement These ratios include the following which show
relationship between two or more items in the Trading Account/ Profit & Loss account.
Gross Profit Ratio
Net Profit Ratio
Expense Ratio
Operating Ratio and
Stock Turnover
Balance Sheet Ratios : These ratios include the following which show relationship between two
or more items of the balance sheet :
Current Ratio
Liquid Ratio
Proprietary Ratio
Debt-Equity Ratio
Total Assets to Debt Ratio
Composite Ratios : Calculation of such ratios shows relationship between figures of
profitability statement and balance sheet. They include:
Debtors Ratio
Creditors Ratio
Working Capital Turnover..
(II) Functional Classification : Such classification is made keeping in mind the function or
purpose of the ratio. Based on functions, the following sub-classification can be made.
Profitability Ratios
Gross Profit Ratio
Operating Ratio
Net Profit Ratio
Liquidity Ratios
Current Ratio
Liquid Ratio
Activity- Ratios

 Stock Turnover Ratio

Debtors Turnover
Creditors Turnover
Working Capital Turnover
Solvency Ratios (Long-term Ratios)
Debt- Equity Ratio
Total Assets to Debt
Proprietary Ratio

For the following multiple choice questions select correct alternative from
given choices and put its order in the bracket.
1.

2.

Real Owners of the company are

(a) Management

(b) Share holders

(c) Auditors

(d) Government

Which of the following act is prevailing to protect the interest of shareholders?

(a) Partnership Act

(b) Companies Act

(c) Contract Act

3.

4.

5.

(d) Sale of Goods Act

In whose meeting of the following forms Financial Statements are presented

for approval?
(a) Management

(b) Share holders

(c) Both a & b

(d) None of these

Under which of the following accounting ratios are presented?

(a) In percentage

(b) In proportion

(c) In Turnover

(d) In all forms i.e.

Operating ratio is ___________ ratio of the business unit.

(a) Liquidity

(b) Solvency

(c) Profitability
6.

(d) Trustworthy

A business has credit sales of Rs. 5,00,000 and cost of goods sold is Rs.
3,60,000. What is gross profit ratio?
(a) 72%

7.

a,b &c

(b) 28%

(c) 25%

(d) 82%

What is measured by liquidity ratio?

(a) Short term solvency

(b) Long term solvency

(c) Short term profitability

8.

(d) Long Term Profitability

Cost of goods sold means

(a) Operating Stock + Sales Closing Stock
(b) Operating Stock + Purchase + Purchase Expenses + Closing Stock
(c) Operating Stock + Purchase Closing Stock
(d) Opening Stock + Purchase + Purchase Expenses Closing Stock

9.

Which of the following items is not included in operating expense for

operating ratio?

computation

(a) Administrative expenses

(b) Sales Expenses

(c) a & b

(d) Financial Expenses and Taxes

10.Which of the following asset is not included in current assets?

(a) Bank Balance

(b) Investments

(c) Debtors

(d) Stock

11.Bank balance is ________________ Bank over draft is ____________

(a) Current Liability, Current Liability
(b) Current Assets, Current Liability
(c) Current Liability, Current Asset
(d) Current Asset, Current Asset
12.Debtors are __________ And bills receivables are ____________
(a) Current Liability, Current Asset
(b) Current Assets, Current Asset
(c) Current Asset, Current Liability
(d) Current Liability Current Asset
13.Creditors are ____________ And Bills payables are
(a) Current Liability, Current Liability
(b) Current Assets, Current Assets
(c) Current Liability, Current Asset
(d) Current Asset, Current Liability

of

14.Liquidity Assets means __________

(a) Current Assets Stock

(b) Current Assets + Stock

(c) Current Assets Bank Balance

(d) Current Assets Debtors

15.Liquidity Liabilities means ___________

(a) Current Liabilities Bank Balance
(b) Current Liabilities Creditors
(c) Current Liabilities + Bank Overdraft
(d) Current Liability Bank Overdraft
16.Which of the following ratio is not activity ratio.
(a) Debtors Ratio

(b) Creditors Ratio

(c) Liquid Ratio

(d) Stock Turn Over

17.Which of the following ratio is not included in financial statement based

classification of ratio.
(a) Profit and Loss accounts ratios

(b) Balance Sheets Ratio

(c) Composite Ratios

(d) Solvency Ratios

18.Which of the following ratio is not included in functions based classification of

ratio.

19.

(a) Profitability Ratio

(b) Solvency Ratio

(c) Activity Ratio

(d)Composite ratios

Credit Sales Rs. 4,00,000, Debtors Rs. 50,000, Bills receivables Rs. 30,000,
Cash Sales Rs. 20,000, Bills Payable Rs. 20,000. Calculate Debtors turnover
ratio.
(a) 5 times

(b) 10 times

(c) 0.3 times

(d) 0.5 times

20.Debtors ratio shows days for __________ and creditor ratio shows
___________
(a) Allowed Credit, received credit (b) Allowed Credit, Allowed Credit
(c) Received Credit, Allowed Credit

(d) Received Credit, Received Credit

21. Credit ___________ has relation with debtors ratio while credit _________ has
relation with creditors ratio.
(a) Sales, Sales
(c) Purchase, Sales

(b) Purchase, Purchase

(d)Sales, Purchase

22.Total working capital means ____________

(a) Total current liability

(b) Total Current Assets

(c) a & b

(d) None of these

23.Net working capital means ____________

(a)CurrentAssets Current Liabilities
(b)Current Assets + Current Liabilities
(c) Current Assets + Fixed Assets
(d)CurrentLiabilities+LongTerm Liabilities
24.Debt equity ratio shows ___________
(a) Long term Solvency
(b) Short term Solvency
(c) a and b
(d) None of these
25.Which of the following assets are considered to compute proprietory ratio.
(a) Total assets

(b) Total tangible assets

(c) Total fixed and current assets

26.

(d) Total real assets

Which profit is to be taken into account for finding out Net Profit Ratio?
(a) After deducting interest & tax (b) Before deducting interest & tax
(c) Gross profit

27.

Which ratio is not useful for finding profitability of business?

(a) Net Profit Ratio
(c) Liquidity Ratio

28.

(d) After deducting tax

What is shown by Debtors Ratio?

(b) Gross Profit Ratio

(d) Debtors Ratio

(a) Time to pay the amount of credit purchase.

(b) Number of days in which the amount of credit sale is received.
(c) Proportion of sales & debtors.
(d) No. of days in which amount of total sale is received.
29.

Which asset is not taken into consideration in liquid assets?

(a) Cash
(c) Creditors

30.

(b) Bills Receivable

(d) Stock

Which liability is not taken into consideration in liquid liabilities?

(a) Creditors

(b) Bills Receivable

(c) Bank overdraft

31.

(d) Outstanding expenses

What are proprietors funds?

(a) Share capital + Reserves and Surplus Fictitious assets
(b) Reserves and profit balance
(c) Equity share capital + Preference share capital
(d) Total share Capital + Reserves & Surplus + Long term Liability
Factious Assets.

32.

Accounting Ratios are

(a) Useful to take loan from bank only
(b) Useful to all parties related with business.
(c) Not useful to any one except the owner of business.
(d) Useful to creditors only

33.

Liquid liabilities means

(a) Current Assets stock
(b) Current Liability Bank overdraft
(c) Long term liability current liability
(d) Current liability - Creditors

34.

Cost of goods sold means(a) Sales Gross profit

(b) Gross profit Net profit

(c) Sales Closing stock

(d) Sales Net profit

Fill in the blanks with appropriate words

1.

The relationship obtained by comparing different figures of financial statements is

called
2. In the computations of operating ratio will be treated as operating expense.
3. = Sales Gross profit.
4. In the liquid assets, current assets except .. and in liquid liabilities, current liabilities
except . are included.
5. Stock turnover suggest how many times .. stock is turned over.
6. Debtors ratio indicates the average number of days of ..
7. Gross current assets means gross .. capital.
8. By deducting .. from the total debts we get long term .. of business.
9. .. ratio is calculated to know the proportion of owners funds to total funds employed
in business.
10. Average stock is considered for calculation of . ratio.
11. Average daily credit sale is considered for calculating .. ratio.
12. Liquid assets means current assets less .
13. Liquid liabilities means current liabilities less .
14. . ratio suggest the short term solvency of the business.
15. . ratio is not useful for knowing the profitability of business.
Ans: 1. Ratios 2. Depreciation 3. Cost of goods 4. Stock, Bank overdraft 5. Average 6.
Collection of Credit sales 7. Working 8. Current liabilities, Long term liabilities 9. Proprietary
10. Stock 11. Debtors 12. Stock (closing) 13. Bank Overdraft 14. Current Ratio 15. Current
Ratio]

Short Questions
1. Give definition of Accounting Ratio.
Accounting ratios are the inter relationship between any two relevant figures taken from
financial statements.
2. In what forms can the data relating to inter-relationship of two figures be presented?
The information relating to inter-relationship between two figures can be presented in any
one of the following forms: (A) In Percentage (B) In Ratio
(C) In Simple Figure.
3. Classify accounting ratios on the basis of financial statements and state their types.
Classification of ratios on the basis of financial statements is (A) Profit and Loss A/c Ratios
(1) Gross Profit Ratio (2) Net Profit Ratio (3) Expenses Ratio (4) Operating Ratio (5) Stock
Turnover (B) Balance-sheet Ratios (1) Current Ratio (2) Liquid Ratio (3) Proprietary Ratio (4)
Debt Equity Ratio (4) Total Assets debts Ratio. (C) Combined Ratios: (1) Debtors Ratio (2)
Creditors Ratio and (3) Working Capital Turnover.
4. Name the solvency ratios.

 Solvency Ratios are as follows : (1) Debt Equity Ratio (2) Assets Debts Ratio and (3)
Proprietary Ratio
5. Which information is known from Operating Ratio?
From operating ratio, it is possible to know the relationship of cost of sales and operating
expenses with sales.
6. State the main purpose of finding out Proprietary Ratio.
Proprietary ratio is one of the solvency ratios. It is calculated to find the proportion of
owners funds to the total funds employed in business.
7. State what information is available from total assets debts ratio.
From the total assets debts ratio, it is possible to know the proportion of long-term debts
to total assets.
8. State the purpose of finding out working capital turnover.
Working capital turnover indicates the efficiency with which the working
capital is used in
business. This ratio shows relationship between net working
capital and sales.
9. Mention profitability ratios.
Profitability ratios are : (1) Gross Profit Ratio (2) Net Profit Ratio (3) Expenses Ratio (4)
Operating Ratio
10. By what formulae debtors turn over can be calculated?
Debtors turn-over = Credit Sales of the year/Debtors + Bills Receivable.

Statements : Whether True of False

1. Accounting ratios are useful only for getting bank loan.
False
2. Proprietary funds include only Reserve Fund and surplus profit.
False
3. Current ratio shows the profitability of business.
False
4. Gross profit ratio is not useful for knowing profitability of business.
False
5. Average stock is considered in computation of current ratio.
False
6. Liquid ratio means current assets less current liabilities.
False
7. For knowing the relationship between net working capital and sales, debt-equity ratio is
used.
False

8. In computing operation ratio, depreciation is not considered as an operating expense.

False
9. Debtors ratio indicates average credit sale.
False
10. Net working capital means excess of current assets over current liabilities.
True
11. If current liabilities are deducted from total liabilities, the total long-term debts are
obtained.
True

Ch: 5 & 6 DESHINAMA

Introduction
Deshi Nama system. is a very old system to write accounts. It is similar to double entry
accounting system. from the . view point of accounting principles. In this system, the
books are known as 'Vahi'. Therefore, this system is also known as 'Vahi Paddhati'.
Generally, the books under this system are written in the regional language.
However, the use of figures in. English has increased.

Characteristics of Deshi Nama System

Books : The books under Deshi Nama are covered with the red cloth and are hard
bound. These books are in the vertical form and contain plain blank sheets. However, now-adays simple books of accounts, with lined pages, are also in use.
Sal (folds) : The pages in each of the books of accounts are with folds(sal). Rojmel,
Bethomel and have pages are with eight folds. But pages in Subsidiary Books have
six folds. However, now pages without folds and with columns drawn are being used.
Credit (Jama) and Debit (Udhar) Sides : In Books for Deshi Nama System, out of
total eight folds, first four folds on the left hand side are known as Jama. (credit) side
and the remaining four folds as udhar (debit) side. Thus, the left hand side is known as
Jama side and the right hand side is known as udhar side.
Thus,
Jama
1

Udhar
2

Methods of writing in folds (Sal) : In Deshi Nama, while recording a transaction on

either the credit or debit side, the amount of the economic transaction is recorded in the
first fold (sal) of the side. In the remaining folds, the name of the account affected and
the debit or credit to it is written. Below the name of the account, a brief
detail/narration of the economic transaction is given and below such brief
detail/narraction, ledger folio number is written in the third fold. In Deshi Nama, the
name of the account of the transaction is written after drawing a line. Generally, the
first fold, out of four folds, is for the amount and the remaining three folds are for the
details/particulars/narration.
Use of the word `Shri' : In Deshi Nama, while recording an entry in the Rojmel,
Bethomel or subsidiary Books, the name of the account (khata) is preceded with the
word 'Shri' e.g., if salary (Pagar) Account is to be written, it will be written as `Shri Pagar
(salary) Khate'. Shri is considered as a sign of omen.
Method -of writing the amount : While entering the amount in Deshi Nama books, a sign
(J) known as `Olayo' is put between the amount in rupees and pais e. Many business
man, use the sign of equality (=)as is used in arithmatic, instead of `Olayo'. eg. An
amount of Rs .125 and paise 45, as Rs 125/45 or Rs 125=45.
Vikram. Samvat (year) : Deshi Nama is usually maintained as per Vikram Samvat year
i.e. from Kartak Sud I (Ekam) to Aso vad-15-(Amas) for every month, Paksh (Sud-Vad)
and tithi (date). Though, now-a-days it is also maintained as per the English Calendar.
Page for Puja : In the first page in Rojmal or Bethomel, the businessman writes the
name of God he worships and also a pray to the God. This page is termed as Puja Page.
No accounting, entry is recorded on this page.

Language : In Deshi Nama, the recording in the books of accounts, is in the regional
Language. e.g. In Gujarat, Deshi Nama is written in Gujarati.
Ink : Generally, Deshi Nama is written in black ink. However, blue ink is also used now-adays.
Books of Accounts maintained under Deshi Nama System
(1) Rough Book : In business, transactions take place continuously during a day. It is
not convenient to write the books during the day. At the same time, it is also not
proper, if receipts and payments i.e. transactions are not at all recorded at the time,
because there is a likelihood of forgetting to record some transactions.
Therefore, small traders record their transactions of the day on a slate or loose
sheets or in a diary. Such record is known as Tanchan or Tippan.
For a big businessman, the transactions are many and hence, they record them either
in a diary or notebook or a book maintained for the purpose. Such a record book is
termed as 'Ghadiya', 'Sundiya' or 'Daniya'.
These are the different terms used for the rough book of record. A book in use
for such rough records is known as 'Adadhiya'. The business man takes brief notes in
such 'Adadhiya' as per his requirements. With the help of such a rough book, at the end of
the day or at convenient time, regular/organized accounting is done. If any transaction is
forgotten to be recorded in the Rojmel or if any error has occurred, it can be traced/
verified with the help of such rough book.
(2) Rojmel : The way a Journal is maintained under the Double Entry System of
Accounting, Rojmel is maintained in the same way under Deshi Nama. Thus, Rojmel is
the basic or prime book of accounting under Deshi Nama.
In Rojmel, cash as well as credit transactions are recorded. In addition, based on
the transactions recorded in such Rojmel cash balance is derived, which is termed , as
Purant'.
Rojmel is maintained every day and at the end of the accounting entries for the
day, cash balance is found out. That is why, it is known as Rojmel. Ledger is
prepared 'with the help of Rojmel.
(3) Bethomel : Bethomel is another form of Rojmel. Small traders/ businessmen whose
quantum of transactions is comparatively less, may maintain a complete `Mel' fora
week, a fortnight or a month and find out the cash balance accordingly. Such 'Mel' is known
as 'Bethomel' or 'Thammel'. Thus, Bethomel or Thammel is a composite or collective
Rojmel for a pre-determined period of days.
(4) Khativahi (ledger) : Ledger (Khatavahi) is maintained under Deshi Nama, as in
Double Entry System of Accounting. In ledger, ledger accounts are opened and posting is
done in such ledger accounts, from Rojmel, Bethomel and Subsidiary Books. Like

Rojmel, for Khatavahi (ledger) also, a book containing eight-fold pages is used. Usually, one
page is. kept for each account.
(5) Subsidiary Books (Peta Nodho) : Big businessmen, whose quantum of
business/economic transactions is comparatively larger, maintain certain additional
books, in addition to Rojmel, which are known as subsidiary books. e.g., Jamanodh,
Udharnodh, Jangadnodh etc. Transactions, which are recorded in Rojmel or Bethomel.
(6) Aavro : All those transactions recorded in Rojmel or Bethomel and Subsidiary Books,
are again recorded in another book at the end of fifteen days or a month. Such book is
called 'Avaro'. Aavro is prepard like Rojmel and for the purpose, a book that has pages
with eight folds pages is used. Aavro is prepared fora specified period and all the
transactions recorded in Rojmel or Bethomel and Subsidiary Books are recorded again in
it and the closing balance (Purant Baki) is arrived at. Such closing balance is tallied with
the closing balance (Purant Baki) as per Rojmel or Bethomel because such balance in
both the books, should be the same.
Thus, the accounting accuracy is maintained by recording all the business
transactions in 'Aavro'. 'Aavro' is also useful as a tool to find out and control errors in all the
transactions recorded in the books of accounts. 'Aavro' is generally maintained by shroffs and
big businessmen.
(7) Havalanodh or Havalamel :
Certain Special Accounts / Terms
Terms as per Double Entry System

Terns as per Deshinama System

Debit

Udhar

Credit

Jama

Goods

Mal

Journal

Rojmel or Bethomel(Thammel)

Subsidiary Books

Peta Nondho

Purshase Book

Kharid nondh or Jama nondh

Sales Book

Vechan/Vakara nondh or Udhar nondh

Ledger

Khatavahi

Trial balance

Utaro

Purchase Account

Shri Kharid khatu

Sales Account

Shri Vakara khatu

Goods destroyed by fire Account

Shri Aag thi bali gayel mal khatu

Loss due to fire Account

Shri Aag thi thayel Nuksan Khatu

Goods given in Charity Account

Shri Dharmda thi gayel mal kahtu

Charity Expense Account

Shri Dharmada kharch khatu

Goods given as free samples Account

Shri Jaherat thi gayel mal khatu

Advertisement Expense Account

Shri Jaherat khach khatu

Goods stolen in theft Account

Shri Chori thi gayel mal khatu

Loss due to Theft Account

Shri Chori thi Nuksan khatu

Wages Account

Shri Manuri kahtu

Railway freight Account

Shri Railway noor khatu

Carriage Inward Account

Shri Avak mal gadabhada khatu

Cartage Account

Shri Gadabhada khatu

Salary Account

Shri Pagar khatu s

Stationery Expense Account

Shri Stationery Kharch khatu

Electricity Expense Account

Shri Vijalikharch khatu

Discount allowed Account

Shri Vatav khatu

Brokerage Account

Shri Dalali Khatu

Sundry Expense Account

Shri Parchuran kharch khatu

Bad debts Account

Shri Ghalkhadh Khatu

Bad debts Reserve Account

Shri Ghalkhadh Anamat khatu

Discount reserve on debtors Account

Shri Vatav Anamat khatu

Depreciation Account

Shri Ghasara khatu

Insurance premium Account

Shri Vima premum khatu

Rent Account

Shri Bhada khatu

Postage expense Account

Shri Tapal kharch khatu

Repairing expense Account

Shri Maramatkharch khatu

Interest on Capital Account

Shri Bhandol vyaj khatu

Discount received Account

Shri Malel Vatav khatu

Interest on investment Account

Shri Rokan vyaj khatu

Interest on loan Account

Shri Loan vyaj khatu

Interest on drawings Account

Shri Gharkharch vyaj khtu

Capital Account

Shri Bhandol Khatu

Drawings Account

Shri Ghar kharch khatu

Creditors Account

Shri Lendar khatu

Outstanding expenses Account

Shri Baki kharch khatu

Bills payables Account

Shri Devihundi khatu

Goodwill Acount

Shri Paghdi khatu

Land Acount

Shri Jamin khatu

Building Account

Shri Imarat khatu

Mahinery Acount

Shri Yantra khatu

Furniture & fitings Account

Shri Sadhan saranjam khatu

Vehicles Acount

Shri Vahan khatu

Debtors Account

Shri Devadar khatu

Bills Receivable Account

Shri Leni hundi Khatu

Trading Account

Shri Kharid Vakra khatu

Profit and Loss Account

Shri Vatav khatu

Balance sheet

Shri Sarvaiya

Explanation of necessary Accounts

Shri Bhandol Khatu : In Deshi Nama, capital is known as shri Bhandol. When the
owner starts a new business, as well as during the year of the business, he brings in
his personal funds in the form of cash, goods, assets, receivables and they are
recorded in Shri Bhandol Khate. However, now-a-days many businessmen record their
capital to Shri Mudi (Capital-Mudi) Khate. In a partnership firm, the total capital of the
firm is not recorded in Shri Mudi (capital) Khate or shri Bhandol Khate. For the purpose,
separate individual (name wise) capital accounts are main tained. e.g., Shri Uday's Mudi
(capital) Khatu and Shri Vimal's Mudi Khatu.Shri

Gharkharch Khatu : In Deshi Nama, withdrawal by, the owner from the firm, for a personal
purpose (use) is debited to Shri Gharkharch Khate. Whenever the owner takes away for
personal use, the goods, asset or cash, or pays from the firm for his personal expenses, it
is debited to Shri Ghar Kharch Khate. In a partnership firm, like capital account - separate
drawings accounts for each partner is maintained. e.g. shri Udy's Drawings account and
Shri Vimal's Drawings account. Many businessmen maintain Shri Drawings Khatu (account)
instead of Shri Gharkarch Khatu.
Shri Dukan Kharch Khatu : The businessman keeps such account for miscellaneous
expenses. When the expense amount is very small, it is considered as Shri Dukan
Kharch. e.g., cold drinks and tea -expenses etc.
Shri Vatav Khatu : Shri Vatav Khatu in Deshi Nama has wide meaning than discount
(vatav) account under Double Entry System. Here cash discount, commission, loss
due to fire in the business, bad debts, loss (any other) etc. are debited to Shri Vatav
Khate. At the same time, miscellaneous or accidental gain or profit are also credited to
Shri Vatav Khate. However, now-a-days businessmen maintain separate accounts for
expense or loss or profit or gain, e.g., Shri Ghalkhad (bad debts) Khatu, Shri Aadat
(commission) Khatu etc.
Shri Vigat Khatu : When on any one particular day or in any one particular transaction,
more than one account gets, debit or credit effect simultaneously, the total amount of the
transaction is recorded against Shri Vigat Khate. In the subfolds below Shri Vigat Khate,
the account which is affected, is written with the amount for each such account,
separately. This saves both the time and labour.
Here, the important thing to be remembered is that in the ledger, Shri Vigat
Khatu is not opened, because in reality there is no account named Shri Vigat Khatu, which is
affected. Each of the accounts recorded in the sub-folds below Shri Vigat Khate are
opened and the page no.of the ledger, on which each such account is opened, is
recorded in Rojmel, below such affected account.

U
600=00 Shri Vigat Khate U d h a r
300=00 Shri Bhada(rent) Khate
L.F.
100=00 Shri Majuri (wages) Khate
L.F.
200=00 Shri Commission Khate
L.F.
600=00

Shri Shah Khatu or Shri Khatu : During the course of the business if any transaction
takes place with a person and if the name of such person is forgotten, it is

recorded as Shri Shah Khate. Afterwards when such name is remembered, a reverse
entry is passed against Shri Shah Khate and the correct entry is recorded against such a
person's account. When the name of the person is not to be disclosed, in such a case also
Shri Shah Khatu is used. Instead of using Shri Shah Khatu in the transaction, it may be
recorded as Shri. Khate. In such a case, whenever the name of the person is remembered, it
is recorded in the space left after the word 'Shri' For the very purpose, some space is
left blank between 'Shri' and 'Khate'. However, as this is a faulty method from the
view point of accounting very less use of Shri ... Khate is found.
Shri Tasalmat Khatu : This account is like a suspense account under Double entry
system of accounting. In a business, when an expense is incurred or income is earned
and the name of such account (expense or income) is forgotten, such transaction is
recorded to Shri Tasalmat Khate. Afterwards on recollecting the name of such expense
or income, the reverse effect to Shri Tasalmat Khate is given and corre ct effect is given
to such expense or income account. When it is uncertain as to which account the effect
is to be given (recorded), it is temporarily recorded to Shri Tasalmat Khate. Afterwards
on finally deciding the account to which the effect is to be given, it is correctly recorded
to that specific account and the reverse effect is given to Shri Tasalmat Khate.
Shri Deshavar Khatu : Whenever any person of the firm, munim or the owner
himself, goes out of station for purchase or sale of goods or for any other business
purpose, a certain amount is given to him for use and expenses. Such amount is
debited to such person's Deshavar Khate. Afterwards when such person returns, he
submits the details of his transactions. With the help of such details, Shri Deshavar Khatu is
credited and closed and the correct entry is recorded for each of the transactions. Thus,
this is a temporary account.
Shri Haththu Khatu : When an a amount is to be paid to the creditor of the business
and such amount is sent to him through some person or aangadia, such amount is
debited to Shri Haththu Khate instead of debiting it to such creditor's account.
Afterwards, on getting the receipt either from the creditor or aangadia, Shri Haththu
Khatu is closed by crediting it and the creditor's account is debited. Such an account is
a temporary one.
Shri Chanlla Khatu : The businessman develops business relations during the course of
business. Due to such business relations, whenever there is any good occasion at the
customer's or creditor's place, a gift or Chanlla is to be given. Such amount is debited
to Shri Chanlla Khate. In the same way on a good occasion at his place, the
businessman receives a Chanlla or a gift, which is credited to Shri Chanlla Khate.
However, such tradition is now getting extinct. Now, whenever Chanlla or a gift is to
be given, it is treated as a buisness expense and is debited to Shri Dukan Kharch Khate.
Shri Silak Vadhghat Khatu : Closing balance (Silak) as per Rojmel or Bethomel
should tally with the actual cash on hand. If they do not tally, the necessary
verification and efforts are made to find out the error. Still however, if the closing cash
balance is more or less than the actual cash on hand, the differential amount is
recorded in Shri Silak Vadhghat khate, Here, if the balance as per Rojmel is found less, it

is debited to Shri Silak Vadhghat Khate and if it is found more, it is credited to Shri
Silak Vadhghat Khate. Afterwards, when the reason for such difference is traced, the
reverse effect is give to Shri Silak Vadhghat Khate and the correct effect is given to the
concerned account. Thus, the correct balance is arrived at automatically.
Shri Ublek Khatu : Whenever an amount is lent fora few days to a person in the
business, it is debited to such person's ublek account. Because, such amount is to be
received back very shortly, its is not opened in the books. For the purpose,
Upartapke : When any person is lent an amount for a day or even for a shorter time, the
amount so lent is not recorded as an entry in Rojmel. But in Rojmel, after finding out the
closing balance such amount is shown as a part of balance as 'Upartapake'. The actual
balance is less ,by such ' Upartapke ' amount and to tally the accounts, it is recorded in'such a
way. Say, the total on Jama side of Rojmel is Rs 15,000 and the total on udhar side is Rs
12,000 and Mafatlal is given Rs 100 to be returned in the evening. In Rojmel, 'upartapake' will
be recorded as follows :
Kabulat and Havalo(Acceplance and Transfer) : On mutual understanding the
businessman agrees to pay an amount, payable to a creditor, to another person. This is
known as Kabulat (acceptance).
In the same way, when a businessman agrees to accept an amount from another
person instead of from his debtor, it is also Kabulat (acceptance).
When instead of arriving at mutual understanding or Kabulat about a debt or
receivable an instruction or order is given for that, it is known as Havalo (transfer).
Because of Kabulat and Havalo, there is an effect on the businessman's debt and
receivables. Due to such transactions the account of a person who has accepted to pay
or from whom the receivable arises, is debited. And the opposite party's account is
credited. Say Prakash accepted to pay R s 400 to be paid by Deepak. Here, Deepak
is a debtor, whose amount now will be paid by Prakash. Therefore, it will be.
considered as the amount paid out by Dipak. At the same time, now it will be
considered as the amount due from Prakash.
'Haste' : In business, the recovery of money or the payment is many a time from a
person or to a person, who may not actually be a creditor or a debtor, but he may be a
clerk or munimji or any other person. Therefore, for record pur poses, below the name
of the debtor, who has paid the amount is written the name of the person who brings
the amount with 'H' noted there, which is known as 'Haste'. So that the person, who
came to pay the amount can be known. e.g. Received Rs 10 from Shri Pratapbhai 'H'
Shardaben.
Miti : miti means Tithi. For that the full details regarding the month, the paksh (Sud or Vad),
tithi and the year are written.

Rules of Debit-Credit
We know rules of debit and credit as per Double Entry System of Accounting. The
same rules are applied while writing accounts under the Deshi Nama System, because
there is no difference in the principles under both the systems. However, the method of
writing (format) under both the systems is different. Let us understand once again the
rules of Debit and credit.
For Personal Accounts: Debit the receiver and credit the giver
For Real (assets) Accounts : Debit what comes in and credit what goes out
For Nominal Accounts: Debit all expenses and losses and credit all incomes and
gains

Rojmel
Rojmel is a basic or primary book under Deshi Nama.
The businessman prepares Rojmel with the help of vouchers and the rough book.
Rojmel is written and prepared daily and the closing balance is derived daily. Hence, this
Mel is known as Rojmel.
Both cash and credit transactions are recorded in Rojmel. From this view point Rojmel
is like a journal under double entry sytem of accounting.
Rojmel or Bethomel serves the purpose of'cash account also. Hence, in any transaction
the effect to a cash account i.e. debit or credit effect to cash account, need not be
recorded in Rojmel or Bethomel. Thus, in a transaction related with cash receipt or
payment, generally only the effect to the account (other than the cash account), is to
be recorded. e.g., in cash purchase, only one effect - debit to the purchase account is
recorded and the credit effect to cash account is not recorded. In case of non -cash or
credit transaction, two or more effects are to be recorded. e.g., for goods purchased
on credit from Mamta, purchase account will be recorded on 'Udhar' side and the
other account - Mamta's account being non-cash account, will be recorded on 'Jama' side.
The book of Rojmel contains blank pages with eight folds.
In the book of Rojmel, every page is given a chronological number which is mentioned
at the top of every page and is known as Rojmel page number.
At the top of the Rojmel page below the Rojmel page number, the name of the owner
of the firm is written. Then, below the name of the owner, is written the year, the
month, the tithi, the date and the day.
Both on jama side and udhar side the amount of the transaction. is recorded in the first
fold' of the four folds. In the remaining three folds, the name of the account getting
effect is written preceded by 'Shri' and besides the name of the account the effect is
indicated by the term udhar or jama whichever it is, e.g., 'Shri Kamlesh Khate jama'
is written acccordingly. In the second fold below the name of the account the
amount of the transaction and in the remaining two folds a brief narration of the

transaction is written. Below the brief narration L.F. no. is recorded in the third or
fourth fold.
Shri Purant Janase : The beginning of writting in Rojmel or Bethomel is with the cash
balance on that day, which is shown as `Shri Purant Janase'. If there is no opening
balance of cash or if it is a beginning of a new business, on the credit side, in the
amount column, 'Shri IL is written as a good omen. And in the the particulars
(narration) 'Shri Ganeshay Namah' is written.
Shri Purant Baki : In Rojmel or Bethomel closing cash balance is known as 'Shri Purant
Baki'. This closing balance is equal to the actual closing cash balance on that day.
Note:Here, it should be noted that in Rojmel the total on the jama side is always more.
Therefore, 'Shri Purant Baki' has to be on udhar side. Because, Rojmel is a kind of cash
account. As per the rules of debit and credit, cash receipts are recorded on the jama side
of Rojmel and expenses cash payments are recorded on the udhar side. In a business,
there can't be more cash payments (outgoings) than cash receipts.
Subsidiary Books (Peta Nondho or PetaVahis)
In Deshi Nama, Rojmel or Bethomel is maintained to record the accounting entries for
the daily transactions. When the transactions in a business are less in number, it is
convenient for a businessman to record the daily transactions in such Rojmel or
Bethomel. However, if the transactions in a business are large in number, only one such
book is not convinient enough, because,
The size of the book becomes very large,
Necessary information is not available speedily and easily,
The work of writing books of accounts can not be distrbuted,
There will be greater burden on only one person writing accounts and at times he
may not be able to manage it, and
The transfer or movement of books may not be easy/convenient.
For the above reasons, bigger businessmen maint ain certain additional books in
addition to Rojmel or Bethomel. Such books are known as Peta Nondho or Peta Vahis
(Subsidiary Books).

The following Peta Nondho are used under Deshi Nama :

(1) Jamanodh (Kharidnodh or Purchase Book) : In a business where the
transactions for credit purchase are in substantial proportion a separate book is
maintained to record such transactions. Such a book is known as Jamanodh or Jama Vahi
or Kharidnodh. When the goods are purchased on credit, the purchase of the goods is
credited to the seller's (the trader from whom the goods are purchased) account. Thus,
every trader's account recorded in this book is credited by the amount recorded against his
name. Hence, this book is known as Jamanodh.
(2) Udharnodh (Sales Book) : When in a business, the transactions for credit sales are in
substantial proportion a separate book is maintained to record such transactions. Such a book
is known as Udharnodh or Udharavahi or Vechan (vakara)nodh. When the goods are sold on

credit, the sales price (amount) of the goods is debited to the customer's account. Thus,
every customer's account recorded in this book is debited by the amount recorded against his
name. Hence, this book is known as Udhamodh.
(3) Daginamel (janasvahi or Stock Register) : In Deshi nama, a b000k, which is
maintained to account for the incoming and outgoing of goods, is known as
Daginamel or Janasvahi or Stock Register. There are two known methods of preparing a
Daginamel. As per one method, Daginamel is prepared like Rojmel, with pages that have
eight folds and with two columns Jama and Udhar. As per the other method, it is prepared in
the format of a register, with three main columns that is Receipts (Avak or .Incoming)
Outgoing (Javak) and the balance, as under Double Entry System.
(4) Aankdavahi (Sudha Vahi or Rough ledger - Kachi Khatavahi) : Aankdavahi is a
Kachi Khatavahi. In it, the ledger accounts of the customers are opened and daily
posting of their accounts is done from the Rojmel, Bethomel and Udhamodh. Afterwards at a
convenient time, proper posting is done in the ledger (wherein all the ledger accounts
for the business are opened). In this way, as the posting is done twice, chances of
committing the errors or of forgetting to record a tratisactions are reduced. At the same
time a person, who goes for collection, can carry it with him.
(5) Ughrani Nodh : A clerk or munim who goes for collection keeps with him a book or
dairy. In such a book, the brief details/particulars, regarding the amounts due from the
debtors, are shown. Such a book or diary is known as Ughraninodh. The person, who
goes for collection, records there in, the amounts received by him during the collection,
based on which the detailed/proper posting is done in the ledger.

(6) Jangad Nodh : In Jangad Nodh, the Jangad sale transactions of the business
are recorded. Under Jangad sale transactions (transactions based on 'Sale or Return'),
if the customer is not satisfied with the goods, he can return the goods within an
agreed time limit. Thus, till the customer's confirms the purchase of such goods or the
time limit (the date) for such Jangad sale is not over, it can not be treated as actual
sale. After the time limit for such Jangad sale is over, even if no no intimation of the
confirmation is received from the customer, such Jangad sale is treated as actual sale.
Jangad Nodh is written in the same way as Rojmel. When in a business, the goods are
sold on Jangad, it is recorded in this book on Jama side and when such goods on
receiving back or at the end of the agreed time limit, it is recorded on the debit side,
ofcourse, the entry for the real sale transaction is recordea in Udhamodh, by the
businessman.
(7) Karar Nodh (Contract Book) : Many a time, many contracts are entered into
regarding purchase, sale or any other matter in a business. These contracts are made
with different terms and conditions. Some contracts which may be for a longer duration,
should always be written contracts and it is also necessary to maintain a separate and
proper note for each of them. For maintaining a record of such con tracts in business, a
separate book called Karar Nodh is kept.

(8) Vyajvahi : Generally, the shroffs or moneylenders maintain such a book, in which
an entry is recorded for the interest. Such businessmen accept the deposits also and
lend the money to those, who are in need of funds (money). For the purpose, the
businessman has to pay the interest to the depositor and charge the interest from the
borrower. In it, an account per such depositer/borrower is opened and after calculating
interest on its amount, an entry for the interest is passed/ recorded. In this
Vyajvahi, in addition to interest in general, interest on the instalment ('Kandhu') is
also recorded. If the businessman has borrowed an amount, its details and the
interest on it is also recorded. In addition, interest on the debt amounts and
receivables is also charged for the late payment of the balance. Such interest is also
recorded in' this book.
(9) Hundivahi When there are numerous bill transactions by the businessmen, they
maintain a separate book called 'Hundi Vahi' to record such information. Such Hundivahi is
also prepared like a Rojmel. Of course, the accounting entries for the bills, are recorded
in Rojmel or Bethomel. This Hundivahi (Bills Book) provides information, regarding the
parties to bills, period, amount etc. to the businessman.

(10) Kabalavahi : The book, which is maintained by the businessmen in 'For ward
Trading' to record the details of their forward transactions, is known as 'Kabalavahi'.
Kabalavahi is also known as 'Sauda Patrak'.
(11) Bank Register : When a businessman maintains more than one bank account for
his transactions with the bank, he ' maintains a register to record his numerous bank
transactions. Such 'Register' is known as 'Bank Register. In it, different columns for each
bank /bank accounts are kept , and the transactions are recorded in it.

Khatavahi
In Deshi Nama the first accounting entry of transactions is recorded in Rojmel or
Bethomel and in Subsidiary Books. Such entry is as per the date (tithi) and month
(mas).
The book in which the personal accounts, real accounts and accounts, -pertaining to
incomes and expenses of the business, are opened, is known as Khatavahi'.
Khatavahi is one of the main books of accounts.
The book of Khatavahi is like that of Rojmel and Bethomel, hard bound and covered
by red cloth, in a vertical form and pages with the eight folds. Out of eight folds, four
folds on the left hand side are for Jama and the remaining four folds are for Udhar.
On the first page of Khatavahi, the name of the owner of the business and the year
for which the Khatavahi is to be prepared is written.
Then, in the beginning of the book there is a page for serial number/table of
contents, which is known as Sankaliyu (Anukramanika). In Sankaliyu, the name of
the account and the page number of the Khatavahi, on which the said account is
drawn, is written. This helps in finding out an account easily.
Fanku Maravu (sign indicating that the posting is done) :

Once the positng (khatavahi) for a transaction is done, a sign '(0)' is marked in
the first fold below the amount of the transaction. This sign indicates that the posting
is completed. Process of marking sign '(0)' is known as 'Fanku Marvu'.
Khata's Sandhan
Generally, one blank page is kept for each account in Khatavahi. But in case of certain
accounts, when the space so provided is fully utilized, such account may be carried
forward in the blank pages kept at the end of Khatavhi. Thus, the process of carrying
forward an account to the blank pages at the end, is known as 'Khatanu Sandhan. On
the page, which is completely used for an account, the page number of sandhan is
mentioned and on the page of sandhan, the original page no. is shown. This helps in
tallying the account easily.

Types/kinds of Khatavahi
In Deshi Nama, the following three types of -Khatavahis are used (1) Simple(sadi)
Khatavahi (2) Bethi Khatavahi or Thham Khatavahi (3) Sama Daskatni Khatavahi
(1) Simple(Sadi) Klhatavahi : The Khatavahi, in which all the ledger accounts of the
business are maintained, is known as Sadi KhatavahL At--the end of the year, on the
basis such Khatavahi,-utaro (trial balance) and final accounts are prepared.

(2) Bethi Khatavahi or Thharn Khatavahi : The businessmen, whose transactions are comparatively less in number (they) maintain only personal i.e. creditor
and debtor accounts in the Khatavahi (ledger) for their transactions. Such
accounts are known as Betha Khata and such Khatavahi is known as Bethi
Khatavahi or Thham Khatavahi. Such businessmen do not maintain Udhar Nodh
and Jama Nodh. Instead of recording the transactions of purchase and sale, in
Rojmel or Bethomel, they are recorded directly in the Khatavahi. Thus, Bethi
Khatavahi serves the purpose of both Rojmel and Khatavahi. The main purpose of
maintaining such khatavahi is to get the clear information regarding debts and
receivables (dues) and it can be decided as to how much collection from debtors
will be available and against that how much payment is to be made. However, such
Khatavahi is not much in practical use these days.
(3) Sama Daskatni Khatavahi : The money lenders, businessman and shroffs maintain this
Khatavahi. In such case the shroff opens the customer's account in his books at the time
of lending the money. In this account itself, the particulars regarding the amount lent,
period for which it is lent the Miti on which the money is lent, rate of interest the asset
mortgaged etc. are shown. Below these particulars, the necessary Revenue Stamp is
affixed and on it the customer's signature is taken. Thus, this khatavahi serves the purpose of
both a ledger (khatavahi) and a receipt for the money lent.

Kandhanu Vyaj (Interest on the installment) : Many a time, the shroff fixes up
the installments, for repayment of the loan, for the customer's convenience. The
amount for each instalment is called the amount of Kandhu. Now, if the
customer delays the payment of the instalment (Kandhu), the customer is
charged ab interest, for such delayed payment, which is called Kandhanu Vyaj.

Khatanu Mandaman : The shroff charges the customer a certain amount, for
opening the customer's account in his books. Such an amount is known as Khatu
Mandamani'.
Kothali Chhodamani : Many a time, the shroff deducts a certain amount, while
lending the money to a customer. It is known as Kothali chhodamani. The amount of
Kothali Chhodamani is an income for the businessman (lender) and an expense for
the customer (borrower).
Khatani Baki (Balance in the account) : After posting a respective account, the account
on both the sides is added up and the difference is found out, which is known as 'Baki'
(balance). Generally, to know the result (profit or loss) of the business, at the end of the
year, or to carry forward the accounts to the new pages, the balance (baki) is arrived at.

Kinds or types of Khata : In Deshi Nama, certain accounts are closed at the end of the
year. While a balance (Baki) is arrived at for certain accounts, Now, which accounts are to be
closed and in which accounts the balance is to be arrived at, de pends upon the kind of
account (Khatu). In Deshi Nama, the accounts are classified into two types : (1) Kacha
Khatan, (2) Paka Khatan.
Kacha Khata : The accounts pertaining to the purchase and sale of goods, and accounts
pertaining to incomes and expenses, in a business are known as Kacha Khatan. Kacha
Khata are closed at the end of the year and their balances are not to be carried forward in the
new year. e.g. Shri Kharid Khatu, Shri Majuri Khatu, Shri Commission Malel (Received) Khatu
etc.
Paka Khata : In a business, out of all the accounts, the accounts pertaining to persons
and assets (i.e. personal and real (assets) accounts) are known as Paka Khatan. At the
end of the year, the balance (Bald) is found out in such accounts and such balances are
carried forward in the Khatavahi (ledger) for the new year. The balances in Paka Khatan
are known as : 'Baki Deva' if it is a credit balance, and 'Baki Lena' if it is a debit balance.

Utaro (Trial Balance): The businessman prepares a statement based on the Baki (balance) of
every (all) account. This statement is called 'Utaro'. Under Double Entry System of accounting

this statement is called 'Trial Balance'. With the help of utaro, it can ascertained whether the
accounts are arithmetically correct or not. Utaro is prepared at the end of an accounting year,
before preparing final accounts. Shri Purant Baki (Closing balance of cash) as per Rojmel or
Bethomel can also be obtained on the basis of utaro.
Utaro is prepard in pages with eight folds like Rojmel. In Utaro, the closing bal ance
(Baki) of each account is written. For the purpose, the account (Kahtu) having a credi t
(Jama) balance (Baki) is written on the Jama side of the Utaro and the account (Khatu)
having Udhar (debit) balance is written on the Udhar side of the Utaro. Then, the total of
the amounts on Jama side and the total of the amounts on Udhar side, are arrived at and
they are shown (written) on the respective sides in the third fold. Then, the difference, of
the total of the amounts on both the sides, is found out and written on the side which is
short (always on Udhar side) and it is wirtten as Shri Purant baki in the fold for particulars.
Shri"Purant Baki as per Utaro, is tallied with Shri Purant Baki as per Rojmel or Bethomel.
If Shri Purant Baki and actual cash on hand are the same, it can be assured that the
accounts are arithmetically correct.

Havala and Havalamel

In order to ascertain profit or loss of the business, kacha khata is to be

closed. True (correct) profit or loss can be found out by giving accounting
effects for closing stock, unpaid expenses, depreciation, bad debts, rectification
or errors etc. Besides, at the end of the year, Gharkharcha khata is closed by
transferring it to Bhandol khata Similarly, profit or loss arrived at in KharidVakra khata or Vatav khata. or Nafa Nukshan Khata, is also transferred to
bhandol khate..
The entries to be passed to give necessary accounting effects for such
aspects in the books of accounts, are known as Havala or Havala nondh..
In order to record the entries (nondh) in Havalamel at the end of the year
or specific period, Havalarnel is written on the last page of Rojmel or
Bethomel..
Havalamel is also known as Jama Kharchimel, Mandchhadnomel or Achalmel .
This Havalamel is different form Jamakharchimel, which is prepard as a part of
the Rojmel to record the credit transactions only. Entries (nondh) for the
following matters (aspects) are passed in the Havalamel:

Stock of Goods : . For this purpose, kharid-vakra khatu is credited by debiting

the closing stock khatu. Closing stock (Akhar Stock) khatu which is debited, is a
newly opened account and it being an asset, is shown an the debit side of Sarvaiya

as Akharmal Stock khate. the cost price or the market price, whichever is less, is
taken into consideration.
In the next year, the debit balance of this stock account will be treated as
opening stock (Sharuno Mal Stock) and at the end of the second year by
debiting kharid-vakra khatu and crediting the stock khatu, this stock account is
closed.

Unpaid (outstanding) Expenses : If any expense is outstanding at the, end of the

year, the respective expense account is debited and credit is given to the
outstanding expense account or to respective person's account. The posting is done
on the debit side of the respective expense account and on the credit side of the
outstanding expense account or repective person's a/c and they are shown in
Sarvaiya. e.g. Wages unpaid Rs 600.
Prepaid Expenses : If any expense of the following year, is paid during the current
year, it is said as prepaid expense. Debiting the prepaid expense account, the
respective expense account is credited. The posting is done on the credit side of
the respective expense account and on the debit side of prepaid expense account,
which is shown on the debit side of Sarvaiya.
e.g. Prepaid insurance premium Rs 300.

Income (Revenue) due but not Received : At the end of the year, if any
income is due but not received "income due but not received" or 'related
person's' account is debited and the respective income/Revenue account is credited.
The positing is done on the credit side of the income account and on the debit side
of the income due but not on the received account (or to the related person's
account) which is shown in Sarvaiva. c.g., interest on investments due but not
received Rs 500.
Income (Revenue) Received in Advance : If any income pertaining to the
following year is received and recorded in the current year as income, the
respective income account is debited and income/revenue received in advance
account is credited. The posting is done on the debit side of the income
account and on the credit side of the income/revenue received in advance
account which is shown in Sarvaiya. e.g, Rent received in advance Rs 200.
Depreciation : At the end of the year, to record the depreciation on depreciable
asset, respective asset account is credited by debiting the depreciation account. It
is posted on the debit side of the depreciation account and on the credit side of
the asset account. As the amount of depreciation is credited to asset account, in
Sarvaiya that much amount is shown as a deduction from the asset.

Bad Debts : At the end of the year, if the information is received regarding the
bad debts, then in order to record the same, Debtor's (Devadar's) - account is
credited by debiting the bad debt (Ghalkhadh) (Khatu) account or Vatav
account which is posted on the debit side of Ghalkhad or Vatav Khata (account)
and on the credit side of the Devadar's account and the balance of the
outstanding receivables is shown in Sarvaiya, as reduced by such an amount.
Interest on Bhandol : If the owner of the business is to be given the Vyaj
(interest) on Bhandol (capital), then Bhandol account is credited by debiting the
Vyaj on Bhandol account. It is posted on the debit side of the Bhandol Par Vyaj
Kate and on the credit side of the Bhandol (capital) khate. Vyaj on Bhadol is to
be calculated at a fixed rate.
Havala to transfer Gharkharch Khatu to Bhandol khatu ; The amount of the
withdrawls made by the owners of the business during the year, must be
debited to Gharkharcha khate. At the end of the year the Gharkharcha khata
is closed by tranfering the amount to the Bhandol khate. For this, Gharkharcha
Khatu is credited by debiting Bhandol account. It is posted on the debit side of
bhandol account and on the credit side of the Gharkharcha account. Gharkharch
account will be closed and the balance of the Bhandol account will be reduced to that
extent.
Havala for Rectification of Errors ; In order to rectify some of the
accounting errors committed during the year, at the end of the year some
account may be required to be debited or credited. It is also known as Havala
nondh. e.g., If the wages of Rs 500, is debited to salaries, to rectify this
mistake Majuri Khata is debited by crediting Pagar khata. Here it should be
noted that if any error is committed in utaro, it can be rectified in utaro only for
which no Havala nondh will be passed. Utaro will be prepared after rectifying the
errors.
Havala Nondh or Akhar Nondh to Close Kacha Khata : After passing
havalanondh for all adjustments, in Havalamel, and after its posting all kacha
khatas shown in utaro are closed by transferring either to Kharid -vakra Khate or
to Vatav Khate. It should be noted that because of the posting of the above
Havala Nondh, the balances in some of the kacha-khata will be changed and some
new kacha khata may be added. The new closing balances after the changes
are made in the old kacha khata and the newly opened kacha khata, all kacha
khatas are to be closed. In order to close kacha khata, the following accounting
effects are given in Havalamel.
Havala to Transfer the Profit or Loss of the Business to Bhandol :
Havala

Debit [Khate Udhar]

Credit[ Khate Jama]

Opening stock

Kharid-Vakara

Sharuna stock

Closing stock

Akhar Stock

Kharid-Vakara

Outstanding expense

Kharch

Kharch na baki deva

Prepaid expense

Agauthi Chukvel Kharch

Kharch

Outstanding income[Avak]

Outstanding income

income

Income received in advance

Income

Income received in advance

Depreciation [Ghasaro]

Depreciation [Ghasara]

Milkat [Asset]

Bad debts [ghalkhadh]

Ghalkhadh

Devadar [Debtor]

B.D.R. [ghalkhadh anamat]

Kharid-vakara

B.D.R. [ghalkhadh anamat]

Interest on capital [Bhandole

Vyaj on Bhandole

Bhandole

Interest on Drawings

Gharkharch

Gharkharch vyaj

Close exp[Kharch] khata

Kharid-Vakara/ Vatav

Respective Kharch Khata

Close income[Avak] Khata

Respective Avak Khata

Kharid-Vakara/ Vatav

Close Gharkharch Khata

Bhandole

Gharkharch

For the following multiple choice questions select correct alternative from
given choices and put its order in the bracket.
1.
Which method of writing Accounting is invented in Indian subcontinent and is
the oldest method of Accounting.
(a) Deshi Namu System
(b) Double entry System
(c) Single entry System
(d) none of the above
2.
Which System of accounting is known as Vahi Khata System?
(a) Single entry accounting
(b) Deshi Namu System
(c) Double entry accounting
(d) None of the above
3.
How many folds (sal) are there in the books of Rojmel, Bethomel, Khata Vahe
in Deshi Namu?
(a) Four
(b) Eight
(c) Six
(d) Twelve
4.
In Deshi Namu System, at the time of accounting entry which word is written
as a sign of omen before the name of khata?
(a) Aum
(b) Shri
(c) Namah
(d) Swastik
5.
In Deshi Namu System, at the time of writing amount J sign is put between
Rs. and Paisa. What is the name of this sign?

(a) Avro
(b) Olayo
(c) Utaro
(d) None of the three
6.
Which one of the following is known as Sundiya and Daniya?
(a) Peta Nodh
(b) Bethomel
(c) Rojmel
(d) Kachi Nodh
7.
Which book of Deshi Namu System is known as Basic book or Primary book?
(a) Journal
(b) Karar Nodh
(c) Ledger
(d) Rojmel
8.
Which mel is known as Thammel?
(a) Rojmel
(b) Jama kharchi mel
(c) Bethomel
(d) Dagina mel
9.
Rojmel and Bethomel serve the purpose of which Account?
(a) Bhandol
(b) Cash
(c) Bank
(d) Gharkharch
10. What is the name of the closing balance of Rojmel and Bethomel?
(a) Shri Bank baki
(b) Shri Purant Janse
(c) Shri Purant Baki
(d) Shri Bhandol
11. Which account is prepared by the business man for recording small and
miscellaneous expenses of business?
(a) Shri Ghar Kharch khatu
(b) Shri Jaherat Kharch Khatu
(c) Shri Dukan Kharch Khatu
(d) Shri Dharmada Khatu
12. During business transaction, if the name of the other party is forgotten, then
in which account it will be recorded?
(a) Shri Tasalmat Khatu
(b) Shri Shah Khatu
(c) Shri Hathu Khatu
(d) Shri Vatav Khatu
13. If the amount to be paid to a creditor is sent through any individual or courier,
then the amount is debited to which account?
(a) Shri Haththu Khate
(b) Shri Silak Vadhgath Khate
(c) Shri Deshavar Khate
(d) Shri Ublek Khate
14. When any person is given money on credit for one or two days or for still
shorter period, then the amount is debited in which account?
(a) Ublek
(b) Silak Vadhgath
(c) Upartapke
(d) Kabulat
15. In which Nodh the transactions related to credit purchase or business are not
Recorded?
(a) Jama Nodh
(b) Hundi Vahi
(c) Udhar Nodh
(d) Kabala Vahi
16. How many folds are there in the pages of Jama Nodh and Udhar Nodh books
in Deshi Namu System?
(a) Four
(b) Six
(c) Eight
(d) twelve

17.

18.

19.

20.

21.

22.

23.

24.

25.

26.

27.

28.

In Deshi Namu System, a separate book is maintained for recording inward

outwards. What is the name of this book?
(a) Janas Vahi
(b) Kabala Vahi
(c) Aankada Vahi
(d) Hundi Vahi
Which book is prepared by the business man of vaida bazaar to record their
vaida transaction?
(a) Hundi Vahi
(b) Kabala Vahi
(c) Sudha Vahi
(d) Vyaj Vahi
The businessmen who have less transactions in business, in which khata Vahi
do they record the transactions of debtors and creditors?
(a) Simple khata Vahi
(b) Thham Khata Vahi
(c) Sama Dastak Khata Vahi
(d) None of these three
On the basis of which record, it can be ensured that the accounts are
arithmetically correct?
(a) Karar Nodh
(b) Kabala Vahi
(c) Avro
(d) Utaro
Havalamel is also known as _____________
(a) Utaro
(b) Janas Vahi
(c) Achal mel
(d) Dagina mel
Which one of the following is not a Kachcha Khatu?
(a) Shri Gharkharch Khatu
(b) Shri Pagar Khatu
(c) Shri Vakara Khatu
(d) Shri Commission Khatu
To calculate the closing stock of any year for next years opening stock, which
A/c will be debited?
(a) Kharid Vakra Khatu
(b) Opening Stock A/c
(c) Closing stock A/c
(d) None
Which A/c is closed at the end of the year in Deshi Namu System?
(a) Pakka khata
(b) Kachcha khata
(c) Asset A/c
(d) Personal A/c
In Deshi Nama System where are Havalas recorded at the end of the year in
Final A/c?
(a) Khata Vahi
(b) Balance sheet
(c) Havala mel
(d) Tanchan
In Deshi Namu System, at the end of the year while preparing final A/c,
Havala mel is recorded on the last page of which book?
(a) Rojmel
(b) Udhar Vahi
(c) Jama Vahi
(d) Kabala Vahi
Where is the closing entry of Kachcha Khata recorded in Deshi Namu System?
(a) Sudha Vahi
(b) Jama Kharchi mel
(c) Jama Vahi
(d) Udhar Vahi
Where are the pakka khata recorded in Deshi Namu System?
(a) In Havala mel
(b) In Kharid Vakra Khate

29.

30.

31.

32.

33.

34.

35.

36.

(c) In Vatav Khate

(d) In Sarvaiya
Which of the following is a Paku Khatu?
(a) Kharch Khatu
(b) Upaj Khatu
(c) Maal Khatu
(d) Milkat Khatu
Where is the Gharkharch Khatu transferred at the end of the year?
(a) Kharid Vakra Khate
(b) Vatav Khate
(c) Bhandol Khate
(d) None
In Deshi Namu System, the difference of Jama and Udhar is shown as
____________ on debit side.
(a) closing stock
(b) closing balance of bank
(c) Purant Janse
(d) Shri Purant Baki
What is the form of Sarvaiya in Deshi Namu System?
(a) Utaro
(b) Dagina mel
(c) Udhar Vahi
(d) Jama Vahi
In Deshi Namu System, the left side of Sarvaiya is known as which side?
(a) Udhar
(b) Jama
(c) Mudideva
(d) Milkat lena
Which amount of closing stock is considered for Havala Nodh of closing stock
to know the profit or loss at the end of the year?
(a) Book value
(b) Market price
(c) Book value or market price whichever is less.
(d) Book value or market price whichever is more.
In Deshi Namu System while preparing final A/c through the method of Vatav
Khate, the profit or loss of kharid vakra khatu is transferred to which A/c?
(a) Bhandol Khate
(b) Vatav Khate
(c) Gharkharch Khate
(d) Ghalkhadh Khate
Who keeps Sama Dastakni Khatavahi?
(a) Trader

(b) Producer

(c) Workers

(d) Shorffs

37.
When money is given to Angadia to send it to some creditor in an other city,
which account it is debited?

38.

(a) Deshavar Khatun

(b) Shah Khatun

(c) Tasalmat Khatun

(d) Hatthu Khatun

When the owner of business goes out of station, then the lump sum taken by
him is debited to which account?
(a) Hatthu Khatun
(c) Tasalmat Khatun

(b) Deshavar Khatun

(d) Shah Khatun

to

39.

When money is given to someone for a day, then where it is shown?

(a) Ublek

(b) Tasalmat

(c) Upar Tapake

40.

(d) Hatthu Khatun

To close Kacha Khatan, entry is made to which Mel?

(a) Hawala Mel of Jama Kharchi Mel or Achad Mel
(b) Sudhavahi
(c) Udhar Nondh
(d) Jama Nodh

41.

42.

43.

Which Khatas are shown in Sarvaiyu?

(a)Kacha Khatan

(b) Paka Khatan

(c) Nominal Account

(d) Real Account

What is the primary or original book of Deshi Nama?

(a) Havala Mel

(b) Kachi Nondh

(c) Rojmel

(d) Khatavahi

In Deshi Nama method, from the following which Khatun is not opened in
Khatavahi?
(a) Vatav Khatun

(b) Salary Account

(c) Hathhu Khatun

44.

(d) Cash Account

By which other name, Betho Mel is known?

(a) Tham Mel

(b) Roj Mel (c) Achad Mel

(d) Dagina Mel

45.
If any amount is received from or paid to someone whose name is forgotten
is not known, it is credited to which account?

46.

(a) Shri Hathhu Khatun

(b) Shri Shah Khatun

(c) Shri Deshavar Khatun

(d) Shri Tasalmat Khatun

By which other name, Havala Mel is known?

(a) Rojmel
(b) Tham Mel
(c) Adhad Mel or Jama Kharchi Mel or Mand Chhand Mel

or

(d) Avaro
47.

In Dagina Mel, which transactions are entered?

(a) Cash transaction
(b) Credit Transaction
(c) Money given to borrower
(d) Good received, sold and balance of stock on hand

48.

What is the other name of Ankada Vahi?

(a) Sudhavahi
(c) Dagina Mel or Kachi Khatavahi

49.

50.

51.

(d) Kabala Vahi

In which book, the entry is made for credit sales?

(a) Jama Nondh

(b) Udhar Nondh

(c) Havalamel

(d) Kabala Vahi

Which book is kept for recording the transaction of forward trading?

(a) Vyaj Vahi

(b) Kabal vahi

(c) Ankada Vahi

(d) Degina Mel

What will you call debti credit difference of Balance sheet?

(a) Shri Purant Baki
(c) Akharani bank balance baki

52.

(b) Janas Vahi

(b) Shri Purnat Janase

(d) Akhar stock

The business man prepares a statement based on the baki (balance) of every
(All) account in Deshi Nama system. What is called this statement?

53.

(a) Khatavahi

(b) Thammel

(c) Kabalavahi

(d) Utaro

First of all the balance of which Khata is shown on Jama side of Sarvaiya in
Deshi Nama System?
(a) Bhandol Khata

(b) Shri Purnat baki

(c) Shri Purant Janse

(d)Bank Khata

Fill in the blanks with appropriate words

1.
2.
3.

Small traders generally keep . mel.

In Deshi Nama System is not posted in Khatavahi.
When the owner of the business goes out of station for the purpose of business, he
takes with him some amount which is debited to the . Account.
4. In Deshi Nama, utaro means .. .
5. Another name of Deshi Nama System is . .
6. Another name of Ankadavahi is . .
7. Sama Daskatni Khatavahi is prepared by .. .
8. The Sales Book is called .. in Deshi Nama.
9. Credit sale is recorded in .. book is Deshi Nama.
10. Only credit is recorded in Udhar Nondh.
11. Amount of . is not posted in the ledger.
12. When an amount is remitted to outstation creditor through Angadia, it is debited to
Angadias .. Khate.
13. If a transaction has taken place with some person, and his name is not known or is
forgotten, it is recorded in . account.
14. When the trader submits the accounts after returning from outstation, the amount is
to his Deshavar Account.
15. An amount borrowed by somebody on a promise to return after one day is called
16. Rojmel is in Deshi Nama.
17. In Deshi Nama, the words are used to suggest debit balance of an account.
18. A book kept specially for making interest calculations is called ..
19. While preparing Tarij of Udhar nondh, the amount is . to . account.
20. Dagina mel is kept to record .
21. Traders, engaged in forward trading, record details of forward trading transactions in
the book called ..
22. In Deshi Nama Method a list of balances of ledger accounts is called
23. . is used to write adjustment entries in Deshi Nama.
24. If we return the goods purchased on credit, before taking out Tarij of the month, it is
shown as deduction in .. .
25. Jama Kharchi mel is prepared according to the rules of .
26. When a certain amount is paid or received but its account could not be decided upon,
that amount is recorded in Khate.
27. .. Khatu is not opened under Deshi Nama System.
28. To record the forward transactions book is maintained.
29. In Deshi Nama System, to make the accounting full proof .. book is prepared.
30. Shroffs prepare .. book to record an entry for the interest.
31. Kachi Nondh is also known as .. .
32. The credit sales transactions are recorded in .. Nondh.
[Ans: 1. Betho 2. Ublek Rakam 3. Deshavar 4. Trial balance 5. Vahi Khata Method 6. Kachi
Khatavahi (Sudhavahi) 7. Money lenders 8. Udhar Nondh 9. Udhar Nondh 10. Sale 11. Ublek
12. Hatthu 13. Shah 14. Credited 15. Upar tapke 16. a book of original entry 17. Baki Lena
18. Vyajvahi 19. Credited, Vakra 20. Stock of goods 21. Kabalavahi 22. Utaro 23. Havala Mel

or Achad Mel 24. Jama Nondh. 25. Cash 26. Kabalavahi 27. Aavro 28. Vyajvahi 29. Tanchan
30. Udhar Nondh.]

Short Questions
1. Why is Ublek Rakam not posted in ledger under Deshi Nama system?
As the Ublek amount is to be received back in a short time, it is not necessary to open a
persons accounts. Hence, it is not posted to the ledger.
2. What does Uper tapke mean Deshi Nama system?
When some person takes away some money from business, to be returned the next day, it
is known as Upar tapke Rakam.
3. When is an amount debited to Haththu Khate under Deshi Nama system?
When balance some amount is sent to some trader in some other town through Angadia or
through some employee, it is debited to his Hatthu Khate.
4. In Deshi Nama system where do we recorded Uper Take Rakam?
When balance of cash is found out at the end of the day from Rojmel, the upar takke
rakam is recorded in the inner sale alongwith actual cash on hand.
5. When is an amount recorded in Silak Vadh-ghat Khate? When is this account closed?
When the actual cash on hand and the balance of Rojmel do not tally, the difference is
recorded to Silak Vadh Ghat Khate. When the reason for the difference or the error in
accounts is found out the next day, it is recorded in Silak Vadh ghat Khate and the account
is closed.
6. What are Kacha Khatan and Paka Khatan?
The goods accounts and nominal accounts of incomes and expenses, which are closed at
the end of the year and transferred to Kharid Vakra Khate, are known as Kachan Khatan;
while the accounts of assets and of persons, whose
balances are carried forward to next
year are known as Pakan Khatan.
7. Where would you show Kacha Khatan and Pakan Khatan while preparing final accounts
in Deshi Nama?
In Deshi Nama, Kachan Khatan are transferred to Kharid Vakra Khate or Nafa Nukshan
Khate and Pakan Khatan are shown in Sarvaiun (Balance Sheet)
8. What is Aavro?
Avro is a book of account in which are recorded all transactions from Rojmel and other
petanondhs at intervals of every two three days or a week.
9. What is Sudhavahi? By what other name is it known?
Sudhavahi is a rough ledger of debtors. It is a book in which accounts of debtors are
opened immediately on making entries in Rojmel and Udhar
nondh and then amount is
posted to that account showing necessary
details. It is also known as Ankada Vahi.
10.

What is Kabalavahi?

 Kabalavahi is a book kept by traders dealing in forward trading to record the details of
such contracts.
11. What is Vyajvahi in Deshi Nama system? Which traders keep this book
generally?

Generally the Shroffs who accept deposits and pay interest on deposit as well
as
charge interest on advances given, keep a separate book to calculate
interest.
This
book is called Vyaj Vahi.
12.

When can it be said that Mel has tallied in Deshi Nama?

When at the end of the day, the actual cash on hand and balance of Rojmel
(Shri Purant baki) agree, it is said that Mel has tallied.

13.

What is Fankun Marvun in Deshi Nama?

When entries from Rojmel, Udhar nondh and Jama nondh are posted into the
ledger and sign o is put below the figures in Rojmel and other petanondh,
the
process is called Fankun Marvun.
14.

What is Mandamani?
While advancing money to a borrower, the Shroff deducts some money for
clerical work according to the usual custom. This is an addition to interest.
amount so deducted is called Mandamani.

The

15.

For recording which type of transactions is the Kabalavahi kept?

Kabalavahis kept by a trader dealing in forward trading.

16.

What is Utaro in Deshi Nama System?

Utaro in Deshi Nama is an account showing list of debit and credit balances
prepared at the end of the year to check the arithmetical accuracy of
accounts.

17.

Which ledger accounts balance are useful to know the financial position of the
business?
Balances of Pakan Khatan.

18. Balance of which accounts are useful to know the business results in Deshi
System?

Balances of Kacha Khatan.

19.

What is Shree in Deshi Nama?

Shree means Laxmi, i.e. money or Goddess Laxmi. It is considered to be a
good omen in business. Secondly, when some persons name is not to be
disclosed or is not known, then also the word Shree is used.

20.

What is Mand Chhad Mel?

Mand Chhad Mel means Hawala Mel. An account which is prepared after
preparing utaro but before preparing final accounts to check the accuracy of
accounts, is called Mand Chhadno Mel.

21.

By what other name is the Deshi Nama System known?

Nama

Deshi nama system is also known by the other name of Vahi Khata system.

22. Which particulars are mentioned in Dagina Mel?

Dagina Mel shows the data relating to receipts, issues and balance (stock) of materials
and finished goods.
23.

Who keeps the Kabala Vahi? Why?

Kabala vahi kept by traders doing futures trading to record futures
transactions.

24. Who prepares the Vijay Vahi? Why?

Vyaj vahi is prepared by Sharafs to know the interest incomes, total income
expenses incurred to earn it.

and

25. When is a Khata said to be Sarbhar Khata?

When the totals of both sides of an account are equal, the account is said to
Sarbhar.

be

26.

By what other names is Kachinondh known?

Waste book is also known by the names Tanchan, Tippan, Sudiu, Ghadiu,
Danaiyu etc.

27.

What is Utaro?
In order to verify whether accounts written in Deshi nama system are
arithmetically corredt, a statement of balances of accounts is prepared which is
Utaro. It is known as Trial Balance in double entry system.

called

28. What is Dagina Mel?

In Deshi Nama system, a book kept to record receipts and issues of goods is known as
Dagina Mel, Janas Vahi or Stock Register.
29.

What is Uper Tapke Rakam?

When some money is lent to somebody for a very short period of two-three
days, it is not to recorded in Rojmel. It is shown as Upar Tapke after finding
balance (Silak) of Rojmel or Bethomel.
30.

out

Who maintains Sama Dastakni Khatavahi and why?

Sama Dastakni Khatvahi is generally kept by Shroffs or money lenders. An
account of each of the borrowers is opened in it. In it are recorded amount
lent, miti, date, day, terms of loan. Revenue stamp is affixed according to the
amount lent and signature of the borrower is obtained on it.

31.

What is Achadmel? State its other names.

In order to prepare final accounts under Deshi Nama, some entries for
adjustements are to be made and for closing Kacha Khata. The account prepared to
record these is called
Achad Mel. It is also known as Havala Mel, Jama-Kharchi Mel or
Mand
Chandno Mel.
32.

What is Pamotri?


Panotri is the index prepared on the first page of the ledger (Khatavahi), just
as
we have index of lessons given in the text book. From Panotri, it is
possible to know
the number of page on which a particular account is opened.
33.

When is the symbol l )0 used in Deshi Nama?

It is a specific symbol in Deshi Nama. When a new business is started and
there is not opening cash balance, the words l )0 is written. It is considered
auspicious figure. There is no such balance or cash of this name and it is
not
even in finding out closing cash balance.
34.

as
used

What is the meaning of Kandhani Rakamk and Kandhanu Vyaj?

If money is payable in installment and if any instalment is not paid in time
then interest is charged on such instalment for the due date. The amount of
instalment is called Kandhani Rakam. The interest charged in instalment after
its due date is called as Knadhanu Vyaj.

35.

Give Ghalkhadh Anamat (BDR) Havalanodh.

Kharid Vakra Khate Udhar, Ghalkhadh Anamat Khate Jama.

36. State any four names of Peta-nondh under Deshi Nama system of
accounting.

Names of peta nondh under Deshi Nama system of accounting: (i) Udhar Nondh (ii)
Jama Nondh (iii) Jangad Nondh (iv) Ugharani Nondh (v) Dagina Mel (vi) Karar Nondh (vii)
Ankada vahi(viii) Vyaj Vahi.

Statements : Whether True of False

1. Sama Daskatni Khatavahi is kept by general traders.

False, Shroffs keep Sama Dastakni Khatavahi.

2. Ublek transaction is posted in Deshi Nama Method.

False, no posting of Ublek amount is done in Deshi Nama.

3. Some small traders maintain Bethomel instead of Rojmel.

True
4. Ublek amount is not posted in the ledger.

True.
5. Rojmel is the main book of account in Deshi Nama.

False, Rojmel is the book of original entry in Deshi Nama.

6. Cash transactions are not recorded in Rojmel.

False, all cash as well as credit transactions are recorded in Rojmel.

7. All purchase transactions are recorded in Udhar Nondh.

False, in Udhar Nondh, only credit sale transactions are recorded.

8. The amount deducted by a Shroff at the time of lending money to a borrower
interest deducted in advance.

is

the

False, the amount deducted by Shroff at the time of lending money is called
Mandamani.

9. When an amount due to one person is agreed to be paid to another person,

the
amount is debited to Hatthu Khate.

False, when money is sent to outstation traders through Agadia, the amount
debited to Hatth Khate.

is

10.Only adjusting entries are recorded in Havala Mel.

False, in Havalamel, the closing entries for closing nominal account are also
made.
11.In Deshi Nama system, the balances of Kachan Khatan are not carried

True

forward.

12.Kharid-vakra Khatun prepared under Deshi Nama as a part of final accounts is similar to
Trading A/c of Double Entry Vatav Khatun is similar to Profit and
Loss Account.

True
13.After preparing Tarij of Jama nondh, Vakra Khatun is credited with the total.

True
14.In Deshi Nama system, the transactions of credit sales are recorded in Udhar
Nondh.

False, the purchase account (Kharid Khatun) is debited with the total of Tarij of
Jama
Nondh.
15.An order placed for purchase of goods or an order received from customer to
him goods is not recorded in Purchases or Sales Book.

True.

supply

16.In Deshi Nama System, the transactions of all sales are recorded in Udhar

True.

Nondh.

17.Under the influence of Western culture, no firm now writes accounts under
Nama System.

False, only credit sale transactions are recorded in Udhar Nondh.

Deshi

18.The closing balance (Silak) of Bethomel is ascertained in the same manner as

False, Deshi Nama is still popular

Rojmel.

19.Rojmel is considered as the basic book of accounting under deshi nama

True
20.All sales transactions are recorded in Jama Nondh.

False, it is a book of original entry.

21.Transaction for credit purchases are recorded in Jama Nondh.

False, only credit sale transactions are recorded in Jama Nondh.

22.Trial balance is called Sudiyu in Deshi Nama.

system.

False, Trial balance is called Utaro in Deshi Nama.

23.Credit purchase transactions are recorded in Jama Nondh.

True
24.Upar Tapke is the amount lent for a short period of two three days.

False
25.Ublec is recorded in Rojmel.

True
26.Vyaj Vahi is kept to record the future transactions.

False