NAME SUHAIL KHAN

ROLL NUMBER 2314500417

PROGRAM BACHELOR OF BUSINESS ADMINISTRATION
SEMESTER 2
COURSE CODE DBB1202
COURSE NAME FINANCIAL ACCOUNTING

Set-1
Q.NO 1) Elaborate the following accounting concepts:
a. Accounting period
b. Accrual
c. Going concern
d. Realization

Ans.No 1)
a. Accounting period: - Assuming profits on these transactions are to be determined for a book of
accounts, all the transactions are entered into there.
defined duration. Usually spanning January 1 to December 31, this period—known as the
accounting period—is either the financial year (April 1 to March 31) or the calendar year.
The maximum accounting time permitted under the Companies Act, of 1956 is fifteen months.
Usually, the accepted accounting term is one year as it facilitates any corrective action, income tax
payment, absorption of seasonal variations, and reporting to outside authorities.

b. Accrual: - The accrual theory holds that regardless of whether the money is received or paid in
conjunction, incomes and costs should be recorded as they are generated and incurred. Regarding
revenue and actual payment of cash and the obligation to pay cash with respect to costs, this notion
distinguishes the accrual receipt of cash from the right to receive cash.
The Companies Act, 1956 stipulates that the accrual concept has to be kept for nearly all
accounting needs. The cash basis of accounting is the alternative to the accounting accrual basis.
According to Indian law, a cash basis may be used in situations when the accrual concept cannot be
maintained under any circumstances.

c. Going concern: - This idea makes one believe that the company will survive for a considerable
period. This idea helps one distinguish between expenses whose short-term advantage will be
expended and those that will pay off over a lengthy period.
The management evaluates the entity's capacity to be a continuing concern when they are getting
financial statements. Should the evaluation expose notable uncertainty regarding the entity's
capacity to be a going concern, management is obliged to inform that fact and the underlying cause
of the entity's lack of reputation as such.
The following situations render the going concern theory useless: when a company was established for a
specific goal.
1. When the government calls a corporation sick?
2. The firm is set to end up soon and has been under extreme financial distress.
 3. When someone has been assigned to wind up the business—a receiver or liquidator.

d. Realization: - According to this idea, each commercial transaction has to be "realized" to

acknowledge income from it. Realization in terms of legal rights to get money refers to creation.
Selling things is realization; getting an order is not. Stated differently, income is said to have been
realized when cash has been obtained or the right to earn cash on the sale of products or services or
both have been generated.

Q.NO 2) Narrate the objectives and features of final accounts.

Ans.No 2)
 Final Accounts
Prepared at the conclusion of the fiscal year, final accounts show the earnings and financial
situation of a company, therefore giving management and other stakeholders vital information.
Presenting the company's profit or loss for the year and its financial situation at the year's
conclusion, these summaries of ledger accounts show how things are.

 Final Account Purpose

Final account preparation proceeds in line with ledger account correctness checking. They
comprise the balance sheet to show the financial situation on a given date and the income statement
(trade and profit and loss account), which helps one ascertain profit or loss. Together, these two
remarks are known as final accounts. Every company has to be ready for these at the conclusion of
the accounting year as they provide insightful analysis to several stakeholders like management,
investors, creditors, government, staff, and consumers. Final accounts highlight the profitability and
financial situation of the company by aggregating all accounting data entered during the year.

 Final Accounts: Objectives

Financial statements should give a truthful and honest picture of the operations of the company,
therefore helping many different social and legal users. They help to compare current trade
outcomes with past years and demonstrate corporate performance—that of gross profit or loss. The
International Accounting Standards Committee (IASC) states that the aim is to provide valuable
information to a broad spectrum of consumers thereby enabling them to make informed economic
decisions. These comments help stakeholders evaluate the enterprise's cash flow-generating
capability and financial performance.

 Characteristics and Elements of Final Accounts

 Income statements, balance sheets, and cash flow statements make up financial statements.
Financial data needs to be useful in allowing consumers evaluate the cash flow, financial situation,
and performance of the company. Key qualitative traits include:

 Information has to affect consumers' methods of decision-making. It should forecast future results
and integrate previous and present records. Materiality is important; so, knowledge is valuable if it
might influence decisions.

 Users of financial statements must understand them if they are to make wise judgments.
Considering the particular demands of the target audience, accountants should clearly communicate
 information.

 Information should be objective and authentically depict the financial realities free from bias. This
covers qualities like thoroughness, simplicity, caution, and neutrality—that is, content above form.

 Users should over time and against other businesses compare financial statements to show
comparability. The disclosure of consistent accounting principles and their use improve
comparability.

 Financial statements ought to fairly and truthfully depict the condition and performance of the
company.

 Improving qualitative traits such as timeliness, understandability, and verifiability helps to boost
the value of financial information even further. Still, the expenses of delivering this material should
be commensurate given their advantages. Across financial reporting, the IASB evaluates expenses
and benefits, thereby possibly modifying criteria depending on the kind and size of businesses.

 All things considered, final accounts are important for offering precise and complete financial
information as well as for helping different stakeholders make wise decisions.

Q.NO 3) Explain the meaning and types of:

a. Assets
b. Liabilities
c. Capital

Ans.No 3)
a. Assets: - "Assets are future economic benefits, the rights which are owned or controlled by an
organization or individuals," Finney and Miller state. It has to be qualified as an asset by:

1. Indicate future economic gains allowing future net cash flows.

2. Let the entity gain from it; limit access to others.
3. Be grounded on a prior occurrence that grants the beneficiary the right.
4. Be free of material mistakes and bias and able of consistent measurements.

 Resources include:

Physical items including land, buildings, machinery, cars, furniture, merchandise, and
currency make up tangible assets.
Rights having financial worth like copyrights, trademarks, goodwill, and patents are known
as intangible assets.
Debts or sums owing from others—such as various debtors, bills receivable, and
accumulated income—are receivables.

 Different purposes define the classification of assets:

 Not for resale (e.g., land, machinery), Fixed Assets used in manufacturing or
delivery of products and services. The land is, for land developers, a present asset.
 Held or receivable within a year, convertible fast (e.g., shares, debtors, bills payable,
bank funds).
 Easily convertible to cash (e.g., cash in hand, bank cash, marketable investments),
liquid assets
 Fictitious Assets: - Promotional costs, among other expenses not written down
within their incidence period.

b. Liabilities:- Liabilities are most likely future sacrifices of economic gains resulting from current
commitments of a certain organization to transfer assets or offer services to other entities in the
future as a result of previous activities or events.

 One must have these elements present to be qualified as a liability:

1. A liability calls for the entity to satisfy a present obligation by the expected future transfer of
an asset on demand upon a designated date or occurrence.
2. One cannot ignore their responsibilities.
3. The obligatory event for the entity has happened.

 Liabilities encompass all sums owing by the company concern outsiders either for loans
obtained for assets acquired on credit for products purchased on credit or services received on
credit.
 Liabilities include loans borrowed, deposits taken, bank loans, bank overdrafts, various
creditors, bills payable, unpaid debts, pre-received income, etc.
Current responsibility is that duty with which one must be fulfilled within a year. Payment to
different creditors for the items supplied by them on credit; bills payable accepted by the
businessman; overdraft raised by the businessman in a bank etc.

c. Capital:- The residual stake in the assets left over from subtracting their obligations is known as
owner's equity or capital. In a company, the equity is the ownership interest. Equity is the
foundation for income distribution to the owners as it results from the ownership relationship.
Assets of a company are distributed among owners on their choice. Owner's investment raises
equity; distribution of earnings in the form of dividends lowers equity as well as profits.

For instance, the owner's equity will be (60,000 - 20,000) Rs. 40,000 if, on a certain day, the whole
assets of a company are Rs. 60,000 and the total liabilities of the company are Rs. 20,000.

Set-2

Q.NO 4) Discuss the various reasons for the differences between cash book and pass book.

Ans.No 4)

 Causes for Discrepancy

Several variables can contribute to differences in the cash and passbook balances. The period for
posting,
There is a difference between the bank transactions recorded in the cash book and the posting time
in the firm's bank passbook. The balances of the cash book and pass book vary due to the
following factors:

1) Outstanding supplier checks:

When making cheque payments, they are recorded in the bank column of the cash book. However, the
bank only records the payment in the passbook once the cheque has been given and successfully processed.
This process may require a significant amount of time, leading to a discrepancy in dates.

2) Checks that have been put into a bank account but have not yet been collected:
When cheques are deposited in the bank, they will be recorded in the bank column of the cash book. The
bank will also record the corresponding transaction in the passbook when the cheques have been collected.
The processing time for outstation inspections may cause a delay of several days, which might lead to
differences in the amounts recorded on a particular day.

3) Bank deposit made directly:

Occasionally, debtors or clients directly deposit outstanding payments into the business's account, which
the bank promptly records. Nevertheless, the firm will only become aware of it upon receiving the bank
statement. This is one of the factors contributing to the mismatch in dates.

4) Recording of uncashed third-party cheques in the cash book:

The consumer may have included a cheque from someone else in the cash book, but failed to submit it to
the bank for collection. As a result of the failure to provide the check to the bank for processing, no
transaction was documented in the ledger or pass book. If the two balances are compared, they will be
found to be different.

5) The bank refused to honor the checks that were issued and entered in the cash book:
Issued cheques are promptly recorded on the credit side of the cash book bank column. However, they
were not honored due to technological challenges upon submission for payment. Under these
circumstances, the bank will abstain from documenting any transactions in the ledger or passbook.
Comparing the cash book balance and pass book balance will reveal discrepancies.

6) Bank Fees Banks have the authority to impose fees or commissions on services provided from
customers' accounts without notifying the customer. The firm records expenses upon getting notification or
statement from the bank.

7) Bank revenues like as interest and dividends can be sent immediately into account holders' accounts
utilizing the Electronic Clearing System (ECS). Nevertheless, the firm does not get the information until
the bank statement is received. Consequently, the corporation enters the transaction in its cash book
subsequent to the bank's recording. Consequently, there will be a discrepancy between the balances
recorded in the cash book and pass book.

8) Consumer payments facilitated by banks:

The bank has the authority to initiate payments on behalf of the customer in accordance with established
instructions. Instances of expenses encompass phone bills, rental payments, insurance premiums, and
taxes. The bank covers these expenses, while the firm documents them after receiving information from
the bank in the form of a Pass Book or bank statement. As a result, the balance shown in the pass book is
less than the amount recorded in the bank column of the cash book.

9) In the event of dishonored cheques or bills, the bank deducts the corresponding amount from the firm's
account. Nevertheless, the organization documents the information obtained from the bank. Consequently,
there will be a discrepancy between the balance in the cash book and the balance in the pass book.

Q.NO 5) State the various classes of Shares in context of Joint Stock Companies.
Ans.No 5) Types of Shares

The share capital of a firm is split into discrete units with a predetermined value that cannot be further
divided. These entities are referred to as shares. Every share possesses a unique number. Share ownership
is proven with a share certificate, which provides information on the kind and quantity of shares, as well as
their unique serial number. Dematerialization (DEMAT) refers to the transition from physical certificates
to electronic form. A shareholder is an individual who possesses one or more shares of a firm. There exist
two categories of shares:

1. Preference Shares: Preference shares are shares that have a preferred right in terms of

a. receiving periodic dividends and

b. receiving a share of the company's assets in the event of liquidation. Preference shareholders are
entitled to receive dividends before equity stockholders.

a. Cumulative Preference shares:

If the firm fails to generate sufficient profit in a given year, dividends on preference shares may not
be distributed for that year. In the case of cumulative preference shares, any unpaid payout is
classified as "dividends in arrears." The outstanding debts will accrue and must be paid from the
earnings of the following years. For example, X Ltd Co has issued 100,000 Cumulative Preference
shares having a par value of Rs.10 each. If the company fails to pay dividends for 3 years, the
preference shareholders have the right to collect a total payout of Rs.400,000 before any payment is
made to equity owners.
b. Non-Cumulative Preference shares:

If the firm fails to generate sufficient profits in a given year, the owners of non-cumulative preference
shares will not receive any dividends. This is because any unpaid dividends will not be carried over to
future years.

c. Participating preference shares:

Shares that receive a predetermined rate of dividend and have the right to partake in the earnings of the
firm once the equity owners have been paid a certain rate of dividend. Assuming X Ltd has
participation preference shares with a nominal value of Rs.100,000 and equity capital of Rs.1,000,000
(consisting of 100,000 shares). The corporation disburses a preference dividend of Rs.10,000 and an
equity dividend of Rs.100,000 (10%) prior to the implementation of the participation right. Extra
dividends are allocated to preference and equity shareholders based on their respective capital amounts
(1:10).

d. Non-Participating Preference shares:

The owners of non-participating preference shares are entitled solely to receive a predetermined
dividend and do not have the right to partake in any additional earnings or assets that are left after the
equity shareholders have been paid.

e. Redeemable preference shares:

 The shares that can be repaid after a specified length of time, as indicated on the share certificate.
Assuming X Ltd has issued preference shares with a par value of Rs.10, which may be redeemed at
Rs.12 per share. Upon redemption, the preferred shareholder will be entitled to receive the following:

(a) the par value of the share,

(b) the redemption premium,

(c) the dividends that have not been paid, and

(d) the proportional dividend for the current year.

f. Irredeemable Preference shares:

Irredeemable preference shares refer to the specific quantity of preference shares that may only be
repaid when the firm is liquidated. In India, firms are now prohibited from issuing non-redeemable
preference shares or preference shares that can only be redeemed after eight years from the date of
issuance.

g. Convertible preference shares:

provide the holders the privilege to convert their preference shares into equity shares at a
predetermined ratio.

X Ltd. has issued preference shares with a nominal value of Rs.10 and a 10% interest rate, totaling
Rs.200,000. These preference shares can be converted into equity shares after a period of five years.
The conversion ratio is such that for every two preference shares, one equity share with a par value of
Rs.10 would be issued. After a period of five years, the company's 20,000 preference shares would be
transformed into 10,000 equity shares with a nominal value of Rs.10.

2. Equity shares

Shares that are not classified as preference shares. These shares are commonly referred to as ordinary
shares. The residual earnings, after allocating the preferred dividend, might be given to the equity owners
as a dividend. If the firm is liquidated, the first priority is to make payments to the company's creditors.
Subsequently, the preference share capital is reimbursed. The remaining assets are the property of the
equity stockholders.

Q.NO 6) Describe the following:

a. AS1
b. AS2
c. AS6

Ans.No 6)

a. AS1:- AS - 1 Accounting Policies Disclosure

Financial statements allow people to evaluate the financial situation and performance of a
company. The accounting principles have a considerable impact on the preparation and
presentation of historical events and ensure comparison within the company and between
different time periods.
 The techniques for implementing the principles may differ amongst different organizations.
Therefore, it is necessary to reveal the accounting policies employed by the company. There is
no need to provide detailed information about the adoption of basic accounting assumptions.
Disclosure is required for any alteration in accounting policies that has a significant impact in
the present period or is anticipated to have a significant impact in future periods.

If there is a change in accounting policies that has a significant impact in the current period, the
financial statements should indicate the degree to which any item is affected by this change, to
the extent that it can be determined. If the exact amount cannot be determined, it should be
specified.

The following are examples of the domains in which various firms may choose to use different
accounting policies:
a) Depreciation methods
b) Foreign currency conversion methods
c) Inventory valuation
d) Investment valuation
e) Retirement benefits treatment
f) Contingent liabilities treatment

b. AS2:- AS - 1 Accounting Policies Disclosure

Financial statements allow people to evaluate the financial situation and performance of a
company. The accounting principles have a considerable impact on the preparation and
presentation of historical events and ensure comparison within the company and between
different time periods.

The techniques for implementing the principles may differ amongst different organizations.
Therefore, it is necessary to reveal the accounting policies employed by the company. There is
no need to provide detailed information about the adoption of basic accounting assumptions.
Disclosure is required for any alteration in accounting policies that has a significant impact in
the present period or is anticipated to have a significant impact in future periods.

If there is a change in accounting policies that has a significant impact in the current period, the
financial statements should indicate the degree to which any item is affected by this change, to
the extent that it can be determined. If the exact amount cannot be determined, it should be
specified.

The following are examples of the domains in which various firms may choose to use different
accounting policies:
a) Depreciation methods
b) Foreign currency conversion methods
c) Inventory valuation
d) Investment valuation
e) Retirement benefits treatment
f) Contingent liabilities treatment
Inventory valuation
This standard aims to establish the cost of inventory and closed stock, which should be
represented in the balance sheet until sold and recorded as revenue.
Inventories are assets: a) for sale in business; b) in production for sale; c) materials or supplies
for manufacturing or services.
 This standard does not apply to the valuation of the following inventories: a) Work-in-progress
(WIP) under construction contracts (Refer AS – 7); b) WIP in the ordinary course of
business/service providers; c) Stock and financial instruments held in trade; and d) Producers'
inventories of livestock, agricultural, forest products, mineral oils, ores, and gases.
In business, net realizable value is the expected selling price less completion and sale expenses.
Inventory is a significant asset. They are often expensive to obtain and provide significant
money. Even a little variance might cause financial statements to be overstated or understated.
Inventory should be valued at the lowest of cost or net realizable value, under AS-2.
The inventory cost should include: a) Purchase expenses b) Conversion costs c) Other
expenditures related to their current location and condition.
Joint or by product: Assign costs rationally and consistently up to the split off stage. Basis for
allocation may be selling value at split-off point or at production completion.

c. AS6:- AS – 6 Depreciation in Accounting

A measurement of loss of value brought about by obsolescence or wear and tear called
depreciation. Measurement of a depreciable value consists on three fundamental components.
The whole amount spent in relation to purchase, installation, commissioning of an asset is
known as historical cost. It also covers the expenses of expansions and enhancements of such
kind. Historical cost might vary depending on revaluation, changes in currency rates, etc.
The useful economic life of the item is the projected length of time it might be put to good use.
Usually, useful life is less than its physical life; it is motivated by elements like physical
degeneration, technology obsolescence, legal issues, etc.
Operating under normal circumstances, the estimated residual value of the asset is its realizable
worth at the conclusion of its useful life.
Depreciation method chosen takes into account variables such kind of asset, degree of use and
other economic situation. Usually, little value things lose entirely their worth in the first year. In
accounting, change in approach would be change in policy. One computes depreciation from a
retroactive standpoint. Deficiency is charged and excess to be paid to P & L account.