accounting post 2

The document in writing containing the various terms and conditions as to the relationship of the partners to each other is called the 'partnership deed1.
Rules applicable In the absence of an agreement in partnership:
In the absence of an agreement to the contrary, the following rules are applicable: 1. The partners shall share equally the profits and losses.
A partners shall be entitled to interest at the rate of six per cent per annum on the loan advanced by him to the firm.
A partner is not entitled to any salary for taking part in the conduct of the business.
No partner is entitled to interest on the capital.
No interest on drawing is to be charged by the firm.Fluctuating capitals:
When the capitals of Ac partners are fluctuating, all adjustments with regard to the interest on capitals, interest on drawings, partners salaries etc. are passed through the capital accounts of partners.
Fixed capitals:
In such a case the capitals of the partners are credited with the actual contributions of the partner towards their capitals and balanced at the same figure from year to year. In such a case all the adjustments are passed through current accounts of partners.
Goodwill:
The benefit and advantage of the good name or reputation of a business. It is the attractive force which brings in customers.
Average profit method for valuation of goodwill:
According to this method, the average profit of given number of past years multiplied by an agreed number is considered to be the value of goodwill.
Normal profits:
The normal profits are calculated by multiplying the average capital employed with the rate of general expectation.
Super profits:
Super profits is the excess of actual profits over normal profits.
Super profits method for valuation of goodwill:
Under this method super profits is multiplied by an agreed figure to find the value of goodwill.
Capitalized method for valuation of goodwill:
In this method, the whole value of business is calculated by capitalization the average or actual profits by the following formula:
Actual profits Normal rate of return
The net assets of the firm are deducted from the value of business as calculated above to find out the value of goodwill.

ACOUNTING B POST

Accounting: 'Accounting is summarizing in a •grufcam manner and in terms of money, rMmfcnna and events when are, in part at toast of a financial character and
Book Keeping: Book-keeping is the art of nsconfcig monaUiy tansactions in the books of accounts in a proper manner.
Business: Any legal activity which is done for ne purpoM of eamrg profit is known as :.s-ess
Cash System of Accounting: It is a system in wnc- accounang anties are made only w*er cash is received or paid.
Accrual System of Accounting: It is a system in wncr accoutrnt made on
re oasis of amount having become due for payment or react
Accountancy: Accountancy is the main subject. Accountancy* ts far extensive It covers the entire body of theory and book-keeping
Accountancy Costing, Auditing, Taxation etc,
Debtors / Accounts Receivable: Debtors are the persons or to whom goods have Deen sold on credit basis and from whom the business is " *Bcewe money in near •-•--5 ~"ese are also known as "Accounts Receivable" / Accounts Payable: Creditors are the persons or sappier* «OB) wfcom goods •ave oeen purchased on credit basis and to whom the business ts r say «noney in near Mure- These are also known as "Accounts Payable".
Cash Discount: It is a deduction or allowance given by a credaor to a debtor if the amount is paid by the debtor before the due date.
Assets: Assets are the properties and possessions of a business bcA UHtfUi (having physical existence) and intangible (have no physical existence)
Liabilities: Liabilities are debts or obligations of a business Capital: It is the.source of funds provided by the owner / c ••
Drawings: The amount of cash or goods taken by the owner / owffiew taaime business : - s personal use are known as "Drawings".
Separate Entrty Concept: According to this concept business s mated as a separate

going on Concern Concept: According to this concept it is Jiitiflinad fiat the business will corvnue to operate for an indefinite time period, there s no raenaon to liquidate the Ousness r tie foreseeable future.
Mom/ MMamnwnt Concept: According records only those
ransaoon* or events *^*ch can be measured • tanas of money.
Dual Aapect Concept: According to tns concept lor every oetxt there is an equivalent

Accounting

ACCOUNTING (I.COM. PART-II)
9. Working life of an asset:
The period during which an asset will help earning income of business. 19. Scrap value of an asset:
The price at which an asset will be sold at the end of its working life. It is also known residual value or break up value.
11. Market price of an asset:
The price at which an asset can be sold in the market is called mark price.
Fixed installment method of depreciation:
Under this method depreciation of an asset will be equal in each accounting year. 13, Reducing balance method:
Under this method depreciation is calculated on the book value of an asset. : -, Amortization:
The decrease in the value of intangible assets such as patents, copy rights, goodwill etc. 15. Fixed assets:
Assets which have long life and which are bought for use for a long period of time are called fixed assets. These are not bought for selling purposes e.g. land, building, machinery, furniture etc.
Tangible assets:
Assets which have physical existence and which can be seen, touched and felt are called tangible assets e.g. building, machinery, furniture etc.
Intangible assets:
Assets which have no physical existence and which cannot be seen, touched but can be felt are called intangible assets e.g. goodwill, patent right, trade mark etc.
• Wasting assets:
Assets whose value gradually reduces on account of use and finally exhausts completely are called wasting assets, e.g. mine, forest etc.
Partnership
According to partnership act 1932, "the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all".
Essential of partnership:
The following are the essential elements of partnership:
There must be an agreement entered into by all the persons concerned.
The agreement must be to share the profits of a business.
The business must be carried on by all or any of them acting for all,
Partnership agreement:
The agreement among the partners which sets out the terms on which they have agreed to form a partnership is called partnership agreement.

accounting

The company by its articles restricts the right to transfer it shares.
It prohibits any invitation to the public to invest their money in shares or debentures of thecompany.
7. Public limited company:
It can be formed by at least seven members and there is no limit to maximum members. '
It can invite applications from investors through advertisement rn the news paper.
8. Company limited by guarantee:
A company in which liability of its members is limited to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound
9. Unlimited company: '
A company in which liability of its members is unlimited. Every/member of the company is personally liable to the full extent of his personal assets for the full debts of the company.
10. Association not for profit:
It enjoys all the privileges of a limited company without using me word limited or private limited. It is mainly formed for the promotion of commerce, art, religion, charity etc.
11. Memorandum of association:
It is the basic document of the company. It contains the fundamental conditions upon which alonea company can be incorporated. It sets out die limits outside which the action of the companycannot go. ,
12. Article of association:
It is second important document in the incorporation of a company. It contains the rules and regulations for the internal management of the company.
13. Prospectus:. .
It is a valuable document issued by the company for raising of the capital.
14. Shares:
The total amount of capital of a company is divided into smaller units. These units are called shares.
15. Share capital:
The total capital is divided into a large number of shares. The sum or total of the par value ofshares of a company is called share capital. ,
16. Authorized, capital: ,
The amount of capital with which the company is registered. It is also known as nominal capital or registered capital.
17 Issued capital: '
Shares offered to the general public for contribution are known as shares issued. The total par value of such shares is called issued capital.
18. Subscribed capital:
Out of the total number of snares issued by the company, that number of shares which is taken up by the public are known as shares subscribed. The total par value of such shares is called subscribed capital.

PARTNERSHIP ACCOUNT

. PARTNERSHIP ACCOUNT (I) PROFIT DISTRIBUT
METHODS OF VALUATION OF GOODWILL
No accurate formula can be laid down for the measurement of the value of goodwill. The value! goodwill depends upon the nature of a particular business and die circumstances connected with it.
Various methods are advocated for the valuation of goodwill. In many cases the method adoptedpurely arbitrary one and is often .governed by the custom of the particular trade in which the businealengaged. The more usual bases of valuation are as follows: . ]
1. Average profits method I
The average profits of given number of a past years multiplied by an agreed number is consideredbe the value of goodwill. Thus 'three years' purchase of average profits of the last five years is commaspoken of as the basis upon which goodwill is to be valued. The average profits of a given number of years is multiplied by an agreed number of years to arrive at the value of goodwill. This method is palarbitrary and will frequently produce a figure for goodwill out of all proportions to its true value.Suppose the goodwill is to be valued on 3 years purchase of the average profits of the last five years.
The profits earned during the last five years are Rs. 13,000, Rs. 10,000, Rs. 12,000, Rs. 15,000 and!
20,000. The goodwill be valued as follows: 1
Year Profit(Rs.) I
Istyear 13,000 1
2nd year 10,000 J
3rdyear 12,000 1
4th year 15,000 1
5th year . 20,000 1
Total profits 70,000 fl
. • • ' . - •
Average profits: 70,000-5-5 = Rs. 14,000 •
Value of goodwill (being three years purchase of the average net profits for five jdl= 14,000x3 = 42,000. «
2. Superprofits method • . •
Super profits of a business are the profits which can be expected in the future over and above tflnecessary to pay a fair return upon the capital invested in the business, having regard to the risk invohpflthat particular business and a fair remuneration for the services of the partners who work therein. SMprofits is the excess of actual profits over normal profits. The normal profits are calculated by mnllijilJthe average capital employed with the rate of general expectation. The super profits iBnis calculatedmultiplied by an agreed figure to find out the value of goodwill. •
Suppose a firm earned net profits during the last five years as follows: •
Istyear • 2nd year 3rd year 4th year ,5th year __
Rs. 7,000 Rs, 6,500 Rs. 8,000 ^Rs. 7,500,- Rs. 6,000 1

accounting

ABNORMAL LOSS OF STOCK:
abnormal loss e.g. loss due to fire, accident, theft, negligence, etc. will be treated in the books ^consignor in such a manner that consignment profit is not reduced. While calculating the value of loss, tionate expenses up to the time of occurrence of loss are included. NORMAL LOSS OF STOCK: A loss which occurs due to natural causes e.g. normal leakage, loss in weight due to nature of goods, . is termed as 'normal loss'. Such loss inflates the value of closing stock. VALUATION OF CLOSING STOCK WITH CONSIGNEE: Closing stock with consignee is valued at cost or market price whichever is less. To ascertain cost tionate non-recurring expenses are included in'the value of stock. Npn—recurring expenses will all such expenses, which have been incurred up to the time goods have reached to agenfs selling e.g. freight, cartage, transit insurance, octroi, import duty, customs charges, packing, etc. will be for stock valuation. Expenses like godown rent, godown insurance, sales expenses are not in the value of stock. Market value is the net realizable value i.e. sales commission and other We sales expenses are deducted from the market value on the closing date. OVERRIDING COMMISSION: Extra commission is normally granted by the consignor when he desires his agent to work hard to ka new line of product in the market. SNOR'S BOOKS: As already stated the goods sent by the consignor are sold on his behalf therefore he would like tor Ac profit earned or loss suffered from each different consignment. Before we discuss the entries in;of the consignor it is helpful to understand the nature of the following: " WENT ACCOUNT: This is by nature a profit & Loss Account. One separate account is devoted to each different with the heading "Consignment to ... account". Actually the consignment account is a • Trading and Profit and Loss Account. All expenses specially related to the consignment must to the concerned consignment account whether incurred by the .consignor or by the consignee I revenues (goods sold by the consignee and unsold goods with the consignee) should be credited to nt The difference between the two sides of this account will show the result of that particular personal ACCOUNT: I1iis is a personal account. It should be noted that the consignee is not the buyer. His personal therefore, is not debited when goods are sent to him. In cases where it is customary for the : to send some money as an advance against the consignment the payment is merely an advance r of security) and not a part payment. Hence the advance received from the consignee should be • the credit side of consignee's personal account In case part of the stock is still lying unsold the ! amount of advance should be carried down as credit balance in consignee's personal account. ; consignor draws a bill on consignee the bill is known as a documentary bill.

Single entry system

Single entry system: .
Single entry system consists of the following book - keeping records, fa) A day book or general journal
A Cash book
Ledger accounts for individual customers and creditors.
OR
Under single entry system sometimes bom aspects of a transaction are recorded, sometimes only«ae aspect of a transaction is recorded and sometimes no aspect of a transaction is recorded.Double entry system: •
r A system in which two sides of every transaction are recorded. Statement of affairs: , Statement of affairs is a sort of balance sheet having assets on left side and liabilities and capital
• die right side under single entry system. Incased net worth method:
he method in which adjusted capital at the end and capital in the beginning are compared to • jKOtain the profit or loss under single entry system.
CHAPTER # 2
3t making organizations:
Moo-profit making organizations are those, which do not buy/manufacture and sell goods and primary object is not to earn profit. Their object is to do goods to the society through : activities; e.g. clubs, schools, colleges, hospitals, libraries etc.
i and payments account: k receipts and payments account is a summarized cash book (cash and bank) for a given period.
! and expenditure account: ,
; account through which surplus or deficit of a non-profit marking organization is ascertained, icaDed income and expenditure account.
Son:
: amount received from the members of organization monthly or annually as per rules is called ption.
I subscription: -
: additional subscription collected from members over and above the regular subscription for: special purpose such as construction of club's own building, charities to poor, awarding ofi etc. is known as special subscription. .
i fee: .
»amount which is paid by a new member at the time of admission in addition to subscription is I admission fee.
r- . ' '
j refers to property received by virtue of a will of a person after his death. Acquisition of i property by an institution is regarded as capital receipt