The contents of the memorandum of association as required by Sections 16, 17 and 18 of the mpanies. Ordinance include the following clauses (1) Name clause (2) situation clause (3) object clause liability clause (5) capital clause and (6) subscription clause.
ARTICLES OF ASSOCIATION:
The articles of association is the second important document in the incorporation of a company. It is 1 document which contains the rules and regulations for the internal management of the company. The icles of association embody the power of directors and other officers of the company, the right of voting the shareholders, the procedure of holding meeting, the manner of transferring the shares, the procedure issuing the shares debenture, the payment of dividends, maintenance of accounts, alteration of capital, ading up etc. etc.
The articles of association is subordinate to the memorandum. It cannot include any power which is >hibited or excluded by the Memorandum and the Companies Ordinance.
According to Section 26 of the Companies Ordinance, a company limited by shares can choose to opt table 'A' in the First Schedule which contains model rules and regulations.
The articles of association shall be printed, divided into paragraphs, numbered consecutively, signed each subscriber and dated.
The articles of association subject to the provisions of Ordinance can be altered or added by special solution.
PROSPECTUS:
It is a valuable document issued by the company for raising of the capital.
Prospectus has been defined as "any document described or issued as prospectus and includes any-bce, circular, advertisement or other communication, inviting offers from the public fcr the subscription purchase of any shares".
The main object of prospectus is to arouse the interest of the investors in the proposed company and induce them to invest in its shares and bonds etc.
The prospectus gives the details of die amount issued, the rights attached to the shares the property rchased; information about directors, auditors, bankers etc.
SHARE CAPITAL OF A JOINT STOCK COMPANY
In today's world large scale operations of a company call for a large amount of capital, The total cunt of capital is divided into smaller units. These units are called shares. Each share is assigned a iue. This value is called the par value of the share. The total capital is thus divided into a large number shares. This pool is, therefore, called share capital. This scheme of raising capital through shares (i) Ips the company to raise a large amount, and (ii) helps a larger section of the investment population to Befit from the operations of large scale business concerns.
A company has to fulfil certain legal requirements if, in later yeas, it decides to either increase or crease its share capital. And it has to state its maximum capital in the memorandum. To minimize the ances of undergoing legal formalities in later years, therefore, it is customary to state a reasonable lount as the maximum capital. This amount is incorporated in the memorandum of association and is own as the authorized capital, nominal capital, or registered capital of the company. Various terms used relation to share capital are explained in the following paragraphs.
Monday, March 30, 2009
RECEIPTS AND PAYMENTS
METHOD OF CONVERSION OF RECEIPTS AND PAYMENTS ACCOUNT INTO INCOME AND EXPENDITURE ACCOUNT
At first, Receipts and Payments Account is prepared by analyzing the Cash Book — subsequently, :ome and Expenditure Account is prepared in the following manner:
2. 3.
4.
Exclude the opening and closing balances of Receipts and Payments Account,
Exclude all the capital items.
Exclude all revenue items relating to last or next year.
5. (NTS:
Include all items of income or expenditure relating to the current year, if they are not received or paid in the current year.
Charge depreciation on all wasting assets.
While preparing Income and Expenditure Account from Receipts and Payments Account apply the (fcUowing two rules;
Exclude all capital items.
Adjust all revenue items with outstanding and advance items in the following manner:(i) If relates to current year: Add
(ii) If relates to last or next year: Deduct.
DISTINCTION BETWEEN RECEIPTS AND PAYMENTS ACCOUNT AND INCOME AND
EXPENDITURE ACCOUNT
Non-profit-seeking institutions repair the above two accounts and submit them at the annual general for the information of the members. There are sharp differences between the two accounts. It general Receipts and Payments Account may be called abridged Cash Book — all the cash transactions of pe whole year are recorded in it in a summarized form. On the other hand, the Income and Expenditure -,;count may be compared with the Profit and Loss Account of a business concern. These two accounts are-prepared on the same lines.
The points of distinction between Receipts and Payments Account and Income and Expenditure Account are given below in Tabular form:
Receipts & Payments Account
Income & Expenditure Account
It is a summarized statement of all cash transactions during an accounting year.
It is the account of revenue income and revenue expenditure of an accounting year.
At first, Receipts and Payments Account is prepared by analyzing the Cash Book — subsequently, :ome and Expenditure Account is prepared in the following manner:
2. 3.
4.
Exclude the opening and closing balances of Receipts and Payments Account,
Exclude all the capital items.
Exclude all revenue items relating to last or next year.
5. (NTS:
Include all items of income or expenditure relating to the current year, if they are not received or paid in the current year.
Charge depreciation on all wasting assets.
While preparing Income and Expenditure Account from Receipts and Payments Account apply the (fcUowing two rules;
Exclude all capital items.
Adjust all revenue items with outstanding and advance items in the following manner:(i) If relates to current year: Add
(ii) If relates to last or next year: Deduct.
DISTINCTION BETWEEN RECEIPTS AND PAYMENTS ACCOUNT AND INCOME AND
EXPENDITURE ACCOUNT
Non-profit-seeking institutions repair the above two accounts and submit them at the annual general for the information of the members. There are sharp differences between the two accounts. It general Receipts and Payments Account may be called abridged Cash Book — all the cash transactions of pe whole year are recorded in it in a summarized form. On the other hand, the Income and Expenditure -,;count may be compared with the Profit and Loss Account of a business concern. These two accounts are-prepared on the same lines.
The points of distinction between Receipts and Payments Account and Income and Expenditure Account are given below in Tabular form:
Receipts & Payments Account
Income & Expenditure Account
It is a summarized statement of all cash transactions during an accounting year.
It is the account of revenue income and revenue expenditure of an accounting year.
accounting
ACCOUNTS OF JOINT STOCK COMPANIES
INTRODUCTION:
A Joint Stock Company is a type of business organisation which is formed under Companies Ordinance 1984, whose capital is contributed by members who are accorded the privilege of limited jability. This means that they are liable for the debts of the company to the extent of the shareholding that they have contributed. Beyond that sum they are not liable for the company's debts. The Joint Stock Company is the only practicable way of collecting the vast sum of capital required for the complex industrial projects of the modern world.
DEFINITION OF A JOINT STOCK COMPANY:
A joint stock company may be defined as an artificial person recognized by law, with a distinctive name, a common seal, a common capital comprising transferable snares carrying limited liability and having a perpetual succession.
The main characteristics of a company which distinguish it from other forms of organizations are as iws:
CHARACTERISTICS OF A JOINT STOCK COMPANY: I. SEPARATE LEGAL ENTITY:
A-joint stock company is the creation of law. It has a separate legal entity of its own which is recognized by law as distinct from the persons forming it. The company enjoys many of the rights of catural person. For example, it can use or be used in its name. It can own and transfer the title to property.
Z. FINANCING;
A joint stock company is an effective organization for raising a large amount of capital. It issues prospectus and invites people to purchase the shares of the company. The persons who purchase shares ine part owners of the company with liability limited to the value of the shares they have purchased.
PERPETUAL EXISTENCE:
A joint stock company has a long life compared to other forms of business organizations. When rompany is formed and commences business, it has then a continuous life. The shareholder can withdraw tie capital by selling shares in the market. The company can, however, be winded up through compliance *ith the provisions of Companies Ordinance 1984.
4. LIMITED LIABILITY:
The liability of each shareholder of the company is limited only to the extent of the face value of the •iares he holds or any part thereof which is unpaid
INTRODUCTION:
A Joint Stock Company is a type of business organisation which is formed under Companies Ordinance 1984, whose capital is contributed by members who are accorded the privilege of limited jability. This means that they are liable for the debts of the company to the extent of the shareholding that they have contributed. Beyond that sum they are not liable for the company's debts. The Joint Stock Company is the only practicable way of collecting the vast sum of capital required for the complex industrial projects of the modern world.
DEFINITION OF A JOINT STOCK COMPANY:
A joint stock company may be defined as an artificial person recognized by law, with a distinctive name, a common seal, a common capital comprising transferable snares carrying limited liability and having a perpetual succession.
The main characteristics of a company which distinguish it from other forms of organizations are as iws:
CHARACTERISTICS OF A JOINT STOCK COMPANY: I. SEPARATE LEGAL ENTITY:
A-joint stock company is the creation of law. It has a separate legal entity of its own which is recognized by law as distinct from the persons forming it. The company enjoys many of the rights of catural person. For example, it can use or be used in its name. It can own and transfer the title to property.
Z. FINANCING;
A joint stock company is an effective organization for raising a large amount of capital. It issues prospectus and invites people to purchase the shares of the company. The persons who purchase shares ine part owners of the company with liability limited to the value of the shares they have purchased.
PERPETUAL EXISTENCE:
A joint stock company has a long life compared to other forms of business organizations. When rompany is formed and commences business, it has then a continuous life. The shareholder can withdraw tie capital by selling shares in the market. The company can, however, be winded up through compliance *ith the provisions of Companies Ordinance 1984.
4. LIMITED LIABILITY:
The liability of each shareholder of the company is limited only to the extent of the face value of the •iares he holds or any part thereof which is unpaid
Accounting
There are — parties involved in consignment.
In consignment al! the expenses either paid by consignor himself or by the consignee are borne by
13. Goods sent on consignment do not become the of the consignee.
14. — is a report prepared by the consignee and sent to the consignor, which shows
detail about the sales of goods, expenses paid by the consignee etc.
In consignment — — remains with the consignor.
In sale ownership is transferred from to .
In sales expenses after delivery of gods are borne by the —.
Forwarding document in consignment is known as .
Forwarding document in sales is known as .
In consignment loss of goods fall on .
The consignee sells the goods according to the instructions of .
The consignor acts as a .
The consignee acts as an .
In sale, the relationship between the seller and the buyer is that of and
25. The remuneration of the consignee for selling the goods of consignor is called — .
26. is paid to consignee, if the loss on account of bad debts is borne by consignee.
27. — is paid to consignee to work hard to push a new line of product in the market.
Loss occurs due to the negligence of consignee will be debited to of the consignee.
In consignment, when discount is treated as 'consignment expense' it is debited to
account.
30. In consignment, when discount is treated as 'financial charge' it is debited to :—
account.
31. Loss occurs due to fire, accident, theft is known as .
loss can be controlled.
; loss reduce the value of stock.
Loss occurs due to natural causes is known as loss.
Loss due to leakage, loss in weight due to nature of goods is known as-1 loss.
36. — loss cannot be controlled.'
Normal loss the value of closing stock.
Abnormal loss the actual profit on consignment
Closing stock with consignee is valued at cost or market price whichever is — —.
40. expenses include all such expenses which have been incurred upto the time goods
have reached to agents selling place.
41. Consignment account is by nature a account
42. account shows profit or loss in consignment.
In consignment al! the expenses either paid by consignor himself or by the consignee are borne by
13. Goods sent on consignment do not become the of the consignee.
14. — is a report prepared by the consignee and sent to the consignor, which shows
detail about the sales of goods, expenses paid by the consignee etc.
In consignment — — remains with the consignor.
In sale ownership is transferred from to .
In sales expenses after delivery of gods are borne by the —.
Forwarding document in consignment is known as .
Forwarding document in sales is known as .
In consignment loss of goods fall on .
The consignee sells the goods according to the instructions of .
The consignor acts as a .
The consignee acts as an .
In sale, the relationship between the seller and the buyer is that of and
25. The remuneration of the consignee for selling the goods of consignor is called — .
26. is paid to consignee, if the loss on account of bad debts is borne by consignee.
27. — is paid to consignee to work hard to push a new line of product in the market.
Loss occurs due to the negligence of consignee will be debited to of the consignee.
In consignment, when discount is treated as 'consignment expense' it is debited to
account.
30. In consignment, when discount is treated as 'financial charge' it is debited to :—
account.
31. Loss occurs due to fire, accident, theft is known as .
loss can be controlled.
; loss reduce the value of stock.
Loss occurs due to natural causes is known as loss.
Loss due to leakage, loss in weight due to nature of goods is known as-1 loss.
36. — loss cannot be controlled.'
Normal loss the value of closing stock.
Abnormal loss the actual profit on consignment
Closing stock with consignee is valued at cost or market price whichever is — —.
40. expenses include all such expenses which have been incurred upto the time goods
have reached to agents selling place.
41. Consignment account is by nature a account
42. account shows profit or loss in consignment.
Accounting Model Paper
with a bank or invested in Government Papers or in gilt-edged securities. Income derived from such investment is credited to concerned Fund Account and all relative expenses are debited to the Fund Account. Such incomes-expenses will not be taken to Income & Expenditure Account. Fund is a liability -it will be shown on-Liabilities side of Balance Sheet. But investment of fund money is an asset and hence it a shown on Assets side of Balance Sheet. 7. ADMISSION FEE / ENTRANCE FEE:
At the time of admission every new member is to pay admission fee in addition to subscription. It is ist like the admission fee that you pay in addition to monthly tuition fee at the time of your admission into i school or college. There is a difference of opinion among the Accountants as to whether the income on account of admission fee is to be treated as capital income or revenue income. Generally, admission fee is regarded as revenue income and credited to Income & Expenditure Account. If, however, there is any stipulation in the bye—laws of the institution, it must be observed, if it is stipulated that admission fee will be regarded as capita! income, it cannot be included in Income & Expenditure Account - it will be credited to Capital Fund Account and shown on Liabilities side of Balance Sheet as an addition to that fund. Again, ;: may be so stipulated that admission fee is to be regarded partly as capital and partly revenue. The reatment will be clear from the following illustration.
ILLUSTRATION NO. 4
Admission fee received during 2005, Rs. 800. The bye-laws of the club provided that 40 % of admission fee is to capitalized.
Show how the above items will be treated in the Final Accounts of the club for the year-ended 31.12.2005.
Solution;
INCOME & EXPENDITURE ACCOUNT For the year ended 31st Dec. 2005
Cr.
Expenditure
Rs.
Income'
Rs.
Admission Fee [60% of 800]
480
BALANCE SHEET AS AT 31ST DEC. 2005
Assets
Rs.
Liabilities
Rs.
Capital Fund xxx Add Admission Fee 320 [40%of800J
At the time of admission every new member is to pay admission fee in addition to subscription. It is ist like the admission fee that you pay in addition to monthly tuition fee at the time of your admission into i school or college. There is a difference of opinion among the Accountants as to whether the income on account of admission fee is to be treated as capital income or revenue income. Generally, admission fee is regarded as revenue income and credited to Income & Expenditure Account. If, however, there is any stipulation in the bye—laws of the institution, it must be observed, if it is stipulated that admission fee will be regarded as capita! income, it cannot be included in Income & Expenditure Account - it will be credited to Capital Fund Account and shown on Liabilities side of Balance Sheet as an addition to that fund. Again, ;: may be so stipulated that admission fee is to be regarded partly as capital and partly revenue. The reatment will be clear from the following illustration.
ILLUSTRATION NO. 4
Admission fee received during 2005, Rs. 800. The bye-laws of the club provided that 40 % of admission fee is to capitalized.
Show how the above items will be treated in the Final Accounts of the club for the year-ended 31.12.2005.
Solution;
INCOME & EXPENDITURE ACCOUNT For the year ended 31st Dec. 2005
Cr.
Expenditure
Rs.
Income'
Rs.
Admission Fee [60% of 800]
480
BALANCE SHEET AS AT 31ST DEC. 2005
Assets
Rs.
Liabilities
Rs.
Capital Fund xxx Add Admission Fee 320 [40%of800J
CONSIGNMENT
CONSIGNMENT
8. On 1st January, 2005 Ahmad of Lahore consigned to Babar of Multan goods for ssentitled to commission of 5%. Goods sent to Babar at Rs. 144,000 . The expconsignment amounted to Rs. 7,500. On 31st March, 2005, an Account Sales was nBabar showing that he had effected sales of Rs. 120,000 in respect of 2/3 of th
9. Rizwan of Gujranwala sent 100 sewing machines to Astam of Hong Kong atmachine. The consignor paid Rs. 2,000 for packing and dispatching chaimmediately after receiving the consignment accepted a bill for Rs. 40,000. AflAslam reported that 80 machines were sold for Rs. 875 each and expenses being <3,000, on godown rent, Rs. 750 and on insurance Rs. 500. Aslam is entitled to a \9 % on sales. Due to insolvency of a customer who purchased 4 machinesanything.
Show consignment'Account, Aslam Account and goods sent on Consignment Ace Ans: [Profit on consignment Rs. 3,450]
10. On 1st Jan. 2005 Razaq & Co. of Lahore consigned to M ushtaq & Co. of MardaRs. 500 each. Razaq & Co. had paid Rs. 200 for packing etc., Rs. 50 for insuranfor carriage. On 1st March 2005, Mushtaq & Co. sold 75 cycles for Rs. 45,001thereon being Rs. 2000. Mustaq & Co. are entitled for commission of 5(delcredere) on sales and they remitted Rs. 30,000 on account. One customer w1cycles failed to pay his debts due to his insolvency. Pass the necessary entries anecessary ledger accounts in books of Razaq & Co.
Ans: [Profit on consignment Rs. 1,975]
11. Zaheer & Sons of Karachi dispatched a consignment of 400 cases of Electric bt of Kohat on 1st December 2005. The cost price was quoted at Rs. 1,80,000 . On Hammad sent an account sales with the following details:
75 % of the goods were sold for Rs. 135,000.
Hammad paid unloading changes Rs. 1200.
Advertisement and selling expenses paid by Hammad amounted to Rs. 71
Hammad is to receive a commission of 5 % on sales.
At the time of dispatch Zaheer & Sons incurred an expenditure of Rs. 2,000 and insurance charges.
Prepare necessary ledger accounts in the books of the consignor. Ans: [Loss on consignment Rs. 9,850]
8. On 1st January, 2005 Ahmad of Lahore consigned to Babar of Multan goods for ssentitled to commission of 5%. Goods sent to Babar at Rs. 144,000 . The expconsignment amounted to Rs. 7,500. On 31st March, 2005, an Account Sales was nBabar showing that he had effected sales of Rs. 120,000 in respect of 2/3 of th
9. Rizwan of Gujranwala sent 100 sewing machines to Astam of Hong Kong atmachine. The consignor paid Rs. 2,000 for packing and dispatching chaimmediately after receiving the consignment accepted a bill for Rs. 40,000. AflAslam reported that 80 machines were sold for Rs. 875 each and expenses being <3,000, on godown rent, Rs. 750 and on insurance Rs. 500. Aslam is entitled to a \9 % on sales. Due to insolvency of a customer who purchased 4 machinesanything.
Show consignment'Account, Aslam Account and goods sent on Consignment Ace Ans: [Profit on consignment Rs. 3,450]
10. On 1st Jan. 2005 Razaq & Co. of Lahore consigned to M ushtaq & Co. of MardaRs. 500 each. Razaq & Co. had paid Rs. 200 for packing etc., Rs. 50 for insuranfor carriage. On 1st March 2005, Mushtaq & Co. sold 75 cycles for Rs. 45,001thereon being Rs. 2000. Mustaq & Co. are entitled for commission of 5(delcredere) on sales and they remitted Rs. 30,000 on account. One customer w1cycles failed to pay his debts due to his insolvency. Pass the necessary entries anecessary ledger accounts in books of Razaq & Co.
Ans: [Profit on consignment Rs. 1,975]
11. Zaheer & Sons of Karachi dispatched a consignment of 400 cases of Electric bt of Kohat on 1st December 2005. The cost price was quoted at Rs. 1,80,000 . On Hammad sent an account sales with the following details:
75 % of the goods were sold for Rs. 135,000.
Hammad paid unloading changes Rs. 1200.
Advertisement and selling expenses paid by Hammad amounted to Rs. 71
Hammad is to receive a commission of 5 % on sales.
At the time of dispatch Zaheer & Sons incurred an expenditure of Rs. 2,000 and insurance charges.
Prepare necessary ledger accounts in the books of the consignor. Ans: [Loss on consignment Rs. 9,850]
Sunday, March 29, 2009
OBJECTIVE QUESTIONS ACCOUNTING
OBJECTIVE QUESTIONS
• True/False.
1. Consignment signifies forwarded of goods from one place to another.
2. Manufacturers acts as a principal in consignment.
3. Consignee acts as an agent in consignment.
4. The relationship between consignor and consignee is that of seller and buyer.
5. In sales, the relationship between buyer and seller is that of debtor and creditor.
6. Consignment is an act of sending goods by owner to his- agent for sale purpose.
7. Consignment outward book treatment is similar to cash book.
8. The remuneration of the consignee for selling the goods of consignor is known as con
9. Del- credre commission is calculated on total sales.
10. Stock on consignment is the asset of the consignee.
11. Stock on consignment is the unsold stock of goods with the consignee.
12. Normal loss occurs due to leakage.
13. Abnormal loss occurs due to evaporation.
14. Normal loss and abnormal loss does not affect on the working of stock on consignme
15. Account sales is prepared by consignee.
16. Proforma invoice send by consignor to the consignee,
17. Consignment account is a nominal account.
18. Goods sent on consignment is a nominal account.
19. Consignee and consignor are personal accounts.
20. Forwarding letter in consignment is known as proforma invoice.
• Kill in the Blanks.
1. -------------------- is an act of sending the goods by the owner to his agent for the purp
2. is a person who sends his goods for sale purpose in consignment
3. is a person to whom goods are consigned for sale purpose in consig
4. In consignment, generally the manufacturers or producers are the------------------- .
5. The relationship between consignor and consignee is that of-------------------- and —
6. The dispatch of goods by the consignor to the consignee will be a--------------------- 1
view point.
7. The dispatch of goods by the consignor to the consignee will be a -----
consignee's view point.
8. The book which is maintained by consignor for the goods consigned is known as -
9. The accounting treatment of consignment outward book is similar to----------------
10. The book which is maintained by consignee for goods received from differiknown as-------------------- .
• True/False.
1. Consignment signifies forwarded of goods from one place to another.
2. Manufacturers acts as a principal in consignment.
3. Consignee acts as an agent in consignment.
4. The relationship between consignor and consignee is that of seller and buyer.
5. In sales, the relationship between buyer and seller is that of debtor and creditor.
6. Consignment is an act of sending goods by owner to his- agent for sale purpose.
7. Consignment outward book treatment is similar to cash book.
8. The remuneration of the consignee for selling the goods of consignor is known as con
9. Del- credre commission is calculated on total sales.
10. Stock on consignment is the asset of the consignee.
11. Stock on consignment is the unsold stock of goods with the consignee.
12. Normal loss occurs due to leakage.
13. Abnormal loss occurs due to evaporation.
14. Normal loss and abnormal loss does not affect on the working of stock on consignme
15. Account sales is prepared by consignee.
16. Proforma invoice send by consignor to the consignee,
17. Consignment account is a nominal account.
18. Goods sent on consignment is a nominal account.
19. Consignee and consignor are personal accounts.
20. Forwarding letter in consignment is known as proforma invoice.
• Kill in the Blanks.
1. -------------------- is an act of sending the goods by the owner to his agent for the purp
2. is a person who sends his goods for sale purpose in consignment
3. is a person to whom goods are consigned for sale purpose in consig
4. In consignment, generally the manufacturers or producers are the------------------- .
5. The relationship between consignor and consignee is that of-------------------- and —
6. The dispatch of goods by the consignor to the consignee will be a--------------------- 1
view point.
7. The dispatch of goods by the consignor to the consignee will be a -----
consignee's view point.
8. The book which is maintained by consignor for the goods consigned is known as -
9. The accounting treatment of consignment outward book is similar to----------------
10. The book which is maintained by consignee for goods received from differiknown as-------------------- .
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