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Question
Financial Statements are prepared following the constituent accounting concepts principles procedures and also the legal environment in which the business organisation operate. These statements are the source of information on the basis of which conclusions are drawn about the profitability and financial position of a company so that their users can easily understand and use them in their economic decisions in a meaningful way.
From the above statements identify any two values that a company should observe while preparing its financial statements. Also, State under which major headings and sub-headings the following items will be presented in the Balance Sheet of a company as per Schedule III of the Companies Act 2013
(1) Capital Reserve
(2) Calls-in-Advance
(3) Loose Tools
(4) Bank overdraft
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Solution
The values that must be observed by a company while preparing its financial statements are
1)these statements must be drawn following the defined accounting concepts, principles and methods, and
2) the financial statements should be drawn following the legal framework of the country of operations.
| Items | Major Head | Sub – Head |
| Capital Reserve | Shareholder’s Fund | Reserve & Surplus |
| Calls – in - Advance | Current Liabilities | Other Current Liabilities |
| Loose Tools | Current Assets | Inventories |
| Bank Overdraft | Current Liabilities | Short-term Borrowings |
Proprietary Ratio of M Ltd. 0.80: 1
Proprietary Ratio = `"Proprietor's Funds"/"Total Assets"`
| Transactions | Effects |
| Obtained a loan from bank Rs 2,00,000 payable after 5 years |
Decrease, The total assets would increase with the amount of loan raised and proprietor’s funds remains the same |
| Purchased machinery for cash Rs 75,000 | No Change, Total Assets will increase and decrease by the same amount |
| Redeemed 5% Redeemable preference shares Rs 1,00,000 |
Decrease, Proprietor’s Funds and Total Assets both will decrease by the same amount but the percentage change would be more on Proprietor’s Fund already in ratio 0.80: 1 |
| Issued equity shares to vendors of machinery purchased for Rs 4,00,000 | Increase, Even though both Proprietor’s Funds and Total Assets both will increase by the same amount but the percentage change would be more in Proprietor’s Fund |
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RELATED QUESTIONS
Complete the following journal entries left blank in the books of VK Ltd.:
| VK Ltd. Journal |
||||
| Date | Particulars | L.F. |
Dr. Rs |
Cr. Rs |
| 2018 Feb 1 |
___________________ Dr. ___________________ (Purchased own 500, 9% debentures of Rs 100 each at Rs 97 each for immediate cancellation) |
________
|
________
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|
| Feb 1 |
___________________ Dr. ___________________ ___________________ (Cancelled own debentures) |
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___________________ Dr. ___________________ (______________________) |
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Financial statements are prepared following the consistent accounting concepts, principles, procedures and also the legal environment in which the business organisations operate. These statements are the source of information on the basis of which conclusions are drawn about the profitability and financial position of a company so that their users can easily understand and use them in their economic decisions.
From the above statement identify any two values that a company should observe while preparing its financial statements. Also, state under which major headings and sub-headings the following items will be presented in the Balance Sheet of a company as per Schedule III of the Companies Act, 2013:
(i) Calls-in-arrears
(ii) Calls-in-advance
(iii) Gain on reissue of forfeited equity shares
(iv) Trade payables to be settled beyond 12 months from the date of Balance Sheet
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Show the following items in the balance sheet as per the provisions of the Companies Act, 2013 in Schedule III:
| Particulars | Rs. | Particulars | Rs. |
| Preliminary Expenses | 2,40,000 | Good will | 30,000 |
| Discount on issue of shares | 20,000 | Loose tools | 12,000 |
| 10% Debentures | 2,00,000 | Motor Vehicles | 4,75,000 |
| Stock in Trade | 1,40,000 | Provision for tax | 16,000 |
| Cash at bank | 1,35,000 | ||
| Bills receivable | 1,20,000 |
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List any five items that are shown under Reserves and Surplus.
State giving reason whether Trade Receivables are classified as Current Assets or Non-current Assets in the Balance Sheet of a Company as per Schedule III of the Companies Act, 2013 in the following cases.
| Case | Operating cycle Period (months) | Expected realization period (months) |
| 1 | 10 | 11 |
| 2 | 10 | 12 |
| 3 | 10 | 13 |
| 4 | 14 | 13 |
| 5 | 15 | 16 |
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| Case |
Operating Cycle Period (Months) |
Expected Payment Period (Months |
||
| 1 |
10 |
11 |
||
| 2 |
10 |
12 |
||
| 3 | 10 | 13 | ||
| 4 | 14 | 13 | ||
| 5 |
15 |
16 |
||
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| (iv) | Sundry Creditors | (d) | Sales - Cost of good sold |
| (v) | Schedules | (e) | Gross profit - Operating expenses |
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|
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| Particulars | (₹) | Particulars | (₹) |
| To Interest on Capital | By Profit & loss account (After manager’s commission) | __(2)__ | |
| Richa | ______ | ||
| Anmol | ______ | ||
| To Anmol’s Salary A/c | 12,500 | ||
| To Profit transferred to: Richa’s Capital A/C (1) | __(1)__ | ||
| Anmol’s Capital A/c | ______ | ||
| ______ | ______ |
The amount to be reflected in blank (1) will be:
