Verification & Valuation C. P. Mansoor S. Ahmed M. Com, PGDBA

Voucher What is a VOUCHER? It is a documentary evidence supporting the transaction in the Books of Accounts. Voucher What is a VOUCHER? C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

What do you mean by VOUCHING? Verification of Transaction in the books of accounts with their respective documents like Invoice, counterfoils of vouchers etc., Intelligent Observation made with a Critical Bent of Mind, Common Sense. Invoice, CF of vouchers: EVIDENCE! VOUCHING What do you mean by VOUCHING? C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

What do you mean by EVIDENCE? External & Internal Evidence Cash in Hand Challan / delivery notes Receipts from suppliers etc., EVIDENCE What do you mean by EVIDENCE? C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Reliability of EVIDENCE? Independent External Sources Internal Sources Better in case of Sound Internal Control Practice. Evidence through Auditor’s Personal Knowledge than indirect sources Written Documents more reliable than oral documents Different Sources & Different Nature – Consistence ensures Higher Assurance Standards C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

What is the Importance of EVIDENCE? Existence Rights & Obligations Occurrence Completeness Valuation Measurement Presentation & Disclosure Importance What is the Importance of EVIDENCE? C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Verification Enquiry – Value, Ownership, Existence & Possession Opinion – True and Fair C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Valuation It is a part of VERIFICATION! Evaluation of Values specified on the Balance Sheet. GAAP – Generally Accepted Accounting Principles Certificates from competent Professionals C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Valuation - Why Original Cost of Assets Expected Life of the Asset Wear & Tear of the Assets Break-up value of Assets Assets becoming obsolete C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Differences Between Examining the ownership Verification Valuation Examining the ownership Application of Accounting Principles Exhibition of Figures & Values Time Value of Asset adopting Accounting Principles C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Difference Between Techniques Facts and Balances Competent Parties Confirmation Verification Techniques Facts and Balances Competent Parties Inspection of Tangible Assets Weighing C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

General Principles with regards to Types of Assets Fixed Assets Floating or Current Assets Wasting Assets Intangible Assets Fictitious Assets C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Fixed Assets Fixed in Nature Earning Income Going Concern Basis Land :– Cost Price (Purchase Price + Registration Fees + Legal Charges + …) Plant & Machinery :– Cost Price (Cost of Purchases – Depreciation written off) C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Floating or Current Assets Temporary in Nature Resale or Subsequent Conversion Original Price or Lower Higher Price – Anticipated Profit Raw Material Work in Progress Finish Goods Bills Receivable Cash / Bank Balance C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Wasting Assets Fixed in Nature Depleting Gradually Process of Working or Extraction Metal, Granites, Mines, Oil well etc., Original Cost - Depreciation C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Intangible Assets Fixed in Nature Income produce ability Cannot be touched or felt Valued at Cost Price C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Fictitious Assets Capital in Nature Capitalization of Assets Benefits in future years Preliminary Expenses, Discount on Issue of Shares, Discount on Issue of Debentures, Development Expenses etc., Recorded at Actual Cost even while written off C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

General Principles Focus is on the Balance Sheet of the Company Balance Sheet – True & Fair view of Assets and Liabilities Certain Critical Aspects have to be Examined Assets /Liabilities – ‘Ownership’ Exhibit – Face of Balance Sheet correct figure under appropriate heading Physical Verification Every Asset or Liability – Correctly Valued “Valuation” Cash & Bills Receivable personally examined Negotiable in Character – Assets in one Sitting C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

VERIFICATION & VALUATION OUTSTANDING ASSETS OUTSTANDING LIABILITIES Income Receivable Prepaid Expenses Deferred Revenue Expenditure Unearned Income Unpaid Expenses Contingencies C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Accrual Concept Expectancy Rent, Dividends etc., OUTSTANDING ASSETS Income Receivable C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Partly Current / Future Overloading Current Revenue Method of Treatment On the Basis of Time On the Basis of Revenue On the Basis of Inventory OUTSTANDING ASSETS PREPAID EXPENSES C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Heavy Expenditure – advantage “Non recurring expenditure which are expected to be of financial benefit to several accounting periods of indeterminate total length.” – Prof. Arnold Johnson. Heavy Expenditure – advantage Advertisement Campaign Development Expenditure on Mines & Plantation Experimental Expenditure Research Expenditure, Etc., Advertising Preliminary Expenses Alterations & Heavy Repairs to Plant etc., OUTSTANDING ASSETS DEFERRED REVENUE EXPENDITURE C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

OUTSTANDING LIABILITIES Unearned Income C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Outstanding Liabilities Purchases – Creditors Rents Rates & Taxes Wages & Salaries Audit Fees Freight & Carriage Travelers & Agents Commission General Commission Interest Payable Outstanding Liabilities Unpaid Expenses C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

OUTSTANDING LIABILITIES “Contingent Liabilities may be defined as potential obligation which may in future develop into actual liabilities or may dissolve without necessitating any outlay.” OUTSTANDING LIABILITIES CONTINGENCIES C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Valuation of Assets during Inflationary Period? Value of stock is not sufficient to value meet the cost of replacing the same quantity of stock The depreciation charges based on historical cost of the fixed assets will not provide sufficient amount required to meet the cost of replacing the same asset. If required If depreciation is provided on the historical cost of the assets and similarly if the stock in trade is valued accordingly, the profits shown by the profit and loss account will not reflect an increase or decrease in terms of purchasing power of the money. C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Suggestions The replacement cost method of dealing with the fixed assets should be followed i.e. the fixed assets should be valued at replacement cost The fixed assets should be written up according to the market price of the assets prevailing on the balance sheet date. The stock-in-trade should be valued at the market price and depreciation should be provided on the value of the stock so arrived. The index method of adjusting the accounts to reflect the changes in the purchasing power of money should be followed. C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

General Principles with regards to Types of LIABILITIES Share Capital Reserve Funds & Accounts Debentures & Mortgage Trade Creditors Bills Payable Loans & Advances C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Share Capital Liability or Not Liability Memorandum of Association Articles of Association Cash Book Pass Book / Bank Statement Minute Books Authorized Capital Subscribed Capital Issued Capital Called up Capital Paid up Capital C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Reserve Funds & Account Articles of Association General Reserve Specific Reserve Sinking Fund Reserve or Development Fund Capital Reserve Secret Reserve C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Debentures & Mortgage C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Trade Creditors Schedule of Creditors Cash Book Bills Payable Book Purchase Ledger Purchase Invoice Goods Inwards Book Credit Notes Returns Outward Book Bills Payable Book Cash Book C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Bills Payable Bills Payable Book Bills Payable Account Balance Sheet Purchases Account Cash Bank Balance Sheet C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018

Loans Memorandum of Association Articles of Association Agreement / Contract Amount Interest Paid/Payable Details on charged Assets C. P. Mansoor S. Ahmed [Master M Ahmed] Tuesday, November 13, 2018