Welcome To The KNOWLEDGE SHARING MEET CA. (Dr.) G.S. Grewal

Discussion On Accountancy For 2016 Examination by CA. (Dr.) G. S. Grewal CA. (Dr.) G.S. Grewal

Topics Deleted and Included in Syllabus for 2016 Examination CA. (Dr.) G.S. Grewal

Multiple Choice Questions (MCQs) Multi-Disciplinary Questions Deleted Multiple Choice Questions (MCQs) Multi-Disciplinary Questions Issue of Shares at Discount CA. (Dr.) G.S. Grewal

Class XI - Included in Syllabus Under the Heading ‘Origin of Transactions’ (a) Supporting Vouchers; (b) Debit Note; and (c) Credit Note. Any appropriate Software may be used. Scope of Syllabus In Chapter on Not – For – Profit Organisations Adjustment is a question should not exceed 3 or 4 in number and restricted to subscriptions, consumption of consumables and sale of assets / old material. Entrance / admission fees and general donations are to be treated as revenue receipts. Trading Account of incidental activities is not to be prepared. CA. (Dr.) G.S. Grewal

Clarifications in Syllabus for Class XI 1. 1 Mark Questions will have Very Short Answer Questions 2. All 8 Marks Questions will have internal choice 3. Evaluation Skills Questions Only. 4. Learning Outcomes have been added which are indicators only and do not restrict the scope of questions to be asked. 5. Question Paper to be strictly based on Question Paper Design design. CA. (Dr.) G.S. Grewal

Class XII – Included in Syllabus Accounting of Private Placement of Shares Accounting of ESOP Definitions of terms used in Chapters on Company Accounts either Introduced or Changed Entries for Debenture Redemption Reserve (DRR) have changed. Clarification 3. 1 Mark Questions will have Very Short Answer Questions All 8 Marks Questions will have internal choice Evaluation Skills Questions Only. Learning Outcomes have been added which are indicators only and do not restrict the scope of questions to be asked. Question Paper to be strictly based on Question Paper Design. CA. (Dr.) G.S. Grewal

Important Issues in Syllabus Partnership Accounts 1. Interest on Partner’s loan is a charge against profits. 3. Preparation of Retiring Partner Loan Account is in Syllabus. 4. Preparation of Deceased Partner Capital Account and Executor’s Account is in Syllabus. 5. Dissolution does not include Piecemeal Distribution, Sale to a Company and Insolvency. CA. (Dr.) G.S. Grewal

Important Issues in Syllabus Partnership Accounts 6. The realised value of each asset must be given at the time of dissolution. 7. In case Realisation Expenses are borne by a partner, it should be clearly indicated regarding the payment thereof. CA. (Dr.) G.S. Grewal

Company Accounts Provisions of the Companies Act, 2013 will apply. Provisions relating to DRR given in the Companies Act, 2013 changed and therefore, journal entries change. In Debentures, Ex – Interest and Cum – Interest not in Syllabus. In Statement of Profit and Loss, Exceptional items and Extraordinary items and Discontinued Operations not in Syllabus.   Schedule VI of the Companies Act, 1956 is renumbered as Schedule III in the Companies Act, 2013. CA. (Dr.) G.S. Grewal

Important Issues in Syllabus Comparative and Common – size Statements Unchanged Accounting Ratios Cash Flow Statement 1. Only Indirect Method in Syllabus. 2. Bank Overdraft and Cash Credit are to be treated as Short term Borrowings. 3. Unless it is specified, Current Investments are to be taken as Marketable Securities. CA. (Dr.) G.S. Grewal

Circular No. Acad. 43/2013 CA. (Dr.) G.S. Grewal

Circular No. Acad. 43/ 2013 Items that will not to be Evaluated Attention is drawn to the following important note in the Circular: “As you proceed reading further, you may find that there are certain items against which in bracket the clause ‘Not to be Evaluated’ is written. It means that for these items, accounting treatment will not be asked in the Board Examination. But students must know their place in the Financial Statements as per Schedule-VI, (Read Schedule III) as line items.” CA. (Dr.) G.S. Grewal

Items that will not to be Evaluated Money Received against Share Warrants; 2. Reserves and Surplus: (Revaluation Reserve, Share Options Outstanding and Other Reserves are not to be evaluated. However, General Reserve can be evaluated); 3. Share Application Money Pending Allotment; 4. Deferred Tax Liabilities (Net); 5. Other Long-term Liabilities; CA. (Dr.) G.S. Grewal

Items that will not to be Evaluated Intangible Assets: (Masthead and Publishing Titles, Copyrights, Patents and Other Intellectual Property Rights, Services and Operating Rights and Licenses and Franchises; Capital Work-in-Progress; 8. Intangible Assets Under Development; 9. Deferred Tax Assets (Net); CA. (Dr.) G.S. Grewal

Items that will not to be Evaluated 10. Other Non-current Assets. 11. Cash and Cash Equivalents: (Earmarked Balance with Banks, Balances with Banks held as Margin Money or Security against borrowings, guarantees, other commitments and Bank Deposits with more than 12 months maturity are not to be evaluated); and 12. Treatment of Unamortised Expenses. Also note: Accounting Treatment of Other Current Assets is restricted to Prepaid Expenses, Accrued Incomes and Advance Tax only. CA. (Dr.) G.S. Grewal

Syllabus Requirement The realised value of each asset must be given at the time of dissolution. What Does it Mean? Realisation Account will be credited by the amount realised from sale of an asset. If the question does not specify the amount realised on sale of an asset, it is to be assumed that the asset did not realise any amount. On the other hand, if no information is given for payment of liability, it is to be paid. CA. (Dr.) G.S. Grewal

Syllabus Requirement In case Realisation Expenses are borne by a partner, it should be clearly indicated regarding the payment thereof. What Does it Mean? It means, in the question not only it should be clear who is to bear Realisation Expenses but also who paid these expenses i.e., firm or the partner. CA. (Dr.) G.S. Grewal

Examples Entries of Dissolution Expenses in the Books of the firm CA. (Dr.) G.S. Grewal

Pass the necessary journal entries in the books of the firm? Entries: Partner Abhi is to carry out dissolution for which the firm agrees to pay him Rs. 10,000 plus expenses. He incurs Rs. 5,000 towards dissolution expenses which are paid by the firm. Pass the necessary journal entries in the books of the firm? Entries: Particulars Debit (Rs.) Credit (Rs.) Realisation Exp. A/c Dr. To Abhi’s Capital A/c (Being the remuneration payable to Abhi) 10,000 Realisation Exp. A/c Dr. To Cash / Bank A/c (Being the realisation expenses paid) 5,000 CA. (Dr.) G.S. Grewal

Partner Alok carries out dissolution of the firm for which he is paid Rs. 10,000, including expenses. He incurs Rs. 3,000 towards dissolution expenses which are paid by the firm. Pass the necessary journal entries in the books of the firm? Entries Particulars Debit (Rs.) Credit (Rs.) Realisation Expenses A/c Dr. To Alok’s Capital A/c (Being the remuneration payable credited to capital account) 10,000 Alok’s Capital A/c Dr. To Bank A/c (Being the realisation expenses paid by the firm debited to capital account) 3,000 CA. (Dr.) G.S. Grewal

Pass the necessary journal entries in the books of the firm? Entries Partner Alka is to carry out dissolution for which the firm will pay Rs. 25,000 plus expenses. She incurs Rs. 5,000 towards dissolution expenses which are paid by her. Pass the necessary journal entries in the books of the firm? Entries Particulars Debit (Rs.) Credit (Rs.) Realisation Expenses A/c Dr. To Alka’s Capital A/c (Being the remuneration payable credited to capital account) 25,000 Realisation Expenses A/c Dr. (Being the realisation expenses payable by the partner credited to her capital account) 5,000 CA. (Dr.) G.S. Grewal

Pass the necessary journal entries in the books of the firm? Entries Partner Bhaskar is entrusted to carry out dissolution of the firm for which he is paid Rs. 20,000, including expenses. He incurs Rs. 6,000 towards dissolution expenses which are paid by him. Pass the necessary journal entries in the books of the firm? Entries Particulars Debit (Rs.) Credit (Rs.) Realisation Expenses A/c Dr. To Bhaskar’s Capital A/c (Being the remuneration payable credited to capital account) 20,000 No entry for expenses since remuneration includes expenses which are borne by the partner. CA. (Dr.) G.S. Grewal

Pass the necessary journal entries in the books of the firm? Entries Partner Anita is to carry out dissolution of the firm for a remuneration of Rs. 25,000. She incurs Rs. 10,000 towards dissolution expenses which are paid by the firm. Pass the necessary journal entries in the books of the firm? Entries Particulars Debit (Rs.) Credit (Rs.) Realisation Expenses A/c Dr. To Anita’s Capital A/c (Being the remuneration payable credited to capital account) 25,000 Realisation Expenses A/c Dr. To Bank A/c (Being the realisation expenses paid by the firm) 10,000 CA. (Dr.) G.S. Grewal

Pass the necessary journal entries in the books of the firm? Entries Partner Bhanu is entrusted to carry out dissolution of the firm for which he is paid Rs. 30,000. Dissolution expenses of Rs. 6,000 were paid by him. Pass the necessary journal entries in the books of the firm? Entries Particulars Debit (Rs.) Credit (Rs.) Realisation Expenses A/c Dr. To Bhanu’s Capital A/c (Being the remuneration payable credited to capital account) 30,000 Realisation Expenses A/c Dr. (Being the realisation expenses paid by Bhanu on behalf of the firm credited to his Capital Account) 10,000 CA. (Dr.) G.S. Grewal

Partner Simran is entrusted the work of dissolving the firm and was to get 5% of the value of assets realised as remuneration, including expenses. Assets realised amounted to Rs. 10,00,000. She incurs Rs. 10,000 towards dissolution expenses which are paid by her. Pass the necessary entries in the books of the firm? Entries Particulars Debit (Rs.) Credit (Rs.) Realisation Expenses A/c Dr. To Simran’s Capital A/c (Being the remuneration payable 5% of Rs. 10,00,000 credited to capital account) 50,000 No entry for expenses since remuneration includes expenses which are borne by the partner. CA. (Dr.) G.S. Grewal

Partner Tarun is entrusted the work of dissolving the firm and was to get 5% of the value of assets realised as remuneration, excluding expenses. Assets realised amounted to Rs. 10,00,000. He incurs Rs. 10,000 towards dissolution expenses which are paid by him. Pass the necessary entries in the books of the firm? Entries Particulars Debit (Rs.) Credit (Rs.) Realisation Expenses A/c Dr. To Tarun’s Capital A/c (Being the remuneration payable 5% of Rs. 10,00,000 credited to capital account) 50,000 Realisation Expenses A/c Dr. (Being the realisation expenses payable by the firm but paid by the partner credited to his capital account) 10,000 CA. (Dr.) G.S. Grewal

Partap, a partner of the firm is to handle dissolution of the firm for which he is to be paid 10% of the assets realised. Assets realised amounted to Rs. 5,00,000, excluding expenses. Dissolution expenses came to Rs. 10,000 which were paid by the firm. Pass the necessary entries in the books of the firm? Entries Particulars Debit (Rs.) Credit (Rs.) Realisation Expenses A/c Dr. To Partap’s Capital A/c (Being the remuneration payable 10% of Rs. 5,00,000 credited to capital account) 50,000 Partap’s Capital A/c Dr. To Bank A/c (Being the realisation expenses payable by the firm) 10,000 CA. (Dr.) G.S. Grewal

Puneet, a partner of the firm is to handle dissolution of the firm for which he is to be paid 10% of the assets realised. Assets realised amounted to Rs. 5,00,000, including expenses. Dissolution expenses came to Rs. 10,000 which were paid by Amrit, another partner. Pass the necessary entries in the books of the firm? Entries Particulars Debit (Rs.) Credit (Rs.) Realisation Expenses A/c Dr. To Puneet’s Capital A/c (Being the remuneration payable 10% of Rs. 5,00,000 credited to capital account) 50,000 Puneet’s Capital A/c Dr. To Amrit’s Capital A/c (Being the realisation expenses payable by the firm and paid by partner credited to his capital account) 10,000 CA. (Dr.) G.S. Grewal

Difference Between Companies Act, 2013 and the Companies Act, 1956   The Companies Act, 2013 The Companies Act, 1956 Financial Year Companies to have their financial year ending on 31st March every year. Companies could have their financial year as decided by them. Format of Financial Statements It is prescribed in Schedule III of the Companies Act, 2013. It was prescribed in Schedule VI of the Companies Act, 1956. Definitions of Various Terms in the Companies Act, 2013 Many terms in the Act have been defined. Many terms in the Act were not defined. CA. (Dr.) G.S. Grewal

Difference Between Companies Act, 2013 and the Companies Act, 1956 Maximum Partners in a firm Section 464 The section empowers the Government to prescribe maximum number of partners that a firm can has. But, the number of partners that can be prescribed cannot exceed 100. The Government has made Rule 10 of Companies (Miscellaneous) Rules, 2014 and prescribed maximum number of partners of a firm to be 50. Thus, a firm with more than 50 partners, is not legal. Section 11 Maximum number of partners of a firm could be 10 in banking business and 20 in any other business. CA. (Dr.) G.S. Grewal

Difference Between Companies Act, 2013 and the Companies Act, 1956 Maximum Number of shareholders in Private Company Section 2(68) Maximum number of shareholders in a private company can be 200, excluding its past and present employees. Shares held in joint names to be considered as one shareholder. Section3(1)(ii) Maximum number of shareholders in a private company was 50, excluding its past and present employees. One Person Company Section 2(62) One Person Company is a company which has only one member.   One Person Company did not exist under the Companies Act, 1956. CA. (Dr.) G.S. Grewal

Difference Between Companies Act, 2013 and the Companies Act, 1956 Issue of Shares at Discount Section 53 of the Act prohibits issue of shares at a discount. However, Section 54 of the Companies Act, 2013 is an exception. it permits issue of shares at a discount to employees as ESOPs. Section 79 of the Companies Act, 1956 permitted issue of shares at a discount. Receipt of Money Against Securities Amount can be received by a company by way of cheque or other instrument. Could be received in cash also. CA. (Dr.) G.S. Grewal

Difference Between Companies Act, 2013 and the Companies Act, 1956 Articles of Association Table F applies where Companies Limited by shares does not adopt their own Articles of Association. Table A applied where Companies did not adopt their own Articles of Association. Interest on Calls – in – arrears In the absence of a clause otherwise, interest on Calls – in – arrears is 10% p.a. In the absence of a clause otherwise, interest on Calls – in – arrears was 5% p.a. Interest on Calls – in – advance Calls – in – advance is 12% p.a. In the absence of a clause otherwise, interest payable on Calls – in – advance was 6% p.a. CA. (Dr.) G.S. Grewal

Difference Between Companies Act, 2013 and the Companies Act, 1956 Minimum Subscription Section 39: A company shall not allot securities (shares, debentures or any securities by whatever name called) unless the amount stated in the prospectus as minimum subscription has been subscribed and the sum payable on application have been paid or received by the company by cheque or other instrument. Section 69: Requirement of minimum subscription was with respect to shares only and that too in respect of initial issue. CA. (Dr.) G.S. Grewal

Employees Stock Option Plan (ESOP) CA. (Dr.) G.S. Grewal

Employees Stock Option Plan (ESOP) What is Employees Stock Option Plan (ESOP)? Employees Stock Option Plan is a plan drawn to issue securities (Shares etc.) to employees (including whole time directors) at a discount i.e., at a price which is lower than its market value. The Companies Act, 2013 (Section 53) prohibits issue of shares at a discount. But, through Section 54, it permits issue of ESOPs at a discount. CA. (Dr.) G.S. Grewal

Important Terms in ESOP Meaning Grant Date Date on which the Enterprise and Employees agree to the Plan. Vesting Period Period between the grant date and the date on which all the specified conditions of Employees Stock Option Plan (ESOP) are satisfied. Vesting Date Date on which an employee satisfies the specified conditions and thus, becomes entitled to the options. Exercise It means making an application by an employee for issue of shares against the options vested in him. Exercise Period Period after vesting within which an employee should exercise the right to apply under the Plan. Exercise Price Price payable by the employee for exercising the right for option granted. CA. (Dr.) G.S. Grewal

Employees Stock Option Plan (ESOP) How is it accounted in the books of accounts? The difference between Market Value and Issue Price is the cost to the company, since, the Options are given to employees at a price lower than market price, it is an expense. The entry passed is: Employees Compensation Expense A/c Dr. To Shares Options Outstanding A/c Employees Compensation Expense A/c is shown under ‘Employees Benefit Expenses’ in the Statement of Profit and Loss. Shares Options Outstanding Account is shown as Reserves and Surplus under Shareholders’ Funds. CA. (Dr.) G.S. Grewal

When the Vesting Period has Elapsed When all Option is Exercised by the Employees Bank A/c Dr. Shares Options Outstanding A/c Dr. To Share Capital A/c To Securities Premium Reserve A/c (Being the shares allotted against ESOP) (Amount Received) (Amount Credited to Shares Options Outstanding A/c) (Nominal Value Per Share X No. of Shares) CA. (Dr.) G.S. Grewal

When the Vesting Period has Elapsed When All Options are not Exercised Bank A/c Dr. Shares Options Outstanding A/c Dr. To Share Capital A/c To Securities Premium Reserve A/c To General Reserve A/c (Being the shares allotted against ESOP) (Amount Received) (Amount Credited to Shares Options Outstanding A/c) (Nominal Value Per Share X No. of Shares) (Amount Credited to Shares Options Outstanding A/c relating to Options Exercised) (Amount Credited to Shares Options Outstanding A/c relating to Options not Exercised) CA. (Dr.) G.S. Grewal

Illustration Bloom Ltd. grants options to subscribe 500 shares of Rs. 10 each at a price of Rs. 30 per share to each of its employees numbering 100. Vesting period being 3 years. Fair (Market) price of the share as on the grant date was Rs. 45. Employees numbering 75 exercised the option by the exercise date. Pass the necessary journal entries. CA. (Dr.) G.S. Grewal

Solution Date Particulars Debit (Rs.) Credit (Rs.) Year 1 Employees Compensation Exp. A/c Dr. To Shares Options Outstanding A/c (Being the 1/3rd amount of difference between Fair (Market) Value and Issue Price recognised as expense) 2,50,000 Year 2 Year 3 Employees Compensation Exp. A/c Dr. CA. (Dr.) G.S. Grewal

Solution Date Particulars Debit (Rs.) Credit (Rs.) Year 4 Bank A/c (75 X 500 X Rs. 30) Dr. Shares Options Outstanding A/c Dr. To Share Capital A/c (75 X 500 x Rs. 10) To Securities Premium Res. A/c (75 x 500 x Rs. 20 + 500 x Rs. 15) To General Reserve A/c (25 x 500 x Rs. 15) (Being 500 shares each allotted to 75 employees exercising options, related amount transferred from Shares Options Outstanding Account to Securities Premium Account . Balance amount i.e., amount relating to 25 employees who did not exercise option transferred to General Reserve) 11,25,000 7,50,000 3,75,000 13,12,500 1,87,500 CA. (Dr.) G.S. Grewal

Debenture Redemption Reserve CA. (Dr.) G.S. Grewal

Debenture Redemption Reserve (DRR) Section 71 of the Companies Act, 2013; together with Rule 18(7) of the Companies (Share Capital and Debentures) Rules, 2014 deals with Debenture Redemption Reserve. Section 71 of the Companies Act, 2013 requires companies to transfer amount at least equal to 25% of the nominal value of debentures to DRR before the redemption of debentures begins. DRR is required to be created only for non – convertible part of the Debentures. CA. (Dr.) G.S. Grewal

Debenture Redemption Reserve (DRR) Requirements of DRR Section 71 of the Companies Act, 2013 requires companies to transfer amount at least equal to 25% of the nominal value of total redeemable debentures. Rule 18(7) of the Companies (Share Capital and Debentures) Rules, 2014 requires companies to invest amount at least equal to15% of the value of debentures to be redeemed by 31st March of the next year in specified securities. Investment in specified securities to be made by 30th April of the year. Investment can be utilised only for redemption of debentures. CA. (Dr.) G.S. Grewal

Debenture Redemption Reserve (DRR) Companies not required to create DRR All India Financial Institutions (AIFIs) regulated by Reserve Bank of India. Banking Companies. Other Financial Institutions (LIC, IDFCI etc.) All other Companies are required to create DRR. CA. (Dr.) G.S. Grewal

Journal Entries for DRR 1. On Transfer of Amount to DRR Amount Surplus i.e., Balance in Statement of Profit and Loss A/c Dr. To Debenture Redemption Reserve A/c (Being the amount transferred to DRR) At least 25% of the total Redeemable Debentures 2. On Investment Made in terms of Rule 18(7) Debenture Redemption Investment A/c Dr. To Bank A/c (Being the amount invested in Specified Securities) Note: This amount must be invested by 30th April of the current year for the Debentures to be redeemed by 31st March of next year. At least equal to 15% of the Debentures to be redeemed by 31st March of next year. CA. (Dr.) G.S. Grewal

Journal Entries for DRR 3. When Debentures are redeemed Bank A/c Dr. To Debenture Redemption Investment A/c (Being the investment realised at the time of redemption of debentures) (Amt. Received) (Amount of Inv.) 4. If Investment earns Income and Tax is Deducted at Source (TDS) TDS Receivable A/c Dr. To Interest A/c (Being the investment realised) (Amount of TDS) (Interest Earned) 5. When all the Debentures have been redeemed Debenture Redemption Reserve A/c Dr. To General Reserve A/c (Being the balance in DRR transferred to General Reserve on redemption of all debentures) CA. (Dr.) G.S. Grewal

Question on DRR Appollo Ltd. issued 21,000, 8% Debentures of Rs. 100 each on 31st March, 2008 redeemable at a premium of 8% on 30th June, 2015. The company transferred the required amount to Debenture Redemption Reserve in three equal instalments staring 31st March, 2013.The required investment was made in specified securities on 30th April, 2015. Pass the necessary journal entries regarding transfer of amounts to Debenture Redemption Reserve, investment made and redemption of debentures. CA. (Dr.) G.S. Grewal

Solution Date Particulars Debit (Rs.) Credit (Rs.) 2013 Mar. 31 Surplus i.e., Balance in Statement of Profit and Loss A/c Dr. To DRR A/c (Being the one – third of 25% of total redeemable debentures transferred to DRR) 1,75,000 2014 CA. (Dr.) G.S. Grewal

Solution Date Particulars Debit (Rs.) Credit (Rs.) 2015 Mar. 31 Surplus i.e., Balance in Statement of Profit and Loss A/c Dr. To DRR A/c (Being the one – third of 25% of total redeemable debentures transferred to DRR) 1,75,000 Apr. 30 Deb. Redemption Investment A/c Dr. To Bank A/c (Being the amount equal to 15% of the redeemable debentures invested in Government Securities) 3,15,000 CA. (Dr.) G.S. Grewal

Solution Date Particulars Debit (Rs.) Credit (Rs.) 2015 June 30 Bank A/c Dr. To Deb. Redemption Investment A/c (Being the investment encashed) 3,15,000 8% Debentures A/c Dr. Premium on Redemption of Debentures A/c Dr. To Debenture Holders A/c (Being the amount payable on redemption) 21,00,000 1,68,000 22,68,000 CA. (Dr.) G.S. Grewal

Solution Date Particulars Debit (Rs.) Credit (Rs.) 2015 June 30 Debenture Holders’ A/c Dr. To Bank A/c (Being the amount paid to debenture holders) 22,68,000 DRR A/c Dr. To General Reserve A/c (Being the amount of DRR transferred to General Reserve after redemption of debentures) 5,25,000 CA. (Dr.) G.S. Grewal

Definition of a Company Section 2(20) of the Companies Act, 2013. “Company” means a company incorporated under this Act or any previous Company Law.” Section 3(1)(i) of the Companies Act, 1956 “Company” means a company formed and registered under this Act or an existing company as defined in Clause (ii)” Clause (ii) “Existing Company” means a company formed and registered under any of the previous companies laws specified below: (a) ………. to (g) ………….. CA. (Dr.) G.S. Grewal

Definition of Company Limited by Guarantee / Shares Section 2(21) Company Limited by Guarantee “Company Limited by Guarantee” means a company having the liability of its members limited by the Memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of it being wound up. It was not defined in the Companies Act, 1956. Section 2(22) Company Limited by Shares “Company Limited by Shares” means a company having the liability of its members limited by the Memorandum to the amount, if any, unpaid on the shares respectively held by them. CA. (Dr.) G.S. Grewal

Definition of Authorised or Nominal Capital Section 2(8) of the Companies Act, 2013 “Authorised Capital” or “Nominal Capital” means such capital as is authorised by the memorandum of a company to be the maximum amount of share capital of the company. It was not defined in the Companies Act, 1956. CA. (Dr.) G.S. Grewal

Definitions of Issued Share Capital and Subscribed Share Capital Section 2(50) Issued Share Capital “Issued Share Capital” means such capital as the company issues from time to time for subscription. It was not defined in the Companies Act, 1956. Section 2(86) Subscribed Share Capital “Subscribed Share Capital” means such part of the capital which is for the time being subscribed by the members of a company. CA. (Dr.) G.S. Grewal

Definition of “Paid up Share Capital or Share Capital Paid up” Section 2(64) of the Companies Act, 2013 “Paid-up Share Capital” or “Share Capital Paid-up” means such aggregate of money credited as paid-up as is equivalent to the amount received as paid-up in respect of shares issued and also includes any amount credited as paid-up in respect of shares of the company, but does not include any other amount received in respect of such shares, by whatever name called. Section 2(32) of the Companies Act, 1956 “It includes capital credited as paid-up.” CA. (Dr.) G.S. Grewal

Definition of “Called up Capital” Section 2(15) of the Companies Act, 2013 “Called-up Capital” means such part of the capital, which has been called for payment. It was not defined in the Companies Act, 1956 CA. (Dr.) G.S. Grewal

Definition of “Share” Section 2(84) of the Companies Act, 2013 “Share” means a share in the share capital of a company and includes stock. It was not defined in the Companies Act, 1956 CA. (Dr.) G.S. Grewal

Definition of Preference Share Section 43, Explanation(ii) of the Companies Act, 2013 “Preference Share Capital” with reference to any company limited by shares, means that part of the issued share capital of the company which carries or would carry a preferential right with respect to: payment of dividend, either as a fixed amount or an amount calculated at a fixed rate, which may either be free of or subject to income tax; and repayment, in the case of a winding up or repayment of capital, of the amount of share capital paid-up or deemed to have been paid-up, whether or not, there is a preferential right to the payment of any fixed premium or premium on any fixed scale, specified in the memorandum or articles of the company. CA. (Dr.) G.S. Grewal

Definition of Equity Share Section 43, Explanation(i) of the Companies Act, 2013 “Equity share capital” with reference to any company limited by shares, means all share capital which is not preference share capital. Section 85(2) of the Companies Act, 1956 “Equity Shares” are those shares which are not preference shares. CA. (Dr.) G.S. Grewal

Definition of “Securities Premium Reserve” Section 52(2) of the Companies Act, 2013 It prescribes the purposes for which Securities Premium Reserve can be utilised. Sections 77A and 78 of the Companies Act, 1956 It prescribed the purposes for which Securities Premium Reserve could be utilised. The purposes for which Securities Premium Reserve can be utilised are same. CA. (Dr.) G.S. Grewal

Definition of “Debenture” Section 2(30) of the Companies Act, 2013 “Debenture” includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on assets of the company or not. Section 2 (12) of the Companies Act, 1956 “Debenture” includes debenture stock, bonds or any other instrument of a company, whether constituting a charge on assets of the company or not. CA. (Dr.) G.S. Grewal

Operating Cycle Operating Cycle is the time gap between the acquisition of an asset for processing, and its realisation in cash and cash equivalents. If operating cycle cannot be identified, it is assumed to be a period of 12 months. CA. (Dr.) G.S. Grewal

Operating Cycle Operating Cycle is the time gap between the acquisition of an asset for processing, and its realisation in cash and cash equivalents. If operating cycle cannot be identified, it is assumed to be a period of 12 months. CA. (Dr.) G.S. Grewal

Operating Cycle Operating Cycle is the time gap between the acquisition of an asset for processing, and its realisation in cash and cash equivalents. If operating cycle cannot be identified, it is assumed to be a period of 12 months. CA. (Dr.) G.S. Grewal

Operating Cycle Chart Cash/Bank Trade Receivables Realised Purchase of Raw Material (Say held for 2 Months) Finished Good Sold and Converted to Trade Receivables (Say on Credit Period of 4 Months) Processing of Raw Material to manufacture Finished Goods (Say 5 Months) Finished Goods Held in Inventory (Say 90 Days, i.e., 3 Months) Operating Cycle is 14 Months (2 Months + 5 Months + 3 Months + 4 Months) CA. (Dr.) G.S. Grewal

Operating Cycle Chart Cash/Bank Trade Receivables Realised Purchase of Raw Material (Say held for 1 Month) Finished Good Sold and Converted to Trade Receivables (Say on Credit Period of 1 Month) Processing of Raw Material to manufacture Finished Goods (Say 4 Months) Finished Goods Held in Inventory (Say 60 Days, i.e., 2 Months) Operating Cycle is 8 Months (1 Month + 4 Months + 2 Months + 1 Month) CA. (Dr.) G.S. Grewal

Q. How is Long – term Borrowings becoming due for payment within 12 months of the reporting date or the period of Operating Cycle, shown in the Balance Sheet? A. It is not shown as Short – term Borrowings but Other Current Liabilities and sub - head ‘Current Maturities of Long – term Debts’. CA. (Dr.) G.S. Grewal

BALANCE SHEET as at…………. PARTICULARS NOTE NO. Rs. EQUITY AND LIABILITIES Share Capital 1 7,93,000 Share Capital Amount (Rs.) Note 1: Share Capital Authorised Share Capital 1,00,000 Equity Shares of Rs. 10 each 10,00,000 Issued Capital 10,000 Equity Shares of Rs. 10 each 8,00,000 Subscribed Capital Subscribed and fully paid up 78,000 Equity Shares of Rs. 10 each (Out of the above, 10,000 fully paid Equity Shares have been issued for consideration other than cash) Subscribed but not fully paid up 1,000, Equity Shares of Rs. 10 each Less: Calls – in – arrears Add: Forfeited Shares Account* 10,000 2,000 7,80,000 8,000 788,000 5,000 7,93,000 CA. (Dr.) G.S. Grewal

Q. What are ‘Share Warrants’? A. The term ‘Share Warrants’ is defined in Companies (Accounting Standards) Rules, 2006 as follows: “Share Warrants are financial instruments which gives the holder the right to acquire equity shares”. CA. (Dr.) G.S. Grewal

Capital Reserve Reserves and Surplus Capital Redemption Reserve Securities Premium Reserve Debenture Redemption Reserve Revaluation Reserve Share Options Outstanding Account Other Reserves Surplus i.e., Balance in Statement of Profit and Loss CA. (Dr.) G.S. Grewal

Q. Can a Company have reserves other than Q. Can a Company have reserves other than those specified in Schedule VI? A. Yes, a company can have reserves other than those specified in Schedule VI. Schedule VI of the Companies Act is made flexible by including an entry Any Other Reserves (to specify the nature and purpose of each reserve). Examples: Investment Fluctuation Reserve, Workmen Compensation Reserve, Subsidy Reserve, Tax Reserve, Development Reserve, Research and Development Reserve, Asset Replacement Reserve etc. CA. (Dr.) G.S. Grewal

Q. Is there a difference between Statement Q. Is there a difference between Statement of Profit and Loss and Surplus i.e., Balance in Statement of Profit and Loss? A. Yes. Statement of Profit and Loss is a statement from which profit earned or loss incurred during the year is known. Surplus i.e., Balance in Statement of Profit and Loss is a reserve representing balance in the reserve. It includes opening Balance and current year’s profit or loss. CA. (Dr.) G.S. Grewal

Q. What is Revaluation Reserve? A. Upward revision of Book Value of an asset is credited to ‘Revaluation Reserve’. Revaluation Reserve cannot be distributed unless gain is realised. Also fictitious assets such as preliminary expenses, loss on issue of debentures etc. cannot be written off against it. If the company revises the value of the asset downward, Revaluation Reserve is debited by the amount of downward revision. CA. (Dr.) G.S. Grewal

Q. What is Shares Options Outstanding Account? A. Shares are issued at a price that is lower than its market value to the employees. Companies issuing these shares have to create a reserve for the amount of difference crediting it to Shares Options Outstanding Account. The amount is credited in instalment over the vesting period. if the employee exercises the option or the vesting period is over, the amount is transferred to General Reserve. CA. (Dr.) G.S. Grewal

Q. What amount is shown under ‘Share Q. What amount is shown under ‘Share Application Money Pending Allotment’? A. Out of the total Share Application Money received only that much amount is shown against ‘Share Application Money Pending Allotment’ against which shares will be allotted by the company. Money received by the company as share Application Money and which is to be refunded is shown under the head Current Liabilities and sub – head Other Current Liabilities. CA. (Dr.) G.S. Grewal

Comparative Statements And Common – size Statements CA. (Dr.) G.S. Grewal

Format of Comparative Balance Sheet Particulars Note No. 2012-13 Rs. 2013-14 Absolute Change (Increase /Decrease) Rs. Percentage Change (Increase/Decrease) % A B (B-A)=C C/A X 100=D I. EQUITY AND LIABILITIES 1. Shareholders’ Funds Share Capital Reserves and Surplus 2. Non-Current Liabilities Long-term Borrowings Long-term Provisions 3. Current Liabilities Short-term Borrowings Trade Payables Other Current Liabilities Short-term Provisions Total II. ASSETS 1. Non-Current Assets (a) Fixed Assets: Tangible Assets Intangible Assets Non-current Investments Long-terms Loans and Advances 2. Current Assets Current Inventories Inventories Trade Receivables Cash and Cash Equivalents Short-term Loans and Advances Other Current Assets …… ..…. CA. (Dr.) G.S. Grewal

FORMAT OF COMPARATIVE STATEMENT OF PROFIT & LOSS COMPARATIVE STATEMENT OF PROFIT AND LOSS for the years ended 31st March, 2013 and 2014  Particulars Note No. 2012-13 Rs. 2013-14 Absolute Change (Increase or Decrease)% Percentage Change (Increase or Decrease)% A B (B-A)=C 𝐶 𝐴 X 100=D I. Revenue from Operations …… 100 II. Other Income III. Total Revenue(I+II) IV. Expenses: Cost of Materials Consumed Purchases of Stock-in-Trade Changes in Inventories of Finished Goods, Work-in-Progress and Stock-in-Trade Employees Benefit Expenses Finance Costs Depreciation and Amortisation Other Expenses Total Expenses Profit before Tax(III-IV) CA. (Dr.) G.S. Grewal

COMMON SIZE STATEMENT OF PROFIT AND LOSS Particulars Note No. Absolute Change Percentage of Revenue from Operations 2012-13 2013-14 I. Revenue from Operations …… 100 II. Other Income III. Total Revenue(I+II) IV. Expenses: Cost of Materials Consumed Purchases of Stock-in-Trade Changes in Inventories of Finished Goods, Work-in-Progress and Stock-in-Trade Employees Benefit Expenses Finance Costs Depreciation and Amortisation Expenses Other Expenses Total Expenses Profit before Tax(III-IV) for the years ended 31st March, 2013 and 2014   CA. (Dr.) G.S. Grewal

FORMAT OF COMMON-SIZE BALANCE SHEET Particulars Note No. 2012-13 Rs. 2013-14 Rs. Absolute Change (Increase /Decrease) Rs. Percentage Change (Increase/Decrease) % A B (B-A)=C C/A X 100=D I. EQUITY AND LIABILITIES 1. Shareholders’ Funds Share Capital Reserves and Surplus 2. Non-Current Liabilities Long-term Borrowings Long-term Provisions 3. Current Liabilities Short-term Borrowings Trade Payables Other Current Liabilities Short-term Provisions Total II. ASSETS 1. Non-Current Assets (a) Fixed Assets: Tangible Assets Intangible Assets Non-current Investments Long-terms Loans and Advances 2. Current Assets Current Inventories Inventories Trade Receivables Cash and Cash Equivalents Short-term Loans and Advances Other Current Assets …… ..…. 100 CA. (Dr.) G.S. Grewal

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