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For example, if a machine is purchased for Rs. 10,000/- it is recorded in the books at Rs. 10,000/- and even if its market
value at the time of the preparation of the final account is Rs. 20,000/- or Rs. 60,000/- the same will not considered.
6. Cost-Attach Concept:
This concept is also known as cost-merge concept. When a finished good is produced from the raw material there are
certain process and costs which are involved like labor cost, power and other overhead expenses. These costs have a
capacity to merge or attach when they are broughtr together.
7. Accounting Period Concept:
An accounting period is the interval of time at the end of which the income statement and financial position statement
(balance sheet) are prepared to know the results and resources of the business.
8. Accrual Concept:
The accrual system is a method whereby revenue and expenses are identified with specific periods of time like a month,
half year or a year. It implies recording of revenues and expenses of a particular accounting period, whether they are
received/paid in cash or not.
9. Period Matching of Cost and Revenue Concept:
This concept is based on the period concept. Making profit is the most important objective that keeps the proprietor
engaged in business activities. That is why most of the accountants time is spent in evolving techniques for measuring the
profit/profitability of the concern. To ascertain the profit made during a period, it is necessary to match revenues of the
period with the expenses of that period. Income (profit) earned by the business during a period is compared with the
expenditure incurred to earn the revenue.
10. Realization Concept:
According to this concept profit, should be accounted for only when it is actually realized. Revenue is recognized only
when sale is affected or the services are rendered. However, in order to recognize revenue, receipt of cash us not
essential. Even credit sale results in realization as it creates a definite asset called Account Receivable. However there
are certain exception to the concept like in case of contract accounts, hire purchase etc. Similarly incomes like commission
interest rent etc. are shown in Profit and Loss A/c on accrual basis though they may not be realized in cash on the date of
preparing accounts.
11. Verifiable Objective Evidence Concept:
According to this concept all accounting transactions should be evidenced and supported by objective documents. These
documents include invoices, contract, correspondence, vouchers, bills, passbooks, cheque etc.
2. (a) Name items which are recorded at the invoice price in the Consignment Account. Give
reasons for consigning the goods at the invoice price.
(b) Explain the separate set of books method for maintaining joint venture accounts
Excess Price or Loading is to be calculated on the following items:
1. Consignment stock at the beginning
2. Goods sent on consignment
3. Goods returned by the consignee
4. Consignment stock at the end of the period
Whenever a consignor sends goods to consignee at a price higher than the cost price, that is known as invoice
price method. It is done if the consignor does not want to disclose the real profit to the consignee. The consignee will not
be able to know the cost price if the goods are consigned at above price. Hence, he cannot find out profit or loss being
made by the consignor on these goods.
For the goods consigned at invoice price, the entries in the books of both consignor and consignee will be same. But the
following changes and adjustment entries are required in the books of the consignor for eliminating loading charge in
goods sent, goods returned, unsold goods and abnormal loss.
1. For goods sent on consignment
Consignment to.................. A/C..........Dr.(invoice price)
To goods sent on consignment A/C
2. For loading goods sent on consignment
Goods sent on consignment A/C........Dr.(loading amount)
To consignment to......A/C
3. For abnormal loss
Abnormal loss A/C...............Dr.(invoice price)
To consignment to........A/C
4. For loading on abnormal loss
Consignment to......A/C.............Dr.(loading amount)
To abnormal loss A/C
5. For unsold stock
Consignment stock A/C.............Dr.(invoice price)
To consignment to........A/C
6. For loading on unsold stock
Consignment to..........A/C.......Dr. (loading amount)
To consignment stock reserve A/C
7. For goods return by consignee
Goods sent on consignment A/C.............Dr. (invoice price)
To consignment to.....A/C
8. For loading on goods returned
Consignment to.........A/C ........Dr.(loading amount)
To goods sent on consignment A/C
(b) Mainly there are two ways of keeping joint venture account. Those are 1. Without keeping separate separate set of
books, 2. With keeping separate set of books.
3. What is meant by single entry system? Distinguish it from Double Entry System. Explain the
two methods of ascertaining profit when accounting records are incomplete.
A single entry system records each accounting transaction with a single entry to the accounting records, rather than the
vastly more widespread double entry system. The single entry system is centered on the results of a business that are
reported in the income statement. The core information tracked in a single entry system is cash disbursements and cash
receipts. Asset and liability records are usually not tracked in a single entry system; these items must be tracked
separately.
The primary form of record keeping in a single entry system is the cash book, which is essentially an expanded form of a
check register, with columns in which to record the particular sources and uses of cash, and room at the top and bottom of
each page in which to show beginning and ending balances.
The most significant problems associated with a single entry system include:
Assets are not tracked, so it is easier for them to be lost or stolen.
Audited financial statements. It is impossible to obtain an audit opinion on the financial results of a business using a single
entry system; the information must be converted to a double entry format for an audit to even be a possibility.
Errors. It is much easier to make clerical errors in a single entry system, as opposed to the double entry system, where
separate entries to different accounts must match.
Liabilities. Liabilities are not tracked, so you need a separate system for determining when they are due for payment, and in
what amounts.
Reporting. There is much less information available upon which to construct the financial position of a business, so
management may not be fully aware of the performance of the business.
Single entry systems are strictly use for manual accounting systems, since all computerized systems utilize the double
entry system instead.
Compare single and double entry system:
1. Meaning
Single entry system is an incomplete system of recording financial transactions. Double entry system is a complete system
of recording and reporting financial transactions.
2. Duality
Single entry system is not based on the concept ofduality. Double entry system is based on theconcept of duality.
3. Accounts
Single entry system maintains only personal accounts of debtors and creditors and cash book. Double entry system all
personal, real and nominal accounts.
4. Trial Balance
Single entry system can not prepare a trial balance and hence, arithmetical accuracy of books of accounts can not
be checked. Double entry system prepares trial balance and hence, arithmetical accuracy of the books of accounts can
be checked.
5. Profit Or Loss
Single entry system can not ascertain the true amount of profit or loss of the business as it does not maintain nominal
accounts. Double entry system ascertains true profit or loss of the business as it maintains all nominal accounts.
6. Financial Position
Single entry system cannot ascertain the true financial position of the business because it does not maintain real accounts
except cash book. Double entry system ascertains financial position of the business as it maintains all personal and real
accounts.
7. Suitability
Single entry system is suitable to a small business where only limited number of transactions are performed. Double entry
system is suitable for a large business.
8. Tax Purpose
Single entry system is not acceptable for the purpose of assessment of tax. Double entry system is acceptable for the
purpose of assessment of tax.
The following method is used for the calculation of profit or loss under single entry system.
Net Worth Method
Net worth method is also called statement of affairs method or capital comparison method. According to this method
profit or loss of the business is determined by making comparison between the capital of two dates of a period. For
example,
Capital as on 1st January 2009 = $ 150000
5. From the following Trial Balance prepare Trading and Profit & Loss Account for the year
ended 31st Dec., 2014 and Balance Sheet as on that date:
Dr. (Rs.)
Stock 1st Jan., 2014
Purchases and Purchases
Return
Freehold Premises
Incidental Trade Exp.
Insurance
Audit Fees
Commission Received
Cr. (Rs.)
22,300
2,30,000
1,00,000
11,200
1,850
800
2,700
5,200
Interest
Dr. (Rs.)
Stock 1st Jan., 2014
Purchases and Purchases
Return
Freehold Premises
Incidental Trade Exp.
Insurance
Audit Fees
Commission Received
Interest
1,400
Cr. (Rs.)
22,300
2,30,000
5,200
1,00,000
11,200
1,850
800
2,700
1,400
Adjustments:
a) Stock at 31st December, 2014 is Rs. 70,000.
b) Write off 5% Depreciation on freehold premises and 20% on office furniture.
c) Commission earned but not received Rs. 500.
d) Interest earned Rs. 600.
e) Rs. 200 for rent has been received in advance.
f) Charge interest on Capital @ 6% and Rs. 500 on Drawings.