Financial Statements of a Company Test 26

Under the accrual basis of accounting, expenses are matched with the related revenues and/or are reported when the expense occurs, not when the cash is paid. The result of accrual accounting is an income statement that better measures the profitability of a company during a specific time period.

In the given question Rs. 2400 paid for the year ended on 30th September 2012 in which 9 months belongs to the accounting period ended on 2012 and Rs. 3200 for 30th September 2013 in which 3 months belongs to the accounting period ended on 2012.

Hence insurance premium shown in P&L account would be as under:

=2400 X 9/12 + 3200 X 3/12

=2600

Irrespective of the fact that shares have been issued for consideration other than cash, they can be issued either at par or at premium. The issue of shares at par implies that the shares have been issued for an amount exactly equal to their face or nominal value.

 In case shares are issued at a premium, i.e. at an amount more than the nominal or par value of shares, the amount of premium is credited to a separate account called ‘Securities Premium Reserve Account’ under the head Reserves and surplus in the balance sheet.

Opening stock is the stock of goods in hand at the beginning of the accounting year. This is the stock of goods which has been carried forward from the previous year and remains unchanged during the year and appears in the trial balance. In the trading account it appears on the debit side because it forms the part of cost of goods sold for the current accounting year.