Accountancy Test - 6

The correct answer is financial position.  

Key Points

• The balance sheet is a statement that gives the position of assets and liabilities on a particular date. 
• Assets are the resources owned by the business. Liabilities are the claims against the business.
• After ascertaining the net profit or net loss of the business enterprise, a business person would like to know the financial position of the business.
• For this purpose, the balance sheet is prepared which contains amounts of all the assets and liabilities of the business enterprise as on a particular date.
• Balances of all the personal and real accounts are grouped into assets and liabilities. 
• In the balance sheet, liabilities are shown on the left-hand side and assets on the right-hand side.
• According to J.R. Batliboi, “A Balance Sheet is a statement prepared with a view to measure the exact financial position of a business on a certain fixed date.”

The correct answer is CAPITAL RECEIPT (I.E., INCOME)

Key Points

• Subscription: It is a membership fee paid by the member on an annual basis. This is the main source of income of not-for-profit organizations such as Clubs, NGOs, Schools, etc. Subscription paid by the members is shown as receipt in the Receipt and Payment Account and as income in the Income and Expenditure Account.
• Capital receipt- Amount earned by the company by selling of its fixed assets on the irregular basis or once in a life-span and, or by increasing the value of its liabilities (by taking loan or by adding to its creditors) at a particular period of time. It is shown in the "Balance Sheet" under the heading of 'Non-current liabilities' in the Liabilities side.

Important Points 

Subscription received by a school for organising annual function is treated as capital receipt, as this amount of subscription is to be utilised for specific purpose.
 Additional Information

• Asset: It is an item of property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.
• Revenue receipt- Amount earned by the company by selling its goods or services on the regular basis during a particular period of time. It is shown in the "Profit & Loss a/c" in the credit side.
• Earned income: Amount earned by the company by driving any paid work or services.

The correct answer is Base Year

Key Points Trend Analysis:

• Financial statement trend analysis helps data users in determining percentage changes over time in the given data.
• Users may examine whether a company's net profit is increasing, declining, or steady over time, as well as whether there are any variations.

Important Points Formula to calculate trend percentages:

(Present year value/Base year value) x 100

Note:

• Generally, the first year is taken as the base year.
• The figure of base year is taken as 100.

The correct answer is Intangible assets

Key Points

• Intangible assets: These are the assets of the business that do not have a physical existence. For example- Goodwill, Patents, Trademarks, etc.

Important Points

• Mining rights are the rights that a business acquires from the government to carry out the mining process. It is an asset for the business but does not have a physical existence. Therefore, they are considered Intangible Assets.
• As per Schedule III of Companies Act 2013, Mining rights is shown under the subheading of Intangible Assets under the main head Fixed assets. 

Additional Information

• Fixed Assets: These assets are those assets of the business which are of permanent nature. These assets are expected to last more than one year. Fixed assets are assets that a business intends to utilize in the long run to create revenue.

The correct answer is ₹ 5,00,000

Key Points Gross Profit:

• Gross profit is the profit a company generates after deducting all costs associated with producing and selling its goods or services.
• Gross Profit = Net Sales – Cost of sales

Important Points Calculation of Gross Profit

Gross Profit = Net sales – Cost of sales

Gross Profit = 15,00,000 – 10,00,000 = ₹ 5,00,000

The correct answer is ​reserves and surplus

Key Points

• Outstanding Share Option: The share option outstanding is the difference between the market value and the issue price of shares granted to employees under the Employees Stock Option Scheme.
• For example, if employees are given shares for Rs 60 each, but the market price is Rs 100, the difference, or Rs 40, should be credited to this reserve.

Important Points

• As per Schedule III of the Companies Act 2013, Share Option Outstanding Account is shown under the subhead Reserves and Surplus under the head Shareholders’ Funds. 

Balance Sheet - A balance sheet is a part of a financial statement that shows the financial position of a business entity. The balance sheet shows the business entity's assets, liabilities, and equity on a particular date.

Key Points

• Income Accrued -  Income accrued means a part of the current year's income that is earned but not received on a due date. Income accrued is an asset for a business entity and is shown in the asset side of a balance sheet. For example - Interest receivable

Additional Information

1. Contingent Liability -  Contingent liability refers to a prospective liability that may arise in the future as a result of the occurrence or non-occurrence of certain events. For example - Suits that are pending.
2. Liabilities - A liability is a financial obligation that a person or a company owes to another party. Liabilities are settled by transferring economic benefits such as cash and cash equivalent, goods, and services. For example - Bank loan, creditors, etc.
3. Contingent Assets - A contingent asset refers to a prospective asset that may arise in the future as a result of the occurrence or non-occurrence of certain events. For example - Suits that are pending.

The correct answer is 50%

Important Points Current year amount (2016) = 15,00,000

 Base year Amount (2015) = 10,00,000

 Percentage change = \({(current year amount - Base year Amount)\over Base year amount}\times 100\)

 Percentage change = \({(15,00,000 - 10,00,000)\over 10,00,000}\times 100\)

 Percentage change = \({5,00,000\over 10,00,000}\times 100\)

 Percentage change = 50%

As per the format of the Balance sheet prescribed as per Schedule III of Companies act 2013, Money received against the share warrant is shown under the heading of Shareholders Fund. Key Points

•  Money received against share warrants: A share warrant is a financial instrument that gives the holder the right to acquire equity shares.
• Disclosure of the money received against share warrants is to be made since shares are yet to be allotted against the share warrants.
• These are not shown as part of share capital but to be shown as a separate line under shareholders' fund.

The format of the Balance Sheet prescribed as per Schedule II of the Companies Act is as follows:

Key Points

• Fixed assets

(i) Tangible assets

(ii) Intangible assets

(iii) Capital work-in-progress

(iv) Intangible assets under development

• Non-current investments
•  Deferred tax assets (net)
• Long-term loans and advances
• Other non-current assets
•  Current assets

(a) Current investments

(b) Inventories

(c) Trade receivables

(d) Cash and cash equivalents

(e) Short-term loans and advances

(f) Other current assets