Transcript 17-10-2007 JAIIB Accounting & Finance for Bankers PRESENTATION BY

JAIIB
Accounting & Finance for Bankers
PRESENTATION BY
S.D.BARGIR
Joint Director, IIBF
17-10-2007
TOPICS
BANK RECONCILIATION
TRIAL BALANCE
CAPITAL & REVENUE EXPENDITURE
INVENTORY VALUATION
BILLS OF EXCHANGE
CONSIGNMENT ACCOUNT
JOINT VENTURE
LEASING & HIRE PURCHASE
NON-TRADING ORGANISATIONS
DEPRECIATION
MODEL QUESTIONS
Bank Reconciliation statement
Meaning
Causes of differences
Cheque issued but not presented for
payment
Cheque deposited but not yet realized
Bank charges
Interest on saving bank
Int. on overdraft
Amount directly collected by bank
Amount directly paid by bank on Std.
Instructions
Dishonor of a Cheque
Direct payment into bank by customer
errors
BANK RECONCILIATION STATEMENT
BANK RECONCILIATION( B. R. ) IS BASED ON THE
PRINCIPLE OF DOUBLE ENTRY.
DEBIT THE RECEIVER AND CREDIT THE GIVER
B. R. SHOWS CAUSES OF DIFFERENCES BETWEEN
CASH BOOK AND PASS BOOK BALANCE
DEBIT BALANCE AS PER CASH BOOK IS CREDIT
BALANCE AS PER PASS BOOK = POSITIVE
BALANCE
CREDIT BALANCE IN CASH BOOK IS DEBIT
BALANCE
IN
PASS
BOOK
=
NEGATIVE
BALANCE/OVERDRAFT
EXAMPLES
M/s Shekhar Enterprises .was maintaining account with
KRB Bank Ltd. On 31st December,2006, Bank column of
cash book of company showed a debit balance of Rs.
26000.
Cheques deposited into the bank but not credited before
31st December,2006 amounted to Rs.4000
Bank charges of Rs. 500 were debited by the bank but no
entry was made by the accountant of the company.
From the above particulars, find out the balance as
per KRB Bank’s books.
Rs.30500
Rs.25500
Rs.21500
Rs.22500
2.
EXAMPLES
When overdraft as per cash book and a Cheque
of Rs.1000 directly deposited in the bank, but
not recorded in cash book---a) Add Rs.1000 in CB
b) deduct Rs.1000 in CB
c) Add Rs.2000 in cash book
d) Deduct Rs.2000 in CB
3. Cheque issued to Rohan for Rs.4000
was recorded twice in cash book
a)
b)
c)
d)
Deduct Rs.4000 in Cash book
Add Rs. 4000 in cash book
Add Rs.8000 in Cash Book
Deduct Rs.8000 in cashbook
EXAMPLES
4.
5.
Sujit is having account with two banks viz. PNB and
Canara bank. He made a deposit of Rs. 3000 in Canara
Bank , but wrongly entered in column of PNB.For
preparing BRS of Canara Bank , sujit will---a) Add Rs.3000 in Cash Book of Canara BK column
b) deduct Rs.3000 in Cash book of Canara BK
column
c) Add Rs.6000 in cash book of Canara BK column
d) Deduct Rs.6000 in CB of Canara BK column
Payment side of cash book of LKJ ltd. Is overcast by
Rs.9000.
a)
b)
c)
d)
Deduct Rs.9000 in Cash book
Add Rs. 9000 in cash book
Add Rs.18000 in Cash Book
Deduct Rs.18000 in cashbook
Trial Balance(TB)- Rectification entries
Trial balance – meaning
Types- gross TB, Net TB
Disagreement of TB
Classification of errors
Clerical errors
– Errors of omission
– Errors of commission
Posting of correct amount at wrong side
Posting wrong amount at wrong side
Totaling error in subsidiary book
Mistake while balancing of ledger
– Compensating errors
Errors of principles
Suspense accountSuspense account- After preparation
of T/B
Rectification when books are closedDiff. in nominal A/c adj. through P &
L Adj. A/c- then effect on Capital A/c
Rectification of Errors-Examples
(1) Rs. 7000 paid as wages for installing the
machinery should be debited to----Wages A/c
Machinery a/c
Capital A/c
None of the above
(2) Sales to Navin of Rs.1000 is debited to Ravin
A/c. this will be rectified by----Debiting Navin a/c and Crediting Ravin A/c
Debiting both Accounts
Debiting Ravin a/c and Crediting Navin A/c
Debiting Navin A/c and crediting Sales A/C
Trial Balance-Examples
3.
Credit sale of
Rs.5000 to Suresh is posted
to his credit, then rectification is
i.
ii.
iii.
iv.
4.
Credit Suresh to the extent of Rs.10,000
Credit Suresh to the extent of Rs.5,000
Debit Suresh to the extent of Rs.10,000
Debit Suresh to the extent of Rs.5000
Freight expenses for carrying New Machinery is
carried to Traveling Exp. a/c. Choose the correct
rectification entry
i.
ii.
iii.
iv.
Debit machinery a/c and credit Traveling Exp a/c.
Credit machinery a/c and debit Freight Exp a/c
Credit profit and loss account and debit Freight Exp a/c.
Debit profit and loss a/c( P&L a/c) and credit Traveling
Exp a/c.
Rectification of Errors-Examples
5.
One of the pair given below is mismatch, identify the same
i. Trial balance <> Statement of balances of ledger
accounts
ii. Real Account<> Always shows debit balance
iii. Suspense Account<> difference in trail balance
iv. Outstanding Expenses<> Nominal Account
4. One of the statement is incorrect. Select the incorrect
statement.
i. If the trial balance shows short debit, the suspense a/c
will have credit balance.
ii. Errors which cancel out the effect of one another are
called compensating errors.
iii. One sided errors are rectified without passing journal
entries
iv. Two sided errors originate in the primary books
Capital & Revenue Expenditure
CAPITAL
REVENUE
Large amount
Relatively small
Improve or enhance earning
capacity
Maintain asset
Long duration benefit
Short duration
Non- recurring
recurring
Balance sheet item
Trading /P & L A/c item
Deferred Revenue expenditure
Expenditure incurred in one year , but benefit of
which is accruing not in one year but following two
or more years , then such expenditure is called as
Deferred Revenue expenditure
Examples
– Heavy advertisement exp.
– Issue of capital expenses
– Preliminary expenses
Cap. & Rev. Expenditure-Examples
(1)Cost of replacement of defective parts of the
machinery is ----a.
b.
c.
d.
Capital expenditure
Revenue expenditure
Deferred revenue expenditure
None of the above
(2) Loss of goods due to fire Rs.8000 is a revenue
expenditure because---a.
b.
c.
d.
It is recurring
Amount involved is small
Loss is arising out of business operations
None of the above
Cap. & Rev. Expenditure-Examples
(3)
a.
b.
c.
(4)
a.
b.
c.
Expenditure incurred in acquiring the patents
rights for the business is an example of ---Capital expenditure
Deferred revenue expenditure
Revenue expenditure
Professional fees paid in connection
acquisition of leasehold premises is---Capital expenditure
Deferred revenue expenditure
Revenue expenditure
with
Examples
(5)Preliminary expenses , discount allowed
on issue of shares are the examples of
a.
b.
c.
Capital expenditure
Deferred revenue expenditure
Revenue expenditure
(6) Machinery costing Rs.10,000, whose
current book value is Rs.7000 is sold for
Rs.12000 what is the amount of capital &
revenue receipt
a.
b.
c.
Capital receipt of Rs. 2000 & Rev. Receipt of Rs.10000
Capital receipt of Rs. 9000 & Rev. Receipt of Rs.3000
Capital receipt of Rs. 12000 & Rev. Receipt of Rs.Nil
Methods of valuation of inventory
FIFO
LIFO
AVERAGECOST
•Goods issued
valued at
earliest price
•Stock
valuation at
latest price
•Goods issued
valued at
latest price
•Stock
valuation at
earliest price
Found out by
dividing total
price paid by
quantity
received
Examples
1. Select the incorrect statement from the following--a.
b.
c.
d.
Inventory valuation is subjective because it depends upon the
accounting policies adopted by the organisation
The basis of inventory valuation adopted should not be changed
frequently because it violates accounting principle of
‘consistency’
Accounting standard recommends FIFO or weighted average
method
The ascertainment of value of stock from accounting record is
known as Perpetual inventory
Examples-conted..
Q:During the rising prices the ______
method will reflect
(FIFO/LIFO/weighted Average)
lowest cost of material supplied and
results in under pricing the products
Inventory is shown at the higher
priced material.
Lock up of large amount of working
capital.
Profits are inflated
More liability for payment of taxes
Bill of Exchange
Bill of Exchange
Promissory Note
Unconditional order
Unconditional promise
Made by creditor
Made by debtor
Acceptance by debtor must
No acceptance as such
Three parties to a bill
Two parties to a bill
Noting is not necessary On dishonor, noting is
necessary by notary public
Bill of Exchange
Honoring on due date
Retirement
Discounting of bill
Sent for collection to bank
Endorsed to creditor
Renewal of the bill
Accommodation bill
Examples
Q1. ___________ draws a bill on __________
Q2. A bill of exchange is a negotiable instrument
True
False
Q3. Negotiable instruments can be ________from
one person to another
Q4. A bill of exchange must be in writing
True
False
Q5: A bill of exchange is not to be dated
True
False
Examples-conted
Q6.: The date on which the bill is payable is called
its _________
Q7. The due date is calculated after adding
__________ to the actual period of the bill.
Q8. If the due date falls on a public holiday, then it
becomes due on the ------Q9.A bill was drawn on 23rd Dec. 2005 for one
month maturity. What will be its due date.
Q10. When a Bill of exchange or promissory note
has been dishonoured for non acceptance or non
payment, the holder may, within a reasonable
period, cause such dishonour to be noted and
certified by a notary public, such a certificate is
called________
Ans.: due date, Three days of grace, Previous working day, 25th
January,protest
CONSIGNMENT ACCOUNT
A consignment is the dispatch of goods
by its owner to his agent for the
purpose of selling.
Consignor,
consignee,
Proforma
Invoice, Account Sale
Books of Account in the books of
consignorConsignment A/c
Consignee A/c
Goods sent on Consignment
Valuation of closing stock
Consigning goods at higher price
CONSIGNMENT ACCOUNT
A TYPICAL CONSIGNMENT ACCOUNT WILL APPEAR
AS FOLLOWS:
DR.
CR
To goods sent on
By consignee
consignment
(goods sold by
(invoice value)
consignee)
To bank
By closing stock
(all expenses incurred by
Consignor in transporting)
To consignee
(all expenses incurred by
Consignee in selling)
To profit & loss a/c
Examples
Q1. The possession of the goods remains with the _________,
but the property in or the ownership of the goods remain
with the _________
Q2 : Usually the consignee recovers all ___________ by him
on the consignment.
Q3.:Consignment account is of the nature of
a.
b.
c.
Personal account
Nominal account
Real account
a.
b.
c.
d.
Proforma invoice*
Commercial invoice
Account sales
Bank draft
Q4.When the goods are sent by the consignor to the
consignee, they are accompanied by
Consignee, Consignor, expenses incurred, nominal
Examples
Q5. Where del-credere commission is paid:
a)
b)
c)
d)
the normal commission is not payable to the consignee
the bad debts, if occur, are borne by the consignor
the bad debts, if occur, are borne by the consignee
the bad debts, if occur, are shared by the consignor
and consignee equally
Q6: The principle followed in valuations of closing
stock on consignment is
a)
b)
c)
d)
to include the expenses by the consignor only
cost to the consignor plus proportionate expenses
incurred till the goods reach to the premises of the
consignee plus direct expenses of consignee
Cost plus proportionate non-recurring expenses
incurred by the consignor
Cost plus proportionate non-recurring expenses
incurred by the consignee
JOINT VENTURE
Meaning
Temporary partnership
Accounting-when separate books
– Joint Bank Account
– Co-venturer’s Account
– Joint Venture Account
Accounting-when no separate books are maintained
– Joint Venture
– Co-Venturer
Examples
Q1.When separate set of books are kept for keeping
the accounts of Joint Venture, then
a) Memorandum Joint Venture Account is
prepared
b) Transactions take the form of ordinary
accounting system
c) Only Joint Venture and Personal accounts of
the co-venturers are maintained.
d) Joint Venture, Co-venturers and Joint Bank
accounts are opened
Q2.A debit balance in Joint Venture A/c indicates
a. Profit on Joint Venture
b. Loss on Joint venture
c. Amount receivable
d. Amount payable
LEASING
Contract between two parties
Owner of an asset transfers his right
of use to other party on payment of
a fixed rent periodically
Types
>> Finance or Capital Lease
Operating Lease
Service Lease
Leveraged Lease
Leasing Examples
A lease which does not secure for
the lessor, the recovery of his
capital outlay (original cost of the
asset leased) plus a return on the
funds invested during the lease
term is called----(a) Capital Lease
(b) Operational Lease
Leasing Examples
(2) There are three parties in----a. Capital Lease
b. Operational Lease
c. Service Lease
d. Leveraged Lease
(3) Allocating total finance income of Rs. 30000
over the leased period of 4 years by the sum of
the digit method results in----a. FY Rs.7500,SY Rs.7500 TY Rs.7500, FY Rs.7500
b. FY Rs.12000,SY Rs.9000 TY Rs.6000 FOURTH Y
Rs.3000
c. FY Rs.3000,SY Rs.6000 TY Rs.9000 FY
Rs.12000
d. FY Rs.NIL,SY Rs.10000 TY Rs.10000 FOURTH Y
Rs.10000
Leasing Examples
(4) If Lease charges of the year exceed the depreciation
charge of the year then----a. Lease Equalization account is debited (with the
difference)
b. Lease Equalization account is credited (with the
difference)
c.
Lease Terminal Adjustment account is debited (with the
difference)
d. None of the above
(5) In case operational Lease , if the total lease rent is
receivable in various installments then in the first year of
lease , the journal entry for total lease rent receivable, in
the books of lessor is-----a. Debit Lessee account and Credit Rent Suspense a/c*
b. Debit Advance Lease Rent account and Credit Lease Rent
a/c
c.
Debit Bank Account and Credit Lease Rent Account
d.
Debit Bank Account and Credit Advance Lease Rent Account
HIRE PURCHASE & INSTALMENT SALE
A buyer purchases goods but pays
the price in various installments.
In hire purchase ownership passes to
the buyer on the payment of last
installment while in installment
selling it passes immediately.
The hire purchase price consists of
two elements a) cash price and b)
interest for delayed payments
Accounting of non-trading
organizations
Meaning
Need for maintenance of accounts
Accounts
Receipt & Payment account
Income & Expenditure Account
Balance sheet
Distinction
Receipt & Payment A/c
Income& ExpenditureA/c
Real Account
Nominal Account
All receipts & payment in a year
Only income and expenses in a year
Capital/ revenue items
Only revenue items
Starts with Opening cash & end with closing
cash
No op. balance but end with surplus/
deficit
current,previous and next year
Current year only
Treatment of some items
Donations- purpose to be seen
Entrance fees- cap. receipt
Life membership fees-cap receipt
Government grants-for maintenance revenue-for specific
purpose cap.receipt
Special fund- exps& income of that fundbooked to that
fund
Op. & closing. Stock of stationary- consumed during year
to be taken as exps.
Sale of fixed assets/investments- above BV below BV
Sports material-asset and dep is charged
Opening/closing Balance sheet
Capital fund
adjustments
Outstanding income
Outstanding expenses
Income received in advance
Prepaid expenses
Depreciation on assets
EXAMPLES
1.
SOLID PVT LIMITED HAS FOLLOWING TRANSACTIONS (Purchase of
inventory I-Q100 @10 on 1.1.06),II(Q150@12 on 2.1.06)
(Issue of inventory I-Q100 on 3.1.06 II-Q50on 4.1.06) q=quantity
What is value of closing stock ,if co. follows FIFO method
a.
b.
c.
d.
Rs.1200
Rs.1000
Rs.1800
None of the above
a.
b.
c.
d.
Rs.1800
Rs.1200
Rs.1000
None of the above
a.
b.
c.
d.
Rs.1120
Rs.1200
Rs.1800
None of the above
2.
What is the value of closing stock, if co. follows LIFO method
3.
What is the value of closing stock, if co. follows weighted average cost
method
EXAMPLES
4.
Identify the wrong pair
5.
One of the following pair is mismatch.Identify the wrong pair
6.
a.
b.
c.
d.
Maker of the bill ^^drawer
Dishonour of bill ^^ rebate
Person in whose favour bill is endorsed^^endorsee
Bill of exchange ^^ negotiable instrument
a.
Diminishing balance method^^ depreciated value of asset never become
zero
Current asset^^ asset on which depreciation is not provided
Depreciation^^ decreases the value of the asset
Rate of depreciation^^ depends upon profit of the firm
b.
c.
d.
Select the true statement
a.
b.
c.
d.
Goodwill is a current asset
The expenditure incurred on installation of machinery is revenue
expenditure
Reducing balance method is also known as SLM
Even if an asset is not used ,mere passage of time will cause a fall in its
value unless it happens to be land
EXAMPLES
Sudhir Draws following bills
1.
2.
3.
4.
On
On
On
On
Ruchira for Rs.1000
Madhur for Rs.2000
Trichur for Rs.3000
Nupur for Rs.4000
a.
b.
c.
d.
Debit
Debit
Debit
Debit
a.
b.
c.
d.
Debit Madhur credit bank a/c
Debit BR a/c credit Madhur a/c
Debit Madhur a/c credit BR a/c
No entry as bill is discounted with the bank
All the bills are accepted by all.Solve the examples as per following
7.
Ruchira’s acceptance is retained till due date, but it was
dishonoured. Identify the correct entry in sudhir’s books
8.
bill a/c and credit BR a/c
Ruchira A/c and credit BR a/c
BR a/c and credit Ruchira a/c
Dishonour Bill a/c credit BR a/c
Madhur’s acceptance is discounted with the bank, but it was
dishonoured. Identify the correct entry in sudhir’s books
EXAMPLES
9.
Trichur’s acceptance is endorsed to Tayyab and noting
charges of Rs.50 were paid, but bill was dishonoured.
Identify the correct entry in sudhir’s books
a.
b.
c.
d.
Debit Trichur a/c by Rs.3050 and credit Tayyab a/c by Rs.3050
Debit BR A/c, Debit Noting charges Rs.50 and credit Tayyab a/c
Rs.3050
Debit Tayyab a/c Rs.3050 and credit Bank a/c Rs.3050
No entry as bill is endorsed to Tayyab
10. Nupur’s acceptance was sent to bank for collection, but it
was dishonoured. Identify the correct entry in sudhir’s
books
a.
b.
c.
d.
Debit Nupur credit BR a/c
Debit Nupur a/c credit Bill sent to Bank for collection a/c
Debit Bill sent to bank for collection a/c credit Bank a/c
No entry as bill is sent to bank for collection
EXAMPLES
11.Choose the wrong pair
a. There is no difference in appearance between trade
bill and accommodation bill
b. Both the parties must accept the accommodation
bill
c. Accommodation bill is drawn and accepted without
any consideration
d. The purpose of any accommodation bill is to
provide temporary finance
EXAMPLES
12.A trainee in a/c dept. has put up
following four entries for accounting for
closing stock of joint venture . One of
the entries is correct. Select the same
a.
b.
c.
d.
Debit
Debit
Debit
Debit
bank a/c –credit joint venture a/c
stock credit joint venture a/c
co-venturer a/c credit joint venture
joint venture credit stock
EXAMPLES
13.Select the wrong statement in respect of
joint
a. It is temporary partnership
b. Nature of co-venturer’s liability is limited
c. Balancing figure of Joint venture a/c is either profit or
loss on joint venture
d. Joint bank account is the account in which banking
transactions are transacted by co-venturers
EXAMPLES
14.Select the wrong pair in respect of
joint
a. Joint venture ^^ real account
b. Joint bank account ^^ personal a/c
c. Unsold stock taken over by coventurer ^^ credit
joint venture a/c
d. Credit balance in Joint venture a/c ^^ profit on
joint venture a/c
EXAMPLES
15.Select the false statement
a. Amount spent on uniform of workers is a
revenue expenditure
b. Expenses of whitewashing of a factory building is
a revenue expenditure
c. Cost of stores consumed in manufacturing
machinery for installation in owned factory is a
revenue expenditure
d. Wages paid for construction of the extension of
the factory building is a capital expenditure
.
16.The following financial statement is not
prepared by a non-trading concerns
a)
b)
c)
d)
Receipt and Payment account
Income & Expenditure Account
Profit & Loss Account
Balance Sheet
17.Receipts and Payments account is
a) Real account
b) Personal account
c) Nominal account
EXAMPLES
18.Incurring
of
expenditure
of
Rs.100000
on
dismantling,
removing and reinstalling plant &
machinery is a ----a.
b.
c.
d.
Capital expenditure
Revenue expenses
Deferred revenue expenditure
None of the above
EXAMPLES
20. RVY sport club has given following information regarding
subscription income. Ascertain income for Current year
1.
2.
3.
4.
5.
Subscription
Subscription
Subscription
Subscription
Subscription
received in cash Rs.5000 during Apr04 to Mar.05
outstanding on 31.3.05 Rs.100
outstanding on 31.3.04 Rs.200
received in advance during 04-05 Rs.300
received in advance during 03-04 Rs.400
Indicate from the following the exact amount of subscription to
be credited to Income & Expenditure Account
a.
b.
c.
d.
Rs.5800
Rs.6000
Rs.5200
Rs.5600
Examples
21. If
A= Income accrued during CY (figure from I & E a/c)
B= outstanding for CY
C= outstanding for PY
D=advance for CY
E= advance for PY
Find the income received in cash during cy to be shown in receipt &
payment a/c
a.
b.
c.
d.
A
A
A
A
+B+C+D–E
–B+C+D–E
+ B –C - D + E
–B+C–D+E
EXAMPLES
23. Select the wrong statement in respect of lease accounting
a. Lease Terminal Adjustment a/c is carried forward
from year to year
b. If Lease Terminal Adjustment a/c shows credit
balance it is shown at liability side
c. If Lease Terminal Adjustment a/c shows debit
balance it is debited to Profit and Loss account
d. Lease Terminal Adjustment a/c balance is not
carried forward to next year but written off to Profit
and Loss account
EXAMPLES
22. Select the wrong statement in respect of lease accounting
a.
If lease charges are Rs.31439 and annual depreciation is Rs.
24000, the correct entry would be- Debit Lease equalisation a/c
by Rs.7439 and credit Lease Terminal a/c by Rs.7439
b.
If lease charges are Rs.14228 and annual depreciation is Rs.
14400, the correct entry would be- Debit Lease equalisation a/c
by Rs.152 and credit Lease Terminal a/c by Rs.152
If lease charges are Rs.7152 and annual depreciation is Rs.
8640, the correct entry would be- Debit Lease Terminal a/c by
Rs.1488 and credit Lease Equalisation a/c by Rs.1488
If Desai is a lessor and he purchases an asset for Rs.100000 for
the purpose of giving the same on lease . The correct entry will
be Debit Asset Rs.100000 and credit Bank Rs.100000
c.
d.
…
Thank you
For any queries or difficulties do contact at
S.D.BARGIR, JOINT DIRECTOR, IIBF
E mail: [email protected]
Phone; 022-22183898
Best of luck……………………………………