H.N. TIWARI
Preface
BHUSHAN KUMAR GOYAL
I-5
Contents Page
: SUBSIDIARY BOOKS, LEDGER AND TRIAL BALANCE CHAPTER 6 MEASUREMENT OF BUSINESS INCOME AND REVENUE RECOGNITION 6.1 CHAPTER 7 ACCOUNTING FOR PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION 7.1 CHAPTER 8 INVENTORY VALUATION 8.1 CHAPTER 9 CAPITAL AND REVENUE EXPENDITURES AND RECEIPTS 9.1 CHAPTER 10 10.1 CHAPTER 11 11.1 I-7
Preface
1 ACCOUNTING SYSTEM 1.1 CHAPTER 2 FINANCIAL ACCOUNTING PRINCIPLES 2.1 CHAPTER 3 3.1 CHAPTER 4 ACCOUNTING
: JOURNAL AND LEDGER 4.1 CHAPTER 5 ACCOUNTING
CHAPTER PROCESS PROCESS
I-8 Page
ACCOUNTING FOR DISSOLUTION OF PARTNERSHIP FIRMS 17.1
CHAPTER 12
ACCOUNTING FOR HIRE PURCHASE AND INSTALMENT SYSTEMS 12.1 CHAPTER 13
LEASE ACCOUNTING 13.1 CHAPTER 14
CHAPTER 17
CHAPTER 20
ACCOUNTING FOR INLAND BRANCHES 14.1 CHAPTER 15 DEPARTMENTAL ACCOUNTING CHAPTER 16 16.1
COMPUTERIZED ACCOUNTING SYSTEM 18.1 CHAPTER 19 19.1
FINANCIAL RATIOS ANALYSIS 20.1
CHAPTER 18
TAXMANN® MEASUREMENT OF BUSINESS INCOME AND REVENUE RECOGNITION* dbac 6.1 6 CHAPTER
TAXMANN® 6.2
ACCOUNTING CONCEPT OF INCOME
approachmatching approach Net Profit = Revenues – Expenses ba
Eric L. Kohler, American Accounting Association i ii net worth
TAXMANN® 6.3 c
Step 1 : Determination of accounting period.
a a
direct identification or association with the revenue of the period, b an indirect association with the revenue of the period, c a measurable expiration of asset cost even though not associated with the production of revenues for the current period,
Step 3 : Recognition of expenses and matching principle.
PROCEDURE FOR MEASUREMENT OF BUSINESS INCOME
i.e.
Step 2 : Recognition of revenues.
Gross profit
Assessment of performance.
i.e., net profit. plus minus
TAXMANN® 6.4 i ii iii
OBJECTIVES OF BUSINESS INCOME MEASUREMENT
TAXMANN® 6.5
Fixing the rate of dividend. Helps in meeting corporate social responsibility.
Formulation of Government policy. Satisfaction of employee needs.
Guide for future investment.
Base for determining tax liability.
Net Income and Continuity Principle
Net Income and Matching Concept
Economic Concept of Income
It deals with only those revenue which arise in the ordinary course of business activities, such as a the sale of goods; b rendering of services; c the use by others of enterprise resources yielding interest, royalties and dividends.thisstandard does not apply to i Revenue arising from construction contracts; ii Revenue arising from hire-purchase and lease agreements; iii Revenue arising from government grants and other similar subsidies; iv Revenue of insurance companies arising from insurance contracts.
Net Income and the Accounting Period
TAXMANN® 6.6
1. Applicabilitymandatory
REVENUE RECOGNITION : SALIENT FEATURES OF AS-9
maximum value which a man can consume during a week and still remains as well off at the end of the week as he was in the beginning.”
i e.g., iiiiiivv
i ii
3. Amount of Revenue
4. Timing of Revenue Recognition Sale of goods
TAXMANN® 6.7
Revenue is the gross inflow of cash, receivables or other consideration arising in the course of the ordinary activities of an enterprise from the sale of goods, from rendering of services, and from the use by others of enterprise resources yielding interest; royalties and dividends.
a
2. Definition and Measurement of Revenue
In an agency relationship, the revenue is amount of commission and not the gross inflow of cash, receivables or other consideration.
i The seller of goods has transferred to the buyer the property in the goods for a price or all significant risks and rewards of own ership have been transferred to the buyer and the seller retains no effective control of the goods transferred to a degree usually associated with ownership;
ii No significant uncertainty exists regarding the amount of the consideration that will be derived from the sale of goods.
Completed service contract method.
there may be situations where transfer of property in goods does not coincide with the transfer of significant risks and rewards of ownership. Revenue in such situations is recognised at the time of transfer of significant risks and rewards of ownership to the buyer.
Proportionate capital method.
ii Such performance should be regarded as being achieved when no significant uncertainty exists regarding the amount of the consideration that will be derived from rendering the service.
b Rendering of services
TAXMANN® 6.8
i Revenue from service transactions is usually recognised as the ser vice is performed, either by the proportionate completion method or by the completed service contract method, whichever relates the revenue to the work accomplished.
iii Dividends from investment in shares.
5. Effect of Uncertainties on Revenue Recognition
c Use of enterprise resources
TAXMANN® 6.9
i Interest.
` `
no
i.e.
ii Royalties.
Recognition of revenue requires that revenue is measurable and that at the time of sale or the rendering of service it would not be unreasonable to expect ultimate collection.
An essential criteria for the recognition of revenue is that the consideration receivable for the sale of goods, the rendering of services or from the use by others of enterprise resources is reasonably determinable. When such consideration is not reasonably determinable, the recognition of revenue is postponed.
b Delivery subject to condition.
CERTAIN SPECIAL SITUATIONS COVERED BY AS-9
1. Sale of Goods
i Installation and inspection. -
TAXMANN® 6.10 `
a Delivery is delayed at buyer’s request and buyer takes title and accepts billing.
When recognition of revenue is postponed due to the effect of uncertainties, it is considered as revenue of the period in which it is properly recognised.
ILLUSTRATION 1.
X Ltd. has recognised ` 10 lakhs on annual basis income from dividends on units of mutual funds of the face value of ` 80 lakhs held by it as at the end of the financial year 31st March, 2012. The dividends on mutual funds were declared at the rate of 20% on 15th June, 2012. The dividend was proposed on 10th April, 2012 by the declaring company. Whether the treatment is at per the relevant Accounting Standard. You are asked to answer with reference to the provisions of Accounting Standard.
SOLUTION X `
v Cash on delivery sales.
iii Guaranteed sales. i.e.,
c Instalment payment and delivery of goods on final payment.
TAXMANN® 6.11
e Agreements.
iv Consignment sales. i.e.,
d Special order and shipments. i.e.,
Sales/Repurchase
vi Warranty sales.
ii Sale on approval.
a Installation Fees. and insurance agency commissions. service commissions.
2. Rendering Services
b Advertising
TAXMANN® 6.12 f Sales to intermediate parties. i.e., g Subscriptions for publications. h Instalment sales. i Trade discounts and volume rebates.
c Financial
PUBLISHER July 2022 2022 9789356223448 : 1306
Financial Accounting is a comprehensive, authentic & well-illustrated book. The objective of this book is to provide a thorough analysis and new insights, in simple language, for the interwoven laws and the standards in solving accounting problems.
This book will be helpful for students of MBA/M.Com./PGDM/PGPM and other professional courses of various universities/institutes throughout India.
[Simple Language & Systematic Manner] of the presentation of the subject matter
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[Comprehensive Presentation of Theory, Procedure & Practice] of accounting
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