Taxmann's Financial Accounting | B.Com. (Hons.) | UGCF

TAXMANN® 'S

Financial Accounting

Volume I :Text & Illustrations

Bhushan Kumar Goyal

Associate Professor Department of Commerce

Shri Ram College of Commerce University of Delhi

H.N. Tiwari

Associate Professor Department of Commerce

Shri Ram College of Commerce University of Delhi

Preface to Tenth Edition

We are privileged to acknowledge a warm response to the earlier editions of this book “Financial Accounting”. The book has been thoroughly revised as per Undergraduate Curriculum Framework (UGCF) syllabus under New Education Policy (NEP). Valuable sugges tions received from the esteemed colleagues of University of Delhi have been incorporated in the book. The provisions of Ind AS have also been incorporated at appropriate places in the book. Some of the questions asked in March, 2022 examination of Delhi University have been given as illustrations in the various chapters of the book. Some other illustrations have also been added in this edition of the book. The whole book has been thoroughly revised. We express our sincere gratitude to the academic community for encouraging us.

We solicit feedback and suggestions from the readers which would be duly acknowledged in the subsequent editions of the book. We are thankful to Taxmann for bringing the book in time.

BHUSHAN KUMAR GOYAL

November 2, 2022

M2K Victoria Gardens Azadpur, Delhi - 110033 (M) 9810994452 bhushangoyal@rediffmail.com

Acknowledgement

I acknowledge the support rendered by the following teachers of various colleges of the University of Delhi :

Dr. Nawang Gialchchen : Shri Ram College of Commerce

Ms. Priyanka Aggarwal : Shri Ram College of Commerce

Ms. Manpreet Sharma : Shri Ram College of Commerce

Ms. Saroj Joshi : Shri Ram College of Commerce

Ms. Deepika Bansal : Shri Ram College of Commerce

Ms. Richa Goel : Shri Ram College of Commerce

Ms. Shakshi Gambhir : Shri Ram College of Commerce

Ms. Anjali : Kamla Nehru College

Ms. Balbir Kaur : K.M. College

Ms. Amla Gaur : Satyawati College

Ms. Anjali : Satyawati College

Dr. Raj Kumar : Satyawati College

Ms. A. Porchelvi : Lakshmibai College

Ms. Sucheta Guaba : Lakshmibai College

Ms. Shivani Abrol : Zakir Husain Delhi College

Ms. Amita Motwani : Jesus & Mary College

Ms. Madhu Jain : Maitreyi College

Ms. Sunita Gupta : Daulat Ram College

Ms. Renu Gupta : Jesus and Mary College

Ms. Anjula Bansal : Kalindi College

Ms. Garima Jain : SGTB Khalsa College

Ms. Saumya Sharma : Daulat Ram College

Ms. Manisha : Janki Devi Mahavidyalaya

Ms. Savita Sachdev : I.P. College for Women

Dr. R.K. Sah : Shri Ram College of Commerce

Dr. Alok Kumar : Shri Ram College of Commerce

Sh. Amandeep : SGTB Khalsa College

Sh. Bibhu Prasad : SGTB Khalsa College

Dr. Mahesh Kumar Madan : SGND Khalsa College

Dr. Daya Shankar : SGND Khalsa College

Sh. Pradeep Aggarwal : Motilal Nehru College

Sh. V.P. Jain : Shri Venkateshwara College

Sh. Naresh Dhawan : ARSD College

Sh. Popli Ji : Jesus and Mary College

Ms. Nidhi Gupta : Gargi College

Sh. Sheetal Sachdeva : Maharaja Agrasen College

Sh. Amit Kumar : Maharaja Agrasen College

Ms. Soma Garg : Maharaja Agrasen College

Dr. Amrita Kaur : Bhagat Singh College (E)

Ms. Anu Aggarwal : Hindu College

Dr. S.C. Panda : Satyawati College (E)

Ms. Promila Bhardwaj : Satyawati College (E)

Sh. Mohinder Pal : Ramanujan College

Sh. Himanshu : Ramanujan College

Sh. Pankaj Gupta : Ramanujan College

Ms. Pakiza : Zakir Husain Delhi College (E)

Ms. Loveleen Gupta : Hindu College

Ms. Sakshi Vasudev : Bhimrao Ambedkar College

Ms. Saumya Jain : Shaheed Sukhdev College of Business Studies

Ms. Nirja : College of Vocational Studies

Ms. Satish Bhatia : College of Vocational Studies

Ms. Nivedita : College of Vocational Studies

Ms. Shivani Garg : Department of Commerce, DSE

Ms. Gunjan : Daulat Ram College

Ms. Deepti Sehgal : DDU College

Dr. Deepak Srivastava : Keshav Mahavidyalaya

Dr. Jasbir Singh : Shyam Lal College (M)

Dr. Gursharan Sachdeva : PGDAV College

Dr. Ruchira Pathak : PGDAV College

Ms. Sonal Sharma : Hansraj College

Sh. Ashutosh Yadav : Hansraj College

Ms. Shastha : Hansraj College

Ms. Patinder Kaur : Hansraj College

Ms. Sneha Suri : Hansraj College

Sh. Deepak Balani : Shri Aurobindo College (D)

Ms. Kanwarjeet Kaur : Mata Sundri College

Dr. N.K. Oberoi : Swami Shraddhanand College

Ms. Mamta : Kamla Nehru College

Ms. Pinki : Ramjas College

Ms. Priyanka : Ramjas College

Ms. Ritika Jain : SGTB Khalsa College

Ms. Radhika Goel : SGTB Khalsa College

Ms. Anupreet Kaur : SGTB Khalsa College

Ms. Gurvinder Kaur : SGTB Khalsa College

Ms. Kuldeep : SGTB Khalsa College

Ms. Rachan Kaur : SGTB Khalsa College

Dr. Nitish : Aurobindo College

Ms. Neerja : PGDAV College

Dr. Negi : PGDAV College

Ms. Rashi : Aditi Mahavidyalaya Ms. Ritika : Maitreyi College

Dr. Rizwan : Zakir Husain Delhi College

Ms. Poonam : Shyam Lal College (M) Ms. Jyoti Sandhu : Shyam Lal College (M)

Ms. Sonia Dhingra : PGDAV College (E)

Ms. N. Tiwari : SPM College

Dr. Satish Bhatia : Zakir Husain Delhi College (E)

Sh. Rakesh Kumar : Shaheed Bhagat Singh College (M)

Ms. Rachna : Shaheed Bhagat Singh College (M)

Sh. Nikunj : Shaheed Bhagat Singh College (M)

Dr. Ms. Shikha Gupta : Shaheed Bhagat Singh College (M)

Ms. Shikha : Shaheed Bhagat Singh College (M)

Ms. Aarti Rana : Shaheed Bhagat Singh College (M) Dr. P.D. Saini : Aryabhatta College Ms. Anupriya : ARSD College

Ms. Shweta Gupta : Janki Devi Mahavidyalaya Ms. Hemlata : Lakshmibai College

Dr. Kunal : Keshav Mahavidyalaya Ms. Neerja Arya : College of Vocational Studies

Dr. Sandeep Kumar Goyal : Acharya Narendra Dev College Ms. Sandhya Gupta : Acharya Narendra Dev College Dr. K.M. Bansal : B.R. Ambedkar College Ms. Archna Chauhan : Ramanujan College Ms. Rachna : Shaheed Bhagat Singh College Ms. Shrimala Jain : Shaheed Bhagat Singh College Sh. K.L. Dhaiya : School of Open Learning Sh. K.B. Gupta : School of Open Learning Ms. Dimple Manda : Dayal Singh College (M) Ms. Ishpreet Kaur : Mata Sundri College Dr. Ramesh Kumar : Shaheed Sukhdev College of Business Studies

Sh. Radhe Shyam : Delhi College of Art and Commerce Ms. Rekha : Dayal Singh College (M) Sh. V.P. Jain : Dayal Singh College (M) Ms. Kanwarjeet Nizawan : Mata Sundri College Ms. Tejindar Kaur : Mata Sundri College Ms. Jaspal Kaur : Mata Sundri College Ms. Minu Gupta : SGGSCC Ms. Navdeep Kaur : SGGSCC Ms. Surjeet Kaur : SGGSCC Sh. Bal Kishan : SGGSCC

CHAPTER 11

u MEASUREMENT OF BUSINESS INCOME AND REVENUE RECOGNITION 11.1

CHAPTER 12

u ACCOUNTING FOR PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION 12.1

CHAPTER 13

u ACCOUNTING FOR INTANGIBLE ASSETS 13.1 CHAPTER 14 u INVENTORY VALUATION 14.1

CHAPTER 15 u FINANCIAL STATEMENTS OF NON-CORPORATE BUSINESS ENTITIES 15.1

CHAPTER 16 u FINANCIAL STATEMENTS OF NOT-FOR-PROFIT ORGANISATIONS 16.1

CHAPTER 17 u ACCOUNTING FOR INLAND BRANCHES 17.1

CHAPTER 18 u DEPARTMENTAL ACCOUNTING 18.1 CHAPTER 19 u LEASE ACCOUNTING 19.1 CHAPTER 20 u COMPUTERIZED ACCOUNTING SYSTEM 20.1

Syllabus

FINANCIAL ACCOUNTING

BCH : DSC-1.3

UNIT 1

Theoretical Framework and Accounting Process: (2 Weeks) (A) Conceptual Framework

(i) Accounting as an information system, the users of financial accounting information and their needs. An overview of Artificial Intelligence and Data Analytics in Accounting.

(ii) Qualitative characteristics of accounting information. Functions, advan tages and limitations of accounting. Branches of accounting. Basis of accounting: cash basis and accrual basis. Capital and revenue expenditures and receipts. Events occurring after the balance sheet date, Extraordinary Items, Prior Period Items, Accounting Estimate. Accounting Policies, Fair Value, Meaning, Recognition and Disclosure Requirements of Provision, Contingent Liability and Contingent Asset.

(iii) Financial Accounting Principles: Meaning and need; Generally Accepted Accounting Principles (GAAP): Entity, Money Measurement, Going Concern, Cost, Revenue Recognition, Realization, Fundamental Accounting Assumptions, Accruals, Periodicity, Full Disclosure, Consistency, Materiality, and Prudence (Conservatism). Fundamental Accounting Assumptions as per AS 1.

(iv) Accounting Standards: Concept, benefits, and Process of formulation of Accounting Standards including Ind AS (IFRS converged standards) and IFRSs; convergence vs adoption; Application of accounting standards (AS and Ind AS) on various entities in India. International Financial Accounting Standards (IFRS) - meaning, need and scope.

(B) Accounting Process

From the recording of a business transaction to the preparation of trial balance including adjustment, transfer and closing entries. Application of Generally Ac cepted Accounting Principles in recording financial transactions and preparing financial statements and accounting treatment of GST.

UNIT 2

Business Income, Accounting for Property, Plant and Equipment, and Valuation of Inventory: (3 Weeks)

(a) Business income: Concept of Revenue and Business Income, Measurement of business income; relevance of accounting period, continuity doctrine and matching concept in the measurement of business income; Objectives of measurement of Business income.

(b) Revenue recognition with reference to AS 9.

(c) Accounting for Property, Plant and Equipment with reference to AS 10. Impact of Depreciation on measurement of business income. Accounting for Intangible Assets with reference to AS 26.

(d) Valuation of Inventory with reference to AS 2. Impact of inventory val uation on measurement of business income by using FIFO, LIFO, and Weighted Average Method.

UNIT 3

Financial Statements of Sole Proprietorship and Not-for-Profit Organisations: (3 Weeks)

Preparation of Financial Statements of Sole Proprietorship and Not-for-Profit Organisations.

UNIT 4

Accounting for Inland Branches, Departments and Leases: (4 Weeks)

(a) Accounting for Inland Branches: Concept of Dependent branches; Branch Accounting as per- Debtors System, Stock and Debtors’ System.

(b) Accounting for Departments (excluding Mark-up Account).

(c) Accounting for Leases with reference to AS 19.

UNIT 5

Computerised Accounting Systems: (3 Weeks)

Computerised Accounting Systems: Computerised Accounts by using any popu lar accounting software Creating a Company; Configure and Features settings;

Creating Accounting Ledgers and Groups; Creating Stock Items and Groups; Vouchers Entry including GST; Generating Reports - Cash Book, Ledger Accounts, Trial Balance, Profit and Loss Account, Balance Sheet, Cash Flow Statement. Selecting and shutting a Company; Backup, and Restore data of a Company.

Notes:

1. The relevant Accounting Standards (both AS and Ind-AS) for all of the above topics should be covered.

2. Any revision of the relevant Indian Accounting Standard/Accounting Standard would become applicable after it is included in the guidelines issued by the Department of Commerce.

Practical Exercises:

The learners are required to:

1. Download Framework for the Preparation and Presentation of Financial Statements from the websites of the Institute of Chartered Accountants of India (ICAI) to analyse the qualitative characteristics of accounting information provided therein.

2. Collect and examine the balance sheets of business Organisations to study how these are prepared.

3. Examine the accounting policies and revenue recognition policies by collecting necessary data from small business firms.

4. Prepare Trading and Profit & Loss Account and Balance Sheet collecting necessary data from small business firms.

5. Prepare financial statements manually and using appropriate software.

6. Prepare accounts of Inland Branches.

7. Collect data from your college and prepare a Receipt and Payment Account, Income and Expenditure Account and Balance Sheet.

CHAPTER 12

u COMPUTERIZED ACCOUNTING SYSTEM 105

PREVIOUS YEAR PAPERS

MARCH, 2021 B.COM. (HONS.), CBCS 120

MARCH, 2022 B.COM. (HONS.), CBCS 127

ACCOUNTING FOR GOODS AND SERVICES TAX

Learning Objectives

After studying this chapter, the learners will be able to understand: 

Meaning of Goods and Services Tax  Major Defects in the Earlier Structure of Indirect Tax

Objectives and Advantages of Goods and Services Tax

Characteristics of Goods and Services Taxes

Legal Provisions Regarding Alcoholic Liquor, Tobacco Products and Petroleum Products

Categories of Goods and Services Tax

Meanings of Goods, Services and Supply

Meaning of Intra-State Supply and Inter-State Supply

Composition Scheme

Levy or Charging of GST

Accounting Treatment of GST

Set-off of Input GST (i.e. Manner and Order of Utilisation of Input Tax Credit)

In India, Goods and Services Tax, (in short, GST), came into effect on July 1, 2017. Goods and Services Tax was introduced to avoid the cascading effect of indirect tax. GST Council was constituted to fix the rates of Goods and Services Tax. Union Finance Minister is the Chairman of the GST Council. Other members of the GST Councils are: (i) Union Minister of State-in-charge of Revenue or Finance, and (ii) Minister-in-charge of Finance or Taxation or any other minister nominated by each state Government and Union Territory.

MEANING OF GOODS AND SERVICES TAX

As per Article 366 (12A) of the Constitution of India, Goods and Services Tax means a tax on supply of goods or services, or both, except taxes on supply of alcoholic liquor for human consumption. For the time being, GST is not levied on petroleum products. 10.1

10.2

ACCOUNTING FOR GOODS AND SERVICES TAX

It is an indirect tax levied on supply of goods and services, except on exempted goods and services. The word used in Article 366(12A) is ‘supply’ and not ‘sale’. Thus, stock transfers, branch transfers will also get covered under GST net.

GST is a consumption or destination based tax. It is payable in the State in which goods and services are finally consumed. Most of the indirect taxes have merged into Goods and Services Tax.

States can levy tax on sale, within the state of alcoholic liquor for human con sumption and on petroleum products.

Every registered person/tax payer who makes supply of goods or services or both which were leviable to tax and his aggregate turnover in a financial year exceeds the prescribed limit is required to register himself in the State or Union Territory where he makes a taxable supply.

Goods and Service Tax is chargeable by a registered person/tax payer at the prescribed rates until goods and/or services reach their final destination, i.e. the consumer. After reaching the final destination, i.e., the consumer, they are not further supplied.

MAJOR DEFECTS

IN THE EARLIER STRUCTURE OF INDIRECT TAXES

Following were the major defects in the earlier structure of indirect taxes:

1. Central Sales Tax was payable for every movement of goods from one state to another. Even in case of stock transfers and branch transfers, there was incident of tax and input tax credit was not fully available. (Note: Input tax credit has been explained later in this chapter). Thus, cascading effect of taxes could not be avoided due to Central Sales Tax.

2. Millions of man-hours and truck-hours used to be lost at check costs.

3. The Central Government could not impose tax on goods beyond manufacturing level. Central Sales Tax was collected by the Central Government and retained by the State Government only.

OBJECTIVES AND ADVANTAGES OF GOODS AND SERVICES TAX

1. To make tax rate uniform throughout the country: Only of the main ob jective of GST is to have uniformity of indirect tax rates throughout the coun try. GST rates are same throughout the country. Earlier there were different rates of Sales Tax/Value Added Tax in the States. Its motto is One Nation, One Market. The main objective or advantage of GST is single tax structure right the manufacturing.

2. To remove cascading effect of Taxes: Cascading effect of taxes means levy of tax on tax. GST is levied only towards the net value added portion and not towards the full portion of value as the taxpayer enjoys input tax credit. Goods and services will cost less due to removal of cascading effect of taxes. Due to input tax credit, GST would be finally paid by the consumer for the goods and services purchased.

3. To Simplify Taxation Process: GST is a comprehensive indirect tax. The taxes which have been subsumed in GST include: (i) Central Excise Duty (except on petroleum products), (ii) Service Tax, (iii) Value Added Tax levied by the State Government, (iv) Central Sales Tax, (v) Additional Customs Duties, (vi) Entry Tax, (vii) Entertainment Tax, (viii) Luxury Tax, (ix) Tax on Lotteries, etc. Thus, GST has integrated different tax line and it prevents multiple tax layers imposed on goods and services.

GST reduces the burden of taxes and ensure compliance of tax payment. The number of compliances is lesser. Thus, GST simplifies taxation process and helps in ease of doing business. This is a huge benefit for the business enterprises.

4. To make Indirect Tax Management Effective: The State Government and Central Government has to administer now mainly one indirect tax, i.e., GST after implementation of GST. Therefore, administration of GST will be more effective. As a result, tax evasion is likely to reduce. Previously, management of indirect taxes was a complicated tax for the Government.

5. To attract more Foreign Direct Investment: Goods and Services Tax helps in ease of doing business. Therefore, it will attract more Foreign Direct Investment.

6. Simple and Easy online Procedure: GST returns are filed online. The online procedure is simple and easy. Online filing of GST returns helps in making tax administration corruption free.

7. Composition Scheme for Small Businesses: Composition Scheme is a simple and easy scheme under GST for small tax payers as they can get rid of GST formalities and pay GST at a fixed rate of turnover. This scheme can be opted by small tax payer whose turnover is less than the prescribed limit and is not engaged in making inter-State supplies.

8. Enhanced Productivity of Logistics: After abolition of octroi and entry tax restriction on inter statement movement of goods has reduced. This has increased the productivity of logistics companies.

9. Creation of Common National Market: GST has given a boost to India’s tax to Gross Domestic Product ratio which helps in promoting economic effi ciency and long-term growth. GST has led to uniform tax law and it has formed a common national market.

ACCOUNTING FOR GOODS AND SERVICES TAX

10. Regulation of Unregulated and Unorganised Sector under GST: GST has brought unregulated and unorganised sectors such as textiles and construction under regulation.

CHARACTERISTICS OF GOODS AND SERVICES TAX

1. Comprehensive Indirect Tax: GST is a comprehensive indirect tax. It has subsumed 17 indirect taxes levied by the State Governments and the Central Government under the earlier indirect tax regime. GST has integrated various taxes on goods and services into one unified tax. Thus, GST has brought about unified tax regime.

2. Consumption or Destination Based Tax: GST is payable in the state in which goods and services are finally consumed. Thus, it is a consumption or destination based tax.

3. Same GST Rates throughout the country: The motto of GST is One Nation One Tax One Market. Under the GST regime, the GST rates are same through out the country. Earlier, the rates of VAT/Sales Tax were different in the States.

4. Tax on Supply of Goods and Services: GST is a tax on supply of goods and services, or both, except taxes on supply of alcoholic liquor for human consumption. At present petroleum products will be out of GST. Petroleum products can be brought into the GST network if the GST Council so decides. Petroleum products means petroleum crude, high speed diesel, motor spirit, i.e., petrol, natural gas and aviation turbine fuel.

The word used is “Supply” as against the earlier concept of tax on the man ufacture of goods or on sale. Therefore, stock transfers and branch transfers will also come under the GST net. GST is charged by the registered person/tax payer from the purchaser of goods and services.

5. No Tax on due to Input Tax credit: Goods and Services Tax belongs to family of Value Added Tax. GST is levied on the incremental value of the goods. Further, Input Tax Credit (in short, ITC) is allowed which avoid cascading effect of taxes. Every registered taxable person who carries on business at any place in India is entitled to credit of tax on inputs admissible to him which will be credited to the electronic credit ledger of such person in the records of the Government. Thus, there is no tax on tax.

6. Collection of GST by Registered Person/Tax payer: GST can be collected only by a person/tax payer who is registered under the Central Goods and Services tax Act, 2017. Person includes: (a) an individual; (b) Hindu Undivided Family; (c) a company; (d) a firm; (e) a Limited Liability Partnership; (f) an association of persons; (g) any corporation established by or under any Central Act, State Act or a Government Company; (h) any body corporate; (i) a cooperative soci ety; (j) a local authority; (k) Central Government or State Government; (l) trust.

7. GST Collected is Payable to the Government: GST is collected on supply of goods and services. GST collected on supply of goods and/or services, after deduction of GST paid on purchases of good and/or services, is payable to the Government.

8. Multiple Rate Structure: GST has multiple rate structure. GST rates for goods include 5%, 12%, 18%, 28% and 3%. GST rates for services are 5%, 12%, 18% and 28%.

9. Types of Tax: There are four types of tax leviable on supply of goods and services.

These are as follows:

Types of Tax Leviable on Supply of Good or Services or Both Levied by

State GST (in short, SGST) In case of supply within the State Respective State Government

Union Territory GST (in short, UTGST) In case of supply within the Union Territory where there is no legislature

Central Government

Central GST (in short, CGST) In case of Supply within the State or Union Territory Central Government

Integrated GST (in short, IGST) In case of inter State supply, i.e., on supply outside the state Central Government

It means that on supply of goods and services within the State/Union Territory both CGST and SGST/UTGST are levied.

Integrated GST is distributed between the Central Government and the States as per the recommendation of the GST Council.

LEGAL PROVISIONS REGARDING ALCOHOLIC LIQUOR, TOBACCO PRODUCTS AND PETROLEUM PRODUCTS

(a) Manufacture of alcoholic liquor for human consumption has been kept out of GST. States would continue to levy State Excise Duty and Sales Tax/VAT on alcoholic liquor for human consumption.

(b) On tobacco and tobacco products the Central Government would continue to levy Central Excise Duty in addition to GST.

GST has been levied on most of the tobacco products at the highest tax bracket of 28%. Further, Cess has also been imposed on most of the to bacco products.

(c) At present, petroleum products are out of GST, Petroleum products can be brought into GST network if the GST council so decides. The specified petroleum products are as follows:

IV. Journal Entries of transactions on which GST is charged and input tax credit is allowed and reversal of GST received.

1. For sale of goods and/or services for cash

For intra-State transactions

Cash/Bank A/c Dr. To Sales A/c To Output CGST A/c To Output SGST A/c

For inter-State transactions Cash/Bank A/c Dr. To Sales A/c To Output IGST A/c

2. For sale of goods and/or services on credit

For intra-State transactions

Debtor’s A/c Dr. To Sales A/c To Output CGST A/c To Output SGST A/c

3. For sales return

(a) For return of intra-state cash sales Sales Return A/c Dr. Output CGST A/c Dr. Output SGST A/c Dr. To Cash/Bank A/c Note: Output GST collected on sales re versed.

(b) For return of intra-state credit sales Sales Return A/c Dr. Output CGST A/c Dr. Output SGST A/c Dr. To Debtor’s A/c

Note: Output GST on sales reversed.

4. For commission income

For intra-state transactions

Cash/Bank A/c (for received) Dr. Commission Receivable A/c (for receivable) Dr. To Commission Income A/c To Output CGST A/c To Output SGST A/c

For inter-state transactions

Debtor’s A/c Dr. To Sales A/c To Output IGST A/c

(a) For return of intra-state cash sales Sales Return A/c Dr. Output IGST A/c Dr. To Cash/Bank A/c

Note: Output GST collected on sales re versed.

(b) For return of inter-state credit sales Sales Return A/c Dr. Output IGST A/c Dr. To Debtor’s A/c

Note: Output GST on sales reversed.

For inter-state transactions

Cash/Bank A/c (for received) Dr. Commission Receivable A/c (for receivable) Dr. To Commission Income A/c To Output IGST A/c

5. For rent received/receivable

For intra-state transactions

Cash/Bank A/c (for received) Dr. Rent Receivable A/c (for receivable) Dr. To Rent Income A/c

To Output CGST A/c

To Output SGST A/c

6.

For rebate allowed on sales

For intra-state supply

Rebate Allowed A/c Dr. Output CGST A/c Dr. Output SGST A/c Dr.

To Debtor’s A/c

Note: Output GST charged on sales reversed.

For inter-state supply

Rebate Allowed A/c Dr. Output IGST A/c Dr. To Debtor’s A/c

Note: Output GST charged on sales reversed.

V. Journal Entries of transactions on which GST, whether “IGST” or “CGST and SGST” is paid but input tax credit is not allowed

When goods and services tax is paid but input tax credit is not allowed, GST paid is debited to relevant Expense Account or Asset Account, as the case may be. For example, when restaurant bill is paid for food and beverages, the fol lowing journal entry is passed with the total amount of the bill, including GST.

Business Promotion Expenses A/c Dr.

To Cash/Bank A/c

Similarly, purchase of car for use by Managing Director of a chemical manufac turing company on which GST has been paid by the company will be recorded with the total amount, including GST, as follows:

Motor Vehicles A/c Dr.

To Bank A/c

VI. Journal Entries of transactions on which GST is paid under reverse charge

Reverse charge means the liability to pay tax by the recipient of supply of goods or services or both, instead of supplier of such goods or services or both. The person who is liable to pay tax under reverse charge is compulsorily required to obtain registration under GST law. Payment of fees to a lawyer for taking legal services is an example of reverse charge. In this case, the recipient of legal services will be required to pay GST to the Government. Journal entries in the book of the recipient of legal services will be as follows:

(i) For payment of fee to the lawyer

Legal Fee A/c Dr. To Cash/Bank A/c

(ii) For payment of GST to the Government on legal fees paid to the lawyer

Input CGST A/c Dr.

Input SGST A/c Dr. To Bank A/c

Similarly, in case of Goods Transport Agency, if it opts not to collect and pay GST on the services rendered by it then GST will be payable by the business enterprise to whom the services are rendered. In such a case, the enterprise will pass following entries for paying freight on goods purchased and for GST on freight:

(i) Freight A/c Dr. To Cash/Bank A/c

(ii) Input CGST A/c Dr.

Input SGST A/c Dr. To Cash/Bank A/c

ILLUSTRATION 1. (Intra-State transactions and reverse charge in one transaction)

Journalise the following transactions in the books of Saurabh, Delhi for April, 2021:

2022

April 1 Mahesh started business with cash ` 1,50,000..

April 2 Opened bank account with cash ` 45,000.

April 3 Purchased goods from Jugal Kishore, Delhi for ` 1,00,000 plus CGST and SGST @9% each.

April 4 Goods costing ` 5,000 were given as free sample.

April 9 Goods costing ` 2,000 were taken by the proprietor for personal use.

April 12 Sold goods to Daya Shankar for ` 20,000 plus CGST and SGST @9% each.

April 15 Goods costing ` 1,000 were given as donation.

April 24 Goods costing ` 3,000 were lost by fire.

April 27 Purchased stationery for cash for ` 1,500 plus CGST and SGST @6% each and for ` 500 plus CGST and SGST @9% each.

10.22

ACCOUNTING FOR GOODS AND SERVICES TAX

April 30 Paid fee to lawyer in cash ` 5,000. CGST and SGST @9% each was paid by cheque under reverse charge.

SOLUTION In the books of Mahesh

Journal

Date Particulars

L.F. Dr. (`) Cr. (`) 2022

Apr. 1 Cash A/c Dr.

To Capital A/c (Being cash introduced as capital)

Apr. 2 Bank A/c Dr.

To Cash A/c (Being bank account opened by depositing cash)

Apr. 3 Purchases A/c

1,50,000 1,50,000

45,000 45,000

Input CGST A/c 1,00,000 9,000 Input SGST A/c

To Jugal Kishore (Being goods purchased on credit plus CGST and SGST @9% each)

Apr. 4 Advertisement A/c Dr. To Purchases A/c

To Input CGST A/c

To Input SGST A/c (Being goods given as free sample which were purchased by paying CGST and SGST @ 9% each)

Apr. 9 Drawings A/c Dr. To Purchases A/c

To Input CGST A/c

To Input SGST A/c (Being goods withdrawn by the proprietor which were purchased by paying CGST and SGST @ 9% each)

Apr. 12 Daya Shankar Dr. To Sales A/c

To Output CGST A/c

To Output SGST A/c (Being goods sold on credit, CGST and SGST charged @ 9% each)

9,000 1,18,000

5,900 5,000 450 450

2,360 2,000 180 180

23,600 20,000 1,800 1,800

ACCOUNTING FOR GOODS AND SERVICES TAX

Date Particulars

Apr. 15 Donation A/c Dr.

To purchases A/c

To Input CGST A/c

To Input SGST A/c (Being goods donated which were purchased by paying CGST and SGST @ 9% each)

Apr. 24 Loss of Goods by Fire A/c Dr.

To purchases A/c

To Input CGST A/c

To Input SGST A/c (Being goods lost by fire which were purchased by paying CGST and SGST @ 9% each)

Apr. 27 Stationery A/c (` 1,500 + ` 500) Dr. Input CGST A/c (` 90 + ` 45) Dr. Input SGST A/c (` 90 + ` 45) Dr.

To Cash A/c (Being stationery purchased for ` 1,500 on which CGST and SGST was paid @ 6% each and for ` 500 on which CGST and SGST was paid @ 9% each)

Apr. 30 Legal Fee/Professional Fee A/c Dr.

To Cash A/c (Being fee paid to lawyer)

Apr. 30 Input CGST A/c Dr. Input SGST A/c Dr. To Bank A/c (Being CGST and SGST paid @9% each on lawyer’s fee under reverse charge)

ILLUSTRATION 2. (Intra-State Transactions)

L.F. Dr. (`) Cr. (`)

1,180 1,000 90 90

3.540 3,000 270 270

2,000 135 135 2,270

5,000 5,000

450 450 900

Pass journal entries for the following transactions in the books of Ashok:

(i) Furniture purchased for ` 40,000 plus CGST and SGST @ 9% each. Payment made by cheque.

(ii) Paid salary to staff for the month of April ` 95,000 by cheque.

(iii) Machinery purchased for ` 2,00,000 plus CGST and SGST @ 9%. Payment made by cheque.

(iv) Advertisement expenses of ` 10,000 plus CGST and SGST @ 9% paid by cheque.

10.24

ACCOUNTING FOR GOODS AND SERVICES TAX

(v) Paid wages to the staff for the month of April ` 25,000 in cash.

(vi) Commission paid ` 15,000 plus CGST and SGST @ 9% each.

(vii) Commission received ` 5,000 CGST and SGST charged @ 9% each.

(viii) Paid restaurant bill of refreshment for customers ` 4,000 plus CGST and SGST @ 2.5 each.

(ix) Paid telephone bill of ` 1,062 including CGST and SGST @ 9% each.

SOLUTION In the books of Ashok Journal

Date Particulars

(i) Furniture A/c Dr. Input CGST A/c Dr. Input SGST A/c Dr. To Bank A/c (Being furniture purchased and CGST and SGST @ 9% each)

(ii) Salaries A/c To Bank A/c (Being salaries paid for the month of April)

(iii) Machinery A/c Dr. Input CGST A/c Dr. Input CGST A/c Dr. To Bank A/c (Being machinery purchased, CGST and SGST paid @9% each)

(iv) Advertisement Expenses A/c Dr. Input CGST A/c Dr. Input SGST A/c Dr. To Bank A/c (Being advertisement expenses, CGST and SGST paid @ 9% each)

(v) Wages A/c Dr. To Cash A/c (Being wages paid for the month of April)

(vi) Commission Paid A/c Dr. Input CGST A/c Dr. Input SGST A/c Dr. To Cash A/c

L.F. Dr. (`) Cr. (`)

40,000 3,600 3,600 47,200

95,000 95,000

2,00,000 18,000 18,000 2,36,000

10,000 900 900 11,800

25,000 25,000

15,000 1,350 1,350 17,700

ACCOUNTING FOR GOODS AND SERVICES TAX 10.25

Date Particulars

(vii) Cash A/c Dr.

To Commission Received A/c

To Output CGST A/c

To Output SGST A/c (Being Commission received, CGST and SGST charged @ 9% each)

(viii) Business Promotion Expenses A/c Dr. Input CGST A/c Dr. Input SGST A/c Dr.

To Cash A/c (Being restaurant bill of refreshment for customers along with CGST and SGST @ 2.5% each paid)

(ix) Telephone Expenses A/c (` 1,052 × 100/118) Dr. Input CGST A/c (` 900 × 9/100) Dr. Input SGST A/c (` 900 × 9/100) Dr.

To Cash A/c (Being telephone bill paid along with CGST and SGST @ 9% each)

ILLUSTRATION 3. (Intra-State Transactions)

L.F. Dr. (`) Cr. (`)

5,900 5,000 450 450

4.000 100 100 4,200

900 81 81 1,062

Record the following transactions in the Journal of Rajinder:

(i) Rent paid by cheque of business premises of ` 30,000 plus CGST and SGST @9% each.

(ii) Machinery purchased for ` 1,00,000 plus CGST and SGST @ 9% each by cheque.

(iii) Machinery sold as scrap for cash ` 10,000 plus CGST and SGST @ 9% each. Book value of machinery sold is ` 10,000.

(iv) Machinery sold for ` 5,000 plus CGST and SGST @ 9% Book value of machinery sold is ` 8,000.

(v) Machinery sold for ` 5,000 plus CGST and SGST @ 9% each. Book value of machinery sold is `4,000.

ACCOUNTING FOR GOODS AND SERVICES TAX

Solution In the books of Rajinder Journal

Date Particulars

(i) Rent A/c Dr. Input CGST A/c Dr. Input SGST A/c Dr.

To Bank A/c (Being Rent paid along with CGST and SGST @ 9% each)

(ii) Machinery A/c

Input CGST A/c Input SGST A/c

To Bank A/c (Being machinery purchased and CGST and SGST paid @ 9% each)

(iii) Cash A/c Dr.

To Machinery A/c

To Output CGST A/c

To Output SGST A/c (Being old machinery sold as scrap and CGST and SGST charged @ 9% each)

(iv) Cash A/c (` 5,000 + ` 450 + ` 450) Dr. Loss on Sale of Machinery A/c Dr. (Book value ` 8000 –Realised value excluding GST ` 5,000)

To Machinery A/c (Book Value)

To Output CGST A/c

To Output SGST A/c (Being old machinery sold and CGST and SGST charged @ 9% each)

(v) Cash A/c (` 5,000 + ` 450 + ` 450) Dr.

To Machinery A/c (Book Value)

To Profit on Sale of Machinery A/c

To Output CGST A/c

To Output SGST A/c (Being old machinery sold and CGST and SGST charged @ 9% each)

L.F. Dr. (`) Cr. (`)

30,000 2,700 2,700 35,400

1,00,000 9,000 9,000 1,18,000

11,800 10,000 900 900

5,900 3,000 8,000 450 450

5,900 4,000 1,000 450 450

Financial Accounting B.Com. (Hons.) | UGCF

BHUSHAN KUMAR GOYAL, H.N. TIWARI

Description

This is a comprehensive, authentic & well-illustrated book for Financial Accounting. This book aims to fulfil the requirement of students of undergraduate courses in commerce and management, particularly the following:

u B.Com. (Hons.) Sem (I) Core Paper BCH: DSC 1.3 based on the Undergraduate Curriculum Framework (UGCF) by the University of Delhi

u Non-Collegiate Women’s Education Board (NCWEB)

u School of Open Learning (University of Delhi)

u Undergraduate Commerce & Management Courses at various Central Universities throughout India

The Present Publication is the 10 th  Edition, authored by Bhushan Kumar Goyal & Dr H.N. Tiwari, with the following noteworthy features:

u [ Highlights of the Tenth Edition ] are as follows: n [ Most Amended & Updated ] n [ New Illustrations ] has been added to this book n [ B.Com. (Hons.) Past Question Papers ] for the years 2021 & 2022 have been added to this book

u [ Comprehensive Presentation of Theory, Procedure & Practice ] of accounting u [ Student-Oriented Book ] This book has been developed keeping in mind the following factors: n Interaction of the author/teacher with their students in the classroom n Shaped by the author/teacher’s experience of teaching the subject matter at different levels for more than 43 years n Reactions and responses of students have also been incorporated at different places in the book

u [ Simple Language & Systematic Manner ] of the presentation of the subject matter with special emphasis on those points which students generally find difficult u [ Solved Illustrations & Working Notes ] have been incorporated throughout this book to make the understanding of the concepts easy

• [ Practical Assignments & Latest Questions Papers ] have been given in Vol. II of the book

• [ Multiple True/False Type Questions ] have been incorporated into the book