Advanced Accounting
Advanced Accounting tests the application of accounting standards, company-law measurement rules, and consolidation mechanics to financial statements and reorganisations. You must compute correct carrying amounts, classify reserves, and present balances, not merely pass journal entries.
Core rules and concepts
- Under AS 10, property, plant and equipment is measured initially at cost: purchase price net of trade discounts, non-refundable taxes, freight, installation, and directly attributable trial-run costs.
- Refundable taxes, administration overheads, staff training, and costs incurred after the asset is ready for use are expensed.
- Depreciate each significant component separately over its useful life; review residual value and useful life at least annually.
- Redemption of preference shares must be from fresh issue proceeds or distributable profits; a capital redemption reserve equal to the nominal value redeemed out of profits is created.
- On consolidation under AS 21, add like items line by line, eliminate the parent’s investment against its share of equity, measure non-controlling interest, and recognise goodwill or capital reserve.
Worked example
A machine invoice is ₹10,00,000, less 2% trade discount; refundable GST is ₹1,76,400; freight ₹25,000; installation ₹15,000; trial-run materials ₹10,000 and scrap from the trial run ₹2,000. Capitalised cost = ₹9,80,000 + ₹25,000 + ₹15,000 + ₹8,000 = ₹10,28,000. Refundable GST is excluded. The trial run is capitalised net of scrap because it is necessary to bring the asset to working condition. With 10% straight-line depreciation and no residual value, first-year depreciation is ₹1,02,800.
Traps that cost marks
- Deduct trade discount before adding directly attributable costs, but do not deduct it twice.
- Do not capitalise refundable GST or training costs.
- Do not begin depreciation before the asset is available for use.
- In consolidation, do not net non-controlling interest against goodwill; present it within equity.
- Do not use a non-distributable reserve for preference-share redemption.