CMA Inter Paper 6 flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Accounting Equation

Assets equal liabilities plus capital. Every transaction affects at least two elements while preserving equality, which is why total debits always equal total credits in the ledger.

Faithful Representation

Information is complete, neutral and free from material error, depicting the substance of the transaction rather than merely its legal form. It is one of the two fundamental qualitative characteristics.

Going Concern Assumption

Financial statements are prepared assuming the entity will continue operating for the foreseeable future without intention to liquidate or curtail operations materially. It justifies carrying assets at cost rather than breakup value.

Accrual Basis

Effects of transactions are recognised when they occur, not when cash is received or paid. Income and expenses are matched to the period they relate to, creating receivables and payables.

Capital Expenditure

Spending that creates, acquires or materially enhances a non-current asset and benefits future periods. It is capitalised in the balance sheet and depreciated, not charged to profit and loss.

Suspense Account

A temporary account opened when a trial balance does not agree, absorbing the difference. Errors found later are corrected through it, and the balance is closed once agreement is restored.

Hire Purchase Interest

Total hire purchase price minus cash price equals total interest. It is allocated across instalments by sum of digits or actuarial method, and the asset is recorded at cash price.

Consignment Stock Valuation

Unsold consignment goods are valued at cost plus the consignor's proportionate non-recurring expenses such as freight and insurance. Consignee expenses are excluded because they are recovered from sale proceeds.

Average Due Date

A single settlement date for mutual debts. Take a base date, compute each amount multiplied by days from base, divide the product total by total amount, and add to base date.

Minimum Rent in Royalty

A guaranteed floor payment to the lessor irrespective of output. Excess working over minimum rent is set off against short working carried forward from earlier years.

Bills of Exchange Discounting

The holder endorses a bill to a bank before maturity and receives face value less discount. Discount is a finance charge to the holder; the bank collects face value at maturity.

Cum-Interest Price

A quoted price that includes accrued interest since the last coupon date. The buyer separates accrued interest from cost and records only the ex-interest amount as investment cost.

Joint Venture Accounting

Venturers share profits in an agreed ratio. Where separate books are kept, each venturer's contributions, drawings and profit share pass through a joint venture account.

Cost of Goods Sold

Opening stock plus net purchases plus direct expenses minus closing stock. It is deducted from net sales in the trading account to arrive at gross profit.

Provision for Doubtful Debts

An estimate of receivables unlikely to be collected, charged to profit and loss. It is a contra-asset in the balance sheet and is reviewed each period, not written off against capital.

Sacrificing Ratio

The proportion of profit given up by existing partners when a new partner is admitted. Goodwill brought in by the new partner is credited to old partners in this ratio.

Revaluation Account

Prepared on admission, retirement or death to record changes in asset and liability values. The resulting gain or loss is shared by old partners in the old profit-sharing ratio.

Partner's Loan Interest

In absence of a partnership deed, interest on a partner's loan to the firm is allowed at 6% per annum. It is a charge against profit, not an appropriation.

Gaining Ratio

The proportion in which continuing partners acquire a retiring partner's share. The retiring partner's goodwill is compensated by continuing partners in this ratio.

Forfeiture of Shares

Cancellation of partly paid shares for non-payment of calls. Share capital is debited with called-up amount and the forfeited shares account is credited with amounts already received.

Securities Premium Uses

Premium received on share issue is credited to a separate reserve. It may fund bonus shares, buyback, preliminary expenses or premium on redemption, but never dividends.

Capital Redemption Reserve

Created when redeemable preference shares are redeemed out of profits rather than fresh issue proceeds. It keeps capital intact and can be used to issue fully paid bonus shares.

Profit Prior to Incorporation

Profit earned before the company received its certificate of incorporation. It is split using time or sales ratio and credited to capital reserve, not distributable profit.

Calls in Advance

Amounts received from shareholders before the corresponding call is made. It is a current liability and is presented as a deduction from called-up capital until adjusted.

Non-Performing Asset

A bank loan where interest or principal is overdue beyond the prescribed period. Income on it is recognised only on realisation, and it is classified substandard, doubtful or loss.

Unexpired Risk Reserve

A general insurance provision for the portion of premium relating to periods after the reporting date. It is created at a prescribed percentage of net premium for fire and marine business.

Double Account System

Used by electricity and similar utilities. A capital account records long-term capital expenditure, while the general balance sheet records revenue items and working capital.

Receipts and Payments Account

A summary of cash and bank receipts and payments for a period, prepared by non-profit organisations. It records actual cash flows, not accruals, and opens with the opening balance.

Outstanding Claims Provision

An insurance liability for claims incurred but not yet settled at the reporting date, including estimated amounts for claims incurred but not reported, assessed using actuarial or past experience data.

Inventory Valuation Rule

Under AS 2, inventories are valued at the lower of cost and net realisable value, item by item. Cost excludes abnormal wastage, storage of finished goods and selling costs.

Five Steps of Ind AS 115

Identify the contract, identify performance obligations, determine the transaction price, allocate it to obligations, and recognise revenue when each obligation is satisfied, either at a point in time or over time.

Right-of-Use Asset

Recognised by a lessee under Ind AS 116 at the present value of lease payments plus initial direct costs and restoration costs, depreciated over the lease term.

Reportable Segment Threshold

A segment is reportable if its revenue, result or assets are at least 10% of the combined total. Segments below the threshold may be aggregated or separately disclosed.