ASSEB Higher Secondary Accountancy common mistakes
ASSEB Higher Secondary Accountancy · Understand the traps and how to avoid them.
In not-for-profit organisation questions, recording the subscription received during the year directly as income, instead of first adjusting outstanding subscriptions of the previous year and current year and treating advance subscriptions as a liability.
Candidates copy the cash figure from the Receipts and Payments Account because it is the only number given, forgetting that the Income and Expenditure Account is prepared on accrual basis and that subscription income must relate only to the current year.
What to do instead
Always prepare a subscription working note: opening outstanding (add), closing outstanding (less), opening advance (less), closing advance (add), plus any special subscription for a specific purpose shown separately. Practise at least five such notes where all four adjustments appear together.
Writing off the total loss on revaluation to the Profit and Loss Account or to the old partners in the old ratio at admission, rather than distributing it among all partners including the incoming partner in the new ratio.
The revaluation account is prepared before admission, so candidates assume it must belong to the old partners only and overlook that the new partner is admitted into the revalued position of the firm.
What to do instead
Memorise the rule: on admission, the revaluation profit or loss is shared by all partners in the new profit-sharing ratio, because the revalued assets and liabilities are taken over by the new firm. Only accumulated reserves and profits of the past go to old partners in the old ratio.
Treating the sacrificing ratio as equal to the old profit-sharing ratio in every admission question, even where the new partner acquires shares from specific partners in stated proportions.
Most textbook examples involve only one old partner sacrificing, so candidates generalise and mechanically use the old ratio instead of computing sacrifice = old share minus new share for each partner.
What to do instead
Compute the sacrificing ratio for each old partner every time, using old share minus new share, and use it for goodwill distribution and for adjusting reserves. If the question says the partners sacrifice in a given ratio, use that ratio directly.
In dissolution questions, ignoring the rule of Garner v Murray and paying the insolvent partner's capital deficiency out of the firm's cash before distributing to solvent partners, or distributing the deficiency in the profit-sharing ratio instead of the capital ratio.
Candidates confuse dissolution with retirement and apply the profit-sharing ratio, and they forget that cash must first be used to pay outside liabilities and then to repay capital in the ratio of capital balances after the deficiency is computed.
What to do instead
Follow a fixed sequence: realise assets, pay realisation expenses and outside liabilities, then settle partner capitals. Apply Garner v Murray only when a partner is insolvent: the deficiency is borne by solvent partners in the ratio of their adjusted capitals, not their profit shares.
On issue of shares at a premium, crediting the entire amount received to Share Capital and treating the premium as profit, or failing to show securities premium separately under equity.
Candidates record only the cash entry and forget the two-part entry required when shares are issued at a premium, and they do not distinguish between capital receipts and revenue receipts.
What to do instead
Write the journal entry with two credits: Share Capital at face value and Securities Premium at the premium amount. Learn the permitted uses of securities premium (issue of bonus shares, writing off preliminary expenses, premium on redemption of debentures or preference shares, buyback) and never treat it as distributable profit.
In debenture redemption questions, ignoring the creation of the Debenture Redemption Reserve and the required investment in specified securities, or calculating the DRR on the entire debenture liability without applying the prescribed percentage.
Candidates focus only on the redemption entry and do not link redemption to the Companies Act requirement to build a reserve out of profits before redemption begins.
What to do instead
Before writing redemption entries, note the DRR requirement (a percentage of the nominal value of debentures outstanding, excluding privately placed or fully convertible debentures), transfer the required amount from Surplus to DRR, and record the investment and its encashment. Learn the exemptions rather than applying DRR blindly.
Preparing the Cash Flow Statement from the Profit and Loss Account alone, omitting the two-balance-sheet method and forgetting that non-cash and non-operating items such as depreciation, interest, and profit on sale of fixed assets must be adjusted before working capital changes.
Candidates treat the statement as a rearrangement of the income statement and do not understand that the cash flow statement reconciles the opening and closing cash and cash equivalents.
What to do instead
Always start from the two balance sheets, compute the change in each working capital item, and adjust net profit before tax for depreciation, amortisation, interest, and gains or losses on investing and financing activities. Then classify every item into operating, investing, or financing and verify that the total equals the change in cash and cash equivalents.
Computing ratios with mismatched numerators and denominators, such as using average stock with closing debtors, or using total assets including fictitious assets while calculating return on investment.
Candidates memorise formulas without understanding what each term represents and do not read the note to accounts or the additional information in the question.
What to do instead
For each ratio, write down the exact numerator and denominator before substituting figures and check that both relate to the same period and the same base. Exclude fictitious assets and losses while computing return on investment, and use average figures for turnover ratios when opening and closing balances are given.
In partnership fundamentals, omitting interest on capital or interest on drawings when there is no explicit agreement, or charging interest on capital even when the firm has incurred a loss.
Candidates assume interest on capital is always allowed, whereas the partnership deed must provide for it; and they forget that interest on capital is an appropriation, so it cannot be allowed if it would create a loss.
What to do instead
Apply the default rules under the Indian Partnership Act only when the deed is silent: no interest on capital, no salary, interest on drawings and loans allowed, profits shared equally. Show interest on capital as an appropriation after profit and restrict it to the available profit when the profit is inadequate.
In the practical file and project work, presenting only a title page and copied ratios without the required statement of purpose, methodology, data collection, analysis, interpretation, and conclusion, or failing to attach the source and period of data.
Candidates treat the project as a decorative file and reproduce textbook definitions instead of conducting an actual analysis of a real or given company's financial statements.
What to do instead
Structure the file as: objective, methodology, data source, computation tables with formulas shown, interpretation of each ratio or trend, and conclusion. Show working notes, state the period compared, and keep the analysis consistent with the data presented so the examiner can trace every figure.