BSEB Inter Accountancy cheat sheet

Partnership Deed absent: in the absence of an agreement, profits and losses are shared equally; no interest on capital or drawings is allowed; interest on a partner's loan to the firm is 6% p.a.

Profit and Loss Appropriation Account is debited with interest on capital, partner's salary/commission and transfer to reserve, and credited with interest on drawings and net profit.

Interest on drawings is calculated on the total drawings at the agreed rate for the average period; if drawings are made evenly at the beginning of each month, the average period is 6.5 months; at the end of each month it is 5.5 months.

Goodwill is the value of a firm's reputation and is the excess of the purchase consideration over the fair value of net assets acquired.

Average profit method: Goodwill = Average Profit × Number of Years' Purchase. Average Profit = Total Profit ÷ Number of Years, after adjusting abnormal gains/losses and deducting remuneration for partners' services.

Super profit method: Super Profit = Average Profit − Normal Profit, where Normal Profit = Capital Employed × Normal Rate of Return. Goodwill = Super Profit × Number of Years' Purchase.

Capitalisation method: Goodwill = Capitalised Average Profit − Actual Capital Employed, or Goodwill = Super Profit × 100 ÷ Normal Rate of Return.

When a new partner is admitted and brings goodwill in cash, the amount is credited to the old partners' capital accounts in the old profit-sharing ratio; if goodwill is not brought in, the new partner's capital account is debited and old partners' capital accounts are credited.

New profit-sharing ratio on admission = old ratio × (1 − new partner's share); sacrificing ratio = old ratio − new ratio.

On admission, the new partner brings capital and goodwill; goodwill brought in cash is credited to old partners in the sacrificing ratio, and the new partner's share of accumulated profits/losses is adjusted through capital accounts.

Revaluation Account is prepared on reconstitution to record changes in the value of assets and liabilities; profit on revaluation is credited to old partners in the old ratio, and loss is debited.

On retirement or death, the retiring/deceased partner's capital account is credited with his share of goodwill, revaluation profit, accumulated profits and interest on capital, and debited with drawings, interest on drawings and share of losses.

Gaining ratio on retirement or death = new ratio − old ratio; the retiring partner's share of goodwill is borne by the continuing partners in the gaining ratio.

Amount due to a retiring partner is settled as per the deed: lumpsum payment, instalments with interest, or transfer to a loan account; the loan account is credited with interest at the agreed rate or 6% p.a. if silent.

On the death of a partner, the deceased partner's share of profit for the period up to death is calculated on the basis of the previous year's profit or average profit of the last few years, and is credited to his capital account.

The retiring/deceased partner's share of goodwill is calculated as total goodwill × his share; the gaining partners' capital accounts are debited in the gaining ratio and the retiring partner's capital account is credited.

Realisation Account is opened on dissolution; all assets (except cash/bank and fictitious assets) are transferred to its debit side at book value, and all external liabilities are transferred to its credit side.

Assets realised are credited to Realisation Account; liabilities paid are debited to it. The balance of the Realisation Account is the profit or loss on realisation, transferred to partners' capital accounts in the profit-sharing ratio.

Order of settlement of liabilities on dissolution: external liabilities first, then partners' loan accounts, then partners' capitals; any surplus is distributed to partners in their profit-sharing ratio.

Partners' capital accounts are prepared: debit side records drawings, loss on realisation, and amounts paid to partners; credit side records opening capital, interest on capital, salary, share of profit and amounts brought in.

On dissolution, a partner's loan to the firm is paid before partners' capitals but after external liabilities; if the partner is insolvent, the deficiency is borne by the solvent partners in the ratio of their capitals (Garner v. Murray).

Fictitious assets such as preliminary expenses and accumulated losses are transferred to the debit side of partners' capital accounts in the profit-sharing ratio; they are not transferred to the Realisation Account.

In case of insolvency of a partner, the deficiency in his capital account is borne by the solvent partners in the ratio of their capitals before dissolution, not in the profit-sharing ratio.

If a partner takes over an asset at an agreed value, the asset is credited to the Realisation Account and the partner's capital account is debited with that value.

Authorised capital is the maximum amount of capital a company can issue as stated in its Memorandum of Association; issued capital is the portion actually offered, and subscribed capital is the portion actually applied for.

Calls in arrears are shown as a deduction from called-up capital on the liabilities side of the balance sheet; calls in advance are shown as a separate item under current liabilities.

Shares can be issued at par, at a premium, or at a discount; a company can issue shares at a discount only if the conditions of Section 53 of the Companies Act, 2013 are satisfied and the discount is debited to the Securities Premium Account or Profit and Loss Account.

Securities Premium Account can be used only for: issuing fully paid bonus shares, writing off preliminary expenses, writing off expenses of issue, providing for premium payable on redemption of preference shares or debentures, and buying back shares.

Forfeiture of shares: the amount already received on forfeited shares is credited to the Forfeited Shares Account; the share capital account is debited with the called-up amount, and the unpaid calls are credited to Calls in Arrears.

On reissue of forfeited shares, any discount allowed on reissue is debited to the Forfeited Shares Account, and the balance of the Forfeited Shares Account is transferred to Capital Reserve.

Pro-rata allotment: excess application money is adjusted against allotment and subsequent calls; if a shareholder fails to pay, the excess money held is adjusted against the amount due before forfeiture.

Share capital is shown in the balance sheet under Shareholders' Funds as Equity Share Capital and Preference Share Capital, with the face value and the number of shares stated.

Debentures can be issued at par, at a premium, or at a discount; the discount on issue of debentures is a capital loss and is written off against the Securities Premium Account or Profit and Loss Account over the life of the debentures.

Debentures can be issued as collateral security; no entry is passed in the books, only a note is disclosed in the balance sheet.

Methods of redemption: lump sum payment at maturity, redemption in instalments, redemption by purchase in the open market, redemption by conversion into shares or new debentures, and redemption by drawing lots.

Debenture Redemption Reserve (DRR) is created out of profits for redemption of debentures; it is required for debentures issued by companies other than those exempted, and the amount is invested in specified securities before redemption.

Interest on debentures is a charge against profit and is debited to the Statement of Profit and Loss and credited to Debenture Interest Payable; it is paid net of TDS.

When debentures are redeemed at a premium, the premium payable on redemption is debited to the Statement of Profit and Loss or adjusted against the Securities Premium Account over the period.

Own debentures purchased in the open market are cancelled and the difference between the purchase price and the face value is transferred to the Capital Reserve or Profit and Loss Account.

Loss on issue of debentures is the sum of discount on issue and premium on redemption; it is a capital loss written off over the life of the debentures.

Schedule III to the Companies Act, 2013 prescribes the format of the Balance Sheet and Statement of Profit and Loss; the balance sheet is presented in vertical form with equity and liabilities on one side and assets on the other.

Current assets are those expected to be realised or consumed within 12 months from the reporting date or within the operating cycle; all other assets are non-current.

Current liabilities are those expected to be settled within 12 months or within the operating cycle; a liability is classified as current if the company does not have an unconditional right to defer settlement beyond 12 months.

The Statement of Profit and Loss is prepared under the headings Revenue from Operations, Other Income, Expenses, Profit before Tax, Tax Expense and Profit after Tax; expenses are classified by nature.

Trade receivables are shown net of provision for doubtful debts; trade payables are shown separately for micro, small and medium enterprises and others.

Contingent liabilities and commitments are disclosed in the notes to accounts and are not recognised in the balance sheet.

The Statement of Profit and Loss is prepared under the accrual basis and on the going concern assumption; prior period items and extraordinary items are disclosed separately.

Comparative figures for the previous year are presented for all items in the financial statements; a statement of changes in equity is also required.

Current Ratio = Current Assets ÷ Current Liabilities; a ratio of 2:1 is generally considered satisfactory, and a high ratio may indicate idle current assets.

Quick Ratio = Quick Assets ÷ Current Liabilities, where Quick Assets = Current Assets − Inventory − Prepaid Expenses; a ratio of 1:1 is generally considered ideal.

Debt-Equity Ratio = Long-term Debt ÷ Shareholders' Funds; it measures the relative claim of outsiders and owners and reflects financial leverage.

Gross Profit Ratio = (Gross Profit ÷ Revenue from Operations) × 100; Net Profit Ratio = (Net Profit ÷ Revenue from Operations) × 100.

Inventory Turnover Ratio = Cost of Revenue from Operations ÷ Average Inventory; Trade Receivables Turnover = Revenue from Operations ÷ Average Trade Receivables.

Return on Investment = (Net Profit before Interest and Tax ÷ Capital Employed) × 100; Return on Equity = (Net Profit after Tax − Preference Dividend) ÷ Shareholders' Funds.

Proprietary Ratio = Shareholders' Funds ÷ Total Assets; a higher ratio indicates a stronger financial position and greater safety for creditors.

Ratio analysis is limited by the use of different accounting policies, the effect of inflation, the lack of a uniform base, and the fact that ratios are only a starting point for analysis.

A Cash Flow Statement is prepared under AS-3 (Revised) and classifies cash flows into Operating, Investing and Financing Activities.

Operating activities are the principal revenue-producing activities; cash flow is calculated using the direct method or the indirect method, starting from net profit before tax and adjusting for non-cash and non-operating items.

Investing activities include purchase and sale of fixed assets, investments, and interest and dividends received; financing activities include issue of shares and debentures, borrowings, repayment of loans, and payment of dividends and interest.

Non-cash items such as depreciation, amortisation, provision for doubtful debts and loss on sale of fixed assets are added back to net profit in the operating section.

Cash and cash equivalents include cash in hand, cheques in hand, balances with banks and short-term highly liquid investments with an original maturity of three months or less.

Increase in current assets is deducted and increase in current liabilities is added while computing cash flow from operating activities; a decrease in current assets is added and a decrease in current liabilities is deducted.

Interest paid on borrowings and dividends paid are classified as financing activities; interest and dividends received are classified as investing activities.

The net increase or decrease in cash and cash equivalents is reconciled with the opening and closing balances of cash and cash equivalents shown in the balance sheet.

Not-for-profit organisations prepare a Receipts and Payments Account, an Income and Expenditure Account and a Balance Sheet instead of a Statement of Profit and Loss.

Receipts and Payments Account is a summary of cash and bank receipts and payments for the year; it is prepared on a cash basis and includes both capital and revenue items.

Income and Expenditure Account is prepared on an accrual basis and records only revenue items; the surplus or deficit is transferred to the Capital Fund (General Fund).

Items such as subscriptions, donations, interest and dividends are income; expenses such as salaries, rent, printing and stationery and depreciation are expenditure.

Subscription received in advance is shown as a liability in the balance sheet; subscription outstanding is shown as an asset, and only the subscription relating to the current year is credited to the Income and Expenditure Account.

Donations for a specific purpose and life membership fees are capitalised and shown in the balance sheet; general donations are treated as income.

The balance sheet of a not-for-profit organisation shows Capital Fund, liabilities and assets; the excess of assets over liabilities is the Capital Fund.

Sale of old newspapers, sports materials and other items is treated as income and credited to the Income and Expenditure Account, while the sale of an asset is adjusted in the asset account.