BSEB Inter Accountancy flashcards

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

Sacrificing ratio

The ratio in which old partners give up their share of profit in favour of a new partner. It equals old ratio minus new ratio and is used to distribute goodwill brought in by the new partner.

Gaining ratio

The ratio in which continuing partners acquire the share of a retiring or deceased partner. It equals new ratio minus old ratio and is used to debit the continuing partners for the retiring partner's goodwill.

Super profit

The excess of average profit over the normal profit expected from capital employed. Normal profit equals capital employed multiplied by the normal rate of return; goodwill may be valued at super profit times years of purchase.

Average profit method

A goodwill valuation method in which goodwill equals average profit of the past years multiplied by the agreed number of years' purchase. Average profit is adjusted for abnormal items and partners' remuneration.

Revaluation account

An account prepared on reconstitution to record increases and decreases in the value of assets and liabilities. The resulting profit or loss is shared by the old partners in their old profit-sharing ratio.

Realisation account

An account opened on dissolution to record the sale of assets and payment of liabilities. Its balance represents profit or loss on realisation, which is transferred to partners' capital accounts.

Garner versus Murray rule

A rule applied when a partner is insolvent: the deficiency in the insolvent partner's capital account is borne by the solvent partners in the ratio of their capitals before dissolution, not in the profit-sharing ratio.

Fictitious assets on dissolution

Items such as preliminary expenses and accumulated losses that have no realisable value. On dissolution they are written off against partners' capital accounts in the profit-sharing ratio rather than transferred to the Realisation Account.

Securities premium account

An account credited with the premium received on issue of shares. It can be used only for specified purposes such as bonus shares, writing off preliminary expenses and premium on redemption of preference shares or debentures.

Calls in arrears

The amount of called-up capital that shareholders have failed to pay. It is deducted from called-up capital on the liabilities side of the balance sheet until the shares are forfeited.

Forfeited shares account

An account credited with amounts already received on shares that are forfeited for non-payment of calls. Any balance remaining after reissue of the forfeited shares is transferred to Capital Reserve.

Pro-rata allotment

Allotment of shares to applicants in proportion to their applications when a public issue is oversubscribed. Excess application money is adjusted against allotment and later calls.

Debenture redemption reserve

A reserve created out of profits to provide funds for redemption of debentures. It is required for specified companies and the amount must be invested in specified securities before redemption.

Collateral security debentures

Debentures issued to a lender as additional security for a loan. No accounting entry is passed in the books; only a note is disclosed in the notes to the balance sheet.

Loss on issue of debentures

The total capital loss on a debenture issue, equal to discount on issue plus premium payable on redemption. It is written off against the Securities Premium Account or Profit and Loss Account over the life of the debentures.

Own debentures

Debentures of a company purchased by the company itself in the open market. When cancelled, the difference between the purchase price and the face value is transferred to Capital Reserve or Profit and Loss Account.

Schedule III format

The prescribed format of the balance sheet and statement of profit and loss under the Companies Act, 2013. The balance sheet is presented vertically with equity and liabilities and assets classified as current and non-current.

Current liability

A liability expected to be settled within twelve months or within the operating cycle, or one for which the company does not have an unconditional right to defer settlement beyond twelve months.

Contingent liability disclosure

A possible obligation arising from past events whose existence will be confirmed only by uncertain future events. It is disclosed in the notes to accounts and is not recognised in the balance sheet.

Quick ratio

Quick assets divided by current liabilities, where quick assets exclude inventory and prepaid expenses. A ratio of about 1:1 is generally regarded as satisfactory for short-term liquidity.

Debt-equity ratio

Long-term debt divided by shareholders' funds. It measures financial leverage and the relative claim of outsiders compared with owners on the assets of the company.

Inventory turnover ratio

Cost of revenue from operations divided by average inventory. It indicates how many times inventory is converted into sales during the year and reflects efficiency of inventory management.

Return on investment

Net profit before interest and tax divided by capital employed, expressed as a percentage. It measures the overall profitability of the capital employed in the business.

Proprietary ratio

Shareholders' funds divided by total assets. A higher ratio indicates that owners finance a larger part of total assets and provides greater safety to creditors.

Operating activities

The principal revenue-producing activities of the enterprise and other activities that are not investing or financing. Their cash flows are computed by adjusting net profit before tax for non-cash and working capital changes.

Cash equivalents

Short-term, highly liquid investments that are readily convertible into known amounts of cash and are subject to an insignificant risk of change in value, with original maturity of three months or less.

Investing activities

Activities relating to acquisition and disposal of long-term assets and investments not included in cash equivalents. Interest and dividends received are also classified here under AS-3.

Financing activities

Activities that result in changes in the size and composition of owners' capital and borrowings. They include issue of shares and debentures, loans taken and repaid, and interest and dividends paid.

Receipts and payments account

A summary of cash and bank receipts and payments prepared by a not-for-profit organisation on a cash basis. It includes both capital and revenue items and shows opening and closing balances.

Income and expenditure account

An account prepared by a not-for-profit organisation on an accrual basis recording only revenue items. Its balance is a surplus or deficit, which is transferred to the Capital Fund.

Subscription outstanding

The amount of subscription relating to the current year that has not been received by the organisation. It is shown as an asset in the balance sheet and credited to the Income and Expenditure Account.

Capital fund

The excess of assets over liabilities of a not-for-profit organisation, shown on the liabilities side of its balance sheet. It is increased by surplus and decreased by deficit for the year.