PSEB SS Accountancy flashcards

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

Profit-sharing ratio in absence of deed

When no partnership deed exists, profits and losses are shared equally among partners, and no interest on capital or drawings is allowed; only interest on a partner's loan at 6% p.a. is payable.

Sacrificing ratio formula

Sacrificing ratio equals old share minus new share for each continuing partner. It determines how the incoming partner's share of goodwill is credited to the sacrificing partners.

Gaining ratio formula

Gaining ratio equals new share minus old share for the continuing partners after a retirement or death. The retiring partner's goodwill share is debited to them in this ratio.

Revaluation account treatment

On reconstitution, increases in asset values or decreases in liabilities are credited to the Revaluation Account and shared by old partners in the old ratio; opposite movements are debited.

Retiring partner's loan account

If the retiring partner's capital balance is not paid fully in cash, the unpaid amount is transferred to the retiring partner's Loan Account and shown as a liability in the Balance Sheet.

Profit to date of death

The deceased partner's share of profit up to the date of death is estimated from the previous year's profit, average profits, or turnover for the elapsed period, unless the deed states otherwise.

Premium on issue of shares

Amount received above face value is credited to the Securities Premium Account. It may be used for bonus shares, preliminary expenses, buyback, or writing off issue expenses of shares or debentures.

Forfeiture of shares entry

Share Capital is debited with the called-up amount, Calls in Arrears is credited with the unpaid amount, and the excess received is credited to the Forfeited Shares Account.

Capital reserve from forfeiture

After reissuing forfeited shares, any balance remaining in the Forfeited Shares Account is transferred to Capital Reserve; it represents a capital profit and is not available for dividends.

Interest on calls in advance

Interest on calls in advance is payable at 12% per annum unless the articles prescribe another rate. It is an expense charged to the Statement of Profit and Loss.

Collateral security debentures

Debentures issued as secondary security for a loan are not recorded as a liability; the fact is disclosed by a note to the accounts, and the loan itself is shown as a liability.

Own debentures cancellation

When own debentures are purchased for cancellation, the Debenture Account is debited with the amount paid, and any resulting profit or loss is taken to the Statement of Profit and Loss.

Receipts and payments account

A summary of cash and bank receipts and payments for a period, including capital items and opening and closing balances. It is prepared on a cash basis, not an accrual basis.

Income and expenditure account

An accrual-based account of revenue income and revenue expenses of a not-for-profit organisation. Its balance is a surplus or deficit, equivalent to profit or loss.

Subscription received in advance

Subscription relating to a future period is a current liability and is shown on the liabilities side of the Balance Sheet. It is not income of the current period.

Subscription outstanding

Subscription due for the current period but not yet received is an asset shown on the assets side, and it is added to subscription income in the Income and Expenditure Account.

Specific donation treatment

A donation received for a specified purpose, such as a building fund, is capitalised as a fund on the liabilities side and is not credited to the Income and Expenditure Account.

Life membership fees

Fees paid once for lifetime membership are normally treated as a capital receipt and credited to a Life Membership Fund, then recognised as income over the expected membership period.

Consumable stock adjustment

The expense on consumables such as stationery equals opening stock plus purchases minus closing stock. Only the amount consumed is charged to the Income and Expenditure Account.

Entrance fees treatment

Entrance or admission fees received from new members are usually treated as revenue income and credited to the Income and Expenditure Account, unless the organisation's policy capitalises them.

Schedule III balance sheet order

Equity and Liabilities are presented first, comprising shareholders' funds, non-current liabilities and current liabilities, followed by non-current assets and current assets.

Shareholders' funds composition

Shareholders' funds include share capital, reserves and surplus, and money received against share warrants. Reserves and surplus cover securities premium, capital reserve and surplus in the Statement of Profit and Loss.

Current asset definition

An asset is current if it is expected to be realised within twelve months after the reporting date or within the operating cycle, whichever period is longer.

Contingent liability disclosure

A contingent liability is disclosed by way of a note and is not recognised in the Balance Sheet unless the outflow of resources is probable and can be measured reliably.

Debenture interest classification

Interest on debentures is a finance cost charged in the Statement of Profit and Loss before computing profit before tax; it is not an appropriation of profit.

Dividend after reporting period

Dividends proposed or declared after the reporting date but before approval of the financial statements are disclosed in the notes and not recognised as a liability at the reporting date.

Earnings per share formula

Earnings per share equals profit attributable to equity shareholders divided by the weighted average number of equity shares outstanding during the period, as required by Schedule III.

Average period monthly drawings

For equal monthly drawings at the start of each month, interest is charged for 6.5 months; at the end of each month, 5.5 months; in the middle, 6 months.

Guarantee of minimum profit

A guaranteed minimum profit to a partner is met by the other partners in their profit-sharing ratio unless agreed otherwise; the deficiency is debited to the guaranteeing partners.

Past adjustment entry

A single journal entry rectifies prior errors or omissions in partner accounts: the partner under-credited is debited and the partner over-credited is credited with the net effect.

Fixed capital and current account

Under the fixed capital method, capital remains unchanged and all salary, interest on capital and share of profit are recorded in the partners' Current Accounts.

Unrecorded assets on reconstitution

Assets not recorded in the books but brought into account at reconstitution are credited to the Revaluation Account and shared by the old partners in the old ratio.