WB HS Accountancy cheat sheet

Partnership Deed: a written agreement among partners; in its absence, the Indian Partnership Act 1932 defaults apply - no interest on capital, no interest on drawings, no salary to partners, and profits shared equally.

Profit and Loss Appropriation Account is prepared after the Profit and Loss Account to distribute profit: it records interest on capital, partner salaries/commissions, interest on drawings, transfer to reserve, and distribution to partners' capital/current accounts.

Interest on Capital = Opening Capital × Rate × Period/12; when capital is introduced or withdrawn during the year, compute on a time basis (product method: sum of capital × months, then × rate/100 × 1/12).

Interest on Drawings: equal monthly drawings at the start of each month - average period 6.5 months; at the end of each month - 5.5 months; mid-month - 6 months; quarterly drawings use 7.5, 4.5, or 6 months for beginning, end, or middle of each quarter.

Fixed vs Fluctuating Capital: under fixed capital, capital accounts change only on introduction/withdrawal of capital and a separate Current Account records interest, salary, share of profit, and drawings; under fluctuating capital all adjustments pass through the Capital Account.

Partner's Commission: if allowed on profit before charging such commission, commission = Profit × Rate/(100 + Rate); if on profit after charging such commission, commission = Profit × Rate/100.

Guarantee of Minimum Profit: the deficiency borne by a guaranteeing partner is debited to that partner's capital/current account and credited to the guaranteed partner's account.

When capitals are to be proportionate to profit-sharing ratio, use the lowest partner's capital as base: Required Capital = Base Capital × (Partner's Share / Lowest Share).

Past Adjustments: omitted interest, salary, or wrong profit distribution is corrected through a single adjustment entry or a Statement of Adjustment showing each partner's net gain or loss.

Sacrificing Ratio = Old Ratio − New Ratio; the incoming partner's share is contributed by old partners in this ratio, and goodwill is credited to sacrificing partners in the same ratio.

Gaining Ratio = New Ratio − Old Ratio, applied on retirement or death to compensate the retiring/deceased partner's goodwill by the continuing partners.

Goodwill valuation methods: Average Profit × Number of Years' Purchase; Super Profit × Years' Purchase, where Super Profit = Average Profit − Normal Profit (Capital Employed × Normal Rate of Return); Capitalisation of Average Profit = Average Profit × 100/Normal Rate − Net Assets; Capitalisation of Super Profit = Super Profit × 100/Normal Rate.

Weighted Average Profit = Σ(Profit × Weight) / Σ Weights; adjust abnormal losses and gains and profit on revaluation of assets before averaging.

At admission, the new partner brings Capital and Premium for Goodwill; when goodwill is not to remain in books, existing goodwill is written off among old partners in the old ratio before the premium is credited.

Revaluation Account (Profit and Loss Adjustment Account) records increases/decreases in assets and liabilities on reconstitution; profit is credited to old partners in the old ratio (admission) or all partners in the old ratio (retirement/death).

Hidden Goodwill arises when the new partner's capital and profit share imply a total firm value higher than net assets; Goodwill = (New Partner's Capital × Reciprocal of Share) − Net Assets.

On retirement or death, the outgoing partner's account is settled by cash, transfer to a Loan Account, or by continuing partners purchasing the share; the deceased partner's share of profit to the date of death is estimated on the basis of last year's profit or turnover.

Workmen's Compensation Reserve or Investment Fluctuation Reserve is credited to the Revaluation Account to the extent of the claim or fall in value, with the balance distributed to partners.

Dissolution of Partnership changes the existing relationship; Dissolution of Firm ends the firm, and on dissolution the firm's assets are realised and liabilities paid, with any surplus distributed to partners in their profit-sharing ratio.

Realisation Account: debit all assets (except cash/bank and fictitious assets) at book value, credit external liabilities; record sale proceeds on the credit side, payments of liabilities on the debit side, and transfer the balance (profit or loss) to partners' capital accounts in the profit-sharing ratio.

Assets taken over by a partner and liabilities assumed by a partner are recorded in the Realisation Account at the agreed value - asset taken over on the credit side, liability assumed on the debit side - and the partner's capital account is debited or credited accordingly.

Partner's Loan Account is settled before partners' capitals; a partner's loan is not transferred to the Realisation Account and is paid after external liabilities but before capital repayments.

Cash/Bank Account is prepared last: it starts with the opening balance, adds realisation receipts, deducts realisation payments and liabilities, and ends with payments to partners (loan first, then capital).

Insolvency of a partner: any deficiency in the insolvent partner's capital is borne by solvent partners in their capital ratio (Garner v. Murray), unless the deed specifies the profit-sharing ratio; the insolvent partner's deficiency is a capital loss.

Unrecorded assets when realised are credited to the Realisation Account; unrecorded liabilities paid are debited to the Realisation Account.

Fictitious assets such as preliminary expenses, deferred revenue expenditure, and accumulated losses are written off against partners' capital accounts; they are not transferred to the Realisation Account.

If a partner agrees to bear the dissolution expenses, debit the partner's capital account and credit the Cash Account, not the Realisation Account.

Share capital is shown in the balance sheet as Authorised, Issued, Subscribed, and Paid-up Capital; Called-up Capital − Calls in Arrears = Paid-up Capital, and the term 'Reserve Capital' denotes the uncalled portion of subscribed capital reserved for winding up.

Issue at par, premium, or discount: premium is credited to Securities Premium Account (usable only for specified purposes such as issuing fully paid bonus shares, writing off preliminary expenses, or buyback); discount on issue is debited to Discount on Issue of Shares Account and written off.

Calls in Arrears are deducted from Called-up Capital; Calls in Advance are shown as a separate current liability and interest may be paid on them if permitted by the Articles.

Pro-rata allotment: excess application money is adjusted against allotment and subsequent calls; if a shareholder fails to pay a call, the amount already received is forfeited, and the unpaid amount is debited to Calls in Arrears before forfeiture.

Forfeiture of shares: debit Share Capital with the called-up amount (less any amount already forfeited), credit Share Forfeiture with the amount received; on reissue, debit Bank with the amount received, debit Share Forfeiture with the discount allowed, and credit Share Capital with the paid-up value.

Balance in Share Forfeiture after reissue is transferred to Capital Reserve; amounts relating to capital profit are capital in nature and are not distributed as dividend.

Debentures: interest is a charge against profit, payable whether or not the firm earns profit; on issue at discount, the loss is written off against Securities Premium or Profit and Loss Account over the life of the debentures.

Own debentures purchased for cancellation: debit Debenture Account and credit Bank; profit or loss on cancellation is transferred to Capital Reserve or Statement of Profit and Loss respectively.

Interest on debentures is computed as Face Value × Rate × Period/12; TDS is deducted and paid to the government, so the actual cash paid to debenture holders is net of TDS.

Schedule III of the Companies Act 2013 prescribes the format: the Balance Sheet shows Equity and Liabilities (Shareholders' Funds, Non-current Liabilities, Current Liabilities) and Assets (Non-current Assets, Current Assets), with the Statement of Profit and Loss presented by nature of expense.

Statement of Profit and Loss: Revenue from Operations − Other Income = Total Revenue; then deduct Cost of Materials Consumed, Purchases, Changes in Inventories, Employee Benefits Expense, Finance Costs, Depreciation, and Other Expenses to arrive at Profit Before Tax; then deduct Tax to get Profit After Tax.

Inventories, trade receivables, and cash and cash equivalents are current assets; property, plant and equipment, intangible assets, and long-term investments are non-current assets.

Contingent liabilities and commitments are disclosed by way of notes and are not recognised in the balance sheet; proposed dividend is not recognised as a liability until approved by shareholders.

Debenture interest, depreciation, and amortisation are charges against profit; a provision for tax is created on Profit Before Tax and shown as a current liability until paid.

Debt-Equity Ratio = Long-term Debt / Shareholders' Funds; it expresses the relative claim of outsiders and owners on the firm's assets.

Comparative and Common-Size Statements: comparative statements show absolute and percentage changes; common-size statements express each item as a percentage of total revenue or total assets.

Earnings Per Share = Profit After Tax / Number of Equity Shares; it appears in the notes to the financial statements as required by AS-20.

Liquidity: Current Ratio = Current Assets / Current Liabilities; Quick Ratio = Quick Assets / Current Liabilities, where Quick Assets = Current Assets − Inventories − Prepaid Expenses.

Solvency: Debt-Equity Ratio = Debt / Equity or Debt / (Equity + Debt) depending on convention; Proprietary Ratio = Proprietors' Funds / Total Assets; Interest Coverage Ratio = Profit Before Interest and Tax / Interest.

Activity: Inventory Turnover = Cost of Revenue from Operations / Average Inventory; Debtors Turnover = Credit Revenue / Average Trade Receivables; Creditors Turnover = Credit Purchases / Average Trade Payables; Working Capital Turnover = Revenue / Working Capital.

Profitability: Gross Profit Ratio = Gross Profit / Revenue from Operations × 100; Operating Ratio = Operating Cost / Revenue × 100; Net Profit Ratio = Net Profit / Revenue × 100; Return on Investment = Profit Before Interest, Tax and Dividend / Capital Employed × 100.

Capital Employed = Shareholders' Funds + Long-term Loans, or Total Assets − Current Liabilities; it is the base for Return on Capital Employed.

Average collection period = 12 months or 365 days / Debtors Turnover; average payment period = 12 months or 365 days / Creditors Turnover.

Return on Shareholders' Funds = Net Profit After Tax and Preference Dividend / Shareholders' Funds × 100; it measures the return accruing to equity owners.

A ratio is meaningful only when compared with a prior period, a competitor, or an industry benchmark; an isolated ratio does not indicate good or bad performance.

Limitations: ratios ignore qualitative factors, price-level changes, and differences in accounting policies, and can be distorted by window dressing of the balance sheet.

AS-3 (Revised) requires the Cash Flow Statement to classify cash flows into Operating, Investing, and Financing Activities, and to reconcile opening and closing cash and cash equivalents.

Operating activities: cash receipts from customers, cash paid to suppliers and employees, income tax paid, and other operating receipts/payments; under the indirect method start with net profit before tax and adjust for non-cash items and working capital changes.

Investing activities: purchase and sale of property, plant and equipment, purchase and sale of investments, interest and dividends received, and loans given or recovered.

Financing activities: proceeds from issue of shares and debentures, long-term borrowings and repayments, and dividends paid; interest paid on borrowings is normally a financing outflow for a non-financial enterprise.

Non-cash adjustments to net profit: add depreciation, amortisation, loss on sale of assets, and provision for doubtful debts; deduct profit on sale of assets, interest income, and dividend income.

Sale of an asset: Cash inflow = Book Value ± Profit or Loss on sale; the book value is the cost less accumulated depreciation.

Working capital changes: an increase in current assets is deducted and an increase in current liabilities is added; a decrease in current assets is added and a decrease in current liabilities is deducted.

Cash and cash equivalents include cash in hand, bank balances, and short-term highly liquid investments with original maturity of three months or less; bank overdrafts repayable on demand may be included as negative cash equivalents.

Tax paid is treated as an operating cash outflow unless it can be specifically identified with investing or financing transactions.

NPOs prepare a Receipts and Payments Account (a summary of cash and bank receipts and payments, opening and closing balances), an Income and Expenditure Account (accrual-based, like a profit and loss account), and a Balance Sheet.

Income and Expenditure Account records only revenue items of the current year; capital receipts and payments appear in the Balance Sheet, and the surplus or deficit is transferred to the Capital Fund.

Subscription income is recognised on accrual: add closing outstanding subscriptions and deduct opening outstanding subscriptions; advance subscriptions received are a liability.

Life Membership Fees are capital receipts and are credited to a separate Life Membership Fund or added to the Capital Fund, not to the Income and Expenditure Account.

Donations: general donations are revenue income; specific donations and donations for building or endowment are capital receipts and are shown on the liabilities side of the Balance Sheet.

Sale of old sports materials or newspapers is revenue income; the sale proceeds of a fixed asset is a capital receipt, and any profit or loss on sale is adjusted against the asset's book value.

Consumable stores: Opening Stock + Purchases − Closing Stock = Amount consumed, which is charged to the Income and Expenditure Account.

Entrance fees are usually treated as income unless the constitution requires capitalisation; the treatment must be stated consistently.

Balance Sheet of an NPO shows Capital Fund (opening balance plus surplus or minus deficit), Life Membership Fund, special funds, liabilities, and assets including subscriptions receivable.

A comprehensive project typically covers: title and objectives, introduction to the company, methodology, data collection, analysis with ratios or common-size statements, findings, conclusion, and bibliography.

A ratio analysis project must state the formulas used, the source of data (annual reports), the period covered, and the interpretation of each ratio against a benchmark or prior year.

A cash flow project should present the statement under AS-3 with clear classification of operating, investing, and financing activities and a reconciliation of opening and closing cash.

A partnership project may simulate formation, admission, retirement, or dissolution, showing journal entries, ledger accounts, and the final balance sheet.

A specific project on an NPO requires preparing Receipts and Payments, Income and Expenditure accounts, and a Balance Sheet from given data.

Marks are commonly allotted for presentation, accuracy, originality, depth of analysis, and viva voce; the file should include a certificate, acknowledgement, index, and page numbers.

Data must be sourced from published annual reports or audited statements; fabricated figures and copied material are penalised.

Analysis should include graphs or charts and a comparison of at least two years to demonstrate trend analysis.