Accounting
The Accounting domain tests whether you can record transactions under double entry, adjust accounts at year end, and present financial statements that follow Nepal Financial Reporting Standards (NFRS). The foundation syllabus concentrates on the accounting equation, the accounting cycle, depreciation, provisions, bank reconciliation, and final accounts for sole traders and simple companies.
Core rules and concepts
- The accounting equation, Assets = Liabilities + Equity, must hold after every transaction; each entry has a dual effect.
- Accrual, going concern, consistency and prudence underpin adjustments. Revenue is recognised when earned, not when cash arrives.
- The cycle runs journal → ledger → unadjusted trial balance → adjusting entries → adjusted trial balance → financial statements.
- Under NFRS, an element is recognised only if it meets the definition and can be measured reliably; relevance and faithful representation are the fundamental qualitative characteristics.
- Straight-line depreciation = (cost − residual value) ÷ useful life. Reducing-balance depreciation = carrying amount × rate. Tax depreciation under the Income Tax Act 2058 uses pooling and may differ from accounting depreciation.
Worked example
A machine costs Rs 600,000, has a residual value of Rs 60,000 and a six-year life. Straight-line depreciation is (600,000 − 60,000) ÷ 6 = Rs 90,000 a year. After two years the carrying amount is 600,000 − 180,000 = Rs 420,000. If the machine is sold for Rs 400,000, the loss is 420,000 − 400,000 = Rs 20,000, reported in profit or loss; the cash proceeds are not the gain or loss.
Traps that cost marks
Treating capital expenditure as revenue expense; omitting outstanding expenses and prepaid items; charging a full year's depreciation on assets bought late in the year; entering drawings as an expense; treating VAT collected as income; and using the bank statement balance without adjusting for unpresented cheques and deposits in transit.