TUTOR MARKED ASSIGNMENT
Course
Code : ECO - 02
Course
Title : Accountancy – I
Assignment
Code : ECO – 02/TMA/2014-15
Coverage
: All Blocks
Maximum
Marks: 100
Answer of Q.N.1.
Bank Reconciliation Statement
Business concern maintains the cash
book for recording cash and bank transactions. The Cash book serves the purpose
of both the cash account and the bank account. It shows the balance of both at
the end of a period. Bank also maintains an account for each customer in its
book. All deposits by the customer are recorded on the credit side of his
account and all withdrawals are recorded on the debit side of his account. A
copy of this account is regularly sent to the customer by the bank. This is
called ‘Pass Book’ or Bank statement. It is usual to tally the firm’s bank
transactions as recorded by the bank with the cash book. But sometimes the bank
balances as shown by the cash book and that shown by the pass book/bank
statement do not match. If the balance shown by the pass book is different from
the balance shown by bank column of cash book, the business firm will identify
the causes for such difference. It becomes necessary to reconcile them. To
reconcile the balances of Cash Book and Pass Book a statement is prepared. This
statement is called the ‘Bank Reconciliation Statement.
How to Prepare
Bank Reconciliation Statement:
To reconcile the bank balance as shown
in the pass book with the balance shown by the cash book, Bank Reconciliation
Statement is prepared. After identifying the reasons of difference, the Bank
Reconciliation statement is prepared without making change in the cash book
balance. We may have the following different situations with regard to balances
while preparing the Bank Reconciliation statement. These are:
1. Favourable balances
(a) Debit balance as per cash book is
given and the balance as per pass book is to be ascertained.
(b) Credit balance as per pass book is
given and the balance as per cash book is to be ascertained.
2. Unfavourable balance/overdraft balance
(a) Credit balance as per cash book
(i.e. overdraft) is given and the balance as per pass book is to be ascertained.
(b) Debit balance as per pass book
(i.e. overdraft) is given and the balance as per cash book is to be ascertained.
The following steps are taken to
prepare the bank reconciliation statement:
(i) Favourable balances: When debit balance as per cash book or
credit balance
as per pass book is given:
(a) Take balance as a starting point
say Balance as per Cash Book.
(b) Add all transactions that have
resulted in increasing the balance of the pass book.
(c) Deduct all transactions that have
resulted in decreasing the balance of pass book.
(d) Extract the net balance shown by
the statement which should be the same as shown in the pass book.
In case balance as per pass book is
taken as starting point all transactions that have resulted in increasing the
balance of the Cash book will be added and all transactions that have
resulted in decreasing the balance of Cash book will be deducted. Now extract the
net balance shown by the statement which should be the same as per the
Cash book.
(ii) Unfavourable Balance/Overdraft: Sometimes a businessman withdraws
excess amount from the bank account and the closing bank balance of a
month is a debit balance. This balance amount is called ‘overdraft balance’
as per Pass Book. This is shown in the cash book as a credit balance. Overdraft balance is to be shown in
the minus column of statement as the starting point. The other steps shall
remain the same as mentioned above. The following illustration helps to
understand dealing with the unfavourable balance as per cash book and pass
book.
Illustration.1. On December 31, 2013, the cash book of the M/s. X shows the
credit balance Rs.6, 500. Cheques amounting to Rs.3, 500 deposited into bank
but were not collected by the bank. Firm issued cheques of Rs. 1,000 which were
not presented for payment. There was a debit in the pass book of Rs.200 for
interest and Rs.400 for bank charges. Prepare Bank Reconciliation Statement.
Solution: Bank
Reconciliation of M/s. X as on 31st Dec, 2013
|
Particulars
|
Plus
(Amount)
|
Minus
(Amount)
|
|
Overdraft
as per cash book
1. Cheque issued but not presented for payment
2. Cheque deposited but not credited by bank
3. Bank charges and Interest charged
Overdraft
as per pass book
|
1,000
9,600
|
6,500
3,500
600
|
|
|
10,600
|
10,600
|
Illustration.2.
Prepare Bank
Reconciliation Statement of M/s. X on 31st Dec, 2013, from the following information:
Overdraft as per
pass book 16,500,
Interest on
overdraft 1,600,
Insurance
premium paid by the bank 800,
Cheques
deposited but not yet credited 5,500,
Cheques issued
but not present for payment 6,000,
Wrongly credit
to firm account by the bank 1,000
Solution: Bank
Reconciliation of M/s. X as on 31st Dec, 2013
|
Particulars
|
Plus
(Amount)
|
Minus
(Amount)
|
|
Overdraft
as per pass book
1. Interest on overdraft
2. Insurance Premium paid by bank
3. Cheque deposited but not credited by bank
4. Cheque issued but not presented for payment
5. Wrongly credited by bank
Overdraft
as per cash book
|
1,600
800
5,500
15,600
|
16,500
6,000
1,000
|
|
|
23,500
|
23,500
|
Answer of Q.N.2.
COMPLETE
SOLVED ASSIGNMENTS ARE AVAILABLE FOR ONLINE MEMBERS ONLY.
BECOME
ONLINE LEARNING MEMBER BY PAYING A NOMINAL FEE OF Rs.300 ONLY.
SOME SOLVED QUESTION PAPERS WILL ALSO BE PROVIDED.
FOR DETAILS
CONTACT:
KUMAR NIRMAL
PRASAD, TINSUKIA (ASSAM)
CONTACT NO.
9577097967
Answer of Q.N.3.
(a) Treatment of Outstanding Subscription
Subscription
is received by the non-trading organisations from its members regularly each
year. It is a recurring receipt of revenue nature and hence treated as a main
source of income. This is shown to the debit side of Receipts and Payments
Account and to the credit side of the Income and Expenditure Account. It is
shown on cash basis in the Receipts and Payments Account and on accrual basis
in the Income and Expenditure Account i.e., outstanding subscription and
advance subscription is to be adjusted.
Subscription
can be outstanding both in the beginning and at the end of the accounting year.
Outstanding subscription at the beginning is that amount of subscription which
due in previous year and not received in previous year. Therefore, it is
deducted while ascertaining subscription income during the current year and on
the other hand, it is shown on the assets side of opening balance sheet. Again,
Subscription outstanding at the end is that sum which is due in current year
and yet not received. It is related to current year, therefore it is added while
ascertaining subscription income during the current year and on the other hand,
and it is shown on the assets side of closing balance sheet.
(b) Treatment of
Donation:
In Income and Expenditure
Account: It is the amount received from some person,
firm, company or any other body by sway of a gift. It is shown in receipts and
payments accounts of the year. If a donation is received for a specific purpose
(donation for building, donation for conducting specific events – sports,
annual day celebration etc.) It is in the nature of a capital receipt credited
to a separate Fund account and shown in the balance sheet. The non trading
concern has to fulfill the purpose for which the donation is received. If the
donation is not for a specific purpose, it is known as a general donation.
General donation of a big amount is capitalized and not shown as income as it
is non-recurring in nature. Donations of a small amount may be expected every
year. So this may be considered as income during the year.
In
Receipts and Payments Account:
Donation is
shown in the receipts side of Receipts and Payments Account whether it is of
general purpose or specific purpose.
(c)
Legacy:
In Income
and Expenditure Account: It
is the amount received by the nonprofit organizations as per the will of a
deceased person. It is
a capital receipt and is shown on the liability side of the balance sheet, but
if the amount is small it may
be treated as income and may be shown on the credit side income and expenditure
account In the absence of any specific
information legacy must be preferably be capitalized and added with capital
fund.
In
Receipts and Payments Account: It is the amount which is received by
organisations as per the will of a deceased person. It is treated as a capital
receipt and shown on the receipts side of Receipts and Payments Account.
(d) Treatment of Tournament Fund:
In non
trading concerns, Tournament funds are created for conducting tournaments. It a
specific fund and invested in specific securities by non-trading organisations.
The income derived from the investment is added to that fund and is not treated
as income. Incomes are normally added with the fund. Again, expenditure
incurred on conducting tournament is deducted with tournament fund and is not
shown as expense. For example:
Tournament
Fund - 20,000;
Tournament
fund investment - 15,000;
Interest
on Tournament Fund Investment for the year - 2,000;
Expenditure
on Tournament - 8,000.
Now the
total Tournament fund is Rs. 22,000 (20,000 + 2,000) the interest of Rs. 2000
is added with the Prize fund. The expenses incurred out of fund are deducted
from the fund itself. In the previous example the accumulated Prize fund is Rs.
22,000. The Prize given for of Rs. 8,000 is deducted from the Prize fund and
the balance fund of Rs. 14,000 will be shown in the Balance sheet.
Answer of Q.N.4.
COMPLETE
SOLVED ASSIGNMENTS ARE AVAILABLE FOR ONLINE MEMBERS ONLY.
BECOME
ONLINE LEARNING MEMBER BY PAYING A NOMINAL FEE OF Rs.300 ONLY.
SOME SOLVED QUESTION PAPERS WILL ALSO BE PROVIDED.
FOR DETAILS
CONTACT:
KUMAR NIRMAL
PRASAD, TINSUKIA (ASSAM)
CONTACT NO.
9577097967
Difference between Provisions and Reserves
1.
Provision is made to meet known liability the amount
of which cannot be ascertained with substantial accuracy. Whereas, Reserve is
created to meet unexpected losses and contingencies likely to arise in future.
2.
Provision can be used only for meeting the
specific purpose for which it has been made. But, Reserve can be used for any
purpose unless it is created for a specific purpose.
3.
Provision is a charge on profits and reduces the
amount of net profits. But, Reserves is an appropriation of profits and reflects
undistributed profits.
4.
Provision is to be made even if there are no profits. Whereas, Reserve is created
only when there are profits.
5.
Provision creation is compulsory. But, Reserves
creation is at the discretion of management with the exception of debenture
redemption reserve for which the Companies Act has made a provision in certain
cases.
6.
Provision is meant for meeting expected losses
and cannot be used for dividend distribution.
But, Reserves is a part of owner’s funds and can be used for distribution of
dividends.
Answer
of Q.N.5.
COMPLETE
SOLVED ASSIGNMENTS ARE AVAILABLE FOR ONLINE MEMBERS ONLY.
BECOME
ONLINE LEARNING MEMBER BY PAYING A NOMINAL FEE OF Rs.300 ONLY.
SOME SOLVED QUESTION PAPERS WILL ALSO BE PROVIDED.
FOR DETAILS
CONTACT:
KUMAR NIRMAL
PRASAD, TINSUKIA (ASSAM)
CONTACT NO.
9577097967
WEBSITE: WWW.DYNAMICTUTORIAL.BLOGSPOT.COM