7.
Administration
expenses
2,99,32,794
8.
Managerial
remuneration
1,78,200
9.
Excise
duty
48,94,360
10.
Bad
debts
16,48,157
11. Overseas project expenses
58,35,260
12.
Interest
paid
5,69,16,495
13.
Depreciation
2,33,40,163
14. Auditor’s remuneration
71,488
15. Increase in stocks
9,16,30,652
16.
Other
income
94,13,004
17. Balance of profit brought forward from previous year
3,51,87,048
18. Proposed dividend
4,64,19,410
19. Transfer to general reserve
30,62,608
Also Prepare the Statement of Retained Earnings.
7. Explain the following:
(a) assets
(b) liabilities
(c) fictitious assets
(d) income received in advance
(e) investments
8. What are the two forms of presenting a balance sheet?
9. Explain owner’s equity. How is it to be presented in the balance sheet?
10. From the following trail balance extracted from the books of the
general traders limited as on 31st december 2005, you are required to
prepare trading and profit and loss account and balance sheet:
Rs
Rs
Share capital 20,000 shares of rs.10 each
2,00,000
Stock on 1st january 2005
36,000
Sales
58,000
Salaries
5,250
Purchases
44,000
Sundry
debtors
23,000
Wages
3,000
Calls in arrears
21,500
Sundry creditors
7,200
72
Postage and telegrams
470
Advertisement
960
Preliminary expenses
7,500
Printing and stationery
640
Land and buildings
65,000
General expenses
2,200
Furniture
1,200
Repairs
650
Bad debts
910
Rent received
2,700
Machinery
30,000
Cash with bank
24,100
Cash in hand
1,520
2,67,900 2,67,900
The stock on 31st december 2011 was rs.49,000. Write off rs.2,500 out of
preliminary expenses. Depreciate machinery by 10 percent and furniture
by 6 percent.
11. The books of aranarasu show the following balances as on 31st
december 2011. You are required to prepare a trading and profit and loss
account and balance sheet.
Rs.
Rs.
Stock on 1st january 2011
67,000
Sales
5,24,600
Bills
payable
1,500
Purchases
4,88,000
Salaries and wages
9,800
Rent
1,100
Travelling expenses
2,600
Sundry
creditors
57,000
Postage and telegrams
620
General charges
2,250
Printing and stationery
350
Capital
account
75,000
Interest and commission
2,200
Lighting charges
175
73
Repairs
35
Sundry receipts
175
Furniture
3,000
Bills receivable
4,000
Bad debts
475
Sundry debtors
85,000
Aranarasu’s
current
account
17,000
Cash with bank
6,500
Cash in hand
2,170
6,75,275 6,75,275
Depreciate furniture by 6 percent. Outstanding salaries and rent were
rs.1,100 and rs.100 respectively. Stock at 31st december 2011 was valued
at rs.70,350.
12. From the following balances relating to software india ltd. Prepare the
Balance sheet as at 31st december 2011.
Rs.
(a) equity capital
36,42,58,510
(b) reserves and surplus
23,58,26,861
(c ) debentures
1,03,36,000
(d) secured loans
21,27,57,441
(e) fixed assets
37,07,93,048
(f) investments
5,94,80,459
(g) inventories
20,78,28,095
(h) sundry debtors
10,21,66,468
(i) cash and bank balances
1,49,87,264
(j) other current assets
57,75,568
(k) loans and advances
12,49,59,370
(l) current liabilities
4,71,71,358
(m) provisions
4,64,19,410
(n) miscellaneous expenditure
3,07,79,308
The balance sheet may be prepared in account form and report form.
74
1.3.3.12 Key To Self Assessment Questions (For Problems Only)
Q.no.5: gross profit: rs.19,000; net profit: rs.14,327; profit carried to
Balance sheet: rs.17,252.
Q.no.6: net profit: rs.6,12,52,151; retained earnings balance:
Rs.4,69,57,182.
Q.no.10: gross profit: rs.24,000; net profit: rs.10,048; balance sheet
Total: rs.1,95,748.
Q.no.11: gross profit: rs.39,950; net profit: rs.19,140; balance sheet
Total: rs.1,70,840.
1.3.3.13 Case Analysis
To give a practical insight to the students about the various aspects
of profit and loss account and of a balance sheet we give the financial
statements as on 31st march 2012 of tt limited a yarn manufacturing
company:
75
Tt Limited
Balance Sheet As At 31st March, 2005
I. Sources Of
Funds
1
107490250.00
107490250.00
1. Share Capital
2
202213218.39
190240718.95
Reserve & Surplus
2. Loan Funds
3
447855991.83
423528431.00
Secured Loans
4
69532615.80
56901290.19
Unsecured Loans
3. Deferred Tax
42276806.36
43673781.36
Liability
869368882.38
821834471.50
Ii. Application
of Funds
1. Fixed Assets
Gross Block
5 734104404.86
700390441.72
Less: Depreciation
217233181.41
184869109.73
Net Block
516871223.45
515521331.99
Capt. Work In
4305600.00
521176823.45
0.00
515521331.99
Progress/ Advances
2. Investments
6
1591141.57
1591642.57
3. I.Current Assets,
510807958.00
457861043.73
Loans & Advances
Ii. Less: Current
Liabilities &
164207040.63
153139546.79
Provisions
7
Net Current
346600917.37
304721496.94
Assets (I-Ii)
869368882.38
821834471.50
76
Tt Limited
Profit & Loss Account For The Year Ended 31st March, 2012
Particulars
Schedule
Current year
Previous year
Rs.
Rs.
INCOME
Sales
1656633139.30
1470167645.65
Less: Excise
9164920.45
59656449.44
Duty
------------------
------------------
8 1649235545.85
Net Sales
9 3194055.78
1410511196.21
Other Income 10 23509662.45
9178442.33
Increase
22572632.64
(Decrease)
------------------
------------------
In Stock
1675939264.08
1442262271.18
11 ------------------
------------------
Expenditure
Material
Manufactu-
1262208246.11
1107760578.66
ring,
12
Personnel,
13
Admin. &
308899137.99
254353516.32
Selling
47902372.00
30855197.88
Expenses etc.
Financial
expenses
34107486.97
Depre. on
Fixed
33127938.23
Assets
2906557.05
Less:
------------
Transferred
from
31200929.92 3657679.05 29470259.18
Revaluation
----------------- ------------- -----------------
Reserve
1650210686.02
1422439552.04
------------------
-----------------
PROFIT
Profit Before
2000000.00
Tax
- 396975.00 25728578.06
19822719.14
Less:Provision -------------
for Taxation
- for The Year
- Deferred Tax
400000.00 5150084.00
Add: Taxation
603025.00 4750084.00
Adjustment
------------- 2154911.83
0.00
77
Of Previous
Years (Net)
Profit After
25125553.06
16827546.97
Taxation
33458012.39
28831460.48
Add: Balance
---------------
---------------
B/F From
58583565.45
45659007.45
Previous Year
---------------
---------------
8599220.00
8599220.00
1123810.56
1101775.06
10000000.00
2500000.00
38860534.88
33458012.19
---------------
---------------
58583565.45
45659007.45
---------------
---------------
Appropriation
Dividend
1.57
Dividend
Distribution Tax
Trf. To General
2.34
Reserve
Balance Carried
Forward
Earning Per
Share (Equity
Shares, Par
Value
Rs.10 Each)
Basic & Diluted
78
1.3.3.14 Books For Further Reading
1.
M.A.Arulanandam And K.S.Raman: Advanced Accounts ,
Himalaya Publishing House.
2.
R.L.Gupta And M.Radhaswamy: Advanced Accounts, Vol.I,
Sultan Chand & Sons, New Delhi.
3.
S.P.Jain And K.L.Narang: Advanced Accounts, Kalyani Publishers.
4.
M.C.Shukla And T.S.Grewal: Advanced Accounts, S.Chand & Co.
New Delhi.
5.
Tulsian: Financial Accounting , Pearson Education.
*****
7980
Revenue Recognition
Lesson 1.4: Capital and Revenue Expenditure and Receipts
1.4.1 Introduction
In the previous lessons pertaining to the preparation of profit
and loss account, the reader would have had an exposure to the concepts
relating to expenses, expenditure and incomes. The term expenditure is a
broad term and it is classified into capital expenditure, revenue expenditure
and deferred revenue expenditure. All incomes are not receipts and all
receipts are not incomes. For example, under accrual or mercantile system
of accounting even income earned but not received is treated as income.
Similarly all receipts are not recognised as incomes. This lesson deals with
the classification of capital and revenue expenditure and receipts.
1.4.2 Learning Objectives
After reading this lesson the reader should be able to:
Ֆ Understand capital expenditure
Ֆ Distinguish capital expenditure from revenue expenditure
Ֆ Identify capital receipts and revenue receipts
1.4.3 Contents
1.4.3.1. Capital Expenditure
1.4.3.2. Revenue Expenditure
1.4.3.3. Distinction Between Capital And Revenue Expenditure
1.4.3.4. Deferred Revenue Expenditure
1.4.3.5. Capital And Revenue Profits, Receipts And Losses
1.4.3.6. Illustrations
1.4.3.7. Summary
1.4.3.8. Key Words
1.4.3.9. Self Assessment Questions
1.4.3.10. Key To Self Assessment Questions
1.4.3.11. Case Analysis
1.4.3.12. Books For Further Reading
81
1.4..3.1 Capital Expenditure:
Capital expenditure is that expenditure, the benefit of which is
not fully consumed in one period but spread over periods i.e. The benefits
are expected to accrue for a long time. Any expenditure which gives the
following outcomes is a capital expenditure:
(i) increases the capacity of an existing asset.
(ii) increases the life of an existing asset.
(iii) increases the earning capacity of the concern.
(iv) results in the acquisition of a new asset.
(v) decreases the cost of production.
Following are the examples of capital expenditure:
(i) expenditure resulting in the acquisition of fixed assets e.g. Land,
building, machines, etc.
(ii) expenditure resulting in extension or improvement of fixed
assets e.g. Amount spent on increasing the seating accommodation in the
picture hall.
(iii) expenditure in connection with installation of a fixed asset.
(iv) expenditure incurred for acquiring the right to carry on a
business e.g. Patents, copyright, etc.
(v) major repairs and replacements of parts resulting in increased
efficiency of a fixed asset.
An expenditure cannot be said to be a capital expenditure only because:
(i) the amount is large.
(ii) the amount is paid in lump sum.
(iii) the amount is paid out of that fund which has been received
out of the sale of fixed asset.
(iv) the receiver of the amount is going to treat it for the purchase
of fixed asset.
1.4.3.2 Revenue Expenditure:
An expenditure which is consumed during the current period
and which affects the income of the current period is called revenue
expenditure. Also an expenditure which merely seeks to maintain the
business of high assets in good working conditions is revenue expenditure.
82
Following are the examples of revenue expenditure:
(i) Expenses of administration, expenses incurred in manufacturing
and selling products.
(ii) Replacements for maintaining the existing permanent assets.
(iii) Costs of goods purchased for resale.
(iv) Depreciation on fixed assets, interest on loans for business, etc.
1.4.3.3 Distinction Between Capital And Revenue Expenditure:
The proper distinction between capital and revenue as regard to
expenditure, payments, profits, receipts and losses is one of the fundamental
principles of correct accounting. It is very essential that in all cases this
distinction should be rigidly observed and amounts rightly allocated
between capital and revenue. Failure or neglect to discriminate between
the two will falsify the whole of the results of accounting. However, the
distinction is not always easy. In actual practice there is a good deal of
difference of opinion as to whether a particular item is capital or revenue
expenditure. However, the rules mentioned above may serve as a guide for
making distinction between capital and revenue expenditure.