Common Mistakes/ Points to remember
The experts have pointed out the common mistakes which students usually commit while attempting the paper. These common mistakes are:
In case of Partnership
- ·While calculating interest, rate as “% age with the word “per annum” and the rate “%” without the word per annum must be read very carefully. If the words like ‘irrespective of months’ is used, number of months/days will be ignored.
- ·If date of withdrawal is not given ,interest on total drawing for the year is calculated for 6 months
- The word “Appropriation and Charge” must be differentiated and give the treatment accordingly. Remember Interest on partners loan , Manage commission , partner’s rent are always charge and shown in P& L Account
- ·Interest on capital may be charge against the profits or appropriation out of profits depending upon the nature of information given in the question i.e. as per partnership agreement. However, in the absence of any information about treatment of IOC, it is always treated as appropriation of profits.
- · Interest on Partner’s Loan is always credited to Partner’s Loan Account or Current Account or Interest Payable account and is never credited to partners or Capital Account.
- ·If closing capital is given, Opening capital should be calculated and then Interest on Capital is calculated.
- ·While calculating opening capitals if closing capitals are given, drawings and profit or loss appearing in the balance sheet are not readjusted as such amount represent amounts not adjusted earlier.
- In case of Past adjustments, always check if capitals are fixed or fluctuating as in case of fixed capital, entry has to be passed using current account. Same has to be taken care of while preparing Profit and Loss Appropriation account. In appropriation account do specify Partner’s current account in case capitals are fixed.
- ·Guaranteed partner will get his guaranteed amount even in case of insufficient profits or if the firm runs into losses.
- ·While calculating the value of goodwill, abnormal losses or gains already adjusted are reversed but any normal expense or income not adjusted earlier has to be deducted or added respectively in the amount of profits given.
- While calculating sacrificing shares, attention should be given to the words ‘of’ and ‘from’ Example 1 : A and B are partners having profit sharing ratio 3:2 .A surrendered 1/5 th of his share and B surrendered 2/5th of his share in favor of C
Example 2 : A and B are partners having profit sharing ratio 3:2 . C is admitted for 1/5th share which he takes 1/10th from A and 1/10th from B
- If new partner has not brought his share of goodwill in cash, the amount not brought in by such partner in respect of his share of goodwill is debited to his capital account. But it should be debited to his ‘Current Account’ when the capital of old partners have be adjusted on the basis of new partner’s capital or when new partner brings his share of capital on the basis of proportionate amount of capital in the new firm.
- ·While calculating sacrificing shares, if share of an existing partner comes negative it should be dealt with carefully while adjusting share of goodwill. Negative sacrifice is gain and negative gain is sacrifice. Gaining partner has to be debited with his gaining share in goodwill of the firm.
- ·While preparing Revaluation account pay attention to words “by” or “to”
Example 1: Book value of Machinery is 2000 and Machinery is increased by Rs. 10,000
Example 2: Book value of Machinery is 2000 and Machinery is increased to Rs. 10,000
- In the question of death of partner, Cash paid should be written on Dr. side of Executer’s account and not in Deceased partner’s capital account.
- In the question of death of partner, Amount of profit is transferred to Deceased partner’s capital account Cr. side as P& L suspense account and it also shown on Asset side of new Balance Sheet.
- Expenses on realization borne by a partner is never debited to Realisation account but when only paid by partner it is debited to Realisation account & credited to partner’s capital. When expenses borne by partner then for actual expenses paid by such partner out of his pocket, no entry is passed by the firm. However if actual expenses in such case (borne by partner) are paid by firm, it must be debited to such partner’s capital account and credited to cash or bank account similar to drawings.
- In question of dissolution of Partnership ,workmen compensentation fund to the extent of claim is transferred to Realisation account and paid and remaining is distributed among partners.
(b) In case of Company Accounts
- While attempting questions on Share Capital, share applied and allotted must be differentiated while calculating excess money of the defaulter.
- At the time of reissue of forfeited shares, paid up value on forfeited shares to be reissued cannot be less than called up value. It can also not be more than full value (face value or par value or nominal value) of the shares. In the absence of information about paid up value for reissue of forfeited shares, called up value at the time of forfeiture is taken as paid up value i.e. the amount to be credited to share capital account on reissue.
- After the forfeited shares have been reissued, excess of price received over the paid up value on reissue is always credited to Securities Premium Reserve and deficit is always debited to share Forfeited Account.
- Always remember that Share capital is shown at Face value or called up value. Face value never includes premium. Share forfeited is also shown at Face value, never includes premium or discount.
- In case of question on issue of shares, always check if it is normal or under or over subscription. In case of under subscription make sure that minimum subscription condition of 90% has been observed. Remotest possibility that shares applied in question is less than 90% of the issue, do solve the question and give a suitable note about minimum subscription.
(c) Comparative and Common Size statements
· In Comparative Income Statement, Net Sales has been replaced with Revenue and percentage has to be calculated on Revenue from operations only and will not include other incomes in the revenue for this purpose.
· Students often get confused between Comparative and Common Size statements .Remember figures of two years are compared in Comparative statement but Common Size statement involve calculation of figures of same year.
(d) In Ratio Analysis, when closing stock is given 2 times more or less than opening stock students take two times of opening stock and do not see more or less. But they must not ignore more or less.
(e) In Cash Flow Statement
- While preparing accumulated depreciation account, students generally do not differentiate between the depreciation of the sold part and total depreciation provided/charged during the year. Depreciation provided on the assets is shown on the credit side of Accumulated Depreciation Account and depreciation on sold part of asset is shown on the debit side of Accumulated Depreciation Account and on the credit side of Asset account.
Always remember that while preparing Fixed Asset A/c at WDV i.e. as per simple depreciation method, depreciation charged during the year is shown and depreciation on sold machine will never be shown in the Account. Depreciation on Asset sold will be considered only for calculating loss/profit on sale of machinery/fixed asset
- In Cash Flow Statement, when accumulated depreciation account is not given, depreciation provided is assumed to be on the total assets and includes depreciation on the part of asset sold in the absence of any specific information.
- Never take the difference in value of Provision for Tax and Proposed dividend appearing in Balance Sheet.
- While preparing Cash Flow Statement, order of years must be seen. Generally, in the questions Previous Year’s figures are shown first and Current Year’s figures later and the students are habitual in attempting the questions in this manner. Sometimes, Current Year’s balances are given first and Previous Year’s balances later. Same has to be taken care of while preparing Comparative and Common Size statements as well. In solution, first previous year and then current year figures will be shown.
- It must be noted, as per new changes in the schedule VI, it is expected, and figures of Current Year will be given first and of Previous Year later.