CBSE Sample Papers

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Single Entry System Disadvantages

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The system suffers from several disadvantages:

(i) Arithmetical accuracy cannot be checked. In case of Double Entry System

Book-keeping Trial Balance is prepared to check the arithmetical accuracy of the books of accounts. This is possible because every transaction is recorded at two places. In case of Single Entry System, this is not done. Hence, Trial Balance cannot be prepared and the

-arithmetical accuracy of the books of accounts cannot be checked. This increases the possibility of more frauds and misappropriations as compared to the Double Entry System of Book-keeping.

(ii) True profits cannot be known. In the absence of complete information for sales, purchases and other expenses, it is notpossible to draw the Profit and Loss Account. Hence, the true profit or loss made or suffered by the business cannot be known.

(iii) Financial position of the business cannot be judged. In the absence of true figure of profit and correct information about the assets and liabilities of the busiiless, the Balance Sheet cannot be drawn up to give a correct picture of the financial position of the business on a particular date.

(iv) Makes planning and decision-making difficult. The system does not provide accurate figures about the performance of the business and its financial position. For example, separate figure of gross profit, net profit and sales are not available. Thus, the ratio of gross profit to sales or net profit to sales cannot be found out. Similarly in the absence of any information about the cost of goods sold, the proportion of differeut elements of cost of sales cannot be found out. In the absence of such information, it becomes difficult for the proprietor of the business to know the reasons of his improving or deteriorating profitability and financial position. Thus, he is not in a position to compare, plan and take sound decision for the prosperity of the business. Moreover, it may be difficult for him to find the real value of his business in the event of his deciding to sell the business.

Joint Venture and Partnership

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JOINT VENTURE AND PARTNERSHIP

According to the Indian Partnership Act. “Partnership is the relations between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.” Thus, both in joint venture and partnership there is some business activ,ity whose profit (or loss) is agreed to be shared by two or more than two persons. As a matter of fact in law, a joint venture is treated as a partnership. Of course, a partnership covers or is meant to cover a long period whereas ajoint venture is only for a limited purpose sought to be achieved in a short period. On account of this reason, joint venture is also sometimes termed as a temporary partnership’ or ‘partnership for a specific venture’ or ‘particular partnership’.

Joint Venture and Consignment

The following are the points of distinction between joint venture and consignment:

(1) .Relalionslnp: In case of a consignment transaction, the relationship between the consignor and the consignee is that of a principal and an agent. While in case of joint venture, the relationship amongst various venturers is that of partners, i.e., mutual agency. Each venturer is a principal as well as an agent for the other venturer.

(II) Sharing of profits: In case of consignment, the consignee gets only a commission on the goods sold by him on behalf of the consignor while in case of joint venture each venturer gets a share in the profits of the venture,

(iii) Transfer of risk: tn case of consignment, till the goods are sold the risk continues to be of consignor while ajoint venture is a temporary partnership hence the risk continues of all venturers.

Consignment Accounting – Abnormal loss

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Abnormal loss. This loss should be debited to Abnormal Loss Account and credited to Consignment Account. Abnormal Loss Account may be closed by transferring to P & L Account.

The credit to the consignment account with the value of Abnormal Loss is given because it will make possible for the management to judge properly the profitability or otherwise of the consignnicnt.

The valuation of stock destroyed on account of abnormal reasons will be done on the same basis as valuation of Stock on Consignment i.e., proportionate cost price plus proportionate direct expenses incurred up to the date of loss.

While valuing abnormal loss, care should be taken of the stage where abnormal loss took place since only such expenses have to be included in the valuation oEsuch abnormal loss which have been incurred upto that stage. This will be clear with the help of the following illustration.

Distinction between Sale and Consignment

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The following arc the points of distinction between a transaction of sale and a consignment transaction:

(i) Meaning: A contract of sale is a contract where the seller transfers or agrees to transfer the ownership of goods to the buyer for a consideration termed as “Price”. While consignment is despatbh of goods from one person to another at different place for the purpose of warehousing and ultimate selling.

(ii) Transfer of ownership: In case of sale, the ownership and risk ofthe goods passes to the buyerwliile in case of consignment, the ownership and theriskofgoodscontinues with the consignor till the consignee sells the goods to some other person.

(iii) Relationship: In case of sale, the relationship between the two parties is that of the seller and the buyer while in case of consignment, the relationship between the consignor and consignee is that of a principal and an agent.

 

 

 

define consignment account

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The increasing size of the market is making more and more difficult forthe manufacturer or wholesalerto come in direct contact with customers living at far off distances. This has made imperative forhim to enter into an agreementwith areliable local trader who can sell goods on his behalf and athis (Principal) risk for an agreed amount of commission. Such a despatch of goods from one person to another person at a different place for the purpose of warehousing and ultimate sale is termed as consignment. Goods so sent are termed as ‘Goods sent on Consignment’,the sender is called”Consignor” and the recipient ‘Consignee.’

For example if A of Bombay sends 100 radio sets toBof Delhito sell on his (A’s) behalf and at his (A’s) risk, the transaction between A and B is a consignment transaction. A isthe consignor and B is the consignee.

It should be noted that in the above example, A continues to be the owner of the goods. B is simply an agent ofA. He has not purchased the goods. He has agreed to sell the goods ofA to the best of his ability and capacity. He will, therefore, be responsible to A for payment only when he has sold away the goods. Of course, he will be reimbursed by A for any expenses incurred by him in obtaining and selling the goods besides remuneration for selling the goods as per the agreed terms.