CBSE Sample Papers

CBSE Sample Papers from CBSEtuts.com

Single Entry System Disadvantages

April 28, 2019 by admin Leave a Comment

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.

 

Depreciation Accounting – How to fix Depreciation Amount

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FIXATION OF DEPRECIATION AMOUNT

Following are the three important factors which should be considered for determining the amount of depreciation to be charged to the Profit and Loss Account in respect of a particular asset.

1. Cost of the asset The cost of the asset includes the invoice price of the asset, less any trade discount pius all costs essential to bring the asset to a useahie condition. It should be noted that financial charges, such as interest on money borrowed for the purchase of the asset, should not be included in the cost of the asset.

2. Estimated scrap value. The term scrap value means the residual or the salvage value which is estimated to be realised on account of the sale of the asset at the end of its useful life. In determining the scrap value, the cost to be incurred in the disposal or removing of the asset should be deducted out of the total realisable value.

3. Estimated useful life. This is also termed as economic lift of the asset. This may be calculated in terms of years, months, hours, units of output of other operating measures such as kilometers in case of a taxi or a truck.

 

Depreciation Accounting – Features of Depreciation

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BASIC FEATURES OF DEPRECIATION 

1. The term depreciation is used only in respect of fixed assets. Of course, the current assets may also lose their value. Loss on account of fall in their value is taken caie of by valuing them for Balance Sheet purposes “at cost or market price whichever is less”.

2. Depreciation is a charge against profits. This means that true profit of the business cannot be ascertained withQut charging depreciation.

3. Depreciation is different from maintenance. Maintenance expenses are incurred for keeping the machine in a slate of efficiency. However, any degree of maintenance cannot assure that the asset will never reach a state of scrap. Of course, good maintenance delays this stage but it cannot absolutely prevent it.

4. All fixed assets, with certain possible exceptions e.g.,land, and antiques etc., suffer depreciation although the process i’nay be invisible or gradual.

 

Depreciation Accounting – Causes of Depreciation

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CAUSES OF DEPRECIATION

The causes of depreciation are as follows:

1. Wear and tear. Assets get worn or torn out on account of constant use as is the case with plant and machinery, furniture and fixtures- used in a factory.

2. Exhaustion. An asset may get exhausted through working. This is the case with mineral mines, oil wells etc. On account of continuous extraction of minerals or oil, a stage comes when the mine or well gets completely exhausted and nothing is left.

3. Obsolescence. Some assets are discarded before they are worn out because of changed conditions. For example, an old machine which is still workable may have to be replaced by a new machine because of the latter being more efficient and economical. Such a loss on account of new inventions or changed fashions is termed as loss on account of obsolescence.

4. Etfiux of time. Certain assets get decreased in their value with the passage of time.  This is true in case of assets like leasehold properties, patents or copy rights.

5. Accidents. An asset may meet an accident and, therefore, it may get depreciated in its value. On the basis of the above causes, it can be said that depreciation is the decrease or depletion in the value of an asset due to wear and tear, lapse of time, obsolescence, exhaustion and accidents.

 

Definition of Monopoly

April 28, 2019 by admin 1 Comment

MONOPOLY

The term monopoly means a single seller. In economics, this term refers to a firm the product of which has no close substitute in the market. It is, in that sense, a single-firm industry. Moreover, irrespective of the profit income of the existing producer firm, new firms cannot enter the industry. Hurdles to their entry may be on account of various reasons. There may be legal barriers, or the producer may own a technology or a naturally occurring substance which others cannot avail of. It is also possible that the size of the market may be too small and no new firm may find it economically worthwhile to enter it.

In the absence of a substitute product, the monopolist is free to fix a price of his choice. He can refuse to sell his product for a price below the one decided by him. However, he cannot determine the demand for his product. He cannot force the buyers to buy his product at a price of his choice. A buyer will buy it only if its price does not exceed its marginal utility to him. Therefore, if the monopolist wants to increase his sales, he has to reduce theprice of his product so as to induce [Read more…]

Paul A. Samuelson – Definition of Economics

April 28, 2019 by admin 17 Comments

Science of dynamic growth and development. Although the fundamental economic problem of scarcity in relation to needs is jjsi.ted it would not be proper to think that economic resources – physical, human, financial are fixed and cannot be increased by human ingenuity, exploration, exploitation and development. A modern and somewhat modified definition is as follows

“Economics is the study of how men and society choose, with or without the use of money, to employ scarce productive resources which could have alternative uses, to produce various commodities over time and distribute them for consumption now and in the future amongst various people and groups of society”.

Paul A. Samuelson

The above definition is very comprehensive because it does not restrict to material well-being or money measure as a limiting factor. But it considers economic growth over time.

Realisation Principles in Accounting

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Recognition proportionately over the performance of the contract According to this basis, revenue is recognised even in those cases where the work has not been completed in all respects. This is particularly true in case of long-term contracts which may take few years to complete. In case of such contracts, revenue is recognised on the basis of the work which has becn completed and approved by the contractee (technically known as work certified). This is done on the basis of certain accepted norms which are given below:

(i) When less than one-fourth ofthe contract is completed, no profit should be taken to the Profit and Loss Account,

(ii) When one-fourth or more but less than one-half of the contract is completed. one-third of the profit made to date should be taken to the Profit and Loss Account. This may, further, be reduced on the basis of cash received by the contractor from the coniractee. This is technically known as reducing profit on cash basis.

(iii) If half or more of the contract has been completed, two-third of the profit as reduced on cash basis maybe taken 10 the Profit and Loss account.

 

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