Fundamentals of Accounting – Ledger

Ledger is the principal book of accounts where similar transactions relating to a particular person or property or revenue or expense are recorded. In other words, it is a set of accounts. It contains all accounts of the business enterprise whether real, nominal or personal. The main function of a ledger is to classify or sort out all the items appearing in the journal or other subsidiary books under their appropriate accounts so that at the end of the accounting period each account will contain the entire information of all the transactions relating to it in a summarised or condensed form.

For instance, all the transactions that have taken place with Mr. Mathur will be entered in Mathur’s Account.

Similarly, all items relating to cash, sales, purchases, salaries, discount, etc. appear in their respective accounts.

Ledger is defined as a “Book which contains in a summarised and classified form of permanent record of all transactions. Ledger is called the principal book of account as final information pertaining to financial position of a business emerges from this book.

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.

Role of Agriculture in the Indian Economy


Over the years 1921 -91, the size of labour force dependent on agriculture had more than doubled and over the next decade is projected to going by more than 25 per cent. This is contrary to the development economists’ observation that as country develops the share of labour force dependent upon agriculture as a source of livelihood declines. The occupational structure of the country has shown a lack of flexibility, the large proportion of the increasing labour force, in the absence of any alternative employment opportunities, has been absorbed in agriculture. It is observed that while the share of agriculture in GDP has been declined significantly, its share in the manufacturing sector has gone up. However, corresponding to this structural shift in production, the structure of employment has shown little change.

Since agriculture contributes significantly in the National Income, this sector is treated as major source of savings and hence capital formation for the economy. The pace of development is largely conditioned by the rate of capital formation in the economy. Since independence, large investment, both public and private, has been made in agriculture. In areas where agricultural practices are traditional, investment has also been on traditional lines like land and its improvement, tools and implements, farm structures, etc. But the pailern of investment in progressive areas, where modern technology has been adopted, has been predominantly in irrigation, land improvements, farm machinery and other infrastructures. Of course in recent years public investment in agriculture sector has declined. To stimulate growth, substantial capital investments are required for various infrastructure and inputs.

Depreciation Accounting – How to fix 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.


Evaluation of Monopolistic Competition



1. An important merit of monopolistic competition is that it is much closer to reality than several other models of market structure. Firstly, it incorporates the facts of product differentiation and selling costs. Secondly, it can be easily used for the analysis of duopoly and oligopoly.

2. Under monopolistic competition it is possible to see that even when each individual firm produces under conditions of increasing returns, not only the firm under consideration but the entire group of firms can be in equilibrium.

3. Moreover, monopolistic competition is able to show that even when each individual firm is producing under increasing returns, it still earns only normal profit in the long run.


1. The biggest conceptual difficulty with monopolistic competition is the concept of a ‘group’ of firms. There is no standard theoretical foundation for deciding the boundaries of a group.

2. Related with the concept of a group of firms, who face the difficulty of defining the meaning of a ‘close substitute’. We are not told at what values of cross elasticity, two products become close substitutes of each other.

The theory of monopolistic competition fails to take into account the fact that the demand by final consumers is largely influenced by the retail dealers because the consumers themselves are not fully aware of the technical qualities of the product.


Salient features of the Monopolistic Competition

(a) The first feature of monopolistic competition, as mentioned above, is product differentiation. A buyer can get a specific type of the ‘product’ only from one final source (may be, through the dealers and sub-dealers, etc.).

(b) Product differentiation necessitates incurring of selling expenses on the part of firms under market structure of monopolistic competition.

(c) Monopolistic competition is characterised by a large number of sellers. The demand and supply conditions of these sellers are inter-dependent.However, in spite of their large number, no individual seller becomes a price taker. He has the authority to demand a price of his choice, though he also

Distinction between Profit and Loss Account and Balance Sheet

The points of distinction between Profit and Loss Accoont and Balance Sheet are:

(i) A profit and loss account shows the profit or loss made by the business during a particular period. While a balance sheet shows the financial position of the business
on a particular date.

(ii) A profit and loss account incorporates those items which are of a revenue nature while a balance sheet incorporates those items which are of a capital nature.

(iii) Of course, both profit and loss account and the balance sheet are prepared from the Trial Balance. However, the accounts transferred to the profit and loss account are  finally closed while the accounts transferred to the balance sheet represent those accounts whose balances are to be carried forward to the next year.

Depreciation Accounting – Dilapidations

Dilapidations. The term dilapidation refers to damage done to a building or other property during tenancy. When a property is taken on lease, is returned to the landlord he may ask the lessee as per agreement to put it in as good condition as it was at the time it was leased out. In orderlo meet cost of such dilapidation, a provision may be created by debiting the property account with the estimated amount of dilapidation and crediting the provision for dilapidations account. Depreciation may then be charged on the total cost of the asset so an-ivçd at Any payment made later on dilapidation may be debited to the provision for dilapidation account. The balance, if any, may be transferred to profit and loss account.

Depreciation Accounting – Amortization

Amortization. The process of writing off intangible assets is termed as amortization. Some intangible assets like patents, copyrights, leaseholds have a limited useful life. Hence, their cost must be written off over such period.

The American Institute of Certified Public Accountants (AICPA) has put the difference between depreciation, depletion, and amortization in the following words.

“Depreciation can be distinguished from other terms with specialised meanings used by accountants to describe assets cost allocation procedures. Depreciation is concerned with charging the cost of man made fixed assets to operations (and not with determination of asset value for the balance sheet). Depletion refers to cost allocations for natural resources such as oil and mineral deposits. Amortization relates to cost allocation for intangible assets such as patent and leaseholds. Thc use of the term depreciation should alsobe avoided in connection with the valuation prOcedures for securities and investments”.


Important Points Regarding Manufacturing Account

Important Points Regarding Manufacturing Account

1. Stocks. In case of a manufacturer, there can be stocks of three types:

 Stock of raw materials. It includes stock of raw materials or finished components which might have been purchased by the manufactrn-er for using them in the products manufactured by him but still lying unsold.

Stock of work-in-process. This is also tenned as stock of work-in-progress. It includes goods in semi-finished form.

Stock of finished goods. It includes stock of those goods which have been completely processed and are lying unsold at the end of a period with the manufacturer. It also includes stock of those finished goods which might have been purchased by a manufacturer-cum-trader from outside parties, but still lying unsold with him at the end of the accounting period.

2. Raw materials consumed. It is customary to show in the Manufacturing Account, the value of raw materials consumed for manufacturng goods during a particular period.

3.Carriage inwards, etc. The expenses incurred for bringing the raw materials to the factory or the octroi or customs duty paid by the manufacturer on the raw materials purchased or imported by him will also be charged to Manufacturing Account.

4.Cost of production. The Manufacturing Account gives the cost of manufacturing the goods during a particular period. This is comuted by deducting from the total of the dedit side of the Manufacturing Account, the total of the various items appearing on the credit side of the Manufacturing Account as shown in the proforma of the Manufacturing Account given earlier in the chapter.

5. Sale of scrap. In manufacturing operations, certain scrap is unavoidable, it may or may not have any sales value. In order to calculate the true cost of manufacturing the goods, it is necessary that the money realised on account of sale of scrap (or realisable value of the scrap in case it has not been sold) should be considered. The amount of scrap is, therefore, credited to the Manufacturing Account.

Definition of Monopolistic Competition


A monopolistic competition is defined as that market structure in which each seller produces a ‘differentiated product’. The concept of product differentiation means that the product marketed by one seller can be distinguished from the products marketed by other sellers in some form or other. Some of the important methods of product differentiation include trade marks, brand names, size, packing, or colour etc. of the item, and technical specifications, etc.

Thus, in this market structure, each seller is a monopolist of his differentiated product. The buyers can get it only from him and from none else. At the same time, however, the products offered by different sellers are close substitutes of each other. The buyers are always comparing the prices of their products together with the perceived ‘quality’ of each. In other words, there is also an intense competition between suppliers for a share in the market. For this reason, it is a market structure in which there is a competition between a group of firms while each firm is a monopolist of its own product. It is, therefore, termed as monopolistic competition.