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Part A: Accounting for partnerships and companies

Unit 1: Accounting for Partnerships

Partnership: Features, Partnership Agreement. Provisions of Indian Partnership Act, 1932 in absence of partnership agreement. Fixed vs. Floating Capital Accounts. Preparation of Profit and Loss Account – Profit sharing among partners, Profit guarantee. Past adjustments (in respect of interest on capital, interest on withdrawal, salary and profit sharing ratio). Goodwill: Meaning, nature, influencing factors and methods of valuation – Average profit, super profit and capitalization. Note: Interest on partner loans is to be treated as deduction from profit. Goodwill: Meaning, influencing factors, need for valuation, methods of calculation (average profits, super profits and capitalization) adjusted by partners’ capital/current account.

Accounting for partnerships – new formation and dissolution.

Change in profit sharing ratio among existing partners – sacrifice ratio, profit ratio, taking into account revaluation of assets and revaluation of liabilities, as well as treatment of reserves, accumulated profits and losses. Preparation of a revaluation account and balance sheet.

Admission of a partner – Effect of admission of a partner on change in profit sharing ratio, treatment of goodwill (as per AS 26), treatment on revaluation of assets and revaluation of liabilities, treatment of reserves, accrued profits and losses, adjustment of capital accounts and preparation of capital, current account and balance sheet. Retirement and death of a partner: Effect of retirement / death of a partner on change in profit sharing ratio, treatment of goodwill (as per AS 26), treatment on revaluation of assets and revaluation of liabilities, adjustment of accrued profits, losses and reserves, adjustment of capital accounts and preparation of capital, current account and balance sheet. Preparation of loan account of the retiring partner. Calculation of profit share of the deceased partner up to the time of his death. Preparation of capital account of the deceased partner and his executor account. Dissolution of a partnership: Meaning of dissolution of a partnership and partnership firm, types of company dissolution. Settlement – ​​preparation of the realisation account and other related accounts: shareholders’ capital accounts and cash/bank accounts (excluding unit distribution, sale to a company and insolvency of the shareholder(s).

Note:

(i) Where the realised value of property, plant and equipment is not stated, it should be assumed that it has been realised at carrying amount.

(ii) If the realized value of intangible assets is not disclosed, it should be considered as zero (zero value).

(ii) If the implementation costs are borne by a partner, a clear indication must be given as to the type of payment.

Unit 2: Accounting for Businesses

Characteristics and types of companies. Shares and share capital: nature and types. Accounting of share capital: issue and allotment of ordinary and preference shares. Public subscription of shares – over-subscription and underwriting of shares; issue at par and at premium, prepayments and arrears (excluding interest), issue of shares for consideration other than cash. Concept of private placement and employee stock option plan (ESOP), sweat equity. Accounting treatment of forfeiture and re-issue of shares. Disclosure of share capital in the balance sheet of a company. Accounting of debentures Debentures: meaning, types; issue of debentures at par, at premium and at discount. issue of debentures for consideration other than cash; issue of debentures with terms of repayment; debentures as secured security – concept, interest on debentures (concept of TDS is excluded). Amortisation of discount/loss on issue of debentures. Note: The discount or loss on the issue of bonds, which is to be written off in the year of issue of the bonds, is deducted from the security premium reserve (if any) and subsequently from the profit and loss account as finance costs (AS 16).

Part B: Balance sheet analysis

Unit 3: Analysis of financial reports

Financial Statements of a Company: Meaning, Nature, Uses and Importance of Financial Statements. Profit and Loss Account and Balance Sheet in prescribed form with main and sub-headings (as per Schedule III to the Companies Act 2013). Note: Extraordinary items, exceptional items and profit (loss) from discontinued operations are excluded. Financial Statement Analysis: Meaning, Importance, Objectives, Importance and Limitations. Tools for Financial Statement Analysis: Comparative Reports, Common Size Financial Statements, Ratio Analysis, Cash Flow Analysis. Accounting Ratios: Meaning, Objectives, Benefits, Classification and Calculation. Liquidity Ratios: Liquidity Ratio and Quick Ratio. Solvency Ratios: Debt to Equity Ratio, Total Assets Ratio, Own Funds Ratio and Interest Coverage Ratio. Debt to Equity Ratio. Activity Ratios: Inventory Turnover Ratio, Trade Accounts Receivable Turnover Ratio, Trade Accounts Payable Turnover Ratio, Fixed Assets Turnover Ratio, Net Assets Turnover Ratio and Working Capital Turnover Ratio. Profitability ratios: gross profit ratio, operating ratio, operating profit ratio, net profit ratio and return on assets.

Unit 4: Cash flow statement

Meaning, Objectives, Benefits, Cash and Cash Equivalents, Classification of Activities and Preparation (as per AS 3 (Revised) (Indirect Method Only) Note: (i) Adjustments relating to depreciation and amortisation, gain or loss on sale of assets including investments, dividends (both final and provisional) and taxes. (ii) Bank overdrafts and cash advances are to be treated as short-term loans. Current investments are to be treated as marketable securities unless otherwise specified

Note: The proposed dividend of previous years is accounted for as per AS-4, Events after the Balance Sheet Date. The proposed dividend of the current year will be accounted for in the next year after it is declared by the shareholders.

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Part B: Computer-aided accounting

Computer-aided accounting

Overview of the computerized accounting system

Introduction: Application in accounting

Features of the computerized accounting system. Structure of the CAS

Software packages: General; Specific; Tailor-made

Application of electronic spreadsheets in accounting

Concept of electronic spreadsheet

Functions of the electronic spreadsheet

Application in generating accounting information – bank reconciliation statement; fixed asset accounting; loan repayment schedule, ratio analysis

Data representation – graphs, charts and diagrams

Use of a computerized accounting system.

Steps to install CAS, codification and hierarchy of account headers, creation of accounts. Data: entry, validation and verification.

Closing entries, preparation of the balance sheet, profit and loss statement with closing entries and opening entries.

Needs and security features of the system.