Centre for Distance and Online Education

NAME Prateek Prakash

ROLL NUMBER 251410100047

PROGRAM BACHELOR OF BUSINESS

ADMINISTRATION (BBA)
SEMESTER I

COURSE NAME DBB1113 - FINANCIAL

ACCOUNTING
COURSE CODE DBB1113
 ASSIGNMENT SET 1
ANS: 1=
The fundamental ideas of accounting help to direct the documentation, classification, and
summation of financial events. In financial reporting these ideas guarantee consistency, openness,
and comparability. The following are the main accounting ideas covered in more detail:

1. Business Entity Concept

This idea sees the owner of the company and it as two different entities. From the standpoint of
the company, not the owner, all financial transactions are documented. If the owner makes
investments into the company, for instance, it is seen as a liability rather than a personal asset.

2. Measurement of Money: Idea

This idea holds that the books of accounts only record transactions whose monetary value can be
ascertained. Though crucial, non-financial factors including company reputation or employee skill
levels are not recorded since they cannot be measured impartially.

3. Going Concern Approach

This idea supposes that a company will not be sold but will keep running for the foreseeable
future. This presumption helps to explain why some expenses, including depreciation, should be
deferred over the lifetime of the asset instead of charged in the year of purchase.

4. Idea of Cost
According to the cost concept, assets should be recorded not at current market value but rather at
their original purchase price. Though it might not always fairly represent the asset's actual value
over time, this historical cost offers objectivity and dependability.

5. Accrual Methodology
Under this idea, not when cash is received or paid; rather, revenues and expenses are recorded
when they are earned or incurred. This shows financial performance during a given period more
precisely.
6. Complementary Idea
This idea enhances the accrual idea. It says that in the same accounting period expenses should
be matched with the income they help to produce. This clarifies the actual profitability of a
company.

7. Idea of Accounting Period

Usually covering a year, financial statements are created for a designated period. This idea lets
companies make wise decisions by comparing financial performance over several times.

8. dual aspect idea

Double-entry bookkeeping starts with this. Every purchase impacts two accounts: one credit and
one debit. Buying machinery for cash, for instance, will increase machinery (asset) and lower cash
(asset), so maintaining the balance of the accounting equation.

9. Realisation Idea
This idea holds that regardless of when payment is received, revenue is recorded upon earning.
Revenue from a sale, for example, is noted upon delivery of the items rather than upon customer
payment.

10. Conventions of Conservatism

Also referred to as the prudence concept, it counsels financial reporting under caution. Though
gains should only be noted upon realization, potential losses should be noted right away. This
avoids financial position overstatement.

Accurate and consistent financial reporting is mostly dependent on these accounting ideas, which
also guarantees the credibility and dependability of financial statements.

ANS: 2=
Here is the journalization of the given transactions for Mr. Harshit's business:
Journal Entries

Date Particulars L.F. Debit (Rs.) Credit (Rs.)

Jan 1 Cash A/c Dr. 80,000
To Capital A/c 80,000
(Being capital introduced by Mr. Harshit)
Jan 10 Purchases A/c Dr. 50,000
To Cash A/c 30,000
To Creditors A/c 20,000
(Being goods purchased for cash and credit)
Jan 12 Wages A/c Dr. 500
To Cash A/c 500
(Being wages paid)
Jan 15 Cash A/c Dr. 20,000
Debtors A/c Dr. 25,000
To Sales A/c 45,000
(Being goods sold for cash and credit)
Jan 16 Creditors A/c Dr. 8,000
To Cash A/c 8,000
(Being payment made to suppliers)
Jan 20 Cash A/c Dr. 15,000
To Debtors A/c 15,000
(Being cash received from debtors)
Jan 31 Rent A/c Dr. 1,000
Date Particulars L.F. Debit (Rs.) Credit
(Rs.)
To Cash A/c 1,000
(Being rent paid in cash)

ANS: 3=
Recording, organizing, compiling, and interpreting financial transactions is accomplished
methodically in the accounting process. It guarantees correct financial reporting and guides
corporate decisions. Usually, the procedure consists in the following important stages:
1. Documenting Transactions
Finding and examining financial business transactions with measurable monetary values is the
first step. Excluded are non-financial events including employee satisfaction. For instance, clear
financial transactions are the purchase of machinery or the selling of goods.

2. Writing in the Journal

Once a transaction is found, it is noted in the journal—also called the book of original entry. Along
with the date and a synopsis, this phase entails journaling every transaction using appropriate
debit and credit guidelines. Every transaction is guaranteed methodically by this chronological
record.

3. Recording on the Ledger

Transactions entered into the ledger, the book of final entry, follow journalizing. Each account is
updated in this stage by means of pertinent transactions from the journal into the suitable ledger
accounts. This facilitates the summarizing of every transaction connected to a given account into
one location.

4. Getting the Trial Balanceready

Once every ledger account is in line, a trial balance is generated. It is a declaration displaying
every account's credit and debit balances. Because the total debits should equal total credits, the
trial balance guarantees the mathematical accuracy of the books. It provides also a foundation for
creating financial statements.

5. Correcting Mistakes
Adjustments for exceptional expenses, accumulated incomes, depreciation, and prepaid items are
done before final account preparation. These changes guarantee that, using the accrual and
matching ideas, all revenues and expenses are recorded in the proper accounting period.

6. Combing through financial statements

• The main financial statements are produced depending on the changed trial balance:

• To figure gross profit or loss, use your trading account.

 • Account for profit and loss to ascertain net profit or loss.

• Showing the company's financial situation—including capital, liabilities, and assets— a

balance sheet helps to

• (in more advanced accounting) the cash flow statement displays cash inflows and
outflows.

• For creditors, investors, and owners among other stakeholders, these comments provide
vital information.

7. shutting the books

Closing entries reset temporary accounts—such as revenues and expenses—to zero for the next
accounting period following financial statement preparation. The retained earnings account or the
capital accounts gets the balances.

8. Reversing Entries (Optional) Post-Closing

To ease the accounting for the following period, some companies create post-closing and
reversing entries. Usually, these come at the start of a fresh accounting cycle.

Finally, the accounting process guarantees methodically gathered, arranged, and reported
financial data, so promoting openness and wise decision-making.
 ASSIGNMENT SET 2

ANS: 4=
Within a company, shares are units of ownership. When a company issues shares, it lets people
or organizations make investments in it and start to be part-owners. Depending on the kind of
shares they own, return benefits could include voting rights and dividends. Though there are
several subtypes, shares are mostly divided into two main forms: equity shares and preference
shares.

1. Equity Shares:
The most often issued kind of shares by companies are equity shares, sometimes referred to as
regular shares. They bear voting rights and show company ownership.

1. Equity Share Characteristics:

• Equity owners have the right to vote on corporate decisions including choosing directors
or sanctioning mergers.

• Dividend: The rate is not set; they get dividends depending on the profits of the company.

• Equity owners stand to gain most when profits are high but also carry the most risk should
the company fail.

• Residual Claim: They are paid following all liabilities and preference shareholder
settlement in the case of liquidation.

Kinds of Equity Shares:

• issued free of cost from retained earnings to current owners, bonus shares.

• Discounted rights shares are given to current owners, so enabling their right to purchase
more shares prior to public release.
 • Usually at a discount or for non-cash reasons, sweat equity shares—issued to directors or
staff members—often reflect their contributions.

2. Share Preference:
In terms of dividend payment and capital refund during liquidation, preference shares grant
owners preferential rights over equity holders. Usually, however, they do not have voting rights.

Characteristics of Preference Share:

• Preferences Share Types: Preference investors get a fixed rate of dividend before equity
investors.

• Priority: They come before equity holders in terms of capital returns and dividends.

• Usually, their rights are unaffected, thus they do not have voting rights.

• Accumulate unpaid dividends and pay them in next years before any dividend is paid to
equity owners.

• Non-Cumulative Preference Shares: Avoid accumulating unpaid dividends; if not paid in

a year, the appropriate lapses follow.

• Shareholders are entitled to a fixed dividend and might also get a share in surplus profits
by participation preference shares.

• Entitled just to a fixed dividend and lacking any participation in additional profits, non-
participating preference shares

• Following a designated period, convertible preference shares can be turned into equity
shares.
 • Not convertible preference shares cannot be turned into equity shares.

All things considered, shares let investors help a business with capital and participate in its
expansion and earnings. The investor's risk tolerance, return expectations, and desired degree of
company control will determine whether equity or preference shares best suits them.

ANS: 5=
Definition of Debentures and Their Classification:
Long-term financial instruments used by a company to obtain public loan money are debentures.
These kind of debt instruments promise to pay back a loan taken out by the company with interest
following a set period, so acknowledging a debt. Not owners, but creditors of the company,
debenture holders lack voting rights.

Usually annually or semi-annually, a debenture has a fixed rate of interest paid periodically. The
principal is then repaid upon maturity. Collateral security either might or might not support
debentures.

Classification of Debentures

Debentures can be classified on various bases:

1. Dependent on Security

• Secured debenturies are backed by particular company assets. Should the company fail,
the debenture holders are entitled to recoupment of their obligations from the pledged
assets. These give traders more security.

• Naked debentures—that is, unsecured debentures—do not have any collateral security.
The investors depend just on the company's reputation and creditability. These kinds of
debentures expose more risk.
2. Based on convertibility

• After a designated period, convertible debenturies can be changed into equity shares.
Conversion terms are mentioned during the issue time. They further fall into:

• Completely convertible debentures (FCDs) have their whole amount turned into shares.

• Partly convertible debentures (PCDs) are debt left over after some of which are turned into
equity shares.

• Non-convertible debenturies (NCDs) are debt instruments until maturity; they cannot be
turned into shares. Usually, they pay better interest rates to offset lack of conversion
advantage.

3. In line with redeemability

• Redeemable debentures are fixed-maturity instruments whereby the principal amount is

paid back to debenture holders. Should call or put options exist, they could also be
redeemed earlier.

• Not repayable during the company's lifetime, these are known as irredeemable
debenturies—perpetual debentures—which are paid back just in case of liquidation. These
are hardly issued nowadays.

4. Based on Registration:

• Transfer calls for a formal process; the names of holders are noted on the company register.
Just the registered holders benefit from interest and repayment.

• Not shown on company records are bearer debentures. Just delivery will allow them to be
transferred; the holder is entitled to interest and repayment.
Final Thought
For businesses especially when they want to avoid diluting ownership, debentures are a significant
source of long-term finance. Knowing the several classifications helps investors select debentures
that fit their financial objectives and risk-return tolerance.

ANS: 6=
Methods of Depreciation – Detailed Explanation
The methodical spread of a tangible fixed asset's cost over its useful life is known as depreciation.
It shows how wear and tear, use, time passing, or obsolescence lowers the value of an asset.
Businesses apply different depreciation techniques depending on the type of asset and accounting
policy of the company in order to fairly depict this loss in value.

Here are the most commonly used methods:

1. Straight Line Approach (SLM)
Called the Fixed Installment Method as well, this is the most basic and often used technique.

Formula: Residual Value - Cost of Asset / Useful Life Depreciation

traits:

Every year the depreciation amount stays the same.

Ideal for items like buildings or office furniture that have constant use and wear across time.

simple to grasp and compute.

For instance, annual depreciation for an asset whose residual value is ₹10,000 and a useful life of
five years is ₹(1,00,000 – 10,000)/5 = ₹18,000.
2. WDV, or written down value, method

• Declared at a fixed percentage on the book value (reducing balance) of the asset annually,
depreciation is also known as the Diminishing Balance Method.

Formula: Book Value at Beginning of Year x Rate of Depreciation Properties:

• The amount of depreciation falls with time.

• Ideal for machinery and cars that lose more value in early years.

• more fairly depicts the usage and value loss of the asset.

3. Method of Production Units:

• Not time, but actual use or production output of the asset determines depreciation.

• Formula: (Cost – Residual Value) / Total Estimated Units Depreciation per Unit
• Annual Depreciation = Unit Depreciation × Units Created in a Year

Qualities:

• Applied for assets like machinery where use can be quantified (in hours or output units).

• differs annually based on usage.

4. SYD, or sum-of- the-years'-digits method

• Higher depreciation is charged in the earlier years of this accelerated depreciation

technique.
 • SYD = [Remaining Life of Asset / Sum of the Years' Digits] × (Cost – Salvage Value)

• Characteristics:

• Acknowledges that early years of an asset may be more productive.

• Usually used for tax-related needs.

5. Annuities Using Method

• Depreciation includes an interest component considering the asset was an investment. It

computes depreciation in annuity form.

• characteristics:

• tricky computation.

• Shows both cost of capital and asset devaluation.

Finish
The type of asset, use patterns, legal requirements, and corporate policies will all affect the
appropriate depreciation approach. Correct depreciation guarantees improved asset management
and honest and fair financial reporting.