(230)-EXTRAORDINARY ITEMS AND PRIOR YEAR ADJUSTMENTS

Extraordinary Items and Prior Year AdjustmentsThe all-inclusive conceptSSAP was based on the all-inclusive concept whereby the profit and loss account reflected all profits and losses including extraordinary items.Extraordinary itemsTwo key definitions:Extraordinary items are material items which derive from events or transactions that are outside the ordinary activities of the company and which are...

Read More

(229)-A CONCEPTUAL FRAMEWORK OF ACCOUNTING

A Conceptual Framework of Accounting IntroductionThe standard-setting process has proceeded for almost two decades in the absence of a conceptual framework underlying the preparation of periodic financial statements. This has resulted in illegalities and inconsistencies in several of the accounting...

Read More

(228)-ACCOUNTING FOR SUBSTANCE

Accounting for Substance Substance over form The principle of substance over form was introduced in international accounting standards.International accounting standards refers to three fundamental accounting assumptions:Going concern Consistency Accrual International accounting standards further refers to three considerations that should be accounted for and presented in accordance with their substance...

Read More

(227)-VARIATIONS IN ACCOUNTING PRACTICE

Variations in Accounting Practice The accounting standards programmed has sought to eliminate the scope for variations in accounting practices, both within company annual reports and between one company and another. Nevertheless there remains significant scope for variations. Some of the more common areas are referred to below. Impact of fixed asset revaluations Depreciation charges may be based on...

Read More

(226)-FUNDAMENTAL ACCOUNTING CONCEPT

Fundamental Accounting Concepts Disclose of accounting policies refers to four basic assumptions underlying the periodic financial statements of enterprises. The turn used to describe these broad assumptions is fundamental accounting concepts. Going concern concept This assumption that the enterprises will continue in operational existence for the foreseeable future. This means that there is no intention...

Read More

(225)-FINANCIAL STATEMENTS

Financial Statements Terminology The term “financial statements” is usually taken to include the balance sheet, profit and loss account and cash flow statement together with notes to the accounts. The term will include the additional statements and notes required by financial reporting standards (FRS). Accounting conventions Pure historical costFinancial statements some companies are usually prepared...

Read More

(224)---SOME IMPORTANT LEGAL REQUIREMENTS IN FINANCIAL STATEMENTS

Some Important Legal Requirements in Financial Statements Terminology Accounting reference period (ARP), the period by reference to which the financial statements have to be prepared and presented to members. Accounting reference date (ARD), the date on which the Accounting reference period ends. Financial year (FY), the period covered by the statutory profit and loss account, whether or not this...

Read More

(223)-PREPARATION OF ACCOUNTS AND FILLING REQUIREMENTS

Preparation of accounts and filling requirements Form and contentCompany Profit and loss accounts and balance sheets must comply with the company's act format requirements. These must be accompanied by notes which comply with the disclosure requirements of the company's act as well as the relevant standards.In additionally to the accounts a director’s report is requiredLarge public limited companies...

Read More

(222)-STOCK EXCHANGE DISCLOSURE REQUIREMENT

Stock exchange disclosure requirements The international stock exchange requires the annual report and accounts of a listed company to disclose a large number of matters including the following a statement by the directors as to the reasons for any significant departures from applicable standard accounting practices An explanation, should trading results shown by the current period's accounts differ...

Read More

(221)-BALANCE SHEET DISCLOSURES IN COMPANY ACCOUNTS

Balance Sheet Disclosures in Company Accounts Fixed assetsUnless indicate otherwise, the points below relate also to fixed asset investments and intangibles.1. Cost of valuation of each fixed asset category2. Cumulative depreciation for each fixed asset category3. For fixed asset included on a valuation basis4. Land and buildings analysis of NBV between freehold, long leasehold and short leasehold5....

Read More

(220)-PROFIT AND LOSS ITEMS REQUIRING DISCLOSURES IN COMPANY ACCOUNTS

Profit and Loss Items Requiring Disclosures in Company Accounts TurnoverAnalysis of turnover over, Substantial different business activities; substantial different geographical markets, Analysis of profit before tax between substantially different business activities DepreciationThe total depreciation provided. Additional provisions for depreciation and where assets revalued during current year, disclosure...

Read More

(219)-PRINCIPAL DISCLOSURES FOR SINGLE COMPANY ACCOUNTS

Principal Disclosures for Single Company Accounts The principle disclosures are classified as follows’ Purpose of the checklist Accounting policies Profit and loss items requiring disclosure Balance sheet disclosures Cash flow statements Directors’ report – Summary of matters to be disclosure Purpose of the checklist The aim of the following checklist is to provide a guide to disclosure requirements...

Read More

(218)-ENTRIES OF PURCHASING OF A BUSINESS BY A COMPANY

Entries of Purchasing of a Business by a Company The entries in the company’s books necessary to record the purchase of the business are as follows: Assets acquired at acquisition valuesDebit – AssetsCredit – Vendor’s account Liabilities acquired at acquisition valuesDebit – Vendor’s accountCredit – Liabilities Purchase considerationDebit – Vendors accountCredit – Share capital, share premium, debentures,...

Read More

(217)-PURCHASE OF A BUSINESS BY A LIMITED COMPANY

Purchase of a Business by a Limited Company Several advantages may stem from the “conversion” of a private business into a limited company e g perpetual succession, whereby a member of a company can transfer his shares, or bequeath them by will at death, without describing the constitution of the company or its financial resources. The “conversion” may take the from of the transfer to a private company...

Read More

(216)-IMPORTANT NOTES FOR REDEMPTION OF DEBENTURES

Important Notes for Redemption of Debentures The profit or loss on redemption of debentures, disclosed in the debenture redemption account, is the difference between the price paid on redemption and the nominal value. As the price paid on redemption includes accrued debenture interest, an adjustment made debiting debentures interest account and crediting debentures redemption account with the accrued...

Read More

(215)-REDEMPTION OF DEBENTURES

Redemption of Debentures Debentures may be irredeemable; but this unusual, except in companies formed under special act of parliament. Debentures may be redeemed either at the end of a given period or by annual drawings. The trust deed, or if there is no trust deed, then the debentures themselves, will contain provision for redemption and will unusually stipulate the establishment of a sinking fund...

Read More

(214)-DEBENTURE ISSUES

Debenture Issues Debentures issued at a premium When debentures are issued at a premium, debenture account is credited with the nominal amount and debenture premium account with the premium. Debenture premium account can be shown in the balance sheet as a revenue reserve. The companies act does not specify the uses of the debenture premium account. Debenture issued at a discount Debenture can be issued...

Read More

(213)-DEBENTURES OF A COMPANY

Debentures of a CompanyA debenture is a written acknowledgement of a debt by a company, usually under seal and generally containing provision for payment of interest and repayment of capital; a simple or naked debenture carries no charge on assets; a secured debenture carries either a fixed charge on a specific asset or a floating charge an all or some of the assets. All form of loan stock is debentures.A...

Read More

(212)-RESERVES AND PROVISIONS

Reserves and ProvisionsReserves The term reserves may include the following:Reserves created by means of appropriation from profit and loss account.The reserves referred to below be voluntary reserves, the amounts transferred are at the discretion of the directors. These reserves may include following:General reserveFixed asset replacement reserveStock replacement reserveDebenture reserveThere is...

Read More

(211)-ISSUE OF SHARES

Issue of SharesWhenever an allotment of shares is made, an entry should be made in the journal, debiting an application and allotment account with the amount payable on application and allotment in respect of the shares so allotted, and crediting share capital account. If more than one class of capital is being issued, separate accounts must be opened in the ledger for each class.Similar entries must...

Read More

(210)-SHARE CAPITAL OF A COMPANY

Share Capital of a CompanyThe most common class of share capital is ordinary shares which carry votes. In principle a company may have more than one class of shares, including:Voting ordinary shares which carry the right to vote on all matters and to participate in surplus profits or surplus assets on liquidation.Non-voting ordinary shares which have similar rights as for above except that the ability...

Read More

(209)-FINANCIAL STATEMENTS OF COMPANIES

Financial Statements of CompaniesSpecial features of company financial statements include:Profit and loss accountThe profit and loss account will be charged with directors’ remuneration and auditors’ remuneration. If the company has borrowings in the form of loan of debenture stock, the profit and loss account will be charged with interest. Company profits are assessable to corporation tax and the...

Read More

(208)-DISSOLUTION OF PARTNERSHIPS

Dissolution of PartnershipsPresidential realization and interim distributionsWhen assets are realized piecemeal, the partners may desire, as soon as all liabilities have been discharged, to withdraw immediately such as is available for decision between them rather than wait until all the assets have been sold. In such circumstances, subject to any contrary agreement between the partners, the interim...

Read More

(207)-CONVERSION OF A PARTNERSHIP INTO A LIMITED COMPANY

Conversion of a Partnership into a Limited CompanyFrequently a private business is converted into a limited company. The partners give up their partnership stakes in exchange for shares in the company. This conversion is usually seen as a necessary stage of development of the growth of the business. A larger stage may see the conversion of the private company into a public limited company.Accounting...

Read More

(206)-THE RULE IN GARNER VERSUS MURRAY

The Rule in Garner versus MurrayThis is the situation where, on dissolution, a partner, capital account is in debt and he is unable to discharge his indebtedness.Prior to the decision in Garner versus Murray it was generally supposed that any loss occasioned by one of the partners of a firm being unable to make good a debit balance on his account should be borne by the remaining partners in the proportions...

Read More

(205)-ACCOUNTING FOR CLOSING PARTNERSHIP BOOKS ON DISSOLUTION

Accounting for Closing Partnership Books on DissolutionApart from special circumstances, the following outline of the steps necessary to close the books of a partnership when the assets are sold en bloc, may be found useful:Open a realization account, and debit there to the book value of the assets, crediting the various asset accounts. The realization account will also be debited with any expenses...

Read More

(204)-BASIC PRINCIPLES FOR DISSOLUTION OF PARENERSHIPS

Basic Principles for Dissolution of Partnerships Upon the dissolution of a partnership, the partnership act provides that the assets of the firm, including the sums contributed by the partners to make up losses or deficiencies of capital, must be applied in the following manner and order: In paying the debts and liabilities of the firm to persons who are not partners therein.In paying to each partner...

Read More

(203)-GOODWILL IN PARTNERSHIP ACCOUNTS

Goodwill in Partnership Accounts From the accountants’ viewpoint, goodwill, in the sense of attracting custom, has little significance unless it has a saleable value. To the accountant, therefore, goodwill may be said to be that elements arising from the reputation, connection or other advantages possessed by a business which enables it to earn grater profits than the return normally to be expected...

Read More

(202)-PARTNERS' ACCOUNTS AND ALLOCATION OF PROFITS

Partners’ Accounts and Allocation of Profits Capital and current accounts The partnership agreement provides for a fixed amount of capital to be contributed by each partner, it is preferable for the amounts therefore to be credited to the respective partners’ capital accounts, and for partners’ drawings, salaries, interests on capital and shares of profits to be dealt with the current account. This...

Read More

(201)-PARTNERSHIP ACCOUNTS

Partnership Accounts Introduction Partnership is defined by the partnership act as “the relation which subsists between persons carrying on a business in common with a view of profit”. The participation in profits is not, however, of itself alone conclusive evidence of the existence of a partnership, since the relationship rests upon mutual intention. As the essence of partnership is mutual agreement,...

Read More

(200)-INCOME AND EXPENDITURE ACCOUNTS

Income and Expenditure Accounts An income and expenditure account is the profit and loss account of a non-trading concern. It contains only revenue items, being debited with all expenditure, and credited with all income of a period, weather or not it has actually being paid or received within that period. The final balance of and income and expenditure account represents the excess of income over...

Read More

(199)-INCOMPLETE RECORDS

Incomplete Records Incomplete records are intended to signify any accounting records which fall short of complete double entry. There are varying degrees of incompleteness and the procedure to be adopted in order to prepare final accounts must depend upon the nature of the records and data available.Approach to be adopted In order to prepare a profit and loss account and a balance sheet, the following...

Read More

(198)-FIXED ASSETS AND DATABASES

Fixed Assets and Databases An organization, especially a large one, may possess a large quantity of fixed assets. Before computerization these would have been kept in a manual fixed asset register. A database enables this fixed asset register to be stored in an electronic form. A database file for fixed assets might contain most or all of the following categories of information. Code number to give...

Read More