complete poa summary
DESCRIPTION
POA O levelTRANSCRIPT
Quick revision notes for O level POA
1)Final A/c with adjustments
A) Drawings during the year ( not yet recorded)
Drawings of goods Drawings of moneyAdjustment required:
Add to existed drawings (Dr)
Less from Purchases
Adjustment required Add to existed
drawings(Dr) Less from cash/bank
B) Additional New Capital (not yet recorded)
a)in the form of cash b) in the form of fixed asset eg furniture
Add to existing capital (Cr) Add to cash account
Add to existing capital (Cr) Add to fixed asset eg furniture
a/c
C) CHECK FOR ACCRUAL AND PREPAYMENT :
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APPLICABLE FOR CLOSING BALANCE ( BAL C/D ) ONLY.
Expenses A/c
Balance b/d prepaid Balance b/d accrued
Bank Income statement
Balance c/d accrued Balance c/d prepaid
Ways to remember : PAPA
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Expenses Revenue
accrued prepaid accrued prepaid
Profit & loss
Balance Sheet
Add (+)
Current Liabilities
Deduct (-)
Current Assets
Add (+)
Current asset
Deduct (-)
Current liabilities
D)Check for bad debts and provision for doubtful debts
Bad debt: is the amount of debts that are definitely irrecoverable and must be written off
If bad debts has not been recorded yet, adjust:
Bad debts Profit and Loss (Dr)
Balance sheet ( Current asset less Bad debts)
Provision for doubtful debt: is the amount set aside for debts, which may or may not be recovered.
i) New creation of PFDDa. Income statement record under expenses (Dr)b. Balance sheet (Current assets: Less from debtors) *must show*
ii) If last year and this year PFDD given, COMPARE the differences AND RECORD THE DIFFERENCES ONLY FOR INCOME STATEMENT.
In Income statement,Increase in PFDD, record the increase under income. Decrease in PFDD, record the decrease under expenses In Balance sheet, whether increase or decreases, record the new provision of the year only. (Debtor-PFDD) under current assets.
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E) Check for Depreciation
Depreciation = amount of cost written off in one year.
Accumulated depreciation ( Provision for depreciation)=The total cost that has been written off at a particular point in time
Net book value = Cost of asset- accumulated provision for depreciation
Three methods of depreciation :Straight line method It is an equal amount of cost is written off each yearDepreciation formula :Depreciation = Cost of fixed asset-scrap value
Life span (No. of years)
Depreciation : % x cost of fixed assets
Reducing balance method/ Diminishing method
A reducing amount of cost is written off in each year
Depreciation = % x (cost- provision for last year)
Revaluation method
If the fixed assets is revalued downward at year end, the difference between value the beginning of the year and value at the end of the year amounts to depreciation
Depreciation : Cost (at beginning ) + additions – cost (at the end)
How do you record depreciation?
Depreciation of fixed assets Profit and Loss A/c (Dr)
Accumulated depreciation (LAST year provision + This year provision) Balance sheet (Less from Non Current asset) to get Net book value of an assets.
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F) Sales of Fixed assets
i) By cash/ bank :
In Balance sheet, less from non current assets
Add cash/bank balance.
ii)On credit :
In Balance sheet, less from non current assets
Add from trade receiveable
G) Purchases of Non Current assets
i) By cash/ bank:
In balance sheet, add from non current assets
Less cash/bank balance
ii) On creditIn balance sheet, add from non current assets Add to creditors.
Income statement for the year….
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$ $ $ $
Opening inventory xxx Sales xxx
(+)Purchases xx (-) Sales Return (xx)
(-) Purchases returns (xx) Net sales xxx
(-)Drawing of goods (xx)
Net purchases xxx
(+) Carriage inwards xxx
(+)Duty on purchases xxx
(+) Wages on purchases xxx
(+) Packaging expenses xxx xxx
Cost of goods available for sale xxx
(-)Closing inventory (xxx)
Cost of sales xxx
Gross profit xxx
Expenses Income
All expenses items xxx All revenue items xxx
**Add expenses accrued xxx **Add revenue accrued xxx
**Less prepaid expenses xx **less prepair revenue xxx
**Increased in PFDD xxx **Decrease in PFDD xxx
*Loss on disposal of fixed assets xxx **Gain on disposal of NCA xxx xx
*provision for depreciation xxx xxx
Net profit xxx
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Zara’s Ltd (Balance sheet as at..)
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Cost Accumulated Depn
Fixed Assets :Motor VehicleFixtures and Fitting
Current AssetsClosing stockTrade Receiveables (xx-bad debts)
Aryan Liana
(-) provision for doubtful debts
Cash at bank
Accrued revenue
Prepaid expenses
Cash at hand
Less : Current liabilities
Trade Payables
Accrued expenses
Prepaid revenue
Net Current Assets
Less:Non Current Liabilities
5 % Debentures
Long term loan
Financed by :
Capital at first
+ Net profit
(-) Drawings
Capital at the end
net book value
Cash book and Bank Reconciliationa) Entries in the cash book but NOT in the bank statement
- Unpresented cheques (money paid) Cheques issued by the trader have NOT been presented to
the bank for payment
- Uncredited cheques (money received) Cheques received and lodged with the bank have not been
credited by the bank
b)Entries in the bank statement but not in the cash book
- Direct deposits Eg : Dividends reveived, credit transfer and interest on debenture
- Direct paymentEg : Bank charges, interest on overdraft, giro deduction, credit card
payment and standing order
Steps :
1) Check the balance c/d in both : Cash book and bank statement.2) Identify where thediscrepancies : either in cash book or bank statement
3) If not recorded in bank statement :SHOULD BE RECORDED IN CASH BOOK (Update)
Dr Cash Book if money receivedCr Cash Book If money paid.
Then, balance cash book.New balance b /d should be transferred to Bank reconciliation statement.
4) In NOT RECORDED in Cash Book : should be recorded in Bank Reconciliation Statement.
Dr side in Cash Book Uncredited ChequeCr side in cash book unpresented cheque
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Should be
recorded in
the Bank
reconciliatio
n statement
Should be
recorded
in the
Updated
Cash Book
Cash Book (Bank column)
Jan 1 Bal b/d xx Ariana xxDanial xx Alai xxSaadah xx Afiah xx
Dividend xx Balance c/d xx
Balance b/d xx
Bank reconciliation statement as at…
Balance as per Cash Book xx+Unpresented cheque xx
xxx
- Uncredited Cheque xxBalance as per Bank Statement xx
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Money received
(uncredited cheque)
Money paid
(unpresented cheque)
Same amount in the bank
CONTROL ACCOUNTS
Trade Receiveables Control A/c
Sales Ledger Control A/c
Date $ Date $Balance b/d xx Cash/Bank xxCredit sales xx Return Inwards xx
Any Changes xx Discount allowed xxBad debts xx
Contra/Transfer xxBalance c/d xx
Balance b/d xx
Total Sales : Cash Sales + Credit sales
Trade Payable’s control a/c
Purchases Ledger Control A/c
Date $ Date $Cash/Bank xx Balance b/d xxReturn Outwards xx Credit purchases xxDiscount received xx Any charges xxContra/Transfer xxBalance c/d xx
Balance b/d xx
Total purchases : cash purchases + credit purchases.
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MANUFACTURING ACCOUNT
Manufacturing account is prepared to determined the total manufacturing of production cost of goods completed during
accounting period.
Manufacturing account for the year ended…
$ $ $ $Cost of raw materials Xx Cost of production XXX
Opening stock (1 Jan) xx
Add : Carriage inwards xxCost of raw material available xxxLess: closing stock (xx)Cost of raw material being used
Xxx
Direct labour (wages) XxDirect expenses xx xxPRIME COST xx
FACTORY OVERHEADS XxIndirect expenses XxDepreciation of plants xx Xx
x
Work in progressOpening xxLess : closing (xx) Xxx
xxx xxx
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Income Statement for the year ended….
$ $ $ $Finished goods Sales of finished goods xxx
Opening stock xx
Purchases xx
Add: COST OF PRODUCTION
xx
Add : carriage inwards xx
Less: closing stock (xx)
COST OF FINISHED GOODS
xxx
Gross Profit c/d ??
Gross profit b/dOFFICE EXPENSES OFFICE REVENUEDiscount allowed Xx Discount received xx
Office rent Xx Comission received xx
Depreciation on motor vehicles Xx
Office salaries Xx
Net profit ??
$ $ $ $ $ $Current assets Sales of finished goodsStock: Raw material xxWork in progress xxFinished goods xx xxDebtors xx xx
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xx
x xx
x xx
Incomplete Records
What to find/calculate?
I. Total purchasesII. Total sales
III. Depreciation of fixed assetIV. Capital : initial or finalV. Cash or bank balance at the end
To find total purchases for trading account:
Purchases Ledger Control A/c
Date $ Date $Cash/Bank xx Balance b/d xxReturn Outwards xx Credit purchases xxDiscount received xx Any charges xxContra/Transfer xxBalance c/d xx
Balance b/d xx
Total purchases : cash purchases + credit purchases. (record in trading account)
To find total sales for trading account
Trade Receiveables Control A/c
Sales Ledger Control A/c
Date $ Date $Balance b/d xx Cash/Bank xxCredit sales xx Return Inwards xx
Any Changes xx Discount allowed xxBad debts xx
Contra/Transfer xxBalance c/d xx
xx xx
Balance b/d xx
Total Sales : Cash Sales + Credit sales
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Find depreciation for non current assets
Equipment a/c
$ $Balance b/d Xxx Depreciation ??Cash/Bank (if new equipment bought)
xxx Balance c/d xx
xxx xxx
Find the capital
1) Capital = all assets – all liabilities(opening) (at beginning)
2) Capital = using backwards method by balance sheet format
Find the cash or bank balance at the end of period
Cash or Bank a/c
$ $Balance b/d xx Total Payments xxTotal Receipts xx Balance c/d ?
xxx xxx
Balance b/d xx
NON PROFIT MAKING ORGANISATION
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Will be recorded in balance sheet
Receipts and Payment account
$ $Balance b/d xx Payments xx
Receipts xx Balance c/d xxxxx xxx
Subscription account (income account)
$ $Balance b/d owing xxx Balance b/d Prepaid xxx
Income and expenditure
xxx Bank xxx
Bal c/d prepaid xxx Bal c/d owing xxxxxx xx
Refreshment Trading account
$ $Opening stock xx sales xx+purchases xx+refreshment wages xx
xxx-closing inventory (xx)Cost of refreshment sold xxxRefreshment profit xxx
Income and expenditure account
$ $Revenue expenses Refreshment profit (from
Trading)xxx
Prizes and trophies xx Revenue receiptsHonorium xx Subscriptions xx
Rates xx Locker fees xxWages xx Entrance fees xx
Depreciation xxxx xx
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Balance sheet as at…
$ $ $FIXED ASSETS ACCUMULATED FUNDEquipment (cost-prov for dpn)
xxx Opening (*need to calculate) xx
+ surplus xxxCURRENT ASSETS xxxCash in hand xx +capital receiptsCash at bank xx (**for specific purpose**) xxx xxxSubscriptions in arrear xx
CURRENT LIABILITIESSubscription in advance xxx
LONG TERM LIABILITIES xxx
xxx xxx
ACCUMULATED FUND : ALL ASSETS- ALL LIABILITIES
(AT BEGINNING)
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LIMITED COMPANIES
FORMED UNDER COMPANIES ACT
OWNERS CALLED SHAREHOLDERS
COMPANY IS RUN BY BOARD OF DIRECTORS
DIVIDENDS DECLARED BY THE BOARD OF DIRECTOR
LEGAL INTITY : CAN SUE AND BE SUED
THE DIFFERENCES BETWEEN SOLE TRADER, PARTNERSHIP & LIMITED CO.
FEATURES SOLE TRADER PARTNERSHIP LIMITED CO
OWNERSHIP ONE PERSON MIN 2, MAX 2O PUBLIC : MIN 7, NO MAXIMUM
PRIVATE : MIN 2, MAX 50
CAPITAL INVESTED CAPITAL CONTRIBUTED BY
OWNER
CAPITAL CONTRIBUTED BY
PARTNERS
CAPITAL CONTRIBUTED BY
INVESTORS BUYING SHARES IN THE
COMPANY
DISTRIBUTION OF PROFIT
ALL PROFITS AND LOSS GOES TO THE
OWNER, AFTER DEDUCTING DRAWINGS.
PROFITS SHARING AMONG PARTNERS AFTER DEDUCTION
OF INTEREST CAPITAL, AND
PARTNER’S REMUNERATION
DIVIDENDS ARE PAID FROM PROFITS TO
THE SHAREHOLDERS
LIABILITIES UNLIMITED UNLIMITED LIMITED
DIFFERENCES BETWEEN PUBLIC COMPANY AND PRIVATE COMPANY
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PUBLIC COMPANY PRRIVATE COMPANYMaximum number of shareholders is seven and maximum limited to number of shares issued
Minimum number of shareholders is one and maximum are 50
Company name must end with the word “Limited”
Company name must be end by Proprietary LTD (Sendirian Berhad)
Financial statements must be printed containing prescribed information
Financial Statements are not printed for non shareholders
Must have two or more directors Must have one or more directorsShares are issued to the public Shares are issued to foundersShares are freely traded Shares may only be transferred with
director’s approval
CLASSIFICATION OF CAPITAL
AUTHORISED CAPITAL / REGISTERED/NOMINAL CAPITAL
The maximum amount of capital a company is allowed to raise from the public by the issue of shares
ISSUED SHARE CAPITAL
That part of the authorized capital that is offered to the public for subscription
RESERVE SHARE CAPITAL
That part of authorized capital which is not issued is the reserve share capital
DIFFERENCES BETWEEN DEBENTURES, PREFERRENCE SHARES AND ORDINARY SHARES
debentures preferrence ordinaryRate dividend FIXED FIXED NOT FIXED
Claiming rights MUST BE PAID NO MATTER GAIN OR LOSS, FIRST BEFORE PREFERRENCE
FIRST CLAIMING BEFORE ORDINARY
CLAIMED AFTER PREFERENCE
Voting rights none none yes
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CLASSES OF CAPITAL
Preferrence Shares
Ordinary Shares
Theory:
What is general reserves?
The funds that are set aside by a financial institutions for the sole purpose of covering possible losses that have not yet been specifically identified
Functions?
A general reserves separate retained profits which shareholders might expect to be distributed from those which are likely to be kept long term in the company
By transferring funds to a general reserve the company indicates retained profits are being reinvested long term
FORMAT OF FINAL ACCOUNTS OF LTD CO.
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Trading account Profit and loss a/c
$ $EXPENSES xxx Gross Profit xxxDirector’s remuneration xxx REVENUES xxxAuditor’s fees xxxInterest on debentures xxxCorporation Tax xxxNet profit xxx
xxxx xxxx
$ $Transfers to General Reserve xxx Net profit (this year) xxx
Dividends:Preference shares
-interimFinal
Ordinary shares-interim
-final
XxxXxx
Xxxxxx
Unappropriated (retained profits)from last year
xxx
Unappropriated (Retained) profits ???Name of A company…Ltd
Profit and Loss Appropriation A/c
Name of Company…Ltd
Balance sheet as at….
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Transfer to balance sheet
xxx xxx
$ $FIXED ASSETS xxx AUTHORISED SHARE CAPITAL
Preference shares xxxOrdinary shares xxx
CURRENT ASSETS xxx xxxISSUED SHARE CAPITALPreference Shares xxxOrdinary Shares xxx xxx
RESERVES General Reserves (Old+New transfer) xxxUnnappropriated Profit xxxShare Premium xxxStaff Welfare xxxSpecial Reserves ;Debentures Redemption
Total Shareholder’s fund xxx
LONG TERM LIABILITIESdebentures xxxCURRENT LIABILITIESPreference Share Dividend xxxOrdinary Share Dividend xxx
Debenture Interest Due xxx
Creditors xxx
xxx xxx
PARTNERSHIP
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- There’s no limited liability in partnerships except for limited partners- Formed by atleast 2 to 20 people with intention to make profit- Mostly, partner prefer to have written agreement. Eventhough it’s
unnecessary. But it helps to avoid the possibility of disputes or arguments in future
- Agreement signed between partner’s are called “Deed of Partnership” contents:
o Amount of capital subscribed by partnero Rate of interest, if any, on partner’s loan on firm.o Rate of interest, if any, charged on partner’s drawingo Rate of interest, if any, to be allowed on partner’s capitalo Amounts of partner’s salary (if any)o Ratio in which profits and losses are to be shared between the partnerso Arrangement for new partners admission o Procedure to be carried out if partners retires and died.
If the business agreement doesn’t have previous content, therefore Partnership Act 1890 will be applied contents :
No interest on capital
No interest is charged on drawings
No salaries are allowed
Profits and losses are to be shared equally
5 % of interest on loan are to be entitled made to firm in excess of agreed capital
Advantages of partnership :
A partnership is usually able to raise more capital than a sole trader
Partner’s may contribute a diversity of knowledge,experience and expertise in management of business
Partners can cover for each other during holidays or sickness
Any risks or losses involved would be shared by partners
Disadvantages of partnership:
Partners are not able to act as sole trader
All decisions and strategies have to be agreed both by partners
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Ordinary partners have unlimited liabilities
Special features of partnership
It is actually similar to Profit and Loss, but theres some section added, in which shows distribution of profits by adding net profit with interest on drawing (if any) and deduct
them with interest on capital and salaries
Interest paid on loans from partners are normal expenses, because its just the same as interest on bank loan and therefore debited to P&L before calculation of net profit
Therefore, NP-Int on loan = NP after int on loan
A/c to be opened :
Capital A/c, Drawing A/c, Current A/c
Uses of :
Capital A/c To records the initial capital that they contributed and any additional capital they decides to bring in
Current a/c separate a/c that is drawn when the partners want to maintain the actual capital contribution of each partner in the capital a/c, thus capital a/c wil remain fixed and the other entries such as interest on capital, salaries to partners, share of profits (Dr) and losses, drawing and the interest on drawings (cr) will be entered into current a/c. by the end of financial year, the balance of current a/c will represent undrawn/ withdrawn profits of parners.
Dr (balance b/d at beginning)
Will shows drawings in excess of which profits to which partner’s entitled.
Cr (balance b/d at beginning is undrawn profits)
What is the purpose of :
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i) Preparing profit and loss? To find net profitii) Preparing Profit loss appropriation a/c? To show net profit of business and share
profits of partners. It is a bit similar to normal P&L but with additional section. NP will be added to interest on drawing and will be deducted with salaries and interest on capital
iii) Why interest is allowed on capital? To overcome the difficulty of compensating for the investment of capital
iv) Why interest charged on drawings?To deters the partners from taking out the cash unnecessarily. (The more cash in the business the more expansion can be financed)
v) Why interest charged on drawings?To deters the partners from taking out the cash unnecessarily. (The more cash in the business the more expansion can be financed)
HOW TO RAISE CAPITAL IN THE BUSINESS?ADD IN NEW PARTNER : Adv: raise business capital and eases workloadDis: Share of profits shall decreaseFORMING PRIVATE LTD CO:Adv: No workloadDis: Profits getting lesserSAVE UP OWN MONEY :Adv : No need to loan or borrow moneyDis: It takes time.SALE THEIR FIXED ASSETS, LEASED BACK.Adv : able to limit expensesDis : the machine might broke down.
AMALGAMATION 0F PARTNERSHIP – MERGE OF TWO BUSINESS INTO A PARTNERSHIP
STEPS :o Consider the goodwillo Revalue the assetso Disclose all liabilities or bring them into partnership
i) Goodwill and an increase in the value of assets will increase the capital of the owner. A decrease in the value of the assets will decrease his capital
ii) If a liability is discharged by additional cash brought in by the owner, his capital will increase
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iii) Goodwill, the adjusted capitals, existing liabilities and the new values of the assets of the partners are combined in the balance sheet of new partnership.
Format of partnership account
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Profit and loss appropriation a/c for year ended..
$ $ $Net profit xx+ interest on drawing :A xxB xx xx
xxx-Interest on capitalA xxB xx xxx
-SalariesA xxB xx xxx
Share of profitsA (y/a x ABC) xxB(y/a x ABC) xxC(guaranteed profits) xxx xxx
Current a/c
A B A BBalance b/d Balance b/dDrawings Interest on capitalInterest on drawings SalaryShare of loss Interest on loanBalance c/d Share of profits
xxx xxx xxx xxxBalance b/d
Balance sheet as at….
Non Current Assets xxCurrent assets xxx(-) Current liabilities (xx) xxx
xxx(-) Non current liabilities (xx)
xxx*Financed by :Capital – A -BCurrent A/c- A -B
XxXxXxxx
Xxx
xxx Xxx
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DEPARTMENTAL A/C
Business can have two or more departments so in order to reveal the profits or losses of each department, we have to prepare separate trading profit and loss.
Departmental a/c is necessary for particular purposes: calculating manager’s commission Staff bonuses To show contribution of each department to either improve or face closure
Separate records must be kept for sales and purchases for each department in departmental trading accounts whereas overheads in the departmental profit and loss a/c should be apportioned on equitable basis between the department.
Factors to be considered before closing department:
Loss : making department may in fact be attracting customers for other departments
The possibility of using the space freed by closure for the benefit of the other departments for a new department
Cost of closing department Closure may have social consequences the department may be providing only
source of supply or service to the local community Other department may suffer id the loss making department, the lesser the
department, the higher overheads must the department pay. A profitable department may appear to be making a loss because the
apportionment of overheads between the department is unfair on not equitable.
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Ratio
The Types of ratios are classified into the following:
Liquidity Ratios Profitability Ratios Stock turnover Ratios
Liquidity Ratios
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