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By going through these Maharashtra State Board Bookkeeping and Accountancy 11th Notes Chapter 9 Final Accounts of a Proprietary Concern students can recall all the concepts quickly.

Maharashtra State Board 11th Accounts Notes Chapter 9 Final Accounts of a Proprietary Concern

Meaning of Final Accounts-

Every business organisation prepares two important financial statements viz. income statements and statement of financial position to find out the result of business done in the accounting year and to find out financial position in the form of assets owned and liabilities payable to outsiders. In income statements Trading Account and Profit and Loss Accounts are prepared and in the statement of financial position Balance Sheet is prepared.

Thus, final account refers to the group of Trading Account, Profit and Loss Account and Balance Sheet. Final Accounts are prepared on the basis of trial balance and additional information called adjustments at the end of every accounting year.

Final Accounts may be defined as “the statements prepared at the end of an accounting year to disclose the financial position and performance of a business concern”.
Final Accounts include Trading Account, Profit and Loss Account and Balance Sheet.

Objectives of Final Accounts-

• To know the amount of Profit earned or loss if any suffered during the accounting period.
• To know the amount of assets and liabilities in the business on a particular date.
• To know the amount of capital in the business. ,
• To know the amount receivable from various debtors and the amount payable to various creditors.
• To know the Trading (Gross) profit, Operating (Net) profit and abnormal gains and losses.
• To enable the trader to compare the result and financial position of the business with other similar business.
• To find out or ascertain the amount of taxes, i.e. Income tax, Sales tax, Wealth tax, etc. payable to the government.
• To calculate the various ratios for the purpose of financial analysis.
• To enable the trader to take necessary policy decisions regarding future business activities.

Importance of Final Accounts-

• With the help of final accounts businessman can find out gross result, i.e. gross profit earned or gross loss suffered during the accounting period.
• Final Accounts helps to find out cost of goods sold.
• Current year’s stock can be compared with the previous year’s stock.
• Net Profit or Net Loss can be easily ascertain.
• Ratio of Net Profit to Net Sales can be easily calculated.
• Ratio of expenses to Net Sales can be ascertained.
• Comparison of actual performance with desired performance can be easily done.
• Financial position of the business can be ascertained.
• Proprietor’s equity can be ascertained.
• Facilitates the accountant to check arithmetical accuracy of the accounting records.

Trading Account-

Trading Account is a part of final accounts which is prepared on the basis of direct expenses and direct incomes of business to ascertain the gross result of the business, done in the accounting year. Preparation of Trading Account is the first step in preparation of final accounts. Trading Account is prepared by considering only direct expenses and direct incomes of the business. Expenses and incomes which have a direct connection with production are called direct expenses and direct incomes, e.g. power and fuel, cost of raw materials, wages etc. are called direct expenses, and sales proceeds are called direct incomes.

Thus, the Trading Account shows gross result of trading or business activities carried out in the particular accounting year. It is prepared with the basic objective of ascertaining how much gross profit is earned or loss suffered as a result of manufacturing goods or services or buying and selling of goods. Service industries like banks, insurance companies, medical and education institutions never prepare Trading Account. They prepare revenue account, instead of trading account. On the debit side of Trading Account, direct expenses, opening stock and purchases are recorded and on the credit side of account direct income, closing stock and sales are recorded. This account is also credited if goods are lost on account of fire or theft and goods distributed as free samples.

Debit balance of this account indicates gross loss and credit balance of this account indicates gross profit. Results shown by this account i.e. either gross profit or gross loss is carried forward to the Profit and Loss Account.

Specimen Form of Trading Account –

Equation of Gross Profit And Gross Loss –

1. Gross Profit = Net Sales – Cost of goods sold
2. Gross Loss = Cost of goods sold – Net Sales
3. Net Sales = Total Sales – Sales Returns (Return Inwards)
4. Total Sales = Cash Sales + Credit Sales
5. Cost of Goods Sold = Opening Stock + Net Purchases + Direct expenses – Unsold goods
6. Net Purchases = Total Purchases – Purchase Returns (Return Outward)
7. Total Purchases = Cash Purchases + Credit Purchases
   Unsold goods at the end of the accounting year refers to Closing Stock.

Journal Entries For Preparation of Trading A/C –

Profit And Loss Account-

Profit and Loss Account is a part of final accounts which is prepared on the basis of indirect expenses and indirect incomes of the business to ascertain the net result of the business, done in the accounting year. On completion of Trading Account, Profit and Loss Account are prepared by considering only indirect expenses and indirect incomes of the business. Expenses and incomes which have no direct relation with production and whose absence do not affect production, are called indirect expenses and indirect incomes, e.g. salaries, interest, rent, cost of stationery etc. Indirect expenses are recorded on the debit side of the Profit and Loss Account and indirect incomes are shown on the credit side of the Profit and Loss Account. Indirect expenses of business are classified as:

(i) Office expenses (they are also called administrative expenses.) (ii) Selling expenses and (iii) Distribution expenses.

Indirect incomes and gains include discount received, commission earned, interest received, rent received etc.

Debit balance of Profit and Loss Account indicates net loss incurred in the business and credit balance of Profit and Loss Account shows net profit earned in the business in the accounting year.
Net profit is then carried forward and added to the capital where net loss is adjusted in the capital account of the proprietor.

Specimen Form Of Profit And Loss Account-

Note : R.B.D.D. A/c. stands for Reserve for Bad and Doubtful Debts Account.
N/R stands for New Reserve O/R stands for Old Reserve
F/B/D stands for Further Bad Debts.

Journal Entries Relating to Profit And Loss Account-

Balance Sheet: –

An accounting statement which shows the financial position of all assets and liabilities of the business as on particular date is called the Balance Sheet. Balance Sheet is not an account but a positional statement showing financial position of a business concern as on a particular date. On the left hand side of this statement liabilities of various types are systematically recorded and on the right hand of this statement all types of business assets are shown systematically. Business liabilities include short term liabilities like sundry creditors, bank overdraft, bills payable, outstanding expenses etc. and long term liabilities like bank loan, capital, loan etc. Business assets are classified as fixed assets, tangible assets, intangible assets, current or circulating assets and fictitious assets.

According to Palmer, “The Balance Sheet is a statement at a given date showing on one side the trader’s property and possession and on the other side his liabilities.”

Features of Balance Sheet-

1. Balance Sheet is not an account but it is a statement.
2. It depicts financial position of the business as on a particular date.
3. It is prepared usually at the end of every accounting period, i.e. on 31st March every year.
4. The balances of ledger accounts which are not transferred to Trading A/c and Profit and Loss A/c are ultimately transferred to Balance Sheet.
5. Balance of Real A/cs and Personal A/cs are transferred to Balance Sheet.

Specimen Form of Balance Sheet-

Adjustments-

Additional business information provided after completion of trial balance for preparation of final accounts are known as adjustments. To get a clear view and real results of business done in the trading year, some other business information, which do not find place in the trial balance, are required to be considered, while preparing final accounts. These adjustment items are required to be given proper effects in the final accounts. For every adjustment item, double effects (i.e. debit and credit) are given in the final accounts, e.g. outstanding wages are first added to wages on the debit side of the trading account and Secondly outstanding wages are shown separately on the liability side of the balance sheet.

Some Important Adjustments And Their Double Effects Are Discussed And Shown Below-

(i) Closing Stock : Value of stock in hand at the end of the accounting period is called closing stock. If closing stock is given in the list of adjustments, the same is to be recorded twice as – 1st effect: It is to be recorded separately on the credit side of the Trading Account.
2nd effect: Same is to be shown separately on the asset side of the Balance Sheet as it is shown below.
[Note: Closing Stock is always valued at cost price or market price whichever is less.]

(ii) Outstanding Expenses : Expenses which are not paid or remains unpaid at the end of year, are called outstanding expenses, e.g. outstanding wages, outstanding rent, outstanding salaries etc. If outstanding expense is included in the trial balance, it is to be recorded only on the liability side of the Balance Sheet. If outstanding expense is given in the list of adjustments, the same is to be treated as: E.g. Outstanding Salaries.

1st effect: Add to Salary on the debit side of the Profit and Loss A/e.
2nd effect: Show separately on liability side of the Balance Sheet.

(iii) Income Receivable OR (Income earned but not received) : Income which is not received when it is due, is called as income receivable e.g. outstanding interest (receivable). If income receivable is included in trial balance, than it is to be shown only on the assets side of the Balance Sheet separately. If it is given in the adjustment list, same is to be shown as below : E.g. Interest Receivable.
1st effect: Add to interest received on the credit side of the Profit and Loss Account.
2nd effect: Show separately on the asset side of the Balance Sheet.

(iv) Expenses Paid in Advance (Prepaid Expenses) : When any expense is paid before it is due, the same is called as prepaid expense, e.g. prepaid insurance, prepaid rent etc. If it is given in the trial balance, the same is to be shown on the the assets side of the Balance Sheet. If prepaid expenses are given in the list of adjustments same is to be shown as below. E.g. Prepaid Insurance.

1st effect: Deduct prepaid insurance from the insurance premium paid in the Profit & Loss A/c on debit side.
2nd effect: Show prepaid insurance on the asset side of the Balance Sheet.

(v) Income Received in Advance : Income which is received before it is due, is called as income received in advance e.g. rent received in advance. If it is given in the trial balance, it is to be recorded on the liability side of the Balance Sheet only. If an item of income received in advance is given in the list of adjustments, the same is to be shown as below : E.g. Rent received in advance.

1st effect: Deduct rent received in advance from rent received in Profit & Loss account on credit side.
2nd effect : Show rent received in advance separately on the liability side of the Balance Sheet.

(vi) Depreciation : Depreciation means reduction in the value of fixed asset due to its continuous use, wear and tear or any other similar cause. Depreciation is charged on fixed assets like land & buildings, plant & machinery, furniture and fixtures etc. If depreciation item is provided in the trial balance it is to be debited to Profit and Loss Account only. If depreciation on fixed assets is given in the list of adjustments, the same is to be shown in final accounts as follows:
E.g. Depreciation on Plant & Machinery.

1st effect: Record depreciation separately on the debit side of Profit & Loss A/c.
2nd effect: Deduct the amount of depreciation from the related asset on asset side of the Balance Sheet.

(vii) Interest on Capital: If interest on capital is provided, it is an expense for the business and an income for the proprietor. Adjustment effects of interest on capital are given below.
1st effect: Interest on capital is to be shown on the debit side of Profit and Loss Account separately. 2nd effect: Same amount of interest is to be added to the capital of proprietor, on the liability side of the Balance Sheet.

(viii) Interest on Drawings : Interest charged on the drawings is an income to the business and an expense for the proprietor. Adjustment effects of interest on drawings are given below:
1st effect: Interest on drawings is to be shown on the credit sideof Profit and Loss Accountseparately.
2nd effect: Deduct the same amount of interest from the capital of proprietor on liability side of the Balance Sheet.

(ix) Interest on loan taken : Loan taken is a liability of the business. Interest on loan taken is an expense of the business. Adjustment effects of interest on loan taken is shown as below:

1st effect: Show interest on loan separately on the debit side of the P & L A/c.
2nd effect: Add this amount of interest to loan taken on the liability side of the Balance Sheet.

(x) Interest on loan given : Loan given is an asset of the business. Interest due on such loan is an income for the business. Two effects of interest on loan given are shown below:

1st effect: Show interest on loan separately on the credit side of the P&L A/c.
2nd effect: Add this amount of interest to loan taken on the asset side of the Balance Sheet.

(xi) Reserve for Bad and Doubtful Debts Account (R.B.D.D. A/c) : This provision is created on Sundry Debtors. In connection with this account, bad debts incurred during the year and opening balance of R.B.D.D. . A/c (or R.D.D. A/c) are given in the trial balance. Further, bad debts and closing balance of R.B.D.D. A/c (or R.D.D. A/c) are provided in the list of adjustments. Their location and adjustments effects in final accounts . are shown below:

Where: F/B/D → stands for further bad debts.
New Res. D.D. → stand for New Reserve for Doubtful Debts.
Old Res. D.D. → stand for Old Reserve for Doubtful Debts.
R.B.D.D. A/c → stand for Reserve for Bad and Doubtful Debt Account.
Adj. → stands for Adjustment & T.B. stands for Trial Balance.

If (Bad debts + F/BID + NIR) > Old Reserve, the result is to be shown on the debit side of the Profit and Loss
Account.
If Old Reserve> (BID + FIBID + NIR), the result is to be shown on credit side of Profit and Loss Account.

(xii) Reserve for Discount on Debtors A/c : It is calculated on Sundry Debtors. Accounting treatment and adjustment effects of Reserve for Discount on Debtors are same as like adjustment effects of R.B.D.D. A/c

Where: R.D.D. A/c → stands for Reserve for Discount on Debtors Account.
If (Discount + F/Discount + New Reserve) > Old Reserve, result is to be shown on debit side of Profit & Loss account.
If Old Reserve > (Discount + F/Discount + New Reserve), the result is to be shown on credit side of Profit & Loss Account.
Discount on debtors is to be carried out after completion of adjustment effects of reserve for bad and doubtful debts.

(xiii) Provision for Discount on Creditors Account: It is calculated on Sundry Creditors. Accounting treatment and adjustment effects for provision for discount on creditors are given below :

Where: R.D.C. A/c stands for Reserve for Discount on Creditors Account.
If (Discount + Further Discount + New Reserve) > Old Reserve, the result is to be shown on credit side of Profit and Loss Account.
If Old Reserve > (Discount + Further Discount + New Reserve), the result is to be shown on debit side of Profit and Loss Account.

(xiv) Goods Distributed as Free Samples : Newly established firms and even well established firms distribute samples of new product free of charge in the nearby areas to increase their sale. Adjustment effects of free samples are shown below:
1st effect: Show separately as “Goods distributed as free samples”on the credit side of Trading Account or deduct the amount of free sample from purchases on debit side of Trading Account.
2nd effect: Show separately on the debit side of Profit and Loss Account under the heading “Advertisement Account.”

(xv) Loss of Goods by Fire or Theft: Adjustment effects of goods lost by fire or theft are shown below:
(A) If goods are insured :

1st effect: Show separately, on the credit side of Trading Account, the full value of goods lost.
2nd effect: Show separately on debit side of Profit and Loss Account, the difference between value of goods lost and insurance claim receivable i.e. net loss by fire or theft.
3rd effect: Show the insurance claim admitted by the insurance company on the asset side of the Balance Sheet. This is shown as below:

(B) If goods are not insured :

1st effect: Show separately on the credit side of Trading Account the full value of goods lost by fire or theft.
2nd effect: Show separately on debit side of Profit & Loss Account the full value of goods lost by fire or theft.

This is shown as below.

By going through these Maharashtra State Board Bookkeeping and Accountancy 11th Notes Chapter 8 Rectification of Errors students can recall all the concepts quickly.

Maharashtra State Board 11th Accounts Notes Chapter 8 Rectification of Errors

Meaning of Accounting Errors-

In simple words error means mistake or omission. Accounting error refers to mistakes committed in recording business transactions in the books of accounts, carrying forward amount to next page, posting the amount on the wrong side of ledger account, failing to record transactions in the books of accounts. Omission of writing accounts in the books of accounts is also considered as accounting error. Accounting errors are committed without any intention. If mistakes are committed with some intention, it is not considered as an accounting error but is cheating or fraud.

Accounting errors if at all committed, are required to be corrected as soon as they are detected. Some accounting errors are traced out by checking or verifying the ledger accounts systematically whereas others can be found out through preparation of trial balance. When total of debit column of the trial balance does not tally with the total of credit column of trial balance, it is confirmed that some type of accounting errors have been committed in writing the accounts in the books of accounts. For instance, instead of debiting Vishwanath’s A/c. for amount paid, wrongly debited Vishwasrao’s A/c. is considered as accounting error.

Effects of Accounting Errors-

Some accounting errors if committed do not allow the total of trial balance to agree with each other. Accounting errors affect the net result and financial position of the business. They also affect the arithmetical accuracy of the business. Accounting errors may occur at any one of the following stages viz. (1) Preparation of documents (2) Preparation of Primary books (3) Preparation of ledger accounts (4) Preparation of trial balance and (5) Preparation of final accounts.

Types of Accounting Errors-

The different types of accounting errors are shown in the following chart:

Each of the above accounting errors is explained in detail:

(i) Errors of Principle : Error of principle is said to be committed if accounting entries are not made as per fundamental rules, of accountancy. Errors of principle refers to mistake committed by accountant by not following accounting principles properly. Error of principle is said to be committed when an accounting principles relating to proper distinction between capital and revenue items is violated. These errors are not disclosed by the trial balance.

Examples :

• Wages paid for installation of machinery, debited to Wages Account is an error of principle. Wages paid for installation of machinery is a capital expenditure and it supposed to be added to the cost of machinery. Correct entry for wages paid for installation of machinery is:
• Repair charges of building paid are debited to Building A/c
• Payment of rent debited to Landlord’s A/c.

(ii) Error of Commission : Errors of commission occur when incorrect entries are passed in the journal, wrong posting is done in the ledger, wrong casting is done, wrong calculations are done, mistake made in carrying forward the amount to next page etc. This type of error is disclosed by trial balance. If error of commission takes place, trial balance will not tally. Error of commission is detected by preparing a trial balance.

For instance, in credit purchase of goods worth ₹ 1,850 from M/s. Shanti General Stores is entered in the purchase book as ₹ 1,850 and in the ledger account of M/s. Shanti General Stores as ₹ 1,580. This is error ‘
of commission. In this case M/s. Shanti General Stores Account is given less debit by ₹ 270. This error is rectified by giving additional debit of ₹ 270 to M/s. Shanti General Stores Account. ‘

(iii) Errors of Omission : Errors of omission are said to occur if the accountant or clerk has failed completely  to record a particular business transaction in the books of account. In other words, if business transactions  are not at all recorded in the books of account, errors of omission are said to be committed.
For example, failure on part of the clerk to record credit sales in the sales book, is an error of omission. Error committed due to entire omission will not affect the agreement of totals of trial balance, but error committed due to partial omission will definitely affect the agreement of totals of trial balance.

(iv) Compensating Errors : Compensating error is said to be committed if error committed on one side of
ledger account compensate an error committed on the other side of some other ledger account. Errors which are committed on one side of account remove or nullify the effect of errors committed on the other side of account, is called a compensating error. This type of error may be different in nature but they are similar in amount. Compensating errors are committed exactly on opposite side of same account or different account.

Even compensating errors are committed on same side of different account, by giving over debit to one account and under debit of same amount to.other account. This type of error cannot be detected by preparing trial v balance.

For instance, if purchase book is overcast by ₹ 1,500 and sales book is also overcast by ₹ 1,500 than such ‘
errors are called compensating errors because one error removes the effect of other error. ;

Errors Affecting And Not Affecting The Trial Balance-

The classification of error on the basis of trial balance is shown in the following chart:

Trial Balance Basis:

(A) Errors not affecting the trial balance (Two sided Errors)

• Complete omission of transaction.
• Posting wrong amount on both the sides of an account.
• Posting wrong heads of account.
• Compensating Errors. BoIbhartSoIution5com
• Recording wrong amount in original books.

(B) Errors affecting the trial balance (One sided errors)

• Partial omission of a transaction.
• Posting of Wrong amount on one side of an account.
• Posting entry on wrong side of an account.
• Wrong totalling or balancing of an account.
• Omission of transferring the balance of an account to Trial Balance.

(A) Errors not affecting the trial balance (Two sided errors):

An accounting error which affects or does not affect debit side of one account as well as credit side of another account is called two sided error. This type of error cannot be detected by preparing a trial balance. These types of errors are explained below.

(i) Complete omission of a transaction: For the explanation please refer to point 3 (iii) of this chapter.

(ii) Posting or recording wrong amount on both the sides of an account: This type of error is said to be committed when accountant enters wrong amount in both affected accounts. Such error will not be disclosed by the trial balance.

This is explained as follows:

(iii) Posting to wrong head of account: This type of error is said to be committed when a transaction is recorded correctly in the original books of account, but ledger posting is done to wrong heads of account, e.g. Furniture purchased from M/s Salgaonkar is posted to Machinery A/c. In this case M/s Salgaonkar’s A/c is correctly credited but Machinery A/c is wrongly debited instead of Furniture A/c.

(iv) Compensating errors : For the detail information, refer point No. 3 (iv) from the Subject Matter.

(v) Wrong amount in the original books: This type of error is said to be committed when a transaction is wrongly recorded in the original books and is subsequently carried through to the ledger account, e.g. Sales of goods ₹ 854 on credit recorded in the sales books as ₹ 584 and subsequently posted to ledger the same wrong amount of ₹ 584. This error does not affect the trial balance.

(vi) Errors of principle :
Errors of Omission : Errors of omission are said to occur if the accountant or clerk has failed completely  to record a particular business transaction in the books of account. In other words, if business transactions  are not at all recorded in the books of account, errors of omission are said to be committed.

For example, failure on part of the clerk to record credit sales in the sales book, is an error of omission. Error committed due to entire omission will not affect the agreement of totals of trial balance, but error committed due to partial omission will definitely affect the agreement of totals of trial balance.

(vii) Recording twice : This type of error is said to be committed when transaction is recorded twice in the original book. e.g. Paid salaries ₹ 5,000 recorded twice in the cash book. Since excess debit and credit given to both the account, such error does not affect the trial balance.

(B) Errors affecting the trial balance (One sided errors)’:
Some accounting errors bring out the difference in debit total and credit total of trial balance. Such errors are called errors affecting the trial balance or one sides errors. The different types of errors affecting trial balance are explained below.

(i) Partial omission of a transaction : When a transaction is recorded correctly in the original books of accounts, but due to mistake one of the ledger accounts remains to be posted, then such a error is called error of partial omission of transaction. e.g. Cash ₹ 6,000 received from Mr. Kishor not posted to Mr. Kishor’s A/c. In this case trial balance will not agree.

(ii) Posting of wrong amount to one account: Error of posting of wrong amount to one account is said . to be omitted when wrong amount is posted to one of the ledger accounts from the original books. In
‘this case trial balance will not get tallied.

(iii) Posting on the wrong side of an account: This type of error is said to be committed when entry
is posted to wrong side of the ledger account from the original book. In this case trial balance will not agree.

(iv) Wrong totalling and balancing: When any ledger account is totalled wrongly or balanced wrongly, this type of error is said to be committed. Because of wrong totalling or wrong balancing, the trial balance will not agree.

(v) Omission of balance of an account in trial balance : If balance of any one or more account are omitted to transfer to the trial balance, this type of error get committed. As a result trial balance will not agree.

(vi) Errors of double posting to one account : When entry for accounting transaction is correctly recorded in the original book but it is posted or recorded two times in one of the ledger accounts, then such error is called error of double posting to one account.

Steps to locate Accounting errors :

The following steps are taken to locate the errors :

• Verification of trial balance: The total of debit column and credit column should be checked once again. Accounts that are grouped together and shown under one head of account should be checked minutely and carefully, e.g. Total of sundry debtors and sundry creditors.
• Verification of cash book: The total of debit column and credit column of cash book should be rechecked. Closing balance of cash and bank balance must be verified.
• Verification of ledger accounts: All the posting made to various ledger accounts must be checked once again. The total of amount column on debit side and credit side of each ledger account should be checked. Similarly balancing figures and carry forward of each ledger account should be checked once again. Any discrepancy, if noticed, it should be corrected at once.
• Verification of trial balance: After verification of ledger accounts, if difference still arises in the totals of the  trial balance, the accountant has to find out exact difference in the totals of the trial balance. This will help to locate the errors.
• The accountant should confirm whether closing balance of each ledger account is transferred to trial balance or not. There is possibility that balance of one or two accounts may be omitted or recorded twice.
• The accountant should also go through the journal to find out if any entry is passed with unequal amount specially of compound entries.
• The totals of subsidiary books such as Purchase Book, Sales book, Purchase Return book, Sales Return book etc. should be verified once again and posting to various ledger accounts there from should be verified.
• The accountant should check whether closing balances of various accounts of last year are brought forward to the respective ledger accounts correctly or not.

Suspense’Account:

Final account is prepared on the basis of the trial balance. Trial balance is supposed to be tallied then only final account can be prepared. Sometimes the trial balance does not tally eveti after repeated efforts. In such circumstances preparation of the final accounts cannot be postponed indefinitely till the errors are disclosed and rectified. In such a case difference of trial balance is usually placed or transferred to a separate account known as suspense account, and the trial balance is made to tally for the purpose of preparation of final accounts. If debit column of trial balance cast short, difference of trial balance is transferred and posted to debit side of suspense account.

Similarly if credit column of trial balance cast short, the difference of trial balance is transferred and posted to credit column of suspense account. If errors are not detected and rectified, balance of suspense account is transferred to balance sheet. Debit balance of Suspense A/c should be shown on asset side of Balance Sheet and Credit balance of Suspense account should be shown on the liabilities in suspense account. When all errors are detected, rectified and adjusted, suspense account will automatically stand balanced. Rectification of errors which affect trial balance are only adjusted in suspense account.

Rectification Entry-

An accounting entry which is drafted to cancel the effects of wrong entry and to give the correct effect of the entry is called rectification entry.

(a) Rectification of Errors of Principle : To rectify errors of principle, the following procedure is to be followed.
First draft a wrong entry of given transaction and then pass reverse entry of wrong entry. After this, draft ‘ correct entry which we are suppose to pass. Then reconcile reverse entry and correct entry so drafted, to get rectification entry. In short, ;

Reverse entry of wrong entry + Correct entry = Rectification entry

Example : Rent of ₹ 1,200 paid to land lady Mrs. Anuradha has been debited to her personal account. Rectification entry is composed by following procedure :

(b) Error of Commission : Procedure of rectification of error of commission is stated as below : Example : Paid general expenses of ₹ 18, were posted in the ledger as ₹ 81.

(c) Error of Omission: Procedure of rectification of omission is given be1ov:
Example: Credit purchase of goods worth Z 2,000 from Kishor remained to be recorded in the books of
accounts.
(i) Wrong entry: Not passed
(ii) Reverse entry: NIL

(iii) Correct entry:

Since no wrong entry is passed, correct entry is itself a rectification entry.

(d) Two-sided Errors: The procedure of rectification of two-sided errors is stated as below:
Examples: Wages ₹ 500 paid for the installation of machinery, debited to wages account.

By going through these Maharashtra State Board Book Keeping & Accountancy Notes 12th Chapter 10 Computer in Accounting students can recall all the concepts quickly.

Maharashtra State Board 12th Accounts Notes Chapter 10 Computer in Accounting

Introduction, Concept of Computerized Accounting System (CAS)-

In modern age, computer is becoming inseparable automation instrument for business as well as individual. Nowadays knowledge and operation of computer are considered as an essential thing. If a person does not know the use of computer, its usefulness is questionable. Today most of the entities – including small traders – prepare their accounts using computers. Because of computers, business entities can store, use and analyse the raw data as and when required. In modern days, it is difficult to find out a field in which computer is not used, which shows its importance.

Applications of computers for accounting has grown phenomenally, when accounts are maintained using computers raw data based on vouchers and other documents are entered into computer. Computer process such raw data. This process includes recording, storing, analysing and retrieving information. Computers can store information, analyse them and such information can be retrieved when required. However, they respond according to set of instructions given to it and such instructions are known as Programme or Software. Based on such software only, computer processes raw data and generates meaningful information or reports as and when required.

Computerized accounting system are connected through computer, network server or remote accessed device with internet. Every company or firm prepares their reports as per Generally Accepted Accounting Principles (GAPP).

Features of Computerized Accounting System-

(1) Integrated date & Information : Computerized Accounting System is developed and designed for all business activities like purchase, sales, finance, inventory, payroll and manufacturing which is user friendly, automated and integrated for such process. Dueto computerized accounting system, businessman keep their accounting records accurate, up-to-date and get information within no time. When Computerized Accounting is mixed with Management Information System (MIS) with multi-lingual and Data organization capabilities to support the company then all the business operations will be easy and cost effective.

(2) Accuracy and Speed As per the need of business, Computerized Accouting has various templates and software due to which fast and accurate data entry and transactions operations are possible which generates various information and reports quickly and automatically.

(3) Quick Decision Making : Based on information and reports generated by Computerized Accounting System, the company or firm can plan its activities, can take quick decision and can access complete and critical information of the company.

(4) Modern and Integrated : Computerized Accouting System perform functions at much higher speed than the speed of human beings which saves time and other resources. If accounts are prepared with the help of computer. Trial balance and Final accounts can be derived at any point of time within fraction of seconds.

(5) Immediate Availability of Books of Accounts : Due to Computerized Accounting System, books and registers tike Cash book, Purchase register, Sales register, Bank book, Account of Receivables and Payables are readily available at any point of time.

(6) Security: By keeping security control at various stage, data and information in Computerized
Accouting System can be kept confidential and more secured. This kind of the security is not possible in the traditional accounting system.

(7) Transparency: For the business, greater transparency is possible in the day to day business operations due to Computerized Accounting System.

(8) Grouping of Accounts : In the Computerized Accouting System grouping of Accounts is easily possible. As per the business requirements, groups like Assets, Liabilities, Income, Expenditure, etc. and their subgroups can be derived as per convenience of user.

Importance of Computerized Accounting System-

Following are the points of importance of Computerized Accounting System for the various types of business organizations, firms, companies, etc.

• Automation: Compared to manual accounting calculations, all the calculations are automatically
  done by the accounting software with minimum time and without mistakes.
• Multi-user Facilities : Computerized Accounting System with multi-user facility enables business ‘
  houses to access accounting information online or offline, inside or outside the office, .
  simultaneously. –
• Accuracy: Computers performs functions with high degree of accuracy. If hardware, software and ^
  humanware are proper, the Computerised Accouting System can assure of accurate outcome.
• Speed : Computerized Accounting software perform functions at much higher speed than the speed of human beings. If accounts are prepared with the help of computer, final accounts can be prepared in much lesser time and as per user requirements.
• Reduction in cost: Reduction in cost due to Computerized Accounting System is possible as less persons in less time can complete the work with more speed and more accuracy.
• Systematic and up-to-date records: Compterized Accounting System ensures systematic and up-to-date financial records of the business organization.
• Huge Storage Capacity: Manual accounting requires seperate books and registers to be maintained
  every year while in Computerized Accounting System records of many years can be stored in system / computer.
• Compact: The voluminous financial information can be stored in a compact way by the means of hard disk or external storage device which requires very little Space.
• Transferability / Sharing Information : Business organization can share the financial information to interested parties through pen drive or through internet.

Components of Computerized Accounting System-

(a) Hardware : Hardware comprises of electronic equipments that includes computers, hard disks, monitors, printers and the network that connects with them. Most modern accouting system require a network, the system of electronic linkages which allows many computers to the main computer or server which stores the program and data, with right communication of hardware and software, one can perform all the work on site.

(b) Software : Software is a set of instructions and programme that can direct and perform desired task as required by users. Accounting software accepts, edits and stores transactions and data and generates reports as per the requirement.

(c) Personel: Personel / Humanware is the people who dealt with computer and software and play an imortant role in effective implementation of Computerized Accounting System.

Management of a Computerized Accounting System requires careful planning of data and access to the data. Security is sought by setting passwords, codes, etc. at different stage which gives them more safety of data.

Creation of Accounting Documents-

In accounting software generally the following components are used :

• Creation of Accounting Documents : With the help of computer software, different accounting documents like cash memos, vouchers, receipts, invoices, etc. can be created / prepared.
• Recording of Transactions: Day to day business transactions can be recorded through computerized accounting software which reduces the paper work.
• Preparation of Trial balance and Financial Statements: Based on the recorded business transactions, data is transferred into ledger through software and vouchers are also prepared. From these data, Final accounts are prepared automatically.

Transactions with missing data or other critical information are not accepted by the system.

Comparision between Manual Accounting Process and Computerized Accounting Process.

Sourcing of Accounting Software-

Before acquiring accounting software, expertise of people responsible in business for accounting work is to be considered, as people are responsible for accounting and not the computers.

The choice of the accounting software would depend upon the suitability to the organisation or firm, in terms of accounting and financial needs. From this perspective available accounting packages are classified into the following categories :

(a) Ready to use
(b) Customized
(c) Tailored
(d) Free and Open Source

(a) Ready to use: Ready to use software is suitable and developed for the need of organization or firm whose volume of accounting transactions are less. Ready to use software is cost effective and relatively easier to learn. Such software have many features and low level of secrecy. This kind of the software may not have linkage benefits.

(b) Customized : As per the need of the special requirements of customer, when accounting software is developed, it is known as Customized software, which is suitable for large and medium size businesses. Customization includes modification and addition to the software contents, provision for the specified number of users and other authentication, etc. The cost of training and installation and maintenance of customized software is relatively high. Customized software can be linked to the other infromation system with proper level of secrecy.

(c) Tailored : When software are designed and developed according to the need of a customer with multi-users facility and geographically scattered locations, it is known as Tailored software. This kind of the software form an important part of organizational Management Information System (MIS). The Secrecy and authenticity checks are most important things in such software. This software needs specialized training to the users and they offer high flexibility in terms of number of users.

(d) Free and Open Source ; When small business or firm wants to use accounting software but do not have enough budget, then they try to get it from open source software available on the internet, which can be downloaded and installed from the websites.

Legal / Licensed vs Pirated Accounting Software-

As Per the business needs, one should select legal and open source accounting software from the available packages and applications in the market.

Legal Software : Full functional and safe software, can be updated as per statutory changes.
Pirated Software: Cracked software, nearly full functional, but illegal to use and risky from the data safety point of view, i.e. data can be corrupted.

Demo Software : Used for demo purpose with all major features but with a very few restrictions.

Voucher Types in Tally

By going through these Maharashtra State Board Book Keeping & Accountancy Notes 12th Chapter 8 Company Accounts – Issue of Shares students can recall all the concepts quickly.

Maharashtra State Board 12th Accounts Notes Chapter 8 Company Accounts – Issue of Shares

Share and Share Capital-

Introduction : As the volume and scale of trade and industry expanded, especially after the Industrial Revolution (i.e. around 1760), a very large unit of commercial organisation requiring large capital and greater managerial skill called joint stock company came into existence rapidly. The company fulfils its need of large amount of capital from large number of investors called shareholders. The company raises its capital in the form of shares and debentures. The capital collected through issue of shares is called “Owned Capital” and capital collected by issue of debentures is called “Borrowed Capital”.

Meaning and Definition- The owned capital of a company, when divided into a large number of small parts having equal face value is called a Share. According to Section 2(84) of the Indian Companies Act, 2013, “Share means share in the share capital of the company and includes stock except where a distinction between stock and share is expressed or implied.”

A share is a unit of measurement of the share capital of a company. For instance, a capital of ₹ 2 crore may be divided into 20 lakh shares of ₹ 10 each.

According to the provisions made under Section 86 of the Companies Act 1956, now company is authorised to issue two types of shares viz. (i) Equity Shares and (ii) Preference Shares.

(i) Equity or Ordinary Shares : The shares other than preference shares are called Equity or Ordinary Shares. In other words, an equity share is the one which has no special preferential right as to dividend or repayment of capital. They participate in the profits of the company after all preferential rights have
been satisfied. They are risk bearer and real owners of the company. They get the dividend after payment of all expenses and dividend to preference share holders. An equity shareholder has normal voting rights and a right to participate in the management.

(ii) Preference Shares : According to provisions of the Companies Act 2013, a ‘Preference Share’, is a type of share which enjoys priority or preference over equity share for the payment of dividend at a predetermined fixed rate and for repayment of capital. It means preference shareholders are paid dividend at a predetermined fixed rate before any dividend is paid to the equity shareholders. Similarly, in the case of the winding up of the company, preference share capital is refunded first.

Types of Preference Shares : The different types of preference shares are :

• Cumulative and Non-cumulative Preference Shares
• Redeemable and Irredeemable Preference Shares
• Participating and Non-participating Preference Shares
• Convertible and Non-convertible Preference Shares

Types of Share Capital-

The different types of share capital are explained below :

(1) Authorised / Registered / Nominal Capital: This is the maximum limit up to which a company is authorised to raise share capital. It is mentioned in the capital clause of the Memorandum of Association. Authorised capital is determined by considering future financial requirements of the company. It is also called ‘Registered Capital’ or ‘Nominal Capital’. It can, however, be increased subsequently by altering capital clause of the Memorandum of Association.

(2) Issued Capital: It is that part of the authorised capital which is issued or offered for subscription to the public. The company issues shares as and when it needs additional capital. Issued capital also includes the nominal value of shares issued by the company to the public for cash, bonus shares, promoters of the company and vendors other than cash. The part of the authorised capital which is not yet issued to the public is called Unissued Capital.

(3) Subscribed Share Capital: It is that part of the issued capital which the company has actually received by way of application from the public and also allotted by the Company. It is the total amount of the face value of the number of shares applied for. Subscribed share capital also covers the face value of shares issued by the company for consideration other than cash. The part of the issued capital which is not subscribed by the public is called Unsubscribed Capital.

(4) Called-up Share Capital: The company collects the capital in instalments payable on application, allotment, first call, second call, etc. Called-up share capital is that part of the subscribed capital which is demanded (called-up) by the company from the applicants of the shares. The part of the subscribed capital which is not yet called up by the company is called Uncalled Capital.

(5) Paid-up Share Capital: All the shareholders may not pay the entire amount called-up by the company. That part of the called-up capital which is actually paid by the shareholders is called paid-up share capital. It may be equal to or less than called-up share capital. The difference between called up capital and paid up capital is known as Calls-in-Arrears.

(6) Reserve Capital: According to provisions made under the Companies Act, 2013, a company may maintain reserve capital by passing a special resolution. Reserve share capital is that part of the subscribed capital which is reserved to be called-up only at the time of winding up or liquidation of the company. It is created to offer additional security to the creditors.

Treatment of Share Capital in Balance Sheet-

Types / Methods of Issue of share capital:

1. Right issue to equity shareholders (sec. 62)
2. Employee stock option scheme (sec. 62 (l)(b))
3. To Any person (sec. 62 (1) (c)):
   • Private placement of shares (sec. 42)
   • Public issue of shares
   • Sweat Equity shares (sec. 54)
4. Issue of Bonus shares to members / shareholders (sec. 63 (1))

All the above mention methods of issue of shares capital is commonly acceptable by private company and public company.

(1) Right Issue to Equity Shareholders :
Meaning: Right issue of equity shares issued by the company in which existing shareholders are given priority or right of purchasing right issue shares. And also existing shareholders may get right issue shares at discounted price.

Same accounting entries are to be passed in the books of company as those for issue of ordinary shares to the public.

(2) Employees Stock Option Scheme :
Meaning: When company issue shares to its employees at a price lower than market price for the encouragement of employees to acquire ownership in the form of shares is known as Employees stock option scheme.

New accounts like Employees Compensation Expense account, Deferred Employees Compensation Expense account, etc. are opened. Based on fair value and intrinsic value of option, Accounting value is found out.

(3) (a) Private Placement of Shares :
Meaning: Direct private offering of the company’s securities to a selected group of sophisticated investors.

• Private placement is governed through SEBI.
• It is less expensive and less time consuming process.

(b) Public Offer:
Meaning : Public offer of shares implies selling of shares which are listed on stock exchange directly to public by issue of prospectus.

Through IPO capital collected is recorded as stockholder equity in the Balance Sheet.

(c) Sweat Equity Shares :
Meaning: When equity shares are issued by a company to its directors or employees at a discount or for any consideration other than cash, for any obligation of either side etc. is known as sweat equity shares. (Section 2(88) of the companies Act, 2013)

If the consideration is not by the way of cash, then it can be carried to the Balance Sheet of the company as per accounting standards.

(4) Issue of Bonus Shares :
Meaning : When company distributed equity shares to its current shareholders as fully paid, without any charge, then it is known as bonus shares.

Amount of Bonus shares transferred from different reserve to equity share capital.

Accounting for Share Capital-

Public Issue of Shares:
This is one of the important methods of issue of shares in primary market where new and first hand securities like shares and debentures are sold. Public issue of shares implies selling shares directly to public by issue of prospectus. Under this method issuing company makes direct appeal to the public or prospective investors to buy its shares. The procedure adopted by the issuing company to subscribe its shares is stated as follows :

(1) Issue of Prospectus : Under this method, the issuing company invites the prospective investors or the public to make an offer to purchase its shares through a prospectus. The prospectus gives details of number of shares offered to the public, the face value of shares and amount to be paid on application, allotment and calls.

(2) Receipt of Application : An offer made by the prospective investors to buy the shares is called an application. According to Section 39 (2) of the Companies Act, 2013, a company must receive at least 5 % of the nominal of face value of each share applied for or such other percentage or amount as may be indicated by SEBI. While calculating the amount of application money, premium and discount should not be taken into account. The company makes its application forms available to the public through its brokers and banks. All the money received on application for shares must be deposited in a scheduled bank.

(3) Allotment of Shares : The allotment of shares means distribution to the applicants all or certain number of shares in response to their applications. A company is allowed to make allotment of shares only after receiving minimum subscription amount of 90 % of the issued amount within 60 days from the date of closure of issue. If the company accepts the applications, it issues letter of allotment to the applicants and in case of rejection of shares it issues letter of regret to the applicants and the application money is refunded to the applicants.

(4) Calls on Shares : Call on shares is a request or demand made by the company to its shareholders to pay the whole or part of unpaid balance on shares held by them. There may be 1st call and 2nd and final call. The maximum amount of call per share should not exceed 25 % of the face value of the share. For instance, if the face value of the share is ₹ 10, the amount of a call should not exceed ₹ 2.50 at a time. A minimum notice of 14 days should be issued by the company to the members for the payment of call.

Pro Forma Journal Entries for Accounting of Issue of Equity Shares :

Issue of Shares at Par, Discount and Premium :

The value or price which is fixed for each share by the company is called face value. It is specified in the Memorandum of Association of the company. The value or price at which a company decides to sell its shares is called issue price which is different from its face value. Shares may be issued by the company to the public either at par or at a premium or at a discount.

Issue of Shares at Par : Shares are said to be issued at par when they are issued at their face value.
Example : When a share of ₹ 10 is issued at ₹ 10 only, it is said to be issued at par.

Issue of Shares at a Discount : Shares are said to be issued at a discount when they are issued at a price, less than their face value.

Example : When a share of ₹ 10 is issued at ₹ 9, it is said to be issued at a discount. In this case the difference between the face value and actual selling price is called the amount of discount, i.e. ₹ 10 – ₹ 9 = ₹ 1.

Pro forma journal entry for issue of shares at a discount:

When a discount is allowed at the time of share allotment:

Note : (i) Discount on issue of shares is a capital loss to the company. Hence it is shown on the assets side of Balance Sheet under the head “Miscellaneous Expenditure” as “Discount on Issue of Shares”.
(ii) As per new provision of government Act (2013), Public issue of shares cannot be at a discount.

Issue of Shares at a Premium : Shares are said to be issued at a premium when the shareholders are required to pay a price higher than the face value of the shares. The difference between the issue price and the face value is called the premium. For example, if a share whose face value is ₹ 10 is issued by the company at ₹ 50 the share is said to be issued at a premium of ₹ 40. Section 78 of the Companies Act, 1956, provides that the premium amount collected by the company must be deposited into a separate account called Share Premium Account. It is considered as capital gain. Share premium amount must be disclosed separately in the Balance Sheet of the company.

The share premium amount should be used for the following purposes :

• Premium amount cannot be paid as dividend to a shareholders. However, premium amount may be capitalised by the company by issuing fully paid bonus shares free of charge at a pro-rata basis to the existing equity shareholders.
• The amount received as premium is required to be deposited in a separate Bank Account called Share Premium Account.
• To write off the preliminary expenses of the company.
• To write off the expenses paid, commission paid or discount allowed on any issue of shares or debentures of the company.
• To provide for the premium payable on the redemption (repayment) of the redeemable preference shares or debentures of a company.
• To buy back its own shares.

Pro Forma Journal Entries for Issue of Shares on Premium :

(1) When premium amount is called by company with application money :

(Being money received with application transferred to Share Capital A/c and Securities Premium A/c)

(2) If premium amount is called with allotment money :

(Being share allotment money and premium amount due from shareholders)

Over Subscription and Under Subscription-

Over Subscription : When a company is in receipt of shares more than those actually offered or issued to the public, the issue is said to be over-subscribed. In case of over subscription, the company allots the shares by selecting any one of the following methods :

(i) Lottery method (ii) Pro-rata method (iii) Firm allotment method and (iv) Datewise method.
In the recent era most of the companies adopt pro-rata method to allot the shares. Under pro-rata method each applicant is allotted shares in proportion to the number of shares applied for by him.
Under Subscription : When a company is in receipt of applications for shares less than those actually offered or to be issued to the public, the issue is said to be under subscribed.

Full Subscription : When a company is in receipt of applications for shares equal to those actually issued to the public, the issue is said to be fully subscribed.

Pro Forma Journal Entries for Over Subscription:

Pro-rata / Proportionate Allotment:
When the number of shares applied for, is more than the number of shares issued, then directors proportionately issued shares on the basis of total shares application received and the number of shares issued. Under this circumstances, each applicant gets the shares less than those demanded or applied by him. In other way, directors can reject certain excess applications and refund their money and can allow full shares to some applicants and make pro-rata allotment to other where excess application money received adjusted with allotment money demanded.

Journal Entries:

(Being excess application money adjusted with allotment money)

Calls-in-Advance and Calls-in-Arrears-

Calls-in-Arrears : On account of several reasons, some shareholders fail to pay allotment or call money inspite of reminders sent to them. Such unpaid instalments are called Calls-in-Arrears. It is also called Unpaid Calls. Calls-in-Arrears represent the amount due but not yet collected from shareholders.
It is deducted from the called-up capital. The balancing amount represents paid-up capital. Paid-up capital is shown in the Balance Sheet. The defaulter shareholders are required to pay interest on the unpaid call amount at the rate of 5 % per annum for the period from the due date to the date of payment of such call amount. Usually provisions made in Articles of Association empower the directors to charge interest on the amount of Calls-in-Arrears.

Pro Forma Journal Entries of Calls-in-Arrears :

(1) Entry to record calls-in-arrears :

(Being share allotment money and call money still outstanding)

(2) Interest due on calls-in-arrears :

(Being interest on unpaid calls due)

(3) Receipt of interest:

(Being interest on outstanding calls received from shareholders)

Calls-in-Advance : A company may receive the money in advance from the shareholders, on the calls yet to be made. Calls-in-Advance is accepted by the company only when Articles of Association authorise the company to do so. As per Table A’, a company is required to pay interest at the rate of 6 % per annum on the amount received in advance to the shareholders. At the end of the accounting the balance appearing in the Calls-in-Advance Account is shown in the Balance Sheet under the head ‘Share Capital’. However it is not added to share capital.

Pro Forma Journal Entries of Calls-in-Advance :

(1) Receipt of call-in-advance :

(Being amount received for Calls-in-Advance)

(2) Adjustment of calls in advance :

(Being amount of calls in advance adjusted)

(3) Interest due on calls-in-advance :

(Being interest due to shareholders)

(4) On payment of interest on the amount of calls-in-advance :

(Being interest amount paid to shareholders)

(5) Transfer of interest on calls-in-advance to Profit and Loss A/c :

(Being interest transferred to Profit and Loss A/c)

Issue of Shares for Consideration other than Cash-

Many times a company may purchase some fixed assets such as building, machinery, furniture, etc., and pay purchase consideration to the vendor partly in cash and partly in the form of fully paid equity shares. It may also take over the business of partnership firm or other company and pay purchase consideration partly or fully in the form of fully paid-up shares.

Pro Forma Journal Entries for Issue of Shares for Consideration Other than Cash :

(1) Purchase of fixed assets :

(Being assets and liabilities taken over at agreed values and balance amount payable to vendor)

(2) Purchase consideration paid to vendor :

(Being purchase consideration paid by issue of fully paid shares at premium)

Allotment / issue of Shares to Promoters :
Sometimes a company compensates its promoters for their meritorious services by issuing its shares to them without receiving any payment. The full amount of these shares is regarded on the cost of goodwill. Entry is passed just same as purchase of any asset for consideration of shares :

Accounting Treatment for-

Forfeiture of Shares:

When a shareholder fails to pay the call money or premium on the shares in spite of repeated reminders and warnings, the company forfeits the shares of such defaulters by passing an appropriate resolution in a Board Meeting. Forfeiture means the compulsory termination of membership and the confiscation (taking possession by law) of the shares of defaulting members by way of penalty for the non-payment of a fixed instalment, call or premium. The Articles of Association of a company, therefore, can empower the Board of Directors of the company to forfeit the shares in case of non-payment of call money. The amount of forfeited shares is transferred to a separate account known as Forfeited Shares Account in the books of accounts of the company. At the end of the accouting year, the balance of Forfeited Shares Account is shown on the Liabilities of Balance Sheet under the heading ‘Share Capital’.

Pro Forma Journal Entries of Forfeiture of Shares and Re-issue of Forfeiture :

1) Forfeiture of shares issued at par :

(Being shares forfeited for non-payment of 1st or 2nd or Third final call money)

2) For forfeiture of shares issued at premium :

(Being share forfeited for non-payment of lst/2nd/final call money)

3) For forfeiture of shares issued at discount:

(Being shares forfeited for non-payment of allotment / First / Second / Final call money)

4) For re-issue of forfeited shares at par :

(Being forfeited shares re-issued at par)

5) For re-issue of forfeited shares at premium :

6) For re-issue of forfeited shares at discount:

(Being forfeited shares re-issued, at discount)

7) For transfer of Share Forfeited A/c :

(Being balance in Share forfeiture A/c transferred to Capital Reserve A/c)

Re-issue of Forfeited Shares :

Forfeited shares remain in the custody of company and become the property of the company. Hence, forfeited shares can be resold by the company at any price. Usually they are sold through auction. They cannot be allotted to the public.

• The issuing company should see that loss incurred on re-issue of forfeited shares should not exceed the forfeited amount.
• If the loss incurred on re-issue of forfeited shares is less than the amount so forfeited, the surplus supposed to be transferred to ‘Capital Reserve Account’.
• If the loss incurred on re-issue of forfeited share is greater than the amount so forfeited, the deficit or loss is required to be transferred and debited to ‘Forfeited Shares Account’.
• If forfeited shares are re-issued at premium, the excess amount so received is to be credited to ‘Share Premium Account’.
• If forfeited shares originally issued at discount are re-issued at loss, the loss incurred on issue of shares originally at discount is to be debited to ‘Discount on Issue of Shares Account’ and the loss incurred on re-issue of shares is to be debited to ‘Forfeited Shares Account’.
• If the total of the amount of forfeiture and amount received on re-issue of shares exceed the face value of the shares re-issued, such surplus amount is required to be transferred to ‘Capital Reserve Account’.

By going through these Maharashtra State Board Organisation of Commerce and Management 12th Notes Chapter 3 Entrepreneurship Development students can recall all the concepts quickly.

Maharashtra State Board Organisation of Commerce and Management 12th Notes Chapter 3 Entrepreneurship Development

→ Factors of production: The basic things or inputs or resources such as land, labour, capital and entrepreneur used in the process of production to produce economic goods.

→ Risk-bearing The function of a trader to assume some non-insurable risks such as risk of deterioration in the quality of goods due to passage of time, the risk of spoilage, fall in demand due to a change in fashion, etc.

→ Finance The provision of money for a particular purpose such as capital to build a factory or to run a business, or a loan to a farmer.

→ Technology A body of information and techniques and of skills and experience, developed for the practical purposes including production and use of goods and services.

→ Raw materials: Materials acquired to manufacture a product, e.g. sugar cane is the raw material for a sugar factory.

→ Research and development: Two closely related activities in modern industry by which new products and processes are being continuously developed especially by engineers, designers and scientists.

→ Human resources: The quantity, quality, character and calibre of the people working in a business enterprise. Human resource is one of the important resources of an organisation which makes other resources active.

→ Subsidy: Money or incentive given by the government to certain producers, such as farmers, to help them to produce without loss to themselves and yet at a low price, e.g. export subsidies to encourage foreign trade.

→ Tax holidays: Tax holiday means for the purpose of growth and development the government allows certain factories or industries established in backward areas not to pay any tax to the government for a certain period, say 5 years or more.

→ Capital formation: The practice by consumers of increasing their stock of wealth by not consuming it now; instead, some of it is used to increase the supply of capital goods such as machinery and buildings needed to produce further goods.

→ Auxiliary industries: Service (tertiary) industries such as transport, insurance, bank, etc. which provide supplementary or supportive services to primary and secondary industries.

→ Service tax: A tax levied by the government on various services rendered by the individuals, firms, companies, etc.

→ Corporate tax: A tax charged by the government on the assessable profits of individual firms or a limited company during each accounting period. The rate of corporate tax directly varies with the level of profits of the company. It is as good as income tax payable by companies to the government.

→ Value Added Tax (VAT): A tax levied on a product at each stage of manufacture or distribution in proportion to the estimated increase in its ultimate sales values.

→ Excise duty: An indirect tax levied on the consumption of particular goods. It is often levied at higher rates on the goods whose consumption are injurious or harmful to health, e.g. tobacco, alcohol, etc.

→ Customs duty: A tax imposed by the government on goods imported from abroad. Customs duty is charged either in the form of a percentage of the value of the goods or as a specific duty according to the volume of the goods.

→ Demonstration method: The basic method of instructions for teaching skills type subject matter. This method is recommended for teaching a skill because it covers all the necessary steps in an effective learning order.

→ Socially disadvantaged group: A group whose members have been subjected to racial or ethnic prejudice because of their identity as members of a group without regard to their individual qualities.

→ Semi-finished goods: Products that have not been completely assembled or manufactured and usually sent to other departments for finishing and converting them into finished products.

→ Consumers’ education: Knowledge and necessary information given to the consumers to educate and guide them about their rights and duties, marketing procedures, quality standards, availability of credit, etc.

→ Education cess : Cess is an alternative term for a tax. The term ‘cess’ is still frequently used in a few countries including Britain and Ireland to indicate a local tax, Scotland, to indicate a land tax and India applied as a suffix to indicate a category of tax such as property cess, education cess, etc.

→ Income inequality: A considerable gap in the earnings of various sections of society. On one side we find a sizeable number of people earning say ₹ 20,000 – 30,000 per month and another class of people earning millions of rupees per month.

→ Entrepreneurship: The activity of setting up a business, taking on financial risk to earn profit.

→ Innovators: A person who introduces new methods, ideas on products.

→ Entrepreneurs: A person who sets up a business, taking on financial risk to earn profit.

→ Private enterprise: Business on industries that is managed by independent companies or private individuals.

→ Industrial Base: The part of a country or region that is involved in producing goods in large quantities in factories.

→ Freelancing: Freelancing is a self employed person who offers services, by working on several
jobs for various clients at one time.

→ Synthesis: The combination of components or elements to form a connected whole.

→ Hindrances: A thing that provides resistance, delay or obstruction to something or someone.

→ Parametry: A numerical or other measurable factor forming one of a set that defines a system or sets the condition of its operation.

→ Aggrandize: To increase the power, status of wealth. „

→ Incalculable: Too great to be calculated as estimated.

→ Pervasiv : Spreading widely throughout an area or a group of people.

→ Standardisation: The process of making something confirm to a standard.

→ Fatigue: Reduce the efficiency by prolonged activity. ‘

→ Micro finance: Micro finance is a category of financial services targeting individuals and small ‘
business.

→Socio-Economic: Relating to or concurred with the interaction of social and economic factors. –

→Capital gain: A profit from the sale of property or an investment. x

→Incubators: A place, especially with support staff and equipment, made available at low rent to new small business.

→ Greenfield Enterprise: In infrastructure, the projects on the unused lands where there is no need .
to remodel or demolish an existing structure are called greenfield enterprise/project.

→ Collateral security: Collateral security is an asset which a borrower is required to deposit with or pledge to, a lender as a condition of obtaining a loan. It can be sold off if the loan is not repaid.

→ Moratorium period: A moratorium period is a time during the loan term when the borrower is not required to make any repayment.

→ Agritourism: Tourism in which tourists stay with local people in rural areas.

Introduction-

Entrepreneurship is a full time job which requires dedication and hard work. They are innovators, producers, owners, creators, etc. They are regarded as ‘fourth factors of production’.

History –

• In the early 16th century, the term ‘Entrepreneur’ was used by Frenchman for men leading in military expeditions.
• In France, contractors or architects were called entrepreneur around 1700 AD.
• The French economist Richard Cautillon used this term for business and economic activities, in early 18th century.
• In 1848, the famous economist John Sturt Mill described ‘Entrepreneurship’ as the founding of a Private enterprise.
• In India, the industrial base of our economy was very poor at the on set of independence.

The industries were facing difficulties, like shortage of raw material, capital and marketing problems, etc. However, the Indian Government is considerably enhancing the ease of doing business.

Concept-

The concept of entrepreneur differs from industry to industry, country to country and time to time. An entrepreneur is “a person who starts a business and is willing to risk loss in order to make money”. The common words ‘businesses’ and ‘risk’ are f interrelated. If there is no real business or risk, a
person cannot be called as an entrepreneur.

• The small businessman having a grocery shop or the founder of a laundry service across the street is an entrepreneur.
• The founder of the multi-billion companies like Reliance, Tata is an entrepreneur.
• The freelancing plumber, carpenter, electrician work for himself is also an entrepreneur.

The entrepreneurs are passionate to innovate, lead, invent or pioneer with a disruptive product or technology. The size of business, its type, his age, education, success, failure does not matter for a person to become an entrepreneur. They have courage to share an idea or a product and try to make market a better place.

Definitions-

• Webster dictionary gives a definition, “An I entrepreneur is a person who starts a business and is willing to risk loss in order I to make money.”
• The Oxford Dictionary defines “an entrepreneur is a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so.”

Characteristics of an Entrepreneur-

• Intellectual Capabilities: An entrepreneur is a creative thinker with good intelligence. New innovative ideas are always floated by these people who have the ability of creative thinking.
• Future Vision: The entrepreneur has the ability of foreseeing the future market conditions. They can take appropriate decision by considering market situations and changes in market conditions. This enables them to take timely actions.
• Hard Work: Hard work is necessary in any type of venture or business activity to make it more successful. He is required to work more tediously, sincerely and seriously for long hours.
• Technical Knowledge: The entrepreneur should have adequate technical knowledge about the products, process, etc. He should also update his technical knowledge to understand latest changes take place in technology.
• Communication Skills: The entrepreneur should have good communicate skill and command over language he speaks. Good communication skill is important to convey ideas and influence customers, employees, creditors, etc.
• Highly Optimistic: To be successful, he should have positive thinking and approach in all the activities he undertakes.
• Risk- bearing capacity: He should be calculative in taking risk while facing challenges and seek more new opportunities.
• Self Confidence: He should be self confident to achieve his goals. He should keep himself motivated and confident to face various obstacles.

Qualities of a Successful Entrepreneur-

• Disciplined: An entrepreneur should have comprehensive strategies and tactics to accomplish the organisational goal. Successful entrepreneur is disciplined enough to take steps every day towards the attainment of his objectives.
• Confidence : An entrepreneur is confident with the knowledge that he will make his business succeed. He shows that confidence in everything he does.
• Open Minded: An entrepreneur has the ability to look at everything around him and realizes that every event and situation is a ‘business opportunity.’
• Self Starter: An entrepreneur is proactive, not waiting for someone to give him permission. For everything that needs to be done, he should start it himself.
• Competitive: An entrepreneur knows that he can do a job better than others. He needs to be competitive to win every game of the business.
• Creativity: An entrepreneur often comes up with solutions which are the synthesis of other items and thus find connection between unrelated events.
• Determination: An entrepreneur is determined to make all of their endeavours succeed, so will try and try again until it does. He is not backdown by defeats or not believe the something cannot be achieved.
• Strong Communication Skills: The entrepreneur has strong communication skills to sell the product and to motivate employees so as to expand and grow business.
• Strong Work Ethics: An entrepreneur’s mind is constantly on his work, whether he is in or out of the work place to ensure that an outcome meets his expectations.
• Passion: Passion to make business better is the most important quality of a successful entrepreneur. He loves his work because there is a joy that his business gives which goes beyond the money.

Functions of an Entrepreneur-

• Innovation: An entrepreneur is basically an innovator. He introduces new combinations of means of production, new products and makes changes in the existing products to satisfy his customers.
• Determination of objectives: An entrepreneur has to determine the aims and objectives of business and differentiate between primary and secondary objectives.
• Development of Markets: An entrepreneur has to find out different ways for marketing the products and services by conducting constant research to increase customers demand.
• New Technology: Everyday there is an invention of new technology in the global world. Introduction of new and advanced technology, scientific methods will always result in growth of business.
• Good Relations: Good and efficient relations between subordinates, superior and employees is necessary to maintain healthy working atmosphere in an organisation.
• Organising Funds: An entrepreneur needs to find out different financial resources because adequate and continuous finance is always necessary for every business.
• Taking Decisions: Timely and correct decisions are important and necessary for a proper business plan. He should always consider the pros and cons for taking any business decisions.

Entrepreneurship Development-

Meaning :
Entrepreneurship is a purposeful activity of an individual or a group of associated individuals undertaken to initiate, maintain and aggrandize profit by production and distribution of economic goods and services. It is a process of setting up a new organisation.

Characteristics of Entrepreneurship :

• Innovation: Entrepreneurship is an innovation in view of changing taste of consumers from time to time. Entrepreneurship focuses on the research and development to produce goods and services to satisfy the customers.
• Economic Activity: Systematically planned activities as per his skills and knowledge to satisfy the human wants and to earn a better livelihood is quality of an entrepreneur. Hence entrepreneurship is an economic activity.
• Organisation building: It is an activity place, time and form utility is considered under one roof.
• Creative Activity: Innovation and creativity in producing something new is a big challenge for the entrepreneur. It is an essential part of entrepreneurs.
• Managerial Skills and leadership : Leadership and managerial skills are the most important quality of an entrepreneur to be successful. He should lead, have more passion of doing something new than just earning profit.
• Skilful Management: With professional and skilled managers, entrepreneurship becomes a successful activity.
• Risk-Bearing: Uncertainty is the risk which cannot be insured against and is incalculable. Entrepreneurs are risk-bearing agents in production.
• Gap Filling Functions: It is the entrepreneur’s job to fill the gap or make up the deficiencies which always exists in the knowledge about the production function.

Process of Entrepreneurship Development –

(1) Training: As against traditional thought that entrepreneurs are born, modern ways thinks entrepreneurs can be made by education and training. Training is a scheme of instructions which is planned, systematic, consistent, pervasive and monitored to measure its effectiveness. It imparts knowledge of marketing of goods, production methods, consumer’s education, etc. Training teaches an entrepreneur for the latest development which can directly or indirectly affects him. By number of methods of training, efficiency of an entrepreneur can be increased.

(2) Entrepreneurship Development Programme (EBP): EDP is a device through which people with talent, entrepreneurial traits are identified, motivated to take up new industrial venture, trained in managing the unit and guided in all aspects of starting a venture/an enterprise. These programmes are designed to strengthen motive, capabilities and help to play his role efficiently.

(3) Steps in EDP:

• Arrangement of Infrastructure.
• Selection of potential entrepreneur.
• Identification of enterprise.
• Actual training program.
• Selection of training personnel.
• Selection of method of training.
• Actual training.
• Monitoring and follow-up.

(4) Objectives of EDP:

• To foster entrepreneurial growth in the country.
• Optimum use of available resources.
• Development of backward regions and improving economic status of socially disadvantaged groups.
• Generation of employment opportunities.
• Widening base for small and medium scale industries.

Recent Initiatives in Entrepreneurship Development –

Start up India :

Meaning : A start-up is defined as an entity having its headquarter in India, which was opened less than 10 years ago and has an annual turnover of less than 100 crores. Government want to encourage entrepreneurship and to promote innovations. The MUDRA Bank’s scheme, a scheme started by Government of India, in providing micro¬finance at low interest rates to low socio-economic background entrepreneurs. It was started in 2016 for economic growth and generate large scale employment. The Government has announced start¬up Indian Action Plan in following areas :

1. Simplification and Handholding : Procedure for start up will be easy and winding up will be on fast track basis.
2. Funding support and Incentives : Indirect participation by government in funding and tax exemptions will be allowed.
3. Industry – Academia Partnership and Incubation : To introduce start up Fests, pre-incubation training, set up incubators, launch programmes for students.

Objectives of Start ups :

• ₹ 10,000 crore start-up funding pool.
• Reduction in patent registration fees.
• Improved Bankruptcy Code i.e. 90 days exit window.
• Freedom from mystifying inspections for first 3 years of operation.
• Freedom from Capital Gain Tax for first 3 years of operation.
• Freedom from tax for first 3 years of operation.
• Self-glorification compliance.
• To target 5 lakh schools, and involve 10 lakh children in innovation-related programmes.
• Encourage entrepreneurship within the country.
• Promote India across the world as a start¬up hub.
• Built Start-up Oasis as Rajasthan Incubation Center.

Stand-up India-

Stand-Up India scheme for financing bank loans between ₹ 10 lakh and ₹ 1 crore to at least one SC/ST borrower and at least one woman borrower per bank branch for setting up a greenfield enterprise.

Following points to be learned:

(1) Objectives (2) Eligibility (3) Nature of loan (4) Purpose of loan (5) Size of loan (6) Interest rate (7) Security (8) Repayment (9) Working Capital (10) Margin money.

Agro Tourism (Rural Tourism)-

Meaning: Agro tourism is a commercial enterprise at a working farm, ranch, or agricultural plant conducted for the enjoyment of visitors that generates supplement income for the owner. Agro tourism provides a chance to reconnect with land and provide ‘hands on experience’ with local food to tourists.

Definition : “Agro tourism is the idea of bringing urban residents to rural areas for leisure travel and spending”.

Maharashtra is at the forefront in developing and promoting agro tourism in India. Agritourism is an activity which brings visitors to farm. It has grown in many countries of the world like Australia, Canada, US, etc. Business planning finding land, employees, record keeping, following regulations insuring crops, preparing for rainy day and its retirement all come under ‘Farm Management’.

Activities in Agro Tourism:

• Outdoor recreation.
• Educational experiences.
• Entertainment.
• Hospitality services.
• On-farm direct sales.

Intrapreneurs –

An intrapreneur is an employee who has the authority and support of his company/employer to implement his own innovative and creative ideas. The main difference between an intrapreneur and an entrepreneur is that, the latter takes financial risk while the intrapreneur does not have to invest his capital. Such innovative ideas may earn good profit for the organisation.

Definition:
Gifford Pinchot ill, “Intrapreneurs are the dreamers who take hands-on responsibility for creating innovation of any kind, within a business.”

By going through these Maharashtra State Board Organisation of Commerce and Management 11th Notes Chapter 4 Forms of Business Organisation – I students can recall all the concepts quickly.

Maharashtra State Board Organisation of Commerce and Management 11th Notes Chapter 4 Forms of Business Organisation – I

Meaning Private Sector Organization-

Private Sector Organization
Meaning: The private sector is the part of the economy that is run by individuals or a group of Individuals to earn profit.

Forms of Private Sector Organization-

1. Sole Proprietorship
2. Partnership
3. Joint Hindu Family
4. Co-operative Society
5. Joint Stock Company

Meaning of Sole Trading Concern / STC Sole Proprietorship-

According to Prof. J. Hansen, “Sometimes known as one man business, it is a type of business unit where one person is solely responsible for providing the capital, for bearing the risk of the enterprise and for the risk of ownership”.

According to Prof. James. Lundy, “The sole proprietorship is an informal type of business owned by one person”.

Features of Sole Trading Concern-

• Suitable for some Special Business
• Unlimited Liability
• No Sharing of Profits and Risks
• Business Secrecy
• Local Market Operations
• Individual Ownership
• No separate legal status
• Direct Contacts with Customers and Employees
• Self-employment
• Freedom in Selection of Business
• Minimum Government Regulations

Merits of Sole Trading Concern-

• Easy formation
• Quick decisions.
• Maximum Secrecy
• Direct Motivation
• Efficiency
• Lower cost
• Flexibility

Demerits of Sole Trading Concern-

• Limited Capital
• Limited Managerial Skill
• Unlimited Liability
• Lack of Stability
• Lack of Specialization
• Not suitable for large scale operation

Meaning of Partnership Firm-

(Section 4 of Indian Partnership Act, 1932 defines partnership as -) “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or anyone of them acting for all”.

(Prof. L. H. Haney defines partnership as -) “Partnership is the relation existing between persons competent to make contracts, who have agreed to carry on a lawful business in common with a view to private gain”.

Features of Partnership Firm-

• Lawful Business
• Agreement
• Number of Partners
• Dissolution
• Sharing of Profits and Losses
• Termination of Partner
• Joint Ownership
• Registration
• Joint Management
• Unlimited Liabi1ity
• Principal and Agent
• Restriction on Transfer of Interest

Merits of partnership Firm-

1. Easy formation
2. Capital
3. Business secrecy
4. Continued existence
5. Flexibility of operation
6. Decision making
7. Effort- Reward Relationships
8. Goodwill
9. Dissolution

Demerits of Partnership firm-

• Non-transferability of Interest
• Limited Capital
• Absence of Legal Status
• Problem of Continuity
• Risk of Implied Authority
• Limitations on Number of Partners
• Disputes
• Difficulty in Admission of Partner
• Unlimited Liability
• Problems of Secrecy

Types of Partners-

1. Active partner
2. Dormant partner
3. Nominal partner
4. Secret partner
5. Minor as partner
6. Partner in profits only
7. Sub-partner
8. Partner with limited liability
9. Quasi-partner

Types of Partnership Firms-

1. General Partnership Firms (Under Indian Partnership Act, 1932)

• Partnership at will
• Partiership for particular period
• Partnrship for particular venture

2. Limited Liability Partnership (Under Limited Liability, Partnership Act, 2008)

Joint Hindu Family Business-

(1) Mitakshara : According to this school, only male member of the family can inherit the family business. Hence the sons, grandsons and great grandsons become joint owners of the family property. A son gets equal rights along with his father in the ancestral property. He has a right to ask for a division of the family property.

(2) Dayabhagya : According to this school both male and female member will be co-parceners in the Hindu-undivided fami1y. e.g. after death of husband his property and business passes to his wife or other successor.

Features of Joint Hindu Family Business-

• Exists only in India
• Formation
• Membership
• Joint Ownership
• Good Credit Standing
• Management
• Profit Sharing

Merits of Joint Hindu Family Business (JHFB)-

• Easy formation
• Protection of Co.parceners Interest
• Quick and Prompt Decision
• On the job training
• Co-parcener’s liability

Demerits of Joint Hindu Family Business (JHFB)-

• Unlimited Liability of Karta
• Limited Financial and Managerial Resources
• No separate legal status
• Partition of business
• No direct relation between effort and rewards

Co operative Society-

The International Labour Organization:
‘A Co-operative Organization is an association of persons, usually of limited means, who have voluntarily joined together to achieve a common economic end through the formation of a democratically controlled organization, making equitable distributions to the capital required and accepting a fair share of risk and benefits of the undertaking”.

“Indian Co-operative Society’s Act, 1912”, Co•operative Society is a sociéty which has its objectives for the promotion of economic interest of its members in accordance with co operative principles”.

Features of Co-operative Society-

• Limited Liability
• Management
• Service Motive
• Surplus Profit
• Separate Legal
• Equal Voting Rights
• Number of Members
• Democratic Principle
• Voluntary Association rand Open Membership
• Registration
• State Support

Merits of Cooperative Society-

1. Easy Formation
2. Tax Concession
3. Open Membership
4. Stability
5. Self Financing and Charity
6. Less Operating Expenses
7. Limited Liability
8. Democratic Management
9. Supply of Goods at Cheaper Rate

Demerits of Cooperative Society-

• Limited Capital
• Inefficient Management
• Lack of public confidence
• Limited scope for expansion
• Lack of motivation

Types of Cooperative Societies-

1. Consumers Co-operative Societies
2. Producer’s Co-operatives
3. Marketing Co-operative
4. Co-operative farming societies
5. Housing Co-operatives
6. Credit Co-operatives

Producer’s Co-operatives-

• industrial Service Co-operatives
• Manufacturing Co-operatives

Joint Stock Company-

Definition of Joint Stock Company:
Prof. L. H. Haney,
“A Joint Stock Company is a voluntary association of individuals for profit having capital divided into transferable shares, the ownership of which is the condition on membership”.

Chief Justice Marshal,
“A company is a person, artificial invisible intangible and existing only in the eyes of law. Being a more creature of law it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence”.

The Companies Act 2013, Sec 2(20)-
“A company incorporated under the Companies Act 2013 or any previous company law”.

Features of Joint Stock Company-

• Common Seal
• Registration
• Artificial Legal Person
• Membership
• Perpetual Succession
• Separation of Ownership and
• Registered Office
• Transferability of Shares
• Voluntary Association
• Limited Liability
• Separate Legal Status

Merits of Joint Stock Company-

• Transferability of Shares
• Relief in Taxation
• More Scope for Expansion
• Public Confidence
• Limited Liability
• Expert Services
• Democratic Management
• Perpetual Succession
• Professional Management
• Large Amount of Capital

Demerits of Joint Stock Company-

• Rigid formation
• Lack of secrecy
• No personal contact
• Delay in decision making process
• High cost of management
• Reckless speculation

Types of companies-

Word Meaning:

solely – only; proprietor – owner; legal status – someone with regard to law; eyes of law – from view of law; rigid – fixed; distinction – differences; expert – good knowledge in a particular area; insanity – mental imbalance; insolvency – financial loss; evolved – to develop; proprietary concern – sole trading business; lawful – legally; collectively – as a whole; outcome – result; advisable – useful; forbidden – not permitted; pay off – payment; incurred – to arise; consent – permission; proportions – share; goodwill – established reputation; fraudulent – illegal; secrecy – not to disclose anyone; confidential – to keep secret of something; flexibility – to change easily; diversify – to expand; ethical – principle; efficiency – competent; continuity – to run for long period; dissolution – to end; disputes – arguments; object – to disagree; undue – unnecessary; restricts – to obstruct; dormant – inactive; quasi – not fully; rendered – to provide; sleeping – to be inactive; bind – to tie up; nominal – in name of; void – invalid; derived – to obtain; at will – own wish; venture – project; inherit – to receive; ancestral – belonging from ancestor; successor – a person who gets the authority from another person; descended – to go down; virtue – by behaviour; custodian – caretaker; assures – to convince; consult – to seek advice; utmost – maximum; tactics – method; manipulative – to exploit ; practices – to exercise/to use; empathizing – to understand; transparent – to be clear; exploitation – to misuse; integral – essential; democratically – with regard to laws of democracy; equitable – equally; discrimination – to differentiate; honorary – unpaid; concessions – discount; privileges – advantages; exemption – state of being free from duty; amendment – changes; charity – helping others in term of cash or material; interference – to come in between; remunerative – at good price; centralized – under one roof; eliminate – to remove; pool – to bring together; exorbitant – to much high/extremely high; drastic – major/extreme; intangible – can’t be seen or touched physically; confers – to present; charter – authorised; incidental – happening; existence – to come into survival; entity – an independent body (organisation); engraved – imprint; seal – a symbol; affixed – to fix on something; perpetual successions – never ending; comparatively – to compare something with; legal advisers – a person who gives legal advices; consultants – a person who gives expert advice in a particular area; stable – fixed; complicated – difficult; time consuming – taking too much time; undue – unnecessary; appreciated – to value; unscrupulous – corrupt/dishonest; reckless – careless; fluctuation – changes/ alteration; adversely – harmfully/not favourable; ban – to restrict/to stop; in lieu of – in place of/replace.

By going through these Maharashtra State Board Secretarial Practice 11th Commerce Notes Chapter 1 Secretary students can recall all the concepts quickly.

Maharashtra State Board Class 11 Secretarial Practice Notes Chapter 1 Secretary

Origin of Secretary

Meaning and Definition

1. Oxford Dictionary:
‘A person whose work is to write for others, especially one who is employed to conduct correspondence, keep records and to transact various other businesses for another person or for a society, corporation or public body.’

2. Companies Act, 1980: “A person who is a member of Institute of Company Secretaries of India.”

Features of Secretary:

• Individual – Only an individual can be as a Secretary
• Duties – Perform routine and administrative duties O Day to day duties
  Ensure legal compliances
• Qualification – Prescribed qualification according to Companies Act, 2013
• Appointment – Can be appointed by individuals, professionals, society corporation, etc.
• Paid Employee – Paid either by salary or paid an honorarium.
• Confidential Officer – Acts as a custodian of secret and confidential information of the organization.
• Representative – Personal secretaries – represent their employers.
  Institutional secretaries who is appointed by societies, companies, government departments – represent their organizations.
• Qualities – o Concentration, intelligence, tact, loyalty, co-operation, courtesy, etc.

Importance of a Secretary:

1. Expert advice and guidance –

• opinion of secretary valuable.
• advices the superiors in the matter of policy decisions.
• guides to the management for business growth.

2. Administrator-

• routine office administration
• office management, documentation of important issues
• executive duties : like assisting policy formulation, preparation of plans, supervision on execution of plans

3. Custodian of secret information-

• access to confidential and crucial information related to the organization.
• making and executing important decisions
• guards the secrets of the organization as ‘confidential officer’.

4. Correspondent –

• responsible for inward and outward correspondence.
• correspondence with members, directors, banks, insurance companies, etc.

5. Legal compliance officer –

• ensure proper and timely legal compliances.
• perform various statutory duties.
• file returns, documents with proper authorities within the stipulated time.

6. Conducting meetings-

• formalities required to be undertaken before, during and after the meeting.
• includes preparation of agenda. sending notices, preparing minutes etc.

7. Link between management and staff –
link between management and staff. helping in effective communication.

8. Fulfillment of Secretarial Standards and Secretarial Audit-
to check whether the company is adhering to legal and procedural requirements.

Types of Secretary:

1. Personal Secretary
2. Institutional Secretary

Institutional Secretary-

• Secretary of a Non – profit association
• Secretary of a Co-operative
• Secretary of a Joint Stock company
• Secretary of a Government Department
• Other Body Corporates

Personal Secretary-

1. Appointment
2. Qualifications

1. Appointment –
Individuals appoint personal
secretary to look after other or daily routine work.
E.g. → (1) Doctors (2) Lawyers (3) Engineers (4) CA (5) Actors (6) Politicians, etc.

Qualifications-

• No specific qualifications
• Depends on the requirement of employer’s profession

Institutional Secretary-

1. Secretary of a Non – Profit Association
Example: Secretary — Rotary club — Lions club. etc.

Appointment:
may be a full time or part time person working on salary basis or on honorarium basis.

Qualification:

• no prescribed qualification
• should be acquainted with the objects and basic functioning of the organization.

2. Secretary of a Co operative Society
Example:
3ecretary – Co-op. Bank – Co-op. Housing ociety. etc.

Appointment:

• one member of managing committee is appointed as a Secretary.
• works on honorary basis.
• for large scale co-operative organisation; he/she may be appointed as a
  full time employee on salary basis.

Qualification:

• no specific qualification.
• good knowledge of the Co-operative Societies Act with at least
  graduate qualification.

3. Secretary of a Joint
Stock Company
Example:
Reliance Industries Ltd, Tata Motors Ltd, etc.

Appointment:
Company Secretary is appointed and works under the control of Board of Directors.

Qualification: As per Section 2O3 of Companies Act 2013, Company Secretary must be a member of the Institute of Company Secretaries of India (ICSI).

4. Secretary of Government Department
Example:
Finance Secretary, Defence Secretary, etc.

Appointment:
Acts as an administrative head of a Ministry or Department for Government of India or State government.

Qualification:

• requires graduation degree.
• should have passed the Civil Services Examination and should be an TAS.

Functions of a Secretary-

1. Correspondence

• to look after inward and outward mail.
• to reply to inquiries from outsiders, government department.
• to look after the various records of the organization.

2. Office management

• to supervise and control the staff.
• to look after smooth functioning of the company.
• to look after training, promotion and transfer of the office staff.

3. Reception function

• to attend to telephone calls and visitors.
• to attend to inquiries, fixing appointments, etc.

4. Financial functions

• to handle banking transactions and maintain books of accounts.
• to keep watch on receipts and payments.
• to provide information to employer, management, banks and Govt.

5. Arrange meetings

• between employer and other parties.
• to arrange general meetings and board meetings as per Act.
• to draft notices, agenda and minutes of the meeting.

6. Statutory functions
to comply the provisions of the Companies Act, Income Tax Act, Stamp Act, etc.

7. Assistance in formulating policies

• to collect statistical data and information.
• to assist the management in formulating policies

8. Providing information
to provide Information related to various departments to management, banks, government departments, shareholders and employees.

9. Administrative functions

• to assist in appointing employees,
• to distribute office work, to supervise, to train and to promote.
• to maintain all statutory books and keep under proper custody.

Qualities of a Secretary-

1. Accuracy
2. Adaptability
3. Co-operativeness
4. Courtesy
5. Initiative
6. Leadership
7. Loyalty
8. Orderliness
9. Pleasing personality
10. Knowledge seeker
11. Punctuality
12. Sound judgement
13. Tactfulness

Word Meaning:

emerged – to come out / to rise up; assist – to help someone; employer – one who keep the worker against remuneration (salary, wages); employees- one who works for someone against remuneration (salary or wages) / a person who works for somebody for salary; compliance – to follow rules / to abide; prescribed – to advice / to suggest; honorarium- payment made to professionals for their services; custodian – a person who is officially charged for something; personal- one’s own property / belonging; institutional – large organization; concentration- to focus on some work; courtesy – polite behavior towards other people; orderliness – neat and tidy / proper placement; seeker – needy person; able- guidance – valuable suggestion; executive – person at top level; formulation – creation of a plan or policy; stipulated – fixed / desired time; agenda – points to be discussed in meeting; minutes – written record of points discussed in meeting; co-ordinate – to work together; adhering – to follow; procedural – formal way to do something; acquainted – habitual; vital- important; relevant – important / needed; promotion – to lift up; voluntarily – by one’s own wish; accomplish – to achieve / to get; pleasing – good looking personality; implies – without saying directly; mannerism – behave respectfully, statutory – compulsory; appropriate – proper; effectiveness – productiveness; determined – firmly / fixed; perks – additional benefits.

By going through these Maharashtra State Board 12th Science Chemistry Notes Chapter 12 Aldehydes, Ketones and Carboxylic Acids students can recall all the concepts quickly.

Maharashtra State Board 12th Chemistry Notes Chapter 12 Aldehydes, Ketones and Carboxylic Acids

General methods of preparation of aldehydes:

General methods of preparation of ketones:

Preparation of Aromatic aldehydes and ketones:

Preparation of carboxylic acids:

The general reactions of aldehydes and ketones:

Reactions of carboxylic acid:

By going through these Maharashtra State Board Book Keeping & Accountancy Notes 12th Chapter 2 Accounts of ‘Not for Profit’ Concerns students can recall all the concepts quickly.

Maharashtra State Board 12th Accounts Notes Chapter 2 Accounts of ‘Not for Profit’ Concerns

Introduction-

In the society we come across with two types of organisations viz. (1) Trading organisation or Profit making organisation and (2) Non-trading organisation or Not for profit-making organisation.

Aim of Trading organisation/concern is to earn maximum profit by undertaking process of manufacturing goods or purchase of goods and sells them at a profit or to earn income by rendering services to its customers. Trading concerns prepare Trading Account, Profit and Loss Account and Balance Sheet to ascertain the profit of the firm and financial position of the firm. Examples of trading organisations are : Sole proprietorship firm, Partnership firm, Public and Private companies, Co-operative organisations, etc. Other type of organisations are Non-trading organisations and the aim of these type of concerns is not to earn profit but to give services to its members or services to the society at large.

Non-trading organisation prepare Receipts and Payments Account to get summary of cash transactions, prepare Income-Expenditure Account to ascertain whether their incomes are sufficient enough to meet their expenditures and prepare Balance sheet to know financial position of organisation as on a particular
date.

Not for Profit Organisation:

• Formed for promotion of art, culture, religion, sports, charity, health, education, etc.
• Main objective is to provide services to its members or society without profit motive.
• Collects income through subscriptions, donations, admission fees from members and grants, subsidies, concessions from Government.
• Spends its income to promote its objectives.
• Never pays dividend to its members.

Meaning of ‘Not for Profit’ Concern-

A concern or an organisation which is formed and established to serve its members and society or general public by undertaking various activities without any profit motive is called a ‘Not for Profit’ concern or organisation. Main objective of these concerns, is to provide social service and to promote art, culture, sports, education, etc. ‘Not for Profit’ concerns collects income through different sources such as subscription from its members, entrance fees / admission fees, donations, government grants or aid, subsidies, etc.

Features of ‘Not for Profit’ Concern-

The features of ‘Not for Profit’ concern are explained as follows :

• Objective :‘Not for Profit’ concern undertakes various activities without any profit motive to promote art, culture, education, religion, sports, charity, health, etc. Its primary objective is to provide goods and services to its members.
• Dividend : ‘Not for Profit’ concern is not allowed to make the payment of any dividend to its members.
• Membership :Any person who is interested in the organisation can become its member by contributing towards entrance fees, life membership fees, subscriptions, etc.
• Democratic Management : The management of this organisation or concern is looked after by the elected representatives of the members. The elected representatives form themselves into a managing committee or governing body. They elect a Chairman and other office bearers such as secretary, treasurer, etc. The Chairman is the official head of the concern. Usually office bearers are working on an honorary basis.
• Accounts to be prepared : It prepares Income and Expenditure Account to record incomes and expenses of the concern and to find out surplus or deficit. Excess of income over expenditure is called surplus while excess of expenditure over income is called deficit.
• Capital fund : It is necessary for every such organisation to have its capital fund. The capital fund of the organisation includes entrance fees, surplus, legacies and donations specifically received, for creating capital fund, etc. The excess of assets over liabilities is also termed as ‘Capital Fund’.
• Special funds :Any receipts, donations or grants received for creation of a certain funds, e.g. Prize fund, Building fund, etc. are credited to such specific funds.

Difference between Profit Organisation and ‘Not for Profit’ Organisation-

Profit Organisation:

1. Meaning: An organisation which Is established with the objective of earning profit and serving society through undertaking production or distribution of goods or services is called Profit organlsat1on.
2. Primary Objective: Primary objective is to earn profit.
3. Trial Balance: It prepares Trial Balance.
4. Net Result: It prepares Profit and Loss A/c to ascertain net result in the form of profit or loss.
5. Accounting Statements: It prepares the following accounting statements:
   (1) Trading Account (2) Profit and Loss Account and (3) Balance Sheet.
6. Owner’s Fund /Capital Fund: Capital balance and balances in Reserves and Surplus together constitute owners fund/capital fund.

‘Not for Profit’ Organisation:

1. Meaning: An organisation which is established to serve its members and society or general public by undertaking various activities without any profit motive, is called a ‘Not for Profit’ organisation.
2. Primary Objective: Primary objective is to provide services.
3. Trial Balance: It prepares Receipts and Payments Account.
4. Net Result: It prepares Income and Expenditure A/c to find out net result in the form of deficit or surplus.
5. Accounting Statements: It prepares the following statements: (1) Receipts and Payments Account (2) Income and Expenditure Account and (3) Balance Sheet.
6. Owner’s Fund/ Capital Fund: Capital fund includes accumulated amount of surplus. surp1us shown by Income and Expenditure A/c, Subscriptions, Donations, etc.

Need for Maintaining Books of Accounts and Preparing Final Accounts-

‘Not for Profit’ concern never engages itself in any field of activity where the object of earning profit is present. As ‘Not for Profit’ concern deals with public money (i.e. subscriptions and donations received from its members and general public, grants received from government), it is answerable to society or public. It is required to maintain the various books of accounts for the following reasons :

• To have control over the cash transactions i.e. inflow and outflow of cash.
• To know the sources of funds and its application i.e. different heads of expenditures on which amount is spent.
• To comply with the provisions of laws applicable to such organisation, e.g. co-operative society registered under the Co-operative Society’s Act, is required to follow the provisions to make budget, audit the accounts, maintain books of accounts, etc.
• To find out surplus or deficit of the concern during a particular period.
• To know the financial position and net worth of the concern on a particular day.
• To avoid illegal or wrong practices and misappropriation of funds and assets.

Meaning of Receipts and Payments Account:

An account which is prepared by a ‘Not for Profit’ concern to record summary of all types of cash receipts and cash payments inclusive of bank transactions is called Receipts and Payments Account. It discloses the various sources from which cash comes in and the various ways through which cash goes
out. It is just similar to the cash book maintained by the trading concerns. Like Cash Account, it has two sides, viz. debit side and credit side. On the debit side, all the receipts of cash and on credit side, all disbursements or payments of cash are recorded.

The opening balance of Cash and Bank balance are shown on the debit side of this book. Bank overdraft is shown on the credit side of this book. This book closes with cash balance and bank balance or overdraft at the end of the accounting year. All receipts and expenditures irrespective of their nature i.e. revenue or capital are recorded in this book. Receipts tand payments related to previous year, current year or next year are also recorded in this book.

Features of Receipts and Payments Account-

The features of Receipts and Payments Account are explained as follows :

• Receipts and Payments Account is a Real Account.
• It is similar to Cash Book and gives a summary of cash transactions and bank transactions.
• The receipts and payments of all kinds i.e. revenue as well as capital are recorded in this account.
• The receipts and payments relating to past, current and future accounting years, if received and paid during the current year are recorded in this account.
• It records the amount actually received as well as paid during the current year. However, amount receivable as well as amount payable (outstanding) are not recorded in this account.
• It provides base for preparation of final accounts consisting of Income and Expenditure Account and Balance Sheet of ‘Not for Profit’ concern.
• Opening balances of the Cash and Bank Account are brought down to this account from the last Balance Sheet and the closing balances of these accounts are transferred to the Balance Sheet prepared at the end of that accounting year.
• Accounting items such as Bad debts, R.D.D., Depreciation provided on the fixed assets, etc. are not recorded in this book because they are non-cash items of the business.

Types of Receipts-
Receipts may be of two types viz. (i) Capital Receipts and (ii) Revenue Receipts.

Capital Receipts :
Receipts which are non-recurring in nature and do not form the part of regular flow of business income are called Capital Receipts.
Examples : Sale proceeds of fixed assets, life membership fees, donation received for building construction, etc.
Capital receipts may be either added to capital fund or treated separately on the Liabilities side of the Balance Sheet.

Revenue Receipts :
Receipts which are recurring in nature and also form the part of regular flow of business income are called Revenue Receipts.
Examples : Subscriptions received from members, interest on investments received, rent received, entrance/ admission fees, etc.

Types of Payments-
Payments may be classified into three categories viz. (i) Capital expenditure (ii) Revenue expenditure and (iii) Deferred Revenue expenditure.

Capital Expenditure :
An expenditure which is non-recurring in nature and benefits of which are likely to be received for a long period of time is called Capital expenditure. It is usually spent to increase fixed assets units, to increase earning capacity, efficiency and life span of the fixed assets and to achieve economy of operation of existing fixed assets.
Examples : Amount spent on purchase of land, building, machinery, furniture, etc.

Revenue Expenditure :
An expenditure which is incurred for carrying out day-to-day business activities and maintaining fixed assets in working condition is called Revenue expenditure. It is recurring in nature and benefits of which are enjoyed immediately.
Examples : Amount spent on payment of wages and salaries, rent, taxes, insurance premium, commission, etc.

Deferred Revenue Expenditure :
Expenditure which is basically of revenue nature but benefits of which are received for more than one or more years is called Deferred revenue expenditure.
Example : Advertisement expenditure paid at a stretch for 4 years say ₹ 40,000. In this case, 1/4 of ₹ 40,000 i.e. ₹ 10,000 is required to be written off to Income and Expenditure A/c in the Current year and balance of ₹ 30,000 is required to be shown on the Assets side of Balance Sheet.

Specimen of Receipts and Payments Account-

Meaning of Income and Expenditure Account-

An account which is prepared by the ‘Not for Profit’ concern to record expenses and incomes of revenue nature and to ascertain whether the concern has sufficient incomes to meet its expenses, is called Income and Expenditure Account. It is just similar to the Profit and Loss Account of the trading concerns.

Other Information : In this Account only incomes or gains of revenue nature that too of the current year are recorded on the credit side.

Examples : Subscriptions received, Entrance fees received, Sundry receipts, Donations (General) received, etc.
Please note that revenue incomes pertaining to current year whether actually received or not or received during past year are recorded in this account.
Similarly, in this account only revenue expenditure of current year whether actually paid or not or paid during previous year are recorded on debit side.

Debit balance of Income and Expenditure A/c indicates deficit which is deducted from the Capital fund and Credit balance of Income and Expenditure A/c shows surplus which is added to the Capital fund.
In this account capital receipts and capital expenditure are not recorded. They are directly recorded in the Balance Sheet.

Features of Income and Expenditure Account-

The features of Income and Expenditure Account are explained as follows :

• Income and Expenditure Account is a Nominal Account.
• In this account only revenue expenses and revenue incomes relating to current year are recorded.
• This account is just like Profit and Loss Account. It gives result of the working of the organisation. ‘Not for Profit’ concerns prepare Income and Expenditure Account in place of Profit and Loss
  Account.
• This account is prepared with the primary aim of finding out surplus or deficit of the ‘Not for Profit’ concern over the particular accounting year.
• This account is a part of final accounts of ‘Not for Profit’ concern and hence it is always prepared with Balance Sheet.
• No opening balance is shown in this account.
• At the end of the accounting year, the debit balance of this account shows a deficit and the credit balance of this account indicates a surplus.
• All cash items such as salaries paid, rent paid, etc. as well as non-cash items such as outstanding salaries, bad debts written off, depreciation, provisions for bad debts, discount, etc. are also recorded in this account.

Specimen of Income and Expenditure Account-

Distinction between Receipts and Payments Account and Income and Expenditure Account:

Receipts and Payments Account:

1. Meaning: An account prepared by a Not for Pr’ concern to record the summary of all types of cash receipts and cash payments is called Receipts and Payments account.
2. Nature: It gives the summary of the cash transactions and bank transactions. It is similar to cash book maintained by the trading organisation.
3. Type of Account: Receipts and Payment Account Is a Real Account.
4. Openinng Balance: This account starts with opening cash and bank balances or overdraft.
5. Closinng Balance: Closing difference of this account shows either cash and bank balance or bank overdraft.
6. Period: All cash transactions Irrespective of period of occurrence, if received and paid In the relevant accounting year are recorded.
7. Nature of Items: In this account only cash transactions (items) are recorded.
8. Concerned period: Incomes and expenditures of both capital and revenue nature if received or paid during the current year are recorded in this account.
9. Contaings: In this account, tranšactions relating to all types of accounts viz. Personal Acccount, Real Account and Nominal Account are recorded.
10. Balance Sheet: It Is never accompanied by a Balance Sheet.

Income and Expenditure Account:

1. Meaning: An account prepared by a Not for Profit’ concern to record Its expenses and incomes of revenue nature is called Income and Expenditure account.
2. Nature of Account: It gives the net result of working of the concern. It Is similar to the Profit and Loss Account prepared by the trading concern.
3. Type of Account: Income and Expenditure Account Is a Nominal Account.
4. Openinng Balance: No opening balance Is shown In this account.
5. Closing Balance: Closing difference of this account shows either deficit or surplus.
6. Period: Income and expenses relating to the relevant (current) accounting year only arc recorded.
7. Nature of Items: In this account cash as well as non-cash transactions (Items) are recorded.
8. Concerned Period: Only revenue incomes and expenditure related to current year whether received or not are recorded in this account.
9. Contains: In this account, only transactions relating to Nominal Account are recorded.
10. Balance Sheet: It Is always prepared along with Balance Sheet.

Preparation of Income and Expenditure Account-

Income and Expenditure Account is prepared on the basis of Receipts and Payaments Account and additional information if any. It is a Nominal Account and hence all expenses and losses of revenue nature are debited to this account and all incomes and gains of revenue nature are credited to this account. The method of preparation of Income and Expenditure Account is similar to that of preparation of Profit and Loss Account.

Preparation of Balance Sheet-

Balance Sheet of a Non Trading organisation is similar to Balance sheet of sole trading concern. To get the exact idea of financial position of an organisation on a particular date, Balance sheet is prepared with the capital receipts and capital Expenditures amounts. Generally, excess of Assets over Liabilities is called as capital fund. If ‘Capital Fund’ balance is not known, it can be found out by preparing opening balance sheet.

Specimen of Balance Sheet:

Adjustments-

Implied Adjustments:

Accounting treatment of the important items-

(1) Capital Fund : The excess of total assets over the total liabilities is called capital fund. Capital fund is recorded on the Liabilities side of Balance Sheet prepared by the ‘Not for Profit’ concern. It is created out of capital incomes and capitalisation of funds or incomes such as donations, entrance fees, admission fees, etc. The surplus shown by the Income and Expenditure Account is added to Capital Fund and deficit if any shown by Income and Expenditure Account is deducted from Capital Fund.

(2) Entrance Fees or Admission Fees : Fees or specific amount received from the new members at the time of their entry into the ‘Not for Profit’ concern are called Entrance fees or Admission fees. It is different from annual subscription received from the members. It is paid by each member only at the time of his admission. Capital fund of ‘Not for Profit’ concern is mainly made of entrance fees received from all the past and present members. Some people argue that entrance fees are capital receipt as it is received only once from each member. It is not recurring in nature. While others have pointed out that entrance fees are revenue receipt because though it is paid only once by each member, it is received regularly by the ‘Not for Profit’ concern.

Note : In the absence of any specific information given in the problem, entrance fees should be treated as revenue receipt. If any specific instruction is given in the problem, entrance fees should be treated accordingly. IJ according to instruction 60% of entrance fees is to be capitalised, then 60 % of entrance fees is to be added to capital fund on Liabilities side of Balance Sheet and remaining 40% of entrance fees is to be credited to the Income and Expenditure Account.

(3) Subscriptions : A payment as a contribution by the members towards some object or service, is called subscription received. It may be a payment or promise of payment for subscription of a magazine, newspaper, book, etc., over a specified period of time. In such a case it is called subscription paid. Subscriptions or fees received from the members constitute the main source of income for a ‘Not for Profit’ concern. All subscriptions received will be recorded on the debit side of Receipts and Payments Account. Out of such subscriptions, subscriptions relating to current accounting year are transferred and recorded on the credit side of the Income and Expenditure Account. It is considered as revenue receipt.

(4) Legacy : Any asset, property or amount of cash which ‘Not for Profit’ concern receives as per the provisions made in the will of the donor on his death is called legacy. As and when cash is received as legacy, it is recorded on the debit side of the Receipts and Payments Account. Since amount received on legacy is not of recurring nature, it is considered as capital receipt. Therefore, it is shown on the Liabilities side of the Balance Sheet.

(5) Life Membership Fees : The member of the ‘Not for Profit’ concern, if wants to become a life member, he is required to pay a lump sum amount of fees to the concern either at the time Of his entry or later. Such amount of fees is called life membership fees. Life membership fees are non-recurring in nature because members are required to pay the fees once in a lifetime and not periodically. Since it is a capital receipt, it is added to the capital fund on the Liabilities side of the Balance Sheet.

(6) Sale of Old Assets * Fixed assets like machinery, furniture, office equipments, etc., are sold by the ‘Not for Profit’ concern when they become old or outdated. Profit or Loss on sale of such assets is ascertained by using the following formulae :

(i) Profit on Sale of old Assets = Sales proceeds – Cost of Sale of old Assets.
(ii) Loss on Sale of old Assets = Cost of Sale of old Assets – Sales proceeds.

Sale proceeds so received are recorded in Receipts and Payments Account on receipts side. If ‘Not for Profit’ concern earn profit on sale of old assets, the amount of such profit, is recorded on the credit side of Income and Expenditure Account. In case there is a loss on sale of old assets, the amount of such loss is debited to Income and Expenditure Account.

(7) Scrap : Small piece of something larger, parts of the outdated machines, waste materials, used articles especially metals, etc. are called scrap. Scrap value refers to the net amount which is realised on the final disposal of scrap. The amount received on sale of scrap is first recorded on the debit side of Receipts and Payments Account. It is treated as miscellaneous income and as such it is credited to Income and Expenditure Account.

(8) Newspapers : Newspapers, periodicals, magazines, etc. are used by the members of the ‘Not for Profit’ concern to update their knowledge. The amount received from the sale of old newspapers, periodicals, magazines, weeklies, etc. is shown on the debit side of the Receipts and Payments Account and then posted on the credit side of the Income and Expenditure Account. It is considered as miscellaneous income.

(9) Specific Donations : Donation i.e., the gift in monetary terms received from the members or outsiders for a specific purpose like donation for building, charity, etc., is called specific donation. Donation received for specific purpose is treated as capital receipt and is added as contribution to specific fund on the Liabilities side of the Balance Sheet. Expenses spent for acquiring such donations are not debited to Income and Expenditure Account, but they are deducted from the amount of such donations only.

(10) Genera! Donations : Donations may be classified as general donations and specific donations. Donations received for general purpose like welfare of members, achieving general aims and objectives of the concern, etc. are called general donations. General donations are treated as revenue receipts as they are expected to be received every year. In case no specific information is given in any problem, donation should be treated as revenue income and accordingly, it should be considered in Income and Expenditure Account as income.

(11) Specific; Fund : Fund created for specific purpose is called specific fund. Specific fund may be created for the construction of building, construction of operation theatre, swimming pool, awarding prizes, etc. If specific fund is created, then all incomes and expenses relating to the specific fund should not be recorded in the Income and Expenditure Account. All incomes relating to specific fund are added to that fund and all the expenses related to it are deducted from that specific fund. The balance of specific fund is shown on the Liabilities side of the Balance Sheet.

(12) Endowment Fund : Fund which is created or raised from bequest (means the thing that is left by a will) or gift, the income of which is used or devoted for a specific purpose is called endowment fund. In other words, fund which provides permanent source of income to the institution is called endowment fund. The amount of such fund is invested in the government or non-government securities to create a source of regular income. The amount of income or interest received from the investment of endowment fund is used for a specific purpose, e.g., distribution of prizes to the meritorious students in the society, etc. An amount received for endowment fund is considered as capital receipt because such fund provides permanent source of income to the ‘Not for Profit’ concern. It appears on the receipts side or debit side of the Receipts and Payments Account. It is shown separately on the Liabilities side of the Balance Sheet. The amount of income or interest received from the investment of endowment fund is not credited to Income and Expenditure Account but to be added to endowment fund. Similarly all expenses relating to endowment fund are to be deducted from the amount of such fund.