some programs in C

program to find out if an alphabet entered is uppercase or not


#include
#include
void main (void)
{
char a;
printf("enter an alphabet:\n");
scanf("%c",&a);

if((a>='A')&&(a<='Z'))
printf("the character is uppercase\n");
else if((a>='a')&&(a<='z'))
printf("the character is lowercase");
getch();
}





Program to print even numbers up to 400:

# include
# include
void main (void)
{
int a;
for(a=2;a<=400;a=a+2)
{
printf("%d\t",a);
}
getch();
}



program to find out if a number is even or odd


#include
#include
void main (void)
{
int a,b;
printf("enter a number : ");
scanf("%d",&a);
b=a%2;
if(b==0)
{
printf("%d is an even number",a);
}
else if(b==1)
{
printf("%d is an odd number",a);
}
getch();
}


Program to find out if an entered number is prime or not


#include
#include
void main (void)
{
int a,b,c;
printf("enter a number : ");
scanf("%d",&a);
for(b=2;b<=a;b++)
{
c=a%b;
if(c==0)
break;
}
if(a==b||a==1)
printf("the numbr is prime");
else
printf("the number isn't prime");
getch();
}



Program to find the factorial of a number:


#include
#include

int fact (int);
int fact (int n)
{
int a;
if (n==0)
return 1;
else
a= n*fact(n-1);
return (a);
}


void main (void)
{
int a;
printf("enter a number: ");
scanf("%d", &a);
printf("\nthe factorial of %d is %d", a,fact(a));
getch();
}



all the best

some assignments and solutions of the bonds, debentures and leases

questions
9-41 Q. No. 1 On December 31, 2000, Alaska Fisheries, Inc . issued $ 16 million of 10-year, 10% debentures at par ( face value)
Required:
1. Compute the proceeds from issuing the debentures.
2. Journal entries for the issuer concerning i) issuance, ii) first semiannual interest payment and iii) payment of maturity value

9-42 Q. No. 2 On December 31 2000, Ruzuinski Construction issued $ 20 million of 10-year, 10% debentures. The market interest rate at issuance was 14%
Required:
1. Compute the proceeds from issuing the debentures
2. Journal entries concerning i) issuance ii) first semiannual interest payment and discount amortization, and iii) payment of maturity value ( Round all amounts to the nearest thousand)

9-44 Q. No. 3 On January 1st 2001 Metro Bus issued $ million of 5-year 11% debentures. The market interest rate at issuance was 12%
Required:
1. Compute the proceeds from the issuance of debentures
2. Journal entries concerning i) issuance ii) first semiannual interest payment and discount amortization, and iii) payment of maturity value ( Round all amounts to the nearest thousand)

9-46 Q. No. 4 On December 2000 Sayers Toyota Issued $ 3 million of 10 year , 12 debentures. The market interest rate at issuance was 10%.
Required:
1. Compute the proceeds from issuing the debentures.
2. Journal entries concerning i) issuance ii) first semiannual interest payment and discount amortization, and iii) payment of maturity value ( Round all amounts to the nearest thousand)

9-47 Q. No. 5 On January 1st 2001, Melbourne Travel issued $ 4 million of 5-year 10% debentures. The market interest rate at issuance was 8%.
Required:
1. Compute the proceeds from issuing the debentures.
2. Journal entries concerning i) issuance ii) first semiannual interest payment and discount amortization, and iii) payment of maturity value ( Round all amounts to the nearest thousand)

9-49 Q. No. 6 On December 1, 2000 Caribbean Cruise issued $ 20 million of 10-year, 12% debentures. The market interest rate at issuance was 14%. On December 31, 2001 (after all interest payments and amortization had been recorded for 2001), the company purchased all the debentures for $ 19 million. Throughout their life, the debentures had been by a large insurance company.

Required:
1. Compute the gain or loss on early retirement.
2. Show the appropriate journal entry
3. At what price on December 31, 2001 could Caribbean Cruise redeem the bonds and realize a $ 500000 gain?
9-50 Q. No. 7 On December 31, 2005, real estate holding company issued $ 10 million of 10-year, 12% debentures. The market interest rate at issuance was 12%. Suppose that on December 31 2006 (after all interest payments and amortization had been recorded for 2006), the company purchased all the debentures for $ 9 million. The debentures had been held by a large insurance company throughout their life.
Show all amount in thousands of dollars.
Required:
1. Compute the gain or loss on early retirement (extinguishment).
2. By using the balance sheet equation, present an analysis of the transactions on the issuer's books.
3. Show the appropriate journal entry4.
9-57 Q. No. 8 The Chicago Packing Company acquired packaging equipment on a capital lease. There were annual lease payments of $ 40,000 at the end of each of 3 years. The implicit interest rate was 18% compounded annually.
Required:
1. Compute the present value of capital lease.
2. Prepare journal entries at the inception of the lease and for each of the 3 years. Distinguish between the short term and long term classifications of the lease.



ans

Q. No. 1

1. $16 million. Proceeds equal face amount when issued at par.

Interest expense equals interest payment.

Interest payment = 1/2 x 10% x $16,000,000 = $800,000


2. Sample Journal Entries
Bond Transactions
(In Thousands of Dollars)

Issuer's Records

a. Cash 16,000
Bonds payable 16,000
To record proceeds upon issuance
of 10% bonds maturing on
December 31, 2010.

b. Interest expense 800
Cash 800
To record payment of interest.

c. Bonds payable 16,000
Cash 16,000
To record payment of maturity
value of bonds and their retirement.





Q. No. 2
1. Proceeds equal the present values of interest and maturity payments at the market rate:
Interest payment = 1/2 x 10% x $20,000,000 =
$1,000,000
PV of interest payments, $1,000,000 x 10.5940* $10,594,000
PV of maturity payment, $20,000,000 x .2584** 5,168,000
Proceeds $15,762,000
* From Table 9-3, 7% column, 20-period row
** From Table 9-2, 7% column, 20-period row

First semi-annual interest expense,
7% x $15,762,000 $1,103,340
Semi-annual interest payment, 5% x $20,000,000 1,000,000
Amortization of bond discount $ 103,340


2. Journal Entries
(In Thousands of Dollars)

Issuer's Records
a. Cash 15,762
Discount on bonds payable 4,238
Bonds payable 20,000
To record proceeds upon issuance
of 10% bonds maturing on
December 31, 2010.
b. Interest expense 1,103
Discount on bonds payable 103
Cash 1,000
To record payment of interest and
amortization of discount.
c. Bonds payable 20,000
Cash 20,000
To record payment of maturity
value of bonds and their retirement.

Q. No. 3

1. Proceeds equal the present values of interest and maturity payments at the market rate:

Interest payment = 1/2 x 11% x $10,000,000 = $550,000

PV of interest payments, $550,000 x 7.3601* $4,048,055
PV of maturity payment, $10,000,000 x .5584** 5,584,000
Proceeds $9,632,055

* From Table 9-3, 6% column, 10-period row
** From Table 9-2, 6% column, 10-period row

2. First semi-annual interest expense,
6% x $9,632,055 $577,923
Semi-annual interest payment 550,000
Amortization of bond discount $ 27,923

2. a. Cash 9,632,055
Discount of bonds payable 367,945
Bonds payable 10,000,000
To record proceeds upon issuance
of 11% bonds maturing on
January 1, 2006.

b. Interest expense 577,923
Discount on bonds payable 27,923
Cash 550,000
To record amortization of discount
and payment of interest.

c. Bonds payable 10,000,000
Cash 10,000,000
To record payment of maturity
value of bonds and their retirement.

Q. No. 4

1. Proceeds equal the present values of interest and maturity payments at the market rate:

Interest payment = 1/2 x 12% x $3,000,000
= $180,000
PV of interest payments, $180,000 x 12.4622* $2,243,196
PV of maturity payment, $3,000,000 x .3769** 1,130,700
Proceeds $3,373,896
* From Table 9-3, 5% column, 20-period row
** From Table 9-2, 5% column, 20-period row

First semi-annual interest expense,
5% x $3,373,896 $168,695
Semi-annual interest payment,
6% x $3,000,000 180,000
Amortization of bond premium $ 11,305





2. Journal Entries
(In Thousands of Dollars)

Issuer's Records

a. Cash 3,374
Premium on bonds payable 374
Bonds payable 3,000
To record proceeds upon issuance
of 12%bonds maturing on
December 31, 2008.

b. Interest expense 169
Premium on bonds payable 11
Cash 180
To record payment of interest
and amortization of premium.

c. Bonds payable 3,000
Cash 3,000
To record payment of maturity
value of bonds and their retirement.

9-47 (25-40 min.)

1. Proceeds equal the present values of interest and maturity payments at the market interest rate.

Interest payment = 1/2 x 10% x $4,000,000 = $ 200,000

PV of interest payments, $200,000 x 8.1109* $1,622,180
PV of maturity payment, $4,000,000 x .6756** 2,702,400
Proceeds $4,324,580
* From Table 9-3, 4% column, 10-period row
** From Table 9-2, 4% column, 10-period row

First semi-annual interest expense, 4% x $4,324,580 $172,983
Semi-annual interest payment 200,000
Amortization of bond premium $ 27,017


2.
a. Cash 4,324,580
Bonds payable 4,000,000
Premium on bonds payable 324,580
To record proceeds upon issuance
of 10% bonds maturing on
January 1, 2006.

b. Interest expense 172,983
Premium on bonds payable 27,017
Cash 200,000
To record amortization of premium
and payment of interest.

c. Bonds payable 4,000,000
Cash 4,000,000
To record payment of maturity value
of bonds and their retirement.

Q. No. 6.

1. To compute the gain or loss, first calculate the net liability at December 31, 2001:

Face amount $20,000,000
Proceeds 17,880,800 *
Discount at issuance 2,119,200
6/30/01 discount amortization (51,656) **
12/31/01 discount amortization (55,272) †
Bond discount at 12/31/01 $ 2,012,272

* ($1,200,000 x 10.5940) + ($20,000,000 x .2584)
** (7% x $17,880,800) – (6% x $20,000,000)
† (7% x ($17,880,800 + $51,656)] - (6% x $20,000,000)

The net liability is the face amount less the discount:
Face amount $20,000,000
Bond discount at 12/31/01 2,012,272
Net liability at 12/31/01 $17,987,728

The amount by which the cash payment for the debentures exceeds the net liability is the loss on early extinguishment. Amounts are in thousands:

Cash payment $19,000
Net liability at 12/31/01 17,988
Loss on early extinguishment of debt $ 1,012


2. Journal Entry
(In Thousands)
Issuer's Records
December 31, 2001
Bonds payable 20,000
Loss on early extinguishment of debt 1,012
Discount on bonds payable 2,012
Cash 19,000
To record open-market acquisition of
entire issue of 12% bonds for $19 million.

3. A gain arises if the bond is extinguished for less than the carrying value, $17,987,728 – $500,000 gives a price of $17,487,728.


Q. No. 7. Amounts are in thousands of dollars.

1. Net liability equals face or par value $10,000
Cash received 9,000
Difference, gain on early extinguishment of debt $ 1,000

2.
Analysis of Early Extinguishment of Debt
(In Thousands of Dollars)

A = L + SE

Issuer's Records
Cash
= Bonds Payable
Retained Income

a. Redemption,
December 31, 2006 –9,000 = –10,000 +1,000


Journal Entry

Issuer's Records

December 31, 2006
Bonds payable 10,000
Gain on early extinguishment of debt 1,000
Cash 9,000
To record open-market acquisition of entire
issue of 12% bonds for $9.0 million.




Q. No. 8


1. PVA = $40,000 x Annuity Factor for 3 years at 18%
= $40,000 x 2.1743
= $86,972

2. Equipment leasehold 86,972
Lease liability, current* 24,345
Lease liability, long-term 62,627
To record capital lease.

Analysis of first installment:
Total amount $40,000
Interest, .18 x $86,972 15,655
Principal portion, current liability $24,345

Total liability $86,972
Current liability 24,345
Long-term liability $62,627

Entry for straight-line amortization of the asset for each of three years:

Amortization of equipment leasehold 28,991
Equipment leasehold 28,991
To record straight-line amortization:
$86,972 ÷ 3 = $28,991.



Lease Payments and Liability Reclassifications

Year One

Interest expense 15,655
Lease liability, current 24,345
Cash 40,000
To record interest expense and
reduction of liability.

Lease liability, long term 28,727
Lease liability, current 28,727
To reclassify next installment of
long-term debt as short-term debt.

Analysis of second installment:

Total $40,000
Interest portion:
.18 x ($86,972 – $24,345)
= .18 x $62,627 = 11,273
Principal portion, current liability $28,727

Total liability $62,627
Current liability 28,727
Long-term liability $33,900



Year Two

Interest expense 11,273
Lease liability, current 28,727
Cash 40,000
To record interest expense and
reduction of liability.

Lease liability, long-term 33,900
Lease liability, current 33,900
To reclassify next installment
of long-term debt as short-term debt.

Year Three
Interest expense 6,100
Lease liability, current 33,900
Cash 40,000

Analysis of third installment:

Total amount $40,000
Interest, .18 x $33,900 6,102
Principal $33,898*

* Rounding causes this amount to differ from the $33,900 liability. These rounding errors occur because the present value tables are carried to four places only rather than to five or more places. This rounding causes the present value of the lease to be rounded at its inception.



all the best

unit 4 Accounting of Liabilities

Accounting of Current liabilities

In general a current liability is an obligation that will be satisfied within one year or one accounting period. A/C payable, Notes payable, Salary & Tax payable are the common example of current liability.

Account payable: - It represents current liability towards suppliers form whom the firm has purchased goods or service on credit. It is also known as sundry creditors.



Journals
When goods are purchased on credit/ account
Inventory / purchased a/c Dr.
To A/c payable a/c

When a/c payable is paid
A/c payable a/c Dr.
To cash a/c

Notes payable:- Notes payable , also called promissory notes is a written promise to a person or organization to pay a specific sum of money at a specified future date is called Notes payable. To the maker of the note it is a note payable. To the payee of the note it is a note receivable.







Accounting for notes payable

When interest is paid on the notes due date:-

When interest is deducted in advanced:-

Current maturities of long-term debt
Actually, this type of liabilities is long term but when payments of liabilities are partial and it may appear as short –term or current liability.

Example:- 2002 , January 1, a business house obtained a Rs. 2,00,000 loan form national bank. The term of the loan require to make payment to reduce the principle in the equal amount over 5 years, payable each January 1.
Journals
When the liabilities is classified as a current liability

When that portion is paid

Taxes payable



Other accrued liabilities
It includes any amount that has been incurred due to the passage of time but has not been paid as of the balance sheet date i.e. Wages, salary, interest payable.

Contingent liabilities: - The existence of the liability is uncertain and usually the amount is uncertain because contingent liabilities liabilities depend on some future event occurring or not occurring. The actual amount of liability must be estimated because we cannot clearly predict for future. Examples include liabilities arising form warranty and guaranty, lawsuits, income tax disputes etc.


Journals
Warranty expenses a/c Dr.
To estimated liability a/c
Balance sheet presentation


Leases

A lease is a contractual arrangement between the owner of an asset (called lessor) and the user of the assets (called lessee). Under the contract the lesser grants the lessee the right to use the assets for an agreed period of time; in turn the lessee agrees to make a series of periodic payment, called lease rent, to the lessor.

Leasing simultaneously provides for the use of assets and their financing. A common example of lease arrangement is the rental of apartment. The tenant is the lessee and the property owner is the lessor.

Types of Lease

From the viewpoint of the lessee there are two types of lease agreements, operating lease and capital lease.

Operating lease
In an operating lease, the lessee acquires the right to use an asset for a specified period of time. The lessee is not required to record the right to use the property as an asset or to record the rental obligations as liability. Therefore, operating lease is an off-balance-sheet financing but requires to mention in the financial statement as footnotes about the lease rental obligation. By escaping the balance sheet, the lease does not add to debt or impair the debt-to-equity ratio



Capital lease
The Capital Lease sometime also called Financial Lease under which the lessee acquires sufficient right of ownership and control of the property to be considered its owner. This lease is called capital lease because it is fully capitalized over the life of the lease agreement recorded on the balance sheet.

In typical Capital Lease arrangement the following procedure are undertaken.













In the first stage the firm that requires the assets selects the specific item and negotiates for price and delivery term with supplier (or manufacturer) of the assets and then negotiates with a leasing company for financing. Once the leasing terms are set, the leasing company purchased the selected item of assets from the manufacturer or distributor. When the equipment is purchased, the user firm simultaneously executes the lease agreement

To be a lease agreement, a capital lease, it should meet one or more of the following criteria:
• The lease transfers ownership of the property to the lessee at the end of the lease term.
• The lease contains a bargain purchase option to purchase the assets at an amount lower than its fair market value.
• The lease term (period) is 75% or more of the property’s economic life.
• The present value of the minimum lease payment (lease rental payments) is 90% or more of the fair market value of the property at the inception of the lease.
However, if none of the criteria is met, the lease agreement is considered to be a operating lease.

Features Operating Lease Capital Lease
1 Ownership Does not transfer to the lessee at the end of the lease term. Transfers to the lessee at the end of the lease term
2 Amortization Do not amortize the asset value fully by the payments of the lease rent over one lease term. Amortized the asset fully over one lease term by the lease rent
3 Repair and maintenance service Provided by the lessor. Does not provide by the lessor.
4 Cancelable It gives the lessee the right to cancel the lease contact before expiring the leases date if it does not require the assets more.
Does not cancelable
5 Accounting Record It is a off-balance-sheet item and do not required to record in the balance sheet It is balance sheet item and reported in balance sheet.

Capital lease and its accounting treatments
In capital lease:
 The lease assets simultaneously presented in the balance sheet as lease assets and the same amount is presented as lease obligation in liabilities section.
 The Lease Assets Account is a long-term asset similar to plant and equipment and therefore it is depreciable over the life of the asset.
 The lease obligation is amortized over the lease period similar as to bond amortization with effective interest method.
 The periodic lease payment includes both repayment of lease obligation (or principal) and interest on the obligation. And reported in income statement.

Illustration
Assume that on January 1, 1998, lessee signs a lease agreement with lessor Dealer to lease a car. The term of the agreement, specify that lessee will make annual lease payment of Rs 4000 per year for five years payable each December 31. Assume also that the lease specifies that at the end of the lease agreement, the title of the car is transferred to lessee firm.

It is a capital lease because it meets the criteria of capital lease of transferring the ownership of asset at the end of lease agreement. Now the lessee should report the lease in financial statement as;

It should report the present value of lease payments as asset and as lease obligation simultaneously. Assume that the interest rate is 8% then, the present value of lease payment is Rs 15972 (Rs 4000 * 3.993). Now, the accounting effect of capital lease on lessee firm will be as,

Transaction Assets = Liabilities + Owners’ equity
Acquired car as capital lease Rs 15,972
leased asset = Rs 15,972
lease obligation + -

The leased asset account is a long-term asset similar to plant and equipment and represents the fact that lessee has acquired the right to use and retain the asset. Thus, it is to be depreciated over the life. While depreciating the car depreciation expenses a/c is debited and accumulated depreciation-leased asset is credited.

Transaction Assets = Liab. + O.E Revenue - expenses
Charge of annual depreciation on leased asset i.e. car (15972/5) (Rs 3194)
accumulated dep.- car = - + - (Rs 3194)
depreciation expenses

On each December 31, the lessee company must make a lease rental payment of Rs 4000 to lessor Dealer. This lease payment involves both repayment of a portion of principal and interest expenses on the principal. This should be separated for each year. For this purpose the effective interest method is used as bond amortization. And this process is known as lease amortization.









Lease Amortization Schedule: Effective Interest Method.

Date (I)
Lease
Payment (II)
Interest
Expenses
(8%) (III) = I - II
Amortization
of lease obligation (IV)
Lease obligation
Jan 1, 1998 - - - Rs 15,972
Dec 31, 1998 Rs 4,000 Rs 1,278 Rs 2,722 Rs 13,250
Dec 31, 1999 Rs 4,000 Rs 1,060 Rs 2,940 Rs 10,310
Dec 31. 2000 Rs 4,000 Rs 825 Rs 3,175 Rs 7,135
Dec 31, 2001 Rs 4,000 Rs 571 Rs 3,429 Rs 3,706
Dec 31, 2002 Rs 4,000 Rs 294 Rs 3,706 Rs 0

At the end of each year (i.e. 31), the following accounting treatment is made on the book of lessee firm.

For Dec 31, 1998; similarly for other years
Transaction Assets = Liab. + O.E Revenue - expenses
For the payment of annual lease rental (Rs 4,000)
cash = (Rs 2,722)
Lease obligation + - (Rs 1,278)
Interest expenses

Balance sheet presentation as on 31 December 1998

Plant equipment and machinery:
Leased Car Rs 15,972
Less: accumulated dep. – leased Car Rs 3,194
Rs 12,778

Current liabilities:
Lease obligation
(To be met within one year) Rs 2,940
Long-term liabilities:
Lease obligation
(To be met in after one year in future) Rs 10310

unit 3 Accounting of Assets

Accounting for Non-current Assets



Capital expenditure: - A Capital expenditure is a cost that is added to the acquisition cost of the assets.
Or
Capital expenditure is that type of expenditure that has been incurred for the purpose of obtaining a long-term advantage for the business.

Purchases of fixed assets (Building, furniture, Plant), acquisition cost such as transportation cost custom duty, erection charge are also treated as capital expenditure.


Revenue expenditure: - A Revenue expenditure is not treated as part of the cost of the assets but as an expense on the income statement. For example, manufacturing cost, administrative cost repair cost. An item of expenditure whose benefit expires within a year or expenditure that merely seeks to maintain in the business or keep asset in good working condition is called revenue expenditure. Such expenditure does not increase the efficiency of the firm, nor does it result in the acquisition of something permanent.


Note: Treatment of expenditure on existing manufacturing facilities depends on the benefits accrued. If the expenditure results in an increase in capacity, it is capitalized. Otherwise, it is treated as revenue expenditure.




Deferred revenue expenditure: - It is that class of revenue expenditure, which is incurred during an accounting period, but is applicable either wholly or in part to future period.


Type of operating assets

Operating assets also known as fixed or long-lived, are the major productive assets of the company. Normally operating assets are used to produce the goods or services for sales. Company has been invested their capital to the operating assets, which is a significant value of company.

Operating assets are normally presented on the balance sheet in one category for property, plant, and equipment and a second category for intangibles.

Operating assets should be presented at original acquisition cost less accumulated depreciation or amortization.

Generally we can classify on 5 types of operating assets.
Property: - Land and building, furniture, computer
Plant: - Machine, transportation equipment
Equipment: - Small, machine, tools etc.
Natural resources: - Coal, electricity oil
Intangible assets: - Goodwill, patent, right, Trademark

Acquisition cost of operating assets

Acquisition cost also known as original cost should include all of the cost that are normal and necessary to acquire the assets and prepare it for its intend use. But unrelated cost should not include in acquisition process.


Acquisition cost for Property, Plant, Equipment =

Purchase price
Add, Taxes paid at time of purchase (sales taxes)
Add, Transportation charge
Add, Installation costs.



Acquisition cost for Property, Plant, Equipment on Group purchase.

Capitalization of interest



Depreciation

Depreciation is the allocation of the cost of an asset to the periods that are expected to benefit from its use. So Depreciation is a process of allocation, not valuation. All property, plant and equipotent, except land have a limited life and declined in usefulness over time.

Therefore accountant must estimate the estimate the decline in usefulness of operating asset and allocate the acquisition cost over their useful lives. This allocation process is called depreciation.

Major Causes of depreciation are: -

1) Physical deterioration: - Wear and tear
2) Inadequacy for future needs:-It refers inability to produce enough products or provide enough services to meet current demands.
3) Obsolescence: - It refers decline in usefulness brought about by inventions and technological process.



Steps of depreciation process

1) Estimating the depreciable base/depreciable amount.
2) Estimating the useful service life.
3) Choosing an appropriative cost allocation method.

# Residual value/Salvage value/scrape value: - It is that type of value which the assets can be disposed of at the end of its useful life.

# Book value: - It is defined as its acquisition cost – total amount of accumulated depreciation

Methods of depreciation

1) Straight-line method
According to this method the depreciable amount of the asset is distributed equally over the life of asset.
Depreciation expenses = Acquisition cost – Residual value/Life


When depreciation is charged: -

Depreciation Expenses-. …(Name of the asset) a/c
To Accumulated depreciation
(………………………………)

Units –of production method
According to this method, the depreciable amount of an assets is divided by the total estimated output during its useful life to obtain the unit depreciation rate.

Annual depreciation Expenses = Depreciation per unit * units produced in current year.




Accelerated deprecation method

According to this method, depreciation is provided high amount in early yeas than in the later ones.

Double declining –balance method: -
If rate is not given
Step 1- 100%/ No. of life
Step 2 – Rate *2
Depreciation + Beginning book value * Rate

Sum of the year's digits method
Sum of digits = N* (N+1)/2
Where N= Life of the asset
Depreciation = (Acquisition cost- Residual value)* Rate




Intangible Assets
Intangible assets have no physical features, and it is not non-current asset. It is appear in separate long-Term assets section of the balance sheet, entitled" Intangible assets".
Generally Intangible assets are created form government authority or by legal contract such as, patents copyright, Trademark, and another form Management know-how, such as goodwill.

Some important Intangible Assets


Acquisition cost of intangible asset Page no. 379





Amortization of intangible assets
Intangible assets should be amortized over its legal life or useful, whichever is shorter.



When intangible asset are amortized:-
Name of the intangible asset expenses a/c Dr.
To Accumulated amortization exp. A/c
(………………………………………………)
When intangible assets are worth less before its life
Loss on –Name of intangible asset a/c Dr.
Accumulated amortization - Name of intangible asset Dr.
To Name of intangible asset a/c





Operating Assets: Natural Resources


Mines oil, gas and forest are natural resources classified as fixed assets in the balance sheet. Natural Resource has one major feature that is: the resource is consumed as it is used.

Acquisition cost of Natural Resources should be carried in the property, plant and equipment categories of the balance sheet as an operating asset.

Acquisition cost should include the cost of acquiring the natural resource and the costs necessary to prepare the assets for use.

When a natural resource is used or consumed, it should be treated as an expense. The process of recording the expenses is called depletion.

Acquisition cost- Residual Value
Depletion Per unit= ____________________________
Total unit in asst's life

Depletion Expenses= Depletion Per unit x unit produced or consumed in a year

unit 2 cash and cash equivalents

Bank Reconciliation Statement (BRS)

A Bank Reconciliation Statement is a statement reconciling the balance as shown by the balance per bank statement and balance per book.
The main objectives of preparing such a statement is to known the causes of difference between the two balances. Difference between the two accounts are investigated and, if necessary journal entries are passed.

Some important term that used in BRS

Outstanding check /canceled check: Check issued but not presented for payment
Deposit in transit: - Check paid in to bank but not credited by bank.
NSF check: Not Sufficient Fund

Service charge: Service Charged by Bank

Notes and interest collected by bank on
behalf of customers directly credited in
account

Interest earned: Interest earned in bank

Bank Reconciliation Statement

Balance per Bank statement Balance per the book
# If bank a/c is debited than Balance is decrease
# If bank a/c is credited than Balance is increase

• If company's cash book is debited than balance increase
• If company's cash book is credited than balance decrease





• Some time, payment by check is non-practical.
• So payment is made in the form of currency.
• Hence a small amount of fund set aside for this purpose is called petty cash Book.


*When petty cash fund is established: -

Petty cash a/c Dr.
To Cash
(To established a petty cash fund)

*When expenses are disbursed and cash over and short
All expenses a/c Dr.
Cash over or short a/c Dr.
To Cash a/c
(To replenish a petty cash fund, record expenses and Rs. ……, Cash shortage or over)



Example:












Assignment
Page no. 344,7-3
Page no.348, 7-2





Account Receivable

The current asset resulting from a sale on credit with an oral promise from the customer to pay within a specified period of time is called an account receivable.

Or Amount owed to the business by its customers for goods and services sold to them on credit, that is called account receivable. It is also called debtors. In other word we can say assets created by selling goods and services on credit. Generally there is no charge interest in A/c receivable and often gives the customers a discount for early payment.

Example: 2/10net30

Valuation of Accounts Receivable: -

1 Direct write-off method: - (or Direct method)

-When credit sales are made: -
Account Receivable- (Name of the person)Dr.
To Sales revenue
(To record sales on credit)

- When credit sales amount is not collected and write off: -
Bad debt expenses Dr.
To Account receivable- (Name of the person or ` company)
(To write off- - - -Account.)






2 Allowance Method: - According to this method, it is estimated amount of bad debts before they actually occur.

Bad debts expense Dr.
To Allowance for doubtful Accounts
(To record estimated bad debts for the year.)


Account receivable - - - - - -
Less, allowance for doubtful account – - - - - -
Net account receivable --------

Methods to account for uncollectible amount or Estimating Bad debt

1) Percentage of net credit sales method: -

In this method uncollectible amount is estimated as % of the credit sales of an accounting period

At the end of accounting period the following journal entry has been passed.

Bad debts expenses Dr.
To Allowance for doubtful account
(To record estimated bad debts)

2 Percentage of account receivable method:-

According this method uncollectible account are estimated as a percentage of debts appearing on a firms balance sheet


Bad debts expenses ……*
Allowance for doubtful account …….*
(To record estimated bad debts)

*Amount for bad debts expense =
Calculated estimated bad debt – credit balance in allowance for doubtful a/c

Balance sheet presentation

Total account receivable ……….
Less, Allowance for doubtful account ……….
(Estimated bad debts)
Net realizable value ………



Aging of account receivable: -
It is an alternative method of % of account receivable method. According to this method it categorizes the various accounts by length of time outstanding.

See, page no. 331






Note Receivable

A note (also called a promissory note) is a written promise to repay a definite sum of money on demand or at a fixed or determinable date in the future.

Promissory notes normally require the payment of interest for the use of someone else's money.

The bill/ note is addressed to the buyer (debtor), who is known as the drawee or maker. And the person to whom the bill is payable is the payee.

Some important terms under promissory notes

Principal: - The amount of cash received by the maker when a promissory note is issued.

Maturity date: - The date that the promissory note is due.

Term:- The period of time between the date is issued and the date is matures.

Maturity Value: - The total amount of cash the maker is to pay the payee on the maturity date of the note.

Interest: - Difference value between principal and maturity value.


Interest bearing notes

Notes in which an interest rate is explicit stated are called interest-bearing notes.
Journals

#When promissory notes is signed or received; -
Notes receivable a/c Dr…
To sales revenue

#When interest is earned before at the end of accounting period:-
Interest receivable A/c Dr…
To Interest revenue…

#When principal and interest are collected; -
Cash a/c Dr…………….
To Notes receivable …
Interest revenue..
Interest receivable..
(To record collection of promissory note)

Non-interest bearing notes (Discounted note)
Notes in which interest is implicit in the agreement are called non- interest bearing notes or discounted note.
Journals:-
#When notes is signed;-
Cash a/c Dr…
Notes receivable a/c Dr………..
To discounted on notes receivable..
To sales revenue ……
(To record sales in exchange for note)

# When interest is earned before maturity date and fiscal year.
Discount on notes receivable a/c Dr..
To interest revenue….
(To record interest earned for …months)

#When maturity value and interest earned is collected:-
Cash a/c Dr…
Discount on notes receivable a/c Dr..
To Notes Receivable..
To interest revenue ……
(To record collection of note)

account unit 1

.The Nature of Inventory

• also called stock
• Tangible Assets
• Current Assets that carried in the balance sheet after valuation.
• It is use for sale in the ordinary course of action
• Or in the process of production such for sales
• Or for consumption in the production of goods or services for sale.

Relationship between Types of Businesses and Inventory Costs

Type of Business Inventory Costs included Inventory

tailer/ Merchandise Cost to purchase

Wholesaler Inventory

Raw Materials Cost of materials before

entered

in to production

Cost of direct materials used,

Manufacturer Work- in –Process Direct labor, and overhead in

unfinished items.

Finished Goods Cost of completed, but unsold, items

The Cost of good sold Model

Cost of goods sold is recognized as an expense under the matching principle.

It represents the cost associated with the merchandise with revenue of the period.

Beginning inventory what is on hand to start the period

+Purchasewhat was acquired for resale during the period

= Cost of goods available for sale The "pool" of cost to be distributed

- Ending InventoryWhat was not sold during the period and therefore is on hand to start the next period

= Cost of goods soldWhat was sold during the period

Description Item

Merchandise on hand Beginning Inventory

to start the period

Acquisitions of merchandise of + Cost of goods purchased

merchandise during the period

The pool of merchandise = Cost of goods

available for sales available for sale

during the period

Merchandise on hand - Ending inventory

at end of period

The expense recognized on

the income statement = Cost of goods sold

Inventory Errors

· The importance of inventory valuation to the measurement of income can be illustrated by considering errors.

· Many different types of inventory errors exist.

- Incorrectly adding a column total

- Wrong count of physical inventory at the end of year.

- Cutoff problems at year end

- Good are held on consignment

Effect of inventory error on the income statement.

Reported

Sales Rs.500

Cost of good sold:

Beginning inventory 100

Add, Purchase 200

Cost of good available for sale 300

Less, ending inventory 50

Cost of good sold 250

Gross Margin 250

Operating Expenses 100

Net income 150

But correct ending inventory was Rs. 25, calculate the corrected Net Income.

( Refer to Page No. 267)

Inventory costs include

· Any freight costs incurred by buyer

· Cost of insurance for inventory in transit

· Cost of storing inventory before selling

· Excise and sales taxes

Problem-1

From the following information of Tabor Hardware

Stores, Calculate the cost of goods sold for dec.1998.

Inventory, January 1, 1998 $ 15,000/

Inventory, December 31, 1998 $ 18,000

Purchases $ 65,000

Purchase returns and allowances $ 1,800

Purchase discounts $ 3,700

Transportation-in $ 3,500

Inventory costing Method

Inventory costing methods with periodic system:

Ø Periodic inventory System (PIS) is that a system of accounting for inventories in which the ending inventories is determined at the end of an accounting period by taking a physical inventory.

- The PIS relies on a count of inventory on hand at the end of the year to allocate costs between ending inventory and cost of goods sold.

- It is easy to record and calculate

- It has lack of information about the number of items of inventory during the year.

Example:

February 4 200 units purchased @ $1 =$200

October 13 200 units purchased @ $1.5 =$300

Suppose the wholesaler sells 200 units during the year.

• Which 200 units did the wholesaler sell?

#The $1 units

#Or The $1.5 units

#Or some combination of each.

Units Units cost Total cost

Beginning Inventory 500 $10 $5,000

Purchases

January 20 300 11 3,300

April 400 12 4,800

September5 200 13 2,600

December 12 100 14 1,400

Total Purchases 1,000 units $ 12,100

Available for sales 1,500 Units $17,100

Units sold 900 Units ?

Units in ending inventory 600 units ?

Ø What portion of the cost of goods available for sales of $ 17,100 should be assigned to the 900 units sold?

Ø What portion should be assigned to the 600 units remaining in the ending inventory?

a) Specific Identification Method

· This method assigns specific costs to each units sold and each unit on hand.

· This method is suited to inventories of high-value items such as jewellery, diamond and automobile.

b) Weighted Average Cost Method

· This method assumes that the goods available for sale are homogeneous or same unit cost.

Cost of goods sold for Sales

Weighted Average =

Units Available for Sales

Value of ending inventory = Weighted Average x Number of units on hand

c) First –in, First out (FIFO) Method

• FIFO method assumes that the first units acquired are the first units sold. Thus the ending inventory consists of the most recent purchases of the period.
• This method is suitable for maintaining a fresh stock of product.
• In last times of rising prices, FIFO method provided highest Net profit so, it does not match properly costs with revenues.

d) Last–in, First out (LIFO) Method

· It assumes that the last units acquired are the first units sold. Therefore the cost of the units in the ending inventory is that of the earliest purchases.

· Generally, This method provides realistic profits than FIFO method.

· According to the LIFO method the balance sheet value of inventories may be outdated and unrealistic.

Methods of inventory estimation

1) - Gross profit Method: -

*Determine the gross profit: -

Net sales x Gross profit ratio

* Determine cost of goods sold: -

Net sales – Gross profit

* Determine cost of goods available for sale at time of accident

Beginning inventory + purchase.

* Determine inventory at time of the accident

Cost of goods available for sales- Cost of goods sold

* Determine amount of inventory destroyed:

Inventory at time of accident- Inventory not destroyed

When amount received form insurance company:

Loss on insurance settlement a/c Dr.

Cash (from insurance company) a/c Dr.

Inventory a/c Cr.

(To record the insurance settlement form accident)

2) Retail Inventory Method (For interim statement)

Cost Retail

Inventory, January1 …… ……

Add: Net purchases January …… …….

Goods available for sale …… …….

Ratio of cost to retail:…………..

Less Net sales in January …….

Inventory, January 31, at retail ……..

Times: Cost to retail ratio ……

Inventory, January 31, at cost ……

Retail Inventory Method (For year end statement)

Cost Retail

Inventory, January1 …… ……

Add: Net purchases during the ye ar … …….

Goods available for sale …… …….

Ratio of cost to retail:…………..

Inventory, December 31, at retail value,

per a physical count ……..

Times: Cost to retail ratio x ……

Inventory, December 31, at cost ……

*Honeycomb, a retailer hired a temporary services to count year-end inventory at the retail price marked on the goods. The following information is available.

Cost Retail

Sales $12,78,0000

Beginning inventory $ 80,000 1,60,000

Purchase 64,00,000 1,28,00,000

Ending inventory (per count) 1,50,000

Required

a) Ignoring the inventory count at retail value, estimate the amount of ending inventory you would expect Honeycomb to report on its year end balance sheet.

* The same company count inventory at January 31 The following information is available.

Cost Retail

Inventory, January 1 $ 7,500 9,750

Purchase January 40,500 50,250

Net sales in January 43,000

Lower of Cost or Market Rule Method (LCM)

• The lower of the total cost or the total market value for the entire inventory could be reported.
• The lower of the cost or market value for each individual product or item could be reported.
• A group approach could be used.

# A company is free to choose any one of these approaches in applying the lower of cost or market (LCM) rule.

Problem

Trendy, a clothing retailer sells three product lines. Due to a decline in popularity of the purple line, its replacement price has decreased, and Trendy anticipated declines in its selling price. Trendy's year-end inventory count provides the following data:

Product line original cost cost to replace units on hand

Black $4.5 $6 2,000

Purple 6 2.88 1,000

Red 7.5 9 500

Compute the ending inventory, applying the lower of cost or market rule

a) On a total basis.

b) On an item-by item basis.

Page no. 287

Journal Entries for the two systems

Periodic system Perpetual system

*When goods purchased

Purchase a/c Inventory a/c

Account payable Account payable

*When goods returned

Account payable Account payable

Purchase return Inventory

and allowance

*When goods sold

Account receivable Account Receivable

Sales revenue Sales revenue

Cost of goods sold

Inventory